In two recent decisions—In re Wal-Mart Stores Delaware Derivative Litigation, 2016 Del. Ch. LEXIS 75 (Del. Ch. May 13, 2016), and Laborers’ District Council Construction Industry Pension Fund v. Bensoussan, 2016 Del. Ch. LEXIS 87 (Del. Ch. June 14, 2016) (Lululemon)—the Delaware Court of Chancery has addressed the preclusive effect of a dismissal for failure to adequately plead demand futility under Rule 23.1 from another jurisdiction on a pending stockholder complaint in Delaware. In these opinions the dismissal of similar derivative claims in another jurisdiction mandated dismissal of the Delaware suits.
As frequently occurs in derivative litigation, both the Wal-Mart and the Lululemon cases involved well-publicized, potentially improper activities by publicly traded companies that spawned stockholder derivative suits in multiple jurisdictions. In Wal-Mart, the alleged wrongdoing was bribery in violation of the Foreign Corrupt Practices Act regarding Wal-Mart’s operations in Mexico. In Lululemon, it was a sale of stock by a corporate director that potentially implicated material nonpublic information regarding the resignation of the chief executive officer. In each case, a stockholder representative initiated an action with both securities and derivative claims in federal court and a separate stockholder plaintiff later initiated a derivative action for breach of fiduciary duties in the Court of Chancery. In each case, the Delaware stockholder representative first pursued a Section 220 action to acquire books and records from the subject company regarding the alleged improper activities. In both Wal-Mart and Lululemon, the federal derivative suit was dismissed for failure to adequately plead demand futility under Rule 23.1 and the Court of Chancery took up the question of whether those dismissals precluded the stockholder suits in Delaware.
