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CALIFORNIA CORPORATE & SECURITIES LAW

Court Finds Plaintiffs Are Not Privies

Yesterday’s post noted that the plaintiff in a derivative suit is bringing claims on behalf of the corporation.  Thus, when a derivative suit is dismissed, does that dismissal have any effect on other pending or subsequently filed derivative suits?  This is a topic that I first discussed a few years back in Delaware Court of Chancery “Overrules” Federal Court.  That post was critical of Vice Chancellor Laster’s refusal to give preclusive effect to a federal court’s dismissal of a parallel derivative action. Pyott v. Louisiana Municipal Police Employees’ Retirement System, 46 A.3d 313 (Del. Ch. 2012).  The Delaware Supreme Court subsequently reversed V.C. Laster in Pyott v. Louisiana Municipal Police Employees’ Retirement System, 74 A.3d 612 (Del. 2013).  See Delaware Supreme Court Upholds Federalism, Comity & Finality.  Then, U.S. District Judge Kent J. Dawson rejected V.C. Laster’s privity analysis in Pyott as a matter of Nevada law.  In re MGM Mirage Derivative Litig., 2014 U.S. Dist. LEXIS 88967 (D. Nev. 2014).  Now, we have another case from the federal district court from Nevada.

Weinfeld v. Minor, 2016 U.S. Dist. LEXIS 30117 (D. Nev. Mar. 8, 2016), Judge Robert C. Jones framed the question as follows:

[W]hether a judgment in an action by a corporation’s stockholders suing derivatively on behalf of the corporation is binding under the rules of res judicata in a subsequent action by other stockholders suing derivatively on behalf of the corporation.

However, that doesn’t seem to have been the precise question at hand because the court in the prior action found that the plaintiff in that action was pursuing claims only on his own behalf and did not treat that plaintiff’s claim as a derivative claim.  Judge Jones concluded that under Nevada law, the prior lawsuit did not bar a subsequent derivative suit because the plaintiffs in the current suit were “neither parties nor privies to the previous action.”

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