Delaware Supreme Court Affirms Dismissal Of Derivative Suit Alleging Board Approved Transaction Involving Unnecessary Litigation Exposure
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  • Delaware Supreme Court Affirms Dismissal Of Derivative Suit Alleging Board Approved Transaction Involving Unnecessary Litigation Exposure
     
    01/22/2020
    On January 13, 2020, in an opinion authored by Chief Justice Collins J. Seitz, Jr., the Supreme Court of Delaware affirmed the dismissal by Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery of a stockholder derivative suit for lack of pre-suit demand.  McElrath v. Kalanick, et al., C.A. No. 2017-0888 (Del. Jan. 13, 2020).  As discussed in our post on the prior decision, plaintiff alleged that the directors of a technology company had breached fiduciary duties in connection with the approval of an acquisition, in particular as related to purported intellectual property infringement by the target.  Noting that the company had an exculpatory charter provision, the Delaware Supreme Court explained that the directors were insulated from due care violations and could only be liable for bad faith.  Referring to allegations that the board heard a presentation that summarized the transaction, reviewed the risk of litigation, generally discussed due diligence and asked questions, the Court found that the complaint raised an inference of a “functioning board” and did not reasonably suggest the board intentionally ignored relevant risks.  Thus, the Court affirmed the dismissal because a majority of the board was disinterested for purposes of pre-suit demand as it “had no real threat of personal liability.” 

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