The Delaware Supreme Court recently issued an epic opinion, ending the lengthy saga of litigation involving efforts by some stockholders of Wal-Mart to pursue claims in connection with alleged improprieties relating to the Mexican subsidiary of Wal-Mart, in California State Teachers’ Retirement System v. Alvarez , Del. Super., No. 295, 2016 (Jan. 25, 2018). Multiple prior decisions in this matter have been highlighted on these pages over the last several years. The unusual procedural history included multiple appeals of various aspects of Section 220 litigation in which the plaintiffs in Delaware sought books and records prior to filing a plenary complaint.
This most recent decision of Delaware’s high court in the matter must be read by anyone interested in the latest iteration of Delaware law on the topic of issue preclusion, which is also referred to in some circles as collateral estoppel. (A photo of the Supreme Court building in Dover is shown nearby.)
For purposes of this cursory blog post, and in light of the lengthy procedural history of this case, which is presumed to be familiar to readers (or which can be reviewed at the foregoing link by accessing highlights of prior decisions in this matter), the most efficient way to catalog this matter for future reference is with the following bullet points that highlight key aspects of the most recent ruling in this case.
- Following a familiar pattern, after an article in the New York Times indicating apparent misfeasance by the Mexican subsidiary of Wal-Mart that called into question the compliance by the board of directors with their fiduciary duties, multiple lawsuits were filed in multiple fora. A final decision in a case filed in the U.S. District Court in Arkansas dismissed claims filed in that court based on failure to satisfy the standard of demand futility.
- A later decision of the Delaware Court of Chancery found that the decision in Arkansas had a preclusive effect on the derivative action filed in Delaware.
- The Delaware plaintiffs followed the advice of the Delaware courts by employing the tools of DGCL Section 220 to obtain books and records prior to filing their plenary complaint. In contrast, the plaintiffs in Arkansas did not do so, and therefore, were able to proceed more quickly with their plenary complaint.
- A cynical wag might conclude that an unintended consequence of this decision will be to encourage some plaintiffs to file stockholder suits in courts “anywhere but Delaware” without the added expenditure of time and money using the tools of Section 220 before filing their plenary complaint.
- The court carefully considered the many policy considerations implicated, including the serious constitutional criteria of Due Process, and the Full Faith and Credit required to be given to judgments of the courts in other states.
- Also importantly, the court in this opinion concluded that based on the facts and circumstances of this case, the failure of the plaintiffs in Arkansas to use Section 220 before filing their complaint, in this particular instance, did not constitute the type of “grossly deficient representation” of the plaintiff class such that the preclusive effect of the judgment was avoided.
Procedurally Important Point: Footnote 184 should be of great interest to corporate and commercial litigators because it cites to a Supreme Court rule, (that has potential analogs in decisions by the Court of Chancery), that if a particular argument is confined to a footnote only in a brief on appeal, as opposed to appearing in the body of the brief, that argument will be considered waived.