Under Delaware law, there are two tests for demand futility in a shareholder derivative action.  Under the Aronson test, the shareholder may excuse his failure to demand action by the board of directors before filing suit by alleging allege particularized facts creating a reason to doubt that ‘(1) the directors are disinterested and independent or that (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.  The Aronson test, however, applies only when the derivative suit challenges a business decision taken by the board of directors.  Otherwise, the stiffer Rales test applies.  Here, plaintiff challenged financial statements and press releases which he claimed did not disclose manufacturing and design defects in First Solar’s products.  That non-disclosure was not the result of an affirmative board of directors decision, but only its failure of oversight, so the Rales test applied and nixed this suit.

Ninth Circuit Court of Appeals (Wallace, J.); June 13, 2018; 2018 U.S. App. LEXIS 15837