Aronson test in Delaware

2020Feb. 13, 2006) (Lamb, V.C.) (“[T]he Rales test, in reality, folds the two-pronged Aronson test into one broader examination.”), aff’d, 911 A.2d 802 (Del. 2006) (TABLE). 23 includes evaluating whether there is reason to doubt the impartiality of a majority of the directors to decide whether the corporation should pursue litigation because they (i) have a personal interest in the challenged transaction(s), (ii) lack independence from one who has such a personal interest, and/or (iii) are interested because they are exposed to a substantial likelihood of liability with respect to the underlying c

2020Feb. 13, 2006) (Lamb, V.C.) (“[T]he Rales test, in reality, folds the two-pronged Aronson test into one broader examination.”), aff’d, 911 A.2d 802 (Del. 2006) (TABLE). 23 includes evaluating whether there is reason to doubt the impartiality of a majority of the directors to decide whether the corporation should pursue litigation because they (i) have a personal interest in the challenged transaction(s), (ii) lack independence from one who has such a personal interest, and/or (iii) are interested because they are exposed to a substantial likelihood of liability with respect to the underlying c

1986Again, focusing on the need for factual detail in the complaint as the basis for determining demand futility, the Court stated “If the Court of Chancery in the exercise of its sound discretion is satisfied that a plaintiff has alleged facts with particularity which, taken as true, support a reasonable doubt as to either aspect of the Aronson analysis, the futility of demand is established and the court’s inquiry ends.” Pogostin, 480 A.2d at 624-625 .

1986Again, focusing on the need for factual detail in the complaint as the basis for determining demand futility, the Court stated “If the Court of Chancery in the exercise of its sound discretion is satisfied that a plaintiff has alleged facts with particularity which, taken as true, support a reasonable doubt as to either aspect of the Aronson analysis, the futility of demand is established and the court’s inquiry ends.” Pogostin, 480 A.2d at 624-625 .

2021Under Rales, demand is excused as futile if the complaint alleges particularized facts creating a “reasonable doubt that, as of the time the complaint is filed,” a majority of the demand board “could have properly exercised its independent and disinterested business judgment in responding to a demand.”108 “Fundamentally, Aronson and Rales both ‘address the same question of whether the board can exercise its business judgment on the corporat[ion]’s behalf’ in considering demand.”109 For this reason, the Court of Chancery has recognized that the broader reasoning of Rales encompasses Aronson, an

2021Under Rales, demand is excused as futile if the complaint alleges particularized facts creating a “reasonable doubt that, as of the time the complaint is filed,” a majority of the demand board “could have properly exercised its independent and disinterested business judgment in responding to a demand.”108 “Fundamentally, Aronson and Rales both ‘address the same question of whether the board can exercise its business judgment on the corporat[ion]’s behalf’ in considering demand.”109 For this reason, the Court of Chancery has recognized that the broader reasoning of Rales encompasses Aronson, an

2021July 27, 1992) (concluding under the pre-Tooley special-injury test that the court “need not (and therefore does not) decide whether the plaintiffs’ recission claims [challenging a rights plan] are solely derivative” because they satisfied the Aronson test). 207 See Tooley 845 A.2d at 1039 . 208 Moran I, 490 A.2d at 1066 . 209 Id. at 1070 . 40 Defendants interpret the above-quoted language as creating a rule that all poison pill challenges are derivative subject to a narrow exception that applies during an active proxy contest. 210 For simplicity, this decision refers to this characterization

2021July 27, 1992) (concluding under the pre-Tooley special-injury test that the court “need not (and therefore does not) decide whether the plaintiffs’ recission claims [challenging a rights plan] are solely derivative” because they satisfied the Aronson test). 207 See Tooley 845 A.2d at 1039 . 208 Moran I, 490 A.2d at 1066 . 209 Id. at 1070 . 40 Defendants interpret the above-quoted language as creating a rule that all poison pill challenges are derivative subject to a narrow exception that applies during an active proxy contest. 210 For simplicity, this decision refers to this characterization

2021July 27, 1992) (concluding under the pre-Tooley special-injury test that the court “need not (and therefore does not) decide whether the plaintiffs’ recission claims [challenging a rights plan] are solely derivative” because they satisfied the Aronson test). 207 See Tooley 845 A.2d at 1039 . 208 Moran I, 490 A.2d at 1066 . 209 Id. at 1070 . 40 Defendants interpret the above-quoted language as creating a rule that all poison pill challenges are derivative subject to a narrow exception that applies during an active proxy contest. 210 For simplicity, this decision refers to this characterization

2021July 27, 1992) (concluding under the pre-Tooley special-injury test that the court “need not (and therefore does not) decide whether the plaintiffs’ recission claims [challenging a rights plan] are solely derivative” because they satisfied the Aronson test). 207 See Tooley 845 A.2d at 1039 . 208 Moran I, 490 A.2d at 1066 . 209 Id. at 1070 . 40 Defendants interpret the above-quoted language as creating a rule that all poison pill challenges are derivative subject to a narrow exception that applies during an active proxy contest. 210 For simplicity, this decision refers to this characterization

2020Delaware Supreme Court precedent at the time indicated that a court’s ability to assess the availability of exculpation at the pleading stage depended on the standard of review, and that a court could not dismiss a defendant based on exculpation at the pleading stage if entire fairness applied.14 Under this framework, exculpation operated as an affirmative defense, and director defendants could “avoid 14 Compare Emerald P’rs v. Berlin, 726 A.2d 1215, 1223 (Del. 1999) (holding that in a challenge to a transaction with majority stockholder to which entire fairness applied, the court could not ap

2020Delaware Supreme Court precedent at the time indicated that a court’s ability to assess the availability of exculpation at the pleading stage depended on the standard of review, and that a court could not dismiss a defendant based on exculpation at the pleading stage if entire fairness applied.14 Under this framework, exculpation operated as an affirmative defense, and director defendants could “avoid 14 Compare Emerald P’rs v. Berlin, 726 A.2d 1215, 1223 (Del. 1999) (holding that in a challenge to a transaction with majority stockholder to which entire fairness applied, the court could not ap

2020May 15, 2017), aff’d, 176 A.3d 1274 (Del. 2017) (TABLE) (stating that Aronson’s first prong is implicated when a plaintiff pleads particularized facts in support of a reasonable inference that a majority of a board approved a transaction based on a “non-corporate motive” and that “the first prong of the Aronson inquiry addresses director compliance with the duty of loyalty”).

2020May 15, 2017), aff’d, 176 A.3d 1274 (Del. 2017) (TABLE) (stating that Aronson’s first prong is implicated when a plaintiff pleads particularized facts in support of a reasonable inference that a majority of a board approved a transaction based on a “non-corporate motive” and that “the first prong of the Aronson inquiry addresses director compliance with the duty of loyalty”).

2020The 2 Aronson, 473 A.2d at 812 (noting that if a board decision is “not approved by a majority consisting of the disinterested directors, then the business judgment rule has no application”); see Beam v. Stewart, 845 A.2d 1040 , 1046 n.8 (Del. 2004) (noting that for demand futility purposes, a disinterested and independent majority is required, such that a board evenly divided between interested and disinterested directors could not exercise business judgment on a demand); Beneville v. York, 769 A.2d 80 , 85–87 (Del.

2020The 2 Aronson, 473 A.2d at 812 (noting that if a board decision is “not approved by a majority consisting of the disinterested directors, then the business judgment rule has no application”); see Beam v. Stewart, 845 A.2d 1040 , 1046 n.8 (Del. 2004) (noting that for demand futility purposes, a disinterested and independent majority is required, such that a board evenly divided between interested and disinterested directors could not exercise business judgment on a demand); Beneville v. York, 769 A.2d 80 , 85–87 (Del.

2020Delaware Supreme Court precedent at the time indicated that a court’s ability to assess the availability of exculpation at the pleading stage depended on the standard of review, and that a court could not dismiss a defendant based on exculpation at the pleading stage if entire fairness applied.14 Under this framework, exculpation operated as an affirmative defense, and director defendants could “avoid 14 Compare Emerald P’rs v. Berlin, 726 A.2d 1215, 1223 (Del. 1999) (holding that in a challenge to a transaction with majority stockholder to which entire fairness applied, the court could not ap

2020Delaware Supreme Court precedent at the time indicated that a court’s ability to assess the availability of exculpation at the pleading stage depended on the standard of review, and that a court could not dismiss a defendant based on exculpation at the pleading stage if entire fairness applied.14 Under this framework, exculpation operated as an affirmative defense, and director defendants could “avoid 14 Compare Emerald P’rs v. Berlin, 726 A.2d 1215, 1223 (Del. 1999) (holding that in a challenge to a transaction with majority stockholder to which entire fairness applied, the court could not ap

2019The court applies the test from Aronson v. Lewis69 when “a decision of the board of directors is being challenged in the derivative suit.”70 On the other hand, the test from Rales v. Blasband71 governs when “the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit,” such as “where directors are sued derivatively because they have failed to do something.”72 The Aronson and Rales tests both ultimately focus on the same inquiry, i.e., whether “the derivative plaintiff has shown some reason to doubt that the board will exercis

2019The court applies the test from Aronson v. Lewis69 when “a decision of the board of directors is being challenged in the derivative suit.”70 On the other hand, the test from Rales v. Blasband71 governs when “the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit,” such as “where directors are sued derivatively because they have failed to do something.”72 The Aronson and Rales tests both ultimately focus on the same inquiry, i.e., whether “the derivative plaintiff has shown some reason to doubt that the board will exercis

2018Feb. 24, 2009) (citing Stone v. Ritter, 911 A.2d 362, 366-67 ) (Del. 2006)). 30 futile when the directors upon whom the demand would be made “are incapable of making an impartial decision regarding such litigation.”77 Because Carr did not make a demand on the Board before initiating this action, he must allege with particularity that his failure to do so with respect to the Series A-2 Financing should be excused.78 In this analysis, I accept as true Carr’s particularized allegations of fact and draw all reasonable inferences that logically flow from those allegations in Carr’s favor.79 Under D

2018Feb. 24, 2009) (citing Stone v. Ritter, 911 A.2d 362, 366-67 ) (Del. 2006)). 30 futile when the directors upon whom the demand would be made “are incapable of making an impartial decision regarding such litigation.”77 Because Carr did not make a demand on the Board before initiating this action, he must allege with particularity that his failure to do so with respect to the Series A-2 Financing should be excused.78 In this analysis, I accept as true Carr’s particularized allegations of fact and draw all reasonable inferences that logically flow from those allegations in Carr’s favor.79 Under D

2018These standards weed out weak claims while permitting strong claims involving breaches of the duty of loyalty to survive.”), rev’d on other grounds, El Paso Pipeline, 152 A.3d 1248 . 24 such litigation.’”83 Klein did not make a demand on the Board, so he must allege with particularity that his failure to do so should be excused.84 “In this analysis, I accept as true [Klein’s] particularized allegations of fact and draw all reasonable inferences that logically flow from those allegations in [Klein’s] favor.”85 Delaware law has two tests for determining whether demand is excused: the test articu

2018These standards weed out weak claims while permitting strong claims involving breaches of the duty of loyalty to survive.”), rev’d on other grounds, El Paso Pipeline, 152 A.3d 1248 . 24 such litigation.’”83 Klein did not make a demand on the Board, so he must allege with particularity that his failure to do so should be excused.84 “In this analysis, I accept as true [Klein’s] particularized allegations of fact and draw all reasonable inferences that logically flow from those allegations in [Klein’s] favor.”85 Delaware law has two tests for determining whether demand is excused: the test articu

2016“As 58 See Harben, 2010 WL 3893980 , at *5 (holding that demand futility had actually been litigated because it was raised in pleadings, was argued at a hearing, and court had issued an order deciding whether demand was futile) (citing Powell, 289 S.W.3d at 445 ). 59 Arkansas Order 9-11. 28 many members of this Court have recognized, the Rales test functionally covers the same ground as the Aronson test in determining the impartiality of directors.”60 The district court itself pointed out the overlap between the two tests, suggesting that the choice of test would not have been likely to affect

2016“As 58 See Harben, 2010 WL 3893980 , at *5 (holding that demand futility had actually been litigated because it was raised in pleadings, was argued at a hearing, and court had issued an order deciding whether demand was futile) (citing Powell, 289 S.W.3d at 445 ). 59 Arkansas Order 9-11. 28 many members of this Court have recognized, the Rales test functionally covers the same ground as the Aronson test in determining the impartiality of directors.”60 The district court itself pointed out the overlap between the two tests, suggesting that the choice of test would not have been likely to affect