The Court Of Chancery Dismisses Derivative Suit Against Truecar Officers And Directors, Finding Plaintiffs Failed To Allege Substantial Risk Of Liability By A Majority Of The Board

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Under Court of Chancery Rule 23.1, a stockholder who wishes to bring a derivative claim on behalf of a corporation must “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors [of the company] or comparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort.” The latter concept is known as “demand futility.”

In an opinion issued September 30, 2020, the Court of Chancery dismissed a derivative consolidated complaint alleging that officers and directors of TrueCar, Inc., anticipated the harmful effect a partner’s website redesign would have on TrueCar’s sales, and that certain defendants sold off their personal shares before a November 2017 earnings report revealed the extent of the harm, for plaintiffs’ failure to make demand upon the board or to adequately plead demand futility.

TrueCar claims to offer prospective car buyers the “true” market price for new and used vehicles. The company is allegedly dependent on “af

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