The Third Circuit adopted the de novo standard for reviewing dismissals of shareholder derivative actions for failure to plead demand futility. The decision overrules Blasband v. Rales (3d Cir. 1992) and other precedent to the extent they provide for abuse-of-discretion review in these cases (In re Cognizant Technology Solutions Corporation Derivative Litigation, No. 22-3027 (3d Cir. May 3, 2024).
The court’s en banc decision aligns its thinking on demand futility appeals with its current practice of reviewing other dismissals on the pleadings de novo. It also aligns the federal-court standard within the circuit with the standard adopted by the supreme courts of two of its constituent states (Delaware and New Jersey). The First, Second, Seventh, Eighth, and Tenth Circuits also exercise de novo review in demand futility cases.
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