Robert Baca v. Timothy Crown, 458 F. App'x 694

Baca, a shareholder of Insight Enterprises, sues in a derivative action against Insight's directors for backdating options and for alleged waste.
District court dismisses the Second Amended Shareholder Derivative Complaint for failure to plead demand futility with particularity.
Rule 23.1(b)(1) requires contemporaneous ownership; Baca owned Insight stock from July 19, 2002 through February 8, 2010, limiting review to transactions within that period.
Rule 23.1(b)(3) requires the plaintiff to plead with particularity the reasons for not making a demand; the pleading is governed by state-law demand requirements but federal pleading standards apply to specificity.
The Backdating Claims are analyzed under the Rales standard (quoting Aronson framework), while the Refusal to Pursue Recovery Claim is analyzed under Aronson for director conduct.
Court concludes Baca fails to plead with particularity that the five directors (including Crown and four Compensation Committee members) were all disinterested or that any had a substantial likelihood of liability; the board's decision not to pursue recovery is protected by the business judgment rule.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did Baca plead demand futility for the Backdating Claims with sufficient particularity?	Baca alleged Crown and committee members had personal interest or liability for backdating.	Baca fails to plead that any specific backdated option was granted to Crown or that all four committee members approved backdating in the relevant period.	No; failure to plead all five directors as tainted under Rales.
Did Baca plead demand futility for the Refusal to Pursue Recovery Claim with sufficient particularity?	Board's refusal to pursue action against directors was not a valid exercise of business judgment.	Board's decision was protected by the business judgment rule and no lack of independence shown.	No; board decision sustained under business judgment rule; futility not pleaded.

Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) (demand requirements accommodate state-law requirements; not a federal demand requirement itself)
Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand excused when board decisions are challenged)
Rales v. Blasband, 634 A.2d 927 (Del. 1993) (essential predicate for Aronson: challenged board decision)
Potter v. Hughes, 546 F.3d 1051 (9th Cir. 2008) (complements Rales/Aronson in derivative pleading standards)
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999) (preserves demand futility standards in circuit)