The Delaware courts have been critical of litigants who bring derivative claims without first seeking books and records. The absence of such records often makes it difficult to overcome the business judgment rule which prevents a stockholder from bringing derivative claims directly without first making a demand on the board of directors. Stockholders cannot so proceed unless they can show that a majority of directors at the time of the demand was not independent or disinterested or that the decision was not the result of a proper exercise of business judgment. The standard is even more difficult if a stockholder makes a demand which the board refuses and then seeks to proceed with litigation by claiming that the board wrongfully refused the demand. The Delaware Court of Chancery’s recent decision in Andersen v. Mattel, C.A. No. 11816-VCMR (Jan. 19), illustrates the difficult burden a plaintiff bears in alleging wrongful refusal, particularly when he fails to use the tools at hand to obtain relevant books and records.
Background Facts
Mattel had an executive severance plan that entitled a participant to severance benefits for a “covered termination.” That was defined to include a resignation for good reason or an involuntary termination without cause. The plan defined five circumstances that would constitute good reason. In January 2015, Mattel announced that its chairman and CEO, Bryan Stockton, had resigned as an officer and director. In April 2015, Mattel disclosed in its proxy statement that Stockton’s “employment was terminated.” He received $10 million under the severance plan. Mattel also disclosed that he would be paid $125,000 a month pursuant to a 12-month consulting agreement with Mattel.
