In re Plug Power Inc. Stockholder Derivative Litigation, C.A. No. 2022-0569-KSJM (Del. Ch. May 2, 2025)
Because derivative claims belong to the corporation, a stockholder seeking to prosecute a derivative suit must sufficiently allege that a pre-suit demand on the board to act would be futile because at least half of the board is incapable of making an impartial decision regarding the subject litigation. As this decision from the Court of Chancery demonstrates, the demand futility analysis must be conducted against the board in place at the time relevant claims are in litigation, a question that may become complicated where, as here, the board’s composition changes during litigation and the complaint is amended or supplemented.
Plaintiffs’ original complaint was for breach of fiduciary duty against certain board members who had allegedly traded stock based on material non-public information (i.e., a Brophy claim). Plaintiffs subsequently amended the complaint to add a claim for breach of fiduciary duty by the board related to a failure in their oversight duties concerning the alleged insider trading (i.e., a Caremark claim). In between the filing of the original and amended complaints, the board’s composition changed.
In the amended complaint, plaintiffs only pleaded demand futility as to the new board. The Court observed that demand futility analysis is conducted against the board in place at the time the claims at issue are “validly in litigation.” Plaintiffs’ Brophy claim related to the old board and futility could have been assessed as of the original complaint’s filing. However, because the amended complaint only pleaded futility allegations as to the new board, the Court’s analysis asked whether Plaintiffs had sufficiently challenged the impartiality of five of the new board’s nine directors. The Plaintiffs’ allegations targeted five directors who engaged in the at-issue stock sales. But their allegations failed for at least two directors, who sold stock during the relevant period as part of a pre-determined 10b5-1 plan, not based on allegedly non-public material information. The Plaintiffs also failed to adequately allege a Caremark claim related to monitoring and responding to the alleged insider trading. The complaint’s allegations supported neither an utter failure to implement a reasonable reporting system, nor bad faith ignorance of red flags.
