In South v. Baker, No. 7294 (Del. Ch. Sept. 25, 2012), the Delaware Chancery Court held that the dismissal with prejudice of a derivative suit because of the plaintiffs’ inadequate representation does not preclude other “more diligent stockholders” from bringing a similar suit on behalf of the same corporation. The case involved a Caremark-type derivative action against the directors of a mining company who allegedly had failed to exercise sufficient oversight to prevent safety violations. The court held that plaintiffs had not pleaded facts showing demand futility, nor had they sought to discover such facts by examining the company’s books and records under the Delaware inspection statute, Section 220. The court stressed that there is “an evidentiary presumption that a plaintiff who files a Caremark claim hastily and without using Section 220 or otherwise conducting a meaningful investigation has acted disloyally to the corporation and served instead the interests of the law firm who filed suit.” The court concluded that plaintiffs were not adequate representatives because they filed a hurried complaint when there was no reason to rush: A “deliberate and thorough pre-suit investigation, rather than haste, was required to further the interests of the corporation.”
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Dismissal of derivative suit held not preclusive as to other shareholders
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