X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Click here for the full text of this decision FACTS:Plaintiff-Appellant Robert Smith, the former owner of several million shares of Waste Management, Inc. stock, sued defendant-appellee, Waste Management, for fraud and negligent misrepresentation in connection with losses he sustained when Waste Management’s share price fell in late 1999. On appeal, Smith alleges that the district court erred when it found that his claims were derivative and barred by res judicata. HOLDING:Affirmed. When a corporation, through its officers, misstates its financial condition, thereby causing a decline in the company’s share price when the truth is revealed, the corporation itself has been injured. Here, the harm that befell Smith � the drop in share price caused by the untimely disclosure of unfavorable financial data � was a harm that befell all of Waste Management’s stockholders equally, the court finds. The misconduct alleged by Smith did not injure Smith or any other shareholders directly, but instead only injured them indirectly as a result of their ownership of Waste Management shares. Smith cannot prove his injury without also simultaneously proving an injury to the corporation. In light of Tooley v. Donaldson, Lufkin & Jenrette Inc., 845 A.2d 1031 (Del. 2004), the court finds that Smith’s claims are derivative under Delaware law. Because Smith’s claims are derivative, they are barred by res judicata. Res judicata prevents the relitigation of claims that have already been finally adjudicated or that should have been litigated in the prior lawsuit. United States ex rel. Laird v. Lockheed Martin Eng’g and Sci. Servs., 336 F.3d 346 (5th Cir. 2003). Res judicata applies when: 1. there was a previous final judgment on the merits; 2. the prior judgment was between identical parties or those in privity with them; and 3. there is a second action based on the same claims as were raised or could have been raised in the first action. Smith admitted that if his claims are derivative, they are barred by res judicata. This follows from the fact that the Sept. 20, 2001 final judgment in the Delaware litigation against Waste Management is a final judgment that: 1. disposes of all derivative claims by Waste Management shareholders against the company pertaining to misrepresentations about Waste Management’s projected earnings and the sudden fall in its share price in 1999; and 2. is between parties identical to, or in privity with, those now before this court. OPINION:King, C.J.; King, C.J., Jolly and Dennis, JJ.

Want to continue reading?
Become a Free ALM Digital Reader.

Benefits of a Digital Membership:

  • Free access to 3 articles* every 30 days
  • Access to the entire ALM network of websites
  • Unlimited access to the ALM suite of newsletters
  • Build custom alerts on any search topic of your choosing
  • Search by a wide range of topics

*May exclude premium content
Already have an account?

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.