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Chancery Rejects Challenge to Director’s Appointment and Dismisses Derivative Claims

Simons v. Brookfield Asset Mgmt., Inc., C.A. No. 2020-0841-KSJM (Del. Ch. Jan. 21, 2022)
If a derivative plaintiff does not make a pre-suit demand on the board, then under Court of Chancery Rule 23.1, the plaintiff must allege particularized facts demonstrating that demand would have been futile because a majority of the board was incapable of impartially considering a litigation demand. 

The plaintiff here asserted derivative claims and challenged the appointment of one of the board’s independent directors. According to the plaintiff, the company improperly expanded its board with an independent director, and without that allegedly improper director, a majority of the board was incapable of considering a litigation demand.

The Court of Chancery disagreed on both fronts. The appointment of an additional independent director neither contradicted the company’s organizational documents nor constituted a breach of fiduciary duty. And, applying the recent Zuckerberg analysis, the Court dismissed the action because it concluded that the plaintiff failed adequately to allege that any of the company’s five outside directors were compromised in their ability to consider a litigation demand.

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