Chancery Court Rule 23.1 – 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.

Chancery Court Sustains Derivative Action Alleging Caremark Claims

May 04 2021

By Scott Waxman and Claire Suni

In Teamsters Local 443 Health Services & Insurance Plan, et al. v. John G. Chou, et al., C.A. No. 2019-0816-SG (Del. Ch. August 24, 2020), the Delaware Court of Chancery (the “Court”) held that stockholders of AmerisourceBergen Corporation (“ABC”), a pharmaceutical sourcing and distribution company, adequately pled facts supporting the inference that certain ABC officers and directors breached fiduciary duties and acted in bad faith to consciously disregard a variety of red flags of illegal activity in connection with ABC’s packaging and distribution of cancer medications. The Court denied in full the defendants’ motion to dismiss for failure to state a claim for relief.

Can’t Have It Both Ways: Court Grants Grupo México’s 12(b)(2) Motion To Dismiss for Lack of Personal Jurisdiction

Nov 18 2020

By Joanna Diakos and Ian Edwards

In Lacey v. Mota-Velasco, et al. (C.A. No. 2019-0312-SG), the Delaware Court of Chancery (the “Court”) dismissed Grupo México S.A.B, de C.V (“Grupo México”) from a derivative lawsuit filed by a stockholder of Southern Copper Corporation (“Southern Copper”) on the grounds that the Court lacked personal jurisdiction over Mexico-based Grupo México.

Court of Chancery Defers to Board of Director’s Business Judgment in Response to Stockholder’s Dividend Demand

May 19 2020

By: James S. Bruce and Marissa Leon

In Buckley Family Trust v. Charles Patrick McCleary, et al. (C.A. No. 2018-0903-AGB), the Delaware Court of Chancery (the “Court”) granted defendants’ motion to dismiss a stockholder’s claims to compel the company to pay a dividend and also dismissed the stockholder’s claim alleging breach of fiduciary duty of care regarding decisions made by the board of directors of the company.

COURT OF CHANCERY DISMISSES EXCESSIVE PAY CLAIMS

May 05 2020

By: Scott Waxman and Claire Suni

In Dahle et al. v. Pope et al., C.A. No. 2019-0136-SG (Del. Ch. 2020), the Delaware Court of Chancery (the “Court”) dismissed a derivative suit by stockholders of R.R. Donnelly & Sons Company (the “Company”) under Delaware Chancery Rule 23.1 (“Rule 23.1”) alleging excessive pay of the Company’s board of directors (the “Board’). The Court found that a letter from the stockholders (the “Letter”) to the Board constituted a pre-suit litigation demand that had been rejected by the Board, and as a result, Plaintiffs’ claim was not entitled to proceed derivatively under Delaware law. {Hard Return}

Failure to Make Demand on Board Prior to Commencing Derivative Action Not Excused When Plaintiff Did Not Demonstrate that Demand Would Have Been Futile Because Directors Acted in Bad Faith by Knowingly Breaching their Oversight Responsibilities

Oct 22 2019

By: Eric E. Freedman and Serena M. Hamann

In Juan C. Rojas derivatively and on behalf of J.C. Penney Company, Inc. v. Marvin R. Ellison, et al, C.A. No. 2018-0755-AGB (Del. Ch. July 29, 2019), the Delaware Court of Chancery dismissed with prejudice a derivative claim brought against J.C. Penney Company, Inc. (“J.C. Penney,” or the “Company”) and current and former members of the Company’s board of directors (the “Board”), on the grounds that the failure of plaintiff Juan Rojas (“Rojas”) to make a demand on the Board prior to filing suit did not satisfy the requirements of Delaware law for excuse from the requirement to make such a demand. The Court held that Rojas had failed to allege facts from which the Court could reasonably infer that any of the Board members had acted in bad faith by knowingly failing to exercise their oversight responsibilities, and that Rojas therefore had not demonstrated that a demand on the Board would have been futile.

In a Reckless Re-price, Results are not Realized

Aug 22 2019

By David L. Forney and Tom Sperber

In Howland v. Kumar, C.A. no. 2018-0804-KSJM, the Delaware Chancery Court issued a Memorandum Opinion under Chancery Rule 12(b)(6) denying a motion to dismiss claims of breach of fiduciary duty and unjust enrichment on the basis that the defendants repriced stock options that they held immediately prior to making a public announcement that was sure to increase the stock price. The Court also ruled under Chancery Rule 23.1 that the plaintiff adequately plead demand excusal. Thomas S. Howland, Jr. (“Plaintiff”), a stockholder of Anixa Biosciences, Inc. (“Anixa”), brought two derivative claims against Anixa and its directors and officers. The Anixa board of directors consisted of Chairman, President, and CEO Amit Kumar (“Kumar”), Lewis H. Titterton, Jr. (“Titterton”), Arnold M. Baskies (“Baskies”), John Monahan (“Monahan”), and David Cavalier (“Cavalier”). The officers included Kumar, John A. Roop (“Roop”), Michael J. Catelani (“Catelani”) and Anthony Campisi (“Campisi”, collectively, “Individual Defendants,” and, collectively with Anixa, “Defendants”).

Stockholder Makes Demand on United Airlines and Encounters Turbulence

Apr 08 2019

By: Joanna Diakos and Tom Sperber

In City of Tamarac Firefighters’ Pension Trust Fund v. Corvi, et. al, C.A. No. 2017-0341-KSJM, the Delaware Chancery Court issued a Memorandum Opinion granting a motion to dismiss under Chancery Rule 23.1 for failing to prove that pre-litigation demand of the Board was wrongfully refused. The City of Tamarac Firefighters’ Pension Trust Fund (“Plaintiff”), a stockholder of United Continental Holdings, Inc., the owner and operator of United Airlines (collectively, “United”), brought derivative claims against United and its board of directors (the “Board”) (collectively with United, “Defendants”) demanding either a claw-back of an allegedly excessive separation compensation award or the rescission of the separation agreement altogether. The Court found that Plaintiff failed to plead particularized facts raising a reasonable doubt that Defendants acted with due care and in good faith in rejecting Plaintiff’s demand.

Court of Chancery Dismisses Derivative Suit for Failure to Demonstrate Demand Futility because Plaintiff Failed to Allege Particularized Facts

Jul 19 2018

By: Charles Carter and Caitlin Velasco

In Steinberg on behalf of Hortonworks, Inc. v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018), the Delaware Court of Chancery granted the defendants’ motion to dismiss the stockholder plaintiff’s derivative claims for breach of fiduciary duties under Court of Chancery Rule 23.1, because the plaintiff failed to make a pre-suit demand or demonstrate that doing so would be futile. The Court found that the plaintiff failed to plead particularized facts sufficient to raise reasonable doubt that a majority of the directors on the Hortonworks, Inc. board could have exercised their independent and disinterested business judgment in responding to a pre-suit demand. Read More

MULTI-BILLION DOLLAR INVESTMENT MANAGER AND DIRECTORS REMAIN AT RISK

By: Kevin Stichter and Samira Torshizi

In Cumming v. Edens, et al., C.A. No. 13007-VCS (Del. Ch. Feb. 20, 2018), the Court of Chancery denied a motion to dismiss a derivative suit for breach of fiduciary duties brought by a stockholder of New Senior Investment Group, Inc. (“New Senior”) against New Senior’s board of directors (the “Board”) and related parties in connection with New Senior’s $640 million acquisition of Holiday Acquisition Holdings LLC (“Holiday”). The Court made clear that compliance with Section 144 does not necessarily provide a safe harbor against claims for breach of fiduciary duty and invoke business judgment review of an interested transaction. Because the complaint alleged with specificity “that the Board acted out of self-interest or with allegiance to interest other than the stockholders,” the court applied the entire fairness standard of review and concluded that the transaction was not fair to New Senior stockholders. Read More

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