Delaware Business Litigation Report

Plaintiff’s Failure to Plead Demand Futility Leads to Dismissal of Caremark Claims Against MoneyGram Directors

Richardson v. Clark, C.A. No. 2019-1015-SG (Del. Ch. Dec. 31, 2020)
Under Court of Chancery Rule 23.1, a derivative plaintiff’s must make a demand on the corporation’s board of directors unless the plaintiff can plead particular facts to establish that demand was excused. Although demand may be excused where a majority of the board faces a substantial likelihood of personal liability, merely alleging wrongdoing by the corporation’s directors will not suffice.

Plaintiff accused MoneyGram’s officers and directors of breaching their fiduciary duties to the corporation by failing to oversee MoneyGram’s remedial compliance with regulatory laws and settlement agreements, leading to approximately $250 million in corrective measures. When Defendants moved to dismiss under Chancery Rule 23.1 for Plaintiff’s failure to make a pre-suit demand, Plaintiff asserted that demand was excused as futile because a majority of the board faced a substantial likelihood of liability under Plaintiff’s Caremark failure of oversight claims.

The Court disagreed with Plaintiffs and dismissed the suit. In order to show a substantial likelihood of liability under Caremark, Plaintiffs were required to plead that Defendants acted in bad faith by ignoring a clear duty to act or by consciously failing to oversee the control systems in place. Here, however, the pleadings established only that Defendants oversaw MoneyGram’s implementation of unsuccessful remedial measures. That alone did not indicate a substantial likelihood of liability of the directors because “[a] failed attempt is not itself indicative of a bad-faith attempt.” 

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