In a recent opinion issued by Vice Chancellor Parsons, Carlyle Investment Management, L.L.C., et  al. v. Moonmouth Company, S.A., et al., C.A. No. 7841 (Del. Ch. Sept. 10, 2015), the Court differentiated between the “law of the case” doctrine and collateral estoppel.

By way of brief background, Defendant Plaza removed the case to District Court on Dec. 18, 2012, and Plaintiffs moved for remand.  On August 14, 2013, the District Court of Delaware remanded the case back to the Court of Chancery on various grounds.  Plaza appealed the District Court’s decision to the Third Circuit. On Feb. 25, 2015, the Third Circuit affirmed the District Court’s decision, and remanded the case back to the Court of Chancery.  Briefing then resumed on Defendants’ pending motion to dismiss the amended complaint before the Court of Chancery.

The issue before the Court of Chancery was, in light of the issuance of the Third Circuit opinion, whether the “law of the case” doctrine, or the collateral estoppel doctrine, should guide the Court’s treatment of the Third Circuit opinion.  Defendants argued that the former doctrine applied, while Plaintiffs argued that the latter applied.  The significance is that Defendants argued that a portion of the Third Circuit decision was clearly wrong, which would serve as an exception to the law of the case doctrine, while arguably such exception could not apply to the collateral estoppel doctrine.

The Court found that collateral estoppel should guide its analysis of the Third Circuit opinion.  The Court viewed the federal proceedings, “although part of this case, were essentially a completely separate action.”  The law of the case doctrine instead “contemplates one continuous action within the same court system…”, meaning that both the rulings issued by the Court of Chancery “and the rulings issued on appeal by the Delaware Supreme Court would be binding as law of the case.”

Accordingly, the Court applied the collateral estoppel doctrine to the rulings of the Third Circuit, which it found controlling and incorporated into its decision on Defendants’ pending motion to dismiss.

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.