May 21, 2018 Section of Litigation

Status Quo Maintained: Supreme Court of Delaware Precludes Stockholder Derivative Claims

The decision aligns with both Delaware and federal precedent holding that preclusive effect may be given to other courts’ decisions on demand futility without running afoul of the Due Process Clause.

By Karl A. Bekeny and Jennifer L. Mesko

In a highly anticipated decision in the Wal-Mart derivative litigation—In re Wal-Mart Stores, Inc. Delaware Derivative Litigation, No. 7455-CB, 2018 WL 547768 (Del. Jan. 25, 2018)—the Supreme Court of Delaware declined to adopt the Court of Chancery’s recommendation to limit the preclusive effect of decisions by out-of-state courts on demand futility. Instead, the court affirmed the chancellor’s original decision dismissing the Delaware stockholders’ derivative claims as precluded by an earlier dismissal in a parallel derivative action in Arkansas federal court. In doing so, the Delaware court maintained the status quo and assuaged the uncertainty that followed the Chancery Court’s aberrant proposal that a prior derivative suit should not bind the corporation or other stockholders in another derivative action unless (1) the board of directors declined to oppose the suit or (2) the prior suit survived a motion to dismiss under Rule 23.1 asserting failure to make a pre-suit demand.

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