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Braddock v. Zimmerman

Supreme Court of Delaware

June 28, 2006, Submitted ; September 12, 2006, Decided

No. 489, 2005

Opinion

 [*778]  HOLLAND, Justice:

 [**2]  This is an interlocutory appeal from an order by the Court of Chancery that granted the plaintiff's motion for leave to file a second amended complaint. At issue is the legal meaning and effect of a Court of Chancery order dismissing a derivative suit "without prejudice" on Rule 23.1 "demand required" grounds. This appeal also requires our analysis of the Court of Chancery's holding in Harris v. Carter 1 that a plaintiff does not need to make a demand  [*779]  before amending a derivative complaint where a new board of directors comes into power, if the amended derivative claims were "validly in litigation" before the new board assumed control. In this proceeding, we conclude the ambiguous record permitted the filing of an amended complaint. We hold prospectively, however, that a dismissal without prejudice and without explicit leave to amend operates as a final judgment. We approve the Court of Chancery's rationale in Harris v. Carter. 2 We further hold that, for purposes of determining whether demand is required before filing an amended derivative complaint, the term "validly in litigation" means a proceeding that can or has survived a motion to dismiss. This latter holding requires [**3]  us to reverse the interlocutory order of the Court of Chancery and to remand this matter for further proceedings in accordance with this opinion.

Procedural History

The plaintiff, Mark Zimmerman (the "Plaintiff") alleges, in this derivative action, that the defendants, Richard S. Braddock, Jay S. Walker, and N.J. Nicholas, Jr. (collectively, the "Selling Defendants"), all directors of the Nominal Defendant priceline.com, Inc. ("Priceline" or the "Company"), engaged in insider trading of the Company's stock and misappropriated the Company's confidential information. The other defendants, who with the Selling Defendants constituted Priceline's board of directors are: Daniel H. Schulman, Paul A. Allaire, Ralph M. Bahna, Paul J. Blackney, William E. Ford, Marshall Loeb, Nancy B. Peretsman, and Heidi G. Miller (collectively, the "Individual Defendants").

The Plaintiff filed his original complaint on November 1, 2000. After [**4]  the defendants moved to dismiss that complaint, the Plaintiff filed an amended complaint on June 21, 2001 (the "First Amended Complaint"). The defendants again moved to dismiss. On December 20, 2002, the Court of Chancery entered an order dismissing the First Amended Complaint in its entirety for failure to comply with the demand requirement of Court of Chancery Rule 23.1 (the "Dismissal Order"). The Dismissal Order was "without prejudice." The Plaintiff did not seek to appeal the Dismissal Order.

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906 A.2d 776 *; 2006 Del. LEXIS 468 **

RICHARD S. BRADDOCK, JAY S. WALKER, N.J. NICHOLAS, JR., Defendants Below, Appellants, and PRICELINE.COM INCORPORATED, a Delaware Corporation, Nominal Defendant Below, Appellant, v. MARK ZIMMERMAN, Derivatively on Behalf of Nominal Defendant PRICELINE.COM INCORPORATED, Plaintiff Below, Appellee.

Prior History:  [**1]  Court Below -- Court of Chancery of the State of Delaware, in and for New Castle County. C.A. No. 18473.

Zimmerman v. Braddock, 2005 Del. Ch. LEXIS 135 (Del. Ch., Sept. 8, 2005)

Disposition: REVERSED and REMANDED.

CORE TERMS

second amended complaint, first amended complaint, aaa, board of directors, amended complaint, dismissal order, final judgment, amend, leave to amend, Priceline, dismissal without prejudice, original complaint, motion to dismiss, validly, derivative, leave to file, excused, motion for leave, derivative suit, disinterested, futility, new board, circumstances, entirety, pleaded

Civil Procedure, Appeals, Appellate Jurisdiction, Final Judgment Rule, Pleadings, Amendment of Pleadings, General Overview, Dismissal, Involuntary Dismissals, Appellate Review, Leave of Court, Class Actions, Derivative Actions, Demand Requirement, Demand Futility, Business & Corporate Law, Actions Against Corporations, Directors & Officers, Management Duties & Liabilities, Complaints