Coleman v. METCO

1 This memorandum opinion was not selected for publication in the New Mexico Reports. Please
2 see Rule 12-405 NMRA for restrictions on the citation of unpublished memorandum opinions.
3 Please also note that this electronic memorandum opinion may contain computer-generated
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5 not include the filing date.
6 IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
7 DEAN COLEMAN, and similarly
8 situated shareholders,
9 Plaintiffs-Appellants,
10 v. NO. 29,346
11 MINERAL ENERGY AND
12 TECHNOLOGY CORPORATION
13 (METCO), a New Mexico corporation,
14 Defendant/Third Party-Plaintiff-Appellee,
15 and
16 URANIUM KING LTD. (UKL), an
17 Australian corporation,
18 Defendant-Appellee,
19 v.
20 URANIUM KING CORPORATION,
21 a Nevada corporation, and URANIUM
22 COMPANY OF NEVADA, LLC, a Nevada
23 limited liability company, and URANIUM
24 COMPANY OF NEW MEXICO, LLC, a
25 Nevada limited liability company,
26 Third-Party Defendants-Appellees.
1 APPEAL FROM THE DISTRICT COURT OF CIBOLA COUNTY
2 Louis P. McDonald, District Judge
3 Rene Ostrochovsky
4 Albuquerque, NM
5 for Appellants
6 Comeau, Maldegen, Templeman & Indall, LLP
7 Michael R. Comeau
8 Santa Fe, NM
9 for Appellee UKL
10 MEMORANDUM OPINION
11 VIGIL, Judge.
12 Plaintiff, a minority shareholder of Mineral Energy and Technology
13 Corporation (METCO), brought a direct action against METCO and Uranium King
14 Ltd. (UKL) to rescind an agreement between METCO and UKL. The district court
15 ruled that Plaintiff has no standing to bring the direct action and dismissed the
16 complaint. We affirm.
17 BACKGROUND
18 The complaint alleges misconduct and self-dealing on the part of the three
19 individuals who comprised the METCO board of directors. These three individuals
20 also collectively own 75% of all outstanding METCO stock. The complaint alleges
21 that pursuant to the agreement, all of METCO’s uranium claims were transferred to
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1 UKL in exchange for 46,000,000 shares of UKL stock and that the directors and/or
2 largest shareholders of METCO would be directors of UKL. According to the
3 complaint, the METCO directors each received $100,000 for signing the agreement,
4 and each receives $10,000 per month from UKL. In addition, each was named as a
5 director of UKL. The UKL stock received by METCO is alleged to be restricted in
6 that it was not to be traded until September 2008, and there is no provision to
7 distribute the 46,000,000 shares proportionately to METCO shareholders. The
8 complaint asserts that the agreement resulted in the disposal of all or substantially all
9 of METCO’s assets and that the METCO directors failed to adopt a resolution
10 recommending the sale of its assets and directing the submission of that resolution to
11 a vote of METCO’s shareholders; failed to give written notice to its shareholders; and
12 failed to call for an affirmative vote of the shareholders, all as required by NMSA
13 1978, Section 53-15-2 (1983). On the basis of these allegations, Plaintiff sought
14 rescission of the agreement between METCO and UKL.
15 UKL filed a motion to dismiss the complaint pursuant to Rule 1-012(B)(6)
16 NMRA. UKL asserted Plaintiff lacks standing to pursue the action individually
17 because the claim belongs to METCO, and the appropriate suit is a derivative action.
18 Plaintiff contended that he was not required to file a derivative suit because he had
19 been directly injured by the agreement. Plaintiff alleged these direct injuries included:
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1 (1) trading the METCO properties without notice to him and without his consent; (2)
2 not receiving any of the UKL shares; and (3) not receiving the same financial benefits
3 provided in the agreement to the METCO directors. METCO joined in pertinent parts
4 of the motion. The district court granted UKL’s motion, and an order was entered
5 dismissing Plaintiff’s suit with prejudice. Plaintiff appeals.
6 DISCUSSION
7 As a preliminary matter, METCO and UKL argue that this appeal should be
8 dismissed because Plaintiff did not name METCO as an appellee. Their reasoning is
9 that METCO is a necessary party to the appeal because it is a party to the agreement
10 that Plaintiff seeks to rescind and that the time to include METCO in the appeal has
11 expired; consequently, the failure of Plaintiff to include METCO in the notice of
12 appeal requires dismissal. Because we decide this case on the issue of standing, we
13 need not address this argument.
14 Standard of Review
15 “The question of whether a party has standing to sue is a question of law that
16 we review de novo.” McNeill v. Rice Eng’g & Operating, Inc., 2010-NMSC-015, ¶ 4,
17 148 N.M. 16, 229 P.3d 489. In addition, we review a district court dismissal under
18 Rule 1-012(B)(6) de novo. N.M. Pub. Sch. Ins. Auth. v. Arthur J. Gallagher & Co.,
19 2008-NMSC-067, ¶ 11, 145 N.M. 316, 198 P.3d 342. In doing so, “we accept as true
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1 all well-pleaded factual allegations in the complaint and resolve all doubts in favor of
2 the complaint’s sufficiency.” Id.3 Plaintiff Has No Standing to Sue for Rescission
4 In general, actions brought by stockholders for injuries suffered by a
5 corporation must be brought on behalf of the corporation in a derivative suit. See
6 Marchman v. NCNB Tex. Nat’l Bank, 120 N.M. 74, 81, 898 P.2d 709, 716 (1995) (“A
7 corporation and a shareholder—even a sole shareholder—are separate entities, and a
8 shareholder of a corporation does not have an individual right of action against a third
9 person for damages that result because of an injury to the corporation.”). In New
10 Mexico, two exceptions to the general rule are: (1) when there is an injury to the
11 stockholder that is separate and distinct from that suffered by other stockholders; and
12 (2) when there is a special duty, such as a contractual duty, owed by the wrongdoer
13 to the stockholder personally. Id. at 82, 898 P.3d. at 717. Plaintiff asserts that he
14 satisfies both exceptions.
15 First, Plaintiff argues that his injuries are separate and distinct because he did
16 not receive the same benefits provided to the METCO directors by the agreement, and
17 he suffered losses because of the agreement. We are unpersuaded. Plaintiff’s case is
18 grounded on the claim that in making the agreement, the METCO directors engaged
19 in self-dealing and mismanagement in violation of their duties to METCO, which also
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1 injured minority shareholders. New Mexico law is well settled that a minority
2 stockholder has no standing, as an individual, to sue corporate directors for
3 mismanagement, negligence, or the like, because such a cause of action belongs to the
4 corporation, and any action taken to redress such wrongs must be brought for the
5 benefit of the corporation. Schwartzman v. Schwartzman Packing Co., 99 N.M. 436,
6 441, 659 P.2d 888, 893 (1983). “The corporation, having suffered the direct injury,
7 has the right to bring an action against the wrongdoer, while other parties suffering
8 indirect injuries cannot individually assert the corporate cause of action.” Marchman,
9 120 N.M. at 81, 898 P.2d at 716. We therefore conclude that Plaintiff has no standing
10 under the first exception allowing minority shareholders to bring a suit in their
11 individual capacity to remedy corporate wrongs.
12 Second, Plaintiff argues that he has standing because the METCO directors
13 violated statutory duties they owed him under Section 53-15-2 and NMSA 1978,
14 Section 53-15-3 (1983), and they violated the duties they owed him of good faith, due
15 care, and candor. In order to fall within the parameters of the second exception,
16 Plaintiff is required to demonstrate that he has suffered an injury that is separate and
17 distinct from other shareholders. Healthsource, Inc. v. X-Ray Assoc. of N.M., P.C.,
18 2005-NMCA-097, ¶ 29, 138 N.M. 70, 116 P.3d 861. However, Plaintiff fails to
19 demonstrate that the duties he asserts were violated are in any way different from
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1 duties owed to any other shareholder or that his alleged injuries are different from
2 injuries suffered by any other METCO stockholder. “There must be a direct injury
3 to the shareholder in his or her individual capacity, independent of any duty to the
4 corporation, before the shareholder is entitled to sue.” Delta Auto. Sys., Inc. v.
5 Bingham, 1999-NMCA-029, ¶ 16, 126 N.M. 717, 974 P.2d 1174 (quoting Marchman,
6 120 N.M. at 82, 898 P.2d at 717). See Bank of N.M. v. Rice, 78 N.M. 170, 176, 429
7 P.2d 368, 374 (1967) (stating that “[a] stockholder may sue as an individual where the
8 act complained of creates . . . a cause of action in favor of the stockholder as an
9 individual, as where the act is in violation of duties arising from contract or otherwise,
10 and owing to him directly” (internal quotation marks and citation omitted)). We
11 therefore conclude that Plaintiff failed to satisfy the second exception which would
12 allow him to bring an action in his own name and on his own behalf to rescind the
13 agreement between METCO and UKL, as opposed to a derivative suit.
14 Plaintiff has standing to bring a derivative suit to seek cancellation of the
15 agreement between METCO and UKL, but he has no standing to seek such relief on
16 his own behalf. We therefore hold that the district court did not err in dismissing the
17 complaint with prejudice. In light of our holding, we do not discuss any other issues.
18 CONCLUSION
19 For the foregoing reasons, we affirm.
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1 IT IS SO ORDERED.
2 __________________________________
3 MICHAEL E. VIGIL, Judge
4 WE CONCUR:
5 _________________________________
6 CELIA FOY CASTILLO, Chief Judge
7 _________________________________
8 TIMOTHY L. GARCIA, Judge
8