Two recent decisions from the Delaware Court of Chancery have dusted off the venerable doctrine of collateral estoppel to dismiss stockholder claims. Of course, this issue is not new in Delaware. In 2013, the Delaware Supreme Court held the dismissal of a derivative action in a federal court in California for failure to plead demand futility was entitled to collateral estoppel effect in Delaware, in Pyott v. Louisiana Municipal Police Employees’ Retirement System, 74 A.3d 612 (Del. 2013). These recent decisions show the power that the theory can have for corporations facing multiple lawsuits arising out of the same alleged wrongdoing.
The first case, Brevan Howard Credit Catalyst Master Fund Ltd. v. Spanish Broadcasting System, C.A. No. 9209 (Del. Ch. May 19, 2015), is the second iteration of a case brought by holders of 10.75 percent Series B cumulative exchangeable, redeemable preferred stock of Spanish Broadcasting System, alleging that Spanish Broadcasting System incurred debt in violation of the terms of the Series B stock. In the first action, Lehman Brothers Holdings v. Spanish Broadcasting System, 105 A.2d 989 (Del. 2014), the Delaware Supreme Court affirmed the Court of Chancery’s decision that the holders of the Series B stock acquiesced in the incurrence of debt by Spanish Broadcasting allegedly in breach of the terms of the Series B stock. In this action, the plaintiffs, holders of Series B stock, alleged, among other things, that Spanish Broadcasting incurred debt in violation of the terms of the Series B stock.
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