Florida – Corporate Law – Which is Appropriate, Derivative or Direct Lawsuit?

A shareholder of a company brought a direct action, as opposed to a derivative action, for constructive fraud, fraud, and breach of contract against the officers of a publicly traded company. The trial court dismissed all three claims.

On appeal, the 5th DCA reversed only the trial court’s ruling on the first count of constructive fraud and affirmed the trial court’s ruling on the other two counts, reasoning that Appellant sufficiently alleged a direct cause of action for constructive fraud premised on the breach of statutory fiduciary duties. The Court explained, “Generally, ‘an action may be brought directly only if (1) there is a direct harm to the shareholder or member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) there is a special injury to the shareholder or member that is separate and distinct from those sustained by the other shareholders or members.’” “While Appellant has not sufficiently alleged direct harm and a special injury, there is an exception to this rule. ‘A shareholder or member need not satisfy this two-prong test when there is a separate duty owed by the defendant to the individual plaintiff under contractual or statutory mandates.’” Seeing as Appellant’s constructive fraud action sufficiently alleged the breach of § 608.4225(1)(a)-(c), 608.4226, and 608.4228(1)(b)2 Fla. Stat. (2010), the Court of Appeals reversed and remanded the trial court’s order dismissing it.

David Wishinsky v. Rashid Choufani (appeal from Orange County Circuit Court: 5D18-2122)


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