Melzer v. Cnet Networks, Inc.

934 A.2d 912 (2007)

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Nature of the Case

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Facts

The Center for Financial Research and Accountability ('CFRA') published an analysis of option-granting practices of one hundred publicly traded companies. The report specifically identified D as a company whose pattern of granting options indicated backdating. D admitted the practice and announced that the company would need to restate its financial statements from 2003-05. A second report by D indicated that backdating had been a problem for the company from the time of its IPO in 1996. Ps filed sued D alleging federal securities and state law claims against d and its directors relating to backdated stock options. Ps amended their derivative complaint, and Ds moved to dismiss for failure to make a demand on the D board. Applying the Aronson test for demand futility, the district court granted the motion to dismiss. To the extent that Ps could plead with particularity facts demonstrating that a majority of the directors received backdated options, demand would be excused. If a majority of the current board engaged in backdating, demand would be excused. Ps had demonstrated that only one member of the then-current board received backdated options. The judge granted further leave to amend and issued a stay pending a books and records demand in Delaware. The stay specifically requested that D cooperate and expedite the inspection because 'CNET itself raised the availability of such an inspection in its recent memoranda.' Ps made six requests for books and records, all of which were related to the backdated options. Ds refused to comply. Ps motioned to compel inspection and D allowed some of the documents to be viewed. The parties disagree about whether Ps may properly inspect books and records predating Ps' ownership of stock.