J.P. Morgan Chase & Co. Shareholder Litigation

In J.P. Morgan Chase & Co. Shareholder Litigation (Del. 2005) 906 A.2d 808, the plaintiffs, shareholders of an acquiring corporation sued, alleging the corporation paid too much for the target corporation. (Id. at p. 812.) The plaintiffs sought damages in the amount of the merger exchange ratio premium, approximately $7 billion, and alleged the board of the acquiring corporation by approving the unfavorable merger exchange ratio and the unnecessary premium, harmed them directly by diluting their interests in the acquiring corporation. They theorized that if the board had approved a no-premium merger exchange ratio, the plaintiffs would have a greater stake in the resulting company. Instead, the stockholders of the pre-merger acquiring company now had less of a stake in the post-merger acquiring company. (Id. at p. 814.) The court held that by describing the harm as a dilution of their stockholder interests, the plaintiffs attempted to characterize their claim as a direct claim. However, "at the heart of their complaint," the plaintiffs claim that the acquirer overpaid for the target. The court reasoned that if the acquirer had paid cash, the claims would clearly be derivative because any such cash overpayment would not have harmed the stockholders directly. (Id. at p. 818.) Although "dilution claims emphasizing the diminishment of voting power have been categorized as direct claims, they are individual in nature only where a significant stockholder's interest is increased at the sole expense of the minority." As a result, the claims were derivative. (Ibid.)