In re The Topps Company Shareholders Litigation

Delaware Court of Chancery · Corporations

Corporationsinternal affairs doctrineforum selectionmerger litigationrepresentative actionsDelaware corporationinternal affairsMcWane

Facts

Topps is a Delaware corporation headquartered in Manhattan. After Topps announced an all-cash merger with private equity buyers on March 6, 2007, shareholder class actions challenging the merger were filed in New York and Delaware within days, with the first New York action filed one day before the first Delaware action. The New York and Delaware complaints were virtually identical and alleged fiduciary-duty breaches concerning conflicts, the sale process, deal protections, and the usefulness of the go-shop provision. The Delaware actions were consolidated, expedited discovery began, and a preliminary injunction hearing was scheduled while the New York court had not yet stayed its proceedings.

Issue

Whether the Delaware Court of Chancery should dismiss or stay this consolidated Delaware shareholder class action in favor of nearly identical first-filed New York actions. More specifically, the question was whether the first-filed status of the New York case controlled under McWane despite the representative nature of the suit and Delaware's interest in deciding emerging issues of Delaware corporate law.

Rule

In representative shareholder litigation, the mere fact that a foreign action was filed first by a trivial time difference does not control forum selection under McWane. When the competing suits are essentially contemporaneous and the case concerns the internal affairs of a Delaware corporation, especially presenting important or emerging issues of Delaware fiduciary law, public policy and comity strongly favor adjudication in Delaware, and the plaintiff's personal preference for a foreign forum carries no cognizable weight.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Robotics, Inc., a Delaware corporation headquartered in Seattle, announces a cash merger with a private investment group. A stockholder class action alleging breaches of Delaware fiduciary duty is filed in Illinois on Monday morning, and an almost identical action is filed in Delaware that afternoon; both seek to enjoin the merger before the shareholder vote.

If the defendants ask the Delaware court to stay its case solely because the Illinois action was filed first, how should the Delaware court most likely rule?

Explanation. The majority held that McWane has reduced force in representative shareholder litigation. A trivial timing edge in a filing derby does not control where nearly identical suits are filed essentially simultaneously, especially when the dispute concerns the internal affairs of a Delaware corporation. The proper focus is fair and consistent enforcement of stockholder rights under Delaware law, not rewarding the fastest filer. (Derived from In re The Topps Company Shareholders Litigation (n.d.).)