On February 19, 2024, Vice Chancellor Lori Will of the Delaware Court of Chancery dismissed a derivative breach of fiduciary duty action against nominal defendant Walgreens Boots Alliance, Inc. (the “Company”) and its board of directors (the “Board”), alleging the Company’s billing practices for insulin resulted in unnecessary refill reminders and overbilling of third-party payers. Clem v. Skinner, No. 2021-0240-LWW (Del. Ch. Feb. 19, 2024). Plaintiffs asserted that pre-suit demand was excused because the Board faced a substantial likelihood of liability for breaching their duty of oversight. The Court found that plaintiffs failed to adequately allege facts suggesting that the Board acted in bad faith, as required to plead a Caremark claim, and thus granted the motion to dismiss, finding that pre-suit demand was not excused.

On February 7, 2024, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery denied a motion for a “mootness” fee of plaintiffs in a derivative action brought against the founder of a technology company (the “Company”), its CEO, certain of its directors, and other individuals affiliated with a counterparty to an acquisition by the Company. In re Oracle Corporation Derivative Litigation, C.A. No. 2017-0337-SG (Del. Ch. Feb. 7, 2024). Plaintiffs had alleged that the founder and CEO caused the Company to overpay for the target and asserted claims for breaches of fiduciary duty seeking damages. After issuing a post-trial judgment in favor of defendants, plaintiffs applied for a $5 million fee for precipitating the appointment of two independent directors who served on the special litigation committee (“SLC”) of the board. The Court held that the appointment of the new directors “did not moot any issues in the case, nor was it an aim of [p]laintiffs’ litigation.” Accordingly, plaintiffs were not entitled to a fee under the corporate benefit doctrine.

On December 28, 2023, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery dismissed derivative breach of fiduciary duty and other claims asserted by a plaintiff shareholder after nCino, Inc. (the “Corporation”) acquired a portfolio company (the “Target”) of the Corporation’s alleged controlling shareholder. City of Hialeah Employees’ Retirement System v. Insight Venture Partners, LLC, C.A. No. 2022-0846-MTZ (Del. Ch. Dec. 28, 2023). Plaintiff generally contended that the Corporation overpaid for the Target to the benefit of the alleged controller and the detriment of the Corporation, as reflected in the decline in the Corporation’s stock price after the deal was announced. Plaintiff sought to establish that pre-suit demand was excused because the directors faced a substantial likelihood of liability and were beholden to the alleged controller. The Court found that plaintiff did not adequately allege that the board approved the acquisition in bad faith or lacked independence from the alleged controller and, therefore, failed to plead demand futility.

On December 27, 2022, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery substantially granted plaintiff’s motion for summary judgment in an action seeking attorneys’ fees.  Garfield v. Boxed, Inc., No. 2022-0132-MTZ (Del. Ch. Dec. 27, 2022).  Plaintiff, a stockholder of defendant Seven Oaks Acquisition Corp., a special purpose acquisition company (the “SPAC”), made a demand on the board challenging the structure of stockholder votes on proposed charter amendments regarding the issuance of shares in connection with a merger.  The SPAC made the change demanded by plaintiff and consummated the deal.  However, defendant opposed the attorneys’ fees award, contending that the previously contemplated voting structure had already been legally compliant.  The Court held that plaintiff had correctly determined that the contemplated voting structure would have been inconsistent with Delaware law.  The Court thus awarded attorneys’ fees because “[b]y taking the [SPAC] off a path that violated [Delaware law] and the stockholder franchise, [p]laintiff conferred a substantial benefit.”

On December 15, 2022, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied a motion to dismiss claims as untimely in a derivative action brought by stockholders against the officers and directors of AmerisourceBergen Corporation (the “Company”).  Lebanon County Employees’ Retirement Fund v. Collis, C.A. No. 2021-1118-JTL (Del. Ch. Dec. 15, 2022).  The Company is a wholesale distributor of pharmaceuticals that faced extensive investigations and litigation related to the opioid epidemic.  Plaintiffs primarily alleged that defendants breached their fiduciary duties by ignoring “red flags” related to the Company’s purported failure to report suspicious opioid orders.  Although the challenged conduct began nearly a decade earlier, plaintiffs did not even seek books and records until 2019.  The Court highlighted that “[n]o Delaware court has addressed the timeliness principles that govern” a Caremark red-flags claim.  The Court held that the “separate accrual approach” applies and, therefore, plaintiffs could assert claims with respect to alleged “conduct and consequences” that occurred within the three-year limitations period prior to their “vigilant[]” pursuit of claims.

On September 6, 2022, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted a motion to dismiss derivative claims for breach of fiduciary duty brought by stockholders of a software company (the “Company”) against its directors following a cyberattack.  Construction Industry Laborers’ Pension Fund v. Bingle, No. CV 2021-0940-SG (Del. Ch. Sep. 6, 2022).  After the Company allegedly fell victim to hackers who accessed confidential information on the systems of thousands of its customers, plaintiffs alleged that defendants had failed to adequately address the risk to cybersecurity in breach of their oversight obligations under Caremark.  The Court indicated that cybersecurity is “mission critical” for online service providers and the complaint alleged oversight practices that were “far from ideal.”  But the Court held that pre-suit demand was not excused because the complaint did not plead “specific facts” from which the Court could “infer bad faith liability.”

On June 30, 2022, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery granted a motion to dismiss derivative claims for breach of fiduciary duty brought by a stockholder of an energy company (the “Company”) against its directors following an incident involving explosions in the pipeline system of one of its natural gas distribution subsidiaries. City of Detroit Police and Fire Retirement System v. Hamrock, C.A. No. 2021-0370-KSJM (Del. Ch. June 30, 2022).  Plaintiff claimed that the board breached its oversight obligations under Caremark by allegedly failing to implement a reporting and monitoring system relating to pipeline safety and ignoring “red flags.”  The Court held that pre-suit demand under Court of Chancery Rule 23.1 was not excused because the complaint did not adequately plead that the directors faced a substantial likelihood of liability.

On June 30, 2022, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery denied a motion to dismiss stockholder derivative claims for alleged breaches of fiduciary duty against the CEO/Chairman of an e-commerce car company (the “Company”).  In Re Carvana Co. Stockholders Litigation, C.A. No. 2020-0415-KSJM (Del. Ct. Ch, Jun. 30, 2022).  Plaintiffs alleged that the CEO/Chairman and his father controlled the Company and “orchestrated” a $600 million direct offering to selected investors in which they purchased $50 million of common stock in March 2020 when the Company’s stock price was depressed due to pandemic-related volatility.  The Court held that plaintiffs adequately pleaded that pre-suit demand was excused because two of the Company’s other directors lacked independence from the CEO/Chairman.  The Court further found that the transaction was subject to entire fairness—rather than deferential business judgment—review because it allegedly involved a non-ratable benefit not shared by the public stockholders and half the board lacked independence.  Finally, the Court held that the CEO/Chairman’s abstention from the board’s vote approving the offering was insufficient to warrant dismissal at the pleadings stage.

On May 13, 2022, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery dismissed certain stockholder derivative claims for breaches of fiduciary duty brought against the founder-CEO and other directors of Flashpoint Technology, Incorporated (the “Corporation”).  SDF Funding LLC v. Fry, C.A. No. 2017-0732-KSJM (Del. Ch. May. 13, 2022).  Plaintiffs were a limited liability company (the “New LLC”) that held shares in the Corporation and its sole owner (the “Beneficial Owner”).  The New LLC received its shares from another limited liability company (the “Old LLC”) — a nonparty to the suit — also wholly owned by the Beneficial Owner.  Plaintiffs challenged certain related-party transactions, including leases from and loans to entities affiliated with the CEO.  Applying the “contemporaneous ownership requirement,” the Court granted summary judgment to defendants for claims based on conduct that predated the acquisition of shares by the New LLC.  In doing so, the Court rejected plaintiffs’ contention that the Beneficial Owner should have “equitable standing.”

On April 7, 2022, the United States Court of Appeals for the Eighth Circuit affirmed the dismissal of derivative claims brought by shareholders of Centene Corporation (the “Corporation”) against directors and officers of the Corporation following its merger with Health Net, Inc. (the “Target”).  Carpenters’ Pension Fund of Ill. v. Neidorff, No. 20-3216 (8th Cir. Apr. 7, 2022).  In connection with the merger, the companies issued a joint proxy statement soliciting shareholder approval of the merger.  Plaintiffs’ central allegation was that defendants purportedly concealed their knowledge of “significant financial problems” faced by the Target.  Plaintiffs thus asserted derivative claims for violation of Section 14(a) of the Securities Exchange Act and breaches of fiduciary duty.  The Court held that pre-suit demand was not excused, because the complaint failed to adequately plead that at least five of the nine board members at the time the suit was filed faced a substantial likelihood of liability.

On January 21, 2022, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery dismissed a derivative lawsuit brought by a stockholder of GrafTech International Ltd. (the “Company”) against the Company’s directors and the Company’s controlling stockholder, Brookfield Asset Management (“Brookfield”), in connection with the Company’s repurchase of shares from Brookfield.  Simons v. Brookfield Asset Mgmt., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022).  The Court held that the demand was not excused because five of the nine board members were capable of impartially considering a litigation demand under the recently affirmed Zuckerberg “universal test.”  United Food & Com. Workers Union v. Zuckerberg, 250 A.3d 862 (Del. Ch. 2020).

On December 15, 2021, Vice Chancellor Lori W. Will of the Delaware Court of Chancery dismissed stockholder derivative claims for breaches of fiduciary duty asserted on behalf The Kraft Heinz Company (the “Company”) against an investment firm (the “Investment Firm”) that had previously held 24.2% of the Company’s shares, as well as against certain alleged dual fiduciaries of the two entities.  In re Kraft Heinz Company Derivative Litigation, C.A. No. 2019-0587-LWW (Del. Ch. Dec. 15, 2021).  Plaintiffs alleged that defendants sold $1.2 billion in Company stock on the basis of nonpublic information that the Company was expected to miss its full-year earnings target by $700 million.  The Court held that plaintiffs failed to establish demand futility because the complaint did not raise a reasonable doubt that a majority of the Company’s board members lacked independence from defendants.

On January 3, 2022, Vice Chancellor Lori W. Will of the Delaware Court of Chancery largely denied a motion to dismiss a putative class action brought by the stockholders of Churchill Capital Corp. III, a special purpose acquisition company or “SPAC” (“Churchill”) alleging that the company’s controlling stockholder, officers, and directors (“the Company Defendants”) breached their fiduciary duties and the company’s financial advisor aided and abetted that breach in connection with the SPAC’s acquisition of MultiPlan, Inc. (“MultiPlan”).  In re MultiPlan Corp. Stockholders Litig., C.A. No. 2021-0300-LWW (Del. Ch. Jan. 3, 2022).  Plaintiffs alleged that defendants omitted to disclose that a large customer of MultiPlan would soon stop using MultiPlan’s services, allegedly causing stockholders to approve the merger based on faulty information.  Defendants argued that the claim was derivative in nature, rather than one that could be asserted directly, and moved to dismiss for failure to plead demand futility and on the grounds that the business judgment rule applied.  The Court held that plaintiffs’ claims were direct, rather than derivative, and that entire fairness applied because of what it found to be inherent conflicts of interest between defendants and the company’s public stockholders.

On November 23, 2021, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed stockholder derivative claims for breach of fiduciary duty against the directors of Wayfair, Inc. (the “Company”).  Equity-League Pension Tr. v. Great Hill Partners, C.A. No. 2020-0992-SG (Del. Ch. Nov. 23, 2021).  Plaintiff challenged the sale by the Company of $535 million in convertible notes at the outset of the COVID-19 pandemic to a consortium of investors allegedly tied to four of the Company’s directors, including the two co-chairmen, one of whom was also the CEO.  There was no dispute that two of the nine board members were disinterested and independent.  As to three others, plaintiff alleged that their service on the audit committee presented a substantial likelihood of liability because it was charged with reviewing conflicted transactions.  Highlighting that the Company’s charter exculpated directors for breaches of the duty of care, however, the Court explained that the complaint must therefore plead bad faith, which it referred to as a “rara avis.”  Although the Court acknowledged that the transaction was not a “model of best practices,” it found that the complaint and the documents incorporated by reference therein did not support an inference of bad faith.

On October 29, 2021, Vice Chancellor Lori W. Will of the Delaware Court of Chancery denied a motion to dismiss derivative claims for breach of fiduciary duties brought by stockholders of BioDelivery Sciences International, Inc. (the “Company”).  Drachman v. BioDelivery Scis. Int’l, Inc., C.A. No. 2019-0728-LWW (Del. Ch. Aug. 25, 2021).  Plaintiffs alleged that the board improperly adopted two amendments to the Company’s certificate of incorporation.  Plaintiffs made a pre-suit demand on the board requesting that it deem the amendments ineffective and indicating they would otherwise commence litigation.  The board responded by noting that it had determined the demand was “without merit.”  The Court held that plaintiffs adequately pleaded wrongful refusal because the allegations raised a reasonable doubt as to the good faith of the board in “rebuffing” the demand.

On September 23, 2021, in a decision authored by Justice Tamika Montgomery-Reeves, the Delaware Supreme Court sitting en banc affirmed the dismissal of a derivative complaint filed by a stockholder of Facebook, Inc. (the “Company”) against the CEO, who is also the founder, controlling stockholder and chairman of the board, as well as certain other directors.  United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., No. 404, 2020 (Del. Sept. 23, 2021).  Plaintiff asserted that the directors breached their fiduciary duties by improperly approving a stock reclassification allegedly for the benefit of the CEO, which though ultimately abandoned resulted in litigation and settlement costs.  The Court concluded that the Delaware Court of Chancery properly dismissed plaintiff’s complaint for failing to make a pre-suit demand on the board.  In so holding, the Court adopted a refined test for demand futility and also determined that exculpated claims cannot excuse demand because they do not entail a substantial likelihood of liability.

On September 7, 2021, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery largely denied a motion to dismiss a stockholder derivate suit against the directors of The Boeing Company (the “Company”) in the wake of two fatal crashes of an airplane it manufactured.  In re The Boeing Co. Derivative Litigation, No. 2019-0907-MTZ (Del. Ch. Sept. 7, 2021).  Plaintiffs alleged that the board breached its fiduciary duty of oversight under Caremark by failing to ensure adequate safety and quality control.  The Court found that plaintiffs sufficiently pleaded that the board failed to establish board-level reporting systems related to “mission critical” airplane safety and did not adequately respond to red flags, including media reports about the crashes.  Accordingly, the Court held that the complaint demonstrated that the directors faced a substantial likelihood of liability and that pre-suit demand on the board was excused.

On June 28, 2021, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery dismissed a derivative lawsuit brought by a stockholder of FedEx Corporation (the “Company”) against the Company’s directors for failure to plead that pre-suit demand on the board would have been futile. Pettry v. Smith, et al., No. 2019-0795-JRS (Del. Ch. June 28, 2021).  Plaintiff primarily alleged that defendants breached their Caremark duties by failing to oversee the Company’s compliance with laws governing the transportation and delivery of cigarettes.  The Court, however, concluded that the complaint did not plead particularized facts demonstrating that a majority of the board faced a substantial likelihood of liability.

On June 1, 2021, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery denied defendants’ motion to dismiss a stockholder derivative action against the founders of Tilray, Inc. (the “Company”) for breach of fiduciary duties in connection with a merger with Privateer Holdings, Inc., a parent entity through which the Company’s founders had maintained their holdings.  In re Tilray, Inc. Reorganization Litig., C.A. No. 2020-0137-KSJM (Del. Ch. June 1, 2021).  The alleged purpose of the merger was to effect a reorganization of the business to mitigate expected federal capital gains tax consequences that the founders would incur in connection with the anticipated divestment of their holdings.  The Court found that the Company’s three founders constituted a control group and that the reorganization constituted a self-dealing transaction subject to entire fairness review.  The Court also found that demand on the board would have been futile as a majority of the board was conflicted.

On March 30, 2021, Chancellor Andre G. Bouchard dismissed a derivative suit brought by a stockholder of LendingClub Corporation (the “Company”) against certain of the Company’s current and former directors and officers for failure to plead demand futility.  Fisher v. Sanborn, et al., No. 2019-0631-AGB (Del. Ch. March 30, 2020).  Plaintiff asserted breach of fiduciary duty claims against defendants after the Federal Trade Commission (FTC) filed a complaint against the Company for allegedly violating certain consumer protection laws by engaging in deceptive and unfair practices in connection with its lending business.  Specifically, plaintiff alleged that defendants (i) breached their oversight duties by failing to monitor and oversee the Company’s compliance with consumer protection laws, and (ii) misrepresented the subject of the FTC investigation.  The Court, however, found the complaint did not adequately plead that defendants failed to implement a monitoring system relevant to consumer protection law compliance or consciously disregard indications of noncompliance, as required to be alleged under Caremark.  The Court also found that the complaint did not adequately plead that defendants “deliberately lied to investors.”  The Court therefore held that the complaint did not demonstrate that the directors faced a substantial likelihood of liability and thus pre-suit demand on the board was not excused. 
 

On February 15, 2021, Chancellor Andre G.  Bouchard of the Delaware Court of Chancery entered post-trial judgment in favor of the defendant-general partner of Regency Energy Partners LP (“Regency”) in a class action brought by Regency’s limited partners alleging breach of the partnership agreement (“Partnership Agreement”) and of the implied covenant of good faith and fair dealing.  Dieckman v.  Regency GP LP & Regency GP LLC, No.  CV 11130-CB, 2021 WL 537325, (Del. Ch. Feb. 15, 2021).  The Court held that, notwithstanding inaccurate proxy disclosures about the independence of the conflicts committee, Regency’s merger with Energy Transfer Partners (“ETP”) did not violate the Partnership Agreement’s requirement that the deal be fair and reasonable to the partnership, and that plaintiffs failed to establish bad faith, willful misconduct, or damages.
 

On November 20, 2020, Vice Chancellor Morgan T. Zurn of the Delaware Court of Chancery dismissed stockholder derivative claims against the directors of Christopher & Banks Corporation.  Gottlieb v. Duskin, C.A. No. 2019-0639-MTZ (Del. Ch. Nov. 20, 2020).  Plaintiffs alleged that the directors breached their fiduciary duties by wrongfully enacting defensive measures to rebuff an unsolicited acquisition offer at a substantial premium to the company’s stock price even though the company was in “dire financial condition.”  The Court determined that the complaint pled facts sufficient to trigger enhanced scrutiny of the directors’ conduct under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), rather than the deferential business judgment rule.  Nevertheless, the Court held that the complaint did not sufficiently plead that the “directors face a substantial likelihood of bad-faith liability.”  Therefore, the Court granted the motion to dismiss for failure to plead that pre-suit demand on the directors was excused, as required for a derivative action under Delaware Court of Chancery Rule 23.1.
 

On September 30, 2020, Chancellor Andre G. Bouchard dismissed a derivative suit brought by stockholders of TrueCar, Inc. (the “Company”) against certain of its officers and directors (along with allegedly related entities) asserting breaches of fiduciary duty, insider trading, unjust enrichment, contribution and indemnification, as well as aiding and abetting.  In Re TrueCar, Inc. Stockholder Derivative Litigation, C.A. No. 2019-0672-AGB (Del. Ch. Sept. 30, 2020).  According to the complaint, the Company operated an internet platform designed to facilitate purchases of cars that allegedly depended on consumer traffic directed to TrueCar by its “affinity partners.”  The gravamen of the claims was that defendants did not disclose in the Company’s SEC filings that an impending redesign of the website of its most significant affinity partner would negatively impact the Company’s business and that certain defendants and their alleged affiliates engaged in stock sales before the public disclosure of this allegedly adverse development.  Dismissing the suit in its entirety, the Court found that plaintiffs failed to plead “particularized facts sufficient to impugn the ability” of any of the directors to consider a pre-suit demand because the allegations did not demonstrate that the directors learned of the development or ignored any red flags before the challenged disclosures and stock sales.
 

On April 28, 2020, Vice Chancellor Joseph R. Slights III granted a motion to dismiss a derivative action alleging claims of breach of fiduciary duty and improper trading brought by stockholders of GoPro, Inc. against certain of the company’s current and former directors and officers.  In re GoPro, Inc. Stockholder Derivative Litigation, C.A. No. 018-0784-JRS (Del. Ch. April 28, 2020).  Plaintiffs alleged that defendants failed to disclose that the company’s revenue guidance was unachievable in light of emerging problems with a product launch.  Dismissing the claims, the Court held that the complaint did not plead with particularity that a majority of the board faced a substantial risk of liability, and therefore, rejected plaintiffs’ contention that pre-suit demand on the board to sue was excused as futile.  Specifically, the Court found that the board presentations incorporated by reference into the complaint revealed that management regularly advised the board that the company was still on track to meet the revenue guidance.  As the Court explained, the board was “under no obligation to disclose what it did not know or did not believe to be true.”
 

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.” 

On October 31, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery dismissed a stockholder derivative suit against the directors of LendingClub Corporation for failure to plead demand futility.  In re LendingClub Derivative Litigation, C.A. No. 12984-VCM (Del. Ch. Oct. 31, 2019).  Plaintiffs asserted breach of fiduciary duty claims against the directors after the company disclosed that it had self-reported certain alleged misconduct by the CEO and others to the SEC, as well as the problems that prompted the company’s internal investigation, the results of that investigation, and the company’s remediation efforts.  Plaintiffs alleged that the board did not adequately implement a system of controls or monitor company operations and “thus disabled itself from being informed of problems requiring its attention.”  Determining that the complaint did not allege facts demonstrating bad faith—as is necessary to prevail on a Caremark claim for violation of oversight duties—and, therefore, that a majority of the directors did not face a substantial risk of liability, the Court concluded that pre-suit demand was not excused.
 

On September 30, 2019, Chancellor Andre G. Bouchard of the Delaware Court of Chancery denied defendants’ motion to dismiss a stockholder derivative action for breach of fiduciary duties in connection with BGC Partners, Inc.’s (“BGC”) acquisition of Berkeley Point Financial LLC.  In re BGC Partners, Inc. Deriv. Litig., C.A. No. 2018-0722-AGB (Del. Ch. Sept. 30, 2019).  Plaintiffs alleged that BGC’s CEO and Chairman was a controlling stockholder of both companies who purportedly disproportionately benefited from the transaction.  The Court rejected plaintiffs’ argument that demand was “automatically” excused because the transaction was subject to entire fairness review as a result of the allegations regarding a purported controlling stockholder on both sides of the deal.  Nevertheless, based on its “holistic[]” review of the complaint’s allegations of the CEO’s alleged unilateral ability to remove directors, as well as his alleged relationships with a majority of the other directors, the Court held that the complaint adequately pleaded demand futility because the allegations created a reasonable doubt as to the independence of those directors.

On August 28, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery granted a shareholder’s demand under 8 Del. C. § 220 to inspect the books and records of defendant GGP Inc. for the purpose of investigating potential mismanagement.  Kosinski v. GGP Inc., C.A. No. 2018-0540 (Del. Ch. Aug. 28, 2019).  Plaintiff’s demand stemmed from a merger in which defendant, a real estate company, was acquired by Brookfield Property Partners L.P., another real estate company that owned approximately one third of defendant’s common stock at the time.  Plaintiff contended that the buyer had been defendant’s de facto controlling shareholder and the procedural protections necessary for deferential review of a merger process involving a controller—under Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”)—had not been implemented.  Following trial, the Court granted plaintiff’s Section 220 demand, holding that where procedural protections are absent, “it is possible that the transaction was not at arm’s length,” and finding that plaintiff had demonstrated facts that established a “credible basis” to investigate potential breaches of fiduciary duty.  But the Court noted that it was making an “exceptionally modest point” and not announcing a rule that noncompliance with MFW procedural protections “automatically supplies a credible basis.”

On August 28, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a motion to stay filed by the special litigation committee formed by defendant Blue Bell Creameries, Inc. (“BBGP”) in connection with a derivative action by limited partners of Blue Bell Creameries, LLP (“Blue Bell” or the “Partnership”) against BBGP, which is the sole general partner of Blue Bell, and others.  Wenske v. Blue Bell Creameries, Inc., C.A. No. 2017-0699 (Del. Ch. Aug. 28, 2019).  The Court previously denied a motion to dismiss the derivative action because it determined that BBGP had “a disabling interest for pre-suit demand purposes.”  BBGP then appointed two new directors to its board, who established a special litigation committee consisting of three non-director members empowered to determine the interests of the Partnership in the derivative litigation.  The special litigation committee promptly moved to stay the derivative action to permit its investigation and make a determination.  But the Court denied the motion.  It explained that “[a]ny conflict that disables the principal disables the agent” and “[b]ecause BBGP, as principal, is not fit to decide how to manage the Partnership’s claims against the Defendants (including the claims against BBGP itself), its purported special litigation committee, as agent, is likewise disabled.”

On August 7, 2019, in a decision authored by Justice Gary F. Traynor, the Delaware Supreme Court concluded that books and records produced to a stockholder under Section 220 of the Delaware General Corporation Law are not subject to a presumption of confidentiality.  Tiger v. Boast Apparel, Inc., C.A. No. 23, 2019 (Del. Aug. 7, 2019).  In this case, the Delaware Court of Chancery referenced such a presumption when it issued an order requiring the stockholder to keep such records confidential indefinitely.  The Delaware Supreme Court affirmed the indefinite confidentiality order as “within the range of reasonableness … given the facts and circumstances of this case.”  But the Court expressly clarified that there is no such presumption of confidentiality and the Court of Chancery must instead “assess and compare benefits and harms when determining the initial degree and duration of confidentiality” in connection with a Section 220 demand.

On July 29, 2019, Chancellor Andre G. Bouchard of the Delaware Court of Chancery dismissed a stockholder derivative action asserting breaches of fiduciary duty claims against the directors of J.C. Penney Company, Inc. for failure to make a pre-suit demand on the board.  Rojas v. Ellison, C.A. No. 2018-0755-AGB (Del. Ch. July 29, 2019).  After the Los Angeles City Attorney initiated litigation against the company asserting violations of California’s consumer protection laws, plaintiff filed this derivative action alleging that the company’s directors consciously disregarded their responsibility to oversee the company’s compliance with laws governing price-comparison advertising.  Repeating past statements of the Court about the difficulty of proving director liability for a failure to monitor corporate affairs—known as a Caremark claim—Chancellor Bouchard determined that the complaint failed to plead facts demonstrating that the directors would face a substantial likelihood of personal liability.  In particular, the Court found that a settlement of a consumer class action suit without any admission of liability was not a “red flag” with respect to any ongoing violations of law.  Therefore, the Court concluded that pre-suit demand on the board was not excused. 

On June 18, 2019, in a decision authored by Chief Justice Leo E. Strine Jr., the Delaware Supreme Court en banc reversed the dismissal of a stockholder derivative suit against the directors and officers of Blue Bell Creameries USA, Inc. (the “Company”).  Marchand v. Barnhill, No. 533, 2018, (Del. June 18, 2019).  After a listeria outbreak at the ice cream manufacturer, the Company purportedly faced a liquidity crisis and accepted a dilutive private equity investment.  Plaintiff alleged that the CEO and vice president of operations breached their fiduciary duties of care and loyalty by disregarding contamination risks and that the directors breached their duty of loyalty under In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).  As to the claims against the executives, the Court held that the complaint adequately pleaded demand futility because it alleged facts regarding the personal relationship of an additional director to the CEO sufficient to raise a reasonable doubt as to whether the director could impartially consider a demand.  Reversing the dismissal of the Caremark claim, the Court found that “the complaint supports an inference that no system of board-level compliance monitoring and reporting existed at [the company].”
 

On June 13, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery largely denied a motion to dismiss a derivative action for breach of fiduciary duty and unjust enrichment against directors and officers of a biosciences company (the “Company”) in connection with the alleged repricing of stock options shortly before the company announced the issuance of a “key” patent to its subsidiary.  Howland  v. Kumar, C.A. No. 2018-0804-KSJM (Del. Ch. June 13, 2019).  Plaintiff, a stockholder in the Company, alleged that the directors and officers were aware of the patent issuance yet delayed the public announcement until after the board’s compensation committee approved the reduction in the strike price of more than 2 million stock options primarily held by defendants.  The Court held that pre-suit demand on the board was excused, because a majority of the board was “interested by virtue of having received the repriced options.”  Applying an “entire fairness” standard of review, the Court found that it was reasonably conceivable from the pleadings that the process and price were unfair and, therefore, denied the motion to dismiss.  

On April 1, 2019, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed for lack of demand a stockholder derivative suit against directors of Uber Technologies, Inc. (“Uber”) that asserted breach of fiduciary duty claims in connection with Uber’s acquisition of self-driving car startup Ottomotto, LLC (“Otto”).  McElrath v. Kalanick, et al., C.A. No. 2017-0888-SG (Del. Ch. April 1, 2019).  After Uber acquired Otto, which was founded by a former Google employee, Google sued for infringement and Uber paid $245 million to resolve the claims.  Plaintiff in McElrath claimed that the Uber board violated its duties by failing to adequately investigate the Otto transaction.

On November 14, 2018, Chancellor Andre G. Bouchard of the Delaware Court of Chancery granted a motion to dismiss a stockholder derivative suit asserting breach of fiduciary duty claims against certain directors of Richardson Electronics (the “Company”).  Busch v. Richardson Electronics, Ltd., C.A. No. 2017-0868-AGB (Del. Ch. Nov. 14, 2018).  The claims were based on allegations that the board improperly refused plaintiff’s demand to take action to unwind certain allegedly improper related-party transactions.  Plaintiff also asserted he was misled by the board about its involvement in the underlying transactions before he issued the litigation demand.  Therefore, according to plaintiff, the motion to dismiss should have been evaluated under the test applicable when demand is excused, as articulated in Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981), which does not entail the same broad deference to a board’s decision whether to bring claims as the standard typically applicable in demand-refused cases under Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990).  The Court rejected the argument that the Zapata standard applied but concluded that under either test plaintiff’s claims were subject to dismissal. 

On March 23, 2018, Justice Charles E. Ramos of the Commercial Division of the New York Supreme Court dismissed with prejudice a purported derivative suit alleging that the board of Intercept Pharmaceuticals, Inc. (“Intercept”) breached their duty of loyalty and good faith and squandered corporate assets by approving, without a stockholder vote, a non-employee director compensation policy.  Solak v. Fundaro, No. 655205 (N.Y. Sup. Ct. Mar. 23, 2018).  Though plaintiff sent a letter to Intercept prior to filing suit, demanding that the company take “all action necessary” to remedy the waste allegedly caused by the directors’ compensation policy, plaintiff argued that the letter was not a demand within the meaning of Delaware Court of Chancery Rule 23.1, and that demand would have been futile because self-compensation decisions are inherently conflicted transactions.  The Court held that plaintiff’s letter fulfilled all the requirements of a demand under Delaware law and that the board’s investigation of and response to the demand was sound under the business judgment rule.

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On February 28, 2018, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed claims against the directors of Orexigen Therapeutics Inc. (“Orexigen”) for alleged breaches of fiduciary duty in connection with the company’s clinical drug trials.  Orexigen Therapeutics Inc. v. Michael A. Narachi, et al., C.A. No. 12412-VCMR (De. Ch. Feb. 28, 2018).  Plaintiffs asserted that the directors violated the law because they failed to follow best practices with respect to clinical trials; consequently, plaintiffs argued that demand was futile because a majority of the board faced substantial risk of liability.  The Court dismissed these claims, finding that the Company’s actions were not “so egregious or irrational” as to violate the business judgment rule and, accordingly, demand futility had not been adequately pleaded.

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​On January 25, 2018, the Supreme Court of Delaware ruled that the Court of Chancery’s  dismissal on issue preclusion grounds of the derivative claims of stockholder plaintiffs against the directors of Wal-Mart Stores, Inc. (“Wal-Mart”)—after a parallel derivative suit in federal court was dismissed for failure to allege demand futility—did not violate plaintiffs’ due process rights.  In re Wal-Mart Stores Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Jan. 25, 2018).  In affirming the dismissal, the Delaware Supreme Court declined to adopt the recommendation of the Delaware Court of Chancery to adopt a rule refusing to give preclusive effect to other courts’ decisions on demand futility on federal due process grounds.

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On December 18, 2017, the Supreme Court of Delaware affirmed the Delaware Court of Chancery’s dismissal of a shareholder derivative action asserting that the directors of The Williams Companies, Inc. (“Williams”) breached their fiduciary duties in connection with its entry into, and subsequent cancellation of, an agreement to acquire the remaining interest in its affiliate, Williams Partners L.P. (“WPZ”).  Ryan v. Armstrong, No. 230, 2017 (Del. Dec. 18, 2017).  As discussed in our post regarding that decision, plaintiff alleged that the directors sought to entrench themselves by approving the WPZ transaction while Williams was the subject of acquisition overtures from another company.  Ryan v. Armstrong, C.A. No. 12717-VCG (Del. Ch. May 15, 2017).  The Court of Chancery held that even a “well-pled” claim under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)—which applies enhanced scrutiny to certain takeover defensive measures—is not, standing alone, sufficient to excuse a pre-suit demand on the board under Court of Chancery Rule 23.1 where plaintiff failed to plead sufficient “particularized facts to imply a substantial likelihood of liability for damages . . . on the part of a majority of the directors.”  In its short order, the Supreme Court affirmed on the basis of the Court of Chancery’s opinion.

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On December 13, 2017, the Delaware Supreme Court reversed the Court of Chancery’s dismissal of fiduciary duty breach claims brought derivatively by stockholders of Investors Bancorp, Inc. against its directors in connection with the directors’ decision to grant themselves restricted stock and stock options under an equity compensation plan previously approved by a stockholder vote. In re Inv’rs Bancorp, Inc. Stockholder Litig., C.A. No. 12327-VCS (Del. Ch. December 13, 2017).  As discussed in our post regarding that decision, the Court of Chancery dismissed the claims, finding that the stockholder approval constituted ratification of the awards, rendering them subject to the presumption of protection under the business judgment rule.  In an opinion by Justice Collins J. Seitz, Jr., however, the Delaware Supreme Court reversed, holding that defendants must demonstrate the entire fairness of their equity awards, because plaintiffs adequately alleged that the directors “inequitably exercised [their] discretion” under the compensation plan’s “general parameters,” notwithstanding stockholder approval.

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On November 27, 2017, the Delaware Supreme Court affirmed a decision by the Delaware Court of Chancery dismissing a stockholder derivative complaint against certain directors and officers of BioScrip, Inc. for failing to allege that a demand on BioScrip’s board of directors to bring the litigation would have been futile.  Park Employees’ and Retirement Bd. Employees’ Annuity and Benefit Fund of Chicago v. Smith, No. 198 (Del. Nov. 27, 2017).  As discussed in our post regarding that decision, the Court of Chancery departed from its usual practice of assessing plaintiff’s allegations of demand futility based on the composition of the board on the date the complaint was filed.  Park Employees’ and Retirement Bd. Employees’ Annuity and Benefit Fund of Chicago v. Smith, C.A. No. 11000-VCG (Del. Ch. May 31, 2016).  Instead, the Court of Chancery made an “equitable” exception to that rule and dismissed the complaint for failing to establish demand futility based on the board as it existed four days later based on “unique facts,” including that it was publicly known that those board changes were imminent prior to the filing of the complaint and that the new board was in place by the time defendants had received service of the complaint.  In its short order, the Supreme Court affirmed without further elaboration. 

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On November 7, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery granted a motion to dismiss a derivative and putative class action brought by a minority stockholder of Erin Energy Corporation (“Erin”), challenging a series of transactions involving Erin, Allied Energy PLC (“Allied”)—an entity affiliated with Kase Lukman Lawal, Erin’s chairman, CEO, and controlling stockholder—and another party, Public Investment Corporation Limited (“PIC”).  Lenois v. Lawal, C.A. No. 11963 (Del. Ch. Nov. 7, 2017).  Plaintiff alleged that the CEO—who together with an affiliated entity (Allied’s parent company) controlled nearly 60% of Erin’s shares—effectively stood on all sides of the challenged transactions and negotiated in his own self-interest.  Plaintiff asserted derivative claims for breach of fiduciary duty against the CEO and the remaining directors.  The Court found that plaintiff adequately pleaded that the CEO acted in bad faith, but dismissed the derivative claims because the complaint “failed to plead non-exculpated claims against a majority of the Erin Board” and, thus, demand on the board was not excused.

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On September 29, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted in part and denied in part a motion to dismiss derivative claims for breach of fiduciary duty against the board of foreign exchange broker FXCM Inc. (“FXCM”), sustaining two grounds for breach after finding that demand would have been futile.  Kandell v. Dror Niv et al., C.A. No. 11812 (Del. Ch. September 29, 2017).  Specifically, the Court held that demand was excused with respect to (i) the board’s approval of a hastily procured loan in the wake of the “flash crash” generated by the 2015 decoupling of the Swiss franc from the euro, and (ii) FXCM’s alleged violations regulations prohibiting foreign exchange (or FX) brokers from limiting losses on behalf of customers (a feature of FXCM’s business).  The Court dismissed plaintiff’s other claims, including as to a stockholder rights plan and an employee bonus plan, finding that the complaint lacked particularized facts necessary to excuse demand.

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On July 25, 2017, Chancellor Andre G. Bouchard of the Delaware Court of Chancery issued a supplemental opinion, responding to a remand order from the Delaware Supreme Court, in which Chancellor Bouchard recommended that the Delaware Supreme Court adopt a new preclusion threshold to determine whether collateral estoppel precludes a new plaintiff from pursuing derivative claims that have already been dismissed.  In re Wal-Mart Stores, Inc. Del. Deriv. Litig., C.A. No. 7455-CB (Del. Ch. July 25, 2017).  Chancellor Bouchard originally dismissed the Delaware suit (“Wal-Mart I”) after finding that the plaintiff was barred from relitigating demand futility, which the federal court in the District of Arkansas found was inadequately pleaded in an earlier-filed federal suit.  While the Delaware plaintiffs spent the three years litigating a books and records demand under 8 Del. C. § 220, the plaintiffs in the federal suit filed suit (in what Chancellor Bouchard described as a race to the courthouse) without making a Section 220 demand.

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​On August 1, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery denied a motion to dismiss a stockholder complaint asserting claims for breach of fiduciary duty against directors and executives of AGNC Investment Corp. (the “Company”) in connection with the renewals of investment management agreements with American Capital Mortgage Management, LLC (the “Manager”) and the Company’s subsequent acquisition of the Manager.  H&N Mgmt. Group, Inc. & Aff Cos Frozen Money Purchase Plan v. Couch, C.A. No. 12847-VCMR (Del. Ch. Ct. Aug. 1, 2017).  The Court concluded that the complaint pleaded particularized facts sufficient to establish demand futility and to allege that the board was grossly negligent in approving the transactions, a non-exculpated breach under the company’s charter. 

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On June 16, 2017, Vice Chancellor Tamika Montgomery-Reeves of the Delaware Court of Chancery dismissed breach of fiduciary duty and other claims brought derivatively against the directors and former chief financial officer of Qualcomm, Inc. (“Qualcomm”) for failure to plead demand futility, finding that the complaint did not adequately demonstrate that the directors faced a substantial likelihood of personal liability.  In re Qualcomm Inc. FCPA Stockholder Derivative Litigation, C.A. No. 11152-VCMR (Del. Ch. June 16, 2017) (letter).  The stockholder plaintiffs’ derivative complaint alleged that Qualcomm’s board ignored red flags that resulted in alleged violations of the Foreign Corrupt Practices Act (“FCPA”) and a March 2016 U.S. Securities and Exchange Commission (“SEC”) cease-and-desist order.  The Court found, however, that the complaint did not adequately allege that “the board consciously disregarded the [alleged] red flags” and dismissed the claims.  

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On May 15, 2017, Vice Chancellor Sam Glasscock III of the Delaware Chancery Court dismissed a shareholder derivative action asserting that the directors of The Williams Companies, Inc. (“Williams”) breached their duty of loyalty in connection with its entry into, and subsequent cancellation of, an agreement to acquire the remaining interest in its affiliate, Williams Partners L.P. (“WPZ”).  Ryan v. Armstrong, C.A. No. 12717-VCG (Del. Ch. May 15, 2017).  Plaintiff, a Williams shareholder, alleged that Williams’ directors were “motivated . . . by a desire . . . to entrench themselves” when they approved the WPZ acquisition in the context of “acquisition overtures” made toward Williams by another company, Energy Transfer Equity, L.P. (“ETE”).  The Court held that allegations of “defensive measures”—even if sufficient to trigger enhanced scrutiny under Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)—do not result in “automatic demand excusal.”  Therefore, because demand futility was not otherwise adequately pleaded, the Court granted dismissal under Court of Chancery Rule 23.1 for plaintiff’s failure to make a pre-suit demand on the Williams board to pursue the litigation.

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​On April 26, 2017, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a lawsuit brought by a shareholder of Star Bulk Carriers Corp. (“Star Bulk”) against its directors and entities affiliated with the director defendants.  F5 Capital v. Pappas, No. 16-530 (2d Cir. April 26, 2017).  Challenging various transactions in which Star Bulk had engaged, plaintiff asserted derivative claims for breaches of fiduciary duty and waste, as well as a purported direct class-action claim for wrongful equity dilution.  Affirming the dismissal of all claims, the Second Circuit held that (1) the equity dilution claim was not within the “limited circumstances involving controlling stockholders” to enable it to be considered a direct (rather than derivative) claim; (2) the district court nevertheless had and properly retained subject matter jurisdiction; and (3) plaintiff failed to plead demand futility, as required under Federal Rule of Civil Procedure 23.1 to maintain shareholder derivative claims.  

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On April 5, 2017, Vice Chancellor Joseph R. Slights of the Delaware Court of Chancery granted defendants’ motion to dismiss a stockholder derivative suit against the directors of Investors Bancorp, Inc., which had asserted a claim for breach of fiduciary duty in connection with the directors’ decision to grant themselves restricted stock and stock options under an equity compensation plan previously approved by a stockholder vote.  In re Investors Bancorp, Inc. Stockholder Litigation, C.A. No. 12327-VCS (Del. Ch. Apr. 5, 2017).  Plaintiffs, Investors Bancorp stockholders, had challenged the awards as “grossly excessive compensation” and also alleged that stockholder approval of the equity compensation plan was ineffective because the plan did not contain “meaningful limits” and, in any event, the disclosures in connection with the vote were materially misleading.  But the Court found that the plan—even as alleged—did contain “director-specific limits” on equity compensation, the awards were within those limits, and the stockholder vote was fully informed.  Therefore, the Court held that the stockholder approval constituted “ratification of the awards,” rendering them subject to the “business judgment rule’s presumptive protection” and reviewable only as “waste,” which plaintiffs did not plead.

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On March 6, 2017, in a decision authored by Justice Margot Botsford, the Massachusetts Supreme Judicial Court affirmed the dismissal of an action for breach of fiduciary duty brought by former shareholders of EMC Corporation against its directors in connection with its merger with Dell Inc., finding that the claims could only have been brought derivatively.  Int’l Brotherhood of Electrical Workers Loc. No. 129 Benefit Fund v. Tucci, SJC-12137 (Mass. Mar. 6, 2017).  In its decision, the Court clarified that “the general rule of Massachusetts corporate law is that a director of a Massachusetts corporation owes a fiduciary duty to the corporation itself, and not its shareholders.”  Further, the Court found that the injury alleged—the undervaluation of EMC in the transaction—“qualifies as a direct injury to the corporation” and “fit[s] squarely within the framework of a derivative action,” which plaintiffs as former shareholders did not—and could not—bring.   

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