Shareholder Lacks Standing to Bring Direct Claim Based on Injury to Corporation

On October 22, 2024, Justice Bannon of the New York County Commercial Division issued a decision in Egorchenko v. Paul, 2024 NY Slip Op. 33748(U), holding that a shareholder lacks standing to bring a direct claim based on injury to the corporation, explaining:

On a defendant’s motion to dismiss under CPLR 3211(a)(3) upon plaintiff’s alleged lack of standing, the burden is on the defendant to establish, prima facie, that the plaintiff lacks standing to sue as matter of law. If this burden is met, the burden shifts to the plaintiff to raise a triable issue of fact as to its standing. A party who seeks to establish standing must show injury in fact, that is, an actual stake in the matter to be adjudicated, and that the court has before it a justiciable controversary.

It is settled law that a corporation exists independently of its owners, as a separate legal entity. Consequently, an individual shareholder has no right to bring an action in his own name and in his own behalf for a wrong committed against the corporation. This is true regardless of the level of the shareholders’ interest in the corporation: The fact that an individual closely affiliated with a corporation (for example, a principal shareholder, or even a sole shareholder), is incidentally injured by an injury to the corporation does not confer on the injured individual standing to sue on the basis of either that indirect injury or the direct injury to the corporation. An individual shareholder plaintiff may not obtain a recovery that otherwise duplicates or belongs to the corporation, and even where an individual harm is claimed, if it is confused with or embedded in the harm to the corporation, it cannot separately stand.

Here, the complaint fails to allege facts that, taken as true, would suffice to establish the plaintiff’s standing to sue, as there is no alleged harm to the plaintiff that is independent of the harm alleged to Finstore. All three of the plaintiff’s causes of action hinge on the plaintiff’s purported individual interest in the ’33 and ’50 Diamonds. However, the plaintiff alleges no facts demonstrating that she has any personal interest in the subject diamonds, as there is no allegation that the defendants contracted with her or made any promises to her in her individual capacity rather than in her capacity as a corporate representative of Finstore. Moreover, the defendants submit copies of the MOU and the First and Second JPAs, which name only Essex and Finstore as contracting parties, thereby demonstrating that the plaintiff was not personally a party to any of these agreements. Indeed, the plaintiff did not sign any of these agreements nor do any of the agreements even mention her name.

(Internal quotations and citations omitted).

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