586 S.W.3d 373
Tenn. Ct. App.2019Background
- Plaintiffs (Slaughter, Wilkins, Williams) filed a verified derivative suit on June 25, 2015 alleging embezzlement/misappropriation by USC directors; suit was brought purportedly on behalf of United Supreme Council AASR SJ (USC).
- At filing Plaintiffs were USC officers; after the court-ordered election (Oct. 10, 2015) Plaintiffs lost or resigned their USC offices.
- Four days later Plaintiffs formed a competing organization ("USC II"), issued notices withdrawing recognition from USC, and allegedly took subordinate bodies and USC funds/accounts.
- USC intervened and moved for summary judgment arguing Plaintiffs lacked standing because they ceased USC membership and had an antagonistic/competing interest; trial court stayed discovery pending resolution of standing.
- Trial court granted summary judgment for USC, holding Plaintiffs lacked standing under Tenn. R. Civ. P. 23.06 (continuous membership and conflict of interest), dismissed Plaintiffs’ claims, and Plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plaintiffs had standing to maintain a derivative action (continuous-membership requirement) | Plaintiffs contended they remained lifetime members (ad vitam) and could fairly and adequately represent USC interests. | USC argued Plaintiffs surrendered membership by changing lodge/consistory membership and thus lost the necessary continuous membership to maintain a derivative suit. | Court affirmed: derivative plaintiffs must remain members for the suit's duration; Plaintiffs surrendered membership and thus lacked standing. |
| Whether Plaintiffs were disqualified by a conflict of interest from fairly and adequately representing USC | Plaintiffs argued they could still represent USC members despite forming USC II. | USC argued Plaintiffs created a rival organization, seized assets and subordinate bodies, and therefore have antagonistic interests preventing adequate representation. | Court affirmed: Plaintiffs’ establishment of USC II and actions showed an antagonistic conflict, disqualifying them under Tenn. R. Civ. P. 23.06. |
| Whether trial court denied Plaintiffs a reasonable opportunity for discovery before ruling on standing | Plaintiffs argued they lacked sufficient discovery to oppose summary judgment. | USC and defendants pointed to court orders allowing targeted discovery and gave Plaintiffs opportunity to request needed discovery; Plaintiffs did not timely request further discovery. | Court held Plaintiffs were afforded a reasonable opportunity to seek discovery related to standing and did not pursue it; no reversible error. |
Key Cases Cited
- Santomenno v. John Hancock Life Ins. Co., 677 F.3d 178 (3d Cir. 2012) (continuous ownership requirement assures adequate representation in derivative suits)
- Lewis v. Chiles, 719 F.2d 1044 (9th Cir. 1983) (Rule 23.1 interpreted to require retention of ownership for duration of suit)
- Portnoy v. Kawecki Berylco Indus., Inc., 607 F.2d 765 (7th Cir. 1979) (derivative action abates if plaintiff loses shareholder status during litigation)
- Grosset v. Wenaas, 175 P.3d 1190 (Cal. 2008) (continuous ownership requirement and rationale that derivative standing rests on shareholder interest)
- Hall v. Tenn. Dressed Beef Co., 957 S.W.2d 536 (Tenn. 1997) (conflict-of-interest can bar derivative standing under Tenn. R. Civ. P. 23.06)