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683 A.2d 1049 

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        James G. Wiles, Law Offices of James G. Wiles, New Castle, for Plaintiff.

        R. Franklin Balotti, Daniel A. Dreisbach, and Luke E. Dembosky, of Richards, Layton & Finger, Wilmington, for Defendant G.J. Hart.

        Collins J. Seitz, Jr., of Connolly, Bove, Lodge & Hutz, Wilmington, for All Defendants except G.J. Hart.

        ALLEN, Chancellor.

        Currently before the Court is a motion to dismiss a shareholders action against the directors of TriFoods International, Inc. and certain partnerships and individuals that own stock in TriFoods. In broadest terms the motion raises the question, what must a shareholder plead in order to state a derivative claim to recover corporate losses allegedly sustain by reason of "mismanagement" unaffected by directly conflicting financial interests?

        Plaintiff, Eugene Gagliardi, is the founder of the TriFoods, Inc. and in 1990 he induced certain persons to invest in the company by buying its stock. In 1993 he was removed as Chairman of the board and his employment with the company terminated. He continues to own approximately 13% of the company's common stock. The business of the company has, according to the allegations of the complaint, deteriorated very badly since Mr. Gagliardi's ouster.

        The suit asserts that defendants are liable to the corporation and to plaintiff individually on a host of theories, most importantly for mismanagement. The matter is before the Court on defendants' motion to dismiss the derivative aspects of the complaint for failure to show that the preconditions established by Rule 23.1 for litigation of a derivative suit have been satisfied in this instance and, with respect to any alleged direct or individual claims, to dismiss those allegations for failure to state a claim.

        To structure discussion of the issues raised by this motion, I address each of the six counts of the amended complaint seriatim, ruling on the legal sufficiency under Rule 12(b)(6) or Rule 23.1 as the case may be, before turning to the next count of the complaint. For the reasons set forth below, I conclude that, with the exception of a single claim that survives when read sympathetically in the light of a recent Supreme Court precedent (see Count II infra respecting

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Count I: Excessive Compensation

        The first count of the amended complaint alleges that Gerard J. Hart (TriFoods' former president), five other identified officers or employees of TriFoods, and other persons presently unknown were paid grossly excessive compensation. Only with respect to Hart is there any specificity. As to him it is alleged that "defendants paid him ... a salary of at least $245,000, expenses of an unknown amount and stock options of 880,768 shares." There is no allegation of the value of the options when granted (or at any other time). In addition, it is alleged that the company paid for an apartment for Hart ($3,600 per month), that later, when the company moved its offices to Connecticut, it paid to rent accommodations for Hart there at a similar price and that it leased two cars for his use. In terms of facts, that is all that is alleged.

        These allegations, if proven, fail in my opinion to constitute a claim requiring the corporation to come forward and prove the reasonableness of the compensation paid. See Krebs v. California Eastern Airways, Inc., Del.Supr., 90 A.2d 652, 655 (1952); Aronson v. Lewis, Del.Supr., 473 A.2d 805, 817 (1984); Wilderman v. Wilderman, Del.Ch., 315 A.2d 610 (1974) (burden of showing reasonableness is on executive when his vote was necessary to approve his compensation); see also Michelson v. Duncan, Del.Supr., 407 A.2d 211 (1979); Steiner v. Meyerson, Del.Ch., 1995 WL 441999 (July 18, 1995).

        To state a derivative claim for excessive compensation, a shareholder must either plead facts from which it may reasonably be inferred that the board or the relevant committee that awarded the compensation lacked independence (e.g., was dominated or controlled by the individual receiving the compensation), in which event proof of such allegations would cast upon the officer the burden to prove that the compensation paid was objectively reasonable in the circumstances or plead facts from which it may reasonably be inferred that the board, while independent, nevertheless lacked good faith (i.e., lacked an actual intention to advance corporate welfare) in making the award. No allegations concerning Hart's control, domination or fraudulent manipulation of the corporate process that fixed his compensation is made. In the absence of facts casting a legitimate shadow over the exercise of business judgment reflected in compensation decisions, a court, acting responsibly, ought not to subject a corporation to the risk, expense and delay of derivative litigation, simply because a shareholder asserts, even sincerely, the belief and judgment that the corporation wasted corporate funds by paying far too much.

        The amended complaint falls very far short of this standard. Count I fails to state a claim upon which relief may be granted.

Count II: "Fraud"

        Count II joins two different claims of "fraud" under a single count. I will discuss them separately. The first concerns allegations of false statements to the board that caused plaintiff to be removed from office. The second concerns alleged false statements made by Hart to the Connecticut Development Authority.

        The allegations respecting false statements to the board are essentially as follows: Hart and Gagliardi were the two most senior officers of the company. They had come to disagree about fundamental business questions. Gagliardi criticized decisions or actions taken by Hart. Hart announced to the TriFoods board that he had received an offer of employment with Con-Agra that he was prepared to accept (or had accepted). Hart stated to the board that "either Hart or Gagliardi had to go." As a result, Gagliardi was fired in 1993. It was untrue "that Hart had accepted an offer ..."; "in fact Hart had not received such an offer." This untruth was stated to the board with intent to deceive. As a result, TriFoods is in breach of Gagliardi's employment contract.

        The rights asserted in this aspect of Count II are individual. Do these allegations state a claim? In the absence of an allegation of a contractual term in Mr. Gagliardi's employment relation with TriFoods, I assume that the contract referred to was an at-will contract. It is well settled that, generally, under an at-will contract, an employer may terminate an employee without good cause and more specifically, it is clear that an employer may choose between employees who do not work well together, and terminate one of them without justifying that choice to the fired employee or a court of law. E.I. DuPont de Nemours & Co. v. Pressman, Del.Supr., 679 A.2d 436 (1996) (en banc ). Certainly, the allegation that Hart told the board "either Hart or Gagliardi had to go" forced on the board the obligation to make some choice. Can the members of the board or the corporation have liability, in the context of an at-will employment contract, based on the substance of that choice, when the only allegation is that the board has been deceived? In my opinion such allegations fail to state a claim for breach of contract against the corporation or the members of its board. Pressman does acknowledge potential liability for an employer who terminates an at-will employee through a process that involves deception and lies concerning the plaintiff, but that was a case in which the corporation itself was apparently actively involved in deception and the deception involved plaintiff's job performance. Here, the allegation is only that the board and corporation were deceived as to a background fact, not the material fact that Hart and Gagliardi could not (in Hart's view) work together effectively.

        Defendants Hart and Adams are alleged to be the active agents of deception. As to the claim against them for damages arising from the termination of Gagliardi's employment, it conceptually is not a fraud claim as to plaintiff, since the allegedly false statement was made to a

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        The second aspect of Count II relates to another time period. In paragraph 61 et seq. the amended complaint alleges that in 1994 Hart and Adams "misrepresented to CDA [Connecticut Development Authority] that TriFoods would have $100 million in revenues during its first full year of operation in Connecticut, thereby securing a $7 million in financing (now in default) to acquire the Pomfret facility." The named individuals also allegedly "misrepresented the same to banks, to trade creditors and markets ... thereby allowing TriFoods to obtain further financing...." Such "statements were made with knowledge of their falsity or with reckless indifference;" "plaintiff has sustained injury" including forbearance in commencing litigation, entering into settlements and taking other actions. The relief sought is an order "requiring defendants (and not TriFoods) to pay CDA."

        Whose claim is being asserted? Plaintiff goes to some trouble to try and make this appear to be an individual claim, see pp 61 & 64, but the relief sought is principally the repayment of the company's loans. Without belaboring the matter, I state that there is no doubt that if there were a claim stated by these facts, it would be a corporate claim. But more fundamentally, these allegations do not constitute a legal wrong to the company or its shareholders. I assume that if true these allegations would constitute a cause of action on the part of persons or agencies who suffered losses as a result of advancing funds to the corporation on the basis of knowingly false projections. But there is here no allegation that any suit or claim by a lender has been brought and judgment recovered by the lender, or that in any other respect the company has suffered an adverse consequence of the loans. Plaintiff appears to attach importance to his assertion that a Connecticut prosecutor is investigating the circumstances of the CDA loan, but I fail to see any relevance of that point at this stage, insofar as a possible company claim against its officers may be involved.

        It is, I believe, elementary that for these purposes it would not count as an adverse consequence of the (assumed) false statement to the CDA if an otherwise legitimate investment funded by the loan were in fact to prove unprofitable and result in a loss of capital. The business outcome of an investment project that is unaffected by director self-interest or bad faith ², cannot itself be an occasion for director liability. That is the hard core of the business judgment doctrine. But be that as it may, there is here alleged no adverse consequence of any sort of the alleged misrepresentation to third parties. At the very least, even assuming that the facts alleged are true, any possible claim belonging to the corporation or its shareholders that may ultimately eventuate as a result of them is quite premature at this stage. The claim attempted to be alleged at pp 61-64 is therefore dismissed.

Count III: "Oppression" of Minority Shareholder

        Count III includes a melange of allegations that do not fit easily together either factually or conceptually. It is there alleged that:

        66. "Thereafter [after plaintiff was fired, one supposes] ... Adams and Hart cut off Gagliardi's communications to the board, officers, employees [and] represented Gagliardi to the rest of the Board as someone suffering from 'sour grapes,' some one who should not be believed" (p 66).

        67. "Hart, Adams [and others named]:

1. failed and refused to furnish shareholder information as requested;

2. failed and refused to keep Gagliardi informed as requested, even though he had invented all the products which TriFoods was selling;

3. failed to enter into arrangements with Gagliardi;

4. repeatedly diluted Gagliardi's share interest in TriFoods;

5. frustrated Gagliardi's attempts to sell his stock;

6. repeatedly threatened litigation against Gagliardi if he did not remain inactive and silent.

        68. The foregoing "were committed for the sole or primary purpose of entrenching Hart and Adams in office...."

        Relief requested with respect to Count III include "general and consequential damages, including the reasonable value of his stock as of November 1993, plus interest." I need not address the general question whether Delaware fiduciary duty law recognizes a cause of action for oppression of minority shareholders; I assume for purposes of this motion, without deciding, that under some circumstances it may. ³ But accepting the allegations of Count III as true, with one exception, neither individually nor collectively do they make out a violation of a legal or equitable duty. The board has no duty in law or in equity to furnish shareholder information as requested; Section 220 of the Delaware corporation law describes the statutory obligations and it provides a remedy for its violation. The board has no legal or other duty "to enter into arrangements with Gagliardi"; nor does the board have any obligation not to enter into or authorize transactions that will have an effect of diluting his proportionate shareholding; nor does it have a duty not to threaten him with litigation so long as it acts in furtherance of its good faith view of the corporate interest. One cannot

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        The aspect of this count that while not sufficiently stated to survive this motion may reflect unalleged facts that would constitute a claim relates to item 5: the conclusory claim that defendants intentionally frustrated Gagliardi's attempt to sell his stock. Therefore Count III will be dismissed for failure to state a claim, but plaintiff will be afforded an election, exercisable within 30 days, to file a further amended complaint that restates and particularizes the wrongful interference claim of p 67(e).

Count IV: Negligent Mismanagement:

        This count, which is asserted against all defendants, alleges that "implementation of their grandiose scheme for TriFoods' future growth ... in only eighteen months destroyed TriFoods." Plaintiff asserts that the facts alleged, which sketch that "scheme" and those results, constitute mismanagement and waste.

        The allegations of Count IV are detailed. They assert most centrally that prior to his dismissal Gagliardi disagreed with Hart concerning the wisdom of TriFoods manufacturing its products itself and disagreed strongly that the company should buy a plant in Pomfret, Connecticut and move its operations to that state. Plaintiff thought it foolish (and he alleges that it was negligent judgment) to borrow funds from CDA for that purpose. pp 71-74; 77-81.

        Plaintiff also alleges that Hart caused the company to acquire and fit-out a research or new product facility in Chadds Ford Pennsylvania, which "duplicated one already available and under lease to Designer Foods [the predecessor name of TriFoods], and which was therefore, a further waste of corporate assets." p 76.

        Next, it is alleged that "defendants either acquiesced in or approved a reckless or grossly negligent sales commission to build volume." p 82.

        Next, it is alleged that "Hart and the other defendants caused TriFoods to purchase [the exclusive rights to produce and sell a food product known as] Steak-umms from Heinz in April 1994." p 85. The price paid compared unfavorably with a transaction in 1980 in which this product had been sold and which earlier terms are detailed. p 86. "Defendants recklessly caused TriFoods to pay $15 million for Steak-umms alone (no plant, no equipment, etc) which was then doing annual sales of only $28 million." Id.

        Next, it is alleged that "Hart caused TriFoods ... to pay $125,000 to a consultant for its new name, logo and packaging." p 87.

        Next, it is alleged that Hart destroyed customer relationships by supplying inferior products. pp 88-91.

        Next, it is alleged that "Hart refused to pay key manufacturers and suppliers ... thus injuring TriFoods' trade relations." p 92.

        Next, it is alleged that "defendants entered into a transaction whereby TriFoods was to acquire "Lloyd's Ribs" at a grossly excessive price, knowing (or recklessly not knowing) that the Company could not afford the transaction." p 93.

        Lastly, with respect to the mismanagement count, it is alleged that defendants ignored plaintiff's warnings as to each of the above; that Hart was fired in May 1995; and that a settlement was reached between Hart and the Company. pp 94-97. All of the foregoing lead to the current condition of the company, which is very weak financially.

        Do these allegations of Count IV state a claim upon which relief may be granted? In addressing that question, I start with what I take to be an elementary precept of corporation law: in the absence of facts showing self-dealing or improper motive, a corporate officer or director is not legally responsible to the corporation for losses that may be suffered as a result of a decision that an officer made or that directors authorized in good faith. ⁴ There is a theoretical exception

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        The rule could rationally be no different. Shareholders can diversify the risks of their corporate investments. Thus, it is in their economic interest for the corporation to accept in rank order all positive net present value investment projects available to the corporation, starting with the highest risk adjusted rate of return first. Shareholders don't want (or shouldn't rationally want) directors to be risk averse. Shareholders' investment interests, across the full range of their diversifiable equity investments, will be maximized if corporate directors and managers honestly assess risk and reward and accept for the corporation the highest risk adjusted returns available that are above the firm's cost of capital.

        But directors will tend to deviate from this rational acceptance of corporate risk if in authorizing the corporation to undertake a risky investment, the directors must assume some degree of personal risk relating to ex post facto claims of derivative liability for any resulting corporate loss.

        Corporate directors of public companies typically have a very small proportionate ownership interest in their corporations and little or no incentive compensation. Thus, they enjoy (as residual owners) only a very small proportion of any "upside" gains earned by the corporation on risky investment projects. If, however, corporate directors were to be found liable for a corporate loss from a risky project on the ground that the investment was too risky (foolishly risky! stupidly risky! egregiously risky!--you supply the adverb), their liability would be joint and several for the whole loss (with I suppose a right of contribution). Given the scale of operation of modern public corporations, this stupefying disjunction between risk and reward for corporate directors threatens undesirable effects. Given this disjunction, only a very small probability of director liability based on "negligence", "inattention", "waste", etc., could induce a board to avoid authorizing risky investment projects to any extent! Obviously, it is in the shareholders' economic interest to offer sufficient protection to directors from liability for negligence, etc., to allow directors to conclude that, as a practical matter, there is no risk that, if they act in good faith and meet minimal proceduralist standards of attention, they can face liability as a result of a business loss.

        The law protects shareholder investment interests against the uneconomic consequences that the presence of such second-guessing risk would have on director action and shareholder wealth in a number of ways. It authorizes corporations to pay for director and officer liability insurance and authorizes corporate indemnification in a broad range of cases, for example. But the first protection against a threat of sub-optimal risk acceptance is the so-called business judgment rule. That "rule" in effect provides that where a

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        Thus, for example it does not state a claim to allege that: (1) Hart caused the corporation to pay $125,000 to a consultant for the design of a new logo and packaging. On what possible basis might a corporate officer or director be put to the expense of defending such a claim? Nothing is alleged except that an expenditure of corporate funds for a corporate purpose was made. Whether that expenditure was wise or foolish, low risk or high risk is of no concern to this Court. What is alleged certainly does not bring the allegation to within shouting distance of the Saxe v. Brady principle. (2) Nor does an allegation that defendants acquiesced in a reckless commission structure "in order to build volume" state a claim; it alleges no conflicting interest or improper motivation, nor does it state facts that might come within the Saxe v. Brady principle. It alleges only an ordinary business decision with a pejorative characterization added. (3) The allegation of "duplication" of existing product research facilities similarly simply states a matter that falls within ordinary business judgment; that plaintiff regards the decision as unwise, foolish, or even stupid in the circumstances is not legally significant; indeed that others may look back on it and agree that it was stupid is legally unimportant, in my opinion. (4) That the terms of the purchase of "Steak-umms" seem to plaintiff unwise (especially when compared to the terms of a 1980 transaction involving that product) again fail utterly to state any legal claim. No self-interest, nor facts possibly disclosing improper motive or judgment satisfying the waste standard are alleged. Similarly, (5) the allegations of corporate loss resulting from harm to customer relations by delivery of poor product and (6) harm to supplier relations by poor payment practices, again state nothing that constitutes a legal claim. Certainly these allegations state facts that, if true, constitute either mistakes, poor judgment, or reflect hard choices facing a cash-pressed company, but where is the allegation of conflicting interest or suspect motivation? In the absence of such, where are the facts that, giving the pleader all reasonable inferences in his favor, might possibly make the Saxe v. Brady principle applicable? There are none. Nothing is alleged other than poor business practices. To permit the possibility of director liability on that basis would be very destructive of shareholder welfare in the long-term.

        A similar analysis holds for the allegations concerning a contract to acquire the product "Lloyd's Ribs" (7); nothing is alleged other than that the price was excessive and the directors knew (or recklessly didn't know) that "the company could not afford such a transaction." More importantly, the complaint does not allege that the contract was ever closed! Indeed in Count V it is alleged that certain defendants diverted the opportunity to acquire Lloyd's Ribs from TriFoods! Thus, with respect to this possible transaction, not only does the amended complaint contain no allegation of conflict of interest or improper motivation in TriFoods' acquiring "Lloyd's Ribs," but it contains no allegation that a transaction involving the company ever occurred.

        Finally, (8) there is the allegation that despite warnings from plaintiff and despite the alleged fact that the Pomfret facility "was not reasonably fit" for the purpose, the directors authorized the purchase of the facility at a "grossly excessive" price in order to implement a business plan that would have the company manufacture some or all of its food products and that defendants caused the company to borrow substantial funds to accomplish that task. Once more there is no allegation of conflict of interest with respect to this transaction ⁶, nor is there any allegation

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        Does this attempt to plead a claim respecting the Pomfret move survive a motion to dismiss? Under the general notice pleading rules this conclusory addition to allegations that otherwise clearly fall within the ambit of the business judgment rule might perhaps be regarded as sufficient to proceed to discovery. CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE: Civil 2d § 1215 (1990 and 1995 Supp.). But it is not clear that, where derivative claims are involved, good policy supports the same result. Asserting a derivative claim allows an attorney in the role of agent for shareholders to exert substantially magnified settlement pressure on a defendant. The risk/reward situation of the individual director defendants (discussed above), coupled with the ordinary workings of indemnification rights and insurance, means that very, very few derivative suits reach trial. Strike suits are a greater threat in this context than in civil litigation between two principals. Thus, in such cases the consequences of surviving a motion to dismiss are, as a practical matter, substantially more significant than in garden variety civil litigation.

        It is rational and good policy for the law to filter such cases at an early stage more finely than the Rule 12(b)(6) test permits. This in effect can be done through the operation of Rule 23.1, which modifies the notice pleading standard by requiring plaintiff to plead with particularity either that plaintiff has sought to induce the board to bring the action and that the board has failed or refused to do so for no good reason or the reason plaintiff has not sought the board's action. See generally Aronson v. Lewis, Del.Supr., 473 A.2d 805 (1984); Rales v. Blasband, Del.Supr., 634 A.2d 927 (1993); Spiegel v. Buntrock, Del.Supr., 571 A.2d 767 (1990).

        Defendants have moved to dismiss Count IV on the basis that plaintiff has failed to satisfy the pleading requirements of Rule 23.1. With respect to most of the allegations of this count, I grant the motion to dismiss on the fundamental ground that without regard to Rule 23.1 plaintiff has simply failed to allege facts from which a valid cause of action can be inferred, but with respect to the claim (8) that attempts to plead a waste or mismanagement claim premised on the facts relating to the decision to expend funds and enter into transactions in connection with the acquisition of the Pomfret facility, I grant the motion on the basis that plaintiff has admittedly made a demand upon the board, that the board has indicated both in its response to plaintiff and equally importantly through its motion to dismiss this suit, that in its judgment the corporation's interests will not be advanced by pursuing this litigation and no good reason not to respect that judgment has been alleged. ⁷ The test for whether derivative adjudication of this claim may proceed is whether the TriFoods board was so situated with respect to the Pomfret transactions that any exercise of business judgment by the board with respect to those transactions (i.e., the loan, the purchase, the moving, etc.) was inherently subject to reasonable doubt as to whether it was affected by an interest or motive disqualifying it from business judgment protection.

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        For the foregoing reason Count IV of the amended complaint will be dismissed.

Count V: Corporate Opportunity

        Count V purports to be a derivative claim. It alleges that "in an attempt to take onto themselves a corporate opportunity belonging to TriFoods, Adams and others ... acquire[d] the 'Lloyd's Ribs' transaction ... without offering the same to the minority shareholders of TriFoods or to TriFoods." p 99. While I am aware of no Delaware precedent requiring a fiduciary to offer a "corporate" opportunity to minority shareholders, the doctrine that requires a corporate fiduciary to defer to the corporation with respect to opportunities that fall within its general line of business and in which it has an expectancy or an interest is well established. See, e.g., Broz v. Cellular Info. Systems, Inc., Del.Supr., 673 A.2d 148 (1996). The pleadings here are skeletal, but are in my opinion, sufficient to state a claim upon which relief may be granted. But these allegations do not implicate a majority of the board in any wrongdoing sufficiently to deprive the board of its power to manage the company with respect to this corporate claim. The allegations that "Adams and others" acquired Lloyd's Ribs does not cast any doubt upon either the board's ability to evaluate a demand or indeed the decision of the board (that is inferable by comparing p 99 with p 93) not to acquire Lloyd's Ribs for TriFoods. Thus I conclude that not enough is pleaded to permit the conclusion that plaintiff is authorized to litigate on behalf of TriFoods a derivative suit for diversion of a corporate opportunity.

Count VI: Bad Faith Refusal To Liquidate or Sell Assets

        The final count of the amended complaint alleges that "Defendants have continuously since June 1995 failed and refused to enter into meaningful discussions with any person regarding possible sales of any TriFoods assets." p 103. No specific offer or interested party is identified except Mr. Gagliardi himself. No circumstance in which any such discussions were sought is described. The full extent of the particularity pleaded is reflected in three short subparagraphs:

104. Specifically, defendants:

(a) rejected or ignored expressions of interest by third parties in acquiring products and product lines from TriFoods;

(b) rejected expressions of interest of third parties and Gagliardi in acquiring or leasing the Pomfret plant; and

(c) rejected expressions of interest by third parties and Gagliardi in acquiring TriFoods or assets of TriFoods.

        These rejections are alleged to have been in "bad faith and for the primary purpose of entrenching defendants...." p 105.

        Insofar as Mr. Gagliardi purports to bring this claim in his individual capacity, it fails to state a claim upon which relief may be granted. As an individual apparently interested in acquiring assets from TriFoods, it is a simple and I would have thought well understood fact that one in that position possesses no general legal right to have an owner of an asset supply him information or negotiate with him. ⁸ Thus it simply is not a legal wrong to a would-be buyer for an owner to ignore or reject an offer of sale. See Paramount Communications v. QVC Network, Del.Supr., 637 A.2d 34 (1994) (directors had duty to shareholders to negotiate with all interested buyers when board authorized a "change in corporate control" transaction). To the extent plaintiff means to assert an individual right not as a buyer, but as a shareholder of the would-be seller, plainly, the allegations fail as the claim attempted to be stated is a derivative claim. Moran v. Household Int'l, Inc., Del.Ch., 490 A.2d 1059 (1985).

        As a derivative claim Count VI is again dubious. Certainly, a board has a privilege to enter into negotiations with respect to sale of an asset or sale of a company when in the board's judgment the circumstances are such that that step appears to the board to offer sufficient prospect of advantage to justify the costs of varying types that the corporation may encounter once it commences such discussion or study. Thus, the allegation that the board has "refused" to negotiate or "failed" to negotiate etc., or that it has done so steadfastly and for a lengthy period, does not state a claim upon which relief may be granted. But it is fundamental that this great, broad and flexible discretion that the law confers on corporate directors must in all events be exercised in a good faith attempt to advance corporate purposes. Here, plaintiff has added the conclusory allegation that "Said refusals were in bad faith and for the sole and primary purpose of entrenching defendants in office ..." p 105. As with Count V, I conclude that this thin allegation may be sufficient to state a claim upon which relief may be granted, but it is insufficient to satisfy the more onerous pleading stands of Rule 23.1.

         Plaintiff argues, however, that the ruling of this court in Wells Fargo & Company v. First Interstate Bancorp., Del.Ch., C.A. 14696, 1996 WL 32169 (Jan. 18, 1996) holds that whenever an entrenchment claim is well-pleaded, the same allegations will generally support a determination that demand under Rule 23.1 is excused. This interpretation of the Wells Fargo opinion would carry the holding further than its language warrants. Wells Fargo was a case involving allegations that plaintiff was making a public tender offer for control of defendant First Interstate Bank and the board of First Interstate had entered into a contract with another bank holding company, contemplating an acquisition of First Interstate on allegedly less beneficial terms, and in this effort to avoid the grasp of Wells Fargo had violated fiduciary duties to First Interstate shareholders.

        The key difference between Wells Fargo and the allegations of the amended complaint in this suit is that there the pleading, if accepted as true, called forth the intermediate standard of review of Unocal v. Mesa Petroleum Co., Del.Ch., 493 A.2d 946 (1985). Quoting the recent holding in Unitrin this court stated:

        As our Supreme Court has made clear, the enhanced judicial scrutiny contemplated by Unocal applies "whenever the record reflects that a board of directors took defensive measures in response to a 'perceived threat to corporate policy and effectiveness which touches upon issues of corporate control' ". Unitrin, Inc. v. American General Corp., Del.Supr., 651 A.2d 1361, 1372 n. 9 (1995).

        Wells Fargo v. First Interstate Bancorp. slip op. at 13.

        While the pleading in Wells Fargo plainly did raise triable factual and legal questions concerning corporate policy "which touch upon issues of corporate control", the amended complaint in this suit plainly do not. The "entrenchment" allegations state no facts that implicate question of control. The pleader only states that the board has not sought to sell the company. At least where there are no allegations concerning a specific transaction that would threaten board incumbency, a general conclusory allegation that the board has exercised otherwise permissible business discretion in bad faith in order to entrench itself, will not occasion the reasoning employed in Wells Fargo in order to excuse pre-suit demand.

        Thus I conclude that the summary allegations sought to justify a derivative suit arising from the facts alleged in Count VI fail to do so.

* * *

        Defendants may submit a form of order, on notice, in conformity with the foregoing.

^* Under Delaware Supreme Court Rule 93(b)(ii) the Committee on Opinions approved a portion of the original opinion for publication. [PER COURT REQUEST, POINTS I, II, AND III ARE NOT PUBLISHED.]

¹ Actually the amended complaint alleges that following his termination Gagliardi entered into a settlement with the company, but alleges further that such settlement is not binding since it was induced by the false statement regarding Con-Agra. Thus the amended complaint does allege some reliance on the allegedly false statement but that reliance is not relevant to the question addressed in text (Gagliardi's reliance relating to his termination) since it occurred if at all after the termination of Gagliardi, as alleged.

² By "bad faith" is meant a transaction that is authorized for some purpose other than a genuine attempt to advance corporate welfare or is known to constitute a violation of applicable positive law. Miller v. AT & T, 507 F.2d 759 (3d Cir.1974). There can be no personal liability of a director for losses arising from "illegal" transactions if a director were financially disinterested, acted in good faith, and relied on advice of counsel reasonably selected in authorizing a transaction. See 8 Del.C. § 141(e) (1994).

³ See generally 2 F. HODGE O'NEAL & ROBERT B. THOMPSON, O'NEAL'S OPPRESSION OF MINORITY SHAREHOLDERS, § 7 (2d ed. 1991) (discussing judicial relief potentially available to oppressed minority shareholders).

⁴ I include within the category of improper motivation those cases in which particularized claims of director entrenchment are made. E.g. Cheff v. Mathes, Del.Supr., 199 A.2d 548 (1964); Unitrin, Inc. v. American General Corp., Del.Supr., 651 A.2d 1361 (1995); Or in which, relatedly, transfers of corporate control by the board, as described in Revlon v. MacAndrews & Forbes Holdings, Del.Supr., 506 A.2d 173 (1986) or more pertinently Paramount Communications v. QVC Network, Del.Supr., 637 A.2d 34 (1994) are involved. Finally, I note that in making this simple statement, I count Smith v. Van Gorkom, Del.Supr., 488 A.2d 858 (1985), not as a "negligence" or due care case involving no loyalty issues, but as an early and, as of its date, not yet fully rationalized, "Revlon" or "change in control" case. See Jonathan Macey and Geoffrey Miller, TransUnion Reconsidered, 98 YALES L.J. 127. As such I see it as reflecting a concern with the TransUnion board's independence and loyalty to the company's shareholders in a critical "sale of the company" context.

⁵ Interestingly, the obviously problematic nature of entering an injunction (even a preliminary injunction) against directors, while at the same time holding that they were neither suffering from any conflicting interest nor acting in bad faith, caused the Gimbel court to impose a bond that was unprecedented in size especially for the period ($25 million) and which, in fact, was never satisfied. Therefore, while the court indicated its conditional willingness in Gimbel to enter an injunction, in fact no relief ever issued.

⁶ It was suggested at oral argument by plaintiff's counsel that the investors who controlled the board at this time were driven by a desire to make the company appear attractive to a future IPO market (i.e. an initial public offering of its stock) and that the desire to have some "bricks and mortar" for that purpose motivated them with respect to the Pomfret transaction, even though it was a poor deal from a business point of view. While one may disagree with the wisdom of any such strategy, if it existed, any interest in making the company appear attractive as an IPO investment, if present, was an interest that all shareholders shared and did not represent a financial conflict of interest with respect to the Pomfret transaction.

⁷ Plaintiff seeks to survive this motion with an allegation that the board itself never did address his demand, but that an officer and corporate attorney did so without board involvement. Thus he says any such purported denial of his request will be proven to be ineffective. He asserts that in all events there is now a factual issue with respect to the effectiveness of the board rejection that precludes termination of his suit on the basis of Rule 23.1 at this stage. It is, however, undisputed that Mr. Gagliardi made a pre-suit demand, that the corporation did not institute the suit, that plaintiff did and that the corporation has moved to dismiss under Rule 23.1. These undisputed facts establish the board's official response to the demand and make irrelevant the issue that plaintiff seeks to explore through discovery.

⁸ I put aside special cases, most notably public utilities and public accommodations with respect to the products or services they offer generally.

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