On January 25, 2018, the Delaware Supreme Court held that the dismissal of a shareholder derivative action for lack of demand futility can preclude other derivative actions as long as the plaintiff in the dismissed case adequately represented the corporation’s interests. The Court’s decision in California State Teachers’ Retirement System
The Delaware Supreme Court requested further consideration of the federal due-process issues that might arise where a court is asked to hold that a shareholder derivative action is precluded because a prior derivative action was dismissed based on the first plaintiff’s failure to make a demand on the company’s board before filing suit. The Court’s January 18, 2017 decision in California State Teachers’ Retirement System v. Alvarez squarely focuses on an issue that has been raised several times in the Delaware Court of Chancery: whether federal due-process principles prevent the actions of a named plaintiff in a derivative action from binding other shareholders unless and until a court holds that the plaintiff has authority to sue on behalf of the corporation.
The ultimate resolution of this question could affect the strategy decisions confronting plaintiffs and defendants when multiple shareholder derivative actions are filed in two or more forums.