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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
Morris James Blogs
Court Of Chancery Dismisses Derivative Complaint Alleging Disclosure Violations
This is an interesting decision for its discussion of when pre-suit demand on the board is not excused for a derivative complaint alleging the directors made improper disclosures to stockholders. Applying the well-known Rales test for demand futility, the Court’s focus here was on the absence of particularized allegations from which it was reasonable to infer that a majority of the directors deliberately caused the corporation to issue certain allegedly misleading statements. When that is the case in a suit relying on a bad faith claim, the board doesn’t face a substantial threat of personal liability capable of excusing demand.