McLaughlin v. Pannell Kerr Forster

• Decision Date: 26 July 1991
• Citation: 589 So.2d 143
• Parties: Dr. M.V. McLAUGHLIN, et al. v. PANNELL KERR FORSTER, et al. 1900411.
• Court: Alabama Supreme Court

Page 143

589 So.2d 143

Dr. M.V. McLAUGHLIN, et al. v. PANNELL KERR FORSTER, et al.

1900411.

Supreme Court of Alabama.

July 26, 1991.

Rehearing Denied Oct. 11, 1991.

James J. Duffy, Jr. of Inge, Twitty & Duffy and Richard Bounds of Cunningham, Bounds, Yance, Crowder & Brown and Dennis P. McKenna of Prince, McKean, McKenna & Broughton, Mobile, for appellants.

Broox G. Holmes and David A. Bagwell of Armbrecht, Jackson, DeMouy, Crow, Holmes & Reeves, Mobile, for appellees.

HOUSTON, Justice.

This action was filed by a group of stockholders of Ono Development Company, Inc., and Ono East, Inc. ("the corporations"), on behalf of themselves and the other stockholders of the corporations, and, derivatively, on behalf of the corporations, against Pannell Kerr Forster, an independent certified public accounting firm and two of its CPA employees, to recover damages for breach of contract and fraud. The trial court entered a summary judgment for the defendants, and the plaintiffs appealed. ¹ We affirm.

The plaintiffs, all of whom voluntarily sold their stock back to the corporations while this action was pending, alleged that the defendants had failed to disclose in annual audits of the corporations that certain commissions were being improperly paid to and by three of the corporations' principal officers and directors; that, as a result of the defendants' actions, the corporations had been "deprived of the use of large sums of money over an approximate 10-year period"; and that the suit had been filed only after each corporation's board of directors had rejected a request that the corporation file suit to recover damages from the defendants. ² The defendants, relying primarily on Shelton v. Thompson, 544 So.2d 845 (Ala.1989), contend that the summary judgment was proper. They argue, among other things, that the plaintiffs lacked standing to sue on their own behalf because the alleged wrongs were to the corporations, and that the plaintiffs lacked standing to sue on behalf of the corporations because they had voluntarily sold their stock. The plaintiffs contend that they had standing to sue on their own behalf because one of the two remaining stockholders in the corporations "assigned" to them all of "his right, title and interest to and all of the monies now due or which may hereafter become due him" in this suit, "together with all of the rights of action accruing or which may hereafter accrue thereunder," and "empowered" the plaintiffs "in their own name and capacity, to do and perform all acts, matters and things touching the premises in like manner to all interests and purposes and, if necessary, to sue for the recovery of such damages as may be awarded" in the suit. The plaintiffs contend that they also had standing to sue on behalf of the corporations because, they argue, they retained equitable interests in the stock of the corporations by virtue of the assignment.

In Shelton v. Thompson, supra, as in the present case, the plaintiffs filed both derivative and personal claims. In Shelton, as here, the individual damages sought to be recovered by the plaintiffs were incident to their status as stockholders. In Shelton, this Court held:

"We affirm that portion of the summary judgment as it relates to the plaintiffs' claim on their own behalf. Whatever damages the plaintiffs may have suffered were incident to their status as stockholders; and whatever recovery may be effected by the derivative action inures to the benefit of all innocent stockholders and not to the plaintiff stockholders individually. Green v. Bradley Construction, Inc., 431 So.2d 1226 (Ala.1983); see, also, Stevens v. Lowder, 643 F.2d 1078 (5th Cir.1981)."

544 So.2d at 847. Based on the rule enunciated in Shelton, we conclude that the summary judgment on the plaintiffs' individual claims in the present case was also proper. ³ The "assignment" in no way altered the primary nature of the damages sought to be recovered by the plaintiffs--damages for the loss of corporate funds.

This Court in Shelton also stated as follows:

"The defendants' first 'lack of standing' contention is that, as a matter of substantive law, once the plaintiffs lost their stockholder status in [the Bank of Lexington], they lost their standing to prosecute a derivative action. Unquestionably, this is the rule where, under ordinary circumstances, the stockholder voluntarily divests himself of any interest in the corporation. Of course, where a stockholder sells his stock, either to the corporation or to a third party, that stockholder, generally speaking, can not claim standing to maintain a derivative action on behalf of the corporation in which he no longer owns an interest. Green v. Bradley Construction,...