In the recent decision of Friedman v. Maffei, C.A. No. 11105-VCMR (Del. Ch. Apr. 13, 2016), Vice Chancellor Montgomery-Reeves granted dismissal of a derivative complaint filed on behalf of TripAdvisor, Inc.  Plaintiff argued that the company’s board acted in bad faith in refusing to take the actions in Friedman’s demand letter.

Defendants argued, and the Court agreed, that the Complaint should be dismissed because it failed to plead particularized facts that raise a reasonable doubt that the Board validly exercised its business judgment in refusing Friedman’s demand.  By making demand on the Board, Friedman implicitly conceded the Board’s independence and disinterestedness with respect to its ability to consider the demand. Friedman, therefore, only can challenge the Board’s decision to refuse her demand on the grounds that the investigation of the underlying claims was unreasonable or that the refusal was made in bad faith.  The Court found that the factual allegations contained in the complaint did not support such a finding.

This opinion is a stark reminder of the high burden upon a derivative plaintiff to challenge the business judgment of a board  upon which a demand has been made, rather than pleading demand futility.

Finally, from a procedural posture, the Court denied plaintiff’s request for leave to amend as requested in the answering brief. Under Rue 15(aaa), when a plaintiff is confronted with a motion to dismiss under Rule 23.1 or 12(b)(6), such plaintiff must either amend as a matter of right, or elect to stand on the allegations of their complaint.  If the latter, and dismissal is granted, then such dismissal is “with prejudice” absent good cause shown.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.