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Albert H. Manwaring IV Albert H. Manwaring IV.

Uber Technologies’ board approved the acquisition of Google’s more mature autonomous vehicle program. The transaction was high risk and flawed from its inception, ending in embarrassment after Uber learned that key employees hired from Google had misappropriated Google’s proprietary information in the autonomous vehicle program. Uber issued $245 million in its stock to settle Google’s misappropriation claims. An Uber stockholder brought derivative claims against the Uber directors who approved the acquisition of Google’s autonomous vehicle program.

Under Delaware corporate law, the board of directors manages the business and affairs of a corporation, which includes the decision whether a corporation harmed in a transaction should on its own behalf assert breach of fiduciary duty claims against the directors and officers who approved or were responsible for the transaction. To safeguard the board’s management authority, a stockholder, asserting derivative claims on behalf of the corporation, must first make a demand on the board to pursue claims on the corporation’s own behalf under Delaware Court of Chancery Rule 23.1. The demand requirement gives the board the opportunity to decide whether to address the alleged wrong to the corporation without litigation, and to control any suit that the board decides that the corporation should bring on its own behalf. Pursuant to Court of Chancery Rule 23.1, a stockholder can bypass the demand requirement for derivative claims by pleading “with sufficient particularity that demand is futile and should be excused due to a disabling conflict by a majority of the directors,” who would consider the demand at the time the derivative complaint is filed; see City of Birmingham Retirement and Relief System v. Good, 177 A.3d 47, 55 (Del. 2017). When a majority of the directors at the time of the challenged conduct are no longer on the board at the time the derivative complaint is filed, demand futility is assessed under the Rales v. Blasband test. To satisfy demand futility under Rales, a plaintiff stockholder must plead allegations that “create a reasonable doubt that … the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand,” see Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).

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