(1) The lease agreement required the lessee to insure any improvements on the leasehold; (2) The agreement separately gave the lessee the right to use irrigation equipment, including pivots; (3) The court determined that pivots were irrigation equipment, not improvements, so the lessee was not required to insure them; (4) Therefore, the failure to insure pivots did not constitute a default of the lease agreement.

1. Top 10 Business Law Cases of the Past Year
Wendy Gerwick Couture
Idaho State Bar
Business & Corporate Law Section Annual Meeting
September 16, 2022

2.  Member’s dissociation from LLC
 Contract interpretation
 Breach of contract & fraud claims
 Direct/derivative litigation
X

3. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).

4. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
§ 30-25-602. Events causing
dissociation.
A person is dissociated as a
member when: . . .
(2) An event stated in the
operating agreement as causing
the person's dissociation
occurs;

5. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
§ 30-25-602. Events causing
dissociation.
A person is dissociated as a
member when: . . .
(2) An event stated in the
operating agreement as causing
the person's dissociation
occurs;
§ 30-25-701. Events causing dissolution
(a) A limited liability company is dissolved,
and its activities and affairs must be wound
up, upon the occurrence of any of the
following: . . .
(4) On application by a member, the entry by
the district court of an order dissolving the
company on the grounds that . . .
(C) The managers or those members in
control of the company: . . .
(ii) Have acted or are acting in a
manner that is oppressive and was, is,
or will be directly harmful to the
applicant; or

6. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
§ 30-25-602. Events causing
dissociation.
A person is dissociated as a
member when: . . .
(2) An event stated in the
operating agreement as causing
the person's dissociation
occurs;
§ 30-25-701. Events causing dissolution
(a) A limited liability company is dissolved,
and its activities and affairs must be wound
up, upon the occurrence of any of the
following: . . .
(4) On application by a member, the entry by
the district court of an order dissolving the
company on the grounds that . . .
(C) The managers or those members in
control of the company: . . .
(ii) Have acted or are acting in a
manner that is oppressive and was, is,
or will be directly harmful to the
applicant; or
§ 30-25-105. Operating agreement--Scope--
Function--Limitations
(c) An operating agreement may not: . . .
(9) Vary the causes of dissolution specified in
section 30-25-701(a)(4), Idaho Code;

7. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
§ 30-25-602. Events causing
dissociation.
A person is dissociated as a
member when: . . .
(2) An event stated in the
operating agreement as causing
the person's dissociation
occurs;
§ 30-25-701. Events causing dissolution
(a) A limited liability company is dissolved,
and its activities and affairs must be wound
up, upon the occurrence of any of the
following: . . .
(4) On application by a member, the entry by
the district court of an order dissolving the
company on the grounds that . . .
(C) The managers or those members in
control of the company: . . .
(ii) Have acted or are acting in a
manner that is oppressive and was, is,
or will be directly harmful to the
applicant; or
§ 30-25-105. Operating agreement--Scope--
Function--Limitations
(c) An operating agreement may not: . . .
(9) Vary the causes of dissolution specified in
section 30-25-701(a)(4), Idaho Code;
OPERATING AGREEMENT
A Member involuntarily withdraws from the LLC if:
The Member files a petition or answer seeking for the
Member any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation.

8. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
OPERATING AGREEMENT
A Member involuntarily withdraws from the LLC if:
The Member files a petition or answer seeking for the
Member any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation.
District Court: Members who filed action seeking judicial dissolution of the LCC were immediately dissociated from
the company.

9. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
OPERATING AGREEMENT
A Member involuntarily withdraws from the LLC if:
The Member files a petition or answer seeking for the
Member any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation.
District Court: Members who filed action seeking judicial dissolution of the LCC were immediately dissociated from
the company.
Supreme Court: “We view the clause as describing circumstances that implicate financial insolvency and bankruptcy
of a member, which is not the case here. . . . Because neither [member seeking judicial dissolution] petitioned
seeking judicial relief from a debt on their own behalf, and neither became bankrupt, insolvent, or subject to judicial
proceedings involving the liquidation of their assets, we hold the district court’s determination that they were
dissociated by filing their claim for dissolution was erroneous.”

10. Nelsen v. Nelsen, 170 Idaho 102, 508 P.3d 301, 334 (2022).
OPERATING AGREEMENT
A Member involuntarily withdraws from the LLC if:
The Member files a petition or answer seeking for the
Member any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation.
District Court: Members who filed action seeking judicial dissolution of the LCC were immediately dissociated from
the company.
Supreme Court: “We view the clause as describing circumstances that implicate financial insolvency and bankruptcy
of a member, which is not the case here. . . . Because neither [member seeking judicial dissolution] petitioned
seeking judicial relief from a debt on their own behalf, and neither became bankrupt, insolvent, or subject to judicial
proceedings involving the liquidation of their assets, we hold the district court’s determination that they were
dissociated by filing their claim for dissolution was erroneous.”
Supreme Court: “[The Act] affords a member the right to dissolution, . . . but a member could never exercise that
right under the LLC operating agreement because the moment they do, they would be dissociated from the company
and would lack standing to pursue the statutorily afforded right. This would alter statutory rights, which an operating
agreement cannot do.”

11. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).

12. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
USApparel
Works LLC
Member:
5high LLC
Member:
Feiler
Member:
Arin
 Formed under
Delaware law.

13. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
USApparel
Works LLC
Member:
5high LLC
Member:
Feiler
Member:
Arin
 Formed under
Delaware law.
 No written operating
agreement.

14. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
USApparel
Works LLC
Member:
5high LLC
Member:
Feiler
Member:
Arin
 Formed under
Delaware law.
 No written operating
agreement.
On 12/1/21:
• Told Arin that leaving.
• Demanded $9 check back (capital
contribution made day before);
check returned.
• Told employees, key supplier, &
only customer that departing
business.
• UNCLEAR what other terms of
departure.

15. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
6 Del. C. § 18-603 Resignation of member
A member may resign from a limited liability
company only at the time or upon the
happening of events specified in a limited
liability company agreement and in accordance
with the limited liability company agreement.
Notwithstanding anything to the contrary under
applicable law, unless a limited liability company
agreement provides otherwise, a member may
not resign from a limited liability company prior
to the dissolution and winding up of the limited
liability company.

16. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
6 Del. C. § 18-603 Resignation of member
A member may resign from a limited liability
company only at the time or upon the
happening of events specified in a limited
liability company agreement and in accordance
with the limited liability company agreement.
Notwithstanding anything to the contrary under
applicable law, unless a limited liability company
agreement provides otherwise, a member may
not resign from a limited liability company prior
to the dissolution and winding up of the limited
liability company.
6 Del. C. § 18-101 Definitions
(9) “Limited liability company agreement” means any
agreement (whether referred to as a limited liability
company agreement, operating agreement or otherwise),
written, oral or implied, of the member or members as to
the affairs of a limited liability company and the conduct of
its business.

17. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
6 Del. C. § 18-603 Resignation of member
A member may resign from a limited liability
company only at the time or upon the
happening of events specified in a limited
liability company agreement and in accordance
with the limited liability company agreement.
Notwithstanding anything to the contrary under
applicable law, unless a limited liability company
agreement provides otherwise, a member may
not resign from a limited liability company prior
to the dissolution and winding up of the limited
liability company.
6 Del. C. § 18-101 Definitions
(9) “Limited liability company agreement” means any
agreement (whether referred to as a limited liability
company agreement, operating agreement or otherwise),
written, oral or implied, of the member or members as to
the affairs of a limited liability company and the conduct of
its business.
Court:
• “An implied contract is one inferred from the conduct of the
parties, though not expressed in words.”
• “In determining whether the parties’ conduct implies a
contract in fact, their conduct is evaluated from the
perspective of a reasonable person, considering all of the
attendant circumstances.”

18. 5high LLC v. Feiler, No. CV 2022-0108-LWW, 2022 WL 3136612 (Del. Ch. Aug. 5,
2022).
6 Del. C. § 18-603 Resignation of member
A member may resign from a limited liability
company only at the time or upon the
happening of events specified in a limited
liability company agreement and in accordance
with the limited liability company agreement.
Notwithstanding anything to the contrary under
applicable law, unless a limited liability company
agreement provides otherwise, a member may
not resign from a limited liability company prior
to the dissolution and winding up of the limited
liability company.
6 Del. C. § 18-101 Definitions
(9) “Limited liability company agreement” means any
agreement (whether referred to as a limited liability
company agreement, operating agreement or otherwise),
written, oral or implied, of the member or members as to
the affairs of a limited liability company and the conduct of
its business.
Court:
• “An implied contract is one inferred from the conduct of the
parties, though not expressed in words.”
• “In determining whether the parties’ conduct implies a
contract in fact, their conduct is evaluated from the
perspective of a reasonable person, considering all of the
attendant circumstances.”
• Here, the evidence establishes that Feiler manifested an
intent to resign as a member on 12/1/21 and that 5high
(through Arin) manifested its acceptance of his withdrawal.

19.  Member’s dissociation from LLC
 Contract interpretation
 Breach of contract & fraud claims
 Direct/derivative litigation
X

20. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).

21. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .

22. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?

23. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
4.1 Right to Use: Lessee shall have the sole and exclusive use
of all of the irrigation equipment, including, but not limited
to, pumps, motors, pivots, panels and pads, now situated on
the leasehold; said usage to run concurrently with this lease
and any renewal thereof.
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?

24. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
4.1 Right to Use: Lessee shall have the sole and exclusive use
of all of the irrigation equipment, including, but not limited
to, pumps, motors, pivots, panels and pads, now situated on
the leasehold; said usage to run concurrently with this lease
and any renewal thereof.
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?
Court: Irrigation pivots are part of irrigation
equipment.

25. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
4.1 Right to Use: Lessee shall have the sole and exclusive use
of all of the irrigation equipment, including, but not limited
to, pumps, motors, pivots, panels and pads, now situated on
the leasehold; said usage to run concurrently with this lease
and any renewal thereof.
19.6 Condition of Leasehold: Lessee acknowledges that it
has inspected [the Ririe Farm] and is familiar with its
condition, having farmed the same for a number of years
under prior leases. Lessee accepts [the Ririe Farm] “AS IS,”
with no warranty of condition, express or implied, as to [the
Ririe Farm], the potato cellar, the irrigation system or any
other improvement to or upon [the Ririe Farm], having been
given by Lessor.
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?
Court: Irrigation pivots are part of irrigation
equipment.

26. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
4.1 Right to Use: Lessee shall have the sole and exclusive use
of all of the irrigation equipment, including, but not limited
to, pumps, motors, pivots, panels and pads, now situated on
the leasehold; said usage to run concurrently with this lease
and any renewal thereof.
19.6 Condition of Leasehold: Lessee acknowledges that it
has inspected [the Ririe Farm] and is familiar with its
condition, having farmed the same for a number of years
under prior leases. Lessee accepts [the Ririe Farm] “AS IS,”
with no warranty of condition, express or implied, as to [the
Ririe Farm], the potato cellar, the irrigation system or any
other improvement to or upon [the Ririe Farm], having been
given by Lessor.
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?
Court: Irrigation pivots are part of irrigation
equipment.
Court: Irrigation equipment are among the
listed improvements.

27. Stanger v. Walker Land & Cattle, LLC, 169 Idaho 566, 498 P.3d 1195 (2021).
7.3 Other Insurance: Lessee, at its sole cost and expense,
shall purchase and maintain a policy of insurance covering
the repair and/or replacement of any improvements upon
the Leasehold, most particularly the potato cellar, in an
amount sufficient to replace such improvements; . . .
4.1 Right to Use: Lessee shall have the sole and exclusive use
of all of the irrigation equipment, including, but not limited
to, pumps, motors, pivots, panels and pads, now situated on
the leasehold; said usage to run concurrently with this lease
and any renewal thereof.
19.6 Condition of Leasehold: Lessee acknowledges that it
has inspected [the Ririe Farm] and is familiar with its
condition, having farmed the same for a number of years
under prior leases. Lessee accepts [the Ririe Farm] “AS IS,”
with no warranty of condition, express or implied, as to [the
Ririe Farm], the potato cellar, the irrigation system or any
other improvement to or upon [the Ririe Farm], having been
given by Lessor.
Lessee did not insure irrigation pivots.
ISSUE: Were irrigation pivots “improvements,”
such that the failure to insure them was a
default?
Court: Irrigation pivots are part of irrigation
equipment.
Court: Irrigation equipment are among the
listed improvements.
HOLDING: Yes, the pivots were improvements,
so the failure to insure them was a default.

28. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).

29. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?

30. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?

31. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?

32. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?
Incentive Compensation
Plan § 2
“Incentives are earned
based upon the
attainment of
performance measure
quotas and goals as
described herein below.”

33. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?
Incentive Compensation
Plan § 2
“Incentives are earned
based upon the
attainment of
performance measure
quotas and goals as
described herein below.”
Incentive Compensation
Plan § 3
“No amounts will be earned
under the [ICP] until an
applicable event or activity
is complete, including all
applicable forms as
designated by Kount.”

34. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?
Incentive Compensation
Plan § 2
“Incentives are earned
based upon the
attainment of
performance measure
quotas and goals as
described herein below.”
Incentive Compensation
Plan § 3
“No amounts will be earned
under the [ICP] until an
applicable event or activity
is complete, including all
applicable forms as
designated by Kount.”
Incentive Compensation Plan § 6
“In order to receive Commissions payments, you must
complete all required documentation and reports, and be an
employee in good standing at the time of payment. . . .
Unpaid Variable Compensation will be forfeited in the event
a Participant separates from Kount before payment is made.
. . . Commissions will be paid forty-five (45) days after the
end of each quarter.”

35. Smith v. Kount, Inc., 169 Idaho 460, 497 P.3d 534 (2021).
§ 45-606. Payment of wages upon separation from employment
(1) Upon layoff, or upon termination of employment by either the employer or
employee, the employer shall pay or make available at the usual place of
payment all wages then due the employee by the earlier of the next regularly
scheduled payday or within ten (10) days of such layoff or termination . . .
ISSUE: Employee resigned, with last day of work at end of Q3. Did former employer violate Idaho Wage Claim Act by not
paying former employee variable compensation for Q3, in addition to base salary?
Incentive Compensation
Plan § 2
“Incentives are earned
based upon the
attainment of
performance measure
quotas and goals as
described herein below.”
Incentive Compensation
Plan § 3
“No amounts will be earned
under the [ICP] until an
applicable event or activity
is complete, including all
applicable forms as
designated by Kount.”
Incentive Compensation Plan § 6
“In order to receive Commissions payments, you must
complete all required documentation and reports, and be an
employee in good standing at the time of payment. . . .
Unpaid Variable Compensation will be forfeited in the event
a Participant separates from Kount before payment is made.
. . . Commissions will be paid forty-five (45) days after the
end of each quarter.”
COURT: “Section 6 of the ICP required continued employment as a condition precedent to the receipt of variable
compensation. . . . When Smith resigned before the payment date, he failed to satisfy all the required conditions for
payment. As a result, the variable compensation was not ‘due’ Smith at the time of his resignation.”

36. Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).

37. Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).
Cox
Sprint (later
acquired by
T-Mobile)
Settlement Agreement:
Before Cox or one of its Affiliates (the “Cox Wireless Affiliate”), begins providing Wireless Mobile
Service (as defined below), the Cox Wireless Affiliate will enter into a definitive MVNO [mobile
virtual network operator] agreement with a Sprint Affiliate (the “Sprint MVNO Affiliate”) identifying
the Spring MVNO Affiliate as a “Preferred Provider” of the Wireless Mobile Service for the Cox
Affiliate, on terms to be mutually agreed upon between the parties for an initial period of 36
months (the “Initial Term”).

38. Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).
Cox
Sprint (later
acquired by
T-Mobile)
Settlement Agreement:
Before Cox or one of its Affiliates (the “Cox Wireless Affiliate”), begins providing Wireless Mobile
Service (as defined below), the Cox Wireless Affiliate will enter into a definitive MVNO [mobile
virtual network operator] agreement with a Sprint Affiliate (the “Sprint MVNO Affiliate”) identifying
the Spring MVNO Affiliate as a “Preferred Provider” of the Wireless Mobile Service for the Cox
Affiliate, on terms to be mutually agreed upon between the parties for an initial period of 36
months (the “Initial Term”).
Interp. 1 (Cox)
This is an
unenforceable
“agreement to
agree.”

39. Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).
Cox
Sprint (later
acquired by
T-Mobile)
Settlement Agreement:
Before Cox or one of its Affiliates (the “Cox Wireless Affiliate”), begins providing Wireless Mobile
Service (as defined below), the Cox Wireless Affiliate will enter into a definitive MVNO [mobile
virtual network operator] agreement with a Sprint Affiliate (the “Sprint MVNO Affiliate”) identifying
the Spring MVNO Affiliate as a “Preferred Provider” of the Wireless Mobile Service for the Cox
Affiliate, on terms to be mutually agreed upon between the parties for an initial period of 36
months (the “Initial Term”).
Interp. 2 (T-Mobile)
This is fully binding as
a “Type I preliminary
agreement.” All
material terms are
agreed to, & parties
simply need to
memorialize in more
formal document.
Interp. 1 (Cox)
This is an
unenforceable
“agreement to
agree.”
X

40. Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).
Cox
Sprint (later
acquired by
T-Mobile)
Settlement Agreement:
Before Cox or one of its Affiliates (the “Cox Wireless Affiliate”), begins providing Wireless Mobile
Service (as defined below), the Cox Wireless Affiliate will enter into a definitive MVNO [mobile
virtual network operator] agreement with a Sprint Affiliate (the “Sprint MVNO Affiliate”) identifying
the Spring MVNO Affiliate as a “Preferred Provider” of the Wireless Mobile Service for the Cox
Affiliate, on terms to be mutually agreed upon between the parties for an initial period of 36
months (the “Initial Term”).
Interp. 3 (Ct of Chancery & T-Mobile)
This agreement imposes on Cox a present
obligation, immediately applicable, to
either refrain from entering the Wireless
Mobile Services Market or make a deal
with Sprint. Once that relationship
entered into, agreement requires both
parties to negotiate open issues in good
faith.
Interp. 2 (T-Mobile)
This is fully binding as
a “Type I preliminary
agreement.” All
material terms are
agreed to, & parties
simply need to
memorialize in more
formal document.
Interp. 1 (Cox)
This is an
unenforceable
“agreement to
agree.”
X
X

41. Interp. 2 (T-Mobile)
This is fully binding as
a “Type I preliminary
agreement.” All
material terms are
agreed to, & parties
simply need to
memorialize in more
formal document.
Cox Commc’ns, Inc. v. T-Mobile US, Inc., 273 A.3d 752 (Del. 2022).
Cox
Sprint (later
acquired by
T-Mobile)
Settlement Agreement:
Before Cox or one of its Affiliates (the “Cox Wireless Affiliate”), begins providing Wireless Mobile
Service (as defined below), the Cox Wireless Affiliate will enter into a definitive MVNO [mobile
virtual network operator] agreement with a Sprint Affiliate (the “Sprint MVNO Affiliate”) identifying
the Spring MVNO Affiliate as a “Preferred Provider” of the Wireless Mobile Service for the Cox
Affiliate, on terms to be mutually agreed upon between the parties for an initial period of 36
months (the “Initial Term”).
Interp. 3 (Ct of Chancery & T-Mobile)
This agreement imposes on Cox a present
obligation, immediately applicable, to
either refrain from entering the Wireless
Mobile Services Market or make a deal
with Sprint. Once that relationship
entered into, agreement requires both
parties to negotiate open issues in good
faith.
Interp. 1 (Cox)
This is an
unenforceable
“agreement to
agree.”
Interp. 4 (Cox)
This is a “Type II preliminary
agreement.” The parties
agreed on certain material
terms, but left others open for
negotiation. It binds the
parties to negotiate the open
issues in good faith, but
doesn’t bind them to enter
into an agreement.
X
X
X

42. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).

43. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).
“A proxy agreement is a contract that creates an agency relationship. The owner of shares acts as
principal to grant agency power to the proxyholder.”

44. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).
“A proxy agreement is a contract that creates an agency relationship. The owner of shares acts as
principal to grant agency power to the proxyholder.”
“From a corporate governance standpoint, it decouples the power to vote the shares from the
economic interest in the shares.”

45. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).
“A proxy agreement is a contract that creates an agency relationship. The owner of shares acts as
principal to grant agency power to the proxyholder.”
“From a corporate governance standpoint, it decouples the power to vote the shares from the
economic interest in the shares.”
“What legitimizes the stockholder vote as a decision-making mechanism is the premise that
stockholders with economic ownership are expressing their collective view as to whether a
particular course of action serves the corporate goal of stockholder wealth maximization.”

46. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).
“A proxy agreement is a contract that creates an agency relationship. The owner of shares acts as
principal to grant agency power to the proxyholder.”
“From a corporate governance standpoint, it decouples the power to vote the shares from the
economic interest in the shares.”
“What legitimizes the stockholder vote as a decision-making mechanism is the premise that
stockholders with economic ownership are expressing their collective view as to whether a
particular course of action serves the corporate goal of stockholder wealth maximization.”
Interpreting Proxy Agreements:
Step One: Plain language, construing the agreement as a whole and giving effect to all its
provisions.

47. Hawkins v. Daniel, 273 A.3d 792 (Del. Ch. 2022).
“A proxy agreement is a contract that creates an agency relationship. The owner of shares acts as
principal to grant agency power to the proxyholder.”
“From a corporate governance standpoint, it decouples the power to vote the shares from the
economic interest in the shares.”
“What legitimizes the stockholder vote as a decision-making mechanism is the premise that
stockholders with economic ownership are expressing their collective view as to whether a
particular course of action serves the corporate goal of stockholder wealth maximization.”
Interpreting Proxy Agreements:
Step One: Plain language, construing the agreement as a whole and giving effect to all its
provisions.
Step Two: But if any ambiguity, construed against proxyholder.

48.  Member’s dissociation from LLC
 Contract interpretation
 Breach of contract & fraud claims
 Direct/derivative litigation
X

49. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).

50. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due

51. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due

52. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Jury: Found Distributor & Related Entity liable for fraud.
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due

53. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Jury: Found Distributor & Related Entity liable for fraud.
Issue on Appeal: Was there substantial & competent evidence of a false statement of fact?

54. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Jury: Found Distributor & Related Entity liable for fraud.
Issue on Appeal: Was there substantial & competent evidence of a false statement of fact?
Court:
• “This Court has stated that ‘[a]n action for fraud or misrepresentation will not lie for statements of future
events.’”

55. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Jury: Found Distributor & Related Entity liable for fraud.
Issue on Appeal: Was there substantial & competent evidence of a false statement of fact?
Court:
• “This Court has stated that ‘[a]n action for fraud or misrepresentation will not lie for statements of future
events.’”
• “However, ‘[a]ll but a few courts regard a misstatement of a present intention as a misrepresentation of a
material fact.”
• “Idaho follows the majority rule.”

56. SRM Arms, Inc. v. GSA Direct, LLC, 169 Idaho 196, 494 P.3d 744 (2021).
Firearms
Manufacturer
Distributor &
Related Entity
Breach of contract, unjust
enrichment & fraud, based on
alleged backlog of payments due
One of alleged factual bases for fraud claim: Distributor & Related Entity promised to pay any accounts
receivable by contributing a portion of future sales revenue to Manufacturer, without intention to do so.
Jury: Found Distributor & Related Entity liable for fraud.
Issue on Appeal: Was there substantial & competent evidence of a false statement of fact?
Court:
• “This Court has stated that ‘[a]n action for fraud or misrepresentation will not lie for statements of future
events.’”
• “However, ‘[a]ll but a few courts regard a misstatement of a present intention as a misrepresentation of a
material fact.”
• “Idaho follows the majority rule.”
• “Consistent with such authority, we find there was substantial and competent evidence to support a jury
finding that, at the time of any one of the Entity Defendants’ promises to pay [Manufacturer], it did not
intend to do so. . . . Accordingly, we affirm the finding of fraud.”

57. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).

58. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement

59. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation

60. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation

61. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
Court:
 Justifiable reliance, an element of fraud/fraudulent inducement, is measured objectively.

62. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
Court:
 Justifiable reliance, an element of fraud/fraudulent inducement, is measured objectively.
 Here, Buyer was at least reckless in any reliance, barring claims.
 “The victim . . . cannot close his eyes to a risk that is obvious, even if he does not himself perceive the risk.”

63. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
“A ‘sandbagging’ buyer refers to a buyer who is or becomes aware that a specific representation made by the
seller is false, yet instead of alerting the seller to this fact, the buyer consummates the transaction, despite its
knowledge of the breach, and seeks post-closing damages against the seller for the breach.”
Buyer permitted
to sandbag?

64. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
Court:
 Unlike a fraud claim, justifiable reliance is not an element of breach of contract claims.
Buyer permitted
to sandbag?

65. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
Court:
 Unlike a fraud claim, justifiable reliance is not an element of breach of contract claims.
 Delaware is a pro-sandbagging state.
o It’s about risk allocation in the contract. Seller could protect itself by including clause in APA that
expressly prevents Buyer from pursing indemnification for a breach of Seller’s reps or warranties if
Buyer had prior knowledge.
Buyer permitted
to sandbag?

66. Arwood v. AW Site Servs., LLC, No. CV 2019-0904-JRS, 2022 WL 705841 (Del. Ch.
Mar. 9, 2022).
Seller
(Arwood)
Buyer (AW Site
Services, LLC)
Asset Purchase Agreement
 FRAUD/FRAUDULENT INDUCEMENT:
Alleged misrepresentations & omissions
by Seller induced Buyer to purchase
business
 BREACH OF CONTRACT: Alleged false
representations by Seller in APA
Unsophisticated;
kept no financial
records
Sophisticated; provided
with unfettered access to
business for purposes of
valuation
Court:
 Unlike a fraud claim, justifiable reliance is not an element of breach of contract claims.
 Delaware is a pro-sandbagging state.
o It’s about risk allocation in the contract. Seller could protect itself by including clause in APA that
expressly prevents Buyer from pursing indemnification for a breach of Seller’s reps or warranties if Buyer
had prior knowledge.
 Even if Delaware were anti-sandbagging, only counts as sandbagging if Buyer had actual knowledge of
falsity prior to closing, rather than merely being reckless, so wouldn’t be implicated here.
Buyer permitted
to sandbag?

67.  Member’s dissociation from LLC
 Contract interpretation
 Breach of contract & fraud claims
 Direct/derivative litigation
X

68. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).

69. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
TerraForm
Power, Inc.
Controlling s/h
Board
Minority s/h’s

70. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Controlling s/h
Board
Minority s/h’s
• Controlling s/h acquired TerraForm stock, via
private placement.
• Consideration was allegedly inadequate, resulting
in economic & voting dilution of minority s/h
interests.
TerraForm
Power, Inc.

71. TerraForm
Power, Inc.
Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Controlling s/h
Board
Minority s/h’s
Derivative?
Direct?
• Controlling s/h acquired TerraForm stock, via
private placement.
• Consideration was allegedly inadequate, resulting
in economic & voting dilution of minority s/h
interests.

72. TerraForm
Power, Inc.
Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Controlling s/h
Board
Minority s/h’s
Derivative?
Direct?
Court of Chancery, bound by Gentile (Del. 2006),
held that both b/c minority s/h’s suffered two
harms:
(1) Corporation harmed b/c stock issued for
inadequate consideration (derivative); &
(2) Minority s/h’s harmed by loss of significant
portion of cash value & voting power of minority
interest (direct).
• Controlling s/h acquired TerraForm stock, via
private placement.
• Consideration was allegedly inadequate, resulting
in economic & voting dilution of minority s/h
interests.

73. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Court of Chancery, bound by Gentile (Del. 2006), held that both b/c minority s/h’s
suffered two harms:
(1) Corporation harmed b/c stock issued for inadequate consideration (derivative); &
(2) Minority s/h’s harmed by loss of significant portion of cash value & voting power of
minority interest (direct).
Del. Supreme Court:
Correct test to determine whether direct or derivative claim:
(1) Who suffered the alleged harm (corp. or s/h’s individually) – in other words, can
s/h’s prevail without showing an injury to the corp.? &
(2) Who would receive the benefit of any recovery or other remedy (corp. or s/h’s
individually)?

74. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Court of Chancery, bound by Gentile (Del. 2006), held that both b/c minority s/h’s
suffered two harms:
(1) Corporation harmed b/c stock issued for inadequate consideration (derivative); &
(2) Minority s/h’s harmed by loss of significant portion of cash value & voting power of
minority interest (direct).
X
Del. Supreme Court:
Correct test to determine whether direct or derivative claim:
(1) Who suffered the alleged harm (corp. or s/h’s individually) – in other words, can
s/h’s prevail without showing an injury to the corp.? &
(2) Who would receive the benefit of any recovery or other remedy (corp. or s/h’s
individually).
Overruled Gentile b/c:
• The economic & voting power dilution that allegedly harmed the s/h’s flowed
indirectly to them in proportion to, & via, their shares in TerraForm, & thus any
remedy should flow to them in the same way.

75. Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021).
Court of Chancery, bound by Gentile (Del. 2006), held that both b/c minority s/h’s
suffered two harms:
(1) Corporation harmed b/c stock issued for inadequate consideration (derivative); &
(2) Minority s/h’s harmed by loss of significant portion of cash value & voting power of
minority interest (direct).
Del. Supreme Court:
Correct test to determine whether direct or derivative claim:
(1) Who suffered the alleged harm (corp. or s/h’s individually) – in other words, can
s/h’s prevail without showing an injury to the corp.? &
(2) Who would receive the benefit of any recovery or other remedy (corp. or s/h’s
individually).
Overruled Gentile b/c:
• The economic & voting power dilution that allegedly harmed the s/h’s flowed
indirectly to them in proportion to, & via, their shares in TerraForm, & thus any
remedy should flow to them in the same way.
• The presence of a controller (who owes fiduciary duties to the minority s/h’s)
doesn’t change the analysis, b/c the test doesn’t turn on the identity of the alleged
wrongdoer.
X

76. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).

77. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
Facebook,
Inc.
S/hs
Board
Was pre-suit demand excused as futile?

78. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
Aronson v. Lewis, 473 A.2d
805, 814 (Del. 1984).
Our view is that in
determining demand futility
the Court of Chancery in the
proper exercise of its
discretion must decide
whether, under the
particularized facts alleged, a
reasonable doubt is created
that: (1) the directors are
disinterested and
independent and (2) the
challenged transaction was
otherwise the product of a
valid exercise of business
judgment.

79. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
IF MAJORITY OF BOARD
HASN’T CHANGED OVER:
Aronson v. Lewis, 473 A.2d
805, 814 (Del. 1984).
Our view is that in
determining demand futility
the Court of Chancery in the
proper exercise of its
discretion must decide
whether, under the
particularized facts alleged, a
reasonable doubt is created
that: (1) the directors are
disinterested and
independent and (2) the
challenged transaction was
otherwise the product of a
valid exercise of business
judgment.
IF MAJORITY OF BOARD HAS
CHANGED OVER:
Rales v. Blasband, 634 A.2d
927, 934 (Del. 1993):
Thus, a court must determine
whether or not the
particularized factual
allegations of a derivative
stockholder complaint create a
reasonable doubt that, as of
the time the complaint is filed,
the board of directors could
have properly exercised its
independent and disinterested
business judgment in
responding to a demand. If the
derivative plaintiff satisfies this
burden, then demand will be
excused as futile.

80. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
IF MAJORITY OF BOARD
HASN’T CHANGED OVER:
Aronson v. Lewis, 473 A.2d
805, 814 (Del. 1984).
Our view is that in
determining demand futility
the Court of Chancery in the
proper exercise of its
discretion must decide
whether, under the
particularized facts alleged, a
reasonable doubt is created
that: (1) the directors are
disinterested and
independent and (2) the
challenged transaction was
otherwise the product of a
valid exercise of business
judgment.
IF MAJORITY OF BOARD HAS
CHANGED OVER:
Rales v. Blasband, 634 A.2d
927, 934 (Del. 1993):
Thus, a court must determine
whether or not the
particularized factual
allegations of a derivative
stockholder complaint create a
reasonable doubt that, as of
the time the complaint is filed,
the board of directors could
have properly exercised its
independent and disinterested
business judgment in
responding to a demand. If the
derivative plaintiff satisfies this
burden, then demand will be
excused as futile.
But, why does
overcoming protection of
business judgment rule
matter, if directors are
protected from liability
under § 102(b)(7)
exculpatory provision?

81. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
IF MAJORITY OF BOARD
HASN’T CHANGED OVER:
Aronson v. Lewis, 473 A.2d
805, 814 (Del. 1984).
Our view is that in
determining demand futility
the Court of Chancery in the
proper exercise of its
discretion must decide
whether, under the
particularized facts alleged, a
reasonable doubt is created
that: (1) the directors are
disinterested and
independent and (2) the
challenged transaction was
otherwise the product of a
valid exercise of business
judgment.
IF MAJORITY OF BOARD HAS
CHANGED OVER:
Rales v. Blasband, 634 A.2d
927, 934 (Del. 1993):
Thus, a court must determine
whether or not the
particularized factual
allegations of a derivative
stockholder complaint create a
reasonable doubt that, as of
the time the complaint is filed,
the board of directors could
have properly exercised its
independent and disinterested
business judgment in
responding to a demand. If the
derivative plaintiff satisfies this
burden, then demand will be
excused as futile.
But, what test applies if
less than majority of
board has turned over,
but some of remaining
original directors
abstained?
But, why does
overcoming protection of
business judgment rule
matter, if directors are
protected from liability
under § 102(b)(7)
exculpatory provision?

82. United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
IF MAJORITY OF BOARD
HASN’T CHANGED OVER:
Aronson v. Lewis, 473 A.2d
805, 814 (Del. 1984).
Our view is that in
determining demand futility
the Court of Chancery in the
proper exercise of its
discretion must decide
whether, under the
particularized facts alleged, a
reasonable doubt is created
that: (1) the directors are
disinterested and
independent and (2) the
challenged transaction was
otherwise the product of a
valid exercise of business
judgment.
IF MAJORITY OF BOARD HAS
CHANGED OVER:
Rales v. Blasband, 634 A.2d
927, 934 (Del. 1993):
Thus, a court must determine
whether or not the
particularized factual
allegations of a derivative
stockholder complaint create a
reasonable doubt that, as of
the time the complaint is filed,
the board of directors could
have properly exercised its
independent and disinterested
business judgment in
responding to a demand. If the
derivative plaintiff satisfies this
burden, then demand will be
excused as futile.
NEW ARTICULATION OF TEST:
[F]rom this point forward, courts should ask the following
three questions on a director-by-director basis when
evaluating allegations of demand futility:
(i) whether the director received a material personal
benefit from the alleged misconduct that is the subject
of the litigation demand;
(ii) whether the director faces a substantial likelihood of
liability on any of the claims that would be the subject of
the litigation demand; and
(iii) whether the director lacks independence from
someone who received a material personal benefit from
the alleged misconduct that would be the subject of the
litigation demand or who would face a substantial
likelihood of liability on any of the claims that are the
subject of the litigation demand.
If the answer to any of the questions is “yes” for at least
half of the members of the demand board, then demand is
excused as futile.

83. Thank you!
***Slides available on SlideShare
wgcouture@uidaho.edu