Lewis H. Lazarus partner with Morris James. Courtesy Photo Chancery Dismisses Derivative Action Based on Plaintiff's Failure to Allege Particularized Facts Demonstrating Demand Futility
As demonstrated by Harrison Metal Capital III v. Mathe, failure to assert well-pleaded allegations showing that a majority of the board is disabled from disinterestedly and independently evaluating whether to bring an action is fatal to a stockholder derivative claim.
April 10, 2024 at 09:00 AM
5 minute read
Contributors
The power to bring a claim for breach of duty causing injury to a Delaware corporation resides with the board of directors. It is part of their duty under Section 141(a) of the Delaware General Corporation Law to manage the business and affairs of the corporation. A stockholder wishing to proceed with such a claim therefore must first make demand on the board of directors or plead demand futility under Court of Chancery Rule 23.1. As demonstrated by Harrison Metal Capital III v. Mathe, C. A. No. 2022-0261-PAF (Del. Ch. March 27, 2024), failure to assert well-pleaded allegations showing that a majority of the board is disabled from disinterestedly and independently evaluating whether to bring an action is fatal to a stockholder derivative claim. As the court emphasized, notice pleading does not suffice to demonstrate demand futility; rather, a plaintiff must plead particularized facts to show demand futility, which the court found the Harrison plaintiff failed to do.
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