Shafi v. Chien

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ABRAHAM SHAFI and GENRIKH )
KHACHATRYAN, individually and )
derivatively, on behalf of GET )
TOGETHER INC., and KRUTAL DESAI, )
ELIJAH CHANCEY, INOU RIDDER, )
ALIA SHAFI, KUNAL LAKHAN-PAL, )
JACOB SHAFI, SHEHAB AMIN, and )
NOAH SHAFI, )
)
Plaintiffs, )
)
v. ) C.A. No. 2023-1157-LWW
)
CHI-HUA CHIEN; SERENA DAYAL; )
MIKE MAPLES, JR.; SCOTT )
KAUFFMAN; GOODWATER CAPITAL, )
LLC; GOODWATER CAPITAL III, L.P.; )
SB INVESTMENT ADVISERS (US) INC. )
(aka SOFTBANK INVESTMENT )
ADVISERS); FLOODGATE FUND V, )
L.P., and GET TOGETHER INC., )
)
Defendants, )
)
and )
)
GET TOGETHER INC., )
)
Nominal Defendant.

MEMORANDUM OPINION
Date Submitted: November 15, 2024
Date Decided: March 3, 2025

Kevin M. Coen & Courtney Kurz, MORRIS, NICHOLS, ARSHT & TUNNELL
LLP, Wilmington, Delaware; Stephen Shackelford, Jr., Shawn Rabin & Eve Levin,
SUSMAN GODFREY L.L.P., New York, New York; Kemper Diehl, SUSMAN
GODFREY L.L.P., Seattle, Washington; Counsel for the Plaintiffs

Elena C. Norman, Daniel M. Kirshenbaum & Alex B. Haims, YOUNG CONAWAY
STARGATT & TAYLOR LLP, Wilmington, Delaware; Alexander J. Willscher,
SULLIVAN & CROMWELL LLP, New York, New York; Brendan P. Cullen,
SULLIVAN & CROMWELL LLP, Palo Alto, California; Counsel for Defendants
Serena Dayal and SB Investment Advisers (US) Inc. (aka SoftBank Investment
Advisers)

Elena C. Norman, Daniel M. Kirshenbaum & Alex B. Haims, YOUNG CONAWAY
STARGATT & TAYLOR LLP, Wilmington, Delaware; Benjamin Kleine, KLEINE
PC, San Francisco, California; Counsel for Defendants Mike Maples, Jr. and
Floodgate Fund V, L.P.

Matthew F. Fischer, Jacqueline A. Rogers & Eric J. Nascone, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Anna Erickson White &
Christin Hill, MORRISON & FOERSTER LLP, San Francisco, California; Counsel
for Defendants Scott Kauffman and Get Together Inc.

A. Thompson Bayliss, E. Wade Houston & S. Michael Blochberger, ABRAMS &
BAYLISS LLP, Wilmington, Delaware; Michael D. Celio, GIBSON, DUNN &
CRUTCHER LLP, Palo Alto, California; Mark H. Mixon, Jr., GIBSON, DUNN &
CRUTCHER LLP, New York, New York; Counsel for Defendants Chi-Hua Chien,
Goodwater Capital, LLC, and Goodwater Capital III, L.P.

Will, Vice Chancellor
This action is brought by the founders and certain common stockholders of

Get Together, Inc., a startup company with a novel social media platform. The

company took on venture capital investors through several funding rounds. In

exchange for sizeable investments, three venture capital firms received shares of

preferred stock, and each gained the right to elect one director to the company’s

board. The other three board votes were held by directors elected by common

stockholders.

The company’s investors were sold the promise of a thriving social media app.

But rumors began to swirl that the social media platform was populated by bots with

few active human users. The Securities and Exchange Commission launched an

investigation into the matter.

The three venture capital-affiliated directors proceeded to remove the

co-founder who served as CEO and installed an outsider to that role. That newly

appointed CEO, acting as a voting proxy for the common stockholders, then voted

to remove the co-founder from the board and elect himself to the vacancy. Days

later, the directors voted to dissolve the company, citing a newly obtained consultant

report that concluded the social media platform was overrun with bots. The

dissolution allowed the preferred stockholders to access the company’s remaining

$40 million in cash—less than their total investments—through their liquidation

preferences. The common stockholders received nothing.

1
These facts give rise to two dramatically different stories.

According to the plaintiffs, the venture capital firms and their director

designees panicked over the SEC investigation and feared reputational damage in

Silicon Valley that would impair future investment prospects. To shield themselves,

they blamed the co-founder and commissioned a sham report about bots on the

platform as cover. By hastily dissolving IRL without regard to the common

stockholders, they cut their losses and could focus on more profitable endeavors.

The defendants, however, insist that the co-founder sold them a bill of goods.

They maintain that the social media platform was a hoax because its users were

almost entirely bots. In their view, the co-founder was appropriately suspended for

misconduct and removed from his CEO and board positions. They believe that

shutting down the company promptly was the only responsible path for all investors.

At this stage, in resolving the defendants’ motion to dismiss, I cannot

determine which story is accurate. Some of the plaintiffs’ theories rest only on

aspersions about the startup and venture capital communities, which fall short of

their pleading burden. But others are supported by well-pleaded facts, which I must

accept as true, that bolster the plaintiffs’ tale.

Most of the plaintiffs’ claims survive. A few claims are non-viable, which I

dismiss. Discovery will be necessary to determine the truth about Get Together’s

demise.

2
I. FACTUAL BACKGROUND

Unless otherwise noted, the following facts are drawn from the Verified

Amended Complaint (the “Complaint”) and the documents it incorporates by

reference.1

A. IRL’s Founding and Funding

Get Together Inc. is a startup founded by Abraham Shafi, Krutal Desai, and

Genrikh “Henry” Khachatryan in 2016.2 Shafi served as its CEO and Desai as its

President.3 Get Together’s founders had a vision of creating a new social media

network that would help members form connections “in real life.”4 After raising

seed funding in 2016, the founders began to build out a social media platform and

app called In Real Life (or IRL).5

IRL raised $8 million in a 2018 Series A investment round and $16 million in

a 2019 Series B round.6 These funding rounds were led by Goodwater Capital, a

1
Verified Am. Compl. (Dkt. 35) (“Compl.”).
2
Id. ¶ 36. Get Together, Inc. was a Delaware corporation before its dissolution. Id. ¶ 55.
It is referred to in this decision as “IRL.” See id. ¶ 2 n.1.
3
Id. ¶¶ 37-38.
4
Id. ¶ 59.
5
Id.
6
Id. ¶ 63.

3
venture capital firm founded and run by Chi-Hua Chien.7 Floodgate Fund, a venture

capital firm co-founded and led by Mike Maples, invested in both rounds.8

In May 2021, IRL closed a Series C round, raising $170 million at a $1.17

billion post-money valuation.9 SB Investment Advisors (US) Inc., an affiliate of

SoftBank Group, invested $150 million.10 SoftBank’s investment was led by Serena

Dayal, a Director at SB Investment Advisors.11

B. IRL’s Board

IRL’s Board of Directors has six seats. The company’s Amended and

Restated Certificate of Incorporation allocated three Board seats to directors elected

by common stockholders, which included IRL’s founders, employees, and earliest

investors.12 The other three Board seats were allocated to directors elected by certain

7
Id. ¶¶ 47, 63. “Goodwater” refers to Goodwater Capital, LLC and to Goodwater Capital
II, L.P., which invested in IRL. Id. ¶ 47.
8
Id. ¶¶ 49, 63. “Floodgate” refers to Floodgate Fund and to Floodgate Fund V, L.P., which
invested in IRL. Id. ¶ 49.
9
Id. ¶ 69.
10
Id. ¶¶ 51, 64. Defendant SB Investment Advisors (US) Inc. was the investment manager
for SoftBank Vision Fund 2 at the time of IRL’s Series C round. SoftBank Vision Fund 2
invested in IRL through an entity called SVF II Aggregator (DE), LLC. These entities are
referred to as “SoftBank.” Id. ¶ 51.
11
Id. ¶ 48.
12
Id. ¶ 70; see also Trans. Aff. of Alex B. Haims in Supp. of Defs.’ Opening Br. in Supp.
of Mot. to Dismiss (Dkt. 46) (“Defs.’ Ex.”) Ex. C (Am. and Restated Voting Agreement
(“Voting Agreement”)) § 1.1 (stating that the Board would remain at six directors); id.
§ 1.2(d) (explaining that the “Common Stock Directors” would be elected by common
stockholders “voting as a separate class”).

4
preferred stockholders.13 If there were fewer than three common stockholder

directors on the Board, the seated common stockholder directors would retain voting

power equal to three votes.14

After the Series C round, the Board had five members. The common

stockholder directors were founders Shafi and Desai (each with 1.5 votes).15 An

Amended and Restated Voting Agreement (the “Voting Agreement”) gave

Goodwater, Floodgate, and SoftBank (together, the “VC Funds”) each the right to

designate one director.16 Goodwater appointed Chien, Floodgate appointed Maples,

and SoftBank appointed Dayal (together, the “VC Directors”).17

C. IRL’s Progress

In September 2021, IRL reported ongoing user growth to its Board of

approximately 3.8 million daily active users and 14 million monthly active users.18

This was an increase from the 3 million daily active users and 13 million active users

13
Compl. ¶ 70; see also Voting Agreement § 1.2(a)-(c).
14
Compl. ¶ 70.
15
Id.
16
Id.; see also Voting Agreement §§ 1.2(a) (Floodgate), 1.2(b) (Goodwater), 1.2(c)
(SoftBank).
17
Compl. ¶ 70.
18
Id. ¶ 72; cf. Defs.’ Ex. A (Series C Preferred Stock Purchase Agreement) § 2.8(e).

5
IRL disclosed in soliciting Series C investors.19 IRL was one of the top ten most

downloaded social media apps on Apple’s mobile operating system at the time.20

In December 2022, IRL launched a new meme-generating app called

Memix.21 Memix allowed users to create and share memes on social media. It was

ranked among the top free apps in the Apple App Store shortly after its launch.22

D. The SEC Investigation

In early 2022, certain IRL employees raised allegations that IRL’s user base

was “substantially inflated by bots.”23 That spring, tech-focused publication The

Information reported that IRL employees had “expressed concern to managers about

the usage figures the company ha[d] touted.”24 “[T]wo people with direct

knowledge” conveyed that IRL “may have used an unconventional definition [of

active users] to make the app appear bigger than it is.”25

Three months later, in August 2022, the Securities and Exchange Commission

subpoenaed IRL for information about its user statistics.26 IRL hired outside counsel

19
Id. ¶ 60.
20
Id. ¶ 61.
21
Id. ¶¶ 73-74.
22
Id. ¶ 74.
23
Id. ¶ 85.
24
Id. ¶ 86.
25
Id.
26
Id. ¶ 87.

6
to respond to the SEC’s inquiry—first retaining Cooley LLP, then Faegre Drinker

Biddle & Reath LLP.27

In December 2022, after IRL retained Faegre, Cooley warned the VC

Directors of their risk of exposure from the SEC’s investigation.28 The VC Directors

and their affiliated funds were concerned about the potential ramifications.29 But on

January 27, 2023, Faegre provided its initial assessment that “concerns about a

significant bot problem on IRL’s platform were unfounded.”30 Faegre further

investigated the bot allegations with the assistance of technology consulting firm

Celerity and, in April, it concluded that the allegations were baseless.31

E. The Special Committee

On January 25, 2023, IRL’s Board unanimously established a Special

Committee to oversee IRL’s response to the SEC investigation and examine the

allegations about IRL’s active user population.32 The Board appointed Chien, Dayal,

27
Id. ¶ 88.
28
Id. ¶ 93.
29
See, e.g., id. ¶¶ 90-92, 94, 262.
30
Id. ¶ 95.
31
Id. ¶ 97.
32
Id. ¶ 118; see Defs.’ Ex. D (Action by Unanimous Written Consent of the Board of Get
Together, Inc.).

7
and Maples to the Special Committee.33 The Special Committee retained outside

counsel to advise it.34

At this point, the SEC had not made any allegations of wrongdoing or

misconduct. Its investigation was ongoing, and IRL was cooperating.35 Both Chien

and Dayal were deposed by the SEC in April 2023.36

F. Shafi’s Suspension

Two days after Chien’s SEC deposition, the VC Directors met with Shafi.37

They told Shafi that unless he immediately resigned as IRL’s CEO, he would be

suspended and IRL would issue a press release describing his “pattern of

misconduct” related to his use of an IRL credit card for personal expenses.38

When Shafi refused to resign, the Special Committee told him on April 28,

2023 that he was suspended as CEO.39 The Special Committee then appointed

33
Compl. ¶ 118.
34
Id. ¶ 122.
35
Id. ¶ 121; see id. ¶ 12.
36
Id. ¶ 123.
37
Id. ¶ 124.
38
Id.
39
Id. ¶ 125.

8
outsider Scott Kauffman as IRL’s CEO.40 Kauffman had a longstanding relationship

with Chien.41

The same day, The Information published an article with the headline “IRL’s

CEO Steps Down After Allegation of Inflated User Numbers.”42 It reported that

Shafi “stepped down . . . following allegations that the company used bots to inflate

the users it reported publicly and to investors, according to a person with direct

knowledge.”43 Two days later, The Information published another article stating that

“[a] special committee of messaging app IRL’s board of directors suspended CEO

Abraham Shafi . . . after receiving a report from outside counsel that outlined a

pattern of misconduct by Shafi” according to “an IRL spokesperson.”44

G. IRL’s Collapse

Between the end of April when Shafi was suspended and early May 2023,

IRL’s daily user population plummeted. IRL suffered a technical incident from

April 26 to April 28 that did not affect user activity.45 But additional outages

occurred between May 9 and 14, each taking the platform offline for several days

40
Id. ¶ 140.
41
Id. ¶¶ 145-46.
42
Id. ¶ 131.
43
Id.
44
Id. ¶¶ 132-33.
45
Id. ¶ 154.

9
and causing significant drops in users.46 After another outage incident in mid-May,

IRL’s active users fell to under 50,000.47 Some users expressed frustration and

displeasure with the app experience in online reviews.48

IRL employees grew disillusioned.49 Some felt that Kauffman was an

ineffective leader.50 Although a plan to fix the platform and reengage users was

developed by senior IRL employees, Kauffman refused to implement it.51 IRL’s

advertising spending suddenly ceased.52 Memix, too, was in limbo.53

H. Board Dissension

On June 1, 2023, Desai called an emergency Board meeting for June 8.54 He

announced one agenda item: “the strategic direction of the company and the

company’s best interests in light of the recent decision by the Special Committee

regarding Scott Kauffman as CEO and President.”55

46
Id. ¶¶ 156-58.
47
Id. ¶ 159.
48
Id. ¶¶ 160-61.
49
Id. ¶ 163.
50
Id. ¶¶ 163-64.
51
Id. ¶ 167.
52
Id. ¶ 164.
53
Id. ¶¶ 171-73.
54
Id. ¶ 178.
55
Id.

10
During the meeting, Desai expressed “his belief that IRL had real value and

that Kauffman’s management was threatening it.”56 The VC Directors conveyed

both their willingness to consider Desai’s feedback and their confidence in

Kauffman.57 Chien also asked that Shafi resign from the Board. Shafi refused.58

I. The Keystone Report

By this point, the Special Committee had commissioned consulting firm

Keystone Strategy to “analyze user activity on the IRL platform to confirm the

presence of bot accounts.”59 Keystone’s investigation report (the “Keystone

Report”), dated June 22, 2023, stated that it had found extensive suspicious user

behavior and clear signs of bot activity on the IRL platform.60

Keystone’s work was allegedly rushed, contradictory, unreliable, and at odds

with prior reported data.61 Keystone extracted IRL user data from an experimental

database despite its understanding that a different database was the “source of truth

56
Id. ¶ 183.
57
Id. ¶ 184.
58
Id.
59
Defs.’ Ex. F (Keystone Strategy, Findings Regarding Bot Activity on the IRL Platform
dated June 21, 2023 (“Keystone Report”)); see Compl. ¶ 188.
60
Keystone Report 3.
61
See Compl. ¶¶ 9-10, 189-210 (discussing alleged problems with Keystone’s work and
report).

11
for counting active users.”62 As a result, Keystone could not accurately verify

whether between 45% and 65% of the IRL data reflected human or bot activity.63

J. IRL’s Dissolution

On June 12, 2023, Chien called a special meeting of the Board for June 20 “to

discuss the conclusion of the Special Committee’s investigation.”64 Three days later,

on June 15, the VC Directors formed an entity called IRL LIQUIDATION, LLC.65

They had allegedly decided that it was best for their affiliated funds to shut IRL

down.66

During the June 20 Board meeting, the Special Committee disclosed

Keystone’s findings to Shafi and Desai, who had been unaware of Keystone’s

retention.67 The Special Committee reported that Keystone had concluded 95% of

the users on IRL’s platform since mid-2022 were bots.68

62
Id. ¶ 190.
63
Id. ¶¶ 194-95; Keystone Report ¶ 32.
64
Compl. ¶ 204.
65
Id. ¶ 205.
66
Id. ¶¶ 186-87.
67
Id. ¶ 206.
68
Id.

12
Two days later, on June 22, the VC Directors called another special meeting

of the Board for the next day.69 The purpose of the meeting was to consider a

proposed resolution to dissolve the Company.70 Desai and Shafi were taken aback.71

Desai expressed his confusion over the conflicting information about bots

provided by Faegre and Keystone, which he felt the Special Committee needed to

address.72 Desai also asked whether the Special Committee had “an estimation of

the potential net proceeds from a sale of the company, as referenced in the proposed

resolution.”73 Shafi objected to the conclusions in the Keystone Report and to the

timing of the dissolution vote.74

The same day, the Special Committee’s counsel emailed IRL’s co-founders

(Desai, Shafi, and Khachatryan) and one other common stockholder to request that

they sign a unanimous written consent removing Shafi from the Board and electing

Kauffman in his place.75 The email requested that the consent be executed and

69
Id. ¶ 213.
70
Id.
71
Id. ¶¶ 214-17.
72
Id. ¶ 214 (Desai: “until Tuesday it was my understanding that bots were not a significant
problem on the app”).
73
Id. ¶ 215.
74
Id. ¶ 217.
75
Id. ¶ 219.

13
returned within 24 hours.76 When that time passed without a response from Desai,

Shafi, or Khachatryan, counsel circulated a consent executed by Kauffman as a

purported proxy for the common stockholders.77 In doing so, Kauffman sought to

remove Shafi and elect himself to a common stockholder designated Board seat, with

the associated 1.5 Board votes.78

The newly-reconstituted IRL Board—consisting of the three VC Directors,

Desai, and Kauffman—met on June 23, shortly after Kauffman had signed the

consent.79 At the meeting, the VC Directors told Desai that they “had to shut down

and dissolve the Company right away.”80 Their reasoning was that “they had heard

that [] Shafi was going to talk to the press, and they had to beat him to the punch.”81

The Board (including Desai) then proceeded to vote unanimously to dissolve IRL.82

IRL had approximately $40 million in cash at the time, which would be distributed

to investors.83

76
Id.
77
Id. ¶ 220.
78
Id. ¶ 228.
79
Id. ¶ 229.
80
Id. ¶ 233.
81
Id.
82
Id. ¶ 234.
83
See id. ¶¶ 11, 149, 168.

14
After the Board’s dissolution vote, an IRL spokesperson issued a press

release. It explained that an investigation by the Board had found 95% of IRL’s

users were bots.84 Kauffman sent a letter to IRL’s stockholders with similar

information.85

The story made headlines in various publications. For example, on June 23,

The Information announced that IRL was shutting down and cited IRL’s statement

that the platform was overrun with bots.86 The article also suggested that Shafi might

be linked to the problem, mentioning that the closure came two months after his

suspension for “alleged misconduct.”87 Other news outlets took a similar spin.88

K. The California Action

On July 31, 2023, SoftBank—IRL’s largest investor—sued Shafi and

members of his family in federal district court in California (the “California

Action”).89 SoftBank alleged that Shafi defrauded IRL’s investors to enrich himself

84
Id. ¶ 236.
85
Id. ¶ 238; see Defs.’ Ex. G (Kauffman’s letter to stockholders).
86
Compl. ¶ 239.
87
Id.
88
Id. ¶¶ 240-44.
89
See Defs.’ Ex. H (Compl., SVF II Aggregator (DE) LLC v. Shafi, et al., No. 4:23-cv-
03834-YGR (N.D. Cal.) (ECF No. 1)); see also In re Rural Metro Corp. S’holders Litig.,
2013 WL 6634009, at *7 (Del. Ch. Dec. 17, 2013) (“Delaware courts have taken judicial
notice of publicly available documents that ‘are required by law to be filed, and are actually
filed, with federal or state officials.’” (quoting In re Tyson Foods, Inc. Consol. S’holder
Litig., 919 A.2d 563, 584 (Del. Ch. 2007))).

15
and his family, causing SoftBank to suffer substantial losses.90 SoftBank’s theory is

that Shafi used bots to inflate the number of IRL’s active users at the time that

SoftBank invested in the Series C round and misrepresented IRL’s active user

growth.91

On May 2, 2024, the federal court denied Shafi’s motion to dismiss in part—

including as to SoftBank’s claims for fraud—and granted the motion in part with

leave to amend.92 Claims against the other defendants were dismissed with leave to

amend.93

SoftBank filed an amended complaint in the California Action on June 3,

2024.94 The California defendants again moved for dismissal.95 Their motion to

dismiss the amended complaint was recently granted in part and denied in part.96

90
Defs.’ Ex. H ¶ 13.
91
Id. ¶¶ 4, 7.
92
Defs.’ Ex. J (Order Granting in Part and Den. in Part Mot. to Dismiss, Shafi, No. 4:23-
cv-03834-YGR (ECF No. 69)).
93
Id.
94
Am. Compl., Shafi, No. 4:23-cv-03834-YGR (ECF No. 70) (“Cal. Compl.”).
95
Defs.’ Omnibus Notice of Mot. and Mot. to Dismiss Pl.’s Compl., Shafi, No. 4:23-cv-
03834-YGR (ECF No. 88).
96
Order Granting in Part and Den. in Part Mot. to Dismiss, Shafi, No. 4:23-cv-03834-YGR
(ECF No. 97); see Dkt. 73 (counsel in this action informing me of the California order).

16
L. This Action

On November 15, 2023, Shafi and co-founder Khachatryan filed direct claims

and derivative claims on behalf of IRL in this court.97 They named as defendants

Goodwater, SoftBank, Floodgate, Chien, Dayal, Maples, and Kauffman. After the

defendants moved to dismiss or stay the case, an amended complaint (the operative

“Complaint”) was filed.98 In addition to Shafi and Khachatryan, co-founder Desai

joined as a plaintiff, along with seven holders of IRL stock options. IRL was added

as a defendant.

The Complaint asserts four derivative and four direct claims:

• Count I is a breach of fiduciary duty claim brought by Shafi and
Khachatryan derivatively on behalf of IRL against the VC Directors for
removing Shafi, installing Kauffman, and shutting down IRL;99

• Count II is a breach of fiduciary duty claim brought by Shafi, Desai,
and Khachatryan against the VC Directors for violating IRL’s bylaws
by appointing Kauffman CEO;100

• Count III is a breach of fiduciary duty claim brought by Shafi and
Khachatryan derivatively on behalf of IRL against Kauffman for
damaging IRL’s business;101

97
Dkt. 1.
98
Dkts. 32, 35.
99
Compl. ¶¶ 265-78 (seeking damages on behalf of IRL).
100
Id. ¶¶ 279-82 (seeking damages on behalf of the plaintiffs). Desai only brings this claim
against Chien and Maples. Id. at 113 n.12. He does not assert any claims against SoftBank
and Dayal, or any claims derivatively on behalf of IRL. Id. at 140 n.14.
101
Id. ¶¶ 283-92 (seeking damages on behalf of IRL).

17
• Count IV is a claim for breach of IRL’s Voting Agreement brought by
Shafi, Desai, and Khachatryan against IRL for Kauffman’s vote as a
proxy for common stockholders;102

• Count V is a claim for vicarious liability and respondeat superior
brought by Shafi and Khachatryan derivatively on behalf of IRL against
the VC Firms;103

• Count VI is a claim for tortious interference with prospective economic
advantage brought by all ten plaintiffs against all defendants for
impairing the value of stock options;104 and

• Count VII and VIII are claims for defamation and false light invasion
of privacy brought by Shafi against the VC Directors and Kauffman for
making false statements about Shafi’s “pattern of misconduct.”105
On May 24, 2024, the defendants moved to dismiss the Complaint or stay it

in deference to the resolution of the California Action.106 The plaintiffs filed an

answering brief in opposition to the motion on July 10, and the defendants filed a

reply brief on August 9.107 Oral argument was presented on November 15.108

102
Id. ¶¶ 293-303 (seeking damages on behalf of plaintiffs).
103
Id. ¶¶ 304-09 (asserting that the venture funds are liable to IRL for damages).
104
Id. ¶¶ 310-19 (seeking damages on behalf of plaintiffs).
105
Id. ¶¶ 320-49 (seeking damages on behalf of Shafi).
106
Defs.’ Consol. Opening Br. in Supp. of Defs.’ and Nominal Def.’s Mots. to Dismiss or
Stay Pls.’ Am. Verified Compl. (Dkt. 46) (“Defs.’ Opening Br.”).
107
Pls.’ Answering Br. in Opp’n to Defs.’ and Nominal Def.’s Mots. to Dismiss or Stay
Pls.’ Am. Verified Compl. (Dkt. 51) (“Pls.’ Answering Br.”); Defs.’ Reply Br. in Supp. of
Defs.’ and the Nominal Def.’s Mots. to Dismiss or Stay Pls.’ Am. Verified Compl. (Dkt.
55) (“Defs.’ Reply Br.”).
See Tr. of Oral Arg. on Defs.’ and Nominal Def.’s Mots. to Dismiss or Stay Pls.’ Am.
108

Verified Compl. (Dkt. 70) (“Hr’g Tr.”).

18
During oral argument, I raised sua sponte that the Court of Chancery lacks

subject matter jurisdiction over defamation and false light claims.109 The plaintiffs

subsequently filed a proposed order to transfer Counts VII and VIII to the Superior

Court.110 I granted that order and explained that I would request cross-designation

to resolve those claims in the to-be-filed Superior Court action.111

II. ANALYSIS

The arguments in the defendants’ motion fall into three categories. First, they

argue that the derivative claims (Counts I, III, and V) must be dismissed for failure

to plead demand futility. Second, they argue that the plaintiffs have failed to state

any direct claims (Counts II, IV, and VI) on which relief can be granted. And third,

they argue in the alternative that this action should be stayed in deference to the

California Action.

109
Id. at 6; see Perlman v. Vox Media, Inc., 2019 WL 2647520, *5 (Del. Ch. June 27,
2019), aff’d, 249 A.3d 375 (Del. 2021) (“[D]efamation [i]s a claim uniquely suited for
adjudication by a law court . . . .”); see also Preston Hollow Cap. LLC v. Nuveen LLC,
2019 WL 3801471, at *9-10 (Del. Ch. Aug. 13, 2019) (dismissing a defamation claim for
lack of subject matter jurisdiction); 10 Del. C. § 342 (“The Court of Chancery shall not
have jurisdiction to determine any matter wherein sufficient remedy may be had by
common law, or statute, before any other court or jurisdiction of this State.”).
False light invasion of privacy is a variant of defamation. See Ryle v. Outen, 2024
WL 66022, at *5 (Del. Super. Jan. 5, 2024), aff’d, 327 A.3d 1087 (Del. 2024); Restatement
(Second) of Torts § 652E (1977) (noting that an action for false light affords “an alternative
or additional remedy” to a claim of defamation).
110
Dkt. 71.
111
Dkt. 72.

19
I begin by assessing the plaintiffs’ derivative claims. I conclude that demand

is excused because, among other reasons, a majority of Board faces a substantial

likelihood of liability for breach of fiduciary duty (on Counts I and III). But I dismiss

the plaintiffs’ vicarious liability claim (Count V) because it fails as a matter of law.

On the direct claims, I conclude that two survive and one fails. The claims

for breach of fiduciary duty for bylaw violations (Count II) and for breach of the

Voting Agreement (Count IV) state viable claims. The tortious interference claim

(Count VI) does not and is dismissed.

Finally, I decline to stay this action in deference to the California Action.

A. Derivative Claims and Demand Futility

“[T]he decision whether to initiate or pursue a lawsuit on behalf of the

corporation is generally within the power and responsibility of the board of

directors.”112 A stockholder may pursue claims on a corporation’s behalf only “if

(1) the corporation’s directors wrongfully refused a demand to authorize the

corporation to bring the suit or (2) a demand would have been futile because the

directors were incapable of impartially considering the demand.”113 The plaintiffs

here invoke the latter approach.

112
In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 120 (Del. Ch. 2009).
113
Firemen’s Ret. Sys. of St. Louis on behalf of Marriott Int’l, Inc. v. Sorenson, 2021 WL
4593777, at *6 (Del. Ch. Oct. 5, 2021).

20
Under Court of Chancery Rule 23.1, a plaintiff who forgos making a litigation

demand on the corporation’s board must plead “particularized facts” supporting a

reasonable inference that “demand is excused because the board is incapable of

exercising its power and authority to pursue the derivative claims directly.”114

Conclusory allegations will not suffice.115

To assess demand futility, this court applies the “universal” three-part test

established in United Food & Commercial Workers Union v. Zuckerberg.116 The

court asks, on a director-by-director and claim-by-claim basis:

(i) whether the director received a material personal benefit from
the alleged misconduct that is the subject of the litigation
demand;

(ii) whether the director faces a substantial likelihood of liability
on any of the claims that would be the subject of the litigation
demand; and

(iii) whether the director 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

114
White v. Panic, 783 A.2d 543, 551 (Del. 2001) (emphasis omitted; citation omitted); see
also Brehm v. Eisner, 746 A.2d 244, 256 (Del. 2000).
115
E.g., Greenwald v. Batterson, 1999 WL 596276, at *4 (Del. Ch. July 26, 1999) (“In
weighing the adequacy of the complaint under Rule 23.1, ‘only well-pleaded allegations of
fact may be accepted as true; conclusory allegations of fact or law not supported by
allegations of specific fact may not be taken as true. A trial court need not blindly accept
as true all allegations, nor must it draw all inferences from them in plaintiffs’ favor unless
they are reasonable inferences.’” (quoting Grobow v. Perot, 539 A.2d 180, 187 (Del.
1988))).
116
262 A.3d 1034 (Del. 2021).

21
face a substantial likelihood of liability on any of the claims that
are the subject of the litigation demand.117
If “the answer to any of the questions is ‘yes’ for at least half of the members of the

demand board, then demand is excused as futile.”118

When this action was filed, IRL’s Board had five members: Desai, Maples,

Chien, Dayal, and Kauffman. Kauffman and Desai each had 1.5 Board votes;

Maples, Dayal, and Chien each had one vote. The plaintiffs do not claim that Desai

was incapable of impartially considering a demand. They focus on the other four

Board members.

The plaintiffs raise various arguments about the partiality of these directors.

They say that the VC Directors received material personal benefits from the alleged

misconduct; that the VC Directors lacked independence from their affiliated VC

Funds, which received material personal benefits from the alleged misconduct; and

that the VC Directors and Kauffman each face a substantial likelihood of liability

for the derivative claims in the Complaint.119 Although the plaintiffs organize their

arguments by the Zuckerberg prongs, there is significant overlap. For example, the

misconduct allegedly provided material benefits to both the directors and the funds

from which they lack independence, while causing harm to the company and

117
Id. at 1059.
118
Id.
119
See Pls.’ Answering Br. 16-48.

22
common stockholders that triggers liability for breach of fiduciary duty claims. I

therefore address the plaintiffs’ demand futility arguments thematically and claim

by claim, rather than follow a duplicative box-checking exercise.

I conclude that demand futility has been established for Count I. The plaintiffs

adequately plead that the VC Directors put their interests, and those of the VC Funds,

ahead of common stockholders.

Demand is also futile on Count III. The plaintiffs’ allegations about Kauffman

either overlap with Count I such that the VC Directors could not impartially consider

a demand or are sufficient to impugn Kauffman’s decision-making.

Count V is a different matter. It rests on a flawed legal theory.120 It is

therefore dismissed.

1. Breach of Fiduciary Duty Against the VC Directors

The plaintiffs contend that the VC Directors each “put their own personal and

financial interests”—and those of the VC Funds—“ahead of those of the Company

and its stockholders.”121 The VC Directors allegedly did so in a variety of ways—

from appointing Kauffman to blaming Shafi for IRL’s failings and commissioning

the Keystone Report. According to the Complaint, these actions were sequenced

120
See infra note 194 and accompanying text (setting out the Rule 12(b)(6) standard).
121
Compl. ¶ 267.

23
steps in a scheme to dissolve IRL.122 This scheme allegedly yielded material benefits

for the VC Directors and the VC Funds, from which the VC Directors lack

independence.123

According to the plaintiffs, as partners in their firms (Goodwater and

Floodgate), Chien and Maples “received personal benefits whenever the funds

did.”124 And Dayal, as a Director of SB Investment Advisors, was “beholden to

SoftBank” for her pay and employment.125 The VC Directors were thus dual

fiduciaries, owing duties to their respective funds, on one hand, and to IRL and its

stockholders, on the other hand.126

But dual fiduciary status alone is insufficient to demonstrate that a director

lacks independence for demand futility purposes. A “potential conflict of interest”

cannot rebut the presumption of impartiality, which applies with equal force to

122
E.g., id. ¶¶ 24-25 (discussing the “final act of [the VC Directors’] scheme” as “put[ting]
forward a resolution to dissolve the Company”); id. ¶ 228 (describing the “removal of
Abraham Shafi and appointment of Kauffman in his place on the Board” as “critical to the
last part of the VC Directors’ scheme”).
123
E.g., id. ¶¶ 254, 257, 261.
124
Pls.’ Answering Br. 23-24.
125
Id. at 25.
126
See id. at 25-26 (discussing the “dual fiduciary problem” (quoting Frederick Hsu Living
Trust v. ODN Hldg. Corp., 2017 WL 1437308, at *27 (Del. Ch. Apr. 14, 2017))); see also
Hr’g Tr. 15 (defense counsel conceding that the VC Directors were dual fiduciaries).
Because Dayal’s dual fiduciary status is conceded, I do not consider whether she is
differently situated from Chien and Maples as a non-partner.

24
directors of early-stage startups and major public companies.127 Instead, a plaintiff

“must show that an actual conflict existed.”128

The plaintiffs cite to several benefits that they believe created actual conflicts

that motivated the VC Directors to breach their fiduciary duties and shutter IRL.

First, they say that the VC Directors decided to “cut bait” on IRL so that the VC

Funds could redirect their resources toward more profitable ventures.129 Second,

they assert that the VC Directors managed to protect their valuable reputations amid

the SEC investigation.130 And third, they argue that the VC Directors funneled IRL’s

remaining cash to the VC Funds, which had liquidation preferences as preferred

stockholders.

The first two purported benefits are insufficient to establish demand futility.

They hinge on broad assumptions about the venture capital industry rather than

particularized allegations. But the third benefit supports an inference that, based on

the facts alleged in the Complaint, the VC Directors face a substantial likelihood of

127
Cooke v. Oolie, 2000 WL 710199, at *12 (Del. Ch. May 24, 2000); cf. Nixon v.
Blackwell, 626 A.2d 1366, 1379-81 (Del. 1993) (explaining that there are no “special rules”
or protections for minority stockholders of closely held corporations that are not statutory
close corporations).
128
Oolie, 2000 WL 710199, at *12; see also Acela Invs. LLC v. DiFalco, 2019 WL
2158063, at *31 (Del. Ch. May 17, 2019) (“The distinction between ‘actual’ and ‘potential’
conflicts of interest is important under Delaware law. It has been used to demarcate when
a fiduciary wearing two hats can be liable for acting disloyally.”).
129
Pls.’ Answering Br. 4-5.
130
See id. at 31-35.

25
liability for advancing the interests of the VC Funds at the expense of IRL and its

common stockholders.

a. Unicorn Hunting

The plaintiffs claim that the VC Directors’ dual fiduciary statuses drove them

to cut the VC Funds’ losses on a failed investment. “Quickly shuttering IRL”

allegedly benefitted the VC Funds because they could “stop investing time and

resources into a company they had determined was no longer likely to give them

quick and gigantic returns.”131 Although this assertion is in tension with the notion

that IRL was on the verge of breakout success, the plaintiffs maintain that the VC

Funds were following a standard venture capital playbook.132 The Complaint

observes that the venture capital business model “incentivize[s]” firms “to liquidate

even profitable ventures that fall short of their desired returns, particularly when

those ventures would require extended investments of time and resources that could

be devoted to more promising ventures.”133 Simply put, the plaintiffs say that the

VC Funds had decided IRL was not a “unicorn” and decided to move on.134

131
Id. at 26.
132
E.g., Compl. ¶ 115.
133
Id. ¶ 117.
134
Hr’g Tr. 56-57 (arguing that the VC Funds had no interest in restoring IRL’s platform
after outages because IRL “wasn’t a unicorn”); see generally Elizabeth Pollman, Startup
Governance, 186 U. Pa. L. Rev. 155, 157 n.4 (2019) (“Venture capitalist Aileen Lee coined
the term ‘unicorn’ in 2013 to capture the elusive and rare nature of mega-hit ventures in a
fund that are worth a billion dollars or more.” (citing Aileen Lee, Welcome to the Unicorn

26
There are no particularized allegations supporting this contention. Quite the

opposite. It is based on sweeping generalizations about the venture capital industry,

supported only by case law making similar observations.135 For example, the

plaintiffs assert that venture capital firms “operate under a business model that

causes them to seek outsized returns from a small subset of the investments they

make, while expecting many of their investments to fail or generate insignificant

returns.”136 It may be that some—even many—venture capital firms take this

approach. But this court cannot fairly infer a party’s company-specific motives

based on industry-wide stereotypes. “Generalities, artistically ambiguous, all-

encompassing conclusory allegations are not enough” to satisfy Rule 23.1.137

Club: Learning from Billion-Dollar Startups, TechCrunch (Nov. 2, 2013),
https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club))).
135
See Pls.’ Answering Br. 26-27 (“[V]enture capitalists will sometimes liquidate an
otherwise viable firm, if its expected returns are not what they (or their investors) expected,
or not worth pursuing further, given limited resources and the need to manage other
portfolio firms.” (quoting In re Trados Inc. S’holder Litig., 73 A.3d 17, 51 (Del. Ch. 2013)
(“Trados II”))); see also Compl. ¶¶ 115-17. The only allegations that relate to a specific
fund are based on an interview that Chien gave about the venture business generally and
his previous firm’s investments in Segway and Google. Id. ¶¶ 109, 115-16, 146. But those
allegations are not about IRL—or even Goodwater.
136
Compl. ¶ 115.
137
Richardson v. Graves, 1983 WL 21109, at *2 (Del. Ch. June 17, 1983) (“What is
required are pleadings that are specific and, if conclusory, supported by sufficient factual
allegations that corroborate the conclusion and support the proposition that demand is
futile.”); see also IBEW Local Union 481 Defined Contribution Plan and Tr. on Behalf of
GoDaddy, Inc. v. Winborne, 301 A.3d 596, 620 (Del. Ch. 2023) (observing that “permitting
a plaintiff to rely on general averments to disqualify a director for demand futility purposes
would risk making it too easy to survive a Rule 23.1 motion”); Zuckerberg, 262 A.3d at
1063 (holding that generalized allegations that a director benefitted from increased “deal

27
b. Saving Face

The plaintiffs next contend that the VC Directors benefitted from their scheme

to shut down IRL and blame Shafi for its failings because they kept their “reputations

intact” and free of public scrutiny.138 But Delaware courts reject the idea that

directors act improperly “for the purpose of avoiding speculative reputational

risk.”139 The reasoning for doing so is logical: it would be unreasonable to infer that

a person strove to protect her reputation by engaging in the sort of misconduct that

could destroy it.140

The plaintiffs, however, say that this case is different. They maintain that the

VC Directors sought to preserve their professional reputations at a “critical

flow” were insufficient to impair his independence without “identify[ing] a single deal . . .
expected to flow . . . through th[e] association”); cf. Paul v. China MediaExpress Hldgs.,
Inc., 2012 WL 28818, at *8 (Del. Ch. Jan. 5, 2012) (explaining that a “vague and general
assertion” about “reverse mergers involving foreign corporations and the lack of
transparency” was insufficient to satisfy the low credible basis standard in connection with
a specific merger).
138
Pls.’ Answering Br. 36.
139
Morrison v. Berry, 2019 WL 7369431, at *14 (Del. Ch. Dec. 31, 2019).
140
See id. at *14 (declining to draw the “unreasonable inference” that directors, motivated
by “protecting their reputations as fiduciaries,” would have breached their fiduciary duties
by engaging in a “sham sale process”); In re USG Corp. S’holder Litig., 2020 WL 5126671
at *25 (Del. Ch. Aug. 31, 2020) (holding that “[g]iven the circumstances alleged by the
Plaintiffs,” it was not “reasonably conceivable” that the defendants would have, “for the
purpose of protecting their reputations as fiduciaries, breached their fiduciary duties,
risking the far greater blackening of their fiduciary reputations” (citing Morrison, 2019 WL
7369431, at *14)); see also Rudd v. Brown, 2020 WL 5494526, at *7, *10 (Del. Ch. Sept.
11, 2020) (dismissing claims for breach of the duty of loyalty because there was “no logical
force” to the plaintiffs’ “barebones conflict theory” that directors sought to avoid
“reputational harm” from a potential proxy contest).

28
fundraising moment” so that their associated VC Funds could “raise and deploy

venture capital funds.”141 Once again, the plaintiffs’ argument rests upon a blanket

critique of venture capitalists.142 They insist that fund-affiliated directors on boards

of venture-backed startups are driven to “protect their reputations” so that they can

“profit by raising massive amounts of new money from investors (and charg[e] hefty

management fees on those funds).”143

Because of these purported features of the startup and venture capital

communities, the plaintiffs believe that I should look askance at the VC Directors’

actions.144 To do so would upend the business judgment rule. This court will not

reflexively view directors’ conduct with suspicion based upon broad aspersions

Pls.’ Answering Br. 5, 18, 22, 32; Compl. ¶ 252 (Chien); see id. ¶ 255 (Dayal); id. ¶ 258
141

(Maples).
142
E.g., Compl. ¶¶ 111-12, 268; see also id. ¶¶ 79-80 (discussing general financial market
conditions in 2022 that put pressure on venture capital firms).
143
Id. ¶ 30; see also id. ¶ 108 (stating that venture capital firms raise new funds by “(1) by
earning management fees from its assets under management and (2) by taking a portion of
the profits generated by its investment funds, also known as ‘carried interest’”). The
argument regarding Dayal is slightly different and involves her desire to maintain her job
at SoftBank and protect its reputation during a challenging time. See id. ¶¶ 84, 105-06.
144
E.g., Pls.’ Answering Br. 37-38; see also id. ¶ 35 (discussing how “these venture
capitalists promote themselves to the founders of startups they wish to invest in”).

29
about industry clichés.145 Nor can these general critiques satisfy the stringent

pleading requirements of Rule 23.1.146

c. Preferential Treatment

Finally, the plaintiffs allege that the VC Directors were conflicted because

they put the interests of the VC Funds as preferred stockholders ahead of IRL and

its common stockholders by impairing and then dissolving the company.147 The VC

Funds were preferred stockholders of IRL with liquidation preferences that entitled

them to recoup their investments plus an 8% annual dividend amount.148 They stood

to gain some return on their investments through distributions of IRL’s $40 million

in cash.149 By comparison, common stockholders like the plaintiffs gained nothing.

Delaware courts have observed that directors’ fiduciary obligations charge

them with pursuing “the best interests of the corporation and its common

stockholders, if that can be done faithfully with the contractual promises owed to the

145
See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) (explaining that directors are
protected by the business judgment rule, which “is a presumption that in making a business
decision the directors of a corporation acted on an informed basis, in good faith and in the
honest belief that the[y acted] in the best interests of the company”), overruled in part on
other grounds by Brehm, 746 A.2d at 254.
146
See supra note 137 and accompanying text (citing case law explaining that generalities
about industries are not particularized allegations for purposes of Rule 23.1).
147
See Pls.’ Answering Br. 39-41.
148
Compl. ¶ 149.
149
See id. ¶ 187 (“In mid-2023, IRL had at least $40 million in cash on hand, and the VC
Directors could expect that by quickly shutting down the Company, they could recover and
distribute it among the preferred shareholders (i.e., themselves).”).

30
preferred.”150 In Trados II, the Court of Chancery expressed that directors should

“strive in good faith and on an informed basis to maximize the value of the

corporation for the benefit of its residual claimants, the ultimate beneficiaries of the

firm’s value, not for the benefit of its contractual claimants.”151 The preferred

stockholders are contractual claimants, who have contract rights; the common

stockholders, who lack contractual protections, are the residual claimants of the

company’s value. “[I]n circumstances where the interests of the common

stockholders diverge from those of the preferred stockholders, it is possible that a

director could breach her duty by improperly favoring the interests of the preferred

stockholders over those of the common stockholders.”152

Here, the plaintiffs contend that the interests of common and preferred

stockholders were misaligned on whether IRL should be liquidated.153 The

Complaint details that IRL was posed for success and growth. IRL had raised capital

150
LC Cap. Master Fund, Ltd. v. James, 990 A.2d 435, 452 (Del. Ch. 2010) (citing cases
including Equity-Linked Invs. v. Adams, 705 A.2d 1040 (Del. Ch. 1997)).
151
73 A.3d at 40-41.
152
Trados II, 73 A.3d at 42 (quoting In re Trados Inc. S’holder Litig., 2009 WL 2225958,
at *7 (Del. Ch. July 24, 2009) (“Trados I”))).
153
See Compl. ¶ 114 (“[T]he interests of IRL’s preferred and common stockholders were
not and are not aligned with respect to any decision to pursue a transaction that would result
in funds being distributed to the preferred stockholders and result in lesser or no
consideration for the common stockholders. In a liquidation, the preferred stockholders
would recover more than $170 million in proceeds before the common stockholders could
get a penny.”).

31
through a Series C round, which occurs when a business is established, generating

revenue, and ready to scale.154 According to the Complaint, within three years of

IRL’s Series A round, IRL’s app had gained widespread popularity and nearly 13

million active users.155 Its second social media asset, Memix, also gained a solid

user base by late 2022.156

If this were true, IRL’s common stockholders might have favored the use of

IRL’s $40 million to revive IRL, monetize Memix, and foster the company’s

potential value.157 But by taking discretionary steps to dissolve the company, the

VC Directors ensured that IRL’s social media assets and corresponding financial

prospects were lost. Common stockholders were left empty handed, while preferred

stockholders would recover something through their liquidation preferences—albeit

a portion of their total investments.

Yet, the dissolution of IRL was not necessarily a breach of fiduciary duty.

The defendants paint a very different narrative. They describe IRL as a failure that

154
See Michael Boyles, 5 Strategies for Securing Tech Startup Funding, Harvard Business
School Online (July 18, 2023), https://online.hbs.edu/blog/post/strategies-for-securing-
tech-startup-funding (“Series C: Provided when your business has tens of millions of
dollars in potential revenue and can grow through product launches, acquisitions, and
market expansion”).
155
See generally Compl. ¶¶ 60-65; see also id. ¶ 72.
156
Id. ¶¶ 74-76.
157
See Pls.’ Answering Br. 29-30.

32
never generated consumer revenue or turned a profit.158 They also say that Shafi

misled preferred stockholders and the public about the user base for IRL’s social

media platform.159 Instead of having millions of active users, the defendants assert

(based on the Keystone Report) that 95% of identified IRL users were automated or

bots.160

There is a reasonable inference to be drawn that the VC Directors concluded

dissolving IRL was the best way to maximize the value of the firm. If the defendants

are right that IRL’s business was based on lies about active users on a platform

overrun with bots, the common stockholders’ prospects were moribund. As

Chancellor Chandler aptly observed in Trados I, it is not “necessarily [] a breach of

fiduciary duty for a board to approve a transaction that, as a result of liquidation

preferences, does not provide any consideration to the common stockholders.”161 It

would unreasonable to punish directors who take an approach that they believe, in

good faith, is certain to maximize the value of the corporation simply because a

riskier decision could potentially yield some value for common stockholders in the

158
See Defs.’ Opening Br. 5 (citing Compl. ¶¶ 63, 69, 286).
159
Id. at 1, 7, 17-18.
160
Id. at 17 (quoting Defs’ Ex. G).
161
2009 WL 2225958, at *7 n.36.

33
future.162 Boards should not be expected to make value-destructive choices to drag

out the life of a failing company on the off chance that it turns around.163

At this stage, however, I must accept as true the plaintiffs’ allegations that

IRL was poised for success. I must overlook the defendant-friendly inference that

the VC Directors made a wise business decision that maximized firm value. Instead,

I must draw the plaintiff-friendly inference that the VC Directors gave no

consideration to their obligations to common stockholders and focused only on the

preferred stockholders’ interests.

This plaintiff-friendly inference is supported by particularized facts

suggesting that the VC Directors were indifferent to the interests of common

162
See generally Robert P. Bartlett, III, Shareholder Wealth Maximization as Means to an
End, 38 Seattle U. L. Rev. 255 (2015) (questioning the rationale of charging directors with
an immutable duty to maximize value for common stockholders and articulating how
contingency directors can exercise bargaining power to maximize firm value).
163
See Prod. Res. Gp., L.L.C. v. NCT Gp., Inc., 863 A.2d 772, 791 n.60 (Del. Ch. 2004)
(noting in the context of a distressed entity that “[t]he maximization of the economic value
of the firm might . . . require the directors to undertake the course of action that best
preserves value in a situation when the procession of the firm as a going concern would be
value-destroying” such that “the efficient liquidation of an insolvent firm might well be the
method by which the firm’s value is enhanced”); see also Credit Lyonnais Bank Nederland,
N.V. v. Pathe Commc’ns Corp., 1991 WL 277613, at *34 n.55 (Del. Ch. Dec. 30, 1991)
(“[I]n managing the business affairs of a solvent corporation in the vicinity of insolvency,
circumstances may arise when the right . . . course to follow for the corporation may
diverge from the choice that the stockholders (or the creditors, or the employees, or any
single group interested in the corporation) would make if given the opportunity to act.”);
see also Pollman, supra note 134, Startup Governance, at 206 (discussing the potential
destruction of economic and social value that may be perpetuated by startups with
lackluster financial performance or compliance failures).

34
stockholders.164 The Complaint explains that the decision to dissolve IRL was

hastily made, without any semblance of a process, exploration of alternatives, or

thought to common stockholders’ interests.165 The VC Directors allegedly formed

an entity called IRL LIQUIDATION, LLC the week before the Board first met to

discuss dissolution.166 This entity was formed even before the Special Committee,

which consisted only of the VC Directors, received the Keystone Report. Setting

aside whether liquidating IRL was the value-maximizing choice, the VC Directors

may face a substantial risk of liability if they paid singular focus to maximizing

preferred returns without any consideration of options that might have benefitted

common stockholders.167

164
Ironworkers Dist. Council of Phila. & Vicinity Ret. & Pension Plan v. Andreotti, 2015
WL 2270673, at *27 (Del. Ch. May 8, 2015) (“For the actions of directors to have been in
bad faith, the directors must have acted with scienter, i.e., with a motive to harm, or with
indifference to harm that will necessarily result from the challenged decision . . . .”); see
also Ryan v. Gifford, 918 A.2d 341, 357 (Del. Ch. 2007) (explaining that bad faith can
“include any action that demonstrates a faithlessness or lack of true devotion to the interests
of the corporation and its shareholders”).
165
Compl. ¶¶ 17, 28, 230-31, 233-34; see generally Steven E. Bochner & Amy L.
Simmerman, The Venture Capital Board Member’s Survival Guide: Handling Conflicts
Effectively While Wearing Two Hats, 41 Del. J. Corp. L. 1, 21-27 (2016) (describing the
sort of process that venture-affiliated directors should strive to follow in making decisions
that differently affect common and preferred stockholders).
166
Compl. ¶ 205.
167
See Trados II, 73 A.3d at 64 (addressing that the board did not consider the common
stock whatsoever in making an acquisition decision that only benefitted preferred
stockholders).

35
Accordingly, demand is not futile on Count I as to any of the VC Directors.168

2. Breach of Fiduciary Duty Against Kauffman

The plaintiffs allege that Kauffman (as acting CEO and a director of IRL)

breached his duty of loyalty by “elevat[ing] the interests of the VC Directors over

the interests of the Company and its stockholders.”169 It is not immediately evident

why Kauffman would do so. The Complaint states that Kauffman was a “longtime

loyal ally” of Chien.170 It also suggests that Kauffman was “beholden” to the VC

Directors because he depends on “other funds like theirs for employment.”171

Neither of these conclusory statements are adequate under Rule 23.1 to support an

inference that Kauffman lacked independence from any of the VC Directors or VC

Funds.

Nevertheless, I conclude that demand on this claim is futile. Kauffman’s

alleged misconduct was part and parcel of the VC Directors’ “scheme” to shut down

IRL.172 The plaintiffs allege that “Kauffman’s actions proximately caused the

168
One of the arguments raised in Count I concerns potential breaches of fiduciary duty
for violating IRL’s bylaws. This relates to the plaintiffs’ direct claim in Count II for breach
of the bylaws, which I conclude states a claim. See infra Section II.B.1.
169
Compl. ¶ 288.
170
Id. ¶ 20; see also id. ¶ 288 (alleging that Chien and Kauffman had “a decades-long
relationship”).
171
Id. ¶ 263.
172
See supra notes 122-23 (citing the Complaint).

36
destruction of what had been a billion-dollar-plus business, wiping out all the

Company’s value.”173 These actions include “the Board vote[] to dissolve IRL” and

“destroying the value of IRL (and thus the value of the common stock).”174

As discussed above, the same deeds support a finding of demand futility

against the VC Directors.175 The VC Directors, as three members of the five-person

Board (with three of six Board votes), could not impartially consider a claim about

the same issues on which they face liability themselves.176 Nor could Kauffman,

who likewise purportedly failed to consider IRL’s stockholders as a whole

(including its common stockholders) when he set out to “preserve whatever investor

capital he could—for the VC investors.”177

173
Compl. ¶ 292.
174
Id. ¶ 291.
175
See supra Section II.A.1.
176
See Grabski on behalf of Coinbase Global, Inc. v. Andreesssen, 2024 WL 390890, at
*12 (Del. Ch. Feb. 1, 2024) (“Where the factual allegations underlying claims against
officers are ‘congruous’ with the facts underlying claims against directors, then adequately
alleging a substantial likelihood of liability as to the directors satisfies the demand
requirement concerning the claims against the officers.” (quoting In re CBS Corp. S’holder
Class Action & Deriv. Litig., 2021 WL 268779, at *47 (Del. Ch. Jan. 27, 2021)));
Teamsters Local 433 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *26 (Del.
Ch. Aug. 24, 2020) (explaining that demand on a claim against an officer was futile where
the board’s investigation into the claim would “necessarily implicate the same set of facts”
as a claim against the board for which demand was futile). By the same logic, Kauffman
could not impartially consider a demand on Count I.
177
See Compl. ¶ 149 (alleging that Kauffman told IRL employees he was experienced in
winding down companies to return investments to investors).

37
The Complaint also states that Kauffman breached his duty of loyalty “by

wrongfully voting [common stockholders’] shares in favor of removing Abraham

Shafi from the Board and electing himself to the Board in Shafi’s place.”178

Kauffman stood to benefit from this vote because he gained a Board seat. 179 He

allegedly (and invalidly) cast the common stockholders’ votes to install himself on

the Board, despite knowing that the common stockholders were “opposed” and that

they had just 24 hours’ notice of the request to vote.180 These allegations support a

conclusion that Kauffman, too, faces a substantial likelihood of liability.181

In addition, the Complaint sets out specific facts to support a reasonable

inference that Kauffman faces a substantial likelihood of breaching his duty of care

to IRL and its stockholders. As an officer of IRL, Kauffman would not be exculpated

for a duty of care violation. The plaintiffs allege that he displayed a reckless

disregard for IRL’s business and employees.182 For instance, after significant

178
Id. ¶ 289.
179
Id.
180
Id. ¶¶ 289-90.
181
See Voting Agreement § 4.2 (granting proxy voting authority to IRL’s President only
after a party either fails to vote or attempts to vote in a manner inconsistent with the terms
of the Voting Agreement).
182
See Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *4 (Del. Ch. Aug.
26, 2005) (describing the sort of “gross negligence” allegations that support a duty of care
claim including a “devil-may-care attitude or indifference amounting to recklessness”
(citation omitted)); see also In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at
*15 (Del. Ch. Oct. 27, 2020) (“To plead gross negligence, a plaintiff must allege ‘conduct

38
outages, Kauffman purportedly dismissed senior employees’ plans to bring IRL’s

platform back online and reengage with users.183 This lack of care was allegedly in

furtherance of Kauffman’s effort to facilitate value-extraction by the preferred

stockholders.

Demand is therefore futile on Count III as to the VC Directors and Kauffman.

3. Vicarious Liability Against the VC Funds

The plaintiffs attempt to extend vicarious liability to the VC Funds for actions

taken by the VC Directors that were a “proximate cause of IRL’s injuries.”184

Specifically, they seek to hold SoftBank accountable for Dayal’s actions, Goodwater

accountable for Chien’s actions, and Floodgate accountable for Maples’ actions.

The plaintiffs cite to agency principles, alleging that VC Directors’ actions were

within the scope of their employment by and for the benefit of the VC Funds.185

This claim fails as a matter of law.

that constitutes reckless indifference or actions that are without the bounds of reason.’”
(quoting Morrison, 2019 WL 7369431, at *22)).
183
See Compl. ¶ 167.
184
Id. ¶¶ 306-09. The only claim against the VC Directors for causing derivative harm to
IRL is Count I. The plaintiffs assert in their answering brief that Count V could “be
maintained against the [VC Funds] for direct claims.” Pls.’ Answering Br. 48 n.14. But
Count V is expressly styled as a claim “ON BEHALF OF IRL” and speaks only of the VC
Directors’ actions that harmed IRL. See Compl. 123 (heading to Count V). The plaintiffs
cannot amend their pleading through briefing. See Cal. Pub. Emps. Ret. Sys. v. Coulter,
2002 WL 31888343, at *12 (Del. Ch. Dec. 18, 2002) (“Arguments in briefs do not serve to
amend the pleadings.”).
185
Compl. ¶¶ 306-09.

39
In Khanna v. McMinn, the Court of Chancery rejected a similar attempt to

hold a non-fiduciary stockholder liable for the acts of its board designee.186 There,

a company’s co-founder brought breach of fiduciary duty claims against current and

former board members.187 The co-founder also sought to impose liability under the

doctrine of respondeat superior on a venture capital firm associated with certain

board members. The court explained that the co-founder’s attempt to hold the firm,

which was not a fiduciary of the company or its stockholders, liable for acts of its

purported agent-directors lacked support in Delaware law. It noted that to impose

liability on the firm through the common law tort doctrine of respondeat superior

‘would work an unprecedented, revolutionary change in our law, and would give

investors in a corporation reason for second thoughts about seeking representation

on the corporation’s board of directors.’”188

The plaintiffs here ask that I interpret Khanna narrowly as standing only for

the proposition that “a stockholder’s mere appointment or nomination of an

independent director cannot alone form the basis for respondeat superior

liability.”189 To bolster this argument, they rely on cases in the aiding and abetting

186
2006 WL 1388744, at *28 (Del. Ch. May 9, 2006).
187
Id.
188
Id. (quoting Emerson Radio Corp. v. Int’l Jensen, Inc., 1996 WL 483086, at *20 n.18
(Del. Ch. Aug. 20, 1996)).
189
Pls.’ Answering Br. 48, 49 n.15.

40
context.190 But claims for aiding and abetting breach of fiduciary duty are distinct

from claims for vicarious liability for breach of fiduciary duty. The former involves

a non-fiduciary defendant’s “knowing participation” in a breach, and the latter

focuses on the principal-agency relationship through which liability flows.191

The plaintiffs have not brought an aiding and abetting claim against the VC

Funds. They have not pleaded knowing participation by the VC Funds, which

requires a showing of “active participation” in the misconduct.192 It would be

inconsistent with Delaware law to permit the plaintiffs to bypass this deficiency and

extend liability to the non-fiduciary VC Funds using the doctrine of respondeat

superior.193

Id. at 48 (citing In re PLX Tech. Inc. S’holders Litig., 2018 WL 5018535, at *50 (Del.
190

Ch. Oct. 16, 2018)).
191
See Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001) (explaining that “the third
party [must] act with the knowledge that the conduct advocated or assisted constitutes such
a breach” to give rise to aiding and abetting liability); Arnold v. Soc’y for Sav. Bancorp,
Inc., 1995 WL 376919, at *8 (Del. Ch. June 15, 1995) (“Respondeat superior imposes
liability upon a principal for the torts of his agent committed within the scope of their
agency relationship.”).
192
In re Mindbody, Inc. S’holder Litig., --- A.3d ---, 2024 WL 4926910, at *33 (Del. Dec.
2, 2024) (explaining that “participation in an aiding and abetting claim requires that the
aider and abettor provide ‘substantial assistance’ to the primary violator,” which requires
“active participation rather than ‘passive awareness’” (citation omitted)).
193
See Khanna, 2006 WL 1388744, at *28; Emerson Radio, 1996 WL 483086, at *20 n.18
(rejecting the idea that liability for a breach of fiduciary duty could be extended to a non-
fiduciary fund based on the actions of its board designee); Firefighters’ Pension Sys. of
City of Kansas City, Missouri Tr. v. Presidio, Inc., 251 A.3d 212, 286 (Del. Ch. 2021)
(stating that Delaware courts “reject[] the use of agency principles like respondeat superior
to impose liability on a stockholder for the acts of its director representative”); see also
USAirways Grp., Inc. v. British Airways PLC, 989 F. Supp. 482, 494 (S.D.N.Y. 1997)

41
Accordingly, Count V is dismissed.

B. Direct Claims

The defendants also seek dismissal of the Complaint under Court of Chancery

Rule 12(b)(6) for failure to state a claim on which relief can be granted.194 The

standard that governs the motion is as follows:

(i) all well-pleaded factual allegations are accepted as true; (ii)
even vague allegations are “well-pleaded” if they give the
opposing party notice of the claim; (iii) the Court must draw all
reasonable inferences in favor of the non-moving party; and
[(iv)] dismissal is inappropriate unless the “plaintiff would not
be entitled to recover under any reasonably conceivable set of
circumstances susceptible of proof.”195

The court will neither “blindly accept conclusory allegations unsupported by

specific facts” nor “draw unreasonable inferences in the plaintiffs’ favor.”196 It will

accept “only those reasonable inferences that logically flow from the face of the

complaint and is not required to accept every strained interpretation of the

allegations proposed by the plaintiff.”197

(denying recovery under a respondeat superior theory for breach of fiduciary duty because
it would “undermine” and “circumvent[] clear limitations imposed by Delaware corporate
law”).
194
Defs.’ Opening Br. 27 n.16, 52.
195
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (citations omitted).
196
Gantler v. Stephens, 965 A.2d 695, 704 (Del. 2009) (citation omitted).
197
Id.

42
1. Breach of Fiduciary Duty for Bylaw Violations

Count II is a direct claim for breach of fiduciary duty against the VC Directors

for violating IRL’s corporate bylaws.198 The plaintiffs allege that the VC

Directors—acting as members of the Special Committee—intentionally violated

IRL’s bylaws in two ways. First, they failed to appoint Desai (IRL’s President) the

CEO after Shafi’s suspension for placing personal expenses on a company credit

card.199 And second, they appointed Kauffman as CEO.200

IRL’s bylaws permit the Board to fill vacant officer positions. Section 29(a)

of the bylaws states:

Any officer elected or appointed by the Board of Directors may
be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may
be filled by the Board of Directors, or by the Chief Executive

198
Compl. ¶¶ 279-82. In their motion to dismiss briefs, both parties address Count II as
though it were derivative. Defs.’ Opening Br. 40-42; Pls.’ Answering Br. 42-44. But the
claim is pleaded as a direct one. The plaintiffs seek compensatory damages for alleged
injuries to Shafi, Desai, and Khachatryan. Compl. ¶ 282. As noted above, the plaintiffs’
derivative breach of fiduciary duty claims also include allegations about breaching the
bylaws. I address the merits here rather than above because Count II is a standalone claim
about a breach of the bylaws. Although the plaintiffs describe harm to Desai (and perhaps
Shafi), they also assert that the bylaw violations had the effect of harming IRL. E.g., id.
¶ 281. I decline to perform a Tooley analysis that the parties did not ask me to undertake.
Whether the claim is direct or derivative will need to be resolved at a later stage of the case
after briefing on the subject.
199
See id. ¶¶ 279-80.
200
Id.

43
Officer or other officer if so authorized by the Board of
Directors.201

If the CEO position is vacant, the bylaws contemplate that the President “will be”

the CEO. Section 29(c) of the bylaws states:

If the office of Chief Executive Officer is vacant, the President
will be the chief executive officer of the corporation (including
for purposes of any reference to Chief Executive Officer in these
Bylaws) and will, subject to the control of the Board of Directors,
have general supervision, direction and control of the business
and officers of the corporation.202

Despite being President, Desai did not ascend to the CEO position after

Shafi’s suspension. The plaintiffs assert that this violated Section 29(c) of the

bylaws. Rather than allow Desai to step into the CEO role, the Special Committee—

not the full Board—appointed Kauffman. The plaintiffs assert that this violated

Section 29(a) of the bylaws.203 Because these bylaw violations were allegedly part

of the VC Directors’ plan to take over and shut down IRL, the plaintiffs claim that

their actions breached the directors’ duties of loyalty.204

201
Defs.’ Ex. K (Am. and Restated Bylaws of Get Together, Inc.) § 29(a) (emphasis added);
see Compl. ¶ 142.
202
Defs.’ Ex. K § 29(c) (emphasis added); see Compl. ¶ 143.
203
Compl. ¶ 280.
204
Id.; cf. Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 954 (Del. Ch.
2013) (remarking that “as with all exercises of fiduciary authority,” the “real world
application” of a corporate bylaw “can be challenged as an inequitable breach of fiduciary
duty” (citing Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971))).

44
It is unclear whether the CEO position became “vacant” as contemplated by

Section 29(c) of the bylaws since Shafi was suspended—not removed. Kauffman

was allegedly appointed CEO “[i]n tandem” with Shafi’s suspension.205

Nevertheless, based on the allegations in the Complaint, it is reasonably conceivable

that Kauffman’s appointment violated Section 29(a).206

In arguing otherwise, the defendants contend that the Special Committee was

vested with broad authority.207 They point out that Section 29(a) of the bylaws

permits the Board to delegate its appointment powers to any “other officer so

authorized by the Board of Directors.”208 They further cite to the Special

Committee’s authorizing resolutions, which grant it “all the powers of the Board

necessary to carry out its purpose and responsibilities with respect to its review,

investigation, and resolution of the Allegations” raised in the SEC investigation.209

There are two problems with this argument. First, the bylaws contemplate

delegation to an “officer”—not a Board committee. Second, the Special

Committee’s authorizing resolutions do not clearly delegate to it the Board’s

205
Compl. ¶ 140.
206
Were the claim derivative, the allegations discussed in this section would also meet the
Rule 23.1 standard. The plaintiffs’ claim is supported by the text of the bylaws and
particularized facts.
207
Defs.’ Opening Br. 40.
208
Id. (quoting Defs.’ Ex. K § 29(a)).
209
Id. (quoting Defs.’ Ex. D).

45
authority to remove the CEO. The resolutions explain that the Special Committee

was formed to:

review, investigate, resolve, and decide what action, if any, the
Company should take in response to, in any manner that the
Special Committee deems appropriate or necessary in the
exercise of its unfettered discretion, the Allegations, as well as
any related facts, allegations, circumstances, or issues that may
be brought to the Special Committee’s attention as a result of its
review.210

“Allegations” is a defined term that refers to any “allegations of wrongdoing against

the Company or the Company’s management” made by the SEC.211

It may be that the Special Committee learned about Shafi’s purported credit

card misuse during its investigation into the subjects of the SEC inquiry. If the

defendants’ reading of the resolutions is correct, perhaps the Special Committee had

the power to suspend Shafi. But to dismiss Count II on that basis would require me

to accept facts and inferences presented by the defendants, in contravention of the

operative standard. I cannot say, as a matter of law, that the Special Committee had

the authority to appoint a new CEO given the terms of Section 29(a) of the bylaws.

The motion to dismiss is therefore denied as to Count II.

210
Defs.’ Ex. D at 1.
211
Id.; see Compl. ¶ 121.

46
2. Breach of the Voting Agreement

Count IV seeks to impose liability on IRL for breaching the Voting

Agreement.212 This is a breach of contract claim.213 “Under Delaware law, the

elements of a breach of contract claim are: 1) a contractual obligation; 2) a breach

of that obligation by the defendant; and 3) a resulting damage to the plaintiff.”214

Section 4.2 of the Voting Agreement, which is among the Company and

certain of its investors, confers proxy voting on the “President and Treasurer of the

Company.”215 The provision provides, in relevant part:

Each party to this Agreement hereby constitutes and appoints as
the proxies of the party and hereby grants a power of attorney to
the President and Treasurer of the Company, . . . with full
power of substitution, with respect to the matters set forth herein,
including without limitation, election of persons as members of
the Board in accordance with Section 1 hereto . . . and hereby
authorizes each of them to represent and to vote, if and only if
the party (i) fails to vote or (ii) attempts to vote (whether by
proxy, in person or by written consent), in a manner which is
inconsistent with the terms of this Agreement, all of such party’s

212
The plaintiffs’ original complaint brought this claim against Kauffman. See Dkt. 1.
Kauffman is not a party to the Voting Agreement. The amended Complaint now brings
the claim against IRL.
213
See Grayson v. Imagination Station, Inc., 2010 WL 3221951, at *7 (Del. Ch. Aug. 16,
2010) (referring to a breach of voting agreement claim as a breach of contract claim and
rejecting an argument that related claims could be separate fiduciary duty claims); Tex.
Pac. Land Corp. v. Horizon Kinetics LLC, 306 A.3d 530, 547 (Del. Ch. 2023) (“The claim
for breach of the Voting Agreement is a claim for breach of contract.”), aff’d, 314 A.3d
685 (Del. 2024); see also Defs.’ Opening Br. 52; Pls.’ Answering Br. 50.
214
H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 140 (Del. Ch. 2003) (citation omitted).
215
Compl. ¶¶ 297-98.

47
Shares in favor of the election of persons as members of the
Board.216

The plaintiffs assert that the Company, through Kauffman, violated the Voting

Agreement when Kauffman purported to vote Shafi’s, Desai’s, and Khachatryan’s

shares to remove Shafi from the Board and appoint himself in Shafi’s place.217 They

assert that this constituted a breach of Section 4.2 of the Voting Agreement for two

reasons. First, Kauffman “was not properly appointed President of IRL” and lacked

the authority to vote the shares.218 Second, Shafi, Desai, and Khachatryan had not

“failed to vote” but only failed to meet the “arbitrary deadline” of 24 hours after

notice of the request to vote.219

The defendants argue that Kauffman had validly been appointed President of

IRL by the Special Committee.220 Again, the defendants say that the Special

Committee had “broad authority” to make the appointment.221 This argument is not

dispositive for the reasons explained above.222 Without resolving whether the

216
Voting Agreement § 4.2 (emphasis added).
217
Compl. ¶ 299.
218
Id. ¶ 300. As with their argument about Kauffman’s appointment as CEO, the plaintiffs
maintain that the Special Committee lacked the authority to appoint Kauffman as President.
See Pls.’ Answering Br. 51.
219
Compl. ¶ 301.
220
Defs.’ Opening Br. 52; see also Compl. ¶ 225 (alleging that the “Special Committee
had purported to appoint Kauffman as President of IRL in late May 2023”).
221
Defs.’ Opening Br. 52.
222
See supra at 46-47.

48
Special Committee had the power to appoint Kauffman, I cannot determine whether

he could properly act as a proxy.223

That alone is grounds to deny the motion to dismiss on Count IV. I need not

address whether the failure to sign a written consent within 24 hours (when a Board

meeting was scheduled for the day after the request was made) constitutes a “failure

to vote” under Section 4.2 of the Voting Agreement.

3. Tortious Interference

Count VI is a claim for tortious interference with prospective economic

advantage.224 The plaintiffs allege that the defendants’ misconduct “destroyed the

value of stock options [they] held in IRL,” which the plaintiffs “intended to exercise

or sell.”225 To prevail, the plaintiffs must demonstrate the existence of “(a) the

reasonable probability of a business opportunity, (b) the intentional interference by

[the] defendant with that opportunity, (c) proximate causation, and (d) damages.”226

To show a reasonable probability of a business opportunity, the plaintiffs must

sufficiently plead “an actionable expectancy.”227 Delaware courts have held that

223
Also, if Kauffman was not President, it is unclear whether he could be deemed to have
acted on behalf of the Company—the defendant named in this count. Again, Kauffman
was not a party to the Voting Agreement.
224
Compl. ¶¶ 310-19.
225
Id. ¶ 311.
226
Malpiede, 780 A.2d at 1099 (citation omitted).
227
Blue v. Fireman, 2022 WL 593899, at *18 (Del. Ch. Feb. 28, 2022).

49
“mere ownership of stock options is insufficient to show a bona fide expectancy to

support a claim for tortious interference with prospective business relationships.”228

That is because “[o]ptions, like other derivative securities, inherently involve

risk.”229 “Mere hope” or “innate optimism” that the options have worth is

insufficient to demonstrate that a business opportunity was “reasonably probable.”230

The plaintiffs have put forward more than a vague hope that their options had

the potential for profit. According to the Complaint, many of the plaintiffs’ options

were issued before the Series C round and had a strike price of $0.32 per share.231

They were allegedly “in the money” at the time of the Series C transaction in 2021

and after, when IRL had a valuation exceeding that amount.232 Series C investors

purchased IRL stock in May 2021 at a price of $22.63 per share.233 As of 2022, a

409A valuation assessed IRL’s common stock at $4.50 per share.234

But the plaintiffs make no attempt to plead that they intended to exercise their

stock options. Demonstrating a bona fide expectancy involves the identification of

“a specific party who was prepared to enter into a business relationship but was

228
Bocock v. INNOVATE Corp., 2022 WL 15800273, at *26 (Del. Ch. Oct. 28, 2022).
229
Blue, 2022 WL 593899, at *18.
230
Agilent Techs., Inc. v. Kirkland, 2009 WL 119865, at *7 (Del. Ch. Jan. 20, 2009).
231
Compl. ¶ 313.
232
Id.
233
Id. ¶ 314.
234
Id. ¶ 313.

50
dissuaded from doing so by the defendant.”235 The plaintiffs offer only that third

parties “expressed clear interest” in acquiring the securities.236 The Complaint is

silent on whether the plaintiffs ever sold or exercised, or took any steps to sell or

exercise, their interests in IRL.237

The plaintiffs also have not met the “intentional interference” element. They

neglect to allege that the defendants even knew about their stock options or of any

intention the plaintiffs had to sell them.238 The plaintiffs argue in their answering

brief that the “[d]efendants were on the Board and must have known that the stock

options existed.”239 This assertion does not appear in the Complaint. Even if it did,

the plaintiffs do not explain how the defendants would have known about any third

235
Agilent Techs., 2009 WL 119865, at *7 (citation omitted); see also Carney v. B&B Serv.
Co., 2019 WL 5579490, at *2 (Del. Super. Oct. 29, 2019) (ORDER) (stating that a plaintiff
“must identify a specific party who was prepared to enter into a business relationship with
the plaintiff” (citation omitted)).
236
Compl. ¶ 316 (stating that Desai was contacted by a potential buyer for his stock and
options in February 2022).
237
See Jing Jing v. Weyland Tech, Inc., 2017 WL 2618753, at *4 (D. Del. June 15, 2017)
(holding that a plaintiff “fail[ed] to allege tortious interference with prospective business
advantage” when she “allege[d] only that she intends to sell her shares to unnamed third
party purchasers”).
238
See KT4 P’rs LLC v. Palantir Techs. Inc., 2021 WL 2823567 at *14 (Del. Super. June
24, 2021) (explaining that Delaware law requires “proof of the defendant’s knowledge
about the plaintiff’s prospective deal.”).
239
Pls.’ Answering Br. 56.

51
party offers to acquire the options. Absent knowledge of the business opportunity,

there can be no intentional interference.240

Count VI is dismissed for failure to plead the elements of a tortious

interference with prospective economic advantage claim.

C. The Motion to Stay

If the Complaint is not dismissed, the defendants ask, in the alternative, that I

stay the case pending resolution of the California Action.241 I decline to grant a stay.

The framework guiding a Delaware court’s discretion to grant or deny a

motion to stay is outlined in McWane Cast Iron Pipe Corp. v. McDowell-Wellman

Engineering Co.242 “Under the McWane doctrine, the court’s discretion to grant a

stay should be freely exercised where ‘there is a prior action pending elsewhere, in

a court capable of doing prompt and complete justice, involving the same parties and

the same issues.’”243 The court is guided by “considerations of comity and the

necessities of an orderly and efficient administration of justice.”244

240
See DG BF, LLC v. Ray, 2021 WL 776742, at *18 n.146 (Del. Ch. Mar. 1, 2021)
(explaining that the “interferer’s knowledge of the expectancy” is implicit in the Malpiede
test “which focuses on intent” (quoting Am. Homepatient, Inc. v. Collier, 2006 WL
1134170, at *5 (Del. Ch. Apr. 19, 2006))).
241
Defs.’ Opening Br. 60-66.
242
263 A.2d 281, 283 (Del. 1970).
243
In re Lordstown Motors Corp. S'holders Litig., 2022 WL 678597, at *2 (Del. Ch. Mar.
7, 2022) (citing McWane, 263 A.2d at 283).
244
McWane, 263 A.2d at 283.

52
The California Action, initiated by SoftBank against Shafi in July 2023, was

filed before this suit.

The California Action involves claims of federal securities fraud and

conspiracy, unjust enrichment, and aiding and abetting under California law.245 The

claims here, by contrast, are brought under Delaware law and involve alleged

breaches of fiduciary duty. There is some factual overlap insofar as both courts may

need to resolve whether IRL predominantly hosted bots or authentic human users.246

This overlapping issue of fact may bear on the defendants’ affirmative defenses and

the plaintiffs’ access to equitable relief. But there are different time periods at play.

The California Action is concerned with whether affirmative misrepresentations

about IRL’s active users were made to SoftBank when it invested in 2021. This case

centers on whether the platform had millions of active human users when the

Keystone Report was issued and IRL was shut down in 2023.

The parties are also dissimilar. Of the twenty parties involved in this action,

only four are named in the California Action.247 None of the defendants here are

parties to the California Action. The plaintiff in that action is a different SoftBank

245
See generally Cal. Compl.
246
Compare Compl. ¶ 1, with Cal. Compl. ¶ 4. The Complaint here alleges that the
statement about IRL’s overwhelming bot population was a “lie.” Compl. ¶¶ 1-3, 9-10, 195,
202-03). The California Complaint asserts the opposite. Cal. Compl. ¶¶ 5-6, 13-14, .
247
Four of the plaintiffs in this action are defendants in the California Action: Khachatryan,
Abraham Shafi, Noah Shafi, and Shehab Amin. See generally Cal. Compl.

53
entity than the SoftBank-affiliated defendant here. None of the remaining eight

defendants nor their corporate affiliates are involved in the California Action.

The California court therefore cannot do “prompt and complete justice” that

extends to the parties here. The presence of bots at the time of the Series C round

will have little bearing on the resolution of the claims before me. As such, I hardly

see a risk of conflicting rulings. I decline to stay this case while litigation among

completely different parties involving a different timeframe and separate legal

theories proceeds in California.

The motion to stay is therefore denied.

III. CONCLUSION

The motion to dismiss the derivative claims under Rule 23.1 is denied, except

that Count V fails as a matter of law and is dismissed. The motion to dismiss the

direct claims under Rule 12(b)(6) is granted in part insofar as Count VI is dismissed,

and otherwise denied. The motion to stay is also denied.

The parties are asked to meet and confer on a schedule to govern this action,

and to file a proposed scheduling order within 30 days.

54