Gibbons v. Morgan, 1:14-cv-09061

Background

Erickson acquired Evergreen Helicopters in March–May 2013; part of the purchase consideration included Erickson preferred stock.
ZM-affiliated funds (ZMPEF1, ZMPEF2, and ZMEAC) held a majority of Erickson common stock on the closing date; ZM funds acquired substantial preferred shares and ZMEAC sold 250,000 shares of common stock in May 2013 (the "disputed transactions").
A Delaware stockholder filed a derivative and class action in Delaware Chancery Court challenging the Evergreen Transaction and related insider trading (the "Delaware Action"); Count IV asserted derivative claims for insider trading/breach of fiduciary duty and sought disgorgement.
While the Delaware Action was pending, plaintiffs filed this federal suit under Section 16(b) seeking disgorgement of short‑swing profits based on the same transactions.
The Delaware Court approved a settlement in 2016 that released "any and all Claims" arising from the Delaware Action, expressly including federal securities claims arising from the Evergreen Transaction and related sales.
Defendants moved for summary judgment here, arguing the Delaware Judgment precludes the Section 16(b) claim under Delaware res judicata principles; the District Court granted summary judgment for defendants.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Delaware settlement precludes the Section 16(b) suit (res judicata)	The Delaware Court lacked jurisdiction to release a federal Section 16(b) claim; prior settlement should not bar this federal action	Delaware Judgment released claims arising from same facts, including federal claims; res judicata under Delaware law bars relitigation	Held: Precluded — Delaware judgment bars the Section 16(b) claim
Whether plaintiffs are in privity with the Delaware plaintiff	Plaintiffs argued their Section 16(b) claim is direct and thus not bound by derivative-class settlement	Defendants argued Section 16(b) is derivative under Delaware law and plaintiffs were in privity with the derivative class	Held: Plaintiffs’ Section 16(b) claim is derivative (corporation harmed; recovery for issuer); privity exists
Whether the claims arise from the same cause/transaction	Plaintiffs suggested differences in claim form and federal nature could avoid preclusion	Defendants argued both suits arise from identical factual predicate — the May 2013 transactions	Held: Same transactional nucleus of operative facts; causes arise from same transaction
Whether precedent (bankruptcy cases) makes Section 16(b) direct	Plaintiffs relied on bankruptcy decisions (e.g., In re XO Communications) to claim Section 16(b) is direct	Defendants distinguished those cases as addressing different legal questions and different law; Delaware law controls preclusion here	Held: Bankruptcy-case reasoning inapplicable; Delaware law controls, and it deems Section 16(b) derivative

Key Cases Cited

Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (test for derivative vs. direct claim: who suffered harm and who would receive recovery)
Matshushita Elec. Indus. Co. v. Epstein, 516 U.S. 367 (1996) (state-court settlement can preclude later federal claims when released by state judgment)
LaPoint v. AmerisourceBergen Corp., 970 A.2d 185 (Del. 2009) (Delaware uses transactional approach: same transaction/common nucleus of operative facts determines same cause of action)
RBC Capital Markets, LLC v. Educ. Loan Tr. IV, 87 A.3d 632 (Del. 2014) (elements for res judicata under Delaware law)
Ezzes v. Ackerman, 234 A.2d 444 (Del. 1967) (settlement approved by court bars subsequent derivative suits)
Schlaeppi v. Delaware Trust Co., 525 A.2d 562 (Del. Ch. 1986) (court-approved settlement has same preclusive effect as final judgment)