In re Masimo Corporation Stockholder Derivative Litigation
- Proceeding
- district
- Area
- civil
- Panel
- Myron James Lorenz (author)
Analysis
The court considered a joint motion by the parties to dismiss the consolidated shareholder derivative action with prejudice without providing notice to former Masimo shareholders. The court denied the motion, holding that the parties failed to negate the possibility that former shareholders retained equitable standing to object to the dismissal.
| What the court decided | The model |
|---|---|
Denial of Joint Motion for Dismissal with Prejudice“As the joint motion does not negate the possibility of equitable standing, the request for dismissal without notice to former Masimo shareholders is denied.” | agree with court The court correctly applied the mandatory language of Federal Rule of Civil Procedure 23.1(c), which requires court approval and notice for the voluntary dismissal of a derivative action. While the parties argued that the merger eliminated standing, the court correctly noted that equitable principles may preserve standing for former shareholders in the context of a merger. Because the motion did not provide evidence negating this possibility, denying the request to dismiss without notice was the procedurally correct course of action to protect the rights of potential objectors. |
The order itself: sound — The order is concise but legally sound. It correctly identifies the mandatory nature of Rule 23.1(c) regarding notice and dismissal. It appropriately balances the general rule of continuous ownership against the equitable exception for mergers, citing the correct Ninth Circuit precedent (Quinn and Lewis). The court's decision to deny the motion based on the failure to negate the possibility of equitable standing is a defensible procedural safeguard.
Opinion
1 2 3 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 IN RE MASIMO CORPORATION Lead Case No. 3:24-cv-00781-L-DEB 11 STOCKHOLDER DERIVATIVE (Consolidated with Case No. 3:24-cv- 12 LITIGATION 00868-L-DEB)
13 ORDER DENYING JOINT 14 T his Document Relates to: MOTION FOR DISMISSAL WITH ALL ACTIONS. PREJUDICE 15 [ECF NO. 54]
17 Pending before the Court in this consolidated derivative shareholder action is 18 a joint motion to dismiss with prejudice. (ECF No. 54.) As relevant here, Federal 19 Rule of Civil Procedure 23.1(c) provides as follows: 20 A derivative action may be … voluntarily dismissed … only with the court's approval. Notice of a proposed … voluntary dismissal … must 21 be given to shareholders … in the manner that the court orders. 22 23 The parties seek dismissal without notice. Without citing any binding authority to 24 override the mandatory language of Rule 23.1,1 they argue that notice is not required 25 because of expense and because, after a merger, no former Masimo Corporation 26 27 1 (“Masimo”) shareholder has standing to object or continue this derivative action. 2 For the reasons stated below, the motion is denied. 3 The parties represent that on June 10, 2026, Masimo merged with Danaher 4 Corporation (“Danaher”), pursuant to which Masimo became a wholly owned 5 subsidiary of Danaher, outstanding shares of Masimo common stock were canceled, 6 and the common shareholders received a right to $180.00 per share.2 7 Rule 23.1 “establishes stringent conditions” for bringing a shareholder 8 derivative suit. Quinn v. Anvil Corp., 620 F.3d 1005, 1012 (9th Cir. 2010).3 9 (a) Prerequisites. This rule applies when one or more shareholders or members of a corporation … bring a derivative action to enforce a right 10 that the corporation … may properly assert but has failed to enforce. 11 The derivative action may not be maintained if it appears that the plaintiff does not fairly and adequately represent the interests of 12 shareholders … who are similarly situated in enforcing the right of the 13 corporation … .
15 Fed. R. Civ. Proc. 23.1(a). This provision has been interpreted to require 16 not only that a derivative plaintiff be a shareholder at the time of the alleged wrongful acts but also that the plaintiff retain ownership of the 17 stock for the duration of the lawsuit—the so-called “continuous 18 ownership requirement.” If a shareholder is divested of his or her shares during the pendency of litigation, that shareholder loses 19 standing. 20 21 Quinn, 620 F.3d at 1012.4 22 23 2 The parties do not indicate if Masimo had any other class of shareholders. 24 25 3 Unless otherwise noted, internal quotation marks, ellipses, brackets, citations, and footnotes are omitted from citations. 26 27 4 Continuous ownership is required by federal procedural law. See Quinn, 620 F.3d at 1013 n.5; Kona Enterprises, Inc. v. Estate of Bishop, 179 F.3d 767, 769 (9th 1 In circumstances of corporate merger, however, the former shareholders may 2 || retain sufficient interest to assert standing under equitable principles. See Quinn, 3 F.3d at 1013. Whether application of equitable principles to confer standing is 4 || appropriate depends at least in part on whether the shareholders received sufficient 5 || notice of the derivative action and the effect of the merger on the derivative action, 6 || the defendants, and shareholders. See Lewis v. Chiles, 719 F.2d 1044, 1048 (9th 7 || Cir. 1983). 8 As the joint motion does not negate the possibility of equitable standing, the 9 || request for dismissal without notice to former Masimo shareholders is denied. 10 IT IS SO ORDERED. 11 12 || Dated: August 3, 2026 14 H . James Lorenz, 15 United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28