Wood v. Baum
Delaware Supreme Court
953 A.2d 136 (2008)
- Written by Rich Walter, JD
Facts
The operating agreement of Municipal Mortgage & Equity, LLC (MME) confided the Delaware limited-liability company’s affairs to Charles Baum and nine other directors (defendants). Most of the directors were disinterested and independent outsiders rather than company officers. MME’s operating agreement exempted the directors from liability, except in cases of fraud or illegal conduct. Paddy Wood (plaintiff), a member of MME, accused MME’s directors of breaching their fiduciary duties by making fraudulent misrepresentations; by filing misleading reports and approving transactions; and by ignoring so-called red flags, all of which indicated that the directors knowingly violated applicable securities laws. Without demanding that the directors take action to rectify matters on MME’s behalf, Wood filed a derivative action against the directors. The Delaware Court of Chancery granted the directors’ motion to dismiss the suit on the grounds that Wood failed to comply with Delaware Chancery Court Rule 23.1, which specified the demand or demand-futility prerequisites for a shareholder derivative suit. Wood appealed to the Delaware Supreme Court.
Rule of Law
Issue
Holding and Reasoning (Jacobs, J.)
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