The director defendants moved to dismiss the derivative action for failure to plead demand futility (i.e., particularized facts creating doubt that the company's board would have exercised disinterested business judgment in responding to a litigation demand). The court held that the complaint failed to plead facts connecting the closure of the company's silver mine to the board of directors, such as what the board was told about the closure, or what the board's response was. The court went on to note that had the plaintiff resorted to Section 220 of the Delaware General Corporation Law, a statute allowing stockholder inspection of the corporation's books and records under certain conditions, this might have supplied the facts necessary to show demand futility.
The court went on to explain that, unlike traditional derivative claims directly challenging specific board decisions, a Caremark claim does not allow for a reasonable inference that the board is connected to the occurrence of the underlying corporate harm itself, and some kind of investigation is usually required. The court also found that the named plaintiff failed to provide any reason why dismissal with prejudice would not be just under the circumstances, especially in light of the fact that they failed to make a Section 220 request. However, fearing prejudice to other stockholders who might eventually try to assert a similar derivative claim against the company, the court adopted a rebuttable presumption of disloyalty when a stockholder "rushes to file a Caremark claim without first conducting an adequate investigation to determine whether or not there is a connection between the corporate trauma and director action or conscious inaction." By failing to resort to Section 220, the court found that the named plaintiff failed to rebut this presumption and thus a dismissal with prejudice as to that named plaintiff was warranted.
The case is South v. Baker, No. 7294-VCL, available at http://courts.delaware.gov/opinions/(44fomi45wp2qqn55l5ig1w45)/download.aspx?ID=178730.