Reversing the district court, the Court of Appeals for the Third Circuit held that the plaintiffs in a shareholder derivative lawsuit could use information obtained in discovery to support their claim that they were excused from making a pre-suit demand on the Board of Directors to file suit because such a demand would have been futile. The Third Circuit recognized the general rule that shareholders are not permitted to use information acquired during discovery to amend allegations concerning the futility of requiring compliance with the demand requirement, noting that the rule deters fishing expeditions and efforts to undermine the Board’s authority to determine whether the claim in question should be filed.
The Third Circuit held, however, that the rule did not apply because the parties had entered into a voluntary discovery agreement that (i) permitted the plaintiffs to proceed with discovery concerning the Board’s conduct with respect to the subject matter of the lawsuit and, (ii) did not preclude plaintiffs from using information obtained in such discovery to amend their complaint.
(In re Merck & Co., 2007 WL 2049017 (3d Cir. July 8, 2007))