Plaintiffs and Prolixity: Wood v. Baum and the Anti-Plaintiff Bias of the Delaware Courts (Part 1)

Recently, the Supreme Court of Delaware in Wood v. Baum, 2008 Del. LEXIS 301  (Del. July 1, 2008), issued an opinion affirming the Chancery Court's dismissal of a derivative suit.  The case involves an LLC with a board of directors.  We will note the substantive content of the opinion in subsequent posts. 

In the description of the facts, the Supreme Court took the opportunity to include the following quote from the Chancery opinion: 

• The Court of Chancery noted that "though the complaint is 80-some pages long and is a model of prolixity, it fails to state any basis on which the Court could reasonably conclude that the demand futility standard is met."

Prolix is not a complementary term.  Dictionary.com defines it as "extended to great, unnecessary, or tedious length; long and wordy."  We were struck by the unnecessary reference to it in this opinion, particularly given the complete irrelevance to the analysis that followed.  Moreover, an examination of the complaint shows that, in fact, it is well drafted and well organized (we have posted it on the DU Corporate Governance web site).  The comment was entirely gratuitious.

So we wondered how often Delaware courts used such a disparaging term to describe actions by plaintiffs and actions by defendants in shareholder suits.  A search of Lexis-Nexis and the Delaware Court data base revealed the following, in addition to Wood v. Baum:  

• Brehm v. Eisner, 746 A.2d, 244, 254 (Del. 2000)("A prolix complaint larded with conclusory language, like the Complaint here, does not comply with these fundamental pleading mandates.").
• Grimes v. Donald, 673 A.2d 1207, 1215 (Del. 1996)("Because the prolix (43 page) complaint tends to confuse the issues in this case, it is appropriate to restate, as a matter of background, the Delaware jurisprudence relating to stockholder derivative litigation.")
• In re Coca-Cola Enters., Inc. S'holders Litig., 2007 Del. Ch. LEXIS 147  (Del. Ch. Oct. 17, 2007)("If a complaint were held sufficient simply because it restates the legal elements of a particular cause of action, Rule 8(a) would be rendered meaningless.  [*14] Plaintiffs need not offer prolix tales of abuse belabored by needless details, but plaintiffs must allege facts sufficient to show that the legal elements of a claim have been satisfied.")
• In re GM (Hughes) S'holder Litig., 2005 Del. Ch. LEXIS 65 (Del. Ch. May 4, 2005)("Ultimately, Count III must fail because the Complaint, despite its prolix attempts, has failed to state a claim that the GM defendants acted with the primary purpose of thwarting the shareholders' vote. This conclusion is predicated on the fact that Count III fails to put forth well-pled allegations that would allow the Court to infer that the will of the shareholders was somehow frustrated.")
• Saito v. McCall, 2004 Del. Ch. LEXIS 205 (Del. Ch. Dec. 20, 2004)("In conclusory and prolix averments, the complaint alleges that the Merger was restructured in October of 1998 'to fraudulently hinder or eliminate the ability of HBOC shareholders to assert claims on behalf of HBOC, and the Merger is the subject of claims by McKesson HBOC asserting fraudulent conduct in connection with the Merger.' Here, lacking facts to support these legal conclusions, plaintiffs simply insert the names of certain defendants into the relevant legal standard.")
• Agostino v. Hicks, 845 A.2d 1110  (Del. Ch. 2004)("I say discernible, because while the complaint is not "a pastiche of prolix invective," Brehm v. Eisner, 746 A.2d. 244, 249 (Del. 2000), it is poorly drafted and rife with conclusory allegations that serve to complicate the work of this Court.") 
• In re Citigroup, Inc. S'holders Litig., 2003 Del. Ch. LEXIS 61  (Del. Ch. June 5, 2003) ("Despite its prolixity, the Amended Complaint completely fails to set forth adequate reasons why demand is excused. Perhaps the absence of particularized facts excusing demand is the product of a race to the courthouse.")
• Ash v. McCall, 2000 Del. Ch. LEXIS 144  (Del. Ch. Sept. 5, 2000)("It is equally evident, despite the complaint's prolixity, that plaintiffs have not alleged facts creating a reasonable doubt that McKesson's directors acted on an informed basis or properly relied on the advice of the expert advisors they retained in connection with the due diligence review of HBOC.")

In other words, its quite common to call the plaintiffs prolix.  Even these examples likely understate the number of instances.  The search did not, for example, pick up the Chancery Court opinion in Wood where the Supreme Court took the language referring to plaintiffs as prolix. 

How about the defendants?  How often does a court describe in a derivative/shareholder class action suit the defendants as prolix?  We have listed the examples from Lexis-Nexis below:

• None

In other words, it is a term reserved for plaintiffs (who represent shareholders).  It is of course possible that in Delaware only plaintiffs are prolix but the more likely explanation is that the courts have a preexisting bias against plaintiffs and that bias sometimes leaks into the opinions. 

To the extent there is an issue with very long complaints, the reference to "prolix" ignores the excessive pleading standards that the courts themselves have imposed, something that requires Plaintiffs to throw in every arguably relevant fact that they can find.  In other words, it ignores the role that the courts play in encouraging the behavior.  But that is nothing new, as some later posts will show.