Record-Date Shareholders Retain Standing After Sale:
The Second Circuit’s Clarification on Personal Rights to Property Dividends in Sabby Volatility Warrant Master Fund Ltd. v. Jupiter Wellness, Inc.

1. Introduction

On 12 May 2025 the United States Court of Appeals for the Second Circuit issued a summary order in Sabby Volatility Warrant Master Fund Ltd. v. Jupiter Wellness, Inc., No. 24-2777. Although designated “summary,” the order addresses a recurring and unsettled question in Delaware corporate law: Does the right to receive a declared dividend travel with the sale of the underlying shares, or is it a personal property right that remains with the shareholder of record on the declared record date?

The plaintiff, Sabby Volatility Warrant Master Fund (“Sabby”), held Jupiter Wellness shares when Jupiter’s board announced a distribution of subsidiary shares (SRM Entertainment, Inc.) and fixed a record date of 7 July 2023. Sabby later sold all its Jupiter shares and even took a short position. When the dividend was ultimately paid, Jupiter used a new record date—14 August 2023—depriving Sabby of the distribution. Sabby sued for breach of contract and related tort theories. The district court dismissed, holding that Sabby lacked standing once it sold the stock.

The Second Circuit unanimously vacated the dismissal of the breach-of-contract claim and affirmed dismissal of the tort-based claims. In doing so, the court clarified that under Delaware law the right to a property dividend declared with a fixed record date is a personal right of the record-date shareholder, surviving any subsequent transfer of the shares. This commentary dissects that holding, its doctrinal foundations, and its anticipated ripple effects.

2. Summary of the Judgment

• Breach of Contract – VACATED and REMANDED. The court held Sabby has standing because the right to a declared dividend is personal to the record-date holder and does not transfer with the stock.
• Promissory Estoppel – AFFIRMED dismissal. Public press releases and SEC filings were too conditional to constitute a definite promise.
• Negligent Misrepresentation – AFFIRMED dismissal. No “limited group” duty owed; statements were made to the market at large.
• Negligence – AFFIRMED dismissal. Sabby failed to allege a cognizable duty of care owed by the corporation itself.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

• Urdan v. WR Capital Partners, LLC, 244 A.3d 668 (Del. 2020) – Reiterated that sale of a security generally transfers “all rights in the security,” but distinguished between rights inherent in the security and rights personal to the holder. The Second Circuit leaned on this distinction.
• In re Sunstates Corp. Shareholder Litigation, 2001 WL 432447 (Del. Ch. 2001) – Held specifically that the right to receive a declared dividend is personal and does not run with the shares. The keystone precedent for the standing analysis.
• Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 545 A.2d 1171 (Del. 1988) – Established that declaration of a cash or property dividend creates a binding contract between the corporation and shareholders.
• IDT Corp. v. U.S. Specialty Ins. Co., 2019 WL 413692 (Del. Super. Ct. 2019) & In re IAC/InterActive Corp., 948 A.2d 471 (Del. Ch. 2008) – Confirmed that spin-offs paid in subsidiary shares constitute property dividends, not stock dividends, thereby triggering the contractual-rights doctrine.
• Citigroup Inc. v. AHW Investment Partnership, 140 A.3d 1125 (Del. 2016) – Provided the derivative vs. direct claim framework, helping the court classify Sabby’s claim as personal.
• Tort precedents (Chrysler Corp. v. Chaplake; Steinman v. Levine; Territory of U.S. Virgin Islands v. Goldman Sachs) – Guided the analysis that Jupiter’s public statements lacked the definiteness or special relationship needed for tort recovery.

3.2 Core Legal Reasoning

3.2.1 Personal vs. In-the-Security Rights

Delaware’s Uniform Commercial Code provision, 6 Del. C. § 8-302(a), states that a purchaser of stock acquires “all rights in the security.” The court, echoing Sunstates, emphasized that this language refers to rights embedded in the share itself (e.g., voting, liquidation preferences), not personal claims arising from historical events such as a declared dividend. Thus, once Jupiter declared the SRM distribution and fixed the July 7 record date, Sabby’s right to those shares became a separate chose-in-action that Sabby retained even after divestiture.

3.2.2 Classification of the Dividend

Delaware General Corporation Law distinguishes three categories of dividends (8 Del. C. § 173):

1. Cash dividends
2. Property dividends
3. Stock dividends (i.e., issuing additional shares of the same corporation)

Jupiter’s distribution of subsidiary shares fits squarely within “property dividends.” Unlike stock dividends, cash and property dividends create immediate debt obligations once declared (Anadarko). Therefore, contract principles, not merely equitable fiduciary principles, govern enforcement.

3.2.3 Standing Analysis

The district court treated Sabby’s claim as “traveling with the stock.” The Second Circuit reversed, noting the logical deficit: if both the seller (Sabby) and the buyer lack the right (by virtue of the by-law clause denying post-record-date transferees entitlement) then no one could sue—an untenable result under Delaware law. Recognizing the right as personal resolves the paradox and preserves a remedy.

3.2.4 Rejection of Tort Claims

• Promissory Estoppel – Forward-looking language with explicit contingencies cannot form a “reasonably definite and certain” promise.
• Negligent Misrepresentation – Public disclosures address an indeterminate universe; Delaware follows Restatement § 552, which limits liability to a “limited group.”
• Negligence – No recognized common-law duty of care running from a corporation to its shareholders in dividend logistics, and fiduciary duties are borne by directors/officers, not the entity.

3.3 Potential Impact

The decision, while non-precedential in federal terms, will likely be persuasive in future disputes involving:

• Spin-off Mechanics – Boards must exercise heightened diligence before changing record dates once a property dividend is announced; doing so may expose the corporation to contract claims by former shareholders.
• Securities Trading Strategies – Arbitrageurs and funds can trade out of positions post-record-date without forfeiting declared dividend rights, clarifying risk calculus.
• Transaction Documents – Expect more explicit clauses allocating liability when a planned distribution is delayed or altered.
• Litigation Posture – Plaintiffs asserting entitlement to declared dividends may now rely on this order to overcome standing challenges even after transferring their shares.

4. Complex Concepts Simplified

• Record Date – The cut-off date fixed by the board for determining which shareholders are entitled to a forthcoming dividend.
• Property Dividend – A distribution of something other than the corporation’s own stock (e.g., cash, shares of a subsidiary, real property). Creates a debtor-creditor relationship once declared.
• Stock Dividend – Issuance of additional shares of the same corporation to existing shareholders. Does not create a contractual debt.
• Personal vs. In-the-Security Rights – Personal rights arise from events (like a declaration) and stay with the individual; in-the-security rights (voting, liquidation) move with share ownership.
• Standing – The legal capacity to bring a claim. In corporate contexts, whether the claim is direct/personal or derivative can determine standing.

5. Conclusion

Sabby v. Jupiter Wellness clarifies a nuanced pocket of Delaware dividend law: once a board validly declares a property dividend and fixes a record date, the shareholders of record acquire a personal contractual right to that dividend, unaffected by subsequent transfers of the stock. The Second Circuit’s reasoning protects the predictability of dividend entitlement, deters opportunistic record-date changes, and offers clear guidance to market participants and litigants alike. At the same time, the court signaled that tort remedies will remain narrowly cabined where corporate communications are broad, conditional, and directed to the market in general.

For boards, the message is procedural prudence: changing a dividend’s record date post-declaration may trigger breach-of-contract exposure. For investors, the decision offers strategic clarity: selling shares after the record date does not mean forfeiting a lawfully declared property dividend. And for practitioners, it supplies a cogent road map for navigating the intersection of Delaware corporate doctrine and federal standing principles.