The plaintiff, Sagarra Inversiones, S.L. (Sagarra), the minority shareholder in Corporación Uniland S.A. (Uniland), a Spanish Corporation, sought to rescind the sale to Uniland of Giant Cement Holdings, Inc. (Giant), a company controlled by the defendant, Cementos Portland Valderrivas (CPV), the majority shareholder of Uniland. Sagarra asserted that the price paid for Giant was inflated and that CPV caused Uniland to acquire Giant solely to further its own interests, in breach of its fiduciary duties to Uniland. To challenge the sale, Sagarra brought a derivative action in Delaware on behalf of Uniland Acquisition Corp. (UAC), a Delaware subsidiary of Uniland that was created to facilitate the sale. The Delaware Court of Chancery held that Sagarra did not have standing to challenge the sale because it had not satisfied the demand requirements of Spanish law.

Sagarra appealed to the Delaware Supreme Court, arguing that because the transaction was effected though a Delaware subsidiary, Delaware law should apply to determine derivative standing and, even if Delaware law would not normally apply, public policy required its application in order to avoid a Delaware corporation being used to facilitate an abusive transaction. The Supreme Court rejected both arguments, ruling that even though multi-level derivative suits are permissible, because Sagarra only held stock in Uniland, in order to proceed with a derivative suit, Sagarra must satisfy Spain’s demand requirements, which it failed to do.

In particular, the Court held that the internal affairs doctrine required that the law of the state (or in this case, the country) of incorporation of the entity in which Sagarra held shares was applicable to its claims. Because Sagarra failed to make a pre-suit demand to convene a shareholders’ meeting on Uniland’s board as required under Spanish law, it lacked standing to proceed with its derivative claims. In addition, the Court rejected Sagarra’s request to disregard the internal affairs doctrine and apply Delaware law for public policy reasons. In doing so, the Court pointed out that whatever policy arguments there were in Sagarra’s favor were trumped by the fact that Sagarra only held shares in a Spanish corporation. As a result, Delaware could not, as a matter of comity, apply its own standing rules in place of Spain’s to Sagarra’s claims.

Sagarra Inversiones S.L. v. Cementos Portland Valderrivas, S.A., et. al., No. 425, 2011, C.A. No. 6179 (Del. Dec. 28, 2011).