Torian v. Craig
2012 UT 63
| Utah | 2012Background
- Torian sued EnvironMax and its directors for a direct and a derivative claim over the 2005 share issuance to satisfy debts, which allegedly diluted his minority stake.
- EnvironMax issued 600,000 new common shares to satisfy unpaid debts and six million preferred shares (later converted) to EnMax, diluting the minority pool.
- Torian became a minority shareholder in April 2005; by May 2005 the share structure shifted significantly, with EnMax receiving far more shares than Torian.
- Torian’s employment ended in 2006; he initiated a federal wage/damages action in New York, proceeded to arbitration in Utah in 2007, and subsequently settled/received awards related to back wages and other matters.
- In 2009, Torian filed a verified complaint in Utah state court asserting direct and derivative claims for breaches of fiduciary duty and other wrongs; the district court granted summary judgment holding the claims derivative and barred by the dissenters’ rights statute.
- The Utah Supreme Court reverses, holding Torian may pursue a direct individual-injury claim and that the dissenters’ rights statute does not preempt such direct actions; case remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Torian may sue directly for an individualized injury. | Torian asserted an individual injury distinct from EnvironMax. | Craigs argued the injury was derivative or barred by dissenters’ rights. | Torian may sue directly for an individual injury. |
| Whether the dissenters' rights statute precludes direct actions here. | Statute does not preempt non-derivative claims. | Statute preempts direct claims when fiduciary duty diminishes share value. | Statute does not preempt Torian's direct action. |
| Whether the closely-held-corporation exception applies to permit direct suit. | Exception could allow direct action for dilution. | Only applies to closely held corporations. | Court declines to decide applicability; decision rests on direct-injury holding. |
Key Cases Cited
- Gentile v. Rossette, 906 A.2d 91 (Del. 2006) (identifies when a shareholder's claim is distinct from the corporation's)
- Richardson v. Ariz. Fuels Corp., 614 P.2d 636 (Utah 1980) (illustrates individualized injury standards)
- Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc., 970 P.2d 1273 (Utah 1998) (standards for when a direct action is appropriate and efficiency concerns)
- Arndt v. First Interstate Bank of Utah, N.A., 991 P.2d 584 (Utah 1999) (case interpreting direct vs. derivative actions and fiduciary duties)
- Dansie v. City of Herriman, 134 P.3d 1139 (Utah 2006) (preservation and direct-action considerations in Utah)