Deriviative litigation requires stockholder plaintiffs to either make a demand on the board unless such a demand would be futile. If a plaintiff makes a demand on the board and that demand is rejected, is that the end of stockholder's litigation?

The following case, Spiegel, illustrates the effect on litigation of making demand on the board and the standard of review a court will use when asked to review a board's decision to refuse a stockholder's demand.

Demand and demand futility standards

Shoen is a Nevada case. In Shoen, the Nevada Supreme Court adopts the Delaware standards (Aronson and Rales) for determination of demand futility. The Nevada high court's discussion of both standards provides a clear overview and restatement of both tests and their application to pleadings.

Shoen is also an example of how state courts around the country look to the Delaware courts for guidance as they form their corporate law.  Through cases like Shoen you can begin to appreciate Delaware's outsized influence in the corporate law arena.

When a court is asked to rule on a Rule 23.1 motion to dismiss, the court will apply the Aronson or Rales standards to each member of the board in order to determine whether a majority of the board was disinterested or independent such that a majority of the board could fairly consider the challenged transaction or the plaintiff's demand. 

Is demand futile?