Wolfe v. American Sav. and Loan Assoc. of Florida

• Decision Date: 14 March 1989
• Docket Number: 88-1699 and 88-1700,Nos. 88-1698,s. 88-1698
• Citation: 14 Fla. L. Weekly 684,539 So.2d 606
• Parties: 14 Fla. L. Weekly 684 Gerald WOLFE, Victor J. Farmer and Milton Berns, Appellants, v. AMERICAN SAVINGS AND LOAN ASSOC. OF FLORIDA, Morris N. Broad, Shepard Broad, Edward P. Mahoney, James H. Brennan, Jr., M. Trinita Flood, O.P., Stephen M. Lazovitz, Sheldon Lelchuk and Louis G. Lytton, M.D., Appellees.
• Court: Florida District Court of Appeals

Page 606

539 So.2d 606

14 Fla. L. Weekly 684

Gerald WOLFE, Victor J. Farmer and Milton Berns, Appellants, v. AMERICAN SAVINGS AND LOAN ASSOC. OF FLORIDA, Morris N. Broad, Shepard Broad, Edward P. Mahoney, James H. Brennan, Jr., M. Trinita Flood, O.P., Stephen M. Lazovitz, Sheldon Lelchuk and Louis G. Lytton, M.D., Appellees.

Nos. 88-1698, 88-1699 and 88-1700.

District Court of Appeal of Florida,

Third District.

March 14, 1989.

Steinberg & Merlin, Miami Beach, Berger & Montague and Stanley Wolfe, Philadelphia, Pa., for appellants.

Coll, Davidson, Carter, Smith, Salter & Barkett and Richard Smith, Steel, Hector & Davis and Lewis F. Murphy, Miami, for appellees.

Before SCHWARTZ, C.J., and NESBITT and FERGUSON, JJ.

SCHWARTZ, Chief Judge.

The appellants are holders of preferred stock in American Savings & Loan Association of Florida (ASL). They brought consolidated class actions for themselves and the remaining preferred shareholders ¹ to secure damages which were allegedly caused those stockholders by a 1987 merger of ASL into other corporations. The merger resulted in the survival of the ASL entity with a markedly altered equity and corporate structure. The plaintiffs sued ASL itself and its officers and directors on two separate, but related theories:

(a) It was claimed that the fact that under the terms of the merger, the preferred stock no longer bore a right of conversion into common stock violated the corporation's prior agreement that the preferred carry the convertibility feature.

(b) It was alleged that the merger arrangement undertaken by the ASL officers and directors, which allegedly had the effect of unjustifiably decreasing the value of the preferred stock, was in breach of the fiduciary duty they owed that, as every other, class of shareholders. Liebschutz v. Schaffer Stores Co., 276 A.D. 1, 93 N.Y.S. 2d 125 (1949); see Security Nat'l Bank v. Peters, Writer & Christensen, Inc., 39 Colo.App. 344, 569 P.2d 875 (1977).

Without reaching the merits of these contentions in any way, the trial judge held that the cases could not be maintained, as they had been asserted, as "direct" actions against the corporation and its officers and directors, and, contrariwise, that they were cognizable only as derivative actions subject to the requirements of section 607.147, Florida Statutes (1987), with which the plaintiffs did not comply. Accordingly, the amended complaints were dismissed without prejudice to the filing of derivative actions. The plaintiffs appeal from this order and we reverse.

In our view, it is clear that both causes of action asserted below are direct and individual rather than derivative in nature. As the distinction between the two types of actions has been simply but accurately expressed,

[a] derivative suit [is] defined as an action in which a stockholder seeks to enforce a right of action existing in the corporation. Conversely, a direct action, or as some prefer, an individual action, is a suit by a stockholder to enforce a right of action existing in him. What these definitions attempt to convey is that a stockholder may bring a suit in his own right to redress an injury sustained directly by him and which is separate and distinct from that sustained by other stockholders. (footnotes omitted)

8 Fla.Jur.2d Business Relationships § 361 (1978); see Alario v. Miller, 354 So.2d 925 (Fla. 2d DCA 1978); Citizens Nat'l Bank v. Peters, 175 So.2d 54 (Fla. 2d DCA 1965). See generally 12B W. Fletcher, Cyclopedia of the Law of Private Corporations § 5908 (rev. perm. ed. 1984). Each aspect of the present case falls decisively on the direct-individual side of this dichotomy.

From the plaintiffs' point of view, the claims involve allegations of injury to their separate, individualized interests as preferred shareholders alone which would necessarily inure to their own benefit, rather than--as is true of a derivative claim--that of the corporation itself. Carrying the argument one step further, far from requiring the corporation to make its own claim by asserting that claim on its behalf, which is the essential object of a derivative action, Koster v. Lumbermens Mut. Casualty Co., 330 U.S. 518, 523, 67 S.Ct. 828, 831, 91 L.Ed. 1067, 1073 (1947); Lynam v. Livingston, 257 F.Supp. 520, 524 (D.Del.1966); see Talcott, Inc. v. McDowell, 148 So.2d 36 (Fla. 3d DCA 1962); see also 12B W. Fletcher, Cyclopedia of the Law of Private Corporations § 5908, and cases cited, ASL is, as to the breach of contract action, actually the adverse party which must pay it if it loses. And, with respect to the claim against the officers and directors as fiduciaries, it can in no sense be said that the corporation qua corporation has been harmed by those allegedly wrongful actions, so as to invoke the "derivative" doctrine which has as its foundation the redress of such a corporate injury.

From every point of view, therefore, this cause is correctly maintained as an individual or direct action for the benefit of those purportedly harmed, the preferred shareholders, and is therefore necessarily not one which may, much less must, be brought on behalf of the corporation as a derivative case. Eisenberg v. Flying Tiger Line, Inc., 451 F.2d 267 (2d Cir.1971) (action against directors for violation of alleged duty owed individually to stockholders not to merge corporation...