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Weil Wins Delaware Supreme Court Appeal for Directors of lululemon in Shareholder Derivative Action

On February 3, 2017, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of a stockholder derivative action alleging that lululemon’s board of directors failed to investigate alleged insider trading by Dennis J. Wilson, the founder and then-chairman of the board of lululemon. Plaintiffs, lululemon stockholders, alleged that Mr. Wilson breached his fiduciary duties by selling a large block of lululemon stock shortly after learning about the resignation of Christine McCormick Day, lululemon’s Chief Executive Officer, and that the board breached its fiduciary duties by failing to investigate or take any action against Mr. Wilson relating to the trade.

The Court held that plaintiffs were precluded from pursuing their derivative claims in Delaware because similar claims had already been dismissed by a federal court in New York in an earlier-filed derivative action due to the New York plaintiffs’ failure to make a pre-suit demand or allege demand futility with the particularity required by Delaware law. The Court rejected plaintiffs’ argument that their pursuit of books and records under Section 220 of the Delaware General Corporation Law before commencing their derivative action entitled them to pursue a second derivative action asserting what the Delaware plaintiffs described as a better pleading of the claims dismissed in the first derivative action.

The decision stands for the important proposition that constitutional full faith and credit principles take precedence over state corporate governance law principles, a particularly significant rule in the face of the proliferation of multi-forum derivative litigation in recent years.

To read more about Weil’s April 2015 victory for the directors of lululemon in the related action before the Second Circuit, please follow this link.

Weil Securities Litigation partner Stephen Radin argued the appeal, and the Weil team included Securities Litigation practice co-head Joseph Allerhand and associate Thomas James.

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