Key Points

  • Under South Dakota law, only a person who is an LLC member when a derivative suit is filed and throughout the case may maintain it, so Stewart, who had sold his stake, lacked capacity to sue for imINDY.
  • Being a real party in interest under Federal Rule of Civil Procedure 17(a) is a separate question from capacity to sue and does not cure a lack of capacity.
  • Stewart's individual RICO claim failed because his alleged injuries derived from the decline in imINDY's value, a loss shared by all owners, and reputational harm is not an injury to business or property under 18 U.S.C. ยง 1964(c).
  • The court had jurisdiction over the fee challenge because Stewart's statement of issues was the functional equivalent of an amended notice of appeal and the defendants showed no prejudice.
  • The fee award under the buyout agreement's indemnification clause was not an abuse of discretion, because a court deciding fees makes its own findings and need not accept the complaint's fraudulent-inducement allegations as true.

A federal appeals court on Friday refused to revive a racketeering lawsuit by a co-founder of a custom T-shirt company who sold his half of the business for $550,000 and then accused his cousin and others of draining its accounts. The court held that he lost the right to sue on the company's behalf when he gave up his ownership stake.

A three-judge panel of the 8th U.S. Circuit Court of Appeals affirmed the dismissal of Parker Stewart's suit against Christopher Hamze, his cousin and fellow founder of imINDY LLC, which did business as TeeLaunch, along with Plains Commerce Bank and other defendants connected to the company. Circuit Judge Kelly wrote the opinion for a panel that also included Circuit Judges Loken and Gruender.

The panel also upheld an order requiring him to cover attorney fees for Christopher and Nicholas Hamze under an indemnification clause in the buyout agreement, even though Stewart contends he was tricked into signing that agreement.

According to the opinion, Stewart and Hamze founded imINDY in 2012 and each took a 50% share for $10,000. A Two Party Authorization Agreement required both men to approve disbursements from the company's bank account, and the operating agreement required Hamze, as chief financial officer, to keep accurate books open for inspection by any member at "all reasonable times."

Stewart began out-patient medical treatment in early 2017 and alleges that Hamze agreed to take over his day-to-day duties in exchange for a bonus of 1% of net sales. Stewart alleges he was not consulted on payments made during his leave and was refused access to the company's QuickBooks account.

As sales declined, Hamze offered in March 2023 to buy Stewart's interest for $225,000, and Stewart countered at $500,000. In September 2023 Stewart signed a buyout agreement selling his stake and releasing all claims arising out of his ownership and employment in exchange for $550,000. He alleges that days later he found thousands of suspicious payments in the QuickBooks files. In August 2024 imINDY was acquired by District Photo and dissolved the next day.

Stewart sued in January 2025, bringing 14 counts that included claims under the Racketeer Influenced and Corrupt Organizations Act, or RICO. He sued both for himself and derivatively, meaning on the company's behalf. Chief Judge Roberto A. Lange of the U.S. District Court for the District of South Dakota dismissed the case without prejudice, denied leave to amend as futile and awarded the fees.

On the derivative claim, the panel looked to South Dakota law, which allows such a suit "only by a person that is a member at the time the action is commenced and remains a member while the action continues." Stewart did not challenge the finding that he was no longer a member when he sued. The panel rejected his argument that he could proceed as a real party in interest, writing that the argument "conflates Stewart's status as a real party in interest with his capacity to sue, when these are distinct legal inquiries that must be analyzed separately."

His individual RICO claim fared no better. Under the rule the panel applied, a shareholder suing on his own must show a special injury separate from that of other shareholders. Stewart alleged that the defendants depleted the company's money through payments to shell companies and diminished the value of his stake, but Judge Kelly wrote that "these allegations are fundamentally about imINDY's declining value" and so were indistinguishable from the company's own injury.

The panel also held that any harm to Stewart's reputation "is not an injury to 'business or property'" under the RICO statute, and that he had not alleged any downstream business losses flowing from it.

The court declined to bend the rule on equitable grounds. It noted that Stewart's counsel had conceded he could bring his claims in state court and that he may have been able to bring a derivative RICO claim before selling his shares. Quoting earlier case law, the panel wrote that it was not a manifest injustice that Stewart, "who created the corporate form" to obtain limited liability, "cannot rend the veil [he] wove" to recover the company's losses directly.

On the fee award, the defendants argued that the appeals court lacked jurisdiction because Stewart never named the fee order in a notice of appeal, which Stewart conceded. The panel found that his statement of issues, filed before an amended notice would have been due, was the functional equivalent of one. "We conclude that this is the unusual case where both requirements have been met," Judge Kelly wrote, referring to a clear intent to appeal and an absence of prejudice to the other side.

The panel cautioned that skipping the amended notice "could have prejudiced the opposing parties," especially because Stewart "was represented by counsel who is expected to understand and comply with procedural requirements." But it found no sign that the defendants had been harmed, noting they fully briefed and argued the issue.

On the merits, the indemnity clause covered Christopher Hamze, imINDY and Hamze's family, among others, against "any and all actions" arising out of the two men's ownership of and employment through the company. Stewart argued that his complaint plausibly alleged the buyout agreement was fraudulently induced and therefore unenforceable. The panel held that in deciding fees, the district court must make its own factual findings and "was not obligated to accept his well-pled allegations as true."

The state-law claims were never decided on the merits. The district court declined to exercise supplemental jurisdiction over them, resulting in a dismissal without prejudice. The panel noted that Stewart told the court in two letters that he does not wish to proceed in state court, but that state courts have concurrent jurisdiction over civil RICO claims. The case is No. 25-3085.