A party "who wishes to complain about a defect or obscurity in a pleading is required to identify the defect or obscurity in writing and to bring the special exception to the trial court's attention before a judgment is signed." Neff v. Brady, 527 S.W.3d 511, 527 (Tex. App.—Houston [1st Dist.] 2017, no pet.); see TEX. R. CIV. P. 90, 91. "The purpose of a special exception is to compel clarification of pleadings when the pleadings are not clear or sufficiently specific or fail to plead a cause of action."
"A parent company and its subsidiary maintain their independence even though the same persons are directors or managers of both corporations." Neff v. Brady, 527 S.W.3d 511, 525 (Tex. App.-Houston [1st Dist.] 2017, no pet.) (citing Lucas v. Tex. Indus., Inc., 696 S.W.2d 372, 376 (Tex. 1984)).
[7] Lisa argues that because Section 101.463 of the TBOC does not state that derivative standing is strictly limited to owner-members of an LLC, she can establish standing. Without argument or explanation, she then cites to Neff v. Brady, 527 S.W.3d 511 (Tex. App.—Houston [1st Dist.] 2017, no pet.) adding a parenthetical stating that double-derivative standing is recognized where the "plaintiff is a beneficial owner of the entity harmed by [the] breach of fiduciary duty to an affiliate." To the extent Lisa argues Neff supports her argument that she has standing to assert a claim on behalf of SignAd GP, LLC, we reject her argument.
Lisa argues that because Section 101.463 of the TBOC does not state that derivative standing is strictly limited to owner-members of an LLC, she can establish standing. Without argument or explanation, she then cites to Neff v. Brady, 527 S.W.3d 511 (Tex. App.-Houston [1st Dist.] 2017, no pet.) adding a parenthetical stating that double-derivative standing is recognized where the "plaintiff is a beneficial owner of the entity harmed by [the] breach of fiduciary duty to an affiliate." To the extent Lisa argues Neff supports her argument that she has standing to assert a claim on behalf of SignAd GP, LLC, we reject her argument.
"We review a trial court's dismissal of a case upon special exceptions for failure to state a cause of action as an issue of law, using a de novo standard of review." Neff v. Brady, 527 S.W.3d 511, 528 (Tex. App.-Houston [1st Dist.] 2017, no pet.) (quoting Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 405 (Tex. App.-Houston [1st Dist.] 2005, pet. denied)); see Chambers, 465 S.W.3d at 397; Cerda v. RJL Ent., Inc., 443 S.W.3d 221, 225 (Tex. App.-Corpus Christi-Edinburg 2013, pet. denied); Martin, 343 S.W.3d at 891; Pack v. Crossroads, Inc., 53 S.W.3d 492, 507 (Tex. App.-Fort Worth 2001, pet. denied). In our review, we take the "allegations, facts, and interferences in the pleadings as true and view them in a light most favorable to the pleader."
the purposes of legal proceedings, a subsidiary corporation and a parent corporation are considered separate and distinct "persons" as a matter of law. R & M Mixed Beverage Consultants, Inc. v. Safe Harbor Benefits, Inc. , No. 08-17-00054-CV, 578 S.W.3d 218, 229, 2019 WL 2443071, at *6 (Tex. App.—El Paso June 12, 2019, no pet.) ; see alsoSitaram v. Aetna U.S. Healthcare of N. Tex., Inc. , 152 S.W.3d 817, 825 (Tex. App.—Texarkana 2004, no pet.) (noting that courts generally presume that a parent corporation and its separate corporate subsidiary are distinct legal entities). Courts will generally observe the separate entity of corporations "even where one company may dominate or control the other company, or treats the other company as a mere department, instrumentality, or agency." R & M Mixed Beverage Consultants , 578 S.W.3d at 229, 2019 WL 2443071, at *6 (quoting Formosa Plastics Corp, USA v. Kajima Int'l, Inc. , 216 S.W.3d 436, 459–60 (Tex. App.—Corpus Christi 2006, pet. denied) ); seeNeff v. Brady , 527 S.W.3d 511, 525 (Tex. App.—Houston [1st Dist.] 2017, no pet.). "The fact that a corporation may be a parent of a subsidiary corporation does not automatically render it liable for the actions of its subsidiaries."
Where an entity has suffered a direct injury, that entity has the right to seek redress for the harm inflicted, while the entity's shareholders may (at the most) pursue redress for the harm derivatively on behalf of the entity. Neff v. Brady , 527 S.W.3d 511, 521 (Tex. App.—Houston [1st Dist.] 2017, no pet.) (quoting Webre v. Sneed , 358 S.W.3d 322, 329–30 (Tex. App.—Houston [1st Dist.] 2011) ), aff'd , 465 S.W.3d 169 (Tex. 2015) ("[T]o recover for wrongs done to the corporation, the shareholder must bring the suit derivatively in the name of the corporation so that each shareholder will be made whole if the corporation obtains compensation from the wrongdoer." (internal quotation marks omitted)).
Id. at 279–80 (citing Wingate , 795 S.W.2d at 719 ); Fisher , 433 S.W.3d at 527.See, e.g. , Neff v. Brady , 527 S.W.3d 511, 521–22 (Tex. App.—Houston [1st Dist.] 2017, no pet.) ; Guerrero-McDonald v. Nassour , 516 S.W.3d 198, 203–06 (Tex. App.—Eastland 2017, no pet.) ; Siddiqui v. Fancy Bites, LLC , 504 S.W.3d 349, 360–62 (Tex. App.—Houston [14th Dist.] 2016, pet. denied) ; Hall , 380 S.W.3d at 872–74. Our Court's departure places Texas law at odds with Delaware law.
For this reason, in addition to sometimes being called plaintiffs, companies embroiled in derivative litigation are also commonly called "nominal defendants." See, e.g. , Meyer v. Fleming , 327 U.S. 161, 167, 66 S.Ct. 382, 90 L.Ed. 595 (1946) ; Bankston v. Burch , 27 F.3d 164, 167 n.10 (5th Cir. 1994) ; Neff ex rel. Weatherford Int'l, Ltd. v. Brady , 527 S.W.3d 511, 518 (Tex. App.—Houston [1st Dist.] 2017, no pet.). Thus, companies in derivative litigation are simultaneously "plaintiffs" and "defendants," depending on how you look at it.
A plaintiff seeking to derivatively enforce the rights of a corporation must be a shareholder. See Ritchie v. Rupe, 443 S.W.3d 856, 880-81 (Tex. 2014) (shareholders in closely held corporation can bring derivative action); Somers ex rel. EGL, Inc. v. Crane, 295 S.W.3d 5, 15 (Tex. App.-Houston [1st Dist.] 2009, pet. denied); see also Neff v. Brady, 527 S.W.3d 511, 521 (Tex. App.-Houston [1st Dist.] 2009, no pet.) (shareholder must bring derivative suit in corporation's name to recover for wrongs done to corporation). When standing has been conferred by statute, the statute serves as the proper framework for a standing analysis.