Vice Chancellor Travis Laster is much aggrieved about the
reception accorded to his ruling last month in the Allergan
In case you don't remember the decision, Laster ruled that
plaintiffs' lawyers in a derivative suit against Allergan's
directors and officers can proceed with their case in Delaware
Chancery Court, even though a federal judge in California threw
out a parallel suit brought by a different set of plaintiffs'
firms. I'm drastically simplifying a very complex decision, but
Laster essentially concluded that Delaware law prevails, and
under Delaware law the California plaintiffs didn't stand in the
shoes of the corporation -- the nominal plaintiff in derivative
litigation -- because their claims were dismissed. That left the
door open to the Delaware case. Laster also said there was no
collateral estoppel because the fast-to-file firms that brought
the California case hadn't done an adequate presuit
investigation using a books and records demand.
The much-discussed June ruling was unquestionably a rebuke
to plaintiffs' firms with what Laster called a "hit-and-hope"
business model and was interpreted by some to be a slap at the
California judge who tossed the parallel case. Allergan's
lawyers at Gibson, Dunn & Crutcher and Morris, Nichols, Arsht &
Tunnell promptly moved for leave to appeal to the Delaware
Supreme Court, arguing that Laster's "groundbreaking" decision
had effectively "changed the course of derivative litigation"
because of his "explicit policy determination about how (such)
litigation ought to be conducted."
At a hearing last Friday that offers fascinating insight
into Laster's thinking, the vice chancellor said Allergan's
lawyers -- and plenty of other people -- are wrong in just about
everything they've said about his ruling. He insisted that he
had stayed well within the bounds of Delaware precedent and
chided Allergan's lawyers for the "kitchen sink" tactic of
dragging constitutional due process and the Commerce Clause into
their brief. He also informed the plaintiffs' lawyers in the
case that they "still aren't getting" his reasoning on who
controls the board's right to sue corporate executives, and
scalded a legal blogger (not me!) who, in Laster's view,
misstated either the Allergan ruling or relevant precedent at
every turn of his analysis.
For good measure, Laster tossed in some nasty remarks about
a plaintiffs' firm that isn't even in this case but lost the
federal court case that led to precedent on collateral estoppel
in multijurisdictional derivative litigation. He also ruminated,
again, on the scourge of plaintiffs' lawyers racing to various
courthouses to file their derivative suits, and pointed out that
most plaintiffs' firms (with the noted exceptions of Prickett,
Jones & Elliott, Chimicles & Tikellis and Rosenthal Monhait &
Goddess) don't know anything about the technicalities of
Delaware law. This transcript is really quite something.
Almost as an aside, the vice chancellor agreed to certify
the case for interlocutory appeal, although he said he doesn't
know if the Delaware Supreme Court will take the case and
doesn't believe Allergan has a chance of winning even if the
high court agrees to hear it.
Substantively, the hearing gave Laster a chance to explain
what he meant to accomplish in his ruling, which wasn't to
demean the federal judiciary or to give plaintiffs' lawyers the
right to file successive derivative suits alleging the same
facts as one after the other is dismissed. His point, he said,
was that "diligent plaintiffs should get to litigate," whether
in Delaware or another jurisdiction. And if his ruling means
that defendants have to litigate twice, once against fast filers
who didn't bother to sue for books and records before asserting
breach-of-duty claims and once against the diligent plaintiffs
who waited to file an informed complaint, well, that's no worse
than the way things stand today, Laster said.
At the end of the hearing, Laster apologized for "the overly
lengthy nature of these comments" but said they were necessary
"because of the number of arguments that were raised in the
papers, some of which were rather extreme, and the need,
therefore, to address them in the context of evaluating the
likelihood of success on the appeal."
I think we're now all clear on where the vice chancellor
(Reporting by Alison Frankel)
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