Aurora Credit Services, Inc. v. Liberty West Development, Inc – Case Brief Summary (Utah)

In Aurora Credit Services, Inc. v. Liberty West Development, Inc., 970 P.2d 1273, 1280 (Utah 1998), the Court permitted a shareholder that had acquired its shares by foreclosing its security interest in them to bring a direct action against a closely held corporation with a limited number of principals, four original shareholders, and a CEO.

The plaintiff shareholder claimed that the corporation and CEO had unlawfully transferred an office building, the sole asset of the corporation, to a partnership in which the CEO had an interest.

The Court recognized in Aurora that "the rationale for requiring an action to proceed derivatively is often absent in a closely held corporation, where it is unlikely that there is a disinterested board because the majority shareholders are often the corporation's managers. As well, the concept of a corporate injury that is distinct from any injury to the shareholders approaches the fictional in the case of a firm with only a handful of shareholders." Id. at 1280-81.

The Court justified the holding in part by aligning it with "a growing trend to allow minority shareholders of a closely held corporation to proceed directly against majority shareholders." Id. at 1280.