Opinion ID: 2360416
Heading Depth: 1
Heading Rank: 7

Heading: Derivative Suit Demand Requirement

Text: 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. Lewis [20] 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 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]