Corporate Governance

Spring Loaded Options and Demand Excusal: Weiss v. Swanson

By J. Robert Brown

We are quick to criticize the Delaware courts for decisions that reflect an excessively pro-management bias, something that harms shareholders and opens the jurisdiction to criticism and to calls for preemption.

Less often do we have an opportunity to complement decisions so when an opportunity arises, it behooves this Blog to take it.  The decision by VC Lamb in Weiss v. Swanson is a spring-loading/bullet-dodging options case.  Using reasoning in Tyson, and following the reasonable approach articulated in Ryan, he refused to dismiss the case, either on the demand issue or on a motion to dismiss.  Essentially, he found that the pleadings were sufficient to show that the practices had occurred and that the board was not disinterested, mostly for having received the options.  We have a student post on the subject below.

The opinion allows the case to proceed to discovery.  It is altogether possible that after discovery the case will not survive a motion for summary judgment.   But in this instance, the court did not use excessively high pleading standards to prevent the plaintiff from getting at the information he needs to determine what actually happened and whether a fiduciary duty violation occurred.  It is a thoughtful, well reasoned decision. 

Full post as published by The Race to the Bottom on May 09, 2008 (boomark / email).