continuous ownership requirement in Delaware

2023A. The Continuous Ownership Rule And The Implications Of A Loss Of Standing To Assert Derivative Claims In Lewis v. Anderson, the Delaware Supreme Court created the continuous ownership rule by stating expansively that “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.” 477 A.2d 1040, 1046 (Del. 1984).

2022They further point out that in Lewis v. Anderson, 477 A.2d 1040 (Del. 1984), the Delaware Supreme Court imposed the continuous ownership requirement, which mandates that a derivative plaintiff hold shares of the corporation continuously throughout the derivative action.

2021Dec. 8, 2020) (recognizing that a stockholder who is involuntarily forced to sell their stock in a merger maintains the right to assert post-merger direct claims as an exception to the continuous ownership rule). 30 477 A.2d 1040 (Del. 1984). 31 Feldman v. Cutaia, 951 A.2d 727 , 731 & n.20 (Del. 2008) (“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.”). 32 152 A.3d 12

2019In ruling on the implications of the continuous ownership rule for purposes of standing, the Delaware Supreme Court held that “the question of derivative standing is properly a threshold question that the [c]ourt may not avoid.” El Paso, 152 A.3d at 1257 (internal quotation marks omitted; alteration in original).

2010Regardless, even if the action were properly cast as derivative, Delaware law recognizes an exception to the continuous ownership requirement when "a principal purpose of the merger was the termination of the then pending derivative claims." Merritt v. Colonial Foods, Inc., 505 A.2d 757, 763 (Del.Ch.1986) (Allen, C.); see Lewis v. Anderson, 477 A.2d 1040 , 1046 n. 10 (Del.1984) (noting equitable exceptions to continuous ownership requirement).

2010Regardless, even if the action were properly cast as derivative, Delaware law recognizes an exception to the continuous ownership requirement when “a principal purpose of the merger was the termination of the then pending derivative claims.” Merritt v. Colonial Foods, Inc., 505 A.2d 757, 763 (Del.Ch.1986) (Allen, C.); see Lewis v. Anderson, 477 A.2d 1040 , 1046 n. 10 (Del.1984) (noting equitable exceptions to continuous ownership requirement).

2021Dec. 8, 2020) (recognizing that a stockholder who is involuntarily forced to sell their stock in a merger maintains the right to assert post-merger direct claims as an exception to the continuous ownership rule). 30 477 A.2d 1040 (Del. 1984). 31 Feldman v. Cutaia, 951 A.2d 727 , 731 & n.20 (Del. 2008) (“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.”). 32 152 A.3d 12

2020Ch. 2005) (internal citation and quotation marks omitted), aff’d, 906 A.2d 766 (Del. 2006). 19 proportion with their ownership of the corporation’s stock solely because they are stockholders, then the claim is derivative in nature.”78 “Application of these principles assumes heightened significance in the post- merger context” because stockholders typically lose standing to pursue derivative claims when a merger extinguishes their status as stockholders under the continuous ownership rule.79 That rule provides, with two recognized exceptions, “that a derivative shareholder must not only be a s

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).

2014Lambrecht v. O’Neal, 3 A.3d 277, 284 (Del.2010).

2022Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 817 (Del.

2016The Merger Extinguished Brinckerhoff’s Claim In Lewis v. Anderson,86 this Court set forth the continuous ownership requirement.87 We held that “[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.”88 This rule flows from the fact that, following a merger, “the derivative claim—originally belonging to the acquired corporation—is transferred to and becomes an asset of the acquiring corporation as a matter of statutory law.”89 an unfair, conflicted stock purchase transaction, reforming the agreement to c

1995Like the continuous ownership requirement, “the demand requirements of Rule 23.1 represent a procedural restatement of the[ ] bedrock principles of Delaware corporate governance in the context of standing to maintain a derivative shareholder’s suit.” Levine, 591 A.2d at 200 (citing Tandycrafts, Inc. v. Initio Partners, Del.Supr., 562 A.2d 1162, 1166 (1989)).

1995Like the continuous ownership requirement, "the demand requirements of Rule 23.1 represent a procedural restatement of the[] bedrock principles of Delaware corporate governance in the context of standing to maintain a derivative shareholder's suit." Levine, 591 A.2d at 200 (citing Tandycrafts, Inc. v. Initio Partners, Del.Supr., 562 A.2d 1162, 1166 (1989)).