Chancery Invokes Delaware Policy Against Buying Derivative Standing and Unclean Hands Doctrine Before Addressing Merits of Alleged “Strike Suit”

Solak v. Daniels, C.A. No. 2024-0857-MTZ (Del. Ch. July 11, 2025)

The Court of Chancery converted the parties’ cross motions for judgment on the pleadings into motions for summary judgment to consider whether the plaintiff purchased two shares of stock to buy standing to pursue a strike suit in violation of the doctrine of unclean hands.  The Court provided the parties a reasonable opportunity to pursue targeted discovery and present evidence on whether the plaintiff had acted with unclean hands. 

The plaintiff’s action challenged an issuance of restricted stock that exceeded the limits under a stockholder-approved compensation plan.  The plaintiff bought two shares of stock after public filings revealed that the company was on track to exceed the compensation plan limits.  After another over-limit issuance of restricted stock a year later, the plaintiff filed this derivative action. The company argued that the compensation plan’s limit was a drafting error that was corrected in a compensation committee resolution, which the plaintiff claimed was ineffective. 

The Court emphasized that Delaware strongly disfavors “strike suits” – i.e., cases “intended to provoke a settlement payment to the plaintiff and her counsel rather than to redress a meaningful governance problem.”  Asserting claims with strike-suit motives implicates the doctrine of unclean hands.  The Court explained that a “plaintiff who buys company stock to bring a derivative suit, then purports to speak on the company’s behalf to extract benefits for herself or her counsel that exceed on a relative basis the suit’s net benefit to the company, risks converting a derivative action from an equitable tool for corporate benefit into a conflicted and inequitable strike suit.” 

Here, the Court took judicial notice that the plaintiff frequently filed stockholder actions in the Court of Chancery, which, as a general matter, were quickly settled or dismissed.  To address whether the plaintiff purchased his two shares to launch a stockholder strike suit, the Court permitted targeted discovery.  Accordingly, the parties’ pending motions were stayed pending the Court’s resolution of the “gating issue” of whether the plaintiff had acted with unclean hands, which the Court decided to address before considering the merits of the plaintiff’s stockholder derivative action.