Derivative Action – Delaware Docket

FACEBOOK ESCAPES SHAREHOLDER DERIVATIVE SUIT AS COURT QUESTIONS VALIDITY OF ARONSON AND FINDS PLAINTIFF FAILED TO SUPPORT CLAIMS OF DEMAND FUTILITY

Oct 15 2021

In United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., C.A. No. 2018-0671 (Del. Ch. Oct. 26, 2020), the Delaware Court of Chancery (the “Court”) dismissed a derivative suit brought by the stockholders (the “Plaintiffs”) of Facebook, Inc. (“Facebook”) because the Plaintiffs failed to adequately plead demand futility under Court of Chancery Rule 23.1. The derivative suit accused members of the Facebook board of directors (the “Board”) and Facebook CEO, Mark Zuckerberg, of breaching their fiduciary duties of care and loyalty by pursing and approving a stock reclassification proposal that would have allowed Zuckerberg to retain voting control of Facebook while donating a significant portion of his common stock to charitable causes. The Court discussed the two primary tests for determining demand futility in derivate actions – Aronson and Rales – and determined that demand futility turns on whether, at the time of filing the complaint, the majority of a board of directors is disinterested, independent, and capable of impartially evaluating a litigation demand to bring suit on behalf of a company.

Delaware Chancery Court reaffirms need for factual particularity in assessing demand futility and granted Defendants’ motion to dismiss

May 28 2021

By: Jessica Pearlman and Mary Nicholas

In a letter opinion, Mark Gottlieb, et al., v. Jonathan Duskin, et al, Civil Action No. 2019-0639-MTZ (Del. Ch. November 20, 2020), the Delaware Court of Chancery granted Defendants’ motion to dismiss Plaintiff’s complaint in its entirety for failure to satisfy, with enough factual particularity, that a demand that the board of directors pursue the corporate claim would have been futile under Rule 23.1.

Oracle Special Litigation Committee Defeats Motion to Compel Production of Protected Work Product

Aug 03 2020

By: Remsen Kinne and Michael C. Payant

In In re Oracle Corporation Derivative Litigation, Consolidated C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020), the Delaware Court of Chancery (the “Court”) determined that a special litigation committee (the “SLC”) of the board of directors (the “Board”) of Oracle Corporation (“Oracle”) had properly asserted work production protection and denied lead plaintiff’s motion to compel production on the basis of (i) sufficient need and unavailability of information, (ii) waiver, or (iii) breach of fiduciary duty by the SLC.

Derivative Suit Dismissed for Failing to Plead Demand Futility

May 13 2020

By: Rem Kinne and Zack Sager

In Shabbouei v. Potdevin, C.A. No. 2018-0847-JRS (Del. Ch. Apr. 2, 2020), the Delaware Court of Chancery dismissed a derivative suit against the board of directors (the “Board”) of lululemon athletica inc. (the “Company”) by a Company stockholder (“Plaintiff”) for failing to plead demand futility. The Court held that Plaintiff did not plead with the requisite particularity that the Board was self-interested in a Separation Agreement with the Company’s CEO Laurent Potdevin (“Potdevin”) negotiated by the Board and that the Board’s decision to settle with, instead of firing, Potdevin for cause was outside the bounds of proper business judgment.

Court of Chancery Holds That Sole, Conflicted General Partner Cannot, By Reason of its Conflict, Delegate its Otherwise Valid Power to Manage Derivative Litigation

Apr 24 2020

By: Scott Waxman and Tami Mack

In Wenske v. Blue Bell Creameries, Inc., C.A. No. 2017-0699-JRS (Del. Ch. August 28, 2019), the Court of Chancery held that Blue Bell Creameries, Inc., the sole general partner (the “General Partner”) of Blue Bell Creameries, LP (the “Partnership”), was not a disinterested entity such that it could delegate its otherwise valid power to manage derivative litigation. The Court also held that it was not appropriate to undertake a conflict analysis with respect to the individual members of the board of directors of the General Partner (the “GP Board”), because such analysis would disregard the established policy of respecting the legal fiction of the business entity.

Chancery Court Dismisses Derivative Action Alleging Caremark Claims

Feb 25 2020

By: Scott Waxman and Zane Madden

In In re Lendingclub Corp. Derivative Litigation, C.A. No. 12984-VCM (Del. Ch. October 31, 2019), the Delaware Court of Chancery (the “Court”) granted the defendants’ motion to dismiss the plaintiffs’ consolidated supplemented complaint (the “complaint”) for failure to adequately plead demand futility. After analyzing the allegations in the complaint, the Court concluded that plaintiffs’ claims failed because the facts alleged did not demonstrate at the dismissal stage that a majority of the board of directors (the “Board”) could exercise independent and disinterested judgment with regard to a litigation demand as required under In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).

Delaware Court of Chancery Dismisses Derivative Claims in Reliance on Exculpatory Language in Limited Liability Company Agreement

Dec 27 2019

By Scott E. Waxman and Frank J. Mazzucco

In MKE Holdings, Ltd. and David Bergevin v. Kevin Schwartz, et al. and Verdesian Life Sciences, LLC, C.A. No. 2018-0729-SG (Del. Ch. Sept. 26, 2019), the Delaware Court of Chancery relied on exculpatory language in a Limited Liability Company Agreement to grant a defendant’s motion to dismiss a derivative claim alleging breach of duty by the company’s managers.

Stockholder Letter Requesting Remedial Action Deemed a Pre-Suit Demand

Dec 20 2019

By: Joanna Diakos Kordalis and Zack Sager

In Solak v. Welch, the Court of Chancery found that a letter from a stockholder to the board of directors, which requested remedial action to address allegedly excessive non-employee director compensation, was a pre-suit demand and dismissed the stockholder’s complaint for failing to allege wrongful demand refusal.

Former Derivative Plaintiff Lacks Standing to Pursue Direct Claims Against General Partner

Nov 13 2019

By: Scott Waxman and Zack Sager

In Morris v. Spectra Energy Partners (DE) GP, LP, the Court of Chancery held that the plaintiff, who previously lost standing to maintain a derivative action after it ceased to be a unit holder of a limited partnership, also lacked standing to directly challenge the fairness of the transaction that extinguished its right to pursue the derivative action.

Delaware Court of Chancery Allows Derivative Claim To Proceed Regarding Allegedly “Grossly Excessive” Non-Employee Director Compensation

Nov 08 2019

By Remsen Kinne and Frank J. Mazzucco

In Stein v. Blankfein et al., C.A. No. 2017-0354-SG (Del. Ch. May 31, 2019), the Delaware Court of Chancery, in considering a motion to dismiss, allowed a stockholder’s derivative claim to proceed against an entity’s non-employee directors alleging that such director compensation was grossly excessive and thus represented a breach of the fiduciary duty of loyalty.

Catagory:Derivative Action