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Posted by: Chandra Williams on Jul 12, 2016

Court: TN Supreme Court

Attorneys 1:

John P. Branham, C. David Briley and Mandy Strickland Floyd, Nashville, Tennessee, for the appellants, Anita Sheridan, Linda Orsagh, and the Estate of Edward Stephen McRedmond.

Attorneys 2:

Richard K. Smith, Nashville, Tennessee, additional counsel for the appellant, Estate of Edward Stephen McRedmond. Roger A. Maness, Clarksville, Tennessee, and Jere R. Lee, Nashville, Tennessee, for the appellee, Louis A. McRedmond.

Judge(s): KIRBY

This case involves an internecine conflict among siblings who were shareholders in a closely-held family corporation. The dispute resulted in dissolution of the original family corporation, the formation of two new competing corporations, and a long-running lawsuit in which one group of shareholder siblings asserted claims against the other group of shareholder siblings. After a trial, the trial court awarded damages to the plaintiff shareholder siblings. The Court of Appeals reversed, holding that the plaintiff shareholder siblings did not have standing because their claims were derivative in nature and belonged to their new corporation. We granted permission to appeal to consider the standard for determing whether a shareholder’s claim is a direct claim or a derivative claim. In this Opinion, we set aside the approach for determining whether a shareholder claim is direct or derivative described by this Court in Hadden v. City of Gatlinburg, 746 S.W.2d 687, 689 (Tenn. 1988), and adopt in its stead the analytical framework enunciated by the Delaware Supreme Court in Tooley v. Donaldson, Lufkin, & Jenrette, Inc., 845 A.2d 1031, 1039 (Del. 2004). Under the Tooley framework, the analysis of whether a shareholder claim is direct or derivative is based solely on who suffered the alleged harm—the corporation or the suing shareholder individually—and who would receive the benefit of the recovery or other remedy. In light of this holding, we affirm in part and reverse in part the decision of the Court of Appeals, and we remand to the Court of Appeals for further proceedings consistent with this Opinion.