Must a shareholder class representative in a breach of fiduciary duty action own stock in the corporation continuously through the final class certification to have standing to represent the class? And when should the Court of Chancery exercise its discretion to allow a shareholder to opt out of a 23(b)(2) class action, which ordinarily does not include opt-out rights? The Delaware Supreme Court answered both questions last month inIn re Celera Shareholder Litigation , No. 212, 2012 (Del. Dec. 27, 2012). In affirming and reversing the Court of Chancery, the Supreme Court held that a shareholder class representative need not own stock through final class certification to have standing to represent the class, but under the circumstances of the case, the Court of Chancery should have exercised its discretion to allow the appellant to opt out of the shareholder class so that it could pursue its individual claims for monetary damages against the defendants.
The appellant was BVF, a hedge fund that owned stock in Celera Corp., a health care business that had three primary business segments: lab services, products and corporate. The corporate segment held various rights to intellectual property and passive drug royalties. According to the court’s opinion, in 2009, Celera began investigating the possibility of a corporate sale when it experienced an economic downturn. Quest Diagnostics emerged as the most promising bidder, but backed away from negotiations with Celera following disagreements over the amount of a change-of-control payment to senior management and an unpublished study that posed a substantial risk of adversely affecting the future profitability of one of Celera’s products. Subsequently, Quest returned to the bidding process and Celera’s board accepted its "best and final" offer of $8 per share.
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