Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...
April 12 — Linkwell Corp. directors don't have to face a derivative lawsuit, after a Florida federal judge ruled that the plaintiff-investor couldn't continue to pursue claims as a result of a mid-litigation merger.
Judge Darrin P. Gayles from the U.S. District Court for the Southern District of Florida dismissed the lawsuit in an April 11 order, finding that the investor lacked standing under the “continuous ownership rule.”
The judge observed that under both federal and Florida law, shareholders bringing lawsuits on behalf of corporations must continue to own their shares throughout the life of the litigation.
The court declined to create an exception to the rule despite the plaintiff's contention that the merger was entered into for the purpose of terminating the pending derivative lawsuit. The plaintiff argued that the court should look to Delaware law, which recognizes such an exception.
In his lawsuit, the investor claimed that Linkwell directors entered into a self-dealing reverse-merger transaction at the expense of shareholders. Five days after the plaintiff filed a third amended complaint in the action, Linkwell entered into a merger with Leading World Corp. After the combination, the plaintiff was no longer a Linkwell shareholder.
In its ruling, the court cited a 2005 decision in which the Florida state appeals court declined to create an exception to the continuous-ownership rule. In that case, the plaintiff lost his shares as a result of one defendant exercising a statutory right to purchase them in response to a dissolution action.
“This Court will not contravene or otherwise disturb the only controlling decision of a Florida appellate court ruling on an issue of Florida law by importing and enforcing an exception from Delaware or from any other jurisdiction, regardless of how often Florida courts have looked to Delaware corporate law for myriad unrelated purposes,” Gayles wrote.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)