In In re Umth Gen. Servs., L.P., United Development Fund IV (“Trust”) was a Maryland real estate investment trust with over 12,000 shareholders. No. 24-0024, 2025 Tex. LEXIS 1029 (Tex. November 14, 2025). The Trust’s declaration of trust governed shareholder rights and designated Maryland as the exclusive forum for derivative actions. The Trust’s board of trustees delegated management authority to UMTH General Services, L.P. (the Advisor) through an advisory agreement. The agreement stated the Advisor is in a fiduciary relationship to the Trust and its shareholders, but individual shareholders were not parties to the agreement.

A shareholder sued the Advisor and its affiliates, alleging corporate waste and mismanagement, and claimed the Advisor owed individual duties to each shareholder under the advisory agreement. In various motions, the Advisor argued that the claims were derivative and belonged to the Trust, so the shareholders lacked standing and capacity to sue directly. The trial court denied the Advisor’s motions, and the Advisor sought mandamus relief.

The Texas Supreme Court held that the shareholders had constitutional standing to assert claims, however, they did not have the capacity to do so in this case because they were not alleging individual harm, but harm to the Trust. The court held that the advisory agreement did not create a duty to individual shareholders distinct from obligations to the entity. The court also noted that the agreement’s reference to fiduciary duties to “the Trust and its Shareholders” referred to shareholders collectively, not individually. The Court stated:

We conclude that the phrase “and its Shareholders” refers to the Trust’s shareholders collectively. The Trust executed the agreement, acting on behalf of its shareholders. No shareholder separately signed the agreement, much less in an individual capacity. Absent an express undertaking to an individual shareholder, fiduciary duties generally flow to the corporation and its shareholders collectively, not to any particular shareholder. The principle of shareholder collectivity overcomes the “incompatible” nature of simultaneous duties owed to a corporation and duties owed to a particular shareholder, whose interests may not align with the corporate entity as a whole. In recognition of this tension, we have held that “a director cannot simultaneously owe these two potentially conflicting duties.” Although a party might agree to undertake a duty to both a corporate entity and one or more of its shareholders-as may be the case for mutual shareholder agreements in closely held corporations-such an agreement should not be inferred without an express recognition of the shareholder as a party to the contract in its individual capacity. Absent indicia of mutual assent to undertake a duty to an individual, we read the relationship created by the Trust and the third party as intended to benefit the Trust’s shareholders collectively through the Trust itself.

Id.

The court held that the shareholders must pursue claims for injury to the entity via a derivative action because absent a personal cause of action and individual injury, shareholders lack capacity to bring claims owned by the corporate entity. The court held that the derivative claims must be brought in Maryland, as required by the Trust’s governing documents, and that individual shareholders cannot bypass statutory safeguards by bringing derivative claims directly. The court held that the trial court erred in denying dismissal and granted mandamus relief, directing the trial court to dismiss the case with prejudice.