In re: COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION DERIVATIVE LITIGATION Josh… v. Wells, Jr. Andrew J. Ehrlich Alison R. Benedon Paul Weiss Rifkind Wharton & Garrison…

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 22-3027
_____________
In re: COGNIZANT TECHNOLOGY SOLUTIONS
CORPORATION DERIVATIVE LITIGATION
Josh Schaufelberger, Brian Hayden, Tim Keeley, Robert
Calhoun, Glyn Ramage, Robert Green, Steven Tyler, and
Michael Testerman, in their capacities as Trustees of the
Employers and Laborers Locals 100 and 397 Pension Fund;
John Lautzenheiser; Michael S. Graniero III; James B. Hoy,
as Trustee and Beneficiary of the James B. Hoy & Marjorie
A. Hoy TTEES FBO Marjorie A. Hoy Rev Liv Trust,
Appellants
_______________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-17-cv-01248)
District Judge: Honorable Kevin McNulty
_______________
Submitted Before Merits Panel on November 15, 2023
Resubmitted Sua Sponte En Banc on March 29, 2024

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Before: CHAGARES, Chief Judge, JORDAN, HARDIMAN,
KRAUSE, RESTREPO, BIBAS, PORTER, MATEY,
PHIPPS, FREEMAN, MONTGOMERY-REEVES, CHUNG,
and FUENTES,* Circuit Judges.
(Filed: May 3, 2024)
William B. Federman
Federman & Sherwood
10205 NW Pennsylvania Avenue
Oklahoma City, OK 73120
Matthew F. Gately
Peter S. Pearlman
Cohn Lifland Pearlman Herrmann & Knopf
Park 80 W, Plaza One
250 Pehle Avenue, Suite 401
Saddle Brook, NJ 07663
Benny C. Goodman, III
Steven Hubachek
Erik W. Luedeke
Robbins Geller Rudman & Dowd
655 W Broadway, Suite 1900
San Diego, CA 92101
Counsel for Plaintiffs-Appellants
James M. Ficaro
Robert B. Weiser
* Judge Fuentes is participating as a member of the en banc
court pursuant to Third Circuit I.O.P. 9.6.4.

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The Weiser Law Firm
200 Barr Harbor Drive
Four Tower Bridge, Suite 400
West Conshohocken, PA 19428
Counsel for Plaintiff-Appellant Michael S. Graniero,
III
Gary S. Graifman
Kantrowitz Goldhamer & Graifman
135 Chestnut Ridge Road, Suite 200
Montvale, NJ 07645
Britt W. Sowle
Cavanagh & O’Hara
2319 W Jefferson Street
Springfield, IL 62702
Counsel for Plaintiffs-Appellants Josh Schaufelberger,
Brian Hayden, Tim Keeley, Robert Calhoun, Glyn
Ramage, Robert Green, Steven Tyler, and Michael
Testerman, in their capacities as Trustees of the
Employers and Laborers Locals 100 and 397 Pension
Fund
Melissa A. Fortunato
Bragar Eagel & Squire
810 Seventh Avenue, Suite 620
New York, NY 10019
Ligaya T. Hernandez
Michael J. Hynes
Hynes Keller & Hernandez
1150 First Avenue, Suite 501
King of Prussia, PA 19406

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James S. Notis
Gardy & Notis
560 Sylvan Avenue
Englewood Cliffs, NJ 07632
Jennifer Sarnelli
Gardy & Notis
126 E 56th Street, Eighth Floor
New York, NY 10022
Counsel for Plaintiff-Appellant James B. Hoy, as
Trustee and Beneficiary of the James B. Hoy &
Marjorie A. Hoy TTEES FBO Marjorie A. Hoy Rev Liv
Trust
Charles A. Brown
Daniel P. Roeser
Goodwin Procter
620 Eighth Avenue
The New York Times Building
New York, NY 10018
William Evans
Goodwin Procter
100 Northern Avenue
Boston, MA 02210
William M. Jay
Goodwin Procter
1900 N Street NW
Washington, DC 20036
Counsel for Defendant-Appellee Cognizant
Technology Solutions Corp.

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Sarah D. Efronson
Rajeev Muttreja
Jones Day
250 Vesey Street, Floor 31
New York, NY 10281
Christopher J. Keale
James H. Keale
Tanenbaum Keale
100 Mulberry Street
Three Gateway Center, Suite 1301
Newark, NJ 07102
Counsel for Defendant-Appellee Gordon Coburn
Theodore V. Wells, Jr.
Andrew J. Ehrlich
Alison R. Benedon
Paul Weiss Rifkind Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Matthew D. Stachel
Paul Weiss Rifkind Wharton & Garrison
1313 N Market Street
P.O. Box 32, Suite 806
Wilmington, DE 19899
Counsel for Defendant-Appellee Steven E. Schwartz

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_______________
OPINION OF THE COURT
_______________
FUENTES, Circuit Judge.
We initiated en banc review of this case to consider
what standard of appellate review ought to apply when a
district court dismisses a shareholder derivative action for
failure to plead demand futility under Federal Rule of Civil
Procedure 23.1 and applicable state law. To date, our Circuit
precedent, including Blasband v. Rales1 and its progeny,
provides that we must review such dismissals for an abuse of
discretion.2 But over the last three decades, many courts have
expressed skepticism regarding the appropriateness of this
standard, given that we ordinarily review dismissals on the
pleadings de novo. Indeed, the Courts of Appeals for the First,
Second, Seventh, Eighth, and Tenth Circuits, as well as the
supreme courts of several states (including Delaware and New
Jersey) now exercise de novo review in demand futility cases.
We agree with that approach, and we see no sound
reason to apply a different standard of review to shareholder
derivative actions than we would to any other type of case. So
1 971 F.2d 1034 (3d Cir. 1992).
2 Id. at 1040; see also, e.g., Freedman v. Redstone, 753 F.3d
416, 423 (3d Cir. 2014); In re Merck & Co., Inc. Sec.,
Derivative & ERISA Litig., 493 F.3d 393, 399 (3d Cir. 2007);
Kanter v. Barella, 489 F.3d 170, 175 (3d Cir. 2007).

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we now hold that a district court’s decision to dismiss a
derivative action for failure to plead demand futility is to be
reviewed de novo.3 Applying that standard here, we will affirm
the District Court’s order.
FACTS AND PROCEDURAL HISTORY
The District Court disposed of this case on a motion to
dismiss, so we assume the truth of the allegations in Plaintiffs’
complaint for purposes of this appeal.4 The following
recitation of facts is adopted from Plaintiffs’ complaint.
Cognizant Technology Solutions Corporation
(“Cognizant”) is an information technology services and
consulting company incorporated in Delaware and
headquartered in New Jersey. Because it has international
operations, including in India, Cognizant is subject to the
Foreign Corrupt Practices Act of 1977 (“FCPA”),5 which
prohibits bribes to public officials by businesses and requires
internal company controls to detect and prevent corruption.
From 2010 to 2015, Cognizant employees in India paid
approximately $6 million in bribes to Indian government
3 “It is the tradition of this court that the holding of a panel in
a precedential opinion is binding on subsequent panels.” 3d
Cir. I.O.P. 9.1. A decision from the en banc court is therefore
required to overturn the holding in a precedential opinion of a
previous panel. Id.
4 See Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011)
(quoting Kulwicki v. Dawson, 969 F.2d 1454, 1462 (3d Cir.
1992)).
5 15 U.S.C. §§ 78dd-1, et seq.

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officials for the purpose of securing construction-related
permits and operating licenses. Those permits and licenses
allowed Cognizant to operate in Special Economic Zones
(“SEZs”) that provided tax holidays and related economic
benefits.
During that period, Cognizant’s Board of Directors
(“Board”) received updates indicating that the company’s anti-
corruption controls could use improving. For example, during
four meetings of the Board’s Audit Committee in 2014 and
2015, directors learned that there was a “weakness”6 in
Cognizant’s global sub-contracting management process for
hiring individual contract workers in India and that the
company’s case management tool for tracking incidents of
bribery and corruption suffered from “[i]nconsistent and
untimely documentation . . . leading to lack of visibility of
potential compliance issues.”7 At a November 2015 meeting,
management informed the directors that “‘[a] program is
underway to ensure that disciplinary actions in India come into
closer conformance with the rest of the countries,’ and that
‘[c]ompliance is providing continuing examples from other
countries to support the desired result in India.’”8
In 2015 and 2016, Cognizant published, and the Board
signed off on, two public Sustainability Reports stating that no
incidents of corruption had been reported in either 2014 or
2015. Both reports also described the company’s ongoing
efforts to improve compliance controls and procedures,
6 Joint Appendix (“J.A.”) 10.
7 Id.
8 Id. at 11.

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including role-based anti-corruption training and annual risk
analysis surveys.
It is not clear when exactly Cognizant’s managers
discovered the India bribery scheme, but the company
gradually released public disclosures in late 2016 and early
2017. The Board also notified the Department of Justice
(“DOJ”) and the Securities and Exchange Commission
(“SEC”). The DOJ declined prosecution, but the SEC opened
an investigation into Cognizant’s compliance with the FCPA.
Cognizant incurred over $60 million in investigative costs, and
the SEC ultimately fined the company $25 million for its
FCPA violations. The shareholders were not pleased.
In July 2017, Plaintiffs filed this consolidated action in
federal court against Cognizant’s eleven Board members (the
“Director Defendants”)9 and five of its current and former
officers (the “Officer Defendants”)10 for breach of fiduciary
duties, corporate waste, unjust enrichment, and contribution
and indemnification.11 They allege that Defendants knew of
9 Six of the Director Defendants (which constitutes a majority
of the Board) sat on the Board’s Audit Committee (which
oversees FCPA compliance) during the relevant period.
10 Two of the Officer Defendants were separately charged. See
United States v. Coburn, No. 2-19-cr-00120 (D.N.J. filed Feb.
14, 2019); Sec. & Exch. Comm’n v. Coburn, No. 19-cv-5820
(D.N.J. filed Feb. 15, 2019).
11 A class-action suit against Cognizant settled after this
derivative action was filed. See In re Cognizant Tech. Sols.
Corp. Sec. Litig., No. 2-16-cv-06509, Dkt. No. 183 (D.N.J.
Dec. 20, 2021). A related shareholder derivative action, filed
after the plaintiff made a demand on the Board, is also pending

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“several red flags”12 in Cognizant’s FCPA compliance
program back in 2014 but ignored the problems and hid their
concerns from shareholders.
Plaintiffs failed to make a pre-suit litigation demand on
Cognizant’s Board before bringing this case. All defendants
moved to dismiss the complaint on that basis. The District
Court granted the motions, holding that Plaintiffs’ complaint
failed to state with particularity the reasons why making such
a demand would have been futile. This appeal followed.13
STANDARD OF REVIEW
The threshold question here—which we gather en banc
to address—is what standard of appellate review should apply
when a district court dismisses a shareholder derivative action
based on a plaintiff’s failure to plead demand futility under
Rule 23.1.14
in the District of New Jersey. See Palempalli v. Patsalos-Fox,
No. 2-21-cv-12025 (D.N.J. filed June 1, 2021).
12 J.A. 10.
13 The District Court had jurisdiction under 28 U.S.C. §§ 1331
and 1367, and we have jurisdiction under 28 U.S.C. § 1291.
14 Although the parties did discuss this issue in their briefing to
the panel, upon initiating en banc review, we directed the
parties to file supplemental briefs addressing whether we
should reconsider our precedent with respect to the standard of
review applied to Rule 23.1 demand futility determinations and
whether the standard of review is dispositive of this appeal.

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A.
It is a “basic principle of corporate governance”15 that
“directors, rather than shareholders, manage the business and
affairs of the corporation.”16 The board’s authority extends to
a corporation’s assets. And legal claims are assets. Thus, the
board generally has the power to decide “what remedial actions
a corporation should take after being harmed, including
whether the corporation should file a lawsuit against its
directors, its officers, its controller, or an outsider.”17
In a shareholder derivative suit, the plaintiff seeks to
bring a claim that belongs to the corporation on the
corporation’s behalf. “By its very nature,” this sort of suit
“encroaches on the managerial freedom of directors by seeking
to deprive the board of control over a corporation’s litigation
asset.”18 Accordingly, a plaintiff seeking to file a shareholder
derivative suit must either (1) make a demand on the
company’s board of directors to file the lawsuit itself, or (2)
show that making such a demand would be “futile.”19 This
demand requirement “ensures exhaustion of intra-corporate
remedies, thereby possibly avoiding litigation in the first
place” and “gives the corporation an opportunity to pursue
15 Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 530 (1984).
16 United Food & Com. Workers Union & Participating Food
Indus. Emps. Tri-State Pension Fund v. Zuckerberg, 262 A.3d
1034, 1047 (Del. 2021) (en banc) (quoting Aronson v. Lewis,
473 A.2d 805, 811 (Del. 1984), overruled on other grounds by
Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (en banc)).
17 Id.
18 Id. (internal quotations and alterations omitted).
19 Id.

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claims that the [b]oard believes are meritorious and seek
dismissal of the others.”20
Federal Rule of Civil Procedure 23.1 requires that
derivative complaints allege “with particularity” either that a
satisfactory pre-suit demand was presented to and refused by
the board of directors or “the reasons for not obtaining the
action or not making the effort.”21 However, Rule 23.1 merely
sets the pleading standard; it “does not create a demand
requirement of any particular dimension.”22 Rather, the law of
the state of incorporation (here, Delaware) establishes the
demand requirement and governs the analysis of whether
demand was wrongfully refused or whether demand must be
excused as futile.23
Here, Plaintiffs focus on demand futility. And under
Delaware law, demand is futile if a majority of the directors
who comprise the demand board either: (1) “received a
material personal benefit from the alleged misconduct that is
the subject of the litigation demand”; (2) “faces a substantial
likelihood of liability on any of the claims that would be the
subject of the litigation demand”; or (3) “lacks independence
from someone who received a material personal benefit from
the alleged misconduct that would be the subject of the
litigation demand or who would face a substantial likelihood
of liability on any of the claims that are the subject of the
litigation demand.”24 “If the answer to any of the questions is
20 Shaev v. Saper, 320 F.3d 373, 377 (3d Cir. 2003).
21 See Fed. R. Civ. P. 23.1(b)(3).
22 Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 96 (1991).
23 Kanter, 489 F.3d at 176.
24 Zuckerberg, 262 A.3d at 1059.

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‘yes’ for at least half of the members of the demand board, then
demand is excused as futile.”25
B.
In our 1992 decision in Blasband, we explained, for the
first time in our caselaw, that a district court’s “determination
of demand futility” is “reviewed for abuse of discretion,”
though “its choice of legal precepts” in making that
determination is reviewed de novo.26 At the time, we cited
decisions from our sister Courts of Appeals that had adopted
the abuse-of-discretion standard in demand futility cases and
noted that demand futility generally “depends upon the facts of
each case.”27 We have since applied the abuse-of-discretion
standard in several precedential opinions on demand futility.28
Here, however, Plaintiffs ask us to exercise plenary
review over the entirety of the District Court’s decision. First,
they argue that their appeal implicates “the legal precepts
employed” by the District Court, and thus requires de novo
review, because it challenges “both [its] inferences, drawn
from the Complaint, and its analysis of Delaware’s fiduciary-
25 Id.
26 971 F.2d at 1040 (citing Peller v. S. Co., 911 F.2d 1532, 1536
(11th Cir. 1990); Starrels v. First Nat’l Bank of Chi., 870 F.2d
1168, 1170 (7th Cir. 1989); Gaubert v. Fed. Home Loan Bank
Bd., 863 F.2d 59, 68 n.10 (D.C. Cir. 1988); Lewis v.
Graves, 701 F.2d 245, 248 (2d Cir. 1983)).
27 Id.
28 See, e.g., Garber v. Lego, 11 F.3d 1197, 1200 (3d Cir. 1993);
Kanter, 489 F.3d at 175; Merck, 493 F.3d at 399; Freedman,
753 F.3d at 423.

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duty jurisprudence.”29 But Plaintiffs also submit that applying
our current standard to demand futility determinations in
general raises difficult practical issues because “a trial court
applying Delaware law exercises no discretion in determining
whether a complaint adequately alleges that demand is
excused.”30
Plaintiffs also point to a “clear trend in the federal
courts” toward reviewing demand futility dismissals de novo.31
As a general matter, “we decide cases before us based on our
own examination of the issue, not on the views of other
jurisdictions.”32 But when other courts largely disapprove of
our reasoning in more recent decisions, “those contrary views
may ‘impel us to consider whether the reasoning applied by
our colleagues elsewhere is persuasive.’”33 This is one such
occasion. Just eight years after Blasband, the Delaware
Supreme Court abandoned the abuse-of-discretion standard in
29 Opening Br. 26 (citing Freedman, 723 F.3d at 423).
30 Id. (citing Brehm, 746 A.2d at 253–54).
31 Id. (citing, e.g., Espinoza ex rel. JPMorgan Chase & Co. v.
Dimon, 797 F.3d 229, 235–36 (2d Cir. 2015)).
32 In re Grossman’s Inc., 607 F.3d 114, 121 (3d Cir. 2010) (en
banc).
33 Joyce v. Maersk Line Ltd., 876 F.3d 502, 508 (3d Cir. 2017)
(en banc) (quoting Grossman’s, 607 F.3d at 121); see Riccio v.
Sentry Credit, Inc., 954 F.3d 582, 592 (3d Cir. 2020) (en banc)
(“[O]n rare occasions a circuit precedent, though not directly
overruled or superseded, nonetheless might crumble if case law
postdating the original decision, although not directly
controlling, nevertheless offers a sound reason for believing
that the former panel, in light of fresh developments, would
change its collective mind.” (internal quotations omitted)).

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favor of de novo review for demand futility dismissals under
the analogous Delaware Chancery Court Rule 23.1.34 Since
then, the Courts of Appeals for the First, Second, Sixth,
Seventh, Eighth, and Tenth Circuits have all adopted de novo
review for demand futility cases.35 As a result, two of the out-
of-circuit decisions we relied upon in Blasband are no longer
good law.36 Even in the Courts of Appeals for the Ninth and
D.C. Circuits, which still apply abuse-of-discretion review,
34 See Brehm, 746 A.2d at 253–54 (abrogating Aronson, 473
A.2d at 814). Other state supreme courts, persuaded by the
reasoning in Brehm, have followed suit. See, e.g., In re PSE &
G S’holder Litig., 801 A.2d 295, 313 (N.J. 2002); Shoen v. SAC
Holding Corp., 137 P.3d 1171, 1180 (Nev. 2006);
Behradrezaee v. Dashtara, 910 A.2d 349, 362 (D.C. 2006); see
also Harhen v. Brown, 730 N.E.2d 859, 866 (Mass. 2000)
(following Brehm in a “demand refused” case).
35 See Unió n de Empleados de Muelles de P.R. PRSSA Welfare
Plan v. UBS Fin. Servs. Inc. of P.R., 704 F.3d 155, 162–63 (1st
Cir. 2013); Espinoza, 797 F.3d at 236 (“[D]iscard[ing] the
deferential standard” embraced by prior Second Circuit
precedent); In re Ferro Corp. Derivative Litig., 511 F.3d 611,
617 (6th Cir. 2008); Westmoreland Cnty. Emp. Ret. Sys. v.
Parkinson, 727 F.3d 719, 724–25 (7th Cir. 2013); Gomes v.
Am. Century Cos., Inc., 710 F.3d 811, 815 (8th Cir. 2013); City
of Cambridge Ret. Sys. v. Ersek, 921 F.3d 912, 917–18 (10th
Cir. 2019) (“We tend to agree with the trend towards plenary
review . . . .”).
36 See Blasband, 971 F.2d at 1040 (first citing Starrels, 870
F.2d at 1170, abrogation recognized by Parkinson, 727 F.3d at
724; and then Lewis, 701 F.2d at 248, overruled by Espinoza,
797 F.3d at 236).

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judges have voiced concerns about the practice.37 These
developments, taken together, “suggest[] that a reevaluation of
[Blasband] is in order.”38
C.
The Supreme Court has identified several “significant
relevant factors” in deciding whether to exercise deferential
(i.e., abuse-of-discretion) or de novo review of a district court’s
37 See, e.g., Pirelli Armstrong Tire Corp. Retiree Med. Benefits
Tr. ex rel. Fed. Nat’l Morg. Ass’n v. Raines, 534 F.3d 779, 783
n.2 (D.C. Cir. 2008) (“We tend to agree with plaintiffs that an
abuse-of-discretion standard may not be logical in this kind of
case . . . .”); Rosenbloom v. Pyott, 765 F.3d 1137, 1159–60
(9th Cir. 2014) (Reinhardt, J., specially concurring) (“[A]ll
relevant factors cut in favor of de novo review.”). In 2013, the
Supreme Court granted certiorari to resolve this issue but
ultimately dismissed the petition when the case settled before
oral argument. See UBS Fin. Servs. Inc. of P.R. v. Unión de
Empleados de Muelles de P.R. PRSSA Welfare Plan, 570 U.S.
916 (granting certiorari), cert. dismissed, 570 U.S. 943 (2013).
38 Joyce, 876 F.3d at 509. And although the applicable
standard of review in federal court is undoubtedly an issue of
federal law, we should “pay special heed to the Delaware
Supreme Court’s decision in Brehm,” given that most public
companies are incorporated in Delaware and so many
derivative actions arise under Delaware law. Espinoza, 797
F.3d at 235 n.5. Aligning our review with the de novo standard
used in Delaware courts would “minimize any anomalies
resulting from separate federal and state demand
requirements.” Id. (internal quotations and citation omitted).

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decision—though the analysis “is not rigorously scientific.”39
Those factors include: (1) whether, “as a matter of the sound
administration of justice, one judicial actor is better positioned
than another to decide the issue in question”40; (2) “[t]he non-
amenability of the problem to rule, because of the diffuseness
of circumstances, novelty, vagueness, or similar reasons that
argue for allowing experience to develop”41; (3) “the language
and structure of the governing statute”42 or rule; and (4)
whether the decision under review “ordinarily has such
substantial consequences” that “one might expect it to be
reviewed more intensively.”43
In the context of Rule 23.1 demand futility dismissals,
each of these considerations weighs in favor of a de novo
standard of review. First, district courts are no better
positioned than appellate courts to decide whether demand
should be excused as futile because demand futility is a
39 Pierce v. Underwood, 487 U.S. 552, 559, 563 (1988).
40 Id. at 559–60 (quoting Miller v. Fenton, 474 U.S. 104, 114
(1985)); see also United States v. Mitchell, 365 F.3d 215, 234
(3d Cir. 2004) (applying abuse-of-discretion review “when the
matter under review was decided by someone who is thought
to have a better vantage point than we on the Court of Appeals
to assess the matter”).
41 Pierce, 487 U.S. at 562 (quoting Maurice Rosenberg,
Judicial Discretion of the Trial Court, Viewed from Above, 22
Syracuse L. Rev. 635, 663 (1971)); see also United States v.
Tomko, 562 F.3d 558, 565 (3d Cir. 2009) (en banc) (“[C]ourts
of appeals apply the abuse-of-discretion standard to fact-bound
issues that are ill-suited for appellate rule-making.”).
42 Pierce, 487 U.S. at 559.
43 Id. at 563.

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pleading issue.44 The nature of our analysis of a complaint in
a Rule 23.1 demand futility case “is the same as that applied by
the [lower court] in making its decision in the first instance.”45
Indeed, when reviewing the dismissal of a derivative claim, “an
appellate court performs exactly the same task as when
reviewing the dismissal of any other action: the court reads the
facts alleged in the complaint, assumes the truth of those facts,
and decides whether those facts state a claim under the
applicable legal standard.”46 That task is quite familiar to us,
unlike discretionary rulings involving the balance of
potentially competing factors on which we ordinarily defer to
the trial judge’s expertise and experience—such as the
admission or exclusion of evidence,47 the availability and
scope of injunctive relief,48 or the imposition of a criminal
sentence.49 When a district court dismisses a complaint due to
44 Cf. Rosenbloom, 765 F.3d at 1160 (Reinhardt, J., specially
concurring) (“[D]istrict courts do not have an institutional
advantage over appellate courts in determining the legal
sufficiency of pleadings.”).
45 Brehm, 746 A.2d at 253.
46 Espinoza, 797 F.3d at 235.
47 See Acumed L.L.C. v. Advanced Surgical Servs., Inc., 561
F.3d 199, 211 (3d Cir. 2009); cf. Fed. R. Evid. 403 (requiring
district courts to balance the probative value of relevant
evidence against the risk of unfair prejudice).
48 See Del. Strong Fams. v. Att’y Gen. of Del., 793 F.3d 304,
308 (3d Cir. 2015); cf. eBay Inc. v. MercExchange, L.L.C., 547
U.S. 388, 391 (2006) (requiring district courts to apply a four-
factor test to determine whether to grant injunctive relief).
49 See United States v. Miller, 833 F.3d 274, 285 (3d Cir. 2016);
cf. 18 U.S.C. § 3553(a) (requiring district courts to consider
and weigh seven factors in imposing a criminal sentence).

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the legal insufficiency of its allegations, that decision
ordinarily gets de novo review.50 We see no basis to treat
demand futility cases any differently.
Second, “doctrines of demand futility are reasonably
uniform and amenable to general rules that cover a wide range
of circumstances,”51 making de novo review especially
appropriate. Blasband’s application of the abuse-of-discretion
standard rested on the idea that demand futility generally
“depends upon the facts of each case.”52 True as that may be,
that is not sufficient in itself to justify a lower level of scrutiny
on appeal. Nearly every application of law to fact on a motion
to dismiss depends, to some degree, on the specific allegations
in the pleadings.53 But we still review those applications de
novo, even where, as here, particularized pleading
requirements will apply.54
50 See Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010).
51 Rosenbloom, 765 F.3d at 1160 (Reinhardt, J., specially
concurring).
52 Blasband, 971 F.2d at 1040.
53 See, e.g., Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d
1406, 1411–12 (3d Cir. 1991) (explaining that whether a
complaint alleges a “pattern of racketeering activity” under
RICO “depend[s] heavily on the specific facts of each case”).
54 See In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d
198, 215–17 (3d Cir. 2002) (exercising plenary review over
dismissal of complaint for failure to satisfy particularized
pleading requirements under Rule 9(b) and the Private
Securities Litigation Reform Act); City of Edinburgh Council
v. Pfizer, Inc., 754 F.3d 159, 166 (3d Cir. 2014) (same).

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Third, nothing in the text of Rule 23.1 or in applicable
state law indicates a preference for the trial court’s decision on
this issue that would warrant abuse-of-discretion review.
Defendants argue that abuse-of-discretion review ought to
apply because the demand futility language that was added to
the predecessor of Rule 23.1 in 1912 “was apparently intended
to codify a judicially recognized exception to the old [demand]
[r]ule in certain circumstances where, in the discretion of the
court, a demand may be excused.”55 But, in its modern form,
Rule 23.1 is merely a pleading standard that incorporates state-
law demand requirements and makes no textual indication that
our review of demand futility dismissals is anything but
independent.56
Lastly, demand futility undoubtedly has “substantial
consequences”57 for shareholder cases, given both the serious
potential consequence of ending the litigation and the
frequency with which this issue arises in derivative actions.
Accordingly, “one might expect it to be reviewed more
intensively,”58 and “[w]e see no reason to perpetuate the
concept of discretion in this context.”59
55 Resp. Br. 37 (quoting Daily Income Fund, Inc., 464 U.S. at
530 n.5).
56 Compare, e.g., Fed. R. Civ. P. 52(a)(6) (providing that a trial
court’s findings of fact “must not be set aside unless clearly
erroneous, and the reviewing court must give due regard to the
trial court’s opportunity to judge the witnesses’ credibility”),
with Fed. R. Civ. P. 23.1(b)(3) (requiring only that the plaintiff
allege demand futility “with particularity”).
57 Pierce, 487 U.S. at 563.
58 Id.
59 Brehm, 746 A.2d at 253.

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D.
To be sure, we “do not overturn our precedents
lightly.”60 But “stare decisis ‘is not an inexorable
command,’”61 and we see several “special justification[s]” for
overruling Blasband’s directive on the standard of review for
demand futility cases, “over and above the belief that [it] was
wrongly decided” on that issue.62 Blasband did not offer much,
if any, rationale for adopting the abuse-of-discretion
standard.63 To the extent we relied upon the general practice
of some of our sister Courts of Appeals, “developments since
[Blasband] was handed down”64 have substantially eroded that
practice; every Court of Appeals to consider this issue as a
matter of first impression during that period has adopted de
novo review, and others have departed from precedent to do
the same. Moreover, reviewing demand futility cases for an
abuse of discretion “is not only unworkable in practice but also
60 Al-Sharif v. U.S. Citizenship & Immigr. Servs., 734 F.3d 207,
212 (3d Cir. 2013) (en banc).
61 Id. (quoting Payne v. Tennessee, 501 U.S. 808, 828 (1991)).
62 Riccio, 954 F.3d at 590 (quoting Kimble v. Marvel Ent.,
L.L.C., 576 U.S. 446, 456 (2015) (internal quotations
omitted)).
63 See Blasband, 971 F.2d at 1040 (noting only that demand
futility “depends upon the facts of each case”); Riccio, 954
F.3d at 590 (considering “the quality of [the prior case]’s
reasoning” in determining whether to overrule precedent
(quoting Janus v. AFSCME, 138 S. Ct. 2448, 2479 (2018))).
64 Riccio, 954 F.3d at 590 (quoting Janus, 138 S. Ct. at 2478–
79).

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flawed in conception”65 because whether demand is futile is
not a matter of one’s discretion, but instead depends only on
whether the plaintiff adequately pleaded the state-law
requirements. That being so, it hardly makes sense to review
whether a district court has abused discretion that it does not
have.
Lastly, the Supreme Court has explained that stare
decisis principles are least consequential in cases involving
“procedural [ ] rules” that tend not to produce reliance interests,
such as a standard of review.66 And “our en banc Court has
never expressed a view on the issue presented” here,67 so the
implications of stare decisis in this case “are less weighty than
if we were overturning a precedent established by the court en
65 Christian Legal Soc’y Chapter of the Univ. of Cal., Hastings
Coll. of the L. v. Martinez, 561 U.S. 661, 699 n.1
(2010) (Stevens, J., concurring).
66 Pearson v. Callahan, 555 U.S. 223, 233 (2009) (internal
quotations and citation omitted). “Like rules governing
procedures and the admission of evidence in the trial courts,”
the standard of appellate review for Rule 23.1 demand futility
dismissals “does not affect the way in which parties order their
affairs,” and modifying that standard “would not upset settled
expectations on anyone’s part.” See id.
67 Riccio, 954 F.3d at 592.

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banc.”68
* * *
For these reasons, we now hold that a district court’s
decision to dismiss a derivative action for failure to plead
demand futility under Rule 23.1 is reviewed de novo. To the
extent Blasband or our more recent precedential opinions
recite the abuse-of-discretion standard, they are overruled on
that point. We now proceed to decide, de novo, whether the
District Court correctly dismissed the complaint for failure to
allege demand futility.
ANALYSIS
Under Rule 23.1 and the Delaware Supreme Court’s
Zuckerberg test,69 Plaintiffs must “state with particularity”
facts showing that making a demand on the board would be
futile.70 Plaintiffs argue that they have cleared this hurdle by
alleging that at least half of the Director Defendants (A)
individually face a substantial likelihood of liability on one or
more the claims presented (i.e., a second Zuckerberg factor
claim), or (B) lack independence from a director who faces a
substantial likelihood liability (i.e., a third Zuckerberg factor
claim). We address each argument below.
68 McKinney v. Pate, 20 F.3d 1550, 1565 n.21 (11th Cir. 1994)
(en banc); Riccio, 954 F.3d at 591 (“[P]rior en banc decisions
carry more stare decisis weight than prior panel decisions.”
(citing McKinney, 20 F.3d at 1565 n.21)).
69 See Zuckerberg, 262 A.3d at 1059.
70 Fed. R. Civ. P. 23.1(b)(3)(B).

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A.
First, we consider the directors’ likelihood of liability.
Plaintiffs argue that the Director Defendants face a substantial
likelihood of liability for allegedly breaching their fiduciary
duty of loyalty “by causing Cognizant to issue false and
misleading 2014 and 2015 Sustainability Reports that assured
shareholders that Cognizant had no reportable incidents of
corruption” even though “when those reports issued,” the
company “was in the midst of an ongoing bribery scheme.”71
Plaintiffs also argue that the Director Defendants face a
substantial likelihood of liability for allegedly engaging in
corporate waste.72
1.
Plaintiffs’ core argument on appeal is that the Director
Defendants breached their fiduciary duty of loyalty73 by
71 Opening Br. 25.
72 The District Court also analyzed whether the Director
Defendants faced a substantial likelihood of liability for a
failure-to-monitor claim under In re Caremark International
Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).
Plaintiffs expressly abandoned that claim on appeal, so we do
not address it.
73 Cognizant’s certificate of incorporation waives claims
against its directors based on a breach of the fiduciary duty of
care. Cf. 8 Del. Code Ann. § 102(b)(7) (authorizing such
waivers). And directors of Delaware corporations do not owe
independent fiduciary duties of disclosure or good faith. See,
e.g., Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009) (en
banc) (“[T]he duty of disclosure is not an independent duty, but

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informing shareholders that “[n]o incidents” of corruption
were reported in 2014 or 2015 even though Cognizant
employees were actively engaged in a bribery scheme at that
time.74 Because those allegedly false and misleading
assurances were part of routine securities filings and, thus,
were “not associated with a request for stockholder action,”
Plaintiffs must allege that the Director Defendants “knowingly
disclosed false information” to properly state a claim for
breach of the fiduciary duty of loyalty based on the
Sustainability Reports.75
derives from the duties of care and loyalty.” (citation omitted));
Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362,
370 (Del. 2006) (en banc) (“[T]he obligation to act in good
faith does not establish an independent fiduciary duty that
stands on the same footing as the duties of care and loyalty.”);
Zuckerberg, 262 A.3d at 1049 (“The directors and officers of a
Delaware corporation owe two overarching fiduciary duties—
the duty of care and the duty of loyalty.” (collecting cases)).
Thus, to establish a substantial likelihood of liability, Plaintiffs
must plausibly allege that the Director Defendants breached
their fiduciary duty of loyalty when they communicated with
shareholders. Zuckerberg, 262 A.3d at 1054 (holding that
“exculpated breach of care claims no longer pose a threat that
neutralizes director discretion” and thus do not provide a basis
to render demand futile).
74 J.A. 80–81.
75 Dohmen v. Goodman, 234 A.3d 1161, 1168–69 (Del. 2020)
(en banc) (emphasis added); see also Malone v. Brincat, 722
A.2d 5, 9 (Del. 1998) (en banc) (“We hold that directors who
knowingly disseminate false information that results in
corporate injury or damage to an individual stockholder violate
their fiduciary duty, and may be held accountable in a manner

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According to Plaintiffs, the complaint’s allegations
satisfy this knowledge requirement because “when the Director
Defendants caused Cognizant to publicly assure its
shareholders that there were no incidents of corruption to
report in the 2014 and 2015 Sustainability Reports,” the
Director Defendants “had no basis for believing that their
representations were accurate because they knew of
deficiencies in the company’s compliance systems.”76 But
Plaintiffs never allege that the Director Defendants knew
Cognizant officers and employees had paid bribes to foreign
government officials, nor that the Director Defendants knew
they were otherwise participating in wrongdoing by publishing
the reports. And that is fatal to Plaintiffs’ claim because, under
these circumstances, the Director Defendants must have
known that they were disseminating false or misleading
information to have violated their fiduciary duty of loyalty.
Plaintiffs offer two main responses. First, Plaintiffs
argue they need not show that the Director Defendants knew
the Sustainability Reports were false because reckless conduct
appropriate to the circumstances.” (emphasis added)); In re
infoUSA, Inc. S’holders Litig., 953 A.2d 963, 990 (Del. Ch.
2007) (holding that directors “violate the fiduciary duties that
protect shareholders” “where it can be shown that the directors
involved issued their communication with the knowledge that
it was deceptive or incomplete.” (emphasis added)). We
express no view on how the Delaware Supreme Court would
evaluate a breach-of-fiduciary-duty claim based on
communications that were associated with a request for
shareholder action. See generally Dohmen, 234 A.3d at 1168
(collecting cases).
76 Opening Br. 42 (cleaned up).

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can establish a director’s bad faith and, thus, a breach of the
fiduciary duty of loyalty. For support, Plaintiffs cite to our
opinion in In re Merck & Co., Inc. Securities, Derivative &
ERISA Litigation, in which we observed that a corporation’s
board may have “acted egregiously or in bad faith” by
“recklessly ignor[ing] a well-established link between [a
medication] and increased cardiovascular risk.”77 But Merck
does not bear the weight Plaintiffs place upon it. For one,
Merck involved the application of New Jersey law, not
Delaware law.78 And our passing reference to recklessness was
not itself a holding; rather, we made that statement when giving
guidance to the district court on remand “[i]n the interests of
judicial economy.”79 But even if we were to treat Merck’s
analysis of demand futility as persuasive authority (because we
were effectively applying Delaware law80), it does not
persuade because, in this context, Delaware law appears to
require that a director act with knowledge to breach the
fiduciary duty of loyalty.81
77 493 F.3d at 403.
78 See id. at 399 (“Both parties agree that we should apply New
Jersey law to this case . . . .” (citing Kanter, 489 F.3d at 176)).
79 Id. at 402.
80 Id. at 399 (“The New Jersey Supreme Court has adopted
Delaware’s demand futility standard.” (collecting cases)).
81 Metro Commc’n Corp. BVI v. Advanced MobileComm
Techs., Inc., 854 A.2d 121, 158 n.88 (Del. Ch. 2004) (“A
common law fraud claim can be supported by a showing of
reckless indifference. Malone seems to require knowing
misconduct.” (internal citation omitted)); see also Dohmen,
234 A.3d at 1169 (holding that director must “knowingly
disclose[] false information” to breach fiduciary duty of loyalty

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Second, Plaintiffs argue that the Director Defendants
had “constructive knowledge of the bribery scheme” because
the complaint alleges that they knew about a “staggering
number of gaps in Cognizant’s compliance scheme.”82 But this
argument conflates knowledge “of deficiencies in the
company’s compliance systems” with knowledge “of the
bribery scheme”83 itself. Informing the Director Defendants
that Cognizant’s internal compliance system failed to “reliably
track incidents of corruption”84 and needed improvement did
not impart to those directors that Cognizant employees were
paying bribes. And none of the complaint’s particularized
allegations indicate that the Director Defendants knew about,
sought to avoid knowledge about, or otherwise should have
known about actual bribery. Accordingly, the complaint
leaves no basis for Plaintiffs’ assertion that the Director
Defendants violated their fiduciary duty of loyalty by
intentionally disclosing false or misleading information to
stockholders through the 2014 or 2015 Sustainability
Reports.85
“in this context”); Malone, 722 A.3d at 9 (same); In re
infoUSA, 953 A.2d at 990 (same).
82 Opening Br. 44 (cleaned up).
83 Id. at 42, 44.
84 Id. at 45.
85 Because Plaintiffs have failed to plausibly allege that the
Director Defendants face a substantial likelihood of liability
for violating their fiduciary duty of loyalty, we do not address
the Director Defendants’ argument that the complaint does not
plausibly allege that they were involved in drafting or
disseminating the Sustainability Reports.

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2.
Corporate waste “entails an exchange of corporate
assets for consideration so disproportionately small as to lie
beyond the range at which any reasonable person might be
willing to trade. . . . [I]n effect[,] a gift.”86 This is an “onerous
burden.”87 Corporate waste is limited to “unconscionable
cases where directors irrationally squander or give away
corporate assets.”88
Plaintiffs assert that the Director Defendants paid
themselves and the Officer Defendants millions of dollars in
fees, compensation, and benefits while they were violating
their fiduciary duties and damaging Cognizant. But Plaintiffs
do not plead facts demonstrating that the Director Defendants
did nothing for their salaries during the relevant period. Thus,
Plaintiffs have not plausibly alleged that the Director
Defendants face a substantial likelihood of liability for
engaging in corporate waste.
Accordingly, Plaintiffs have not shown that any of the
directors face a substantial likelihood of liability on the claims
asserted in the derivative action.
B.
Because Plaintiffs’ second Zuckerberg factor claims fall
short, they need to show that six directors exercised
86 Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997).
87 In re MeadWestvaco S’holders Litig., 168 A.3d 675, 686
(Del. Ch. 2017).
88 Brehm, 746 A.2d at 263.

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insufficient independence from other directors who themselves
faced a substantial risk of liability on the asserted claims to
satisfy the third Zuckerberg factor. Plaintiffs allege that three
directors meet these criteria: Two directors were not
independent per Cognizant’s own SEC proxy statement, and
Plaintiffs allege one other director was not independent
because of his past business relationship with one of the
criminally charged defendants. But even if we assume that
these three directors lack independence, Plaintiffs still fall well
short of the six they need.
Because Plaintiffs fail to establish that a majority of the
Cognizant directors is likely to face liability on the claims in
this derivative action or is insufficiently independent from
another director who is, they have not adequately pleaded
demand futility under Rule 23.1 and Delaware law. On that
basis, the District Court was correct to dismiss their complaint.
CONCLUSION
Having exercised de novo review and finding no error,
we will affirm the District Court’s order.

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