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appealtrialmotionsummary judgmentcorporationmotion for summary judgment

plaintiffappealtrialcorporation

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Northwest Racquet Swim and Health Clubs, Inc. v. Deloitte & Touche, 535 N.W.2d 612

Facts

Northwest purchased $15 million in subordinated debentures from Midwest, which was later found to be insolvent. Deloitte & Touche had performed audits for Midwest and was alleged to have participated in a plan that resulted in material misstatements in Midwest's financial statements. Northwest claimed it relied on these misstatements when deciding to purchase the debentures. The trial court denied Touche's motion for summary judgment, leading to the appeal.

In May or June 1985, Midwest purchased from Green Tree the servicing rights and the net finance income receivable (“FIR”) for approximately 88,000 mobile home loans.

Issue

Whether Northwest's claims against Deloitte & Touche are derivative or non-derivative.

The primary issue raised in this appeal is whether the trial court erred in concluding as a matter of law that Northwest's claims against Touche are nonderivative.

Rule

An individual shareholder or creditor may not assert a cause of action that belongs to the corporation; claims must be derivative unless the injury is separate and distinct from that suffered by other shareholders or creditors.

Minnesota has long adhered to the general principle that an individual shareholder may not assert a cause of action that belongs to the corporation.

Analysis

The court analyzed whether Northwest's claims were derivative by considering if the injury was separate and distinct from that of other debenture holders. It concluded that Northwest's claims were based on specific misrepresentations made by Touche that directly affected Northwest's decision to purchase the debentures, distinguishing them from claims that would be considered derivative.

An examination of the record in this case compels our conclusion that Northwest's claims are distinguishable from the plaintiffs' claims in In re Sunrise Sec. Litig. and are analogous to the plaintiffs' claims in Univ. of Md. and Hayes.

Conclusion

The Supreme Court reversed the Court of Appeals' decision and reinstated the trial court's ruling that Northwest's claims against Touche were non-derivative.

Reversed and decision of the trial court reinstated.

Who won?

Northwest Racquet Swim and Health Clubs, Inc. prevailed because the court found that their claims were based on direct misrepresentations that caused them specific injury, separate from any injury to the corporation.

Northwest is a closely-held corporation with its principal place of business in St. Louis Park, Minnesota.

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