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Court of Chancery Applies Issue Preclusion To Derivative Suit

In re Career Education Corporation Derivative Litigation, C.A. No. 1398-VCP (September 28. 2007).

This decision decides when to give preclusive affect to a prior decision of a federal court that a derivative case should be dismissed under Rule 23.1. Basically, the standard that the Delaware court applied was whether the claims in the prior litigation that had been dismissed for failure to meet Rule 23.1 had a substantial overlap with the claims in the case here in Delaware. Finding that this overlap existed, the Court of Chancery dismissed the Delaware case.

What is unusual about this result is that the Delaware case was brought by a different party than the prior federal litigation. However, as the 'real' party in interest in both cases was the corporate nominal party, the rights litigated in the federal case were the same as those litigated in Delaware-the right to control the litigation.

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