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Court Of Chancery Declines To Hold Unocal Claim Automatically Excuses Demand

Ryan v Armstrong, C.A. No. 12717-VCG (May 15, 2017)

A derivative plaintiff who fails to make a pre-suit demand on the board must show why demand is excused using particularized facts.  Here, the plaintiff argued that demand was automatically excused by sufficiently pleading a Unocal claim.  Some prior case law supports that argument, but the Court in this case rejected an automatic demand excused rule.  Instead, the Court used the more traditional analysis that required either allegations of self-interest or sufficiently egregious conduct that showed bad faith.  Allegations that the board was motivated by a desire to maintain their positions were not sufficient where the complaint lacked facts showing that keeping their jobs was material to each of them.  Similarly, a decision to adopt an entrenchment device is not alone bad faith.

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