Delaware Rules of Civil Procedure, Rule 23.1

The Delaware Rules of Civil Procedure lay out rules for bringing and maintaining a stockholder derivative action. Compliance with these rules is necessary in order for a claim to stay in court. Remember that in a derivative suit, a stockholder seeks to displace the board's decision-making authority over a litigation asset and assert the corporation's claim. In order for stockholders to assert corporate claims that rightfully belong to the corporation, the stockholder must:

(i) obtain express permission from the board to bring the suit on behalf of the corporation,
(ii) receive implicit permission to proceed as a result of the board taking no position on the litigation (i.e. board waiver),
(iii) ask the board for permission and then show that the board wrongfully refused to pursue the action or permit the stockholder to proceed, or
(iv) show that it would have been futile to ask the board for permission because the board lacked a disinterested and independent majority that could consider a demand to sue.

Often times, stockholders will bring a suit in the form of direct litigation, thus attempting to assert standing to bring litigation in their own name or they will bring derivative litigation while alleging that making demand on the board would have been futile and thus not required. Defendants will often move to dismiss such claims for failure to comply with the requirements of Rule 23.1. The Rule 23.1 Motion to Dismiss usually revolves around the characterization of the claim (direct v. derivative) and/or the independence of the directors (demand required/demand futility).