No Fraud Exception for Countrywide Litigation

 The Delaware Supreme Court just issued its opinion in response to a certified question posed to it by the Ninth Circuit in the Countrywide shareholder litigation. The question posed to the court: 

Whether, under the “fraud exception” to Delaware’s continuous ownership rule, shareholder plaintiffs may maintain a derivative suit after a merger that divests them of their ownership interest in the corporation on whose behalf they sue by alleging that the merger at issue was necessitated by, and is inseparable from, the alleged fraud that is the subject of their derivative claims.

Short answer: No, affirming Lewis v Anderson [an enhanced version of this opinion is available to lexis.com subscribers]. While shareholders' direct claims survive the merger, derivative claims are extinguished. In answering the certified question, the Supreme Court takes the time to remind us all that dictum is, well, just dictum, not new law.

 Visit the M&A Law Prof Blog, hosted by Brian JM Quinn, for blogs on legal developments in corporate governance and mergers & acquisitions.

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