In Delaware Court of Chancery “Overrules” Federal Court, I discussed Vice Chancellor J. Travis Laster’s opinion in Louisiana Municipal Police Employees’ Retirement System v. Pyott, C.A. No. 5795-VCL (Del. Ch. June 11, 2012). In that opinion, the Vice Chancellor refused to dismiss a pending Delaware derivative suit after U.S. District Court Judge David O. Carter in the Central California dismissed the plaintiffs’ complaint pursuant to FRCP Rule 23.1 with prejudice (In re Allergan, Inc. Shareholder Derivative Action, 2012 U.S. Dist. LEXIS 5590 (C.D. Cal. Jan. 17, 2012)). I my post, I observed:
The fundamental objectives of the collateral estoppel doctrine have nothing to do with the internal affairs of corporations.
In a brief opinion by Justice Carolyn Berger, the Delaware Supreme Court reversed, holding:
The Court of Chancery should have applied California law or federal common law to analyze all elements of estoppel. If the Court of Chancery had done so, rather than invoking the internal affairs doctrine to apply Delaware law to the issues of privity and adequacy of representation, the decision in LeBoyer v. Greenspan [ 2007 U.S. Dist. LEXIS 96231 (C.D. Cal. June 13, 2007), a case cited in my post] would have compelled it to dismiss the case.
I was also troubled by the fact that the Court of Chancery had ruled on the adequacy of representation in a case that was not before it:
It’s unclear whether the Vice Chancellor in this case reviewed the entire record, including the opposition to the motion to dismiss filed by the plaintiffs, in the federal court case.
On this issue, Delaware Supreme Court concluded: “As to adequacy of representation, the trial court adopted a presumption of inadequacy without any record to support the factual premise on which the presumption was based.”