## Facts

- A shareholder filed a derivative action on behalf of Martha Stewart Living Omnimedia, Inc. (MSO) against Martha Stewart and certain directors, alleging fiduciary breaches tied to Stewart’s ImClone stock sale and related publicity and investigations that allegedly harmed MSO.
- The plaintiff did not make a presuit demand on MSO’s board and instead alleged demand was excused as futile under Court of Chancery Rule 23.1.
- The board consisted of six directors; the plaintiff contended that at least five were interested or lacked independence.
- The plaintiff alleged Stewart was interested and that an inside director/officer was beholden to Stewart due to employment and compensation.
- The plaintiff alleged two outside directors were long-standing friends of Stewart and therefore could not exercise independent judgment on whether MSO should sue her.
- The plaintiff alleged another outside director showed partiality by contacting a publisher to attempt to stop publication of a book critical of Stewart.
- The plaintiff also relied on Stewart’s voting control (approximately 94% of MSO’s voting power) as support for excusing demand.
- The Court of Chancery dismissed the complaint under Rule 23.1 for failure to plead demand futility with the required particularity, and the plaintiff appealed solely on demand futility.

## Issues

1. Whether the complaint pleaded particularized facts creating a reasonable doubt that a majority of MSO’s board could exercise independent and disinterested business judgment in responding to a litigation demand, excusing demand under Chancery Rule 23.1.

## Decision

- The Delaware Supreme Court affirmed the dismissal under Rule 23.1.
- The court held the plaintiff failed to plead particularized facts showing that a majority of the board lacked independence or was otherwise disabled from considering a demand.
- Allegations of friendship, social ties, or generalized support for Stewart—without concrete, bias-producing facts—did not rebut the presumption of director independence.
- Stewart’s status as a controlling stockholder and her role in director elections did not, by itself, establish that the other directors were non-independent for demand-futility purposes.
- Conclusory labels (e.g., “beholden,” “close friend”) were insufficient; demand futility must be supported by detailed factual allegations.

## Legal Principles

- A derivative plaintiff must either make a presuit demand or plead with particularity why demand would be futile under Court of Chancery Rule 23.1.
- Demand-futility analysis examines the board’s ability to exercise business judgment on a demand, not the merits of the underlying claims.
- Director independence requires decisionmaking based on corporate merits rather than extraneous influences; lack of independence must be shown through facts indicating the director is beholden to, or under the domination of, an interested party such that discretion would be impaired.
- Allegations of mere personal friendship or ordinary outside business relationships, standing alone, generally do not create reasonable doubt as to independence.
- The fact that directors were nominated by, or elected with support from, a controlling stockholder is not enough, without more, to rebut the presumption of independence.
- Conclusory allegations do not satisfy Rule 23.1; particularized facts are required, and books-and-records inspection under 8 Del. C. § 220 may be used to develop such facts before filing.

## Conclusion

The court affirmed dismissal because the plaintiff did not plead particularized facts showing that a majority of MSO’s directors were interested or lacked independence, and thus did not meet Rule 23.1’s stringent demand-futility requirement.


Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004)