Cash-Out Merger Underpayment Claims Are Direct (Not Derivative) Under Maryland Law; Unjust Enrichment May Rest on Defendant’s Benefit from Plaintiff’s Loss

A. Precedents Cited

1) Pleading and dismissal standard (Nevada procedure)

• Buzz Stew, LLC v. City of N. Las Vegas, 124 Nev. 224, 228, 181 P.3d 670, 672 (2008)
  The Court applied Buzz Stew to frame the NRCP 12(b)(5) review: accept factual allegations as true, draw inferences for the plaintiff, and affirm dismissal only if it appears beyond a doubt that no set of facts would entitle relief. This procedural lens mattered because Shustek’s arguments about “factual disputes” were deemed premature at the pleading stage.

2) Choice of law for internal corporate disputes

• Black v. Eighth Jud. Dist. Ct., 141 Nev., Adv. Op. 18, 567 P.3d 326, 330 (2025)
  Cited for the rule that the law of the state of incorporation governs whether claims are direct or derivative. This anchored the Court’s use of Maryland law because Vestin was incorporated in Maryland. The decision reflects the internal-affairs principle: shareholder relationships and corporate governance disputes generally follow the chartering state’s law.

3) Maryland’s direct vs. derivative framework

• Bontempo v. Lare, 90 A.3d 559, 578 (Md. Ct. Spec. App. 2014)
  Used to situate the general proposition that dissatisfied shareholders may pursue either direct or derivative actions against majority shareholders, depending on the nature of the harm and duty.
• Boland v. Boland, 31 A.3d 529, 548 (Md. 2011)
  Quoted for the definition of derivative actions as suits brought on behalf of the corporation to enforce a corporate right against “faithless directors and managers.” It supported the Court’s framing of what “derivative” means in Maryland terms.
• Eastland Food Corp. v. Mekhaya, 301 A.3d 308, 331 (Md. 2023)
  Cited for the direct-action standard: direct claims require breach of a duty owed directly to the shareholder and a “separate and distinct” injury. Also important for explaining the Maryland legislature’s response to Shenker (statutory exclusivity of directors’ duties under § 2-405.1).
• Oliveira v. Sugarman, 152 A.3d 728, 747-48 (Md. 2017)
  Provided the baseline rule that a general drop in share value—because it affects shareholders proportionally and mirrors harm to the corporation—is “normally” derivative. The Court used this as the default from which cash-out merger underpayment is treated as an exception.
• Shenker v. Laureate Educ., Inc., 983 A.2d 408, 425 (Md. 2009), abrogated on other grounds by statute
  The centerpiece precedent: Maryland treats an inadequate cash-out merger consideration as a direct injury because “the corporation’s interests are in no way implicated” by whether shareholders receive a higher or lower price. The Nevada Supreme Court treated Shenker as controlling on classification and rejected the argument that statutory abrogation of other parts of Shenker undermined this direct-injury holding.

4) Preservation/argumentation discipline

• Edwards v. Emperor's Garden Rest., 122 Nev. 317, 330 n.38, 130 P.3d 1280, 1288 n.38 (2006)
  Used to decline First Pecos’s unsupported contention that Nevada law, rather than Maryland law, should govern unjust enrichment. The Court signaled that choice-of-law assertions require developed authority, not mere position statements.

5) Maryland unjust enrichment doctrine

• Hill v. Cross Country Settlements, LLC, 936 A.2d 343, 351 (Md. 2007)
  Supplied the three-element test for unjust enrichment and the observation that such claims are “notoriously difficult to define.” The Nevada Supreme Court applied the elements to hold that First Pecos’s “value shift” theory could qualify.
• Berry & Gould, P.A. v. Berry, 757 A.2d 108, 113 (Md. 2000)
  Critical to reversing the district court’s rationale: Maryland allows unjust enrichment where the defendant benefits from the plaintiff’s loss. This undermined the district court’s view that unjust enrichment requires a voluntary “giving” rather than a “taking.”

B. Legal Reasoning

1) The Court’s choice-of-law move: Maryland governs direct/derivative classification

The Court treated the direct-versus-derivative question as an internal corporate law issue governed by the state of incorporation, citing Black v. Eighth Jud. Dist. Ct.. This is decisive because the same facts can be characterized differently across jurisdictions; by anchoring in Maryland law, the Court constrained the analysis to Maryland’s doctrinal choices (especially Shenker).

2) Direct vs. derivative: cash-out merger underpayment as a distinct shareholder injury

The district court characterized the harm as “diminution of stock value,” typically derivative under Oliveira v. Sugarman. The Supreme Court accepted that general principle but emphasized Maryland’s carve-out for cash-out mergers.

Relying on Shenker v. Laureate Educ., Inc., the Court reasoned that when shareholders are cashed out, their core complaint—receipt of too little consideration—does not implicate the corporation’s interests in the way ordinary mismanagement claims do. In a cash-out, the corporation is not seeking to be made whole for operational injury; rather, shareholders assert that the controller-directed transaction forced them to sell at an unfair price. Thus, the injury is “separate and distinct” for direct-action purposes (as framed in Eastland Food Corp. v. Mekhaya).

3) Addressing “Shenker abrogated on other grounds”

Shustek argued that Maryland’s statutory response to Shenker made it unreliable. The Court parsed the abrogation precisely:

• Shenker held that directors sometimes owed common-law fiduciary duties beyond those in § 2-405.1.
• The Maryland legislature amended § 2-405.1 to clarify it is the exclusive source of directors’ duties (as described in Eastland Food Corp.).

The Nevada Supreme Court treated that legislative change as affecting the source and scope of duty, not the classification of injury. Whether a claim is direct turns on the distinctness of the shareholder’s injury relative to the corporation’s injury; altering duties does not inherently transform a cash-out underpayment into a corporate injury.

In effect, the Court separated two questions often conflated in shareholder litigation:

1. Who was harmed (and therefore who may sue)? (direct vs. derivative)
2. What duty was breached (and therefore what theory may succeed)? (statutory/common-law fiduciary duties, etc.)

This separation drove the result: even if the duty landscape shifted post-Shenker, the “who is harmed” inquiry for cash-out price claims remains direct under Shenker’s reasoning, as adopted by the Court.

4) Unjust enrichment: “conferral” can be satisfied by benefit from plaintiff’s loss

The district court dismissed unjust enrichment because it believed the doctrine presupposes a voluntary transfer (“giving”) rather than extraction (“taking”). The Supreme Court rejected that framing using Maryland’s own articulation of unjust enrichment:

• Under Hill v. Cross Country Settlements, LLC, unjust enrichment requires a benefit conferred, knowledge, and inequitable retention.
• Under Berry & Gould, P.A. v. Berry, the benefit may be established where the defendant is enriched by the “loss suffered by the [plaintiff].”

The Court treated First Pecos’s allegation as a classic “value diversion” theory: if Shustek engineered a lower cash-out price through misconduct and retained the value differential for himself, the “benefit” element may be satisfied even without a voluntary transfer.

5) Procedural discipline at the motion-to-dismiss stage

The Court reiterated (citing Buzz Stew, LLC v. City of N. Las Vegas) that factual disputes raised by Shustek were not appropriately resolved on a NRCP 12(b)(5) motion. This preserves the distinction between pleading sufficiency and proof.

C. Impact

1) A clear Nevada roadmap for out-of-state corporations: apply incorporation law to direct/derivative

Building on Black v. Eighth Jud. Dist. Ct., this decision reinforces that Nevada courts will apply the chartering state’s law to classify claims— a critical threshold question that can determine standing and available remedies.

2) Cash-out merger litigation: “price” claims can proceed as direct even if misconduct resembles corporate looting

The most consequential holding is that a claim framed as underpayment in a cash-out merger is direct under Maryland law (via Shenker), even when plaintiffs allege controller “looting” that depressed value. This is practically important because:

• Standing barriers fall away for former shareholders who were cashed out (a common consequence of squeeze-out mergers).
• Plaintiffs may pursue individualized recovery tied to consideration, rather than corporate recovery routed through derivative structures.

3) Limiting the rhetorical force of “Shenker was abrogated” arguments

Defendants often invoke partial abrogation to diminish reliance on a precedent. The Court’s method—isolating which holding was abrogated and which was not— encourages future litigants and trial courts to perform a more granular analysis rather than treating “abrogated on other grounds” as a blanket invalidation.

4) Unjust enrichment survives “taking vs. giving” objections (at least under Maryland law)

By recognizing that enrichment can arise from a plaintiff’s loss (Berry & Gould, P.A. v. Berry), the Court preserved unjust enrichment as a flexible alternative theory in controller/self-dealing disputes—especially when plaintiffs plead that the defendant retained diverted value.