Aronson v. Lewis

Harry Lewis (plaintiff) owned stock in Meyers Parking System, Inc., a Delaware corporation. Leo Fink was a director of Meyers and owned 47 percent of its outstanding stock. Meyers’s directors approved a lucrative employment agreement for Fink and made interest-free loans to him. Lewis brought suit against Meyers and its directors (defendants), alleging that the transactions were only approved because Fink had personally selected the directors of Meyers, and that the transactions had no business purpose and were a waste of corporate assets. The complaint stated that no demand was made on the board of directors to address the alleged wrongs because (1) the directors participated in the wrongdoings; (2) Fink selected the directors and thus controlled the board; and (3) litigation brought by the directors would require them to sue themselves, precluding effective prosecution. Meyers and its directors filed a motion to dismiss based on Lewis’s failure to make a demand or to demonstrate that such a demand would be futile. The Court of Chancery denied the motion to dismiss, finding that the allegations in the complaint raised a reasonable inference that the business-judgment rule did not protect the directors’ actions, and that the board therefore would not have been able to impartially consider and act on any such demand. Meyers and its directors filed an interlocutory appeal.