Under what basis may the shareholders of a corporation in Oregon and elsewhere bring a class action lawsuit to vindicate rights against a company that has engineered a merger with another company and maneuvered other substantial changes that allegedly diluted the shareholders’ stock? The short answer to such business litigation issues is that the claim is allowed when there is a direct injury to the shareholder’s ownership interest as opposed to the interest of the corporation. The issue came up recently in another state when a group of shareholders brought a lawsuit seeking class status against the company, a medical device maker known as Medtronic.
The shareholders say that they were harmed by a $50 billion corporate inversion deal in which Medtronic purchased another company, Covidien, and created a holding company in a foreign country that took over the operations. The effect was that longstanding Medtronic shareholders complain that they were compelled to pay millions in capital gains taxes while their shares were inappropriately diluted. The lower court had dismissed the case, but this week the state’s highest appellate court reversed and remanded for a trial on the merits.
The Minnesota Supreme Court ruled that the shareholders’ case can proceed because it is essentially not derivative in nature. Derivative claims are generally brought by corporate boards against the company. This helps to avoid vexing shareholder lawsuits. Here, however, Medtronic’s merger with the Irish company affected the basic nature of the shareholders’ ownership rights.
Thus, where the shareholders are taking a direct hit as in this case, the law becomes flexible enough to recognize and provide a business litigation remedy for shareholders clearly suffering a financial setback. Medtronic in essence engineered a modification of the value of the stock that effectively reduced the proportional ownership interest of each shareholder. That kind of injury would be recognized and remedied under Oregon law and generally in most jurisdictions.
Source: startribune.com, “Shareholder suit over Medtronic-Covidien deal still in play, court rules“, Joe Carlson, Aug. 16, 2017