(CN) - The Delaware Supreme Court has determined that Sagarra Inversiones S.L. cannot sue on behalf of the subsidiary of a Spain-based company in which it holds minority ownership.     Spain-based Sagarra is a minority shareholder of Corporacion Uniland S.A., also a Spanish corporation.
     After bringing claims in Spanish courts in January 2011, Sagarra sought to stop a sale by Uniland's majority shareholder, Cementos Portland Valderrivs (CVP) to sell Giant Cement Holdings, Inc. to Uniland, in similar derivative claims against CVP in Delaware Chancery Court in February 2011. CVP is also the majority controlling shareholder of Giant Cement.
     The proceeding was brought by Sagarra on behalf of Uniland Acquisition Corporation (UAC), a Delaware subsidiary set up to facilitate the Giant Cement transaction, owned by a second Netherlands-based Uniland subsidiary called Uniland B.V.
     Sagarra argued that the acquisition price was inflated and that CVP's motivation to sell the struggling Giant Cement corporation was in an effort to gain access to $188 million that Uniland B.V. had acquired through sales of certain of its businesses, "while simultaneously forcing Uniland's minority shareholder, Sagarra, to share the risk of Giant's financial distress."
     CVP moved to dismiss Sagarra's complaint contending that Sagarra lacked standing to file derivative claims on behalf of UAC. The Delaware Chancery Court agreed, dismissing Sagarra's derivative claims, ruling that Sagarra's standing to sue was governed by Spanish law, "because Uniland - the only entity in which Sagarra owns stock - was incorporated in Spain."
     Under Spanish law, to bring derivative claims, Sagarra was required to request a shareholder meeting to determine whether Uniland should sue its own board, which Sagarra failed to do.
     On appeal, Sagarra argued that the Chancery Court committed error and should have applied Delaware law in relation to its claims.
     Delaware's High Court agreed with the Chancery Court's decision, pointing out that Sagarra owns shares of parent company, Uniland and holds no shares in UAC. To have standing to assert claims on behalf of UAC in what the ruling describes as a "multiple derivative litigation," Sagarra must own shares in UAC and must satisfy the derivative standing requirements that apply to the parent company which Sagarra, again, failed to do.
     "As we recently held in Lambrecht v. O'Neal, where 'the wholly-owned subsidiary pre-existed the alleged wrongdoing. . . and the plaintiff owns stock only in the parent . . . [a demand can] only be made-and a derivative action [can] only be brought-at the parent, not the subsidiary level,' " Chief Justice Jacobs found.
     In addition, the ruling states that to "disrupt the internal affairs of a Spanish corporation by displacing Spanish derivative standing rules with those of Delaware, would serve no legitimate Delaware interest and would violate the principle of comity."