Court Of Chancery Upholds Derivative Claim Despite Prior Dismissal
This is one of the most important decisions on derivative litigation in many years. There are 3 key holdings, at least one of which may reverse prior law. First, the Court held that a derivative suit dismissed for failure to plead sufficient grounds to proceed under the demand rules may be refiled by a different plaintiff who has a better complaint. This may modify prior law that had held that once dismissed with prejudice, the suit could not be revived by a better complaint from a new plaintiff.
Second, this decision effectively kills off the old first-filed rule that held that the plaintiff who files the first complaint will control the litigation even if other complaints are filed later by different plaintiffs. From now on, the better plaintiff will be the lead plaintiff.
Third, the decision again stresses the value of inspecting a company's records before filing a derivative suit. Indeed, the failure to do so may cause the Court to view the complaint as presumptively meritless, at least with respect to whether the demand rules have been meet.
The opinion is worth reading for many other reasons as well. Its discussion of the Caremark case alone is a good reason to study the decision.