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Mayer v. Adams

Delaware Supreme Court

141 A.2d 458, 38 Del. Ch. 298 (1958)

Facts

Lillie S. Mayer (plaintiff), a stockholder of Phillips Petroleum Company (PPC) (defendant), brought an action in the court of chancery for alleged fraud and other wrongdoing committed by PPC directors in dealings with Ada Oil Company (Ada) (defendant), a company in which one of the PPC directors was alleged to have a majority stock interest. Mayer’s amended complaint alleged that demand on PPC directors would be futile. The futility alleged in the amended complaint was not challenged. Mayer’s amended complaint also alleged an excuse for not making a demand on PPC stockholders: the action was for fraud, which could never be ratified by a majority of stockholders, and it would be oppressive and unreasonable to require minority stockholders to circularize more than 100,000 stockholders in a proxy fight with management, which would ultimately result in a futile proceeding. PPC and Ada moved to dismiss Mayer’s amended complaint, claiming Mayer’s grounds to excuse not making a demand on PPC stockholders were insufficient. PPC and Ada alleged that if directors are disqualified, demand for an action must be made on the stockholders to determine the direction of the claim and merits. The judge held that demand on the PPC stockholders would not have been futile and dismissed Mayer’s amended complaint. Mayer appealed.

Rule of Law

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Issue

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Holding and Reasoning (Southerland, C.J.)

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