Court of Chancery Dismisses "Virtually Identical" Claims on Grounds of Issue and Claim Preclusion

In Laborers’ District Council Construction Industry Pension Fund v. Bensoussan,[1] Chancellor Bouchard granted a motion to dismiss, with prejudice, in a case involving § 220 demands in connection with alleged insider trading and derivative actions in federal court in New York.
 
As a result of alleged insider trading and faulty disclosures by the founder of lululemon athletica, inc. (“Lululemon”), a federal class action suit was filed in the Southern District of New York.  In addition to the class action lawsuit, two Lululemon stockholders filed derivative complaints in the Southern District of New York, which were consolidated.  In the consolidated derivative action, plaintiffs alleged, among other things, a breach of fiduciary duty by the founder of Lululemon for trading on material non-public information.
 
Two Delaware shareholders each filed a § 220 books and records actions seeking information related to claims identical to those alleged in the New York derivative action.  The Delaware plaintiffs sought to intervene in the New York derivative action pending the outcome of their § 220 inspections.  The Southern District of New York, however, dismissed the derivative plaintiff’s claims before the resolution of the Delaware plaintiffs’ § 220 actions.
 
Chancellor Bouchard held that the New York plaintiffs’ decision not to first file a § 220 action, or wait for the Delaware plaintiffs’ § 220 actions to conclude, did not preclude the New York plaintiffs from being adequate representatives for the litigation against Lululemon for the alleged insider trading.  As a result of the “virtually identical” claims in the New York and Delaware actions, the Delaware plaintiffs’ were precluded on grounds of issue and claim preclusion, from proceeding with their action.

Special thanks to Evan Hoey for preparing this summary.



[1] C.A. No. 1123-CB (Del. Ch. June 14, 2016).

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