A recent letter ruling by the Delaware Court of Chancery is noteworthy, in part, because it deals with the issue of a real-party-in-interest, and there is a relative paucity of comprehensive case law on this somewhat esoteric procedural issue. The decision in Fortis Advisors v. Allegan W.C. Holding, Inc., C.A. No. 2019-0151-MTZ (Del. Ch. May 14, 2020), was made in the context of the discovery obligations of the plaintiff acting in its role as a shareholder representative.

The Court in this matter denied a motion to force stockholders to participate in discovery and be subject to trial subpoenas–rejecting the argument that they were the “real parties in interest”. A formal agreement appointed Fortis Advisors as the shareholders’ representative, as well as a “lawful agent and attorney-in-fact.” The motion also sought, in the alternative, to make Fortis Advisors responsible for procuring and producing documents from the stockholders it represented.

Key Takeaways:

  1. This ruling essentially resolved a discovery dispute, and the court reasoned that if it granted the Motion to Compel data directly from the shareholders, then the agreed-upon shareholder representative structure would be displaced, and it would also circumvent Rule 34, regarding who was in control over documents. Nor should the efficiency of the representative structure for resolving post-closing disputes be disturbed by treating the shareholders as the real parties in interest, the Court reasoned.
  2. Prior Chancery decisions have held that Stockholder Representatives are considered the real parties in interest, and those representatives may bring an action without joining the stockholders. See footnotes 23 and 24.
  3. Notably, Court of Chancery Rule 17(a) was not cited, though it refers to real parties in interest, and provides for flexibility to add those parties to a case if needed.