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Court of Chancery Dismisses Derivative Suit for Bad Conduct and Lack of Standing

Parfi Holding A.B. v. Mirror Image Internet Inc., C.A. 18507-VCS (Del. Ch. Sept. 4, 2008)

In this highly unusual case, the Court of Chancery dismissed the complaint because the plaintiff had not told the truth as to why it was not proceeding promptly and because the named plaintiff had lost standing by conveying away any economic interest in the stock it held in the company.

 

The standing decision sets new precedent. The Court held that when a plaintiff retains only technical title to stock and assigns all economic interest in that stock to a third party, that is effectively the sale of the stock. Of course, under established law, the sale of stock while a suit is pending violates the Delaware continuous ownership rule and warrants dismissal of a derivative suit.

 

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