Steven M. Haas and David C. Wright are partners at Hunton & Williams LLP. This post is based on a Hunton & Williams publication by Mr. Haas and Mr. Wright, and is part of the Delaware law series; links to other posts in the series are available here.
The Delaware Court of Chancery recently denied a motion to dismiss a shareholder derivative suit brought against an externally managed REIT. The shareholder alleged that the board of directors breached its fiduciary duties by (1) renewing the REIT’s management agreement with its external manager each year and (2) approving a transaction in which the REIT internalized its manager. The court held that the plaintiff had created a reasonable doubt as to whether the board of directors was adequately informed in making these decisions. Thus, the derivative demand requirement was excused.