Figure 1. Derivative Suit Flowchart
[1] “That issue must turn solely on the following questions: (1) who suffered the alleged
harm (the corporation or the suing stockholders, individually); and (2) who would receive
the benefit of any recovery or other remedy (the corporation or the stockholders,
individually)?” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del.
2004)
[2] “Since the making of a pre-suit demand concedes that demand is required, the
concession should apply “to all or any part of the transaction, or series of connected
transactions, out of which the action [demand] arose.” Id. § 24; see Foltz v. Pullman, Inc.,
Del.Super., 319 A.2d 38, 40 (1974).
“In Spiegel, this Court held that “[a] shareholder who makes a demand can no longer
argue that demand is excused.” 571 A.2d at 775. Permitting a stockholder to demand
action involving only one theory or remedy and to argue later that demand is excused as
to other legal theories or remedies arising out of the same set of circumstances as set forth
in the demand letter would create an undue risk of harassment.” Grimes v. Donald, 673
A.2d 1207, 1219-20 (Del. 1996).
[3] “A stockholder whose demand has been rejected but who nonetheless seeks to bring
an action arising out of the subject matter of the demand has two pleading burdens. First,
she must allege facts which, if true, are sufficient to state a claim against the defendants.
Second, to have standing to sue derivatively, under Court of Chancery Rule 23.1 she
must allege with particularity facts that raise a reasonable doubt that in refusing the
demand the directors complied with their fiduciary duties.” Ironworkers Dist. Council of
Philadelphia & Vicinity Ret. & Pension Plan v. Andreotti, No. CV 9714-VCG, 2015 WL
2270673, at *2 (Del. Ch. May 8, 2015), aff'd sub nom. Ironworkers Dist. Council of
Philadelphia v. Andreotti, 132 A.3d 748 (Del. 2016)
[4] “The basis for claiming excusal would normally be that: (1) a majority of the board
has a material financial or familial interest; (2) a majority of the board is incapable of
acting independently for some other reason such as domination or control; or (3) the
underlying transaction is not the product of a valid exercise of business judgment. If the
stockholder cannot plead such assertions consistent with Chancery Rule 11, after using
the ‘tools at hand’ to obtain the necessary information before filing a derivative action,
then the stockholder must make a pre-suit demand on the board.” Grimes v. Donald, 673
A.2d 1207, 1216 (Del. 1996).
“Under Delaware Supreme Court precedent, where an exculpation provision exists, a
plaintiff arguing that demand is excused because of a substantial likelihood of director
liability must plead ‘particularized facts that demonstrate that the directors acted with
scienter, i.e., that they had “actual or constructive knowledge” that their conduct was
legally improper.’ ‘A plaintiff can thus plead bad faith by alleging with particularity that
a director knowingly violated a fiduciary duty or failed to act in violation of a known
duty to act, demonstrating a conscious disregard for her duties.’” Jonathan C. Dickey &
Marshall R. King, Delaware’s Duty of Oversight—Directors Prevail in the Citigroup
Subprime Litigation, 6 NO. 4 Sec. Litig. Rep. 1 (2009).
[5] For an over view of the special litigation committee process, see Anna Panchenko, In
Re Oracle Corp. Derivative Litigation: Death of Special Litigation Committees?, 3
DePaul Bus. & Com. L.J. 617 (2005).