Villari

Delaware’s continuous ownership rule requires a plaintiff in a shareholder derivative action to retain stock ownership for the duration of the litigation. A plaintiff who ceases to be a shareholder as a result of a merger, or for any other reason, loses standing to maintain a derivative action. The Delaware Supreme Court has stated in several opinions, however, that a former shareholder will retain standing to maintain a derivative action despite a merger if the sole purpose of the merger was to eliminate potential derivative claims. This is known as the fraud exception to the continuous ownership rule.

Joseph Villari (plaintiff) appeals a judgment dismissing his second amended complaint after the sustaining of a demurrer without leave to amend. The trial court concluded, pursuant to the continuous ownership rule, that plaintiff had no standing to maintain shareholder derivative claims on behalf of Countrywide Financial Corporation (Countrywide), a Delaware corporation, after its acquisition by Bank of America Corporation (Bank of America) and merger into another corporation. Plaintiff nonetheless contends that he has adequately alleged a factual basis for application of…