Noting that all claims asserted in the two suits were violations of Delaware law, the court found that under Delaware law “[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.” The court concluded that Bank of America’s stock-for-stock acquisition of Merrill Lynch extinguished plaintiffs’ standing to bring derivative suits because they no longer own any Merrill stock.
According to the opinion, the plaintiffs failed to prove an exception existed either because the merger itself is the subject of a claim of fraud, being perpetrated merely to deprive shareholders of the standing to bring a derivative action; or because the merger is in reality merely a reorganization which does not affect plaintiff’s ownership in the business enterprise.
The plaintiffs also failed to provide evidence supporting their primary argument that federal common law, rather than Delaware law, should govern the question of standing.
The court faced a number of related actions arising from the huge losses experienced by Merrill Lynch as a result of its aggressive investment in collateralized debt obligations and similar mortgage-backed securities. The actions were divided into three categories – securities class actions, ERISA actions, and derivative actions.
A tentative settlement of $550 million was reached in the securities class actions and the ERISA actions, subject to court approval and class notification (see Merrill Settles Subprime-Related Suits ).