Board-Friendly Rales Test Determines Futility of Pre-Suit Demand When Challenged Decision Is Made by a Board Committee Comprised of a Minority of Board Members
Delaware courts have two tests for determining when it is futile for a plaintiff in a derivative action to make a pre-suit demand of the corporation’s board of directors under Court of Chancery Rule 23.1. The Aronson v. Lewis test applies when the board which would consider the demand made the business decision challenged in the derivative action. Under that test, demand is futile if (1) there is a reasonable doubt that the directors are disinterested and independent or (2) there is a reasonable doubt that the challenged transaction was otherwise the product of a valid exercise of business judgment.