Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A., No. 425,2011 (Del. Supr., Dec. 28, 2011), read opinion here. The Chancery decision appealed from was highlighted on these pages here. A related Chancery decision in this case was summarized on this blog here.
Issue addressed: Whether the pre-suit demand requirements of Spanish law or Delaware law should apply to a claim brought derivatively on behalf of a wholly-owned subsidiary of a corporation formed under the laws of the country of Spain.
Delaware’s High Court provided a flow chart to illustrate the related companies involved and which explained that the plaintiff filing this suit was a shareholder in a parent corporation formed in Spain, and that parent entity controlled an intermediate subsidiary entity formed in the Netherlands, which then controlled a “tier-three” entity that was a subsidiary of the entity formed in the Netherlands.” The shareholder that filed the suit in Delaware, alleging breach of fiduciary duty involving the Delaware entity, was only a shareholder in the Spanish parent entity.
The Court explained that this could be described as a “triple derivative suit,” but that in any event under the internal affairs doctrine and established Delaware law, where a wholly-owned subsidiary existed prior to the wrongdoing, and the plaintiff owns stock only in the parent, a demand can only be made, and a derivative action can only be brought, at the parent level, and not at the subsidiary level. By analogy, in the context of a double derivative suit, the Court had previously ruled that the basis for standing in a case of this type is the ability of the parent to enforce the claim of the subsidiary by its direct exercise of control over the subsidiary. The Court applied that principle in this decision to explain that the standing of the plaintiff to sue derivatively, including its pre-suit demand obligations, were governed by the rules applicable at the parent level, which in this case was the country of Spain. See Lambrecht v. O’Neal, 3 A.3d 277, 282 (Del. 2010).
Notably, the Court in an extensive footnote 13, went to great lengths to explain that dictum in a separate Chancery decision which suggested that some language in the Lambrecht case was inconsistent with provisions of the Delaware General Corporation Law, was wrong. The Supreme Court emphasized that “those assertions warrant comment, lest this Court’s silence be regarded as tacitly blessing Hamilton Partners’ characterization of Lambrecht as containing ‘technical misteps.’” See Hamilton Partners, L.P. v. Englard, 11 A.3d 1180, 1203-05, 1206 (Del. Ch. 2010).
The Court also relied on comity as a basis for its decision, and explained that: although “a Delaware entity may be involved in the corporate structure, the Court is mindful of the important interest of affording comity to foreign business law governing the internal affairs of a foreign corporation.”