On May 5, Andre G. Bouchard was sworn in as the Delaware Court of Chancery’s newest chancellor. Since taking the bench, Bouchard has authored two recent opinions exploring the standards for pleading demand futility in stockholder derivative cases. The results in these two cases were different—one decision granted a motion to dismiss for failure to plead demand futility and the other denied one—but the context of both cases was similar in that they involved claims relating to the award of compensation packages to corporate executives and directors, and explored the contours of the familiar Aronson demand-futility pleading standard. Both decisions are consistent in their careful application of longstanding precedent and sophisticated approach to the principles underlying director disinterestedness, independence and application of the business judgment rule.
Friedman v. Khosrowshahi
Friedman v. Khosrowshahi, 2014 Del. Ch. LEXIS 121 (July 16, 2014), the first of the two Court of Chancery decisions, granted a defense motion to dismiss based on failure to plead demand futility and reaffirmed the bedrock Delaware principle that a director is not deemed “interested” for purposes of the Aronson analysis simply because he or she might face liability for approving a transaction. In Friedman, the plaintiff claimed that the board of directors of Expedia breached its fiduciary duties by accelerating the vesting of restricted stock units (RSUs) awarded to Expedia’s CEO through impermissible waiver of one of the award’s vesting requirements in violation of Expedia’s stock and annual incentive plan. Pre-suit demand was not made on the Expedia board.
