continuous ownership requirement in California

2019The Supreme Court observed that “[t]he phrase ‘instituted or maintained’ [italics in original] . . . seems to imply that only a shareholder may initiate or maintain a derivative action.”5 (Grosset, at p. 1111.) After further reviewing 5 The Supreme Court in Grosset rejected the interpretation of section 800, subdivision (b), adopted by the court in Gaillard v. Natomas Co. (1985) 173 Cal.App.3d 410 , which held that the statute required “only contemporaneous ownership and 10 the language and history of the statute, the Supreme Court concluded that, “while section 800(b) seems to point to a cont

2008Unlike Huang, we do not view the Legislature’s lack of a response to Gaillard, supra, 173 Cal.App.3d 410 , as signifying rejection of a continuous ownership requirement.

2012(Id. at p. 1049; see Grosset v. Wenaas, supra, 42 Cal.4th at pp. 1108-1110 [discussing the continuous ownership requirement under Del. law].) The derivative claims become the property of the surviving corporation, which then has the sole right and standing to prosecute the action. 10 (Ward, supra, 852 A.2d at p. 901; Alabama By-Products Corp. v. Cede & Co. (Del. 1995) 657 A.2d 254, 265 .) The Delaware Supreme Court in Anderson stated that there were two recognized exceptions to the general rule depriving a former shareholder of standing to maintain a derivative action, as applied to mergers: “

2008(Alabama By-Products, supra, 657 A.2d at p. 265 .) The rationale for permitting a shareholder to maintain a derivative suit on a corporation’s behalf, and thereby intrude upon a board’s authority, is that his or her “status as a shareholder provides an interest and incentive to obtain legal redress for the benefit of the corporation.” (Ibid.) But “[o]nce the derivative plaintiff ceases to be a stockholder in the corporation on whose behalf the suit was brought, he no longer has a financial interest in any recovery pursued for the benefit of the corporation.” (Ibid.) Like the contemporaneous ow

2026More importantly, the trial court was mistaken in assuming that because standing is “jurisdictional” (see Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 438 ), EBO was foreclosed from relying on assurances made by an opposing party as evidence that supports an equitable exception to the continuous ownership requirement. “ ‘[T]he term “jurisdiction” has “many different meanings.” ’ . . . ‘A lack of fundamental jurisdiction is “ ‘ “an entire absence of power to hear or determine the case, an absence of authority over the subject matter or the parties.” ’ ” ’ [Citations.] Because a la

2026(Id. at p. 384.) However, we additionally held in Sirott, citing Grosset and Haro, that equitable considerations may excuse the continuous ownership requirement where “a plaintiff is being wrongfully deprived of, or not actually losing, its interest in the corporation.” (Sirott, supra, 78 Cal.App.5th at p. 385.) Standards of Review “A moving defendant establishes an entitlement to summary judgment by showing that the action is barred by a ‘ “complete defense” ’ [citation], or that ‘ “one or more elements of the cause of action . . . cannot be established” by the plaintiff.’ ” (Denevi v. LGCC,

2023J. “equitable considerations may warrant an exception to the continuous ownership requirement if the merger itself is used to wrongfully deprive the plaintiff of standing” but declining to “address such matters definitively in this case”]; Turner, supra, 67 Cal.App.5th at p. 1129 [attempting to distinguish Summers, supra, 34 Cal.App.5th 361 , on the ground that “the Summers court was concerned with equitable considerations surrounding the removal of a director”].) We decline to adopt defendants’ proposed approach.

2023J. “equitable considerations may warrant an exception to the continuous ownership requirement if the merger itself is used to wrongfully deprive the plaintiff of standing” but declining to “address such matters definitively in this case”]; Turner, supra, 67 Cal.App.5th at p. 1129 [attempting to distinguish Summers, supra, 34 Cal.App.5th 361 , on the ground that “the Summers court was concerned with equitable considerations surrounding the removal of a director”].) We decline to adopt defendants’ proposed approach.

2012Code, § 452, subd. (d).) A federal district court in Delaware similarly granted a motion to dismiss derivative claims on behalf of Countrywide in another action in October 2008, also pursuant to the continuous ownership rule. {In re Countrywide Financial Corp. Derivative Litigation (D.Del. 2008) 581 F.Supp.2d 650, 652-653 .) As we discuss below, it was this trial court ruling that led to the Delaware Supreme Court’s opinion in Arkansas Teacher, supra, 996 A.2d 321 .

2012Code, § 452, subd. (d).) A federal district court in Delaware similarly granted a motion to dismiss derivative claims on behalf of Countrywide in another action in October 2008, also pursuant to the continuous ownership rule. {In re Countrywide Financial Corp. Derivative Litigation (D.Del. 2008) 581 F.Supp.2d 650, 652-653 .) As we discuss below, it was this trial court ruling that led to the Delaware Supreme Court’s opinion in Arkansas Teacher, supra, 996 A.2d 321 .

2012Code, § 452, subd. (d).) A federal district court in Delaware similarly granted a motion to dismiss derivative claims on behalf of Countrywide in another action in October 2008, also pursuant to the continuous ownership rule. {In re Countrywide Financial Corp. Derivative Litigation (D.Del. 2008) 581 F.Supp.2d 650, 652-653 .) As we discuss below, it was this trial court ruling that led to the Delaware Supreme Court’s opinion in Arkansas Teacher, supra, 996 A.2d 321 .

2012Kramer, supra, 546 A.2d 348 , held that the continuous ownership rule deprived the plaintiff of standing to maintain a derivative action and that the fraud exception was inapplicable.

2012Kramer stated in this regard that the plaintiff’s allegations of premerger mismanagement resulting in waste of corporate assets constituted derivative claims and did not “implicate the fairness of the merger’s terms” or “directly challenge the merger as resulting from a breach of fiduciary duty.” (Kramer, supra, 546 A.2d at p. 354 .) Kramer then concluded that the fraud exception was inapplicable because the plaintiff failed to allege “that the merger was fraudulent, perpetrated merely to deprive [the corporation] of its claim against the defendants.” (Id. at pp. 354-355.) Ward, supra, 852 A.2

2012Kramer stated in this regard that the plaintiff’s allegations of premerger mismanagement resulting in waste of corporate assets constituted derivative claims and did not “implicate the fairness of the merger’s terms” or “directly challenge the merger as resulting from a breach of fiduciary duty.” (Kramer, supra, 546 A.2d at p. 354 .) Kramer then concluded that the fraud exception was inapplicable because the plaintiff failed to allege “that the merger was fraudulent, perpetrated merely to deprive [the corporation] of its claim against the defendants.” (Id. at pp. 354-355.) Ward, supra, 852 A.2

2012Kramer stated in this regard that the plaintiff’s allegations of premerger mismanagement resulting in waste of corporate assets constituted derivative claims and did not “implicate the fairness of the merger’s terms” or “directly challenge the merger as resulting from a breach of fiduciary duty.” (Kramer, supra, 546 A.2d at p. 354 .) Kramer then concluded that the fraud exception was inapplicable because the plaintiff failed to allege “that the merger was fraudulent, perpetrated merely to deprive [the corporation] of its claim against the defendants.” (Id. at pp. 354-355.) Ward, supra, 852 A.2

2009(Ibid.) “It has been held that a person who has been deprived of his stock by fraudulent action of the corporation may bring a stockholder’s suit.” (Brachman v. Hyman (1941) 298 Mich. 344 [ 299 N.W. 101, 103 ]; see Annot., Right of former stockholder to maintain stockholder’s suit (1947) 168 A.L.R. 906 , § III.a., p. 912. [“One who has been fraudulently induced to transfer his stock remains the equitable owner of it, and may maintain a stockholder’s suit.”]; Willcox v. Harriman Securities Corporation (S.D.N.Y. 1933) 10 F.Supp. 532, 535-536 [“In the present case the plaintiffs are equitable own

2009(Ibid.) “It has been held that a person who has been deprived of his stock by fraudulent action of the corporation may bring a stockholder’s suit.” (Brachman v. Hyman (1941) 298 Mich. 344 [ 299 N.W. 101, 103 ]; see Annot., Right of former stockholder to maintain stockholder’s suit (1947) 168 A.L.R. 906 , § III.a., p. 912. [“One who has been fraudulently induced to transfer his stock remains the equitable owner of it, and may maintain a stockholder’s suit.”]; Willcox v. Harriman Securities Corporation (S.D.N.Y. 1933) 10 F.Supp. 532, 535-536 [“In the present case the plaintiffs are equitable own

2008In Gollust, the United States Supreme Court declined to read a continuous ownership requirement into section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78p(b)), which imposes a rule of strict liability on corporate directors, officers, and other so-called insiders for their short-swing profits. 11 Section 16(b) represents a “ ‘flat rule . . . taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great.’ ” (Gollust, supra, 501 U.S. at p. 121 .) In reviewing the statutory definitions identifying the class of permissible

2008In Gollust, the United States Supreme Court declined to read a continuous ownership requirement into section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78p(b)), which imposes a rule of strict liability on corporate directors, officers, and other so-called insiders for their short-swing profits. 11 Section 16(b) represents a “ ‘flat rule . . . taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great.’ ” (Gollust, supra, 501 U.S. at p. 121 .) In reviewing the statutory definitions identifying the class of permissible

2008Co. v. Griffin (Ind.Ct.App. 1989) 541 N.E.2d 553, 555 .) As one court put it, allowing a plaintiff to retain standing despite the loss of stock ownership would produce “the anomalous result that a plaintiff with absolutely no ‘dog in the hunt’ is permitted to pursue a right of action that belongs solely to the corporation.” (Timko v. Triarsi (Fla.Dist.Ct.App. 2005) 898 So.2d 89, 91 .) Notably, the vast majority of other jurisdictions that have considered the issue require continuous stock ownership for standing to maintain a derivative lawsuit. 9 Contrary to Huang’s suggestion, the widespread

2008Co. v. Griffin (Ind.Ct.App. 1989) 541 N.E.2d 553, 555 .) As one court put it, allowing a plaintiff to retain standing despite the loss of stock ownership would produce “the anomalous result that a plaintiff with absolutely no ‘dog in the hunt’ is permitted to pursue a right of action that belongs solely to the corporation.” (Timko v. Triarsi (Fla.Dist.Ct.App. 2005) 898 So.2d 89, 91 .) Notably, the vast majority of other jurisdictions that have considered the issue require continuous stock ownership for standing to maintain a derivative lawsuit. 9 Contrary to Huang’s suggestion, the widespread