When a shareholder derivative plaintiff initiates an action on behalf of the corporation without first having made a demand on the board, Rule 23.1 of the Delaware Court of Chancery Rules requires the plaintiff to plead particularized facts demonstrating that demand is excused because it would have been futile.
Assessing demand futility requires a judicial examination of the disinterestedness and independence of the members of the board of directors to determine if a majority of the directors may act independently to impartially consider a demand that the corporation proceed adversely to the directors or controller who are the objects of the complaint. In reversing the Court of Chancery’s dismissal of the complaint for failure to plead adequately demand excusal, the Delaware Supreme Court shed new light on the kinds of personal relationships that can cast a reasonable doubt on a director’s impartiality; and stressed the importance for plaintiffs to meet their pleading burden of using pre-suit books and records requests as a tool to investigate facts bearing not only on the wrongdoing at issue, but also on the directors’ independence, as in Sandys v. Pincus, No. 157, 2016 (Del. Supr., Dec. 5).
