Summary of a Recent
Judicial Development in
Commercial Transactions

Corporation Lacks Capacity and Shareholder Lacks Standing to Sue

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Charles Brooks Co. v. Georgia-Pacific, LLC, 552 F.3d 718 (8th Cir. 2009), the Eighth Circuit Court of Appeals held that a corporation lacked capacity to sue the defendant because it did not legally exist at the time the complaint was filed, and also held that a shareholder who brought claims against the defendant lacked standing to sue because he had not alleged injury separate and distinct from the injury to the corporation.

Background

The sole shareholder of a logging company brought several contract and tort claims against Georgia-Pacific, LLC, both individually and on behalf of the company. Id. at 719. The district court dismissed the corporations' claims for lack of capacity and dismissed the shareholder's individual claims for lack of standing, and they appealed. Id. at 720.

Arguments

Appellants urged the court to adopt the view that a corporation whose corporate charter was revoked for failure to pay franchise taxes could maintain a lawsuit. Id. at 722. They also argued that the individual appellant, as the sole shareholder of the company, could sue in his own right once the company ceased to legally exist, and that he could assert his individual claims because he had a personal stake in the litigation. Id.

Analysis and Holdings

The court agreed that the corporation lacked capacity to sue because its corporate charter had been revoked by the Arkansas Secretary of State for nonpayment of franchise taxes, meaning it did not exist as a legal entity at the time the complaint was filed. Id. at 721-22. Regarding the individual shareholder's claim, the court explained that "direct suits brought by a corporate shareholder are only appropriate when the shareholder asserts an injury that is distinct and separate from the harm caused to the corporation." Id. at 723. The fact that he was the sole shareholder did not confer standing upon him, and he had not alleged any separate or distinct injuries. Id. The court therefore affirmed dismissal of the appellants' claims. Id.

The case was decided on January 14, 2009.