Siegel v. Buntrock
Citation and Court
Siegel v. Buntrock, No. 9967 (Del. Ch. 1991)
Facts
A shareholder sought to bring a derivative suit against directors of Waste Management, Inc. Without first making a demand on the board, the plaintiff alleged that demand would be futile because a majority of the directors were interested in or controlled by the challenged transactions. The board moved to dismiss, arguing demand was required before the suit could proceed.
Issue
Whether demand on the board of directors is excused as futile in a derivative action when the plaintiff alleges that a majority of directors are interested in the challenged transaction.
Holding
The Delaware Chancery Court applied the Aronson v. Lewis test for demand futility and examined whether a majority of the board faced a substantial likelihood of personal liability or lacked independence with respect to the challenged decision, ultimately addressing whether demand was excused.
Rule / Doctrine
In Delaware, a shareholder bringing a derivative suit must either make demand on the board and await its response, or allege with particularity facts establishing that demand is excused as futile. Under Aronson v. Lewis, demand is futile if the plaintiff raises a reasonable doubt that: (1) the directors are disinterested and independent, or (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.
Significance
Illustrates Delaware’s demand futility analysis and the gatekeeping role of the demand requirement in derivative litigation. Demonstrates how courts apply the business judgment rule to board decisions about whether to pursue or reject litigation, and how plaintiffs must plead around it to maintain a derivative suit.