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Beam v. Stewart

Supreme Court of Delaware

February 3, 2004, Submitted ; March 31, 2004 Decided

No. 501, 2003

Opinion

 [*1044]  VEASEY, Chief Justice:

In this appeal we review and affirm the judgment of the Court of Chancery in dismissing under Rule 23.1 a claim in a derivative suit because the plaintiff failed to make presuit demand on the corporation's board of directors and failed to demonstrate demand futility. In his opinion, 1 the Chancellor dealt with several issues and provided a detailed account of the facts of the case. We summarize only those facts most pertinent to this appeal. The single issue before us is that of demand futility, no appeal having been taken on the other issues.

 The Chancellor analyzed in [**3]  detail the plaintiff's demand futility allegations. We agree with the Chancellor's well-reasoned opinion. But, pursuant to our plenary appellate review, we undertake a further explication of certain points covered by the Chancellor, including the matter of director independence.

Facts

The plaintiff, Monica A. Beam, owns shares of Martha Stewart Living Omnimedia, Inc. (MSO). Beam filed a derivative action in the Court of Chancery against Martha Stewart, the five other members of MSO's board of directors, and former board member L. John Doerr. 2 In four counts, Beam's amended complaint (the "complaint") challenged three types of activity by Stewart and the MSO board. The

Court of Chancery dismissed three of the four claims under Court of Chancery Rule 12(b)(6). Those dismissals were not appealed and are not before us.

 In the single claim at issue on appeal [**4]  (Count 1), Beam alleged that Stewart breached her fiduciary duties of loyalty and care by illegally selling ImClone stock in December of 2001 and by mishandling the media attention that followed, thereby jeopardizing the financial future of MSO. The Court of Chancery dismissed Count 1 under Court of Chancery Rule 23.1 because Beam failed to plead particularized facts demonstrating presuit demand futility.

When Beam filed the complaint in the Court of Chancery, the MSO board of directors consisted of six members: Stewart, Sharon L. Patrick, Arthur C. Martinez, Darla D. Moore, Naomi O. Seligman, and Jeffrey W. Ubben. The Chancellor concluded that the complaint alleged sufficient facts to support the conclusion that two of the directors, Stewart and Patrick, were not disinterested or independent for purposes of considering a presuit demand.

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845 A.2d 1040 *; 2004 Del. LEXIS 162 **

MONICA A. BEAM, derivatively on behalf of MARTHA STEWART LIVING OMNIMEDIA, INC., Plaintiff Below, Appellant, v. MARTHA STEWART, SHARON L. PATRICK, ARTHUR C. MARTINEZ, NAOMI O. SELIGMAN, DARLA D. MOORE; JEFFREY W. UBBEN, L. JOHN DOERR, and MARTHA STEWART LIVING OMNIMEDIA, INC., Defendants Below, Appellees.

Prior History:  [**1]  Court Below: Court of Chancery of the State of Delaware, in and for New Castle County. Upon appeal from the Court of Chancery. C.A. No. 19844.

Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 2003 Del. Ch. LEXIS 98 (Del. Ch., 2003)

Disposition: Affirmed.

CORE TERMS

allegations, reasonable doubt, futility, friendship, presuit, reasonable inference, books and records, disinterested, inspection, stockholder, excused, amended complaint, reputation, board of directors, particularized, discovery, fiduciary, purposes, beholden, bias, majority of the board, stock, derivative suit, nominating, interested director, member of the board, social relationship, special committee, interested party, reply brief

Business & Corporate Law, Shareholder Actions, Actions Against Corporations, General Overview, Civil Procedure, Appeals, Standards of Review, De Novo Review, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Standing, Claim Presentation, Class Actions, Derivative Actions, Demands, Futility, Demand Futility, Demand Requirement, Evidence, Inferences & Presumptions, Presumptions, Rebuttal of Presumptions, Governments, Fiduciaries, Directors & Officers, Management Duties & Liabilities, Defenses, Pleadings, Heightened Pleading Requirements, Shareholders, Shareholder Duties & Liabilities, Securities Law, Secondary Liability, Controlling Persons, Defenses, Record Inspection & Maintenance, Inspection Rights, Shareholders, Self-Regulating Entities, National Securities Exchanges, New York Stock Exchange, Corporate Governance, Discovery, Methods of Discovery, Inspection & Production Requests, Discovery & Disclosure