Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Che Odom
June 1 — A shareholder suing BioScrip Inc. directors over alleged misconduct involving the sale of the company's Exjade drug must meet the demand-futility requirement of state law with respect to a new board that was installed shortly after the lawsuit was filed, the Delaware Chancery Court ruled May 31 ( Park Emps.’ & Ret. Bd. Emps.’ Annuity & Benefit Fund of Chicago v. Smith, 2016 BL 173116, Del. Ch., No. 11000-VCG, 5/31/16 ).
Under Delaware law, investors that file derivative claims must show that they made a pre-suit demand on the board of the company on whose behalf the case is brought, unless doing so would be futile. The chancery court's ruling—written by Vice Chancellor Sam Glasscock—departed from the state's general rule that demand must be assessed as of the day the complaint is filed.
Glasscock noted that the case involved unique facts that have never been litigated under Delaware's demand requirement. Four days after the lawsuit was filed, but before the complaint was served, BioScrip installed a new seven-member board of which only two were named defendants in the action.
“If the old board is the operative board, I must consider whether demand would be futile; if my demand-excusal analysis must consider the new board, the complaint as pled is insufficient to support a finding of demand futility,” the judge wrote. “On consideration, I agree that, in these particular circumstances, the Plaintiff must demonstrate demand futility with respect to the new—that is, the current—board of directors.”
Glasscock deferred a ruling on the defendants' motions to dismiss and gave the plaintiff shareholder—the Park Employees' and Retirement Board Employees' Annuity and Benefit Fund of Chicago—30 days to decide whether to amend its complaint.
The retirement fund's lawsuit alleged misconduct related to a kickback scheme involving Exjade, as well as insider trading arising out of two stock offerings in 2013.
The company faces a securities action brought by shareholders in the U.S. District Court for the Southern District of New York over the public stock offerings (13 CARE 1301, 6/12/15).
To contact the reporter on this story: Che Odom in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
The opinion is available at http://ow.ly/KXYP300OCA0.
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)