White v. Panic

Supreme Court of Delaware · 2001 · Corporations

783 A.2d 543 (2001)

Updated August 22, 2026

CorporationsDerivative suitsDemand futilityBusiness judgment ruleCorporate wasteRule 23.1demand excusedAronson

Facts

After a U.S. News & World Report article described several sexual-harassment suits involving ICN CEO and chairman Milan Panic, stockholder Andrew White filed a derivative complaint based principally on facts reported in that article. The complaint alleged that ICN had paid $3.5 million to settle eight harassment suits against Panic, that the board knew of Panic's alleged misconduct, never sanctioned him, and did not require him to reimburse ICN for settlement and defense costs. The complaint also alleged that the board approved a short-term loan to Panic to help him pay a $3.5 million paternity settlement, later guaranteed a replacement bank loan, and posted $3.6 million in corporate funds as collateral, while Panic pledged 150,000 stock options. White made no demand on the board before suing.

Issue

Whether the complaint alleged sufficiently particularized facts under Chancery Rule 23.1 to create a reasonable doubt that the board's challenged decisions were protected by the business judgment rule, thereby excusing pre-suit demand. Also, whether the plaintiff should be allowed to amend the complaint after affirmance of its dismissal.

Rule

When a stockholder brings a derivative suit without making a pre-suit demand, Rule 23.1 requires particularized allegations showing why demand is excused. Under Aronson, demand is excused only if the complaint raises a reasonable doubt that either the directors are disinterested and independent or the challenged transaction was the product of a valid exercise of business judgment. Conclusory allegations do not suffice, and a corporate waste claim fails if the corporation received any substantial consideration and the board made a good-faith judgment that the transaction was worthwhile. After affirmance of dismissal, amendment is generally not allowed unless the appellate decision announces or clarifies a new rule or pleading standard applicable to the claim.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nadia Flores, a stockholder of Redwood Biologics, Inc., files a derivative suit in Delaware without making a demand on the board. Her complaint alleges that the board approved settlement of six customer fraud suits involving the chief executive in Phoenix, but gives no details about the claims, their merits, the settlement amounts, or any admissions of wrongdoing.

Is demand most likely excused?

Explanation. When the plaintiff does not challenge director disinterestedness or independence, the plaintiff must plead particularized facts creating a reasonable doubt that the challenged decisions were a valid exercise of business judgment. Mere approval of multiple settlements, without details about the underlying claims, merits, amounts, or wrongdoing, does not support a reasonable inference that the board knew the allegations were true. Settlements may reflect routine efforts to avoid litigation costs. That is insufficient under Rule 23.1.