In the recent decision of Laborers’ District Council Construction Industry Pension Fund v. Bensoussan, C.A. No. 1123-CB (Del. Ch. June 14, 2016), the Court of Chancery was confronted with a motion to dismiss a derivative complaint on the basis of issue and claim preclusion.  Dismissal was sought under these grounds due to the dismissal of a prior filed Brophy action in the Southern District of New York, due to plaintiffs’ failure to adequately allege demand futility.

The issue boiled down to whether, as a result of failing to first file a Section 220 action, the plaintiffs in the derivative case were inadequate representatives for that litigation, such that the NY dismissal would not have a binding effect upon the Delaware action.

Chancellor Bouchard noted that in Pyott, the Delaware Supreme Court rejected a “‘fast-filer’ irrebuttable presumption of inadequacy” for “derivative plaintiffs who file their complaints without seeking books and records, very shortly after the announcement of a ‘corporate trauma.’”  In other words, “a plaintiff must point to facts of record under the circumstances of a particular case to support a finding of inadequacy.”  (Slip op. at 31) (citing Pyott, 74 A.3d at 618).

Accordingly, the Court found simply because the NY plaintiffs failed to first make a Section 220 books and demand did not preclude the Court from finding that issue and claim preclusion applied given the dismissal of the NY action.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.