Minnesota Law Review

Note, The Problem with Waste: Delaware’s Lenient Treatment of Waste Claims at the Demand Stage of Derivative Litigation

The Note addresses the Delaware courts’ treatment of waste claims at the demand stage of derivative litigation. Recent Delaware opinions indicate that waste is part of the fiduciary duty of good faith. This means that directors are not protected from claims of waste by section 102(b)(7) exculpation clauses in their corporations’ certificates of incorporation. Additionally, the Delaware courts consistently describe waste as the most difficult claim of a violation of a director’s fiduciary duties for plaintiffs to succeed with at trial. Nonetheless, the courts do not universally require waste claims to contain particularized factual allegations at the demand stage. The Delaware courts’ placement of waste under good faith and their lenient approach to waste claims at the demand stage create an opening for plaintiffs. Plaintiffs can currently bypass the exculpation clause protection for directors and succeed in claiming demand futility if they bring a claim of waste, even if the claim contains only minimal factual support.

The Note argues that the Delaware courts should explicitly place waste under the duty of good faith, thereby making waste a nonexculpable claim. To preserve the viability of the demand stage of derivative litigation, the courts should also require particularized factual allegations for claims of waste when determining demand futility. This treatment will maintain the directors’ authority to manage their corporations, allow shareholders to hold directors accountable for irrational business decisions, and potentially alter the corporate culture that contrib­uted to the recent economic crisis.

:: View PDF

News & Events

  • Minnesota Law Review Alum Remembered 45 Years After Death

    Minnesota Law Review alumnus Tom Cranna was honored at the Annual Banquet this Spring, 45 years after his death. Mr. Cranna was remembered for his contributions to the journal, the school, and the positive impact he had on his family and friends. The Devil’s Lake Journal published a memorial which [...]

  • Follow MLR on Twitter!

    The Minnesota Law Review is proud to announce that we are now on Twitter. Follow us @MinnesotaLawRev for information and updates concerning the petition period and deadlines, the opening and closing of article submissions, our 2014 Symposium: Offenders in the Community, and all other news concerning our authors and publications. [...]

  • Vol. 97 Lead Piece Cited in Al Jazeera Opinion Piece

    A recent Al Jazeera opinion piece that criticizes the Supreme Court’s Daimler decision cites to Volume 97′s lead piece, How Business Fares in the Supreme Court. You can read the Al Jazeera piece here. Share this: on Twitter on Facebook on Google+

  • Masthead for Volume 99 Board

    The masthead for the Board of Volume 99 of the Minnesota Law Review is now available. You can view the masthead here. Share this: on Twitter on Facebook on Google+

  • Above the Law Post Highlights MLR‘s Jump in Journal Rankings

    A recent post on Above the Law highlights the fact that the Minnesota Law Review was ranked 11th in the most recent 2013 edition of the Washington & Lee Law Review Rankings. You can read the post here. Share this: on Twitter on Facebook on Google+


cforms contact form by delicious:days