In re Plug Power Inc. Stockholder Derivative Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE PLUG POWER INC. )
STOCKHOLDER DERIVATIVE ) C.A. No. 2022-0569-KSJM
LITIGATION )

MEMORANDUM OPINION

Date Submitted: November 15, 2024
Date Decided: May 2, 2025

Seth D. Rigrodsky, Gina M. Serra, Herbert Mondros, RIGRODSKY LAW, P.A.,
Wilmington, Delaware; Lee Squitieri, SQUITIERI & FEARON, LLP, New York, New
York; Fletcher Moore, Justin Kuehn, MOORE KUEHN, PLLC, New York, New York;
Counsel for Plaintiffs Abbas Khambati and Anne D. Graziano, Trustee.

Rudolf Koch, Kyle Lachmund, Sandy Xu, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Counsel for Defendants George McNamee, Andrew Marsh,
Maureen Helmer, Gregory Kenausis, Gary Willis, Johannes Roth, Lucas Schneider
Jonathan Silver, Paul Middleton, Gerard Conway, Jr., and Keith Schmid.

Ronald N. Brown, III, Peter H. Kyle, DLA PIPER LLP (US), Wilmington, Delaware;
John J. Clarke, Jr., DLA PIPER LLP (US), New York, New York; Yan Grinblat, DLA
PIPER LLP (US), Chicago, Illinois; Counsel for Nominal Defendant Plug Power Inc.

McCORMICK, C.
Amazon, Inc. is one of Plug Power, Inc.’s best customers. In 2017, Plug Power

agreed to provide Amazon a warrant to acquire Plug Power shares that vested in

three tranches based on Amazon’s purchase of up to $600 million of Plug Power’s

goods and services. Warrant shares in the third tranche were scheduled to begin

vesting in the fall of 2020. In November 2020, Plug Power’s board of directors

authorized management to attempt to negotiate an agreement with Amazon to

accelerate the vesting of the third tranche of warrant shares. There were business

reasons for this decision, but also downsides—accelerated vesting would result in a

substantial, one-time non-cash accounting charge. Negotiations were successful. On

December 31, 2020, Plug Power and Amazon executed an agreement to waive the

vesting conditions on the remaining warrants. Plug Power announced the agreement

on January 5, 2021. On February 25, 2021, Plug Power issued a press release

announcing its preliminary, unaudited fourth quarter 2020 results, which included

the approximate $412.7 million accounting charge associated with the agreement to

accelerate vesting. Plug Power’s stock price fell $6.82, or more than 13.5%, on this

news.

The plaintiffs own Plug Power stock. They assert Brophy1 claims challenging

insider trades that occurred between November 6, 2020 and January 19, 2021. They

allege that the Amazon negotiations and ultimate vesting agreement constituted

material, nonpublic information, and that the defendants sold stock based on that

1 Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949).
information. They also assert Caremark2 claims alleging that the board failed to

adequately monitor or respond to red flags of insider trading. They separately

advance Caremark claims challenging the board systems for responding to SEC

comment letters.

The plaintiffs’ Brophy and Caremark claims are derivative, and the defendants

have moved to dismiss them under Court of Chancery Rule 23.1 for failure to plead

demand futility. The defendants have also moved to dismiss the Brophy and

Caremark claims under Court of Chancery Rule 12(b)(6) for failure to state a claim.

The plaintiffs argue that the Plug Power directors relevant to the demand futility

analysis cannot impartially consider a demand because the majority of them face a

substantial likelihood of liability in connection with the Brophy and Caremark claims.

The plaintiffs do not allege particularized facts sufficient to support these arguments.

This decision therefore grants the motion to dismiss under Rule 23.1.

I. FACTUAL BACKGROUND

The facts are drawn from the Verified Amended Stockholder Derivative

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

reference.3

A. Plug Power And The Amazon Warrant

Plug Power (or the “Company”) is a Delaware corporation that manufactures

fuel cells that produce electricity using hydrogen and replace conventional batteries,

2 In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).

3 Cons. C.A. No. 2022-0569-KSJM, Docket (“Dkt.”) 25 (“Am. Compl.”).

2
particularly those used to power motor vehicles. Plug Power’s largest customers

include Amazon, which uses its fuel cell systems in its retail distribution and

manufacturing businesses, primarily for warehouse forklifts.

In April 2017, Plug Power announced it had agreed to issue Amazon a warrant

(the “Warrant”) to acquire 55,886,696 shares (the “Warrant Shares”) of Plug Power’s

common stock (the “Amazon Agreement”). The Amazon Agreement was part of a

larger commercial arrangement governing Amazon’s future orders of Plug Power’s

goods and services. The Warrant Shares vested based on Amazon’s purchase of up to

$600 million of Plug Power’s goods and services.

Under the Amazon Agreement, the Warrant Shares vested in three tranches.

The first tranche of 5,819,652 Warrant Shares vested immediately upon execution of

the Warrant and other transaction documents. The exercise price for the first tranche

was $1.1893 per share.

The second tranche of 29,098,260 Warrant Shares vested in four equal

installments of 7,274,565 shares, each triggered by Amazon’s aggregate payment of

$50 million on Plug Power’s goods and services. The exercise price for the second

tranche was the same as the first.

The third tranche of 20,368,784 Warrant Shares took hold after $200 million

in payments exhausted the second tranche. The third tranche vested in eight equal

installments of 2,546,098 Warrant Shares, keyed to each additional $50 million

Amazon spent in Plug Power purchases. The exercise price for the third tranche of

Warrant Shares was an amount per share equal to 90% of the 30-day volume

3
weighted average share price of the common stock as of the final vesting date of the

second tranche of Warrant Shares.

B. The Board Authorizes Management To Offer Amazon
Accelerated Vesting.

By the third quarter of 2020, Amazon nearly had completed the $200 million

in purchases required for the second tranche to vest. Also in the third quarter of

2020, the trading price of Plug Power’s stock had increased by 63%. This was good in

many ways, but it was expected to increase the accounting charges booked to Plug

Power in connection with the third tranche of Warrant Shares.

Plug Power’s CFO Paul Middleton provided a detailed update regarding the

status of the Warrant during a meeting of the Plug Power Board of Directors (the

“Board”) on October 20 and 21, 2020.

Plug Power held another Board meeting on November 6, 2020. Middleton and

a Board member Andrew Marsh, who was Plug Power’s CEO and President, updated

the Board regarding the status of the Warrant Shares. They recommended that Plug

Power accelerate the remaining tranche of outstanding but unvested Warrant

Shares. They stated that acceleration “would allow for clearer presentation of the

Company financials going forward and would eliminate the ‘overhang’ with respect

to the financial disclosures that would otherwise occur.”4

4 Id. ¶ 127.

4
C. Insiders Sell.

The Company has an Insider Trading Policy, which it revised on February 25,

2020. The Insider Trading Policy provides that it is “illegal for any director, officer

or employee of Plug Power . . . to trade in the securities of the Company while in the

possession of material, non-public information about the Company.”5

The Insider Trading Policy further provides that no insider may trade outside

of designated trading windows and must receive pre-clearance from the Company’s

Compliance Officer. The only exception to the general prohibition is for trades

effected pursuant to a written contract, instruction, or plan that both complies with

Rule 10b5-1 of the Securities Exchange Act of 1934 and has been pre-approved by the

Compliance Officer. Rule 10b5-1 plans can be modified only during a trading window.

In November and December 2020, Defendants made the following sales of Plug

Power stock:

• Board Chairman McNamee sold 30,000 shares on November 9, 2020, at
$21.05 per share, yielding $631,500 in proceeds.

• Director Jonathan Silver sold 42,576 shares on November 9, 2020, at
$20.00 per share, yielding $851,520 in proceeds. The shares were sold
pursuant to a 10b5-1 plan effective September 14, 2020. The stock
options he exercised to sell these shares were set to expire in 2028 and
2029.

• Chief Operating Officer Keith Schmid sold 83,333 shares on November
12, 2020, at $22.84 per share, yielding $1,903,325 in proceeds. At least
some of these sales resulted from Schmid converting options expiring in
2026. On December 17, 2020, Schmid sold 200,000 shares of Plug Power
stock at $30 per share, yielding $6,000,000 in proceeds. These sales
resulted from Schmid converting options expiring in October 2023. The
shares were sold pursuant to a 10b5-1 plan effective November 12, 2020.

5 Id. ¶ 46.

5
• Director Johannes Roth, acting through FiveT Capital Holding (where
he is a managing director and equity officer), sold 1,915,034 shares on
November 13, 2020, at prices from $22.93 to $23.42 per share, yielding
approximately $44,390,488.12 in proceeds.

• Director Lucas Schneider sold 333,333 shares on December 14, 2020, at
prices from $26.23 to $27.03 per share, yielding approximately
$8,876,657.79 in proceeds.6 The stock options he exercised to sell these
shares were set to expire in 2026 and 2028.

• Director Maureen Helmer sold 15,311 shares on December 14, 2020, at
prices from $26.11 to $27.13 per share, yielding approximately
$407,578.82 in proceeds. On December 17, 2020, Helmer sold 10,000
shares at $30 per share, yielding $300,000 in proceeds. The shares were
sold pursuant to a 10b5-1 plan effective August 19, 2020.

• Director Gary Willis sold 91,200 shares on December 11, 2020, at prices
from $26.74 to $27.46 per share, yielding approximately $2,471,520 in
proceeds. The shares were sold pursuant to a 10b5-1 plan effective
November 11, 2020. The stock options he exercised to sell these shares
were set to expire in May 2021 (1200), September 2021 (65,000), May
2022 (10,000), and June 2023 (12,000).

• CFO Middleton sold 216,667 shares on December 24, 2020, at $35.13 per
share, yielding $7,611,511.71 in proceeds. The shares were sold
pursuant to a 10b5-1 plan effective September 2, 2020. The stock
options he exercised to sell these shares were set to expire in 2028 and
2029.

• Director Gregory Kenausis sold 55,000 shares on December 28, 2020, at
prices from $33.91 to $37.05 per share, yielding approximately
$1,951,400 in proceeds. The shares were sold pursuant to a 10b5-1 plan
effective September 10, 2020.

D. The Company Discloses Amazon’s Agreement To Accelerated
Vesting.

On January 5, 2021, Plug Power filed a Form 8-K with the SEC revealing that

the Company waived the remaining vesting conditions under the Warrant on

6 Defendants dispute this allegation. See Dkt. 32 (“Defs.’ Opening Br.”) at 21 n.6.
This discrepancy does not make a different in the court’s analysis.

6
December 31, 2020. This waiver resulted in vesting the remaining 20,368,784

unvested Warrant Shares. The Form 8-K stated that:

This vesting is expected to result in a substantial one-time
non-cash charge in the quarter ended December 31,
2020, to eliminate the need to recognize future
quarterly non-cash charges for this warrant and to
simplify the Company’s financial reporting going forward.
The details of the warrant and vesting will be described in
the Company’s annual report on Form 10-K for the year
ending December 31, 2020 to be filed by the Company with
the Securities and Exchange Commission (the “SEC”).7

E. More Insiders Sell.

In January 2021, the following insiders sold additional Plug Power shares:

• General Counsel Gerard Conway sold 108,333 shares on January 4,
2021, at prices from $31.94 to $34.58 per share. Conway also sold 33,333
shares each day on January 8 and 9, 2021, at $52.07 and $43.68 per
share.8 These three days of sales yielded approximately $6,794,790.33
in proceeds. The shares were sold pursuant to a 10b5-1 plan effective
March 16, 2020. Conway’s January 4 sales resulted from his exercising
stock options set to expire in August 2027. Conway’s January 8 and 9
sales resulted from his exercising stock options set to expire in 2029.

• Schneider sold 2,500 shares on January 4, 2021, at prices from $31.84
to $35.88 per share, yielding approximately $84,650 in proceeds.9 The
shares were sold pursuant to a 10b5-1 plan effective June 15, 2020.

7 Am. Compl. ¶ 174; Defs.’ Opening Br., Ex. 31.

8 Defendants dispute that Conway sold shares on January 9, 2021, and submit an

exhibit supporting that the sale occurred on January 7, 2021. Defs.’ Opening Br. at
22 n.7 (citing Defs.’ Opening Br., Ex. 44). This discrepancy does not make a difference
in the court’s analysis.
9 Defendants assert that the Amended Complaint incorrectly alleges that Schneider

sold 2,500 shares on January 4 and submit an exhibit showing that Schneider sold
3,500 shares at prices from $31.84 to $33.88 per share. Defs.’ Opening Br. at 21 n.5
(citing Defs.’ Opening Br., Ex. 41). This discrepancy is immaterial with respect to the
court’s analysis below.

7
• McNamee sold 40,000 shares between January 6 and 13, 2021, at prices
from $35.00 to $70.45 per share, yielding approximately $2,199,200 in
proceeds.

• Silver sold 1,780 shares on January 11, 2021, at $48.92 per share,
yielding approximately $87,077.60 in proceeds.10

• Marsh sold 573,268 shares on January 19, 2021, at prices from $62.65
to $68.31 per share, yielding approximately $36,100,000 in proceeds.
The shares were sold pursuant to a 10b5-1 plan effective on December 2,
2020. The stock options he exercised to sell these shares were set to
expire in 2027.

F. The Company Discloses The Accounting Charge For The
Accelerated Vesting.

On February 23 and 24, 2021, the Board convened before the Company

reported earnings for the fourth quarter and full year of 2020. Middleton presented

the financial results and informed the Board that KPMG’s year end audit would be

finalized in the days to come with the Form 10-K to be filed on March 1, 2021.

The Company released its fourth quarter and full year 2020 financial results

in a letter to shareholders on February 25. The letter disclosed the $412.7 million in

charges associated with the agreement to accelerate vesting of the Warrant Shares,

as compared to one analyst’s estimate of $8.9 million in warrant provision costs. The

letter also disclosed the Company reporting a negative $316.3 million in revenue for

the quarter, as compared to the analyst consensus forecast of $87.2 million.

On the Company’s fourth quarter 2020 earnings call the same day, Marsh

stated that the Company “accelerated warrants at the end of 2020 . . . . [which] caused

a large onetime noncash charge but clears the deck for the future and quite a

10 The Amended Complaint appears to contain a typographical error in the calculation

of Silver’s proceeds. This decision calculates the approximate amount.

8
future.”11 The Company’s stock price fell after this announcement by approximately

13.6%.

G. Plug Power Restates Its Financials.

The Company received five comment letters from the SEC between mid-2018

and early 2021. The letters were dated September 5, 2018, April 24, 2019, June 20,

2019, December 16, 2020, and February 10, 2021. The Company responded to the

letters on September 19, 2018, May 8, 2019, July 5, 2019, and January 14, 2021.12

The allegations reflect that the Audit Committee discussed SEC letters during that

period, although there is scant mention of those letters in the minutes.13

The letters covered many issues. One of the recurring issues that the SEC

identified in its letters was the Company’s presentation of revenue and gross profit

on a gross basis excluding the effects of the provision for the fair value of warrants

issued as sales incentives. The SEC also repeatedly criticized the Company’s

presentation of non-GAAP measures instead of or with greater prominence than the

directly comparable GAAP measures. One of these non-GAAP measures included

“adjusted EBITDA,” which the SEC directed the Company to describe as a liquidity

11 Am. Compl. ¶ 220.

12 The Amended Complaint alleges that Plug Power did not respond to the February

10, 2021 SEC comment letter until almost four months later, but it is unclear whether
this is correct, given that the Amended Complaint references a June 1, 2020 letter.
Am. Compl. ¶ 211. The Amended Complaint also alleges that the SEC’s Edgar system
does not contain, nor did Plug Power publicly disclose, any response to the February
10, 2021 comment letter. The parties did not brief this issue nor submit exhibits
supporting or refuting it, and it is immaterial to the court’s analysis.
13 Dkt. 35 (“Pls.’ Answering Br.”) at 8–9, 38–39 (citing Defs.’ Opening Br., Exs. 5, 23).

9
measure rather than a performance metric. The SEC also flagged issues with Plug

Power’s lease and lease financing accounting, and other accounting-related items.

On March 2, 2021, the Company filed a notification of late filing with the SEC,

stating that it could not timely file its Form 10-K for 2020 because it was completing

a review and assessment of items in its financial statements. On March 16, 2021,

Plug Power issued a press release announcing that the Company needed to restate

its prior financial results for fiscal years 2018 and 2019, and quarterly filings for 2019

and 2020. The press release also stated that the Company would not be able to file

its 2020 Form 10-K by the March 16, 2021 deadline but was endeavoring to finalize

the restatement of the financial statements and file its Form 10-K as soon as possible.

The next trading day following Plug Power’s announcement, the Company’s

stock price fell $3.35 per share, or approximately 7.8%, on unusually heavy trading

volume.

On May 14, 2021, Plug Power announced that the Company had completed its

restatement of historical financial statements for 2018, 2019, and the earlier quarters

of 2020 (the “Restatement”), and filed its 2020 Form 10-K. The Restatement

accounted for, among other things, improper presentation of research and

development expenses; presentation of operating expenses; accounting for lease-

related transactions; identification and evaluation of impairment, loss contract

accrual, certain expense accruals, and dividends; and timely identification of

adjustments to physical inventory in interim periods. In its 2020 Form 10-K, the

10
Company also revealed that there were items improperly presented for the fiscal

years 2016 and 2017.

As part of its exchange with the SEC, the Company sent a letter on August 20,

2021. The letter stated that, as of December 31, 2020, the Company’s internal

forecasts showed that it expected only $124.4 million in probable revenues from

Amazon. This meant that Plug Power would write off approximately $57 million of

costs for the Warrant at a lower November 2, 2020 value of $10.57 per warrant (as

later revealed in the Company’s 2020 Form 10-K). According to Plaintiffs, however,

Middleton knew that the charge for the unvested 12.73 million Warrant Shares was

$343 million at the December 31, 2020 fair value of $26.95 per Warrant Share. In

other words, at least one Defendant knew as early as December 31, 2020, the likely

magnitude of the accounting charge that the Company incurred for accelerating

vesting of the Warrant.

H. This Litigation

Plaintiff Abbas Khambati filed this action on June 29, 2022, against McNamee,

Willis, Helmer, Marsh, Roth, Kenausis, Schneider, Silver, Middleton, Conway, and

Schmid (collectively, “Defendants”).14 In July 2022, the parties stipulated to stay this

action pending resolution of a parallel securities class action (the “Securities Action”)

before the United States District Court for the Southern District of New York (the

“District Court”).

14 Dkt. 1.

11
On July 19, 2022, Plaintiff Anne D. Graziano, Trustee, Anne D. Graziano

Revocable Living Trust (with Khambati, “Plaintiffs”) filed a Verified Derivative

Complaint on behalf of the Company against Defendants.15 On August 9, 2022, the

parties stipulated to consolidating the related shareholder derivative actions,

appointing co-lead counsel, and staying the consolidated action.16

On August 29, 2023, the District Court dismissed the Securities Action with

prejudice.17 On October 13, 2023, the parties informed this court that Plaintiffs

intended to proceed with this litigation.18

On March 8, 2024, Plaintiffs filed their Amended Complaint.19 It contains

three Counts. In Count I, Plaintiffs claim that Defendants used material nonpublic

information for their own financial benefit in breach of their fiduciary duties (the

“Brophy claim”). In Count II, Plaintiffs claim that Defendants breached their

fiduciary duties based on the allegations generally asserted in the Amended

Complaint and for intentionally or recklessly allowing Defendants to trade Company

stock based on material nonpublic information (the “Caremark claims”). In Count

III, Plaintiffs plead unjust enrichment (the “Unjust Enrichment claim”) and seek

disgorgement.

15 C.A. No. 2022-0629-KSJM, Dkt. 1.

16 Dkt. 5.

17 Dkt. 21.

18 Dkt. 22.

19 Dkt. 25.

12
Defendants moved to dismiss the Amended Complaint on May 10, 2024.20 The

parties completed briefing on July 24, 2024,21 and the court heard argument on

November 4, 2024.22

II. LEGAL ANALYSIS

Defendants have moved to dismiss each of Plaintiffs’ three Counts—the

Brophy claim, the Caremark claims, and the Unjust Enrichment claim—under Rule

12(b)(6) for failure to state a claim. Each of Plaintiffs’ claims are derivative, and

Defendants have also moved to dismiss them under Rule 23.1 for failure to plead

demand futility.

“A cardinal precept of [Delaware law] is that directors, rather than

shareholders, manage the business and affairs of the corporation.”23 “In a derivative

20 Dkt. 32.

21 Dkt. 41.

22 Dkt. 51.

23 Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (citing 8 Del. C. § 141(a)), overruled

on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). In Brehm, 746 A.2d
at 253–54, the Delaware Supreme Court overruled seven precedents, including
Aronson, to the extent those precedents reviewed a Rule 23.1 decision by the Court of
Chancery under an abuse of discretion standard or otherwise suggested a deferential
appellate review. See id. at 253 & n.13 (overruling in part on this issue Scattered
Corp. v. Chi. Stock Exch., Inc., 701 A.2d 70, 72–73 (Del. 1997); Grimes v. Donald, 673
A.2d 1207, 1217 n.15 (Del. 1996); Heineman v. Datapoint Corp., 611 A.2d 950, 952
(Del. 1992); Levine v. Smith, 591 A.2d 194, 207 (Del. 1991); Grobow v. Perot, 539 A.2d
180, 186 (Del. 1988); Pogostin v. Rice, 480 A.2d 619, 624–25 (Del. 1984); and Aronson,
473 A.2d at 814). The Brehm court held that, going forward, appellate review of a
Rule 23.1 determination would be de novo and plenary. 746 A.2d at 253–54. The
seven partially overruled precedents otherwise remain good law. This decision does
not rely on any of them for the standard of appellate review. Although the technical
rules of legal citation would require noting that each was reversed on other grounds
by Brehm, this decision omits the subsequent history, which creates the
misimpression that Brehm rejected core elements of the Rule 23.1 canon.

13
suit, a stockholder seeks to displace the board’s authority over a litigation asset and

assert the corporation’s claim.”24 Because derivative litigation impinges on the

managerial freedom of directors in this way, “a stockholder only can pursue a cause

of action belonging to the corporation if (i) the stockholder demanded that the

directors pursue the corporate claim and they wrongfully refused to do so or

(ii) demand is excused because the directors are incapable of making an impartial

decision regarding the litigation.”25 The demand requirement is a substantive

principle under Delaware law.26

Rule 23.1 is the “procedural embodiment” of the demand requirement.27 Under

Rule 23.1, a derivative complaint must “state with particularity: . . . any effort by the

derivative plaintiff to obtain the desired action from the entity; and . . . the reasons

for not obtaining the action or not making the effort[.]”28

A stockholder can satisfy the demand requirement by pleading that demand is

futile. To plead demand futility, the complaint must allege “particularized factual

statements that are essential to the claim.”29 Although the requirement of factual

particularity is a heightened pleading requirement, it “does not entitle a court to

24 United Food & Com. Workers Union & Participating Food Indus. Empls. Tri-State

Pension Fund v. Zuckerberg, 250 A.3d 862, 876 (Del. Ch. 2020), aff’d, 262 A.3d 1034
(Del. 2021).
25 Id.

26 Id.; see Ct. Ch. R. 23.1(a).

27 Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993).

28 Ct. Ch. R. 23.1(a)(1).

29 Brehm, 746 A.2d at 254.

14
discredit or weigh the persuasiveness of well-pled allegations.”30 If a plaintiff pleads

particularized facts, those factual allegations “are accepted as true” and “[p]laintiffs

are entitled to all reasonable factual inferences that logically flow from the

particularized facts alleged[.]”31

In Zuckerberg,32 the Delaware Supreme Court adopted the “universal test” for

demand futility that blends elements of the two precursor tests: Aronson33 and

Rales.34 When conducting a demand futility analysis under Zuckerberg, Delaware

courts ask, on a director-by-director 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 face a substantial likelihood of
liability on any of the claims that are the subject of the
litigation demand.35

30 Zuckerberg, 250 A.3d at 877.

31 Id. (citing cases).

32 262 A.3d 1034.

33 473 A.2d 805.

34 634 A.2d 927.

35 Zuckerberg, 262 A.3d at 1059.

15
“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.”36 Although the Zuckerberg

test displaced the prior tests from Aronson and Rales, cases properly applying

Aronson and Rales remain good law.37

The demand analysis is conducted as to the board in place at the time that the

claims at issue were “validly in litigation.”38 This rule protects representative

plaintiffs by preventing defendants from recomposing a board after a derivative claim

is filed to strengthen Rule 23.1 arguments.39 Plaintiffs first asserted the Brophy and

Unjust Enrichment claims in their original complaint, adding the Caremark claims

through the Amended Complaint.40 There is an argument, therefore, that the

demand board relevant to the Brophy and Unjust Enrichment claims was the board

36 Id.

37 Id. In 2023, the Court of Chancery amended its rules to reflect the Delaware
Supreme Court’s adoption of the Zuckerberg test and modernize the language and
presentation of the Rules to bring them closer in style to the Federal Rules of Civil
Procedure. See In re: Amendments to Rules 7, 10, 17–25, and 171 of the Court of
Chancery Rules, Sections, III, IV, and XVI (Del. Ch. Sept. 25, 2023) (ORDER).
38 Braddock v. Zimmerman, 906 A.2d 776, 786 (Del. 2006).

39 See Harris v. Carter, 582 A.2d 222, 231 (Del. Ch. 1990) (“When claims have been

properly laid before the court and are in litigation, neither Rule 23.1 nor the policy it
implements requires that a court decline to permit further litigation of those claims
upon the replacement of the interested board with a disinterested one.”); Park Empls.’
& Ret. Bd. Empls.’ Annuity & Benefit Fund of Chicago v. Smith, 2016 WL 3223395,
at *10 (Del. Ch. May 31, 2016) (describing as “problematic” a situation “where a
manipulation of board composition is employed to discourage meritorious derivative
litigation”), aff’d sub nom. Park Empls.’ & Ret. Bd. Empls.’ Annuity & Benefit Fund
of Chicago on behalf of BioScrip, Inc. v. Smith, 175 A.3d 621 (Del. 2017).
40 See Dkt. 1 ¶¶ 216–224; Am. Compl. ¶¶ 333–336.

16
in place when the original complaint was filed,41 and that the demand board relevant

to the Caremark claims was the board in place when the Amended Complaint was

filed.

Plaintiffs did not preserve that argument. Instead, they pled demand futility

for all claims as to the board in place when they filed Amended Complaint.42

Plaintiffs attempted to change tack in their answering brief.43 But Defendants had

relied on Plaintiffs’ pleading to advance their dismissal arguments as to a fraction of

the identified directors, failing to address three more that would have been in play

had Plaintiffs identified the earlier board as the relevant board. Plaintiffs cannot

shift boards at this stage.44

The board in place when Plaintiffs filed the Amended Complaint comprised

Defendants McNamee, Willis, Helmer, Marsh, Kenausis, and non-parties Kyungyeol

Song, Patrick Joggerst, Mark Bonney, and Kavita Mahtan (the “Demand Board”).45

41That board comprised: Defendants McNamee, Willis, Helmer, Marsh, Roth,
Kenausis, Schneider, and Silver, and non-parties Kimberly Harriman, Kyungyeol
Song, Jean Bua, and Kavita Mahtan. Dkt. 1 ¶ 185.
42 Am. Compl. ¶¶ 305–306. In briefing, Plaintiffs argue that the demand analysis
should be run against the “current board,” but they offer no explanation for that
approach, which is inconsistent with Delaware law.
43 Pls.’ Answering Br. at 2 n.3.

44 Pers. Decisions, Inc. v. Bus. Plan. Sys., Inc., 2008 WL 1932404, at *6 (Del. Ch. May

5, 2008) (quasi-estoppel “precludes [a party] from changing its position . . . in
litigation to gain an advantage” or “asserting, to another’s disadvantage, a right
inconsistent with a position it has previously taken”).
45 Am. Compl. ¶ 305.

17
Given that the Demand Board comprised nine directors, to adequately allege

demand futility, Plaintiffs must plead particularized facts creating reason to doubt

that at least five of the nine were incapable of impartially considering a demand. 46

Plaintiffs do not advance arguments as to the non-parties.47 They focus exclusively

on McNamee, Willis, Helmer, Marsh, and Kenausis, all of whom engaged in

challenged stock sales (the “Selling Directors”). Because Plaintiffs’ arguments

address only five of the nine Demand Board members, Plaintiffs must prevail as to

each of the five Selling Directors to plead demand futility.

As to the Selling Directors, Plaintiffs advance arguments under Zuckerberg’s

second prong, contending that each face substantial liability in connection with the

claims. There is an argument under Zuckerberg prong one that the Selling Directors

46 In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 989–90 (Del. Ch. 2007)
(“Plaintiffs must show that a majority—or in a case where there are an even number
of directors, exactly half—of the board was incapable of considering demand.”).
47 The Amended Complaint includes a reference within a section titled “Disabling

Relationships” to non-party Song’s nomination to the Board as a designee of an
investor with whom the Company has an Investor Agreement. Am. Compl. ¶ 319.
But Plaintiffs do not explain why this nomination disables Song from exercising
impartiality in considering a demand. Nor could they, as nomination by a particular
person or entity, without more, does not render a director beholden. See, e.g.,
Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 60 (Del. Ch.
2015) (“[T]he mere fact that . . . an alleged controlling stockholder, played some role
in the nomination process should not, without additional evidence, automatically
foreclose a director’s potential independence.”) (internal citation and quotation marks
omitted). The Amended Complaint also alleges that demand on the four non-
defendant directors would have been futile because they are beholden to Marsh and
McNamee and they have not taken any steps to implement or enforce Plug Power’s
“Policy for Recoupment of Incentive Compensation.” Am. Compl. ¶¶ 321–322. But
Plaintiffs did not make any related arguments in their answering brief and therefore
waived it. See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not
briefed are deemed waived.”).

18
secured a material personal benefit from the challenged sales.48 Plaintiffs, however,

did not make that argument; they therefore waived it.49

Where, as here, a plaintiff’s basis for arguing demand futility centers on a

substantial likelihood of liability resulting from the derivative claims at issue, the

demand analysis effectively folds into an analysis of the strength of the underlying

claims as to the Demand Board members. In this case, therefore, the Zuckerberg

analysis hinges on whether Plaintiff has stated a claim under Rule 12(b)(6) against

the Demand Board.

The Rule 12(b)(6) standard in Delaware “is reasonable ‘conceivability.’”50

When considering such a motion, the court must “accept all well-pleaded factual

allegations in the [c]omplaint as true . . . , draw all reasonable inferences in favor of

the plaintiff, and deny the motion unless the plaintiff could not recover under any

reasonably conceivable set of circumstances susceptible of proof.”51 The court,

however, need not “accept conclusory allegations unsupported by specific facts or . . .

draw unreasonable inferences in favor of the non-moving party.”52

48 See Grabski on behalf of Coinbase Glob., Inc. v. Andreessen, 2024 WL 390890, at *7

(Del. Ch. Feb. 1, 2024).
49 Emerald P’rs, 726 A.2d at 1224.

50 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.

2011).
51 Id. at 536 (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).

52 Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton

v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).

19
A. Brophy

Plaintiff brings Brophy claims against the Selling Directors.53 The relevant

facts are as follows:

• On November 9, 2020, McNamee sold 30,000 shares at $21.05 per share,
yielding $631,500 in proceeds. Between January 6 and 13, 2021,
McNamee sold 40,000 shares at prices from $35.00 to $70.45 per share,
yielding approximately $2,199,200 in proceeds.

• On December 11, 2020, Willis sold 91,200 shares at prices from $26.74
to $27.46 per share, yielding approximately $2,471,520 in proceeds.

• On December 14, 2020, Helmer sold 15,311 shares at prices from $26.11
to $27.13 per share, yielding approximately $407,578.82 in proceeds. On
December 17, 2020, Helmer sold 10,000 shares at $30 per share, yielding
approximately $300,000 in proceeds.

• On December 28, 2020, Kenausis sold 55,000 shares at prices from
$33.91 to $37.05 per share, yielding approximately $1,951,400 in
proceeds.

• On January 19, 2021, Marsh sold 573,268 shares at prices from $62.65
to $68.31 per share, yielding approximately $36,100,000 in proceeds.

To state a claim under Brophy, a plaintiff must plead that the fiduciary:

(a) possessed material nonpublic information; and (b) used that information to make

trades because the defendants were motivated by the substance of that information

(the scienter requirement).54 The elements are conjunctive; each is essential.55

53 Plaintiff also asserts Brophy claims against three former Company directors (Roth,

Schneider, and Silver), and three Company officers (Middleton, Conway, and
Schmid). This Zuckerberg prong-two Rule 12(b)(6) analysis, however, focuses on the
claims against the Selling Directors.
54 In re Oracle Corp. Deriv. Litig., 867 A.2d 904, 934 (Del. Ch. 2004); see also Guttman

v. Huang, 823 A.2d 492, 505 (Del. Ch. 2003).
55 Oracle, 867 A.2d at 934 (To state a claim under Brophy, a plaintiff must allege that

not only the fiduciary possessed material, nonpublic company information, but also
that “the corporate fiduciary used that information improperly by making trades

20
In briefing, Plaintiffs relied on a single and broad category of allegedly material

nonpublic information: information related to the Board’s decision to authorize

management to negotiate with Amazon and ultimate agreement to accelerate vesting,

ranging from the November 6 Board decision to the February 25 announcement of

the accounting charge.56 This decision assumes, solely for the sake of analysis, that

everything in this broad category material and nonpublic, at least until disclosed on

February 25, 2021. The analysis turns to address whether Plaintiffs allege

particularized facts from which the court can infer that the Selling Directors traded

on this information.

This court considers a variety of factors when evaluating whether a plaintiff

has adequately alleged the scienter necessary to support a Brophy claim.

“[A]llegations of unusually large, suspiciously timed trades”57 are informative. Those

because she was motivated, in whole or in part, by the substance of that
information.”).
56 See Pls.’ Answering Br. at 20–25. In the Complaint, Plaintiffs allege that the
unresolved SEC comment letters and the Company’s 2018 and 2019 10-Ks stating
that there were no unresolved issues support a Brophy claim. Plaintiffs, however,
failed to preserve this argument in briefing and therefore waived it. Emerald P’rs,
726 A.2d at 1224. That Plaintiffs asserted in the facts section of the answering brief
that the SEC comment letters and the Company’s purported failure to respond was
material nonpublic information is insufficient to preserve any related arguments.
57 In re Clovis Oncology, Inc. Deriv. Litig., 2019 WL 4850188, at *15 (Del. Ch. Oct. 1,

2019).

21
allegations generally include timing,58 overall size and relative size,59 and

inconsistency with prior trading patterns.60 Plaintiffs argue that the timing and size

of the sales are factors that support scienter here.61

Timing is always a key factor in a Brophy claim. At a minimum, the plaintiff

must allege that the decision to trade must come after the fiduciary received the

material information and before that information became public. Here, Plaintiffs

define the relevant period as November 6, 2020 (the day after the Board authorized

management to negotiate with Amazon) through at least January 19, 2021 (when

Marsh sold $36.1 million worth of stock), and potentially as late as February 25, 2021,

when the financial implications were fully disclosed.62

Even accepting Plaintiffs’ November 6, 2020 through February 25, 2021 period

as appropriate,63 timing works against Plaintiffs. Of the challenged trades that

58 Id. (identifying as a factor the timing of the trade, including the proximity between

the trade and the time the defendants learn of material nonpublic information);
Guttman, 823 A.2d at 504 (identifying as a factor the expiration date for any options
or restrictions like lock-ups).
59 Guttman, 823 A.2d at 504 (identifying as a factor the size of the trades relative to

the defendant’s overall stock holdings); see also Oracle, 867 A.2d at 954 (noting a
defendant’s sale as substantial despite the relative small percentage of his overall
holdings).
60 Clovis, 2019 WL 4850188, at *16 (noting as absent from the complaint “any well-

pled facts that the trades at issue represented a deviation from the sellers’ past
trading practices”).
61 Plaintiffs distinguish In re Clovis on the basis that it is not the case here that the

insider sales were consistent with the defendants’ prior trading patterns. Pls.’
Answering Br. at 32. But Plaintiffs do not plead any facts supporting this assertion.
62 Pls.’ Answering Br. at 1, 4, 17–18.

63 This is generous.
It is difficult to conclude that the mere decision to negotiate on
November 6 was material, and that the trades made close to that time (even leaving

22
occurred during the period, many occurred under 10b5-1 plans locked in before the

November 6 Board decision. Helmer’s December 14 and 17 sales were made pursuant

to a 10b5-1 plan effective August 19, 2020. And Kenausis’s December 28 sale was

made pursuant to a 10b5-1 plan effective September 10, 2020.64 Plaintiffs argue that

the court may not consider these directors’ 10b5-1 plans at the pleading stage.65 But

those plans are disclosed in sufficiently reliable public filings of which the court may

take judicial notice,66 and Plaintiffs admit their existence in the Amended

aside the plan 10b5-1 issues described in this decision) were made based on that
information. It is also hard to conclude that the Selling Defendants traded on
information concerning the accounting charge, which was still being worked out
through the relevant period. It is more reasonable to infer that the rise in stock prices
that resulted in the Board decision to negotiate with Amazon is what motivated the
large volume of insider trades. But that is a defense-friendly inference that the court
does not, and need not, draw at this stage. The claims fail for other reasons.
64 Defendants submitted as an exhibit to their opening brief publicly filed Form 4s

showing that McNamee’s November 2020 and January 2021 sales were also made
pursuant to a 10b5-1 plan effective June 11, 2020. See Defs.’ Opening Br., Ex. 35.
Plaintiffs do not allege this in the Amended Complaint. This decision need not resolve
the question of whether the court can look to this document on a Rule 23.1 motion
because Defendants’ arguments prevail regardless.
65 See Pls.’ Answering Br. at 28–29.

66 In re Hertz Glob. Hldgs., Inc. Sec. Litig., 2017 WL 1536223, at *22 n.10 (D.N.J.

Apr. 27, 2017) (collecting cases), aff’d, 905 F.3d 106 (3d Cir. 2018); see In re
NutriSystem, Inc. Deriv. Litig., 666 F. Supp. 2d 501, 518 (E.D. Pa. 2009) (considering
Rule 10b5-1 plans); City Pension Fund for Firefighters & Police Officers in City of
Mia. v. The Trade Desk, Inc., 2022 WL 3009959, at *17 n.147 (Del. Ch. July 29, 2022)
(taking judicial notice of Form 4 filings).

23
Complaint.67 They are, therefore, fair game. This knocks Helmer and Kenausis out

because they do not face a substantial likelihood of liability from the Brophy claim.68

Because Plaintiffs advance demand futility arguments as to only the Selling

Directors and because Plaintiffs’ arguments fail as to at least two of those

Defendants, Plaintiffs have failed to plead demand futility as to the Brophy claim,

which is dismissed under Rule 23.1.

B. Caremark

Plaintiffs originally advanced a Caremark claim relating to the Restatement of

Plug Power’s historical financial statements for 2018, 2019, and the earlier quarters

of 2020. Plaintiffs alleged that the Plug Power Board failed to implement and

67 See Am. Compl. ¶¶ 167 (noting Willis’s, Kenausis’s, and Helmer’s November and

December 2020 sales were made pursuant to 10b5-1 trading plans), 193–194 (noting
Marsh’s January 2021 sale was made pursuant to a 10b5-1 trading plan). Plaintiffs’
cases declining to consider 10b5-1 plans at the pleading stage are distinguishable.
Unlike in In re Novavax Inc. S’holder Deriv. Litig., 2023 WL 5353171, at *15 (D. Md.
Aug. 21, 2023), and Mississippi Pub. Emps.’ Ret. Sys. v. Bos. Sci. Corp., 523 F.3d 75,
92 (1st Cir. 2008), Plaintiffs here affirmatively allege when the trading plans went
into effect. See Am. Compl. ¶¶ 167, 194. And unlike in In re Infosonics Corp. Deriv.
Litig., 2007 WL 2572276, at *9 (S.D. Cal. Sept. 4, 2007), Plaintiffs here allege that
Kenausis’s and Helmer’s 10b5-1 trading plans went into effect before learning of any
material nonpublic information. Am. Compl. ¶ 167.
68 Laborers’ Dist. Council Constr. Indus. Pension Fund v. Bensoussan, 2016 WL
3407708, at *2 (Del. Ch. June 14, 2016), aff’d, 155 A.3d 1283 (Del. 2017) (“Generally
speaking, 10b5-1 plans offer a safe harbor for corporate insiders to sell stock by ceding
trading authority to third parties with exclusive discretion to execute trades under
certain pre-determined parameters.”). This logic extends to Silver’s November 9,
2020 trade, which was made pursuant to a 10b5-1 plan effective September 14, 2020.
Am. Compl. ¶ 167. Thus, even if the court ran the demand futility analysis for the
Brophy claim as to the board in place when the original complaint was filed (see supra
§ II), and even if the court ignored that McNamee’s November 9 sale was pursuant to
a June 11 10b5-1 plan (see supra note 64), Plaintiffs’ demand futility arguments
would fail.

24
maintain an effective system of internal controls that caused the disclosure errors

leading to the Restatement.69 Plaintiffs also alleged that Plug Power suffered “costs

incurred from defending and paying any settlement or judgment in the class actions

for violations of federal securities laws” arising from the Restatement.70 Then the

District Court dismissed the Securities Action with prejudice, and Plaintiffs

abandoned their Restatement-focused Caremark theory in their answering brief.

As explained in the answering brief, Plaintiffs’ new Caremark theory focuses

on the Board’s information systems regarding insider trading policies and SEC

comment letters, and the Board’s monitoring of insider trading and management’s

response to the SEC comment letters.71

A Caremark claim “seeks to hold directors accountable for the consequences of

a corporate trauma[.]”72 To adequately allege such a claim, a plaintiff must allege

that the board had some level of involvement in the trauma.73 Caremark describes

the test as requiring that the directors “knew or . . . should have known” about the

risk leading to the trauma.74 Stone clarified that liability under Caremark requires

69 Am. Compl. ¶¶ 228–261, 298–301, 313.

70 Id. ¶ 300.

71 See Pls.’ Answering Br. at 34.

72 La. Mun. Police Empls.’ Ret. Sys. v. Pyott, 46 A.3d 313, 340 (Del. Ch. 2012), rev’d

on other grounds, 74 A.3d 612 (Del. 2013); see also Horman v. Abney, 2017 WL 242571,
at *5 (Del. Ch. Jan. 19, 2017) (“Caremark claims inevitably arise in the midst of or
directly following ‘corporate trauma’ of some sort or another.”); Melbourne Mun.
Firefighters’ Pension Tr. Fund v. Jacobs, 2016 WL 4076369, at *7 (Del. Ch. Aug. 1,
2016), aff’d, 158 A.3d 449 (Del. 2017) (quoting Pyott).
73 Pyott, 46 A.3d at 340.

74 Caremark, 698 A.2d at 971.

25
a showing of bad faith—“that the directors knew that they were not discharging their

fiduciary obligations.”75 At the pleading stage, the plaintiff must allege facts from

which the court can reasonably infer that a fiduciary acted in bad faith.76

Stone identified two subspecies of Caremark claims. To state a Caremark

claim, a plaintiff must allege particularized facts that establish either (1) “the

directors utterly failed to implement any reporting or information system or controls,

or [(2)] having implemented such a system or controls, consciously failed to monitor

or oversee its operations thus disabling themselves from being informed of risks or

problems requiring their attention.”77 These two subspecies are colloquially referred

to as prong-one and prong-two claims, or information-systems claims and red-flags

claims.78

To adequately allege an information-systems claim, a plaintiff must plead with

particularity that the directors completely failed “to implement any reporting or

information system or controls[.]”79 In the words of Caremark, “only a sustained or

systematic failure of the board to exercise oversight—such as an utter failure to

75 Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006); see also Pyott, 46 A.3d at 340–41

(discussing the “actual knowledge” requirement of Caremark as clarified by Stone).
76 Marchand v. Barnhill, 212 A.3d 805, 820–21 (Del. 2019) (quoting Desimone v.
Barrows, 924 A.2d 908, 935 (Del. Ch. 2007)).
77 Stone, 911 A.2d at 370 (emphasis in original).

78 See In re McDonald’s Corp. S’holder Deriv. Litig., 289 A.3d 343, 363–64 (Del. Ch.

2023) (labeling first species of claims as “information-system” claims and second
species as “red-flag” claims).
79 Marchand, 212 A.3d at 821 (citing Stone, 911 A.2d at 370).

26
attempt to assure a reasonable information and reporting system exists—will

establish the lack of good faith that is a necessary condition to liability.”80

When adopting a version of this quote as the prong-one standard, the Stone

court was “quite deliberate” in endorsing the adverb “utterly”—a “linguistically

extreme formulation” intended “to set a high bar when articulating the standard to

hold directors personally liable for a failure of oversight under the first Caremark

prong.”81 This high bar serves to gives boards a wide berth to exercise that discretion

with respect to business risk. As the Delaware Supreme Court has reminded,

“directors have great discretion to design context- and industry-specific approaches

tailored to their companies’ businesses and resources.”82

Although a board has great latitude in crafting and implementing its risk-

monitoring and reporting system, “Caremark does have a bottom-line requirement

that is important: the board must make a good faith effort—i.e., try—to put in place

a reasonable board-level system of monitoring and reporting.”83 To avoid rendering

this bottom-line requirement “a chimera,”84 this court must look beyond the mere

existence of a system to some indicia of effectiveness when determining whether a

80 Caremark, 698 A.2d at 971.

81 Fisher on Behalf of LendingClub Corp. v. Sanborn, 2021 WL 1197577, at *11 (Del.

Ch. Mar. 30, 2021) (quoting Horman, 2017 WL 242571, at *8 n.46).
82 Marchand, 212 A.3d at 821.

83 Id. (citations omitted).

84 Id. at 824.

27
board made the required good-faith effort.85 The court must evaluate, for example,

whether the system functions in earnest, as oversight requires more than just “go[ing]

through the motions.”86 Moreover, the system must be “reasonably designed to

provide to senior management and to the board itself timely, accurate information

sufficient to allow management and the board . . . to reach informed judgments

concerning both the corporation’s compliance with law and its business

performance.”87

The Delaware Supreme Court clarified in Marchand that a reasonably

designed monitoring and reporting system, at a minimum, addresses “essential and

mission critical” risks.88 In Marchand, the Supreme Court reasoned that food safety

85 See, e.g., Hughes v. Hu, 2020 WL 1987029, at *14 (Del. Ch. Apr. 27, 2020) (“The

mere existence of an audit committee and the hiring of an auditor does not provide
universal protection against a Caremark claim.”); Rich v. Yu Kwai Chong, 66 A.3d
963, 983 (Del. Ch. 2013) (holding that the plaintiff had adequately alleged a
Caremark claim, despite the existence of an audit committee and independent
auditor, where the company had no “meaningful controls in place”).
86 Compare In re Massey Energy Co., 2011 WL 2176479, at *19 (Del. Ch. May 31,

2011) (crediting inference that independent directors were “go[ing] through the
motions” instead of “mak[ing] good faith efforts” to ensure compliance), and Pyott, 46
A.3d at 356 (noting that “[t]he appearance of formal compliance cloaked the reality of
non-compliance” when “directors who understood the difference between legal off-
label sales and illegal off-label marketing continued to approve and oversee business
plans that depended on illegal activity”) (citing Massey), with Horman, 2017 WL
242571, at *8 (rejecting inference that “Director Defendants were ‘merely going
through the motions’ in monitoring [the company’s] compliance obligations”).
87 Caremark, 698 A.2d at 970.

88 Marchand, 212 A.3d at 824.

28
was a central compliance risk to Blue Bell, a monoline ice cream company in a heavily

regulated industry.89

Oversight obligations under Caremark, however, do not cease beyond what is

mission critical, as Vice Chancellor Laster observed in In re McDonald’s Corporation

Shareholder Derivative Litigation.90 What Delaware courts look for are information

systems designed to address “central compliance risks.” Although it is fair to infer

that all “essential and mission critical risks” qualify as “central compliance risks,” it

is also possible that some “central compliance risks” may not reach the level of

“essential and mission critical.”91 When directors make no effort to establish an

information system to address central compliance risks, then that failure supports an

inference of bad faith.92

To adequately allege a red-flag claim, a plaintiff must plead “particularized

facts that the board knew of red flags but consciously disregarded them in bad

faith.”93 The intuitive notion underlying the red-flags theory is that “sophisticated

and well-advised individuals like corporate directors do not customarily concede

violations of positive law,” and so a plaintiff must plead facts and circumstances

89 Id. at 809–11.

90 291 A.3d at 678.

91 Id.

92 Id. at 679.

93 Teamsters Loc. 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *17

(Del. Ch. Aug. 24, 2020).

29
sufficient for a court to infer this conduct.94 “[A] Caremark plaintiff can plead that

‘the directors were conscious of the fact that they were not doing their jobs,’ and that

they ignored ‘red flags’ indicating misconduct in defiance of their duties.” 95 In other

words, a claim that a board “had notice of serious misconduct and simply failed to

investigate, for example, would survive a motion to dismiss, even if the committee or

board was well constituted and was otherwise functioning.”96

For a red-flag theory to work, the red flag must be sufficiently connected to the

corporate trauma at issue to elevate the board’s inaction in the face of the red flag to

the level of bad faith. The relationship between the red flag and the corporate trauma

cannot be too attenuated.97 Former Vice Chancellor Glasscock has described the

requirement as one of “proximate cause,” stating that “the corporate trauma in

question must be sufficiently similar to the misconduct implied by the red flags such

that the board’s bad faith, conscious inaction proximately caused that trauma.”98 The

question at the pleading stage is whether it is reasonably conceivable that the

94 South v. Baker, 62 A.3d 1, 14–15 (Del. Ch. 2012); see also In re Gen. Motors Co.

Deriv. Litig., 2015 WL 3958724, at *16 (Del. Ch. June 26, 2015) (observing that red
flags “are a proxy for pleading knowledge”).
95 David B. Shaev Profit Sharing Acct. v. Armstrong, 2006 WL 391931, at *5 (Del. Ch.

Feb. 13, 2006), aff’d, 911 A.2d 802 (Del. 2006) (footnote omitted).
96 Id.

97 In re Dow Chem. Co. Deriv. Litig., 2010 WL 66769, at *13 (Del. Ch. Jan. 11, 2010).

98 Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *15 (Del. Ch.

Dec. 18, 2017) (internal quotation marks omitted) (citing Jacobs, 2016 WL 4076369,
at *8).

30
identified red flag would have placed a reasonable observer on notice of the risk of

the corporate trauma that ensued.

Plaintiffs advance both types of Caremark claims here, both as to the SEC

comment letters and the insider trading issues.

1. SEC Comment Letters

The SEC sent comment letters focused on the Company’s Forms 10-K for the

2018, 2017, and 2019 fiscal years, Form 10-Q for the quarterly periods ending June

30, 2018, and Forms 8-K filed August 9, 2018, March 7, 2019, and November 9, 2020.

The comment letters inquired into the following, among other things:

• Discussing revenue and gross profit on a gross basis excluding the
effects of the provision for the fair value of warrants issued as sales
incentives;

• Presenting non-GAAP measures that substitute individually tailored
revenue recognition and measurement methods for those of GAAP;

• Presenting revenue by line item and in total, excluding the provision for
the fair value of warrants issued as sales incentives;

• Presenting non-GAAP measures with greater prominence than the
directly comparable GAAP measure, or failing to discuss the comparable
GAAP measure at all;

• Describing adjusted EBITDA as purely a liquidity metric, not a
performance measure;

• Excluding cash flow effects associated with changes in working capital
from the adjusted EBITDA measure, which was inconsistent with
presenting it as a liquidity measure and potentially misleading
investors; and

31
• Lease accounting and accounting for lease financing implicating Plug
Power’s application and presentation of Topic 842, including “right of
use” accounting issues.99

As to the SEC comment letters, Plaintiffs primarily advance an information-

systems claim. They contend that the documents produced to them under Section

220 of the DGCL, including the Audit Committee charter, “reflect no good faith effort

to create a board-level monitoring system in place for the SEC comment letters.”100

Plaintiffs concede that the Company responded to the SEC comment letters.101

Plaintiffs also concede that the Audit Committee received reports concerning the SEC

comment letters.102 And Plaintiffs do not dispute that the Audit Committee’s charter

covered risks associated with the SEC comment letters. Still, they advance two

arguments.

First, they say that SEC comment letters generally present a distinct risk that

requires its own monitoring system beyond the ambit of the Audit Committee. (Or

perhaps they believe these risks warrant specific language in the Audit Committee’s

charter? Plaintiffs’ theory is not totally clear.) Delaware law does not dictate what

99 Am. Compl. ¶¶ 105, 107, 112–113, 115, 119.

100 Pls.’ Answering Br. at 37.

101 Am. Compl. ¶¶ 100–101, 114, 116, 118, 131, 160.

102 Pls.’ Answering Br. at 8–9, 38–39. Plaintiffs claim that the Company should have
had a reporting system that elevated each SEC comment letter to the full Board. Id.
at 40. But committees “exercise business judgment in determining what issues
should be brought from the subcommittee to the full Board,” and “[i]t is not indicative
of an utter failure of reporting and control for the Board to delegate risk assessment
to [a subcommittee], and then fail to demand an accounting of a particular business
risk.” Constr. Indus. Laborers Pension Fund v. Bingle, 2022 WL 4102492, at *13 (Del.
Ch. Sept. 6, 2022), aff’d, 297 A.3d 1083 (Del. 2023).

32
structure a reporting system must take. Rather, under Delaware law, “how directors

choose to craft a monitoring system in the context of their company and industry is a

discretionary matter.”103 That is, the law requires courts to exercise good faith

oversight, “not to employ a system to the plaintiffs’ liking.”104

Second, Plaintiffs argue that the Audit Committee discussions were not

sufficiently robust. They point to documents they received through their pre-suit

investigation, which they say reveal scant discussion of the SEC comment letters

during Audit Committee meetings and even less discussion at the Board level during

the relevant three-year period. But the “absence of regular board-level discussions

on the relevant topic” “alone is not enough for the [c]ourt to conclude a board of

directors acted in bad faith.”105 That Plaintiffs disagree with the adequacy of the

Audit Committee’s or Board’s consideration of the SEC comment letters does not

mean that the Board failed to make a good-faith effort to establish a system.106

It bears noting that Plaintiffs’ Caremark allegations were particularly

underdeveloped. One can imagine a situation where the absence of any discussion

on a central compliance risk in Board or committee minutes is sufficient to supply the

103 Clem v. Skinner, 2024 WL 668523, at *8 (Del. Ch. Feb. 19, 2024) (citing Marchand,

212 A.3d at 821).
104 Id.

105 Bricklayers Pension Fund of W. Pa. on behalf of Centene Corp. v. Brinkley, 2024

WL 3384823, at *15 (Del. Ch. July 12, 2024) (“Plaintiff has not painted the extreme
picture present in Marchand and Boeing.”).
106 See McDonald’s, 291 A.3d at 679 (“Outside of central compliance risks, including

essential or mission critical risks, a plaintiff will have difficulty rebutting the
business judgment rule where officers or directors have made a good faith decision
regarding the level of monitoring resources, if any, to assign to a risk.”).

33
inferences that Plaintiffs seek, at least where the risks are more severe and the

absence of discussion far more glaring. But this case was an afterthought to the

Securities Action. And the Caremark claim was an afterthought to the Brophy claims.

And the Amended Complaint reflects all of this—facts shoved into the boxes of

belatedly raised theories. The inferences just were not there.

Plaintiffs also advance a red-flag theory regarding the SEC comment letters,

and it also falls short. Plug Power received five comment letters between September

2018 and February 2021, but none threatened legal action. Threatening legal action

is no precondition to serving as a red flag. Still, it is hard to construe these letters as

red flags based on the text of the letters.107

Even if the SEC comment letters constituted red flags, it is not reasonable to

conclude based on the facts alleged that the Board ignored them in bad faith. (Did

the Board see them? Plaintiffs argue that the Board did not see them for purposes of

their information-systems claim.) In any event, the system in place worked to some

degree—the Company responded promptly to each of them108 and the Audit

107 Cf. Reiter on Behalf of Cap. One Fin. Corp. v. Fairbank, 2016 WL 6081823, at *13

(Del. Ch. Oct. 18, 2016) (rejecting plaintiffs’ argument that five reports provided to
the directors constituted a series of red flags that should have triggered a duty for
the board to act, including because the pled facts did not warrant an inference that
the directors were knowingly complicit in a strategy to pursue profits by employing
illegal means).
108 Except the facts concerning the Company’s response to the February 10, 2021

letter are unclear. See supra note 12. Given the Company’s prompt response to the
first four SEC comment letters, the absence of information concerning the February
10 letter does not tip the scale.

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Committee received reports about them.109 If what the standard is in search of is a

bottom-line requirement, that is satisfied.

Plus, the red flags must indicate misconduct similar enough to the corporate

trauma at issue such that the board’s bad faith, conscious inaction proximately

caused that trauma.110 Even assuming for purpose of the analysis that Plaintiffs

adequately pled a corporate trauma, they have not proffered any theory that connects

the dots between the Board’s alleged conduct and that harm. If the Restatement was

the corporate trauma, a theory which Plaintiffs have backed away from, then it is not

easy to connect the sprawling set of issues discussed in the SEC comment letters to

that specific corporate trauma.

Because Plaintiffs failed to state an information-systems or red-flags claim

under Caremark with respect to the SEC comment letters, this claim is dismissed

under Rule 12(b)(6).

2. Insider Trading

The Company’s Insider Trading Policy prohibits any director, officer, or

employee from trading in the securities of the Company while in the possession of

material nonpublic information about the Company. An exception to this general

prohibition is for trades effected pursuant to a Rule 10b5-1 plan that has been pre-

approved by the Company’s Compliance Officer. The Audit Committee periodically

109 Pls.’ Answering Br. at 8–9, 38–39 (citing Defs.’ Opening Br., Exs. 5 and 23).

110Corbat, 2017 WL 6452240, at *15 (internal quotation marks omitted) (citing
Jacobs, 2016 WL 4076369, at *8).

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reviewed the Insider Trading Policy and also reviewed significant unusual

transactions.

Plaintiffs allege that the Board did not have a system to monitor compliance

with the Insider Trading Policy.111 Defendants point to the Company’s Insider

Trading Policy, the Audit Committee’s periodic review of the policy, and the Audit

Committee’s review of significant unusual transactions, and the court may consider

all of this information at the pleading stage.112 In response, Plaintiffs attempt to shift

the burden to Defendants, asserting that they cite “no documentary evidence that

even implies the board monitored certain insider trading.”113 But there was a Board-

approved policy. The large volume of insider trades is not evidence that it was

violated. Plaintiffs cannot show an “utter failure” to monitor trading under these

circumstances.

Plaintiffs also advance a red-flags claim based on the insider trading

allegations, recasting one of their Brophy arguments as a Caremark claim. Plaintiffs

point to Roth’s November 13, 2020 sale (through FiveT Capital Holdings) and Marsh’s

January 19, 2021 sale, arguing that the sales were substantial relative to the Selling

Directors’ overall stock holdings such that they should have “warrant[ed] a red flag

for board review.”114 Plaintiffs do not allege that these sales violated Plug Power’s

111 Am. Compl. ¶¶ 46–47, 278; Pls.’ Answering Br. at 41.

112 Defs.’ Opening Br. at 41–42.

113 Pls.’ Answering Br. at 42.

114 Id. at 46.

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insider trading policy. Nor do Plaintiffs allege that Marsh’s sale was inconsistent

with his prior trading practices such that it would have been a red flag.115

That large stock sales occurred alone is insufficient to constitute red flags

indicating fraud or criminal conduct. And as with Plaintiffs’ SEC comment letters

red-flags claim, Plaintiffs also fail to allege any type of corporate trauma resulting

from the purported insider trades, which is a predicate to a Caremark claim.116

Because Plaintiffs’ arguments fail as to the Caremark insider trading claim,

this claim is dismissed under Rule 12(b)(6).

C. Unjust Enrichment

Plaintiffs’ Unjust Enrichment claim depends on the Brophy claim. Because

Plaintiffs have failed to state a Brophy claim,117 Plaintiffs’ Unjust Enrichment claim

also fails.

III. CONCLUSION

Defendants’ motion to dismiss is granted.

115 And Plaintiffs could not have alleged this, as Marsh sold more shares between

April and October 2020 than he did between November 2020 and January 2021.
Defs.’ Opening Br., Ex. 36; see supra note 66.
116 Firefighters’ Pension Sys. of City of Kansas City v. Found. Bldg. Mat’ls, Inc., 318

A.3d 1105, 1183 (Del. Ch. 2024) (“Before a plaintiff can invoke [a theory based on
Caremark], the plaintiff must point to some sufficiently concrete corporate injury.”).
117 Plaintiffs also did not brief the Unjust Enrichment claim and therefore waived it.

Emerald P’rs, 726 A.2d at 1224.

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