Wednesday, August 21, 2013
There has been a bit of back and forth recently about under what circumstances boards might have some duty to shareholders to carve-out derivative claims to prevent them from being extinguished by a merger (see e.g. Massey and Countrywide). Now Michael Sirkin, a former Laster clerk, has posted a paper, Standing at the Singularity, in which he proposes a way forward. Here's the abstract:
Abstract: This article examines the doctrine of standing as applied to mergers and acquisitions of Delaware corporations with pending derivative claims. Finding the existing framework of overlapping rules and exceptions both structurally and doctrinally unsound, this article proposes a novel reconfiguration of existing Delaware law under which Delaware courts would follow three black-letter rules: (1) stockholders of the target should have standing to sue target directors to challenge a merger directly on the basis that the board failed to achieve adequate value for derivative claims; (2) a merger should eliminate target stockholders’ derivative standing; and (3) stockholders of the acquiror as of the time a merger is announced should be deemed contemporaneous owners of claims acquired in the merger for purposes of derivative standing. Following these rules would restore order to the Delaware law of standing in the merger context and would advance the important public policies served by stockholder litigation in the Delaware courts.