Filed: Feb. 02, 2017
Latest Update: Feb. 02, 2017
Summary: THIS APPLIES TO CIVIL ACTION NO. 3:10-854 RULING JAMES J. BRADY , District Judge . Before the Court is the Investor Plaintiffs' Motion for Partial Summary Judgment regarding whether they have standing to pursue their claims against Defendants' Walter A. Morales and Commonwealth Advisors, Inc. (collectively, the "Commonwealth Defendants"). 1 The Commonwealth Defendants have filed an Opposition to which the Investor Plaintiffs have filed a Reply. 2 Twice now the Court has found tha
Summary: THIS APPLIES TO CIVIL ACTION NO. 3:10-854 RULING JAMES J. BRADY , District Judge . Before the Court is the Investor Plaintiffs' Motion for Partial Summary Judgment regarding whether they have standing to pursue their claims against Defendants' Walter A. Morales and Commonwealth Advisors, Inc. (collectively, the "Commonwealth Defendants"). 1 The Commonwealth Defendants have filed an Opposition to which the Investor Plaintiffs have filed a Reply. 2 Twice now the Court has found that..
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THIS APPLIES TO CIVIL ACTION NO. 3:10-854
RULING
JAMES J. BRADY, District Judge.
Before the Court is the Investor Plaintiffs' Motion for Partial Summary Judgment regarding whether they have standing to pursue their claims against Defendants' Walter A. Morales and Commonwealth Advisors, Inc. (collectively, the "Commonwealth Defendants").1 The Commonwealth Defendants have filed an Opposition to which the Investor Plaintiffs have filed a Reply.2
Twice now the Court has found that the Investor Plaintiffs lacked standing to assert their claims against former co-defendants3 because the claims were derivative of those of the CA Funds.4 Although raised as an affirmative defense by the Commonwealth Defendants in their Answer,5 it is the Investor Plaintiffs who have now placed the legal issue of standing on the Court's plate for a summary judgment determination. Specifically, the Investor Plaintiffs contend that they have standing to assert their purchaser claims, which are distinct from their holder claims that were previously dismissed by the Court.6
The parties do not dispute the Court's previous finding that Delaware and Cayman law govern the issue of whether the Investor Plaintiffs' claims are direct or derivative.7 Nor do the parties dispute that the Delaware Supreme Court decision, Tooley v. Donaldson, Lufkin & Jenrette,8 previously relied upon by the Court,9 sets forth the test for determining whether a claim is derivative or direct. As articulated in Tooley, the analysis requires that:
a court should look to the nature of the wrong and to whom the relief should go. The stockholder's claimed direct injury must be independent of any alleged injury to the corporation. The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.10
It is also undisputed that in Smith v. Waste Mgmt., Inc.,11 the Fifth Circuit, applying the Tooley standard, held that a stockholder's claims of fraud and negligent misrepresentation were derivative because "[t]he misrepresentations that allegedly caused [plaintiff's] losses injured not just [the plaintiff] but the corporation as a whole."12 This is where the agreement between the Investor Plaintiffs and the Commonwealth Defendants comes to a halt.
After reviewing the argument and jurisprudence relied upon by the parties, the Court hereby finds merit in the Commonwealth Defendants' "standing" argument set forth in their Opposition.13 The Court further adopts the Commonwealth Defendants' reasoning and analysis as set forth in Section C (2) of its Opposition as its own.14
Accordingly, the Court hereby denies Investor Plaintiffs' Motion for Partial Summary Judgment on the grounds that the Investor Plaintiffs lack standing to assert their claims against the Commonwealth Defendants.15 The Investor Plaintiffs' claims against Walter A. Morales and Commonwealth Advisors, Inc., are hereby dismissed. This Ruling also terminates the Joint Motion to Certify Judgment Dismissing Stone & Younberg Defendants as Final.16
