845 A.2d 1040, 1056 (Del. 2004)
Monica A. Beam owned shares of Martha Stewart Living Omnimedia, Inc. (MSO) and filed a derivative action in the Court of Chancery against Martha Stewart and the other members of MSO’s board of directors.1
Beam challenged Stewart’s breach of fiduciary duties arising from her illegal sale of ImClone stock in December 2001 and the subsequent mishandling of media attention.2 At the time of the complaint, MSO’s six-member board included Stewart, Sharon L. Patrick, Arthur C. Martinez, Darla D. Moore, Naomi O. Seligman, and Jeffrey W. Ubben.3 Beam made no presuit demand on the board.4
The amended complaint described Martinez as a longstanding personal friend of Stewart and Patrick who had been recruited by Stewart’s friend Charlotte Beers.5 It portrayed Moore as a longstanding friend of Stewart who had replaced Beers on the board after attending a wedding reception also attended by Stewart and Samuel Waksal.6 The complaint further alleged that Seligman had contacted the CEO of John Wiley & Sons at Stewart’s request to express concern about a critical biography.7
The Court of Chancery dismissed three of the four claims under Court of Chancery Rule 12(b)(6). Those dismissals were not appealed and are not before us.8
The Court of Chancery dismissed Count 1 under Court of Chancery Rule 23.1 because Beam failed to plead particularized facts demonstrating presuit demand futility.9 Beam appealed the Rule 23.1 dismissal, and the Supreme Court of Delaware reviewed the decision de novo.10
Whether the amended complaint alleged particularized facts creating a reasonable doubt that directors Martinez, Moore, or Seligman were independent of Stewart for purposes of considering a presuit demand?11
Under the first prong of Aronson, a stockholder may not pursue a derivative suit unless she has made a demand that was wrongfully refused. Demand is excused if the directors are incapable of making an impartial decision.12 The plaintiff must plead particularized facts creating a reasonable doubt that a majority of the board is independent.13
No. The amended complaint alleged only that Martinez was a longstanding personal friend of Stewart and Patrick who was recruited by Charlotte Beers. It alleged that Moore was a longstanding friend of Stewart who replaced Beers after attending a wedding reception also attended by Stewart and Waksal.14 The complaint stated that Seligman contacted the CEO of John Wiley & Sons at Stewart’s behest regarding a critical biography.15
These bare social relationships and one specific act, even combined with Stewart’s 94 percent voting control, do not create a reasonable doubt of independence.16 The allegations fail to show that the directors were beholden to Stewart such that their discretion would be sterilized.17 They also fail to show that the directors would risk their reputations to protect Stewart rather than act on the corporate merits.18 The reasonable inference from Seligman’s contact is that she sought to protect MSO’s reputation, which is tied to Stewart’s public image.19 Because Stewart and Patrick are not independent on a six-member board, the failure to raise a reasonable doubt as to any one of the remaining three directors means demand was not excused.20
The amended complaint did not allege particularized facts creating a reasonable doubt that Martinez, Moore, or Seligman were independent of Stewart, so presuit demand was required and the Court of Chancery properly dismissed the claim under Rule 23.1.21