Litwin v. Allen

Supreme Court of New York · Corporations

CorporationsShareholder standingCapacity to suestockholderowner of recordequitable ownercapacity to sueintervention

Facts

The plaintiff alleged that she was the owner of certain stock and brought this action as a stockholder. The defendant asserted that she was neither the owner of record nor the equitable owner of the stock at the commencement of the action. The defendant claimed two witnesses could prove that lack of ownership and sought to examine them. At the same time, stockholders whose status was unquestioned had applied to intervene in the litigation.

Issue

Whether the defendant should be permitted, before trial, to examine witnesses to establish that the plaintiff lacked capacity to sue because she was neither the record owner nor the equitable owner of the stock at the commencement of the action.

Rule

Although a stockholder need not be the owner of record to institute the action, the stockholder must at least be the equitable owner. Where determination of the plaintiff's capacity to sue is necessary before ruling on a pending intervention application, the court may permit pretrial examination to determine whether the action is legally well founded.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Marisol Vega files a shareholder action against Desert Crest Robotics, alleging misconduct by directors. The stock ledger lists Marisol's brother, not Marisol, as the record holder, but Marisol claims she paid for the shares and holds all beneficial rights.

If the defendants move to dismiss solely because Marisol is not the record owner, how should the court rule under the governing doctrine?

Explanation. The majority states that a stockholder need not be the owner of record to institute the action, but must at least be the equitable owner. Thus, absence of record title alone does not defeat capacity to sue if the plaintiff is the equitable owner. (Derived from Litwin v. Allen (n.d.).)