Rales test in Delaware

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2020Feb. 13, 2006) (“[T]he Rales test, in reality, folds the two-pronged Aronson test into one broader examination”), aff’d, 911 A.2d 802 (Del. 2006) (ORDER); Huang, 823 A.2d at 501 (“At first blush, the Rales test looks somewhat different from Aronson, in that [it] involves a singular inquiry . . . .

2020Feb. 13, 2006) (“[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); Guttman v. Huang, 823 A.2d 492, 501 (Del.

2020Conceptually, however, the Rales test supersedes and encompasses the Aronson test, making the Aronson test a special 26 application of Rales.2 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 exercise its discretion impartially and in good faith.” In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 986 (Del.

2020Conceptually, however, the Rales test supersedes and encompasses the Aronson test, making the Aronson test a special 26 application of Rales.2 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 exercise its discretion impartially and in good faith.” In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 986 (Del.

2021Wood, 953 A.2d at 140 . 60 634 A.2d 927 (Del. 1993). 61 Zuckerberg, 2020 WL 6266162 , at *16. 16 oversight duties.”62 “The central question of a Rales inquiry, no matter the context, is the same: ‘whether the board can exercise its business judgment on the corporate behalf in considering demand.’” 63 In refining that question, Rales instructs that a director cannot objectively exercise her business judgment in considering a demand if she is either (1) “interested,” meaning, among other things, that she faces a “substantial likelihood of liability” for her role in the alleged corporate wrongdoi

2021Wood, 953 A.2d at 140 . 60 634 A.2d 927 (Del. 1993). 61 Zuckerberg, 2020 WL 6266162 , at *16. 16 oversight duties.”62 “The central question of a Rales inquiry, no matter the context, is the same: ‘whether the board can exercise its business judgment on the corporate behalf in considering demand.’” 63 In refining that question, Rales instructs that a director cannot objectively exercise her business judgment in considering a demand if she is either (1) “interested,” meaning, among other things, that she faces a “substantial likelihood of liability” for her role in the alleged corporate wrongdoi

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021This Court has articulated two tests to determine whether the demand requirement should be excused as futile: the Aronson test and the Rales test.104 The Aronson test applies where the complaint challenges a decision made by the same board that would consider a litigation demand.105 Under Aronson, demand is excused as futile if the complaint alleges particularized facts that raise a reasonable doubt that “(1) the directors are disinterested and independent[,] [or] (2) the challenged 102 Brehm, 746 A.2d at 254 . 103 See, e.g., White v. Panic, 783 A.2d 543, 549 (Del. 2001). 104 Aronson, 473 A.2d

2021This Court has articulated two tests to determine whether the demand requirement should be excused as futile: the Aronson test and the Rales test.104 The Aronson test applies where the complaint challenges a decision made by the same board that would consider a litigation demand.105 Under Aronson, demand is excused as futile if the complaint alleges particularized facts that raise a reasonable doubt that “(1) the directors are disinterested and independent[,] [or] (2) the challenged 102 Brehm, 746 A.2d at 254 . 103 See, e.g., White v. Panic, 783 A.2d 543, 549 (Del. 2001). 104 Aronson, 473 A.2d

2020Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004) (finding that a purpose of the demand requirement is to deter suits “where there is only a suspicion expressed solely in conclusory terms”) (quoting Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)). 11 conflict by a majority of the directors to consider the demand.”36 The demand futility test is highly dependent on the particularity of the facts alleged in the complaint.37 When a majority of directors at the time of the challenged conduct have been replaced, the demand futility test articulated in Rales v. Blas

2020Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004) (finding that a purpose of the demand requirement is to deter suits “where there is only a suspicion expressed solely in conclusory terms”) (quoting Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)). 11 conflict by a majority of the directors to consider the demand.”36 The demand futility test is highly dependent on the particularity of the facts alleged in the complaint.37 When a majority of directors at the time of the challenged conduct have been replaced, the demand futility test articulated in Rales v. Blas

2018Steinberg makes no argument to the contrary.55 Accordingly, the Rales test applies to Steinberg’s claim concerning those two statements. 52 Id. at 57 (citation omitted). 53 Cambridge Ret.

2018Steinberg makes no argument to the contrary.55 Accordingly, the Rales test applies to Steinberg’s claim concerning those two statements. 52 Id. at 57 (citation omitted). 53 Cambridge Ret.

2021Ch. 2015) (“[T]he Rales test applies where a derivative plaintiff challenges a decision approved by a board committee consisting of less than half of the directors who would have considered demand, had one been made.”)); Conrad v. Blank, 940 A.2d 28, 37 (Del.

2015See Calma v. Templeton, 114 A.3d 563 , 575 (Del.Ch.2015) ("[B]ecause the decisions to grant the [non-employee director compensation awards] were made by less than half of the Citrix directors in office when Plaintiff filed the Complaint, the Rales test applies.”); see also Conrad v. Blank, 940 A.2d 28, 37 (Del.Ch. 2007) ("Since the challenged transaction was not made by the board, or even half of its members, the test articulated in Rales is the proper standard.”). 60 .

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2021R. 23.1. 67 Brehm, 746 A.2d at 254 . 18 pleading.”68 Instead, the plaintiff “must set forth . . . particularized factual statements that are essential to the claim.”69 “Demand futility under Rule 23.1 must be determined pursuant to either the standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband.”70 The court applies the Aronson test when “a decision of the board of directors is being challenged in the derivative suit.”71 The court applies the Rales test when “the board that would be considering the demand did not make a business decision which is being challenged i

2020Ch. 1983), rev’d on other grounds, 473 A.2d 124 805 (Del. 1984). 125 Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). 29 This court employs two different tests for determining whether demand may be excused under Delaware law: the Aronson test and the Rales test.126 The court applies the test from Aronson v. Lewis127 when “a decision of the board of directors is being challenged in the derivative suit.”128 On the other hand, Rales v. Blasband129 governs when “the board that would be considering the demand did not make a bus

2020Ch. 1983), rev’d on other grounds, 473 A.2d 124 805 (Del. 1984). 125 Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). 29 This court employs two different tests for determining whether demand may be excused under Delaware law: the Aronson test and the Rales test.126 The court applies the test from Aronson v. Lewis127 when “a decision of the board of directors is being challenged in the derivative suit.”128 On the other hand, Rales v. Blasband129 governs when “the board that would be considering the demand did not make a bus

2021Jan. 11, 2010)) (applying Rales test to claim that director defendants “failed to disclose material information to the public”), rev’d on other grounds, 152 A.3d 124 (Del. 2016). 77 As many members of this court have commented, it ultimately is inconsequential whether the Aronson or Rales test applies since both tests functionally take into account the same considerations.

2019Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048 (Del. 2004) (“This Court reviews de novo a decision of the Court of Chancery to dismiss a derivative suit under Rule 23.1.”). 85 See Rales v. Blasband, 634 A.2d 927 , 932–34 (Del. 1993). 24 independence turns on ‘whether the plaintiffs have pled facts from which the director’s ability to act impartially on a matter important to the interested party can be doubted because that director may feel either subject to the interested party’s dominion or beholden to that interested party.”86 When it comes to life’s more intimate rela

2018Oct. 12, 2011) (holding that “Rales standard applies” to claims that board failed to monitor operations). 153 Ryan v. Gifford, 918 A.2d 341, 355 (Del.

2015C. § 141(c) (providing that the board of directors may establish a committee endowed with the full authority of the board). 31 918 A.2d 341 (Del.

2020Litig., 824 A.2d 917, 939 (Del.

2020Litig., 824 A.2d 917, 939 (Del.

2020Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004) (finding that a purpose of the demand requirement is to deter suits “where there is only a suspicion expressed solely in conclusory terms”) (quoting Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)). 11 conflict by a majority of the directors to consider the demand.”36 The demand futility test is highly dependent on the particularity of the facts alleged in the complaint.37 When a majority of directors at the time of the challenged conduct have been replaced, the demand futility test articulated in Rales v. Blas

2020Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050 (Del. 2004) (finding that a purpose of the demand requirement is to deter suits “where there is only a suspicion expressed solely in conclusory terms”) (quoting Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)). 11 conflict by a majority of the directors to consider the demand.”36 The demand futility test is highly dependent on the particularity of the facts alleged in the complaint.37 When a majority of directors at the time of the challenged conduct have been replaced, the demand futility test articulated in Rales v. Blas

2020Fitbit, Inc. v. Agyapong, 202 A.3d 511 (Del. 2019) (“Defendants’ exposure in the federal Securities Action is also a relevant factor in the Rales analysis.”). 215 Pls.’ Answering Br., at 38–39 (“When they were named as defendants in that case in 2012 . . . they, or general counsel, should have alerted the rest of the Board that the Company and its directors and officers faced a substantial likelihood of personal liability for the unlawful RIS conduct that was afoot . . . [i]t does not appear that this happened.” (internal citations omitted)). 45 procedures in an analogous line of business.”216

2020Fitbit, Inc. v. Agyapong, 202 A.3d 511 (Del. 2019) (“Defendants’ exposure in the federal Securities Action is also a relevant factor in the Rales analysis.”). 215 Pls.’ Answering Br., at 38–39 (“When they were named as defendants in that case in 2012 . . . they, or general counsel, should have alerted the rest of the Board that the Company and its directors and officers faced a substantial likelihood of personal liability for the unlawful RIS conduct that was afoot . . . [i]t does not appear that this happened.” (internal citations omitted)). 45 procedures in an analogous line of business.”216

2019Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1044 (Del. 2004). 171 Compl. ¶ 250. 172 Brehm, 746 A.2d at 254 (noting that conclusory statements or mere notice pleading are insufficient to satisfy Rule 23.1). 31 demand futility under the well-known and “well-balanced” Rales standard.173 This standard requires plaintiffs to plead facts regarding demand futility with particularity but balances that requirement with a mandate that the court draw all reasonable inferences in the plaintiffs’ favor.174 Demand futility turns on “whether the board that would be addressing the demand

2019Fund v. Sanchez, 124 A.3d 1017, 1022 (Del. 2015) (explaining that the Rales test is “well balanced”)). 174 Rales, 634 A.2d at 934 (requiring “particularized factual allegations”); Marchand, 212 A.3d at 818 (requiring “reasonable inferences” to be drawn in plaintiff’s favor). 175 Rales, 634 A.2d at 934 . 176 Guttman v. Huang, 823 A.2d 492, 501 (Del.

2019Fund v. Sanchez, 124 A.3d 1017, 1022 (Del. 2015) (explaining that the Rales test is “well balanced”)). 174 Rales, 634 A.2d at 934 (requiring “particularized factual allegations”); Marchand, 212 A.3d at 818 (requiring “reasonable inferences” to be drawn in plaintiff’s favor). 175 Rales, 634 A.2d at 934 . 176 Guttman v. Huang, 823 A.2d 492, 501 (Del.

2019Fund v. Sanchez, 124 A.3d 1017, 1022 (Del. 2015) (explaining that the Rales test is “well balanced”)). 174 Rales, 634 A.2d at 934 (requiring “particularized factual allegations”); Marchand, 212 A.3d at 818 (requiring “reasonable inferences” to be drawn in plaintiff’s favor). 175 Rales, 634 A.2d at 934 . 176 Guttman v. Huang, 823 A.2d 492, 501 (Del.

2018Ch. 2007) (quoting In re Baxter Int’l, Inc. S’holders Litig., 654 A.2d 1268, 1269 (Del.

2016They contend that deficiencies in the Arkansas Complaint led the district court to apply the Rales test when Aronson should have applied. 56 Consequently, the district court explicitly declined to consider the second prong of Aronson, namely “whether the Board’s actions, or conscious inaction, were a valid exercise of business judgment.” 57 Plaintiffs argue that, because the Delaware Complaint makes particularized allegations of board 54 Powell v. Lane, 289 S.W.3d 440, 445 (Ark. 2008). 55 Id. at 447 (holding that a default judgment was a valid basis for issue preclusion) (“There is no bright-l

2016They contend that deficiencies in the Arkansas Complaint led the district court to apply the Rales test when Aronson should have applied. 56 Consequently, the district court explicitly declined to consider the second prong of Aronson, namely “whether the Board’s actions, or conscious inaction, were a valid exercise of business judgment.” 57 Plaintiffs argue that, because the Delaware Complaint makes particularized allegations of board 54 Powell v. Lane, 289 S.W.3d 440, 445 (Ark. 2008). 55 Id. at 447 (holding that a default judgment was a valid basis for issue preclusion) (“There is no bright-l