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Chancellor Explains When Demand Is Required For Compensation Claim

Friedman v. Khosrowshahi, C.A. 9161-CB (July 16, 2014) Recently derivative suits claim that there is no need to make a pre-suit demand on the board because that board violated the terms of an incentive compensation plan and is thus disqualified from considering a demand it file suit.  As this decision by the new Chancellor points out, the prior case law that excused demand turned on the alleged fact that the incentive plan was clearly violated by the board.  Here, in contrast, the plan might reasonably be interpreted to permit just what the board was accused of doing when it amended the plan to grant the extra incentive the complaint alleged was wrong.  Hence, the board was not disqualified out of fear the members would be held liable for doing what they did to intentionally violate their duties. Share

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