## Facts

- TriFoods International, Inc. was founded by Eugene D. Gagliardi, Jr., who recruited investors to purchase TriFoods stock.
- In 1993, Gagliardi was removed as board chair and his employment ended; he retained about 13% of TriFoods common stock.
- Gagliardi alleged that after his removal the company’s performance declined substantially.
- He sued TriFoods (nominal defendant), certain directors, and significant stockholder-investors in a stockholder action asserting both derivative and individual claims.
- The complaint challenged multiple board actions as “mismanagement,” including: acquiring a plant with borrowed funds; buying and renovating a research facility allegedly duplicative of an existing one; purchasing exclusive rights to a product allegedly at an excessive price; adopting a sales commission program characterized as reckless; failing to pay key suppliers; harming customer relationships through inferior products; and spending about $125,000 on rebranding.
- Defendants moved to dismiss: derivative claims for failure to satisfy demand or demand futility pleading under Chancery Court Rule 23.1, and individual claims for failure to state a claim under Rule 12(b)(6).

## Issues

1. What must a stockholder plead to state a derivative claim for corporate losses allegedly caused by disinterested “mismanagement” protected by the business judgment rule.
2. Whether the complaint pleaded particularized facts sufficient to rebut business judgment deference (e.g., self-dealing, bad faith, or improper motive) for the challenged decisions.
3. Whether the complaint satisfied Rule 23.1 by pleading demand or particularized facts showing demand futility.
4. Whether any asserted direct claims stated an individual cause of action, including a claim for breach of Gagliardi’s employment contract.

## Decision

- The Court of Chancery granted the motion to dismiss as to nearly all counts.
- The court dismissed the derivative mismanagement claims for failure to state a claim because the allegations attacked ill-fated business decisions without pleading facts showing conflicted interests, bad faith, or improper motive.
- The court also dismissed derivative claims for failure to satisfy Rule 23.1’s demand/demand-futility pleading requirements.
- The court dismissed most purported direct claims as either derivative in substance or otherwise legally insufficient.
- One narrow individual claim, construed as a possible breach of Gagliardi’s employment contract, survived the motion to dismiss.

## Legal Principles

- Disinterested director decisions are presumptively protected by the business judgment rule; poor outcomes and conclusory labels such as “negligent,” “reckless,” or “wasteful” do not, without particularized supporting facts, state a claim for fiduciary breach.
- Director liability for business losses generally requires well-pleaded facts showing conduct outside business judgment protection, such as self-dealing, bad faith, or an improper motive.
- Rule 23.1 requires a derivative plaintiff to either make a pre-suit demand on the board or plead with particularity why demand would be futile; conclusory assertions of director disqualification are insufficient.
- Courts distinguish derivative claims for harms to the corporation from direct claims based on personal rights (e.g., contractual employment rights); mischaracterizing corporate injury as individual harm warrants dismissal.

## Conclusion

The court held that allegations of disinterested “mismanagement” based on a sequence of allegedly ill-advised business decisions could not proceed absent particularized facts overcoming the business judgment rule and satisfying Rule 23.1’s demand requirements, leaving only a narrowly construed employment-contract claim to continue.


Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049 (Del. Ch. 1996)