In Lenois v. Somers, 2021 WL 5860672 (Del. Dec. 9, 2021), the Supreme Court considered a question of first impression: Whether a Chapter 7 trustee may substitute and realign in place of the nominal defendant corporation to directly pursue the plaintiff’s claims after the claims were dismissed on Rule 23.1 demand futility grounds, where the dismissal was the subject of a pending appeal that became moot upon the nominal defendant’s bankruptcy filing. The Supreme Court held that the trustee should be substituted for the nominal defendant and realigned as the plaintiff in the Chancery Action to enable him to pursue the derivative claims previously asserted by the plaintiff in the Chancery Action.

The nominal defendant, Erin Energy Corp., was an oil and gas exploration company. Plaintiff Lenois brought a class action and derivative complaint in the Delaware Court of Chancery against the members of Erin’s Board who approved two transactions which allegedly funneled millions of dollars of value from Erin to defendant Lawal, Erin’s founder, controlling stockholder, and then-CEO and board chairman. The defendants filed a motion to dismiss, arguing principally that the derivative claims should be dismissed for failure to make a demand pursuant to Rule 23.1. The Court of Chancery granted the motion to dismiss, finding that Lenois had pleaded with particularity that Lawal had acted in bad faith, but that Lenois had failed to make a demand, which was not excused as futile because he failed to allege non-exculpated claims against a majority of Erin’s directors. Lenois filed a timely notice of appeal.