By Professor Christine Sgarlata Chung

With the press of the last semester, I find myself in catch up mode.  (I suspect I am not alone!)  This post — which discusses a recent Delaware Chancery Court case involving Rule 23.1 and shareholder derivative actions — is the first a series of posts designed to bring us up to date on recent developments in corporate governance litigation and financial market regulation.  For faculty using Business Organizations in Focus, this post supplements the discussion of derivative actions and Rule 23.1 in Chapter 9 — particularly pp. 481-484.

Summary:  In Andersen v. Mattel, Inc., C.A. No. 11816-VCMR (Del. Ch. Jan. 19, 2017), a shareholder alleged that Mattel’s board improperly investigated and wrongfully refused to bring suit to recover up to $11.5 million paid to the former chairman and CEO of the company as part of a severance package and consulting agreement.  On January 19th, the Delaware Chancery Court granted the director defendants’ motion to dismiss under Delaware Chancery Court Rule 23.1.

The Demand Requirement/ Rule 23.1:  As the caption reflects, this case was filed as a derivative action — i.e., a lawsuit brought by one or more shareholders to enforce a right or cause of action owned by the corporation, but one that the corporation will not enforce.  Because derivative actions, by their very nature, impinge on the board’s authority to decide whether and when to institute litigation, derivative actions are subject to procedural and substantive requirements not applicable to direct actions, including the so-called demand requirement.  For actions in the Delaware Chancery Court, the demand requirement is set forth in Chancery Court Rule 23.1.

Read the full article at the Forum on Financial Market Regulation blog.