On February 17, 2009, the US District Court for the Southern District of New York dismissed, without prejudice, a shareholder derivative action pending against Merrill Lynch's directors and officers alleging breach of fiduciary and waste of corporate assets in connection with Merrill Lynch's exposure to subprime debt.  In re: Merrill Lynch & Co., Inc. Securities, Derivative and ERISA Litigation, 07-CV-9633-JSR (February 17, 2009).  This ruling came weeks after Merrill Lynch reportedly settled a related securities fraud class action for $475 million.
 
Similar to the Delaware federal court's ruling in the shareholder derivative action against Countrywide's former directors and officers (see previous discussion here), the Southern District, interpreting Delaware law, held that the shareholder plaintiffs lost standing to pursue a derivative action against Merrill Lynch's directors and officers because they no longer held Merrill Lynch stock following the completion of the stock-for-stock acquisition of Merrill Lynch by Bank of America.  According to the court, the plaintiffs' inability to satisfy the "continuous ownership rule" warranted the dismissal of the lawsuit. The court decided to dismiss the lawsuit without prejudice to preserve the right of the plaintiffs to file a "double derivative action" against Bank of America.
 
For a copy of the decision, please click here.