David Berger, Amy Simmerman, and Brad Sorrels are partners at Wilson Sonsini Goodrich & Rosati. This post is based on a WSGR publication by Mr. Berger, Ms. Simmerman, Mr. Sorrells, Katherine Henderson, Ignacio Salceda, and Lindsay Kwoka Faccenda, and is part of the Delaware law series; links to other posts in the series are available here.
The Delaware Supreme Court recently unanimously affirmed the Delaware Court of Chancery’s dismissal of a stockholder derivative claim against directors of Wal-Mart, holding that these claims were precluded because a federal court in Arkansas had already dismissed a derivative claim filed by different Wal-Mart stockholders. [1] The Supreme Court held that an exception to the general rule against nonparty preclusion was appropriate in derivative cases because the interests of the plaintiffs in Arkansas and Delaware were sufficiently aligned, and the Arkansas plaintiffs were adequate representatives. The Supreme Court determined the preclusive effect of the Arkansas federal court’s dismissal was governed by Arkansas state law, subject to Constitutional standards of Due Process, and that all of the requisite elements for preclusion under Arkansas law, including privity and adequacy of representation, had been satisfied. At the same time, the court also declined the Court of Chancery’s invitation to adopt a different rule that would only give preclusive effect to a judgment by a sister court in some circumstances.
