Los Angeles City Employees' Retirement System v. Glenn Sanford

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LOS ANGELES CITY EMPLOYEES’ )
RETIREMENT SYSTEM, on behalf of )
EXP WORLD HOLDINGS, INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2024-0998-KSJM
)
GLENN SANFORD, RANDALL )
MILES, DAN CAHIR, JASON )
GESING, EUGENE FREDERICK, and )
JAMES BRAMBLE, )
)
Defendants, and )
)
EXP WORLD HOLDINGS, INC., )
)
Nominal Defendant. )

OPINION

Date Submitted: July 28, 2025
Date Decided: January 16, 2026

Gregory V. Varallo, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP,
Wilmington, Delaware; Hannah Ross, Rebecca E. Boon, BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP, New York, New York; Hydee Feldstein Soto, Joshua
Geller, Miguel Bahamon, Gina Di Domenico, OFFICE OF THE LOS ANGELES CITY
ATTORNEY, Los Angeles, California; Counsel for Plaintiff Los Angeles City
Employees’ Retirement System.

Ned Weinberger, Mark D. Richardson, LABATON KELLER SUCHAROW LLP,
Wilmington, Delaware; John Vielandi, Alfred L. Fatale III, Charles Wood, LABATON
KELLER SUCHAROW LLP, New York, New York; Counsel for Additional Plaintiff
Building Trades Pension Fund of Western Pennsylvania.

Rudolf Koch, Matthew D. Perri, Mari Boyle, RICHARDS, LAYTON & FINGER, P.A.,
Wilmington, Delaware; Counsel for Defendant Glenn Sanford.

Albert H. Manwaring, IV, Albert J. Carroll, Kirsten A. Zeberkiewicz, MORRIS
JAMES LLP, Wilmington, Delaware; Counsel for Defendant Randall Miles.
A. Thompson Bayliss, Florentina D. Field, ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Counsel for Defendant Jason Gesing.

Joseph B. Cicero, Ryan M. Lindsay, Dakota B. Eckenrode, CHIPMAN BROWN
CICERO & COLE LLP, Wilmington, Delaware; Counsel for Defendant Eugene
Frederick.

Elena C. Norman, Skyler A. C. Speed, YOUNG CONAWAY STARGATT & TAYLOR,
LLP, Wilmington, Delaware; Joanna A. Diakos, K&L GATES LLP, New York, New
York; Stephen G. Topetzes, Theodore L. Kornobis, K&L GATES LLP, Washington,
District of Columbia; Counsel for Defendant James Bramble and Nominal Defendant
eXp World Holdings, Inc.

McCORMICK, C.
Nominal Defendant eXp World Holdings, Inc. provides cloud-based real estate

services. For many years, top eXp agents Michael Bjorkman and David Golden

allegedly drugged and raped eXp real estate agents at company-sponsored events. A

dozen other eXp agents allegedly participated. A social media post accusing

Bjorkman of assaulting multiple women during a company event went viral in

September 2020. The board terminated Bjorkman but continued paying him. A

month later, an eXp agent sent a memo to company executives detailing seven

incidents of Bjorkman’s and Golden’s behavior. The recipients included the CEO who

sat on the board. The board did nothing. Twenty survivors reported these crimes to

an eXp director who turned whistleblower. The whistleblower raised the issue at two

separate board meetings. The board later launched an internal investigation, but it

was led by insiders. And nothing changed until survivors filed anti-trafficking claims

against the company in 2023.

The defendants here are not alleged to have harassed, drugged, assaulted, or

raped anyone. Rather, according to the plaintiff who owns eXp stock, the defendants

harmed the company by allowing their agents to be harassed, drugged, assaulted,

and raped at company events. Some defendants benefited financially from retaining

the perpetrators and actively covered up their conduct. Others failed to respond in

good faith to red flags notifying them of the company’s rape culture.

The plaintiff claims that Bjorkman and Golden made eXp’s controller, board

chair, and CEO Glenn Sanford a lot of money. The company operates like a pyramid

scheme. An agent who recruits another agent becomes the recruit’s “sponsor,” the
recruit is in the sponsor’s “downline,” and sponsors are compensated based on direct

sales and on how much agents “in their downline” make. This structure incentivizes

sponsors to retain top agents in their downline. Bjorkman and Golden were in

Sanford’s downline. So Sanford had an incentive to retain them.

The plaintiff claims that Sanford breached his duty of loyalty by actively

covering up the rape culture at the company to retain the financial benefits he

received from the perpetrators. The plaintiff also claims that the defendant directors

breached their oversight obligations by failing to respond in good faith to numerous

red flags that made them aware of the rape culture. The plaintiff further claims,

based mainly on Sanford’s actions, that a control group that included Sanford

breached its oversight obligations.

The defendants moved to dismiss the complaint under Court of Chancery Rules

23.1 and 12(b)(6). This decision denies the motion as to Sanford and the director

defendants but grants the motion to dismiss the plaintiff’s novel claim for breach of

oversight obligations against the control group. Reaching the conclusion as to

Sanford requires revisiting whether workplace sexual misconduct can give rise to a

corporate trauma sufficient to support a claim for breach of fiduciary duty. It can and

does here, for a host of reasons grounded in well-settled principles of Delaware

corporate law. In contrast, extending oversight duties to the control group invites the

court to make new law. This decision declines that invitation.

2
I. FACTUAL BACKGROUND

The facts are drawn from the Corrected Verified Derivative Complaint (the

“Complaint”) and documents it incorporates by reference.1

A. The Company

Defendant Sanford founded eXp (or the “Company”) in 2009 to provide cloud-

based real estate services, mainly to residential homeowners. Its shares have traded

on the NASDAQ since 2018. The Company’s wholly owned subsidiary, eXp Realty,

LLC, generates profits by serving as a licensed real estate broker.

1. The Board And Control Group

The Company’s six-person board of directors (the “Board”) manages its

business and affairs.2 The Board changed composition mid-way through the period

covered by the Complaint. For most of that period, the Board comprised Sanford, eXp

1 2024-0998-KSJM Docket (“Dkt.”) 7 (“Compl.”). On a motion to dismiss, the court
can consider documents that the complaint incorporates by reference, such as
documents that the complaint quotes or cites. See Winshall v. Viacom Int’l, Inc., 76
A.3d 808, 818 (Del. 2013), as corrected (Oct. 8, 2013) (“[A] plaintiff may not reference
certain documents outside the complaint and at the same time prevent the court from
considering those documents’ actual terms.” (quoting Fletcher Int’l, Ltd. v. ION
Geophysical Corp., 2011 WL 1167088, at *3 n.17 (Del. Ch. Mar. 29, 2011))); Freedman
v. Adams, 2012 WL 1345638, at *5 (Del. Ch. Mar. 30, 2012) (“When a plaintiff
expressly refers to and heavily relies upon documents in her complaint, these
documents are considered to be incorporated by reference into the complaint; this is
true even where the documents are not expressly incorporated into or attached to the
complaint.”).
2 From 2019 to 2023, the Company’s board comprised seven members. Compl. ¶ 73;
Dkt. 32 (“eXp Opening Br.”), Ex. 9 at 3. Although the Complaint states that the Board
comprised seven members through 2023, this is inaccurate; sometime in 2023, the
Board expanded to eight members, then reduced to seven when Eugene Frederick left
the Board in May 2023. The Board then further reduced to six members in 2024.
Dkt. 32 (“eXp Opening Br.”), Ex. 11 at 17.

3
agent Eugene Frederick, former President of eXp Realty Jason Gesing, Randall Miles,

Dan Cahir, and a person identified by the parties as the “Whistleblower.” The

Whistleblower also consulted the Company on diversity and inclusion efforts.

Sanford is the Board Chair. As discussed further below, the Whistleblower was not

put up for reelection and left the Board in September 2022. Non-party Monica

Weakley filled the vacancy. Frederick left the Board in May 2023 and Gesing left the

Board in January 2024. Non-parties Fred Reichheld and Peggie Pelosi replaced

them.

Through a voting agreement dated December 17, 2020, Sanford and a group of

eXp stockholders, which owned a combined 50% interest in eXp, committed to vote

together on director elections and other matters.3 The group comprises Sanford, his

former spouse, Frederick, and Gesing (together, the “Control Group”). Frederick

served on the Board from April 2016 through May 2023 and has been with eXp Realty

since April 2015. Gesing served on the Board from September 2014 through January

2024 and was CEO of eXp Realty from May 2016 through July 2016 and from October

2019 through December 2022. Gesing also served as Company President from June

2014 through September 2016.

Control Group members held positions on key Board committees. Sanford

alone comprised the Equity Committee, which has authority to make grants of

common stock under the Company’s 2015 Equity Incentive Plan.

3When the plaintiff filed the Complaint, the Control Group members’ combined
ownership was 45.5%.

4
2. The Business Model

Company agents are not employees—they are brought into eXp Realty under

an “Independent Contractor Agreement.”4 Under the agreement, the Company earns

a share of each agent’s commissions. So do other agents, through a multi-level

marketing model where agents are encouraged to recruit other agents. Top agents

are called “Influencers” and often host recruitment events.5

An agent who recruits another agent becomes the recruit’s “sponsor.” The

Independent Contractor Agreement defines the sponsor as the individual “who has

been most influential in [the agent’s] decision to join eXp Realty” and directs the

joining agent to designate the sponsor.6

A sponsor does not have supervisory responsibilities but shares in a recruit’s

revenue. The recruits are placed in the sponsors’ downline, sponsors are enrolled into

the Company’s revenue share program, and sponsors are compensated under the

revenue share program based on revenue generated by their downline. After three

years, sponsors become “Vested Participants” in the program, which means that they

continue to earn money under the revenue share program even if they leave eXp.7

Through that structure, eXp’s revenue share program incentivizes sponsors to retain

top agents in their downline based on their financial performance alone. Between

4 Dkt. 32 (“eXp Opening Br.”), Ex. 1 (Indep. Contr. Agr.).

5 Compl. ¶¶ 1, 23.

6 Indep. Contr. Agr. at eXp_1017.

7 Compl. ¶ 21.

5
2018 and 2020, the Company revised its Independent Contractor Agreement to

prohibit an agent from switching sponsors.

Sanford, Frederick, and Gesing received substantial payments under the

revenue share program. In 2020, Sanford earned a bonus that was equal to his base

salary, which was based on revenue share income generated during the last five

months of 2020. Although Sanford stopped formally participating in the revenue

share program, he continues to receive a quarterly cash bonus equal to the amount

he would have received if he were still formally participating.8 In 2020, Frederick

received nearly $3.9 million in cash and stock through the revenue share program.

In 2021, Gesing earned $545,506 through the program.9

3. The Policies

The Company has a Code of Business Conduct and Ethics (the “Ethics Code”)

for its directors, officers, and employees.10 The Ethics Code provides for anonymous

reporting of potential or suspected violations of the Ethics Code or any laws that

require reporting.11 The Ethics Code prohibits retaliation. The Ethics Code states:

The Company seeks to promote and maintain a culture of
compliance with all Applicable Laws and the highest
standards of business conduct. Everyone at the Company
should promote this culture of compliance.

[. . .]

8 Id. ¶ 90.

9 Id. ¶ 89.

10 eXp Opening Br., Ex. 2 (Ethics Code).

11 Ethics Code at eXp_0298–0299.

6
The Company is firmly committed to providing equal
opportunity in all aspects of employment and will not
tolerate any illegal discrimination or harassment of any
kind. Examples of prohibited conduct include derogatory
comments based on race, gender, ethnicity or sexual
preference and unwelcome sexual advances.12

The Ethics Code includes a “Whistleblower Policy” to ensure compliance with

Company rules. Under the policy, the Company maintains an anonymous hotline

and webpage to collect responses.13 Employees of eXp must report information

regarding non-compliant financial reporting and disclosures but are not required

under the policy to report other compliance matters.14

The Ethics Code does not apply to eXp agents, for whom eXp has a set of

“Policies and Procedures.”15 Each Independent Contractor Agreement incorporates

the Policies and Procedures and requires adherence to them.16 The Policies and

Procedures include a section titled “Code of Conduct,” which requires all agents to

conduct their business “in accordance with applicable federal and state laws” and

“conduct themselves in an appropriate business-like manner in all activities and

relations with fellow Agents, clients, potential customers and eXp staff.”17 The Code

of Conduct further states:

It is the commitment of eXp to ensure the brokerage is free
from negative, aggressive and inappropriate behaviors,

12 Id. at eXp_0292, eXp_0297.

13 Id. at eXp_0298–99.

14 Id. at eXp_0296.

15 eXp Opening Br., Ex. 3 (Policies and Procedures).

16 Indep. Contr. Agr. at eXp_1018.

17 Policies and Procedures at eXp_0352.

7
and that the environment is aimed at providing an
atmosphere upholding our core values. All Agents and
employees of eXp have the right to be treated with dignity
and respect. All complaints of negative and inappropriate
behaviors will be taken seriously and followed through to
resolution. Agents or employees of eXp who file complaints
will not be victimized for “whistle-blowing” or reporting
others for their inappropriate behavior. Agents may file
complaints by emailing compliance@exprealty.net.18

That section concludes: “Agents are subject to immediate termination for violation of

the Code of Conduct.”19

The Policies and Procedures contain a section titled “Harassment,” which

provides:

eXp takes all forms of harassment seriously. This includes
but is not limited to verbal, physical or sexual. All reported
or suspected occurrences of harassment will be promptly
and thoroughly investigated. Any Agent that is found to
have harassed another Agent, employee, client, customer
or any member of the public shall be immediately, and
without warning, released from eXp at eXp’s sole
discretion.

If an Agent feels they have been harassed in any way, the
Agent shall notify the State Broker [i.e., the designated
managing broker] or a member of the corporate team
immediately.

eXp will not permit or condone any acts of retaliation
against anyone who files harassment complaints or
cooperates in the investigation of the same.20

The Company has devoted resources toward the compliance efforts. The

Company has a dedicated Director of Agent Compliance. eXp Realty has a

18 Id. at eXp_0353.

19 Id.

20 Id. at eXp_0407–08.

8
management-level Compliance Committee, whose members during the relevant

period included (among others) the Director of Agent Compliance, the CEO of eXp

Realty, the President of U.S. Growth at eXp Realty, and the Company’s Chief Legal

Counsel, Defendant James Bramble. The Compliance Committee meets every two

weeks.21 The Company also had a Cultural Integrity Group for moral and ethical

violations, a Human Resources department, and a Global Operations Coordinator

charged with writing policies and procedures. The Company had a Director of

Diversity and Employee Success, who Plaintiff alleges was assigned as an escalation

point for complaints of sexual misconduct.

Neither the Ethics Code nor the Policies and Procedures provide an express

structure for escalating concerns of sexual misconduct to the Board.

B. Reports Of Rape And Sexual Assault

Influencers Bjorkman and Golden had worked with Sanford at another real

estate firm before joining eXp. Bjorkman and Golden were in the downline of key

eXp Influencer Brent Gove. All three were in Frederick’s downline, and thus all three

were in Sanford’s downline. Sanford and Frederick benefited from the revenue

generated by Bjorkman, Golden, Gove, and their downlines.22

21 eXp Opening Br., Ex. 6 (“Agent Five Email Commc’ns.”) at eXp_0823C.

22 Frederick also worked closely with Gove in connection with significant eXp events,

including 2024 events in Maui, Hawaii, and Cabo San Lucas. In one online webinar,
Frederick touted that he and Gove “probably recruited more people in the Company”
than any other Influencers. Compl. ¶ 97.

9
Bjorkman and Golden systematically harassed, drugged, assaulted, and raped

agents at eXp events dating back to at least 2018. Dozens of other eXp agents

participated in or knew of the conduct.

1. September 2020

Many of the survivors bravely began reporting the assaults in September 2020.

Three eXp agents, who this decision refers to as Agents Two, Three, and Four,23

alleged that Bjorkman and Golden drugged them and that Bjorkman raped them

during an August 2020 recruitment event in Las Vegas.

Agent Two reported the incident in September 2020 to Golden, Gove, and a

detective who later arrested Bjorkman. As alleged in the Complaint, however, Golden

had participated in many of Bjorkman’s assaults and Gove attended multiple events

where Bjorkman and Golden drugged and assaulted women. Agent Two was not

aware of Golden’s or Gove’s complicity when she reported the incident. Golden

encouraged Agent Two to lie to the police.24

23 The names of some of the survivors are public, but the court anonymizes their

names here out of caution.
24 Compl. ¶¶ 48–52.

10
Agent Three reported the assault and rape to the designated managing broker

for Florida.25

Agent Four posted on Facebook that she had been drugged at the event.

Hundreds of people commented on the post, including seven other women who stated

that they too had been drugged and sexually assaulted at eXp events.26

Later that month, the Company terminated Bjorkman’s contract with eXp

Realty for “inappropriate behaviors” that violated Company policy.27 Although he

had been with eXp for less than three years, the Compliance Committee approved an

“Accelerated Compensation Agreement” to ensure that Bjorkman’s revenue share

vested, and eXp continued to pay Bjorkman downline revenue under the revenue

share arrangement. Bjorkman was also allowed to continue selling real estate with

a small sales team.28

At the time, the Compliance Committee included Gesing, Chief Legal Counsel

Bramble, President of U.S. Growth Dave Conord, and eXp’s Director of Agent

Compliance.29 Gesing voted to provide Bjorkman with these benefits. Bramble voted

25 Id. ¶ 61

26 Id. ¶ 56.

27 Id. ¶ 83.

28 Id. ¶¶ 83–84.

29The Complaint identified Cory Haggard as Director of Agent Compliance in
November 2020. It is unclear from the Complaint whether Haggard was in this
position when the Company terminated Bjorkman.

11
to “[a]llow him to come back” to the Company “based on” Sanford’s undisclosed

“comments.”30

If eXp tried to terminate both Bjorkman and Golden, Gove threatened to pull

his entire team, which comprised roughly one-fifth of the Company’s agents. As a

compromise, Sanford agreed to terminate Bjorkman only.31 Upon hearing that Agent

Two wanted Golden to be terminated, Frederick commented: “we all know that’s not

going to happen.”32 Golden was allowed to continue at eXp.

2. October 2020

Reports of sexual assault continued through the fall of 2020. After learning of

the crimes against other agents, Agent One called eXp’s Director of Agent Compliance

Haggard to report that Bjorkman had raped her in April 2019.33 During that call,

Agent One told Haggard that: (i) in 2019, Bjorkman told her to stay away from Golden

because he would drug and rape her; (ii) Bjorkman had shown her videos of Golden

in which Golden was completely naked and engaging in sexual acts with women; and

(iii) an agent whom Bjorkman was trying to recruit at an event in February 2019 was

30 Id. ¶ 84 (alterations in original).

31 Id. ¶¶ 85–87.

32 Id. ¶ 54.

33 Id. ¶¶ 63–64.

12
drugged and transported to the hospital. Agent One requested a new sponsor so that

she would no longer be in Golden’s or Bjorkman’s downline.34

Also in October 2020, one of eXp’s top agents anonymously sent an eleven-page

memorandum to Gesing, Haggard, and Conord detailing Bjorkman’s and Golden’s

sexual assaults.35 Gesing was on the Board at the time. The Complaint alleges that

Sanford personally reviewed the October 2020 memorandum and took no action.36

The memorandum explained that Bjorkman and Golden assaulted women

together. Their modus operandi was to travel to events together, drug female agents

and recruits to incapacitate them, record the agents and recruits while they appeared

inebriated, and then sexually assault them. According to the memo, Bjorkman and

Golden used the recordings to coerce the women into remaining silent. The author

reported that she and her spouse had been drugged and sexually harassed by

Bjorkman and Golden at a recruiting event. The author describes several sexually

explicit videos she received from two other eXp agents. The author also detailed

numerous incidents of Bjorkman’s and Golden’s behavior that the author had

34 Id.

35 eXp Opening Br., Ex. 4 (“Anonymous Memorandum”); id., Ex. 5.

36 See Compl. ¶ 68.

13
personally witnessed throughout 2019. The author stated that other eXp agents

joined in the sexual assaults.37

The memorandum explained that, in the spring of 2020, the author reported

the incidents to Gove and another agent in Bjorkman’s upline, but they dismissed the

author’s concerns.38

3. November 2020

On November 2, 2020, the Audit Committee held a meeting. The committee

members included Sanford, Cahir, and Miles, with Miles as Committee Chair.

General Counsel Bramble also attended the meetings. Miles asked the attendees if

they were aware of any material allegations of discrimination. Sanford, Cahir, and

Bramble stated that they were unaware of any material allegations.39 The minutes

contain no record of discussion regarding any sexual misconduct. Either those issues

were not discussed or that discussion was intentionally omitted from the minutes.40

On November 9, 2020, Agent Three followed her September 2020 report with

a seven-page written statement to Haggard describing her assault and rape. In that

statement, Agent Three said that she had spoken to eleven other people, including

eXp agents, who had similar experiences.

37 Anonymous Memorandum at 1–11.

38 Id.

39eXp Opening Br., Ex. 13 (Nov. 2, 2020 Audit Committee Mtg. Minutes) at
eXp_0692–93.
40 Id.

14
4. March 2021

In 2021, an eXp agent wrote an email to the entire Board, which included

Defendants Sanford, Miles, Cahir, and Gesing.41 The letter disclosed that the agent

was sexually assaulted by another eXp agent and requested an official change of

sponsorship. The Whistleblower also received several calls and text messages from

eXp agents, all reporting that they had been drugged and sexually assaulted by

Bjorkman or Golden.42 The Whistleblower raised these issues with the Board.43

On March 8, 2021, the Audit Committee held a meeting. Sanford, Miles, Cahir,

and Bramble attended. The minutes contain no record of discussion of sexual

misconduct at the Company.44 That same day, Bjorkman was arrested for sexually

assaulting an eXp agent.

5. May And June 2021

The Audit Committee met on May 4, 2021. The Board met on June 4, 2021.

According to the Complaint, the minutes of these meetings contain no record of

discussion of Bjorkman’s and Golden’s sexual assaults, the March 2021 email

reporting those assaults, or Bjorkman’s March 2021 arrest.45 Either those issues

were not discussed or that discussion was intentionally left out of the meeting

minutes.

41 Compl. ¶ 109.

42 Id.

43 Id.

44 Id. ¶ 58.

45 Id. ¶ 101; eXp Opening Br., Ex. 14 (June 4, 2021 Board Mtg. Minutes) at eXp_0722.

15
6. August And September 2021

Bjorkman was arrested again in August 2021, this time in Miami-Dade

County.46 On September 10, 2021, eXp announced that Dave Conord, eXp Realty’s

Head of U.S. Growth and a member of the Compliance Committee, was retiring. The

Whistleblower and other Board members approved Conord’s compensation package

within two days.47

7. December 2021

In December 2021, months after the Board approved the severance package,

Miles told the Whistleblower that Conord had not retired. Rather, he had been asked

to leave because he had been having an affair with a subordinate and sending

sexually explicit pictures to subordinates to pressure them into having sex with him.

Miles also told the Whistleblower that this information was “hush hush.”48 The

Whistleblower explained that she approved Conord’s compensation package based on

her understanding that Conord was retiring, and that she would not have approved

it had she known the real reasons for Conord’s departure.

Miles also told the Whistleblower that Conord was in a hotel room where

women were being drugged and sexually assaulted, confirming that Miles knew by

then about both the sexual misconduct and Conord’s personal involvement.49 Miles

stated his opinion that Conord made a mistake by being in that hotel room, not by

46 Agent Five Email Commc’ns. at eXp_0823C.

47 Compl. ¶ 104.

48 Id.

49 Id. ¶ 103.

16
failing to report the misconduct. Miles thought that, as a married man, Conord

should have known better than to stay in the hotel room past 11:00 p.m., which was

generally known as the time where attendees were locked in the room and not allowed

to leave until the next morning.50

The Company welcomed Conord back in early 2022, less than four months after

the Company announced his departure. In a Friday afternoon announcement,

Sanford and Gesing shared the news of Conord’s return to eXp, saying, “Guess who’s

back. The man is back.”51

8. March 2022

In March 2022, Agent Five reported that Bjorkman had drugged her in July

2018. She reported that multiple women suspected that they were drugged at an eXp

event in October 2018. And she reported that in September 2019, Bjorkman “placed

a roofie in [her] hand and asked [her] to take it.”52 Agent Five told Golden what

happened the night it happened, but he ignored her.53

Agent Five reported this orally to Sanford on March 7, 2022, who requested

that she forward emails reporting this behavior to him.54 He confirmed receipt. She

then emailed an eXp compliance officer on March 23, 2022, to provide details on three

50 Id. ¶¶ 31, 103.

51 Id. ¶ 105.

52 Agent Five Email Commc’ns. at eXp_0825C–26C.

53 Id. at eXp_0826C.

54 Compl. ¶ 111; Agent Five Email Commc’ns. at eXp_0822C.

17
incidents of reported drugging and request a sponsorship change.55 Bjorkman was

Agent Five’s sponsor and made money from her sales.

9. April 2022

On April 5, 2022, an eXp compliance officer left Agent Five a voicemail stating

that Agent Five’s request to change sponsors had been denied.56 The next day, Agent

Five spoke with the compliance officer, who agreed to escalate the request to eXp’s

Compliance Committee.57 The description of Agent Five’s request contained in the

minutes from the Compliance Committee meeting tracks the information provided in

the March 23, 2022 email and subsequent messages in the email chain between Agent

Five and eXp’s compliance department.58

On April 18, as Agent Five waited for a response from the Compliance

Committee, she emailed the compliance officer and raised Bjorkman’s August 2021

arrest. She also raised Golden’s continued employment at the Company, and the

“silence” of other eXp insiders who had the “full support” of “upper management [and]

board members.”59 Some of the “eXp insiders” who Agent Five named in her email

had already been identified in the October 2020 memorandum sent by a top eXp agent

to Conord, Haggard, and Gesing. The memorandum stated that those “insiders” sent

55 Id. ¶ 112.

56 Id. at eXp_0825C.

57 Id. at eXp_0824C–25C.

58 Compare Defs.’ Opening Br., Ex. 7 (“May 3, 2022 Minutes”) at eXp_1540, with

Agent Five Email Commc’ns. at eXp_0825C–26C.
59 Agent Five Email Commc’ns. at eXp_0822C.

18
sexually explicit videos to eXp agents and participated in Bjorkman’s illegal

conduct.60

That same day, the compliance officer told Agent Five that the Compliance

Committee denied her request.61 The compliance officer stated that the Independent

Contractor Agreement provides that “sponsor selection shall be permanent and may

not change.”62

Agent Five responded on April 20, 2022, copying Sanford, Gesing, Cahir, the

Whistleblower, and the eXp agent who she had selected as her new sponsor. Agent

Five included all of the prior emails on the chain. Sanford, Gesing, Cahir, and the

Whistleblower thus received all of Agent Five’s previous emails to the compliance

department, which included the following statements:

July 20th, 2018 . . . : Closing table . . . This is the first time
I got so sick from one drink that I could barely walk,
throwing up all over and was feeling dizzy and ill.

[ . . .]

October 22-24, 2018 eXpCon Nola 2018. Multiple women
reported the next morning and shared with me the same
effects of feeling drugged, dizzy and throwing up. Many of
these women are no longer with the company. However
there are a few who are still operating under eXp including
myself.

[ . . .]

September 23rd-25th 2019 FiveStar Conference Dallas,
Texas. Rosie Rodriguez, Mike Bjorkman, David Golden
sponsored a suite. As a new agent, we are encouraged to

60 See Anonymous Memorandum.

61 Agent Five Email Commc’ns. at eXp_0822C.

62 Id.

19
bring non eXp agents to get enrolled and learn about the
company. This is the day where Mike Bjorkman placed a
roofie in my hand and asked me to take it . . . . That night,
I communicated to [Golden] what happened and he
disregarded my comment.63

In her email to the Board, Agent Five states that she was drugged and that

“sexual harassment” is “real” and “is not something we should take lightly, hide or

uncover [sic].”64 She explains that “Rohypnol[,] the rape drug” had become part of

“the eXp corporate culture.”65 She also requested that eXp provide guidance on “who

to contact in case of any sexual abuse [or] drug poisoning” at eXp.66

By April 2022, the Whistleblower had received reports from 20 agents detailing

numerous sexual assaults. The Whistleblower sought advice from the Company’s

outside counsel, a law firm in Dallas, about the Board’s failure to address the reports

of sexual misconduct. Outside counsel provided numerous recommendations,

including that the Board authorize an independent investigation.67

The Whistleblower sent a message to her fellow directors through a Board

portal sharing outside counsel’s recommendations. The recipients included Sanford,

Miles, Cahir, Gesing, and Frederick. The Whistleblower wrote:

As you know, I have a unique role within the company. I
serve as both a Director and Leader of Diversity and
Inclusion for eXp. You all have now been made aware that
there [have] been several serious allegations made against

63 Id. at eXp_0825C–0826C (cleaned up).

64 Id. at eXp_0820C.

65 Id.

66 Id. at eXp_0826C.

67 Compl. ¶ 123.

20
senior leaders of our team that require the utmost in
independence as well as sensitivity to address. While I am
sure as a company we have tried to address these concerns,
they are at a level which requires an independent view in
order to protect both the company and the alleged victims.
To date, there have been three women who have come
forward with similar allegations regarding being drugged
and or sexually assaulted by a former agent(s) with possibly
more to come. This strengthens the need for an
investigation as to lessen the risk for the company.

From the outside, the internal process that has been used to
investigate the claims will likely be perceived as lacking
independence. (Foxes guarding the hen house approach).
For the protection of the company, these cases should be
reviewed and investigated outside the company by a
national reputable law firm with subject matter expertise
in these matters. Besides independence, the concern that I
have about the approach that has been taken is that we are
not taking a long term view. The ruling to deny [Agent
Five] change of sponsorship is short-sighted and has long
term implications to the alleged victim as well as potential
damage to the company culture and brand.

Furthermore, the same request from other alleged victims
was granted, which results in an inexplicable inconsistency
in the conclusions.

I have given this serious thought as I have a unique
perspective, role and in a position to provide insights to
you. I also join you as a fiduciary with legal, and ethical
responsibility to protect our company/agents/shareholders.

Based on the multiple conversations and correspondence
that has been shared with me over the last few weeks by
these women, it was made clear to me that they are not
going away quietly. The likelihood that these incidents will
be reported to the media or as a legal challenge increases
daily. It may not be tomorrow, next year, or in 5 years,
however, it will become public at some point as many
people inside and outside of eXp are aware of these
incidents.

The takeaway is that some of the women in this company
don’t feel heard or protected. While the potential brand

21
damage if this does become public is incalculable, together
as a Board we have an ethical responsibility to the alleged
victims.

I spent the Easter holiday weekend and majority of this
week listening to the insidious details of what [Agent Five]
and other women who have made allegations against both
Michael Bjorkman and David Golden. From what has been
communicated to me, there are multiple victims that are
surfacing with the same story who don’t know each other.
While some have already left the company, others who
have not come forward out of shame, fear of being bullied
and retaliated against by leaders in their rev share
organization as was reported in the correspondence (see
text messages). As of last week, some of these women (and
men) are now coming together and sharing information- in
light of the bombshell lawsuit reported in INMAN news
against our competitor Keller Williams Realty which
impacted the Founder, former CEO, former President, and
other key leaders. For exp, this appears to be more than just
a few agents behaving badly.

My recommendations follow:

Action 1: We should immediately launch an independent
investigation done by a credible law firm to assess the
situation and provide recommendations. This could lead to
other information being discovered where there is credible
evidence of further assaults, cover ups, bullying or
participation in the activities. If this occurs we will need
to carefully address necessary actions.

Action 2: Change the sponsorship for any of the alleged
victims who come forward with credible information to
address concerns

Action 3: Proactively create both an internal and external
statement supporting a zero tolerance policy for sexual
harassment, misconduct or abuse of women. (and men)

Action 4: Create an independent “whistleblower
hotline/process” for staff and agents to confidentially report
sensitive issues.

22
Action 5: Review and amend the “revenue share for life”
policy that would prohibit agents/staff that have been
terminated for cause from the company to continue to
financially benefit from rev share, etc.

Action 6: Encourage an environment of inclusion by having
leadership reach out to the agents and listen to their
concerns on a regular basis

Action 7: As both a gesture of goodwill and a proactive
approach towards women in the company, adopt and fund
the new women's leadership initiative that will (in
partnership with men) foster, re-establish trust via peer to
peer mentoring, business innovation, and a commitment to
sponsor new female licensees.

I want to thank each of you in advance for your support for
a more diverse, inclusive and safe environment for all eXp
agents, employees and recruits.68

The Board did not adopt any of the Whistleblower’s recommendations.69

Instead, after the Whistleblower sent her message, the Board instituted the “Fox

guarding the hen house approach” that outside counsel advised against by launching

an internal investigation led by a team of five eXp employees, including two officers.70

Sanford, attempting to minimize the issue, told the Whistleblower that “this

was not their problem and would be simply a three-to-five day newspaper

phenomenon and then would disappear.”71

68 eXp Opening Br., Ex. 10 (“Whistleblower Commc’n.”) (emphases added).

69 CEO Gesing later told Agent Five that she would be permitted to change sponsors

and “offered to cover 12 months of her mortgage payments,” in response to her
assertions of hardship. Compl. ¶ 118.
70 Compl. ¶ 123.

71 Id. ¶ 122.

23
According to the Complaint, the Whistleblower raised these issues at two

Board meetings. She described reports she received of rape, sexual assault, and

drugging.72 Her reports were not recorded in the meeting minutes.73 And at least

twice in response to her reports, Board members including Sanford and Miles told

her—a director and Company diversity and inclusion consultant—to mind her

business.

10. May 2022

The first mention in any Board or Committee minutes of the drugging, rape,

or sexual assault allegations appears in the May 3, 2022 Compliance Committee

minutes.74 This is the case even though the Compliance Committee meets every two

weeks, met in April to review Agent Five’s sponsorship change request, and denied

that request on April 18, 2022.

The May 3, 2022 Compliance Committee meeting occurred after Agent Five

emailed Sanford, Gesing, Cahir, and the Whistleblower on April 20. The May 3

minutes describe Agent Five’s sponsorship change request as a “Policy Exception

Request.”75

The descriptions of the “Request Details” state: “[Agent Five] stated that she

shared with a member in her upline that she was drugged in the past during a

conference and that she was once offered a roofie by Michael Bjorkman. After sharing

72 Id. ¶ 124.

73 Id. ¶¶ 99–102.

74 Compl. ¶ 114; May 3, 2022 Compliance Committee Minutes at eXp_1540.

75 Id.

24
this information, she feels her upline agents are no longer supporting her agent

attraction efforts.”76

That section further notes that “[a]llowing the change would move [Agent Five]

to a completely new revenue share line, causing potential negative impact to six eXp

agents, and Michael Bjorkman who is in vested retirement status.”77

Although the “Request Details” mention financial impact to Bjorkman, they

omit any discussion of Agent Five’s references to “sexual abuse,” eXp’s rape drug–

fueled “corporate culture,” or Agent Five’s repeated attempts to alert agents in her

upline about her experience.78

The minutes report that the Compliance Committee denied Agent Five’s

request “pending conversation” with Holly Maybery, a member of the Compliance

Committee.79 After that “conversation,” Jim Nuth, another committee member,

would “discuss the issue with the audit committee.”80

11. June 2022

Miles and Bramble informed the Whistleblower that she was being put on

“whistleblower status,” and that there would be a backlash because of the

Whistleblower’s actions.81 Before the Whistleblower came forward about the sexual

76 Id.

77 Id. (emphasis added).

78 Id.

79 Id. at eXp_1540, eXp_1543.

80 Id.

81 Compl. ¶ 125.

25
misconduct reported to her and urged the Board to act, the Whistleblower had been

asked to stay on the Board.82 After, the Governance Committee, which included

Miles, decided not to put the Whistleblower up for re-election.83 The Whistleblower’s

term expired in June 2022.

C. The Federal Suits And Media Coverage

By early 2023, the Board’s response to reports of rape and sexual assault had

been limited. To recap, in September 2020, the Board terminated Bjorkman’s agent

contract but allowed him to continue to earn revenue in retired status. The Board

also declined to terminate Golden, allegedly as a compromise to appease Gove and

potentially others. And around April 2022, the Board launched an internal

investigation that did not conform to outside counsel’s recommendations, but the

Board did not change anything. Beginning in February 2023, the sexual misconduct

at eXp prompted three suits in federal court and a New York Times exposé.

1. The First Anti-Trafficking Suit

On February 22, 2023, four eXp agents filed Acevedo v. eXp World Holdings,

Inc. et al. against eXp, Bjorkman, Golden, Gove, and Sanford in California federal

court (the “Acevedo Action”). The plaintiffs in the Acevedo Action assert claims under

federal anti-trafficking laws, as well as state-law claims for sexual and civil battery,

intentional infliction of emotional distress, and negligence.84

82 Id.

83 Id.

84 Id. ¶ 128.

26
The day after survivors filed the first lawsuit, the Board suspended Golden’s

status as an agent. Golden had qualified for revenue share vesting days before. The

Company continues to pay Golden under the revenue share agreement.

2. The Second Anti-Trafficking Suit

On December 14, 2023, an eXp agent filed Roberts v. eXp Realty, LLC et al. in

California federal court against eXp and Sanford (the “Roberts Action”). The agent

asserts claims for beneficiary liability under federal anti-trafficking laws, as well as

state-law claims for negligent hiring, retention, and supervision.85

3. The New York Times Publishes Drugged And Assaulted.

On December 15, 2023, The New York Times published an exposé on sexual

assault, rape, and drugging at eXp.86 Titled Women at Fast-Growing Realty Firm Say

They Were Drugged and Assaulted, the exposé drew from “more than 30 interviews

with current and former eXp agents,” where women said “high earners are granted

star status, and allegations of misconduct are ignored.”87 The exposé quoted one

former eXp broker as saying that the brokers “that grow their teams the fastest are

the center of attention for the company . . . . [a]nd unfortunately, it’s like they can do

no wrong.”88

85 Id. ¶ 134.

86 Id. ¶ 135 (discussing Debra Kamin, Women at Fast-Growing Realty Firm Say They

Were Drugged and Assaulted, N.Y. Times (Dec. 15, 2023),
https://www.nytimes.com/2023/12/15/realestate/sexual-misconduct-exp-
realty.html.).
87 Kamin, supra.

88 Id.

27
4. The Third Anti-Trafficking Suit

On January 16, 2024, a former eXp agent filed Carter v. Chris Nevada et al. in

Nevada federal court against eXp agent Chris Nevada and the Company (the “Carter

Action”). The former agent claimed that Nevada offered to pay her for sex and

inappropriately touched her and other agents. The defendants in the Carter Action,

including eXp, agreed to settle the claims. The terms of the settlement are not public.

5. A California Federal Court Sustains The First Anti-
Trafficking Suit.

On January 29, 2024, the California federal court issued an 85-page decision

largely denying the defendants’ motion to dismiss the Acevedo Action. The court held

that the eXp agents met their burden of pleading facts creating a plausible inference

that: “Sanford and Gove are beneficiaries of Bjorkman’s sex trafficking” through the

revenue share program.89 According to the federal complaint, Sanford, Gove and eXp

“attempted to cover up a previous instance or allegations of sexual assault.”90 The

allegations supported an inference that “the eXp Leadership Team had a

longstanding culture—their pattern and practice—of creating an environment that

allowed these assaults, then silencing those whose accounts of sexual harassment

and assault would impact profit.”91

89 Acevedo v. eXp Realty, LLC, 713 F.Supp.3d 740, 784 (C.D. Cal. 2024).

90 Id. at 784 (citation modified).

91 Id. at 793 (citation modified).

28
D. This Litigation

Plaintiff Los Angeles City Employees’ Retirement System owns stock in eXp.

Plaintiff filed this action on October 8, 2024, against Sanford, Miles, Cahir, Gesing,

Frederick, and Bramble (collectively, “Defendants”), claiming that they breached

their fiduciary duties.

The Complaint contains four counts. In Count I, Plaintiff claims the Control

Group breached oversight obligations.92 In Count II, Plaintiff claims that Sanford

breached his fiduciary duties as a director and officer.93 In Count III, Plaintiff claims

that Frederick, Gesing, Miles, and Cahir breached their fiduciary duties as

directors.94 And in Count IV, Plaintiff claims that Bramble breached his fiduciary

duties as an officer.95

The allegations and legal theories underlying each of the four counts are

similar. Plaintiff claims that each Defendant violated his obligations under

Caremark by “failing to ensure that the Company had in place reasonable reporting

and information systems that would have allowed eXp’s officers and the Board to

know about and prevent acts of sexual assault and misconduct, and failing to respond

to and consciously disregarding the accounts of sexual assault and misconduct that

were brought to the [Defendant’s] attention.”96

92 Compl. ¶¶ 173–79.

93 Id. ¶¶ 180–86.

94 Id. ¶¶ 187–93.

95 Id. ¶¶ 194–200.

96 Id. ¶¶ 176, 182, 189, 196.

29
Plaintiff also claims that Sanford “covered up the sexual misconduct at eXp;

caused the Company to enter the ‘Accelerated Compensation Agreement,’ under

which it paid out at least $1 million to Bjorkman; and rushed Conord’s compensation

package through a Board vote, while withholding material information about the

reason for his departure that would have affected other Board members’ decisions to

approve or reject his compensation.”97

Plaintiff claims that the alleged cover-up allowed Sanford, Gesing, and

Frederick to continue reaping profits from the revenue share program, citing

Sanford’s, Gesing’s, and Frederick’s 2020 and 2021 revenue share program awards.98

Defendants moved to dismiss the Complaint on December 10, 2024.99 The

parties fully briefed the motion and the court heard oral argument on July 28, 2025.100

On January 6, 2026, the court granted the parties leave to submit supplemental

briefing on the implications, if any, of a December 2025 decision of this court, Brola

ex rel. Credit Glory Inc. v. Lundgren.101 The parties completed supplemental briefing

on January 14, 2026.102

97 Id. ¶¶ 176, 182, 189.

98 Id. ¶¶ 89, 176, 182, 189.

99 Dkts. 26–31.

100 Dkt. 68.

101 --- A.3d ---, 2025 WL 3439671 (Del. Ch. Dec. 1, 2025); see Dkt. 72.

102 Dkt. 74 (“Defs.’ Supp. Br.”); Dkt. 75 (“Pl.’s Supp. Br.”).

30
II. LEGAL ANALYSIS

Defendants have moved to dismiss the Complaint under Court of Chancery

Rule 23.1. Defendants have also moved to dismiss Counts I and III under Rule

12(b)(6).103 Because aspects of the Rule 23.1 analysis build on the Rule 12(b)(6)

analysis, this decision begins with the Rule 12(b)(6) motion.

A. Rule 12(b)(6)

“[T]he governing pleading standard in Delaware to survive a motion to dismiss

is reasonable ‘conceivability.’”104 When considering a motion under Rule 12(b)(6), 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.”105 The court, however, need not “accept conclusory allegations

unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-

moving party.”106

Delaware law distinguishes between (i) wrongdoing based on active, self-

interested conduct that harms the corporation, such as “committing acts of sexual

103 No defendant has moved to dismiss Count II or IV under Rule 12(b)(6) against

Sanford or Bramble. So Defendants concede that these counts state claims under
Rule 12(b)(6).
104 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536

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

106 Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011), overruled on

other grounds by Ramsey v. Georgia S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1277
(Del. 2018)(citing Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)).

31
harassment,”107 “a conscious decision to mislead,”108 or “affirmative involvement in

[an] alleged . . . cover-up,”109 and (ii) wrongdoing based on a failure of oversight.110

Both are loyalty claims, but the former is more overt than the latter. That is because

oversight liability stems from passive (but conscious) failures to act—the notion that

“directors allowed a situation to develop and continue which exposed the corporation

to enormous legal liability and that in so doing they violated a duty to be active

monitors of corporate performance.”111

Plaintiff here asserts claims based on both types of wrongdoing—active

misconduct and oversight failures. Through Count II, Plaintiff alleges that Sanford

107 In re McDonald’s Corp. S’holder Deriv. Litig., 289 A.3d 343, 381 (Del. Ch. 2023).

108 In re Duke Energy Corp. Deriv. Litig., 2016 WL 4543788, at *13 (Del. Ch. Aug. 31,

2016) (contrasting oversight claim alleging directors’ “failure to oversee risk” versus
a “fundamentally different” claim alleging that directors “made a conscious decision
to mislead regulators in violation of positive law”).
109 In re Wal-Mart Stores, Inc. Del. Deriv. Litig., 2016 WL 2908344, at *10 n.49 (Del.

Ch. May 13, 2016), supplemented, 167 A.3d 513 (Del. Ch. 2017) (distinguishing
between “allegations that the directors lack disinterestedness because of potential
Caremark liability for consciously failing to monitor” and allegations of “the directors’
affirmative involvement in [an] alleged bribery scheme and cover-up”).
110 See McDonald’s, 289 A.3d at 380 (distinguishing between Fairhurst’s acts of
harassment that gave rise to a claim for breach of the duty of loyalty and Fairhurst’s
failure to establish an information system); Stone ex rel. AmSouth Bancorporation v.
Ritter, 911 A.2d 362, 369 (Del. 2006) (distinguishing between when “the fiduciary
intentionally acts with a purpose other than that of advancing the best interests of
the corporation” and when the fiduciary “intentionally fails to act in the face of a
known duty to act, demonstrating a conscious disregard for his duties”) (quoting In
re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)); see also In re Caremark
Int’l Inc. Deriv. Litig., 698 A.2d 959, 967 (Del. Ch. 1996) (distinguishing between a
“board decision” that results in harm and an “unconsidered failure of the board” that
results in harm).
111 Caremark, 698 A.2d at 967.

32
engaged in self-serving behavior by covering up the wrongdoing and ousting the

Whistleblower. Through Count III, Plaintiff alleges that each of the Defendants

breach their oversight obligations. And through Count I, Plaintiff alleges that the

Control Group members breached oversight obligations.112

1. Claim That Sanford Actively Breached The Duty Of
Loyalty

The analysis of Plaintiff’s claim against Sanford begins with the governing

legal standard, moves into a discussion of the recent Credit Glory decision, and

concludes by applying the standard.

a. Applicable Legal Principles

Although “[t]he standard of loyalty is measured by no fixed scale,” a director’s

duty of loyalty “requires an undivided and unselfish loyalty to the corporation” and

“demands that there shall be no conflict between duty and self-interest.”113

“Corporate officers and directors are not permitted to use their position of trust and

confidence to further their private interests.”114

A fiduciary acts in bad faith when the fiduciary “intentionally acts with a

purpose other than that of advancing the best interests of the corporation.”115 “It

112 Although Count II is pled against Sanford only, Plaintiff argued in briefing that

Miles also actively breached his fiduciary duties. Because Count III states a claim
against Miles, this decision does not address Plaintiff’s argument that Miles also
breached his fiduciary duties through active misconduct.
113 Guth v. Loft, Inc., 5 A.2d 503, 510 (Del. 1939).

114 Id.

115 Stone, 911 A.2d at 369 (quoting Disney, 906 A.2d at 67).

33
makes no difference the reason why the [fiduciary] intentionally fails to pursue the

best interests of the corporation.”116

“Bad faith can be the result of any emotion that may cause a [fiduciary] to

intentionally place his own interests, preferences or appetites before the welfare of

the corporation.”117 “Bad faith is ‘not simply bad judgment or negligence,’ but rather

‘implies the conscious doing of a wrong because of dishonest purpose or moral

obliquity . . . it contemplates a state of mind affirmatively operating with furtive

design or ill will.’”118 “Greed is not the only human emotion that can pull one from

the path of propriety; so might hatred, lust, envy, revenge, . . . shame or pride.”119

Covering up a breach of fiduciary duty is a form of disloyalty because it is an

intentional act not in the best interests of the corporation. When a director knows of

a wrong, and subsequently conceals that wrong or lies about it, that “deception is

disloyal conduct in breach of his duty as a fiduciary.”120

116 Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *27 (Del. Ch.

Apr. 14, 2017) (cleaned up).
117 Id. (quoting In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *15 (Del.

Ch. Jan. 31, 1989) (Allen, C.)) (cleaned up).
118 McGowan v. Ferro, 859 A.2d 1012, 1036 (Del. Ch. 2004), aff’d, 873 A.2d 1099 (Del.

2005) (TABLE) (quoting Desert Equities, Inc. v. Morgan Stanley Leveraged Equity
Fund, II, L.P., 624 A.2d 1199, 1208 n.16 (Del. 1993)).
119 RJR Nabisco, 1989 WL 7036, at *15.

120 Ryan v. Gifford, 935 A.2d 258, 272 (Del. Ch. 2007); cf. Lebanon Cty. Emps.’ Ret.

Fund v. AmerisourceBergen Corp., 2020 WL 132752, at *20 (Del. Ch. Jan. 13, 2020),
aff’d, 243 A.3d 417 (Del. 2020) (“A claim that directors had notice of serious
misconduct and simply brushed it off or otherwise failed to investigate states a claim
for breach of duty.”); Hoover Indus., Inc. v. Chase, 1988 WL 73758, at *2 (Del. Ch.
July 13, 1988) (“A director does breach his duty of loyalty if he knows that the
company has been defrauded and does not report what he knows to the board or to

34
Directors and officers breach the duty of loyalty when they abuse human

resources, including by sexually harassing employees or agents of the corporation, as

this court held in McDonald’s.121

McDonald’s arose from the misconduct of the company’s Chief People Officer,

David Fairhurst, who allegedly fostered a corporate culture that condoned sexual

harassment and misconduct. The complaint claimed that Fairhurst and the

company’s CEO turned the company’s headquarters into a den of iniquity, where

executives hosted weekly happy hours and routinely made female employees feel

uncomfortable. Their conduct led to more than a dozen complaints with federal

regulators, a walkout in over thirty cities to highlight the complaints, and a one-day

strike to protest sexual harassment and the company’s failure to address it. Amid

this national corporate crisis over McDonald’s toxic work culture, Fairhurst allegedly

got drunk at a holiday party and harassed a female employee.

After the holiday party, the company docked Fairhurst’s bonus by 50% and

gave him one last chance. Fairhurst then worked with the general counsel and the

board on corrective measures. Fairhurst later left the company after the board

learned of a relationship between Fairhurst and an employee that violated the

company’s anti-fraternization policy.

an appropriate committee of the board, at the very least when he is involved in the
fraud and keeps silent in order to escape detection.”).
121 See McDonald’s, 289 A.3d at 380 (“[F]iduciaries violate the duty of loyalty when

they engage in harassment themselves.” (quoting Daniel Hemel & Dorothy S. Lund,
Sexual Harassment and Corporate Law, 118 Colum. L. Rev. 1583, 1641 (2018)).

35
The work culture issues that Fairhurst fostered resulted in: the above-

described walk-out and strike; a proxy battle to change the composition of the board;

and a class-action lawsuit in Florida seeking damages for sexual harassment,

retaliation, and related misconduct. In addition, the company initiated a suit against

the CEO to claw back some of his severance package.

In this court, stockholders filed derivative claims against Fairhurst and

members of the McDonald’s board of directors to recover for the harm to the company

resulting from a corporate culture that condoned sexual harassment and misconduct.

The complaint asserted a duty of loyalty claim against Fairhurst and oversight claims

against Fairhurst and the director defendants. The defendants moved to dismiss the

complaint under Court of Chancery Rules 12(b)(6) and 23.1. The court addressed the

motions in three decisions.

The court first tackled Fairhurst’s Rule 12(b)(6) motion. Most of that decision

focused on clarifying that officers owe oversight duties under Caremark. Germane to

this discussion, the court addressed the plaintiffs’ claim that Fairhurst acted

disloyally through his own acts of harassment. The court concluded that “[i]t is not

reasonable to infer that Fairhurst acted in good faith and remained loyal to the

Company while committing acts of sexual harassment, violating company policy,

violating positive law, and subjecting the company to liability. It is reasonable to

infer that Fairhurst acted disloyally and for an improper purpose, unrelated to the

36
best interests of the Company.”122 On this reasoning, the court denied Fairhurst’s

Rule 12(b)(6) motion.

In a second decision, the court granted the director defendants’ Rule 12(b)(6)

motion. The court held that the complaint did not adequately allege a Caremark

claim against the director defendants. Although it was reasonably conceivable that

the director defendants learned of numerous red flags revealing the culture of sexual

harassment and Fairhurst’s own misconduct, the court held that “the complaint does

not support [] an inference that the Director Defendants failed to respond” to the red

flags.123 The decision catalogued the board’s numerous salutary actions intended to

ameliorate the problem once it was surfaced to them.

In a final decision, the court granted the defendants’ Rule 23.1 motion.124

Because the complaint did not state a claim against the director defendants, the

majority of the board did not face a substantial likelihood of liability in connection

with the lawsuit and was not otherwise conflicted. The court thus concluded that the

plaintiff failed to plead demand futility. The effect was that the entire case was

dismissed, even the claim against Fairhurst.

The three McDonald’s decisions demonstrate that sexually harassing

employees can constitute a breach of the duty of loyalty, albeit one that might not

survive a motion to dismiss under Rule 23.1.

122 Id. at 381.

123 In re McDonald’s Corp. S’holder Deriv. Litig., 291 A.3d 652, 662 (Del. Ch. 2023).

124 In re McDonald’s Corp. S’holder Deriv. Litig., 2023 WL 2329711 (Del. Ch. Mar. 01,

2023).

37
b. Credit Glory

A recent decision—Credit Glory—takes a different approach. There, a

stockholder sued on behalf of a company for the harm the company suffered when it

was held liable for $1.6 million for sexual harassment committed by one of its officers.

The stockholder sought to shift the loss from the company to the offending officer by

asserting a derivative claim against the officer for breach of the duty of loyalty. The

court dismissed the claim, reasoning that interpersonal misconduct like sexual

harassment governed by employment law cannot support a claim for breach of

fiduciary duty.125

Credit Glory is distinguishable from this action. Plaintiff here does not assert

a legal claim based on the theory that sexually harassing employees constitutes a

breach of the duty of loyalty. Rather, the active misconduct here is the cover-up and

retaliation. Yet Credit Glory can be interpreted as counseling against: relying on

Delaware corporate law as a “general morality code;”126 derivative claims arising from

“workplace disputes . . . regulated by comprehensive state and federal laws;”127 and

“allowing a stockholder to capitalize on a victims’ personal traumas.”128 Defendants

125 Credit Glory, 2025 WL 3439671, at *5.

126 Defs.’ Supp. Br. at 2 (quoting Credit Glory, 2025 WL 3439671, at *4).

127 Id. at 3.

128 Id. at 4.

38
thus argue that the decision has potential implications for and supports their

dismissal motions.129 Credit Glory, therefore, warrants discussion.

The defendant in Credit Glory was Christopher Lundgren, a director and

officer of the company. Two company employees sued Lundgren for discrimination in

New York state court. The employees also named Credit Glory as a defendant. The

New York court entered judgment against Credit Glory and Lundgren jointly for

$1.35 million, and against Credit Glory and Lundgren individually for $235,000 each.

Excluding attorney’s fees and expenses, therefore, Lundgren’s offenses against

company employees rendered Credit Glory liable for $1.6 million.130

Company co-founder, president, and director Alex Brola filed a derivative claim

on Credit Glory’s behalf to recover the $1.6 million. Brola did not assert oversight

claims. Rather, Brola claimed that Lundgren actively breached the duty of loyalty by

sexually harassing company employees. Lundgren moved to dismiss on various

grounds, including under Rules 23.1 and 12(b)(6). He argued that even though he

and Brola were the only directors, demand was not futile because he did not face a

substantial likelihood of liability from the claims against him. The court granted

Lundgren’s motion, reasoning Lundgren did not face a substantial likelihood of

liability because harassing company employees is interpersonal conduct, governed by

employment law, and cannot support a claim for breach of fiduciary duty.131

129 See generally id. (arguing that Credit Glory has implications on and supports the

motions to dismiss).
130 C.A. 2024-1108, Dkt. 1.

131 Credit Glory, 2025 WL 3439671, at *5.

39
The decision advanced six lines of reasoning.132 The first two addressed

McDonald’s. The court reasoned that, if read to support the notion that sexually

harassing company employees supports a claim for breach of the duty of loyalty, then

McDonald’s constitutes an expansion of Delaware law (the “expansion” argument).

The court next reasoned that reading McDonald’s to support a claim for breach of

fiduciary duty based on interpersonal conduct could lead to “doctrinal sprawl” (the

“sprawl” argument). The third line of reasoning was that employment law preempts

fiduciary duty claims (the “preemption” argument). The fourth was that Delaware

courts should show “comity” to the employment law of other states (the “comity”

argument). The fifth line of reasoning was that to support a fiduciary claim, the

challenged conduct must involve fiduciary powers exclusively and cannot arise from

powers that “any midlevel manager” might hold (the “powers” argument).133 Last,

the court reasoned that treating sexual harassment as a basis for fiduciary violations

would be detrimental to survivors of sexual abuse and thus against public policy (the

“policy” argument).

i. The Expansion Argument

To build the argument that McDonald’s constituted an expansion of Delaware

law, Credit Glory reduced the holding of McDonald’s to a syllogism: “[B]ecause sexual

harassment is selfish, and selfishness is disloyal, then harassment is a breach of the

132 Id. at *6–7.

133 Id. at *5.

40
duty of loyalty.”134 The court then took this logic a step further, stating that it would

result in “strict fiduciary liability for workplace misconduct.”135 The court reasoned

that this would constitute an “expansion” of Delaware law.136

As discussed above, McDonald’s was a fact-specific application of long-settled

principles of Delaware law—that a fiduciary acts in bad faith when the fiduciary

“intentionally acts with a purpose other than that of advancing the best interests of

the corporation.”137

The duty of loyalty has been defined “capaciously” to bind fiduciaries, whatever

the context.138 As retired Chief Justice Strine and his co-authors have explained:

“Because every act of a director must be done for a proper, loyal purpose, every act in

every context implicates the duty of loyalty.”139

134 Id. at *5.

135 Id.

136 Id.

137 Stone, 911 A.2d at 369 (quoting Disney, 906 A.2d at 67).

138 Leo E. Strine, Jr., Lawrence Hamermesh, R. Franklin Balotti, & Jeffrey Gorris,

Loyalty’s Core Demand: The Defining Role of Good Faith in Corporation Law, 98 Geo.
L.J. 629, 633–34 (2010) [“Loyalty’s Core Demand”] (“Because the discretion that the
DGCL affords directors is so wide, it is vitally important that directors exercise this
discretion to advance the corporation’s best interests and not for improper purposes .
. . . [I]t has been traditional for the duty of loyalty to be articulated capaciously, in a
manner that emphasizes not only the obligation of a loyal fiduciary to refrain from
advantaging herself at the expense of the corporation but, just as importantly, to act
affirmatively to further the corporation’s best interests. In this respect, our law has
been clear that the duty of loyalty is implicated by all director actions because all
such actions must be undertaken in good faith to advance the corporation’s best
interests and because directors owe an affirmative obligation to put in a good faith
effort to responsibly carry out their duties.”).
139 Id. at 639.

41
A claim for breach of the duty of loyalty examines whether the fiduciary acts

with the intent of advancing the best interests of the corporation, not why the

fiduciary fails to do so. As this court stated in ODN Holding, “[i]t makes no difference

the reason why the [fiduciary] intentionally fails to pursue the best interests of the

corporation.”140 In Guttman, this court explained that “[t]he reason for the disloyalty

(the faithlessness) is irrelevant, the underlying motive (be it venal, familial, collegial,

or nihilistic) for conscious action not in the corporation’s best interest does not make

it faithful, as opposed to faithless.”141 And Chancellor Allen said it best in RJR

Nabisco:

Greed is not the only human emotion that can pull one from
the path of propriety; so might hatred, lust, envy, revenge,
or, as is here alleged, shame or pride. Indeed any human
emotion may cause a director to place his own interests,
preferences or appetites before the welfare of the
corporation. But if he were to be shown to have done so,
how can the protection of the business judgment rule be
available to him? In such a case, is it not apparent that
such a director would be required to demonstrate that the
corporation had not been injured and to remedy any injury
that appears to have been occasioned by such
transaction?142

Delaware courts have applied these basic principles across myriad factual

contexts, finding that a fiduciary acts disloyally when: using company resources for

140 ODN Hldg. Corp., 2017 WL 1437308, at *27 (cleaned up).

141 Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003).

142 RJR Nabisco, 1989 WL 7036, at *15.

42
personal reasons;143 embezzling company funds;144 engaging in unauthorized related-

party transactions;145 using material and non-public company information to trade;146

using confidential company information to compete with the company;147 and

usurping corporate opportunities.148

143 See, e.g., Sutherland v. Sutherland, 2010 WL 1838968, at *4–7 (Del. Ch. May 3,

2010) (denying summary judgment against a claim that a defendant breached
fiduciary duties by causing the company provide audit services for his personal use).
144 See, e.g., QC Commc’ns Inc. v. Quartarone, 2014 WL 3974525, *11–13 (Del. Ch.

Aug. 15, 2014) (finding post-trial that the defendant breached his duty of loyalty by
retaining company sale proceeds for his personal benefit); Smith v. Smitty McGee’s,
Inc., 1998 WL 246681, at *2–3 (Del. Ch. May 8, 1998) (finding the plaintiffs stated a
claim that a defendant misappropriated company funds for loan payments on his
family’s personal properties and personal legal costs).
145 See, e.g., In re InfoUSA, Inc. S’holder Litig., 953 A.2d 963, 999–1000 (Del. Ch.

2007) (finding that the complaint stated a claim for breach of fiduciary duty where
the company made payments to the defendants’ personal corporation covering the use
of private jets, a private yacht, a personal residence in California, and travel
expenses); MGG SPV Duck LP ex rel. Shari’s Rest. Gp., Inc. v. Borgese, 2025 WL
3232791, at *9–10 (Del. Ch. Nov. 19, 2025) (finding the plaintiff stated a claim where
company directors approved an intercompany loan to a related business without
expectation of repayment).
146 See, e.g., Brophy v. Cities Service Co., 70 A.2d 5 (Del. Ch. 1949); In re Fitbit, Inc.

S’holder Deriv. Litig., 2018 WL 6587159 (Del. Ch. Dec. 14, 2018) (finding that the
complaint stated a claim for breach of fiduciary duty where the defendant allegedly
traded with knowledge of the company’s disappointing product development).
147See, e.g., Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601–03 (Del. Ch.), aff’d sub
nom. ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010) (finding post-trial that
an officer-defendant breached the duty of loyalty when he revealed confidential
business information to competing companies); Metro Storage Int’l LLC v. Harron,
275 A.3d 810, 854–56 (Del. Ch.), judgment entered sub nom. In re Metro Storage Int’l
LLC v. Harron (Del. Ch. 2022) (finding post-trial that the defendant breached his
duty of loyalty by sharing confidential company information with a competing
company for which he was a consultant).
148 See, e.g., Kates, 8 A.3d 573, 585–87, 603 (finding post-trial that an officer-
defendant breached the duty of loyalty when he sought to poach his former company’s
clients and employees).

43
The duty of loyalty extends to the misuse of human resources, as multiple cases

of this court have recognized.149 In Sorrento Therapeutics, the court found post-trial

that the defendant acted disloyally by treating administrative employees and

consultants “as resources for himself personally rather than company resources.”150

Similarly, in Guth, the Delaware Supreme Court affirmed this court’s post-trial

decision that a former officer breached his fiduciary duties by using the company’s

money, credit, facilities—as well as personnel—in the furtherance of a competitive

venture.151

These decisions reflect that human resources are company resources. To many

companies, employees are the most important resource. Harming or misusing

corporate resources for selfish purposes can constitute a breach of the duty of loyalty.

So too can misusing human resources for selfish purposes.

149 See, e.g., Guth, 5 A.2d at 510. (holding that “[c]orporate officers and directors are

not permitted to use their position of trust and confidence to further their private
interests” and must “refrain from doing anything that would work injury to the
corporation”).
150 Sorrento Therapeutics, Inc. v. Mack, 2023 WL 5670689, at *28 (Del. Ch. Sept. 1,

2023).
151 Guth, 5 A.2d at 510; see also Klein v. Wasserman, 2019 WL 2296027, at *7 (Del.

Ch. May 29, 2019) (sustaining a claim for breach of fiduciary duties where the
defendant “disregarded [company] protocol by making direct demands on employees,
requesting immediate responses, and threatening some employees with adverse
employment actions” and noting that at the pleading stage, allegations that the
company suffered “internal disruption and corporate instability” as a result of the
defendant’s behavior was sufficient); CertiSign Hldg., Inc. v. Kulikovsky, 2018 WL
2938311, at *17 (Del. Ch. June 7, 2018) (finding post-trial that a former director was
liable for breach of the duty of loyalty where the director manipulated corporate
employees to advance his personal interests through “petty tactics that jeopardized
the well-being of CertiSign and its stockholders”); BelCom, Inc. v. Robb, 1998 WL
229527, at *4 (Del. Ch. Apr. 28, 1998), aff’d, 725 A.2d 443 (Del. 1999).

44
McDonald’s demonstrates that just as a fiduciary acts disloyally when

misusing fungible or intangible corporate resources, a fiduciary acts disloyally when

“us[ing] a position of power to harass, intimidate, or assault employees.” 152 In this

way, McDonald’s recognizes what is obvious—fiduciaries who sexually harass

employees and agents do not do so for the purpose of advancing the company’s

interests. And all that can be said of sexual harassment applies with greater force to

drugging, raping, and sexually assaulting employees. Did McDonald’s establish a per

se breach? No, it did not create a categorical rule for sexual harassment. McDonald’s

applied established principles to a slightly different fact pattern than the cases that

came before. It did not expand of Delaware law.

By excluding workplace misconduct that is of a sexual nature from the category

of employee-targeting, entity-harming activities that can give rise to a claim for

breach of fiduciary duty, Credit Glory did what many have cautioned against: exclude

a particular category of motivation and a particular category of harm from the ambit

of the duty of loyalty. In this way, Credit Glory moved Delaware law, not McDonald’s.

ii. The Sprawl Argument

Credit Glory raised a related concern about McDonald’s—that it “lacks a

limiting principle” that could lead to “doctrinal sprawl” and contort corporate law into

some sort of “general morality code” and sexual harassment into a form of “strict

152 McDonald’s, 289 A.3d at 380 (citing Hemel & Lund, supra, at 1641–42 & n.414

(citing Prozinski v. Ne. Real Estate Serve., 797 N.E.2d 415, 423–24 (Mass. App. Ct.
2003) (holding that when an officer “allegedly embarked on a course of sexual
harassment of [a] receptionist,” his “placement of his own interests above those of the
company he served could be found by a fact finder to constitute an act of disloyalty”)).

45
fiduciary liability.”153 In the words of Credit Glory, “[i]f every self-serving,

reprehensible act by an officer constitutes fiduciary disloyalty, then a breakroom

fistfight, a defamatory social medial post, or theft of office supplies becomes an

internal affairs matter.”154

It is true that Delaware law articulates the duty of loyalty “capaciously.” 155

This is not new. As discussed above, for a fiduciary, “every act in every context

implicates the duty of loyalty.”156 But this longstanding, broad articulation does not

invariably lead to liability, much less threaten strict liability, nor otherwise signal

doctrinal sprawl.

The procedural vehicle through which stockholders pursue fiduciary claims

arising from corporate harm provides a powerful protection against liability. A claim

for corporate harm is a derivative claim. The bedrock principle of Delaware corporate

law is that “directors, rather than shareholders, manage the business and affairs of

the corporation.”157 Litigation assets are like any other assets; the board of directors

controls them.158 But some litigation seeks redress for “harm inflicted upon the

153 Id. at *4–5.

154 Id. at *5. See Defs.’ Supp. Br. at 2 (relying on “general morality code” arguments).
155 Loyalty’s Core Demand, supra, at 634.

156 Id. at 639.

157 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).
158 Agostino v. Hicks, 845 A.2d 1110, 1115–16 (Del. Ch. Mar. 2004) (explaining that

“[o]ne corporate power exercised by the board of directors is the conduct of litigation
that seeks to redress harm inflicted upon the corporation”).

46
corporation by its officers or directors.”159 Because “directors and officers of a

corporation may not hold themselves accountable to the corporation for their own

wrongdoing, courts of equity have created an ingenious device to police the activities

of corporate fiduciaries: the shareholder’s derivative suit.”160

The derivative suit grants stockholders standing to hold fiduciaries

accountable for fiduciary misconduct that harms the corporation. In this way, a

derivative suit acts as a form of indemnification.161 Just as “indemnification shifts

the burden of loss from the party that suffered it to the party that should bear it,”162

derivative suits shift the burden of loss from the corporation to the disloyal fiduciary.

Holding fiduciaries accountable for misconduct that harms the corporation can

give rise to collateral benefits external to the corporation. For example, requiring

that fiduciaries create a system to monitor legal compliance encourages legal

compliance. That, in turn, benefits the communities that the laws governing the

corporation were intended to protect. To the extent that the system generates these

159 Id. at 1116.

160 Id.; see also Schoon v. Smith, 953 A.2d 196, 201 (Del. 2008) (“To prevent ‘a failure

of justice,’ courts of equity granted equitable standing to stockholders to sue on behalf
of the corporation ‘for managerial abuse in economic units which by their nature
deprived some participants of an effective voice in their administration.’ The courts
reasoned that without equitable standing, ‘stockholders would be without any
immediate and certain remedy,’ there would have been a complete failure of justice,
and the general principles of equity and fairness would have been defeated. Today,
the result of this judicially-created doctrine is known as the stockholder derivative
action.”).
161 See Firefighters’ Pension Sys. of City of Kansas City v. Foundation Building Mat’ls,

Inc., 318 A.3d 1105, 1182 (Del. Ch. May 31, 2024).
162 Id.

47
knock-on effects, it is a positive thing.163 But minimizing negative externalities is not

the purpose of a derivative suit; nor is the equitable vehicle of derivative claims

intended to police some “general morality code.”164 Derivative suits serve a very

limited purpose—they provide stockholders standing to pursue claims that shift

losses from the company that was harmed to the fiduciary that harmed it.

There is no shortage of limiting principles protecting fiduciaries from

derivative suits or discouraging stockholders from pursuing them. Procedural

hurdles unique to the derivative suit include: the demand requirement;165 the

contemporaneous ownership requirement;166 the continuous ownership

requirement;167 adequacy standards;168 the threat of being “Walmart-ed”;169 and the

risk of being derailed by a special litigation committee.170 All have the potential to

terminate a case, most at the outset of the litigation.

163 See Leo E. Strine, Jr., Kirby M. Smith, & Reilly S. Steel, Caremark and ESG,

Perfect Together: A Practical Approach to Implementing and Integrated, Efficient, and
Effective Caremark and EESG Strategy, 106 Iowa L. Rev. 1885 (recognizing that
“scholars have viewed [Caremark] as having enormous value in encouraging more
intensive diligence in the area of compliance,” id. at 1897, and arguing that “corporate
risk aversion and law compliance efforts under Caremark” overlaps and positively
reinforces corporate focus on [employee environmental, social, and governance]
issues, id. at 1907).
164 Credit Glory, 2025 WL 3439671, at *5.

165 Ct. Ch. R. 23.1.

166 8 Del. C. § 327.

167 Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984).

168 Ct. Ch. R. 23.1(c).

169 See Cal. State Teachers’ Ret. Sys. v. Alvarez, 179 A.3d 824, 832–33 (Del. 2018).

170 See Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981).

48
The collective action problem in Delaware’s private enforcement system serves

as a further limiting principle. Stockholders rationally lack incentives to foot the full

bill for litigation when they only benefit pro rata from the recovery to the company.171

For this reason, Delaware law allows attorneys to pursue derivative claims on a

contingent basis. A contingent-fee attorney is only rewarded for successful results

and, typically, paid fees proportionate to the degree of success.172 Attorney’s fees are

subject to judicial review. The court thus sets the market for derivative suits,

awarding fees based on the value of the benefit to the company. If an attorney cannot

achieve her hourly rate on a risk-adjusted basis, then there is no market for pursuing

the claim.173

Because contingent-fee attorneys are paid proportionate to the benefits they

confer on the corporation, a contingent-fee attorney has no incentive to pursue claims

challenging infractions that resulted in minor harm. Take a one-off fistfight in the

breakroom. Setting aside the question of whether the fight constitutes a breach of

the duty of loyalty, a plaintiff’s attorney has no incentive to pursue a claim where the

recovery would be minimal. But “Fight Club” in the breakroom? That might pique a

171 See Bird v. Lida, 681 A.2d 399, 402 (Del. Ch. 1996) (observing that “individual

shareholders have little incentive to bear the costs associated with activities the
monitor board of director (or management) performance”).
172 See generally In re Dell Techs. Inc. Class V S’holder Litig., 326 A.3d 686, 699 (Del.

2024).
173 See, e.g., Anderson v. Magellan Health, Inc., 298 A.3d 734, 755 (Del. Ch. 2023)

(granting attorney’s fees at a steep discount to movant’s lodestar to “send a signal
that these sorts of cases are not worth the attorneys’ time,” and noting that “[w]here
lawsuits are not worth much, plaintiffs’ counsel should not be paid much”).

49
contingent-fee attorney’s interest, if the harm to the company was significant enough

to support a fee award worth her time spent remedying it. The same is true of

defamatory social media posts that truly harm the corporation,174 or a major theft of

office supplies. If the harm is significant enough, then there might be a market for

the claim. (For that matter, if the harm is significant enough, the board might cause

the company to pursue the claim directly.)

In all events, persons concerned about a lack of limiting principles post-

McDonald’s need look no further than McDonald’s. The staged way in which the

court decided the motions obscured what should have been the lede: “McDonald’s

Case Dismissed.” As discussed above, the court concluded that the majority of the

board was capable of impartially considering a demand to pursue the claims against

Fairhurst and others. Much of that reasoning turned on the board’s response to

Fairhurst’s actions, which was exemplary, and which undermined any inference of

bad faith or partiality on the part of the board. And to emphasize the point, the court

dismissed the entire case under Court of Chancery Rule 23.1—the claims against the

board as well as the claim against the chief people harasser. Far from strict liability,

McDonald’s involved zero liability.

McDonald’s illustrates the difficulty of pursuing derivative suits and the

extreme limiting principles that minimize the threat of liability arising from them.

It does not threaten doctrinal sprawl.

174 See, e.g., Schnatter v. Shapiro et al., C.A. No. 2018-0646-AGB (Del. Ch.), Dkt. 1 ¶

45 (asserting claims for breach of fiduciary duty against a director who launched a
“false and defamatory campaign” against the company’s founder).

50
iii. The Preemption Argument

Credit Glory identified numerous concerns described as “preemption.”175 That

reasoning draws on preemption doctrine by means of analogy, because no federal or

state employment law preempts a stockholder from bringing derivative claims for

breach of fiduciary duty based on workplace misconduct. This category of concerns

broadly conveyed two sentiments. First, the decision described the derivative suit as

an unnecessary form of “second” remedy duplicative of the first remedy sought by the

survivor of the sexual misconduct.176 Second, the decision stated that permitting

derivative claims based on violations of employment law would “authorize an end-

run around” a series of employment statutes, “allowing stockholder plaintiffs to

bypass requirements that bind actual victims.”177

Viewing a derivative suit as a duplicative form of “second” recovery ignores its

indemnification-like purpose and conflates harm to the survivor with harm to the

corporation. Vice Chancellor Zurn captured the distinction between types of harm in

Boeing:

The primary victims of the crashes are, of course, the
deceased, their families, and their loved ones. While it may
seem callous in the face of their losses, corporate law
recognizes another set of victims: Boeing as an enterprise,
and its stockholders. The crashes caused the Company and
its investors to lose billions of dollars in value.
Stockholders have come to this Court claiming Boeing's
directors and officers failed them in overseeing mission-

175 Credit Glory, 2025 WL 3439671, at *5–6.

176 Id. at *1.

177 Id. at *6. See Defs.’ Supp. Br. at 3–4 (relying on preemption argument).

51
critical airplane safety to protect enterprise and
stockholder value.178

The same is true here. What Credit Glory calls the “second” remedy is the first and

only remedy for the corporation. Preemption does not foreclose that remedy.

Nor is the existence of employment laws a basis to preempt derivative actions.

The Federal Aviation Administration regulates airplane safety, yet the existence of

those regulations did not preempt the derivative action in Boeing.179 The U.S. Food

and Drug Administration regulates ice cream, yet the existence of those regulations

did not preempt the derivative action in Marchand.180 Anti-money laundering and

know-your-customer laws regulate banks, yet the existence of those regulations did

not preempt the derivative action in Stone.181 To the contrary, it was the existence of

those laws and regulations, and the injury resulting from fiduciary-caused violations,

that the derivative claims sought to remedy. So too with employment law.

The second issue—the end-run issue—is a real concern, but it is a practical

problem for which this court has solutions. Often, a prior or parallel lawsuit forms

the basis for a derivative claim—a securities action, a criminal investigation, or a

state regulatory proceeding, for example. Here, it is the survivors’ anti-trafficking

suits. To avoid end-running the discovery and procedural rules governing the

178 In re Boeing Co. Deriv. Litig., 2021 WL 4059934, at *1 (Del. Ch. Sept. 7, 2021).

179 Boeing, 2021 WL 4059934, at *25–26.

180 212 A.3d 805 (Del. 2019).

181 911 A.2d 362 (Del. 2006).

52
underlying action, this court has the discretion to stay the derivative action pending

resolution of “related actions involving the same events or conduct.”182

The fact of parallel litigation does not preempt a stockholder’s ability to bring

a derivative suit. It is often the reason for bringing the derivative suit, and this court

has tools for managing litigation in a way that avoids undermining the integrity of

the underlying proceeding.

iv. The Comity Argument

Credit Glory also cited “comity” as a basis for dismissal.183 The court wrote

that “the internal affairs doctrine and comity principles underlying it foreclose Brola’s

attempt to recast employment disputes as breaches of fiduciary duty. Under that

doctrine, Delaware law governs the relationships between corporate owners and

182 See, e.g., In re Duke Energy Corp. Coal Ash Deriv. Litig., 2015 WL 5135066 (Del.

Ch. Aug. 31, 2015) (staying derivative suit pending resolution of several regulatory
enforcement actions); see also South v. Baker, 62 A.3d 1 (Del. 2012); Brenner v.
Albrecht, 2012 WL 252286, at *7 (Del. Ch. Jan. 27, 2012) (staying derivative
proceedings pending outcome of securities class action); Brudno v. Wise, 2003 WL
1874750, at *5 (Del. Ch. Apr. 1, 2003) (staying derivative proceeding “[g]iven that the
overwhelming thrust of the Delaware Action complaint is a demand for
indemnification largely for harm to be incurred by [the corporation] in the Federal
Securities Action, the sensible ordering of events is for the Federal Securities Action
to proceed first”); In re Massey Energy Co., 2011 WL 2176479, at *27 (Del. Ch. May
31, 2011) (“[T]he plaintiffs, as fiduciaries for other Massey stockholders, [should] be
reluctant to prosecute the Derivative Claims they claim are so valuable until the
direct claims against Massey are resolved. . . . Thus, the Derivative Claims should
follow, rather than precede, the resolution of the key direct suits and regulatory
proceedings.”). This approach also tracks with viewing a derivative suit as a form of
indemnification–a claim that ripens when the “a loss triggering the indemnification
obligation has been established.” Foundation Building Mat’ls., 318 A.3d at 1183.
183 Credit Glory, 2025 WL 3439671, at *6.

53
managers. It does not reach interpersonal matters occurring within other states’

borders.”184

Recast as a comity issue, this line of reasoning seems to rest on the same

premises that infect the others. It too conflates law governing the treatment of

employees with the indemnification function of derivative suits. It too categorically

excludes employment matters from the scope of conduct that can give rise to fiduciary

harm. It too ignores practical ways in courts routinely avoid infringing on rules and

procedures governing the underlying litigation. Indemnification-oriented derivative

actions do not implicate comity concerns.

v. The Powers Argument

Credit Glory posits that actions taken for “personal gratification” are not

corporate acts because they do not involve the use of fiduciary powers.185 The decision

distinguished McDonald’s on the ground that “the defendant was a senior officer

charged with maintaining a safe and respectful workplace at the enterprise level.”186

The court reasoned that if “any midlevel manager could commit the same wrongs,”

then the wrong cannot give rise to a breach of fiduciary duty.187

To the extent this action implicates the powers argument, it too injects new

considerations into fiduciary law.188 Consider embezzlement cases, Brophy claims,

184 Id. (emphasis added).

185 Id. at *5 & n.46.

186 Id. at *5.

187 Id.

188 Plaintiff argues that this action does not appear to implicate the powers argument

because Plaintiff alleges that Sanford was able to cover up the misconduct and

54
related-party transaction challenges, or any of the cases involve the misuse of a

corporate jet or yacht.189 None of them ask whether the fiduciary had oversight

responsibilities covering the precise wrong, or whether midlevel managers had access

to the same funds, information, negotiation opportunities, or other resources. They

all focus on whether the fiduciary-defendant acted contrary to the best interests of

the corporation.

The usurpation cases provide perhaps the starkest example. In Guth,190 the

Delaware Supreme Court affirmed this court’s post-trial decision finding that a

former officer breached the duty of loyalty by usurping a corporate opportunity. In

his defense, the officer argued that the opportunity came to him in a purely personal

capacity, and that a fiduciary has no obligation to refrain from pursuing opportunities

presented to him in a personal capacity.191

The high court rejected this argument, reasoning that “[t]he real issue is

whether the opportunity . . . was so closely associated with the existing business

activities of Loft, and so essential thereto, as to bring the transaction within that

class of cases where the acquisition of the property would throw the corporate officer

retaliate against the whistleblower by virtue of his fiduciary powers. See generally
Pl.’s Supp. Br. at 5–6.
189 See, e.g., Sutherland, 2010 WL 1838968, at *4–7; QC Commc’ns Inc., 2014 WL

3974525, at *11–13; InfoUSA, Inc., 953 A.2d 963, 999–1000; Fitbit, 2018 WL 6587159;
Smitty McGee’s, Inc., 1998 WL 246681, *at 2–3; Sorrento Therapeutics, 2023 WL
5670689, at *28.
190 5 A.2d 503, 510 (Del. 1939).

191 Id. at 512 (“It is urged by the appellants that Megargel offered the Posi-Cola

opportunity to Guth personally, and not to him as president of Loft.”).

55
purchasing it into competition with his company.”192 Put differently, the question

was not whether the officer was presented with the opportunity in a personal

capacity, or even whether the officer could pursue it independent of the company.

Rather, the question was whether the opportunity placed the fiduciary in conflict with

the corporation. The court held corporate officers and directors must “refrain from

doing anything that would work injury to the corporation,” no matter how that

opportunity came to the fiduciary.193

This decision does not draw on Guth directly. Neither Credit Gory nor this

action involve claims of usurpation. But there are lessons from usurpation cases. If

fiduciary principles do not permit a corporate officer to seize a corporate opportunity

for himself even if it came to him in a personal capacity, why would fiduciary

principles allow a corporate officer to abuse an employee of the company so long as

he did not use powers uniquely derived from his fiduciary position? The law does not

look to the powers used when harming the corporation. The law looks at whether the

person was a fiduciary and his motives when doing so. The capacity argument is

another new move advanced for the first time in Credit Glory.

vi. The Policy Argument

Last, the Credit Glory court advanced the following policy argument:

[T]reating sexual harassment-based claims as corporate
assets creates perverse incentives. It risks commodifying
personal trauma, forcing it into public derivative litigation
that lacks the privacy protections of employment statutes.

192 Id. at 513.

193 Id. at 510.

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Equity must not sanction collateral litigation that exposes
victims to unwanted scrutiny in the service of a corporate
recovery and attorneys’ fees.194

This statement reflects the commendable desire to protect survivors of sexual

assault.195

Translating that desire into corporate-law policy for limiting derivative suits,

however, is irregular. Personal traumas often undergird corporate traumas that

derivative suits seek to remedy, as derivative suits involving human fatalities show.

Yet this court has never expressly considered the effects of the derivative suit on

traumatized non-parties when resolving a motion to dismiss.196

Moreover, reasonable minds can differ about how to best protect survivors. It

is true that there is something about sex-based issues that make people want to treat

them differently.197 Embezzlement can give rise to both employment law and

194 Credit Glory, 2025 WL 3439671, at *7.

195 See Defs.’ Supp. Br. at 3–4 (relying on the Credit Glory policy argument); Pl.’s

Supp. Br. at 9–10 (denying the existence of perverse incentives in this case, noting
that “[t]he witnesses . . . relied on in the Complaint were the Whistleblower (who is a
former Board member) and two former employees with personal knowledge . . .” and
“[t]o the extent any aspect of this case relies upon victims’ accounts of sexual
misconduct, the survivors have already come forward in federal court
proceedings[.]”).
196 See, e.g., Marchand, 212 A.3d 805; Boeing, 2021 WL 4059934; In re Gen. Motors

Co. Deriv. Litig., 2015 WL 3958724 (Del. Ch. June 26, 2015), aff’d, 133 A.3d 971 (Del.
2016). One set of scholars has argued that this court should consider the effects of
corporate action on human life when analyzing derivative suits. But they do not
argue for dismissing those suits. Rather, they argue that derivative suits gain greater
significance the greater the threat to human life. See Robert E. Bishop & Frank
Partnoy, Corporate Oversight & Risk to Human Life (2026) (unpublished
manuscript).
197 See Aya Gruber, Sex Exceptionalism in Criminal Law, 75 Stan. L. Rev. 755, 821–

24 (2023) (discussing the sex-blinders phenomenon and observing that “[s]ex has the

57
fiduciary issues, yet no one recoils at that combination. Workplace sexual misconduct

often inspires a different reaction. Should it? Is sex-based harm categorically

different from other causes of corporate harm? Should Delaware provide a fiduciary

cause of action for taking money (embezzlement) or tangible property (theft) but not

for an encroachment tied to a person’s sex? On what basis would Delaware law

exclude this conduct as a source of derivative claims?

Credit Glory identified one basis grounded in a concept discussed in feminist

theory—commodification. Other concepts discussed in feminist theory might direct

a different outcome. Some might argue that agency and voice weigh in favor of

allowing survivors to self-determine whether claims for breach of fiduciary duties

that promote good corporate governance are best for them. Others might cite

problems with sex exceptionalism as a knock against the categorical exclusion of sex-

based misconduct from fiduciary claims.

There are undoubtedly many unexplored applications of feminist theory to

corporate law. And this is the sort of interesting issue that academics can and should

debate. But judges should resist the urge. This court’s subject-matter expertise has

its limits. And even one who agrees with the outcome of Credit Glory must agree that

members of this court should not be balancing competing feminist theories when

resolving motions to dismiss derivative actions.

amazing ability to induce an acute form of analytic myopia in even the most
thoughtful of analysts”).

58
In the end, the Court of Chancery Rules offer many privacy-related procedural

protections for non-parties,198 and those protections have been effectively deployed to

protect a variety of sensitive information and minimize burdens on non-parties,

including survivors. This court need not eliminate an entire cause of action to

accomplish what can be achieved through procedural safeguards.

vii. Conclusion Regarding Credit Glory

Effectively, Credit Glory argues for changing Delaware law to exclude a single

type of workplace misconduct from the activities that can give rise to fiduciary breach.

No Delaware case has ever done this. No identified Delaware policy supports it. No

doctrine of preemption or comity demands it. And that outcome conflicts with at least

one well-reasoned decision of this court. The court thus declines Defendants’ request

to follow Credit Glory. If Credit Glory reflects a split in Delaware law, that does not

render Delaware law unpredictable. Reasonable trial judges can differ in their

conclusions. Resolving those differences is a function of the appellate process. 199

198 See, e.g., Ct. Ch. Rule 5.1 (governing confidential filings); Ct. Ch. R. 45(c)(1)
(establishing protections for persons subject to subpoenas).
199 In support of their motion to dismiss the claims of retaliation, Defendants rely on

footnote 41 in Credit Glory. Defs.’ Supp. Br. at 5 (citing Credit Glory, 2025 WL
3439671, at *5 n.41). Footnote 41 states that no Delaware decision created “a rule
that a viable breach of fiduciary duty claim arises whenever an officer engages in
unlawful harassment.” Credit Glory, 2025 WL 3439671, at *4 n.41. For that
proposition, Credit Glory cites to Personal Touch Holdings Corp. v. Glaubach, 2019
WL 937180, at *25 (Del. Ch. Feb. 25, 2019). Personal Touch did not involve a claim
that sexual harassment constituted a breach of fiduciary duty. It cited a New York
case that addressed the issue, which it did not comment on or endorse, and which did
not apply Delaware law. See id. at *25 n.299 (citing Pozner v. Fox Broad. Co., 74
N.Y.S.3d 711, 713–14 (N.Y. Sup. Ct. 2018)); see also McDonald’s, 289 A.3d at 381 n.25
(discussing and distinguishing Pozner).

59
c. Conclusion Regarding The Active-Misconduct
Claim

Plaintiff alleges that, for self-interested reasons, Sanford covered up reports of

drugging and sexual assault by withholding assault-related information from other

Board members and by ousting the Whistleblower.

As for Sanford’s role in the cover-up, the Complaint alleges that Sanford knew

of the illegal conduct and struck a deal to retain Golden so that Gove, a top Influencer

in Sanford’s downline,200 would remain with the Company.201 Sanford allowed

Golden to stay at the Company until February 2023, when his share incentive

package vested. Sanford approved Bjorkman’s “Accelerated Compensation

More relevant here, Credit Glory describes Personal Touch as “holding that a
director’s ‘troubling’ and ‘improper[r]’ retaliation against employees who complained
of harassment did not breach the duty of loyalty because the conduct, though directed
at the employees, was not motivated by an intent to harm the corporation or obtain a
personal financial benefit.” Id. (emphases added). That was not the holding of
Personal Touch. The claim for breach of fiduciary duties in Personal Touch
challenged two distinct categories of conduct: (i) the defendant’s alleged retaliation
against employees who complained about sexual harassment; and (ii) the director’s
alleged “inflammatory” interactions with other board members. Id. at *23 (emphasis
added). The court held that the plaintiff failed to prove the first theory—that of
retaliation—because the defendant “never threatened to fire [the employee] or to
harm her in any way after” she reported him for sexual harassment. Id. at *24. The
court commented that the defendant acted “improperly” to make the employee “feel
uncomfortable,” and that aspects of his behavior were “troubling,” but concluded that
“[t]he record evidence of retaliation [was] limited.” Id. at *24–25. The court also
rejected the second theory. The court found that the whole of the defendant’s conduct
“although uncivil, was motivated by a genuinely held belief on his part that Personal
Touch was being mismanaged and a sense of frustration that his fellow directors were
ignoring concerns he had been expressing to them for many months about the
Company’s management.” Id. at *24. Thus, Personal Touch does not support
excluding retaliation for reports of sexual harassment as a basis for fiduciary breach.
200 Compl. ¶¶ 86–87, 150.

201 Id. ¶ 87.

60
Agreement” and Conord’s compensation package with knowledge of their sexual

misconduct and the reasons for their termination.202 And Sanford declined to

nominate the Whistleblower for reelection, although he had previously planned to do

so, after the Whistleblower came forward to report the sexual misconduct.

This is all reasonably conceivable. It is reasonably conceivable that Sanford

actively covered up acts of rape and sexual assault, refused to report that information

to the Board, and retaliated against the person who did. It is therefore reasonably

conceivable that Sanford breached his duty of loyalty to the company.

Count II states a claim.

2. Claim That Defendants Breached Their Oversight
Obligations

There are “two possible paths for a plaintiff to plead a claim for breach of the

duty of oversight”: “by alleging that the board lacked the requisite information

system and controls,” an “information-systems claim;” and “by alleging that the

board’s information system generated red flags indicating wrongdoing to which the

directors failed to respond,” a “red-flags claim.”203 Plaintiff advances both theories.

Because Plaintiff has adequately alleged a “Red-Flags Claim,” Count II states a claim,

and this analysis does not reach Plaintiff’s information-systems claims.

A red flag for Caremark purposes informs the fiduciary of a central compliance

risk.204 A red flag can arise from internal or external sources. Either way, corporate

202 Id. ¶ 151.

203 McDonald’s, 291 A.3d at 676.

204 Marchand, 212 A.3d at 824; McDonald’s, 289 A.3d at 376.

61
fiduciaries “ha[ve] an obligation to respond.”205 “[C]orporate fiduciaries who are

aware of harassment but fail to react . . . may be sued for breach of the duties of care

and loyalty.”206

Plaintiff alleges, and Defendants concede, that the Board was aware of the

sexual misconduct at least as late as April 2022, when Agent Five emailed the Board

to request a change of sponsorship and the Whistleblower proposed concrete steps for

addressing the misconduct. And Plaintiff alleges, and Defendants do not dispute that

the misconduct at issue—the harassment, drugging, assault, and rape of real estate

agents in a real estate company—posed central compliance risk.207 Instead,

Defendants argue that the Board was unaware of the issues prior to receiving the

email, that the email did not alert the Board to the full scope of the misconduct, and

that the Board took action in response and did so in good faith.

The parties’ competing positions raise three issues: First, did the Board receive

any red flags of the harassment, drugging, assaults, and rapes before April 2022?

Second, was the April 2022 communication a red flag? Third, did the Board respond

in good faith before the first anti-trafficking suit?

205 McDonald’s, 291 A.3d at 680.

206 Id. at 676; see also AmerisourceBergen Corp., 2020 WL 132752, at *20 (“A claim

that directors had notice of serious misconduct and simply brushed it off or otherwise
failed to investigate states a claim for breach of duty.”).
207 Nor do Defendants dispute that harassing, drugging, assaulting, and raping real

estate agents raised “mission critical” risk for a real estate company. See Marchand,
212 A.3d at 824 (using “mission critical” language).

62
First, it is reasonably conceivable that the Board received red flags before April

2022.

In September 2020, an eXp agent posted on Facebook that she had been

drugged at an eXp recruiting event. The post went viral. Hundreds of people

commented on the post, including seven other women who stated that they too had

been drugged and sexually assaulted at eXp events. Defendants argue that it is

unreasonable to infer that any director learned about this post or its contents. The

Company is large, they say. A director cannot keep track of each agent’s social media

account, they argue. Those positions resonate and are sensible. But this social media

post was not some everyday status update, GIF, or meme. This post accused a top

eXp Influencer of drugging and raping an eXp recruit at an eXp event. And in

response to the post, many other women stated that they had the same experience.

Shortly after the post, top-agent Bjorkman was arrested and eXp terminated his

contract. It is hard to believe that no one thought to tell any of the eXp Board

members about the accusations in the post, Bjorkman’s arrest, or the reasons for

Bjorkman’s termination. But it is true, as Defendants note, that no Board nor Board

committee meeting minutes reflect discussion of the September 2020 incidents.

In October 2020, an eXp agent sent an eleven-page memorandum describing

Golden’s and Bjorkman’s pattern of drugging, raping, and sexually harassing agents.

They were also blackmailing the victims, she explained. The memo detailed at least

seven incidents of this behavior and identified Bjorkman and other agents who

sexually harassed her personally. The agent sent the memo to three executives,

63
including then-CEO Gesing, who was also on the Board. Although the CEO received

and extremely detailed memo of extraordinarily illegal and immoral behavior

implicating multiple eXp Influencers, Defendants insist that it is not reasonable to

infer that he reported that information to the Board. And it is true, as Defendants

note, that there are no Board or Board committee meeting minutes reflecting

discussion of this incident.

In these circumstances, the lack of any mention of the sexual misconduct issues

in Board or committee minutes does not obviate the inference that the board was

made aware of the issues. This is true particularly given that the Complaint alleges

that the Whistleblower raised the issues with the Board in early 2021. Defendants

contend that all the allegations attributed to the Whistleblower should be

disregarded because they are not adequately particularized. For Rule 12(b)(6)

purposes, a plaintiff need not plead particularized allegations. Particularity matters

only as to the demand futility analysis, as discussed below. But these are

particularized in any event, as also discussed below.208

Second, it is reasonably conceivable that the April 2022 communication was a

red flag.

Defendants argue that Agent Five’s April 20, 2022 email to the full Board was

not a “red flag” because it contained only “conclusory rhetoric.”209 But the email

208 See Legal Analysis § II.B, infra.

209 eXp Opening Br. at 38 (citing Rojas v. Ellison, 2019 WL 3408812, at *11 (Del. Ch.

July 29, 2019)).

64
states that “Rophynol[,] the rape drug” is “part of the eXp corporate culture” and

references “sexual harassment” and “drugging” of eXp agents.210 She names four

other agents to whom she escalated the sexual assault issues to and who did nothing,

some of whom were named in the October 2020 memorandum as having participated

in sexual harassment and assaults.211 And she refers to multiple women who had

similar experiences at specific, identified, events.212 This is not conclusory rhetoric.

It is the sort of communication that a board should take seriously. Even if the board

viewed the email as conclusory, it might consider asking for more detail.

Defendants’ contention that the email describes no “ongoing” incident is

similarly specious.213 The email urges the Board to take action to “make a difference”

regarding the present problems of sexual harassment and a “rape drug” “corporate

culture.”214 The communication identified alleged perpetrators who, at the time, were

still agents with the Company. And the communication highlighted Agent Five’s

inability to report upward without being silenced or retaliated against. The email

constituted a red flag of an ongoing issue.

Third, it is reasonably conceivable that the Board failed to respond to red flags.

Defendants point to three responses by the Board to argue that it is

unreasonable to infer that the Board failed to respond: the Board terminated

210 Agent Five Email Commc’ns at eXp_0820C.

211 Id.; compare id., with Anonymous Memorandum at 1.

212 Agent Five Email Commc’ns at eXp_0826C.

213 eXp Opening Br. at 38.

214 Agent Five Email Commc’ns at eXp_0820C.

65
Bjorkman’s employment in September 2020; launched an internal investigation at

some point after April 2022; and suspended Golden in February 2023.215 But these

responses are so weak as to support the inference of a bad-faith decision not to take

meaningful action, not the opposite.

When the Board “terminated” Bjorkman, it allowed him to continue getting

paid and to continue selling real estate, and declined to fire his alleged accomplice,

Golden.216 The Board launched the internal investigation almost two years after the

Board knew of the misconduct. That investigation was led, against the advice of

outside counsel, by two individuals who were involved in the decision to reject Agent

Five’s sponsorship change request.217 And the Board took no action against Golden

for more than two years, despite knowing of Golden’s misconduct in fall 2020, only

terminating his contract after the first anti-trafficking suit was filed and Golden

entered vested status.218

Defendants also point to changed policies as countervailing facts

demonstrating a good faith response. To support their contention that eXp adopted

new policies and procedures, Defendants rely on a single statement in the Complaint

asserting that eXp “used an anonymous email system” after “allegations of sexual

assault surfaced.”219 But the next statement in the Complaint explains that the

215 Compl. ¶ 82.

216 Id. ¶¶ 82–84.

217 Id. ¶¶ 82, 123.

218 Id. ¶¶ 48–55, 82.

219 Compl. ¶ 36; see eXp Opening Br. at 16, 42.

66
anonymous email system was for employees, not agents.220 Human Resources and

eXp’s Director of Diversity and Employee Success were not “allowed to know the

process for anonymous emails” and were not able to process complaints from

agents.221 And the Complaint asserts that few agents knew about the email reporting

system, and those who were aware stated that they did not trust it.222 Indeed, the

Complaint alleges that neither Human Resources nor eXp’s Director of Diversity and

Employee Success was permitted to intervene to process anonymous complaints. In

essence, Defendants ask the court to draw inferences concerning changed policies to

contradict what Plaintiff has alleged, but the court must do the opposite on a motion

to dismiss.

In the end, as alleged, the Board changed no eXp policy, enacted none of the

Whistleblower’s suggestions for reform, ignored outside counsel’s advice, and took no

meaningful steps to address the systemic problem of rape at eXp. It is reasonable to

infer that the Board effectively did nothing in response to the Company-wide

allegations of drugging, rape, and sexual assault at the heart of the red flags.

220 Compl. ¶ 36.

221 Id. ¶¶ 36, 38.

222 Id. ¶ 36.

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The Board’s effective inaction distinguishes this case from the authorities on

which Defendants rely: McDonald’s,223 Corbat,224 Clem,225 GoPro,226 TransUnion,227

Qualcomm,228 and Abney.229 Defendants’ authorities involved significant and timely

responses to the alleged red flags.

In McDonald’s, the court found that the complaint failed to state a viable

oversight claim because the board took action within a month of being on notice of

red flags and made many changes at the enterprise level.230

In Corbat, the documents incorporated by reference in the complaint explained

that the “board and its various committees oversaw significant efforts” to comply with

the law where red flags were waved.231

In Clem, the board resolved unlawful billing practices within months of

223 291 A.3d 652 (Del. Ch. 2023).

224 Oklahoma Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240 (Del. Ch.

Dec. 18, 2017).
225 Clem v. Skinner, 2024 WL 668523 (Del. Ch. Feb. 19, 2024).

226 In re GoPro, Inc., 2020 WL 2036602 (Del. Ch. Apr. 28, 2020).

227 In re TransUnion Deriv. S’holder Litig., 324 A.3d 869 (Del. Ch. 2024).

228 In re Qualcomm Inc. FCPA S’holder Deriv. Litig., 2017 WL 2608723 (Del. Ch. June

16, 2017).
229 Horman v. Abney, 2017 WL 242571 (Del. Ch. Jan. 19, 2017).

230 McDonald’s, 291 A.3d at 683. The board’s action included (i) updating its anti-
harassment policy, (ii) engaging the Rape, Abuse & Incest National Network to
advise the company, (iii) creating a new hotline and training programs after a
comprehensive review, (iv) conducting a cultural assessment, (v) creating a new
franchisee guide with best practices for establishing and maintaining a successful
workplace, and (vi) ending the Company’s policy requiring mandatory arbitration of
harassment and discrimination claims.
231 Corbat, 2017 WL 6452240, at *16.

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learning of a whistleblower action, and the audit committee reported updates to the

board in the meantime.232

In GoPro, the board recalled a defective product mere days after online videos

showed the defect.233

In TransUnion, the court rejected the plaintiffs’ red-flags theory because the

board took action “almost immediately” to comply with the CFPB’s consent order and

did so in accordance with advice from outside counsel.234 Where there were

outstanding issues that took time to be resolved, the board oversaw management’s

efforts to make improvements and received regular updates about those efforts. 235

And in Qualcomm and Abney, the court rejected claims where the very red

flags that the plaintiffs argued were waved in front of the board—notably, audit

committee reports—also described the board’s planned remedial action.236

Plus, both Clem and GoPro involved discrete products and practices where

termination or recall could validly constitute the entirety of a fulsome response.

Here, the Complaint alleges the Board knew by 2021 that there were dozens of

participants in the assaults of agents and recruits that Bjorkman and Golden had

232 Clem, 2024 WL 668523, at *9–11.

233 GoPro, 2020 WL 2036602, at *13.

234 TransUnion, 324 A.3d 869, 888–90 (Del. Ch. 2024)

235 Id. at 891.

236 Qualcomm, 2017 WL 2608723, at *3–4 (Del. Ch. June 16, 2017); Abney, 2017 WL

242571, at *13–14 (finding that audit committee presentations identifying
problematic compliance activity also laid out remedial actions).

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drugged.237 It strains credulity to suggest that terminating a single individual,

without at least attempting to identify other perpetrators or the circumstances

surrounding the criminal and tortious conduct, could reasonably be classified a good-

faith response that merely failed to hit a target.238

According to the Complaint, the Board here knew of people within the

Company, like Golden, who were directly responsible for pervasive drugging, rape,

and sexual assault. The Board chose to not to address the issue for years, terminating

Golden only after survivors filed federal anti-trafficking suits and Golden’s revenue

sharing rights had vested. The Board refused outside counsel’s advice to conduct an

independent investigation. And the Board approved Conord’s retirement, which was

prompted by his own sexual misconduct, on false pretenses and then allowed him to

rejoin the Company. Just as Caremark imposes a “bottom-line” requirement

concerning information systems,239 Caremark imposes a bottom-line requirement to

respond in good faith to red flags of central legal risks. At a minimum, efforts to

respond to red flags are not sufficient under Caremark when it is reasonably

conceivable that those efforts were nominal, tainted by deliberate heel-dragging, and

ran parallel to a campaign of concealment. All of that is reasonably conceivable here.

Count III states a claim.

237 Compl. ¶ 29.

238 Defendants also cite Shabbouei v. Potdevin, 2020 WL 1609177 (Del. Ch. Apr. 2,

2020), but that case did not involve a Caremark claim. Id. at *7.
239 Marchand, 212 A.3d at 821; see also Boeing, 2021 WL 4059934, at *25, *33.

70
3. Claim That The Control Group Breached Its Oversight
Obligation

Plaintiff claims that the Control Group members (Sanford, Frederick, and

Gesing) breached their fiduciary duties in two ways. In the Complaint, Plaintiff

alleges that the Control Group breached information-system and red-flag oversight

obligations.240 According to Plaintiff, the Control Group “could have wielded [its]

control over eXp’s Board and management to address these very serious issues and

minimize the likelihood of ‘serious injury to the corporation,’” but failed to do so.241

In briefing and argument, Plaintiff advances a second theory by recasting allegations

of intentional misconduct specific to Sanford—for example, that Sanford actively

covered up reports of sexual misconduct—as allegations against the Control Group.

Plaintiff’s first theory requires that the group members comprised a group that

exerted general control over the Company and owed oversight obligations. The

Control Group members do not dispute at this stage that they comprised a group that

exerted general control over the Company and owed fiduciary duties. They argue

that controllers do not owe oversight duties.242

No Delaware case has concluded that controllers owe oversight duties in their

controller capacity.243 As the basis for their claim that controllers owe oversight

obligations, Plaintiff relies on the premise that controllers owe the same fiduciary

240 Compl. ¶ 176.

241 Dkt. 43 (“Pl.’s Answering Br.”) at 52–53 (quoting McDonald’s, 291 A.3d at 680).
242 See Dkt. 28 (“Gesing Br.”), Section II.
243 See Schertz v. Garcia, C.A. No. 2023-0600, Dkt. 48 at 26:4–20 (Del. Ch. Sept. 25,

2024) (TRANSCRIPT) (discussing this issue generally).

71
obligations as directors. For that proposition, Plaintiff cites a footnote in this court’s

decision in McRitchie v. Zuckerberg, stating:

Delaware cases have equated the duties of stockholder
controllers with those of directors.244 When a stockholder
controller exercises board-level control, takes over the
corporate machinery, and effectively substitutes its wishes
for those of the board of directors, then the proposition of
fiduciary equivalence is accurate.245

The cited footnote, however, concludes that “a careful review of Delaware precedent

indicates that stockholder controllers do not always owe the same duties as

directors.”246 The footnote cites Sears, where Vice Chancellor Laster conducted that

careful review.

Sears involved a claim that a controller breached his fiduciary obligations by

taking action by written consent to prevent a board-approved liquidation.247 The

court conducted a scholarly analysis of the nature and scope of controller obligations

in two common scenarios: first, when the controller exercises stockholder-level power

to sell or vote; and second, when the controller uses “its influence over the board and

management to wield corporate power indirectly and cause the corporation to act.”248

244 315 A.3d 518, 533 n.12 (Del. Ch. 2024) (collecting cases).

245 Pl.’s Answering Br. at 53 (quoting Zuckerberg, 315 A.3d at 533 n.12).
246 Zuckerberg, 315 A.3d at 533 n.12 (citing In re Sears Hometown & Outlet Stores,

Inc. S’holder Litig., 309 A.3d 474, 500 (Del. Ch.), modified on reargument, (Del. Ch.
2024)).
247 Sears, 309 A.3d at 483.

248 Id. at 506–07.

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Sears involved the first scenario—a challenge to a controller’s exercise of stockholder-

level power—which is where the court’s analysis focused.

To dramatically oversimplify a thorough discussion, the court observed that

the historical starting point for control obligations is that stockholders have “no duty”

to sell and no duty to vote, even when failing to do so would harm the minority.249

Rather, a controller can only be liable after having decided to sell or when exercising

voting power, and only then when acting affirmatively to change the status quo.250

Sears thus articulated a theory of Delaware law that restricts the scope of a

controller’s obligations compared to those of a director. A controller owes limited

fiduciary obligations only when affirmatively exercising its stockholder power to

change the status quo. A director owes the full panoply of fiduciary duties in all

circumstances. Thus, here, to the extent that Plaintiff’s theory rests on the simplified

statement of Delaware law that controllers owe the same fiduciary duties as

directors, it fails under the persuasive reasoning of Sears. Controllers do not owe the

same scope of fiduciary obligations as directors.

Plaintiff’s theory of controller liability also fails to the extent that Plaintiff

challenges the Control Group’s failure to use its stockholder-level powers. Sears

explains that stockholder-level action can only give rise to fiduciary duties when

wielded affirmatively, and only then in limited circumstances. Oversight obligations,

249 Id. at 508.

250 Id. at 510.

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by contrast, impose liability for inaction. Thus, stockholder-level power can never

give rise to fiduciary oversight obligations.

Perhaps for this reason, Plaintiff draws on the second Sears scenario, arguing

that the Control Group had the ability to use “its influence over the board and

management to wield corporate power indirectly and cause the corporation to act.”251

Sears states that: “Having effectively moved into the boardroom, the controller

becomes subject to the same fiduciary standards that apply to directors.”252 Plaintiff

thus argues that, having moved into the boardroom, the Control Group owes the same

fiduciary duties as directors.

For the proposition that this second scenario giving rise to control duties

creates duties coterminous in scope with those of directors, Sears cites to authorities

that involved or contemplated some action by the controller—“exercis[ing] corporate

power,” “directing the actions of the corporation,” “imposing its policy upon” the

corporation, and “caus[ing] specific corporate action.”253 And by articulating the

scenario as one where the controller “indirectly . . . cause[s] the corporation to act,”

Sears suggests that the second scenario, like the first, gives rise to fiduciary duties

only when the controller takes action.254 But because the facts of Sears did not

challenge controller conduct that relied on board-level control, the court did not

251 Id. at 506.

252 Id.

253 Id. at 506 n.14.

254 Id. at 506 (emphasis added).

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elaborate on this language one way or another. The open question is thus whether a

controller’s fiduciary obligations are limited to situations when the controller causes

the corporation to act, which would foreclose Caremark claims against a controller.

Again, no decision of this court has directly addressed this issue. The parties

cite no case in which this court sustained a claim against a controller for breach of

fiduciary duties based on the controller’s inaction. And independent research

revealed none.

It is hard to conceive of any scenario where a controller could be liable for

inaction necessary to support oversight liability under Caremark. The thought

experiment prompts many questions. What would a controller’s obligation to impose

information systems look like? Does a controller have an independent obligation to

establish an information system where the board has failed to do so? Is a controller

obligated to ensure the efficacy of information systems established by the board?

Should a controller override information systems established by the board? And what

about red flags? Information systems are designed to surface red flags to the board.

Should a controller require mandatory reporting to the controller? If a controller

learns of a red flag regardless of the source, is a controller independently obligated to

ensure that the board responds?

An affirmative response to any of these questions would seem to place a

controller in a situation of having to second-guess the board at every turn for fear of

liability. That obligation would invite greater board-level incursions by controllers

and risk undermining Delaware’s board-centric model.

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Even if board-level control could lead to controller oversight obligations—and

for reasons stated above, that would be a big move—then, at a minimum, the

usurpation or delegation of board-level and managerial power would have to be so

extensive as to justify imposing on the controller all obligations attendant to

overseeing the corporation. The Complaint does not support that inference. The

Control Group held enough voting power to control any stockholder vote. And the

Control Group members occupied multiple high-level leadership positions on the

Board and in management. But none of that authority was so extensive as to justify

rendering the Control Group responsible for overseeing the Company or liable for

their failure to do so.

Count I fails to state a claim.

B. Rule 23.1

As discussed above, “[a] cardinal precept of [Delaware law] is that directors,

rather than shareholders, manage the business and affairs of the corporation.”255 “In

a derivative suit, a stockholder seeks to displace the board’s authority over a litigation

asset and assert the corporation’s claim.”256 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

255 Aronson, 473 A.2d at 811 (citing 8 Del. C. § 141(a)), overruled on other grounds by

Brehm, 746 A.2d 244.
256 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).

76
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.”257 The demand requirement is a substantive

principle under Delaware law.258

Rule 23.1 is the “procedural embodiment” of the demand requirement.259

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[.]”260

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

futile. In Zuckerberg,261 the Delaware Supreme Court adopted the “universal test”

for demand futility that blends elements of the two precursor tests: Aronson262 and

Rales.263 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

257 Id.

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

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

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

261 262 A.3d 1034 (Del. 2021)

262 473 A.2d 805 (Del. 1984).

263 634 A.2d 927 (Del. 1993).

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(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.264

“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.”265 Although the Zuckerberg

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

Aronson and Rales remain good law.266

To plead demand futility under any Zuckerberg theory, a stockholder must

allege “particularized factual statements that are essential to the claim.”267 “It is

generally understood that for a fact to be pled ‘with particularity,’ it must have some

264 Zuckerberg, 262 A.3d at 1059.

265 Id.

266 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).
267 Brehm, 746 A.2d at 254.

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indicia of specificity.”268 A plaintiff must do more than provide notice pleading

permitted under Rule 8.269

The Rule 23.1 particularity requirement is not as strict as the Rule 9

particularity requirement, because Rule 23.1 does not call for “newspaper facts.”270

“[E]ven with Section 220 documents in hand, derivative plaintiffs would be hard

pressed to plead . . . ‘who, what, when, where and how’ facts about fiduciary

wrongdoing” as derivative plaintiffs typically do not have the means to know those

“newspaper” facts like fraud claimants do.271 Still, the particularity requirement of

Rule 9 remains a “useful guidepost.”272 Rule 9 requires, “with respect to the subjects

268 Elburn ex rel. Invs. Bancorp. Inc. v. Albanese, 2020 WL 1929169, at *7 (Del. Ch.

Apr. 21, 2020) [“Invs. Bancorp. I”], appeal denied sub nom. Albanese v. Elburn ex rel.
Invs. Bancorp, Inc., 237 A.3d 820 (Del. 2020) (TABLE).); see also United Food & Com.
Workers Union v. Zuckerberg, 250 A.3d 862, 876–77 (Del. Ch. 2020) [“Zuckerberg I”]
(“Rule 23.1 requires that a plaintiff allege specific facts[.]”); Hughes v. Xiaoming Hu,
2020 WL 1987029, at *10 (Del. Ch. Apr. 27, 2020) (same); GoPro, 2020 WL 2036602,
at *8 (“The plaintiff pleading demand futility must inform the defendants of the
precise transactions at issue by describing with particularity the specific misconduct
in which each defendant is alleged to have participated.” (citation modified)).
269 Invs. Bancorp. I, at *7–9.

270 Elburn ex rel. Invs. Bancorp. Inc. v. Albanese, 2020 WL 4194865, at *4–5 (Del. Ch.

July 21, 2020) [“Invs. Bancorp. II”] (denying application to certify interlocutory
appeal), appeal denied sub nom. Albanese v. Elburn ex rel. Invs. Bancorp, Inc., 237
A.3d 820 (Del. 2020) (TABLE).
271 Invs. Bancorp II, 2020 WL 4194865, at *5; Invs. Bancorp I, 2020 WL 1929169, at

*8 (observing that derivative plaintiffs asserting fiduciary breaches “were not in the
board room, and, unlike fraud, were not the direct targets of the wrongful behavior.”).
272 See Invs. Bancorp I, 2020 WL 1929169, at *9 (describing this court’s “articulation

of Rule 9(b)’s pleading requirements” in Kahn Brothers & Co., Inc. Profit Sharing
Plan and Tr. v. Fischbach Corp., 1989 WL 109406, at *4 (Del. Ch. Sept. 19, 1989) as
“a useful guidepost for Rule 23.1”).

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it treats, some greater degree of specificity in pleading. The rule gives to defendants

a right to insist that the circumstances constituting the alleged fraud be specified.”273

Rule 23.1 imposes a pleading-stage requirement. “While Rule 23.1 requires

that a plaintiff allege specific facts, ‘he need not plead evidence.’”274 And although

the requirement of factual particularity is a heightened pleading requirement, it

“does not entitle a court to discredit or weigh the persuasiveness of well-pled

allegations.”275 “[O]nce a plaintiff pleads particularized allegations, then the plaintiff

is entitled to all ‘reasonable inferences that logically flow from particularized facts

alleged by the plaintiff.”276 As the high court explained in Marchand, “[t]he standard

for conducting this inquiry at the demand futility stage is well balanced, requiring

273 Kahn, 1989 WL 109406, at *4.

274 Hughes, 2020 WL 1987029, at *10 (quoting Aronson, 473 A.2d at 816); Ontario

Provincial Council of Carpenters’ Pension Tr. Fund v. Walton, 2023 WL 3093500, at
*29 (Del. Ch. Apr. 26, 2023) (same); Zuckerberg I, 250 A.3d at 877 (same); In re Ezcorp
Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at *33 (Del. Ch. Jan. 25,
2016) (same).
275 Zuckerberg, 250 A.3d at 877.

276 Hughes, 2020 WL 1987029, at *10 (quoting Beam ex rel. Martha Stewart Living

Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048 (Del. 2004)) (citation modified); see
also Melbourne Mun. Firefighters’ Pension Tr. Fund ex rel. Qualcomm, Inc. v. Jacobs,
2016 WL 4076369, at *1 n.1 (Del. Ch. Aug. 1, 2016) (“When considering a motion to
dismiss under Rule 23.1, this Court affords plaintiffs all reasonable inferences that
logically flow from the particularized facts alleged in the complaint.” (quoting
Postorivo v. AG Paintball Hldgs., Inc., 2008 WL 553205, at *4 (Del. Ch. Feb. 29,
2008))); Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 56 (Del.
Ch. 2015) (“I accept as true Plaintiff’s particularized allegations of fact and draw all
reasonable inferences that logically flow from those allegations in Plaintiff’s favor.”
(citing White v. Panic, 783 A.2d 543, 549 (Del.2001))).

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that the plaintiff plead facts with particularity, but also requiring that this Court

draw all reasonable inferences in the plaintiff’s favor.”277

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

claims at issue were “validly in litigation.”278 This rule protects representative

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

is filed to strengthen Rule 23.1 arguments.279

When Plaintiff filed this action, the Board comprised six members: Defendants

Sanford, Miles, and Cahir; and non-parties Weakley, Pelosi, and Reichheld (the

“Demand Board”). Demand Board members Miles, Cahir, Pelosi, and Reichheld are

outside directors; they are not employed by the Company. Weakley is a real estate

agent within the eXp Realty network. To show demand futility, Plaintiff must allege

particularized facts creating a reason to doubt that three of the six Demand Board

members were incapable of impartially considering a demand.280 Defendants concede

277 Marchand, 212 A.3d at 818.

278 Braddock v. Zimmerman, 906 A.2d 776, 785 (Del. 2006).

279 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 Chi. 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 Chi. ex rel. BioScrip, Inc. v. Smith, 175 A.3d 621 (Del. 2017) (TABLE).
280 InfoUSA, 953 A.2d at 989–90 (“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.”).

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that demand is futile as to Sanford, and Plaintiff does not advance arguments as to

Pelosi or Reichheld.281 Plaintiff must therefore show demand futility with respect to

two of the remaining three Demand Board members: Weakley, Miles, and Cahir.

Plaintiff argues that Weakley’s employment relationship with eXp rendered

her beholden to Sanford, who received a material personal benefit from the alleged

misconduct, and that both Miles and Cahir face a substantial likelihood of liability

under Caremark. Because Plaintiff has pled demand futility as to Weakley and Miles,

this decision does not reach Plaintiff’s arguments as to Cahir to assess demand

futility.282

“Generally, demand futility is assessed on a claim-by-claim, or Count-by-

Count, basis.”283 When the counts are based on the same factual predicate, however,

showing that a director is unfit to impartially consider demand as to one satisfies

demand futility as to all.284 Here, the counts rest on the same facts and legal theories

with the only difference being the named Defendants. This decision thus consolidates

the demand analysis.

281 Defendants argue that demand is only futile if at least four of eXp’s six Board

members cannot impartially consider a demand, see eXp Opening Br. at 18, but where
the demand board is even numbered, Delaware law requires that only “half of the
members of the demand board” be incapable of impartially assessing a demand for
demand to be futile. In re Fox Corp. Derivative Litig., at *8 (Del. Ch. Dec. 27, 2024).
282Plaintiff also argues that Miles lacked independence from Sanford, but this
decision need not and does not reach that argument.
283 City of Coral Springs Police Officers’ Pension Plan v. Dorsey, 2023 WL 3316246, at

*7 (Del. Ch. May 9, 2023), aff’d, 308 A.3d 1189 (Del. 2023).
284 Id. & n.40 (collecting cases).

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Plaintiff has alleged particularized facts from which it is reasonable to infer

that Weakley lacked independence from Sanford.

Weakley derived two-thirds of her income from her role at eXp,285 and half of

that from her independent contractor status. As CEO of eXp, Sanford has the power

to terminate Weakley’s status as an independent contractor.286 When a person

derives her principal income from her employment, “that fact ‘powerfully strengthens

the inference’ that the [fiduciary] could not consider a demand on the merits, because

‘it is doubtful that they can consider the demand . . . without also pondering whether

an affirmative vote would endanger their continued employment.’”287 That is

reasonable to infer here.

The fact that the Company identified Weakley as non-independent under both

NASDAQ and SEC rules in public filings is not dispositive of the independence

analysis under Delaware law, but it does bolster this conclusion. 288 That is because

classifying a director as non-independent under NASDAQ and SEC rules is a

285 Compl. ¶¶ 160–64.

286 Id. ¶¶ 161–62. Even if Weakley satisfies all terms for revenue share vesting, it

historically accounted for approximately one third of her eXp Realty-based income.
Compl. ¶ 162. See Sciabacucchi v. Liberty Broadband Corp., 2022 WL 1301859, at
*29 (Del. Ch. May 2, 2022) (excusing demand where, among other factors, director
“reli[ed] on . . . compensation as a source of primary income”).
287 See, e.g., Ezcorp, 2016 WL 301245, at *35 (quoting Mizel v. Connelly, 1999 WL

550369, at *3 (Del. Ch. July 22, 1999)).
288 Compl. ¶ 160.

83
“fundamental determination that a board must make,” that “is also relevant under

[Delaware] law” in the context of demand futility.289

In response to the allegations that Weakley’s agent status renders her

beholden to Sanford, Defendants argue that eXp Realty’s independent contractors

cover their own expenses and insurance.290 Defendants also contend that Weakley is

free to associate with a different firm, bring her current commissions with her, and

possibly enjoy the same level of commission income at her new firm. 291 But these

arguments seek defendant-friendly inferences based in part on hypothetical facts.

They do not rebut the allegation that Sanford controls Weakley’s primary source of

income.

Plaintiff has also alleged particularized facts from which it is reasonable to

infer that Sanford received a material personal benefit from the alleged misconduct.

Bjorkman, Golden, and Gove are all in Sanford’s downline.292 The revenue share

program allowed Sanford to extract “unlimited” bonuses from the continued

performance of each of these persons.293 And Defendants effectively concede this

point by failing to advance demand arguments concerning Sanford.

289 Sandys v. Pincus, 152 A.3d 124, 132–34 (Del. 2016); see also Ezcorp, 2016 WL

301245, at *36 (noting NASDAQ independence standards and Delaware law “are
mutually reinforcing and seek to advance similar goals”).
290 eXp Opening Br. at 47.

291 Id.

292 Compl. ¶ 149.

293 Id. ¶¶ 4, 148.

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Plaintiff has thus alleged particularized facts from which the court can infer

that Weakley lacked independence from a person who received a material benefit

from the challenged action. That is sufficient to create a reasonable doubt of

Weakley’s ability to impartially consider a demand.

Turning to Miles, Plaintiff argues that Miles cannot impartially consider a

demand because he faces a substantial likelihood of liability on claims that would be

the subject of the litigation demand. As discussed above, Plaintiff has adequately

alleged under Rule 12(b)(6) that Miles actively breached his oversight obligations.

That forces the question: What is the relationship between stating a claim under Rule

12(b)(6) and demonstrating that demand is futile based on a substantial likelihood of

liability under Rule 23.1?

The “substantial likelihood of liability” standard derives from Aronson.294

Before Aronson, Delaware law suggested that a plaintiff could show that demand was

futile simply by naming a director as a defendant or by alleging that the director was

involved in the challenged decision.295 Aronson dispelled that notion by introducing

the “substantial likelihood of liability” standard.

294 Aronson, 473 A.2d at 815 (“[T]he mere threat of personal liability for approving a

questioned transaction, standing alone, is insufficient to challenge either the
independence or disinterestedness of directors, although in rare cases a transaction
may be so egregious on its face that board approval cannot meet the test of business
judgment, and a substantial likelihood of director liability therefore exists.”).
295 See, e.g., Kaufman v. Beal, 1983 WL 20295, at *4 (Del. Ch. Feb. 25, 1983) (holding

that failure to make pre-suit demand is excused where the derivative plaintiff pleads
facts “which, if true, would show that the business judgment rule would not protect
the transaction from judicial scrutiny”); Miller v. Loft , Inc., 153 A. 861, 862 (Del. Ch.
1931) (“The rule is well settled in this State that if by reason of hostile interest or
guilty participation in the wrongs complained of, the directors cannot be expected to

85
The Delaware Supreme Court in Rales further clarified that, although Aronson

uses the phrase “substantial likelihood,” it is still a pleading standard. The court

held that, “[t]o plead that a director faces a substantial risk of liability, a plaintiff

does not have to demonstrate a reasonable probability of success on the claim”

sufficient to support a preliminary injunction.296 The high court rejected that

requirement as “unduly onerous,” stating that the plaintiff need only “make a

threshold showing, through the allegation of particularized facts, that [its] claims

have some merit.”297 Aronson and Rales remain good law.298

Many decisions of this court have interpreted the “have some merit” language

of Rales to require application of the Rule 12(b)(6) standard, albeit based on

particularized facts.299 Furthermore, as held in Marchand and elsewhere, derivative

institute suit[.]”); Baker v. Bankers’ Mortg. Co., 129 A. 775, 776 (Del. Ch. 1925)
(holding that demand is not required “for obvious reasons” where the corporate
managers were “guilty [of] participation in the wrongs complained of”); Fleer v. Frank
H. Fleer Corp., 125 A. 411, 414 (Del. Ch. 1924) (“Where the demand if made would be
directed to the particular individuals who themselves are the alleged wrongdoers and
who therefore would be invited to sue themselves, the rule is settled that a demand
and refusal is not requisite.”). More recent cases preceding Aronson acknowledged
the problem with allowing derivative plaintiffs to evade the demand requirement by
merely adding the corporate directors to its complaint and therefore held that merely
adding directors and making conclusory allegations of alleged wrongdoing were
insufficient to excuse demand. See, e.g., Kaufman, 1983 WL 20295, at *4.
296 Hughes, 2020 WL 1987029, at *12.

297 Rales, 634 A.2d at 934 (citing Aronson, 473 A.2d at 811–12).

298 Zuckerberg, 262 A.3d at 1059 (“Finally, because the three-part test is consistent

with and enhances Aronson, Rales, and their progeny, . . . cases properly construing
Aronson, Rales, and their progeny remain good law.”).
299 I have done so many times based on my reading of Rales. See, e.g., Brewer v.
Turner, 2025 WL 2769895, at *9 (Del. Ch. Sept. 29, 2025) (denying motion to dismiss);
Brewer v. Turner, 2025 WL 3048942, at *5 (Del. Ch. Oct. 30, 2025) (denying motion

86
to certify interlocutory appeal); In re Plug Power Inc. S’holder Litig., 2025 WL
1277166, at *9 (Del. Ch. May 2, 2025); Hanna v. Paradise, 2025 WL 1836642, at *8
(Del. Ch. July 3, 2025); Grabski ex rel. Coinbase Glob., Inc. v. Andreessen, 2024 WL
390890, at *7 (Del. Ch. Feb. 1, 2024); City of Detroit Police & Fire Ret. Sys. ex rel.
NiSource, Inc. v. Hamrock, 2022 WL 2387653, at *11 (Del. Ch. June 30, 2022).
Others have taken a similar approach. See, e.g., Lipman v. GPB Cap. Hldgs.
LLC, 2020 WL 6778781, at *1 (Del. Ch. Nov. 18, 2020) (“I find that the allegations of
the Complaint . . . make the threat of liability to the general partner, and its
controller, such that it is reasonably conceivable that the general partner could not
bring its business judgment to bear on any demand involving these allegations.”
(emphasis added)); Teamsters Local 443 Health Servs. & Ins. Plan v. Chou, 2020 WL
5028065, at *25 (Del. Ch. Aug. 24, 2020) (finding that the “Plaintiffs have
demonstrated that a majority of [the board] faces a substantial likelihood of liability
by pleading particularized facts from which it is reasonably conceivable that a
majority of the Board knew of evidence of corporate misconduct—the proverbial red
flag—yet acted in bad faith by consciously disregarding its duty to address that
misconduct” (emphasis added) (internal quotation marks omitted)); Fitbit, 2018 WL
6587159, at *12–13 (“In this case, the demand futility question as to Count II turns
on whether a majority of the Demand Board faces
a substantial likelihood of liability on the Brophy claim . . . . I find that the causal
connection is pled with particularity and is reasonably conceivable. Plaintiffs have
adequately pled that the information at issue was material and nonpublic.” (emphasis
added)); Pettry ex rel. FedEx Corp. v. Smith, 2021 WL 2644475, at *12–13 (Del. Ch.
June 28, 2021), aff’d, 273 A.3d 750 (Del. 2022) (“It is not reasonably conceivable that
the Board acted in bad faith in consciously disregarding its duty to oversee the affairs
of the Company. . . . Plaintiff has failed to plead particularized facts that make it
reasonably conceivable a majority of the [defendants] face a substantial likelihood of
liability for ignoring red flags in a manner demonstrating a conscious failure to
monitor or oversee corporate operations.” (emphasis added)); Corbat, 2017 WL
6452240, at *2 (“To my mind, the allegations of the Complaint, if true, fail to
demonstrate scienter. The Complaint does not make it reasonably conceivable that
the directors acted in bad faith.” (emphasis added)); Silverberg ex rel. Dendreon Corp.
v. Gold, 2013 WL 6859282, at *13 (Del. Ch. Dec. 31, 2013) (“I conclude that [the
plaintiff] has pled particularized facts sufficient to show that it is reasonably
conceivable that he will be able to satisfy the first factor of a Brophy claim.” (emphasis
added)); Cent. Laborers’ Pension Fund v. Karp, 2025 WL 1213104, at *19 & n.204
(Del. Ch. Apr. 25, 2025) (stating that the court “must view well-pleaded facts
holistically in assessing demand futility” and that “the test is whether the complaint
alleges a constellation of particularized facts which, when viewed holistically, support
a reasonably conceivable inference that an improper purpose sufficiently infected a
director’s decision to such a degree that the director could be found to have acted in
bad faith” (emphasis added) (internal quotation marks omitted) (quoting IBEW Local

87
plaintiffs are entitled to all “reasonable inferences” that logically flow from

particularized allegations.300 No meaningful distinction exists between what is

reasonably conceivable based on particularized allegations, on the one hand, and

what is reasonably inferable from particularized allegations, on the other. Indeed,

decisions of this court have used “reasonably conceivable” and “reasonable inference”

interchangeably when analyzing demand futility.301

Putting it all together, a plaintiff can demonstrate a substantial likelihood of

liability for demand futility purposes by pleading a claim that meets the Rule 12(b)(6)

standard based on particularized factual allegations.302

Union 481 Defined Contribution Plan & Tr. ex rel. GoDaddy, Inc. v. Winborne, 301
A.3d 596, 623 (Del. Ch. 2023))).
300 Marchand, 212 A.3d at 818; Invs. Bancorp I, 2020 WL 1929169, at *6.

301 See, e.g., IBEW, 301 A.3d at 619, 623 (“Delaware decisions have read [Rule 9(b)

and Rule 23.1] together to require that a plaintiff plead particularized facts that can
support a reasonable inference about the directors’ state of mind. . . . At the pleading
stage, the test is whether the complaint alleges a constellation of particularized facts
which, when viewed holistically, support a reasonably conceivable inference that an
improper purpose sufficiently infected a director's decision to such a degree that the
director could be found to have acted in bad faith.” (emphasis added)); Chou, 2020
WL 5028065, at *1, *25 (“In order to survive a motion to dismiss under Rule 23.1, a
plaintiff must raise an inference that demand on the board to undertake the action
would have been futile. Typically, in the Caremark context, this requires a pleading
of specific facts from which the Court may infer a substantial likelihood of liability on
the part of a majority of the board on whom demand would have been made. . . . The
Plaintiffs have demonstrated that a majority of ABC’s Board faces a substantial
likelihood of liability by pleading particularized facts from which it is reasonably
conceivable that a majority of the Board “knew of evidence of corporate misconduct—
the proverbial ‘red flag’—yet acted in bad faith by consciously disregarding its duty
to address that misconduct.”(emphasis added)).
302 Defendants dispute this articulation of Delaware law. They contend that a
“substantial likelihood of liability may require more than a reasonably conceivable
claim,” even on based on particularized facts. Defs.’ Supp. Br. at 10. Defendants cite
Credit Glory for this statement, but the passage of Credit Glory on which they rely

88
Plaintiff has stated a claim against Miles based on particularized factual

allegations. Plaintiff alleges that Miles received the same red flags that the full

Board received. As discussed above, particularized pleading requires a degree of

specificity but does not require the “‘who, what, when, where and how’ facts about

fiduciary wrongdoing” required under Rule 9.303 Plaintiff’s red-flag allegations exceed

this standard. The Complaint pleads facts about the viral post in September 2020,

the eleven-page memorandum sent to a Board member in October 2020, the email

report sent to the full Board in 2022.

As to Miles alone, the Complaint alleges that he knew about and openly

discussed the culture of drug use and sexual assault at eXp events, including the

11:00 p.m. “rule” and Conord’s participation.304 The Complaint alleges that Miles

told the Whistleblower about Conord’s other sexual misconduct and called that

information “hush hush” in December 2021.305 These are highly specific allegations,

which identify when and to whom Miles made statements, and which exceed the

particularity of allegations found in other oversight cases that have survived a motion

to dismiss.

does not address the issue. Defs.’ Supp. Br. at 6–7 (citing Credit Glory, 2025 WL
3439671, at *3 n.34). It merely restates the standard that this decision endeavors to
explain.
303 Invs. Bancorp II, 2020 WL 4194865, at *5; Invs. Bancorp I, 2020 WL 1929169,

at *8.
304 Compl. ¶ 103.

305 Id. ¶ 104.

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Having alleged particularized facts sufficient to create a reasonable doubt of

the ability of Weakley and Miles to impartially consider a demand, and given

Defendants’ concessions regarding Sanford, Plaintiff has shown that demand would

be futile. The motion to dismiss the Complaint under Rule 23.1 is denied.

III. CONCLUSION

The motions to dismiss Count I under Rule 12(b)(6) is granted. The motions to

dismiss all other counts are denied.

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