## Facts

- Dow Chemical Company, a Delaware corporation, faced a stockholder derivative suit challenging board conduct surrounding Dow’s agreement to acquire Rohm & Haas Company (R&H) and related disclosures and oversight.
- Dow expected roughly $9 billion in cash from a planned petrochemicals joint venture with a Kuwaiti enterprise (“K-Dow”).
- In July 2008, Dow’s board unanimously approved a merger agreement to acquire R&H.
- The merger agreement was not conditioned on Dow obtaining financing, providing R&H “deal certainty.”
- At signing, Dow had identified financing sources beyond K-Dow, and public statements by senior leaders indicated the R&H deal was not contingent on K-Dow.
- In late 2008, a global downturn and tightened credit markets weakened Dow’s ability to finance the acquisition.
- Kuwait’s Supreme Petroleum Council withdrew approval for K-Dow amid public reports suggesting bribery and other improprieties.
- Dow later informed R&H it would not close on existing terms; R&H sued for specific performance in Delaware, and the dispute later settled with the merger closing on more onerous financial terms for Dow.
- Plaintiffs alleged (1) fiduciary breaches in approving an excessively risky, highly leveraged transaction without a financing condition, (2) misleading statements about the relationship between K-Dow and the R&H deal, and (3) board oversight failures permitting misconduct such as bribery and insider trading.
- Plaintiffs made no pre-suit demand on the board and sought to excuse demand as futile under Delaware law.

## Issues

1. Whether plaintiffs pled particularized facts excusing demand as futile under Court of Chancery Rule 23.1 for claims challenging the board’s approval of the R&H transaction.
2. Whether plaintiffs pled particularized facts excusing demand as futile for alleged misleading disclosures about financing dependence and for oversight claims.
3. Whether the complaint stated a reasonably conceivable, non-exculpated claim for breach of fiduciary duty (given business judgment deference and director exculpation for duty-of-care liability).

## Decision

- The Court of Chancery granted defendants’ motion to dismiss under Rule 23.1 and dismissed the derivative action.
- Plaintiffs failed to plead demand futility under the Aronson framework (and any applicable Rales inquiry).
- The transaction-approval allegations were treated as hindsight disagreement with a risky business decision protected by the business judgment rule.
- The disclosure allegations did not plead particularized facts supporting an inference of knowing falsity or bad faith sufficient to create a substantial likelihood of liability.
- The oversight allegations failed to state a Caremark claim because plaintiffs did not plead an utter failure of controls or a conscious failure to monitor red flags.

## Legal Principles

- A derivative plaintiff must plead particularized facts under Rule 23.1 to excuse demand; conclusory assertions and hindsight are insufficient.
- Under Aronson, demand is excused only if particularized facts create reasonable doubt that (a) a majority of directors were disinterested/independent or (b) the challenged decision was a valid exercise of business judgment.
- Business judgment protection applies to informed, good-faith board decisions even when subsequent events make the decision appear unwise.
- Director interest for demand-futility purposes can be shown by a substantial likelihood of personal liability; where claims sound in negligence, that likelihood is not adequately pled.
- Disclosure-based fiduciary claims require well-pled facts supporting bad faith (e.g., knowing or reckless falsity), not mere error.
- Caremark oversight liability requires pleading either an utter failure to implement reporting/controls or a conscious failure to monitor such systems; generalized allegations of corporate wrongdoing do not suffice.
- DGCL § 102(b)(7) exculpation heightens the need to plead non-exculpated misconduct (loyalty breaches, bad faith, or intentional misconduct) to establish director liability and thus demand futility.

## Conclusion

The court dismissed the derivative complaint because plaintiffs did not plead particularized facts showing that a majority of the board faced disabling conflicts or a substantial likelihood of non-exculpated liability, and the allegations chiefly challenged a high-risk transaction and asserted generalized misconduct without facts supporting bad faith, disloyalty, or a Caremark-level oversight failure.


In re Dow Chem. Co. Derivative Litig., 2010 Del. Ch. LEXIS 2 (Del. Ch. 2010)