## Facts

- Duke Energy Corporation, a Delaware corporation headquartered in North Carolina, operated a coal ash pond at its Dan River Steam Station.
- In February 2014, a stormwater pipe ruptured beneath the coal ash pond, releasing coal ash and wastewater containing hazardous substances into the Dan River.
- In May 2015, Duke pled guilty to nine misdemeanor violations of the Federal Clean Water Act and paid a fine exceeding $100 million.
- Stockholders filed a derivative action on Duke’s behalf seeking to hold directors and senior officers liable for fines, repairs, and remediation costs stemming from the spill.
- The complaint alleged the board and senior officers had long been on notice of serious environmental compliance problems involving coal ash storage, yet consciously failed to exercise oversight and, in some respects, colluded with state regulators to evade compliance.
- Duke’s certificate of incorporation included an exculpatory provision under 8 Del. C. § 102(b)(7) limiting monetary liability for duty-of-care breaches.

## Issues

1. Whether the complaint pleaded particularized facts showing that a majority of the board faced a substantial likelihood of personal liability for a non-exculpated Caremark oversight failure, excusing demand under Court of Chancery Rule 23.1.
2. Whether allegations based on board presentations about environmental compliance and a regulator consent decree supported a reasonable inference of bad-faith inaction rather than, at most, exculpated negligence or mismanagement.

## Decision

- The Delaware Supreme Court affirmed dismissal under Rule 23.1 for failure to plead demand futility.
- The Court held the complaint did not plead particularized facts that directors intentionally disregarded known oversight duties so as to face a substantial likelihood of personal liability.
- The Court concluded that board-level materials reflected ongoing compliance and remediation efforts, not conscious disregard of known legal violations.
- The Court rejected the inference that the board acted in bad faith by approving or acquiescing in a consent decree with regulators absent particularized facts showing the board believed it was unlawful or a sham.
- Because directors at most faced an exculpated duty-of-care claim under § 102(b)(7), a pre-suit demand on the board was required.

## Legal Principles

- A stockholder who files a derivative action without making a pre-suit demand must plead demand futility with particularity under Court of Chancery Rule 23.1.
- To establish demand futility based on a Caremark oversight claim, the complaint must plead particularized facts supporting an inference that directors acted in bad faith—i.e., intentionally failed to act in the face of a known duty to act—creating a substantial likelihood of personal liability.
- When a charter includes § 102(b)(7) exculpation, allegations amounting to negligence, poor judgment, or mismanagement typically do not create a substantial likelihood of director liability; plaintiffs must plead a non-exculpated loyalty/bad-faith breach.
- Corporate criminal liability or a guilty plea, standing alone, does not establish board bad faith for oversight purposes; the analysis centers on what the board knew and how it monitored and responded.

## Conclusion

The court held that the stockholders did not plead particularized facts supporting a reasonable inference of bad-faith oversight failure by a majority of the board, so demand was not excused and the derivative action was properly dismissed under Rule 23.1.


City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47 (Del. 2017)