The Delaware Supreme Court recently issued an important corporate law decision addressing issue preclusion in the context of multiple shareholder derivative actions. The court ruled in California State Teachers’ Retirement System v. Alvarez, No. 295, 2016 (Del. Jan. 25), that an Arkansas federal court’s dismissal of a shareholder derivative suit for failure to plead adequately demand futility precluded Walmart stockholders from attempting to prosecute derivative claims in Delaware arising from the same misconduct. The court rejected the argument that the failure of the Arkansas plaintiffs to have used books-and-records discovery under Section 220 to assemble their complaint rendered their representation inadequate, or that applying issue preclusion in this context violated the stockholders’ due process rights. Although Delaware strongly encourages plaintiffs to use books-and-records requests to prepare a shareholder derivative complaint, the court concluded that Delaware’s substantial interest in governing the internal affairs of Delaware corporations must yield to the stronger national interests that all state and federal courts have in respecting each other’s judgments.

Background

Following reports in The New York Times in April 2012 of an alleged bribery scheme and cover-up carried on by executives of Walmart’s Mexican unit, Walmart de Mexico (Wal Mex) shareholder derivative suits followed in Arkansas and Delaware. The claims in both jurisdictions were similar, involving breach of fiduciary duty related to the Walmart board’s oversight of Wal Mex. The Arkansas litigation also included federal securities law claims. The Arkansas court initially stayed its proceedings pending the litigation in Delaware.

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