Court Of Chancery Explains Standing To Bring Fiduciary Duty Claims After Being Forced to Sell Stock
This is an important decision because it clarifies when a stockholder loses standing to bring a fiduciary duty case because he sold his stock. Briefly, breach of fiduciary duty claims may be direct (belonging to the individual stockholder), derivative (belonging to the corporation generally), or dual-natured (partially direct, partially derivative). Direct/individual claims for breach of fiduciary duty may also be personal (belonging to the individual) or non-personal (attaching to the stock). As explained by In re Activision Blizzard, Inc. Stockholder Litigation, 124 A.3d 1025 (Del. Ch. 2015), a stockholder selling his stock gives up all but direct claims that are personal in nature—the non-personal rights otherwise travel with the shares to the new owner.
A direct claim that is non-personal in nature is a claim based on a property right carried by the shares, or arising out of the relationship between the stockholder and the corporation, such as voting rights. After you sell your stock, your standing is lost and you are not able to complain that your voting rights, for example, were diminished by a breach of fiduciary duty.
As the Court explains here, when a stockholder is squeezed out by a merger in a transaction representing a breach of fiduciary duty, the transaction severs the stockholder-corporation relationship and the claims arising from the transaction are personal and vest in the former owner of the stock, who suffered the injury. The stockholder’s claim here was of this variety. His loss was at the moment he was forced to give up his old stock for new stock in a different entity of lesser value. The Court found that the right to recover for this loss was personal—it did not adhere to the new stock, and the stockholder selling the new stock did not affect his standing to pursue this loss.