## Facts

- GrafTech International Ltd. repurchased $250 million of its own shares from its controlling stockholder, Brookfield Asset Management Inc., in a negotiated 2019 transaction.
- The repurchase price was set by reference to a separate arm’s-length transaction between Brookfield and a third party.
- A GrafTech stockholder pursued an inspection demand under 8 Del. C. § 220 to investigate potential wrongdoing related to the repurchase.
- About seven months after the inspection demand, GrafTech’s board expanded and appointed a ninth director who was alleged (and treated) as independent.
- The stockholder filed a derivative action challenging (1) the repurchase as controller self-dealing and (2) the appointment of the ninth director as a breach of a stockholder agreement and a fiduciary breach allegedly intended to defeat demand-futility pleading.
- The stockholder did not make a pre-suit demand on the board and instead alleged demand futility.
- Defendants moved to dismiss under Court of Chancery Rule 23.1 and Rule 12(b)(6).

## Issues

1. Whether appointing a ninth, independent director breached a stockholder agreement or fiduciary duties based on alleged manipulation of board composition after a stockholder inspection demand.
2. Whether the complaint pleaded particularized facts excusing pre-suit demand by showing that a majority of the nine directors were interested, lacked independence, or faced a substantial likelihood of liability.

## Decision

- The court granted the motion to dismiss and dismissed the action in full.
- The court held the stockholder agreement did not fix the board at a specific size and permitted the board to determine the number of directors within an allowed range; adding a ninth director did not breach the agreement.
- The court rejected the theory that the timing of the appointment, following the inspection demand, supported an inference of bad faith or wrongdoing; board changes and inspection demands are common and not inherently suspect.
- On demand futility, the court found that although four directors were affiliated with the controller, the complaint did not plead particularized facts showing that at least one of the remaining five outside directors was unable to consider a demand impartially.
- The court treated the ninth director as independent and declined to disregard him based on the failed contractual and fiduciary challenges to his appointment.

## Legal Principles

- A stockholder pursuing derivative claims must either make a pre-suit demand on the board or plead particularized facts under Rule 23.1 establishing demand futility.
- Demand is not excused unless a majority of the board cannot impartially consider a demand because they (i) received a material personal benefit from the alleged misconduct, (ii) face a substantial likelihood of liability, or (iii) lack independence from an interested person.
- Conclusory allegations of “mutually beneficial” relationships, generalized business ties, or collegiality are insufficient to plead lack of independence without particularized facts showing domination or disabling influence.
- Board refreshment and stockholder inspection demands are ordinary corporate events; their coexistence and timing do not, without more, state a fiduciary claim or justify disregarding an otherwise independent director in the demand analysis.
- When the board at filing includes independent, disinterested directors not facing a substantial likelihood of liability, failure to make a pre-suit demand requires dismissal of derivative claims.

## Conclusion

The court dismissed the derivative action because the complaint failed to plead demand futility with particularized facts, and it also failed to state a contractual or fiduciary claim based on the board’s post-inspection-demand expansion and appointment of an independent director.


Simons v. Brookfield Asset Mgmt. Inc., 2022 WL 223464 (Del. Ch. Jan. 21, 2022)