contemporaneous ownership requirement in Delaware

2024The recovery in a derivative action belongs to and is almost inevitably awarded to the corporation, so all current stockholders benefit, notwithstanding the contemporaneous ownership requirement.”). 23 Delaware has not invented a common law contemporaneous ownership requirement for direct claims.66 The right to assert a direct claim is a property right associated with the shares, so unless the seller and buyer agree otherwise, the ability to assert a direct claim and benefit from any remedy passes to the buyer with the shares.67 By purchasing shares, a buyer does not acquiesce in the prior con

2020Delaware courts have most often asserted that the contemporaneous ownership requirement exists to “‘to prevent what has been considered an evil, namely the purchasing of shares in order to maintain a derivative action designed to attack a transaction which occurred prior to the purchase of the stock.’” Schoon v. Smith, 953 A.2d 196, 203 (Del. 2008) (quoting Burry Biscuit, 60 A.2d at 111 ).

2015In Hawes , the United States Supreme Court created the contemporaneous ownership requirement to prevent corporations from manufacturing diversity jurisdiction for claims against third parties. 104 U.S. at 461 ; see Robert C.

2015In Hawes, the United States Supreme Court created the contemporaneous ownership requirement to prevent corporations from manufacturing diversity jurisdiction for claims against third parties. 104 U.S. at 461 ; see Robert C.

2022When applying those principles to claims challenging stock options and other equity-based awards, this court has held that the relevant date is the grant date, not the time when the participant receives the shares.4 The court also has used the grant date when determining whether the contemporaneous ownership doctrine barred challenges to option grants that preceded the plaintiff’s ownership.5 4 See Buerger v. Apfel, 2012 WL 893163 , at *5 (Del. Ch. Mar. 15, 2012) (holding that doctrine of laches precluded challenge to option grants that took place more than three years before the filing of the

2022See Desimone v. Barrows, 924 A.2d 908 , 924-35 (Del. Ch. 2007) (“[T]he continuing wrong doctrine does not bestow standing upon a stockholder to challenge transactions occurring before he bought his stock simply because they are similar or related to transactions or other conduct that occurred later.”); Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007) (holding that a plaintiff lacked standing to challenge backdated options grants occurring before he acquired his shares even though similar backdated grants continued to be made after the plaintiff became a stockholder”); see also Chirlin v. Crosby,

2022It is a new, distinct action in which standing to sue double derivatively rests on a different temporal and factual basis— namely, the failure of the [parent entity], post-merger, to enforce the premerger claim of its wholly-owned subsidiary. 60 3 A.3d at 290 ; see Lewis v. Anderson, 477 A.2d 1040, 1050 (Del. 1984) (holding that there was no impediment to New Conoco, the post-transaction entity, pursuing its own claims).

2022Relying on Lambrecht v. O’Neal, 3 A.3d 277 (Del. 2010), this court previously rejected the defendants’ argument that the plaintiffs could not assert claims based on events that preceded the Reorganization.

2022Plaintiff thus does not satisfy the contemporaneous ownership requirement embedded in Section 327.” (citations omitted)); see also Ward, 852 A.2d at 901 (“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.

2020Ch. 2007). 142 In re Massey, 160 A.3d at 497-98 . 143 Lewis v. Ward, 852 A.2d 896, 902 (Del. 2004) (clarifying the exceptions originally identified in Lewis v. Anderson, 477 A.2d 1040 (Del. 1984)). 38 The rationale for this rule is that “a derivative claim is a property right owned by the nominal corporate defendant” that then “flows to the acquiring corporation by operation of a merger.”144 Plaintiff concedes, as it must, that it was not a New Fox stockholder at the time of the challenged stock awards and that it became a New Fox stockholder by way of the Transaction145 and, therefore, not by

2022It is a new, distinct action in which standing to sue double derivatively rests on a different temporal and factual basis— namely, the failure of the [parent entity], post-merger, to enforce the premerger claim of its wholly-owned subsidiary. 60 3 A.3d at 290 ; see Lewis v. Anderson, 477 A.2d 1040, 1050 (Del. 1984) (holding that there was no impediment to New Conoco, the post-transaction entity, pursuing its own claims).

2020Ch. 2007). 142 In re Massey, 160 A.3d at 497-98 . 143 Lewis v. Ward, 852 A.2d 896, 902 (Del. 2004) (clarifying the exceptions originally identified in Lewis v. Anderson, 477 A.2d 1040 (Del. 1984)). 38 The rationale for this rule is that “a derivative claim is a property right owned by the nominal corporate defendant” that then “flows to the acquiring corporation by operation of a merger.”144 Plaintiff concedes, as it must, that it was not a New Fox stockholder at the time of the challenged stock awards and that it became a New Fox stockholder by way of the Transaction145 and, therefore, not by

2022When applying those principles to claims challenging stock options and other equity-based awards, this court has held that the relevant date is the grant date, not the time when the participant receives the shares.4 The court also has used the grant date when determining whether the contemporaneous ownership doctrine barred challenges to option grants that preceded the plaintiff’s ownership.5 4 See Buerger v. Apfel, 2012 WL 893163 , at *5 (Del. Ch. Mar. 15, 2012) (holding that doctrine of laches precluded challenge to option grants that took place more than three years before the filing of the

2022When applying those principles to claims challenging stock options and other equity-based awards, this court has held that the relevant date is the grant date, not the time when the participant receives the shares.4 The court also has used the grant date when determining whether the contemporaneous ownership doctrine barred challenges to option grants that preceded the plaintiff’s ownership.5 4 See Buerger v. Apfel, 2012 WL 893163 , at *5 (Del. Ch. Mar. 15, 2012) (holding that doctrine of laches precluded challenge to option grants that took place more than three years before the filing of the

2022When applying those principles to claims challenging stock options and other equity-based awards, this court has held that the relevant date is the grant date, not the time when the participant receives the shares.4 The court also has used the grant date when determining whether the contemporaneous ownership doctrine barred challenges to option grants that preceded the plaintiff’s ownership.5 4 See Buerger v. Apfel, 2012 WL 893163 , at *5 (Del. Ch. Mar. 15, 2012) (holding that doctrine of laches precluded challenge to option grants that took place more than three years before the filing of the

2007The court concluded that the claim attacking the option grant that predated Elster’s purchase of shares was barred by the contemporaneous ownership rule, holding that "[t]he wrong or injury of which plaintiff complains is the option contract, not the purchase price and sale of stock pursuant thereto.” Id. at 224. 42 . 76 A.2d 121 (Del.Ch.1950).

2025Co., 48 N.Y.S.2d 267, 268 (N.Y. Sup. Ct. 1944) (observing New York enacted the contemporaneous ownership requirement because derivative actions were “very often grossly abused and utilized for reasons disconnected with the interest of the corporation”), overruled on other grounds by Shielcrawt v. Moffett, 61 N.E.2d 435 (N.Y. 1945); and then citing Coane v. Am. Distilling Co., 49 N.Y.S.2d 838, 843 (N.Y. Sup. Ct. 1944) (describing the statute’s goal as “to eradicate an evil then current with respect to [strike suits]” and the resulting curtail of “a fruitful source of unwarranted and unscrupulou

2025Co., 48 N.Y.S.2d 267, 268 (N.Y. Sup. Ct. 1944) (observing New York enacted the contemporaneous ownership requirement because derivative actions were “very often grossly abused and utilized for reasons disconnected with the interest of the corporation”), overruled on other grounds by Shielcrawt v. Moffett, 61 N.E.2d 435 (N.Y. 1945); and then citing Coane v. Am. Distilling Co., 49 N.Y.S.2d 838, 843 (N.Y. Sup. Ct. 1944) (describing the statute’s goal as “to eradicate an evil then current with respect to [strike suits]” and the resulting curtail of “a fruitful source of unwarranted and unscrupulou

2024The recovery in a derivative action belongs to and is almost inevitably awarded to the corporation, so all current stockholders benefit, notwithstanding the contemporaneous ownership requirement.”). 23 Delaware has not invented a common law contemporaneous ownership requirement for direct claims.66 The right to assert a direct claim is a property right associated with the shares, so unless the seller and buyer agree otherwise, the ability to assert a direct claim and benefit from any remedy passes to the buyer with the shares.67 By purchasing shares, a buyer does not acquiesce in the prior con

2024Ch. 1948) (Seitz, V.C.)); Activision, 124 A.3d at 1048 (“As in Delaware, a majority of jurisdictions refused to adopt a contemporaneous ownership requirement in the absence of a statute.”); see also id. at 1250 (“Section 327 does not apply to direct claims.”).

2024Ch. 1948) (Seitz, V.C.)); Activision, 124 A.3d at 1048 (“As in Delaware, a majority of jurisdictions refused to adopt a contemporaneous ownership requirement in the absence of a statute.”); see also id. at 1250 (“Section 327 does not apply to direct claims.”).

2024It was designed principally to prevent the purchasing of stock to be used for the purpose of filing a derivative action attacking transactions occurring prior to such purchase.”38 Accordingly, he found the statute “should not be construed so as to 32 Id. at 832-33. 33 Id. 34 Id. 35 Id. 36 Id. at 833 . 37 Id. 38 Id. (citing Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del. Ch. 1948)).

2024It was designed principally to prevent the purchasing of stock to be used for the purpose of filing a derivative action attacking transactions occurring prior to such purchase.”38 Accordingly, he found the statute “should not be construed so as to 32 Id. at 832-33. 33 Id. 34 Id. 35 Id. 36 Id. at 833 . 37 Id. 38 Id. (citing Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del. Ch. 1948)).

2022When applying those principles to claims challenging stock options and other equity-based awards, this court has held that the relevant date is the grant date, not the time when the participant receives the shares.4 The court also has used the grant date when determining whether the contemporaneous ownership doctrine barred challenges to option grants that preceded the plaintiff’s ownership.5 4 See Buerger v. Apfel, 2012 WL 893163 , at *5 (Del. Ch. Mar. 15, 2012) (holding that doctrine of laches precluded challenge to option grants that took place more than three years before the filing of the

2020Delaware courts have most often asserted that the contemporaneous ownership requirement exists to “‘to prevent what has been considered an evil, namely the purchasing of shares in order to maintain a derivative action designed to attack a transaction which occurred prior to the purchase of the stock.’” Schoon v. Smith, 953 A.2d 196, 203 (Del. 2008) (quoting Burry Biscuit, 60 A.2d at 111 ).

2020Delaware courts have most often asserted that the contemporaneous ownership requirement exists to “‘to prevent what has been considered an evil, namely the purchasing of shares in order to maintain a derivative action designed to attack a transaction which occurred prior to the purchase of the stock.’” Schoon v. Smith, 953 A.2d 196, 203 (Del. 2008) (quoting Burry Biscuit, 60 A.2d at 111 ).

1999See, e.g., Bank of Santa Fe, 867 P.2d at 435-436 (In an opinion applying the Doctrine, holding that leases requiring continuing payments which predated plaintiffs ownership of the corporation do not produce "the type of continuing harm that justifies not applying the contemporaneous ownership doctrine.”); REA Express, 412 F.Supp. at 1253-1254 (new owners must be deemed to have been aware of disadvantageous pre-ownership agreements producing post-ownership damages before they assumed ownership of the corporation, thus the Doctrine barred suit by the corporation for damages resulting from those

1999Although Bangor Punta adverted to the possibility that the Doctrine might not apply where the effects of prior wrongdoing had a “continuing effect” on the corporation, 417 U.S. at 711, n. 6 , 94 S.Ct. 2578 , the logic of the Doctrine and its similarity to the contemporaneous ownership rule dictate that a “continuing effect” exception should not be recognized.

1999Although Bangor Punta adverted to the possibility that the Doctrine might not apply where the effects of prior wrongdoing had a “continuing effect” on the corporation, 417 U.S. at 711, n. 6 , 94 S.Ct. 2578 , the logic of the Doctrine and its similarity to the contemporaneous ownership rule dictate that a “continuing effect” exception should not be recognized.

1999See, e.g., Bank of Santa Fe, 867 P.2d at 435-436 (In an opinion applying the Doctrine, holding that leases requiring continuing payments which predated plaintiffs ownership of the corporation do not produce "the type of continuing harm that justifies not applying the contemporaneous ownership doctrine.”); REA Express, 412 F.Supp. at 1253-1254 (new owners must be deemed to have been aware of disadvantageous pre-ownership agreements producing post-ownership damages before they assumed ownership of the corporation, thus the Doctrine barred suit by the corporation for damages resulting from those

1999See, e.g., Bank of Santa Fe, 867 P.2d at 435-436 (In an opinion applying the Doctrine, holding that leases requiring continuing payments which predated plaintiffs ownership of the corporation do not produce "the type of continuing harm that justifies not applying the contemporaneous ownership doctrine.”); REA Express, 412 F.Supp. at 1253-1254 (new owners must be deemed to have been aware of disadvantageous pre-ownership agreements producing post-ownership damages before they assumed ownership of the corporation, thus the Doctrine barred suit by the corporation for damages resulting from those