M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Wednesday, May 26, 2010

Losing Standing after a Merger

In the vein of life mimicking possible exam questions - Morris James points out a recent case in the Delaware Chancery Court, Arkansas Teacher Retirement System v Caiaf a ("TRS").  The issue relates to whether a plaintiff may maintain standing in a derivative suit following a merger.  The answer is generally no.

Other than in instances of fraud or reorganization, a plaintiff loses standing to maintain a derivative suit where the corporation, in which the plaintiff holds stock, merges with another company (Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984)).  A stockholder may maintain his post-merger suit “if the merger itself is the subject of a claim of fraud, being perpetrated merely to deprive stockholders of the standing to bring a derivative action."

This is just another reason why injunctive relief plays such an important role in merger-related litigation.  If the plaintiffs don't seek an injunction to prevent the merger from going forward they risk having their claim extinguished as soon as the transaction closes.  The only exception to this is, as TRS  points outs, when the plaintiffs plead that the merger is a fraud merely to deprive the shareholders of standing.

-bjmq


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