On April 2, 2020, Vice Chancellor Slights dismissed a derivative lawsuit that alleged that a Company’s Board breached its fiduciary duties by rushing to pay an “excessive” severance fee in order to facilitate the CEO’s separation from the Company, and as a means to cover up the Board’s slow and inadequate response to the CEO’s pattern of wrongful conduct. According to the Court of Chancery, Plaintiff’s claims were betrayed by the Complaint’s failure to demonstrate demand futility under either prong of the standard described in Aronson v. Lewis, 473 A.2d 805 (Del. 1984).
Of note in this decision is that the Court of Chancery affirms the principle that, under typical circumstances, a general release provision in a settlement agreement (including the release of claims against directors) cannot form the basis of allegations that a board engaged in an “interested transaction.” That is especially true, where, as in this case, the claim purportedly avoided is one that is so weak that the Plaintiff elected not to bring it and raised it only in an effort to identify the Board’s interest in the Separation Agreement under the first prong of Aronson.
Continue reading A PLAINTIFF CANNOT SATISFY THE FIRST PRONG OF ARONSON BY ALLEGING THAT THE BOARD’S “INTEREST” IN THE SETTLEMENT AT ISSUE WAS TO AVOID A CLAIM SO WEAK THAT PLAINTIFF DECLINED TO BRING IT