Posts in Standing

Chancery Upholds Brophy Claim and Finds Post-Merger Direct Standing Based On Process Challenge

Goldstein v. Denner, C.A. No. 2020-1061-JTL (Del. Ch. June 2, 2022)
This motion to dismiss decision upholds a Brophy claim against an activist investor and director who was alleged to have concealed an eventual acquiror’s expression of interest while he leveraged that inside information to buy more stock and profit after the short-swing period’s expiration. The Court of Chancery found it was reasonable in the circumstances to infer materiality of the expression of interest, which represented a nearly 65% premium over the company’s trading price, and that the fiduciary was motivated to act upon it. The Court also found that a merger did not eliminate the plaintiff’s standing under the contemporaneous ownership requirement. The Court rejected the defendant's argument under Primedia regarding the asserted immateriality of the value of the plaintiff’s claims in the context of the merger. As the Court explained, under Parnes, a stockholder could may assert “a direct claim challenging a merger if the facts giving rise to what otherwise would constitute a derivative claim led either to the price or the process being unfair.” Here, the plaintiff’s allegations challenged the fairness of the sale process – a process that the activist allegedly delayed to serve his own interests at the expense of the Company running a better process or remaining independent. 

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Chancery Declines to Grant Equitable Standing When Other Stockholders Had Standing to Enforce Corporate Rights

SDF Funding LLC v. Fry, C.A. No. 2017-0732-KSJM (Del. Ch. May 13, 2022)
Under Section 327 of the DGCL, a stockholder must hold stock at the time of the alleged wrong to have standing to pursue a derivative claim. Under the equitable standing doctrine, however, standing may be recognized in equity to prevent a “complete failure of justice.”  Here, the plaintiffs acquired the stock after some of the alleged wrongs in their complaint took place but argued that the equitable standing doctrine allowed one of them to raise these claims. The Court of Chancery observed that the doctrine has applied when alternative avenues of remedying the harm were foreclosed.  Importantly, however, the Delaware courts generally have declined to invoke it when other avenues theoretically exist, such as the existence of other potential plaintiffs with standing to pursue the claims at issue. Applying that reasoning here, the Court ruled that it would not grant equitable standing because other non-party stockholders would have standing to pursue these claims.

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Delaware Supreme Court Overrules Gentile, Resolving Tension in Legal Test To Determine Whether a Claim Is Direct or Derivative

Brookfield Asset Mgmt., Inc. v. Rosson, No. 406, 2020 (Del. Sept. 20, 2021)
Seeking to bring clarity to the issue of whether a claim is direct or derivative—a potentially outcome-determinative issue—the Delaware Supreme Court overturned its own precedent in Gentile v. Rossette, 906 A.2d 91 (Del. 2006). More ›

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Chancery Addresses Standing Defense And Control Allegations In Abandoned Tender Offer Dispute

In re WeWork Litig., C.A. No. 2020-0258-AGB (Del. Ch. Dec. 14, 2020)

This decision is the companion to another dismissal opinion in same case of the same date and arising out of the same abandoned multi-step tender offer transaction between WeCompany (“WeWork” or the “Company”) and SoftBank Group Corp. and Vision Fund (AIV M1) L.P. (together, “Softbank”). A summary of the companion opinion is available here.  More ›

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