Delaware Business Litigation Report

Court Of Chancery Dismisses Derivative Complaint Alleging Disclosure Violations

Steinberg v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018)

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.

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