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Court Of Chancery Explains When A Derivative Suit Survives A Merger

Posted In M&A

In Re Primedia Inc. Shareholders Litigation, C.A. No. 6511-VCL (May 10, 2013)

This is a major decision.  Generally, a merger ends the standing of a plaintiff to pursue derivative litigation.  To get around this problem, derivative plaintiffs have alleged that the merger itself was invalid because the consideration paid to the stockholders eliminated in the merger did not include anything for the value of a pending derivative claim.  Until this decision, that claim did not go very far because the courts found that the derivative claim was worth very little.  But what if the claim is worth a lot?

This decision explains how to deal with that situation to effectively assert what is known as a "Parnes" claim.  As a result, we may see more such claims at least when the derivative litigation asserts big damages.

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