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Kirsch v. Traber

Supreme Court of Nevada

April 5, 2018

MICHAEL KIRSCH; AND SIU YIP, Appellants,
v.
PETER G. TRABER; JAMES C. CZIRR; JACK W. CALLICUTT; GILBERT F. AMELIO; KEVIN D. FREEMAN; ARTHUR R. GREENBERG; ROD D. MARTIN; JOHN F. MAULDIN; STEVEN PRELACK; HERMAN PAUL PRESSLER, III; DR. MARC RUBIN; AND GALECTIN THERAPEUTICS, INC., A NEVADA CORPORATION, Respondents.

          Appeal from a district court order granting a motion to dismiss in a derivative shareholder action. Eighth Judicial District Court, Clark County; Elizabeth Goff Gonzalez, Judge.

          Lee, Hernandez, Landrum & Garofalo, A.P.C., and David S. Lee, Natasha A. Landrum, and Dirk W. Gaspar, Las Vegas; Lifshitz & Miller and Edward W. Miller and Joshua M. Lifshitz, Garden City, New York, for Appellant Michael Kirsch.

          Aldrich Law Firm, Ltd., and John P. Aldrich, Las Vegas; The Weiser Law Firm, P.C., and Robert B. Weiser, Brett D. Stecker, and James Ficaro, Berwyn, Pennsylvania; The Weiser Law Firm, P.C., and Kathleen A. Herkenhoff, San Diego, California, for Appellant Siu Yip.

          Kaempfer Crowell and Ryan W. Daniels and Lyssa S. Anderson, Las Vegas; King & Spalding LLP and Michael R. Smith and B. Warren Pope, Atlanta, Georgia, for Respondents.

          BEFORE CHERRY, PARRAGUIRRE and STIGLICH, JJ.

          OPINION

          STIGLICH, J.

         Under the doctrine of issue preclusion, a Nevada court defers to a foreign court's final judgment resolving an issue between litigants if those same litigants previously litigated the same issue before the foreign court. However, the Nevada court does not defer to the foreign court's final judgment if it contravenes a final judgment previously entered by a Nevada court.

         The question to be resolved in this appeal is whether a Nevada district court's order denying a motion to dismiss constituted a final judgment on the issue of demand futility. To the extent that we have not previously defined "final judgment" within this context, we take this opportunity to clarify that Nevada applies the definition set forth within section 13 of the Restatement (Second) of Judgments. Applying that definition to the facts of this case, we agree with the district court that its denial of a motion to dismiss was not a final judgment on the issue of demand futility. Therefore, it was proper for the district court to. accord preclusive effect to a subsequent final judgment from a foreign court. Accordingly, we affirm.

         FACTS AND PROCEDURAL HISTORY

         Galectin Therapeutics, Inc. (Galectin) is a pharmaceutical company incorporated in Nevada and headquartered in Georgia. Beginning in October 2013, the directors of Galectin commenced a "stock promotion scheme" in which they published glowing reviews of Galectin in third-party publications. In July 2014, shortly after news of that promotion scheme became public, Galectin's share price dropped approximately 50 percent.

         In August 2014, several Galectin shareholders filed shareholder derivative actions against Galectin's officers and directors in the United States District Court for the District of Nevada. Appellant Siu Yip was a named plaintiff in one of those federal cases, which were consolidated and transferred to the Northern District of Georgia.

         Shortly after the federal cases were filed, appellant Michael Kirsch filed the instant derivative shareholder suit in Clark County district court against Galectin's officers and directors (here, respondents). In his complaint, Kirsch conceded that he did not make a demand on Galectin's board of directors prior to filing suit. He alleged that such a demand would have been futile. Siu Yip later intervened in Kirsch's suit.

         Respondents moved to dismiss Kirsch's complaint pursuant to NRCP 23.1, which requires a plaintiff in a shareholder derivative action either to make a demand upon the corporation's directors prior to filing suit or to plead particularized facts demonstrating that such a pre-suit demand would have been futile. At a hearing on the motion, the district court noted that Kirsch's complaint contained "conclusory allegations" that a pre-suit demand would have been futile. Nonetheless, the district court denied the motion to dismiss, commenting: "The allegations related to the conflicted directors who may face personal liability are not the best I've ever seen, but they are not enough to merit dismissal at this point." The district court granted Kirsch leave to amend his complaint to add additional plaintiffs, advising him "to beef up [the] factual allegations" in the amended complaint. Finally, the district court sua sponte stayed the case pending a decision in the parallel shareholder derivative action filed in federal court.

         The United States District Court for the Northern District of Georgia dismissed the federal action in an order. See In re Galectin Therapeutics, Inc. Derivative Litig., No. l:15-CV-208-SCJ, 2015 WL 12806566 (N.D.Ga. Dec. 30, 2015). That order held that the Nevada district court's denial of defendants' motion to dismiss was not "a final ruling on the merits with respect to the issue of demand futility." Id. at *4. Turning to the merits of the demand futility issue, the federal court "conclude[d] that Plaintiffs have not set forth ...


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