Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A.
2011 Del. LEXIS 680, 34 A.3d 1074, 2011 WL 6793775 (2011)
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Rule of Law:
The internal affairs doctrine requires that the derivative standing requirements for a shareholder of a foreign parent corporation, who seeks to enforce a claim on behalf of a Delaware subsidiary, are governed by the law of the parent corporation's jurisdiction of incorporation.
Facts:
- Corporación Uni-land S.A. (Uniland) is a Spanish corporation, majority-owned (74%) and controlled by Cementos Portland Valderrivas (CPV), also a Spanish entity.
- Sagarra Inversiones, S.L. (Sagarra) is a Spanish corporation and the sole minority shareholder (26%) of Uniland, with one representative on Uniland's board.
- CPV was also the controlling shareholder of Giant Cement Holdings, Inc. (Giant), and Giant and CPV experienced financial distress in 2009.
- Uniland International B.V. (Uniland B.V.), a Dutch holding company wholly owned by Uniland, realized approximately $188 million from selling some of its businesses.
- In September 2010, CPV proposed to Uniland's Board that Uniland B.V. acquire Giant for $278 million, a proposal opposed by Sagarra's board representative.
- CPV provided Sagarra with a March 2010 PricewaterhouseCoopers study valuing Giant at $700 million, despite UBS later valuing Giant between $66 million and $151 million.
- On December 29, 2010, a majority of Uniland's Board (representing CPV's interests) approved the acquisition of Giant for $279 million, over Sagarra's opposition.
- The acquisition was structured such that Uniland Acquisition Corp. (UAC), a wholly-owned Delaware subsidiary of Uniland B.V., was the vehicle for acquiring Giant.
Procedural Posture:
- In January 2011, Sagarra filed a special statutory proceeding in the Spanish courts to nullify the Uniland Board’s vote approving the acquisition of Giant.
- In February 2011, Sagarra filed this action in the Delaware Court of Chancery, asserting multi-tier derivative claims and two direct claims challenging the Giant transaction.
- On August 5, 2011, the Delaware Court of Chancery dismissed all of Sagarra's derivative claims, holding that Sagarra lacked standing under Spanish law due to failure to satisfy its presuit demand requirements; the court also dismissed one direct claim as derivative and the other direct claim on forum non conveniens grounds.
- Sagarra appealed the dismissal of its derivative claims (and the direct claim deemed derivative) to the Delaware Supreme Court, with Sagarra as the appellant and Uniland and CPV as appellees.
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Issue:
Does Delaware law or the law of the parent corporation's incorporating jurisdiction govern the presuit demand requirements for a minority shareholder of a foreign parent corporation bringing a multi-tier derivative action on behalf of a wholly-owned Delaware subsidiary?
Opinions:
Majority - Jacobs, Justice
No, the law of the parent corporation's incorporating jurisdiction, in this case, Spanish law, governs the presuit demand requirements for a minority shareholder bringing a multi-tier derivative action on behalf of a Delaware subsidiary. The court reasoned that Sagarra's standing to sue derivatively on behalf of UAC must derive from its ownership of shares in Uniland, the only corporation in which Sagarra holds shares. Under Delaware law, a shareholder owning stock only in a parent corporation must establish standing at the parent level to enforce a subsidiary's claim. This standing issue, including presuit demand requirements, involves the 'internal affairs' of Uniland. The internal affairs doctrine mandates the application of the law of the jurisdiction of incorporation for the entity in which the plaintiff owns shares, which is Spain for Uniland. The court affirmed that the presuit demand requirement is a core internal affair, allocating authority to sue on behalf of the corporation between directors and shareholders. Public policy arguments regarding Delaware's interest in policing fiduciary breaches of its corporations do not displace these settled choice-of-law rules, nor do they override the principle of comity towards foreign business law governing the internal affairs of foreign corporations. Since Sagarra admittedly failed to satisfy the demand requirements under Spanish law, it lacked standing.
Analysis:
This case significantly clarifies the application of Delaware's internal affairs doctrine in complex multi-tier corporate structures involving foreign parent corporations and Delaware subsidiaries. It firmly establishes that, for derivative standing purposes, the law governing the parent corporation's internal affairs dictates the demand requirements for its shareholders, even when the ultimate beneficiary of the claim is a Delaware entity. The ruling reinforces the predictability and consistency offered by the internal affairs doctrine, emphasizing comity and discouraging forum shopping based on subsidiary incorporation. It underscores that while Delaware courts have jurisdiction over Delaware entities, the right to invoke that jurisdiction must be properly established under the applicable choice-of-law principles.
