derivative claim in Delaware

2026That concept is also inaccurate because a direct, individual claim of stockholders that does not depend on harm to the corporation can also fall on all stockholders equally, without the claim thereby becoming a derivative claim.74 As demonstrated by this passage, the Tooley decision sought to clarify Bokat by distinguishing between (i) an injury that fell indirectly on all stockholders equally, 71 Tooley, 845 A.2d at 1035 . 72 Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del. 1970). 73 Tooley, 845 A.2d at 1037 . 74 Id. (second emphasis added). 35 which supported a derivative claim, and (ii) an i

2026Ch. 2009) (dismissing a derivative claim for tortious interference because the plaintiff “failed to allege any harm to himself individually” separate from those borne by the company). 65 Tooley, 845 A.2d at 1033 . 66 See id.; see also Maginn and New Media II-C’s Opening Br. 21. 67 See CMS Inv.

2021As we recognized in Lewis v. Anderson, with limited exception, “[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.” 477 A.2d at 1049 ; see also El Paso, 152 A.3d at 1265 (“This rule flows from the fact that, following a merger, ‘the derivative claim—originally belonging to the acquired corporation—is transferred to and becomes an asset of the acquiring corporation as a matter of statutory law.’”) (citation omitted). 36 El Paso, 152 A.3d at 1256–57. 37 845 A.2d 1031 (Del. 2004). 38 El Paso, 152 A.3d

2021As we recognized in Lewis v. Anderson, with limited exception, “[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.” 477 A.2d at 1049 ; see also El Paso, 152 A.3d at 1265 (“This rule flows from the fact that, following a merger, ‘the derivative claim—originally belonging to the acquired corporation—is transferred to and becomes an asset of the acquiring corporation as a matter of statutory law.’”) (citation omitted). 36 El Paso, 152 A.3d at 1256–57. 37 845 A.2d 1031 (Del. 2004). 38 El Paso, 152 A.3d

2021See also Ross v. Bernhard, 396 U.S. 531, 542-43 (1970) (holding right to jury trial existed for breach of contract claim asserted by stockholder derivatively because “[t]he corporation, had it sued on its own behalf, would have been entitled to a jury’s determination”). 102 those provisions thus would give rise to a breach of the Management Agreement, but it would not result in AT&T exceeding the scope of its delegated authority.39 From this perspective, the plaintiffs’ contentions regarding the Governance Provision really are a derivative claim for breach of the Management Agreement.

2020Cl. 1995) (denying motion to dismiss a derivative claim for breach of contract against the United States); see also Ross v. Bernhard, 396 U.S. 531, 542-43 (1970) (holding right to jury trial existed for breach of contract claim asserted by stockholder derivatively because “[t]he corporation, had it sued on its own behalf, would have been entitled to a jury’s determination”). 18 See, e.g., Oracle, 2018 WL 1381331 , at *14–15, *20; Baiera, 119 A.3d at 62–63; Zucker, 2012 WL 2366448 , at *10–11; Goldman Sachs, 2011 WL 4826104 , at *12, *18; Guttman, 823 A.2d at 501–02; In re Baxter Int’l, Inc. S’

2025Stated differently, if the demand rule requires deference to the prerogative of management, its invocation must advance management’s position, vis-a-vis, the claims in question, otherwise, the rule serves no function.101 Built on Delaware’s board-centric foundation, Kaplan v. Peat, Marwick, Mitchell & Co. explains a company’s enunciated position on a derivative claim takes precedence over the Court’s Rule 23.1 assessment of the position the company might be able to take.102 In keeping with that precept, the Delaware Supreme Court held that “when a corporation chooses to state its position in r

2024ANALYSIS It is a “cardinal precept” of Delaware law that “directors, rather than shareholders, manage the business and affairs of the corporation.” 71 “The decision to bring a law suit or refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation.”72 A stockholder may only assume the power to bring a derivative claim on the corporation’s behalf after satisfying the strict conditions of Rule 23.1.73 A board’s rejection of a litigation demand is entitled to the protections of the business judgment rule, which presumes that the directors

2024ANALYSIS It is a “cardinal precept” of Delaware law that “directors, rather than shareholders, manage the business and affairs of the corporation.” 71 “The decision to bring a law suit or refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation.”72 A stockholder may only assume the power to bring a derivative claim on the corporation’s behalf after satisfying the strict conditions of Rule 23.1.73 A board’s rejection of a litigation demand is entitled to the protections of the business judgment rule, which presumes that the directors

2015See Gatz v. Ponsoldt, 925 A.2d 1265, 1268 (Del. 2007); ("[T]he claims before us are not exclusively derivative and could be brought directly.”); Gentile v. Rossette, 906 A.2d 91, 99-100 (Del. 2006); Grimes, 673 A.2d at 1212 ("Courts have long recognized that the same set of facts can give rise both to a direct claim and a derivative claim.”); Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A., 2011 WL 3371493 , at *5 n. 31 (Del.Ch.

2025See, e.g., Zapata Corp. v. Maldonado, 430 A.2d 779 , 786–89 (Del. 1981) (concluding a special litigation committee’s decision to dismiss demand-excused derivative litigation presents sufficient risk of disloyalty to warrant judicial evaluation, and establishing a framework); In re Straight Path Commc’ns Inc. Consol.

2019The board of directors of a Delaware corporation is vested by statute with the authority to manage the business and affairs of the corporation.15 This authority includes the authority to delegate decision making to committees comprised of fewer than all members of the board.16 Thus, when the board confronts a conflict of interest among some of its 14 Zapata, 430 A.2d at 786 (“We do not think that the interest taint of the board majority is per se a legal bar to the delegation of the board’s power to an independent committee composed of disinterested board members.

2021Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006) (holding a claim that the exchange ratio in a stock-for- stock merger was unfair to stockholders of acquiring corporation was a derivative claim for overpayment). 326 El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1265 (Del. 2016) (Strine, C.J., concurring); see also Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006) (“In the typical corporate overpayment case, a claim against the corporation’s fiduciaries for redress is regarded as exclusively derivative, irrespective of whether the currency or form of overpayment is cash or the corpor

2019Under Gentile and its progeny, minority stockholders may seek relief directly when a controller or control group extracts a 18 Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006). 19 See El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1265 (Del. 2016) (Strine, C.J., concurring) (“A claim that an entity has issued equity in exchange for inadequate consideration—a so-called dilution claim—is a quintessential example of a derivative claim.”). 13 benefit at the expense of the minority’s economic and voting rights.

2025Ch. 2013). 142 See id. at 477 (“First, the plaintiff must plead an underlying derivative claim that has survived a motion to dismiss or otherwise could state a claim on which relief could be granted.

2023Third, the complaint challenging the merger must support a pleadings-stage inference that the acquirer would not assert the underlying derivative claim and did not provide value for it. 23 67 A.3d at 477 .

2026That concept is also inaccurate because a direct, individual claim of stockholders that does not depend on harm to the corporation can also fall on all stockholders equally, without the claim thereby becoming a derivative claim.74 As demonstrated by this passage, the Tooley decision sought to clarify Bokat by distinguishing between (i) an injury that fell indirectly on all stockholders equally, 71 Tooley, 845 A.2d at 1035 . 72 Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del. 1970). 73 Tooley, 845 A.2d at 1037 . 74 Id. (second emphasis added). 35 which supported a derivative claim, and (ii) an i

2024That concept is also inaccurate because a direct, individual claim of stockholders that does not depend on harm to the corporation can also fall on all stockholders equally, without the claim thereby becoming a derivative claim.238 In this passage, Tooley reframed the analysis in a way intended to remedy the confusion caused by Bokat by distinguishing between (i) an injury that fell indirectly on all stockholders equally, which gave rise to a derivative claim, and (ii) an injury 236 Tooley II, 845 A.2d at 1035 . 237 262 A.2d 246, 249 (Del. 1970), abrogated by Tooley II, 845 A.2d at 1038–39. 23

2021We reversed, finding that the complaint “directly challenges the fairness of the process and the price in the Bally/Hilton merger.” 43 We distinguished the direct claim attacking the merger itself from the derivative claim in Kramer v. Western Pacific Industries.44 In Kramer, the plaintiff alleged “wrongful transactions associated with the merger (such as the award of golden parachutes) [that] reduced the amount paid to [the target’s] stockholders,” but “did not allege that the merger price was unfair or that the merger was obtained through unfair dealing.”45 Our Court held that the complaint

2021We reversed, finding that the complaint “directly challenges the fairness of the process and the price in the Bally/Hilton merger.” 43 We distinguished the direct claim attacking the merger itself from the derivative claim in Kramer v. Western Pacific Industries.44 In Kramer, the plaintiff alleged “wrongful transactions associated with the merger (such as the award of golden parachutes) [that] reduced the amount paid to [the target’s] stockholders,” but “did not allege that the merger price was unfair or that the merger was obtained through unfair dealing.”45 Our Court held that the complaint

2021The fact that there may be a basis to allow the stockholder to recover directly on a derivative claim, however, does not render the claim any less derivative. 96 Dietrichson, 2017 WL 1400552 , at *4 (internal quotations and citations omitted); see also Kramer, 546 A.2d at 353 (holding claims of corporate mismanagement resulting in a depletion of corporate funds are derivative because they represent a wrong to the corporation indirectly experienced by all shareholders); Feldman, 951 A.2d at 735 (Del. 2008) (noting waste claims are derivative in nature). 23 derivative to direct based on its iden

2018It is plaintiffs’ burden to prove they do.201 It is well established under our Supreme Court’s decision in Lewis v. Anderson and its progeny that, as a general matter, a merger extinguishes a plaintiff’s standing to maintain a derivative suit.202 This is because “a derivative claim is a property right owned by the nominal corporate defendant [that] flows to the acquiring 201 El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248 , 1260 n. 57 (Del. 2016) (quoting Dover Historical Soc’y v. City of Dover Planning Comm’n., 838 A.2d 1103, 1109 (Del. 2009)). 202 477 A.2d 1040, 1049 (Del. 198

2024ANALYSIS It is a “cardinal precept” of Delaware law that “directors, rather than shareholders, manage the business and affairs of the corporation.” 71 “The decision to bring a law suit or refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation.”72 A stockholder may only assume the power to bring a derivative claim on the corporation’s behalf after satisfying the strict conditions of Rule 23.1.73 A board’s rejection of a litigation demand is entitled to the protections of the business judgment rule, which presumes that the directors

2020Demand Futility Standards “A basic principle of the General Corporation Law of the State of Delaware is that directors, rather than shareholders, manage the business and affairs of the corporation.”78 For this reason, the decision to bring or refrain from bringing a derivative claim on behalf of the corporation is the responsibility of the board of directors in the first instance.79 This approach “is designed to give a corporation, on whose behalf a derivative suit is brought, the opportunity to rectify the alleged wrong without suit or to control any litigation brought for its benefit.”80 76

2018Such violations are sufficient to subject directors to liability in a derivative claim.” (footnote omitted)). 77 Malone, 722 A.2d at 10 . 78 In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 132 (Del.

2018Such violations are sufficient to subject directors to liability in a derivative claim.” (footnote omitted)). 77 Malone, 722 A.2d at 10 . 78 In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 132 (Del.

2019See, e.g., PAB (D.I. 23) at 58, 62–63 (devoting approximately three total pages to the Brophy and unjust enrichment claims). 161 Compl. ¶¶ 342–44. 28 “actions and inactions . . . in connection with the TIGER-X trial.”162 In this regard, Count I alleges either that (i) the Board Defendants failed to institute an oversight system for the TIGER-X trial or (ii) the Board Defendants consciously disregarded a series of red flags related to the TIGER-X trial.163 Count II asserts a derivative claim against the Board Defendants for unjust enrichment, and Count III asserts a derivative claim for breach

2009Aronson, 473 A.2d at 811-12 ; see also Rales v. Blasband, 634 A.2d 927, 933 (Del.1993) ("Because such derivative suits challenge the propriety of decisions made by directors pursuant to their managerial authority, we have repeatedly held that the stockholder plaintiffs must overcome the powerful presumptions of the business judgment rule before they will be permitted to pursue the derivative claim.”); Emerald Partners v. Berlin, 1993 WL 545409 , at *3 (Del.Ch.

2015Apr. 14, 2006) (characterizing claim alleging equity dilution following a preferred stock issuance as a derivative claim but noting that “[v]oting power dilution may constitute a direct claim, because it can directly harm the shareholders without affecting the corporation, and any remedy for the harm suffered under those circumstances would benefit the shareholders.”); In re IP Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 818 (Del.

2015Apr. 14, 2006) (characterizing claim alleging equity dilution following a preferred stock issuance as a derivative claim but noting that “[v]oting power dilution may constitute a direct claim, because it can directly harm the shareholders without affecting the corporation, and any remedy for the harm suffered under those circumstances would benefit the shareholders.”); In re JP Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 818 (Del.

2021As we recognized in Lewis v. Anderson, with limited exception, “[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.” 477 A.2d at 1049 ; see also El Paso, 152 A.3d at 1265 (“This rule flows from the fact that, following a merger, ‘the derivative claim—originally belonging to the acquired corporation—is transferred to and becomes an asset of the acquiring corporation as a matter of statutory law.’”) (citation omitted). 36 El Paso, 152 A.3d at 1256–57. 37 845 A.2d 1031 (Del. 2004). 38 El Paso, 152 A.3d

2020The high court later restated the rule as follows: “A plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit.” Id. at 1049 .22 The Delaware Supreme Court has applied this 22 A close look at the citations in Lewis v. Anderson suggests that the Delaware Supreme Court’s formulation drew on an expansive paraphrasing of the longstanding common law rule that the right to assert a derivative claim is a property right associated with the plaintiff’s shares of stock that passes to a buyer of the shares if the plainti

2021Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006) (holding a claim that the exchange ratio in a stock-for- stock merger was unfair to stockholders of acquiring corporation was a derivative claim for overpayment). 326 El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1265 (Del. 2016) (Strine, C.J., concurring); see also Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006) (“In the typical corporate overpayment case, a claim against the corporation’s fiduciaries for redress is regarded as exclusively derivative, irrespective of whether the currency or form of overpayment is cash or the corpor

2021That is a derivative claim.103 Confronted with its own (amended) pleadings, CPI raised for the first time at oral argument Fletcher International Ltd. v. ION Geophyiscal Corp.104 to support its argument that it was directly harmed by Defendants’ hiring of Robinson-Smith.105 In Fletcher, then-Chancellor Strine calculated the expectation damages flowing from a company’s violation of a shareholder-hedge fund’s consent rights with respect to a bridge loan extended to maintain the company’s solvency until it received a more 103 See Dietrichson, 2017 WL 1400552 , at *4–5; see also J.P Morgan, 906 A.

2022In Parnes v. Bally Entertainment Corporation, 722 A.2d 1243 (Del. 1999), the Delaware Supreme Court made clear that a plaintiff can bring a direct claim challenging a merger that results, in whole or in part, from conduct that otherwise might be viewed as giving rise to a derivative claim.

2021Jan. 18, 2013) (“If there is no standing, there is no justiciable substantive controversy.”). 25 Ala. By-Prods., 657 A.2d at 264 . 26 See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1036 (Del. 2004) (“The decision whether a suit is direct or derivative may be outcome-determinative.”). 27 Parnes v. Bally Entm’t Corp., 722 A.2d 1243, 1245 (Del. 1999) (“Stockholders may sue on their own behalf (and, in appropriate circumstances, as representatives of a class of stockholders) to seek relief for direct injuries that are independent of any injury to the corporation.”). 28 Id. (“A de

2023Agents have a duty to “comply with all lawful instructions received from the principal,” even if “the agent believes that doing otherwise would be better for the principal.”142 As the October 31 date for filing to confirm the Award loomed, entity-level recovery into an investor-level recovery.” (citing El Paso, 132 A.3d at 75 )); El Paso, 132 A.3d at 75 (“[S]ubstantial authority supports a court’s ability to grant a pro rata recovery on a derivative claim.

2023Agents have a duty to “comply with all lawful instructions received from the principal,” even if “the agent believes that doing otherwise would be better for the principal.”142 As the October 31 date for filing to confirm the Award loomed, entity-level recovery into an investor-level recovery.” (citing El Paso, 132 A.3d at 75 )); El Paso, 132 A.3d at 75 (“[S]ubstantial authority supports a court’s ability to grant a pro rata recovery on a derivative claim.

2023Id. at 763 .

2023Jan. 9, 2023) (holding that stockholder had stated a direct claim challenge to a merger where the complaint alleged that a controller had systemically looted the company, giving rise to a claim for breach of fiduciary duty belonging to the company, then purchased the company at an unfair price, in part because the merger consideration afforded no value to the derivative claim); Primedia, 67 A.3d at 486–88 (holding that plaintiff stated a claim where the merger extinguished standing to pursue a derivative claim against a controlling stockholder and therefore conferred a unique benefit on the co

2026Co., Ltd. v. Vertin, 115 A.3d 535, 553 (Del.

2015Co., Ltd. v. Vertin, 115 A.3d 535, 556 (Del.

2024ANALYSIS It is a “cardinal precept” of Delaware law that “directors, rather than shareholders, manage the business and affairs of the corporation.” 71 “The decision to bring a law suit or refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation.”72 A stockholder may only assume the power to bring a derivative claim on the corporation’s behalf after satisfying the strict conditions of Rule 23.1.73 A board’s rejection of a litigation demand is entitled to the protections of the business judgment rule, which presumes that the directors

2014Unlike the fiduciary duty claims, here Plaintiffs are accusing the board of not taking action to prevent Mathews, as CEO, 68 Id. (citing Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971), and Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985)). 69 See White v. Panic, 783 A.2d 543, 554-55 (Del. 2001). 30 from wasting corporate assets.70 Derivative suits that do not challenge a board‟s actions, such as a suit questioning a transaction on transactions that were not presented to the board for decision, are examined under the Rales standard.71 A Rales inquiry examines “whet

2024See, e.g., Zuckerberg, 262 A.3d at 1039, 1041–42, 1063–64 (concluding that a director who was on the special committee that recommended and the board that approved an allegedly conflicted reclassification was independent despite those and other allegations); cf. Wood v. Baum, 953 A.2d 136, 142 (Del. 2008) (“Delaware law on this point is clear: board approval of a transaction, even one that later proves to be improper, without more, is an insufficient basis to infer culpable knowledge or bad faith on the part of individual directors.”).

2020Ch. 1995); see also Wood, 953 A.2d 136, 142 (Del. 2008) (evaluating demand futility under Rales in context of limited liability company; holding that if “directors are contractually or otherwise exculpated from liability for certain conduct, then a serious threat of liability may only be found to exist if the plaintiff pleads a non-exculpated claim against the directors based on particularized facts” (emphasis in original) (internal quotation marks omitted)); DiRienzo, 2013 WL 5503034 , at *28 (applying contractual exculpation provisions in partnership agreement when evaluating whether general

2026Ch. 1999)). 59 Gaylord, 747 A.2d at 74 . 12 an alleged corporate overpayment does not transform a derivative claim into a direct one.60 Because these claims are exclusively derivative, they belong to Jenzabar and are subject to the standing and demand requirements of Court of Chancery Rule 23.1.61 Furthermore, Count V and Count XII improperly name Jenzabar as a defendant.62 Jenzabar cannot logically be named as a direct defendant on claims brought on its own behalf.63 Accordingly, the direct claims asserted in Counts I, II, IV, V, VI, and X are dismissed under Rule 12(b)(6), and Jenzabar is di

2018We do not find such allegations to be sufficient to state a claim of special or direct injury to the common shareholders rather than a derivative claim for waste.” (footnote omitted)). 16 See, e.g., In re Gaylord Container Corp. S’holders Litig., 747 A.2d 71, 75 (Del. 1999) (“The application of th[e direct/derivative test]-especially with respect to complaints challenging board actions taken for defensive reasons or in the context of change of control transactions-has yielded less than predictable results.

2020Id. at 1041 .

2020C. § 3816(b) (emphasis supplied). 465 CML V, LLC v. Bax, 28 A.3d 1037, 1042 (Del. 2011). 466 Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 290 (Del. 1999). 149 No party has standing to pursue a derivative claim on behalf of the Trusts unless that party holds a Trust Certificate, even if the party is a Trust creditor (like the Noteholders and AMBAC), even if the party is an assignee and even if the Trusts were insolvent when the creditor/assignee filed suit.