In re Lubrizol Shareholders Litigation
2017 Ohio 622
Ohio Ct. App. 9th2017Background
- Suit filed derivatively and as class action after Lubrizol agreed to be acquired by Berkshire Hathaway for $135 per share; shareholders alleged directors breached fiduciary duties by pursuing an unfair sale process.
- Complaints consolidated; plaintiffs sought monetary relief and rescission/declaration that the merger was unlawful; merger approved by shareholders and closed.
- Defendants moved to dismiss for lack of standing (plaintiffs were no longer Lubrizol shareholders), failure to make pre‑suit demand under Civ.R. 23.1 (or to plead demand futility), and business judgment rule protection.
- Trial court dismissed: held no standing to assert direct class claims (no separate injury) and no derivative standing because plaintiffs no longer owned stock and failed to plead demand futility under Civ.R. 23.1.
- On appeal, court rejected adopting Delaware’s continuous‑ownership rule under Ohio law (so loss of stock during litigation does not automatically defeat derivative standing) but affirmed dismissal because plaintiff failed to plead demand futility with particularity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a derivative plaintiff loses standing if she ceases to own shares during the litigation | Sair: Civ.R. 23.1 only requires ownership at time of the transaction; no continuous‑ownership requirement | Defendants: Delaware continuous‑ownership rule should apply; former shareholders lack derivative standing | Court: Rejected adopting continuous‑ownership rule in Ohio; losing stock alone does not automatically destroy derivative standing |
| Whether plaintiff pleaded demand futility under Civ.R. 23.1 | Sair: Demand would be futile because board was dominated by CEO Hambrick, directors benefited and would not sue themselves | Defendants: Plaintiff made only broad, conclusory allegations; failed to plead particulars showing domination, self‑dealing, or incapacity to exercise independent judgment | Court: Plaintiff failed to plead with particularity; dismissal affirmed for failure to satisfy Civ.R. 23.1 demand requirement |
| Whether claims could proceed as direct/class claims for breach of fiduciary duty | Sair: (implicit) fiduciary breach claims should be cognizable post‑closing | Defendants: No distinct injury to plaintiff separate from other shareholders; claims are derivative | Court: Direct/class claims dismissed—plaintiff alleged no injury separate and distinct from corporation/shareholders |
Key Cases Cited
- Kramer v. W. Pac. Indus., 546 A.2d 348 (Del. 1988) (Delaware rule requiring ownership at filing and continuous ownership throughout litigation for derivative standing)
- Parfi Holding AB v. Mirror Image Internet, Inc., 954 A.2d 911 (Del. Ch. 2008) (discussing Delaware continuous‑ownership principle and its rationale)
- Quadrant Structured Prods. Co. v. Vertin, 115 A.3d 535 (Del. Ch. 2015) (reaffirming Delaware continuous‑ownership requirement)
- Crosby v. Beam, 47 Ohio St.3d 105 (Ohio 1989) (explaining derivative suits and distinction between direct and derivative claims)
- Alabama By‑Prods. Corp. v. Cede & Co. ex rel. Shearson Lehman Bros., Inc., 657 A.2d 254 (Del. 1995) (derivative claim is property of the corporation; damages inure to corporation)