In connection with Bank of America’s acquisition of Merrill Lynch, the Delaware Supreme Court has found that a plaintiff in a double derivative action under Delaware law—who was a shareholder in an acquired company at the time of an alleged wrongdoing and who, as a result of that company’s stock-for-stock merger with and into another becomes a shareholder in an acquiring company—does not have to demonstrate that, at the time of the acquired company’s alleged wrongdoing, (a) the plaintiff owned stock in the acquiring company, and (b) the acquiring company owned stock in the acquired company.  

The plaintiffs were Merrill shareholders at the time of its alleged wrongdoings and brought derivative actions against the company’s officers and directors for alleged fiduciary misconduct pre-dating the merger with BOA. Subsequent to BOA’s acquisition of Merrill in a stock-for-stock swap, the defendants moved to dismiss the claims on the grounds that the plaintiffs, now BOA shareholders, lacked standing to sue Merrill because they had not remained Merrill shareholders throughout the litigation, contrary to plaintiffs’ reading of existing Delaware law. The court found no support for the defendants’ arguments in either Delaware statutory law or, with one distinguishable exception, Delaware case law. It rejected the defendants’ arguments, noting that the defendants’ interpretation would eviscerate the double derivative action as a meaningful shareholder remedy.  

The court stated that plaintiffs would have standing to bring a double derivative action if they own shares of the post-merger entity when they proceed on the entity’s behalf, and that the post-merger entity need not have owned stock in the acquired company prior to the merger. Here, the court found that because the plaintiffs acquired their BOA shares as a result of the merger and their double derivative claim was based on the postmerger conduct of the BOA board (including, its failure to prosecute Merrill’s pre-merger claim, indirectly owned by BOA), that the plaintiffs had sufficient standing to bring the double derivative suit.  

Lambrecht v. O'Neal, Del Supr., C.A. 135, 2010 (August 27, 2010)