431 P.3d 589
Ariz. Ct. App.2018Background
- The Judson C. Ball Revocable Trust (the Trust) purchased limited partnership interests in Phoenix Orchard Group I & II (POG) in 2006 and sued in 2015 alleging securities fraud, seeking rescission or damages.
- The Trust tendered its partnership interests; POG accepted the tender and counterclaimed that rescission was valid and complete; the trial court approved rescission and entered final judgment on the fraud claim.
- While rescission proceedings concluded, the Trust filed a separate derivative action in 2016 on behalf of POG alleging other partners breached partnership and offering agreements.
- POG intervened in the derivative action and moved to dismiss, arguing the Trust lacked standing because its partnership interests had been rescinded after the derivative complaint was filed.
- The trial court dismissed the derivative complaint for lack of standing; the Trust appealed. The Court of Appeals adopted the continuous ownership rule and affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a plaintiff in a partnership derivative action must retain ownership throughout litigation (continuous ownership rule) | Trust: statute and Rule 23.1(b) only require plaintiff be a partner when suit is filed; no express post-filing ownership requirement | POG: common-law continuous ownership rule applies so plaintiff must remain an owner throughout litigation to have standing | Court adopted the continuous ownership rule; plaintiff must possess an ownership interest throughout the litigation; Trust lacked standing after rescission |
Key Cases Cited
- Kramer v. W. Pac. Indus., Inc., 546 A.2d 348 (Del. 1988) (adopting continuous ownership requirement for shareholder derivative suits)
- Portnoy v. Kawecki Berylco Indus., Inc., 607 F.2d 765 (7th Cir. 1979) (explaining plaintiff must have adequate interest to vigorously litigate derivative claims)
- Grosset v. Wenaas, 42 Cal.4th 1100 (Cal. 2008) (California Supreme Court adopting continuous ownership rule)
- Alford v. Shaw, 398 S.E.2d 445 (N.C. 1990) (holding no continuous-ownership requirement under that state statute; distinguished by this court)
- Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83 (U.S. 1998) (holding that speculative recovery of fees does not confer Article III standing)