Delaware Business Litigation Report

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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