Court Opinion

ID: 4239371
Source: CourtListenerOpinion
Date Created: 2018-01-25 19:09:34.0316+00
Date Added: 2024-06-11T07:48:04.066630
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

CALIFORNIA STATE TEACHERS’          §
RETIREMENT SYSTEM, NEW YORK         §   No. 295, 2016
CITY EMPLOYEES’ RETIREMENT          §
SYSTEM, NEW YORK CITY POLICE        §   Court Below:
PENSION FUND, POLICE OFFICERS’      §
VARIABLE SUPPLEMENTS FUND,          §   Court of Chancery
POLICE SUPERVISOR OFFICERS’         §   of the State of Delaware
VARIABLE SUPPLEMENTS FUND,          §
NEW YORK CITY FIRE DEPARTMENT       §
PENSION FUND, FIRE FIGHTERS’        §   C.A. No. 7455-CB
VARIABLE SUPPLEMENTS FUND,          §
FIRE OFFICERS’ VARIABLE             §
SUPPLEMENTS FUND, BOARD OF          §
EDUCATION RETIREMENT SYSTEM         §
OF THE CITY OF NEW YORK,            §
TEACHERS’ RETIREMENT SYSTEM OF      §
THE CITY OF NEW YORK, NEW YORK      §
CITY TEACHERS’ VARIABLE             §
ANNUITY PROGRAM, AND INDIANA        §
ELECTRICAL WORKERS PENSION          §
TRUST FUND IBEW,                    §
                                    §
           Plaintiffs Below,        §
           Appellants,              §
                                    §
     v.                             §
                                    §
AIDA M. ALVAREZ, JAMES I. CASH,     §
JR., ROGER C. CORBETT, DOUGLAS N.   §
DAFT, MICHAEL T. DUKE, GREGORY      §
B. PENNER, STEVEN S. REINEMUND,     §
JIM C. WALTON, S. ROBSON WALTON,    §
LINDA S. WOLF, H. LEE SCOTT, JR.,   §
CHRISTOPHER J. WILLIAMS, JAMES      §
W. BREYER, M. MICHELE BURNS,        §
DAVID D. GLASS, ROLAND A.           §
HERNANDEZ, JOHN D. OPIE, J. PAUL    §
REASON, ARNE M. SORENSON, JOSE      §
H. VILLARREAL, JOSE LUIS            §
RODRIGUEZMACEDO RIVERA,             §
EDUARDO CASTRO-WRIGHT,              §
THOMAS A. HYDE, THOMAS A. MARS,                               §
JOHN B. MENZER, EDUARDO F.                                    §
SOLORZANO MORALES, AND LEE                                    §
STUCKY,                                                       §
                                                              §
                                                              §
                 Defendants Below,                            §
                 Appellees,                                   §
                                                              §
WAL-MART STORES, INC.,                                        §
                                                              §
                 Nominal Defendant Below,                     §
                 Appellee.

                                      Submitted: November 1, 2017
                                       Decided: January 25, 2018

Before VALIHURA, VAUGHN and TRAYNOR, Justices; WHARTON and CLARK,
Judges constituting the Court en Banc.

Upon appeal from the Court of Chancery. AFFIRMED.

Stuart M. Grant, Esquire, (argued), Michael J. Barry, Esquire, and Nathan A. Cook,
Esquire, Grant & Eisenhofer, P.A., Wilmington, Delaware; Christine S. Azar, Esquire,
Ryan T. Keating, Esquire, and Ned Weinberger, Esquire, Labaton Sucharow LLP,
Wilmington, Delaware. Of Counsel: Daniel Girard, Esquire, Amanda Steiner, Esquire,
Dena Sharp, Esquire, Adam Polk, Esquire, and Jordan Elias, Esquire, Girard Gibbs LLP,
San Francisco, California; Thomas A. Dubbs, Esquire, Louis Gottlieb, Esquire, and Jeffrey
A. Dubbin, Esquire, Labaton Sucharow LLP, New York, New York; Frederic S. Fox,
Esquire, Hae Sung Nam, Esquire, Donald R. Hall, Esquire and Jeffrey P. Campisi, Esquire,
Kaplan Fox & Kilsheimer LLP, New York, New York, for Appellants.

Donald J. Wolfe, Jr., Esquire, Steven C. Norman, Esquire and Tyler J. Leavengood,
Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware. Of Counsel: Theodore
J. Boutrous, Jr., Esquire (argued), and Alexander K. Mircheff, Esquire, Gibson Dunn &
Crutcher LLP, Los Angeles, California; Mark A. Perry, Esquire, Gibson Dunn & Crutcher
LLP, Washington, D.C., for Appellees.

David C. McBride, Esquire, and Nicholas J. Rohrer, Esquire, Young Conaway Stargatt &
Taylor, LLP, Wilmington, Delaware. Of Counsel: Theodore N. Mirvis, Esquire, and


  Sitting by designation pursuant to Del. Const. Art. IV §§ 12 and 38 and Supreme Court Rules 2 and 4 (a) to fill up
the quorum as required.
Joshua J. Card, Esquire, Wachtell, Lipton, Rosen & Katz, New York, New York; Liz
Dougherty, Esquire, Business Roundtable, Washington, D.C., for Amicus Curiae, the
Business Roundtable.

Kathaleen St. J. McCormick, Esquire, and Nicholas J. Rohrer, Esquire, Young Conaway
Stargatt & Taylor, LLP, Wilmington, Delaware. Of Counsel: Amanda F. Davidoff,
Esquire, Judson O. Littleton, Esquire, and Lee J.F. Deppermann, Esquire, Sullivan &
Cromwell LLP, Washington, D.C.; Steven P. Lehotsky, Esquire, and Janet Galeria,
Esquire, U.S. Chamber Litigation Center, Inc., Washington, D.C.; Deborah R. White,
Esquire, Retail Litigation Center, Inc., Arlington, Virginia, for Amici Curiae, the Chamber
of Commerce of the United States of America and Retail Litigation Center, Inc.

VALIHURA, Justice:
       The Court of Chancery initially found that Wal-Mart stockholders who were

attempting to prosecute derivative claims in Delaware could no longer do so because

another court, a federal court in Arkansas, had reached a final judgment on the issue of

demand futility first, and the stockholders were adequately represented in that action. But

the derivative plaintiffs in Delaware assert that applying issue preclusion in this context

violates their Due Process rights.

       This dispute implicates complex questions of law and policy, including: the

relationship among competing derivative plaintiffs (and whether they may be said to be in

“privity” with one another); whether failure to seek board-level company documents

renders a derivative plaintiff’s representation inadequate; policies underlying issue

preclusion, such as preventing duplicative litigation and promoting judicial economy; and

our obligation to respect the judgments of other jurisdictions.

                                             1
         The Chancellor’s Original Opinion1 granting Defendants’2 motion to dismiss, issued

May 13, 2016, did not expressly focus on the Delaware Plaintiffs’3 Due Process arguments

as a separate issue. We asked the Chancellor to supplement his opinion by focusing on the

Due Process concerns. In his Supplemental Opinion,4 issued July 25, 2017, the Chancellor

reiterated that, under the present state of the law, the subsequent plaintiffs’ Due Process

rights were not violated. Nevertheless, he advocates a different approach. Though

acknowledging that no federal court has reached the same conclusion, the Chancellor

suggested that we adopt a rule that a judgment in a derivative action cannot bind a

corporation or other stockholders until the suit has survived a Rule 23.1 motion to dismiss.

1
 In re Wal-Mart Stores Inc. Del. Deriv. Litig. (Orig. Op.), 2016 WL 2908344 (Del. Ch. May 13,
2016).
2
  The individual defendants (appellees) fall into three groups: (1) all fifteen directors of Wal-Mart
Stores, Inc. (“Wal-Mart” or the “Company”), an international retail corporation headquartered in
Arkansas and incorporated in Delaware, at the time the original derivative complaints were filed
in Arkansas federal court and the Delaware Court of Chancery in 2012 (Aida M. Alvarez, James
W. Breyer, M. Michele Burns, James I. Cash Jr., Roger C. Corbett, Douglas N. Daft, Michael T.
Duke, Gregory B. Penner, Steven S. Reinemund, H. Lee Scott Jr., Arne M. Sorensen, Jim C.
Walton, S. Robson Walton, Christopher J. Williams, and Linda S. Wolf); (2) Wal-Mart directors
at the time of the alleged misconduct who had stopped serving as directors by the time the
complaints were filed (David D. Glass, Roland A. Hernandez, John D. Opie, J. Paul Reason, and
Jose H. Villareal); and (3) former executives of Wal-Mart or WalMex (José Luis
Rodriguezmacedo Rivera, Eduardo Castro-Wright, Thomas A. Hyde, Thomas A. Mars, John B.
Menzer, Eduardo F. Solorzano Morales, and Lee Stucky). Wal-Mart is the nominal defendant.
Collectively, they are “Defendants.”
3
 The Delaware Plaintiffs, the appellants, are the California State Teachers’ Retirement System,
New York City Employees’ Retirement System, New York City Police Pension Fund, Police
Officers’ Variable Supplements Fund, Police Supervisor Officers’ Variable Supplements Fund,
New York City Fire Department Pension Fund, Fire Fighters’ Variable Supplements Fund, Fire
Officers’ Variable Supplements Fund, Board of Education Retirement System of the City of New
York, Teachers’ Retirement System of the City of New York, New York City Teachers’ Variable
Annuity Program, and Indiana Electrical Workers Pension Trust Fund IBEW.
4
    In re Wal-Mart Stores Inc. Del. Deriv. Litig. (Supp. Op.), 167 A.3d 513 (Del. Ch. 2017).

                                                  2
The Chancellor believes that such a rule would better protect derivative plaintiffs’ Due

Process rights, even when they were adequately represented in the first action.

         We decline to adopt the Chancellor’s recommendation that we refuse to give

preclusive effect to other courts’ decisions on demand futility and, instead, AFFIRM the

Original Opinion granting Defendants’ motion to dismiss for the reasons discussed below,

including because, under the governing federal law, there is no Due Process violation.

                                              I.

         The facts of this case follow the familiar pattern when news reports expose scandal

at a corporation.5 After the New York Times reported in April 2012 on an alleged bribery

scheme and cover-up perpetrated by executives at Wal-Mart’s Mexican unit,6 Wal-Mart de

Mexico (“WalMex”), derivative suits followed. The Arkansas Plaintiffs7 filed eight

derivative complaints in the United States District Court for the Western District of

Arkansas, and seven derivative actions were filed in the Delaware Court of Chancery.8 The

claims in Arkansas and Delaware were similar: they were primarily for breaches of

5
  A more detailed description of the procedural and factual background can be found in our order
remanding this case, Cal. State Teachers’ Ret. Sys. v. Alvarez (Remand Or.), 2017 WL 6421389
(Del. Jan. 18, 2017) (the “Remand Order”), and in the Court of Chancery’s Original Opinion. See
Orig. Op., 2016 WL 2908344. This opinion assumes familiarity with those opinions and focuses
on the issues raised in our Remand Order.
6
  See David Barstow, Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level
Struggle, N.Y. Times (Apr. 21, 2012), http://www.nytimes.com/2012/04/22/business/at-wal-mart-
in-mexico-a-bribe-inquiry-silenced.html.
7
 The nonparty Arkansas Plaintiffs include John Cottrell, William Cottrell, Larry Emory, Kathryn
Johnston Lomax, Louisiana Municipal Police Employees’ Retirement System, Andrew Richman,
and Elizabeth Tuberville. See Cottrell v. Duke (Cottrell II), 829 F.3d 983 (8th Cir. 2016).
8
    Orig. Op., 2016 WL 2908344, at *1, *7.

                                               3
fiduciary duty related to the Wal-Mart board’s oversight of WalMex, though the litigation

in Arkansas included additional claims under Sections 14(a) and 29(b) of the Securities

Exchange Act of 1934, and a claim for contribution and indemnity.9 The Defendants filed

motions seeking to have all litigation proceed in one forum10 and to stay the Arkansas

litigation.11 The Arkansas court initially stayed its proceedings pending the litigation in

Delaware.12

       But the situation took a turn from the ordinary when the litigation over a books-and-

records demand filed pursuant to 8 Del. C. § 220 (“Section 220”) became unusually

contentious after the plaintiff alleged deficiencies in the Company’s first production,

9
  See Orig. Op., 2016 WL 2908344, at *9-10; Consolidated Verified Shareholder Derivative
Complaint, In re Wal-Mart Stores, Inc. S’holder Deriv. Litig., No. 4:12-cv-4041 (W.D. Ark. May
31, 2013), at B100-03 [hereinafter Arkansas Complaint]. In general, citations to the record have
been shortened to a short name of the document, “at,” and the appendix page number. Page
numbers beginning with “A” refer to the Appendix to the Delaware Plaintiffs’ Opening Brief on
Appeal; and page numbers beginning with “B” refer to the Appendix to the Defendants’
Answering Brief. References to documents filed in the consolidated Arkansas federal district court
action, In re Wal-Mart Stores, Inc. S’holder Deriv. Litig., No. 4:12-cv-4041, are noted by “Ark.
Litig.”; documents filed in the consolidated Delaware Court of Chancery derivative litigation, In
re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. Nos. 7455-CS & 7455-CB, are noted by “Del.
Deriv. Litig.”; and documents filed in the Delaware Court of Chancery Section 220 litigation, Ind.
Elec. Workers Pension Tr. Fund IBEW v. Wal-Mart Stores, Inc., C.A. No. 7779-CB, are noted by,
“Del. § 220 Litig.,” and “Del. § 220 Litig. Appeal” for the appeal to this Court.
10
  See Defendants’ Brief in Support of Their Motion to Proceed in One Jurisdiction, Delaware
Deriv. Litig. (June 9, 2012), at B013.
11
  See Co-Lead Plaintiffs’ Opposition to Defendants’ Motion to Stay and for Extension of Time to
Respond to the Complaint and Defendants’ Notice Filed July 13, 2012, Arkansas Litig. (July 17,
2012), at A609 [hereinafter Stay Opposition]; Reply Memorandum in Support of Wal-Mart’s
Motion to Stay the Entire Action, Arkansas Litig. (July 26, 2012), at A632; Transcript of Hearing
on Motion to Stay, Arkansas Litig. (Sept. 6, 2012), at B163 [hereinafter Stay Hearing Transcript].
12
  See In re Wal-Mart Stores, Inc. S’holder Deriv. Litig. (Ark. Stay Order), 2012 WL 5935340, at
*1 (W.D. Ark. Nov. 27, 2012), superseding, 2012 WL 5897181 (W.D. Ark. Nov. 20, 2012).

                                                4
received August 1, 2012.13 This dispute included a trial,14 an appeal to this Court,15 and a

subsequent motion for contempt against Wal-Mart.16 In all, the Section 220 litigation

lasted nearly three years.

          The Delaware Plaintiffs attempted to obtain the Company’s books and records

because then-Chancellor Strine had commented, “I don’t know why the plaintiffs would

ever wish to proceed” without first obtaining additional documentary evidence. 17 He

added, “[t]here is everything about the context of this case which requires great care and

pleading,”18 and he urged the Delaware Plaintiffs to “take a sincere look at the books and

records and file the strongest possible complaint that [they] could.”19 The Arkansas

Plaintiffs were aware of the Chancellor’s warning.20

          In the meantime, as the litigation over Wal-Mart’s document production dragged

on, the Eighth Circuit vacated the Arkansas federal district court’s stay out of concern for

13
  See Order, Del. Deriv. Litig. (Sept. 5, 2012), available via File&Serve. The plaintiff in the
Section 220 action, Indiana Electrical Workers Pension Trust Fund IBEW (“Indiana Electrical
Workers”), did not file one of the original seven Delaware derivative complaints.
14
  See Ind. Elec. Workers Pension Tr. Fund IBEW v. Wal-Mart Stores, Inc., 2013 WL 5636296
(Del. Ch. Oct. 15, 2013) (Order).
15
  See Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264 (Del.
2014).
16
  See Transcript of Oral Argument on Plaintiffs’ Motion for Order of Civil Contempt and Rulings
of the Court, Del. § 220 Litig. (May 7, 2015), at B230.
17
     Transcript of Hearing on Leadership, Del. Deriv. Litig. (July 16, 2012), at A55.
18
     Id. at A53.
19
     Id. at A56.
20
   See, e.g., Stay Opposition, supra note 4, at A617 (noting that “[t]here is unlikely to be an
operative complaint in Delaware for at least several months because the Delaware court has
directed the plaintiffs to seek certain corporate documents under Delaware law.”).

                                                   5
the stalled Section 14(a) claim.21 The Eighth Circuit concluded that the district court’s

continued, blanket abstention was not proper under the Colorado River doctrine because

the “Delaware and Federal Proceedings are not parallel” given that “Delaware courts have

no jurisdiction to directly address the merits of the [Arkansas] Plaintiffs’ Securities Act

claims.”22 But the Eighth Circuit noted that, on remand, the district court “may impose a

more finite and less comprehensive stay, if it concludes that such a stay properly balances

the rights of the parties and serves the interests of judicial economy.”23

          Back at the Arkansas district court, the Defendants modified their stay request and

asked for a stay that would expire upon the Delaware court’s ruling on demand futility.

They argued that this more limited stay would thus satisfy the Eighth Circuit’s directive.24

But the Arkansas court denied the Defendants’ motion.25 The Defendants then moved to

dismiss the Arkansas Complaint for failure to plead demand futility under Federal Rule of

Civil Procedure 23.1.26

21
     Cottrell v. Duke (Cottrell I), 737 F.3d 1238, 1242-43, 1245 (8th Cir. 2013).
22
   Id. at 1245; see also id. at 1240 (explaining that, “[i]n Colorado River Water Conservation
District v. United States, the United States Supreme Court held that exceptional circumstances
may permit a federal court to refrain from hearing a case and instead defer to a concurrent, parallel
state-court proceeding.” (citing 424 U.S. 800 (1976))).
23
     Id. at 1249.
24
  See Memorandum in Support of Wal-Mart’s Renewed Motion for a Limited Stay of this Action,
Ark. Litig. (Jan. 10, 2014), at A666; Reply in Support of Wal-Mart’s Renewed Motion for a
Limited Stay of this Action, Ark. Litig. (Feb. 18, 2014), at A682-83.
25
   In re Wal-Mart Stores, Inc. S’holder Deriv. Litig. (Ark. Stay Denial Order), 2014 WL 12700619,
at *2 (W.D. Ark. June 4, 2014).
26
  See Memorandum in Support of Defendants’ Motion to Dismiss for Failure to Establish Demand
Futility, Ark. Litig. (July 3, 2014), at A378.

                                                   6
         The Delaware Plaintiffs had expressed concern that, if the Arkansas court ruled first

and found demand futility lacking, the Defendants were likely to argue in Delaware that

the Arkansas court’s ruling on demand futility should have preclusive effect through the

doctrine of “collateral estoppel,” also known as “issue preclusion” (used here

interchangeably).27 The Delaware Plaintiffs also knew that the Arkansas court had warned

in its June 4, 2014, order denying Defendants’ stay that “[i]t is likely that the first decision

on demand futility will be entitled to collateral estoppel effect.”28 Yet the Delaware

Plaintiffs refrained from intervening or otherwise expressing their concerns to the Arkansas

27
   See, e.g., Letter from Stuart Grant to the Chancellor, Del. § 220 Litig. (Sept. 3, 2014), at 2,
available via File&Serve (urging the Chancellor to expedite proceedings) (“[T]here is a severe
risk that, if demand futility is not found in the Arkansas proceedings, the Defendants will likely
assert in this Court that the Arkansas decision is entitled to collateral estoppel in the Delaware
Derivative Action.” (citing Pyott v. La. Mun. Police Emps.’ Ret. Sys. (Pyott II), 74 A.3d 612 (Del.
2014))); Indiana Electrical Workers’ Motion for Expedited Oral Argument and Decision, Del. §
220 Litig. Appeal (June 6, 2014), at B161 (“If the Arkansas district court concludes that demand
is not excused, the Plaintiffs in the Delaware Derivative Litigation, including Plaintiff in this
appeal, face a severe risk that the Arkansas decision will have collateral estoppel effect in
Delaware.”).
28
     Ark. Stay Denial Order, 2014 WL 12700619, at *2.

                                                7
court.29 On March 31, 2015, the Arkansas court granted Defendants’ motion to dismiss,

with prejudice.30

       On May 1, 2015, nearly a month after the Arkansas dismissal, the Delaware

Plaintiffs amended the operative Delaware Complaint, asserting a single derivative claim

for breach of fiduciary duty. As anticipated, Defendants moved to dismiss. And, as also

anticipated, Defendants argued that the Arkansas decision collaterally estopped the

29
   Our Remand Order did not suggest that plaintiffs had an obligation to intervene in the Arkansas
action. See Remand Or., 2017 WL 6421389 at *4 (“[T]here is much force in the suggestion that
the Delaware Plaintiffs should have sought to intervene in the Arkansas court to protect their
interests . . . .”); see also Richards v. Jefferson Cty., 517 U.S. 793, 800 n.5 (1996) (“The general
rule is that ‘[t]he law does not impose upon a person absolutely entitled to a hearing the burden of
voluntary intervention in a suit to which he is a stranger.’” (quoting Chase Nat. Bank v. Norwalk,
291 U.S. 431, 441 (1934))). The Delaware Plaintiffs insist that they could not have intervened in
Arkansas given that they did not yet have all of the documents that they felt they needed to file a
complaint. See Oral Argument before the Delaware Supreme Court (Nov. 1, 2017), at 1:44,
https://livestream.com/accounts/5969852/events/7894380/videos/165264607 [hereinafter Oral
Argument]. However, although formal intervention is not required, there were other potential
avenues to ensure that they would not be precluded, or at least have a more compelling argument
before this Court that the Arkansas Plaintiffs failed to adequately represent them. Such measures
include filing a statement of interest, see, e.g., United States v. Metro. St. Louis Sewer Dist., 569
F.3d 829, 834, 841 (8th Cir. 2009) (affirming denial of motion to intervene but referring to Fed.
R. Civ. P. 24(c) as providing for the filing of a statement of interest), and participating as amici
curiae to inform the Arkansas court of their concerns. Though such other measures are not required
either, we simply note that Delaware Plaintiffs’ awareness of the potential for collateral estoppel,
combined with their failure to coordinate with the Arkansas Plaintiffs and failure to express their
concerns to the Arkansas court, suggest that all the equities may not favor the Delaware Plaintiffs
here. See also Dana v. Morgan, 232 F. 85, 91 (2d Cir. 1916) (rejecting contention that plaintiff
had “not had his day in court” in view of his knowledge of the pendency of another suit and noting
that he could have intervened to “inform[ ] the court of anything he deemed important”).
30
  In re Wal-Mart Stores, Inc. S’holder Deriv. Litig., 2015 WL 1470184, at *10 (W.D. Ark. Mar.
31, 2015) (order), amended by, 2015 WL 13375767, at *1, *10 (W.D. Ark. Apr. 3, 2015), enforced,
2015 WL 1928779 (W.D. Ark. Apr. 7, 2015) (judgment) (enforcing motion to dismiss, with
prejudice), aff’d, Cottrell II, 829 F.3d 983.

                                                 8
Delaware Plaintiffs from relitigating the issue of demand futility. They also contended

that, if not precluded, Delaware Plaintiffs failed to plead demand futility.

       The Court of Chancery granted Defendants’ motion to dismiss based on issue

preclusion. In determining the preclusive effect of the Arkansas federal court’s dismissal,

the Court of Chancery looked to federal common law, which the Chancellor determined

looks to the law of the rendering state in which the federal court exercised diversity

jurisdiction (in this case, Arkansas).31 Thus, the trial court found that Arkansas state law

governed, “[s]ubject to Constitutional standards of due process.”32 The Chancellor held

that Defendants satisfied the requisite elements for preclusion under Arkansas law,

including privity.33

       The Chancellor also observed that “[a]pplying the privity requirement to derivative

actions involving two different stockholder plaintiffs raises the question [of] whether the

required privity is between the two stockholders, or between each stockholder and the

31
  See Orig. Op., 2016 WL 2908344, at *1, *8 (“Under federal common law, a federal court sitting
in diversity jurisdiction will apply the preclusion law of the state in which it sits.” (citing Semtek
Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508-09 (2001))). The Arkansas Complaint
invoked diversity jurisdiction under 28 U.S.C. § 1332(a)(2), as well as federal question jurisdiction
under 28 U.S.C. § 1331 and supplemental jurisdiction under 28 U.S.C. § 1367(a). See Arkansas
Complaint, supra note 9, at B039.
32
  Orig. Op., 2016 WL 2908344, at *1. In our Remand Order, we observed that “[t]he United
States Supreme Court has made clear that the preclusive effect of a federal court judgment is
determined by federal common law, subject to due process limitations.” See Remand Or., 2017
WL 6421389, at *6 (citing Taylor v. Sturgell, 553 U.S. 880, 891 (2008)).
33
  Orig. Op., 2016 WL 2908344, at *9 (citing Ark. Dep’t of Human Servs. v. Dearman, 842 S.W.2d
449, 452 (Ark. Ct. App. 1992) (en banc)).

                                                  9
corporation.”34 He agreed with the view that the first stockholder plaintiff does not

represent the second stockholder plaintiff. Rather, “both plaintiffs sue on behalf of the

corporation and are essentially interchangeable.”35          The Chancellor summarized his

conclusions on privity as follows:

          [T]he overwhelming majority of decisions in other jurisdictions have found
          privity between different stockholder plaintiffs in derivative actions on the
          premise that the corporation is the real party in interest [in] both actions, a
          premise that the Arkansas Supreme Court has recognized expressly. The
          Restatement is inconclusive, and public policy arguments exist on both sides
          of the privity question. Taking all these points into consideration, it is my
          opinion that Arkansas courts likely would find that the privity requirement is
          satisfied here because that result accords with the clear weight of authority
          and resonates with the policy in Arkansas of using preclusion to ensure that
          issues are litigated only once.36

He observed that “most courts addressing the issue have concluded that the corporation is

bound by the results of the first judgment in subsequent litigation, even if the result is to

preclude a different stockholder’s subsequent derivative claim.”37 Regarding federal Due

Process concerns, the Court of Chancery suggested that scrutinizing the adequacy of the

prior representation serves as a proxy for ensuring that plaintiffs’ Due Process rights are

protected.38       Here, the Chancellor found that the Arkansas Plaintiffs were adequate

34
     Id. at *12.
35
     Id. at *13.
36
   Id. at *17. Because no court in Arkansas had squarely decided whether privity exists among
successive derivative plaintiffs, the Chancellor looked in part to the Restatement (Second) of
Judgments (Am. L. Inst. 1982) [hereinafter Restatement], as he determined Arkansas courts would
for unsettled questions of issue preclusion law. See id. at *13-17.
37
     Id. at *13.
38
   Id. at *17 (“Due process under the United States Constitution requires that a judicial procedure
‘fairly insures the protection of the interests of absent parties who are to be bound by it.’ One

                                                10
representatives and, accordingly, implied that there was no Due Process violation.

         On appeal, Delaware Plaintiffs argue that the Court of Chancery erred in finding:

(a) privity between Arkansas and Delaware Plaintiffs; (b) adequate representation by the

Arkansas Plaintiffs; and (c) that the issue of demand futility was “actually litigated” in

Arkansas. They also argue that the Court of Chancery violated their Due Process rights,

including by finding: (i) privity; and (ii) adequacy of representation.39 We review the trial

court’s dismissal based on issue preclusion, and its interpretation of federal Due Process

principles, de novo.40

         We first considered this appeal last spring, but we postponed a final ruling because

the Delaware Plaintiffs’ Due Process arguments gave us pause. In asserting that the Court

of Chancery had violated their Due Process rights by finding privity between the Arkansas

and Delaware plaintiffs, the Delaware Plaintiffs rely on Vice Chancellor Laster’s opinion

in EZCORP,41 which the Chancellor had not addressed in his Original Opinion, likely

requirement for such procedures is that the absent parties ‘are in fact adequately represented by
parties who are present.’” (quoting Hansberry v. Lee, 311 U.S. 32, 42-43 (1940))). The Chancellor
addressed the Due Process issue solely by examining the adequacy of representation. See id. *17-
23.
39
  Delaware Plaintiffs’ Opening Br. at 23 (“[T]he Due Process Clause and Restatement both require
two separate elements – the authority to act as a representative plaintiff [i.e., through privity] and
adequacy of representation.”).
40
  See Cohen v. State ex rel. Stewart, 89 A.3d 65, 86 (Del. 2014) (“This Court reviews claims of
violations of constitutional rights de novo.”); Betts v. Townsends, Inc., 765 A.2d 531, 533 (Del.
2000) (noting that whether a tribunal was “barred by res judicata or collateral estoppel” from
deciding certain issues “raises a question of law that this Court reviews de novo”).
41
     In re EZCORP Inc. Consulting Agreement Deriv. Litig., 130 A.3d 934 (Del. Ch. 2016).

                                                 11
because the Delaware Plaintiffs had submitted the Court of Chancery’s opinion in

EZCORP to the Chancellor after completion of the motion to dismiss briefing.

          In EZCORP, a plaintiff filed a derivative complaint against the outside directors of

EZCORP. Between the briefing and argument on the defendants’ motion to dismiss, the

plaintiff proposed a voluntary dismissal of the complaint without prejudice.                   The

defendants objected and sought a dismissal with prejudice “as to the world.” 42 Applying

Court of Chancery Rule 15(aaa),43 the trial court ruled that the complaint should be

dismissed with prejudice, but only as to the named plaintiff.44 In dicta, the Court of

Chancery also observed that, both as a matter of Delaware law45 and Due Process, a

derivative plaintiff may not bind a later derivative plaintiff unless and until the first

derivative plaintiff survives a motion to dismiss, or the board of directors has given the

plaintiff authority to proceed by declining to oppose the suit.46

          The EZCORP decision relies on the dual, or two-fold, nature of derivative litigation,

42
     Id. at 940, 942.
43
  Del. Ct. Ch. R. 15(aaa) (“In the event a party fails to timely file an amended complaint or motion
to amend under this subsection (aaa) and the Court thereafter concludes that the complaint should
be dismissed under Rule 12(b)(6) or 23.1, such dismissal shall be with prejudice (and in the case
of complaints brought pursuant to Rules 23 or 23.1 with prejudice to the named plaintiffs only)
unless the Court, for good cause shown, shall find that dismissal with prejudice would not be just
under all the circumstances.”).
44
     EZCORP, 130 A.3d at 942-43.
45
  Id. at 943-46. However, in his Supplemental Opinion, the Chancellor viewed Delaware law as
“unsettled on this issue.” Supp. Op., 167 A.3d at 524 n.60 (noting that “the Court of Chancery is
divided on the privity issue as a matter of Delaware law” (quoting Pyott v. La. Mun. Police Emps.’
Ret. Sys. (Pyott II), 74 A.3d 612, 618 (Del. 2013))).
46
     EZCORP, 130 A.3d at 947-48 (citing Smith v. Bayer Corp., 564 U.S. 299 (2011)).

                                                12
noting that the key distinction between the first and second phases of a derivative action is

that “the first phase of the derivative action [is one] in which the stockholder sues

individually to obtain authority to assert the corporation’s claim.”47 The Vice Chancellor

reasoned that, “until the derivative action passes the Rule 23.1 stage, the named plaintiff

does not have authority to sue on behalf of the corporation or anyone else.”48

          Thus, in EZCORP, the Vice Chancellor suggested that binding subsequent

derivative plaintiffs to a dismissal based on demand futility in a case where they were not

parties “deprive[s] them of the due process of law guaranteed by the Fourteenth

Amendment.”49 The Vice Chancellor relied on the United States Supreme Court decision

in Smith v. Bayer Corp.,50 which suggested that, as a matter of Due Process, “[n]either a

47
   Id. at 945; see also Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990) (“The nature of the
derivative action is two-fold. ‘First, it is the equivalent of a suit by the shareholders to compel the
corporation to sue. Second, it is a suit by the corporation, asserted by the shareholders on its
behalf, against those liable to it.’” (quoting Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)));
Zapata Corp. v. Maldonado, 430 A.2d 779, 784 (Del. 1981) (describing “‘two phases’ of a
derivative suit, the stockholder’s suit to compel the corporation to sue and the corporation’s suit”);
Ross v. Bernhard, 396 U.S. 531, 534-35 (1970) (describing “the dual nature of the stockholder’s
action: first, the plaintiff’s right to sue on behalf of the corporation and, second, the merits of the
corporation claim itself.”).
48
   EZCORP, 130 A.3d at 945; see also id. at 943 (“As a matter of Delaware law, a stockholder
whose litigation efforts are opposed by the corporation does not have authority to sue on behalf of
the corporation until there has been a finding of demand excusal or wrongful refusal . . . .” (citing
Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993))); id. at 944 (“The right to bring a derivative
action does not come into existence until the plaintiff shareholder has made a demand on the
corporation to institute such an action or until the shareholder has demonstrated that demand would
be futile.” (quoting Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726, 730 (Del. 1988))).
49
     Id. at 947 (quoting Richards, 517 U.S. at 797).
50
     564 U.S. 299 (2011).

                                                  13
proposed class action nor a rejected class action may bind nonparties.” 51 The Vice

Chancellor believed that the same logic should apply to derivative actions that do not

adequately plead demand futility. Thus, he stated that, “just as the Due Process Clause

prevents a judgment from binding absent class members before a class has been certified,

the Due Process Clause likewise prevents a judgment from binding the corporation or other

stockholders in a derivative action until the action has survived a Rule 23.1 motion to

dismiss, or the board of directors has given the plaintiff authority to proceed by declining

to oppose the suit.”52 The Court of Chancery’s Original Opinion did not expressly discuss

Bayer.

         In response, Defendants argue that this Court, in Pyott II,53 had already addressed

the Due Process issue, at least implicitly. They observe that this Court recognized in Pyott

II that numerous jurisdictions have held that, “because the real plaintiff in a derivative suit

51
   Id. at 315. The Bayer decision is based “on the Anti-Injunction Act and the principles of issue
preclusion that inform it,” and, thus, did not consider the plaintiff’s “argument, based on Phillips
Petroleum Co., v. Shutts, 472 U.S. 797 (1985), that the District Court’s action violated the Due
Process Clause.” Id. at 308 n.7. The Anti-Injunction Act provides that a federal court “may not
grant an injunction to stay proceedings in a State court except as expressly authorized by Act of
Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate it judgments.”
28 U.S.C. § 2283 (emphasis added). Thus, this last exception, known as the “relitigation
exception,” is “designed to implement ‘well-recognized concepts’ of claim and issue preclusion,”
and thus authorizes injunctions when necessary “to prevent state litigation of a claim or issue ‘that
previously was presented to and decided by the federal court.’” Bayer, 564 U.S. at 306 (quoting
Chick Kam Choo v. Exxon Corp., 486 U.S. 140, 147-48 (1988)). Given that “a court does not
usually get to dictate to other courts the preclusion consequences of its own judgment,” the Court
has tried to keep its application “strict and narrow” and thus allows injunctions “only if preclusion
is clear beyond peradventure.” Id. at 306-07 (internal quotation marks omitted).
52
     EZCORP, 130 A.3d at 948.
53
     74 A.3d 612 (Del. 2013).

                                                 14
is the corporation, ‘differing groups of shareholders who can potentially stand in the

corporation’s stead are in privity for the purposes of issue preclusion.’”54            Defendants

observe that we had more recently affirmed a similar finding of privity in Asbestos Workers

Local 42 Pension Fund v. Bammann.55 Further, they argue that Arkansas federal courts

have repeatedly “held or presumed that ‘[c]ollateral estoppel prevents the issue of pre-suit

demand futility from being relitigated.’”56

       Regarding EZCORP, Defendants note that, even if its approach were advisable as a

matter of Delaware policy, it does not accurately reflect federal law or the law of Arkansas.

They elaborate that EZCORP turned only on Delaware law (specifically Court of Chancery

Rule 15 (aaa)), which allows the Delaware Court of Chancery to dismiss derivative suits

as to the named plaintiff only. They point out that the Federal Rules of Civil Procedure

(which governed the proceedings in Arkansas federal court) lack a similar provision, as do

the procedural rules of Arkansas.

54
  Id. at 616-17 (quoting LeBoyer v. Greenspan, 2007 WL 4287646, at *3 (C.D. Cal. June 13,
2007)).
55
   132 A.3d 749 (Del. 2016), aff’g 2015 WL 2455469 (Del. Ch. May 22, 2015) (applying collateral
estoppel under New York law). In Bammann, the Court of Chancery cited New York authority
for the proposition that, “[a]s to the question of privity, under New York law, ‘[i]t is well-settled
that collateral estoppel may be applied in the shareholder derivative context.’” 2015 WL 2455469,
at *16 (quoting Carroll ex rel. Pfizer, Inc. v. McKinnell, 2008 WL 731834, at *2 (N.Y. Sup. Ct.
Mar. 17, 2008)). The Court of Chancery stated that, “[t]his principle recognizes that ‘shareholder
plaintiffs are treated like equal and effectively interchangeable members of a class action because
their claims belong to and are brought on behalf of the corporation’ and that, accordingly, ‘a
judgment rendered in such an action brought on behalf of the corporation by one shareholder will
generally be effective to preclude other actions predicated on the same wrong brought by other
shareholders.’” Id. (quoting New York authorities).
56
  Defendants’ Answering Br. at 2 (quoting Harben v. Dillard, 2010 WL 389 3980, at *6 (E.D.
Ark. Sept. 30, 2010)).

                                                 15
          When first considering this appeal, we believed that there was some “force” to the

Delaware Plaintiffs’ argument that the Court of Chancery may have “conflated” the privity

and Due Process analyses.57 We appreciate that Arkansas law is unsettled in this derivative

context.      Moreover, even the United States Supreme Court, in Taylor v. Sturgell,58

cautioned that the term “privity” has been used to cover a range of different relationships

and observed, for example, that “privity” has referred to substantive legal relationships

justifying preclusion and, alternatively, the term has also been used more broadly “as a way

to express the conclusion that nonparty preclusion is appropriate on any ground.”59

          As such, the United States Supreme Court, accordingly, avoided the term “privity”60

in Taylor, an opinion where it identified six recognized situations where nonparty

preclusion does not violate the Due Process Clause of the United States Constitution.61

These six situations are when the party to be precluded: (1) agreed to be precluded by

contract;62 (2) had a pre-existing substantive legal relationship with the prior litigant;63 (3)

57
  Remand Or., 2017 WL 6421389, at *5. We also observed that “[b]oth sides agree that, although
they overlap, the privity and Due Process issues are distinct.” Id.
58
     553 U.S. 880 (2008).
59
  Id. at 894 n.8; see also Richards, 517 U.S. at 798 (“[T]he term ‘privity’ is now used to describe
various relationships between litigants that would not have come within the traditional definition
of that term.”).
60
553 U.S. at 894 n.8 (2008) (“To ward off confusion, we avoid using the term ‘privity’ in this
opinion.”).
61
   These exceptions generally followed those articulated in the Restatement, including Section 41,
in particular. See id. at 893 n.6, 894 n.8.
62
     Id. at 893.
63
  Id. at 894 n.8 (noting that that “substantive legal relationships justifying preclusion are
sometimes collectively referred to as ‘privity.’”). The Supreme Court specified that those
“substantive legal relationships” that qualify under this exception “include, but are not limited to,

                                                 16
was adequately represented by the prior litigant who shared its interests; 64 (4) assumed

control over the prior litigation;65 (5) is attempting to act as a proxy for the prior litigant

seeking to relitigate a given issue;66 or (6) is expressly prohibited by a statutory scheme

that complies with Due Process.67 The United States Supreme Court stated that this is a

nonexclusive list and that there may be other exceptions recognized by case law.68

           In our Remand Order, we suggested that the “most analogous of these exceptions

involves putative class actions”69 (i.e., this third exception)—those “limited

circumstances” where a “nonparty may be bound by a judgment because she was

‘adequately represented by someone with the same interests who [wa]s a party’ to the

preceding and succeeding owners of property, bailee and bailor, and assignee and assignor.” Id.
at 894 (citing Restatement §§ 43-44, 52, 55). The Court also observed that such exceptions derive
“as much from the needs of property law as from the values of preclusion by judgment.” Id.
(quoting 18A Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and
Procedure § 4448 (2d ed. 2002) [hereinafter Wright & Miller]).
64
     Id. at 894-95 (citing to, among other authorities, Restatement § 41).
65
     Id. at 895.
66
     Id.
67
     Id.
68
  Id. at 893 n.6 (noting that these categories could be organized differently and the list was not “a
definitive taxonomy”).
69
     Remand Or., 2017 WL 6421389, at *6.

                                                   17
suit.”70     Such representative suits include, among others, “properly conducted class

actions”71 and “suits brought by trustees, guardians, and other fiduciaries.”72

          In Smith v. Bayer,73 the United States Supreme Court considered whether putative,

uncertified class actions fall within this exception as “properly conducted class action[s],”

and it held that they do not.74 The Court stated that “a ‘properly conducted class action,’

with binding effect on nonparties [i.e., consistent with Due Process], can come about in

federal courts in just one way—through the procedure set out in Rule 23.”75 In other words,

“[n]either a proposed class action nor a rejected class action may bind nonparties.”76 Only

class actions certified under Rule 23 may bind unnamed members of the certified class

actions under this exception to avoid breaching the Due Process rights of subsequent

litigants. We questioned whether the same reasoning should be applied to derivative

plaintiffs who fail to plead demand futility, given the similarities between a pre-demand

futility derivative action and a pre-certified class action.

70
     Taylor, 553 U.S. at 894 (quoting Richards, 517 U.S. at 798).
71
   Id. (citing Martin v. Wilks, 490 U.S. 755, 762 n.2 (1989)); see also Cooper v. Federal Reserve
Bank of Richmond, 467 U.S. 867, 874 (1984) (“[U]nder elementary principles of prior adjudication
a judgment in a properly entertained class action is binding on class members in any subsequent
litigation.”).
72
  Taylor, 553 U.S. at 894 (citing Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 593 (1974);
Restatement § 41).
73
     564 U.S. 299 (2011).
74
     Id. 314-15.
75
     Id. at 315.
76
  Id.; see also id. at 313 (“The definition of the term ‘party’ can on no account be stretched so far
as to cover a person . . . whom the plaintiff in a lawsuit was denied leave to represent.”).

                                                 18
          Accordingly, we posed the following question to the Chancellor:

          In a situation where dismissal by the federal court in Arkansas of a
          stockholder plaintiff’s derivative action for failure to plead demand futility
          is held by the Delaware Court of Chancery to preclude subsequent
          stockholders from pursuing derivative litigation, have the subsequent
          stockholders’ Due Process rights been violated? See Smith v. Bayer Corp.,
          564 U.S. 299 (2011).77

          We requested a supplemental opinion on this question. In doing so, we underscored

the “troubling” nature of this case.78          On the one hand, this Court has repeatedly

admonished plaintiffs to use the “tools at hand” and to request company books and records

under Section 220 to attempt to substantiate their allegations before filing derivative

complaints.79 Delaware Plaintiffs heeded this advice and demanded Company books and

records under Section 220. In contrast, the Arkansas Plaintiffs did not seek books and

records, and their complaint was dismissed with prejudice.

          On the other hand, we have acknowledged the importance of the Full Faith and

Credit Clause of the U.S. Constitution,80 which implicates principles of comity and respect

77
     Remand Or., 2017 WL 6421389, at *8.
78
     Id. at *1.
79
   Id.; see also Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 120 (Del. 2006) (describing
“this Court’s encouragement of stockholders, who can show a proper purpose, to use the ‘tools at
hand’ to obtain the necessary information before filing a derivative action.”); King v. VeriFone
Holdings, Inc., 12 A.3d 1140, 1145 (Del. 2011) (“Delaware courts have strongly encouraged
stockholder-plaintiffs to utilize Section 220 before filing a derivative action, in order to satisfy the
heightened demand futility pleading requirements of Court of Chancery Rule 23.1.”).
80
   See Remand Or., 2017 WL 6421389, at *7 n.47; see also Pyott II, 74 A.3d at 616 (“The United
States Supreme Court has held that the full faith and credit obligation is ‘exacting’ and that there
is ‘no roving ‘public policy exception’ to the full faith and credit due judgments.’” (quoting Baker
v. Gen. Motors Corp., 522 U.S. 222, 232-33 (1998))).

                                                  19
for the judgments of other courts. We have observed that, although Delaware has an

“undisputed interest” in “governing the internal affairs of its corporations,” that interest

“must yield to the stronger national interests that all state and federal courts have in

respecting each other’s judgments.”81 The importance of these intertwined issues and their

policy implications deserved closer examination and the benefits of additional briefing if

the Chancellor desired.

          After requesting and receiving additional briefing from the parties, the Chancellor

provided his thoughts in his Supplemental Opinion. He found that the weight of authority

suggests that, no, the Court of Chancery does not violate the Due Process rights of later

derivative plaintiffs if it concludes that a federal court’s dismissal of a prior plaintiff’s

derivative action for failure to plead demand futility precludes subsequent stockholders

from pursuing derivative litigation relating to the same issues—unless the prior

representation was inadequate, i.e., “unless the representative plaintiff’s management of

the first derivative action was ‘so grossly deficient as to be apparent to the opposing party’

or failed to satisfy one of the Restatement’s other criteria for determining adequacy of

representation.”82

          Nonetheless, the Chancellor recommended that this Court depart from the weight of

authority and adopt the rule proposed in EZCORP.83                  Although the Chancellor

81
     Pyott II, 74 A.3d at 616.
82
     Supp. Op., 167 A.3d at 515 (citing Restatement § 42 cmt. f).
83
  See id. at 525 (“I respectfully suggest that the Supreme Court should consider a different
approach and adopt the one suggested in EZCORP.”).

                                                 20
acknowledged that “no court has done so to date, and although the [Delaware] Supreme

Court previously declined to embrace such a rule in the context of considering the question

of privity in derivative litigation,”84 the Chancellor suggested that such a rule would “better

safeguard the due process rights of stockholder plaintiffs and should go a long way to

addressing fast-filer problems currently inherent in multi-forum derivative litigation.”85

                                                 II.

           We appreciate the Chancellor’s thoughtful deliberations on this difficult matter. But

we decline to embrace his suggestion that the EZCORP approach become the law

governing the preclusive effect of prior determinations of demand futility, especially given

that federal law governs our evaluation of Due Process concerns. Three federal circuit

courts have already addressed whether granting preclusive effect to prior determinations

of demand futility violates Due Process, and they each arrived at the same conclusion: the

Due Process rights of subsequent derivative plaintiffs are protected, and dismissal based

on issue preclusion is appropriate, when their interests were aligned with and were

adequately represented by the prior plaintiffs.86 Most other cases on this issue have granted

84
     Id. at 516 (citing Pyott II, 74 A.3d at 616-18).
85
     Id.
86
  See Arduini v. Hart, 774 F.3d 622, 633-34 (9th Cir. 2014) (applying Nevada law); In re Sonus
Networks, Inc. S’holder Deriv. Litig., 499 F.3d 47, 64 (1st Cir. 2007) (applying Massachusetts
law); Nathan v. Rowan, 651 F.2d 1223, 1226-28 (6th Cir. 1981) (applying federal common law).

                                                       21
preclusive effect to a prior court’s decision on demand futility, though many of these

opinions do not expressly address Due Process.87

87
   Defendants suggest that “a solid wall of federal and state decisions from across the country”
address the Due Process concerns here. See Oral Argument, supra note 29, at 20:12; id. at 20:44
(referring to cases listed in Defendants’ Supp. Mem. at 1, n.1). While these cases support giving
preclusive effect to prior determinations of demand futility, close examination reveals that most of
the cited cases do not expressly address the Due Process rights of the subsequent derivative
plaintiffs. Some allow preclusion after finding adequate representation (which, we acknowledge,
is part of the Due Process analysis). See Hanson v. Odyssey Healthcare, Inc., 2007 WL 5186795,
at *6 (N.D. Tex. Sept. 21, 2007); In re Bed Bath & Beyond Inc. Deriv. Litig., 2007 WL 4165389,
at *7-8 (D. N.J. Nov. 19, 2007); Henik v. LaBranche, 433 F. Supp. 2d 372, 381-82 (S.D.N.Y.
2006); Laborers’ Dist. Council Constr. Indus. Pension Fund v. Bensoussan, 2016 WL 3407708,
*10-13 (Del. Ch. June 14, 2016), aff’d, 155, A.3d 1283 (Del. 2017); In re Career Educ. Corp.
Deriv. Litig., 2007 WL 2875203, at *10 (Del. Ch. Sept. 28, 2007); see also Cramer v. Gen. Tel. &
Elecs. Corp., 582 F.2d 259, 269 (3d Cir. 1978) (“Nonparty shareholders are usually bound by a
judgment in a derivative suit on the theory that the named plaintiff represented their interests in
the case. But that rationale is valid only if the representation of the shareholders’ interests was
adequate.”); In re JPMorgan Chase Derivative Litig., 263 F. Supp. 3d 920, 938-39 (E.D. Cal.
2017). Others do not address the adequacy of the prior representation, yet apply issue preclusion
in this context after finding other elements satisfied. See In re MGM Mirage Deriv. Litig., 2014
WL 2960449, at *7 (D. Nev. June 30, 2014); Harben v. Dillard, 2010 WL 389 3980, at *6 (E.D.
Ark. Sept. 30, 2010); LeBoyer v. Greenspan, 2007 WL 4287646 (C.D. Cal. June 13, 2007);
Asbestos Workers Local 42 Pension Fund v. Bammann, 2015 WL 2455469, at *16 n.135 (Del. Ch.
May 22, 2015) (noting that the plaintiff “has not argued an absence of an opportunity to fully and
fairly litigate this issue” or that the prior derivative plaintiffs were inadequate representatives),
aff’d, 132 A.3d 749 (Del. 2016); City of Providence v. Dimon, 2015 WL 4594150, at *7 (Del. Ch.
July 29, 2015) (applying res judicata) (“Under New York law, a later stockholder asserting
derivative claims on behalf of a corporation is considered to be the ‘same plaintiff’ as a different
stockholder asserting those claims on behalf of the corporation in a separate action.”), aff’d, 134
A.3d 758 (Del. 2016); see also Smith v. Waste Mgmt., Inc., 407 F.3d 381, 386 (5th Cir. 2005);
Dana v. Morgan, 232 F. 85, 90-91 (2d Cir. 1916); Liken v. Shaffer, 64 F. Supp. 432, 443-44 (N.D.
Iowa 1946). We observe that, in Pyott II, we cited in a footnote as dicta Justice Ginsburg’s
concurring and partially dissenting opinion in Matsushita Elec. Indus. Co., Ltd. v. Epstein, as
noting the general point that “final judgments can be attacked collaterally on due process grounds
for failure to satisfy the adequate representation requirement.” 74 A.3d at 618 n.21 (citing 516
U.S. 367, 395-96 (1996) (Ginsburg, J., concurring in part and dissenting in part)). However, we
did not reach the Due Process implications of preclusion as the plaintiffs-appellees in Pyott II had
advised this Court that the Due Process question had not been fully briefed before the Court of
Chancery and was not being argued on appeal. See Remand Or., 2017 WL 6421389, at *6-7 (citing
Pyott II, 74 A.3d at 616-18).

                                                 22
                                   A. The Governing Law

          As we observed above, “[t]he preclusive effect of a federal-court judgment is

determined by federal common law.”88 Though, by its terms, the Full Faith and Credit

Clause of the United States Constitution does not explicitly apply to judgments of federal

courts,89 the United States Supreme Court “has held that a state court is required to give a

federal judgment the same force and effect as it would be given under the preclusion rules

of the state in which the federal court is sitting.”90

          All parties and the Court of Chancery agreed that, under federal common law, a

federal court sitting in diversity jurisdiction will apply the preclusion law of the state in

which it sits. The Court of Chancery reasoned that the “issue requiring preclusion analysis

here is the Arkansas district court’s decision concerning demand futility relating to the

Arkansas plaintiffs’ fiduciary duty claim, which was brought under the district court’s

diversity jurisdiction.”91 Though that is true, we observe that the Arkansas Complaint also

88
     Taylor, 553 U.S. at 891.
89
  U.S. Const., art. IV, § 1 (“Full Faith and Credit shall be given in each State to the public Acts,
Records, and judicial Proceedings of every other State.”).
90
  Pyott II, 74 A3d at 616 (citing Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 501
(2001)).
91
   Orig. Op., 2016 WL 2908344, at *8. The Chancellor observed that the fiduciary duty claim at
issue here was brought under the district court’s diversity jurisdiction, as well as the court’s
supplemental jurisdiction, but that no party had argued that the analysis would differ. See id. at
*8 n.33. He followed the approach of Fresh Del Monte Produce Inc. v. Del Monte Foods, Inc.,
2016 WL 236249, at *3 n.4 (S.D.N.Y. Jan. 20, 2016), which applied “federal rules of preclusion
to judgments on claims premised on federal question jurisdiction, and New York [i.e., state law]
rules of preclusion to judgments on claims premised upon diversity or supplemental jurisdiction.”
See Orig. Op., 2016 WL 2908344, at *8 n.33.

                                                23
asserted federal question and supplemental jurisdiction given the presence of the federal

securities law claims. Thus, it is arguable that the federal common law of issue preclusion

applies.92 However, we believe the result would be the same under both federal and

Arkansas law. As discussed below, Arkansas law draws on federal law (as well as the

Restatement), and the United States Supreme Court recently reiterated that the federal

courts also look to the Restatement (Second) of Judgments for “the ordinary elements of

issue preclusion.”93

92
   See, e.g., Taylor, 553 U.S. at 891 (“For judgments in federal-question cases . . . federal courts
participate in developing ‘uniform federal rule[s]’ of res judicata, which this Court has ultimate
authority to determine and declare.” (quoting Semtek, 531 U.S. at 508)); Richard H. Fallon, Jr. et
al., Hart and Wechsler’s The Federal Courts and the Federal System 1368 (7th ed. 2015) (“When
a federal court decides a federal question, federal preclusion rules govern the preclusive effect of
the judgment in subsequent state or federal court proceedings.”); see also, e.g., Cooper v. Glasser,
419 S.W.3d 924, 929 (Tenn. 2013) (observing that “Semtek clearly establishes three points: (1)
state claim-preclusion law controls the preclusive effect of a federal dismissal in a diversity case
unless state law sufficiently undermines federal interests; (2) any resolution of the
substance/procedure concerns raised in these cases necessarily implicates Erie and the Rules
Enabling Act; and (3) state courts must give judgments in federal-question cases the claim-
preclusive effect that federal law commands,” and that “Semtek does not, however, state whether
federal or state claim-preclusion law governs supplemental state-law claims filed in federal
court.”) In Cooper, the Tennessee Supreme Court applied state claim-preclusion law in analyzing
the preclusive effect of voluntary dismissals of supplemental state law claims filed in federal court.
Id. at 930; see also Sprint Commc’n Co. v. Crow Creek Sioux Tribal Ct., 121 F. Supp. 3d 905, 925,
n.19 (D. S.D. 2015) (noting that, “[t]he parties have not addressed whether state or federal doctrine
should be followed in cases where both diversity and federal question jurisdiction are invoked,”
but that “South Dakota’s doctrine of issue preclusion draws on federal law and does not differ
greatly from the test articulated by the Eighth Circuit.”). But see JPMorgan, 263 F. Supp. at 930-
31(concluding that “federal common law determines Steinberg’s preclusive effect because
Steinberg addressed a federal question,” and stating, “that Steinberg also involved state law claims
does not change this Court’s conclusion because the Steinberg court considered those claims on
the basis of supplemental jurisdiction only”).
93
     See, e.g., B&B Hardware, Inc. v. Hargis Indus., Inc. 135 S. Ct. 1293, 1303 (2015).

                                                 24
          All parties also agree that examining privity does not end our inquiry. The United

States Supreme Court has stated that “[t]he federal common law of preclusion is, of course,

subject to due process limitations.”94 Regarding issues of Due Process, federal law governs

our analysis.95

          As such, for issue preclusion to apply, the party asserting issue preclusion must

satisfy the court that, first, all elements of issue preclusion are present and, second, Due

Process requirements are satisfied.96 We address these requirements in turn.

                                      B.     Issue Preclusion

          “Collateral estoppel, or issue preclusion, bars relitigation of issues, law, or fact

actually litigated in the first suit.”97 The Chancellor noted that collateral estoppel requires

the “following four elements”: “1) the issue sought to be precluded must be the same as

that involved in the prior litigation; 2) that issue must have been actually litigated; 3) the

94
     Taylor, 553 U.S. at 891 (citing Richards, 517 U.S. 793, 797 (1996)).
95
  Kremer v. Chem. Constr. Corp., 456 U.S. 461, 481 (1982) (“[S]tate proceedings need do no
more than satisfy the minimum procedural requirements of the Fourteenth Amendment’s Due
Process Clause in order to qualify for the full faith and credit guaranteed by federal law.”); id. at
482 (“The State must, however, satisfy the applicable requirements of the Due Process Clause. A
State may not grant preclusive effect in its own courts to a constitutionally infirm judgment, and
other state and federal courts are not required to accord full faith and credit to such a judgment.”);
see also Richards, 517 U.S. at 805 (reversing Alabama state court’s application of res judicata as
invalid “as a matter of federal due process”).
96
    See Taylor, 553 U.S. at 907 (“[A] party asserting preclusion must carry the burden of
establishing all necessary elements.” (quoting 18 Wright & Miller, supra note 63, § 4405)
(alteration in original)).
97
  Riverdale Dev. Co. v. Ruffin Bldg. Systems, Inc., 146 S.W.3d 852, 855 (Ark. 2004). “[I]ssue
preclusion encompasses the doctrines once known as ‘collateral estoppel’ and ‘direct estoppel.’”
Taylor, 533 U.S. at 892 n.5.

                                                 25
issue must have been determined by a valid and final judgment; and 4) the determination

must have been essential to the judgment.”98 Though many Arkansas cases indicate that

there are “four elements” of issue preclusion,99 the Court of Chancery adopted the view of

the parties and suggested that issue preclusion under Arkansas law requires another two

98
   Riverdale, 146 S.W.3d at 855. In B&B Hardware, the United States Supreme Court noted that,
“[t]he Court . . . regularly turns to the Restatement (Second) of Judgments for a statement of the
ordinary elements of issue preclusion.” 135 S. Ct. at 1303. It also stated that, “[t]he Restatement
explains that subject to certain well-known exceptions, the general rule is that ‘[w]hen an issue of
fact or law is actually litigated and determined by a valid and final judgment, and the determination
is essential to the judgment, the determination is conclusive in a subsequent action between the
parties, whether on the same or a different claim.’” Id. (quoting Restatement § 27; citing
Restatement § 28 as providing exceptions). Arkansas courts also look to the Restatement,
including § 27. See, e.g., Estate of Goston v. Ford Motor Co., 898 S.W.2d 471, 473 (Ark. 1995).
The facts that both federal common law and Arkansas law look to the Restatement, and that
Arkansas law looks to federal jurisdictions, support our conclusion that the result is the same under
both federal common law and Arkansas law. See also Ginters v. Frazier, 614 F.3d 822, 826 (8th
Cir. 2010) (quoting Robinette v. Jones, 476 F.3d 585, 589 (8th Cir. 2007)):
       In the Eighth Circuit, issue preclusion has five elements: (1) the party sought to be
       precluded in the second suit must have been a party, or in privity with a party, to
       the original lawsuit; (2) the issue sought to be precluded must be the same as the
       issue involved in the prior action; (3) the issue sought to be precluded must have
       been actually litigated in the prior action; (4) the issue sought to be precluded must
       have been determined by a valid and final judgment; and (5) the determination in
       the prior action must have been essential to the prior judgment.
99
   See, e.g., Riverdale, 146 S.W.3d at 855 (“four elements”); Mann v. Pierce, 505 S.W.3d 150, 154
(Ark. 2016) (“four requirements”); Fisher v. Jones, 844 S.W.2d 954, 957 (Ark. 1993) (“four
elements”); Abraham v. Beck, 456 S.W.3d 744, 752 (Ark. 2015) (listing four “elements” of
collateral estoppel); Morgan v. Turner, 368 S.W.3d 888, 895 (Ark. 2010) (same). But see Crockett
v. C.A.G. Investments, Inc., 381 S.W.3d 793, 799 (Ark. 2011) (“Under issue preclusion (collateral
estoppel), a decision by a court of competent jurisdiction on matters which were at issue, and which
were directly and necessarily adjudicated, bars any further litigation on those issues by the plaintiff
or his privies against the defendant or his privies on the same issue.”); Dearman, 842 S.W.2d at
452 (citing 18 Wright & Miller, supra note 63, § 4448, for the view that the “doctrine [of collateral
estoppel] applies only to persons who were parties or who are in privity with persons who were
parties in the first action”).

                                                  26
elements: (i) privity; and (ii) adequacy of the prior representation. We thus assume that

these elements are also required for issue preclusion to be applied.100

         The Arkansas Supreme Court in Crockett v. C.A.G. Investments, Inc.101 said that

privity “exists when two parties are so identified with one another that they represent the

same legal right.”102 Here, the parties have sparred over whether the requisite showing of

privity is satisfied by demonstrating that privity exists among competing sets of derivative

plaintiffs, or that privity exists between the corporation and its stockholders acting as

derivative plaintiffs. The Arkansas Supreme Court has not yet addressed “privity” in this

context. Thus, confronting this unsettled question of issue preclusion law, the parties

agreed, as did the Chancellor, that the Arkansas courts would look to the Restatement

100
    The one case applying Arkansas law that considers defendants’ assertion of issue preclusion
against a second derivative plaintiff’s attempt to litigate demand futility, Harben v. Dillard, 2010
WL 3893980 (E.D. Ark. Sept. 30, 2010), does not include privity as an element for the applicability
of issue preclusion. See id. at *3. The Chancellor mentioned the case, but did not consider it
helpful because “the parties did not raise and the court did not explicitly address the question of
privity.” Orig. Op., 2016 WL 2908344, at *12 n.64 (citing Harben, 2010 WL 3893980, at *1).
101
      381 S.W.3d 793 (Ark. 2011).
102
   Id. at 799; see also Dearman, 842 S.W.2d at 452 (“The Arkansas Supreme Court has said that
privity within the meaning of res judicata means a person so identified in interest with another that
he represents the same legal right.” (citing Spears v. State Farm Fire & Cas. Ins., 725 S.W.2d 835
(Ark. 1987))).

                                                 27
(Second) of Judgments (the “Restatement”) for guidance.103 Arkansas courts also look to

other jurisdictions104 and consider policy implications.105

          The Restatement does not use the term “privity.” Yet the parties and the Chancellor

focused on Section 41, which explains that a nonparty “who is represented by a party is

bound by and entitled to the benefits of a judgment as though he were a party.”106 Section

41 then lists five situations where a nonparty is said to have been represented by a prior

party,107 thereby allowing preclusion of a nonparty provided certain preconditions are

met.108 One such situation is Section 41(1)(e), where the prior party was a “representative

103
    See Orig. Op., 2016 WL 2908344, at *13-16; Supp. Op., 167 A.3d at 518-19; Delaware
Plaintiffs’ Opening Br. at 18; Defendants’ Answering Br. at 11; Delaware Plaintiffs’ Reply Br. at
2; Defendants’ Supp. Mem. at 10.
104
   See Orig. Op., 2016 WL 2908344, at *13 n.66 (citing Dearman, 842 S.W.2d at 452 (citing
Third Circuit, Colorado, New York, and New Jersey opinions in discussing privity)).
105
   See id. (citing Beaver v. John Q. Hammons Hotels, L.P., 138 S.W.3d 664, 670 (Ark. 2003));
see also Crockett, 381 S.W.3d at 799 (“The true reason for holding an issue to be barred is not
necessarily the identity or privity of the parties, but instead to put an end to litigation by preventing
a party who has had one fair trial on a matter from relitigating the matter a second time.”).
106
   Restatement § 41(1). The Chancellor also referenced Restatement § 59 cmt. c, which states, in
relevant part:
          The stockholder’s or member’s derivative action is usually though not invariably
          in the form of a suit by some of the stockholders or members as representatives of
          all of them. Whether the judgment in such a representative suit is binding upon all
          stockholders or members is determined by the rules stated in §§ 41 and 42. If it is
          binding under those rules, it precludes a subsequent derivative action by
          stockholders or members who were not individually parties to the original action.

Restatement § 59 cmt. c, quoted in Orig. Op., 2016 WL 2908344, at *15.
107
      Restatement § 41(1)(a)-(e).
108
   See Restatement § 41 (“Exceptions to this general rule are stated in § 42”); Restatement § 42
(outlining situations where “[a] person is not bound by a judgment for or against a party who
purports to represent him” (emphasis added)).

                                                   28
of a class of persons similarly situated, designated as such with the approval of the court,

of which the [nonparty] is a member.”109

          As to the possibility of privity among successive sets of derivative plaintiffs, the

Delaware Plaintiffs argue that a subsequent derivative plaintiff lacks privity with an earlier

derivative plaintiff who did not survive a motion to dismiss because that earlier derivative

plaintiff was not “designated” as a representative by the court, as under the Restatement

Section 41(1)(e) scenario.110 Delaware Plaintiffs posit that, just as in class actions, where

such judicial designation (or “judicial authority”) is conferred through the class

certification procedures of Federal Rule of Civil Procedure 23, the “right of stockholders

to try to sue derivatively cannot be extinguished by a foreign judgment if no representative

authority was conferred.”111 Delaware Plaintiffs argue that such representative authority

is conferred only after the derivative complaint survives a motion to dismiss for failure to

plead demand futility: “a stockholder’s right to seek leave to compel assertion of the

corporate claim is an individual one . . . and the plaintiff does not represent any person until

109
      Restatement § 41(1)(e) (emphasis added).
110
   See Delaware Plaintiffs’ Opening Br. at 19 (citing Restatement § 41(1)(e)); Delaware Plaintiffs’
Reply Br. at 3 (same). Delaware Plaintiffs had argued before the trial court that preclusion could
not apply as a matter of federal common law because there is no substantive legal relationship
between the Arkansas Plaintiffs and the Delaware Plaintiffs. But the Chancellor rejected that
argument in a footnote because he found that “the relevant substantive legal relationship is between
Wal-Mart and the Arkansas plaintiffs, not between plaintiffs and the Arkansas plaintiffs.” Orig.
Op., 2016 WL 2908344, at *23 n.124.
111
      Delaware Plaintiffs’ Response to Amici Curiae Briefs at 6.

                                                 29
obtaining that leave,”112 i.e., by a court’s finding that the plaintiff’s complaint has survived

a motion to dismiss.

           Regarding the possibility of privity between the Delaware Plaintiffs and Wal-Mart,

which was a party to the prior litigation, Delaware Plaintiffs argue that they lacked such

privity because they “were unrepresented” by Wal-Mart in the prior litigation and “Wal-

Mart was named merely as a nominal defendant, with adverse interests [to Delaware

Plaintiffs]—not the identity of interests that is the hallmark of privity.”113

           Defendants counter by pointing to “the prevailing rule” that “stockholder-plaintiffs

are in privity on the issue of demand futility because they ‘are acting on behalf of the

corporation . . . and the underlying issue of demand futility is the same regardless of which

shareholder brings suit.’”114 And they argue that, given that no Arkansas authorities

conflict with this approach, the Chancellor was right when concluding in his Original

Opinion that “the Arkansas Supreme Court would follow the majority rule that privity

attaches to subsequent derivative stockholders.”115

           We see the privity analysis as follows: Privity under Arkansas law “exists when

two parties are so identified with one another that they represent the same legal right.”116

Arkansas’ approach appears to be a flexible and practical inquiry that eschews strict

112
      Id. at 5-6.
113
      Id. at 5.
114
      Defendants’ Answering Br. at 7 (quoting Arduini, 774 F.3d at 634).
115
      Id. at 9 (quoting Orig. Op., 2016 WL 2908344, at *14).
116
      Crockett, 381 S.W.3d at 799.

                                                 30
reliance on formal categories of representative relationships and focuses on “the reasons

for holding a person bound by a judgment,” including fairness concerns.117 Similarly,

while the United States Supreme Court has abandoned the term “privity,”118 federal courts

applying federal common law, like courts in Arkansas, have focused on whether the person

arguably precluded is so identified in interest with the former litigant that she represents

the same legal right.119 Viewing derivative litigation in stages, and analyzing what is

happening at each stage, helps to explain why privity exists here.120

117
    Dearman, 842 S.W.2d at 452. In Dearman, an en banc Arkansas Court of Appeals
(intermediate appellate court), included privity among the prerequisites for collateral estoppel and
noted that the latest decisions discussing privity “look directly to the reasons for holding a person
bound by a judgment,” such as fairness concerns, and recommend that “the label is either discarded
entirely or retained as no more than a convenient means of expressing conclusions that are
supported by independent analysis.” 842 S.W.2d at 452 (quoting 18 Wright & Miller, supra note
63, § 4448). The court also explained that “persons in a privity relationship are deemed to have
interests so closely intertwined that a decision involving one should control the other.” Id.
118
      See supra notes 58-59 and accompanying text.
119
    See Cooper v. Harris, 137 S. Ct. 1455, 1467 (2017) (“[W]hen plaintiffs in two cases have a
special relationship, a judgment against one can indeed bind both.” (citing Taylor, 553 U.S. at 893-
95)); Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252, 1258 (10th Cir. 2014) (Gorsuch, J.)
(“Of course, privity is but a label. But it is a label that seeks to convey the existence of a
relationship sufficient to give courts confidence that the party in the former litigation was an
effective representative of the current party’s interests.” (citing Taylor, 553 U.S. at 894 n.8); id. at
1258-59 (“Privity is a legal conclusion designating a person so identified in interest with a party
to former litigation that he represents precisely the same right in respect to the subject matter
involved.” (quoting Headwaters Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1052-53 (9th. Cir.
2005))).
120
   An intermediate appellate court in New York expressed a flexible approach similar to that of
Arkansas’ en banc intermediate appellate court in Dearman. See supra note 117. The New York
court, in declining to require that a party to be precluded fits in the precise categories of Section
41, stated:
          We think the better rule, however, and that which is actually applied in this State
          as well as in a number of other jurisdictions, eschews strict reliance on formal
          representative relationships in favor of a more flexible consideration of whether all
          of the facts and circumstances of the party’s and nonparty’s actual relationship,

                                                   31
          At the first stage of a derivative action (assertion of demand futility), the

stockholder-derivative plaintiff is permitted to litigate only the board’s capacity to control

the corporation’s claims. The corporation is always the sole owner of the claims.121 In

other words, the suit is always about the corporation’s right to seek redress for alleged harm

to the corporation. As the Arkansas Supreme Court has stated, “inherent in the nature of

the [derivative] suit itself [is] that it is the corporation whose rights are being redressed

rather than those of the individual plaintiff.”122

          The demand requirement (contained in Federal Rule of Civil Procedure 23.1)123

reflects the requirement that a corporation’s important business decisions should be made

by its board of directors.124 Such decisions include the decision to sue a corporation’s

          their mutuality of interests and the manner in which the nonparty’s interests were
          represented in the prior litigation establishes a functional representation such that
          the nonparty may be thought to have had a vicarious day in court.

Slocum ex rel. Nathan A v. Joseph B, 588 N.Y.S.2d 930, 931 (App. Div. 1992).
121
   E.g., City of Birmingham Ret. & Relief Sys. v. Good, --- A.3d ----, 2017 WL 6397490, at *4
(Del. Dec. 15, 2017) (describing a derivative claim as “a claim belonging to the corporation”).
122
      Brandon v. Brandon Constr. Co., 776 S.W.2d 349, 352 (Ark. 1989).
123
    Fed. R. Civ. P. 23.1(b) (“The complaint must . . . (3) state with particularity: (A) any effort by
the plaintiff to obtain the desired action from the directors or comparable authority and, if
necessary, from the shareholders or members; and (B) the reasons for not obtaining the action or
not making the effort.”); see also Del. Ct. Ch. R. 23.1 (“The complaint shall also allege with
particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from
the directors or comparable authority and the reasons for the plaintiff’s failure to obtain the action
or for not making the effort.”).
124
   See, e.g., Spiegel, 571 A.2d at 773 (“The decision to bring a law suit or to refrain from litigating
a claim on behalf of a corporation is a decision concerning the management of the corporation.
Consequently, such decisions are part of the responsibility of the board of directors.”) (citation
omitted).

                                                   32
directors on behalf of the corporation.125 At the start of the derivative suit, the stockholder-

derivative plaintiff only has standing, as a matter of equity, to set in motion the judicial

machinery on the corporation’s behalf.126 The stockholder-derivative plaintiff may assume

control of the corporation’s claim only if he demonstrates that demand on the board would

be futile. But, through the entire process, the corporation alone is the real party in interest

because the suit is always on its behalf.

       The “dual” nature of the derivative action does not transform a stockholder’s

standing to sue on behalf of the corporation into an individual claim belonging to the

stockholder. The named plaintiff, at this stage, only has standing to seek to bring an action

by and in the right of the corporation and never has an individual cause of action. This

highlights a fundamental distinction from class actions, where the named plaintiff initially

asserts an individual claim and only acts in a representative capacity after the court certifies

that the requirements for class certification are met.127

       However, when multiple derivative actions are filed (in one or more jurisdictions),

the plaintiffs share an identity of interest in seeking to prosecute claims by and in the right

125
   8 Del. C. § 141(a) (“The business and affairs of every corporation . . . shall be managed by or
under the direction of a board of directors . . . .”).
126
   See, e.g., Schoon v. Smith, 953 A.2d 196, 202 (Del. 2008); accord Dana, 232 F. at 90. In
Schoon, we observed that, “[t]he stockholder does not bring such a suit because his rights have
been directly violated, or because the cause of action is his . . . .” 953 A.2d at 202 (quoting 4
Pomeroy’s Equity Jurisprudence § 1095 (5th ed.1941)). Rather, “he is permitted to sue in this
manner simply in order to set in motion the judicial machinery of the court,” and the “corporation
alone has a direct interest” in the litigation. Id. (quoting same).
127
   Cf. Bayer, 564 U.S. at 314-15 (rejecting argument that the party who sought class certification’s
“interests were aligned with the members of the class he proposed and he ‘act[ed] in a
representative capacity when he sought class certification.’” (quoting Brief for Respondent
Bayer)).

                                                33
of the same real party in interest—i.e., as representatives of—the corporation. Here, the

Delaware and Arkansas Plaintiffs sought to enforce the same legal rights by stepping into

Wal-Mart’s shoes to assert the corporation’s claims related to the same alleged misconduct

and investigation. Though not a formal “representative” of other stockholders at this stage

because the real party in interest is the corporation, differing groups of stockholders who

seek to control the corporation’s cause of action share the same interest and therefore are

in privity.

            Even before Crockett, in Arkansas Department of Human Services v. Dearman,128

the Arkansas Court of Appeals said in a compellingly straightforward fashion that privity

“means a person so identified in interest with another that he represents the same legal

right,” also titled an “identity of interest.”129 There, the court found privity between a

mother and the state’s Department of Human Services (“DHS”) as they shared an “identity

of interest”: both the mother and DHS sought “to prove allegations of sexual abuse against

the father of the children, to remove them from his custody, and to protect the best interests

of the children.”130 Further, the subsequent litigant, DHS, had “notice of the earlier action

and the opportunity to participate.”131 Thus, the Dearman court found privity where a

subsequent litigant with notice of the first action sought to relitigate the same issue on

behalf of the same real party in interest, the children. The Arkansas Supreme Court applied

128
      842 S.W.2d 449 (Ark. Ct. App. 1992) (en banc).
129
      Id. at 452.
130
      Id.
131
      Id. at 452-53.

                                               34
the Dearman test in Crockett.132 Although the Arkansas Supreme Court has not addressed

the application of collateral estoppel in the derivative context, we think that application of

Arkansas’ flexible approach set forth in Crockett and Dearman suggests that there is privity

here as a matter of Arkansas law. This is so given the identity of interest derivative

plaintiffs share in having a stockholder control the corporation’s claim instead of the

directors, and given that the real party in interest, the corporation, was a party to the

litigation.133

       A review of federal common law reinforces this view. The five federal circuit courts

that have considered whether privity exists between sets of successive derivative plaintiffs

have all found the requisite privity under the applicable law, whether state law or federal

common law.134 In Sonus, the First Circuit found privity between two successive derivative

132
   See Crockett, 381 S.W.3d at 799 (noting that privity “exists when two parties are so identified
with one another that they represent the same legal right.”).
133
   We agree with the Chancellor that the Restatement “does not meaningfully analyze whether the
corporation’s status as the real party in interest makes privity a foregone conclusion for subsequent
representative stockholders.” Orig. Op., 2016 WL 2908344, at *16. But, as this Court observed
in Pyott II, “[b]ecause the real plaintiff in a derivative suit is the corporation, ‘differing groups of
shareholders who can potentially stand in a corporation’s stead are in privity for the purposes of
issue preclusion.’” Pyott II, 74 A.3d at 617 (applying California law) (quoting LeBoyer v.
Greenspan, 2007 WL 4287646, at *3 (C.D. Cal. June 13, 2007)); see also, e.g., Parkoff v. Gen.
Tel. & Elecs. Corp., 425 N.E.2d 820, 824 (N.Y. 1981) (“Because the claim asserted in a
stockholder's derivative action is a claim belonging to and on behalf of the corporation, a judgment
rendered in such an action brought on behalf of the corporation by one shareholder will generally
be effective to preclude other actions predicated on the same wrong brought by other
shareholders.”).
134
   Arduini, 774 F.3d at 634 (applying Nevada law); Sonus, 499 F.3d at 57 (applying Massachusetts
law); Smith v. Waste Mgmt., Inc., 407 F.3d 381, 386 (5th Cir. 2005) (citing Fifth Circuit case
applying Texas law); Nathan, 651 F.2d at 1226 (applying federal common law); Dana, 232 F. at
90 (not specifying the applicable law). Further, the Third Circuit reached the same result, even
though it did not use the term privity. See Cramer, 582 F.2d at 269.

                                                  35
plaintiffs suing on behalf of the same corporation because “[u]nder Massachusetts law, a

derivative suit is prosecuted ‘in the right of a corporation,’”135 and “the plaintiff in a

derivative suit represents the corporation, which is the real party in interest.” 136 In other

words, privity existed because both derivative plaintiffs sought to represent the same legal

right—that of the corporation, which was the real party in interest. In Arduini, the Ninth

Circuit relied on Sonus to find the same.137

            In Dana v. Morgan, a century-old Second Circuit case, the second derivative

plaintiff argued that “the judgment of the New York court [i.e., the first court] does not

affect him, as he was not a party to it, a privy to it, or represented in it.”138 However, the

court determined, “[t]he answer is that the corporation whose interest he seeks to represent

in this suit was a party to that [prior New York] action and is concluded by it and that that

concludes him.”139 After all, “there can be but one adjudication in the rights of the

corporation.”140 In Nathan v. Rowan, the Sixth Circuit cited Dana in holding that, “[i]n

135
      Sonus, 499 F.3d at 64 (quoting Mass. Gen. Laws Ann. ch 156D, § 7.40).
136
      Id. at 63.
137
    Arduini, 774 F.3d at 634 (quoting Sonus, 499 F.3d at 64, as explaining that “‘the prevailing rule
[is] that the shareholder in a derivative suit represents the corporation,’” and concluding that
“[s]uch reasoning applies equally to Nevada derivative suits, where the shareholders are acting on
behalf of the corporation and its shareholders and the underlying issue of demand futility is the
same regardless of which shareholder brings suit.”). See also Goldman v. Northrop Corp., 603
F.2d 106, 109 (9th Cir. 1979) (“The parties [in subsequent derivative suits] are the same, although
represented by different shareholders. Neither Springer nor Goldman sought to obtain personal
judgments. The corporation was the sole real party in interest in both cases.”).
138
232 F. at 91.
139
      Id.
140
      Id. at 89.

                                                 36
shareholder derivative actions arising under Fed. R. Civ. P. 23.1, parties and their privies

include the corporation and all nonparty shareholders.”141            And, in Smith v. Waste

Management, the Fifth Circuit found privity, but did not explain why. 142 Thus, we are

satisfied that privity exists here and that the requirements of issue preclusion are met.143

          We address the last purported element, the adequacy of representation requirement,

as part of the federal Due Process overlay. As the Chancellor acknowledged, “[his]

consideration of due process in Wal-Mart I [the Original Opinion] was embedded in the

determination of adequacy of representation.”144

                             C.     The Federal Due Process Requirement

          As mentioned, “[t]he federal common law of preclusion is subject to due process

limitations.”145 Such limitations derive from the Due Process Clause of the Fourteenth

Amendment, which provides that no state shall “deprive any person of life, liberty, or

property without due process of law . . . .”146 “The opportunity to be heard is an essential

141
651 F.2d at 1226.
142
      See 407 F.3d at 386.
143
   We are satisfied with the Chancellor’s conclusion in his Original Opinion that the four primary
elements of issue preclusion under Arkansas law are also satisfied. We believe the result is the
same under federal common law.
144
      Supp. Op., 167 A.3d at 515.
145
    Taylor, 553 U.S. at 892; Kremer, 456 U.S. at 482 (“A State may not grant preclusive effect in
its own courts to a constitutionally infirm judgment, and other state and federal courts are not
required to accord full faith and credit to such a judgment.”).
146
      U.S. Const. amend. XIV.

                                                 37
requisite of due process of law in judicial proceedings.”147 Non-party issue preclusion, by

its nature—i.e., depriving a party of the ability to litigate an issue—conflicts with the

“historic tradition,” rooted in Due Process, “that everyone should have his own day in

court.”148 Therefore, as a general rule, “one is not bound by a judgment in personam in a

litigation in which he is not designated as a party or to which he has not been made a party

by service of process.”149 But this general “rule against nonparty preclusion” is subject to

several exceptions, such as those outlined in Taylor—exceptions where the application of

nonparty issue preclusion is said to comply with the requirements of Due Process.150

          One of these exceptions—the so-called “third exception”—covers “certain limited

circumstances” where “a nonparty may be bound by a judgment because she was

‘adequately represented by someone with the same interests who [wa]s a party’ to the

suit.”151    Thus, this exception has two prongs: (a) same interests, and (b) adequate

representation of those interests.

147
    Richards, 517 U.S. at 797 n.4. Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979),
suggests that, where a subsequent litigant is in privity with a prior party, he can be said to have
had an opportunity to be heard. See id. at 327 n.7 (“It is a violation of due process for a judgment
to be binding on a litigant who was not a party or a privy and therefore has never had an opportunity
to be heard.”).
148
   Richards, 517 U.S. at 798 (quoting 18 Wright & Miller, supra note 63, § 4449); see also id. at
797 n.4 (noting that the state “cannot, without disregarding the requirement of due process, give a
conclusive effect to a prior judgment against one who is neither a party nor in privity with a party
therein.” (quoting Postal Tel. Cable Co. v. City of Newport, 247 U.S. 464, 476 (1918))).
149
   Taylor, 553 U.S. at 893 (quoting Hansberry, 311 U.S. at 40); see also Wilks, 490 U.S. at 762
(“A judgment or decree among parties to a lawsuit resolves issues as among them, but it does not
conclude the rights of strangers to those proceedings.”).
150
      See Taylor, 553 U.S. at 893-95; see also supra notes 60-68 and accompanying text.
151
      Taylor, 553 U.S. at 894 (quoting Richards, 517 U.S. at 798).

                                                 38
            The privity analysis discussed above underscores the commonality and alignment

of interests among successive sets of derivative plaintiffs. As explained above, we are

satisfied that there is sufficient alignment of interest under both Arkansas and federal

common law.          Therefore, with this commonality-of-interest safeguard satisfied, the

evaluation of the adequacy of the prior representation becomes the primary protection for

the Due Process rights of subsequent derivative plaintiffs.152

            The United States Supreme Court in Taylor articulated three “minimum”

requirements for showing that “[a] party’s representation of a nonparty is ‘adequate’ for

preclusion purposes.”153 First, the interest of the nonparty and her representative must be

aligned.154 Second, “either the party understood herself to be acting in a representative

capacity or the original court took care to protect the interests of the nonparty.” 155 And

third, “sometimes” notice is required.156

152
   See Sonus, 499 F.3d at 65 (“Precluding the suit of a litigant who has not been adequately
represented in the earlier suit would raise serious due process concerns.”) (focusing Due Process
analysis on adequacy of representation after finding privity); Arduini, 774 F.3d at 635 (same);
Nathan, 651 F.2d at 1226 (“Though Nathan was not a party to the Singer action, nonparty
shareholders are bound by judgments [in derivative actions] if their interests were adequately
represented.”); id. at 1227 (noting that “[i]t is well settled that the constitutional requirements of
due process and full faith and credit mandate that absent class members are not bound by a
judgment in a class action unless the class representative provided adequate and fair
representation” and applying this principle in the derivative context). In Sonus, the First Circuit
noted that “[t]he adequacy of representation has been a subject of great concern in derivative suits
because of the possibilities for collusion between the nominal plaintiff and the defendants.” 499
F.3d at 64.
153
553 U.S. at 899.
154
      Id. at 900.
155
      Id.
156
      Id.

                                                 39
          Here, as mentioned, the privity analysis reinforces and satisfies the alignment-of-

interests requirement.

          Second, as to whether the derivative plaintiffs here understood that they were acting

in a representative capacity although not yet authorized to control the corporate cause of

action, the record makes clear that both sets of plaintiffs understood that a judgment in their

case could impact the other stockholders.157 The Arkansas Plaintiffs had been warned by

the federal court of the likelihood that the court’s decision would have preclusive effect.158

And, as noted, the Delaware Plaintiffs acknowledged that likelihood and expressed concern

to both the Delaware Court of Chancery and the Delaware Supreme Court about the “severe

risk” that an Arkansas judgment on demand futility would precede a Delaware ruling, and

the Arkansas judgment would have preclusive effect.159 Moreover, the Arkansas court took

care to protect the interests of the nonparty Delaware Plaintiffs by granting a stay while

they pursued their Section 220 litigation in Delaware. The federal court initially stayed the

Arkansas proceedings “pending the resolution of the state-court actions in the Delaware

Court of Chancery.”160 Thus, that court was willing to stand down and let the Delaware

litigation proceed to conclusion.161

157
   See supra notes 27-30 and accompanying text; Cottrell I, 737 F.3d at 1243 (“[A] judgment
rendered in Delaware will likely preclude subsequent litigation in the Federal proceeding.”).
158
      See Ark. Stay Denial Order, 2014 WL 12700619, at *2.
159
      See supra note 27.
160
      Ark. Stay Order, 2012 WL 5935340, at *7.
  The Arkansas court acknowledged that it had received a copy of then-Chancellor Strine’s order
161

which contemplated the completion of the Section 220 proceedings before the Delaware
Complaint would be filed. See Stay Hearing Transcript, supra note 11, at B175. The Arkansas

                                                 40
       Third, federal courts have signaled that derivative suits are situations where notice

is not required to comply with Due Process.162 We need not resolve that issue as it is

undisputed that Delaware Plaintiffs had notice of the Arkansas action in this instance.

       Federal courts have also looked to Sections 42(1)(d) and (e), and Comments e and

f, of the Restatement for further guidance on what qualifies as “adequate” representation

in order to comply with Due Process.163              Indeed, the Restatement explains that its

court’s order granting the initial stay notes the presence of seven derivative actions in Delaware
and that, “[t]he claims and parties in this action and the Delaware action[s] are almost identical,
and the issues involved overlap substantially.” Ark. Stay Order, 2012 WL 5935340, at *5, *7. It
reasoned that, “[b]ecause Delaware law is controlling over Plaintiffs’ claims, this factor weighs in
favor of abstention.” Id. at *6. It also stated that “the Court feels that the parties would benefit
from the Delaware court’s experience in applying its state’s law and managing this type of
litigation.” Id.
162
    The United States Supreme Court has stated, “An elementary and fundamental requirement of
due process in any proceeding which is to be accorded finality is notice reasonably calculated,
under all the circumstances, to apprise interested parties of the pendency of the action and afford
them an opportunity to present their objections.” Armstrong v. Manzo, 380 U.S. 545, 550 (1965).
However, several courts have suggested that notice is not required to avoid a Due Process violation
in precluding subsequent derivative plaintiffs from litigating demand futility. See, e.g., Arduini,
774 F.3d at 637-38. In Arduini, the Ninth Circuit declined to require notice, relying on Fed. R.
Civ. P. 23.1(c), which only requires “[n]otice of a proposed settlement, voluntary dismissal, or
compromise.” Id. at 637; see also Restatement § 42(1)(a) & cmt. b (mandating notice where
“required,” such as under “procedural statutes and rules”). The court also looked to Restatement
§ 41(2), which provides that “[a] person represented by a party to an action is bound by the
judgment even though the person himself does not have notice of the action, is not served with
process, or is not subject to service of process.” Arduini, 774 F.3d at 637. The court noted that,
likewise, the prior derivative plaintiffs in that case were “in essence representing all [company]
shareholders when they filed their derivative suit, thus binding subsequent derivative plaintiffs
even if they personally did not have notice of the [earlier suit’s] dismissal.” Id.; see also, e.g.,
Nathan, 651 F.2d at 1228 (“[I]n derivative actions nonparty shareholders are not entitled to notice
of dismissal following a hearing on the merits.”).
163
    See Nevada v. United States, 463 U.S. 110, 135 n.15 (1983); Matsushita, 516 U.S. at 396
(Ginsburg, J., concurring in part and dissenting in part); Arduini, 774 F.3d at 635-36; Sonus, 499
F.3d at 64-66; Hanson, 2007 WL 5186795, at *6; Henik, 433 F. Supp. 2d at 381. Federal common
law governs our analysis of Due Process and, as such, the contours of the required adequacy of the
prior representation. In contrast, the Court of Chancery considered the adequacy of representation

                                                41
requirements are “closely related to, if indeed they are not particularized expressions of,

the requirements of due process.”164 In addition to providing that there cannot be a

“substantial divergence of interests” between the representative and the represented,165 the

Restatement states that the prior representative must not have “failed to prosecute or defend

the action with due diligence and reasonable prudence” such that “the opposing party was

on notice of facts making that failure apparent.”166 Comment f to Section 42(1)(e) provides

additional commentary describing what constitutes inadequate conduct of litigation.167

First, the comment speaks to the quality of the representation, by specifying that the

representation must not have been “grossly deficient,” and then explaining what that

entails.168 Second, the comment speaks to conflicts of interest, such as whether the prior

judgment was the product of collusion between the representative and the opposing party

and whether, “to the knowledge of the opposing party, the representative s[ought] to further

an issue of Arkansas law. See Orig. Op., 2016 WL 2908344, at *20 (“Arkansas law controls
here”).
164
   Restatement § 42(1)(d), (e) & Reporter’s Note (noting that the alignment of Sections 41 and 42
with the requirements of due process “historically was obscured by the tendency of courts to see
some of these questions in the context of necessary parties issues” and that Hansberry v. Lee stands
“as a reminder that there are constitutional limits on giving binding effect to litigation conducted
through representatives”).
165
   See Taylor, 553 U.S. at 900; see also Restatement § 42(1)(d) (providing that, “[w]ith respect to
the representative of a class,” representation is inadequate if “there was such a substantial
divergence of interest between him and the members of the class, or a group within the class, that
he could not fairly represent them with respect to the matters as to which the judgment is
subsequently invoked”).
166
      Restatement § 42(1)(e).
167
      Id. at cmt. f.
168
      Id.

                                                42
his own interest at the expense of the represented person.”169 “[W]hether the representation

has been inadequate is a question of fact to be decided in light of the issues presented in

the case and the factual and legal contentions that might reasonably have been expected to

be presented.”170

          Based on our reasoning, we affirm the Chancellor’s ultimate conclusion that the

Arkansas Plaintiffs were adequate representatives because, in addition to the absence of

any conflicts or other misalignment of interests among the competing sets of plaintiffs in

seeking to represent Wal-Mart, (i) the quality of their representation was not grossly

deficient, and (ii) their economic interests were not antagonistic to other stockholders.

                i.   The Arkansas Plaintiffs’ failure to seek books and records
                     from the Company does not render them grossly deficient
                     representatives.

          Delaware Plaintiffs argue that the Arkansas Plaintiffs demonstrated “grossly

deficient,” inadequate representation by failing to seek additional books and records

despite the Chancellor’s warning.171 They contend that this choice amounts to more than

mere “[t]actical mistakes or negligence” or failure “to invoke all possible legal theories or

169
    Id.; see also Arduini, 774 F.3d at 635 (“[W]e have noted that an ‘adequate [shareholder]
representative must have the capacity to vigorously and conscientiously prosecute a derivative suit
and be free from economic interests that are antagonistic to the interests of the class.’” (quoting
Larson v. Dumke, 900 F.2d 1363, 1367 (9th Cir. 1990))).
170
      Restatement § 42 cmt. f.
171
   See id. (“Where the representative’s management of the litigation is so grossly deficient as to
be apparent to the opposing party, it likewise creates no justifiable reliance interest in the
adjudication on the part of the opposing party.”).

                                                43
to develop all possible sources of proof”—situations that the Restatement views as

insufficient grounds to deny preclusive effect to a prior judgment.172

       Delaware courts have repeatedly urged parties to use Section 220 to seek relevant

books and records before filing derivative complaints. The Delaware Plaintiffs contend

that, although the New York Times article detailed conduct by certain officers and

employees and included excerpts to certain key company documents, the documents did

not address board-level conduct. Thus, they argue that the Arkansas Plaintiffs should have

known they would be unable to meet the pleading requirements to establish demand

futility, as then-Chancellor Strine had warned.

       We might see this as a closer call if the Arkansas Plaintiffs had not obtained any

documents, particularly since the complaints were focused on the state-law Caremark

claims.173 But that is not the case. At the argument on the initial motion to stay in

Arkansas, for example, Arkansas Plaintiffs’ counsel acknowledged that she shared then-

Chancellor Strine’s view that “oftentimes it is very hard to implicate the board without

seeing some internal documents showing that the board knew of the wrongdoing,” but she

argued that this situation was different: she stated that internal memoranda in the public

domain (linked from the New York Times article) “show beyond any doubt that the board

172
    See id. (“Tactical mistakes or negligence on the part of the representative are not as such
sufficient to render the judgment vulnerable.”).
173
    Orig Op., 2016 WL 2908344, at *5 (noting that the Arkansas Plaintiffs alleged that certain
director defendants breached their duty of loyalty by not acting in good faith to ensure Wal-Mart’s
compliance with the law, known as a Caremark claim (referring to In re Caremark Int’l Deriv.
Litig., 698 A.2d 959 (Del. Ch. 1996))).

                                                44
of directors was told about the widespread bribery and they were told about the coverup of

the widespread bribery back in 2005.”174 Arkansas Plaintiffs’ counsel stated, “we thought

about [obtaining documents through Section 220] long and hard,” but determined that, “[i]n

this case we didn’t need it because we had these underlying documents.”175

          The Chancellor concluded that “it does not follow that plaintiffs are necessarily

inadequate representatives because their counsel chose not to follow a recommended

strategy in a different action, even one suggested by a preeminent corporate jurist,

particularly when they are litigating in a different jurisdiction before a different

judiciary.”176 As the Chancellor recognized, the Arkansas Plaintiffs were represented by

more than a dozen attorneys from several firms, and no one argued that they were not

experienced counsel. In fact, one lead counsel had successfully litigated a key Delaware

Section 220 case, and one of the lead Arkansas Plaintiffs had been lead plaintiff in the Pyott

case.

          Here, the Arkansas Plaintiffs considered making a Section 220 demand, but they

decided against it because they considered the documents in the New York Times article

sufficient.177 It turns out they were wrong. Although it might have been a tactical error,

174
      Stay Hearing Transcript, supra note 11, at B208-09.
175
    Id. at B209. Arkansas counsel also argued, “I don’t think we need [Section 220 books and
records] because we have the defendants [sic] own - we have them in the cross hairs, Your Honor.
We have the document showing that they knew what was going on in 2005, and the majority of
the directors are still sitting on the board.” Id. at B210.
176
      Orig. Op., 2016 WL 2908344, at *20.
177
      See Stay Hearing Transcript, supra note 11, at B208-10.

                                                 45
the Arkansas Plaintiffs’ decision to forgo a Section 220 demand in this instance does not

rise to the level of constitutional inadequacy.178 Reasonable litigants can differ on such

tactical decisions.

                ii.   The Arkansas Plaintiffs did not seek to advance their
                      interests at the expense of the Delaware Plaintiffs.

            The Delaware Plaintiffs argue that Arkansas Plaintiffs “acted to further their own

economic interest in litigating in Arkansas,” against the Chancellor’s warning that

plaintiffs should seek Company books and records.179 Delaware Plaintiffs assert that “[t]he

moment they did so, an irreconcilable conflict arose between the Arkansas Plaintiffs and

other Wal-Mart stockholders.”180 The Restatement provides that a prior judgment may be

denied preclusive effect where, “to the knowledge of the opposing party, the representative

seeks to further his own interest at the expense of the represented person.”181 The plaintiffs’

interests, as distinguished from the counsels’ interests, were identical, as discussed above.

Moreover, we see no support for any suggestion that the Arkansas Plaintiffs had an interest

178
    See Bensoussan, 2016 WL 3407708, at *12 (“[A]lthough it is certainly better a practice for
stockholder plaintiffs to use ‘the tools at hand’ to thoroughly investigate derivative claims before
filing suit, the N.Y. plaintiffs’ failure to do so in this case falls, in my view, into the category of an
imperfect legal strategy and does not rise to the level of litigation management that was so grossly
deficient as to render them inadequate representatives.”), aff’d, 155 A.3d 1283 (Del. 2017);
Norfolk Cty. Ret. Sys. v. Jos. A. Bank Clothiers, Inc., 2009 WL 353746, at *8 (Del. Ch. Feb. 12,
2009) (“Although the prior plaintiff's failure to make a books and records request before filing a
derivative lawsuit does not comport with the approach suggested by Delaware courts, that alone
does not indicate that he was an inadequate representative.”), aff'd, 977 A.2d 899 (Del. 2009).
179
      Delaware Plaintiffs’ Opening Br. at 29.
180
      Id.
181
      Restatement § 42 cmt. f.

                                                   46
adverse to Wal-Mart or that they would benefit from harming the Company and, by

extension, from harming Delaware Plaintiffs.

          In their supplemental briefing following remand, the Delaware Plaintiffs argue that

the Court of Chancery erred in “halting” discovery regarding the alleged “conflicts of the

Arkansas Plaintiffs’ counsel.”182         They further contend that the discovery stay was

improper given the Chancellor’s “heavy reliance on an affidavit of Arkansas Plaintiffs’

counsel,” whom they had no opportunity to cross-examine.183 But the Delaware Plaintiffs

confined this argument to a footnote in their opening brief on appeal.184 Thus, the argument

is waived,185 and we do not address the question of whether discovery might have been

appropriate (and, if so, to what extent) as to the asserted conflict among Arkansas

Plaintiffs’ counsel.

                                               III.

          In conclusion, as we said in Pyott II, our state’s interest in governing the internal

affairs of Delaware corporations must yield to the “stronger national interests that all state

and federal courts have in respecting each other’s judgments.”186 This delicate balance

would be impaired were we to adopt the Chancellor’s suggestion to follow the EZCORP

182
      Delaware Plaintiffs’ Supp. Mem. at 20.
183
      Id. at 20 n.17.
184
      Delaware Plaintiffs’ Opening Br. at 28 n.42.
185
      See Del. Sup. Ct. R. 14(b)(vi)(A)(3).
186
74 A.3d at 616.

                                                      47
dicta as the rule for determining the preclusive effect of other courts’ dismissals based on

demand futility.

       Accordingly, we affirm the Court of Chancery’s dismissal of the Delaware

Plaintiffs’ complaint. Defendants satisfied the requirements for invoking issue preclusion

under either Arkansas law or federal common law. The federal law on the Due Process

implications of issue preclusion demonstrates that the application of issue preclusion here

does not violate the Due Process rights of the Delaware Plaintiffs. We greatly appreciate

the thought and time that the Chancellor and the parties devoted to this important matter.

                                            48