Delaware Supreme Court Holds That Collateral Estoppel Requires Dismissal of Shareholder Suit

Summary: Last week, the Delaware Supreme Court held in Pyott v. Louisiana Municipal Police Retirement System that an order dismissing a shareholder derivative suit in federal court in California had a preclusive effect on an essentially identical suit pending before the Delaware Chancery Court. The Supreme Court reversed a controversial decision of the Chancery Court that had allowed the second suit in Delaware to proceed even after the first in California had been dismissed. While Pyott may have limited application on the issues of derivative plaintiff privity and adequacy of representation under Delaware law, it will make it more difficult for plaintiffs to have multiple bites of the apple by filing duplicative derivative suits in multiple jurisdictions, since a negative ruling in one jurisdiction will likely be given preclusive effect in Delaware.