Delaware Business Litigation Report

Board Lacks Standing to Bring Motion to Dismiss Because It Delegated That Authority to Special Litigation Committee

Rowan v. Infinity Q Capital Mgmt., LLC, C.A. No. 2022-0176-MTZ (Del. Ch. Sep. 12, 2022)
If a conflicted board delegates all authority over derivative claims to a special litigation committee (“SLC”), then the board may lack authority separately to assert procedural defenses, including a motion to dismiss under Court of Chancery Rule 23.1. But whether a board has given up this authority depends upon the sequence and terms of the SLC’s creation.

Here, the plaintiff pled that the board formed the SLC before the plaintiff filed its case and not in response to a demand or litigation. The plaintiff also pled that the SLC consisted solely of a newly-appointed board member and that the remaining board members were conflicted because they each faced a substantial likelihood of liability. Comparing the allegations and timeline to prior cases, the Court concluded that the board had delegated all authority to the SLC and further, that in doing so, it was reasonably conceivable that the board conceded demand futility. Accordingly, the Court denied the board’s Rule 23.1 motion to dismiss because the board lacked standing to bring it.

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