Houghton v. Malibu Boats: Shareholder Standing Is Prudential and Forfeitable in Tennessee; Derivative Statutory Requirements Do Not Strip Jurisdiction

Introduction

This commentary analyzes the Supreme Court of Tennessee’s decision in Brett W. Houghton et al. v. Malibu Boats, LLC (No. E2023-00324-SC-R11-CV, Oct. 22, 2025), a precedential opinion that clarifies the taxonomy of “standing” in Tennessee civil practice and draws bright procedural lines around when and how a defendant may raise a standing objection. The dispute arose from the collapse of a Malibu Boats dealership operated by a closely held corporation owned by Brett and Ceree Houghton. After a jury awarded the Houghtons $900,000 in compensatory damages for “loss of equity in dealership buildings,” Malibu moved for judgment notwithstanding the verdict/new trial and, at the hearing, orally raised—for the first time—a standing objection framed as a jurisdictional defect. The trial court dismissed for lack of subject matter jurisdiction, reasoning that the claims belonged to the corporation and could be brought only derivatively under Tennessee’s shareholder-derivative statute. The Court of Appeals reversed, and the Supreme Court affirmed.

The Tennessee Supreme Court’s key holdings are two-fold:

• The Houghtons possessed constitutional standing under the Tennessee Constitution’s private-rights framework as recently explained in Case v. Wilmington Trust, N.A.
• The challenge Malibu advanced was not “statutory standing” depriving the court of subject matter jurisdiction; it was a prudential, shareholder-standing limitation that is non-jurisdictional and therefore subject to forfeiture when raised post-trial.

This decision provides a clear doctrinal map distinguishing constitutional standing, statutory standing, and shareholder-standing limits; confirms shareholder standing is a merits constraint rather than a jurisdictional bar; and instructs litigants that untimely shareholder-standing objections are forfeited when first asserted after a jury verdict.

Summary of the Opinion

The Court, in an opinion by Chief Justice Jeffrey S. Bivins (joined by Justices Kirby, Campbell, and Wagner; Justice Tarwater not participating), affirmed the Court of Appeals and remanded for the trial court to address Malibu’s remaining post-trial issues that had been pretermitted by the dismissal.

The Court held:

• Constitutional standing: In a private-rights case, injury in law suffices. The Houghtons alleged injury to a cognizable property interest—the value of their stock in Great Wakes—based on Malibu’s alleged intentional torts. That legal injury satisfies constitutional standing under Article I, § 17 as construed in Wilmington Trust.
• Statutory standing: The trial court erred by characterizing Malibu’s objection as “statutory standing” under the shareholder-derivative statute (Tenn. Code Ann. § 48-17-401). The plaintiffs did not file a derivative suit; they filed individual tort claims. The derivative statute’s prerequisites do not supply a jurisdictional bar to an individual suit’s adjudication.
• Shareholder standing: The substance of Malibu’s challenge went to the shareholder-standing rule (a prudential, non-jurisdictional limitation on suits enforcing corporate rights). Such objections must be timely asserted via the appropriate procedural vehicles (e.g., Rule 12.02(6), Rule 12.03, or at trial), and cannot be raised for the first time after the jury returns a verdict. Malibu forfeited the issue.

Result: Judgment of the Court of Appeals affirmed; case remanded for the trial court to take up Malibu’s remaining post-trial arguments (e.g., damages measurement issues such as benefit-of-the-bargain and debt offsets).

Background and Procedural Posture

• Parties and relationship: Great Wakes Boating, Inc., a Tennessee corporation wholly owned by Brett and Ceree Houghton, was an authorized Malibu Boats dealer. Great Wakes owned its dealership real properties and used floor-plan financing to carry inventory. The Houghtons personally guaranteed certain obligations.
• Breakdown: Malibu terminated Great Wakes as a dealer in early 2015, shifted the territory to a new dealer (Sunny Marine), and cut off system access and boat orders. Great Wakes closed, creditors obtained judgments, the real properties were foreclosed, and the Houghtons filed bankruptcy.
• Suit: In 2018, the Houghtons individually sued Malibu for intentional misrepresentation, fraudulent concealment, and promissory fraud, seeking damages for the destruction of their business, loss of stock value, and loss of personal assets invested in the business. The jury returned a plaintiff’s verdict and awarded $900,000 solely for “loss of equity in dealership buildings.”
• Post-trial: Malibu moved for JNOV/new trial on damages theories, then orally raised a new jurisdictional “standing” objection at the hearing—arguing the real-property-related damages belonged to the corporation and could be sought only via a shareholder-derivative action. The trial court dismissed for lack of subject matter jurisdiction, equating the asserted defect with lack of “statutory standing.”
• Appeal: The Court of Appeals reversed, holding that the issue was a non-jurisdictional shareholder-standing limitation that Malibu had waived by raising it too late. The Supreme Court granted permission to appeal and affirmed.

Detailed Analysis

1) Precedents and Authorities Shaping the Court’s Decision

• Case v. Wilmington Trust, N.A., 703 S.W.3d 274 (Tenn. 2024): Reframed Tennessee constitutional standing under the Open Courts Clause. In private-rights cases, “injury in law” suffices; no separate “injury in fact” is required, though public-rights cases still require injury in fact plus causation and redressability. The Court leans on this to find constitutional standing.
• Keller v. Estate of McRedmond, 495 S.W.3d 852 (Tenn. 2016): Adopted Tooley’s test to distinguish direct from derivative shareholder claims: who suffered the alleged harm and who would receive the remedy. Confirms that shareholders can sue individually if they suffer a direct injury to their own legal rights, even if the corporation also has a claim.
• Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004): The analytic framework Tennessee follows in Keller to differentiate direct and derivative claims.
• Franchise Tax Board v. Alcan Aluminum Ltd., 493 U.S. 331 (1990): Recognized that a diminution in the value of stockholdings constitutes a sufficient injury for constitutional standing, a point the Court uses to support constitutional standing here.
• Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014): Clarifies that what’s often called “statutory standing” is about whether a plaintiff falls within a statute’s zone of interests—often a merits question rather than a jurisdictional one. The Tennessee Supreme Court reasons that the derivative statute’s prerequisites do not deprive courts of subject matter jurisdiction over non-derivative suits.
• Osborn v. Marr, 127 S.W.3d 737 (Tenn. 2004), and In re Estate of Smallman, 398 S.W.3d 134 (Tenn. 2013): Say that when a statute creates a cause of action and designates who may sue, that requirement can be jurisdictional. The Court distinguishes these authorities because the plaintiffs here did not invoke a statutory cause of action with statutorily limited plaintiffs; they pursued common-law intentional torts.
• City of Memphis v. Hargett, 414 S.W.3d 88 (Tenn. 2013): Notes that prudential (non-constitutional) standing concepts are not jurisdictional and can be waived.
• Potter v. Cozen & O’Connor, 46 F.4th 148 (3d Cir. 2022): Holds the shareholder-standing rule is non-jurisdictional and goes to the merits (failure to state a claim), not the court’s power to hear a case. The Tennessee Supreme Court finds Potter persuasive, especially where shareholders allege diminution of their ownership interests.
• Pike v. Texas EMC Mgmt., LLC, 610 S.W.3d 763 (Tex. 2020): Similar insight—stakeholders have constitutional standing to sue for loss in the value of their interests, with other limitations going to the merits.
• June Medical Services LLC v. Russo, 591 U.S. 299 (2020): Reaffirms third-party standing is prudential and can be waived. Helps frame shareholder standing as prudential too.
• Wasserman v. Franklin County, 911 S.E.2d 583 (Ga. 2025): The Georgia Supreme Court treated “pure” third-party standing as a constitutional limit in Georgia. Tennessee distinguishes Wasserman because the Houghtons alleged violation of their own legal interests, not solely the rights of absent third parties.
• Bell v. Hood, 327 U.S. 678 (1946): The absence of a valid cause of action does not defeat subject matter jurisdiction. The Court uses this to emphasize that shareholder-standing objections address the merits, not jurisdiction.
• Procedural authorities: Tenn. R. Civ. P. 12.02(1), 12.02(6), 12.03, 12.06, and 12.08; Knierim v. Leatherwood, 542 S.W.2d 806 (Tenn. 1976); Yarbrough v. Stiles, 717 S.W.2d 886 (Tenn. Ct. App. 1986). These delineate how and when merits-based objections (like shareholder standing and failure to state a claim) must be timely raised—and that such objections cannot first be raised post-verdict.

2) The Court’s Legal Reasoning

The Court separates three “standing” concepts and applies each in turn.

• Constitutional standing (private rights; injury in law suffices):
  • Under Wilmington Trust, Tennessee’s Open Courts Clause guarantees remedy for “injury done” to one’s “lands, goods, person or reputation.” For private-rights claims (like intentional torts between private parties), it is enough to allege a legal injury to a cognizable legal interest—no additional “injury in fact” is required.
  • The Houghtons allege injury to their property rights as shareholders—the value of their stock in Great Wakes—flowing from Malibu’s alleged intentional misrepresentation, fraudulent concealment, and promissory fraud. That is a classic legal injury recognized at common law and satisfies constitutional standing. The fact that the damages calculation included “loss of equity in dealership buildings” (an asset of the corporation) does not negate that the alleged tortious conduct injured the Houghtons’ legal interest in the value of their shares.
• “Statutory standing” (derivative action prerequisites):
  • The trial court misapplied the “statutory standing” rubric. The plaintiffs did not invoke a statute that creates a cause of action and limits who may sue; they brought common-law tort claims. Because no derivative action was filed, derivative-action prerequisites under Tenn. Code Ann. § 48-17-401 do not define the court’s jurisdiction to adjudicate the claims actually pleaded.
  • The derivative statute remains relevant when a shareholder chooses the derivative vehicle or when a plaintiff’s claims are derivative in substance. But it is not a jurisdictional trap for non-derivative suits alleging direct injury.
• Shareholder standing (prudential; merits, not jurisdiction):
  • Shareholder-standing limits are a prudential adaptation of third-party standing: generally, a shareholder may not sue to enforce corporate rights unless pursuing a derivative action; however, a shareholder may bring a direct suit to vindicate a direct, personal injury to his or her own legal rights.
  • As Keller/Tooley instruct, the analysis asks: who suffered the alleged harm, and who would receive the benefit of recovery? The Court acknowledges Malibu’s argument that the “real property equity” injury looks corporate in character, but concludes this goes to the merits—i.e., whether the plaintiffs proved a direct, individual injury—rather than to jurisdiction.
  • Shareholder-standing defects must therefore be raised through proper merits vehicles (answer-specific denial, Rule 12.02(6) motion to dismiss for failure to state a claim, Rule 12.03 motion for judgment on the pleadings, Rule 12.06 motion to strike, or a properly timed motion during trial), not through a Rule 12.02(1) jurisdictional attack. Critically, such objections cannot be raised for the first time after the jury’s verdict.

3) Forfeiture of Malibu’s Shareholder-Standing Challenge

Having classified the objection as prudential and merits-based, the Court turns to timing. Malibu never articulated a standing challenge in its pleadings, pre-trial motions, directed-verdict motion, or proposed instructions, even though the complaint and trial record made clear that the real property was owned by the corporation and that the plaintiffs sought “loss of equity in dealership buildings.” Malibu raised “standing” only orally at the hearing on its post-trial JNOV/new-trial motion. That is too late.

Under Rule 12.08, failure-to-state-a-claim objections may be raised “at the trial on the merits,” but not for the first time after trial in a post-verdict JNOV posture. Consequently, the shareholder-standing objection was forfeited.

4) The Opinion’s Careful Use of Comparative Authority

• The Court distinguishes Georgia’s Wasserman decision because Wasserman addressed “pure” third-party claims asserting only the rights of absent parties. By contrast, the Houghtons alleged injury to their own legal interests (stock value), even though the corporation also suffered harm.
• Potter is persuasive because it squarely treats shareholder standing as a non-jurisdictional, merits limitation, consistent with Tennessee’s own precedents on prudential standing.

Impact and Practical Consequences

• Standing taxonomy clarified:
  • Constitutional standing in private-rights cases hinges on injury in law to a cognizable legal interest; it is satisfied here by alleged injury to stock value from intentional torts.
  • “Statutory standing” as a jurisdictional bar arises only when a statute both creates the cause of action and defines who may sue; derivative-action prerequisites do not strip jurisdiction from a court adjudicating common-law tort claims.
  • Shareholder standing is prudential/merits-based, not jurisdictional; it is subject to forfeiture if not timely asserted.
• Procedural discipline for defendants:
  • Defendants must raise shareholder-standing objections early and through proper vehicles: specific denials in the answer, Rule 12.02(6), Rule 12.03, Rule 12.06, and/or at trial via motions directed to the evidence and jury charge.
  • Post-verdict ambushes framed as “subject matter jurisdiction” will fail where the objection is prudential in character. Once a jury returns its verdict, a merits-based standing objection is too late.
• Pleading and proof for plaintiffs:
  • Plaintiffs who are shareholders may proceed directly if they can show a direct injury to their legal rights as stockholders (e.g., diminution in stock value from a tort to them), even if the corporation also has a claim.
  • When damages implicate corporate assets (like real property), plaintiffs should be precise about how those losses flow into a direct shareholder injury (e.g., reduced equity value) and ensure the verdict form and proof align with a direct-claim theory under Keller/Tooley.
• Trial management and verdict stability:
  • Courts will not set aside a jury verdict on a prudential, merits-grounded standing theory raised only after trial. This promotes finality and discourages strategic sandbagging.
• Unresolved issues on remand:
  • The trial court must now address Malibu’s preserved post-trial arguments regarding damages, including the “benefit-of-the-bargain” rule and whether debt should be considered in calculating “loss of equity.” Those questions go to damages law, not standing.

Complex Concepts Simplified

• Constitutional standing (Tennessee, private-rights cases): You have access to court if you allege a violation of a legal right recognized by law (“injury in law”)—you need not show a separate factual harm beyond that legal injury. Example: If a tort violates your property rights (like the value of your shares), you satisfy constitutional standing.
• “Statutory standing”: A shorthand for whether a statute creating a cause of action authorizes a particular plaintiff to sue. If the plaintiff sues under common law, not a statute limiting who may sue, “statutory standing” is generally not in play as a jurisdictional bar.
• Shareholder standing rule: A prudential doctrine limiting a shareholder’s ability to sue for injuries to the corporation unless proceeding derivatively. Exception: a shareholder may sue directly for a direct, personal injury to the shareholder’s legal rights (e.g., direct misrepresentations to the shareholder causing personal loss). Whether a claim is direct or derivative is a merits question.
• Derivative action: A special, statutorily regulated device allowing shareholders to sue on the corporation’s behalf when management declines to act. It has verification and demand prerequisites. These are mandatory for derivative suits, but they do not control or defeat jurisdiction over an entirely different, individual action.
• Forfeiture vs waiver:
  • Forfeiture: Losing a right by failing to assert it in time (e.g., raising a merits-based standing objection only after a jury verdict).
  • Waiver: Intentional relinquishment of a known right.
• Damnum absque injuria: A harm without violation of a legal right, which is not actionable. The Court rejects Malibu’s attempt to recast the plaintiffs’ claimed losses as such because the alleged torts injured a cognizable legal interest: the value of the Houghtons’ stock.
• Benefit-of-the-bargain damages: In fraud, often measured as the difference between what was promised (if the misrepresentation had been true) and what was received. This goes to damages proof, not standing, and remains open on remand.

How the Court Applied These Rules to the Facts

• The complaint alleged intentional torts by Malibu that directly affected the Houghtons as owners (loss of business, loss of stock value, loss of invested personal assets). Under Wilmington Trust’s private-rights model, that is enough for constitutional standing.
• Although the jury awarded loss-of-equity damages tied to corporate real estate, the Court treated that damages characterization as a merits question about whether the claim is properly direct or derivative, not a jurisdictional problem.
• Because Malibu did not timely raise a Keller/Tooley-based shareholder-standing or failure-to-state-a-claim objection during the pleadings, pre-trial motions, or trial, it forfeited the point by waiting until the post-verdict JNOV hearing.

Practical Takeaways for Litigators

• Defense counsel:
  • Vet shareholder-standing objections early. Use Rule 12.02(6) or comparable vehicles and press the Keller/Tooley framework. Consider Rule 12.03 or targeted motions to strike or in limine as appropriate.
  • Do not assume you can repackage prudential or merits defects as “subject matter jurisdiction” after losing at trial. Post-verdict first assertions are forfeited.
  • Request verdict forms and instructions that track the direct-vs-derivative theory you are contesting, and move for directed verdict on that basis if necessary.
• Plaintiffs’ counsel:
  • Plead the direct injury and tie damages to the shareholder’s legal interest (e.g., stock value), especially where corporate assets are involved. Align expert proof and verdict forms to the direct-claim theory.
  • Anticipate derivative-defense arguments and frame how alleged misrepresentations or concealment targeted or directly injured the shareholders themselves.
• Trial courts:
  • Classify standing challenges precisely. Reserve subject matter jurisdiction rulings for true constitutional or statutory-jurisdictional defects. Treat shareholder-standing disputes as merits issues subject to preservation and forfeiture rules.
  • At the charge conference, ensure the verdict form reflects the parties’ theories (e.g., separate lines where proof separately values operating company and real property).

Conclusion

Houghton v. Malibu Boats is an important procedural and substantive clarification in Tennessee law. Doctrinally, it deploys Wilmington Trust’s private-rights model to affirm constitutional standing for shareholders alleging injury to stock value from intentional torts. It disavows the trial court’s “statutory standing” approach, emphasizing that derivative-action prerequisites do not divest courts of jurisdiction over non-derivative, common-law suits. And it squarely classifies the shareholder-standing rule as a prudential, non-jurisdictional limitation that goes to the merits and is subject to forfeiture if not timely raised.

The opinion’s practical message is clear: defendants must press shareholder-standing defenses early and properly, and courts should resist post-verdict rebranding of merits objections as jurisdictional defects. On remand, the trial court will address Malibu’s preserved damages challenges—such as benefit-of-the-bargain and debt-offset issues—on a clean procedural slate. In the broader legal context, this decision reinforces the distinction between jurisdictional limits and merits constraints, promotes orderly motion practice, and bolsters verdict stability against late-arising, prudential standing objections.