Under Court of Chancery Rule 15(aaa), in response to a motion to dismiss filed under Chancery Rule 12(b)(6) or 23.1, a plaintiff may file an amended complaint without leave in lieu of filing an answering brief. If a plaintiff elects to stand on its pleadings and file an answering brief, and the motion to dismiss is successful, the complaint will be dismissed with prejudice.  Ct. Ch. R. 15(aaa).

The impact of Rule 15(aaa) was of central focus in the recent decision of In re Ezcorp Inc. Consulting Agreement Derivative Litig., C.A. No. 9962-VCL (Del. Ch. Jan. 15, 2016).  There, a derivative complaint was brought against three directors of a Delaware corporation who approved transactions challenged in the litigation.  Defendants moved to dismiss the complaint, and the motion was fully briefed.  Before oral argument, the Delaware Supreme Court issued its opinion in In re Cornerstone Therapeutics Inc. Stockholder Litig., 115 A.3d 1173 (Del. 2015).  After Cornerstone, plaintiff’s counsel re-evaluated the strength of their claims against Defendants, and recognizing that they had not pled a non-exculpated claim against them, proposed a dismissal without prejudice.

Defendants opposed the dismissal without prejudice, and pressed on with their motion.  Defendants sought a dismissal with prejudice that would be binding “[a]s to the world.”

The Court found that Under Rule 15(aaa), a dismissal with prejudice is mandated if a plaintiff chooses to stand on his pleading, absent a showing of good cause.   The Court found that good cause does not exist. Vice Chancellor Laster likened the case to Quadrant Structured Products Co., Ltd. v. Vertin, 2014 WL 5465535 (Del. Ch. Oct. 28, 2014), where the Court found that dismissal with prejudice was appropriate because there, the decision was interlocutory in nature, and could be “revisited should future developments, including evidence generated by the discovery process, provide a compelling reason for doing so.”  

Accordingly, the Court granted dismissal with prejudice, but only as to the named plaintiff.  The Court rejected Defendants’ interpretation of Rule 15(aaa) that a dismissal of a derivative complaint under Rule 23.1 should be binding upon parties other than the named plaintiff, given the express wording of Rule 15(aaa) that limits dismissal “with prejudice to the named plaintiffs only.”

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.