City of Birmingham Retirement and Relief System v. Good

A Duke Energy Corporation (Duke) site leaked toxic water into a river. The Department of Environmental Quality negotiated a consent decree with Duke that included a compliance plan. Duke had previously been charged with violations of environmental laws, and it was previously confirmed through testing that Duke caused illegal water contamination. Duke was later criminally charged with environmental-law violations and paid over $100 million in fines. The City of Birmingham Retirement and Relief System (the retirement system) (plaintiff), a Duke stockholder, filed a shareholder derivative lawsuit in the Delaware Court of Chancery against Duke directors and officers (the directors) (defendants). The retirement system wanted to hold the directors personally liable for damages caused by the violations. The retirement system argued that the directors knew about and ignored Duke’s illegal acts. The directors moved to dismiss for failure to plead demand futility. The directors asserted that the retirement system’s complaint did not show that the directors were substantially likely to be held personally liable for the damages. The directors were protected by law from liability for due-care violations. After reviewing presentations shown to the directors, the court of chancery found that the presentations provided information about Duke’s compliance efforts and so the directors did not consciously disregard the issues. Further, the court found no evidence that the consent decree was signed in bad faith. The shareholder derivate suit was dismissed, and the retirement system appealed.