SHARON McCALLY

Eric Gordon Walraven, Dallas, for Appellant. Richard Eugene Norman, Michael D. Robbins, Paul Harty Doyle, Constance O'Doherty Barnes, Houston, for Appellees.
Panel consists of Chief Justice FROST and Justices McCALLY and BUSBY.

PLURALITY OPINION

SHARON McCALLY, Justice.

Appellees Jeffrey Goldstein and Theodore Steinberg (collectively “plaintiffs”) each initiated a shareholder derivative suit on behalf of nominal defendant Isramco, Inc. against appellees Jackob Maimon, Max Pridgeon, Michelle R. Cinnamon–Flores, and Haim Tsuff (collectively “individual defendants”), as well as Goodrich Global Ltd. Following consolidation of the two cases and two years of informal discovery, the plaintiffs and defendants negotiated a settlement that the trial court preliminarily approved. Appellant Yuval Lapiner received a notice of the proposed settlement and filed an objection as well as a petition in intervention. Following a hearing, the trial court struck Lapiner's petition in intervention and denied his objection. The court also signed a final judgment approving the settlement, and it later denied Lapiner's motion for attorney's fees and expenses.

Lapiner appeals, contending the trial court abused its discretion when it approvedthe settlement and denied his motion for fees and expenses. Appellees moved to dismiss, arguing that Lapiner lacks the requisite standing to appeal. We grant the motion, and dismiss.

Background

A. Plaintiffs file their shareholder derivative suits, alleging breaches of fiduciary duty.

Plaintiffs filed their separate shareholder derivative lawsuits on behalf of Isramco in June 2009. Both suits alleged that the individual defendants had violated their fiduciary duties as members of Isramco's board of directors when they voted to approve a consulting agreement with Goodrich. Plaintiffs alleged the consulting agreement benefited Tsuff, Isramco's chief executive officer, chairman of the board, and controlling shareholder. The two lawsuits were eventually consolidated in the 55th District Court of Harris County.

In April 2010, Yuval Ran filed a shareholder derivative lawsuit on behalf of Isramco. While Ran's lawsuit alleged claims similar to those initially raised by plaintiffs, he also alleged additional claims and named additional defendants. Ran's lawsuit was eventually transferred to the 55th District Court and consolidated with plaintiffs' lawsuits.

B. Lapiner files a Delaware derivative suit that is dismissed in favor of the Texas action.

In July 2010, Lapiner filed a shareholder derivative action in Delaware, making many of the same claims involved in plaintiffs' ongoing Texas derivative lawsuit. In October 2010, the Delaware court dismissed Lapiner's action in deference to the previously filed Texas action.

Approximately one month later, Lapiner served a demand for investigation of his claims on Isramco's board of directors. In response to the demand, Isramco formed a Special Committee of the Board comprised of its independent directors. The Special Committee then investigated Lapiner's complaints. At the conclusion of the investigation, the Special Committee notified Lapiner that it had determined: (a) Lapiner's claims were identical to the claims pending in the Texas litigation; (b) the parties to the Texas litigation had reached a tentative settlement of the claims asserted in that litigation; (c) Lapiner's claims had been thoroughly investigated both by Isramco and lead counsel for plaintiffs in the Texas litigation, and therefore no further investigation was necessary; and (d) any further investigation into Lapiner's claims would not be in the best interest of Isramco or its shareholders. Lapiner continued his efforts to negotiate a settlement with Isramco, but Isramco refused and referred him to the Texas plaintiffs' lead counsel.

C. The parties settle the Texas derivative suit.

Ultimately, in April 2011, the parties to the Texas suit memorialized their settlement agreement in a Memorandum of Understanding. The parties then executed a Stipulation of Settlement setting forth the settlement terms in August 2011.

Soon after the parties executed the Stipulation of Settlement, plaintiffs filed a motion seeking the trial court's preliminary approval of the proposed derivative suit settlement. The trial court preliminarily approved the proposed settlement subject to further consideration at a final settlement hearing. In its order, the trial court set a deadline and established procedures for objecting to the Stipulation of Settlement. Finally, the trial court ordered Isramco to file a notice of the proposed settlement with the Securities and Exchange Commission and to publish the notice in Investor's Business Daily.

D. Lapiner objects to the settlement, attempts to intervene, and participates in the final hearing.

On the last day permitted for filing objections to the proposed settlement, Lapiner filed a petition in intervention and an objection to the proposed settlement of the derivative lawsuit. Lapiner primarily objected that the settlement was not fair, reasonable, or adequate because there was evidence to support allegations that Isramco had suffered “hundreds of millions of dollars” worth of damages as a result of the sale of its participation units in Isramco Negev. Lapiner contended that the settlement recovered none of these alleged damages for Isramco, but instead cost Isramco $1 million in attorney's fees and costs.

Subsequently, Lapiner filed a supplemental objection to the settlement and attached a “Summary Report of Legal Compliance Deficiencies in Isramco, Inc. (ISRL) and Affiliates” prepared by Dennis Holifield, a former general counsel of Isramco. Holifield's allegations differed from those tentatively settled in plaintiffs' derivative lawsuit. Nonetheless, lead counsel for plaintiffs, whom Holifield had also contacted with his allegations, moved to continue the final hearing on the proposed settlement to allow her to depose Holifield and, if necessary, conduct any other discovery necessary to explore Holifield's allegations. The trial court granted the motion and ordered the deposition of Holifield. Holifield's deposition took place in camera under the direct supervision of the trial judge. Following Holifield's deposition, lead counsel for plaintiffs reset the hearing on the final approval of the settlement.

Plaintiffs, Isramco, and defendants collectively moved to strike Lapiner's petition in intervention on numerous grounds, including that Lapiner had no justiciable interest in the pending derivative lawsuit because he did not own Isramco stock at the time of the acts complained of in the amended consolidated petition. Lapiner responded to the motion to strike and, as part of his response, submitted confidential materials for in camera review by the trial court. Plaintiffs and defendants filed responses to Lapiner's objection and also submitted confidential materials for in camera review.

Following Holifield's deposition, plaintiffs, Isramco, and defendants entered into an Addendum to Stipulation of Settlement. This addendum supplemented the definition of “Released Claims” found in the Stipulation of Settlement by excluding “any claim based on allegations contained in the document titled ‘Summary Report of Legal/Compliance Deficiencies in Isramco, Inc. (ISRL) and Affiliates,’ authored and submitted by Dennis Holifield to the U.S. Securities and Exchange Commission on or about September 22, 2011 and not otherwise expressly adjudicated in this case.”

In December 2011, the trial court conducted an oral hearing on the pending derivative suit settlement. The trial court first considered the motions to strike Lapiner's intervention and granted that motion. The trial court then turned its attention to the proposed settlement, which it approved as fair, reasonable, and adequate. The trial court signed a “Final Order and Judgment” approving the settlement on December 12, 2011.

E. Lapiner requests attorney's fees, files a motion for new trial, and then appeals.

Ten days after the trial court signed the final judgment approving the settlement, Lapiner filed a motion seeking attorney's fees and expenses. According to Lapiner, the filing of his objection to the settlement had “conferred a substantial benefit to Isramco.” The trial court signed an order denying Lapiner's request for attorney's fees and expenses on January 11, 2012. Lapiner filed a motion for new trial the same day his fee request was denied, and that motion was overruled by operation of law. Lapiner then filed his notice of appeal on February 12, 2012.

Motions to Dismiss

Before we address the issues Lapiner raises in his appeal, we must consider the motions to dismiss filed by both sets of appellees that challenge our jurisdiction. First, all appellees argue we must dismiss Lapiner's appeal because he did not timely file his notice of appeal. Specifically, they argue Lapiner could not extend the time for filing his notice of appeal by filing a motion for new trial because he was a nonparty; as such, his notice of appeal filed more than thirty days following the final judgment was untimely. Second, the defendants seek dismissal of Lapiner's appeal on the further basis that because Lapiner did not own Isramco stock at the time of the events at issue in the derivative lawsuit, he did not have standing to initiate a shareholder derivative action and, therefore, does not have standing to appeal the trial court's approval of the derivative suit settlement.

We begin the analysis with the timeliness of Lapiner's appeal. It is undisputed that the trial court entered judgment in this cause on December 12, 2011. It is further undisputed that Lapiner filed his notice of appeal of this action on February 12, 2012, more than thirty days after the trial court entered judgment. Under the general rule, Lapiner's notice of appeal was due thirty days after the judgment. SeeTex.R.App. P. 26.1 (“The notice of appeal must be filed within 30 days after the judgment is signed, except as follows ...”).

Rule 26.1 extends the time to appeal to ninety days if “any party” timely files a motion for new trial, a motion to modify the judgment, a motion to reinstate, or a request for finding of fact or conclusions of law. SeeTex.R.App. P. 26.1. Appellees do not dispute that Lapiner filed a motion for new trial on January 11, 2012. Rather, they urge that Lapiner's January 11 motion for new trial was ineffective to extend the appellate timetable because he was not a party below.

It is a general rule in Texas that only named parties may appeal the trial court's judgment. City of San Benito v. Rio Grande Valley Gas Co., 109 S.W.3d 750, 754 (Tex.2003); seeTex.R.App. P. 25.1 (“The filing of a notice of appeal by any party invokes the appellate court's jurisdiction over all parties to the trial court's judgment or order appealed from.”). Lapiner is a nonparty. Lapiner filed a petition in intervention in the action. Defendants moved to strike the intervention. The trial court granted defendants' motion and struck Lapiner's intervention. Lapiner does not appeal the trial court's order striking his intervention. Therefore, Lapiner is not an intervenor and not a named party in this Texas derivative action. See, e.g., Johnston v. Crook, 93 S.W.3d 263, 268 (Tex.App.-Houston [14th Dist.] 2002, pet. denied) (“[A]n intervenor is a party for purposes of appeal only if (1) she timely files a pleading, and (2) the trial court does not strike the pleading before the entry of a final judgment.”). And where, as here, a nonparty has the right to appeal a decision of the trial court granting a motion to strike, such nonparty nonetheless cannot extend the appellate timetable by assailing the final judgment with a motion for new trial. Cf., e.g., Cent. Mut. Ins. Co. v. Dunker, 799 S.W.2d 334, 336 (Tex.App.-Houston [14th Dist.] 1990, writ denied) (holding that, because appellant did not become a party by intervention before judgment was rendered, appellant may not extend the time to appeal by filing a motion for new trial); State & Cnty. Mut. Fire Ins. Co. v. Kelly, 915 S.W.2d 224, 227 (Tex.App.-Austin 1996, no pet.) (holding that a nonparty's motion for new trial and petition for intervention filed after the trial court signed a final judgment did not extend the court's plenary jurisdiction).

However, Texas recognizes that one may be a “deemed party” under the doctrine of virtual representation. City of San Benito, 109 S.W.3d at 754–55. To be a deemed party, (1) the appellant must be bound by the judgment; (2) its privity of estate, title, or interest must appear from the record; and (3) there must be an identity of interest between the appellant and a party to the judgment. Id. at 755 (citing Motor Vehicle Bd. of the Tex. Dep't of Transp. v. El Paso Indep. Auto. Dealers Ass'n, 1 S.W.3d 108, 110 (Tex.1999)). Thus, under the doctrine of virtual representation, the Texas Supreme Court recognizes unnamed, objecting class members as deemed parties for purposes of appeal. Id.

Lapiner does not cite, we do not find, and our dissenting colleague does not mention any case applying the “deemed party” analysis to Texas Rule of Appellate Procedure 26.1 for purposes of extending the appellate timetable. As such, without regard to whether Lapiner must intervene in order to have standing to appeal, the plain language of Rule 26.1 deprives Lapiner—a nonparty—of the right to extend the time for filing a notice of appeal. Nevertheless, under the unique facts of this case, we determine that even if the doctrine of virtual representation may be used to extend the Texas appellate timetable, Lapiner does not qualify as a deemed party under the doctrine.

Under Texas law, Lapiner cannot satisfy any of the elements of the doctrine of virtual representation. Lapiner is not bound by the underlying judgment—Isramco is bound. The claims adjudicated in this shareholder derivative action are for injury to the corporation, as distinguished from injury to its shareholders. See Swank v. Cunningham, 258 S.W.3d 647, 661–62 (Tex.App.-Eastland 2008, pet. denied); see also Redmon v. Griffith, 202 S.W.3d 225, 233 (Tex.App.-Tyler 2006, pet. denied). Our analysis is not altered even though the shareholder derivative action judgment may “bring about reduced earnings, salaries, or bonuses.” See BJVSD Bird Family P'ship, L.P. v. Star Elec., L.L.C., 413 S.W.3d 780, 785–86 (Tex.App.-Houston [1st Dist.] 2013, no pet.) (holding that the appellant's interest as a stakeholder in an entity did not satisfy the privity element of the virtual representation doctrine).

Finally, there is no identity of interest between Lapiner and the plaintiffs. The plaintiffs are, as they must be to have standing, shareholders who owned stock in the corporation at the time of the transactions at issue. SeeTex. Bus. Orgs.Code Ann. § 21.552 (providing that a shareholder “may not institute or maintain a derivate proceeding unless” the shareholder owned stock in the corporation at the time of the complained of acts or omissions). Lapiner, on the other hand, did not own stock at the time of the transactions and, therefore, could not have brought this lawsuit as a plaintiff.

Because we determine that Lapiner did not timely file his notice of appeal, we sustain the first ground for dismissal. Because we sustain appellees first ground for dismissal, we need not address the second ground and determine whether Lapiner would have had standing, as an objector, to appeal the final judgment approving the shareholder derivative action. SeeTex.R.App. P. 47.1.

Conclusion

Having sustained appellees' first issue in their motion to dismiss, we dismiss this appeal. FROST, C.J., concurring.
BUSBY, J., dissenting.

KEM THOMPSON FROST, Chief Justice, concurring.

This court lacks jurisdiction for two independent reasons, either of which alone compels the dismissal of this appeal.

The appellant, who was not a named party in the trial court below, attempts to appeal the trial court's approval of a shareholder-derivative-action settlement and the denial of his request for payment of attorney's fees and expenses. Because the appellant was not a shareholder of the corporation at the time of the transactions of which the derivative-action plaintiffs complain, the appellant lacked standing under Delaware law to object to the derivative-action settlement, and he lacks standing to appeal the trial court's overruling of his objections and approval of the settlement. Though Delaware law applies to the issue of whether the appellant has standing to object to the settlement, Texas law applies to the issue of whether the appellees waived the appellant's lack of standing by failing to preserve error in the trial court. Under Texas law, the appellees (or this court on its own motion) may raise the appellant's lack of standing for the first time on appeal. Moreover, even if this court does not lack jurisdiction based upon the appellant's lack of standing, this court lacks jurisdiction over appellant's appeal because appellant is not a “party” who may appeal under Texas procedural rules. For both reasons, it is proper to dismiss for lack of appellate jurisdiction.

Standing Analysis

Appellees/plaintiffs Jeffrey Goldstein and Theodore Steinberg (collectively the “Plaintiffs”) each brought a shareholder derivative suit on behalf of appellee/nominal defendant Isramco, Inc. against appellees/defendants Jackob Maimon, Max Pridgeon, Michelle R. Cinnamon–Flores, Haim Tsuff, and Goodrich Global, Ltd. (collectively the “Defendants”). In their pleadings, the Plaintiffs did not assert any individual claims on their own behalf, nor did they try to assert a class action or any claims on behalf of any Isramco shareholder. Thus, the Plaintiffs asserted only shareholder derivative claims on behalf of Isramco.

No other Isramco shareholders were named as plaintiffs, nor did any other Isramco shareholders make an appearance as a plaintiff. Other than defendants who served as officers or directors of Isramco, no Isramco shareholders were named as defendants or served with process.

After two years of discovery and a mediation, the Plaintiffs and the Defendants negotiated a Stipulation of Settlement (“Settlement Agreement”). The parties to the Settlement Agreement were the Plaintiffs, on their own behalf and derivatively on behalf of Isramco, the Defendants, and nominal defendant Isramco. No Isramco shareholders other than the Plaintiffs and the Defendants were parties to the Settlement Agreement.

The Settlement Agreement provides that, upon the “Effective Date,” Isramco, the Plaintiffs, and each Isramco shareholder shall be deemed to have, and by operationof the trial court's Final Order and Judgment, shall have, fully, finally, and forever released, relinquished and discharged certain claims, including various claims brought derivatively on behalf of Isramco as well as claims by each Isramco shareholder in his, her, or its individual capacity.

The trial court preliminarily approved the Settlement Agreement, gave notice to all of the corporation's current shareholders, and allowed them the opportunity to object to the proposed settlement. Appellant Yuval Lapiner received a notice of the proposed settlement and was the only shareholder who filed any objections to the settlement. Lapiner also filed a petition in intervention. Following a hearing, the trial court struck Lapiner's petition in intervention and overruled his objections. The trial court then signed a Final Order and Judgment (hereinafter “Judgment”), finding that the terms of the Settlement Agreement were fair, reasonable, and adequate, and approving the Settlement Agreement in all respects. Consistent with the Settlement Agreement, the Judgment provides that upon the Effective Date, Isramco, the Plaintiffs, and each Isramco shareholder shall be deemed to have, and by operation of the Judgment, shall have, fully, finally, and forever released, relinquished and discharged certain claims, including various claims brought derivatively on behalf of Isramco as well as claims by each Isramco shareholder in his, her, or its individual capacity. The trial court later denied Lapiner's motion for an order commanding Isramco to pay Lapiner more than $280,000 for his attorney's fees and expenses.

Lapiner now attempts to appeal, contending the trial court abused its discretion when it approved the settlement and denied his motion for attorney's fees and expenses. The Plaintiffs and the Defendants have filed motions to dismiss Lapiner's appeal for lack of appellate jurisdiction. Both assert that Lapiner failed to timely appeal because his motion for new trial did not extend the time period for perfecting appeal. The Defendants also argue Lapiner lacks standing to appeal because he lacked standing to object to the proposed settlement.

Lack of Standing Under Delaware Law to Challenge the Derivative–Action Settlement

In a derivative action brought on behalf of a Delaware corporation, Delaware law applies to substantive issues, and Texas law governs procedural matters and remedies. Thus, Delaware law applies to the determination of whether Lapiner had standing either to institute or maintain a derivative-action complaining of the transactions challenged by the Plaintiffs and the determination of whether he had standing to object to the derivative-action settlement.

A basic principle of Delaware law is that the board of directors, rather than the shareholders, manage a corporation's business and affairs. The decision to bring a lawsuit or to refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation. Consequently, such decisions are a part of the board of directors's responsibility.

Nevertheless, under certain circumstances, a shareholder may file a derivative action, seeking to redress an alleged harm to the corporation. The nature of the shareholder derivative action is two-fold. First, it is the equivalent of a suit by certain shareholders to compel the corporation to sue. Second, it is a suit by the corporation, asserted by certain shareholders on its behalf, against those allegedly liable to the corporation. In essence, a shareholder derivative action is a challenge to a board of directors's managerial power. By its very nature, a derivative action impinges on the managerial freedom of the board of directors. In fact, the Supreme Court of the United States has noted that the shareholder derivative action “could, if unrestrained, undermine the basic principle of corporate governance that the decisions of a corporation—including the decision to initiate litigation—should be made by the board of directors or the majority of shareholders.” Therefore, Delaware law imposes certain prerequisites on a shareholder's right to institute or maintain a derivative action on behalf of the corporation. One of these requirements is that, to institute or maintain a derivative action, a shareholder must have owned stock in the corporation at the time of the wrongdoing alleged in the derivative action. It is undisputed that Lapiner did not own any stock in Isramco at the time of the alleged wrongdoing of which the Plaintiffs complained in the derivative action; therefore, Lapiner lacked standing to assert the derivative claims that were settled in this case. Lapiner was not a plaintiff or a defendant in this derivative action, and, he would not have had standing to initiate or maintain a derivative action against the Defendants based upon the allegedly actionable conduct asserted by the Plaintiffs.

The Delaware Supreme Court also has held that a shareholder who owns stock in the corporation at the time of the proposed settlement of a derivative action, but who did not own any stock in the corporation at the time of the alleged wrongdoing made the basis of the derivative action, lacks standing to challenge or object to the settlement of derivative claims in which other shareholders complain of this alleged wrongdoing. Therefore, under Delaware law, Lapiner lacked standing to challenge or object to the proposed settlement of the Plaintiffs' derivative claims, to seek attorney's fees and expenses for this activity, and to appeal from the trial court's judgment and order denying his request for attorney's fees and expenses.

No Waiver of Lack of Standing Under Texas Law

Lapiner and the esteemed dissenting justice argue that, even if Lapiner lacked standing under Delaware law, the Plaintiffs and the Defendants waived Lapiner's lack of standing by failing to preserve error in the trial court. Under Texas law as under Delaware law, for a shareholder to have standing to institute or maintain a derivative action, the shareholder must have owned stock in the corporation at the time of the wrongdoing alleged in the derivative action. Under Texas law, lack of standing in respect of a shareholder derivative action is a component of subject-matter jurisdiction, cannot be waived, may be raised for the first time on appeal, and may be addressed by a court on its own motion. When a court determines that there is a lack of standing in respect of a shareholder derivative action, the proper procedure under Texas law is to dismiss for lack of subject-matter jurisdiction.

It may be presumed for the sake of argument that, under Delaware law, Lapiner's lack of standing would be waived by a failure to preserve error in the trial court and that the Plaintiffs and the Defendants failed to preserve error in the trial court. Even under this presumption, there would be no waiver of Lapiner's lack of standing and this court still should dismiss for lack of appellate jurisdiction because this issue is governed by Texas law rather than Delaware law. Notably, in this derivative action, Texas law governs remedies and procedural matters, such as preservation-of-error requirements. In the context of derivative claims that a party sought to bring on behalf of a Delaware corporation, the First Court of Appeals held that Texas law governed procedure and indicated that a party's lack of standing to assert derivative claims would result in a lack of subject-matter jurisdiction. Lack of subject-matter jurisdiction is not waived by failure to preserve error in the trial court. Thus, even if, under Delaware law, preservation of error is required to avoid waiver of Lapiner's lack of standing, the lack of preservation would not matter because Delaware law does not apply to this issue. Under Texas law, Lapiner's lack of standing has not been waived and this court is following proper procedure by dismissing this appeal for lack of jurisdiction.

Lapiner and the dissenting justice suggest that the trial court's provision of noticeto all current Isramco shareholders, including Lapiner, and the trial court's consideration and rejection of Lapiner's objections to the settlement conferred standing on Lapiner. Jurisdiction cannot be conferred in this manner. Any such holding would be contrary to the very nature of standing as a component of subject-matter jurisdiction. Neither the trial court's notice to all current shareholders nor its consideration of any objections they timely filed could confer standing on shareholders who otherwise lacked it.

Appellate Jurisdiction Analysis Based on Lack of “party” Status Under Texas Procedural Rules

Even if Lapiner's lack of standing did not deprive this court of appellate jurisdiction, there is an independent basis for dismissal of this appeal. Under Texas procedural law Lapiner is not a “party” who may appeal.

In Devlin v. Scardelletti, the Supreme Court of the United States held that a nonnamed class member who was not allowed to intervene in a class-action lawsuit had standing to appeal the trial court's approval of the class-action settlement over his objection. Nonetheless, the high court held that there was a procedural issue separate from standing, namely, whether the class member was a “party” who was able to appeal the trial court's judgment. The Devlin court held that, because the nonnamed class member was bound by the trial court's judgment, which adjudicated his claim, the nonnamed class member was a “party” who could appeal the trial court's overruling of his objections to the class-action settlement.

One year later, in City of San Benito v. Rio Grande Valley Gas Company, the Supreme Court of Texas followed the Devlin court's reasoning for the purposes of Texas procedural law. In that case, several nonnamed class members who did not intervene in a class-action lawsuit were not allowed to opt out of the class, and the trial court approved a settlement of the class action over the objection of these class members. The Supreme Court of Texas stated that, aside from the issue of standing, to be able to appeal in Texas courts, a person must be a “party” for the purposes of Texas procedure. The court noted that the label “party” does not indicate an absolute characteristic but rather a conclusion about the applicability of various procedural rules that may differ based on context.

Under Texas procedure, generally only a named party to the suit may bring an appeal. The doctrine of virtual representation is an exception to this general rule. The doctrine holds that a person who is not a named party to the suit is deemed to be a party who may appeal if (1) the person is bound by the judgment; (2) the person's privity of estate, title, or interest appears from the record; and (3) there is an identity of interest between the person and a party to the judgment. The Supreme Court of Texas in City of San Benito stated that this virtual-representation doctrine is similar to the reasoning of the Devlin court and agreed with the Devlin court that the most important consideration in determining whether a person is deemed to be a party is whether the person is bound by the judgment from which the person seeks to appeal.

Devlin and City of San Benito involved class actions and did not involve derivative actions. The parties have not cited and research has not revealed a Texas case applying the virtual-representation doctrine in the context of a derivative-action settlement. The distinction is significant. While nonnamed class members who have not opted out of the class will have their own claims adjudicated by a settlement of the class action, the same cannot be said of a derivative-action settlement by which only claims owned by the corporation are adjudicated. In addition, though certain shareholders may assert a corporation's claims in a derivative action, shareholders who did not own any stock at the time of the alleged wrongdoing may not do so.

Lapiner is not a named party to the suit. The trial court struck his petition in intervention and Lapiner has not challenged the ruling on appeal. The Plaintiffs and the Defendants settled claims belonging to Isramco, not Lapiner. In his objections to the settlement, Lapiner asserted various reasons why he thought the trial court should not approve the proposed settlement of the derivative claims asserted by the Plaintiffs. But, these claims belong to Isramco, not to Lapiner, and Lapiner does not even have standing to assert these settled derivative claims on behalf of Isramco. Thus, to the extent the trial court overruled Lapiner's objections and approved the settlement of the derivative claims, the trial court did not adjudicate any of Lapiner's claims, nor can the trial court's judgment be said in any meaningful way to bind Lapiner.

As of the Effective Date, part of the Judgment purports to effect a release, relinquishment, and discharge of certain non-derivative claims that are owned by individual Isramco shareholders, including shareholders like Lapiner, who are not named plaintiffs or named defendants in the shareholder derivative action. Under the terms of the Settlement Agreement, the trial court's signing of a judgment with this language in it was an express condition for the Settlement Agreement to become effective. (The purported result of this language in the Judgment as to individual shareholder claims is referred to hereafter as the “Purported Discharge of Shareholder Claims.”) Lapiner did not object to the part of the proposed settlement and judgment involving the Purported Discharge of Shareholder Claims.Therefore, even if Lapiner had standing and were a party who could appeal, this part of the settlement would not be before this court, which would review the trial court's overruling of Lapiner's objections, rather than the entire settlement and Judgment.

Lapiner is not an owner of any of the claims asserted in the derivative action. He is not a party in the derivative action, nor a party to the Settlement Agreement. Lapiner did not submit to the trial court's personal jurisdiction over him by filing any claims he owned as a plaintiff or claimant. Lapiner was not named as a defendant or served with process. Having not submitted himself to the personal jurisdiction of the trial court as to any of his personal claims as an Isramco shareholder, and given the complete lack of any service of process on Lapiner, the parts of the Judgment that purport to release, relinquish, and discharge any claims Lapiner owned are void. And, because these parts of the Judgment are void, none of Lapiner's claims are adjudicated in the Judgment, and the Judgment does not bind Lapiner vis-á-vis his personal claims.

For the foregoing reasons, in this context, the doctrine of virtual representation does not apply. Thus, Lapiner may not be deemed to be a party who may appeal.

If simply owning stock in a corporation at the time of settlement made a shareholder a party who could appeal from a settlement judgment, corporations would be subject to a potential avalanche of appeals filed by shareholders who (1) are not named parties in a lawsuit in which the corporation is a party, (2) object to a settlement of that lawsuit, whether or not it is a derivative action, and (3) then attempt to be the only “party” appealing from the settlement judgment. Such a rule would increase transaction costs for corporations substantially with no apparent benefit to the corporations or their shareholders. It also would run afoul of the basic principle that the corporation's board of directors, rather than the shareholders, manage the corporation's business and affairs.

Even if Lapiner's lack of standing did not deprive this court of appellate jurisdiction, this court would lack it because under Texas procedural law, Lapiner is not a “party” entitled to appeal. Therefore, this court is following the proper procedure by dismissing this appeal for lack of jurisdiction.

Lapiner and the dissenting justice suggest that the trial court's provision of notice to all current Isramco shareholders, including Lapiner, and the trial court's consideration and rejection of Lapiner's objections to the settlement somehow make Lapiner a party under the virtual-representation doctrine. The trial court has no such transformative powers. The trial court's notice to Lapiner and its consideration of Lapiner's objections does not alter the reality that the Judgment adjudicated claims belonging exclusively to Isramco, an entity that Lapiner has no right to manage.

Lapiner is not a “party” and cannot attain “party” status under the doctrine of virtual representation. Because the Judgment does not bind or adjudicate any of Lapiner's claims, Lapiner may not be deemed to be a party who may appeal.

For the foregoing reasons, the proper course is to dismiss this appeal for lack of appellate jurisdiction, and therefore I respectfully concur in this court's judgment. J. BRETT BUSBY, Justice, dissenting.

The plurality and concurring opinions conclude, for different reasons, that appellant Yuval Lapiner's appeal must be dismissed. I disagree with these reasons for dismissal because they

• unjustifiably narrow the subject-matter jurisdiction of Texas trial courts in a manner that (1) resurrects an argument appellees expressly waived below and (2) allows any Texas judgment to be attacked as void for failure to prove a statutory requirement;

• apply Delaware rather than Texas law to matters of jurisdiction and procedure;

• adopt a rule requiring settlement objectors to intervene in order to appeal, which is contrary to the position taken by most jurisdictions nationwide;

• create procedural traps for unwary litigants and thereby thwart the directionof the Supreme Court of Texas to avoid resolving appeals on procedural technicalities rather than reaching the merits; and

• insulate potentially collusive settlements involving large awards of attorneys' fees from searching appellate review.

I conclude both of appellees' asserted grounds for dismissal are incorrect, so I would deny their motions to dismiss and address the merits of Lapiner's issues on appeal. These issues include important matters of first impression regarding the standard for reviewing settlements of derivative suits, as well as the ability of an objector to such a settlement to recover attorneys' fees. Because my colleagues do not reach these issues, and instead dismiss Lapiner's appeal, I respectfully dissent.

Background

With two exceptions, the plurality opinion recounts the facts necessary to resolve the jurisdictional issues raised by appellees. The first exception is that it omits relevant language from three key trial court documents: (1) the trial court's Preliminary Order Approving Derivative Settlement and Providing for Notice; (2) the Notice of Proposed Settlement of Derivative Action, Hearing Thereon, and Right to Appear that was approved by the trial court and provided to the shareholders; and (3) the trial court's Final Order and Judgment. This language is critical to understanding why Lapiner—who bought his shares of Isramco before August 15, 2011—properly objected to a proposed settlement that would bind him and is entitled to appeal from the judgment approving that settlement.

The trial court's Preliminary Order Approving Derivative Settlement and Providing for Notice, signed on August 22, 2011, states in pertinent part:

The Court approves in form and content the Notice ... and finds that the distribution and publication of the Notice ... meets the requirements of the Texas Business Organization Code 21.560(b) and due process and all other applicable laws, is the best notice practicable under the circumstances, and shall constitute due and sufficient notice of the matters set forth therein for all purposes to all Persons entitled to such notice.

...

All Isramco Shareholders shall be bound by all orders, determinations and judgments in the Action concerning the Settlement, whether favorable or unfavorable to Isramco Shareholders.

...

Any Current Isramco Shareholder (all current holders of Isramco, Inc. common stock as of August 15, 2011) may appear and show cause, if he, she or it has any reason why the terms of the Stipulation, the Settlement of the Action, and/or the Fee and Expense Award should not be approved as fair, reasonable and adequate, or why a Judgment should not be entered thereon, provided however ... no Current Isramco Shareholder shall be heard or entitled to contest the approval of [the Settlement] unless the Person has, at least fourteen ... days prior to the Settlement hearing, filed with the Clerk of the Court and served on the [counsel for the parties to the litigation] ... appropriate proof of stock ownership, along with written objections, including the basis therefore, signed as authorized by the objecting shareholder, and copies of any papers and briefs in support thereof ....

Any Current Isramco Shareholder who does not make his, her or its objection in the manner provided herein shall be deemed to have waived such objection and shall forever be foreclosed from making any objection to the fairness, reasonableness, or adequacy of the Settlement as incorporated in the Stipulation and to the Fee and Expense Award, unless otherwise ordered by the Court, but shall otherwise be bound by the Final Order and Judgment to be entered and the releases to be given.

...

The Court may approve the Settlement, with such modifications as may be agreed to by the Settling Parties, if appropriate, without further notice to Current Isramco Shareholders.
(Emphasis added.)

This order approved a Notice of Proposed Settlement of Derivative Action, Hearing Thereon, and Right to Appear that was provided to Lapiner and other shareholders. That notice provides:

IMPORTANT NOTICE TO ALL CURRENT HOLDERS OF ISRAMCO, INC. COMMON STOCK AS OF AUGUST 15, 2011 (“CURRENT ISRAMCO SHAREHOLDERS”) (EXCLUDING DEFENDANTS) AND THEIR SUCCESSORS–IN–INTEREST. PLEASE NOTE THAT THIS ACTION IS NOT A “CLASS ACTION” AND NO INDIVIDUAL SHAREHOLDER HAS THE RIGHT TO BE COMPENSATED AS RESULT OF THIS SETTLEMENT.

...

IF YOU ARE A CURRENT OWNER OF ISRAMCO COMMON STOCK, YOUR RIGHTS MAY BE AFFECTED BY PROCEEDINGS IN THE LITIGATION.

...

Any Current Isramco Shareholder that objects to the Settlement of the Action shall have a right to appear and to be heard at the Settlement Hearing.... However, no Person other than Plaintiffs' Counsel and Defendants' counsel in the Action shall be heard at the Settlement Hearing unless no later than [14] days prior to the date of the Settlement Hearing, such person has filed with the Court ... a written notice of objection, ... setting forth their ground for opposing the Settlement, and proof of both their status as a current Isramco Shareholder and the dates of stock ownership in Isramco.... Only Current Isramco Shareholders who have filed and delivered valid and timely written notices of objection will be entitled to be heard at the Settlement Hearing unless the Court orders otherwise.

...

Any Person who fails to object in the manner described above shall be deemed to have waived the right to object (including any right of appeal) and shall be forever barred from raising such objection in this or any other action or proceeding, unless the Court orders otherwise.

Current Isramco Shareholders who have no objection to the Settlement or the Fee and Expense Award do not need to appear at the Settlement Hearing or take any other action. If you are a Current Isramco Shareholder, you will be bound by the Final Order and Judgment of the Court, and you will be deemed to have released any and all claims that have or could have been brought in the Action.
(Emphasis added.)

After considering and overruling the objection Lapiner filed in compliance with this notice, the trial court signed a Final Order and Judgment approving the settlement. It provides in part:

8. The Action and all claims contained therein, as well as all of the Released Claims, are hereby dismissed with prejudice....

9. Upon the Effective Date, ... Plaintiffs (acting on their own behalf and derivatively on behalf of Isramco), and each Isramco shareholder (solely in his, her, or its capacity as an Isramco shareholder) shall be deemed to have, and by operation of the Final Order and Judgment shall have, fully, finally, and forever released, relinquished and discharged the Released Claims against the Released Persons and any and all claims (including Unknown Claims) arising out of, relating to, or in connection with, the defense, settlement or resolution of the Action against the Released Persons.

10. Upon the Effective Date, ... Isramco and each Isramco shareholder (solely in his, her, or its capacity as an Isramco shareholder) shall be deemed to have, and by operation of the Judgment shall have, fully, finally, and forever released, relinquished and discharged each and all of the Plaintiffs and Plaintiffs' Counsel from all claims (including Unknown Claims) arising out of, relating to, or in connection with, the institution, prosecution, assertion, settlement or resolution of the Action or the Released Claims.

11. Isramco, Plaintiffs (acting derivatively on behalf of Isramco), and each Isramco Shareholder (solely in their capacity as an Isramco shareholder) are hereby barred and enjoined from instituting and/or prosecuting any other action against the Released Persons in any court or jurisdiction asserting any Released Claims.
(Emphasis added.) Lapiner appeals from this judgment.

The second exception is that the plurality opinion omits any specific reference to the actions of counsel for several of the defendants at the Settlement Hearing. During that hearing, the trial court first addressed the pending motions to strike Lapiner's petition in intervention. In the ensuing discussion, counsel for the defendants told the trial court: “I believe it would be error to allow the intervention in this case because [Lapiner] has no justiciable interest in this case not being a shareholder of record at the time.” Counsel for the defendants then continued: “But as far as your question goes ... will [striking Lapiner's intervention] make any difference to [Lapiner] in terms of his ability to seek relief for the corporation, ... there should be no harm because he's still an objector and in that capacity as an objector, he can go forward in his objection and ... has made that objection.” After a brief response from Lapiner's counsel, the trial court granted the motions to strike Lapiner's intervention. The remainder of the hearing addressed the proposed settlement and Lapiner's objections to it. At the conclusion of the hearing, the trial court approved the settlement as fair, reasonable, and adequate.

Analysis

Appellees have moved to dismiss Lapiner's appeal on two grounds. First, defendants contend we should dismiss Lapiner's appeal because he did not own Isramco stock at the time of the wrongdoing alleged in this shareholder derivative suit and therefore would not have had standing to institute or maintain the suit. Because Lapiner could not have maintained the suit himself, defendants argue that he also lacked standing to object to the proposed settlement of the suit in the trial court, and therefore he lacks standing to appeal the trial court's judgment approving it. Second, both defendants and plaintiffs argue we must dismiss Lapiner's appeal because he was not a party in the trial court and did not timely file his notice of appeal. I address each ground in turn.

I. Defendants did not challenge Lapiner's ability to object in the trial court, and in any event Lapiner had standing to object under Texas law.

The concurring opinion agrees with defendants' first ground for dismissal, concluding that (1) under Delaware law, Lapiner could not object to the settlement of this derivative suit in the trial court because he did not own Isramco stock at the time of the wrongdoing alleged in the suit; and (2) this purported defect may be raised for the first time on appeal because it deprived the trial court of subject-matter jurisdiction to consider his objection. I disagree because these conclusions conflate two issues that the Texas Legislature has told us are separate: whether a shareholder may institute or maintain a derivative suit, and whether a shareholder may object to a proposed settlement of a pending derivative suit in response to a trial court's invitation. CompareTex. Bus. Orgs.Code Ann. § 21.552 (West 2012) (providing that a shareholder “may not institute or maintain a derivative proceeding unless” the shareholder owned stock in the corporation at the time of the acts or omissions complained of) with id. § 21.560 (West 2012) (providing that a derivative suit may not be settled without trial court approval and that the trial court “shall direct that notice be given to affected shareholders if the court determines that a proposed discontinuance or settlement may substantially affect the interests of other shareholders”).

It is undisputed that the trial court had subject-matter jurisdiction over this shareholder derivative lawsuit. The separate question whether Lapiner satisfied the statutory prerequisites to object to the pending settlement is not a jurisdictional issue that may be raised for the first time on appeal. Moreover, even if that question could be raised in this Court, I would hold that the trial court did not abuse its discretion by inviting and considering Lapiner's objection under Texas law. Accordingly, the issue of Lapiner's trial court standing provides no basis to dismiss this appeal.

A. The trial court had subject-matter jurisdiction over this suit, and whether Lapiner met any statutory prerequisites to object is not a jurisdictional defect and was not challenged below.

As a court of general jurisdiction, the trial court had subject-matter jurisdiction over the derivative suit brought by plaintiffs. Tex. Const. art. V, § 8; see Dubai Petrol. Co. v. Kazi, 12 S.W.3d 71, 75 (Tex.2000). Thus, the real question presented by these motions to dismiss is not Lapiner's “standing” in the jurisdictional sense of that term. See Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 160–61, 130 S.Ct. 1237, 176 L.Ed.2d 18 (2010) (explaining that the term “jurisdictional” properly applies only to prescriptions delineating the classes of cases (subject-matter jurisdiction) and persons (personal jurisdiction) that implicate a court's adjudicatory authority).

Instead, as the plurality opinion and many other courts recognize, the question before us is whether Lapiner should be treated as a party for purposes of appeal. See Devlin v. Scardelletti, 536 U.S. 1, 6–7, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002) (holding question whether unnamed class member has standing to appeal does not implicate court's subject-matter jurisdiction but instead whether he should be considered a party for purposes of appealing the trial court's approval of the settlement over his objection); City of San Benito v. Rio Grande Valley Gas Co., 109 S.W.3d 750, 754–55 (Tex.2003) (noting that court of appeals had dismissed for want of jurisdiction appeal by unnamed class members who unsuccessfully objected to settlement, but following Devlin in concluding that “the real issue” is “whether or not the class member is a ‘party’ for purposes of appeal,” and holding that objecting class members should be considered parties); see also Official Comm. of Unsecured Creditors of WorldCom, Inc. v. S.E.C., 467 F.3d 73, 77–78 (2d Cir.2006) (stating that question of nonparty standing to appeal does not implicate the jurisdiction of the courts, but instead focuses on whether an appellant should be treated as a party for purposes of appealing a judgment when it was not a party in the trial court proceedings). I address Lapiner's party status in Part II below.

Despite these authorities, the concurring opinion argues that the trial court lacked subject-matter jurisdiction to consider Lapiner's objection because he did not satisfy a statutory prerequisite under Delaware law to bring his own derivative suit: he did not own Isramco stock at the time of the alleged wrongdoing. Leaving aside for the moment whether this statutory standing requirement applies to objections (which I address in Part I.B. below), the concurring opinion applies the wrong law to analyze the question of jurisdiction. The jurisdiction of Texas courts is governed by Texas law. See Heckman v. Williamson Cnty., 369 S.W.3d 137, 144–49 (Tex.2012) (applying Texas law to resolve question of appellate jurisdiction over an appeal from the court of appeals' dismissal of the plaintiffs' federal causes of action); Solotko v. LegalZoom.com, Inc., No. 03–10–00755–CV, 2013 WL 3724770, *2 (Tex.App.-Austin July 11, 2013, pet. denied) (mem. op.) (applying Texas law to resolve challenge to trial court's jurisdiction to consider the plaintiff's class action claims made under California law); see alsoRestatement (Second) of Conflict of Laws § 123 (1971) (“The local law of the forum determines which of its courts, if any, may entertain an action on a claim involving foreign elements.”).

Under Texas law, the concurrence's argument that Lapiner failed to establish a statutory prerequisite to his objection—even if correct—would not deprive the trial court of jurisdiction, so it may not be raised for the first time on appeal. As the supreme court has explained, the failure to establish a statutory prerequisite to suit is not a jurisdictional defect but instead goes to the right of the plaintiff to relief. Dubai Petrol. Co., 12 S.W.3d at 76–77. In the trial court, no one argued that Lapiner lacked standing to object to the settlement because he bought his stock too late; neither of my colleagues contends otherwise. Accordingly, we should not consider this non-jurisdictional argument raised for the first time on appeal. See Coastal Liquids Transp., L.P. v. Harris Cnty. Appraisal Dist., 46 S.W.3d 880, 885 (Tex.2001) (rejecting characterization of arguments as jurisdictional rather than statutory and holding appellant waived arguments by raising them for the first time on appeal); Dreyer v. Greene, 871 S.W.2d 697, 698 (Tex.1993) (“As a rule, a claim ... must have been asserted in the trial court in order to be raised on appeal.”). Delaware courts follow a similar approach. See In re Infinity Broad. Corp. S'holders Litig., 802 A.2d 285, 289 (Del.2002) (refusing to address appellant's standing to object to class action settlement because that issue had not been raised in the trial court).

Given the conflicting positions taken by defendants, this is not a case where we should depart from our general rule insisting that non-jurisdictional arguments be preserved in the trial court. As pointed out above, defendants argued the trial court should strike Lapiner's intervention because he did not own Isramco stock at the time of the alleged wrongdoing. Yet they expressly represented to the trial court that Lapiner would not be harmed by striking his intervention because he could still proceed in his capacity as an objector. The trial court did strike Lapiner's intervention, and Lapiner elected not to brief any challenge to that decision. Defendants then reversed their position, arguing for the first time on appeal that the timing of Lapiner's stock ownership also deprived him of standing to object, so his appeal should be dismissed. Because defendants did not make this argument—and indeed argued to the contrary—in the trial court, we should refuse to address it now.

The concurring opinion cites numerous cases in support of its conclusion that Lapiner lacked standing to object to the proposed settlement and to appeal the trial court's approval of the settlement. The cases do not support that conclusion, however, because they do not address the circumstances presented here. Most of the cited cases simply apply the general rule that defects in subject-matter jurisdiction cannot be waived and may be raised for the first time on appeal; they do not suggest that a trial court lacks jurisdiction to consider a shareholder's timely objection to the proposed settlement of a pending derivative suit over which the trial court indisputably has subject-matter jurisdiction.

The concurrence does cite one case in which the First Court of Appeals affirmed the trial court's grant of a plea to the jurisdiction on the ground that the plaintiff lacked standing to commence a derivative suit because he did not own stock at the time suit was filed. Somers ex. rel EGL, Inc. v. Crane, 295 S.W.3d 5, 13–15 (Tex.App.-Houston [1st Dist.] 2009, pet. denied). It also cites a memorandum opinion in which the First Court affirmed the trial court's denial of a motion to dismiss a class-action suit for lack of subject-matter jurisdiction, holding that the shareholders of a corporation that ceased to exist through merger had standing to assert direct (not derivative) claims that the corporate directors breached their fiduciary duties in approving the merger. Pate v. Elloway, No. 01–03–00187–CV, 2003 WL 22682422, at *1–3 (Tex.App.-Houston [1st Dist.] Nov. 13, 2003, pet. denied) (mem. op.). Those cases did not involve settlements or objections. Yet the concurrence relies on them in asserting that unless a shareholder can meet the statutory standing requirements to commence his own derivative suit, the trial court lacks subject-matter jurisdiction to consider his objection to the settlement of such a suit. That is not what those cases hold.

The First Court's cases do not address the issue presented here: everyone agrees that our case concerns an objection to the settlement of a derivative suit that was instituted by proper plaintiffs and over which the trial court had subject-matter jurisdiction. Moreover, the First Court's characterization of the issues in its cases as jurisdictional cannot overrule the supreme court's holding that failure to establish a statutory prerequisite to suit is not a jurisdictional defect. Dubai Petrol. Co., 12 S.W.3d at 76–77. In any event, nothing in the First Court's cases turned on whether the alleged defects were statutory or jurisdictional: the proper remedy if the defects were proven was dismissal either way, and because the defects had also been challenged in the trial court, there was no need to consider whether they could be raised for the first time on appeal. As the U.S. Supreme Court has observed, courts sometimes mislabel “elements of a cause of action as jurisdictional limitations, particularly when that characterization [is] not central to the case, and thus [does] not require close analysis.” Reed Elsevier, 559 U.S. at 161, 130 S.Ct. 1237.

Applying the jurisdictional label where it does not belong has the pernicious effect of opening seemingly final judgments to collateral attack in perpetuity. See Dubai Petrol. Co., 12 S.W.3d at 76 (“When ... it is difficult to tell whether the parties have satisfied the requisites of a particular statute, it seems perverse to treat a judgment as perpetually void merely because the court or the parties made a good-faith mistake in interpreting the law.”). Thus, Texas courts should guard against “drive-by jurisdictional” rulings that miss the “critical difference[s] between true jurisdictional conditions and non-jurisdictional limitations on causes of action.” Reed Elsevier, 559 U.S. at 161, 130 S.Ct. 1237 (internal quotation marks omitted). Having scrutinized defendants' standing challenge in light of these principles, I conclude that it is a non-jurisdictional argument that Lapiner failed to meet the statutory prerequisites to file his objection. Accordingly, it cannot be raised for the first time on appeal.

B. Under Texas law, Lapiner had standing to object to the settlement at the trial court's invitation.

Even if defendants' challenge were jurisdictional in nature or had been raised below, the trial court did not abuse its discretion under Texas law by inviting and considering Lapiner's objection. While I agree with my concurring colleague that Delaware law governs a shareholder's ability to institute or maintain a derivative action on behalf of Isramco, it is Texas law—not Delaware law—that governs the procedure for the trial court's approval of a proposed settlement of a derivative suit. As explained below, Texas law gives the trial court discretion to determine who should receive notice of a proposed settlement so they may object if they believe it is in their best interest to do so. Because the trial court acted well within this discretion by ordering that Lapiner and other shareholders be notified of the proposed settlement and their right to file an objection, I conclude that Lapiner had standing to object.

Under the relevant Delaware statute, as well as its Texas equivalent, a shareholder must own stock in the corporation at the time of the alleged wrongdoing in order to institute or maintain a derivative suit on the corporation's behalf. Del.Code Ann. tit. 8, § 327 (2011) (“In any derivative suit instituted by a stockholder of a corporation, it shall be averred in the complaint that the plaintiff was a stockholder of the corporation at the time of the transaction of which such stockholder complains ....”); see alsoTex. Bus. Orgs.Code Ann. § 21.552 (West 2012). Here, Lapiner became a shareholder after the alleged wrongdoing, but that simply means Lapiner could not file his own derivative suit or intervene in the pending derivative suit. Lapiner did not file his own suit, and his appellate briefing does not challenge the trial court's order striking his intervention.

Section 327 of the Delaware Code does not discuss who may object to a proposed settlement in a derivative case, however. Even if it did, approval of a proposed settlement and notice of an opportunity to object to that settlement are addressed in a separate statute, section 21.560 of the Texas Business Organizations Code. This statute applies here because section 21.562(a) of the Business Organizations Code classifies section 21.560 as procedural. Tex. Bus. Orgs.Code Ann. § 21.562(a); see Moonlight Inv., Ltd. v. John, 192 S.W.3d 890, 894 (Tex.App.-Eastland 2006, pet. denied) (“Section 21.562's exclusion of Sections 21.555, 21.560, and 21.561—‘procedural provisions' that do not relate to the internal affairs of the foreign corporation—indicates that the legislature did not intend to except derivative shareholder proceedings from the general rule that Texas procedural law applies even in cases where a foreign corporation is involved.”).

Section 21.560(b) provides that “if the court determines that a proposed settlement may substantially affect the interests of other shareholders,” it “shall direct that notice be given to the affected shareholders.” Tex. Bus. Orgs.Code Ann. § 21.560(b). By using the terms “affected” and “other” shareholders, rather than limiting notice to the group of shareholders who could maintain a derivative proceedingthemselves under section 21.552 (which mirrors Section 327 of the Delaware Code), section 21.560(b) permits the group of shareholders who are entitled to notice and an opportunity to object to be broader than the group of shareholders who could initiate and maintain a derivative proceeding. See Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540 (Tex.1981) (stating that when construing a statute, a court must presume every word of a statute was used for a purpose and that every word excluded from a statute was excluded for a purpose).

As the notice quoted above shows, the trial court exercised its discretion to put all Isramco shareholders as of August 15, 2011—which included Lapiner—in the group of affected shareholders who were provided notice of the settlement and the right to file an objection to it. Because Lapiner was a shareholder of Isramco at the time of the settlement, which requires governance reforms as well as a substantial payment of attorneys' fees by Isramco to plaintiffs' counsel, the value of Lapiner's shares will be affected by the trial court's approval of the settlement. See Christian v. ICG Telecom Canada, Inc., 996 S.W.2d 270, 274 (Tex.App.-Houston [1st Dist.] 1999, no pet.) (stating that all shareholders are indirectly affected by and benefit from a derivative lawsuit); see also Kaplan v. Rand, 192 F.3d 60, 67 (2d Cir.1999) (“We think that a shareholder who objects to the payment of a fee from corporate funds in compensation of attorneys who have brought a derivative action on behalf of the corporation has an interest that is affected by the judgment directing payment of the fee.”). Accordingly, I would hold that the trial court did not abuse its discretion when it determined under section 21.560(b) that Lapiner was an affected shareholder entitled to notice of a right to object to the proposed settlement, and thus Lapiner had standing to object to the settlement.

Other courts agree that shareholders who receive notice of a proposed settlement may object regardless of whether they could institute or maintain the action themselves. Cohen v. Young, 127 F.2d 721, 724 (6th Cir.1942) (treating an objector responding to a trial court's notice of proposed settlement like “a defendant who is summoned by process into court and after an adverse ruling has the right to appeal,” and holding dismissal of objector's intervention was “not decisive”); see also Kaplan, 192 F.3d at 66 (holding that appellant who properly filed an objection in accordance with the notice he received from the trial court had standing to appeal); Rosenbaum v. MacAllister, 64 F.3d 1439, 1443 n. 2 (10th Cir.1995) (“To merely object to the settlement of a derivative action, however, the objector apparently need only own stock in the corporation at the time of the settlement hearing, and appear at the settlement hearing to raise his or her objections.”); Saylor v. Bastedo, 78 F.R.D. 150, 152–53 (S.D.N.Y.1978) (holding non-contemporaneous shareholder's status is that of an objector). Also, as discussed in Part II below, most courts hold that an objector does not need to intervene to challenge the settlement of a derivative suit, so there is no reason an objector should have to meet the test for intervention. See, e.g., City of San Benito, 109 S.W.3d at 755 (“Requiring intervention prior to the settlement fairness hearing creates more work for all involved with no corresponding benefit.”).

Because a Texas procedural statute defines which shareholders are entitled to notice and an opportunity to object to a proposed settlement in a derivative suit, the Delaware cases cited in the concurring opinion do not control. In any event, those cases are not on point. The concurring opinion relies primarily on Leighton v. Lewis, an unpublished but precedential order of the Delaware Supreme Court. 1990 WL 84704 (Del. May 25, 1990). Leighton involved four class actions and three derivative suits that arose out of a merger and were eventually consolidated. Id. at *1–*2. Leighton, a shareholder who acquired his shares after the date for shareholders to be considered part of the certified class, attempted to intervene. Id. The trial court denied his motion to intervene and he filed an appeal. Id. at *2.

The Delaware Supreme Court began by observing that “an objector who purchases a claim by buying stock after the alleged wrongdoing has occurred lacks standing to challenge the wrongdoing in a derivative capacity.” Id. The court then held that “Leighton lacked the fundamental standing to intervene in the Court of Chancery and now lacks standing to pursue this appeal and present objections to the settlement at issue.” Id. at *3. Despite the Delaware Supreme Court's use of terms such as “objector” and “objections,” there is nothing in the opinion establishing that Leighton did anything more than attempt to intervene in the litigation. Instead, the primary point of the case is the court's holding in paragraph ten that Leighton lacked “standing to challenge the wrongdoing in a derivative capacity” because he did not own stock at the time of the wrongdoing. Id. at *2. Finally, the court specifically stated that the only issue properly before the court was the question whether Leighton had standing to intervene. Id. at *3. In this appeal, by contrast, Lapiner is not challenging the order striking his intervention.

The concurring opinion next cites In re Beatrice Companies, 1987 WL 36708 (Del. Feb. 20, 1987). In Beatrice, it appears that the shareholder there did not purchase his stock until after he reviewed the proposed settlement. Id. at *3. It also appears the shareholder did not challenge the fairness of the settlement either in the trial court or on appeal. Id. at *2–3. Moreover, the court rejected the shareholder's claims based on the Delaware statute stating that a stockholder cannot maintain a derivative action to challenge corporate wrongdoing if he did not own the stock at the time of the wrongdoing. Id. at *3. Beatrice does not apply here because there is no indication that Lapiner bought his stock after he reviewed the proposed settlement, he is challenging the fairness of the settlement, and he is no longer seeking to challenge the wrongdoing in a derivative capacity through an intervention.

For these reasons, the defendants' belated challenge to Lapiner's standing to object does not provide a basis for dismissing this appeal. I would therefore overrule the first ground for dismissal.

II. Lapiner is a deemed party who may appeal the trial court's approval of the settlement over his invited objection.

Turning to the second ground, the concurring opinion asserts that even if Lapiner could object in the trial court, he was not entitled to appeal that court's denial of his objection at all because he was not a “party” under the appellate rules. The plurality opinion makes a related point, contending that Lapiner's notice of appeal was untimely because he was not a “party” and thus his motion for new trial did not extend the deadline to file a notice of appeal. In other words, my colleagues believe that in order for Lapiner to appeal the trial court's approval of the settlement over his objection, he had to become a formal party by intervening successfully in this derivative suit.

I respectfully disagree with their resolution of this important question of first impression in Texas. Not only is my colleagues' approach contrary to analogous Texas precedent and decisions in many other jurisdictions, it will have substantial negative consequences. Their approach insulates potentially collusive settlements that often include large fee awards from searching scrutiny, creates procedural traps for unwary litigants, and runs afoul of the supreme court's consistent preference for deciding cases on the merits.

A. The doctrine of virtual representation applies to shareholders who object to derivative-suit settlements.

I conclude that the doctrine of virtual representation addressed in Devlin and City of San Benito applies to shareholders who object to the settlement of a derivative suit in the trial court, deeming them to be parties who may appeal. In City of San Benito, the supreme court explained that an appellant is a deemed party under the doctrine when it meets three requirements: (1) it is bound by the judgment; (2) its privity of estate, title, or interest appears from the record; and (3) there is an identity of interest between the appellant and a party to the judgment. 109 S.W.3d at 755. The supreme court went on to recognize that the most important consideration is whether the appellant is bound by the judgment. Id.; cf. BASF FINA Petrochem. Ltd. v. H.B. Zachry Co., 168 S.W.3d 867, 870–71 (Tex.App.-Houston [1st Dist.] 2004, pet. denied) (holding that appellant had standing to appeal because it was bound by the judgment even though it did not meet the second requirement). Here, Lapiner meets all three requirements of the virtual representation doctrine.

1. Lapiner meets the three requirements of the doctrine.

Lapiner is bound by the judgment. Both the plurality and concurring opinions contend Lapiner does not meet the first requirement of the virtual representation doctrine because he is not bound by the judgment. I disagree because the judgment expressly binds each Isramco shareholder.

As the above-quoted language shows, the judgment approving the settlement binds “each Isramco shareholder,” stating that they “have fully, finally, and forever released, relinquished and discharged” claims against defendants and related persons, and that they are “barred and enjoined from instituting and/or prosecuting any other action against” those persons asserting those claims. The parties have not addressed whether the judgment binds all those who hold Isramco shares on the yet-to-occur effective date of the settlement, or only those who held shares on the August 15, 2011 date prescribed in the notice approved by the trial court. Either way, it is undisputed that Lapiner bought his shares before August 15, 2011, so he is expressly bound by the judgment.

More generally, courts and commentators recognize that judgments in derivative suits bind non-intervening shareholders. See Smith v. Waste Mgmt., Inc., 407 F.3d 381, 386 (5th Cir.2005) (holding res judicata barred plaintiff's derivative suit because of a final judgment in a prior derivative lawsuit); Nathan v. Rowan, 651 F.2d 1223, 1226 (6th Cir.1981) (same); 7C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1840 (3d ed. 1998) (collecting cases) (“In a sense, the derivative suit is an exception to the general rule that one is not bound by an in-personam judgment in an action in which he is not a party, inasmuch as all nonparty shareholders will be bound and cannot subsequently assert the right advanced in the derivative action.”). Based on these authorities, as well as the plain language of the judgment, I conclude that Lapiner is bound by the judgment and meets the first and most important requirement of the virtual representation doctrine.

The plurality opinion cites two cases for the proposition that Lapiner is not bound by the judgment because derivative claims are for injury to the corporation. But neither case addresses who is bound by the judgment in a derivative suit, and neither involves facts similar to those here. In Swank v. Cunningham, the court held that the plaintiffs (1) did not have standing to assert direct causes of action seeking damages for themselves because their claims alleged only damages to the corporation, and (2) did not have standing to pursue derivative claims because they owned stock options, not shares of stock. 258 S.W.3d 647, 661–64 (Tex.App.-Eastland 2005, pet. denied). Here, Lapiner has always recognized that the claims being settled are derivative, and it is undisputed that he owned shares of stock, not stock options. Similarly, in Redmon v. Griffith, the court held that the plaintiff shareholders had standing to bring their causes of action because they alleged individual claims for personal damages and not derivative claims on behalf of the corporation. 202 S.W.3d 225, 235 (Tex.App.-Tyler 2006, pet. denied). Again, because no one disputesthe present case involves only derivative claims, Redmon is inapposite.

The concurring opinion suggests that the judgment does not really bind Lapiner because he only objected to the settlement of derivative claims he could not assert himself, not to the release of his individual claims, which is in any event void. To the contrary, Lapiner objected to “the complete release of all liability of Defendants” in exchange for terms that “provide[ ] no real benefit to Isramco,” and that require it to pay $1 million in attorneys' fees “to the detriment of current shareholders.” In his brief on appeal, Lapiner challenges the denial of his objection on the same grounds. Nothing in the record or in the cases cited by the concurrence supports parsing Lapiner's objection in a different manner.

An identity of interest between Lapiner and a party appears from the record. Lapiner also meets the second and third requirements of the virtual representation doctrine because there is an identity of interest between him and the plaintiffs, and this privity of interest appears from the record. Specifically, the record shows that Lapiner has owned Isramco stock since at least August 15, 2011. Thus, he is in privity with the plaintiff shareholders, who represented the interests of the corporation and nonparty shareholders like him in this derivative suit. Mobil Exploration & Producing U.S., Inc. v. McDonald, 810 S.W.2d 887, 889–90 (Tex.App.-Beaumont 1991, writ denied) (stating that those in privity include those whose interests are represented by a party to the action); see also Nathan, 651 F.2d at 1226 (“[I]n shareholder derivative actions arising under [Federal Rule of Civil Procedure] 23.1, parties and their privies include the corporation and all nonparty shareholders.”); Mass. v. Davis, 140 Tex. 398, 168 S.W.2d 216, 221 (1942) (recognizing that when an injury occurs to a corporation, “each shareholder suffers relatively in proportion to the number of shares he owns, and each will be made whole if the corporation obtains restitution or compensation from the wrongdoer”). The trial court's final judgment recognized this privity by binding both Lapiner and the plaintiffs to its terms. See Johnson v. Johnson, 841 S.W.2d 114, 115 (Tex.App.-Houston [14th Dist.] 1992, no writ) (holding doctrine of virtual representation requires appellant to show “he is bound as a privy to the judgment”).

Citing BJVSD Bird Family Partnership, L.P. v. Star Electricity, L.L.C., 413 S.W.3d 780, 785–86 (Tex.App.-Houston [1st Dist.] 2013, no pet.), the plurality opinion concludes Lapiner does not satisfy the privity requirement of the virtual representation doctrine. But BJVSD did not involve a derivative suit; instead, it held only that a limited partner not bound by the judgment could not invoke the doctrine to challenge post-judgment orders affecting the partnership and its general partner. Id.

Moreover, BJVSD cites City of San Benito for the proposition that the doctrine applies when the named parties “are unable to adequately represent their own interests and thus, indirectly, those of their ... members.” Id. at 785;see also Devlin, 536 U.S. at 9, 122 S.Ct. 2005 (noting objector's right to appeal not adequately protected by class representative because their “interests by definition diverge” once named parties reach a settlement that is approved over objection); Rosenbaum, 64 F.3d at 1442. That is Lapiner's contention here: the shareholder plaintiffs did not adequately represent the interests of Isramco and its shareholders because they entered into an objectionable settlement that binds the company and all shareholders. The doctrine of virtual representation allows Lapiner to pursue that contention on appeal. In fact, the lack of an opt-out procedure in a derivative action (as compared to the class action in City of San Benito) increases the need to allow shareholders who believe that a settlement binding them is not fair to file an objection in the trial court and to appeal the trial court's decision to deny that objection and approve the settlement. See Devlin, 536 U.S. at 10–11, 122 S.Ct. 2005;Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1310 (3d Cir.1993) (stating that the risk of collusion in negotiating derivative suit settlements should caution against creating obstacles to challenging those settlements).

* * *

Because Lapiner meets all three elements of the virtual representation doctrine, he qualifies as a deemed party who did not need to intervene in order to appeal the trial court's approval of the settlement over his objection. As a deemed party, his motion for new trial filed within 30 days after judgment served to extend the appellate timetable, so his notice of appeal filed within 90 days after judgment was timely. SeeTex.R.App. P. 26.1(a)(1).

2. Other courts and commentators agree that objecting shareholders may appeal without intervening in the trial court.

Lapiner may also appeal the denial of his objection for a second, independent reason: the trial court invited the objection. “[T]he majority of courts to consider the question,” as well as respected commentators, agree that a current shareholder who objects to the settlement of a derivative suit need not intervene in order to appeal the denial of his objection. In re UnitedHealth Group Inc. S'holder Derivative Litig., 631 F.3d 913, 917 n. 2 (8th Cir.2011); see, e.g., Kaplan, 192 F.3d at 67;Rosenbaum, 64 F.3d at 1443;Bell Atl. Corp., 2 F.3d at 1310;Cohen, 127 F.2d at 724 (holding that shareholder who unsuccessfully tried to intervene but also objected to derivative settlement in response to trial court's notice had the right to appeal court's decision approving the settlement); Saylor, 78 F.R.D. at 152–53;Ackert v. Ausman, 217 F.Supp. 934, 935–36 (S.D.N.Y.1963) (“There can be no doubt that a stockholder who appears pursuant to notice and has his objections overruled, acquires standing for purposes of appeal under both federal law ... and New York law.”); Neponsit Inv. Co. v. Abramson, 405 A.2d 97, 101 (Del.1979) (affirming trial court's approval of a derivative suit settlement in appeal brought by shareholders who objected to settlement during fairness hearing); see also7C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1839 (“An objector to the settlement may appeal the court's approval of the compromise, and the objector need not formally intervene to be permitted to appeal.”); 15A Wright & Miller § 3902.1.

This nearly universal recognition of an objector's right to appeal is unsurprising because the rule is a sensible one. The Texas Business Organizations Code requires that all settlements of derivative suits receive trial court approval. Tex. Bus. Orgs.Code Ann. § 21.560. It also gives the trial court discretion to determine the affected shareholders who should be notified of the proposed settlement and invited to file an objection to that settlement if they believe it is not fair. Id. Thus, shareholders who file an objection to a derivative suit settlement are directly responding to a trial court invitation when they do so. See Kaplan, 192 F.3d at 66 (“Rand properly filed objections to the proposed allowance of attorney's fees in accordance with the notice given as required by the district court, and ... such an objector in a stockholders' derivative action has standing to prosecute an appeal.”); Cohen, 127 F.2d at 724 (“Appellant appeared in court in answer to the court's notice to show cause why the settlement should not be approved. This being the case, he was like a defendant who is summoned by process of court and after an adverse ruling has the right to appeal.” (citing Johnson v. Manhattan Ry. Co., 289 U.S. 479, 495, 53 S.Ct. 721, 77 L.Ed. 1331 (1933))). It would make little sense to require the trial court to invite and consider objections from shareholders, but then prevent objecting shareholders from appealing the trial court's decision to deny their objections and approve the settlement. Kaplan, 192 F.3d at 67.

Moreover, requiring an objector to intervene in the litigation in order to appeal the trial court's denial of his objection would create “more work for all involved with no corresponding benefit.” City of San Benito, 109 S.W.3d at 755;see also Devlin, 536 U.S. at 8, 122 S.Ct. 2005 (recognizing that requiring an objector to intervene in a class action in order to appeal the approval of a settlement “would only add an additional layer of complexity before the appeal of the settlement approval may finally be heard”). The defendants themselves recognized as much when they represented to the trial court that if it struck Lapiner's intervention, he would not be harmed because he had timely objected and could proceed on that basis to contest the fairness of the pending settlement. Under the authorities discussed above, Lapiner should likewise be allowed to appeal the trial court's approval of the settlement over his objection. I would therefore overrule appellees' second ground for dismissal.

B. Foreclosing appellate review of objections will have substantial negative consequences.

Finally, Texas courts should not adopt my colleagues' rule that an objector must intervene successfully in order to appeal the approval of a settlement because it will have substantial negative consequences. One is that curtailing appeals will insulate potentially collusive settlements from searching scrutiny. In derivative litigation generally, shareholders “lack the incentive and information to police settlements,” which creates a risk “that plaintiffs' counsel and defendants will structure a settlement in which plaintiffs' attorneys' fees are disproportionate to any relief obtained for the corporation.” Bell Atl. Corp., 2 F.3d at 1309–10.Moreover, because plaintiffs' counsel and defendants “can be expected to spotlight the [settlement] proposal's strengths and slight its defects, ... objectors play an important role” in giving judges the benefit of an adversary process by providing “access to information on the settlement's merits.” Bell Atl. Corp., 2 F.3d at 1310;see also In re Activision Sec. Litig., 723 F.Supp. 1373, 1374 (N.D.Cal.1989). Given this potential for collusion and lack of information, we should avoid imposing obstacles to objections and should give them searching review at both the trial and appellate levels. See Bell Atl. Corp., 2 F.3d at 1310 (cautioning against creating obstacles to challenging settlements, holding that objector could appeal, and reasoning that “[a]ssuring fair and adequate settlements outweighs concerns that non-intervening objectors will render the representative litigation ‘unwieldy’ ”).

The concurring opinion responds by expressing concern that corporations will face an avalanche of appeals if anyone who owns stock in a corporation involved in any type of lawsuit (derivative or otherwise) can appeal from a settlement of that suit. But that is a far broader right to appeal than the limited one I would adopt based on the authorities discussed above. Under my proposed rule, when a trial court determines a shareholder is affected by a proposed settlement of a derivative suit and therefore is entitled to notice, and the shareholder timely responds to the notice with an objection, the shareholder is entitled to appeal a trial court ruling denying that objection. As the supreme court recognized in rejecting a similar concern in City of San Benito, requiring non-intervening shareholders to object in the trial court “will significantly reduce the number of appeals” and ensure that cases “will not become unmanageable.” 109 S.W.3d at 756.

A second consequence of making intervention a prerequisite to appeal is that it creates uncertainty and traps for unwary litigants. Shareholders who have been invited by the trial court to object may be entirely unaware that they also need to intervene—or even, as here, may be told (wrongly) that they do not need to intervene—to preserve their ability to challenge the trial court's ruling on their objection. Also, it is difficult to understand how an intervention requirement would work. Here, Lapiner did attempt to intervene prior to judgment, and his notice of appeal does in fact challenge the order striking his intervention, although he later decided not to brief that issue. Does the notice of appeal control the determination of our jurisdiction over a putative party's appeal, or does Lapiner's decision not to brief that issue somehow retroactively deprive him of his “party” status as a stricken intervenor? There is no majority opinion to provide an answer.

In addition, the plurality opinion cites cases holding that a person filing a post-judgment plea in intervention cannot extend the appellate timetable by filing a motion for new trial. Ante, at 834–35. Does its reliance on those cases mean that an unsuccessful pre-judgment intervenor like Lapiner cannot extend the appellate timetable by filing a motion for new trial? Again, there is no authoritative answer. The plurality opinion also suggests that because Lapiner is not a “party,” the plain language of Rule 26.1(a) did not allow him to extend the time to appeal by filing a motion for new trial. Courts have not interpreted the term “party” so narrowly, however. Rule 25.1(b) provides that “[t]he filing of a notice of appeal by any party invokes the appellate court's jurisdiction,” and Texas courts have allowed persons who qualify as deemed parties under the doctrine of virtual representation to file a valid notice of appeal as explained above. I see no reason to create a trap by interpreting the term “party” differently in these two rules. I hope that pointing out some of the perils and pitfalls that lie ahead will be of some use to the litigants who must navigate this treacherous terrain in the future.

In my view, making a confusing and uncertain intervention requirement a prerequisite for appeal is inconsistent with the Texas Supreme Court's often-repeated instruction to reach the merits of an appeal whenever reasonably possible. See, e.g., Perry v. Cohen, 272 S.W.3d 585, 587 (Tex.2008); Verburgt v. Dorner, 959 S.W.2d 615, 616–17 (Tex.1997). As explained above, an intervention requirement will yield far more problems than benefits, and that requirement is not “absolutely necessary” to effect the purpose of the rule that only parties may appeal because Lapiner qualifies as a party under the virtual representation doctrine. Verburgt, 959 S.W.2d at 617. Accordingly, I would hold that Lapiner properly appealed the trial court's approval of the settlement over his objection.

Conclusion

Lapiner owned Isramco stock when the named parties to this derivative litigation negotiated a settlement. The trial court, in the exercise of its discretion, determined that all current owners of Isramco stock, including Lapiner, could be affected by the proposed settlement and ordered that they be notified of the settlement and their right to object. Lapiner timely filed an objection, which the trial court considered and denied. The trial court then signed a final judgment approving the proposed settlement, and Lapiner filed this appeal. My colleagues conclude that his appeal must be dismissed because Lapiner did not become a party in the trial court by intervention. I disagree because Lapiner is a deemed party under the doctrine of virtual representation, and no challenge to his ability to object was preserved in the trial court. I would overrule both grounds for dismissal asserted by appellees, deny their motions to dismiss, and address the merits of Lapiner's appeal. Because my colleagues,849instead, dismiss this appeal, I respectfully dissent.