City of Birmingham Retirement & Relief System v. Good, et al.Annotate this Case
A stormwater pipe ruptured beneath a coal ash pond at Duke Energy Corporation’s Dan River Steam Station in North Carolina. The spill sent a slurry of coal ash and wastewater into the Dan River, fouling the river for many miles downstream. In May 2015, Duke Energy pled guilty to nine misdemeanor criminal violations of the Federal Clean Water Act and paid a fine exceeding $100 million. The plaintiffs, stockholders of Duke Energy, filed a derivative suit in the Court of Chancery against certain of Duke Energy’s directors and officers, seeking to hold the directors personally liable for the damages the Company suffered from the spill. The directors moved to dismiss the derivative complaint, claiming the plaintiffs were required under Court of Chancery Rule 23.1 to make a demand on the board of directors before instituting litigation. Plaintiffs responded that demand was futile because the board’s mismanagement of the Company’s environmental concerns rose to the level of a "Caremark" violation, which posed a substantial risk of the directors’ personal liability for damages caused by the spill and enforcement action. The Court of Chancery disagreed and dismissed the derivative complaint. The Delaware Supreme Court concurred with the Court of Chancery that the plaintiffs did not sufficiently allege that the directors faced a substantial likelihood of personal liability for a Caremark violation. Instead, the directors at most faced the risk of an exculpated breach of the duty of care. Thus, the stockholders were required to make a demand on the board to consider the claims before filing suit.