Campbell v. Loew's, Inc.

Delaware Court of Chancery · 1957 · Corporations

36 Del. Ch. 533 (1957)

Updated August 22, 2026

Corporationsderivative actionRule 23(b)demand on directorsdemand on stockholdersfutilityproxy solicitationcorporate funds

Facts

Loew's board was divided into two factions fighting for control of the corporation. The plaintiff alleged that members of the Vogel faction caused corporate funds to be used to solicit proxies in connection with a stockholders' meeting called for September 12. The complaint stated that plaintiff made no demand on the board or stockholders because Vogel would not recognize the board, the Vogel faction would not attend board meetings so no quorum was possible, and stockholders could not act in time to stop the expenditures. The plaintiff also sought to restrain further use of corporate funds and to enjoin the meeting as illegally called.

Issue

Whether the complaint satisfied Chancery Rule 23(b)'s demand requirements in a derivative action where no prior demand was made on directors or stockholders. Also, whether the court should interfere with the scheduled stockholders' meeting by granting interim relief.

Rule

Under Chancery Rule 23(b), a derivative complaint must plead with particularity the plaintiff's efforts to secure action from directors and, if necessary, stockholders, or the reasons for not making such efforts. Demand is not required where the pleaded facts show it would be futile, including where the board cannot act and where stockholders cannot legally or timely provide the requested relief; the Rule does not require a useless act.

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Riverview Media Group, a Delaware corporation based in Chicago, is split between two hostile director blocs. Asha Patel, a stockholder, files a derivative suit alleging that one bloc used corporate money to mail campaign materials for an upcoming stockholder vote; her complaint states with specific facts that the opposing bloc refuses to attend any board meeting, leaving the board without a quorum.

If Riverview moves to dismiss for failure to make a pre-suit demand on directors, how should the court most likely rule?

Explanation. Rule 23(b) requires particularized pleading of efforts to secure director action or reasons for not making the effort. Where the pleaded facts show the board cannot act as a board—such as when a faction's refusal to attend makes a quorum impossible—director demand is futile and need not be made. The issue is sufficiency of the pleadings, not ultimate proof on the merits.