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3 Even if the derivative claims are not premised en- tirely upon liability in the parallel proceedings, how- ever, and instead assert a separate theory of liability premised upon the same underlying facts as the paral- lel proceedings, a stay may still be appropriate. That is because relevant factual issues are still likely to be re- solved in the course of parallel proceedings.10 Thus, un- less there is a compelling need for the derivative litiga- tion to go forward immediately – and, as discussed be- low, these situations would seem to be rare – the best use of company and judicial resources may be to litigate the issues once, rather than risk multiple rounds of amended derivative pleadings. Because any relevant facts in the parallel proceedings would already have come to light, any allegations or legal theories that may have arisen as a result of the parallel proceeding could then be fully incorporated at the outset of any litigation on the merits of the derivative claim.11 For similar rea- sons, courts frequently have held that considerations of comity also weigh in favor of staying derivative pro- ceedings, because the granting of a stay would avoid the risk of inconsistent factual findings in the derivative proceeding and any parallel proceeding.12 Indeed, it may not be possible to evaluate which, if any, theories of derivative liability should be litigated until any parallel proceedings have fully concluded. Even if the plaintiff in an existing derivative action rep- resents to a court that the plaintiff is prepared to go for- ward on their existing complaint, Delaware courts have held that a dismissal with prejudice as to one derivative plaintiff may not necessarily bar a derivative action by other stockholders, if the named plaintiff was not an ad- 10 Groupon, 882 F. Supp. 2d at 1050-51; First Solar, 2012 WL 6570914, at *2 (‘‘[I]t is at least reasonably possible that resolution of the class action case will lead to prompt resolu- tion of the derivate action saving litigation costs and court re- sources in the long term.’’); Rosenblum, 2008 BL 355878, at *9; In re Ormat Technologies, Inc., 2011 BL 222446, at *5 (D. Nev. Aug. 29, 2011) (‘‘A stay of this action would also preserve judi- cial resources because the claims and parties in the two law- suits substantially overlap.’’); Cucci, 2007 BL 295648, at *2 (staying derivative action pending resolution of a motion to dismiss a related securities class action complaint because ‘‘both actions rest upon the same or closely related transac- tions, happenings or events, and thus will call for the determi- nation of the same or substantially related questions of fact’’); South, 62 A.3d at 23. 11 Brenner v. Albrecht, 2012 BL 24018, at *7 (Del. Ch. Jan. 27, 2012) (even where ‘‘at least some portion of [the] deriva- tive claims [was] ripe for adjudication,’’ court noted the ‘‘wis- dom as a practical matter of treating indemnification claims as unripe until the liability for which indemnification is sought is determined’’); Brudno v. Wise, 2003 BL 1596, at *5 (Del. Ch. Apr. 1, 2003) (‘‘[W]hether or not the derivative claims are, in some measure, ripe enough for current assertion, they cannot be adjudicated in full’’ until parallel proceedings have con- cluded (emphasis added)). 12 In re STEC, Inc. Derivative Litig., 2012 BL 400353, at *6 (C.D. Cal. Jan. 11, 2012) (noting that a stay would simplify the issues presented and promote the orderly course of justice be- cause the outcome of the securities action would inform the ‘‘advisability’’ of pursuing the derivative action, and a stay would avoid the possibility of conflicting outcomes in the cases); Brenner, 2012 BL 24018, at *7 (‘‘Even if the plaintiffs in the Securities Class Action never learned about such [adverse] admissions or rulings [in the derivative action], there would re- main a risk of inconsistent rulings between this Court and the District Court.’’). equate representative of the corporation.13 In particu- lar, courts have held that a stockholder may not be an adequate representative if the plaintiff rushes to file suit without first conducting an adequate investigation to determine whether or not there is a connection between the alleged corporate trauma and director conduct.14 Thus, the most efficient use of the company’s resources may be to litigate an action after all relevant facts and potential theories are known, rather than incur the risk of having to re-litigate a derivative action based on the same underlying facts, but alleging differing theories of liability or scope. A stay under such circumstances would also discourage plaintiffs from filing hastily- developed complaints in an effort to win the proverbial ‘‘race to the courthouse’’ and obtain appointment as lead plaintiff.15 Additional Benefits From Stay. There are a number of other reasons to justify a stay of derivative proceedings until parallel proceedings have concluded. First, the corporation in a derivative proceeding may be unable fully to assess the amount and likelihood of potential li- ability if the claims were to be pursued, thus impairing the corporation’s ability to assess whether any potential recovery in a derivative action would warrant the dis- ruption and distraction to the corporation of pursuing the action itself.16 Corporations may also be better able to determine from the outset whether circumstances warrant separate representation for various directors and/or officers in the derivative proceedings, with all the attendant expense that can require for the corpora- tion (including pursuant to advancement provisions), if those decisions can be made on a more informed basis after parallel proceedings have concluded. Finally, it is worth noting that in many cases, the con- siderations identified by courts against granting stays can be addressed through other means. For instance, a stay of a derivative litigation could delay the corpora- tion’s recovery in that action. However, to the extent that monetary damages are sought, a court can com- pensate the corporation for any delay in recovery through the award of prejudgment interest.17 More- over, even if equitable relief is sought, the majority of 13 South, 62 A.3d at 20-26. 14 See id. at 23. 15 Id. at 25 (‘‘[A] deliberate and thorough pre-suit investiga- tion, rather than haste, was required to further the interests of the corporation. Caremark claims are difficult to plead and harder to prove.’’) 16 Brenner, 2012 BL 24018, at *7 (‘‘Defendants deserve to know, for example, the extent of their prospective exposure when making strategic decisions during the course of litigation such as how vigorously to defend an action and, relatedly, how much to spend on defense. Such practical concerns are espe- cially important where, as Brenner alleges here, the Company ‘is largely self insured so that expenses, settlements or dam- ages in excess of $5 million in these actions will not be recov- erable under the primary coverage insurance policies.’ ’’); see also Inloes v. Williams, 2014 BL 224990, at *2 (E.D. Va. Feb. 28, 2014). 17 Brenner, 2012 BL 24018, at *7 (‘‘Therefore, prejudgment interest can redress any harm caused by a delay. Regarding the discovery process, the same practical consideration of overlapping allegations that renders simultaneous prosecution of both cases unduly complicated, inefficient, and unnecessary also mitigates the risk of delaying discovery here. Because the two actions are somewhat related, the Securities Class Action plaintiffs ‘have a strong incentive to develop evidence that will SECURITIES REGULATION & LAW REPORT ISSN 0037-0665 BNA 8-25-14PDF Image | Securities Regulation and Law Report
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