North Carolina Business Litigation Report

York v. York, February 2007 (Tennille)(unpublished)

Plaintiffs were not entitled to pursue a derivative action, because they were not shareholders of the company at the time of the acts complained of. One of the defendants was a trust, to which a shareholder of the company had transferred shares. The Court held that the trust, as transferee, could not maintain the action because it had not become a shareholder through operation of law. A voluntary transfer is not a transfer through operation of law. Also, the trust had never made a demand, which barred its claim.

In a related case, the Court held that a diminution in value of a shareholder's shares is an injury to stockholders generally, and therefore a derivative claim. It further held that a derivative claim could not be maintained against directors who had not been mentioned in the shareholder's demand letter.

Full Opinion

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Mack Sperling
Brooks Pierce, LLP
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