Kramer v. Western Pac. Indus
In Kramer v. Western Pac. Indus. (546 A2d 348, 354 [Del Sup Ct 1988] at issue was whether the former shareholder of a corporation, who had been cashed out in a merger, had standing in his capacity as a former shareholder to pursue a breach of fiduciary claim against management. (Kramer, 546 A2d at 349.)
In holding that a former shareholder does have standing to litigate claims of breach of duty arising from the merger, the court stated, "direct attacks against a given corporate transaction (attacks involving fair dealing or fair price) give complaining shareholders standing to pursue individual actions even after they are cashed-out through the effectuation of a merger." (Id. at 354.)
Specifically at issue in Kramer, however, is the legal limbo former shareholders find themselves in subsequent to being cashed out, as in addition to losing their equity interest in the corporation, they consequently lose their standing to sue the corporation in the capacity of a shareholder.
The Kramer court analogized the situation of a former shareholder who has been cashed out and subsequently asserts a claim for breach of duty on the part of management, to a property owner who is suing for loss of property. (Id.)
The court noted, "No one would assert that a former owner suing for loss of property through deception or fraud has lost standing to right the wrong that arguably caused the owner to relinquish ownership or possession of that property." (Id.)
In finding that the plaintiff's claims were derivative in nature because the claims were ultimately alleging corporate mismanagement resulting in waste and otherwise did not allege that the merger price was unfair or that it was obtained through unfair dealing, the court upheld the grant of summary judgment dismissing the complaint, as the plaintiff, "having ceased to be a shareholder . . . , lacks standing to pursue the derivative claims asserted by his . . . complaint." (Id. at 349.)