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Brehm v. Eisner - 746 A.2d 244 (Del. 2000)

Rule:

Pleadings in shareholder derivative suits are governed by Del. Chancery Ct. R. 23.1, just as pleadings alleging fraud are governed by Del. Chancery Ct. R. 9(b). Those pleadings must comply with stringent requirements of factual particularity that differ substantially from the permissive notice pleadings governed solely by Del. Chancery Ct. R. 8(a). Rule 23.1 is not satisfied by conclusory statements or mere notice pleading. On the other hand, the pleader is not required to plead evidence. What the pleader must set forth are particularized factual statements that are essential to the claim. Such facts are sometimes referred to as "ultimate facts," "principal facts" or "elemental facts." Nevertheless, the particularized factual statements that are required to comply with the Rule 23.1 pleading rules must also comply with the mandate of Del. Chancery Ct. R. 8(e) that they be simple, concise and direct. A prolix complaint larded with conclusory language does not comply with these fundamental pleading mandates.

Facts:

Plaintiffs, shareholders of a publicly traded entertainment corporation, appealed the dismissal with prejudice of their derivative suit against defendants, former and current corporate directors and officers, for failure to properly plead particularized facts creating a reasonable doubt that director defendants were disinterested and independent or that their conduct in approving an extravagant and wasteful employment agreement for the president, and the subsequent agreement to a non-fault termination of that agreement, was protected by the business judgment rule.

Issue:

Did the shareholders meet the Del. Chancery Ct. R. 23.1 stringent pleading requirements of factual particularity with respect to lack of due care in decision-making and for waste of corporate assets?

Answer:

No

Conclusion:

The court affirmed, except as to the non-fault termination claim, remanding to allow plaintiffs to replead facts creating a reasonable doubt that the decision allowing non-fault termination was protected by the business judgment rule. The court applied de novo review, holding that plaintiffs failed to meet Del. Chancery Ct. R. 23.1 stringent pleading requirements of factual particularity with respect to lack of due care in decision-making and for waste of corporate assets.

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