A shareholder who guarantees the debt of a corporation does not have an injury "separate and distinct" from the injury sustained by the corporation itself. The shareholder did not standing to pursue damages for the breach of a contract with the corporation. A shareholder "cannot assert claims against a third party for loss of its equity investment in a corporation."
The Business Court held that an individual taxpayer did not have standing to sue over alleged misuse of taxes paid by residents of the City of Roanoke Rapids to build a music entertainment theater, rejecting his arguments that he was entitled to bring suit individually because the losses from the theater would be borne by all of the taxpayers of the City, and alternatively that he was entitled to sue derivatively on behalf of the City because the proper authorities had refused to act with regard to such losses.
No Individual Taxpayer Standing
The law of North Carolina is that individual taxpayers don’t have standing to bring a suit in the public interest. Op. ¶41. Garrett argued that he was entitled to an exception to this general rule (under a case called Texfi Industries v. City of Fayetteville, 44 N.C. App. 268, 261 S.E.2d 21 (1979)) because the Theater had levied a tax on him "for an unconstitutional, illegal, or unauthorized purpose."
Judge Jolly rejected Garrett’s individual standing argument, holding:
here, the expenditures used in support of the Theater Project were funded by TIF bonds that were issued only after a feasibility study was conducted for the benefit of the City, and which was lawfully approved by the City and the [Local Government Commission]. . . . Notwithstanding that the Theater Project ultimately failed and may well have been a very bad business decision by the City, the obligations undertaken by the City were neither illegal nor unauthorized.
No Derivative Taxpayer Standing
The Court ruled that Garrett didn’t have derivative standing either. North Carolina recognizes derivative standing for taxpayers if "public authorities wrongfully neglect or refuse to act." A taxpayer must show, however, that "their either (a) has been a demand upon and wrongful refusal by the proper authorities to act, or (b) the particular facts would make such a demand futile." Op. ¶46.
A settlement entered into by the City also doomed Garrett’s derivative standing. Judge Jolly held that "the Settlement Agreement acts to resolve the very claims in behalf of the City that otherwise — given refusal or inaction after timely taxpayer demand — arguably might be available derivatively to a taxpaying citizen. In fact, the City’s action in settling with Parton and Moonlight Bandit on terms with which the Plaintiff disagrees apparently is the very reason Plaintiff seeks to bypass the City." Op. ¶47.
The Court, again, considered the issue of indirect purchaser standing. It reiterated the factors it looks to in determining whether there is such standing, as articulated in its opinion in Crouch v. Crompton Corp.
Crouch had involved one product, tires, but this case involved ethylene propylene diene monomer, which the Court observed might be used in hundreds of products. The recovery to individual consumers would therefore be miniscule, and the Court observed that "[t]he funds from these settlements are destined to end up in the hands of the lawyers, a handful of named plaintiffs, and a small number of charities selected by the approving court pursuant to the cy pres doctrine."
The Court considered the relevant market (it determined that plaintiff was a participant in a collateral market, a factor working against standing), the directness of impact (what the court termed a complex issue involving multiple distribution chains, which weighed against standing), that other indirect purchasers were likely to have been more heavily impacted (having absorbed some or all of the price increase without passing it on to plaintiff), and the daunting and complex nature of the calculation of damages (which the Court found even more complex than the calculation necessary in Crouch).
After a full analysis, the Court found that the plaintiffs lacked standing. Other defendants in the case had settled class action claims against them in other states before the Court’s ruling. Plaintiffs moved for the dismissal of these defendants. The Court reviewed the terms of those settlements and ultimately determined, reluctantly, that it would approve the settlements.
The case makes clear the frustration of the Court about multi-state class actions being settled in other states where the benefits of the settlement do not flow in an appropriate way to the injured residents of this State.
The Court addressed again the issue of indirect purchaser standing under the North Carolina antitrust laws in these consolidated cases. It held that although such purchasers do have standing, there are limitations on that standing which barred the claims of the plaintiffs and it granted defendants’ motion to dismiss.
In the first case, the plaintiffs were purchasers of automobile tires whose price had been affected by collusion on the price of rubber. In the second, the plaintiffs were credit card holders who claimed they had paid higher prices for goods as a result of illegal tying arrangements by the credit card issuers.
After a thorough discussion of the history of recognition of indirect purchaser claims in North Carolina, the Court determined that it would apply a multifactor test to determine whether plaintiffs had standing, including a consideration of (1) whether the plaintiff is a consumer or competitor in the allegedly restrained market, (2) the directness of the impact on the plaintiff, (3) whether there exist other indirect purchasers in the distribution chain who are more directly impacted by the alleged violatin, (4) the speculative nature of the damage claims, and (5) the risk of duplicative recovery and danger of complex apportionment of damages."
It analyzed each case under this approach and held that neither class of plaintiffs had standing.
The Court found that an indirect purchaser had standing under North Carolina law to assert an antitrust claim, and denied a motion to dismiss. It certified the issue for immediate appeal.