On April 4, 2013, the Delaware Supreme Court issued an opinion in Pyott v. Louisiana Municipal Police Employees' Retirement System, holding that the Delaware Chancery Court needed to give preclusive effect to a previous federal court judgment dismissing a similar shareholder derivative complaint against the same defendants.

This shareholder derivative case resulted from drug corporation Allergan, Inc.'s agreement to pay $600 million in civil and criminal fines for misbranding BOTOX. Several other shareholder derivative suits alleging essentially the same claims were consolidated in the US District Court for the Central District of California. The federal court granted the defendants' motion for dismissal with prejudice.

The Chancery Court, however, denied the defendants' motion to dismiss the Delaware action. It held that the elements of collateral estoppel were not satisfied because under Delaware law, the federal plaintiffs and the Delaware plaintiffs were not in privity. The defendants appealed.

The Delaware Supreme Court reversed. It held that the preclusive effect of a judgment must be determined under the law governing the court that issued it. The Chancery Court failed to follow this rule because it commingled collateral estoppel (governed here by California law) with the underlying issues of corporate law (governed here by Delaware law). Applying California law, the Delaware Supreme Court held that the federal judgment satisfied all elements of collateral estoppel.

The Delaware Supreme Court also held that the federal plaintiffs were adequate representatives of the Delaware plaintiffs for collateral estoppel purposes. The Chancery Court had applied an irrebuttable presumption that derivative plaintiffs who file complaints very quickly after an event, without seeking the corporate defendant's books and records, are inadequate representatives. The Delaware Supreme Court rejected this presumption and found nothing in the record making these particular plaintiffs inadequate.

This decision reminds counsel in multi-jurisdictional litigation that preclusion must be analyzed under the law of the forum where the previous judgment issued, even if the law of another forum might produce a different result.