Dismissal Of State Court Derivative Action Yields Dismissal Of Parallel Federal Action

Allen Matkins
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Allen Matkins

I first wrote about the preclusive effect, if any, of a dismissal of a parallel derivative action some nine years ago when I wrote about Vice Chancellor J. Travis Laster's ruling in La. Mun. Police Emples. Ret. Sys. v. Pyott, 46 A.3d 313, (2012).  See Delaware Court of Chancery Overrules Federal Court.  A year later, the Delaware Supreme Court reversed that ruling in Pyott v. La. Mun. Police Emples.' Ret. Sys., 74 A.3d 612.  See Delaware Supreme Court Upholds Federalism, Comity & Finality.

Pyott involved the effect of a dismissal of a derivative action by a federal court on a pending derivative action in state court.  Earlier this month, U.S. District Court Judge Yvonne Gonzalez Rogers considered the converse situation - the effect of a California state court's dismissal of a derivative action on a pending derivative action in federal court.  Hamilton v. Advanced Micro Devices, 2021 U.S. Dist. LEXIS 66929.  Citing Pyott and Ardui v. Hart, 774 F.3d 622 (9th Cir. 2014), Judge Rogers found that the plaintiffs in the federal action could not relitigate the question of demand futility.  In reaching this conclusion, she found: (i) the plaintiffs' allegations in both actions, while not identical, were so; (ii) demand futility was actually litigated  and necessarily decided; (iii) the prior decision was on the merits; and (iv) the parties are in privity.

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