In the recent decision of Laborers' District Council Construction Industry Pension Fund v. Bensoussan, C.A. No. 1123-CB (Del. Ch. June 14, 2016), the Court of Chancery was confronted with a motion to dismiss a derivative complaint on the basis of issue and claim preclusion. Dismissal was sought under these grounds due to the dismissal of a prior filed Brophy action in the Southern District of New York, due to plaintiffs' failure to adequately allege demand futility.
The issue boiled down to whether, as a result of failing to first file a Section 220 action, the plaintiffs in the derivative case were inadequate representatives for that litigation, such that the NY dismissal would not have a binding effect upon the Delaware action.
Chancellor Bouchard noted that in Pyott, the Delaware Supreme Court rejected a "'fast-filer' irrebuttable presumption of inadequacy" for "derivative plaintiffs who file their complaints without seeking books and records, very shortly after the announcement of a 'corporate trauma.'" In other words, "a plaintiff must point to facts of record under the circumstances of a particular case to support a finding of inadequacy." (Slip op. at 31) (citing Pyott, 74 A.3d at 618).
Accordingly, the Court found simply because the NY plaintiffs failed to first make a Section 220 books and demand did not preclude the Court from finding that issue and claim preclusion applied given the dismissal of the NY action.
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