Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...
Oct. 2 — The Delaware Supreme Court Oct. 2 clarified that close business and financial relationships between a director and an interested party can create an inference that a director lacks independence for the purpose of demand excusal (Del. Cty. Emps. Ret. Fund v. Sanchez, Del., No. 702, 10/2/15).
The state high court reversed and remanded a November 2014 Delaware Chancery Court decision dismissing a derivative lawsuit against Sanchez Energy Corp. directors.
In the case, plaintiff stockholders sued Sanchez's five-member board alleging a breach of fiduciary duty arising from a transaction in which the corporation purchased assets from a shell entity controlled by two Sanchez directors. The transaction, however, was approved by an audit committee consisting of the company's three other board members.
Because the plaintiffs did not make a pre-suit demand on the board, the defendants filed a motion to dismiss.
The plaintiffs argued that demand should be excused because two of the three disinterested directors lacked independence. The plaintiffs conceded that all three members of the audit committee were financially disinterested. They instead argued that two of the three directors on the committee lacked independence because of their business and financial relationships with the interested board members.
In dismissing the lawsuit, the chancery court found that the plaintiffs' complaint lacked specific allegations to support a reasonable inference that the two directors lacked independence. More specifically, there were no allegations as to how the personal and business relationships caused the directors to abandon their fiduciary duties, the lower court said.
However, the Delaware Supreme Court said a director's close personal relationship with interested board members could compromise the director's independence for the purpose of demand excusal.
“In this case, the plaintiffs pled not only that the director had a close friendship of over half a century with the interested party, but that consistent with that deep friendship, the director's primary employment (and that of his brother) was as an executive of a company over which the interested party had substantial influence,” Chief Justice Leo E. Strine Jr. wrote for the court. “These, and other facts of a similar nature, when taken together, support an inference that the director could not act independently of the interested party.”
To contact the reporter on this story: Michael Greene 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://www.bloomberglaw.com/public/document/DELAWARE_COUNTY_EMPLOYEES_RETIREMENT_FUND_CITY_OF_ROSEVILLE_EMPLO.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)