Delaware Business Litigation Report

Chancery Finds “Constellation” of Personal and Professional Relations Between Directors and Controlling Stockholder Excuses Demand

In re BGC Partners, Inc. Derivative Litig., Consol. C.A. No. 2018-0722-AGB (Del. Ch. Sept. 30, 2019).

A stockholder plaintiff seeking to bring a derivative claim on behalf of a corporation must first demand authorization from the board of directors or allege why making such a demand would be futile due to the board’s assumed partiality under the alleged facts and circumstances.  One way of establishing demand futility is alleging with particularity significant personal or professional ties to an interested party, like a conflicted controlling stockholder.  BGC Partners illustrates the type and degree of relationships that may excuse the pre-suit demand requirement and overcome a motion to dismiss under Court of Chancery Rule 23.1.  This is a developing area of Delaware law, arguably involving a heightened sensitivity to the significance of personal relationships.  As BGC Partners observes, the Delaware Supreme Court has reversed Court of Chancery findings of director independence in the demand futility context three times in the past four years. More ›