Opinion ID: 1470259
Heading Depth: 1
Heading Rank: 6

Heading: Merger Eliminates Derivative Standing

Text: Twenty-four years ago, in the seminal case of Lewis v. Anderson , [14] this Court held that a corporate merger generally extinguishes a plaintiff's standing to maintain a derivative suit. In Lewis v. Anderson , as in Feldman's case, while the plaintiff was litigating a derivative action, the corporate defendant merged with another company, and the plaintiff's stock was exchanged for that of the corporate defendant's new parent company. [15] In Lewis v. Anderson , this Court held that Title 8, section 327 of the Delaware Code, [16] when read in pari materia with the Court of Chancery Rule 23.1, [17] requires that a plaintiff not only be a stockholder at the time of the alleged wrongdoing, but that he maintain stockholder status in the corporate defendant throughout the litigation. [18] In Lewis v. Anderson , we held that since a derivative claim is a property right owned by the nominal corporate defendant, that right flows to the acquiring corporation by operation of a merger. [19] It is now well established that a plaintiff may avoid dismissal of his derivative claims following a merger in only two distinct circumstances: where the claims asserted are direct, rather than derivative, or where one of the exceptions recognized in Lewis v. Anderson applies. [20] Feldman ceased to be a Telx stockholder following the merger with GI Partners. Therefore, the dismissal of his Third Amended Complaint must be affirmed unless this Court determines that there is merit to Feldman's contention that Count XIII states a claim for direct relief.