The Topps Company Shareholders Litigation

This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

Robert K. Payson and Bradley W. Voss of Potter, Anderson & Corroon have released this Memorandum summarizing Vice Chancellor Strine‘s recent decision in In re: The Topps Company Shareholders Litigation.  In Topps, the Court builds on the narrative Chancellor Chandler offered in Ryan v. Gifford, explaining why the Delaware courts will not stay a later-filed Delaware action in a shareholder derivative suit in favor of a first-filed action in another state if the Delaware courts are persuaded that the issues are important and novel under Delaware law.  Although the general rule favors deference to the speedier plaintiff in the first-filed action, since plaintiffs in derivative suits (in theory, at least) are not suing on their own behalf, Delaware courts have not hesitated to proceed with a later-filed Delaware action notwithstanding ongoing proceedings elsewhere.

The Ryan and Topps decisions represent an interesting nuance in the debate over competition among states with respect to corporate law.  Although that scholarship emphasizes where firms will choose to incorporate, there may be competition among courts over shareholder derivative suits as some plaintiffs file in Delaware and others in different jurisdictions (such as the venue where the company’s headquarters is located).  If some plaintiffs file suit outside of Delaware courts–believing, perhaps, that a foreign state’s court will apply Delaware law in a manner more favorable to shareholders–which court takes control of the case will be particularly important.  And, of course, the fact that dueling suits are proceeding side by side raises a host of interesting issues, including whether the courts or the parties will “race” to an outcome to gain collateral estoppel effect and whether having two costly suits proceeding simultaneously is an efficient use of judicial resources.

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