Judge Rules Beneficial Owner of Shares Lacks Standing to Bring Direct Claims Against Corporation and its CEO
Wednesday, August 23, 2023
CEO Sued in Chan v. ArcSOFT, Inc.

The plaintiffs in Chan v. ArcSOFT, Inc., 2023 WL 2788585, believed that they had been misled in a buyout of their shares and so they sued the company and its Chief Executive officer.  One of the plaintiffs, Marc Chan, did not own shares in ArcSOFT and did not sell them in the buyout.  Accordingly, the defendants moved for judgment on the pleadings on the basis that Mr. Chan lacked standing under Article III of the United States Constitution.  

Judge Jeffrey S. White agreed finding

" California law 'acknowledges the right of beneficial owners in two situations: (1) beneficiary of an employment benefit plan or of any entity defined in Section 3(a) of the federal Investment Company Act of 1940 (Cal. Corp. Code 711) and (2) a shareholder derivative action (Cal. Corp. Code 800).'  Dux Cap. Mgmt. Corp. v. Chen, No. C 03-00540 WHA, 2004 WL 2472247, at *5 (N.D. Cal. June 30, 2004), aff'd sub nom. Davis v. Yageo Corp., 481 F.3d 661 (9th Cir. 2007). "

Judge White was also unpersuaded by Mr. Chan's claim of standing based on his community property interest in the shares owned by his spouse. 

 

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