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Court of Chancery Explains Role of Records Demand in Alleging Wrongful Pre-Suit Demand Refusal

Andersen v. Mattel, Inc., C.A. 11816-VCMR (January 19, 2017)

This decision examines when pre-suit demand may be excused because the board who refused the demand declines to disclose the report of its investigation when responding. In this case, the board’s unwillingness to disclose the report was not sufficient, standing alone, to show the necessary gross negligence or bad faith in the board’s demand refusal, particularly when the plaintiff has not made a formal request for the report using its books and records rights under Section 220.

The decision is also a good review of what circumstances otherwise might be sufficient to show a board’s demand refusal was in bad faith. In short, where the board’s justifications for refusing the demand falls within the bounds of reasonable judgment, the refusal is not in bad faith.