Corporate Mismanagement Cases Utah
Derivative actions attempt to enforce rights belonging to a corporation. See Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc., 970 P.2d 1273, 1280 (Utah 1998).
Claims of mismanagement, breach of fiduciary duties, and appropriation or waste of corporate opportunities are claims that the corporation has been injured.
Accordingly, the cause of action belongs to the corporation and shareholders may sue only on its behalf. See id. (quoting Richardson v. Arizona Fuels Corp., 614 P.2d 636, 639 (Utah 1980)).
Even though shareholders may suffer indirect injuries due to fraudulent acts on the part of corporate officers, they generally do not have a direct cause of action for such injuries. See id.; Richardson, 614 P.2d at 639-40.
Direct actions, by contrast, require a shareholder to show that he or she was injured in a manner distinct from the corporation. See Aurora, 970 P.2d at 1280.
In Richardson, the court defined a direct action, noting that a plaintiff as a stockholder and an individual is injured, and the corporation is not, "'as where the action is based on a contract to which he or she is a party, or on a right belonging severally to him or her, or on a fraud affecting him or her directly.'" 614 P.2d at 639 (quoting 13 Fletcher, Cyclopedia of the Law of Private Corporations 5911 (1970)).
The case of ANR Ltd., Inc. v. Chattin, 89 B.R. 898 (Bankr. D. Utah 1989), is illustrative. In ANR, plaintiffs alleged that defendants assisted Utex, defendants' corporation, in mismanaging a joint account set up specifically to deal with disbursements and receivables, including those from plaintiffs, in a complicated business transaction involving hundreds of oil and gas leases, oil and gas wells, a gas processing plant, and easements and rights-of-way. See id. at 900.
The joint account was set up as part of a Restated Participation Agreement that itself incorporated two operative documents regarding how the corporation was to fulfill its fiduciary duties to, among others, plaintiffs. See id. at 899-900.
Correctly stating that "generally, under Utah law a corporation is the proper party to assert claims against its insiders for corporate mismanagement, misappropriation of corporate assets, and breach of fiduciary duty to the corporation," id. at 901, the court observed that "these principles do not preclude actions against corporate insiders by creditors who have been specifically harmed by their wrongful conduct.
Such 'personal claims' are not part of the bankruptcy estate." Id. at 902.
Thus, ANR involved claims of a creditor that stemmed from a particular contract between the creditor and the corporation, not from the creditor's status as a creditor.