Shareholders of Sonus Networks sued in Massachusetts state court to recover damages to the company. The state court dismissed the case "without prejudice" for failure to plead a precondition to suit — "futility" of demanding that Sonus bring the action on its own behalf. The shareholder refiled in federal court. The district court dismissed because, it concluded, the state court dismissal precluded the shareholders from satisfying the demand futility precondition. The First Circuit, applying Massachusetts preclusion law, affirmed. In re Sonus Networks, Inc., Shareholder Derivative Litig., No. 06-1937 (1st Cir. Aug. 16, 2007).
Blawgletter found the opinion unaccountably fascinating. In it, Circuit Judge Gibson discussed what kinds of orders exert issue-preclusive effect in later litigation. He concluded that they needn’t dispose of the "merits" to qualify. He also pointed out that an order may lose its preclusive power if the facts underlying it change. Because making a demand hadn’t grown more Sisyphian after the state court dismissal, the order precluded relitigation of the demand futility issue. Heady stuff, that.
Barry Barnett
