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Civil Practice – Statute of Limitations – Accrual Date – Corporate – Merger – Delaware Law – Release

By: South Carolina Lawyers Weekly staff//March 25, 2011//

Civil Practice – Statute of Limitations – Accrual Date – Corporate – Merger – Delaware Law – Release

By: South Carolina Lawyers Weekly staff//March 25, 2011//

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Menezes v. WL Ross & Co. (Lawyers Weekly No. 011-046-11, 10 pp.) (Aphrodite K. Konduros, J.) (Daniel F. Pieper, J., concurring) Appealed from Greenville County Circuit Court. (Edward W. Miller, J.) S.C. App. Click here for the full text of the opinion.

Holding: In settling a prior lawsuit against defendants, plaintiff signed a comprehensive release. Defendants announced a merger with another company before plaintiff signed the release and consummated the merger after plaintiff signed the release. The circuit court should not have stricken defendants’ defenses based on the release or dismissed defendants’ counterclaim.

Reversed and remanded.

The question before us is whether plaintiff’s claim could only have accrued after completion of the merger. Delaware law controls the question of the accrual date as claims concerning the fiduciary duties of corporate officers are governed by the state of incorporation.

In determining that plaintiff’s claims arose only upon completion of the merger, the circuit court relied on Kaufman v. Albin, 447 A.2d 761 (Del. Ch. 1982); Lavine v. Gulf Coast Leaseholds, Inc., 122 A.2d 550 (Del. 1956); Dofflemyer v. W.F. Hall Printing Co., 558 F.Supp. 372 (D. Del. 1983); and Baron v. Allied Artists Pictures Corp., 717 F.2d 105 (3d Cir. 1983).

However, more recent case law suggests that, in a standing to sue case, the courts are looking to the date of the wrong for purposes of determining accrual as opposed to the date of shareholder approval.

In Albert v. Alex Brown Management Services, Inc., No. 672-N, 2005 WL 1594085, *18 (Del. Ch. 2005), the court stated, “The law in Delaware is crystal clear that a claim accrues as soon as the wrongful act occurs. … Whether or not the plaintiffs could have sued for damages is not dispositive as to whether the claim accrued, since, as soon as the alleged wrongful act occurred, the plaintiffs could have sought injunctive relief.”

The proxy statement in the merger at issue said that no action was required by stockholders of either corporation. Plaintiff acknowledged in his complaint that the closing of the merger was “merely a formality.” Once the agreement to merge was signed, plaintiff, as a shareholder, had a legally enforceable right to enjoin the merger from being consummated.

Because plaintiff’s claim could have arisen prior to the closing of the merger, defendants’ defenses relating to the release were not insufficient. Additionally, their counterclaim arising out of the release does not fail to state a valid claim for relief. The circuit erred when it struck defendants’ defenses and dismissed their counterclaim relating to the release.

Reversed and remanded.


(Pieper, J.) I write separately because I would like to address the combination of plaintiff’s 10 claims for breach of fiduciary duty into one claim by the circuit court. Some of the claims could have arisen prior to the closing of the merger and others could have arisen after the closing of the merger.

Any claims arising between the signing of the release on Sept. 28, 2006, and the finalizing of the merger on Oct. 20, 2006, were valid claims. Furthermore, by analyzing each of plaintiff’s claims independently of one another, as opposed to combining them, some of the claims may be barred by plaintiff’s release whereas others may not be barred.

On remand, even though the court did not do so initially, I would urge the court to break down the acts alleged by plaintiff separately, as one or more acts could be deemed a separate breach of fiduciary duty based on when each act occurred.

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