## Facts

- A shareholder filed a derivative action on behalf of a corporation against certain directors and officers, alleging misconduct that injured the corporation.
- After filing, the original plaintiff sold his shares and lost standing under the continuous ownership requirement.
- A current shareholder intervened and continued the derivative action as the plaintiff.
- The trial court dismissed the derivative claims and entered judgment against the plaintiff.
- While the case was pending, the corporation merged into an acquiring entity that purchased all outstanding shares, requiring the intervening plaintiff to relinquish his stock.
- The intervening plaintiff appealed the adverse judgment, but the appellate court dismissed the appeal for lack of standing because he was no longer a shareholder.
- The state supreme court reviewed whether the merger-related loss of shares affected standing to pursue the appeal.

## Issues

1. Whether a derivative plaintiff must maintain continuous stock ownership through judgment and appeal to retain standing.
2. Whether a shareholder forced to surrender shares in a merger may continue litigating or appealing a derivative action despite no longer owning stock.
3. Whether any exception applies when the merger is not pleaded as fraudulent or structured to eliminate derivative claims.

## Decision

- The court affirmed dismissal of the appeal for lack of standing.
- A derivative plaintiff who ceases to be a shareholder—whether by voluntary sale or by a merger that eliminates the shares—loses standing to maintain or appeal the derivative action.
- Because the intervening plaintiff no longer owned shares after the merger, he could not proceed.
- The court did not reach the merits of the underlying derivative claims.

## Legal Principles

- A shareholder bringing a derivative action must maintain continuous ownership of stock throughout the litigation, including on appeal.
- A derivative action asserts a corporate cause of action; strict standing rules ensure the plaintiff remains an adequate representative of the corporation and its current shareholders.
- Loss of shareholder status generally terminates derivative standing, including when the loss results from a merger that cashes out or eliminates shares.
- A narrow exception may exist when the merger is specifically challenged as fraudulent or unfairly designed to extinguish derivative standing; absent such pleaded challenge, the exception does not apply.

## Conclusion

The court held that continuous stock ownership is required to maintain and appeal a shareholder derivative action, and a merger that eliminates a plaintiff’s shares ends standing unless the merger itself is properly challenged as a fraud-based device to cut off the derivative claims.


Grosset v. Wenaas, 175 P.3d 1184 (Cal. 2008)