## Facts

- Stockholders brought a derivative action on behalf of Sanchez Energy Corporation, a Delaware public company.
- The challenged transaction involved Sanchez Energy and Sanchez Resources, LLC, a private company wholly owned by the family of board chair A.R. Sanchez, Jr.
- Plaintiffs alleged Sanchez Energy paid roughly $78 million in a deal that (among other components) helped Sanchez Resources buy out a private equity investor, acquired interests in certain properties, arranged joint development of acreage, and included a $14.4 million cash payment to the private company.
- Plaintiffs alleged the transaction was a gross overpayment that unfairly benefited the Sanchez family’s private company, including through an allegedly onerous royalty stream favorable to Sanchez Resources.
- Plaintiffs also alleged the royalty obligation was not disclosed to stockholders and was concealed through a complex structure.
- Sanchez Energy’s board consisted of five directors; two (A.R. Sanchez, Jr. and CEO Antonio R. Sanchez III) were alleged to be interested in the transaction.
- Plaintiffs did not make a pre-suit demand on the board, asserting demand futility under the Aronson framework.
- The Court of Chancery dismissed under Rule 23.1 for failure to plead demand futility, concluding plaintiffs had not pleaded that director Alan G. Jackson lacked independence.

## Issues

1. Whether the complaint pleaded particularized facts creating a reasonable doubt, under Aronson, that a majority of the board could impartially consider a litigation demand.
2. Specifically, whether plaintiffs pleaded facts supporting a reasonable inference that director Alan G. Jackson lacked independence from A.R. Sanchez, Jr. and the Sanchez family.

## Decision

- The Delaware Supreme Court reversed the Rule 23.1 dismissal and remanded.
- The court held the complaint pleaded sufficient particularized facts to support a reasonable inference that Jackson could not impartially consider a demand because of bias-creating personal and business ties to the Sanchez family.
- Because two directors were interested and Jackson was reasonably alleged to lack independence, a majority of the five-member board could not fairly evaluate a demand; demand was excused.

## Legal Principles

- Under Aronson, demand is excused if particularized facts create a reasonable doubt that (1) directors are disinterested and independent or (2) the challenged decision was a valid exercise of business judgment.
- Independence requires that a director’s judgment be based on the corporation’s merits, not extraneous influences; a lack of independence may be shown by relationships suggesting the director is beholden to an interested party.
- Longstanding personal friendships and business relationships, particularly when coupled with allegations of economic reliance or career dependence, can support a pleading-stage inference of non-independence.
- Demand-futility review is confined to the complaint and properly incorporated materials; parties may not supply new facts on appeal to cure pleading defects.

## Conclusion

The court held that detailed allegations of a director’s decades-long friendship and alleged dependence on controlling insiders can support a reasonable inference of non-independence, excusing demand and permitting a derivative fiduciary-duty challenge to proceed past Rule 23.1.


Del. Cnty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017 (Del. 2015)