Vice Chancellor Glasscock Addresses Novel Question Regarding Demand Futility

chancerysealOn May 31, 2016, Vice Chancellor Glasscock issued an interesting Opinion addressing the question of which composition of a board of directors is relevant to the Court’s demand futility analysis where the board’s composition changes in between the time a derivative complaint is filed and served upon the defendants.

In the case at bar, the Plaintiff filed a purported derivative action on May 7, 2015.  Just four days (2 business days) later, the board’s composition dramatically changed.  The last factual wrinkle being that the defendants were not served with the complaint until May 27, 2015.  It was under these factual circumstances, that the Vice Chancellor needed to determine which board he should be considering when evaluating whether the plaintiff adequately alleged demand futility.

In the end, the Vice Chancellor determined that demand futility should be reviewed with respect to the “new” board that was in place on May 11.  The Vice Chancellor found it compelling that the change in the board’s composition was both planned in advance and well publicized.  His Honor also found it relevant that, even if Plaintiff had served the “old” board with a demand on May 7, that board would not have had adequate time to evaluate any demand.  Finally, the Vice Chancellor also found it persuasive that the Complaint was not served until May 27 – on the “new” board.

The Court’s opinion is available here.

Blake A. Bennett


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