non-exculpated claim in Delaware

2026IX. 215 Cornerstone, 115 A.3d at 1175–76 (footnotes omitted). 76 of an interested party from whom they could not be presumed to act independently,” or (3) “acted in bad faith.”216 “[E]ach director has a right to be considered individually.”217 “So applied, the existence of an exculpatory provision operates more in the nature of an immunity, comparable to the extent to which sovereign immunity typically protects government employees from suit, rather than as an affirmative defense.”218 The Complaint fails to plead a non-exculpated claim against Sferruzza, Brun, Krzanich, and Daly.

2025But under Cornerstone, a plaintiff must plead facts sufficient to state a non- exculpated claim against each director protected by an exculpatory charter provision. 120 Id. at 40. 121 115 A.3d at 1179–87. 50 To do so, the plaintiff must “plead[ ] facts supporting a rational inference that the director harbored self-interest adverse to the stockholders’ interest, acted to advance the self-interest of an interested party from whom they could not be presumed to act independently, or acted in bad faith.”122 i. Kotick As to Kotick, Plaintiff’s well-pled paradigmatic Revlon theory easily supports a

2021Ex. 1, Article VII (Dkt. 39). 112 Malpiede v. Townson, 780 A.2d 1075, 1095 (Del. 2001) (discussing that Section 102(b)(7) was adopted following Smith v. Van Gorkom to “free directors of personal 25 explained in Cornerstone, “[w]hen the independent directors are protected by an exculpatory charter provision and the plaintiffs are unable to plead a non-exculpated claim against them, those directors are entitled to have the claims against them dismissed.”113 A plaintiff may establish a non-exculpated claim by pleading that the directors: (1) “harbored self-interest adverse to the stockholders’ in

2020Ch. 1999). 60 Malpiede, 780 A.2d at 1083–84. 61 Id. at 1084, 1094–95. 17 monetary damages, like Plaintiff here, must plead facts sufficient to state a non- exculpated fiduciary duty claim.62 One way to state a non-exculpated claim against a director protected by a 102(b)(7) provision is to plead facts for each director “supporting a rational inference that the director harbored self-interest adverse to the stockholder’s interest, acted to advance the self-interest of an interested party from whom they could not be presumed to act independently, or acted in bad faith.”63 The same standard gover

2015July 24, 2009), aff'd, 996 A.2d 795 (Del.2010) (granting defendants’ motion to dismiss when plaintiffs failed to state a non-exculpated claim against the director defendants for breach of fiduciary duty); In re Lukens Inc. S'holders Litig., 757 A.2d 720, 734 (Del.

2015July 24, 2009), aff’d, 996 A.2d 795 (Del. 2010) (granting defendants‘ motion to dismiss when plaintiffs failed to state a non-exculpated claim against the director defendants for breach of fiduciary duty); In re Lukens 8 No doubt, the invocation of the entire fairness standard has a powerful pro- plaintiff effect against interested parties.28 When that standard is invoked at the pleading stage, the plaintiffs will be able to survive a motion to dismiss by interested parties regardless of the presence of an exculpatory charter provision because their conflicts of interest support a pleading-sta

2020Co. v. MacMillan, Inc., 559 A.2d 1261, 1283 (Del. 1989); In re Xura, Inc. S’holder Litig., 2018 WL 6498677 , at *13 (Del.

2020Co. v. MacMillan, Inc., 559 A.2d 1261, 1283 (Del. 1989); In re Xura, Inc. S’holder Litig., 2018 WL 6498677 , at *13 (Del.

2021Bancorp, Inc., 650 A.2d 1270, 1290 (Del. 1994) (cleaned up). 36 Of course, regardless of the standard of review, as a matter of statute, a plaintiff “still must plead a non-exculpated claim of breach of fiduciary duty” to survive dismissal when a company’s charter contains “an exculpatory provision authorized by 8 Del.

2019Ch. 2016) (“Section 102(b)(7) does not authorize exculpation for officers . . . in [their] capacity as [] officer[s].”); id (holding that even if a complaint fails to state a non-exculpated claim against an executive director, “[t]here is also the possibility of a claim against [Phillips] in [his] capacity as an officer [because] Section 102(b)(7) does not authorize exculpation for officers.”). 163 Id. 164 See Arnold v. Soc’y for Savings Bancorp, Inc., 650 A.2d 1270, 1288 (Del. 1994) (affirming rejection of plaintiff’s fiduciary duty claims against officer because “plaintiff has failed to high

2020The Special Committee defendants are protected by a Section 102(b)(7) provision in Amtrust’s certificate of incorporation.118 As our Supreme Court explained in Cornerstone, “[w]hen a director is protected by an exculpatory charter provision, a plaintiff can survive a motion to dismiss by that director defendant by pleading facts supporting a rational inference that the director harbored self-interest adverse to the stockholders’ interests, acted to advance the self-interest of an 117 MFW, 88 A.3d at 645 (“If a plaintiff that can plead a reasonably conceivable set of facts showing that any or a

2020The Special Committee defendants are protected by a Section 102(b)(7) provision in Amtrust’s certificate of incorporation.118 As our Supreme Court explained in Cornerstone, “[w]hen a director is protected by an exculpatory charter provision, a plaintiff can survive a motion to dismiss by that director defendant by pleading facts supporting a rational inference that the director harbored self-interest adverse to the stockholders’ interests, acted to advance the self-interest of an 117 MFW, 88 A.3d at 645 (“If a plaintiff that can plead a reasonably conceivable set of facts showing that any or a

2019See also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”); 907 A.2d at 753 (“Bad faith has been defined as ‘authorizing a transaction for some purpose other than a genuine attempt to advance corporate welfare . . . .” (emphasis original) (citation omitted)), aff’d, 906 A.2d 27 (Del. 2006). 42 their obligation to maximize stockholder value, the C

2019See also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”); 907 A.2d at 753 (“Bad faith has been defined as ‘authorizing a transaction for some purpose other than a genuine attempt to advance corporate welfare . . . .” (emphasis original) (citation omitted)), aff’d, 906 A.2d 27 (Del. 2006). 42 their obligation to maximize stockholder value, the C

2019See also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”); 907 A.2d at 753 (“Bad faith has been defined as ‘authorizing a transaction for some purpose other than a genuine attempt to advance corporate welfare . . . .” (emphasis original) (citation omitted)), aff’d, 906 A.2d 27 (Del. 2006). 42 their obligation to maximize stockholder value, the C

2019See also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (“[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.”); 907 A.2d at 753 (“Bad faith has been defined as ‘authorizing a transaction for some purpose other than a genuine attempt to advance corporate welfare . . . .” (emphasis original) (citation omitted)), aff’d, 906 A.2d 27 (Del. 2006). 42 their obligation to maximize stockholder value, the C

2018Ch. 2006) (rejecting argument that abstaining from the vote shields a director from liability); Valeant, 921 A.2d at 753 (same); Frederick Hsu, 2017 WL 1437308 , at *38 (same). 252 In re Cornerstone Therapeutics Inc., Stockholder Litig., 115 A.3d 1173, 1179 (Del. 2015) (“We now resolve the question presented by these cases by determining that plaintiffs must plead a non-exculpated claim for breach of fiduciary duty against an independent director protected by an exculpatory charter provision, or that director will be entitled to be dismissed from the suit.

2018Ch. 2006) (rejecting argument that abstaining from the vote shields a director from liability); Valeant, 921 A.2d at 753 (same); Frederick Hsu, 2017 WL 1437308 , at *38 (same). 252 In re Cornerstone Therapeutics Inc., Stockholder Litig., 115 A.3d 1173, 1179 (Del. 2015) (“We now resolve the question presented by these cases by determining that plaintiffs must plead a non-exculpated claim for breach of fiduciary duty against an independent director protected by an exculpatory charter provision, or that director will be entitled to be dismissed from the suit.

2018Accepting the well-pled facts of the Complaint as true, they each were in a conflicted state when they negotiated and approved the Challenged Transactions and, in that state, acted in a manner that advanced either their own interests or the interests of those to whom they were beholden at the expense of the Company.256 These breach of loyalty claims cannot be extinguished at the pleading stage under Section 102(b)(7). 254 Cornerstone, 115 A.3d at 1180 (“[T]he mere fact that a plaintiff is able to plead facts supporting the application of the entire fairness standard to the transaction, and can

2018Accepting the well-pled facts of the Complaint as true, they each were in a conflicted state when they negotiated and approved the Challenged Transactions and, in that state, acted in a manner that advanced either their own interests or the interests of those to whom they were beholden at the expense of the Company.256 These breach of loyalty claims cannot be extinguished at the pleading stage under Section 102(b)(7). 254 Cornerstone, 115 A.3d at 1180 (“[T]he mere fact that a plaintiff is able to plead facts supporting the application of the entire fairness standard to the transaction, and can

2017To wit, if the directors face a “substantial likelihood” of personal liability, their ability to consider a 91 823 A.2d at 493 . 92 Id. at 500 . 38 demand impartially is compromised under Rales, excusing demand.93 This Court added that where an exculpatory charter provision exists, “a serious threat of liability may only be found to exist if the plaintiff pleads a non- exculpated claim against the directors based on particularized facts.”94 Importantly, this Court then determined that it was required to analyze (1) whether a majority of the board lacked independence or was interested in the ch

2017To wit, if the directors face a “substantial likelihood” of personal liability, their ability to consider a 91 823 A.2d at 493 . 92 Id. at 500 . 38 demand impartially is compromised under Rales, excusing demand.93 This Court added that where an exculpatory charter provision exists, “a serious threat of liability may only be found to exist if the plaintiff pleads a non- exculpated claim against the directors based on particularized facts.”94 Importantly, this Court then determined that it was required to analyze (1) whether a majority of the board lacked independence or was interested in the ch

2015Ch. 1999), aff’d sub nom., Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (same). 28 See, e.g., Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1279 (Del. 1989) (internal citations omitted) (quoting AC Acquisitions v. Anderson, Clayton & Co., 519 A.2d 103, 111 (Del.

2015Ch. 1999), aff’d sub nom., Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (same). 28 See, e.g., Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1279 (Del. 1989) (internal citations omitted) (quoting AC Acquisitions v. Anderson, Clayton & Co., 519 A.2d 103, 111 (Del.

2022C. § 102(b)(7), “a substantial likelihood of liability 72 Rales, 634 A.2d at 936 . 73 Id. (citing Aronson, 473 A.2d at 815 ). 23 may only be found to exist if the plaintiff pleads a non-exculpated claim against the directors based on particularized facts.”74 Whether a director faces a substantial likelihood of liability from a non-exculpated claim “turns primarily on . . . whether the complaint pleads particularized facts that support a reasonable inference that the director’s decision could be attributed to bad faith.”75 Plaintiff has not demonstrated that Clegg, Dunn, or Acton face a substan

2022C. § 141(a). 228 See In re BGC P’rs, 2021 WL 4271788 , at *5-6; see Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993) (noting that Rule 23.1 “constitutes the procedural embodiment” of a “substantive principle of corporation law”). 39 At the summary judgment stage, I dismissed Bell and Curwood due to a dearth of evidence supporting a non-exculpated claim against them.

2021But the use of “independence” as a shorthand descriptor of the second Cornerstone prong should not be read to nullify the two-step nature of the inquiry. 122 Orman v. Cullman, 794 A.2d 5, 24 (Del.

2015Had plaintiff alleged such well-pleaded facts supporting a breach of loyalty or bad faith claim, the Section 102(b)(7) charter provision would have been unavailing as to such claims, and this case would have gone forward‖); Orman v. Cullman, 794 A.2d 5 (Del.

2021That a non- exculpated claim may be brought against less than a majority of the board or some other individual at the company, or that the board committed exculpated duty of care violations alone, will not affect the board’s right to control a company’s litigation.131 In reaching that conclusion, Lenois examined several other Court of Chancery decisions holding that Section 102(b)(7) provisions are relevant when assessing whether demand should be excused under Aronson’s second prong: • In Higher Education Management Group, Inc v. Matthews, the Court of Chancery noted that because the corporati

2017Duty of care violations of the board Plaintiff also argues that “a lack of adequate information excuses demand under Aronson’s second prong” even where an exculpatory charter provision exists.80 Plaintiff cites to McPadden v. Sidhu,81 which concerned the sale of a subsidiary to a company of a former officer who was not a director.82 In McPadden, the plaintiff alleged that the directors caused the company to sell its wholly-owned subsidiary to members of the subsidiary’s management for a fraction of the subsidiary’s fair market value.83 The parties agreed that the question of demand futility sh

2020Holdings LLC, 125 A.3d 304, 312 (Del. 2015) (citing Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985)). 338 Morrison, 2019 WL 7369431 , at *15 (quoting RBC, 129 A.3d at 849 ) (internal quotation marks omitted). 339 See In re Essendant, Inc. S’holder Litig., 2019 WL 7290944 , at *17 (Del.

2019LLC, 125 A.3d 304 (Del. 2015). 96 Count IV is also asserted against Holdco, but the Complaint pleads no facts from which it can be understood how Plaintiff contends Holdco, the entity into which Alon and later Delek were merged, owed fiduciary duties to Alon’s stockholders or breached them. 97 See supra n.1. 40 entire fairness standard applies, the Complaint fails to allege facts sufficient to support a finding of unfair process or unfair price. (4) The Complaint fails to state a non-exculpated claim for breach against the Director Defendants in all events. 1.

2026Because these directors constitute a majority of the Board in place when this lawsuit was cf. Quadrant, 102 A.3d at 186 (noting that courts do not second-guess tactical business judgments). 183 Am.

2025We note further that Malpiede does not include constructive knowledge in its limited discussion of scienter. 191 Id. (quoting Metro Comm. Corp. BVI v. Advanced Mobilecomm Techs., Inc., 854 A.2d 121, 143 (Del.

2024Sept. 30, 2003); Kraft Heinz, 2023 WL 2745118 , at *8 (“Members of the Audit Committee may have a specific responsibility for oversight of matters related to the allegedly misleading shareholder communications, but it does not follow that they had knowledge of deception or wrongdoing in the dissemination of those communications or the materials they relied on, particularly considering that board members are entitled to rely in good faith on the reports of employees and officers.”). 118 See McElrath v. Kalanik, 224 A.3d 982 , 991-92 (Del. 2020) (explaining that to identify a non-exculpated clai

2024R. 8(a) (requiring a pleading to contain “a short and plain statement of the claim showing that the pleader is entitled to relief”). 113 Solomon, 1995 WL 250374 , at *4. 114 Id.; see also Winshall v. Viacom Int’l, Inc., 55 A.3d 629 , 635 n.23 (Del.