## Facts

- Stockholder plaintiffs filed a derivative action on behalf of The Limited, Inc., challenging a 1999 self-tender offer and the contemporaneous rescission of a 1996 Redemption Agreement with a Wexner-controlled trust.
- Under the 1996 Redemption Agreement, the trust held about 18.75 million shares and had a put right through January 30, 2006 to require redemption at $18.75 per share; the company had a later call right (a six-month window starting July 31, 2006) to redeem at about $25.07 per share.
- The agreement required the company to keep $350 million in a restricted cash account until 2006 to satisfy potential redemption obligations.
- On May 3, 1999, the board authorized a Dutch auction self-tender to repurchase up to 15 million shares at a premium (roughly $50–$55 per share); the company ultimately repurchased 15 million shares for about $750 million.
- Wexner, the founder/CEO/board chair and a roughly 25% stockholder, and his affiliates (including the trust) agreed not to participate in the tender.
- The company simultaneously announced it would rescind the Redemption Agreement; plaintiffs alleged this relieved Wexner and the trust from an unfavorable put/cash-restriction structure and eliminated a potentially valuable company call right.
- Plaintiffs asserted corporate waste and fiduciary breaches, alleging the transactions served no legitimate corporate purpose and primarily benefitted Wexner.
- Plaintiffs did not make a pre-suit demand on the board; defendants moved to dismiss under Court of Chancery Rule 23.1 and Rule 12(b)(6).

## Issues

1. Whether the complaint pleaded particularized facts excusing demand under Rule 23.1 by creating reasonable doubt that a majority of the board was disinterested and independent.
2. Whether the complaint pleaded particularized facts excusing demand under Aronson’s second prong by creating reasonable doubt that the challenged transactions were a valid exercise of business judgment (including whether they constituted corporate waste).
3. Whether, given a § 102(b)(7) exculpatory charter provision, the complaint pleaded non-exculpated claims (loyalty/bad faith) sufficient to show a substantial likelihood of liability for a majority of directors.

## Decision

- The Court of Chancery granted defendants’ motion to dismiss for failure to plead demand futility under Rule 23.1.
- The court held the complaint did not plead particularized facts raising reasonable doubt that a majority of directors could consider a demand impartially despite alleged personal, business, employment, and philanthropic ties to Wexner.
- The court further held the complaint did not plead facts rebutting the business-judgment rule; the board had facially rational purposes for the tender and rescission, defeating a waste-based theory at the pleading stage.
- The action was dismissed; plaintiffs could not proceed derivatively without first making a demand.

## Legal Principles

- Under Rule 23.1, a derivative plaintiff must plead particularized facts establishing demand futility; conclusory allegations are insufficient.
- Under Aronson, demand is excused only if particularized facts create reasonable doubt that (a) directors are disinterested/independent, or (b) the challenged transaction was the product of valid business judgment.
- Allegations of compensation, business dealings, social relationships, or charitable connections do not, without particularized facts of materiality and dependence, establish lack of independence.
- Corporate waste requires pleading facts supporting the inference that no rational person could view the corporation as receiving adequate consideration.
- Where a § 102(b)(7) exculpatory provision applies, a complaint must plead non-exculpated misconduct (e.g., disloyalty or bad faith) to show a substantial likelihood of liability sufficient to excuse demand.

## Conclusion

The Court of Chancery dismissed the derivative challenge to The Limited’s self-tender and rescission of a prior redemption arrangement because the complaint failed to plead demand futility with particularized facts showing a non-independent board majority or a transaction so irrational as to fall outside business judgment, and it did not plead non-exculpated loyalty or bad-faith wrongdoing against a majority of directors.


In re The Limited, Inc. S’holders Litig., 2002 WL 537692 (Del. Ch. Mar. 27, 2002)