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6 Finally, the court evaluated whether a stay would prejudice the plaintiff, noting that Brenner could be harmed insofar as a stay delayed recovery on his claims and impaired the discovery process by the passage of time.48 However, the court went on to assert that the re- covery sought was primarily monetary and that any de- lay could be remedied with prejudgment interest. Fur- ther, the plaintiffs in the parallel securities class action proceeding would have a strong incentive to develop evidence useful to Brenner in his subsequent derivative action.49 Importantly, after conducting its analysis, the court adopted then Vice-Chancellor Strine’s reasoning in Brudno by underscoring that ‘‘the court should re- main flexible and open to revisiting the situation as events develop.’’50 The last significant decision in this area is from Vice Chancellor Laster, who applied the reasoning of Brenner a few months later in South v. Baker.51 In South, stockholders of the Hecla Mining Company brought a derivative action seeking to recover damages the corporation would suffer in connection with securi- ties actions filed after the corporation’s involvement in multiple mining accidents, as well as damages related to a mine closure. The court granted the defendants’ motion to dismiss, holding that demand was required because the plaintiff failed to plead with particularity that a majority of the Hecla directors faced a substan- tial likelihood of personal liability.52 The court next addressed the question of whether dismissal with prejudice as to the named plaintiff would have a preclusive effect on the ability of other stock- holders to bring derivative suits.53 In conducting this in- quiry, the court held that ‘‘there was no reason to rush [to file a derivative lawsuit] that would further the inter- ests of the corporation.’’54 First, the court noted that the federal securities complaints were subject to the auto- matic stay imposed by the PSLRA pending resolution of a motion to dismiss, but no briefing schedule had yet even been established in those actions.55 Second, the court held that the underlying harms – the mining acci- dents – did not call for haste because the derivative plaintiffs only filed suit after the incidents already had occurred, the corporation had publicly lowered its pro- jections, and the federal securities complaints had been filed. Finally, the court held that ‘‘a deliberate and thor- ough pre-suit investigation, rather than haste, was re- quired to further the interests of the corporation’’ in fil- ing a Caremark claim.56 As the court noted, ‘‘[w]hen a corporation first announces a trauma, the underlying 48 Id. at *8. 49 Id. It is worth noting that the similarity of the underlying claims in parallel proceedings both militates toward the grant- ing of a stay and simultaneously reduces the potential detri- ment that delayed discovery might cause the stayed plaintiff. 50 Id. (citing Brudno v. Wise, 2003 BL 1596, at *5 (Del. Ch. Apr. 1, 2003)). 51 62 A.3d 1 (Del. Ch. 2012). 52 Id. at 14-19. 53 The court concluded that a dismissal with prejudice does not have a preclusive effect if the initial plaintiff failed to pro- vide adequate representation for the corporation. Id. at 26. 54 Id. at 23. 55 See id. at 25 (citing 15 U.S.C. § 78u-4( b)(3)(B)). 56 In re Caremark International Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996). A so-called ‘‘Caremark claim’’ al- leges a failure of company directors to exercise meaningful oversight over internal operations of a company by failing to harms often still will be developing. Related regulatory proceedings and regulatory actions rarely will be re- solved. This Court routinely stays Caremark claims that seek to shift losses from the corporation to the defen- dant fiduciaries.’’57 Moreover, the court noted that the pursuit of a Caremark claim with undue haste might af- firmatively harm the corporation’s interests in many cases, because ‘‘pursuing a Caremark claim during the pendency of the underlying litigation or governmental investigation may well compromise the corporation’s position on the merits, thereby causing or exacerbating precisely the harm that the Caremark plaintiff ostensi- bly seeks to remedy.’’58 B. Case Law in Other Jurisdictions. The practical and strategic considerations outlined in Brudno, Massey, Brenner, and South have also been identified by courts in a variety of jurisdictions. For example, in Breault v. Folino, the U.S. District Court for the Central District of California stayed a derivative action in light of a paral- lel pending class action, noting that prosecution of the derivative suit would conflict with the corporation’s de- fense in the pending class action.59 Breault observed that pursuit of the derivative suit would undermine the corporation’s position in the class action, as well as di- vert financial and managerial resources away from ex- isting litigation.60 In Rosenblum v. Sharer, the same court stayed a derivative action in light of a parallel se- curities action, finding that pursuit of the derivative ac- tion would prejudice the ability of the corporation to de- fend the securities action, a stay would preserve judicial resources, and the stockholders’ claims were necessar- ily contingent on the outcome of the securities suit.61 Most recently, in 2012 a court summarized the case law within the Central District of California and noted that courts often grant a stay of derivative litigation in light of a parallel matter ‘‘when the cases arise from the same factual allegations and the evidence in the former could jeopardize the corporation’s defense in the lat- ter.’’62 The Northern District of Illinois applied the same rea- soning in In re Groupon Derivative Litigation, where the court noted that the ‘‘[c]ourts that have considered the interplay between derivative and securities actions have often found that derivative claims ‘cannot be adju- dicated in full (or even in large measure) until the [securities class] [a]ction is tried.’ ’’63 Groupon noted that, though resolution of the securities class action could significantly simplify the parallel derivative litiga- tion, the derivative action did present issues indepen- establish adequate monitoring systems to identify legal viola- tions. 57 South, 62 A.3d at 23-24. 58 Id. at 25. Further, the court stated that ‘‘[a] well- motivated derivative plaintiff, genuinely concerned about the corporation’s best interests, will consider these factors and act carefully, not precipitously.’’ Id. 59 2002 BL 23287, at *2 (C.D. Cal. Mar. 15, 2002). 60 Id.; see also Cucci v. Edwards, 2007 BL 295648, at *2 (C.D. Cal. Oct. 31, 2007). 61 See Rosenblum ex rel. Amgen, Inc. v. Sharer, 2008 BL 355878, at *8-*9 (C.D. Cal July 28, 2008). 62 In re STEC, Inc. Derivative Litig., 2012 BL 400353, at *4 (C.D. Cal. Jan. 11, 2012). 63 In re Groupon Derivative Litig., 882 F. Supp. 2d 1043, 1048 (N.D. Ill. 2012) (quoting Brudno v. Wise, 2003 BL 1596, at *5 (Del. Ch. Apr. 1, 2003)). 8-25-14 COPYRIGHT 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. SRLR ISSN 0037-0665PDF Image | Securities Regulation and Law Report
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