Misrepresentations and Oppression: Direct Shareholder Actions Against Corporations and Other Entities

Misrepresentations and Oppression: Direct Shareholder Actions Against Corporations and Other Entities

| Oct 7, 2020 | Legal Basics |

What are Direct Shareholder Actions?  Unlike derivative actions, direct shareholder actions generally involve claims brought by individual shareholders (or a group of shareholders) challenging the conduct of a company, or individuals in control of the company.  Individuals bringing direct shareholder actions allege damages that are specific to them, rather than damage to the company or mismanagement of the company’s affairs.  Damages in direct shareholder actions flow directly to the shareholder, rather than to the company.

What Claims Can I Bring in a Direct Shareholder Action?  This all depends on (1) the kind of conduct that caused the injury at issue, and (2) when the conduct occurred.  Shareholders who were misrepresented facts during investment discussions that subsequently resulted in the shareholders investing in a company have a variety of claims they may bring, including fraudulent inducement, intentional misrepresentation (i.e. fraud), silent fraud, negligent misrepresentation, and innocent misrepresentation.  Additional contractual claims may exist, depending on the information in the investment documents. Actions taken after an investment is made to limit or harm an investor’s rights can often be addressed through shareholder oppression and statutory claims.  For example, Michigan’s Business Corporation Act provides statutory relief for shareholders who claim that a company’s controlling shareholders are acting in an illegal, fraudulent, or willfully unfair and oppressive manner.

Can I Bring Claims Under the Consumer Protection Act?  Some states, such as Arizona, include the sale of securities as a “consumer product” that may be actionable under their codified consumer protection act.  Other states exclude securities from the consumer protection act.  Other statutes, such as state blue sky laws or the Securities Act may provide relief to individuals who were sold securities using dubious or fraudulent sales tactics.  If you have questions regarding a potential claim, call Devin at 248-782-7755 or complete our online contact form.