Rivers v. Wachovia Corp., No. 10-2222
Decided Dec. 22, 2011
Appellant John M. Rivers, Jr., a former shareholder in Wachovia Corporation, sought to recover personally for the decline in value of his approximately 100,000 shares of Wachovia stock during the recent financial crisis. The Fourth Circuit Court of Appeals affirmed dismissal of Rivers’ suit against Wachovia and four of its senior executives because Rivers’s complaint stated a claim of derivative injury to the corporation, and therefore he was barred from bringing a direct or individual cause of action against the defendants. Under both North Carolina and South Carolina law, shareholders cannot pursue individual causes of action against third parties for wrongs or injuries to the corporation that result in the diminution of value of their stock. Shareholders may pursue such claims as a derivative suit on behalf of the corporation. Rivers’s allegations in his complaint describe an injury inflicted on the corporation and losses common to all Wachovia shareholders during the financial crisis; therefore, Rivers’s claim is derivative. However, Rivers claimed that the suit fell within two of the exceptions to the general rule. Rivers alleged that there was a special duty between the wrongdoer and himself, and that he suffered an injury separate and distinct from that suffered by other shareholders. However, the court held that it was clear that neither the special duty nor the special injury exceptions applied to Rivers’s claim. Absent a separate contract between Rivers and the defendants creating distinct duties personal to him, or individual subjection to misleading inducements outside of the officer-shareholder relationship, there is no special duty in North Carolina or South Carolina. Furthermore, the decline in the corporation’s share value did not inflict any special injury on Rivers such that his claim fell within the special injury exception.
-Sara I. Salehi