McBride Law Blog

Delaware Law Update: When Is a Stockholder’s Pre-Suit Demand Excused? (Part I)

McBride Law Blog

// Staff of the Firm // No Comments »

In our recent blog post on Wandel v. Dimon, we discussed stockholder’s pre-suit demand.[1]  For those who are not familiar with pre-suit demand, Delaware law requires stockholders to serve a pre-suit demand on the corporation’s board of directors before they can bring a derivative lawsuit on behalf of the corporation, unless doing so would be futile.  In Wandel, the stockholders failed to serve a pre-suit demand and claimed that it would have been futile because at least a majority of the board was not independent.  The court, however, found that at most the stockholders showed that 4 out of 11 directors were interested and this was not sufficient to excuse a pre-suit demand.

In Delaware County Employees Retirement Fund v. Sanchez, the Delaware Supreme Court had occasion to deal with a similar issue.[2]  Sanchez involved a director who was close friends with an interested director to an unusual degree.  The lower court—the Court of Chancery—dismissed the stockholders’ complaint, finding that the stockholders had not shown that a demand was excusable.

This post was part of a two-part series on pre-suit demand under Delaware law.  You can find the other post by searching our blogs at www.mcbrideattorneys.com.  In our next post, we will discuss the details of Sanchez.

[1] See generally Wandel v. Dimon, 2016 N.Y. Slip Op. 00252 (1st Dep’t, Jan. 14, 2016).

[2] See generally Del. Cty. Emps. Ret. Fund v. Sanchez, No. 702, 2014 (Del. Oct. 2, 2015).  Unless otherwise noted, all references to the case are from this citation.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

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