Securities Regulation Daily Wrap Up, CORPORATE GOVERNANCE—D. Del.: Derivative action after company’s alleged failure to respond to demand dismissed as premature, (May 12, 2026)

By Rebecca E. Hoffman, J.D.

Four weeks between the demand and the filing of the lawsuit is insufficient for the board to consider the demand, the court found.

A shareholder derivative suit against the officers and directors of Bioventus, Inc., four weeks after the plaintiff’s demand that the board sue those responsible for the company’s inflated revenue, was not filed within a reasonable amount of time for the defendants to respond and must be dismissed, the District of Delaware determined (Hyung v. Reali, No. 1:25-cv-00806 (D. Del. May 8, 2026)).

The incorrect financial statements, the ultimate correction of which triggered several shareholder suits, resulted from the company’s inability to report contractually required rebates to third parties.

Bioventus is a medical device and pharmaceutical company. According to the opinion, rebates due to third parties amounted to millions of dollars, but “[t]he Generally Accepted Accounting Principles (“GAAP”) prevents Bioventus from recognizing and reporting to investors significant amounts of revenue that it will later have to remove from its financial statements due to paying out rebates.”

The company went public in February 2021, and in November 2022 announced corrections to its rebates accruals, which led to a securities class action in North Carolina federal court. This matter was settled, but while it was pending, four shareholder derivative suits commenced, the latest in February 2025.

The demand. Also in February 2025, the plaintiff here demanded that the board “commence a civil action against each responsible entity and affiliate of the Company,” the court said. He filed the instant action on March 6, 2025, and claimed that at the time he filed the amended complaint several months later, the board had not responded to the demand.

Fed. R. Civ. P. 23.1 requires a plaintiff to show that they made a demand for action from the board before filing a derivative suit or provide reasons why they were unable to do so. Because the plaintiff is alleging that the board effectively refused the demand, the federal rules and Delaware law required him to provide “particularized facts that raise a reasonable doubt as to whether (1) the board’s decision was consistent with its duty of care to act on an informed basis; or as to whether (2) the board acted in good faith, consistent with its duty of loyalty,” the court said, quoting Bresalier v. Good, 246 F. Supp. 3d 1044, 1052 (D. Del. 2017) (internal citations omitted).

Premature filing. The plaintiff attempted to argue that the board already knew about these issues when the demand was made and did not need a lot of time to investigate. However, the court observed, the demand sought action against 15 former and current officers, directors, and agents of the company for breach of fiduciary duty, alleging that they made material misstatements, cost the company legal fees and expenses, and “unjustly enriched themselves with lucrative compensation while failing to carry out their duties.” The demand also sought corporate governance reform to address the alleged shortcomings. The court concluded that four weeks would not be enough for the board to examine the conduct of so many people over such a lengthy period and to institute reforms.

“Plaintiff contends that the ongoing litigation has provided the requisite amount of time to investigate,” the court added, “but that is contrary to the purpose of a demand, which is to afford a board the opportunity to investigate and self-correct prior to the filing of a derivative suit and not during it.”

The case is No. 1:25-cv-00806.

Judge: Choe-Groves, J.

Attorneys: Ryan M. Ernst (Bielli & Klauder, LLC) for Jung Jae Hyung. Kevin Michael Coen (Morris, Nichols, Arsht & Tunnell LLP) for Kenneth M. Reali.

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