Nevada Supreme Court Accords Preclusive Effect To Subsequent Federal Court Order

When bad things happen to corporations, derivative suits are sure to follow.  So it was for Galectin Therapeutics, Inc., a Nevada corporation.  Following publication of allegations of a "stock promotion scheme", stockholders filed derivative suits in federal district court and in Nevada state court.  The Nevada judge rule first, denying the defendants' motion to dismiss for failure to plead demand futility adequately.  The Nevada judge gave the plaintiff leave to amend and stayed the case pending a ruling by the federal district court.  Thereafter, the federal district court dismissed with prejudice the claim also due to inadequate pleading of demand futility.  In re Galectin Therapeutics, Inc. Derivative Litig., 2015 U.S. Dist. LEXIS 183340.  The defendants in the Nevada state court action then successfully moved to dismiss, but this time on the grounds of issue preclusion. The state court plaintiff appealed.  Kirsch v. Traber, 2018 Nev. LEXIS 25, 134 Nev. Adv. Rep. 22.

Under the doctrine of issue preclusion, a Nevada court defers to a foreign court's final judgment resolving an issue between litigants if those same litigants previously litigated the same issue before the foreign court. However, the Nevada court does not defer to the foreign court's final judgment if it contravenes a final judgment previously entered by a Nevada court.  Thus, the issue for the Nevada Supreme Court was whether the state court's order was a "final judgment".

The Nevada Supreme Court concluded that Nevada applies the definition set forth within section 13 of the Restatement (Second) of Judgments.  Because the Nevada trial court reserved for future determination the demand futility issue, its order was not a final judgment.  The trial court therefore did not err in granting preclusive effect to the federal court decision.

Free Webinar on California and Delaware Corporate Law Developments

On April 12, 2018, the Los Angeles County Bar Association's Business and Corporate Law Section will host a complimentary webinar on recent developments in California and Delaware.  I will be presenting with Michael Allen of Richards, Layton & Finger.  Please contact LACBA for more information.