Shareholder derivative actions are one of the chief means the owners of a company have for enforcing high standards of conduct by corporate fiduciaries. In a shareholder derivative action, a company’s shareholder can stand in the place of the company and take action against the company’s officers and/or directors who have harmed it. The courts have long recognized that these suits encourage shareholders to seek redress for corporate mismanagement, and serve as important considerations of public policy. Because shareholder derivative actions can be powerful tools to police corporate mismanagement, corporate fiduciaries have been creative in finding ways to get them dismissed.
One common way corporate fiduciaries have tried to extinguish their liability in derivative actions is by exploiting the requirement in most jurisdictions that the shareholder plaintiff continue to own stock in the company throughout the course of the litigation. Defendants argue that once a merger or acquisition occurs, the plaintiff no longer holds stock in the subject company, and therefore, cannot pursue the litigation. The Delaware Supreme Court recently issued two rulings — concerning shareholder plaintiffs’ standing to continue to pursue derivative actions after the company is acquired — that largely close this loophole.
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
