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Aronson v. Lewis

Supreme Court of Delaware

November 14, 1983, Submitted ; March 1, 1984, Decided

No. 203, 1983

Opinion

 [*807]  In the wake of Zapata Corp. v. Maldonado, Del. Supr., 430 A.2d 779 (1981), this Court left a crucial issue unanswered: when is a stockholder's demand upon a board of directors, to redress an alleged wrong to the corporation, excused as futile prior to the filing of a derivative suit? We granted this interlocutory appeal to the defendants, Meyers Parking System, Inc. (Meyers), a Delaware corporation, and its directors, to review the Court of Chancery's denial of their motion to dismiss this action, pursuant to Chancery Rule 23.1, for the  [*808]  plaintiff's failure to make such a [**2]  demand or otherwise demonstrate its futility. 1 The Vice Chancellor ruled that plaintiff's allegations raised a "reasonable inference" that the directors' action was unprotected by the business judgment rule. Thus, the board could not have impartially considered and acted upon the demand. See Lewis v. Aronson, Del. Ch., 466 A.2d 375, 381 (1983).

 [**3]  We cannot agree with this formulation of the concept of demand futility. In our view demand can only be excused where facts are alleged with particularity which create a reasonable doubt that the directors' action was entitled to the protections of the business judgment rule. Because the plaintiff failed to make a demand, and to allege facts with particularity indicating that such demand would be futile, we reverse the Court of Chancery and remand with instructions that plaintiff be granted leave to amend the complaint.

The issues of demand futility rest upon the allegations of the complaint. The plaintiff, Harry Lewis, is a stockholder of Meyers. The defendants are Meyers and its ten directors, some of whom are also company officers.

In 1979, Prudential Building Maintenance Corp. (Prudential) spun off its shares of Meyers to Prudential's stockholders. Prior thereto Meyers was a wholly owned subsidiary of Prudential. Meyers provides parking lot facilities and related services throughout the country. Its stock is actively traded over-the-counter.

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473 A.2d 805 *; 1984 Del. LEXIS 305 **

SENIOR ARONSON, ET AL., Defendants Below, Appellants, v. HARRY LEWIS, Plaintiff Below, Appellee

Subsequent History: Motion denied by Lewis v. Aronson, 1985 Del. Ch. LEXIS 431 (Del. Ch., June 7, 1985)

Prior History:  [**1]  On certification of interlocutory appeal from Court of Chancery under Supreme Court Rule 42(c).

Lewis v. Aronson, 466 A.2d 375, 1983 Del. Ch. LEXIS 396 (Del. Ch., 1983)

Disposition:  Reversed and remanded.

CORE TERMS

futility, business judgment rule, shareholders, business judgment, particularity, domination, derivative action, allegations, excused, employment agreement, derivative suit, managerial, stock, stockholders, consultant, reasonable doubt, alleged facts, disinterested, ownership, hostile, loans, corporate governance, board approval, trial court, cases, challenged transaction, reasonable inference, board of directors, motion to dismiss, plaintiff's claim

Business & Corporate Law, Shareholder Actions, Actions Against Corporations, General Overview, Civil Procedure, Class Actions, Derivative Actions, Unincorporated Associations, Pleadings, Complaints, Directors & Officers, Management Duties & Liabilities, Scope of Authority, Discretion, Defenses, Fiduciary Duties, Business Judgment Rule, Causes of Action, Self-Dealing, Compensation, Demand Requirement, Standing, Demands, Futility, Demand Futility, Governments, Fiduciaries