In Appriva Shareholder Litigation Company, LLC v. EV3, Inc., et al., (Del. Supr., Nov. 1, 2007), read opinion here, the Delaware Supreme Court reversed two decisions of the Superior Court that were consolidated on appeal, in connection with a dispute related to a merger. The consolidated cases were filed by shareholders of the acquired company. The trial court, in separate decisions by different judges, determined that both plaintiffs lacked standing to prosecute their respective actions separately and were contractually obligated to prosecute their claims jointly. The opinion is 34 pages in length in its original format. It would be an appropriate subject of a bar exam question on civil procedure issues. I will highlight only a few key aspects of the ruling that should be instructive to business litigators.
Delaware’s high court addressed several issues: First, the court determined that it was reversible error for the trial court to convert a motion to dismiss under Rule 12(b)(6) into a Rule 56 motion for summary judgment without providing an opportunity to present pertinent evidentiary material. Moreover, the high court ruled that it was error for the trial court, sua sponte, to convert a motion to dismiss under Rule 12(b)(6) into a Rule 56 motion for summary judgment without affording the parties adequate notice or a reasonable opportunity to respond as required by Rule 56.
In addition, the court determined that it was reversible error to choose between two differing interpretations of ambiguous documents, in a motion to dismiss under Rule 12(b)(6). In addition to incorrectly relying on only one reasonable interpretation of the agreement in deciding a motion to dismiss, the trial court failed to allow extrinsic evidence.
Finally, under Rule 17, upon remand, the Supreme Court ruled that if it is determined that the plaintiffs did not have standing, then they shall have an opportunity to cure any defects pursuant to that rule. The high court noted that Rule 17 states that "[n]o action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest" after a reasonable time has been allowed to permit a substitution. The court added that the purpose of Rule 17 is to "prevent forefeiture when determination of the proper party to sue is difficult or when an understandable mistake has been made."