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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Senior Aronson, et al., Defendants Below, Appellants, v. Harry Lewis, Plaintiff Below, Appellee.

Headnote

Because derivative litigation is properly litigation that “belongs” to the corporation, stockholders bringing derivative litigation should be the exception rather than the rule.  The requirement that a stockholder make a demand on the board prior to bringing derivative litigation is a recognition of this fact.

The court in Aronson lays out one test for determining whether a plaintiff in a derivative suit will be relieved of the “demand” requirement. If making a demand on the board would be “futile”, a stockholder plaintiff will be free to bring a derivative claim on behalf of the corporation without first asking the board to take action. In order to establish that demand is futile under Rule 23.1 and the Aronson test, plaintiffs must allege sufficient facts in the complaint as to call into question the business judgment presumption.