Delaware
How Carson v. American Brands, Inc. applies in Delaware: state-specific rules, key cases, and bar exam notes for Civil Procedure.
Delaware generally follows the principles of direct versus derivative actions as articulated in Carson v. American Brands, Inc., with a focus on shareholder standing and the authority of the board of directors in derivative actions. Delaware courts emphasize the need for clear and thorough pleadings when shareholders seek to initiate derivative suits.
Under Delaware law, a shareholder must demonstrate the failure of the board to act independently or in good faith before pursuing a derivative action, as outlined in Delaware General Corporation Law (DGCL) § 327.
The Delaware Supreme Court established the distinction between direct and derivative claims based on the harm suffered by the shareholders versus the corporation.
The court reinforced the requirement for shareholders to make a demand on the board before filing a derivative suit, emphasizing board autonomy.
The court clarified the standards for determining whether a demand is excused, focusing on the independence and disinterest of the board members.
Delaware law is more stringent in enforcing the demand requirement for derivative actions as compared to federal standards, which allow broader discretion in evaluating the necessity for demands. Additionally, Delaware courts tend to place a higher emphasis on shareholder rights and board autonomy.
Candidates should be familiar with the distinctions between direct and derivative actions and the demand requirement as it pertains to Delaware corporate law for the Delaware bar exam.