Lawrence Arduini v. Igt
774 F.3d 622
9th Cir.2014Background
- IGT, a Nevada corporation, faced multiple shareholder derivative suits alleging misleading statements by executives and board-level failure of oversight; four suits were consolidated in Fosbre and dismissed for failure to plead demand futility.
- Arduini later filed a derivative suit without making a pre-suit demand, alleging demand would be futile based on largely similar facts; the district court dismissed his suit as barred by issue preclusion due to Fosbre.
- The Ninth Circuit previously affirmed dismissal of Fosbre on demand-futility grounds.
- Arduini argued he had additional allegations (e.g., denial of motion to dismiss in a related securities case, confidential witness statements, stock repurchase facts) and that issue preclusion should not bind him because he was not a party to Fosbre, Fosbre plaintiffs inadequately represented shareholders, and he lacked notice.
- The Ninth Circuit held Nevada law governs demand futility and issue preclusion, and applied Nevada standards to conclude issue preclusion barred Arduini from relitigating demand futility.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arduini may relitigate demand futility after Fosbre | Arduini: New allegations (IBEW denial, CWs, buybacks) create a different issue so preclusion shouldn't apply | IGT: The ultimate issue—whether demand would be futile—was already decided and additional facts do not change that | Issue preclusion applies; demand futility was the same ultimate issue |
| Whether additional factual allegations defeat identity of issue for preclusion | Arduini: New/cumulative facts make this a different case | IGT: Added facts are cumulative or could have been raised earlier; do not change the ultimate issue | Court: Additional facts do not avoid issue preclusion when ultimate issue is identical |
| Whether Arduini is in privity with Fosbre plaintiffs for preclusion | Arduini: He was not a party and Fosbre plaintiffs lacked derivative standing, so no privity | IGT: Derivative plaintiffs act for the corporation; shareholders are in privity for issue preclusion | Shareholders in derivative suits are in privity under Nevada law; Arduini is bound |
| Whether Fosbre plaintiffs inadequately represented shareholders or denial of notice/due process bars preclusion | Arduini: Fosbre plaintiffs were inadequate, and lack of personal notice violates due process | IGT: Fosbre plaintiffs vigorously litigated; Rule 23.1 does not require notice of involuntary dismissal; Nevada binds represented shareholders | Court: Fosbre plaintiffs were adequate representatives; no due-process violation; preclusion permitted |
Key Cases Cited
- Shoen v. SAC Holding Corp., 137 P.3d 1171 (Nev. 2006) (Nevada demand-futility framework and standard for director interestedness)
- Five Star Capital Corp. v. Ruby, 194 P.3d 709 (Nev. 2008) (elements and purpose of issue preclusion under Nevada law)
- In re Sonus Networks, Inc. S’holder Derivative Litig., 499 F.3d 47 (1st Cir. 2007) (issue preclusion bars relitigation of demand futility despite additional allegations when ultimate issue was litigated)
- Freedman v. Redstone, 753 F.3d 416 (3d Cir. 2014) (contrast: prior independence rulings may not preclude later suits when facts and timing differ materially)
- Rosenbloom v. Pyott, 765 F.3d 1137 (9th Cir. 2014) (applying state law to demand futility and reviewing dismissal for failure to plead demand futility)
- AMERCO v. [Name omitted], 252 P.3d 681 (Nev. 2011) (standard that interestedness via potential liability is difficult to plead under Nevada law)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (principle that a bare claim that directors would have to sue themselves is generally insufficient to excuse demand)