Opinion ID: 2189591
Heading Depth: 1
Heading Rank: 8

Heading: Derivative Standing Requires Share Ownership

Text: Under Delaware law, it is well established that a merger which eliminates a derivative plaintiff's ownership of shares of the corporation for whose benefit she has sued terminates her standing to pursue those derivative claims. [7] In this appeal, the plaintiff asks this Court to reconsider and to overrule its now seminal holding in Lewis v. Anderson . [8] The plaintiff contends that, under general principles of equity and fairness, she has equitable standing to proceed with her derivative claims despite the fact that she no longer owns any shares of Amax Gold, the corporation on whose behalf she purports to sue. In Lewis v. Anderson , this Court determined that Court of Chancery Rule 23.1, Del.Code Ann. tit. 8, § 259(a), and Del.Code Ann. tit. 8, § 327 have been nearly universally construed to require that, in the context of a corporate merger, a derivative shareholder must not only be a stockholder at the time of the alleged wrong and at the time of commencement of suit but that he must also maintain shareholder status throughout the litigation. [9] The purpose of this rule is: to eliminate abuses associated with a derivative suit [10] and to ensure that upon the merger the derivative rights pass to the surviving corporation which then has the sole right or standing to prosecute the action. [11] As the Court of Chancery explained in Schreiber: [A] merger which eliminates a complaining stockholder's ownership of stock in a corporation also ordinarily eliminates his status to bring or maintain a derivative suit on behalf of the corporation, whether the merger takes place before or after the suit is brought, on the theory that upon the merger the derivative rights pass to the surviving corporation which then has the sole right or standing to prosecute the action. [12] When a merger eliminates a plaintiff's shareholder status in a company, it also eliminates her standing to pursue derivative claims on behalf of that company. Those derivative claims pass by operation of law to the surviving corporation, which then has the sole right and standing to prosecute the action. This Court and the Court of Chancery have consistently applied these well-established precepts of Delaware corporate law.