Often times, a Section 220 books and records action precedes derivative litigation.  However, it is not uncommon for one faction of stockholder plaintiffs to dive right into derivative litigation in another litigation, while another faction first seeks inspection of books and records before the Delaware Court of Chancery.  When that happens, and the non-Delaware case is dismissed for failure to state a claim (without the benefit of corporate books and records), such dismissal may serve to dismiss the Delaware plaintiffs’ pending books and records claims under the grounds of collateral estoppel.

This precise situation was addressed in the recent decision of In Re Wal-Mart Stores, Inc. Delaware Derivative Litigation, C.A. No. 7455-CB (Del. Ch. May 13, 2016).  In this decision, the Court held that a failure to seek corporate records alone prior to filing a derivative action in another jurisdiction could not be deemed “grossly deficient” such that issue preclusion would not apply. Issue preclusion warranted dismissal of the stockholders books and records petition.

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.