The person who brings any lawsuit must have standing - they must be damaged or threatened with damage and that damage must arguably be of a type cognizable under the laws they invoke.
Sometimes courts fashion standing rules to govern certain areas of law. A plaintiff's inability to come within a standing rule does not mean that she has not been injured; rather, it means her damage is probably not cognizable in that area of law. Thus, standing requirements are sometimes used to limit the universe of potential claimaint to those who probably have cognizable injury and among whom the chance for fabricated claism is less.
SEC Rule 14a-9Edit
In cases involving proxing and tender offers, a plaintiff's standing usually seems obvious. The person who brings the antifraud rule claim is a shareholder whose vote was sought by means of the offending proxy or the tender of whose shares was sought by the bidder's offer to purchase. One issue the defense raises is they plaintiff has no injury because he brought suit - they detected the alleged omission or misleading statement; otherwise, they would not be in court.
Despite the apparent lack of damages, courts find standing nonetheless. The plaintiff shareholder can establish injury if the omission or offending statement misleads a sufficient number of fellow shareholders. The Borak Court notes this when it stated, "[t]he damage suffered results not frmo the deceit practiced on [the stockholder] alone, but rather from the deceit practiced on the stockholders as a group."
A lower court echoed those sentiments in Cowin v. Bresler. "The injury the "shareholder alleges was not caused by his individual relaicne on deceptive proxy solicitations." "Rather," the court noted, "his claim is that other shareholders elected appellees as directors because they were misled by the proxy materias."
SEC Rule 10b-5Edit
In securities law, the most well-known standing rule is that to get past the courthouse with a Rule 10b-5 claim the plaintiff must have purchased or sold securities "in connection with" the defendant's fraud or other activity.
The class whose claims this antifraud rule will take cognizance is limited to those who have actually purchase or sold the securtiy at issue. The "purchaser-seller," or so-called Birnbaum, rule to define the class of persons hwo porbably had injury cognizable udner the rule and among whom the chance of fictititous claims would be small. Thus, although all potential ivnestors could sya they were harmed by teh misleading and delayed report of the factgs none of them actually bough or solde securities.
Consequences of standing
- As noted above, persons who have been harmed may be cut off by the standing rule. For example, an ivnestor who owns shares of an over-the-counter stock. She telephones her registered representatives (typically a broker) for a progress report. He tells her to "hold." Several days later, tshe notices that the trading volume is up and the price is down. Still ater, negative news about the coropraiton is forthcomign. Still later, she learns that the broekr had been tipping more favored clients to sell or had himself been liquidating a position. She has significant losses; and although she is the very person Rule 10b-5 is designed to protect, she cannot invoke the rule sicne she neither purchased nor sold - she held.