Issue Preclusion Prevents Relitigation of Derivative Suit

On December 17th, the Ninth Circuit affirmed the dismissal of a shareholder derivative suit against International Gaming Technology (“IGT”) and its board. Prior to the filing of the instant suit, four shareholders filed separate derivative suits that were subsequently consolidated. The district court dismissed the consolidated suit for failure to make a demand on the board or to sufficiently allege demand futility and the Ninth Circuit affirmed. The district court then dismissed this action, holding that plaintiff here had failed to make a demand on the IGT board and could not allege demand futility based on issue preclusion due to the ruling in the prior derivative suit. Affirming, the Ninth Circuit holds that under Nevada law, the underlying demand futility allegations need not be identical before issue preclusion applies. The question is, rather, whether the “same ultimate issue” was decided in the prior case. The denial of a motion to dismiss in an intervening securities lawsuit also doesn’t change the result here. Although the securities fraud suit might have increased the probability that IGT would eventually be found liable for securities fraud, that possibility alone, without more specific allegations, did not show that demand on the current directors would be futile. Only two of the current directors were on the board at the time of the alleged securities fraud and thus could potentially be held liable for the board’s failure to act. Further, the denial of the motion to dismiss was not a final order and since the parties settled, there was no ultimate finding of liability. Arduini v. Hart.

Ambiguous Policy Exclusion Sends D&O Coverage Case Back to District Court

On December 17th, the Eleventh Circuit reversed the district court’s finding that the director and officer insurance policy issued to a bank was unambiguous. St. Paul Mercury Insurance Company instituted this declaratory judgment action in response to a separate suit brought by the FDIC as receiver for a failed bank against the bank’s former officers who were allegedly grossly negligent and who breached their fiduciary duties. St. Paul sought a determination of coverage and its duty to advance defense costs to the officer defendants. Finding that St. Paul’s insured v. insured policy exclusion is ambiguous, the Court held that extrinsic evidence is needed and remanded the case to the trial court for further proceedings. St. Paul Mercury Insurance Company v. FDIC.