A recent decision of the Delaware Court of Chancery provides useful definitions and explanations for well-established principles applicable to corporate litigation. The opinion in Steinberg v. Bearden, C.A. No. 2017-0286-AGB (Del. Ch. May 30, 2018), involves claims that a board of directors and two of its officers breached their fiduciary duties by making or permitting to be made several materially false and misleading statements about the financial condition of the company.
In connection with dismissing the claims, the court reiterates several basic principles and explains definitions of key terms and standards applicable to stockholder derivative suits. For example:
- The court explains the different circumstances in which the Aronson test will be used to analyze demand futility as compared with situations when the Rales test will be used. See pages 15 and 16.
- The court provides a definition of bad faith to be used when a non-exculpated claim for breach of the duty of loyalty is alleged. See page 21.
- The court provides an always useful definition of the standards of “interested” and “independent” for purposes of determining if directors are disabled from considering a pre-suit demand. See pages 19 and 20.
- The court defines the duty of disclosure owed by officers and directors even when no stockholder action is requested. See page 22.
In sum, the court granted a motion to dismiss for failure to establish pre-suit demand futility in connection with allegations of false and misleading statements