Collective, Not Individual: Texas Supreme Court Limits Direct Shareholder Suits on Corporate Advisory Agreements – Commentary on In re UMTH General Services, L.P.

Collective, Not Individual: Texas Supreme Court Limits Direct Shareholder Suits on Corporate Advisory Agreements

I. Introduction

In In re UMTH General Services, L.P., UMT Holdings, L.P., UMTH Land Development, L.P., Hollis M. Greenlaw, Todd F. Etter, Ben L. Wissink, and Cara D. Obert, No. 24-0024 (Tex. Nov. 14, 2025), the Supreme Court of Texas addresses an increasingly common maneuver in investor litigation: using contract language that references “the corporation and its shareholders” to claim that individual shareholders have direct rights to sue a corporate advisor for alleged mismanagement. The case arises from the relationship between a Maryland real estate investment trust, United Development Fund IV (the “Trust”), and its Texas-based external advisor, UMTH General Services, L.P. and related entities (collectively, the “Advisors”). The Trust’s advisory agreement stated that the Advisor “shall be deemed to be in a fiduciary relationship to the Trust and its Shareholders.” Taking that phrase as their springboard, shareholders affiliated with Nexpoint filed a direct suit in Texas against the Advisors, alleging mismanagement, corporate waste, and improper advancement of legal fees. The central question:

Does an advisory contract between a corporate entity (or REIT) and a third-party advisor—stating that the advisor owes a fiduciary duty to “the [entity] and its shareholders”—create an individual, direct cause of action in each shareholder, or are those rights enforceable only by the entity (through derivative mechanisms)?

The Texas Supreme Court’s answer is categorical: such language does not create individual shareholder rights. The duty runs to the entity and the shareholders as a collective, and any wrong is enforced by or on behalf of the entity through derivative litigation, not by individual direct suits. The case also clarifies the distinction between (1) constitutional standing—whether a plaintiff has suffered a sufficient injury to invoke the court’s jurisdiction—and (2) capacity—whether the plaintiff is legally entitled to recover on the claim asserted. Even though the shareholders had standing under prior precedent (Pike v. Texas EMC Management, LLC), they lacked the capacity to sue because they asserted claims that, in law, belong to the Trust. Finally, the Court resolves the matter via mandamus, directing the trial court to dismiss the Texas action with prejudice, emphasizing both the corporate law framework (derivative vs. direct claims) and the Trust’s governance documents requiring derivative actions to proceed in Maryland under Maryland law.

II. Background and Procedural History

A. The Trust and Its Governance Structure

United Development Fund IV is a Maryland real estate investment trust with over 12,000 shareholders. Its internal governance is set by:
  • Declaration of trust – Governs shareholder rights and expressly provides:
    • Shareholders are entitled “only to those rights provided in the Declaration.”
    • Shareholders “have no interest in the assets of the Trust.”
    • Shareholders have “no right to compel any partition, division, dividend or Distribution of the Trust or of its assets.”
  • Bylaws – Include an exclusive forum provision: derivative actions brought on the Trust’s behalf must be filed in Maryland.
These provisions are central, because they:
  • Confirm that beneficial ownership interests are mediated through the Trust, not in specific Trust assets; and
  • Channel derivative litigation into Maryland, with Maryland law governing derivative claims.

B. The Advisory Agreement With UMTH

In 2014, the Trust’s board of trustees exercised its authority under the declaration to delegate management authority to an advisor. The Trust appointed UMTH General Services, L.P. as advisor to manage investments and day-to-day operations. The advisory agreement:
  • Is expressly “by and between” the Trust and UMTH.
  • Was signed by:
    • Trust CEO Hollis M. Greenlaw on behalf of the Trust, and
    • UMTH President David Hanson on behalf of UMTH.
  • Provides that “The Advisor shall be deemed to be in a fiduciary relationship to the Trust and its Shareholders.”
  • Contains a Texas choice-of-law clause for suits arising out of the agreement.
Individual shareholders, including Nexpoint, are not parties to the agreement. The operative duties section speaks in terms of obligations to the Trust. Shareholders are mentioned only incidentally in provisions about record-keeping, reporting, fees, expenses, and indemnification.

C. The Maryland Derivative Suit and Its Dismissal

In June 2021, Nexpoint Diversified Real Estate Trust sued the Trust derivatively in Maryland, alleging mismanagement after the Trust’s trustees became subjects of a criminal investigation. While that suit was pending:
  • In December 2021, Nexpoint transferred its Trust shares to a wholly owned subsidiary, Nexpoint Real Estate Opportunities.
  • The Maryland court ultimately dismissed Nexpoint’s derivative claims for lack of standing and subject-matter jurisdiction.
The details of Maryland law and that dismissal are not resolved in this opinion, but they form the backdrop for the shareholders’ later litigation strategy in Texas.

D. The Texas Suit Against the Advisors

While the Maryland suit was still pending, Nexpoint and its subsidiary filed a Texas lawsuit in Dallas County against:
  • UMTH General Services, L.P.;
  • UMT Holdings, L.P.;
  • UMTH Land Development, L.P.; and
  • Several individuals alleged to be current or former managers, officers, or trustees of the Trust or UMTH (Greenlaw, Etter, Wissink, Obert).
Collectively, these defendants are the Advisors. The plaintiffs (Nexpoint and its subsidiary, together the Shareholders) alleged:
  • Corporate waste and mismanagement;
  • Improper advancement of legal fees on behalf of Trust management; and
  • Refusal to disclose requested information.
Crucially:
  • The Trust itself is not a party to the Texas suit.
  • The Shareholders styled their claims as direct, individual claims, not derivative ones, claiming that the advisory agreement created a duty owed to each individual shareholder.

E. Defensive Pleadings and Interlocutory Mandamus

The Advisors responded in Texas with:
  • A plea to the jurisdiction, challenging subject-matter jurisdiction and standing;
  • A verified plea in abatement, challenging the Shareholders’ capacity to sue directly for claims belonging to the Trust; and
  • Special exceptions to the pleadings.
Their core arguments:
  1. The Shareholders’ claims were in substance derivative and thus belonged to the Trust.
  2. The Shareholders did not meet statutory share-ownership requirements for derivative standing (contemporaneous and continuous ownership) under Texas law.
  3. Because the Trust’s documents mandated Maryland as the forum for derivative suits, any derivative claims had to be litigated there under Maryland law.
The trial court denied the Advisors’ motions. The Advisors then sought mandamus relief from the Dallas Court of Appeals, which denied relief. The Advisors petitioned the Supreme Court of Texas for mandamus, which is the decision now under comment.

III. Summary of the Supreme Court’s Opinion

Justice Bland, writing for the Court, analyzes the case in three main steps.
  1. Standing: The Shareholders have constitutional standing to sue in Texas. Under Pike v. Texas EMC Management, LLC, a stakeholder who alleges a loss in the value of its ownership interest has suffered a cognizable injury-in-fact, even if the wrong is technically to the entity. Statutory derivative requirements do not negate standing; they govern capacity.
  2. Capacity and Nature of the Claims: The Shareholders lack the capacity to recover on their claims because:
    • The advisory agreement does not create an individual cause of action in each shareholder; it establishes duties to the Trust and its shareholders collectively.
    • The Shareholders are not third-party beneficiaries of the advisory agreement in their individual capacities. The contract does not “clearly and fully” express an intent to confer direct enforcement rights on thousands of individual shareholders.
    • Under Texas corporate law, injuries alleged—mismanagement, waste, diversion of funds, diminution in share value—are injuries to the entity, enforceable by the entity or derivatively on its behalf.
  3. Mandamus and Remedy: Because:
    • The claims are derivative in substance;
    • The Trust’s governing documents require such claims to be brought in Maryland under Maryland law; and
    • Forcing litigation to proceed in Texas would be a “meaningless waste of judicial resources” and undermine the corporate framework,
    the Court holds that the Advisors lack an adequate remedy by appeal and are entitled to mandamus. The trial court is directed to:
    • Vacate its order denying the plea in abatement; and
    • Dismiss the case with prejudice.
In short: individual shareholders cannot bypass derivative mechanisms or exclusive-forum provisions by recharacterizing entity-level injuries as direct claims based on contract language referring to “shareholders.”

IV. Detailed Analysis

A. The Doctrinal Framework: Standing, Capacity, and Derivative Claims

A key contribution of this opinion is its careful separation of:
  • Standing – A constitutional, jurisdictional requirement focused on whether the plaintiff has suffered a concrete, personal injury caused by the defendant and redressable by the court.
  • Capacity – A procedural question about whether the plaintiff is the proper party, in the proper role, to assert the claim and recover.
In Pike v. Texas EMC Management, LLC, 610 S.W.3d 763 (Tex. 2020), the Court held:
  • Partners or stakeholders do have standing to sue for an alleged loss in the value of their interest in a business entity.
  • However, statutory rules governing derivative actions—like contemporaneous and continuous ownership—address capacity, not standing.
Here, the Advisors argued that the Shareholders lacked standing because they met neither Texas’s nor Maryland’s derivative standing requirements. The Court rejected that framing, holding that:
  • Allegations of financial loss due to mismanagement of the Trust suffice to create an injury-in-fact, meeting constitutional standing requirements.
  • Whether the claims are derivative and who may enforce them is a capacity question, not a jurisdictional one.
Thus, Texas courts had subject-matter jurisdiction to hear a dispute in which the plaintiffs alleged direct financial harm, even though the plaintiffs may not be the correct parties to obtain relief on those claims in their chosen capacity.

B. Precedents Cited and How They Shape the Decision

The Court methodically builds on—and distinguishes—a number of key precedents.

1. Derivative vs. Direct Claims: Davis, Wingate, and Pike

The classic Texas rule, reaffirmed here, comes from Massachusetts v. Davis, 168 S.W.2d 216 (Tex. 1942) and Wingate v. Hajdik, 795 S.W.2d 717 (Tex. 1990):
  • Default rule: A shareholder “cannot recover damages personally for a wrong done solely to the corporation, even though he may be injured by that wrong.”
  • This is rooted in the principle that each shareholder suffers proportionally to the number of shares owned, and each will be made whole if the corporation recovers.
Wingate formulates the key test reiterated in UMTH:
  • “To recover individually, a stockholder must prove a personal cause of action and personal injury.”
Pike then refined the landscape by:
  • Holding that an alleged diminution in the value of an ownership interest is sufficient to confer constitutional standing; but
  • Clarifying that derivative statutes protect the entity’s separate status and regulate capacity and remedies.
UMTH relies on Pike to:
  • Affirm that the Shareholders have standing; but
  • Pivot to capacity and apply Wingate’s rule that a shareholder must show a distinct, individual duty and injury to press claims directly.

2. Fiduciary Duties to the Entity and Shareholders Collectively: Estate of Poe and Ritchie

The Court’s interpretation of the advisory agreement’s fiduciary clause rests heavily on In re Estate of Poe, 648 S.W.3d 277 (Tex. 2022) and Ritchie v. Rupe, 443 S.W.3d 856 (Tex. 2014). Those cases emphasize:
  • Corporate directors and officers owe fiduciary duties to the corporation and its shareholders collectively, not ordinarily to individual shareholders.
  • Duties to the corporation and duties to a particular shareholder may conflict; “a director cannot simultaneously owe these two potentially conflicting duties.”
UMTH extends this rationale to third-party advisors:
  • Absent express language creating duties to named individuals, duties referencing “the [entity] and its shareholders” are read as duties to the entity on behalf of its shareholders as a group.
  • Implying individualized duties to thousands of shareholders would create unmanageable conflicts and undermine centralized corporate control.

3. LLC Member Agreements: Allen and Strebel Distinguished

The Shareholders invoked two intermediate appellate decisions:
  • Allen v. Devon Energy Holdings, L.L.C., 367 S.W.3d 355 (Tex. App.—Houston [1st Dist.] 2012), pet. granted, judgment vacated w.r.m.
  • Strebel v. Wimberly, 371 S.W.3d 267 (Tex. App.—Houston [1st Dist.] 2012, pet. denied).
In those cases, LLC operating agreements included language that managers owed duties to “the Company and its members.” The courts treated such provisions as creating fiduciary duties owed by members to other members in their individual capacities in the closely held LLC context. The Supreme Court distinguishes those cases on two crucial grounds:
  1. Party status: In Allen and Strebel, the complaining members were signatories to the LLC agreements, which functioned as mutual contracts between co-owners. In UMTH, the Shareholders are not parties to the advisory agreement.
  2. Entity type and structure: Closely held LLCs often operate more like partnerships, with direct contractual arrangements among a small number of owners. By contrast, the Trust here is a public REIT with more than 12,000 shareholders, governed by traditional corporate law principles and separate entity status.
Thus, if parties to a contract among members of a closely held entity clearly opt to create member-to-member duties, courts may respect that arrangement. But UMTH refuses to extrapolate that logic to public, entity-level contracts where shareholders are non-signatories.

4. Third-Party Beneficiaries: Basic Capital, First Bank, and MCI Telecomms

On the third-party beneficiary argument, the Court invokes three key precedents:
  • Basic Capital Management, Inc. v. Dynex Commercial, Inc., 348 S.W.3d 894 (Tex. 2011) – Courts will not create third-party beneficiary contracts by implication; the intent must be clear.
  • First Bank v. Brumitt, 519 S.W.3d 95 (Tex. 2017) – Reinforces a strong presumption against third-party beneficiaries; the intent to confer rights must be clearly and fully spelled out in the contract itself.
  • MCI Telecommunications Corp. v. Texas Utilities Electric Co., 995 S.W.2d 647 (Tex. 1999) – Affirms the presumption against third-party beneficiary status and the need for clear language.
Applying these principles, the Court holds:
  • It is not enough that shareholders benefit from the advisor’s performance—they are always indirect beneficiaries of corporate contracts.
  • The advisory agreement’s text does not “clearly and fully spell out” any intent to grant individual enforcement rights to thousands of shareholders.
  • Any doubt must be resolved against finding third-party beneficiary status.
Thus, even outside the shareholder context, a non-signatory cannot enforce a contract absent clear, unequivocal language demonstrating that the contract was made for that person’s direct benefit.

5. Derivative Law and Internal Affairs: Texas BOC and Kamen

The Court touches on derivative law through:
  • Tex. Bus. Orgs. Code § 21.552(a), requiring that a derivative plaintiff:
    • Was a shareholder at the time of the complained-of act; and
    • Own shares throughout the litigation (“institute or maintain” requirement interpreted as requiring continuous ownership).
  • Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (1991), which holds that the law of the state of incorporation governs derivative litigation concerning that entity.
While the Trust is a Maryland entity and Maryland law ultimately governs derivative rights, these references set the stage for the broader principle:
  • Derivative rules protect corporate separateness and centralized management.
  • The forum and substantive rules for derivative claims are determined by the entity’s state of formation and its governing documents.

6. Mandamus and Forum Selection: Prudential, AIU, Pinto, J.B. Hunt

For mandamus relief, the Court cites:
  • In re Prudential Insurance Co. of America, 148 S.W.3d 124 (Tex. 2004) and Walker v. Packer, 827 S.W.2d 833 (Tex. 1992) – Trial courts have no discretion to misapply the law; mandamus is appropriate when a clear legal error leaves no adequate appellate remedy.
  • In re AIU Insurance Co., 148 S.W.3d 109 (Tex. 2004) and In re Laibe Corp., 307 S.W.3d 314 (Tex. 2010) – Mandamus is appropriate to enforce forum-selection clauses as a way to prevent “meaningless waste of judicial resources.”
  • Pinto Technology Ventures, L.P. v. Sheldon, 526 S.W.3d 428 (Tex. 2017) – Proceeding in the wrong forum injects inefficiency, encourages forum-shopping, and delays resolution on the merits.
  • In re J.B. Hunt Transport, Inc., 492 S.W.3d 287 (Tex. 2016) – Mandamus may be used to avoid “unnecessary waste of economic and judicial resources” when a case is proceeding in the wrong court.
Although the case does not involve a classic bilateral commercial forum-selection clause, the Court analogizes the Trust’s exclusive derivative forum provision and the derivative nature of the claims to a forum-selection problem: the wrong kind of suit is in the wrong place.

C. The Court’s Legal Reasoning

1. Standing Confirmed; Capacity Denied

The Court first resolves jurisdiction:
  • The Shareholders allege a financial injury (loss due to mismanagement, waste, diversion of funds, and diminution in share value).
    • Pike, such financial harm to an ownership interest is enough for constitutional standing.
  • Derivative ownership requirements do not negate standing; instead, they go to capacity, i.e., whether the plaintiff may pursue relief in the asserted capacity.
Thus, the trial court had subject-matter jurisdiction, but it still had to decide whether the Shareholders were the proper parties to assert these claims directly.

2. No Direct Individual Cause of Action Arises From the Advisory Agreement

The crux of the capacity analysis lies in the advisory agreement’s statement that the Advisor is in a fiduciary relationship with “the Trust and its Shareholders.” The Court’s interpretive steps:
  1. Text and parties:
    • The agreement is between the Trust and UMTH only. No individual shareholder is a party.
    • Greenlaw signed as CEO of the Trust, acting on behalf of the Trust and, by extension, its shareholder body.
  2. Definition of “Shareholders”:
    • Defined as “record holders of the Shares as maintained in the books and records of the Trust or its transfer agent.”
    • This is a descriptive definition of the beneficial owners of the Trust, not a conferral of contract party status.
  3. Collective vs. individual duties:
    • Drawing on Estate of Poe and Ritchie, the Court holds that fiduciary duties are owed to the corporation (or Trust) and its shareholders collectively.
    • Implying a distinct fiduciary duty to each of 12,000+ individual shareholders would conflict with duties owed to the Trust as an entity.
    • Such conflicting individualized duties would be “unworkable” and contrary to fundamental corporate governance principles.
  4. Need for explicit individual undertakings:
    • The Court acknowledges that parties could contractually create duties to particular shareholders (e.g., in a shareholders’ agreement in a closely-held corporation).
    • But such a duty cannot be inferred in the absence of:
      • Express recognition of the shareholder as a party in their individual capacity; and
      • Clear language imposing duties directly to that individual shareholder.
  5. Governing documents confirm the absence of direct rights:
    • The Trust declaration explicitly states that shareholders:
      • Have no interest in Trust assets; and
      • Have no right to compel distributions or division of Trust property.
    • These provisions reinforce the notion that any benefit or right under the advisory agreement is mediated through the Trust and not held directly by individual shareholders.
The Court therefore holds that the advisory agreement does not create a direct contractual or fiduciary duty to each individual shareholder and thus does not supply a personal cause of action in any one shareholder.

3. No Individual Third-Party Beneficiary Status for Shareholders

As an alternative theory, the Shareholders claimed third-party beneficiary status under the advisory agreement. The Court disposes of this argument on two levels:
  1. Corporate law level:
    • Every corporate contract is intended, in a broad sense, to benefit the entity’s owners. If that were enough for third-party beneficiary status:
      • Every shareholder would be a direct beneficiary of every corporate contract; and
      • The derivative/direct distinction would collapse, as individual shareholders could sue counterparties directly for breaches of corporate contracts.
    • The Court rejects this as “too much”; shareholders are beneficiaries only in the collective sense, through the corporate entity.
  2. General contract law level:
    • Texas law presumes contracts are for the benefit of the parties alone.
    • Third-party beneficiary status is disfavored and must be clearly and fully spelled out in the contract’s terms.
    • Mere knowledge that a third party will benefit is not enough; there must be an unambiguous intent to confer a direct right to enforce the contract.
    • Any ambiguity is resolved against third-party beneficiary status.
Applying these principles, the Court holds:
  • The advisory agreement’s scattered references to “shareholders” and their indirect benefits do not clearly confer separate enforcement rights on individual shareholders.
  • Therefore, the Shareholders are not third-party beneficiaries entitled to sue on the agreement in their own names.
Because the Shareholders lack a personal cause of action, the Court does not even need to reach whether they suffered a personal injury distinct from the entity’s injury. Under Wingate, both are required; the Shareholders fail at the first step.

4. Mandamus: Why Appeal Is Not an Adequate Remedy

Having found that the Shareholders lack capacity and that their claims are derivative in substance, the Court turns to the remedy. Mandamus is appropriate when:
  • The trial court clearly errs in applying the law; and
  • The relator has no adequate remedy by appeal.
Here, the Court identifies several reasons why appeal is inadequate:
  1. Forum and internal-affairs concerns:
    • The Trust’s governing documents require derivative claims to be brought in Maryland under Maryland law.
    • Allowing a Texas case to proceed on what are in substance derivative claims undermines the entity’s chosen governance structure and internal-affairs law.
  2. Waste of judicial and party resources:
    • Allowing extensive proceedings in the wrong forum on claims that the plaintiffs lack capacity to assert directly would be an “irreversible waste of judicial and public resources.”
    • This mirrors the rationale for mandamus enforcement of forum-selection clauses.
  3. Reliance interests of third parties:
    • Those who contract with corporations or REITs expect to deal with a properly governed entity, in which:
      • Derivative claims are filtered through the board and derivative procedures;
      • They are not exposed to inconsistent, competing suits by multiple shareholders seeking to bypass statutory protections.
    • Permitting direct suits in contradiction of this framework would unravel these expectations and increase litigation uncertainty.
  4. Incurable capacity defect:
    • The defect in capacity is not a pleading technicality; it is structural.
    • There is no way to replead the Texas action as a proper direct suit, because the rights in question belong to the Trust and may be enforced only by or on its behalf derivatively, in Maryland.
The Court therefore conditionally grants mandamus and directs dismissal of the Texas case with prejudice, emphasizing that any derivative enforcement must occur in Maryland.

D. Impact and Implications

1. For Corporate and REIT Advisory Agreements

The opinion has immediate practical implications for how advisory and service contracts are drafted and litigated:
  • Language referring to “the Company and its shareholders” will not be read as creating individual shareholder causes of action.
  • External advisors (investment managers, administrators, consultants) can rely on the principle that:
    • Duties run to the entity (and shareholders collectively), not to each shareholder individually;
    • Enforcement of those duties is through the entity or derivative suits—not thousands of direct individual suits.
  • If parties do want to create direct causes of action in favor of specific shareholders or investor groups, they will need to do so explicitly:
    • By naming those shareholders as parties;
    • By clearly stating the rights and remedies those shareholders have; and
    • By acknowledging (and managing) possible conflicts with entity-level duties.
This will be especially important in the REIT, fund, and private equity context, where external advisory agreements commonly include generic references to “the shareholders” or “the investors.”

2. For Shareholder Litigation Strategy

From a litigation standpoint, UMTH sends a clear signal:
  • Attempts to recast fundamentally derivative claims as direct contract claims against third parties—based solely on fiduciary-relationship language in an advisory contract—will face strong resistance in Texas courts.
  • Derivative litigation must respect:
    • The entity’s chosen state of formation;
    • That state’s corporate or trust law (including demand and demand-futility standards); and
    • Any exclusive-forum or choice-of-law provisions in the entity’s governing documents.
  • Shareholders harmed by alleged mismanagement of a Maryland REIT must vindicate those harms through derivative procedures, in Maryland courts, subject to Maryland law—unless and until the trust’s governance documents or Maryland law itself dictate otherwise.
For activist investors and their counsel, the opinion underscores that corporate internal-affairs rules and derivative procedures cannot be circumvented via creative contract theories in other states.

3. For Internal Affairs and Forum-Selection Jurisprudence

While not a pure “forum-selection clause” case, UMTH effectively:
  • Extends the logic of forum-selection enforcement (via mandamus) to the status of derivative claims governed by an entity’s internal governance documents.
  • Aligns Texas law with a broader national trend respecting exclusive-forum provisions in corporate charters and bylaws, particularly those selecting the state of incorporation for internal-affairs disputes.
  • Reinforces the Kamen principle that the state of incorporation’s law governs derivative procedural and substantive rules.
The opinion therefore enhances predictability for multi-jurisdictional business entities whose investors reside or litigate in Texas.

4. For Third Parties Doing Business With Corporate Entities

The Court explicitly notes that third parties “depend on the corporate framework” to ensure they are dealing with an entity run by its board, with predictable rules about who can sue and how. UMTH:
  • Protects advisors, lenders, underwriters, and other contractual counterparties from being sued directly by individual shareholders for entity-level breaches of corporate governance, absent explicit contractual provisions.
  • Reduces the risk of fragmented litigation in multiple jurisdictions brought by different subsets of shareholders all claiming direct injuries from the same alleged corporate wrongs.
This promotes transactional certainty and reduces litigation exposure for counterparties who rely on the integrity of the entity-derivative framework.

5. For Investor Protection and Corporate Governance Policy

On the policy side, there is a tradeoff:
  • Investor protection concerns:
    • Exclusive-forum and entity-centric rules can make it more difficult and costly for shareholders to pursue remedies, especially if:
      • The chosen forum is distant;
      • The entity’s governing law is perceived as management-friendly; or
      • Derivative standing rules are strict.
    • By cutting off direct contract routes, UMTH consolidates investor redress in derivative actions, which can be more procedurally demanding.
  • Corporate governance and efficiency concerns:
    • The decision reinforces centralized oversight by boards and trustees and preserves coherent internal governance rules.
    • It avoids a patchwork of shareholder-driven litigation in multiple fora that could undermine stable management and transactional predictability.
The opinion plainly favors the latter set of concerns, emphasizing collective shareholder interests mediated through the entity and the avoidance of unstructured direct shareholder suits.

E. Complex Concepts Simplified

To make the legal reasoning more accessible, the following key concepts are worth spelling out in simple terms.

1. Constitutional Standing vs. Capacity

  • Standing asks: Have you, personally, been harmed in a way the court can fix?
    • Example: If your shares in a company lose value due to alleged misconduct, you have suffered an injury-in-fact.
  • Capacity asks: Are you the right kind of party, in the right role, to bring this particular kind of claim?
    • Example: Even if your shares lost value, if the law says that such harms must be vindicated only by the corporation or through a special derivative action, then you lack capacity to sue individually for that harm.
In UMTH, the shareholders had standing (they alleged loss), but lacked capacity (the claims legally belonged to the Trust).

2. Derivative vs. Direct Shareholder Suits

  • Direct suit:
    • The shareholder claims the defendant violated a duty owed directly to the shareholder as an individual (e.g., a personal contract with that shareholder, or misrepresentations made directly to them).
    • The shareholder sues in their own name and keeps any recovery (subject to class action procedures, if applicable).
  • Derivative suit:
    • The shareholder claims that the corporation itself was harmed (e.g., directors looted the company, or the company was mismanaged).
    • The shareholder sues on behalf of the corporation.
    • Any recovery goes to the corporation, not directly to the suing shareholder, although share value may increase as a result.
    • Special rules apply (demand on the board, continuous ownership, etc.) to reflect the fact that the corporation, not the shareholder, is the real party in interest.
The claims in UMTH—corporate waste, mismanagement, diversion of funds—are classic derivative claims, because they allege harm to the Trust as an entity.

3. Fiduciary Duties to the Entity vs. to Individual Shareholders

A fiduciary duty is a duty of loyalty and care owed by one party (e.g., a director, officer, or advisor) to another, obligating the fiduciary to act in the beneficiary’s best interest.
  • In corporate law, these duties are primarily owed to the corporation and its shareholders as a group.
  • Individual shareholders typically do not have their own personal fiduciary relationship with the corporation’s directors or advisors, unless there are special circumstances or explicit contractual undertakings.
If a fiduciary were required to serve each individual shareholder’s interests as a separate client, duties could conflict. For example, some shareholders might prefer short-term gains; others might prefer long-term stability. The law therefore routes fiduciary duties through the corporate entity as a central decision-making body.

4. Third-Party Beneficiaries of Contracts

A third-party beneficiary is someone who is not a party to a contract but is allowed to enforce it because the contract was made specifically for that person’s benefit.
  • Example: A life insurance policy might name a spouse or child as beneficiary; the spouse or child can enforce the contract, even though they did not sign it.
  • By contrast, a person who just happens to benefit from a contract (e.g., neighbors benefiting from a road-building contract) is usually not a third-party beneficiary.
Texas law presumes contracts are only for the benefit of the parties who signed them. To overcome that presumption:
  • The contract must clearly show that the parties intended to give a direct right of enforcement to the third party.
  • Vague references to someone benefiting, or mere foreseeability of benefit, are not enough.
In UMTH, the advisory contract does not clearly state that individual shareholders can sue to enforce it. Thus they are, at most, incidental beneficiaries.

5. Mandamus Relief

A writ of mandamus is an extraordinary court order directing a lower court or public official to perform a specific act correctly when:
  • The lower court made a clear legal error; and
  • There is no adequate remedy by ordinary appeal (e.g., because an appeal would come too late to fix the problem, or would waste vast resources).
In UMTH, the Supreme Court of Texas uses mandamus to:
  • Correct the trial court’s refusal to sustain the plea in abatement; and
  • Prevent years of litigation and expense in Texas on claims that must, if at all, be pursued derivatively in Maryland.

V. Conclusion

In re UMTH General Services, L.P. is an important clarification and reinforcement of several foundational principles in Texas corporate and contract law:
  • Collective enforcement of entity-level contracts: Contractual language stating that an advisor owes a duty to “the [entity] and its shareholders” does not, without more, create direct enforcement rights in individual shareholders.
  • Derivative vs. direct claims preserved: Classic corporate injuries (waste, mismanagement, diversion of funds, diminution in share value) remain the province of derivative litigation, not individual direct suits, even if shareholders can allege standing-level harm.
  • Standing vs. capacity distinction sharpened: Shareholders may have standing (injury-in-fact) but lack capacity (the legal authority) to bring claims that belong to the corporation or must be pursued derivatively.
  • Third-party beneficiary status tightly constrained: Investors are not, merely by virtue of owning shares, third-party beneficiaries of the corporation’s contracts with advisors, lenders, or other third parties. Clear, explicit contract language is required to create such rights.
  • Respect for internal affairs and exclusive-forum rules: Texas courts will not facilitate end-runs around another state’s corporate law and an entity’s forum-selection provisions by allowing direct suits on derivative claims in Texas.
Together, these holdings reinforce the corporate law architecture that channels entity-level disputes through derivative mechanisms and the internal law of the entity’s state of formation. For advisors and corporate counterparties, the decision provides significant assurance against fragmented shareholder suits. For investors, it underscores that their primary path for redressing entity-level harms remains derivative litigation in the proper forum, rather than recharacterizing those harms as direct contract claims elsewhere.

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