Delaware Chancery Court Rule 23.1 and its federal counterpart, Fed. R. Civ. P. 23.1, require a derivative complaint to allege, with particularity, plaintiff’s efforts to obtain action from directors and the reasons for plaintiff’s failure to obtain the action “or for not making the effort.” Demand is required, unless futile, because “directors, rather than shareholders, manage the business and affairs of the corporation,” and in a derivative suit, a stockholder seeks to displace the board’s authority.1 Thus, before divesting the board’s authority, “the complaint must allege with particularity that the board was presented with a demand and refused it wrongfully or that the board could not properly consider a demand, thereby excusing the effort to make demand as futile.”2 The allegations must create “reasonable doubt” “the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.”3
Demand futility must be determined by the trial court on a “case-by-case basis” and “not by any rote or inelastic criteria.”4 Thus, application of these principles has often been confusing as trial courts have attempted to analyze particular fact patterns. Recently, however, courts have focused on the central concept that a substantial likelihood of personal liability compromises the directors’ ability to consider a demand impartially.
