## Facts

- Alfred Blasband owned shares of Easco Hand Tools, Inc., a Delaware corporation, when Easco conducted a $100 million senior subordinated note offering.
- The offering materials stated proceeds would repay debt and fund corporate purposes and acquisitions, with any unused proceeds temporarily invested in lower-yield marketable securities.
- Blasband alleged that, instead, Easco invested at least $61.9 million of the proceeds in high-yield, highly speculative debt securities, causing corporate harm.
- Easco later merged into Danaher Corporation (also Delaware), becoming Danaher’s wholly owned subsidiary; Blasband’s Easco shares were converted into Danaher shares.
- Blasband filed a shareholder derivative action alleging the Rales brothers, as controlling directors, breached fiduciary duties by directing the challenged investments.
- Because the alleged injury was to Easco but Blasband was a Danaher shareholder at suit filing, the action was framed as a double-derivative suit (parent shareholder suing to enforce a subsidiary’s corporate claim).

## Issues

1. Whether a shareholder who held stock in the subsidiary at the time of the alleged misconduct, but whose shares were converted into parent-company shares by a merger, has standing to bring a double-derivative action to enforce the subsidiary’s claim.
2. Whether dismissal under Rule 23.1 and Rule 12(b)(6) was proper based on failure to satisfy the contemporaneous ownership requirement as applied to the subsidiary.

## Decision

- The Third Circuit reversed the district court’s dismissal and remanded.
- The court held Blasband had standing to sue double-derivatively as a Danaher shareholder to pursue Easco’s claim, notwithstanding the loss of direct Easco share ownership after the merger.
- The court rejected a reading of the contemporaneous ownership requirement that would categorically bar suit whenever a merger converts subsidiary shares into parent shares.
- On remand, the district court was directed to address the derivative pleading requirements under the correct double-derivative framework, including demand and demand-futility questions under Delaware law.

## Legal Principles

- In a double-derivative posture, contemporaneous ownership is satisfied where the plaintiff owned equity in the injured subsidiary when the alleged wrongdoing occurred and holds equity in the parent that now owns the subsidiary and its cause of action when suit is filed.
- A subsidiary’s corporate claim may become an asset of the parent after a merger; a parent shareholder can seek recovery derivatively because any recovery would flow to the parent and indirectly benefit its shareholders.
- Derivative standing rules should not be applied in a way that allows alleged fiduciary misconduct to be insulated solely by post-transaction corporate restructuring that eliminates direct subsidiary share ownership.

## Conclusion

The Third Circuit held that a shareholder whose subsidiary shares were converted into parent shares by merger may pursue the subsidiary’s pre-merger corporate claim through a double-derivative action, reversed the dismissal for lack of standing, and remanded for further proceedings under Delaware derivative-suit standards.


Blasband v. Rales, 971 F.2d 1034 (3d Cir. 1992)