Revisiting Director Independence and Disinterestedness in the Demand Futility Context

March 2020


In McElrath v. Kalanick, the Delaware Supreme Court affirmed the Chancery Court’s opinion dismissing derivative claims challenging a board’s approval of what “[b]y any reasonable measure” was found to be “a flawed transaction.” In rejecting the plaintiff’s arguments that questioned the disinterestedness and independence of a majority of the director defendants, the Court made clear that alleged non-economic conflicts of interest must be sufficiently disabling to call into question a director’s ability to impartially consider the key issue of whether to initiate a lawsuit against an officer or fellow director. Although the claims against the directors were dismissed, the opinions of both the Chancery Court and Supreme Court nevertheless provide important guidance on circumstances in which directors may need to be on heightened alert—and may need to “dig deeper” into particular areas, including by seeking outside independent advice.

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