Commercial Litigation and Arbitration

RICO — Limited Partners Lack Standing to Sue for Injuries to Limited Partnership

From Desoto v. Condon, 2010 U.S. App. LEXIS 6093 (9th Cir. Mar. 24, 2010):

Tommy Desoto and others who are limited partners of Trago LP, shareholders of Trago International, or creditors of Trago LP (collectively, Desoto) appeal the district court's order dismissing with prejudice their Racketeer Influenced and Corrupt Organizations Act (RICO) claims against Christopher Condon and others (collectively, Condon) for stealing the assets of Trago LP. ***

The district court properly concluded that Desoto lacks RICO standing. Shareholders and limited partners typically lack standing to assert RICO claims where their harm is derivative of their corporation or partnership's harm. See Sparling v. Hoffman Constr. Co., 864 F.2d 635, 640-41 (9th Cir. 1988). Such plaintiffs can establish standing only by showing an injury "distinct from that to other shareholders" or a special duty between the shareholder and the defendant. Id. at 640-41. The gravamen of Desoto's complaint is injury to the Trago entities, so Desoto's injuries are derivative. See Hamid v. Price Waterhouse, 51 F.3d 1411, 1420 (9th Cir. 1995) (noting that a creditor's injury is derivative); see also Jones v. H.F. Ahmanson & Co., 460 P.2d 464, 470 (Cal. 1969). Desoto concedes that other limited partners were similarly targeted, excluded, and deprived of their rights to Trago profits, and does not allege that Condon assumed any special duty through which Desoto can allege standing. Therefore, Desoto fails to meet either of the Sparling exceptions to the general rule. See Sparling, 864 F.2d at 640-41.

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