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Complaint Did Not Sufficiently Allege Demand for Board’s Action Would Be Futile, Criteria Described

The Second Department determined Supreme Court properly granted defendants’ motion to dismiss the complaint for failure to state a cause of action. The complaint did not sufficiently allege efforts to have the board initiate the action or the reasons for not making that demand:

Such “[d]emand is futile, and excused, when the directors are incapable of making an impartial decision as to whether to bring suit” … . Demand is excused because of futility when a complaint alleges with particularity (1) “that a majority of the board of directors is interested in the challenged transaction,” which may be based on self-interest in the transaction or a loss of independence because a director with no direct interest in the transaction is “controlled” by a self-interested director, (2) “that the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances,” or (3) “that the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors” … . However, “[t]o justify failure to make a demand, it is not sufficient to name a majority of the directors as defendants with conclusory allegations of wrongdoing or control by wrongdoers” … .

Here, the plaintiffs failed to adequately plead that they made a sufficient demand, or that any demand would have been futile … . Taylor v Wynkoop, 2015 NY Slip Op 07643, 2nd Dept 10-21-15

 

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