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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10600
Experience:  30 years of corporate, litigation and international law
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A group of stockholders of ACME Development Co. and ACME East,

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A group of stockholders of ACME Development Co. and ACME East, Inc., brought suit, on behalf of themselves and the other stockholders of the corporations, and derivatively, on behalf of the corporations, against Pernell Inc., an accounting firm, and two of its employees (the defendants) to recover damages for breach of contract and fraud. The stockholders alleged that the defendants had failed to disclose in annual audits of the corporations’ books that certain commissions were being improperly paid to and by three of the corporation's principal officers and directors. As a result, the corporations had been deprived of the use of large sums of money over an approximate ten-year period. While the action was pending, the plaintiff stockholders all sold their stock back to the corporations. The defendants argued that the stockholders lacked standing to sue the corporations either on their own behalf or on behalf of the corporations. What should the court decide, and why?

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Submitted: 7 years ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 7 years ago.

The court will give other stockholders the opportunity to allege the same claims as the stockholders who sold their stock back to the corporation. If no other stock holder comes forward to prosecute the litiagation assuming the corporation itself will not pursue the litigation, then the case will be dismissed. The stockholders who originally brought the suit no longer have a stake in the suit and their position is now assumed by the corporation. However, the same officers and directors who were the target of the suit would now be in a position to terminate the suit and avoid the liability. The court would give the other stockholders an opportunity to pursue the derivitive action. If no one did then, the corporation could terminate the suit of its own accord. The defendants would not have a basis for terminating the case simply because their was a change in the identity of the stockholders. The claim is that of the corporation and a change in stockholders do not alter the corporation's claim.


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