Delaware law has long required that a stockholder own shares on the date of an alleged wrongful act of which he or she complains and continue to own shares during the course of a derivative action. The principles of contemporaneous ownership and continuous ownership lead to the well-settled rule that a merger in which a stockholder’s shares are extinguished results in that stockholder losing standing to pursue the derivative claim, as seen in Lewis v. Anderson, 477 A.2d 1040 (Del. 1984). This is the case because a derivative plaintiff cannot satisfy the continuous-ownership requirement following such a merger. The derivative claim instead is transferred to the acquiring corporation, which can choose to dismiss the action. An exception exists where the merger was accomplished “merely” to destroy derivative standing. The so-called fraud exception to the Anderson rule is narrow, as the Delaware Supreme Court reaffirmed in Arkansas Teacher Retirement System v. Countrywide Financial, No. 14, 2013 (Del. Sept. 10, 2013) (en banc). This clear reaffirmance eliminates any argument that the Delaware Supreme Court’s dictum in a prior decision involving the same merger transaction was intended to broaden or change the scope of the fraud exception to the Anderson rule.

The Certified Question and Procedural Background

Arkansas Teacher arose out of a certified question from the U.S. Court of Appeals for the Ninth Circuit. The certified question was:

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