Justice Jane Bland
The Texas Supreme Court has thrown out a lawsuit filed in Dallas County by shareholders of a Maryland-based real estate investment trust against the trust’s advisors, alleging individual harm from the advisors’ corporate mismanagement. The court concluded that the shareholders lacked capacity to sue for individual harm under the trust’s agreement with the advisors. Instead, their proper course was to bring a derivative suit in Maryland as specified by the trust agreement’s forum-selection clause.
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; November 14, 2025) arose from a dispute between shareholders of a Maryland-based real estate investment trust, the trust, and the trust advisor. The trust’s governing documents specified that Maryland was the exclusive forum for derivative actions against the trust’s management. The shareholder, Nexpoint (also a real estate trust) filed a derivative suit against the trust (which is not a party to the underlying suit) in Maryland for mismanagement after the trustees came under criminal investigation. The Maryland court dismissed that suit for lack of standing. While the derivative suit was pending, however, Nexpoint and its subsidiary sued UMTH and its affiliates (the Advisors) in Dallas County. The suit alleged corporate waste and mismanagement and that the Advisors owed each shareholder an individual duty. This duty, Nexpoint argued, allowed the shareholders, who were non-signatories to the advisory agreement between the trust and the Advisors, to sue the Advisors directly. The advisory agreement specified that Texas law governs disputes, hence the Dallas venue. The Advisors filed a plea to the jurisdiction, claiming that the shareholders’ claims were derivative and owned by the trust. The shareholders thus didn’t have standing or capacity to sue. The trial court denied the plea, the Dallas Court of Appeals denied mandamus relief, and the Advisors took the matter up to SCOTX.
In an opinion by Justice Bland, the court granted the Advisors’ mandamus petition. The Advisors first argued that the shareholders lacked derivative standing. The shareholders responded that the ownership requirements necessary to confer derivative standing don’t apply to their claims because the shareholders alleged their claims as individuals and not derivatively on behalf of the trust. The court agreed, pointing to its holding in Pike v. EMC Management, LLC, 610 S.W.3d 763 (Tex. 2020). In Pike the court held “that a partner or other stakeholder in a business organization has constitutional standing to sue for an alleged loss in the value of its interest in the organization.” Despite the fact that “a shareholder ordinarily cannot recover in an individual capacity for diminution in stock value resulting from an injury to the corporation, such an allegation satisfies the personal injury requirement for constitutional standing.”
The Advisors next argued that the shareholder, which transferred its shares to its subsidiary after it filed the derivative action in Maryland, didn’t meet the contemporaneous and continuous ownership for Texas derivative standing “because the subsidiary is the only record owner of shares and it did not obtain them until long after allegations of mismanagement and fraud surfaced.” The Texas derivative statute, § 21.552(a), BOC, requires share ownership to “institute or maintain a derivative proceeding.” But here the shareholders “disavow[ed] any intent to sue derivatively, conceding that the Trust’s governing documents foreclose a derivative action in Texas.” Given that Maryland was the exclusive forum for a derivative action and Maryland law controlled the question, the court reasoned, “[w]hether the Shareholders can bring a derivative action is a question for Maryland courts to consider under Maryland law.” With regard to the Texas suit, however, the shareholders had constitutional standing for their individual shareholder claims.
Although the shareholders had standing to sue, however, they did not have capacity to sue. The Advisors contended that the advisory agreement “benefited the Trust and its shareholders collectively, but the agreement did not confer a benefit on any individual shareholder.” The shareholders countered that the Advisors owed them an individual duty and that they are third-party beneficiaries of the advisory agreement. The court rejected this argument. The advisory agreement provided that the advisor “shall be deemed to be in a fiduciary relationship to the Trust and its Shareholders.” Interpreting “and its Shareholders” to refer to shareholders collectively, not individually, the court determined that the agreement did not confer a personal cause of action on each shareholder. “The principle of shareholder collectivity,” the court continued, “overcomes the ‘incompatible’ nature of simultaneous duties owed to a corporation and duties owed to a particular shareholder, whose interests may not align with the corporate entity as a whole.” While corporate agreements can expressly provide for separate duties to the corporation and to an individual shareholder, this one did not. Additionally, the shareholders were not parties to the advisory agreement in the first place.
Finally, the court rejected the shareholders’ argument that the advisory agreement conferred to them third-party beneficiary status. “Absent terms that unequivocally express the parties’ intent to confer third-party beneficiary status on thousands of individual shareholders,” Justice Bland wrote, “we decline to imply such status.” Under Texas law, moreover, there is a “presumption against, not in favor of, third-party beneficiary agreements.” Overcoming the presumption requires clear and express contractual language not present in this case.
Since the shareholders lacked capacity to sue the Advisors for individual claims, the Dallas trial court lacked subject matter jurisdiction, leaving the derivative claims subject to the trust agreement’s forum-selection and choice-of-law provisions. As to granting mandamus relief to enforce forum-selection clauses, the court observed that “when proceeding in the incorrect forum would result in ‘a meaningless waste of judicial resources,’” such relief is proper. Noting that “[p]roceeding in the wrong forum ‘inject[s] inefficiency by enabling forum-shopping, wasting judicial resources, delaying adjudication on the merits, and skewing settlement dynamics,’” the court determined that the Advisors lacked an adequate remedy by appeal. It granted their petition and instructed the trial court to vacate its order denying the plea in abatement, grant the plea, and dismiss the case with prejudice.
