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Delaware Supreme Court Finds Pre-Suit Demand Was Excused

Sandys v. Pincus, No. 157, 2016 (December 5, 2016)

When a stockholder files a derivative suit she can avoid dismissal under Rule 23.1’s pre-suit demand-on-the-board requirement by showing that a majority of the directors were not independent enough to fairly consider her demand that the corporation itself file the suit.  This decision clarifies how to decide if a board member is sufficiently independent to fairly consider such a demand.  Briefly, at least two factors will be relevant: close social connections to the target of the suit, and disqualification under the NASDAQ tests for independence. There is no single test that controls, although either one of the aforementioned relationships may be disqualifying under the right circumstances, as the Court found them to be in this case.