Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-04642/USCOURTS-cand-5_05-cv-04642-10/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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Case No. C 05-4642 JF (PVT) / C 06-2971 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

DESIGNATED FOR PUBLICATION

**E-Filed 5/29/07**

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

IN RE MERCURY INTERACTIVE CORP.

DERIVATIVE LITIGATION

_________________________________________

TERRY KLEIN, 

 Plaintiff,

 v.

AMNON LANDON, et al.

 Defendants.

Case Number C 05-4642 JF (PVT)

Case Number C 06-2971 JF (PVT)

ORDER GRANTING MOTIONS TO

DISMISS FOR LACK OF STANDING

WITHOUT LEAVE TO AMEND

[re. docket no. 97, C 05-4642 JF (PVT);

docket no. 72, C 06-2971 JF (PVT)]

I. BACKGROUND

1. The Consolidated Action

Plaintiff Robert Korhely, an owner of common stock of Mercury Interactive Corporation

(“Mercury” or “the company”), filed the original derivative complaint in action number C 05-

4642 JF (PVT) (“the Consolidated Action”) on November 14, 2005. The complaint named

nominal defendant Mercury and nine former board members and officers of Mercury. It alleged

illegal backdating of stock options and asserted claims for (1) breach of the fiduciary duties of

loyalty and good faith; (2) unjust enrichment; and (3) reimbursement of compensation pursuant

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 Gupta v. Boston, Case No. C 05-4685 JF (PVT); Casey v. Landan, Case No. C 05-4690 1

JF (PVT); Selig v. Landan, C 05-4703 JF (PVT); and City of New Orleans Employees’

Retirement System v. Boston, Case No. C 05-4704 JF (PVT).

 Amnon Landan, Douglas P. Smith, Susan J. Skaer, Giora Yaron, Igal Kohavi, Yair 2

Shamir, Clyde W. Ostler, Brad Boston, and Anthony Zingale.

 The Consolidated Plaintiffs object to the inclusion of argument and evidence not 3

properly before the Court in the joinders filed on March 20, 2007 and March 23, 2007, four and

seven days, respectively, after the deadline for filing a reply to the Consolidated Plaintiffs’

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to Section 304 of the Sarbanes-Oxley Act, 15 U.S.C. § 7243.

On February 14, 2006, the Court consolidated four other derivative actions with the 1

Consolidated Action and appointed an executive committee to manage the litigation (“the

Consolidated Plaintiffs”). On May 22, 2006, the Consolidated Plaintiffs filed a consolidated

derivative complaint (“the Consolidated Complaint”) against nine individual defendants and 2

Mercury’s auditors, PricewaterhouseCoopers LLP (collectively, “the Consolidated Defendants”). 

The Consolidated Complaint asserts claims for (1) breach of fiduciary duty; (2) negligent breach

of fiduciary duties; (3) unjust enrichment; (4) contribution and indemnification; (5) disgorgement

pursuant to Section 304 of the Sarbanes-Oxley Act, 15 U.S.C. § 7243; (6) violation of Section

10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder; (7) violation of

Section 14(a) of the Securities Exchange Act and Rule 14a-9 promulgated thereunder; (8) abuse

of control; (9) gross mismanagement; (10) waste of corporate assets; (11) violation of Section

16(b) of the Securities Exchange Act; (12) negligent accounting; (13) and aiding and abetting.

On June 13, 2006, pursuant to a stipulation by the parties, the Court stayed the

Consolidated Action pending the outcome of consolidated derivative actions filed in the Santa

Clara Superior Court. On February 5, 2007, that court dismissed the state law action for lack of

standing in light of the acquisition of Mercury by Hewlett Packard Corporation (“HP”). See

Scott Decl. Ex. C. On January 29, 2007, this Court directed the parties to brief the issue of

standing with respect to the Consolidated Action. On February 23, 2007, two of the

Consolidated Defendants moved to dismiss the action for lack of standing. The remaining

Consolidated Defendants have joined in the motion. The Consolidated Plaintiffs oppose the 3

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opposition. The Court need not resolve these objections because it concludes that the

Consolidated Plaintiffs lack standing irrespective of the arguments included in the joinders. 

Because the Consolidated Plaintiffs lack standing, the Consolidated Action will be dismissed as

to all defendants. 

 Klein argued in opposition to the motion to relate the cases that the actions should not 4

be related because the Klein Action asserts a claim under Section 16(b) that was not included in

the Consolidated Action. The Court concluded that this was a persuasive argument against

consolidation, but not against relating the cases. The Court notes, however, that the Consolidated

Complaint, which was filed five days after the order relating the cases, includes a Section 16(b)

claim. 

 The Court received notice of voluntary dismissal of three of the original individual 5

defendants on September 15, 2006, and of another two of the original individual defendants on

September 18, 2006. The Klein FAC names the three remaining individual defendants: Amnon

Landan, Sharlene Abrams, and Kenneth Klein. 

 The Court explained that it would determine if and when to hear the motion to dismiss 6

if it did not dismiss the action for lack of standing.

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ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

motion. The Court heard oral argument on March 30, 2007. 

2. The Klein Action

On May 2, 2006, Plaintiff Terry Klein (“Klein”), then an owner of Mercury common

stock, filed the initial complaint in action number C 06-2971 JF (PVT) (“the Klein Action”). 

The initial complaint, filed derivatively on behalf of nominal defendant Mercury, named as

defendants eight former board members and officers of Mercury. It asserted a claim under

Section 16(b) of the Securities Exchange Act, 15 U.S.C. § 78p, seeking the disgorgement of

short-swing profits obtained by defendants as a result of options backdating. 

On May 17, 2006, the Court related the Klein Action to the Consolidated Action. On 4

October 6, 2006, Klein filed an amended derivative complaint (“the Klein FAC”) that named

nominal defendant Mercury and three individual defendants (“the Klein Defendants”). The 5

Klein FAC asserts a single Section 16(b) claim. On October 26, 2006, the Klein Defendants

moved to dismiss the Klein FAC. On January 25, 2007, in light of the acquisition of Mercury by

HP, the Court vacated the hearing date of the motion to dismiss and directed the parties to brief

the issue of standing. On February 23, 2007, the Klein Defendants moved to dismiss the action 6

for lack of standing. Klein opposes the motion. The Court heard oral argument on March 30,

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(JFLC1)

2007. 

II. LEGAL STANDARD

1. Motion to Dismiss

For purposes of a motion to dismiss, the plaintiff’s allegations are taken as true, and the

Court must construe the complaint in the light most favorable to the plaintiff. Jenkins v.

McKeithen, 395 U.S. 411, 421 (1969). Leave to amend must be granted unless it is clear that the

complaint’s deficiencies cannot be cured by amendment. Lucas v. Dep’t of Corrs., 66 F.3d 245,

248 (9th Cir. 1995). When amendment would be futile, however, dismissal may be ordered with

prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996). 

2. Federal Rule of Civil Procedure 23.1

Federal Rule of Civil Procedure 23.1 requires that a derivative complaint allege “that the

plaintiff was a shareholder or member at the time of the transaction of which the plaintiff

complains or that the plaintiff’s share or membership thereafter devolved on the plaintiff by

operation of law.” This rule “requires that a derivative plaintiff be a shareholder at the time of

the alleged wrongful acts and that the plaintiff retain ownership of the stock for the duration of

the lawsuit. The latter requirement, although not expressly stated in the rule, has been inferred

from its language.” Lewis v. Chiles, 719 F.2d 1044, 1047 (9th Cir. 1983). The Ninth Circuit has

held that “Rule 23.1's continuous ownership requirement is procedural in nature and thus

applicable in diversity actions.” Kona Enters., Inc. v. Estate of Bishop, 179 F.3d 767, 769 (9th

Cir. 1999). It also has identified two situations in which equitable standing for non-shareholders

has been granted: (1) in foreclosure or forced sale cases; and (2) in merger cases where “the

plaintiffs contended they had lost their stock due to the same wrongful conduct that was the

subject of the derivative suit they were trying to bring.” Id. at 770 (citing Keyser v.

Commonwealth Nat’l Fin. Corp., 120 F.R.D. 489 (M.D.Pa. 1988); Miller v. Steinbach, 268

F.Supp. 255 (S.D.N.Y. 1967)).

III. DISCUSSION

1. The Consolidated Action

a. Standing as Currently Pled

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 The Consolidated Plaintiffs cite Keyser, 120 F.R.D. at 493, for the proposition that 7

standing under Rule 23.1 exists after a merger. However, that case does not support the broad

proposition that “Plaintiffs fulfill Rule 23.1 because they contemporaneously held shares when

the alleged transaction occurred and when the suit was filed accordingly they have an interest in

recovering from defendants for the harm done to Mercury.” Consolidated Opposition 12. 

Instead, Keyser holds that fraud during or in connection with a merger may give rise to an

exception to the general rule that standing is lost when a company ceases to exist as a result of

the merger. The court explained that: “Plaintiffs will be afforded the opportunity to prove that

[the surviving corporation] participated in wrongdoing during the [merger at issue] and related

events. Conversely, if plaintiffs are unable to establish at trial any wrongdoing on the part of [the

surviving corporation], or if they are unable to raise a material fact dispute on that issue in the

face of a dispositive motion by [the surviving corporation], it would appear that the right to bring

a derivative suit had passed to [the surviving corporation] upon consummation of the merger and

that plaintiffs had, at that point, lost their standing to pursue the derivative action.” Keyser, 120

F.R.D. at 493.

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ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

It now is undisputed that HP purchased Mercury in a cash-out merger. The Consolidated

Plaintiffs nonetheless argue that they retain standing in this litigation. The Consolidated

Plaintiffs assert a number of arguments in an attempt to remove their actions from the scope of

the continuous ownership requirement of Rule 23.1. For the reasons discussed below, the Court

concludes that none of these arguments is sufficient to save the Consolidated Complaint. 

First, the Consolidated Plaintiffs argue that the issue of standing under “Rule 23.1 is

irrelevant because Mercury already decided in June to pursue claims against defendants.” 

Consolidated Opposition 2. The Consolidated Plaintiffs contend that “Mercury has exercised

control and directed that the claims proceed, such that these claims are no longer derivative in

nature.” Id. at 2-3. However, the Consolidated Plaintiffs cite no authority supporting their

assertion that their derivative action somehow has assumed a “direct character” through the

company’s endorsement of the derivative action or that Rule 23.1 became “irrelevant” when the

company allowed certain aspects of the derivative claims to proceed. See id. at 9-10.

Next, the Consolidated Plaintiffs argue that their ownership of Mercury shares at the time

suit was filed satisfies Rule 23.1. See id. at 10-13. This argument contradicts the Ninth Circuit’s

statement in Lewis that Rule 23.1 “requires that a derivative plaintiff be a shareholder at the time

of the alleged wrongful acts and that the plaintiff retain ownership of the stock for the duration of

the lawsuit.” Lewis, 719 F.2d at 1047 (emphasis added). While the court considered whether 7

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 The Consolidated Plaintiffs argue extensively that California and Delaware law suggest 8

that they have equitable standing. See Consolidated Opposition 16-20. However, the

Consolidated Plaintiffs fail to explain the relevance of these states’ laws to the instant question

under federal law. “Rule 23.1's continuous ownership requirement is procedural in nature and

thus applicable in diversity actions.” Kona Enters., 179 F.3d at 769. “Erie principles apply

equally in the context of pendent jurisdiction.” Mangold v. Cal. Pub. Utils. Comm’n, 67 F.3d

1470, 1478 (9th Cir. 1995).

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the derivative claim was “specifically included in the assets sold,” see id. at 1046, Lewis does not

hold that a derivative plaintiff loses standing following a merger only if there is an explicit

statement that the merger price included the value of the derivative claim.

Finally, the Consolidated Plaintiffs argue that they have equitable standing under the

fraudulent merger exception to Rule 23.1. However, the Consolidated Complaint does not 8

contain any allegations of fraud in the merger between Mercury and HP.

b. Leave to Amend

i. Amendment to Bring the Instant Action Within the Merger Exception to

the Continuous Ownership Requirement

The Consolidated Plaintiffs seek leave to amend to allege facts that would bring this case

within the merger exception to Rule 23.1's continuous ownership requirement. The Consolidated

Plaintiffs state that they would allege that “the challenged merger was subject to the claim of

fraud” in that the “HP merger was approved by Mercury’s Board to avoid personal liability for

backdating which included millions gained through the exercise of their options as well as

damage to the Company.” Consolidated Opposition 14. The Court concludes that such

amendment would be futile. 

The merger exception does not apply simply because a bad act led to a depressed share

price in a merger. Instead, it applies where fraud occurred during the merger. Moreover, the

limited instances in which the exception has been applied indicate that the surviving corporation

must participate in the fraud in order for the merger exception to apply. See Keyser, 120 F.R.D.

at 491 (describing Mellon Bank as “the surviving corporation”); id. at 493 (“[I]f plaintiffs are

unable to establish at trial any wrongdoing on the part of Mellon, or if they are unable to raise a

material fact dispute on that issue in the face of a dispositive motion by Mellon, it would appear

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28 The only case within the Ninth Circuit cited by the Consolidated Plaintiffs that has 9

recognized equitable standing under the merger exception, Mroz v. Hoaloha Na Eha, Inc., 360

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that the right to bring a derivative suit had passed to Mellon upon consummation of the merger

and that plaintiffs had, at that point, lost their standing to pursue the derivative action.”); Miller,

268 F.Supp. at 267 (applying Pennsylvania law and stating that “[t]o hold that the surviving

corporation inherits a derivative right of action where said corporation has wrongfully taken part

in the very acts complained of would be to reach an incongruous and highly inequitable result”). 

These cases explain that the merger exception does not remove an asset acquired in a merger

from the surviving corporation unless the surviving corporation acquired that asset by fraud or

other wrongful conduct. The equitable merger exception prevents an acquiring and surviving

corporation from benefitting from a fraud in which it participated, but it does not deprive it of an

acquired asset when it committed no wrongful conduct in the acquisition of that asset. 

In the instant case, if HP engaged in fraudulent conduct during its merger with Mercury

and consequently paid an unreasonably low price for Mercury shares, it would not be equitable to

allow HP to recover damages in a derivative action against the Consolidated Defendants. Under

such circumstances, the Consolidated Plaintiffs might retain equitable standing and be entitled to

recover damages from the Consolidated Defendants on a quasi-direct or flow-through basis. On

the other hand, if HP did not participate in fraud in the merger, the Court would have no basis, as

a matter of equity, for interfering with HP’s decision as to whether to prosecute a derivative

action against the Consolidated Defendants. In the absence of wrongful conduct by HP, it would

be inequitable to rewrite the terms of the merger by assigning the right to prosecute such a

derivative action to the Consolidated Plaintiffs. 

The Consolidated Plaintiffs do not suggest that they can or would allege that HP’s

conduct during the merger with Mercury was fraudulent or otherwise wrongful. Accordingly, the

merger exception would not apply to the instant case. Neither Keyser nor Miller supports an

argument that equitable standing should be granted in the Consolidated Action. Instead, those

cases suggest that any right to proceed against the Mercury officers and board members has

passed to HP. 

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F.Supp.2d 1122 (D.Haw. 2005), is distinguishable from the instant case in that it involved

derivative claims brought on behalf of the surviving corporation. In Mroz, the district court

concluded that former shareholders who were divested of their shares by the merger could bring

derivative actions on behalf of the surviving company because they alleged that they would have

remained shareholders if not for fraud during the merger. Id. at 1136. The Consolidated

Plaintiffs do not make such allegations, and they do not suggest that they would be able to do so.

The Consolidated Plaintiffs have filed notice of a decision in the case, In re Caremark RX

Inc. Stock Option Litigation, 06C-1329 (Tenn. Cir. Ct. 1st, March 26, 2007). However, the cited

order does not contain sufficient explanation of the procedural posture of the case or relevant

analysis to aid the Court in resolving the instant motion. 

 See In re. Mercury Interactive Corp. Securities Litigation, Case No. C 05-3395 JF 10

(PVT).

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ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

The Court recognizes that this conclusion may foreclose recovery by some or all of the

Consolidated Plaintiffs, as the wrongful acts alleged in this case fall outside the relevant class

period in the securities class-action against Mercury’s former officers and directors that also is

pending before this Court. However, the Court notes that the Consolidated Plaintiffs could 10

have exercised their state law appraisal rights if they believed that the merger price was

unreasonably low. The Consolidated Plaintiffs apparently did not pursue this remedy. Indeed,

there is no allegation that the Consolidated Plaintiffs ever objected at the time of the merger to

the price they received for their shares. 

ii. Amendment of the Complaint to Include HP as a Nominal Defendant

Perhaps anticipating the foregoing analysis, the Consolidated Plaintiffs also seek leave to

amend, if necessary, to add HP as a nominal defendant in the Consolidated Action. The Court

concludes that such an amendment would be inappropriate for at least two reasons. First,

continuation of the Consolidated Action as a derivative action on behalf of HP would require

reevaluation of the standing of the Consolidated Plaintiffs, many of whom may lack an

ownership interest in HP. The executive committee in this case was created on the basis of

claims arising from the ownership of Mercury stock, and there is no indication that the same

executive committee would be appropriate in an amended consolidated action brought on behalf

of HP. Second, inclusion of HP as a nominal defendant would give rise to a new demand

requirement. Fulfillment of such a demand requirement likely would cause significant delay in

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 Klein asserts this ownership of HP stock in his opposition papers. The Klein FAC 11

does not allege ownership of HP stock. The Klein Defendants state in reply that they are not

opposed to treating these allegations as a proposed amendment to the complaint. 

 That section provides in relevant part:

12

“Suit to recover such profit may be instituted at law or in equity in any court of competent

jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf

of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request or

shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than

two years after the date such profit was realized.”

15 U.S.C. § 78p(b). 

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ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

the existing action and burden the Court’s docket unnecessarily. If the Consolidated Plaintiffs

believe that claims against HP as a nominal defendant are warranted, such claims may be

asserted in a separate action. 

Because of the apparent futility of any amendment intended to bring the Consolidated

Plaintiffs within the exception to the continuous ownership requirement and the undue delay

associated with adding HP as a nominal defendant in the Consolidated Action, the Court

concludes that it should dismiss the Consolidated Action without leave to amend. Such

dismissal necessarily is without prejudice to any derivative claim that may be asserted against HP

as a nominal defendant. 

2. The Klein Action

Klein filed his Section 16(b) action as an owner of Mercury stock. Klein subsequently

sold his Mercury stock for cash to HP. However, between the filing of the suit and the

completion of the cash-out merger, Klein also purchased stock in HP. Klein asserts that his

11

current ownership of HP stock is sufficient to confer standing in derivative Section 16(b)

litigation on behalf of Mercury. The Supreme Court has explained that no “‘continuous

ownership requirement’ is found in the text of [Section 16(b)], nor does §16(b)’s legislative 12

history reveal any congressional intent to impose one.” Gollust v. Mendell, 501 U.S. 115, 124

(1991) (internal citation omitted). However, “[t]his is not to say, of course, that a §16(b) action

could be maintained by someone who is subsequently divested of any interest in the outcome of

the litigation.” Id. “[I]f a security holder were allowed to maintain a §16(b) action after he had

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 Counsel for Klein contended at oral argument that the right to pursue a claim under 13

Section 16(b) had become Klein’s and no longer belonged to Mercury after Klein fulfilled the

demand requirement. Even if that is the case, Klein subsequently sold that right to HP.

 The Court finds DiLorenzo v. Edgar, 2004 WL 609374 (D.Del. 2004) (unpublished) 14

unpersuasive in the present context. It is unclear to what extent the facts of that case are similar

to those of the instant action. That court noted that “Plaintiff also contends that at the time of

the transaction he was an Alloy shareholder and has maintained that interest,” id. at *1, but the

opinion does not indicate whether those shares were purchased prior to the commencement of the

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lost any financial interest in its outcome, there would be serious constitutional doubt whether that

plaintiff could demonstrate the standing required by Article III’s case-or-controversy limitation

on federal court jurisdiction.” Id. at 125. 

Klein argues that Gollust controls and that he has continued standing to pursue a Section

16(b) action on behalf of Mercury. However, in Gollust, the shareholders of the extinguished

corporation did not sell the assets of their corporation, including any right they may have had to

recover in a Section 16(b) action, solely for cash; instead, they received cash and stock in the

surviving corporation. The new securities thus included a stake in any recovery under Section

16(b). In the instant action, on the other hand, HP paid cash for all of Mercury’s assets, including

implicitly the right to recover any proceeds of a Section 16(b) action. Klein does not suggest that

anything in the transaction between HP and Mercury would allow former Mercury shareholders

to receive further compensation if, as a result of a successful Section 16(b) action, the value of

the assets they sold was found to be higher than what they actually received. Because they

received cash, the Mercury shareholders lost any financial stake in a recovery from a subsequent

Section 16(b) action. 

Klein’s argument that he differs from other Mercury shareholders because he purchased

HP stock during the instant litigation thus is unpersuasive. Klein began the instant litigation with

a financial stake in the outcome, but that stake was extinguished when he received cash for his

Mercury shares. His entirely voluntary purchase of HP stock does not alter the fact that he, along

with the other Mercury shareholders, sold his right to pursue a Section 16(b) action and share,

indirectly, in the recovery. His current ownership of HP stock is independent of any interest he 13

had in Mercury, and there is no reason to treat him differently than any other shareholder of HP.14

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litigation. The court concluded that “§16(b)’s remedial purpose should not be truncated by the

legal nuances of the corporate restructuring. A shareholder of a parent corporation has a

financial interest, albeit tenuous, in the disgorgement of profits obtained by insiders of a

corporate subsidiary.” Id. at *3. Considered alone, the first sentence of this quotation might be

read to suggest that the form of the merger, in that case a cash-out merger, does not affect

standing in a Section 16(b) action, but the second sentence acknowledges that the plaintiff still

must retain some financial interest in the acquired company. DiLorenzo does not hold that a

shareholder who purchases stock in a prospective parent company during the litigation of a

Section 16(b) claim has standing to assert the claims of the acquired company after the merger

has been completed. See id. (stating that “under Gollust, where a plaintiff has standing at the

commencement of the suit, an involuntary change in his status as a security holder resulting from

a restructuring will not affect his standing to maintain the suit so long as minimal constitutional

requirements are satisfied through the presence of some financial interest in the outcome of the

litigation.”) (emphasis added).

In re XO Communications, 330 B.R. 394 (Bank. Ct. S.D.N.Y. 2005), also provides

minimal support for Klein’s position. The bankruptcy court in that case noted that the bondholders would receive stock under the reorganization plan. Id. at 423. This receipt of stock

would assure a continuing interest in the outcome of the litigation. While the form of the

security may have changed, at no point were the security-holders divested of a financial interest

in the issuing entity by their own sale of the security. The court also speculated, without

deciding, that a common shareholder divested of ownership by the reorganization might have

retained standing by exercising “some right to acquire a financial interest through some other

mechanism (such as purchase of a warrant provided for in the [reorganization p]lan).” Id. at 422-

23. The purchase of a warrant on the basis of a retained right is distinguishable from an openmarket purchase of stock in a parent company after the announcement of a cash-out merger. 

 This conclusion is in keeping with the principle that a securities plaintiff may not “buy 15

a lawsuit.” Klein argues that this principle is inapplicable in the Section 16(b) context. The

Court need not decide whether or not that is the case. 

 The Consolidated Plaintiffs also include a Section 16(b) claim in the Consolidated 16

Complaint. The Consolidated Plaintiffs do not discuss this claim in their papers and do not

assert any continuing financial interest in a Section 16(b) claim. Importantly, they do not assert,

as does Klein, that they own stock in HP. Accordingly, the Consolidated Plaintiffs’ arguments

pertaining to standing to pursue such a claim are weaker than those advanced by Klein.

11

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ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

 Accordingly, the Court concludes that Klein was divested of any interest in the litigation

by the sale of his shares in Mercury for cash and that his purchase of HP shares is insufficient to

re-confer standing in a derivative action on behalf of Mercury. Klein’s ownership of HP stock 15

may allow him to pursue claims on behalf of HP, but Klein offers no persuasive reason why he

has standing in this action on behalf of Mercury. For the reasons discussed previously in 16

connection with the Consolidated Action, the Court concludes that it should not grant leave to

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(JFLC1)

amend to add HP as a nominal defendant. HP may choose not to pursue Section 16(b) claims

that may be available to it, but that is an insufficient reason to revisit the standing analysis here. 

See Lewis v. McAdams, 762 F.2d 800, 804 (9th Cir. 1985) (“That a merger may result in a

corporation succeeding to an action formerly held by an individual is a consequence dictated by

[Section 16(b)]. We will not confer standing on a plaintiff who falls outside the class of persons

permitted by the language of the statute to bring suit merely because the only parties falling

within the class choose not to exercise their right to sue.”). 

IV. ORDER

Good cause therefor appearing, IT IS HEREBY ORDERED that the motions to dismiss

the Consolidated Action, No C 05-4642 JF (PVT), and the Klein Action, No. C 06-2971 JF

(PVT), for lack of standing are GRANTED without leave to amend. This order is without

prejudice to any derivative claim one or more of the plaintiffs may assert against HP.

DATED: May 29, 2007

______________________

JEREMY FOGEL

United States District Judge

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Case No. C 05-4642 JF (PVT) / C 06-2971 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

Copies of this Order have been served on:

C 05-4642 JF (PVT)

Asim M. Bhansali amb@kvn.com, efiling@kvn.com; gap@kvn.com; pwm@kvn.com 

Norman J. Blears nblears@hewm.com, susan.griffin-preston@hellerehrman.com;

yvonne.somek@hellerehrman.com;

oleg.zhoglo@hellerehrman.com 

Jonathan Herschel Bornstein jonathan@bornsteinandbornstein.com 

Sara B. Brody sara.brody@hellerehrman.com, terri.newman@hellerehrman.com;

Cecilia.Chan@hellerehrman.com;

Gary.Padilla@hellerehrman.com;

Sebastian.Jerez@hellerehrman.com 

Lucy Edmond Buford lbuford@orrick.com, jknight@orrick.com 

Cecilia Y. Chan cecilia.chan@hellerehrman.com 

John D. Cline jcline@jonesday.com, tmdanowski@jonesday.com;

cyip@jonesday.com 

Kirk Andrew Dublin kdublin@jonesday.com, adlangenbach@jonesday.com;

tmdanowski@jonesday.com 

Jeffrey S. Facter jfacter@shearman.com, rcheatham@shearman.com;

jae.ko@shearman.com 

Scott A. Fink sfink@gibsondunn.com, bhonniball@gibsondunn.com 

Roberto Finzi rfinzi@paulweiss.com, jromm@paulweiss.com;

egoldstein@paulweiss.com 

Frank James Johnson frankj@johnsonbottini.com, brett@johnsonbottini.com,

frankb@johnsonbottini.com, emily@johnsonbottini.com 

James N. Kramer jkramer@orrick.com 

Betsy C. Manifold manifold@whafh.com 

Elise Natalie Milstein emilstein@jonesday.com, mcassidy@jonesday.com 

Patrick David Robbins probbins@shearman.com, rcheatham@shearman.com 

Michael Todd Scott tscott@orrick.com, elee@orrick.com 

Eric L. Zagar ezagar@sbclasslaw.com, rwinchester@sbclasslaw.com;

der_filings@sbclasslaw.com 

Notice will be delivered by other means to:

Eric S. Goldstein 

Paul Weiss Rifkind Wharton & Garrison, LLP

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1285 Avenue of the Americas

New York, NY 10019

Robert I. Harwood 

Harwood Feffer LLP

488 Madison Ave. 8th Floor

New York, NY 10022

Mark F. Pomerantz

Paul Weiss Rifkind Wharton & Garrison, LLP

1285 Avenue of the Ameiracas

New York, NY 10019

Kathryn Quetel 

Bornstein & Bornstein

2590 Geary Boulevard

San Francisco, CA 94115-3318

Andrew T. Solomon 

Sullivan & Worcester, LLP

1290 Avenue of the Ameicas

New York, NY 10104

Franklin B. Velie 

Sullivan & Worcester, LLP

1290 Avenue of the Americas

New York, NY 10104

C 06-2971 JF (PVT)

Sara B. Brody sara.brody@hellerehrman.com,

terri.newman@hellerehrman.com;

Cecilia.Chan@hellerehrman.com;

Gary.Padilla@hellerehrman.com;

Sebastian.Jerez@hellerehrman.com 

Cecilia Y. Chan cecilia.chan@hellerehrman.com 

Christina Lucen Costley ccostley@wsgr.com 

Kirk Andrew Dublin kdublin@jonesday.com, adlangenbach@jonesday.com;

tmdanowski@jonesday.com 

Jared Lee Kopel jkopel@wsgr.com 

Betsy C. Manifold manifold@whafh.com 

Thomas James Martin tmartin@wsgr.com, dlewis@wsgr.com 

Elise Natalie Milstein emilstein@jonesday.com, mcassidy@jonesday.com 

Glenn F. Ostrager gostrager@ocfblaw.com 

Stephen Lyle Porter slp@wpglaw.com, 

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Case No. C 05-4642 JF (PVT) / C 06-2971 JF (PVT)

ORDER GRANTING MOTIONS TO DISMISS FOR LACK OF STANDING WITHOUT LEAVE TO AMEND

(JFLC1)

Adam Richard Sand , Esq arsand@JonesDay.com, mlandsborough@jonesday.com 

Paul D. Wexler wexler@bragarwexler.com 

C. Brandon Wisoff bwisoff@fbm.com, mzappas@fbm.com;

calendar@fbm.com 

Notice will be delivered by other means to:

Andrew T. Solomon 

Sullivan & Worcester, LLP

1290 Avenue of the Ameicas

New York, NY 10104

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