## Facts

- Stockholders brought Delaware derivative actions on behalf of HealthSouth Corporation, alleging fiduciary breaches arising from insider trading.
- Plaintiffs alleged certain directors sold significant amounts of HealthSouth stock while possessing material nonpublic information; in one transaction, HealthSouth allegedly repurchased stock from its CEO for approximately $25 million.
- Plaintiffs alleged HealthSouth and its stockholders were harmed when the stock price fell after the information became public.
- Before the Delaware actions, a stockholder filed a derivative suit in Alabama concerning related conduct; the Delaware court characterized that pleading as thin and not alleging demand futility with particularity.
- HealthSouth’s board formed a Special Litigation Committee (SLC) to investigate the alleged wrongdoing.
- The SLC moved in Delaware to stay the derivative actions based on (i) the earlier-filed Alabama case and (ii) the need to complete the SLC’s investigation.

## Issues

1. Whether the Court of Chancery should stay later-filed Delaware derivative actions in favor of a first-filed Alabama derivative action under first-filed principles.
2. Whether the court should stay the Delaware actions to allow the corporation’s SLC to complete its investigation and determine what course of action serves the corporation’s interests.

## Decision

- The court denied the SLC’s motion to stay on both grounds.
- The court held that first-filed status carried reduced weight in representative derivative litigation where the earlier complaint was cursory and did not adequately plead demand futility.
- The court declined to pause the Delaware actions for the SLC’s investigation, concluding the SLC had not shown a sufficient basis for delaying well-pleaded Delaware claims.

## Legal Principles

- In competing derivative actions, the first-filed rule is discretionary and applies with less force because courts must protect the corporation’s interests and assess the adequacy of the representative pleadings, not merely filing speed.
- When deciding whether to stay in favor of another forum, courts may consider the relative substance and quality of the competing complaints, including whether demand futility is pleaded with particularity.
- A stay requested to accommodate an SLC investigation is not automatic; the SLC must justify delay in light of the stockholders’ interests, the litigation posture, and case-specific concerns about fairness and effective prosecution of corporate claims.

## Conclusion

The Court of Chancery permitted the Delaware derivative actions to proceed, refusing to defer to a first-filed but inadequately pleaded out-of-state derivative suit and declining to halt litigation solely because an SLC was investigating.


Biondi v. Scrushy, 820 A.2d 1148 (Del. Ch. 2003)