## Facts

- Daniel Cowin, a minority shareholder of Bresler & Reiner, Inc. (B&R), sued B&R and its directors, who collectively controlled a large majority of the company’s shares.
- Cowin alleged the controllers used their dominance to benefit themselves at the expense of minority shareholders through mismanagement, fraud, and self-dealing.
- The complaint challenged transactions between B&R and limited partnerships in which directors had significant interests.
- Cowin alleged the directors caused B&R to undertake a stock repurchase program despite defaults and severe cash-flow problems, allegedly to restrict the public trading market and facilitate taking the company private.
- Cowin sought damages for diminution in share value, injunctive relief, appointment of a receiver to liquidate the company, and relief under federal securities laws (Exchange Act §§ 10(b) and 14(a), including Rule 10b-5).
- The district court dismissed the common-law claims as improperly pleaded as direct (rather than derivative) claims; dismissed most § 10(b)/Rule 10b-5 claims for lack of purchaser-seller standing and pleading defects; dismissed § 14(a) claims for lack of causation; and denied a receiver for failure to plead extreme circumstances.
- Cowin appealed.

## Issues

1. Whether claims alleging corporate mismanagement, self-dealing, and fiduciary breach were direct claims by a shareholder or derivative claims belonging to the corporation.
2. Whether a shareholder who neither purchased nor sold securities had standing to seek private damages under § 10(b) and Rule 10b-5 based on allegedly deceptive public reports affecting stock value.
3. Whether alleged misstatements in proxy materials supported a private § 14(a) claim without a sufficient causal link between the proxy solicitation and the complained-of injury.
4. Whether the complaint sufficiently alleged facts to justify appointment of a receiver for a solvent corporation.

## Decision

- The court affirmed dismissal of the common-law fiduciary duty and mismanagement claims to the extent pleaded as direct claims, holding they alleged generalized harm to the corporation affecting all shareholders alike and therefore must be brought derivatively.
- The court affirmed dismissal of the § 10(b)/Rule 10b-5 claims, holding Cowin lacked standing because he was not a purchaser or seller of B&R securities.
- The court affirmed dismissal of the § 14(a) proxy claims, holding Cowin did not plead the required causal connection between an allegedly misleading proxy solicitation and a corporate action that directly caused his injury.
- The court reversed the dismissal/denial of the request for a receiver and remanded for further proceedings, holding the allegations warranted additional factual development on whether extraordinary equitable relief might be appropriate.

## Legal Principles

- Claims for corporate mismanagement, waste, and self-dealing generally belong to the corporation and must be pursued derivatively unless the plaintiff pleads a distinct injury separate from other shareholders.
- Private damages actions under Exchange Act § 10(b) and Rule 10b-5 are limited to actual purchasers or sellers of securities; shareholders who only held their shares lack standing for such damages claims.
- A private § 14(a) claim requires a causal nexus between the proxy solicitation and a corporate action authorized by the vote that directly produced the plaintiff’s injury.
- Appointment of a receiver for a solvent corporation is an extraordinary remedy; dismissal at the pleading stage may be improper where allegations, if proven, could satisfy the demanding standard for such relief.

## Conclusion

The court treated the alleged controller misconduct primarily as injury to the corporation requiring derivative litigation, applied the purchaser-seller standing limitation to bar holder-only Rule 10b-5 damages claims, rejected the proxy claim for lack of transaction causation, and remanded for factual development on whether a receiver might be warranted despite the company’s solvency.


Cowin v. Bresler, 741 F.2d 410 (D.C. Cir. 1984)