Arduini v. Hart

Issue preclusion prevents a moving party, who is in privity with other prior plaintiff’s, from suing on the same or ultimately same issue against a defendant who has already prevailed on the issue, despite new legal or factual arguments.

Lawrence Arduini filed derivative suit on behalf of the shareholders of Intuitional Game Technology (“IGT”) alleging that IGT was operated under mismanagement and that the board of directors intentionally made misleading statements about their financial footing. IGT filed a motion to dismiss based on issue preclusion because the issue had been litigated before in different suits where IGT prevailed. The district court affirmed IGT’s dismissal. On appeal, the Ninth Circuit explained that under Federal Rule of Civil Procedure 23.1 a shareholder must “demand action from the corporation’s directors before filing a shareholder derivative suit, or plead with particularity the reasons why such demand would have been futile.” The panel explains that issue preclusion takes over when the issue that is litigated is ultimately the same as previously litigated issues. Furthermore, it cannot be overcome by arguing different facts or new legal arguments, even if new plaintiff is arguing for the first time against the defendant. The panel held that Arduini’s allegations of futility could have been raised or were raised in the prior suits against IGT, and Arduini was in privity with the prior plaintiff’s who had filed suit. Therefore, Arduini’s issue is precluded. Additionally, the panel held that there is no inequity to preclude the issue. Also, the panel held there is no due process violation because no notice is required in a derivative suit with futility at issue, and where it is dismissed on the merits. AFFIRMED.