Standing After De‑SPAC Equity Conversions: Dilution and Diversion Claims “Travel” with the Security Under Urdan

I. Introduction

In The Yosaki Trust v. Teresa S. Weber (Del. Dec. 15, 2025), the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of fiduciary-duty-based challenges arising from a de‑SPAC transaction implemented through an Up‑C structure. The appellants—The Yosaki Trust and The Mioko Trust (the “Trusts”)—were former equityholders of BioTE Holdings, LLC (“Holdings”). They alleged that conflicted insiders and their alleged aiders and abettors orchestrated a recapitalization and business combination that unfairly diluted legacy holders and diverted transaction value to insiders.

The key appellate question became one of standing: even assuming the Trusts’ claims could be characterized as direct rather than derivative, could the Trusts pursue those claims after they (i) converted their interests into public-company stock and (ii) voluntarily sold that stock?

II. Summary of the Opinion

The Supreme Court affirmed dismissal on a standing rationale anchored in Urdan v. WR Capital Partners, LLC. The Court held:

• Dilution and diversion claims are not personal to the selling holder; they arise from the stockholder–company relationship and therefore “travel” with the security upon transfer.
• Because the Trusts converted their units/shares into public-company shares and then sold those shares, they lost standing to pursue the claims.
• The Trusts’ attempt to distinguish Urdan based on an “involuntary conversion” theory failed both because (a) it was not preserved below (invoking Supr. Ct. R. 8) and (b) on the merits: the recapitalization was merely preparatory, and the Trusts could have preserved standing by retaining their post‑recap equity rather than voluntarily exchanging and selling.

Notably, the Supreme Court did not need to definitively resolve whether the Trusts’ claims were direct or derivative; even if direct, standing was lost after the sale under Urdan.

III. Analysis

A. Precedents Cited

1. Urdan v. WR Capital Partners, LLC (controlling standing principle)

The Court treated Urdan v. WR Capital Partners, LLC as dispositive. Urdan interprets the “all rights in the security” concept (citing 6 Del. C. § 8-302(a)) to distinguish:

• Rights that “inhere in the security itself”—claims arising from the relationship among stockholder, stock, and the company (these travel with the security); versus
• Personal claims—claims that happen to involve shares as property but do not constitute property rights carried by the shares (these do not travel).

The Court reiterated Urdan’s explicit rule: dilution claims—“[w]hether described as direct, derivative, or both”—are “not personal to the plaintiffs and travel[ ] with the sale of their [ ] stock.” The Court extended the same logic to diversion claims, reasoning that diversion likewise concerns the stockholder–company relationship rather than a personal right arising from the act of sale.

2. Lewis v. Anderson (continuous ownership rule in the background)

The Court of Chancery had relied on Lewis v. Anderson for the “continuous ownership rule,” requiring a derivative plaintiff to maintain ownership throughout litigation. The Supreme Court’s affirmance did not turn on that doctrine, but it remains doctrinally adjacent: both Lewis and Urdan prevent former holders from prosecuting claims whose benefits would belong to current holders (or the entity) after ownership has been relinquished.

3. Brookfield Asset Mgmt., Inc. v. Rosson (derivative characterization of dilution)

The Court of Chancery also held the claims derivative under Brookfield Asset Mgmt., Inc. v. Rosson (“[D]ilution claims are classically derivative[.]”). On appeal, the Supreme Court bypassed the direct/derivative fight because standing failed even on the Trusts’ preferred framing (direct).

4. Parnes v. Bally Ent. Corp. (the Trusts’ attempted carve-out)

The Trusts invoked Parnes v. Bally Ent. Corp. to argue that when fiduciaries extract side payments/self-dealing benefits at the expense of legacy owners, resulting harm is personal and supports direct claims. The Supreme Court did not need to reconcile Parnes with Brookfield because Urdan supplied an independent standing bar: even if direct, the claims traveled with the security and were lost upon sale.

5. Supporting Delaware Chancery authorities quoted via Urdan

To illustrate the “inheres in the security” framework, the opinion (through Urdan) referenced:

• In re Sunstates Corp. S'holder Litig. (distinguishing rights carried by the security from personal rights).
• I.A.T.S.E. Local No. One Pension Fund v. Gen. Elec. Co. (claims arising from the relationship among stockholder, stock, and company).
• In re Activision Blizzard, Inc. S'holder Litig. (examples differentiating security-based rights from personal contract/tort claims connected to a trade).

6. Standard of review and preservation

• Empls. Ins. Co. of Wausau v. First State Orthopaedics, P.A. was cited for de novo review of standing/justiciability.
• Supr. Ct. R. 8 supported the Court’s refusal to entertain a newly reframed appellate theory not presented below.

B. Legal Reasoning

1. The Court’s decisive move: treat standing as a property-of-the-security issue

Rather than re-litigate whether the Trusts pleaded direct claims (their preferred characterization) or derivative claims (the Chancery characterization under Brookfield), the Supreme Court reframed the dispute as a question of who owns the claim after a transfer. Under Urdan, if the cause of action is a right inherent in the security, then the ability to sue presumptively belongs to the current holder, not the former one.

2. Dilution and diversion attach to the ongoing equity relationship

The Trusts’ alleged harms were quintessentially ownership-based: dilution of equity and diversion of deal consideration to insiders. The Court treated both as arising from the stockholder–company relationship, not from any personal undertaking made to the Trusts. Thus, the claims were not “personal” in the way a fraud-in-the-sale or contract-to-sell claim would be.

3. Voluntary exchange and voluntary sale broke the litigation chain

A key factual premise was undisputed: post-closing, the Trusts voluntarily converted their Holdings/Class V position into PubCo stock, then voluntarily sold that PubCo stock. Under the Court’s application of Urdan, the sale transferred away not only the securities, but also the non-personal claims embedded in them.

4. The failed “involuntary conversion” distinction

The Trusts attempted to argue that Urdan “breaks down” where the security to which claims attach is forcibly converted/exchanged as part of the challenged transaction. The Court rejected this in two steps:

• Procedural rejection (waiver): the argument was not presented below in this form, so it could not be raised for the first time on appeal under Supr. Ct. R. 8.
• Merits rejection: the recapitalization and redomiciliation were “preparatory” steps; the Trusts retained equity after recapitalization and could have preserved standing by holding. Their eventual exchange into PubCo shares and the sale were voluntary acts that triggered Urdan’s traveling-claims rule.

C. Impact

1. Practical standing discipline for de‑SPAC and Up‑C litigants

The decision underscores that in de‑SPAC/Up‑C pipelines—where holders may receive new vote-only instruments (e.g., Class V) and later convert into public shares—post-closing trading decisions can extinguish standing to prosecute dilution/diversion theories that “travel” with the security.

2. Litigation strategy: retain the security or plead a truly personal claim

Future plaintiffs challenging recapitalizations or business combinations should expect defendants to invoke Urdan early. Plaintiffs who sell after closing may be forced to show that their cause of action is personal (e.g., contractual rights, fraud in a purchase/sale) rather than a right inherent in equity ownership.

3. Doctrinal consolidation: direct/derivative labels may not save standing

Even if a plaintiff can plausibly frame a claim as “direct,” Urdan may independently defeat standing if the right is inherent in the security and the plaintiff is no longer a holder. The opinion thus reinforces a two-step reality in Delaware entity litigation: (i) classification (direct/derivative) and (ii) ownership-based entitlement to sue are related but not identical hurdles.

IV. Complex Concepts Simplified

• Standing: the legal right to bring a claim. Here, once the Trusts sold the relevant equity, the Court held they no longer were the right parties to sue on ownership-based claims.
• Direct vs. derivative claims: direct claims seek relief for harm to the investor personally; derivative claims seek relief for harm to the entity (with recovery belonging to the entity). The Supreme Court assumed “even if direct,” standing still failed under Urdan.
• Continuous ownership rule: from Lewis v. Anderson, a derivative plaintiff must remain an owner during the case. While not decisive on appeal, it was part of the Chancery dismissal.
• Claims that “travel” with the security: under Urdan, certain rights are treated like attributes of the security itself; when you sell the security, you generally transfer those rights to the buyer.
• Dilution and diversion: dilution reduces a holder’s percentage ownership; diversion alleges insiders steered value away from the company/holders to themselves. The Court treated both as embedded in the equity relationship.
• de‑SPAC / Up‑C: a de‑SPAC is the transaction by which a private business becomes public through a SPAC. An Up‑C often leaves operating assets in a flow-through entity while a public corporation holds an interest above it, with exchange rights allowing holders to convert into public shares.

V. Conclusion

The Yosaki Trust v. Teresa S. Weber cements a clear standing lesson for post‑transaction equityholders in Delaware: dilution and diversion claims are not personal and “travel” with the security under Urdan v. WR Capital Partners, LLC. Even if such claims could be pled as direct, a plaintiff who voluntarily converts and sells the relevant equity generally transfers the right to sue to the buyer and thereby loses standing. In de‑SPAC and Up‑C settings—where conversions and liquidity events are common—the decision materially increases the importance of ownership retention (or pleading genuinely personal rights) for plaintiffs seeking to litigate fiduciary misconduct claims tied to capitalization and value allocation.