Case Title: Braddock, et al. v. Zimmerman

Citation: 

Docket Number: 489, 2005

State: delaware

Court: Delaware Supreme Court

Date: 2006-09-12T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
RICHARD S. BRADDOCK, JAY 
§  
S. WALKER, N.J. NICHOLAS, JR., §   No. 489, 2005 
 
 
 
 
 
 
§  
 
Defendants Below, 
 
 
§   Court Below – Court of Chancery 
 
Appellants,  
 
 
§   of the State of Delaware, 
 
 
 
 
 
 
§   in and for New Castle County 
 
and 
 
 
 
 
§   C.A. No. 18473 
 
 
 
 
 
 
§  
PRICELINE.COM  
 
 
§  
INCORPORATED, a Delaware  
§  
Corporation, 
 
 
 
 
§  
 
 
 
 
 
 
§  
 
Nominal Defendant Below, 
§  
 
Appellant,  
 
 
§  
 
 
 
 
 
 
§  
 
v. 
 
 
 
 
§  
 
 
 
 
 
 
§  
MARK ZIMMERMAN,  
 
§  
Derivatively on Behalf of Nominal 
§  
Defendant PRICELINE.COM  
§  
INCORPORATED, 
 
 
§  
 
 
 
 
 
 
§  
 
Plaintiff Below, 
 
 
§  
 
Appellee. 
 
 
 
§  
 
 
 
 
 
   Submitted:  June 28, 2006 
 
 
 
 
      Decided:  September 12, 2006 
 
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and 
RIDGELY, Justices, constituting the Court en Banc. 
 
 
Upon appeal from the Court of Chancery.  REVERSED and 
REMANDED. 
 
 
Bruce L. Silverstein, Esquire, and Danielle Gibbs, Esquire, Young, 
Conaway, Stargatt & Taylor, Wilmington, Delaware and Daniel Slifkin, 
Esquire (argued), Cravath, Swaine & Moore, New York, New York, for 
appellants, Richard S. Braddock and Priceline.com. 
 
2
 
Anne C. Foster, Esquire, Richards, Layton & Finger, Wilmington, 
Delaware, and Jeanne Irving, Esquire, of Hennigan, Bennett & Dorman 
LLP, Los Angeles, California, for appellants, Jay S. Walker and N.J. 
Nicholas, Jr.  
 
 
R. Bruce McNew, Esquire, Taylor & McNew, Greenville, Delaware 
and Eric L. Zagar, Esquire (argued), Schiffrin & Barroway, Radnor, 
Pennsylvania, for appellee. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOLLAND, Justice: 
 
3
 
This is an interlocutory appeal from an order by the Court of 
Chancery that granted the plaintiff’s motion for leave to file a second 
amended complaint.  At issue is the legal meaning and effect of a Court of 
Chancery order dismissing a derivative suit “without prejudice” on Rule 
23.1 “demand required” grounds.  This appeal also requires our analysis of 
the Court of Chancery’s holding in Harris v. Carter1 that a plaintiff does not 
need to make a demand before amending a derivative complaint where a 
new board of directors comes into power, if the amended derivative claims 
were “validly in litigation” before the new board assumed control. 
 
In this proceeding, we conclude the ambiguous record permitted the 
filing of an amended complaint.  We hold prospectively, however, that a 
dismissal without prejudice and without explicit leave to amend operates as 
a final judgment.  We approve the Court of Chancery’s rationale in Harris v. 
Carter.2  We further hold that, for purposes of determining whether demand 
is required before filing an amended derivative complaint, the term “validly 
in litigation” means a proceeding that can or has survived a motion to 
dismiss.  This latter holding requires us to reverse the interlocutory order of 
the Court of Chancery and to remand this matter for further proceedings in 
accordance with this opinion. 
                                          
 
1 Harris v. Carter, 582 A.2d 222 (Del. Ch. 1990). 
2 Id. 
 
4
Procedural History 
 
The plaintiff, Mark Zimmerman (the “Plaintiff”) alleges, in this 
derivative action, that the defendants, Richard S. Braddock, Jay S. Walker, 
and N.J. Nicholas, Jr. (collectively, the “Selling Defendants”), all directors 
of the Nominal Defendant priceline.com, Inc. (“Priceline” or the 
“Company”), engaged in insider trading of the Company’s stock and 
misappropriated the Company’s confidential information.  The other 
defendants, who with the Selling Defendants constituted Priceline’s board of 
directors are:  Daniel H. Schulman, Paul A. Allaire, Ralph M. Bahna, Paul J. 
Blackney, William E. Ford, Marshall Loeb, Nancy B. Peretsman, and Heidi 
G. Miller (collectively, the “Individual Defendants”). 
 
The Plaintiff filed his original complaint on November 1, 2000.  After 
the defendants moved to dismiss that complaint, the Plaintiff filed an 
amended complaint on June 21, 2001 (the “First Amended Complaint”).  
The defendants again moved to dismiss.  On December 20, 2002, the Court 
of Chancery entered an order dismissing the First Amended Complaint in its 
entirety for failure to comply with the demand requirement of Court of 
Chancery Rule 23.1 (the “Dismissal Order”).  The Dismissal Order was 
“without prejudice.”  The Plaintiff did not seek to appeal the Dismissal 
Order. 
 
5
 
On April 25, 2003, the Plaintiff filed a second amended complaint 
(the “Second Amended Complaint”).  The defendants took the position that 
the Plaintiff must file a new complaint because the First Amended 
Complaint had been dismissed in its entirety and the Dismissal Order was 
final.  The Plaintiff then filed a motion pursuant to Court of Chancery Rule 
15 for leave to file the Second Amended Complaint.  The defendants 
opposed that motion. 
When the Plaintiff filed his original complaint on November 1, 2000, 
Priceline had an eleven-member board of directors (the “Old Board”).  
Between November 1, 2000 and April 25, 2003, five members of the Old 
Board were replaced by new directors.  Two additional board seats were also 
created and filled with new directors.  By the time the plaintiff filed his 
Second Amended Complaint on April 25, 2003, Priceline had a thirteen-
member board of directors (the “New Board”) that included only six 
members of the Old Board.  Accordingly, it had a seven-member majority of 
new directors.   
Following oral argument, the Court of Chancery issued a bench ruling 
that dismissed three of the four counts in the Second Amended Complaint 
for failure to make a demand upon the New Board. It reserved decision on 
the remaining count, Count I.  The Court of Chancery subsequently issued a 
 
6
letter opinion granting the Plaintiff’s motion for leave to file the Second 
Amended Complaint as to Count I.  The Court of Chancery held that 
demand as to Count I was properly excused with respect to the Old Board, 
i.e., the Priceline board of directors in place at the time the original 
complaint was filed.   
Issues on Appeal 
 
The defendants contend the Court of Chancery erred when it granted 
the Plaintiff leave to file the Second Amended Complaint after the dismissal 
without prejudice of the Plaintiff’s First Amended Complaint.  The 
defendants submit that the entry of the Dismissal Order and the expiration of 
the reargument period, rendered the Dismissal Order a final order that 
extinguished the Court of Chancery’s authority to entertain any amendment 
of the dismissed complaint.  Because amendment was improper, the 
defendants argue that the Plaintiff was required to file a new complaint to 
reassert any claims.   
 
Alternatively, the defendants argue that the Court of Chancery erred 
when it based its demand futility analysis of Count I of the Second Amended 
Complaint on the composition of the Priceline board of directors as it existed 
when the original complaint was filed.  The defendants contend that, if an 
amendment of the dismissed complaint was permissible, demand futility 
 
7
should have been assessed with respect to the Priceline board in place at the 
time the Plaintiff filed the Second Amended Complaint.  Because it is 
undisputed that a majority of the directors in office at the time the Second 
Amended Complaint was filed were disinterested and capable of exercising 
independent judgment with respect to the Plaintiff’s claims, the defendants 
submit that the Plaintiff cannot satisfy the demand requirement of Rule 23.1. 
 
The Court of Chancery rejected both of the defendants’ arguments.  
First, it ruled that the Dismissal Order did not operate as a final judgment of 
dismissal and was understood, at least implicitly, to allow an amendment of 
the First Amended Complaint.  Second, it ruled that because Count I was 
part of the First Amended Complaint, it was “validly in litigation” at the 
time the Second Amended Complaint was filed.  Therefore, it assessed 
demand futility based on the Old Board in place when that Complaint was 
filed rather than on the New Board in place when the Second Amended 
Complaint was filed. 
Final Judgment Dispute 
 
Under Delaware law, the Court of Chancery retains jurisdiction over 
an action until it enters a final judgment.3  “A final judgment is generally 
defined as one that determines the merits of the controversy or defines the 
                                          
 
3 See, e.g., J.I. Kislak Mortgage Corp. v. William Matthews, Builder, Inc., 303 A.2d 648, 
650 (Del. 1973). 
 
8
rights of the parties and leaves nothing for future determination or 
consideration.”4  “In short, a final judgment is one that determines all the 
claims as to all the parties.  The test for whether an order is final . . . is 
whether the trial court has clearly declared its intention that the order be the 
court’s ‘final act’ in a case.”5   
 
The defendants argue that the Court of Chancery’s dismissal of the 
First Amended Complaint comports with the definition of a final judgment 
because the Court of Chancery held “that the Plaintiff has not alleged 
sufficient facts with particularity to excuse demand and, therefore, this 
action must be dismissed under Rule 23.1.”6  The defendants contend that 
that the Dismissal Order “plainly” dismissed the “action” in its entirety.  The 
defendants submit that a dismissal of a complaint in its entirety, even though 
without prejudice, is nevertheless a dismissal, except that the Plaintiff’s right 
to file a new complaint is not precluded by res judicata.7   
 
The Plaintiff responds that permitting a second amendment was 
proper because “the Court of Chancery’s Order dismissing the First 
Amended Complaint clearly was not a final judgment.”  The Plaintiff relies 
                                          
 
4 Tyson Foods, Inc. v. Aetos Corp., 809 A.2d 575, 579 (Del. 2002) (citing Showell 
Poultry, Inc. v. Delmarva Poultry Corp., 146 A.2d 794, 796 (Del.1958); Catlin v. United 
States, 324 U.S. 229, 233 (1945)). 
5 Id. (citing J.I. Kislak Mortgage Corp. v. William Matthews, Builder, Inc., 303 A.2d at 
650.). 
6 Zimmerman v. Braddock, 2002 WL 31926608, at *1 (Del. Ch. Dec. 20, 2002).  
7 Elfenbein v. Gulf & W. Indus., Inc., 590 F.2d 445, 449 (2d Cir. 1978). 
 
9
upon the fact that the order dismissing the First Amended Complaint was 
without prejudice.  Therefore, the Plaintiff asserts, a dismissal without 
prejudice afforded him “the opportunity to submit a motion for leave to file 
the Second Amended Complaint.”   
Rule 15(aaa) Confusion 
 
The confusion in the record of this proceeding about the finality of the 
Dismissal Order is attributable to the fact that the amendment to the original 
complaint was filed immediately after the Court of Chancery adopted a new 
rule of procedure.  Effective June 1, 2001, the Court of Chancery adopted 
Rule 15(aaa) governing amendments to pleadings.  Three weeks later, on 
June 21, 2001, and in response to a motion to dismiss, the Plaintiff filed the 
First Amended Complaint in this proceeding. 
 
The defendants moved to dismiss the First Amended Complaint.  At 
the April 23, 2002 hearing on that motion, the Plaintiff’s counsel raised the 
issue of whether, pursuant to Rule 15(aaa), the Plaintiff should be allowed 
an opportunity to amend the First Amended Complaint if the Court of 
Chancery “would deem that plaintiff’s allegations are insufficient in some 
way now either on demand or on the claims.”  The Court of Chancery 
replied: 
 
10
My recollection is . . . that [Rule 15(aaa)] went into effect 
before [the First Amended Complaint was filed], but that still 
doesn’t mean I don’t have discretion to allow an amendment. 
 
* * * 
 
I am going to defer any formal consideration of the Rule 15-aaa 
application, in part because I think I first need to figure out 
what I’m going to do with [the motion to dismiss].  It may or 
may not become an issue, but if the case is dismissed, I’m sure 
I’ll hear from plaintiff’s counsel seeking leave to amend and 
we’ll deal with it on that basis as to whether I should provide 
relief or not. 
 
I don’t know any better way of doing it.  I don’t certainly feel 
competent or qualified at this point to exercise my discretion as 
to what I ought to do.  I want to hear more about it if I have to, 
and I think we have spent enough time on this today. 
 
 
The foregoing comments demonstrate that the Court of Chancery did 
not contemplate that an order dismissing the First Amended Complaint 
would necessarily preclude another motion to amend, notwithstanding the 
recent adoption of Rule 15(aaa).  The Court of Chancery specifically stated, 
“I want to hear more about” Plaintiff’s request for leave to amend pursuant 
to Rule 15(aaa), and if the First Amended Complaint were dismissed, “I’ll 
hear from plaintiff’s counsel seeking leave to amend and we’ll deal with it 
on that basis as to whether I should provide relief or not.”   
 
Eight months later, the Court of Chancery subsequently dismissed the 
First Amended Complaint without prejudice.  Citing Rule 15(aaa), the court 
held that “dismissal with prejudice would not ‘be just under the 
 
11
circumstances’ because of the complex and intertwined relationships among 
Priceline, the Individual Defendants, and the various entities with which 
they are associated and because of the apparently non-public status of certain 
facts, the absence of which may have materially affected the outcome.”8  
Thereafter, when considering the Plaintiff’s motion to file the Second 
Amended Complaint, the Court of Chancery stated:  “In an effort to deal 
with Rule 15(aaa), I dismissed Plaintiffs [first] amended complaint without 
prejudice.”   
Confusion Precludes Finality 
 
The Third Circuit Court of Appeals has held that a dismissal “without 
prejudice” amounts to an “implicit invitation” to the plaintiff to amend the 
complaint.9  Consistent with the Third Circuit’s holding in Borelli v. City of 
Reading, the record reflects that the Court of Chancery thought its dismissal 
of the First Amended Complaint without prejudice pursuant to Rule 15(aaa) 
would allow the Plaintiff to submit a motion for leave to file the Second 
Amended Complaint.  In ruling on the motion for leave to file a second 
amendment, the Court of Chancery also concluded that all parties 
understood that the Plaintiff would seek to amend his pleading: 
                                          
 
8 Zimmerman v. Braddock, 2002 WL 31926608, at *12 n.76 (Del. Ch., Dec. 20, 2002).  
9 Borelli v. City of Reading, 532 F.2d 950, 951 (3d Cir. 1976). 
 
12
As to Count I, I am going to allow plaintiff to seek to amend his 
amended complaint . . . .  I do that on the basis that it was the 
understanding of the parties that the plaintiff would be filing a 
motion to amend.  The plaintiff and his counsel obviously 
believed that he would be able to amend the complaint in the 
same action.  Based on communication that occurred between 
counsel after my dismissal of the amended complaint, I’m 
satisfied that it was the defendants’ understanding as well.   
 
The Court of Chancery correctly concluded that Rule 15(aaa) permits 
it to grant leave to amend after a complaint is dismissed without prejudice.  
To accomplish that result, however, the order of dismissal without prejudice 
should have expressly authorized the Plaintiff to file an amended complaint 
by a date certain.  The following language is a good example of the proper 
expression: 
[i]n accordance with Rule 15(aaa) of the Court of Chancery 
Rules, the dismissal will be without prejudice, as good cause 
has been shown to support a finding that dismissal with 
prejudice would not be just under the circumstances.  
Therefore, the court grants the [plaintiff] leave to file an 
amended complaint within 30 days of the date hereof.10 
 
In Borelli, the Third Circuit stated:   
Since it may be difficult to determine whether the district court 
thought an amendment was possible and whether the plaintiff is 
willing or able to amend, we suggest that district judges 
expressly state, where appropriate, that the plaintiff has leave to 
amend within a specified period of time, and that application 
                                          
 
10 U.S. States Bank Nat’l Ass’n v. U.S. Timberlands Klamath Falls, L.L.C., 2004 Del. Ch. 
LEXIS 106, at *25-26 (Del. Ch., July 29, 2004), remanded on other grounds, 2005 Del. 
LEXIS 215 (Del. Supr.). 
 
13
for dismissal of the action may be made if a timely amendment 
is not forthcoming within that time.11   
 
Unfortunately, in this proceeding, the Court of Chancery’s order of 
dismissal without prejudice did not expressly authorize the Plaintiff to seek 
leave to file another amended complaint by a date certain.  An ambiguous 
record was created by the Court of Chancery’s good faith effort to comply 
with the then new Rule 15(aaa), by following the Third Circuit’s practice of 
implicitly inviting an amendment after a dismissal without prejudice.  That 
ambiguity leads us to conclude that the Dismissal Order in this case must be 
construed as if it had expressly granted the Plaintiff leave to file another 
amended complaint.  That construction means the Court of Chancery’s order 
dismissing the First Amended Complaint without prejudice was not a final 
judgment.12   
Therefore, the Court of Chancery retained jurisdiction to consider the 
Plaintiff’s motion for leave to file the Second Amended Complaint.  Under 
the circumstances in the record, this Court cannot conclude that the Court of 
Chancery abused its discretion in granting the Plaintiff leave to file the 
Second Amended Complaint.  Before we address the Court of Chancery’s 
                                          
 
11 Borelli v. City of Reading, 532 F.2d at 951 n. 1. 
12 Commc’n Workers of Am. v. Am. Tel. & Tel. Co., 932 F.2d 199, 204-05 (3d Cir. 1991) 
(holding that the dismissal of a complaint with leave to amend is not considered a final 
judgment.). 
 
14
decision not to dismiss Count I of the Second Amended Complaint, 
however, it is important to provide some guidance for the future about the 
operation of Rule 15(aaa).   
Finality Construed Prospectively 
The purpose of Rule 15(aaa) was to curtail the number of times that 
the Court of Chancery was required to adjudicate multiple motions to 
dismiss the same action. Rule 15(aaa) was written to accomplish that 
objective by requiring plaintiffs, when confronted with a motion to dismiss 
pursuant to any of Ch. Ct. R. 12(b)(6), (c) or 23.1, to elect to either:  stand 
on the complaint and answer the motion; or, to amend or seek leave to 
amend the complaint before the response to the motion was due.  Rule 
15(aaa) makes this election extremely significant by providing that, if a 
plaintiff chooses to file an answering brief in opposition to a motion to 
dismiss rather than amend the complaint, any subsequent dismissal pursuant 
to the motion is with prejudice, unless the court finds for good cause that 
dismissal with prejudice would not be just under all the circumstances.13 
Contrary to the Third Circuit’s holding in Borelli, it appears every 
other federal appellate court has rejected the view that a dismissal “without 
                                          
 
13 See Stern v. LF Capital Partners, LLC, 820 A.2d 1143 (Del. Ch. 2003). 
 
15
prejudice” implicitly means “with leave to amend.”14  We are persuaded by 
the rationale of the majority view.  We hold that a final judgment results, for 
purposes of appeal in Delaware, whenever a complaint is dismissed without 
prejudice unless the plaintiff is expressly granted leave to amend within a 
time certain.15 
Accordingly, we hold that dismissals with and without prejudice are 
equally appealable as final judgments.16  The phrase “without prejudice” in 
an order of dismissal by a Delaware judge is not to be construed as an 
implicit invitation to file an amended complaint.  Instead, the phrase 
“without prejudice” will mean only that the otherwise final judgment does 
not operate as a res judicata bar to preclude a subsequent lawsuit on the 
same cause of action.17  If leave to amend a complaint is contemplated by a 
Delaware judge following a dismissal without prejudice, there must be an 
express statement to that effect in the order, in which case the order will be 
an interlocutory decree.  Our holdings are intended to avoid future confusion 
and provide certainty regarding the ability to file an amendment, the finality 
                                          
 
14 See, e.g., Mirpuri v. Act Mfg, Inc., 212 F.3d 624 (1st Cir. 2000) and Elfenbein v. Gulf 
& W. Indus., Inc., 590 F.2d 445, 449 (2d Cir. 1978).   
15 See Acevedo-Villalabos v. Hernandez, 22 F.3d 384, 389 (1st Cir. 1994).   
16 Accord Wynder v. McMahon, 360 F.3d 73, 76 (2d Cir. 2004); Allied Air Freight v. Pan 
Am. World Airways, 393 F.2d 441, 444 (2d Cir. 1968). 
17 Elfenbein v. Gulf & W. Indus., Inc., 590 F.2d at 449.   
 
16
of a judgment of dismissal without prejudice, and the time in which to file an 
appeal. 
Derivative Suit Demand Requirement 
In derivative litigation, the demand requirement is a recognition of the 
fundamental statutory precept that section 141(a) vests boards of directors 
with the power to manage the business and affairs of corporations.18  The 
demand requirement of Rule 23.1 is a “substantive right designed to give a 
corporation the opportunity to rectify an alleged wrong without litigation, 
and to control any litigation which does arise.”19  Under Delaware law, a 
derivative plaintiff must give the board of directors the opportunity to 
exercise that substantive right or demonstrate that the board is incapable of 
evaluating demand in a disinterested and independent manner, i.e., because 
that demand would be futile, it is excused.   
Demand futility under Rule 23.1 must be determined pursuant to 
either the standards articulated in Aronson v. Lewis20 or those set forth in 
Rales v. Blasband.21  Under the two-part Aronson test, demand will be 
excused if the derivative complaint pleads particularized facts creating a 
                                          
 
18 Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); see also Del. Code Ann. tit. 8, §  
141(a) (“the business and affairs of every corporation organized under this chapter shall 
be managed by or under the direction of a board of directors”).   
19 Aronson v. Lewis, 473 A.2d at 809.  See also Brehm v. Eisner, 746 A.2d 254-55; 
Grimes v. Donald, 673 A.2d 1207, 1216-17 (Del. 1996). 
20 Aronson v. Lewis, 473 A.2d 805 (Del. 1984). 
21 Rales v. Blasband, 634 A.2d 927 (Del. 1993). 
 
17
reasonable doubt that “(1) the directors are disinterested and independent or 
(2) the challenged transaction was otherwise the product of a valid exercise 
of business judgment.”22  In Rales v. Blasband, this Court identified three 
circumstances in which the Aronson standard will not be applied:  “(1) 
where a business decision was made by the board of a company, but a 
majority of the directors making the decision has been replaced; (2) where 
the subject of the derivative suit is not a business decision of the board; and 
(3) where . . . the decision being challenged was made by the board of a 
different corporation.”23  In those situations, demand is excused only where 
particularized factual allegations create a reasonable doubt that, as of the 
time the complaint was filed, the board of directors could have properly 
exercised its independent and disinterested business judgment in responding 
to a demand.24   
Validly in Litigation 
 
In Harris v. Carter, the Court of Chancery held that the existence of 
an independent board of directors is relevant to a Rule 23.1 demand inquiry 
but “only with respect to derivative claims not already validly in 
                                          
 
22 Id. at 933 (citing Aronson v. Lewis, 473 A.2d at 814). 
23 Id. at 934. 
24 Id. 
 
18
litigation.”25  The Court of Chancery recognized that under section 141(a) 
the board of directors had a “right and duty to control corporate litigation” 
and that Rule 23.1 was designed to ensure that through derivative suits 
“shareholders do not improperly seize corporate powers.”26  The Court of 
Chancery concluded, however, that Rule 23.1 “ought not to be so construed 
as to stall the derivative suit mechanism where it has been properly initiated” 
or to “interrupt litigation.”27  Accordingly, the Court of Chancery stated: 
When claims have been properly laid before the court and are in 
litigation, neither Rule 23.1 nor the policy it implements 
requires that a court decline to permit further litigation of those 
claims upon the replacement of the interested board with a 
disinterested one. . . . . “[S]ome tribute must be paid to the fact 
that the lawsuit was properly initiated.”   
 
* * *  
 
A rule that recognizes the power to amend or supplement a 
well-instituted derivative suit without recourse to Rule 23.1, 
does not acknowledge a shareholder right to institute new 
corporate “claims” against an existing defendant . . . after a 
disinterested board takes control of the corporation.  Rather it 
limits the representative plaintiff’s ability (without independent 
justification under Rule 23.1) to amend and supplement 
pleadings to those that relate to “claims” already in litigation.  
However, “claim” for these purposes does not refer simply to 
legal theories of liability but refers broadly to the acts and 
transactions alleged in the original complaint.  Thus, an 
amendment or supplement to a complaint that elaborates upon 
facts relating to acts or transactions alleged in the original 
                                          
 
25 Harris v. Carter, 582 A.2d 222, 230 (Del. Ch. 1990). 
26 Id. at 230-31.     
27 Id. at 231. 
 
19
pleading, or asserts new legal theories of recovery based upon 
the acts or transactions that formed the substance of the original 
pleading, would not, in my opinion, constitute a matter that 
would require a derivative plaintiff to bring any part of an 
amended or supplemental complaint to the board prior to 
filing.28 
 
We agree.  As the Court of Chancery recognized in Harris v. Carter, 
there are several legal options that protect the section 141(a) statutory power 
of a board to manage the corporation’s business and affairs.29   When a 
derivative action is pending, a board “comprised of new directors who are 
under no personal conflict with respect to prosecution of a pending 
derivative claim . . . may cause the corporation to act in a number of ways 
with respect to that litigation.”30  For example, the new board can take 
control of the litigation by becoming realigned as the party plaintiff; move to 
dismiss the action as not in the corporation’s best interest; permit the 
plaintiff to carry the litigation forward; or appoint a special litigating 
committee to determine what action to take.  Accordingly, we also conclude 
that: 
when during the pendency of a derivative litigation there occurs 
a change in the composition of a board that had been disabled 
by conflict, and the board as newly constituted is capable of 
validly exercising judgment concerning that corporate claim, it 
has sufficient avenues open to it to meet its Section 141(a) 
                                          
 
28 Id. 
29 Id. at 230-31. 
30 Id. at 230. 
 
20
responsibilities.  There are good reasons not to go further and 
require that a derivative plaintiff interrupt litigation, when 
amending his pleading or otherwise, to make a demand upon 
such a newly constituted board.31 
 
 
We hold that, when an amended derivative complaint is filed, the 
existence of a new independent board of directors is relevant to a Rule 23.1 
demand inquiry only as to derivative claims in the amended complaint that 
are not already validly in litigation.32  Three circumstances must exist to 
excuse a plaintiff from making demand under Rule 23.1 when a complaint is 
amended after a new board of directors is in place:  first, the original 
complaint was well pleaded as a derivative action; second, the original 
complaint satisfied the legal test for demand excusal; and third, the act or 
transaction complained of in the amendment is essentially the same as the 
act or transaction challenged in the original complaint.33  A fortiori for Rule 
23.1 demand purposes, we hold a complaint that has been dismissed is not 
validly in litigation. 
 
A complaint that is dismissed without prejudice but with express leave 
to amend is nevertheless a dismissed complaint.  It constitutes a judicial 
determination that the original complaint was either not well pleaded as a 
                                          
 
31 Id. at 231.   
32 Accord Harris v. Carter, 582 A.2d at 230-31. 
33 See Uni-Marts, Inc. v. Stein, 1996 WL 466961, at *12 (Del. Ch.).  See also Gatz v. 
Ponsaldt, 2004 WL 3029868 (Del. Ch.); In re Fuqua Indus. Inc. S’holder Litig., 1997 
WL 257460 (Del. Ch.). 
 
21
derivative action or did not satisfy the legal test for demand excusal.  
Following such a dismissal, for purposes of a Rule 23.1 demand inquiry, the 
complaint is not validly in litigation.  Consequently, where a complaint is 
amended with permission following a dismissal without prejudice, even if 
the act or transaction complained of in the amendment is essentially the 
same conduct that was challenged in the original dismissed complaint, the 
Rule 23.1 demand inquiry must be assessed by reference to the board in 
place at the time when the amended complaint is filed. 
After the Plaintiff’s First Amended Complaint was dismissed in its 
entirety, there were no claims “validly in litigation.”  Consequently, the 
Court of Chancery should have assessed demand futility regarding Count I 
of the Second Amended Complaint with regard to the board that was in 
place at the time that amendment was filed.  Where, as in this proceeding, a 
plaintiff’s complaint has been dismissed and the plaintiff is given leave to 
file an amended complaint, we hold that the plaintiff must make a demand 
on the board of directors in place at that time the amended complaint is filed 
or demonstrate that demand is legally excused as to that board.   
 
22
Conclusion 
The interlocutory judgment of the Court of Chancery is reversed.  
This matter is remanded for further proceedings in accordance with this 
opinion.