The Fourth Circuit delivered a lump of coal right before
Christmas to a Wachovia shareholder whose 100,000 shares of the Bank's stock,
once worth about $5.6 million, sank into near worthlessness when Wachovia
failed. The case, decided December 23rd, is Rivers v.
Wachovia Corp., [an enhanced version of this opinion is available to lexis.com subscribers] and it affirms the dismissal of all
of Rivers' claims.
Rivers sued Wachovia and its top officers and directors
for misrepresenting the Bank's financial condition in the months leading
up to its failure in 2008. He said that he would have sold his shares but
for the positive statements made by the Bank about its soundness and
stability, which he said amounted to fraud.
Judge Wilkinson said that although Rivers sought to cast
his claims as belonging personally to him (i.e. "individual"), they
were in fact derivative claims (which belonged to the corporation).
It is almost impossible in North Carolina for a
shareholder to sue an officer or director for the loss in value of stock.
The Fourth Circuit said that in North Carolina and in South Carolina as well, "[t]he
well-established general rule is that shareholders cannot pursue individual
causes of action against third parties for wrongs or injuries to the
corporation that result in the diminution or destruction of the value of their
The reasons that such individual actions are precluded
include that they prevent "self selected
advocate[s] pursuing individual gain rather than the interests of the
corporation or the shareholders as a group,[from] bringing costly and
potentially meritless strike suits." All Wachovia shareholders were
equally injured by the misrepresentations of which Rivers complained.
So, " [a] derivative lawsuit is . . . the vehicle
for a shareholder to litigate injuries that result in the diminution in value
of the corporation's stock." The North Carolina Supreme Court has
recognized two exceptions to its solidly established rule: "(1) where
there is a special duty, such as a contractual duty, between the wrongdoer and
the shareholder, and (2) where the shareholder suffered an injury separate and
distinct from that suffered by other shareholders."
Read this article in
its entirety on North
Carolina Business Litigation Report, a blog for lawyers focusing on issues
of North Carolina business law and the day-to-day practice of business
litigation in North Carolina courts.
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