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7 dent of those addressed in the securities litigation. Re- gardless of the presentation of independent claims, however, the Court granted a stay on the grounds that it would favor judicial economy given the substantially overlapping nature of the parallel claims, and because a stay would not prejudice the plaintiff since the court could later revisit whether a stay remained appropriate. Indeed, the court went on to note that allowing the de- rivative action to go forward might instead prejudice Groupon’s ability to defend the parallel securities ac- tion.64 Similar decisions have also been reached by courts in a variety of jurisdictions across the country.65 Finally, some courts have recognized that parallel ac- tions involving securities violations present additional unique considerations when determining whether a stay of a derivative suit is appropriate, since a stay of discovery is required under the PSLRA until resolution of a motion to dismiss. In cases involving a derivative suit and a securities action, courts have considered whether the PSLRA automatic stay of discovery influ- ences the decision to grant a stay of the derivative ac- tion. For example, as discussed, the Delaware Chancery Court in South indicated that the existence of the PSLRA stay of discovery in a parallel securities action militated against the plaintiff shareholder’s decision to file a derivative claim without undertaking the proper investigation.66 However, other courts have questioned whether the PSLRA stay necessarily requires a corre- sponding stay of discovery in derivative actions. For ex- ample, in In re First Bancorp Derivative Litigation, the U.S. District Court for the Southern District of New York noted that Congress limited the automatic stay to federal securities actions.67 But the Court also noted that courts retain discretionary authority under the PSLRA to ‘‘stay discovery proceedings in any private action in a State court, as necessary in aid of its juris- diction, or to protect or effectuate its judgments, in an action subject to a stay of discovery . . . .’’68 Therefore, while some courts have considered the effect of a PSLRA stay of discovery when determining whether to stay a parallel derivative action, this factor has not al- ways been held to be determinative. 64 Id. at 1052. 65 See, e.g., Inloes v. Williams, 2014 BL 224990, *2 (E.D. Va. Feb. 28, 2014) (staying derivative litigation in light of pending parallel securities class action); In re First Solar Derivative Litig., 2012 WL 6570914 (D. Ariz. Dec. 17, 2012) (same); In re Ormat Technologies, Inc. Derivative Litig., 2011 BL 222446 (D. Nev. Aug. 29, 2011) (same). 66 South v. Baker, 62 A.3d 1, 25 (Del. Ch. 2012). In South, the court ultimately dismissed the derivative action before it; however, the court referred to the same reasoning used by prior courts to grant a stay of derivative actions in prior deci- sions. 67 In re First Bancorp Derivative Litig., 407 F. Supp. 2d 585, 586 (S.D.N.Y. 2006). The court further noted that when Con- gress amended the PSLRA to prevent ‘‘end-runs’’ around the statute, it did not broaden the automatic stay of discovery to include derivative actions. See also In re FirstEnergy Share- holder Derivative Litig., 219 F.R.D. 584, 586-87 (N.D. Ohio 2004). 68 15 U.S.C. § 78u4(b)(3)(D); see alsoFirst Bancorp, 407 F. Supp. 2d at 586. IV. In re Molycorp, Inc. Shareholder Derivative Litigation – A Departure from Delaware Precedent? Given the numerous considerations weighing in favor of staying derivative lawsuits in the face of parallel pro- ceedings, a recent decision by the Delaware Chancery Court – In re Molycorp, Inc. Shareholder Derivative Litigation69 – is worthy of comment. Molycorp involved reconsideration of a stay of a derivative action granted in light of a parallel federal securities class action. In granting an initial stay, the court had held that, al- though the allegations in the original derivative com- plaint did not overlap entirely with those in the securi- ties action, ‘‘both actions implicated a substantially similar scheme of securities fraud, and [] the derivative indemnification claims . . . depended on a predicate finding of liability against Molycorp in the Federal Se- curities Action.’’70 Both the securities action and the original derivative complaint implicated whether certain defendants had issued material misstatements and engaged in improper trading in connection with certain expedited offerings of stock by the corporation’s private investors, from which the corporation had been precluded from partici- pating. The amended derivative complaint, on the other hand, took issue with the same underlying transactions, but instead alleged that the Molycorp directors had breached their fiduciary duties by permitting the pri- vate stock offerings to go forward and not exercising a contractual right pursuant to which the corporation could have made its own stock offering.71 The court concluded that the stay should be lifted be- cause the stockholders’ amended complaint eliminated claims regarding material misstatements, indemnifica- tion, and other claims closely related to the pending se- curities action. The court noted that it ‘‘frequently stays [ ] derivative claims in favor of the actions in which the corporation’s primary liability will be adjudicated. . . .[b]ut, a derivative action that seeks distinct damages for alleged breaches of fiduciary duty, rather than in- demnification for possible securities laws violations, does not implicate the same practical considerations in the Court’s calculus of whether to grant a stay.’’72 Al- though the court acknowledged that the allegations in the amended derivative complaint ‘‘partially overlap[ped] with those of the Federal Securities Ac- tion,’’ the court noted that defending against these two actions was not unfairly prejudicial to the corporation, but rather ‘‘an inherent risk of being a director of a pub- licly traded Delaware corporation.’’73 Moreover, al- though the court also recognized that ‘‘[t]he need for expeditious treatment of the Proposed Amended Com- plaint is not as persuasive as it may be in a summary proceeding . . . or in other contexts,’’ the court held that the Delaware court had an interest in ‘‘promptly, uni- formly, and authoritatively’’ deciding a question of Delaware law.74 69 2014 BL 133790 (Del. Ch. May 12, 2014). 70 Id. at *1. 71 Id. at *2-3. 72 Id. at *5. 73 Id. at *5, *6. 74 Id. at *6. SECURITIES REGULATION & LAW REPORT ISSN 0037-0665 BNA 8-25-14PDF Image | Securities Regulation and Law Report
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