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Delaware Supreme Court Adopts Refined Test for Analyzing Demand Futility

Business Law Today
October 14, 2021

United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund v. Zuckerberg, et al., No. 404, 2020 (Del. Sept. 23, 2021) (“Zuckerberg”)

In this en Banc opinion, the Delaware Supreme Court unanimously eschewed the long-standing test for determining demand futility set forth in Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (“Aronson”) in favor of a “universal” three-part test that incorporates principles from both Aronson and Rales v. Blasband, 634 A.2d 927 (Del. 1993) (“Rales”). The universal demand futility test adopted in this decision focuses primarily on whether directors are disinterested and independent with respect to the litigation demand rather than the decisions or actions being challenged in the litigation. The Court also held that claims exculpated by a corporation’s Section 102(b)(7) charter provision do not expose a director to a “substantial likelihood of liability” for purposes of the demand futility analysis.

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Business Law Today is the digital platform of the American Bar Association’s Business Law Section.