A Texas trial court dismissed a derivative suit brought against
our client, Imperial Sugar. In the wake of a disappointing earnings
announcement in August 2011 and an ensuing stock price drop, the
plaintiffs sent Imperial Sugar a demand letter, requesting that the
Board of Directors investigate purported breaches of fiduciary duty
by Imperial Sugar's management and board. In response, in October
2011, the board of directors appointed a special litigation
committee to investigate the plaintiffs' claims in October 2011.
The plaintiffs then filed a derivative suit, which was stayed by
the court pending the committee's investigation.
On May 1, 2012, Imperial Sugar announced a merger with Louis
Dreyfus Commodities that, upon closing, would leave Louis Dreyfus
Commodities as the sole owner of the company's shares. The merger
was consummated on June 21, 2012, and shortly thereafter, we moved
to dismiss the suit for lack of standing. Under Texas law, a
derivative plaintiff must be a shareholder at the time of filing
the lawsuit and throughout the pendency of the litigation. Until
recently, Texas law recognized an exception to this rule where the
merger itself is subject to a claim of fraud. In 2011, however, the
Texas legislature amended the relevant statute to eliminate all
exceptions to the continuous ownership rule. Relying on these
recent developments in Texas law, we argued that the plaintiffs
lost standing when the merger was consummated, thus depriving the
court of jurisdiction.
In response, the plaintiffs asserted the now-defunct fraud
exception to the continuous ownership rule and sought discovery,
arguing that the timing of the merger was suspicious and that the
special litigation committee's failure to respond to the
plaintiffs' post-merger inquiries indicated bad faith. Rejecting
these arguments in their entirety, the court ruled from the bench
that the merger eliminated the plaintiffs' standing and dismissed
the case.
The Paul Weiss team representing Imperial Sugar included
litigation partners Daniel Kramer, Moses
Silverman and Audra Soloway.