Mandamus Relief in Commercial Litigation: Lessons for Family Law Practitioners

In re UMTH General Services, L.P., 24-0024, November 14, 2025.

On appeal from Court of Appeals for the Fifth District of Texas

Synopsis

The Supreme Court of Texas held that individual shareholders cannot sue a third party for injuries belonging to the corporate entity where the contract at issue creates duties to the entity, not to individual shareholders; such claims must be pursued derivatively and shareholders who lack a personal cause of action and individual injury lack capacity to sue. The Court conditionally granted mandamus and directed the trial court to dismiss the shareholders’ direct claims with prejudice.

Relevance to Family Law

Family-law practitioners frequently confront business-entity issues in marriage dissolution proceedings: valuation disputes, claims that a third party mismanaged or dissipated business assets, and fiduciary-duty allegations implicating corporate actors. This decision sharpens the distinction between direct and derivative claims and reinforces the necessity of analyzing capacity and forum/derivative limitations before framing business-related causes of action in divorce or enforcement proceedings. Mischaracterizing entity-owned injuries as individual harms risks dismissal and dispositive mandamus—exposure Texas family litigators must anticipate and avoid.

Case Summary

Fact Summary

United Development Fund IV (a Maryland REIT) had a declaration and bylaws that limited shareholder rights and designated Maryland as the exclusive forum for derivative actions. The Trust’s board delegated management authority to an advisor, UMTH General Services, under an advisory agreement executed by the Trust (not by individual shareholders) that stated the advisor “shall be deemed to be in a fiduciary relationship to the Trust and its Shareholders.” After a dismissed derivative suit in Maryland, two shareholders (one being the record holder) sued UMTH in Texas claiming the advisory agreement created an individual duty to shareholders and thus permitted direct suits for alleged waste and mismanagement. The Advisors moved to dismiss, arguing the claims were derivative and that the shareholders lacked capacity; the trial court denied dismissal, and the Supreme Court granted mandamus to correct that denial and ordered dismissal with prejudice.

Issues Decided

The Court decided whether individual shareholders may bring direct claims against a third-party advisor based on an advisory agreement between the advisor and the corporate entity, or whether such claims are claims of the entity requiring derivative litigation; relatedly, the Court decided whether shareholders had the capacity to bring the asserted direct claims.

Rules Applied

The Court applied Texas standing and capacity principles, distinguishing constitutional standing from statutory or prudential capacity. It relied on Pike v. Texas EMC Management, LLC for the proposition that an owner can have constitutional standing where there is an alleged diminution in the value of its interest, but emphasized that statutory protections preserving an entity’s separateness can still vest the substantive claim in the entity such that only derivative suits are appropriate. The Court also considered precedents on the nature of corporate rights (Massachusetts v. Davis) and jurisdictional principles for pleas to the jurisdiction (Heckman; Tex. Right to Life). The Trust’s governing documents—including a declaration limiting shareholder rights and an exclusive-derivative-forum bylaw—were central to the analysis.

Application

The Court examined the advisory agreement’s text against the Trust’s declaration and bylaws. Although the advisory agreement contained a statement that the advisor was “in a fiduciary relationship to the Trust and its Shareholders,” the substance of the agreement referenced duties to the Trust and delegated functions to the Advisor under board supervision. The Trust documents explicitly limited shareholder rights and allocated derivative claims to the Trust and to the forum designated in the bylaws. Given that the agreement was executed by the Trust (not by individual shareholders) and the duties described were to the Trust, the Court read the contract and the Trust governance as allocating any remedy for corporate harm to the entity. The Court thus concluded the shareholders’ claims alleged injury to the entity, not a separate injury to individual shareholders, and therefore the shareholders lacked capacity to sue directly. The Court also applied Pike to explain that constitutional standing (e.g., alleging diminution in share value) does not negate the capacity limitation when the substantive claim belongs to the entity.

Holding

The Supreme Court held that the advisory agreement did not create duties owed individually to shareholders distinct from duties owed to the Trust. Because the alleged injury was to the entity and shareholders lacked both a personal cause of action and an individualized injury, the shareholders lacked the capacity to bring direct claims against the Advisors. The trial court’s denial of dismissal was an abuse of discretion; the Court conditionally granted mandamus and directed dismissal with prejudice.

Practical Application

For family-law litigators handling dissolution matters that involve business claims, this decision requires careful front-end assessment of (1) whether asserted claims for mismanagement, waste, or diminution of value belong to an entity or to the individual spouse; (2) the entity’s governing documents (declaration/articles, bylaws, operating agreement) for express limitations, derivative-forum clauses, and allocation of rights; and (3) whether any contract or agreement expressly creates duties to the individual owner rather than to the entity.

When a spouse is a shareholder, member, or partner and alleges that a third party harmed the business, counsel must determine whether the remedy lies in a derivative claim (often requiring demand, standing/ownership prerequisites, or compliance with forum-selection/choice-of-law provisions) or whether a narrowly pleaded direct claim exists. Failure to test capacity and the derivative/direct distinction can produce a dispositive dismissal and trigger mandamus review—an outcome that compounds the client’s exposure during a divorce.

Practically, counsel should (a) align claims with capacity requirements at the pleading stage, (b) seek entity records and governing documents early, (c) preserve derivative options where appropriate, and (d) consider procedural devices (plea to the jurisdiction, special exceptions, verified pleas in abatement) to challenge improperly framed direct claims asserted by an opposing party in family litigation.

Checklists

Checklist: Identify Entity vs Individual Injury

• Obtain and review all entity governing documents (declaration, articles/charter, bylaws, operating agreement, trust agreement).
• Confirm record ownership of the spouse’s interest (who is the record holder).
• Determine whether the alleged wrong (waste, mismanagement, fee advancement, non-disclosure) is an injury to the entity’s assets or to the owner individually.
• Check for forum-selection, derivative-exclusivity, and demand-exhaustion provisions.

Checklist: Pleading and Preservation

• If bringing a claim, explicitly plead whether the claim is direct or derivative and justify capacity to sue directly.
• If claims are derivative, plead compliance with statutory or contractual prerequisites (e.g., demand on the board, ownership and timing requirements, or grounds for excusing demand).
• Attach or cite the operative agreement and governing documents in the petition to frame who holds the cause of action.
• Preserve interlocutory and mandamus issues by seeking timely dismissal motions, verified pleas in abatement, or pleas to the jurisdiction when appropriate.

Checklist: Discovery and Evidence Planning

• Serve immediate requests for corporate/financial records, board minutes, advisor agreements, indemnification agreements, and communications demonstrating whether duties were owed to the entity or individual owners.
• Subpoena third-party advisers’ agreements and related invoices showing the party for whom services were performed.
• Preserve a certified copy of the register of members/shareholders and any transfer documents to establish ownership for derivative standing.

Checklist: Family-Client Specific Steps

• For valuation and CP/MP allocation, separate entity valuation work from claims for mismanagement; valuation experts should be instructed to quantify diminution to the entity vs. individual distributions.
• If dissolving, consider statutory remedies such as appointment of a receiver or injunctive relief to preserve business assets while derivative processes are pursued.
• Coordinate criminal or regulatory developments (e.g., trustees under criminal investigation) with civil strategy—document overlap to support derivative claims when necessary.

Citation

In re UMTH General Services, L.P., No. 24-0024 (Tex. Nov. 14, 2025).

Full Opinion

The full opinion is available at: http://docs.texasappellate.com/scotx/op/24-0024/2025-11-14.bland.pdf