Opinion ID: 1801046
Heading Depth: 1
Heading Rank: 3

Heading: Plaintiffs' standing to sue derivatively.

Text: District court found plaintiffs lacked standing to sue derivatively on GUG's behalf. It reasoned Delaware law controlled the issue because GUG had been merged into a Delaware corporation. Plaintiffs assert their claim survived the merger. They rely on the following portions of § 496A.73, The Code, (Effect of merger or consolidation):    When such merger    has been effected:    5. Such surviving    corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged   ; and any claim existing or action or proceeding pending by or against any of such corporations may be prosecuted as if such merger    had not taken place, or such surviving    corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of any such corporation shall be impaired by such merger   . (emphasis supplied) An examination of Chapter 496A, The Code, indicates the statutory provision above quoted is part of a sequence of statutes relating to merger of domestic corporations. These statutes commence with § 496A.68 Procedure for merger. Any two or more domestic corporations may merge   . They terminate with § 496A.73, describing the effect of such merger. However, § 496A.74, The Code, addresses merger between domestic and foreign corporations: One or more foreign corporations and one or more domestic corporations may be merged    in the following manner, if such merger    is permitted by the laws of the state under which each such foreign corporation is organized:    2.    c.    The effect of such merger    shall be the same as in the case of the merger    of domestic corporations, if the surviving    corporation is to be governed by the laws of this state. If the surviving    corporation is to be governed by the laws of any state other than this state, the effect of such merger    shall be the same as in the case of the merger    of domestic corporations except insofar as the laws of such other state provide otherwise.  (emphasis supplied) Trial court found the last quoted statutory provision to require application of Delaware law, specifically, Del.Code Ann. tit. 8, § 259(a): When any merger    shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged, as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations, as the case may be, possessing all the rights, privileges, powers and franchises as well of a public as of a private nature, and being subject to all the restrictions, disabilities and duties of each of such corporations so merged   . This Delaware statute has been interpreted consistently to deny a corporation that disappears in merger and its former shareholders standing to maintain a claim. See Smallwood v. Pearl Brewing Company, 489 F.2d 579, 592 (5th Cir. 1974), cert. den., 419 U.S. 873, 95 S.Ct. 134, 42 L.Ed.2d 113 (1974); Vine v. Beneficial Finance Co., 374 F.2d 627, 635 (2d Cir. 1967), cert. den., 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967); Voege v. Ackerman, 364 F.Supp. 72, 74 (S.D.N.Y. 1973); Basch v. Tally Industries, Inc., 53 F.R.D. 9, 11-12 (S.D.N.Y. 1971); Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del.Supr. 1970); Braasch v. Goldschmidt, 41 Del.Ch. 519, 530, 199 A.2d 760, 767 (1964). By virtue of merger derivative rights pass to the surviving corporation. Heit v. Tenneco, Inc., 319 F.Supp. 884, 887 (D.Del. 1970). We think trial court properly ruled the governing Iowa statute is § 496A.74(2)(c), not § 496A.73(5). Other Iowa code provisions also distinguish between mergers of domestic corporations and mergers of domestic and foreign corporations. See, e. g., §§ 491.110 and 491.111, The Code. When interpreting such statutory schemes, we seek to give effect to all provisions of the Act, and do not presume statutes are repetitious or superfluous. State v. Jennie Coulter Day Nursery, 218 N.W.2d 579, 582 (Iowa 1974). Related statutes are read in pari materia and terms of a specific statute control over those of a general statute. Doe v. Ray, 251 N.W.2d 496, 501 (Iowa 1977). It follows that § 496A.74 should control this instance of merger between domestic and foreign corporations, as the surviving corporation is not incorporated in Iowa. Plaintiffs allege they are stockholders of GUG. They do not allege they are stockholders of either All American corporation, nor do they plead the merger gave them the right to exchange GUG stock for All American stock. They first assert standing to maintain this action for GUG relying on § 496A.73(5) ([A]ny claim existing    may be prosecuted as if such merger    had not taken place   .). We have explored that theory and rejected it, above, on the ground § 496A.73 relates only to merger of domestic corporations. Plaintiffs next rely on three federal decisions, all presenting situations distinguishable from the one pled in this action. While Jones v. Missouri-Edison Electric Co., 144 F. 765, 777 (8th Cir. 1906), contains language the consolidated corporation was not so irrevocably dissolved that its rehabilitation is beyond the power of a court of chancery, the court pointed out the consolidation was voidable at the suit of the minority stockholders. That was, in fact, the prayer of the equity petition in that litigation. Id., 144 F. at 770. That question is not involved under the petition before us. Smallwood v. Pearl Brewing Company, supra, 489 F.2d 579, involved an action under rule 10b-5 of the Securities Exchange Act of 1934. Among other things, plaintiff Smallwood directly attacked a corporate merger. The circuit court held he had standing, based on his right under the merger to exchange his stock certificates for certificates in the surviving corporation. Id., 489 F.2d at 589-594. There is nothing in the petition before us to indicate these plaintiffs had any stock exchange rights under the mergers alleged. Miller v. Steinbach, 268 F.Supp. 255 (S.D. N.Y. 1967), was another action alleging fraud in a corporate merger, claiming violations of federal securities law. The federal court rejected defendants' argument that Pennsylvania law should apply to bar suit by the merged corporation, on two grounds. The first was because the very merger itself took place because of the allegedly wrongful activities of the directors of the old corporation and the management of the surviving corporation among others. Id., 268 F.Supp. at 267. There is no such allegation, or any allegation asserting fraud in the mergers, in the petition before us. The second ground was based on application of the rule that where an action is based on the federal securities laws, state substantive or procedural laws may not impede the application of the federal statute. Id., at 268. Again, that rule has no application in this case. Contending they have standing to sue, plaintiffs argue in the alternative All American (referring to both successor corporations) should be the derivative plaintiff to assert the cause of action formerly held by GUG. This theory is unsupported by any allegations in the petition. Nowhere is it asserted plaintiffs are stockholders of All American, or that the merger effected after the events complained of contemplated a stock-for-stock exchange. We already have noted that under the Delaware law made applicable by the Iowa code, derivative rights pass to the surviving corporation. Limited as we are by the confines of the petition under attack, we are not convinced, as are plaintiffs (without citation of authorities) that, [w]ere there perchance an Iowa Code to the contrary again no matter, because Equity would nonetheless hold contra the Code, so patent are the equities of the matter. We are not convinced a statutory mandate to apply the law of a sister state may be ignored so readily. The § 496A.74(2)(c) requirement we apply Delaware law, coupled with plaintiffs' failure to attack the merger, may in this instance have relegated plaintiffs to their payoff rights as dissenting shareholders, see § 496A.74(2)(c), or their rights under litigation presently in federal court, referred to in the briefs. These matters are not before us on this appeal and we take no notice of them. In view of the allegations of this petition, we hold trial court was right in ruling plaintiffs had no standing to sue. AFFIRMED.