## Facts

- Harry Lewis, a Meyers Parking System, Inc. shareholder, filed a derivative action against the corporation and its ten directors, including Leo Fink, a director and approximately 47% stockholder.
- The complaint challenged transactions involving Fink as corporate waste and a breach of fiduciary duty, focusing on a board-approved compensation arrangement.
- The board approved a five-year employment contract for Fink providing substantial salary, a subsequent paid consulting term, and an annual bonus equal to 5% of pre-tax profits.
- The contract provided for continued compensation regardless of Fink’s ability to perform, and Meyers also provided interest-free loans to Fink.
- Lewis did not make a pre-suit demand on the board and alleged demand was excused because Fink dominated the board and the directors would be required to sue themselves.
- Defendants moved to dismiss under Court of Chancery Rule 23.1 for failure to make demand or plead demand futility with particularity; the Court of Chancery denied the motion.
- The Delaware Supreme Court accepted an interlocutory appeal to address the demand-futility standard.

## Issues

1. Under Court of Chancery Rule 23.1, when is a shareholder’s pre-suit demand on the board excused as futile in a derivative action challenging a board decision?
2. What pleading showing is required to create sufficient doubt that the challenged board action is protected by the business judgment rule?

## Decision

- The Delaware Supreme Court reversed the denial of the motion to dismiss.
- The court held the complaint failed to plead demand futility with particularized facts as required by Rule 23.1.
- The court ruled the allegations did not create reasonable doubt that a majority of directors were disinterested and independent or that the challenged transaction lacked business judgment protection.
- The case was remanded with instructions to allow the plaintiff leave to amend.

## Legal Principles

- Rule 23.1 requires pleading with particularity; conclusory assertions that directors approved a transaction, “participated” in wrongdoing, or would have to “sue themselves” are insufficient.
- Demand futility in a suit challenging a board decision is assessed under a two-prong test; demand is excused only if particularized facts create reasonable doubt that:
  - the directors are disinterested and independent, or
  - the challenged transaction was the product of a valid exercise of business judgment.
- The business judgment rule presumes directors acted on an informed basis, in good faith, and in the honest belief their decision served the corporation’s interests; a complaint must plead particularized facts that call this presumption into reasonable doubt to bypass demand.
- Director “interest” generally requires a personal financial benefit not shared with stockholders or a substantial likelihood of liability; “lack of independence” requires well-pleaded facts showing domination or control, not merely large stock ownership or alleged board selection.
- Corporate waste requires an extreme showing that no person of ordinary, sound business judgment could view the consideration as adequate; generalized attacks on a compensation package do not satisfy Rule 23.1 without supporting detail.

## Conclusion

The court required strict, particularized pleading to excuse pre-suit demand and established a two-prong framework tied to the business judgment rule, holding that generalized allegations of director domination, self-suit, and waste did not excuse demand on the Meyers board.


Aronson v. Lewis, 473 A.2d 805 (Del. 1984)