Langford v. Barnholt and KLA-Tencor Corp., No. 2295-VCL (Del. Ch., March 17, 2009), read letter ruling here.
Kevin Brady, a highly respected Delaware litigator, has prepared the following review of this case.
In this Chancery Court opinion, Vice Chancellor Lamb revisited a decision in this case that had been in place since August 2008 when the Court stayed the action pending the outcome of the motion to terminate filed by KLA-Tencor Corporation’s Special Litigation Committee in the related federal derivative actions in California. Because the California court recently denied that motion, the Chancery Court turned to the remaining arguments made by defendants in their pending motion to dismiss. First, the Court addressed Count II in the Delaware action because that count was not part of the federal action. The plaintiffs had plead Count II (a claim for equity dilution due to improper stock option backdating) as a class claim but Vice Chancellor Lamb found that the claim was clearly a derivative claim under established Delaware precedent which stated that absent a controlling shareholder, a claim for equity dilution must be pleaded as a derivative claim. Moreover, since the plaintiff has alleged neither the existence of a controlling shareholder nor any harm independent from the alleged harm to the corporation, the Court found that Count II cannot be maintained as an individual or class action so it must be dismissed.
With respect to the remaining counts in the Complaint, the Court determined that under McWane Cast Iron Pipe Corp. v. McDowell-Wellman Engineering Co., 263 A. 2d 281 (Del. 1970) and its progeny as applied in the context of representative litigation, the Delaware action should be stayed — all of the five federal actions in California were filed before the Delaware action, all six actions arise out of the same nucleus of operative facts (the federal actions actually covered a longer time frame and a broader set of claims), all of the parties to the Delaware action save one are included in the federal actions and the federal court in California is capable of providing prompt and complete justice.
UPDATE: The Wall Street Journal online picked up this post here.