“Thick-As-Thieves” Narrative Persuades Court That Director Independence Is In Question in Carvana
The Delaware Court of Chancery recently denied a motion to dismiss stockholder derivative claims against Carvana Co. arising out of a stock offering Carvana announced in March 2020. The Court found that, based on the plaintiff’s allegations, it was reasonably conceivable that the stock offering had been orchestrated to take advantage of pandemic-related market volatility to benefit investors hand-selected by Carvana’s controlling stockholders. In doing so, the Court rejected the defendants’ arguments of demand futility and provided useful guidance regarding the types of allegations necessary to establish a director’s lack of independence.
The Refined Demand Futility Standard Takes Shape
Over the past several months, a number of decisions released by the Delaware courts have begun to grapple with the new Zuckerberg three-part demand futility standard announced by the Delaware Supreme Court in September. Many cases spotlight the need to assess demand futility on a director-by-director basis. But at least one recent decision has highlighted another aspect of the test, and instead turns on the need to assess demand futility on a transaction-by-transaction basis. In In re Vaxart, Inc. Stockholder Litigation, Vice Chancellor Fioravanti dismissed several claims from a shareholder derivative suit purportedly filed on behalf of Vaxart, Inc. because the plaintiffs failed to allege that a majority of the directors received a material personal benefit or faced a substantial likelihood of liability from the specific transaction that would have been the subject of the pre-suit demand. (more…)
Chancery Court Issues Rare Finding of Wrongful Refusal of Demand – Followed By A Reminder of Why Such Findings Are So Uncommon
On October 29, 2021, the Delaware Court of Chancery issued a rare opinion holding that plaintiffs had succeeded in pleading that a board of directors wrongfully had refused their demand to pursue certain claims. Following short on its heels on November 8, 2021 was another decision illustrating why such opinions are so rare, and the high burden plaintiffs must meet in order adequately plead wrongful refusal. (more…)
