DuPont and Sub Officers Win Dismissal Of Derivative Suit in Delaware Chancery Court

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

May 13 — The Delaware Chancery Court May 8 dismissed a derivative lawsuit alleging that several officers and directors of DuPont and its subsidiary Pioneer Hi-Bred International Inc. breached their fiduciary duties in connection with the company's failed attempted to develop a product to compete with Monsanto's “Roundup Ready” seed and with subsequent litigation.

In a 91-page opinion, Vice Chancellor Sam Glasscock III dismissed the derivative action under Court of Chancery Rule 23.1 because the stockholder-plaintiff failed to plead particularized facts that E.I. du Pont de Nemours and Company's board wrongfully rejected a demand to take legal action on behalf of the corporation against the defendant officers and directors.

“The question is not whether the conclusion was wrong; the question is whether the Board was grossly negligent in failing to inform itself, or intentionally acted in disregard of the Company's best interests in deciding not to pursue the litigation the Plaintiff demanded,” Vice Chancellor Glasscock opined. “I cannot find the Plaintiff has raised a reasonable doubt that the Board acted in an informed manner and in good faith.”

Vice Chancellor Glasscock additionally observed that “[t]he decision to bring litigation on behalf of a corporation is a quintessential exercise of business judgement.”

Failed Product, Failed Litigation

The stockholder's derivative claims arose of DuPont's decision to develop its own competitor product to “Roundup Ready.”

Finding it difficult to develop a commercially viable product, DuPont began developing a product that combined, or “stacked,” its own technology with Monsanto's.

Subsequently, Monsanto sued DuPont in federal district court, and DuPont entered into a settlement agreement in which it agreed to pay Monsanto $1.7 billion over 10 years.

The settlement agreement, however, did not cover a sanctions order finding that DuPont had litigated in bad faith. Accordingly, DuPont remained liable for certain of Monsanto's attorney's fees as well.

Demand Refused

After the litigation, the plaintiff made a demand on DuPont's board to investigate and consider taking action against directors and officers at DuPont and Pioneer.

The board formed a special committee of independent directors that conducted an investigation and issued a 179-page report. Subsequently, the DuPont board adopted the recommendations of the report, including a determination that pursuing litigation against officers and directors was not in the best interest of the company.

Business Judgement Not Rebutted

Vice Chancellor Glasscock observed that to survive a motion to dismiss under Rule 23.1 in the demand-refusal context, the plaintiff must plead particularized facts that raise “a reasonable doubt that the refusal was a valid exercise of business judgment.”

Because the plaintiff conceded that a majority of DuPont's board was independent and that the board was fully informed in reaching its decision, the only issue left was whether the board acted in bad faith in denying the plaintiff's litigation demand.

Glasscock equated the plaintiff's argument that the board improperly rejected the litigation demand as a “species of res ipsa loquitur”—in that the alleged failures in developing the product and the resulting litigation do not just happen unless somebody breaches a fiduciary duty, and that the liability was so clear that the decision not to pursue litigation must have been in bad faith.

Glasscock, however, rejected this argument.

“The Plaintiff disagrees with the Committees's conclusions, particularly those contrary to the findings in the Sanctions Order. But a disagreement, however vehement, with the conclusion of an independent and adequately represented committee is not the same as pleading particularized facts that create a reasonable doubt that the Board acted in what is perceived as the best interest of the corporation,” he wrote.

‘Caremark' Claim

Glasscock also addressed the plaintiff's Caremark claims.

Noting that Caremark claims are a “tough row to hoe,” the plaintiff attempted to argue that either the board had established no information or reporting system related to the Monsanto dispute, among other alleged misdeeds, or that officers failed to comply with that system, making them liable for breaches of fiduciary duty.

“Demonstrating that a business plan or system has failed is not the same as demonstrating an actionable breach of fiduciary duty, however,” Glasscock wrote. “The Committee informed itself about the Caremark claims and did not find an actionable breach of duty worth pursing; nothing about the Board's acceptance of this recommendation implies bad faith.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The opinion is available at