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Ryan v. Gifford - 918 A.2d 341 (Del. Ch. 2007)

Rule:

The Court of Chancery of Delaware follows well-settled standards governing motions to dismiss for failure to state a claim. At the motion to dismiss stage, all well-pleaded factual allegations made in the complaint are to be accepted as true. Moreover, the court must draw all reasonable inferences in favor of the non-moving party, and dismissal is inappropriate unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof. Conclusory allegations are not considered as expressly pleaded facts or factual inferences. Such facts must be put forth in the complaint and not merely in subsequent briefs. In the context of a motion to dismiss for failure to state a claim, however, the pleading standard does not reach so high a bar as Del. Ch. Ct. R. 23.1. Thus, where a plaintiff alleges particularized facts sufficient to prove demand futility by showing doubt that a board's action was a valid exercise of business judgment, that plaintiff a fortiori rebuts the business judgment rule for the purpose of surviving a motion to dismiss pursuant to Del. Ch. Ct. R. 12(b)(6).

Facts:

Walter E. Ryan,  a shareholder of Maxim Integrated Products, Inc. (Maxim) who has continuously held Maxim shares since his Dallas Semiconductor Incorporated shares were converted to Maxim shares upon Maxim's acquisition of Dallas Semiconductor on April 11, 2001, filed a derivative action against members of the board and compensation committee of Maxim, particularly John Gifford, James Bergman, B. Kipling Hagopian, and A.R. Frank Wazzan. Ryan alleged that the corporate board and compensation committee members of Maxim breached their duties of due care and loyalty by approving or accepting backdated options that violated the clear letter of the shareholder-approved Stock Option Plan and Stock Incentive Plan. Individual defendants moved to stay this action in favor of earlier filed federal actions in California. In the alternative, they moved to dismiss the action on its merits.

Issue:

Should the action against the corporate board and compensation committee members of Maxim Integrated Products, Inc. be dismissed?

Answer:

Yes, with regard to claims arising before Ryan became a shareholder of Maxim Integrated Products, Inc.

Conclusion:

The Court granted the motion to dismiss all claims arising before the shareholder became a shareholder by way of a merger. According to the Court, Ryan provided sufficient particularity in the pleading to survive a motion to dismiss for failure to make demand under Del. Ch. Ct. R. 23.1. However, he lacked standing under Del. Code Ann. tit. 8, § 327 to assert claims arising before he became a shareholder. The Court also found that the stay request was to be denied as Delaware had an overwhelming interest in resolving questions of first impression under Delaware law and the doctrine of forum non conveniens did not require the stay.

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