Delaware County Employees Retirement Fund v. Sanchez

Sanchez Resources, LLC, a private company, entered into a transaction with a public company in which the Sanchez family owned the most stock (Sanchez Public Company). There was no dispute that two of the five directors of the Sanchez Public Company were interested directors for purposes of the transaction. The Delaware County Employees Retirement Fund and other shareholders (plaintiffs) of the Sanchez Public Company brought a shareholder derivative suit against that company’s directors (defendants), challenging the transaction. The plaintiffs claimed that demand on the Sanchez Public Company board of directors was excused because at least three of the five directors were interested directors. Specifically, the plaintiffs’ complaint asserted that Alan Jackson was not a disinterested director. First, the complaint asserted that Jackson had been close friends with A.R. Sanchez, Jr., the chairman of the board, for over 50 years. Second, the complaint asserted that Jackson’s employment and long-term personal wealth was wholly dependent on Sanchez. Accordingly, the plaintiffs stated that Jackson was not an independent director. The Delaware Court of Chancery found that the plaintiffs had not pled sufficient facts to infer that Jackson was an interested director. Accordingly, the chancery court found that demand on the board was not excused and dismissed the complaint for the plaintiffs’ failure to meet the demand requirement. The plaintiffs appealed.