Kona Enterprises, Inc. ex rel Handford's, Inc. v. Estate of Bishop ex rel. Peters

Background

Kona Enterprises was used as a vehicle for several investors, including Defendants, to gain control of Hanford’s, Inc., a seasonal decorations company, and Nationwide, an automobile products manufacturer. We refer to Hanford’s and Nationwide collectively as the “Companies.” The Bishop Estate provided several letters of credit to avoid foreclosure by the Companies’ creditor. After allegedly rejecting alternative financing arrangements, the Bishop Estate bought the Companies’ loans. It eventually foreclosed when the loans went unpaid, taking all of the stock and assets of the Companies under the stock pledge agreement.

Kona and its other shareholders 1 sued Defendants, alleging breaches of fiduciary duties as well as breaches of the covenant of good faith and fair dealing. Kona also alleged interference with corporate opportunity and corporate governance. 2 The district court held that Kona had not asserted any direct claims against Defendants and that it lacked standing to pursue any derivative claims.

Kona asserts two arguments in this appeal: (1) that the district court erroneously held that it had not asserted a direct *769 claim for damages against Defendants, and…