In re Stem, Inc. Derivative Litigation

Summary

The United States District Court for the District of Delaware dismissed with prejudice an amended shareholder derivative complaint against Stem, Inc. and its directors. The court held that the plaintiffs failed to plead demand futility with particularity under Federal Rule of Civil Procedure 23.1 and Delaware law, particularly as to one director, thereby defeating derivative standing. The court declined to exercise supplemental jurisdiction over the remaining state-law claims and denied the individual defendants’ motion to dismiss as moot.

Holdings

1. Plaintiffs failed to plead demand futility with particularity because they did not adequately allege that Director Defendant Laura D’Andrea Tyson received a material personal benefit, lacked independence, or faced a substantial likelihood of liability under Section 14(a). Because plaintiffs alleged futility as to only four directors, failure to establish futility as to Tyson meant they did not plead futility as to a majority of the board.
2. The court dismissed the derivative Section 14(a) claim because plaintiffs failed to satisfy the derivative-action demand-futility pleading requirement. The court expressly declined to decide whether Section 14(a) independently authorizes a derivative cause of action.
3. The court declined to exercise supplemental jurisdiction over plaintiffs' state-law claims after dismissing the federal claim.

Questions Presented

1. Whether plaintiffs adequately pleaded demand futility under Federal Rule of Civil Procedure 23.1(b) and Delaware law for their derivative Section 14(a) claim.
2. Whether the court should exercise supplemental jurisdiction over plaintiffs' state-law claims after dismissal of the federal claim.
3. Whether the amended complaint stated a viable federal cause of action under Section 14(a).

Disposition

other