In re Wal-Mart Stores, Inc. Delaware Derivative Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE WAL-MART STORES, INC. CONSOLIDATED
DELAWARE DERIVATIVE C.A. No. 7455-CB
LITIGATION

SUPPLEMENTAL OPINION

Date Decided: July 25, 2017

Stuart M. Grant, Michael J. Barry, and Nathan A. Cook, GRANT & EISENHOFER
P.A., Wilmington, Delaware; Ned Weinberger, LABATON SUCHAROW LLP,
Wilmington, Delaware; Daniel Girard, Dena Sharp, Jordan Elias, and Adam Polk,
GIRARD GIBBS LLP, San Francisco, California; Thomas A. Dubbs, Louis
Gottlieb, and Jeffrey A. Dubbin, LABATON SUCHAROW LLP, New York, New
York; Frederic S. Fox, Hae Sung Nam, Donald R. Hall, and Jeffrey P. Campisi,
KAPLAN FOX & KILSHEIMER LLP, New York, New York; David C. Frederick,
KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C., Washington,
District of Columbia; Samuel Issacharoff, KELLOGG, HUBER, HANSEN, TODD,
EVANS & FIGEL, P.L.L.C., New York, New York; Co-Lead Counsel for the Co-
Lead Plaintiffs.

Donald J. Wolfe, Jr., Stephen C. Norman, and Tyler J. Leavengood, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Theodore J. Boutrous,
Jr. and Alexander K. Mircheff, GIBSON, DUNN & CRUTCHER LLP, Los
Angeles, California; Mark A. Perry, GIBSON, DUNN & CRUTCHER LLP,
Washington, District of Columbia; Attorneys for Appearing Defendants.

BOUCHARD, C.
 This supplemental opinion is submitted in response to the Delaware Supreme

Court’s order of remand (the “Remand Order”) asking this Court to address the

following question:

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).1

The first sentence of the Remand Order states: “This is a troubling case.”2 I

agree. The trouble arises from a tension in competing policies. On the one hand,

Delaware courts have long encouraged stockholders contemplating derivative

actions to use the “tools at hand”—in particular to obtain corporate books and

records under Section 220 of the Delaware General Corporation Law—before filing

derivative litigation so that the issue of demand futility may be decided on a well-

developed factual record.3 On the other hand, as a matter of comity and in the

interest of preserving judicial resources, public policy discourages duplicative

litigation. The tension between these policies in representative stockholder litigation

involving multiple forums is heightened by the “fast-filer” phenomenon, where

1
Cal. State Teachers’ Ret. Sys. v. Alvarez, 2017 WL 239364, at *8 (Del. Jan. 18, 2017)
(ORDER).
2
Id. at *1.
3
See Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 120 (Del. 2006); Rales v.
Blasband, 634 A.2d 927, 934-35 n.10 (Del. 1993).

1
counsel handling cases on a contingent basis have a significant financial incentive

to race to the courthouse in an effort to beat out their competition and seize control

of a case, often at the expense of undertaking adequate due diligence.

Courts that have considered whether a stockholder plaintiff in a second

derivative action is barred from re-litigating the issue of demand futility based on

the failure of a plaintiff to demonstrate demand futility in a first derivative action—

in particular two federal circuit courts—have found that due process is satisfied if

the plaintiff in the first action adequately represented other stockholders of the

corporation who were not parties to the first action. In doing so, those courts have

applied principles from the Restatement (Second) of Judgments (the “Restatement”).

This is the approach I followed in concluding in my memorandum opinion dated

May 16, 2016 that the earlier Arkansas decision precluded re-litigation of the

demand futility issue in Delaware (“Wal-Mart I”).4 In other words, my

consideration of due process in Wal-Mart I was embedded in the determination of

adequacy of representation.

Based on the approach used in Wal-Mart I and the federal circuit court

decisions it follows, the answer to the question posed in the Remand Order would

be “no” unless the representative plaintiff’s management of the first derivative action

4
In re Wal-Mart Stores, Inc. Del. Deriv. Litig., 2016 WL 2908344 (Del. Ch. May 13,
2016).

2
was “so grossly deficient as to be apparent to the opposing party”5 or failed to satisfy

one of the Restatement’s other criteria for determining adequacy of representation.6

But that does not mean that a better approach is not worthy of consideration.

In In re EZCORP, Inc. Consulting Agreement Derivative Litigation, Vice

Chancellor Laster stated in dictum that, both as a matter of Delaware law and as a

matter of due process, a judgment cannot bind “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.”7 EZCORP thus endorses a bright-line rule drawing a distinction

between the pre- and post-demand futility phases of derivative litigation. In doing

so, the Court analogized derivative actions to class actions, relying on the United

States Supreme Court’s adoption of a similar bright-line rule in Smith v. Bayer,

which distinguished between pre- and post-certification in the class action context,

although Bayer explicitly was not decided on due process grounds.8

5
Restatement §42 cmt. f.
6
For example, inadequacy of representation also may be found under the Restatement if
the interests of the representative and the represented person are not aligned or if there is
collusion between the representative plaintiff and the defendant. See Wal-Mart I, 2016
WL 2908344, at *18 & n.103.
7
In re EZCORP Inc. Consulting Agreement Deriv. Litig., 130 A.3d 934, 948 (Del. Ch.
2016).
8
Id. at 946-49; Smith v. Bayer Corp., 564 U.S. 299, 308 n.7 (2011).

3
 Considering afresh the question presented in the Remand Order, I recommend

that the Supreme Court adopt the rule proposed in EZCORP. Although no court has

done so to date, and although the Supreme Court previously declined to embrace

such a rule in the context of considering the question of privity in derivative

litigation,9 it is my opinion for the reasons explained below that this rule will 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.

I. BACKGROUND

A detailed description of the factual background giving rise to this action is

set forth in Wal-Mart I.10 This supplemental opinion assumes general familiarity

with Wal-Mart I and sets forth below only certain facts relevant to addressing the

issue on remand.

A. The Arkansas Litigation

In April 2012, The New York Times published an article detailing an alleged

bribery scheme at Wal-Mart de Mexico, a subsidiary of Wal-Mart Stores, Inc.

9
Pyott v. La. Mun. Police Empls.’ Ret. Sys., 74 A.3d 612, 616-18 (Del. 2013) (“Pyott II”)
(rejecting “the ‘fast-filer’ irrebuttable presumption of inadequacy” and holding that the
Court of Chancery should have applied California law and found two successive
stockholder plaintiffs to be in privity even though the earlier action was dismissed for
failure to adequately plead demand futility), rev’g La. Mun. Police Empls.’ Ret. Sys. v.
Pyott, 46 A.3d 313, 330 (Del. Ch. 2012) (“Pyott I”).
10
Wal-Mart I, 2016 WL 2908344, at *2-7.

4
(“Wal-Mart”), and the related cover-up. Shortly after the article was published,

Wal-Mart stockholders filed multiple derivative suits in Delaware and Arkansas.

The United States District Court for the Western District of Arkansas

consolidated the federal actions in Arkansas, and the Arkansas plaintiffs filed a

consolidated complaint on May 31, 2012. The Arkansas complaint asserted claims

against certain of Wal-Mart’s current and former directors and officers for breach of

fiduciary duty and for violations of Sections 14(a) and 29(b) of the Securities

Exchange Act.11 On March 31, 2015, the district court granted defendants’ motion

to dismiss the Arkansas complaint under Federal Rule of Civil Procedure 23.1 for

failing to adequately allege demand futility (the “Arkansas Decision”).12 On July

22, 2016, the Eighth Circuit affirmed the Arkansas Decision.13

B. The Delaware Litigation

Around the same time the Arkansas litigation was beginning, seven derivative

actions were filed in this Court. On June 6, 2012, plaintiff Indiana Electrical

Workers Pension Trust Fund IBEW sent Wal-Mart a demand for books and records

under 8 Del. C. § 220. On August 13, 2012, after Wal-Mart produced certain

11
See Consolidated Verified Shareholder Derivative Complaint, In re Wal-Mart Stores,
Inc. S’holder Deriv. Litig., C.A. No. 4:12-CV-4041-SOH (W.D. Ark. May 31, 2012).
In re Wal-Mart Stores, Inc. S’holder Deriv. Litig., 2015 WL 1470184, at *1 (W.D. Ark.
12

Mar. 31, 2015) (ORDER).
13
Cottrell v. Duke, 829 F.3d 983 (8th Cir. 2016).

5
documents, IBEW filed a Section 220 complaint alleging deficiencies in Wal-Mart’s

document production.14 On September 5, 2012, the Court of Chancery consolidated

the seven derivative actions, appointed co-lead plaintiffs and co-lead counsel, and

ordered plaintiffs to file a consolidated amended complaint after completion of the

Section 220 action.15

After a trial on the papers, an appeal to the Delaware Supreme Court,16 and a

subsequent motion for contempt,17 the Section 220 action eventually reached a final

resolution on May 7, 2015.18 In the meantime, on May 1, 2015, about one month

after the district court’s dismissal of the Arkansas complaint, the Delaware plaintiffs

filed the Verified Consolidated Amended Stockholder Derivative Complaint in this

action, asserting a single claim against certain of Wal-Mart’s current and former

directors and officers for breach of fiduciary duty.

On June 1, 2015, defendants in the Delaware action moved to dismiss, arguing

that the Arkansas Decision collaterally estopped plaintiffs from alleging demand

14
Verified Complaint, Ind. Elec. Workers Pension Trust Fund IBEW v. Wal-Mart Stores,
Inc., C.A. No. 7779-CS (Del. Ch. Aug. 13, 2012).
15
In re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. No. 7455-CS (Del. Ch. Sept. 5, 2012)
(ORDER).
16
See Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 126
(Del. 2014).
17
See Ind. Elec. Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., C.A. No.
7779-CB (Del. Ch. May 7, 2015) (TRANSCRIPT).
18
Ind. Elec. Workers Pension Trust Fund IBEW v. Wal-Mart Stores, Inc., 2015 WL
2150668 (Del. Ch. May 7, 2015) (ORDER).

6
futility, and that even if they were not collaterally estopped, plaintiffs had failed to

adequately plead demand futility under Court of Chancery Rule 23.1.

I granted defendants’ motion to dismiss on May 13, 2016, finding that the

Arkansas Decision precluded the Delaware plaintiffs from re-litigating the issue of

demand futility.19 Specifically, I held that “[s]ubject to Constitutional standards of

due process, Arkansas law governs the question of issue preclusion in this case.”20

Under Arkansas law, issue preclusion applies when the following requirements are

satisfied:

(1) the issue sought to be precluded must be the same as the issue in the
prior litigation; (2) the issue must have been actually litigated; (3) the
issue must have been determined by a valid and final judgment; and (4)
the determination must have been essential to the judgment. In
addition, the parties to be precluded must have been parties in the prior
litigation or been in privity with those parties. Finally, the precluded
party must have been adequately represented in the previous
litigation.21

Although Arkansas courts have not addressed issue preclusion in the context of

stockholder derivative suits, which involves unique issues of “privity” and “adequate

19
Wal-Mart I, 2016 WL 2908344, at *1.
20
Id. See Alvarez, 2017 WL 239364, at *2 (“The parties agree that the Chancellor was
correct that, in determining the preclusive effect of the Arkansas federal court’s dismissal,
the Court of Chancery must look to federal common law, which, in turn, looks to the law
of the rendering state (Arkansas) in which the federal court exercises diversity
jurisdiction.”).
21
Wal-Mart I, 2016 WL 2908344, at *9 (citing Riverdale Dev. Co., LLC v. Ruffin Bldg.
Sys., Inc., 146 S.W.3d 852, 855 (Ark. 2004); Morgan v. Turner, 368 S.W.3d 888, 895 (Ark.

7
representation,” I concluded, based on the clear weight of authority from other

jurisdictions and guidance from the Restatement, that an Arkansas court likely would

find the test for issue preclusion satisfied in this case.

In reaching my conclusion on the “privity” issue, I looked to “decisions from

courts in other jurisdictions, the Restatement, and principles of public policy.”22 I

noted that “[a]pplying the privity requirement to derivative actions involving two

different stockholder plaintiffs raises the question whether the required privity is

between the two stockholders, or between each stockholder and the corporation.”23

After reviewing an extensive body of case law from other jurisdictions, I found that:

The vast majority of other jurisdictions that have decided the issue have
concluded that privity exists between different stockholder plaintiffs
who file separate derivative actions. The common theme in the
opinions where privity has been found is that the corporation is the real
party in interest in both the first derivative action and the subsequent
suit. Viewed in this fashion, the first stockholder plaintiff does not
represent the second stockholder plaintiff. Instead, both plaintiffs sue
on behalf of the corporation and are essentially interchangeable.24

I also found that “the Restatement is ambiguous on the privity question in the

derivative context,”25 and that “public policy arguments exist on both sides of the

2010); Ark. Dep’t of Human Servs. v. Dearman, 842 S.W.2d 449, 452 (Ark. Ct. App. 1992)
(en banc)).
22
Wal-Mart I, 2016 WL 2908344, at *13.
23
Id. at *12.
24
Id. at *13.
25
Id. at *15.

8
privity question,” but concerns about fast-filers “may be balanced by requiring that

a derivative plaintiff be an adequate representative in order for a judgment to have a

preclusive effect on subsequent actions.”26 As a result, I determined that Arkansas

courts likely would find the privity requirement satisfied.

In the last part of my issue preclusion analysis, I considered whether the

Arkansas plaintiffs were adequate representatives, and in doing so, addressed the

issue of due process that is embedded in the adequate representation requirement.27

More specifically, as explained in the opinion, I looked, as other courts have done,

to the Restatement for an analytical framework to determine compliance with due

process “because Constitutional principles of due process are embedded in the

pertinent provisions of the Restatement.”28 Applying Section 42 of the Restatement,

I concluded that the Arkansas plaintiffs were adequate representatives because their

interests were not misaligned, and because their representation was not “grossly

deficient,” which is a key standard for determining inadequacy under the

Restatement:

The failure of a representative to invoke all possible legal theories or to
develop all possible resources of proof does not make his representation
legally ineffective, any more than such circumstances overcome the
binding effect of a judgment on a party himself. . . . Where the
representative’s management of the litigation is so grossly deficient as

26
Id. at *17.
27
See id. at *18 & n.101.
28
See id. at *18 n.99 (collecting authorities).

9
 to be apparent to the opposing party, it likewise creates no justifiable
reliance interest in the adjudication on the part of the opposing party.
Tactical mistakes or negligence on the part of the representative are not
as such sufficient to render the judgment vulnerable.29

In assessing whether the Arkansas plaintiffs’ representation was grossly

deficient, I relied on guidance from the Delaware Supreme Court in Pyott v.

Louisiana Municipal Police Employees’ Retirement System (“Pyott II”), which

rejected a presumption of inadequacy for stockholders who fail to pursue books and

records before filing derivative actions.30 In this case, as in Pyott II, there was no

basis on which to conclude that the Arkansas plaintiffs were inadequate

representatives absent such a presumption.31 For these reasons, I determined that a

court in Arkansas would accord preclusive effect to the Arkansas Decision and,

impliedly, that the Delaware plaintiffs’ constitutional right to due process had not

been violated.

29
Restatement § 42 cmt. f (emphasis added); see Wal-Mart I, 2016 WL 2908344, at *19-
21.
30
See Pyott II, 74 A.3d at 618 (“We reject the ‘fast-filer’ irrebuttable presumption of
inadequacy. . . . Absent the presumption, there was no basis on which to conclude that the
California plaintiffs were inadequate”).
31
See Wal-Mart I, 2016 WL 2908344, at *19-21.

10
 C. The Remand Order

Plaintiffs appealed from Wal-Mart I. On January 18, 2017, the Delaware

Supreme Court issued the Remand Order, asking this Court to address the following

question:

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).32

Following remand, the Court received supplemental briefing from the parties.

II. ANALYSIS

A. Nonparty Preclusion in General

In Richards v. Jefferson County, Alabama, the United States Supreme Court

stated that:

State courts are generally free to develop their own rules for protecting
against the relitigation of common issues or the piecemeal resolution of
disputes. We have long held, however, that extreme applications of the
doctrine of res judicata may be inconsistent with a federal right that is
“fundamental in character.”33

32
Alvarez, 2017 WL 239364, at *8.
33
Richards v. Jefferson Cty., Ala., 517 U.S. 793, 797 (1996) (internal citations omitted).

11
As I read the Remand Order, the Delaware Supreme Court appears to agree with the

issue preclusion analysis set forth in Wal-Mart I as a matter of Arkansas state law,34

which follows the approach most jurisdictions have taken. Thus, frankly stated, the

issue presented on remand is whether the predominant approach on issue preclusion

in the derivative action context constitutes such an “extreme application[] of the

doctrine of res judicata” as to affront due process.

In 2008, in Taylor v. Sturgell, the United States Supreme Court struck down,

on due process grounds, a “virtual representation” theory that was purportedly based

on some Supreme Court decisions “recognizing that a nonparty may be bound by a

judgment if she was adequately represented by a party to the earlier suit.”35 The

Court began its analysis by citing the general rule stated in Hansberry v. Lee that

“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

34
See Alvarez, 2017 WL 239364, at *3 (“Although we reserve judgment until our final
ruing after remand, we presently have no disagreement with the Court of Chancery’s
analysis of Arkansas law (which largely looks to the Restatement (Second) of
Judgments)—particularly as it relates to the questions of whether the issue to be precluded
was actually litigated and the adequacy of representation.”); id. at *5 (“As a matter of
Arkansas state law on the privity issue, we are presently satisfied with the state of the record
and do not perceive any error.”).
35
Taylor v. Sturgell, 553 U.S. 880, 898 (2008).

12
process.”36 The Court then delineated six categories of recognized exceptions to the

general rule against nonparty preclusion:37

First, a person who agrees to be bound by the determination of issues
in an action between others is bound in accordance with the terms of
his agreement.

*****

Second, nonparty preclusion may be justified based on a variety of pre-
existing substantive legal relationships between the person to be bound
and a party to the judgment.

*****

Third, . . . in certain limited circumstances, a nonparty may be bound
by a judgment because she was adequately represented by someone
with the same interests who was a party to the suit. Representative
suits with preclusive effect on nonparties include properly conducted
class actions, and suits brought by trustees, guardians, and other
fiduciaries.

*****

Fourth, a nonparty is bound by a judgment if she assumed control over
the litigation in which that judgment was rendered.

*****

36
Id. at 893 (quoting Hansberry v. Lee, 311 U.S. 32, 40 (1940)).
37
The Supreme Court avoided using the term “privity” in Sturgell to prevent confusion
because “privity,” which originally referred to the “substantive legal relationships
justifying preclusion” (the second exception identified in Sturgell), “has also come to be
used more broadly, as a way to express the conclusion that nonparty preclusion is
appropriate on any ground.” Id. at 894 n.8. Case law also suggests that it might be difficult
to draw a clear line between “privity” and “adequate representation.” See, e.g., In re Sonus
Networks, Inc., S’holder Deriv. Litig., 499 F.3d 47, 64 (1st Cir. 2007) (referring to the
“adequate representation” requirement as a “caveat” for the privity finding).

13
 Fifth, a party bound by a judgment may not avoid its preclusive force
by relitigating through a proxy.

*****

Sixth, in certain circumstances a special statutory scheme may
expressly foreclose successive litigation by nonlitigants . . . if the
scheme is otherwise consistent with due process.38

In the lower court opinion in Sturgell, the D.C. Circuit purported to ground its

virtual representation doctrine in the third exception that, “in some circumstances, a

person may be bound by a judgment if she was adequately represented by a party to

the proceeding yielding that judgment.”39 The Supreme Court, however, found that

the D.C. Circuit had misapprehended the constitutional standard of “adequate

representation,” which required, at a minimum, “either special procedures to protect

the nonparties’ interests or an understanding by the concerned parties that the first

suit was brought in a representative capacity.”40

The Sturgell Court’s focus on the adequacy of representation in its due process

analysis of the application of the third exception suggests that the “adequate

representation” requirement provides the core constitutional check on when a

nonparty may be bound by a judgment against someone with the same interests who

was a party in a prior suit. In addition, although not many cases have addressed the

38
Sturgell, 553 U.S. at 893-95 (internal citations and quotations omitted) (emphasis added).
39
Id. at 896.
40
Id. at 897, 900.

14
issue of due process in the context of precluding relitigation of demand futility in

stockholder derivative actions, those that have done so—in particular two federal

circuit courts—also focused their due process inquiries on the adequacy of

representation.

B. Nonparty Preclusion in Derivative Actions: Arduini and Sonus

In 2014, in Arduini v. Hart, the Ninth Circuit affirmed a district court’s

dismissal of a derivative action filed by plaintiff Lawrence Arduini.41 Arduini had

filed his action in federal court in Nevada against International Gaming Technology

and its board of directors, alleging that certain officers of the company made

intentionally misleading statements about the company’s financial prospects.42

Before Arduini filed his lawsuit, however, the same court had dismissed another

derivative action (the Fosbre action) asserting substantially similar claims for failure

to make a demand on the company’s board or to sufficiently allege demand futility.43

Applying the doctrine of issue preclusion, the district court held that Arduini was

barred from relitigating demand futility based on the dismissal of the Fosbre action.

In an opinion post-dating Sturgell, the Ninth Circuit affirmed.44

41
Arduini v. Hart, 774 F.3d 622, 625 (9th Cir. 2014).
42
Id.
43
Id.
44
Id.

15
 Arduini contended on appeal that issue preclusion should not apply because,

among other things, “he is not in privity with the Fosbre plaintiffs for the purposes

of issue preclusion,” and “the equities and due process weigh against applying issue

preclusion here.”45 On the privity issue, Arduini advanced the same argument as the

plaintiffs in Wal-Mart I, namely, that “there is no privity because shareholders who

fail to establish their representative capacity can only act on their own behalf and are

not in privity with other shareholders.”46 Significantly, the Ninth Circuit followed

the majority rule from other jurisdictions to find privity, despite its stated concern

about due process rights:

The fact that Arduini was not a party to the Fosbre case does potentially
raise concerns. The Nevada Supreme Court has stated that issue
preclusion can only be used against a party whose due process rights
have been met by virtue of that party having been a party or in privity
with a party in the prior litigation.47

Thus, in holding the way it did, the Ninth Circuit implicitly rejected the notion that

finding privity between Arduini and his fellow stockholders violated due process

even though the earlier stockholder plaintiffs failed to establish demand futility.

45
Id. at 629.
46
Id. at 633 (citing Pyott I, 46 A.3d at 330).
47
Arduini, 774 F.3d at 633.

16
 The Ninth Circuit also expressly considered due process in connection with

its discussion of adequate representation.48 It noted that “precluding the suit of a

litigant who has not been adequately represented in the earlier suit would raise

serious due process concerns.”49 Although the Court left “for another day the precise

contours of what conduct constitutes inadequate representation,” the authorities it

cited were consistent with the “grossly deficient” standard in the Restatement. In

particular, the Court cited In re Sonus Networks, Inc., Shareholder Derivative

Litigation, a First Circuit decision (discussed below) that adopted the “grossly

deficient” standard,50 and it looked to Section 42(1) of the Restatement, which, as

noted above, utilizes a “grossly deficient” standard for determining adequacy of

representation.51 Relying on these authorities, the Ninth Circuit concluded that the

earlier stockholder plaintiffs were adequate representatives.

48
See id. at 634-38. It appears that “adequate representation” is not an element of issue
preclusion under Nevada state law. See id. at 629 (“In order for an issue decided in another
case to have preclusive effect, (1) the issue decided in the prior litigation must be identical
to the issue presented in the current action; (2) the initial ruling must have been on the
merits and have become final; . . . (3) the party against whom the judgment is asserted must
have been a party or in privity with a party to the prior litigation; and (4) the issue was
actually and necessarily litigated.”). Thus, as I read the decision, the Arduini Court’s
discussion of adequate representation was driven by constitutional concerns.
49
Id. at 635 (internal citations omitted).
50
Id.; see Sonus, 499 F.3d at 66, 71.
51
Arduini, 774 F.3d at 635.

17
 Relying on Sturgell, furthermore, Arduini raised a due process argument that

he should have been given notice of the dismissal of the earlier case. The Ninth

Circuit rejected the argument, reasoning that “Taylor v. Sturgell is inapposite”

because, unlike in Sturgell, “[h]ere, both Arduini and the Fosbre plaintiffs were

acting in a representative capacity as shareholders on behalf of [International

Gaming Technology]. Because the Fosbre plaintiffs adequately represented the

shareholders and issue preclusion applies, there is no need for Arduini to receive

personal notice of the Fosbre court’s decisions.”52

In sum, the Arduini Court was aware of the Supreme Court’s decision in

Sturgell, explicitly considered due process in its rulings on adequacy of

representation and the failure to provide notice of the Fosbre dismissal, and

implicitly considered due process in its ruling on privity. In the end, however, the

Court did not find any constitutional obstacle in barring Arduini from relitigating

demand futility.

In 2007, the First Circuit reached a similar conclusion in Sonus, where it

affirmed a district court’s dismissal of a stockholder derivative action on the basis

that dismissal of an earlier derivative action in Massachusetts state court precluded

plaintiffs in the federal court from relitigating demand futility. 53 In rejecting

52
Id. at 638 (emphasis added).
53
Sonus, 499 F.3d at 53.

18
plaintiffs’ argument that privity did not exist because “the state court judgment did

not adjudicate the corporation’s rights, but only the question of whether the state

court plaintiffs should be permitted to bring suit on behalf of the corporation,” the

First Circuit stated that: “plaintiffs’ argument could have some force if the question

in the state court had concerned some issue peculiar to the state court plaintiffs or

the adequacy of their representation, but it did not.”54 The Court further

commented that “[p]recluding the suit of a litigant who has not been adequately

represented in the earlier suit would raise serious due process concerns” and went

on to adopt the “grossly deficient” standard under the Restatement to determine

adequacy of representation.55

Thus, similar to Arduini, the Sonus Court focused its due process inquiry on

the adequacy of representation in the first derivative action.56 This is the logic

underlying Wal-Mart I as well. In other words, ensuring compliance with due

54
Id. at 64 (emphasis added). Although Sonus pre-dated Sturgell, the First Circuit noted
that the “structural fact about derivative litigation” (i.e., that “the corporation is bound by
the results of the suit in subsequent litigation, even if different shareholders prosecute the
suits”) “makes irrelevant questions of ‘virtual representation,’ that is, the representation by
a party of a nonparty outside the context of a class action.” Id. at 64 & n.10.
55
See id. at 65, 66, 71.
56
In Pyott II, although “adequate representation” was not one of the five factors identified
for issue preclusion under California law, see Pyott II, 74 A.3d at 617, the Delaware
Supreme Court nevertheless addressed the issue, citing Justice Ginsburg’s partial
concurrence and dissent in Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 395-
96 (1996), for the proposition that “final judgments can be attacked collaterally on due
process grounds for failure to satisfy the adequate representation requirement.” Id. at 618
& n.21.

19
process was embedded in my analysis of whether the Arkansas plaintiffs were

adequate representatives, which turned on my application of principles from the

Restatement, primarily the “grossly deficient” standard that the Arduini and Sonus

Courts also employed.57

C. A Different Approach to Non-Party Preclusion in Derivative
Actions: EZCORP

Last year, Vice Chancellor Laster advocated for a different approach for

addressing non-party preclusion in derivative actions than the Arduini and Sonus

Courts. In EZCORP, a plaintiff filed a derivative complaint against three outside

directors of EZCORP, Inc. After the defendants’ motion to dismiss was fully briefed

but before it was argued, the Delaware Supreme Court issued an intervening decision

that led the plaintiff to re-evaluate the strength of his allegations and to propose a

voluntary dismissal without prejudice. The defendants, however, sought a dismissal

with prejudice “as to the world.”58 Applying Court of Chancery Rule 15(aaa), the

Court ruled that the complaint should be dismissed with prejudice but only as to the

named plaintiff.59

57
Wal-Mart I, 2016 WL 2908344, at *17-21.
58
EZCORP, 130 A.3d at 940.
59
Id. at 938.

20
 The EZCORP Court then went on to hold, in dicta, that both as a matter of

Delaware law60 and as a matter of due process, a judgment cannot bind “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.”61 In other words, the EZCORP

Court proposed a bright-line rule drawing a distinction between the pre- and post-

demand futility phases of derivative litigation. In so concluding, the Court

analogized stockholder derivative actions to class actions, relying on the United

State Supreme Court’s 2011 decision in the class action context in Smith v. Bayer.62

In Bayer, a federal district court enjoined a state court from considering a

plaintiff’s motion for class certification because the district court previously had

denied a similar certification motion in a related case that was brought by a different

plaintiff against the same defendant (Bayer) alleging similar claims. 63 After the

Eighth Circuit affirmed the decision, the precluded plaintiff appealed to the United

States Supreme Court. On appeal, Bayer argued that preclusion was proper because

the plaintiff qualified as a party to the prior litigation, and in the alternative, because

60
Id. at 943-46. I note that Delaware law is unsettled on this issue. See Pyott II, 74 A.3d
at 618 (“Although the Court of Chancery is divided on the privity issue as a matter of
Delaware law, we cannot address the merits of that issue in this case.”).
61
EZCORP, 130 A.3d at 948.
62
Id. at 946-49.
63
Bayer, 564 U.S. at 302.

21
the plaintiff fell under the class action exception to the rule against nonparty

preclusion.64

The Supreme Court swiftly rejected the first argument, holding that the

“definition of the term ‘party’ can on no account be stretched so far as to cover a

person like Smith, whom the plaintiff in a lawsuit was denied leave to represent.”65

It also rejected the alternative argument based on the class action exception,

reasoning that: “If we know one thing about the McCollins suit, we know that it was

not a class action. Indeed, the very ruling that Bayer argues ought to be given

preclusive effect is the District Court’s decision that a class could not properly be

certified.”66

The Supreme Court further noted that Bayer’s position was essentially a

reincarnation of the “virtual representation” theory rejected in Sturgell, which was

based on “identity of interests and some kind of relationship between parties and

nonparties.”67 As the Sturgell Court held, such a theory would “recognize, in effect,

a common-law kind of class action. . . . shorn of the procedural protections

prescribed in Hansberry, Richards, and Rule 23.”68

64
See id. at 313.
65
Id.
66
Id. at 314 (emphasis in original).
67
Id. at 315 (citing Sturgell, 553 U.S. at 901).
68
Sturgell, 553 U.S. at 901.

22
 The EZCORP Court reasoned that before a stockholder acquires authority to

litigate on behalf of a corporation, either by obtaining approval from the corporation,

or by surviving a Rule 23.1 motion to dismiss, she is in a similar position as a

purported class representative for an uncertified class. Thus, the Court concluded

that, “[u]nder the logic of Bayer, the Due Process Clause forecloses a judgment in a

derivative action that is entered before the stockholder plaintiff acquires authority to

litigate on behalf of the corporation from binding anyone other than the named

stockholder plaintiff.”69

D. Nonparty Preclusion in Derivative Actions: Re-examining the Law

Although Arduini, Sonus, and most other cases from various jurisdictions

have come to similar conclusions on issue preclusion in the demand futility context,

albeit typically in the context of considering the issue of privity,70 I respectfully

suggest that the Supreme Court should consider a different approach and adopt the

one suggested in EZCORP. I base this recommendation on (1) the similarities

between class actions and derivative actions, (2) some of the realities of derivative

litigation, and (3) public policy considerations.

69
EZCORP, 130 A.3d at 949.
70
See Wal-Mart I, 2016 WL 2908344, at *13 n.69 (collecting authorities).

23
 1. Similarities between Class Actions and Derivative Actions

Defendants advance two major arguments to distinguish Bayer and EZCORP.

First, defendants argue that Bayer did not establish any constitutional principles

because the Bayer Court expressly based its decision “on the Anti-Injunction Act

and the principles of issue preclusion,” and did not consider petitioner’s argument

on due process.71 Although the Bayer Court did not specifically address due process,

its discussion of nonparty preclusion, which heavily relied upon Sturgell, has

obvious constitutional overtones. As discussed below, moreover, the importance of

Bayer is not so much in its holding, but in its logic, which, if applied to the derivative

action context, would have due process implications under the framework set forth

in Sturgell.

Second, defendants argue that “EZcorp rested on a false equivalence between

class and derivative actions” and that “[c]lass and derivative actions are not the

same—they arise from different substantive laws and are implemented through

different procedural rules.”72 To my mind, however, there are significant similarities

between class and derivative actions.

In Parfi Holding AB v. Mirror Image Internet, then-Vice Chancellor Strine

stated that: “Although it is too often overlooked, derivative suits are a form of

71
Bayer, 564 U.S. at 308 n.7. See Appearing Defs.’ Suppl. Br. on Remand 16-17.
72
See Appearing Defs.’ Suppl. Br. on Remand 19-26.

24
representative action. Indeed, they should be seen for what they are, a form of class

action.”73 Not only do class actions and derivative actions have apparent similarities,

the rules that govern their respective operations in federal courts—Federal Rules of

Civil Procedure 23 and 23.1—share a common ancestry: derivative actions in

federal courts were governed by Rule 23 until 1966, when Rule 23.1 was adopted.74

Federal Rules 23 and 23.1 also share similar texts and structures. For

example, Rule 23(a) lays out the prerequisites for bringing a class action, which

include numerosity, commonality, typicality, and adequacy. 75 By comparison,

Federal Rule 23.1(a) states that a derivative action may only be maintained if the

plaintiff “fairly and adequately represent[s] the interests of shareholders or members

who are similarly situated in enforcing the right of the corporation or association.”76

73
Parfi Hldg. AB v. Mirror Image Internet, 954 A.2d 911, 940 (Del. Ch. 2008) (Strine,
V.C.).
74
See 7A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Fed. Practice and
Procedure § 1753, at 42-43 (3d ed. 2005) (“The provisions for representative actions were
completely re-written and augmented in 1966. Drastically altered provisions for the
conduct of ordinary class actions are to be found in Rule 23, a new Rule 23.1 was adopted,
replacing original Rule 23(b), to deal with derivative actions by stockholders.”); see also
Snyder v. Harris, 394 U.S. 332, 351 n.13 (1969) (“A ‘true’ class action could also be
maintained to enforce a right ‘secondary in the sense that the owner of a primary right
refuses to enforce that right and a member of the class thereby becomes entitled to enforce
it.’ Stockholders’ derivative actions were the most significant type of suit within this
group. They are now separately dealt with under Rule 23.1 in addition.”).
75
Fed. R. Civ. P. 23(a)(1)-(4). In addition to satisfying the prerequisites in Rule 23(a), a
class action must fall under one of the sub-categories in Rule 23(b). Fed. R. Civ. P. 23(b).
76
Fed. R. Civ. P. 23.1(a).

25
It is understandable that Rule 23.1(a) only requires “adequacy” and not the other

three elements set out in Rule 23(a). By definition, a derivative action satisfies the

“commonality” and “typicality” requirements, and given the identity of issues

presented regardless of which stockholder brings the action, the “numerosity”

requirement is irrelevant in the derivative context.

Other similarities between class actions and derivative actions under the

federal rules can be found in the procedural protections afforded to the unnamed

class members or stockholders. Rule 23(e) and Rule 23.1(c) both require court

approval and appropriate notice in cases of settlement, voluntary dismissal, or

compromise.77 Rule 23(d) gives a trial court extensive power to ensure “the fair and

efficient conduct” of a class action, including the power to issue orders that

“determine the course of proceedings” and require “appropriate notice to some or all

class members.”78 Similarly, the Advisory Committee Notes accompanying Rule

23.1 state that “[t]he court has inherent power to provide for the conduct of the

77
Fed. R. Civ. P. 23(e) (“The claims, issues, or defenses of a certified class may be settled,
voluntarily dismissed, or compromised only with the court’s approval. The following
procedures apply to a proposed settlement, voluntary dismissal, or compromise: (1) The
court must direct notice in a reasonable manner to all class members who would be bound
by the proposal.”); Fed. R. Civ. P. 23.1(c) (“A derivative action may be settled, voluntarily
dismissed, or compromised only with the court’s approval. Notice of a proposed
settlement, voluntary dismissal, or compromise must be given to shareholders or members
in the manner that the court orders.”).
78
Fed. R. Civ. P. 23(d) & Advisory Committee Notes; see also 7B Wright, Miller & Kane,
supra note 74, § 1791.

26
proceedings in a derivative action, including the power to determine the course of

the proceedings and require that any appropriate notice be given to shareholders or

members.”79

There also is significant appeal in the analogy advanced in EZCORP, which

focused on the similarities between a stockholder who is denied authority to sue on

the corporation’s behalf and a purported class representative who is denied his bid

to represent the proposed class.80 Both federal and Delaware courts have long

recognized the dual nature of derivative litigation. For example, in Ross v. Bernhard,

the United States Supreme Court observed “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.”81 Similarly, in Aronson v. Lewis, the

Delaware Supreme Court held that: “The nature of the [derivative] action is two-

fold. First, it is the equivalent of a suit by the shareholders to compel the corporation

79
Fed. R. Civ. P. 23.1 Advisory Committee Notes (1966).
80
See EZCORP, 130 A.3d at 947.
81
Ross v. Bernhard, 396 U.S. 531, 534-35 (1970); see also Kamen v. Kemper Fin. Servs.,
Inc., 500 U.S. 90, 96 (1991) (internal citations and quotations omitted) (“Ordinarily, it is
only when demand is excused that the shareholder enjoys the right to initiate suit on behalf
of his corporation in disregard of the directors’ wishes.”).

27
to sue. Second, it is a suit by the corporation, asserted by the shareholders on its

behalf, against those liable to it.”82

As noted in Wal-Mart I, “[t]he common theme in the opinions” that have

concluded that privity exists between different stockholder plaintiffs who file

separate derivative actions “is that the corporation is the real party in interest in both

the first derivative action and the subsequent suit.”83 That the corporation is the real

party in interest, however, does not answer who has the authority to represent the

corporation. When a court denies a stockholder the authority to sue on behalf of the

corporation by granting a Rule 23.1 motion to dismiss, the purported derivative

action is no more a representative action than the proposed class action in Bayer that

was denied certification. Thus, a strong case can be made that a derivative action

that has not survived a Rule 23.1 motion to dismiss should not fall under the

representative action exception in Sturgell.84

82
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled on other grounds, Brehm v.
Eisner, 746 A.2d 244 (Del. 2000). See also EZCORP, 130 A.3d at 943-44 (discussing the
dual nature of derivative actions as a matter of Delaware law).
83
Wal-Mart I, 2016 WL 2908344, at *13.
84
In the Remand Order, the Supreme Court commented that “there is much force in the
suggestion that the Delaware Plaintiffs should have sought to intervene in the Arkansas
court to protect their interests—notwithstanding the fact that they had not yet obtained the
documents they were seeking” in the Section 220 action. Alvarez, 2017 WL 239364, at *4.
It should be noted, however, that the United States Supreme Court held in Richards that
“[t]he general rule is that the law does not impose upon any person absolutely entitled to a
hearing the burden of voluntary intervention in a suit to which he is a stranger.” Richards,
517 U.S. at 800 n.5 (internal citations and quotations omitted).

28
 2. “Adequate Representation” in Derivative Litigation Practice

The need for a more rigorous preclusion rule in the derivative action context

is heightened by the disparity between class and derivative actions in terms of how

adequacy of representation is assessed in practice. Both Federal Rule 23 and Rule

23.1 require the proposed class or stockholder representative to be “adequate,” and

there are some similarities in the standard of adequacy under the two rules.85 But in

the class action context, the purported class representative has to affirmatively

demonstrate his adequacy in order to obtain certification.86 In a derivative action,

by comparison, the burden is on the defendant to show that the plaintiff is an

inadequate representative.87

Class actions also frequently engender competition at the front-end in the

appointment of class counsel where the Court considers, among other things, the

85
See 7C Wright, Miller & Kane, supra note 74, § 1833 at 147 (recognizing that the new
Rule 23.1 “does not represent a change in substance” and that “[m]any of the factors that
are considered when determining adequacy of representation in a class action under Rule
23 also apply in the context of derivative suits.”).
86
See Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013) (internal citations and
quotations omitted) (“a party seeking to maintain a class action must affirmatively
demonstrate his compliance with Rule 23. The Rule does not set forth a mere pleading
standard. Rather, a party must . . . be prepared to prove that there are in fact sufficiently
numerous parties, common questions of law or fact, typicality of claims or defenses, and
adequacy of representation, as required by Rule 23(a).”).
87
See Smallwood v. Pearl Brewing Co., 489 F.2d 579, 592 n.15 (holding that under Federal
Rule of Civil Procedure 23.1, the “burden is on the defendants to obtain a finding of
inadequate representation”). See also 7C Wright, Miller & Kane, supra note 74, § 1834 at
159.

29
quality of the pleadings and the vigorousness of plaintiff’s counsel.88 Such

competition is less common, at least in my experience, in derivative litigation, where

plaintiff’s counsel invariably have the option to file suit in a second forum and begin

a race to the courthouse rather than to compete for leadership. Once multi-forum

derivative litigation is underway, or even just anticipated, defendants often have an

incentive not to challenge adequacy in an initial derivative action (e.g., if the

plaintiff’s demand futility allegations appear weak) in the hope of obtaining a

favorable determination on demand futility to bar re-litigation of the issue in a later

proceeding against a more formidable adversary, i.e., one who has undertaken

additional due diligence and filed a more factually-developed pleading.89

In the Arkansas Decision, the district court judge did not discuss the Arkansas

plaintiffs’ adequacy.90 The same was true in Sonus, where “the adequacy of the

plaintiffs’ representation was not litigated . . . in either [the state or the federal]

88
See Hirt v. U.S. Timberlands Serv. Co., LLC, 2002 WL 1558342, at *2 (Del. Ch. July 3,
2002). See also Moore v. Tangipadoa Parish School Bd., 298 F. Supp. 288, 294 (E.D. La.
1969) (“When more than one member of a class seeks to represent the class, the court must
determine which applicant’s interests are most typical of the interests of the class as a whole
and which group will most fairly and adequately protect the interests of the class they
represent.”); 7A Wright, Miller & Kane, supra note 74, § 1765 at 320-21.
89
This is not to say that a stockholder plaintiff’s adequacy is never challenged in a
derivative litigation. See, e.g., Parfi, 954 A.2d at 942 (finding the plaintiffs to be
inadequate representatives because they knowingly misled the court about a material
issue); Youngman v. Tahmoush, 457 A.2d 376 (Del. Ch. 1983); Katz v. Plant Indus., Inc.,
1981 WL 15148 (Del. Ch. Oct. 27, 1981).
90
See generally Arkansas Decision, 2015 WL 1470184.

30
action.”91 As a practical matter, the first time a court may evaluate the adequacy of

a named plaintiff’s representation in a derivative action is when it applies the issue

preclusion test in a subsequent case. What is lost in this back-end form of adequacy

review is the ability for courts to compare the qualities of competing representatives

and to choose the best representative for the corporation and stockholders up-front,

on a clean slate.

In short, under the current state of the law, the moment a stockholder files a

derivative action, he is deemed in most jurisdictions to be in privity with all the other

stockholders of the corporation that he purports to represent. This “automatic

privity” rule, together with an adequacy review undertaken at the back end under a

“grossly deficient” standard that sets a relatively high bar for challenging the

adequacy of one’s representation, strikes a balance between preventing duplicative

litigation and protecting due process rights that is far less favorable to stockholder

plaintiffs in derivative litigation than it is to unnamed members in class actions.

3. Public Policy

Competing public policies exist on both sides of the debate concerning current

issue preclusion law in the demand futility context. On one hand, the current legal

regime better serves judicial efficiency and conserves public resources by preventing

91
Sonus, 499 F.3d at 65.

31
duplicative litigation concerning demand futility.92 On the other hand, the approach

suggested in EZCORP should go a long way to addressing the “fast-filer” problem

and ensuring better protection of due process rights for stockholder plaintiffs.

In balancing similar competing policies, the United States Supreme Court’s

observations in Sturgell and Bayer are instructive. In Sturgell, the Federal Aviation

Administration argued that in public law cases, “the number of plaintiffs with

standing is potentially limitless,” thus the virtual representation theory is necessary

to combat the threat of repetitive lawsuits.93 The Supreme Court was unconvinced.

It reasoned that:

First, stare decisis will allow courts swiftly to dispose of repetitive suits
brought in the same circuit. Second, even when stare decisis is not
dispositive, “the human tendency not to waste money will deter the
bringing of suits based on claims or issues that have already been
adversely determined against others.” This intuition seems to be borne
out by experience: The FAA has not called our attention to any
instances of abusive FOIA suits in the Circuits that reject the virtual
representation theory respondents advocate here.94

Similarly, in Bayer, Bayer Corp. argued that the Supreme Court’s decision not

to bind unnamed class members in an uncertified class would allow repetitive

92
Defendants argue that “the defendants in a derivative suit—the company and its directors
and officers—also have due process rights, including a right to avoid serial and duplicative
litigation.” Appearing Defs.’ Suppl. Br. on Remand 26. But I could discern no support for
such a “due process right” in either of the two cases the defendants cited for this
proposition, without providing any textual explanation.
93
Sturgell, 553 U.S. at 903.
94
Id. at 903-04.

32
litigation to try to certify the same class simply by changing named plaintiffs. The

Court responded: “But principles of stare decisis and comity among courts generally

suffice to mitigate the sometimes substantial costs of similar litigation brought by

different plaintiffs. The right approach does not lie in binding nonparties to a

judgment.”95

The same reasoning applies with equal force to derivative actions. Although

different stockholders theoretically would be able to file seriatim lawsuits litigating

demand futility under the EZCORP rule, principles of stare decisis and comity are

likely sufficient to allow courts to swiftly dispose of truly repetitive actions. The

experience of this Court suggests that when one stockholder fails to establish

demand futility, rarely does another stockholder file a substantially similar

complaint simply to try again. What can and does happen is that a second

stockholder plaintiff will file a more refined complaint with more particularized

allegations or more tailored legal theories after doing additional homework, such as

obtaining corporate books and records through a Section 220 proceeding.96 In these

cases, the second court presumably would be understandably cautious about

following earlier rulings in cases brought by less prepared stockholders.

95
Bayer, 564 U.S. at 317.
96
E.g., Pyott I, 46 A.3d 313; Wal-Mart I, 2016 WL 2908344.

33
 In the pre-demand futility stage of a derivative action, furthermore, the

plaintiff is essentially litigating against his own company over the right to sue. Thus,

unlike the plaintiffs in Sturgell or Bayer, who ostensibly had little economic

incentive to conserve the resources of the defendants, plaintiffs in derivative actions

have more incentive to bring truly meritorious cases on behalf of the company,

especially if a similar prior attempt already has failed.

III. CONCLUSION

For the foregoing reasons, having carefully considered the question in the

Remand Order from a fresh perspective and with an open mind, I recommend that

the Supreme Court adopt the rule proposed in EZCORP. If the Court agrees with

this recommendation, the case will need to be remanded again for me to decide the

issue of demand futility based on the allegations in plaintiffs’ complaint. If the Court

disagrees, I respectfully submit that Wal-Mart I correctly dismissed plaintiffs’

complaint consistent with prevailing authority and should be affirmed.97

97
In their supplemental brief on remand, plaintiffs argue that issue preclusion also should
not apply because the Arkansas Decision was not based on factual findings on the merits.
Co-lead Pls.’ Resp. to Certified Question on Remand 21-25. Plaintiffs never raised this
argument previously in this litigation, and thus waived it. See Del. S. Ct. R. 14(b)(vi)(A)(3)
(“The merits of any argument that is not raised in the body of the opening brief shall be
deemed waived and will not be considered by the Court on appeal.”).

34