§ 3.02 SHAREHOLDER STANDING AND RELATED ISSUES
[1] Distinguishing Between Derivative and Direct Claims
The first step in analyzing a potential derivative claim is to determine whether it is a derivative claim or a direct claim. This distinction is outcome-determinative, as a shareholder "who suffers damages only indirectly as a shareholder[] cannot sue as an individual." Sabey v. Howard Johnson & Co., 101 Wn. App. 575, 584, 5 P.3d 730 (2000). Specifically, shareholders lack standing to sue on their own behalf for losses, such as a reduction in the value of their stock holdings, that they incur solely as a result of injury to the corporation and that are shared by all shareholders. Id. ("[T]he shareholder's interest is viewed as too removed to meet the standing requirements."). This rule applies both to claims against corporate insiders for mismanagement or breach of fiduciary duty and to claims against third parties for breach of contract or tortious injury to the corporation. Ninneman v. Fox, 43 Wash. 43, 45, 86 P. 213 (1906). Consequently, unless the corporation itself initiates an action, a derivative claim is usually the only way for shareholders to seek remedies for harm to the corporation as a whole.
This bar to direct shareholder claims for injury to the corporation applies even to shareholders who own most, or even all, of the corporation's stock. Sabey, 101 Wn. App. at 584. It also applies to shareholders who, while acting on behalf of the corporation, personally negotiated and signed a contract with a defaulting third party. Hunter v. Knight, Vale & Gregory, 18 Wn. App. 640, 644-45, 571 P.2d 212 (1977), review denied, 89 Wn.2d 1021 (1978).
In some "exceptional" circumstances, shareholders pursuing derivative claims may recover directly, even if such recovery amounts to a forced distribution of corporate assets. LaHue v. Keystone Inv. Co., 6 Wn. App. 765, 780-81, 496 P.2d 343, review denied, 81 Wn.2d 1003 (1972). Even then, a direct payment is improper if it impairs the rights of third parties, such as creditors. Id. (concluding that a judgment in favor of the shareholders would be improper because it would impair superior third-party rights, even though those third-parties had not yet established their claims); see Interlake Porsche & Audi, Inc. v. Bucholz, 45 Wn. App. 502, 519-20, 728 P.2d 597 (1986) (modifying judgment to resolve tension between the "exceptional" circumstance of allowing the defendant to profit from his wrongdoing if the judgment was entered in favor of the company, on the one hand, and prejudicing superior third-party rights by allowing direct recovery, on the other hand) review denied, 107 Wn.2d 1022 (1987).
As distinguished from a shareholder derivative action for the benefit of the corporation, a shareholder may assert a direct claim on the shareholder's own behalf if: (1) the alleged corporate wrongdoer breaches a duty owed to the shareholder that arises independent of the shareholder's status as a shareholder; or (2) the shareholder's injury is separate and distinct from injuries suffered by other shareholders. Sabey, 101 Wn. App. at 584-85. This rule differs from that followed in Delaware, where courts do not consider whether the plaintiff's injury is different from injuries suffered by other shareholders, but only whether it is distinct from the injury suffered by the corporation. See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1039 (Del. 2004).
Although unusual, a plaintiff may assert both direct and derivative claims in the same action, but to prevail on both types of claims the plaintiff must establish different breaches of duty and differing injuries, some of which are suffered by the corporation and some by the plaintiff in a capacity other than shareholder, such as creditor. See Sound Infiniti, Inc. ex rel. Pisheyar v. Snyder, 169 Wn.2d 199, 210-14, 237 P.3d 241 (2010) (affirming dismissal of direct, individual claims based on one rationale and dismissal of derivative claims based on another). Unlike corporate shareholders, persons to whom shares are pledged may have dual status as creditors and shareholders, so they may have standing to pursue both derivative claims on behalf of the corporation in their status as shareholders, and direct claims in their own name based on the same breach of duty and injury. Gustafson v. Gustafson, 47 Wn. App. 272, 278, 734 P.2d 949 (1987), review denied, 109 Wn.2d 1024 (1988).
[2] Prerequisites for Standing
[a] The Washington Business Corporation Act (WBCA)
The legislature has enacted strict procedural requirements for derivative lawsuits. The requirements applicable to for-profit corporations are found in RCW 23B.07.400, which provides in relevant part:
(1) A person may not commence a proceeding in the right of a domestic or foreign corporation unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time.
(2) A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why a demand was not made. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed. . . .
* * * (5) For purposes of this section, "shareholder" includes a beneficial owner whose shares are held in a voting trust or held by a nominee on behalf of the beneficial owner.
RCW 23B.07.400(1)-(2), (5).
In enacting these provisions, the legislature noted the differing perceptions of the value and efficacy of derivative litigation:
On the one hand, the derivative action has historically been the principal method of challenging allegedly improper, illegal, or unreasonable action by management. On the other hand, it has long been recognized that the derivative suit may be instituted more with a view to obtaining a settlement favorable to the plaintiff and the plaintiff's attorney than to righting a wrong to the corporation (the so-called "strike suit").
WASHINGTON BUSINESS CORPORATION ACT SOURCEBOOK § 23B.07.400, at 2 (Wash. State Bar Assoc. 5th ed. 2016) (hereinafter SOURCEBOOK). Finding "a great deal of experience with procedural devices to control abuses of the derivative suit," the legislature enacted RCW 23B.07.400 to reflect that experience. Id.
Caveat: For entities other than for-profit corporations, Washington's appellate courts have been reluctant to confer standing based on equitable grounds alone. Courts have focused instead on whether the language of the applicable statute authorizes derivative claims on behalf of the type of entity at issue. For example, in Mohandessi v. Urban Venture LLC, 13 Wn. App. 2d 681, 696-98, 468 P.3d 622 (2020), review denied, 196 Wn.2d 1043 (2021), the Court of Appeals held that members of two nonprofit corporations lacked standing to assert derivative claims because the "plain...
