Eric Douglas Guilbeau v. Footprint International Holdco, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

ERIC DOUGLAS GUILBEAU, et al.,

Plaintiffs,

v. C.A. No. 2024-0968-JTL
FOOTPRINT INTERNATIONAL
HOLDCO, INC., CLEVELAND AVENUE,
LLC, FOOTPRINT CA LLC, CA
OPPORTUNITY FUND I LLC,
CLEVELAND MANOR INVESTMENTS II
LLC, CA FOOD I FUND LLC, OLYMPUS
GROWTH FUND VII, L.P., OLYMPUS
GROWTH FUND VII PARALLEL, L.P.,
MOVENDO CAPITAL, B.V., ZENCAP
HOLDINGS FP, LLC, DON THOMPSON,
MANU BETTEGOWDA, STEFAN
KIRSTEN, HILLA SFERRUZZA, BRIAN
KRZANICH, RICHARD J. DALY, KEVIN
EASLER, LESLIE BRUN, and YOKE
CHUNG,

Defendants.

OPINION ADDRESSING RULE 12(B)(6) MOTIONS TO DISMISS
FIDUCIARY DUTY CLAIMS

Date Submitted: February 3, 2026
Date Decided: May 11, 2026

Timothy R. Dudderar, Aaron R. Sims, Ellis H. Huff, Camilia R. Stoyanova, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Attorneys for Plaintiffs Eric
Douglas Guilbeau, as the trustee of the Guilbeau Living Trust Dated November 11,
2003, Paul Winandy, 356 Investments, LLC, Arch Partners LLC, Jason Anderson,
Brian Francis Austin, Tanner Blaine Bickelhaupt, Steven W. Carter, Marisa A. Dulin,
Eric J. Guilbeau, Ivan Dean Johnson, Joseph R. Kosakowski, Wallace Jay Lovelace,
David Michael McGowan, Geoffrey Emeka Mobisson, Shawn David Olson, Jeffrey Lee
Smith, Daniel Joseph Tiernan, Yasmin Rahimi, as the trustee of the Rahimi Twins
Trust, Craig Bruya, Second Avenue Partners LLC, Tracy Neighbors, and Marcus
Labastida II.

Daniel A. Mason, Sabrina M. Hendershot, Miranda N. Gilbert, PAUL, WEISS,
RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Susanna M.
Buergel, Geoffrey Chepiga, Marques Tracy, PAUL, WEISS, RIFKIND, WHARTON
& GARRISON LLP, New York, New York; Attorneys for Defendants Footprint
International Holdco, Inc., Don Thompson, Manu Bettegowda, Stefan Kirsten, Hilla
Sferruzza, Brian Krzanich, Richard J. Daly, Kevin Easler, Leslie Brun, and Yoke
Chung.

Kaan Ekiner, Nathan D. Barillo, COZEN O’CONNOR, Wilmington, Delaware;
Michael de Leeuw, Tamar Wise, COZEN O’CONNOR, New York, New York;
Attorneys for Defendants Cleveland Avenue, LLC, Footprint CA LLC, CA Opportunity
Fund I LLC, Cleveland Manor Investments II LLC, CA Food I Fund LLC, Olympus
Growth Fund VII, L.P., Olympus Growth Fund VII Parallel, L.P., and Movendo
Capital, B.V.

Ronald N. Brown, III, Kelly L. Freund, DLA PIPER LLP (US), Wilmington, Delaware;
Attorneys for Defendant Zencap Holdings FP, LLC.

LASTER, V.C.
Early stage friends-and-family investors acquired Class A preferred stock.

They now challenge a cram-down financing, claiming it resulted from breaches of

fiduciary duty. The defendants moved to dismiss those claims under Rule 12(b)(6).

Their motions are granted in part and denied in part.1

I. FACTUAL BACKGROUND

The facts are drawn from the second amended complaint (the “Complaint”) and

the documents it incorporates by reference.2 At this procedural stage, the court must

credit the Complaint’s well-pled allegations and draw all reasonable inferences in the

plaintiffs’ favor.

A. The Company And The Class A Offering

Footprint International Holdco, Inc. (the “Company”) develops biodegradable

food packaging. The Company is a Delaware corporation with its principal place of

business in Phoenix, Arizona.

Troy Swope and Yoke Chung co-founded the Company. Swope served as CEO

until January 2023. Chung is the Chief Technology Officer.

In 2019 and early 2020, the plaintiffs invested in the Company via a private

offering of Class A non-participating preferred stock. Approximately eighty friends-

1 The court will issue a separate order addressing the motions to dismiss under

Rule 23.1.

2 Citations in the form “Compl. ¶ ___” refer to paragraphs of the Complaint,

which is the operative pleading. Dkt. 55. Citations in the form “Ex. ___ at ___” refer
to exhibits to the Complaint. Id.
and-family investors participated in the round. Each paid $25,000 per share. No

single participant acquired or possessed a majority position in the Class A stock. The

round raised approximately $90 million.

In connection with the offering, the Class A stockholders signed a governance

agreement (the “Governance Agreement”). Over time, the parties entered into a series

of amended and restated versions of the Governance Agreement, so it is helpful to

refer to this version as the “First Agreement.”3 The other parties to the First

Agreement were the Company, Chung, and ZenCap Holdings FP, LLC (“ZenCap”), an

investment vehicle affiliated with Zenfinity Capital LLC. ZenCap already owned

common stock and acquired Class A stock.

The First Agreement granted the Class A stockholders a favorable liquidation

preference equal to 1.4x of the purchase price plus the top spot in the liquidation

distribution waterfall. The First Agreement also granted the Class A stockholders

the right to designate a director (the “Class A Director”). The First Agreement

prohibited the Company from changing the Class A stock’s “rights, powers or

preferences” except with approval from a majority of the Company’s board of directors

(the “Board”) that included the affirmative vote of the Class A Director.4

On September 18, 2020, the Company, ZenCap, Chung, Swope, and the Class

A stockholders executed an amended and restated version of the Governance

3 Ex. B.

4 Id. § 5.

2
Agreement (the “Second Agreement”).5 It expanded the size of the Board while

maintaining the Class A stockholders’ protections.

B. The Funds Purchase Class A Stock.

In November 2020, entities affiliated with three institutional investors (the

“Funds”) invested $150 million to acquire shares of Class A stock. The affiliates who

became stockholders were (1) Cleveland Avenue, LLC (“Cleveland”), (2) Olympus

Growth Fund VII, L.P. and Olympus Growth Fund VII Parallel, L.P. (together,

“Olympus”), and (3) Movendo Capital B.V. (“Movendo”). After the purchase, they

comprised some of the largest Class A stockholders.

On November 2, 2020, the Company, ZenCap, Olympus, two Cleveland-

affiliated entities, Chung, Swope, and the Class A stockholders executed an amended

and restated version of the Governance Agreement (the “Third Agreement”). 6

Movendo became a party later.

The Third Agreement changed the Board’s composition and expanded the list

of acts that the Board could only take with the affirmative vote of the Class A

Director. The Third Agreement was the last iteration of the Governance Agreement

that the Company sent to the plaintiffs concurrently with its execution. Over the next

two years, the Company purported to amend the Governance Agreement five times.

Each time, it did so without informing the plaintiffs and without their consent.

5 Ex. C.

6 Ex. D.

3
C. The Bridge Loans

On July 15, 2021, the Board approved a term sheet for a merger with Gores

Holdings VIII. In connection with the planned merger, the Company was valued at

$2.435 billion on a fully diluted, pre-money basis. On December 5, 2022, the Company

and Gores Holdings VIII announced the termination of their merger, citing

unfavorable market conditions.7

With the merger off the table, the Company needed financing. In January

2023, the Board approved three bridge loans: (i) a $31 million loan from Cleveland,

(ii) a $30 million loan from an entity affiliated with Don Thompson, Cleveland’s

founder and CEO, and (iii) a $10 million loan from Movendo. The notes for all three

loans were convertible into a new series of Class F stock. The second and third

transactions valued the Company at $1 billion.

On January 19, 2023, Ariel offered to invest approximately $125 million in the

Company based on a pre-money valuation of $390 million (the “Ariel Proposal”). No

one at the Company meaningfully considered the Ariel Proposal.

7 Footprint and Gores Holdings VIII, Inc. Mutually Agree to Terminate
Business Combination Due to Unfavorable Market Conditions, Footprint (Dec. 5,
2022), https://news.footprintus.com/en/footprint-and-gores-holdings-viii-inc.-
mutually-agree-to-terminate-business-combination-due-to-unfavorable-market-
conditions.

4
D. The Committee

The Board anticipated receiving financing proposals from investors affiliated

with members of the Board. The Governance Agreement obligated the stockholders

to vote for the following directors, who comprised the Board:

• Cleveland’s designee Thompson, who served as Chair;

• Olympus’s designee Manu Bettegowda, who was Olympus’s managing partner;

• Movendo’s designee Stefan Kirsten, who was a non-executive director with
Movendo;

• Three ZenCap designees: Kevin Easler, the founder, Chairman, and CEO of
Zenfinity Capital; Yoke Chung, the Company’s Chief Technology Officer; and
Richard Daly;

• Class A Director Brian Krzanich;

• Two designees selected by the Board and approved by the common
stockholders: Les Brun and Hilla Sferruzza; and

• The Company’s CEO.

Swope had been the Company’s CEO but stepped down in January 2023.8

On February 3, 2023, the Board formed a special committee to consider

financing proposals from “related-party investors” (the “Committee”).9 In creating the

Committee, the Board cited its “fiduciary duties to its stakeholders in connection with

evaluation of financing proposals from related-party investors.”10 The reference to

8 Compl. ¶ 97.

9 Id. ¶ 99.

10 Id. (emphasis omitted).

5
“stakeholders” suggests a less-than-perfect understanding of the orientation of their

duties.

The members of the Committee were Sferruzza, Daly, and Krzanich. Sferruzza

was an unaffiliated director selected by the Board and approved by the holders of a

majority of the common stock (a “Common-Approved Director”). She joined the Board

contemporaneous with the adoption of the fifth version of the Governance Agreement.

Daly started as a Common-Approved Director, then became one of ZenCap’s three

designees. Krzanich is the former CEO of Intel Corporation. He joined the Board as

the Class A Director contemporaneous with the adoption of the First Agreement.

The Board deemed the three Committee members “independent of

management.”11 The Board also determined that each member “has no relationship

(business or otherwise) with [Cleveland], Olympus or Movendo that would impair his

or her ability to independently consider a Proposal, and has no interest in any

Proposal that is different from, or in addition to, the interests of the Unaffiliated

Shareholders.”12

The Committee had the power to recommend the rejection or acceptance of

financing proposals, but the Board reserved the power to authorize the Company to

agree to a proposal. The Committee thus did not have the power to say “no.”

11 Id. ¶ 101.

12 Id. (emphasis omitted).

6
On March 17, 2023, the Company considered a proposal from the Funds to

invest up to $500 million in Class F stock (the “Class F Financing”). That same day,

the Committee recommended that the Company proceed with the proposal “as fair to

the Company’s stockholders.”13

E. The Shuler And Apollo Proposals

On March 27, 2023, the Board received an offer from Shuler Capital Corp.

(“Shuler”) to acquire at least 80% of all Company equity (including most or all the

Class A stock) at a valuation of $670 million. Shuler also proposed to invest $545

million into the Company and pay off $180 million of the Company’s liabilities

(collectively, the “Shuler Proposal”).14 During a meeting on March 30, the Committee

acknowledged the Shuler Proposal would address the Company’s “severe liquidity

position and the challenges that presented to the Company’s ability to continue to

operate as a going concern,” but “did not deem it advisable to proceed.”15

The next day, the Board determined that the Shuler Proposal would not

“provide any meaningful return to the Company’s stakeholders.”16 The reference to

“stakeholders” again suggests a less than optimal understanding of director duties

under Delaware law. The Board also noted that “it did not appear that Shuler [] had

13 Id. ¶ 111.

14 Id. ¶ 105.

15 Id. ¶ 106.

16 Id. ¶ 107.

7
the requisite funds to consummate the transaction,”17 but the minutes do not provide

the basis for that observation. The Committee never spoke with or sought to negotiate

with Shuler.

Also during March 2023, Apollo Global Management made a verbal offer to

invest in the Company at a $1 billion valuation (the “Apollo Proposal”). Neither the

Committee nor the Board pursued the Apollo Proposal.

F. The Class F Financing

On April 2, 2023—two days after the Committee rejected the Shuler Proposal—

the Board approved the Class F Financing. The Funds received new Class F stock,

and they exchanged their Class A stock for new shares of Class A-1 stock that

converted into ~1.71 times more common stock than Class A stock.

When approving the Class F Financing, the Board noted “the likelihood of

insolvency based on the Company’s current financial condition.”18 According to the

plaintiffs, the Company’s professed need for cash and desire to avoid insolvency were

not the true motivations for the Class F Financing. The true motivation was to enable

the Funds to seize control of the Company, wipe out the Class A stockholders’

protections, and generate benefits for themselves. Those should not be regarded as

exclusive alternatives. It could have been both.

17 Id. ¶ 109.

18 Id. ¶ 119.

8
After the Board approved the Class F Financing, the Company solicited

consents from stockholders who possessed the right to block it. ZenCap held a

blocking right, and the Company agreed to use $10 million of the proceeds from the

Class F Financing to redeem shares of Class B stock that ZenCap held. The Company

also converted ZenCap’s remaining Class B stock into a new series of Class B-1 stock

with significantly better liquidation rights than the original Class B stock.

Through affiliates, the Koch family held shares of Class D stock that carried a

blocking right. The Company agreed to use $35 million of the proceeds from the Class

F Financing to redeem all of the Koch family’s shares of Class D stock. The Company

also agreed that the Koch family would receive additional cash payments in a

liquidation event or IPO, or receive additional shares.19

The Company could not obtain the required consent from its lenders for the

Koch family’s repurchase, so Cleveland stepped in to acquire their shares.20 In

19 The Complaint hedges about whether the Koch family retained any shares

or received additional shares and whether the family secured improved terms for its
shares. At oral argument, the plaintiffs argued that the Koch family kept shares “and
those shares would explode in value in the e[v]ent of a future liquidation,” but later
admitted that they were “not sure if the possible contractual payout in the event of a
future IPO or liquidation event would flow from [retained] shares or from a separate
contractual right.” Dkt. 115 at 53–54.

20 The Complaint wavers on whether the Company agreed to redeem the Koch

family’s Class D shares. At one point, the Complaint alleges that a redemption
occurred. Compl. ¶ 127. That is consistent with the Class F Preferred Stock Purchase
Agreement, which indicates that the Company “redeem[ed] all shares of Class D
Preferred Stock held by Koch in the aggregate amount not to exceed $35,000,000.”
Dkt. 65, Ex. 17 § 1.6. But the Complaint later alleges that Cleveland purchased
shares of Class C and Class D stock from the Koch family. Compl. ¶ 141.

9
exchange, the Company agreed to enhance the value of Cleveland’s newly purchased

shares by (i) increasing their original issue price and (ii) decreasing their conversion

price. Those two variables drive the conversion formula, and as a result of these

changes, Cleveland’s newly purchased shares would convert in connection with an

IPO into nearly twenty-seven times more shares of common stock than before.21

Based on these agreements, ZenCap and Koch delivered their consents. On

April 6, 2023, the Company executed the Class F Preferred Stock Purchase

Agreement (the “Class F Purchase Agreement”).22

G. The Board Shrinks.

When the Board approved the Class F Purchase Agreement, it had ten

members. After approving the financing, the Board shrank by some unidentified

mechanic to four directors: Thompson, Bettegowda, Kirsten, and Sferruzza (the

“Current Directors”).

H. The Subscription Period

In crafting the Class F Financing, the Funds left unfilled 10% of the round ($50

million of the total $500 million). Cleveland committed to invest $350 million, and

21 The Complaint meanders through these events. Initially, the Complaint
suggests that the Koch family secured the enhancements before Cleveland purchased
them, but later alleges that the Company approved the amendments “to benefit
[Cleveland], at the expense of diluting [the Company]’s other stockholders.” Compl. ¶
141.

22 Dkt. 65, Ex. 17.

10
Olympus and Movendo committed to invest $100 million. The Funds offered the last

10% to other stockholders.

On August 11, 2023, the Company provided its stockholders with a notice,

subscription agreement, and term sheet (“Term Sheet”) for the Class F Financing.23

The transaction attributed a pre-money valuation of $500 million to the Company,

half of what the Board had used in two bridge loans from January 2023. At that

valuation, the Class F stock would account for 50% of the equity.

The Term Sheet included a document titled “Class F Cap Table Analysis.”24 It

showed the distributions each class of stock would receive based on a liquidity event

that afforded the Company a $1.2 billion valuation—20% higher than the post-money

valuation in the Class F Financing. Everyone would be made whole except for the

Class A stockholders; they would receive just 4% of their original investment.

The Company set September 5, 2023, as the date when the subscription period

would expire. That gave prospective investors three weeks to review and decide

whether to invest.

The Board planned to provide “the right to conduct limited due diligence” only

to stockholders “that complete subscription agreements.”25 That requirement meant

that prospective investors had to subscribe and fund their commitment before they

23 Ex. E.

24 Id. at 99.

25 Compl. ¶ 137.

11
could access the data room. The Board also retained the right to exclude any

prospective investor for any reason.

The Term Sheet did not disclose several key aspects of the Class F Financing,

including the Funds’ favorable share conversions, amendments to the Company’s

charter less than a month earlier that benefitted Cleveland, or the depressed

valuation of the Company used for the Class F Financing.

A ninth version of the Governance Agreement became effective in connection

with the Class F Financing (the “Ninth Agreement”). The Term Sheet attached a

copy.26 It was the first version of the Governance Agreement that the plaintiffs had

seen since the Third Agreement. The Ninth Agreement eliminated all of the Class A

protections. It also eliminated the Class A Director.

I. This Litigation

The plaintiffs sued, asserting claims grounded in breaches of the Governance

Agreement and breaches of fiduciary duty.

The Complaint asserts twelve counts. This decision analyzes nine counts that

assert claims for breach of fiduciary duty or related theories.

Counts V through VIII assert claims for breach of fiduciary duty against the

directors. Counts V and VI assert claims for breach of fiduciary duty against the five

directors who left the board when it was downsized: Krzanich, Chung, Daly, Easler,

and Brun (collectively, the “Former Directors”). Count V styles the claim as

26 Ex. E at 44.

12
derivative. Count VI styles it as direct. Counts VII and VIII assert claims for breach

of fiduciary duty against the Current Directors. Count VII styles the claim as

derivative. Count VIII styles it as direct.

Counts V through VIII contend that all of the directors breached their duties

in the following ways:

• Installing Daly on the Committee despite knowing that he was conflicted
because of his ties to ZenCap,

• Failing to vest the Committee with the power to authorize the Company to
enter into any financing proposal,

• Rejecting and failing to consider the Shuler, Apollo, or Ariel Proposals, or any
other potential financing sources,

• Approving the Class F Financing,

• Approving the Class F Purchase Agreement,

• Conferring material, non-ratable benefits on the Funds, ZenCap, and Koch,

• Allowing the Funds to take control of the Company through self-interested
transactions, and

• Entering into the later amendments of the Governance Agreement that
reallocated Class A protections.

Counts VII and VIII add the following as more ways in which the Current Directors

breached their duties:

• Failing to disclose in the Term Sheet the material, non-ratable benefits
conferred on the Funds, ZenCap, and Koch, the amendments to the Company’s
charter that benefitted Cleveland, and the Shuler and Apollo Proposals,

• Affording investors only three weeks to make an investment decision and
requiring them to return a signed subscription agreement and fund their
portion of the deal before they could access the data room, and

• Rejecting the plaintiffs’ books-and-records request.

13
The distinction between the Former Directors and the Current Directors is not

terribly meaningful for pleading-stage analysis, so this decision deals with Counts V

through VIII together.

Count IX asserts a claim for breach of fiduciary duty against Cleveland in its

capacity as a transaction-specific controller. The Complaint alleges that Cleveland

breached its duties by orchestrating the self-dealing transactions that culminated in

the Class F Financing.

Count X asserts a claim against the Funds for aiding and abetting the breaches

of fiduciary duty.

Count XI asserts a claim for civil conspiracy against the Funds, Thompson,

Bettegowda, and Kirsten.

There are two orthogonal claims. Count XII asserts a claim for unjust

enrichment against the Funds. Count IV asserts a claim for tortious interference with

prospective business relations against the directors for intentionally interfering with

financing proposals from Shuler, Apollo, and Ariel.

II. LEGAL ANALYSIS

The defendants moved to dismiss the Complaint under Rule 12(b)(6). That

motion tests whether the complaint states a claim on which relief can be granted.

When considering a Rule 12(b)(6) motion, “a trial court should accept all well-pleaded

factual allegations in the Complaint as true, accept even vague allegations in the

Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim, [and]

14
draw all reasonable inferences in favor of the plaintiff.”27 The court should “deny the

motion unless the plaintiff could not recover under any reasonably conceivable set of

circumstances susceptible of proof.”28 “Our governing ‘conceivability’ standard is

more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere

beyond mere ‘possibility’ but short of ‘probability.’”29

A. Count IX: Cleveland As A Controlling Stockholder

Count IX asserts that Cleveland breached its fiduciary duties as a controlling

stockholder. That claim is not reasonably conceivable.

A breach of fiduciary duty claim has only two formal elements: (i) the existence

of a fiduciary duty that the defendant owes to the plaintiff and (ii) breach of that

duty.30 A stockholder that does not control a corporation is not a fiduciary.31 To plead

that Cleveland owed fiduciary duties, the plaintiffs must plead adequately that

Cleveland exercised control.

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

536 (Del. 2011).

28 Id.

29 Id. at 537 n.13.

30 See Beard Rsch., Inc. v. Kates, 8 A.3d 573, 601 (Del. Ch.), aff’d sub nom.

ASDI, Inc. v. Beard Rsch., Inc., 11 A.3d 749 (Del. 2010); accord ZRii, LLC v. Wellness
Acq. Gp., Inc., 2009 WL 2998169, at *11 (Del. Ch. Sept. 21, 2009) (citing Heller v.
Kiernan, 2002 WL 385545, at *3 (Del. Ch. Feb. 27, 2002), aff’d, 806 A.2d 164 (Del.
2002) (TABLE)).

31 Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL

3326693, at *25 (Del. Ch. July 6, 2018), aff’d sub nom. Davenport v. Basho Techs.
Holdco B, LLC, 221 A.3d 100 (Del. 2019) (TABLE).

15
1. The Test For Controlling Stockholder Status

“Delaware law imposes fiduciary duties on those who effectively control a

corporation.”32 If a defendant wields control over a corporation, then the defendant

takes on fiduciary duties, even if the defendant is a stockholder who otherwise would

not owe duties.33

Since the adoption of the Safe Harbor Amendments, Section 144 of the

Delaware General Corporation Law defines the term “controlling stockholder.”34

Although the Safe Harbor Amendments operate retroactively, they exclude any

32 Quadrant Structured Prods. Co., Ltd. v. Vertin, 102 A.3d 155, 183–84 (Del.

Ch. 2014); see S. Pac. Co. v. Bogert, 250 U.S. 483, 487–88 (1919).

33 See generally J. Travis Laster, How to Evaluate Non-Majority Control: What

History and Statutes Tell Us – Part Two: The Definitional Consensus, 31 Fordham J.
Corp. & Fin. L. 395 (2026) [hereinafter Definitional Consensus]; J. Travis Laster, How
to Evaluate Non-Majority Control: What History and Statutes Tell Us – Part One: The
Historical Dominance of Functionalism, 31 Fordham J. Corp. & Fin. L. 1 (2025)
[hereinafter Historical Article]; J. Travis Laster, The Distinctive Fiduciary Duties
That Stockholder Controllers Owe, 20 N.Y.U. J.L. & Bus. 461 (2024). Contrary to
what some scholars have asserted, the fiduciary status of controlling stockholders
was not limited to freeze-outs and asset sales. See J. Travis Laster, Not New: A
Response To Claims About “New Control” in Control and its Discontents,
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6604058; but see Jill E. Fisch &
Steven Davidoff Solomon, Control and its Discontents, 173 U. Pa. L. Rev. 641, 644,
647–48, 650, 659, 662, 703 (2025) (asserting that until 2016, controlling stockholders
only owed fiduciary duties and Delaware law only applied entire fairness in
connection with freeze-outs and asset sales).

34 8 Del. C. § 144(e)(2).

16
action pending on February 17, 2025.35 This action was pending at that time, so prior

law controls.

Under prior law, a plaintiff could plead control by alleging that a defendant

could exercise a majority of a corporation’s voting power.36 Before the Class F

Financing, Cleveland controlled 26.4% of the Company’s voting power, so it did not

control the Company under that standard.

Under prior law, a defendant without majority control could still be a fiduciary

if the defendant exercised “control over the business affairs of the corporation.”37 Non-

35 85 Del. Laws ch. 6, § 3 (2025) (“Sections 1 and 2 of this Act take effect on the

enactment of this Act and apply to all acts and transactions, whether occurring
before, on, or after the enactment of this Act, except that Sections 1 and 2 of this Act
do not apply to or affect any action or proceeding commenced in a court of competent
jurisdiction that is completed or pending, or any demand to inspect books and records
made, on or before February 17, 2025.”).

36 See Kahn v. Lynch Commc’n Sys., Inc. (Lynch I), 638 A.2d 1110, 1113 (Del.

1994) (observing that a stockholder becomes a fiduciary if it “‘owns a majority interest
in . . . the corporation’” (quoting Ivanhoe P’rs v. Newmont Mining Corp., 535 A.2d
1334, 1344 (Del. 1987))); In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at
*9 (Del. Ch. Aug. 18, 2006) (“Under our law, a controlling shareholder exists when a
stockholder . . . owns more than 50% of the voting power of a corporation . . . .”);
Williamson v. Cox Commc’ns, Inc., 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006)
(“A shareholder is a ‘controlling’ one if she owns more than 50% of the voting power
in a corporation.”).

37 Lynch I, 638 A.2d at 1113 (internal quotation marks omitted); accord Citron

v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 70 (Del. 1989) (“For a
dominating relationship to exist in the absence of controlling stock ownership, a
plaintiff must allege domination by a minority shareholder through actual control of
corporate conduct.”); Ivanhoe P’rs, 535 A.2d at 1344 (“Under Delaware law a
shareholder owes a fiduciary duty only if it owns a majority interest in or exercises
control over the business affairs of the corporation.”).

17
majority control could exist “generally or ‘with regard to the particular transaction

that is being challenged.’”38 The plaintiffs do not seek to show that Cleveland

exercised non-majority control generally.

The plaintiffs invoke transaction-specific control, a concept with a long

pedigree under Delaware law.39 Under that approach, a defendant

that does not, as a general matter, exercise actual control over a
corporation’s business and affairs or over the corporation’s board of
directors, but does, in fact, exercise actual control over the board of

38 Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 659 (Del. Ch. 2013)

(quoting Williamson, 2006 WL 1586375, at *4), abrogated on other grounds by El Paso
Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1264 (Del. 2016) (rejecting
Carsanaro’s analysis of post-merger derivative standing); accord In re Primedia Inc.
Deriv. Litig., 910 A.2d 248, 257 (Del. Ch. 2006) (“control over the particular
transaction at issue [is] enough”). See generally Am. L. Inst., Principles of Corporate
Governance § 1.10(a) (1994), Westlaw (database updated Oct. 2024) (defining
controlling stockholder as a person who has the power to vote more than 50% of the
voting equity or “otherwise exercises a controlling influence over the management or
policies of the corporation or the transaction or conduct in question”).

39 See Historical Article, supra, at 38 n.149 (“Looking for the presence or
absence of transaction-specific control has a long pedigree in Delaware. Like Guth
and Burry Biscuit, Lynch relied on Transactional Evidence to support a finding of
transaction-specific control. Other cases such as Kaplan and Puma relied on
Transactional Evidence to support the opposite conclusion: a transaction-specific
finding that control was absent.”); id. at 94 n.410 (“Pumaʼs finding that transaction-
specific control was absent illustrates that transaction-specific control mattered long
before Lynch. Decisions like Guth, Burry Biscuit, and Kaplan also focused on
transaction-specific control. Guth found after trial that it existed, and Burry Biscuit
inferred its existence for pleading purposes. Kaplan paralleled Puma in finding after
trial that it did not exist.”); but see Elizabeth Pollman & Lori W. Will, The Lost History
of Transaction-Specific Control, 50 J. Corp. L. 1095 (2025) (asserting that the concept
of transaction-specific control did not exist until Lynch I introduced it in 1994).

18
directors during the course of a particular transaction, can assume
fiduciary duties for purposes of that transaction.40

For this purpose, a showing of “pervasive control over the corporation’s actions is not

required.”41 Rather, the plaintiff must establish that the defendant exercised “actual

control with regard to the particular transaction that is being challenged.”42 “[T]he

potential ability to exercise control is not sufficient.”43

It is impossible to identify or foresee all of the possible factors relevant to a

determination of transactional control.44 Examples include the magnitude of the

voting power the putative controller can exercise and the distribution of the

remaining voting power among other stockholders; decisional rules in governing

documents that affect the non-majority stockholder’s ability to act; governance

interventions like a special committee or majority-of-the-minority vote; the putative

controller’s ability to designate, elect, or remove directors; relationships between the

putative controller and directors, key managers, and advisors; contractual rights that

40 1 Stephen A. Radin, The Business Judgment Rule 1129 (6th ed. 2009)
(internal quotation marks omitted) (quoting In re W. Nat’l Corp. S’holders Litig., 2000
WL 710192, at *20 (Del. Ch. May 22, 2000)).

41 Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at

*4 (Del. Ch. Aug. 25, 2006); see also Primedia, 910 A.2d at 257 (noting that
transactional control does not require control over day-to-day business operations);
Williamson, 2006 WL 1586375, at *4 (same).

42 Superior Vision, 2006 WL 2521426, at *4; accord Carsanaro, 65 A.3d at 659.

43 Williamson, 2006 WL 1586375, at *4.

44 Basho, 2018 WL 3326693, at *26.

19
can channel the corporation toward or away from particular outcomes; high-status

boardroom roles like CEO, Chairman, or founder; and commercial relationships that

provide the defendant with leverage over the corporation, such as status as a key

customer, supplier, or lender.45

“Invariably, the facts and circumstances surrounding the particular

transaction will loom large.”46 Probative evidence can include statements by

participants or other contemporaneous evidence indicating that a defendant was in

fact exercising control over a decision. A court also can consider whether the

defendant insisted on a particular course of action, whether there were indications of

resistance or second thoughts from other fiduciaries, and whether the defendant’s

efforts to get its way extended beyond ordinary advocacy to encompass aggressive,

threatening, disruptive, or punitive behavior.47

45 See In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293, at *15–16, *19

(Del. Ch. Mar. 28, 2018); Voigt v. Metcalf, 2020 WL 614999, at *12–13 (Del. Ch. Feb.
10, 2020); Basho, 2018 WL 3326693, at *26–27; In re Cysive, Inc. S’holders Litig., 836
A.2d 531, 533–35 (Del. Ch. 2003).

46 Basho, 2018 WL 3326693, at *28.

47 See, e.g., Lynch I, 638 A.2d at 1114 (citing bullying by Alcatel directors,

including statement to Lynch board that “‘[y]ou must listen to us. We are 43 percent
owner. You have to do what we tell you.’”); Tesla, 2018 WL 1560293, at *15
(considering that defendant had “demonstrated a willingness to facilitate the ouster
of senior management when displeased”); N.J. Carpenters Pension Fund v.
infoGROUP, Inc., 2011 WL 4825888, at *11 (Del. Ch. Sept. 30, 2011) (crediting
inference that defendant dominated board through threats and intimidation,
including statements that “some directors would be sued,” and calls for firing
company management).

20
Rarely (if ever) will any one source of influence or indication of control,

standing alone, be sufficient to make the necessary showing.48 A reasonable inference

of control at the pleading stage typically results when a confluence of multiple sources

combines in a fact-specific manner to produce a particular result.49

2. The Complaint’s Allegations Regarding Cleveland

The Complaint’s allegations do not support a reasonable inference that

Cleveland exercised non-majority control over the Company for purposes of the Class

F Financing. The strongest factor supporting an inference of control is Cleveland’s

26.4% block, but the presence of other large blocks mitigates that factor, as does the

Governance Agreement. The plaintiffs did not argue that Cleveland and other

significant holders like Olympus and Movendo formed a control group. Considered

collectively, the proffered sources of influence do not support a pleading-stage

inference of transaction-specific control.

48 Calesa Assocs., L.P. v. Am. Cap., Ltd., 2016 WL 770251, at *11 (Del. Ch. Feb.

29, 2016) (“[T]here is no magic formula to find control; rather, it is a highly fact
specific inquiry.”); see Superior Vision, 2006 WL 2521426, at *4 (citing need to
consider multiple factors); Williamson, 2006 WL 1586375, at *4–6 (discussing factors
such as the right to designate directors, blocking rights, and commercial
relationships; noting that each one individually, without more, would not be
sufficient, but finding that factors combined to support inference of control).

49 See OTK Assocs., LLC v. Friedman, 85 A.3d 696, 702 (Del. Ch. 2014) (finding

it reasonably conceivable that “[d]espite not owning a mathematical majority of the
Company’s common stock, [the defendant] held a combination of securities and
contract rights that, together with [the defendant’s] board representation and close
relationships with management, gave [the defendant] effective control over [the
company]”).

21
a. Block Size

A significant consideration for evaluating non-majority control is the voting

power that the putative controller can exercise. Cleveland could exercise 26.4% of the

voting power. Although that is a historically significant amount that would support

a presumption of control under virtually all statutory schemes and a finding of control

under some statutory schemes,50 two factors mitigate its significance. First, other

large stockholder blocks exist that could offset Cleveland’s voting power. Second, the

Governance Agreement bound Cleveland to vote for a full slate of directors and

contained blocking rights that other investors’ director designees could exercise.

Those considerations make it unreasonable to infer that Cleveland’s voting power

contributed meaningfully to the existence of transaction-specific control.

Unfortunately, Delaware decisions provide little guidance about the

significance of block size to non-majority control. For one thing, block size interacts

with other factors to prevent clear patterns from emerging.51 For another, during the

50 See generally Definitional Consensus, supra, at 415–62 (surveying statutory

definitions). The principal exception is newly enacted Section 144(e)(2)(c), which
establishes a hard one-third floor below which control is precluded by statute, except
presumably for purposes of Section 203. Compare 8 Del. C. § 144(e)(2)(c) (requiring
“ownership or control of at least 1/3 in voting power of the outstanding stock”) with 8
Del. C. § 203(c)(4) (establishing a presumption that “[a] person who is the owner of
20% or more of the outstanding voting stock . . . shall be presumed to have control of
such entity, in the absence of proof by a preponderance of the evidence to the
contrary”).

51 After reviewing a non-exhaustive list of ten significant cases, a prior decision

failed to reveal “any sort of linear, sliding-scale approach whereby a larger share
percentage makes it substantially more likely that the court will find the stockholder

22
past two decades in Delaware, two schools of thought co-existed regarding non-

majority control. One school took a formal approach that (i) shifted from examining

control over the business affairs of the enterprise to control over the board, (ii)

discounted sources of influence other than stock ownership, and (iii) elevated the

threshold at which voting power would become significant. Decisions applying those

principles dismissed cases frequently at the pleading stage after concluding it was

not reasonably conceivable that a non-majority stockholder could exercise control.

Another school persisted in applying a historically dominant functional approach that

(i) examined control over the business affairs of the enterprise, (ii) considered

multiple sources of influence when evaluating control, and (iii) recognized that lower

levels of voting power could support control.52 The upshot is that under prior

Delaware law, the significance of a putative controller’s voting power was not

independently dispositive, whether for or against an inference (or finding) of control.53

was a controlling stockholder.” In re Crimson Expl. Inc. S’holder Litig., 2014 WL
5449419, at *10 (Del. Ch. Oct. 24, 2014). Illustrating the point, the decision noted
that “in Cysive, Chief Justice Strine, writing as a Vice Chancellor, found a 35%
stockholder controlled the corporation, while, in Western National, Chancellor
Chandler held that a 46% stockholder was not a controller.” Id. The decision
concluded that “the scatter-plot nature of the holdings highlight[ed] the importance
and fact-intensive nature” of the analysis. Id.

52 See Definitional Consensus, supra, at 396; Historical Article, supra, at 2–3.

53 Tesla, 2018 WL 1560293, at *14 (quoting PNB Hldg., 2006 WL 2403999, at

*9).

23
All else equal, however, a larger block should make an inference of non-

majority control more likely. That relationship results from simple mathematics.

Once a putative controller’s holdings dip below a majority, the putative controller

needs votes from other investors to take action by written consent or to obtain a vote

that requires a majority of the outstanding shares. But a putative controller with less

than a majority of the voting power retains considerable flexibility to take action at a

meeting.54 In that context, once a quorum is present, the general standard for taking

action is the affirmative vote of a majority of the shares present and entitled to vote.55

For the election of directors, the general standard is a plurality of the shares present

and entitled to vote.56 Meetings typically attract participation from just under 80% of

the outstanding shares.57 At that level, the holder of a 40% block can deliver the vote

needed to prevail at a meeting.

The power conferred by a large block extends further because stockholders who

oppose the blockholder’s position can only prevail by polling at supermajority rates.58

54 Voigt, 2020 WL 614999, at *19.

55 See 8 Del. C. § 216(2).

56 See id. § 216(3).

57 See, e.g., Kobi Kastiel & Yaron Nili, In Search of the “Absent” Shareholders:

A New Solution to Retail Investors’ Apathy, 41 Del. J. Corp. L. 55, 61 (2016) (finding
that overall “the total percentage of shares that were not voted in each of the matters
standing for a vote at S&P 500 companies” in 2015 was 21.7%).

58 See Mizel v. Connolly, 1999 WL 550369, at *3 n.1 (Del. Ch. July 22, 1999).

24
The following table shows the effect that illustrative levels of block ownership have

on voting outcomes, assuming a meeting where holders with 80% of the voting power

turn out, and the standard is a majority of the shares present and entitled to vote.59

Block Unaffiliated % Of Unaffiliated % Of Unaffiliated
Size Shares That Blockholder That Opponents
Present Needs To Win Need To Win

35 45 13% 91%
30 50 22% 82%
26.4 53.6 27% 76%
25 55 29% 75%
20 60 35% 68%
10 70 44% 59%

In other words, if Cleveland favored a particular outcome at a meeting where

80% of the voting power was present and eligible to vote, then Cleveland would win

as long as just over 1-in-4 shares voted the same way. Opponents must garner 76%

of the unaffiliated shares to win.60 This court has described disinterested majorities

59 For simplicity, the calculations assume a company with one class of common

stock and 100 shares outstanding. The blockholder owns the designated number of
shares with unaffiliated holders owning the rest. The assumption of 80% turnout
means that 80 shares are present and entitled to vote at the meeting, requiring the
affirmative vote of 41 shares to prevail.

60 Turnout would likely rise if the opponents of a measure ran a proxy contest.

See, e.g., Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1382–83 (Del. 1995)
(assuming a 90% turnout in a contested election involving a high concentration of
institutional investors); Chesapeake Corp. v. Shore, 771 A.2d 293, 340 (Del. Ch. 2000)
(finding that a turnout of 90% in a contested solicitation at a public company would
be realistic); Robert M. Bass Gp., Inc. v. Evans, 552 A.2d 1227, 1244 (Del. Ch. 1988)
(crediting testimony that 80–83% of eligible shares tend to vote in contested matters).
The larger number of unaffiliated shares present at the meeting increases the
absolute number of votes needed to win. At the same time, the larger number of

25
of 60% and 66 2/3% as “more commonly associated with sham elections in

dictatorships than contested elections in genuine republics.”61 Based on the math

alone, Cleveland’s block is inferably dominant.

The power conferred by a large block extends further because high retail

support is the norm. Retail investors vote in favor of management proposals roughly

90% of the time, even on contentious proposals where institutional investors oppose

management.62 Institutional investors vote with management roughly 90% of the

time as well, but act more independently on controversial proposals.63

A century of case law and statutory regimes confirms that blocks of 25% carry

substantial influence. During the 1920s and 1930s, leading commentators recognized

the significance of blocks carrying as little as 15% of a corporation’s voting power,

unaffiliated shares in the denominator affects the percentages needed to win. The
change does not significantly undermine the blockholder’s advantage. For example,
with a 26% block and 90% turnout, the number of votes needed to win rises to 46, the
percentage of the unaffiliated that the blockholder needs to win rises to 31% (20/64),
and the percentage of the unaffiliated that the opponents need to win falls to 72%
(46/64).

61 Chesapeake, 771 A.2d at 342; see Air Prods. & Chems., Inc. v. Airgas, Inc.,

16 A.3d 48, 117 (Del. Ch. 2011) (noting that no insurgent had ever achieved a 67%
vote and that polling votes at this level was not realistically attainable).

62 Alon Brav, Matthew Cain & Jonathon Zytnick, Retail Shareholder
Participation in the Proxy Process: Monitoring, Engagement, and Voting, 144 J. Fin.
Econ. 492, 516–18 (2022).

63 Id.

26
particularly when other stockholders are widely dispersed.64 In their landmark work,

The Modern Corporation and Private Property,65 Adolf A. Berle, Jr. and Gardiner C.

Means concluded that 15% ownership likely marked the lower bound at which a

stockholder could exercise control without management support, 66 making 20%

ownership a reasonable threshold for presumptive control.67

64 E.g., Adolf A. Berle, Jr., Studies in the Law of Corporate Finance 43 (1928)

(“Corporations having widely distributed stockholders are commonly dominated by
the holders of a concentrated minority interest, without legal device of any sort.”);
William Z. Ripley, Main Street and Wall Street 95 (1927) (“Corporations have always
been susceptible to control by concentration of voting power. Far less than half of the
capital stock may be as effective for such control as possession of an actual majority.
But it is elemental—requiring no proof—that, the larger the number of shareholders,
the more easily may a small concentrated block of minority shares exercise sway over
all the rest. . . . With 300,000 scattered holdings, a possible 15 or 20 per cent of the
votes can never be overmatched at an election.”); Thomas Conyngton & R.J. Bennett,
Corporation Procedure 682 (1927) (“[N]ot infrequently a minority elects the board of
directors and thus controls the corporation.”); 2 William W. Cook, A Treatise on the
Law of Corporations having a Capital Stock § 317, at 1079–80 (8th ed. 1923) (“Often
a minority interest is a controlling interest; and, in fact, most great corporations are
controlled by those who own only a minority interest, and often a very small minority
interest.”); Adolf A. Berle, Jr., Non-Voting Stock and “Bankers’ Control,” 39 Harv. L.
Rev. 673, 673 (1926) (“Control of American corporations by holders of a minority of
the capital stock is no novelty to business men or lawyers.”).

65 Adolf A. Berle, Jr. & Gardiner C. Means, The Modern Corporation And
Private Property (1932).

66 Id. at 82–84.

67 Id.; accord Adolf A. Berle, Jr., Economic Power and the Free Society 9–10

(1958); William J. Grange, Corporation Law for Officers and Directors 267–68 (1935)
(endorsing Berle’s analysis and agreeing that a 15 to 20% stake would generally be
sufficient to exercise control in a public corporation).

27
In Slattery68 and Rochester,69 the United States Supreme Court treated non-

majority control as a question of fact and rejected arguments for a bright-line rule

that non-majority control could not conceivably exist without at least one-third of the

voting power. In a 1940 ruling that cited Slattery and Rochester, the SEC determined

that an 18% stockholder exercised control where he “was in complete charge of [the

issuer’s] affairs,” and “for years he had managed the issuer and formulated its

policies.”70 In another ruling, the SEC determined that a 27% stockholder controlled

a corporation by dominating the officers and the executive committee.71 In 1957, the

United States Supreme Court found that E.I. du Pont de Nemours and Company

gained control of General Motors Corporation by acquiring a 23% block, placing its

President and Treasurer on the board, and securing their influence through positions

on the board’s finance committee.72

Except during the formal era,73 Delaware decisions took a comparable

approach. Chancellor Josiah O. Wolcott found after trial in the landmark decision of

68 Nat. Gas Pipeline Co. of Am. v. Slattery, 302 U.S. 300 (1937).

69 Rochester Tel. Corp. v. United States, 307 U.S. 125 (1939).

70 In re Thompson Ross Sec., 6 S.E.C. 1111 (1940).

71 In re Res. Corp. Int’l, 7 S.E.C. 689 (1940).

72 United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 588, 600–01

(1957).

73 See Historical Article, supra, at 39–68 (discussing formal era).

28
Loft, Inc. v. Guth74 that Charles G. Guth, the corporation’s President, Chairman, and

holder of approximately 11% of its stock, exercised control.75 Guth argued that the

board had allowed him to take a corporate opportunity, but Chancellor Wolcott found

that if approval had been given, then Guth’s control rendered it ineffective.

Chancellor Wolcott placed the most weight on Guthʼs status as a director and CEO,

forceful personality, and relationships with other directors. He also considered the

extreme terms of the transaction being challenged.76 In Burry Biscuit,77 then-Vice

Chancellor Seitz reasoned similarly, crediting that George W. Burry, the

74 Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939).

75 See Loft, Inc. v. Guth, 2 A.2d 225, 237 (Del. Ch. 1938) (“Guth was in an

unquestioned position of dominance in the affairs of Loft. He had won control of the
corporation after an intense and bitter contest for proxies from the stockholders in
March of 1930. He is a man of great force and determination—one who having
obtained control was not likely to relinquish a particle of it to others. With the
exception of Patton and Dr. Sullivan, who came on the board in 1930 and 1934
respectively, I doubt if there was a single director who would have ventured to
question not to say oppose any action which Guth favored.”), aff’d, 5 A.2d 503 (Del.
1939); see id. at 238 (“Guth was not only a director of Loft. He was also its president.
He was dominant in its affairs, so much so that the belief is warranted that in actual
practice he handled its affairs and directed its management as though he were its
sole proprietor.”). None of the various Guth-related decisions identify how many
shares Guth owned, but they provide information indicating that the percentage had
to be low and was likely around 11%. See Historical Article, supra, at 27–28.

76 Loft, 2 A.2d at 237 (“The extent to which [Guth] availed himself of Loftʼs

funds in advances to himself individually and . . . his own personal company (Pepsi),
emphasizes the absoluteness of his sway.”).

77 Rosenthal v. Burry Biscuit Corp., 60 A.2d 106 (Del. Ch. 1948).

29
corporation’s founder, president, CEO, a director, and a 11% stockholder, inferably

exercised control at the pleading stage for a challenge to a large equity grant.78

Writing in 1985, then-Vice Chancellor Berger summarized the law as follows:

“This Court and others have recognized that substantial minority interests ranging

from 20% to 40% often provide the holder with working control,” then found after trial

that a 31% stockholder exercised control.79 In Mizel, then-Vice Chancellor Strine

inferred at the pleading stage that the Chairman, President, and CEO, who was also

the largest stockholder with a 32.7% block, exercised control.80 After discussing the

CEO’s practical ability to prevail in a proxy contest, he called for affording “great

weight to the practical power wielded by a stockholder controlling such a block and

to the impression of such power likely to be harbored by the stockholder’s fellow

directors.”81 Similarly, in Ply Gem, Vice Chancellor Noble drew a pleading-stage

inference that a Chairman, CEO, and 25% blockholder exercised control. 82 In

Williamson, Chancellor Chandler credited that two stockholders holding 17.1% of the

78 Id. at 107, 109–10.

79 Robbins & Co. v. A. C. Israel Enters., Inc., 1985 WL 149627, at *5 (Del. Ch.

Oct. 2, 1985).

80 Mizel, 1999 WL 550369, at *1, *3.

81 Id. at *3 n.1.

82 In re Ply Gem Indus., Inc. S’holders Litig., 2001 WL 755133, at *7 (Del. Ch.

June 26, 2001).

30
voting power plus charter-based blocking rights exercised control.83 In Moran, then-

Vice Chancellor Walsh found after trial that 20% ownership was a “recognized

threshold for measuring control of a publicly held corporation,” and the Delaware

Supreme Court affirmed.84 In Cheff v. Mathes, the Delaware Supreme Court also

suggested that a 20% block conferred control.85 In Tesla, Vice Chancellor Slights drew

a pleading-stage inference that Elon Musk controlled Tesla based on his position as

Tesla’s largest stockholder with a block of 22.1%, his roles as Chairman, CEO, and

Chief Product Architect, and his status as the visionary public face of the company.86

83 Williamson, 2006 WL 1586375, at *1, *4–6.

84 Moran v. Household Int’l, Inc., 490 A.2d 1059, 1080 (Del. Ch.), aff’d, 500 A.2d

1346 (Del. 1985).

85 Cheff v. Mathes, 199 A.2d 548, 555 (Del. 1964) (treating a 20% block of stock

as “a substantial block of stock [that] will normally sell at a higher price than that
prevailing on the open market, the increment being attributable to a ‘control
premium’”).

86 Tesla, 2018 WL 1560293, at *12–19; see In re Pattern Energy Gp. Inc.
S’holders Litig., 2021 WL 1812674, at *37–46 (Del. Ch. May 6, 2021) (drawing a
pleading-stage inference that officers and entities affiliated with a private equity firm
could exercise control over a portfolio company where the officers had managerial
authority and owned 10% of the stock and the private equity firm could exercise a
range of contractual governance rights); Calesa Assocs., 2016 WL 770251, at *10–12
(finding it reasonably conceivable on a motion to dismiss that a stockholder owning
26% of the company’s stock exercised actual control where the plaintiff alleged
instances of actual control beyond the fact that the stockholder “exercised duly
obtained contractual rights to its benefit and to the detriment of the company”
(emphasis in original)); In re Zhongpin Inc. S’holders Litig., 2014 WL 6735457, at *7–
8 (Del. Ch. Nov. 26, 2014) (finding it reasonably conceivable on a motion to dismiss
that a stockholder owning 17.3% of the company’s stock was a controller because the
stockholder was CEO and the company’s 10-K stated that the stockholder effectively

31
In Tornetta, Chancellor McCormick held after trial that Musk controlled Tesla based

on comparable factors.87

Consistent with these rulings, a range of statutes presume control at levels

below Cleveland’s ownership stake.88 Both the Securities Act of 1933 and the

Securities Exchange Act of 1934 use a “functional standard of ‘control’” that does not

require a minimum level of stock ownership.89 Over the years, however, a practitioner

controlled the company), rev’d on other grounds sub nom. In re Cornerstone
Therapeutics Inc. S’holder Litig., 115 A.3d 1173 (Del. 2015).

87 Tornetta v. Musk, 310 A.3d 430, 497–520 (Del. Ch. 2024), aff’d in pertinent

part, rev’d on other grounds sub nom. In re Tesla, Inc. Deriv. Litig., 351 A.3d 1005,
2025 WL 3689114 (Del. 2025) (TABLE). The Delaware Supreme Court reversed the
rescissory remedy she imposed, but awarded nominal damages—an outcome they
could not have reached unless a majority agreed with the Chancellor’s conclusions
that Musk controlled Tesla and received compensation that the defendants failed to
prove was entirely fair. See Tesla, 2025 WL 3689114, at *1, *17–18.

88Definitional Consensus explores these statutes in depth. Definitional
Consensus, supra, at 415–21.

89 Phillip I. Blumberg, The Transformation of Modern Corporation Law: The

Law of Corporate Groups, 37 Conn. L. Rev. 605, 608–09 (2005) (“[I]n statutory law,
entity law had proven a well-nigh insuperable barrier to effective federal regulation
of the railroads, the pioneer area in American government regulation of industry.
Prompted by this disastrous history, the Franklin Roosevelt administration in its
first great wave of major reform statutes commencing in 1933 abandoned ‘entity’ as
the legal standard. In one of the outstanding developments in American
jurisprudence, the draftsmen of the ‘New Deal’ statutes and administrative
regulations turned away from traditional corporate theory and adopted enterprise
concepts and the functional standard of ‘control.’ In major legislation including the
Emergency Transportation Act, the Securities Acts of 1933 and 1934, the Public
Utility Holding Company Act, the National Labor Relations Act, and the Investment
Company Act of 1940, the National Labor Relations Act, and the Investment
Company Act of 1940, ‘control’ became firmly established as the model for assuring
expansive statutory scope in American regulatory law.” (footnotes omitted)).

32
rule of thumb emerged that treated a 10% stockholder as presumptively able to

control a widely held issuer,90 as long as there was alignment with management.91

Other statutes establish explicit ownership levels for presuming or

establishing control.

• The Public Utility Holding Company Act presumes control at 10% ownership.92

• The Trust Indenture Act presumes control for different types of stockholders
at 5% and 10% ownership.93

90 A.A. Sommer, Jr., Who’s “In Control”?—S.E.C., 21 Bus. Law. 559, 568 (1966)

(“Initially, record or beneficial ownership of (or right to vote) 10% or more of the voting
stock of a corporation has become something of a benchmark and when this is
encountered a red warning flag should run up. . . . While there is nothing in the
statutes or the regulations or rulings by the Commission which says such a holder is
ipso facto a controlling person, generally such degree of ownership should create
caution and might be regarded as creating a rebuttable presumption of control,
especially if such holdings are combined with executive office, membership on the
board, or wide dispersion of the remainder of the stock.”); id. at 568–69 (“a person
with less than 10% may alone be a controlling person; generally to be such his
ownership would have to be combined with dominant executive office and fairly wide
dispersion of the remainder of the voting power”).

91 Id. at 569–70.

92 Public Utility Holding Company Act of 1935, ch. 687, § 2(7), 49 Stat. 803,

806. The Public Utility Holding Company Act of 2005 retains this definition. See 42
U.S.C. § 16451(8). See Comment, The Meaning of “Control” in the Protection of
Investors, 60 Yale L.J. 311, 325–26 (1951) (noting that the Utility Act defined a
holding company “as any company which owned at least 10% of the voting stock of a
utility or another holding company” unless the company “could prove to the SEC that
it did not exercise a ‘controlling influence’ over its immediate subsidiary”).

93 Trust Indenture Act of 1939, ch. 411, 53 Stat. 1149, 1159–60 (codified as

amended at 15 U.S.C. § 77jjj(a)(5), (b)(3), (b)(5)).

33
• The Investment Company Act presumes control at 25% ownership.94

• The Banking Holding Company Act uses 25% ownership to establish control
by a holding company, presumes control at 25% for other types of investors,
and presumes non-control at 5% ownership or less.95

• Delaware’s state-law analog to the Banking Holding Company Act presumes
control at 25% ownership.96 Twenty-five other states use the same threshold.97
New York, North Carolina, and California use 10% ownership to establish
control, Idaho uses 24%, and Nevada uses 10% for entities and 20% for natural
persons.98

• The Model Insurance Holding Company System Regulatory Act presumes
control at 10% ownership.99 Forty-one states use the same threshold.100
Alabama presumes control at 5%.101

94 Investment Company Act of 1940, ch. 686, § 2(a), 54 Stat. 789, 790 (codified

at 15 U.S.C. § 80a-2(a)(9)).

95 Bank Holding Company Act of 1956, ch. 249, § 2(a), 70 Stat. 133, 133
(codified as amended at 12 U.S.C. § 1841(a)).

96 5 Del. C. § 101. Control also exists when a person controls “in any manner

the election of a majority of the directors or trustees” of a bank. Id. § 101(8).

97 Definitional Consensus, supra, at 445 & n.200 (collecting authorities).

98 Id. at 445 & n.202 (collecting authorities).

99 Insurance Holding Company System Regulatory Act § 1C (Nat’l Ass’n Ins.

Comm’rs 2021); Insurance Holding Company System Regulatory Act Model
Legislation § 1(c) (Nat’l Ass’n Ins. Comm’rs 1969) (same).

100 Definitional Consensus, supra, at 448 & n.216 (collecting authorities).

101 Ala. Code § 27-29-1(3).

34
• Delaware’s business combination statute presumes control starting at 20%
ownership.102 Five other states use the same ownership level.103 Twenty-eight
presume control at 10%.104 Illinois, North Carolina, and North Dakota’s
statutes do not include an ownership threshold for presuming control.105

• Twenty-five states have control-share statutes that require a stockholder vote
when any stockholder reaches an ownership threshold deemed sufficiently
large to create an inference of control. Twenty-two states set the first threshold
at 20%.106 Three set the first threshold at 10%.107

These and other statutes reflect a public-policy consensus about when control exists.

The most frequent threshold is 10%. Another prominent threshold is 20%. Yet

another common ownership threshold is 25%.108

Cutting-edge scholarship by Professor Jonathon Zytnick shows that holding

25% of the vote (what he calls “voting weight” in deference to the political science

literature) generally produces tremendous influence over voting outcomes (what he

102 8 Del. C. § 203(c)(4).

103 Fla. Stat. Ann. § 607.0901(1)(f); Iowa Code § 490.1110.3.d; Kan. Stat. Ann.

§ 17-6427(c)(4); Mass. Gen. Laws 110F, § 3(e); Okla. Stat. tit. 18, § 1090.3.D.4.

104 See Definitional Consensus, supra, at 457 & n.240 (collecting authorities).

105 805 Ill. Comp. Stat. Ann. 5/7.85; N.D. Cent. Code § 10-19.1-01.52; N.C. Gen.

Stat. § 55-9-01.

106 See Definitional Consensus, supra, at 460 & n.254 (collecting authorities).

107 See Haw. Rev. Stat. Ann. § 414E-2(c)(4)(A); Md. Code Ann., Corps. & Assns.

§ 3-701(e)(1); Wyo. Stat. Ann. § 17-18-102(b)(xviii).

108 See generally Definitional Consensus, supra.

35
calls “voting power”).109 A stockholder with a voting weight that some formal-school

decisions have characterized as intuitively low110 may exercise disproportionately

high voting power.

Zytnick measures voting power in two ways. The first approach examines

pivotality: whether a stockholder can change the outcome by flipping her vote.111 In

the real world, this measure reflects the number of voting combinations in which a

coalition could form that would block the large holder.112 A simplified approach

recognizes that small stockholders rarely vote, making institutional voting dominant.

Zytnick therefore looks at the size of the largest block relative to the size of the other

ten largest blocks, while assuming smaller blocks vote across a normal distribution

109 See Jonathon Zytnick, Shareholder Voting Power,
https://ssrn.com/abstract=6300182.

110 E.g., In re GGP, Inc. Sʼholder Litig., 2021 WL 2102326, at *20 (Del. Ch. May

25, 2021) (describing a 35.3% stake that could be increased to 45% as “not
impressive”), aff’d in part, rev’d in part and remanded, 282 A.3d 37 (Del. 2022); In re
Rouse Props., Inc., 2018 WL 1226015, at *18 (Del. Ch. Mar. 9, 2018) (describing a
33.5% stake as “not impressive on its own”); PNB, 2006 WL 2403999, at *10
(describing a 33.5% block as “an overall level of ownership that is relatively low”).
Zytnick surveys the prevalence of large blocks at public companies and finds that “[a]t
firms with a 20% owner, the largest owner averages 36.9% ownership.” Zytnick,
supra, at 10. He finds that across a sample of 3,160 firms in 2023, 5.2% had a largest
stockholder owning between one fifth and one third of the firm; 2.1% had a largest
stockholder owning between one third and one half; and only 1.8% had a largest
stockholder owning more than one half. Id. Those data provide further reasons to
question the formal-school intuitions about what constitutes a level of ownership that
is relatively low or unimpressive.

111 Zytnick, supra, at 15.

112 Id. at 16.

36
curve.113 This measure provides a rough indication of how many other large blocks

must act as a coalition to overcome the largest blockholder. He finds that 10.5% of

investors with between 20% and 25% ownership possess a voting power of greater

than 99%, and 30.0% of investors between 25% and 30% ownership have a voting

power of greater than 99%.114 The percentages are not probabilistic. They reflect the

fraction of all possible voting combinations in which the blockholder’s vote is pivotal.

Zytnick’s second measure of voting power takes a probabilistic approach. That

measure focuses on satisfaction, defined as the probability that a stockholder will be

in the winning coalition, thereby obtaining the desired result. 115 This method adds

voting probabilities, resulting in the largest blockholder appearing more frequently

in the winning coalition without being pivotal.116 The level of satisfaction takes into

account (1) the number of votes required to prevail, (2) assumptions about voting by

other large blockholders, and (3) assumptions about voting by retail holders. Zytnick

models support levels from large blockholders of 20% and 40% and support levels

from retail holders of 50%, 80%, and 90%.117 He finds that with only 20% percent

support from other large blockholders and 80% retail support, the average 30%

113 Id. at 21–22.

114 Id. at 26.

115 Id. at 16–17.

116 Id. at 32.

117 Id. at 35–36.

37
blockholder wins roughly three-quarters of the time, and at least one quarter win

essentially all of the time. The average 25% stockholder wins roughly half the time,

with the upper quartile winning nearly all of the time.118

Importantly, the largest holder’s voting weight standing alone is a poor proxy

for influence. That is intuitively easy to understand. In a widely held firm, a

stockholder with one-third of the voting power will win virtually every vote and

should presumptively possess working control.119 In a closely held firm with three

stockholders (A, B, and C), each owning one third, none of the stockholders can

dominate. Each stockholder can establish three possible winning coalitions, one in

which all vote together and two in which one stockholder joins with one of the other

stockholders to obtain the desired result (A + B or A + C).

The Complaint and the documents it incorporates by reference do not provide

detailed information about the other stockholders, but there are powerful indications

that other stockholders controlled sizable blocks of their own. Olympus and Movendo

each received a Board designee. Olympus received director-level blocking rights

comparable to Cleveland’s. Both made a significant investment in the Class F

118 Id. at 36.

119 That presumption does not exist under the Safe Harbor Amendments.
Controlling stockholder status under Section 144 cannot exist without at least one-
third of the voting power, but that level of voting power does not establish any
presumption of control. To qualify as a controlling stockholder, the putative controller
must also possess “power functionally equivalent to that of a stockholder that owns
or controls a majority in voting power” and “power to exercise managerial authority
over the business and affairs of the corporation.” 8 Del. C. § 144(e)(2)(c).

38
Financing, although smaller than Cleveland’s. Olympus and Movendo invested $100

million, compared to $350 million from Cleveland. Movado invested $10 million in a

bridge loan, compared with $61 million from Cleveland and its principal.

Those allegations suggest that Olympus and Movendo held substantial equity

stakes, albeit meaningfully smaller than Cleveland’s. ZenCap also appears to have

possessed a sizable stake, because it could nominate three directors and possessed

director-level blocking rights as long as it held at least a 10% interest.

At the pleading stage, the court must draw plaintiff-friendly inferences, but

not unreasonable inferences. Because of what the Complaint’s allegations and

documents incorporated by reference suggest about other large stockholders’

holdings, it is not possible to infer that Cleveland exercised control with a 26.4% stake

to the same degree as if the balance of the shares were widely held.

The Governance Agreement also mitigates the reasonableness of an inference

of control based on Cleveland’s 26.4% block. Cleveland bound itself under the

Governance Agreement to vote for a slate of ten directors, divvied up among the

signatory investors, with Cleveland only appointing one. It is again not possible to

infer that Cleveland exercised control with a 26.4% stake to the same degree as if the

balance of the shares were widely held.

Standing alone, under prior law, and in the context of a firm with otherwise

widely dispersed ownership, the pled fact of Cleveland’s 26.4% block would provide a

strong basis to infer actual control for purposes of the Class F Financing. In the

39
context of the Company’s capital structure and in light of the Governance Agreement,

Cleveland’s 26.4% stake does not support that same pleading-stage inference.

b. Board Composition

Another obvious source of influence that can support an inference of actual

non-majority control is the existence of relationships between the putative controller

and members of a company’s board.120 In this case, relationships between Cleveland

and the directors do not contribute to a reasonable inference of control.

The ability of a putative controller to designate directors can be an indication

of control.121 Cleveland has the right to designate one director, and Cleveland filled

120 See, e.g., Tesla, 2018 WL 1560293, at *17 (considering defendant’s
relationships with directors as factor supporting reasonable inference of control);
Calesa Assocs., 2016 WL 770251, at *11 (finding allegations supported inference
defendant was a controlling stockholder where it was reasonably conceivable “to infer
that a majority of the Board was not independent or disinterested, but rather was
under the influence of, or shared a special interest with,” the defendant);
Thermopylae Cap. P’rs, L.P. v. Simbol, Inc., 2016 WL 368170, at *14 (Del. Ch. Jan.
29, 2016) (recognizing defendant can exercise control over a decision if defendant “had
achieved control or influence over a majority of directors through non-contractual
means, such as affiliation or aligned self-interest”); infoGROUP, 2011 WL 4825888,
at *11 (drawing inference defendant dominated majority of directors).

121 See, e.g., Lynch I, 638 A.2d at 1112, 1114–15 (considering right of Alcatel

U.S.A. Corporation to designate five of eleven directors of Lynch Communications
Systems, Inc. during course of affirming trial court’s finding of actual control); In re
Loral Space & Commc’ns Inc., 2008 WL 4293781, at *20 (Del. Ch. Sept. 19, 2008)
(applying entire fairness where stockholder controlling 36% of voting power
appointed three of eight directors and had relationships with two others); Williamson,
2006 WL 1586375, at *4 (considering that stockholders collectively holding a 17.1%
interest could nominate two of five directors when drawing an inference of control);
Friedman v. Beningson, 1995 WL 716762, at *5 (Del. Ch. Dec. 4, 1995) (considering
Chairman, CEO, and President who held 36% of voting power in public company and
could influence a second director; observing that “[f]rom a practical perspective, this

40
that seat with Thompson, its CEO. Cleveland inferably controlled Thompson, but he

is only one director.

The Complaint’s allegations do not support the inference that Cleveland had

compromising influence over any directors other than Thompson. Delaware courts

have recognized that past relationships and payments can support “a reasonable

inference of ‘owningness’ sufficient to create a reasonable doubt” about a director’s

ability to act independently.122 But the plaintiffs do not allege that Cleveland had ties

with any other directors.

confluence of voting control with directoral and official decision making authority . .
. is . . . itself quite consistent with control of the board”). Cf. Donnelly v. Keryx
Biopharm., Inc., 2019 WL 5446015, at *1, *5 (Del. Ch. Oct. 24, 2019) (finding for
purposes of Section 220 inspection that there was a credible basis to infer that the
beneficial owner of approximately 39% of a company’s common stock with a
contractual right to appoint one director and one observer to a seven-director board
was a de facto controller); Kosinski v. GGP Inc., 214 A.3d 944, 953 (Del. Ch. 2019)
(finding for purposes of Section 220 inspection that there was a credible basis to infer
that stockholder with a 34% interest and power to replace one-third of the board of
directors “was a de facto controller”).

122 In re EZCORP Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at

*42 (Del. Ch. Jan. 25, 2016); see Sandys v. Pincus, 152 A.3d 124, 131, 134 (Del. 2016)
(inferring that two directors were not independent of a controller for purposes of Rule
23.1 where they had “a mutually beneficial network of ongoing business relations”
based on past investments and service on company boards); Primedia, 910 A.2d at
261 n.45 (holding on motion to dismiss that directors who had “substantial past or
current relationships, both of a business and of a personal nature, with [a controller]”
were not independent); In re Freeport-McMoran Sulphur, Inc. S’holder Litig., 2005
WL 1653923, at *12 (Del. Ch. June 30, 2005) (“Latiolais had worked for the Common
Directors for almost twenty years and had become a wealthy individual in their
employ. To argue that Latiolais was independent of the Common Directors because
he formally severed ties with some Freeport entities does not take into account the
nature and extent of his overwhelming, career-long involvement with Freeport
entities, including the entire span of MOXY’s life. Delaware law recognizes that such

41
One director among ten, even when that one director is the Chair, does not

provide meaningful support for an inference of actual control. It might contribute to

an overall inference of non-majority control when combined with other factors, but

those other factors are largely absent here.

c. Other Sources Of Board-Level Influence

Other sources of influence that can contribute to an inference of actual control

include the roles that the putative controller or its representatives hold and their

extensive ties can operate as an exception to the general rule that past relationships
do not call into question a director’s independence.”); Emerald P’rs v. Berlin, 2003 WL
21003437, at *3, *23 (Del. Ch. Apr. 28, 2003) (holding in post-trial opinion that
director who had been an employee of controller for more than ten years was not
disinterested and independent in decision to evaluate controller’s proposed merger),
aff’d, 840 A.2d 641 (Del. 2003) (TABLE); In re The Ltd., Inc., 2002 WL 537692, at *7
(Del. Ch. Mar. 27, 2002) (“One may feel ‘beholden’ to someone for past acts as well. It
may reasonably be inferred that Mr. Wexner’s gift of $25 million to Ohio State was,
even for a school of that size, a significant gift. While the gift was not to Gee
personally, it was a positive reflection on him and his fundraising efforts as university
president to have successfully solicited such a gift. In this context, even though there
can be no ‘bright line’ test, a gift of that magnitude can reasonably be considered as
instilling in Gee a sense of ‘owingness’ to Mr. Wexner.” (footnote omitted)); In re Ply
Gem Indus., Inc. S’holders Litig., 2001 WL 1192206, at *1 (Del. Ch. Sept. 28, 2001)
(recognizing that “past benefits conferred by [the allegedly dominating director], or
conferred as the result of [that director’s] position with Ply Gem, may establish an
obligation or debt (a sense of ‘owingness’) upon which a reasonable doubt as to a
director’s loyalty to a corporation may be premised”); In re New Valley Corp. Deriv.
Litig., 2001 WL 50212, at *7–8 (Del. Ch. Jan. 11, 2001) (observing when considering
allegations of interest and lack of independence that “[t]he facts alleged in the
complaint show that all the members of the current Board have current or past
business, personal, and employment relationships with each other and the entities
involved”); Int’l Equity Cap. Growth Fund, L.P. v. Clegg, 1997 WL 208955, at *5–7
(Del. Ch. Apr. 22, 1997) (holding on a motion to dismiss that directors were not
independent based on history of dealing and overlapping governance relationships).

42
influence in the boardroom.123 In this case, the Complaint does not allege that

Cleveland’s representatives held any high-status roles other than Thompson’s role as

Chair. Designating the Chair can contribute to an inference of non-majority control

when combined with other factors, but those other factors remain largely absent here.

d. Industry Ties

Another source of influence that can support an inference of control is the

existence of relationships that provide the putative controller with leverage over the

corporation, such as status as a key customer or supplier.124 The Complaint’s

allegations on this point, however, are generalized and weak.

The Complaint alleges that Cleveland and Thompson have deep ties with

companies in the food services and packaging sectors and that those industries are

central to the Company’s business. Thompson is the former CEO of McDonald’s and

123 See, e.g., Tesla, 2018 WL 1560293, at *2–3, *13, *16, *19 (considering
defendant’s status as the company’s visionary, Chairman, CEO, and Chief Product
Architect as part of factors supporting reasonable inference of control); Cysive, 836
A.2d at 533–35, 552 (considering defendant’s status as founder, CEO, and Chairman
when making finding of control). To state the obvious, no director or officer likes to
receive explicit or implicit criticism or face ongoing hostility from another board
member, but the explicit or implicit threat of retaliation will carry much more weight
if it comes from a (hypothetical) defendant who controls 25% of the voting power of
the company, has the right under the certificate of incorporation or through a
stockholders agreement to appoint one-third of the directors, and serves as Chairman
of the board with the power to call board meetings and set the agenda. Context
matters.

124 See Williamson, 2006 WL 1586375, at *5 (considering defendants’ status as

corporation’s “only significant customers” and noting that corporation “depended on
their cooperation as customers if it was going to operate its business profitably”).

43
a former director of Memphis Meats. Cleveland is a significant investor in Memphis

Meats. McDonald’s and Memphis Meats are key customers for the Company. To that

end, the Class A Preferred Stock Purchase Agreement acknowledged that Cleveland

could refer customers to the Company.

As with other indications of control, Thompson’s status as a leading industry

figure might contribute to an inference of control under different facts. His status,

however, would have to be part of a larger constellation of allegations that held

significance in their totality. In this case, Thompson’s industry ties do not contribute

meaningfully to the analysis.

e. Lending History

Lending relationships can be particularly potent sources of influence,125 to the

point where courts have recognized a claim for lender liability in situations when a

lender exercises control over a company to a degree that goes beyond a typical creditor

125 See, e.g., Joanna M. Shepherd et al., What Else Matters for Corporate
Governance?: The Case of Bank Monitoring, 88 B.U. L. Rev. 991, 995 (2008) (“The
standard loan agreement imposes numerous operating and financial constraints on
the borrower firm. The borrower is also typically required to maintain a regular flow
of information to the bank, detailing the borrower’s operating performance and
current financial condition.” (footnote omitted)); id. at 1002 (“The detailed reporting
obligations and contract constraints imposed by the loan agreement, as well as the
bank’s ability to control the borrower’s cash, enable the bank literally to control the
firm.”); Douglas G. Baird & Robert K. Rasmussen, Private Debt and the Missing Lever
of Corporate Governance, 154 U. Pa. L. Rev. 1209, 1243–45 (2006) (explaining role of
private debt as a “lever of corporate control”); id. at 1231–32 (describing features of
loan agreements that afford lenders influence and control).

44
relationship.126 Cleveland lent $31 million in bridge financing to the Company, and

Thompson lent another $30 million in bridge financing. Those loans enabled the

Company to meet its cash flow needs while it sought longer-term financing.127 In this

case, that became the Class F Financing.

Cleveland and Thompson thus were major creditors of the Company, but that

alone is not enough. At present, there are no allegations that Cleveland and

Thompson used their creditor rights to channel the Company into the Class F

Financing.128 Creditor status, without more, does not contribute meaningfully to an

inference of actual control.

f. Influence Over The Koch Family

Finally, the plaintiffs allege that Cleveland “exercised significant influence”

over the Koch family for purposes of obtaining their consent to the Class F

126 NVent, LLC v. Hortonworks, Inc., 2017 WL 449585, at *9 (Del. Super. Feb.

1, 2017) (citing Connor v. Great W. Sav. & Loan Ass’n, 44 P.2d 609, 616 (Cal. 1968)).
See generally Daniel R. Fischel, The Economics of Lender Liability, 99 Yale L.J. 131
(1989) (analyzing lender liability as remedy for lender misbehavior); Margaret
Hambrecht Douglas-Hamilton, Creditor Liabilities Resulting from Improper
Interference with a Management of a Financially Troubled Debtor, 31 Bus. Law. 343
(1975) (cataloging cases of lender liability).

127 See, e.g., Voigt, 2020 WL 614999, at *19 (describing scenario where a “cash-

burning, asset-light company [] does not yet generate sufficient revenue to finance its
business plan and has reached the point where it requires external financing,” and
“[u]nder those circumstances, a party that has a veto right over the company’s access
to financing can sit on the company’s lifeline, with the ability to turn it on or off”
(internal quotation marks omitted)).

128 See id.

45
Financing.129 Those allegations, however, are conclusory. The plaintiffs point only to

the fact that Cleveland stepped in to acquire the Koch family’s shares because the

Company’s lenders would not consent to the repurchase, and in exchange, the

Company agreed to enhance the value of Cleveland’s newly purchased shares.

Cleveland benefitted significantly because the shares would convert in connection

with an IPO into nearly twenty-seven times more equity than before.

If there were other strong indicia of control, then Cleveland’s ability to secure

the Koch family’s shares and the associated improvements in value might contribute

to an inference of transaction-specific control. The treatment of the Koch family’s

shares is certainly an eye-catching feature of the Class F Financing, and it adds some

smoke to the mix.

g. The Pleading-Stage Conclusion

Viewed in the aggregate, the Complaint’s allegations fail to support a

reasonable inference that Cleveland exercised transaction-specific control for

purposes of the Class F Financing. The plaintiffs have cobbled together allegations

relating to a handful of traditional factors, but each is relatively weak, and together

they fall short. Because it is not reasonably conceivable that Cleveland exercised

transaction-specific control, Count IX is dismissed.

129 Compl. ¶ 229.

46
B. Counts V To VIII: The Claims Against The Directors For Breach Of
Fiduciary Duty

Counts V to VIII assert that the directors breached their fiduciary duties by

approving the Class F Financing. Although styled differently, each count asserts the

same basic claim: The directors breached their duties because the Class F Financing

was an interested transaction and inferably unfair. Those counts state claims on

which relief can be granted.

1. The Standard Of Review

The analysis starts with the standard of review. Delaware law distinguishes

between the standard of conduct and the standard of review.130 The standard of

conduct describes what corporate fiduciaries are expected to do and is defined by the

content of the duties of loyalty and care.131 The standard of review is the test that a

court applies when evaluating whether directors have met the standard of conduct. 132

130 See, e.g., Manti Hldgs., LLC v. Carlyle Gp. Inc., 2022 WL 1815759, at *7

(Del. Ch. June 3, 2022) (Glasscock, V.C.); Totta v. CCSB Fin. Corp., 2022 WL 1751741,
at *15 (Del. Ch. May 31, 2022) (McCormick, C.), aff’d, 302 A.3d 387 (Del. 2023); In re
MultiPlan Corp. S’holders Litig., 268 A.3d 784, 809 (Del. Ch. 2022) (Will, V.C.);
Pattern Energy, 2021 WL 1812674, at *30 (Zurn, V.C.); Cumming v. Edens, 2018 WL
992877, at *18 (Del. Ch. Feb. 20, 2018) (Slights, V.C.); In re Ebix, Inc. S’holder Litig.,
2014 WL 3696655, at *27 n.202 (Del. Ch. July 24, 2014) (Noble, V.C.); Chen v.
Howard-Anderson, 87 A.3d 648, 666–67 (Del. Ch. 2014) (Laster, V.C.); Cargill, Inc. v.
JWH Special Circumstance LLC, 959 A.2d 1096, 1112 (2008) (Parsons, V.C.); see also
Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1275 n.102 (Del. 2018)
(Strine, C.J.).

131 Chen, 87 A.3d at 666; In re Trados Inc. S’holder Litig. (Trados II), 73 A.3d

17, 35 (Del. Ch. 2013).

132 Chen, 87 A.3d at 666; Trados II, 73 A.3d at 35–36.

47
To determine whether the complaint pleads a claim for breach of fiduciary duty, a

court determines what standard of review applies, then evaluates the complaint’s

allegations regarding the directors’ actions using that standard of review.133

“Delaware has three tiers of review for evaluating director decision-making:

the business judgment rule, enhanced scrutiny, and entire fairness.”134 “In each

manifestation, the standard of review is more forgiving of directors and more onerous

for stockholder plaintiffs than the standard of conduct.”135

The business judgment rule is Delaware’s default standard of review. The rule

presumes that “in making a business decision the directors of a corporation acted on

an informed basis, in good faith and in the honest belief that the action taken was in

the best interests of the company.”136 Unless a plaintiff rebuts one of those elements,

“the court merely looks to see whether the business decision made was rational in the

sense of being one logical approach to advancing the corporation’s objectives.”137 Only

when a decision lacks any rationally conceivable basis will a court infer bad faith and

133 New Enter. Assocs. 14, L.P. v. Rich (NEA), 292 A.3d 112, 159–60 (Del. Ch.

2023).

134 Reis v.
Hazelett Strip–Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011).
Delaware’s intermediate standard of review—enhanced scrutiny—is not implicated
by this case.

135 Chen, 87 A.3d at 667.

136 Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) (subsequent history
omitted).

137 In re Dollar Thrifty S’holder Litig., 14 A.3d 573, 598 (Del. Ch. 2010).

48
a breach of duty.138 The business judgment rule thus provides “something as close to

non-review as our law contemplates.”139 This standard of review “reflects and

promotes the role of the board of directors as the proper body to manage the business

and affairs of the corporation.”140

Enhanced scrutiny is Delaware’s intermediate standard of review.141

Enhanced scrutiny applies to specific, recurring, and readily identifiable situations

marked by two features. First, there is a distinct decision-making context where the

realities of the situation can subtly undermine the decisions of even independent and

disinterested fiduciaries.142 Second, the decision under review involves the directors

138 See Brehm v. Eisner, 746 A.2d 244, 264 (Del. 2000) (“Irrationality is the

outer limit of the business judgment rule. Irrationality may be the functional
equivalent of the waste test or it may tend to show that the decision is not made in
good faith, which is a key ingredient of the business judgment rule.” (footnote
omitted)); In re J.P. Stevens & Co., S’holders Litig., 542 A.2d 770, 780–81 (Del. Ch.
1988) (Allen, C.) (“A court may, however, review the substance of a business decision
made by an apparently well motivated board for the limited purpose of assessing
whether that decision is so far beyond the bounds of reasonable judgment that it
seems essentially inexplicable on any ground other than bad faith.”).

139 Kallick v. Sandridge Energy, Inc., 68 A.3d 242, 257 (Del. Ch. 2013).

140 In re Trados Inc. S’holder Litig. (Trados I), 2009 WL 2225958, at *6 (Del.

Ch. July 24, 2009).

141 Firefighters’ Pension Sys. of City of Kan. City, Mo. Tr. v. Presidio, Inc., 251

A.3d 212, 249 (Del. Ch. 2021).

142 Trados II, 73 A.3d at 43.

49
intruding into a space where stockholders possess rights of their own. 143 The

directors’ exercise of corporate power therefore raises questions about the allocation

of authority within the entity. The resulting scenarios call for an intermediate

standard of review that examines “the reasonableness of the end that the directors

chose to pursue, the path that they took to get there, and the fit between the means

and the end.”144

Delaware’s most onerous standard of review is the entire fairness test. When

entire fairness governs, the defendants must establish “to the court’s satisfaction that

the transaction was the product of both fair dealing and fair price.”145 “Not even an

honest belief that the transaction was entirely fair will be sufficient to establish entire

fairness.”146 “Rather, the transaction itself must be objectively fair, independent of

the board’s beliefs.”147

If a claim does not identify any of the recurring scenarios that could implicate

enhanced scrutiny, then the business judgment rule presumptively applies. At the

143 See In re Columbia Pipeline Gp., Inc. Merger Litig., 299 A.3d 393, 458–59

(Del. Ch. 2023) (examining enhanced scrutiny precedents and demonstrating how
they fit this pattern), rev’d on other grounds, 342 A.3d 324 (Del. 2025).

144 Obeid v. Hogan, 2016 WL 3356851, at *13 (Del. Ch. June 10, 2016).

145 Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary IV), 663 A.2d 1156,

1163 (Del. 1995) (internal quotation marks omitted).

146 Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1145 (Del. Ch. 2006).

147 Id.

50
pleading stage, to change the standard of review from the business judgment rule to

entire fairness, the complaint must allege facts supporting a reasonable inference

that the directors who approved the challenged action did not include sufficient

independent and disinterested directors, acting carefully and in good faith, for those

directors to deliver the requisite majority for taking action.148

To plead that a director was interested and therefore cannot count toward the

requisite majority, a plaintiff can allege facts showing that the director received “a

personal financial benefit from a transaction that is not equally shared by the

stockholders.”149 Or a plaintiff can allege facts showing that the director was a dual

148 See Aronson, 473 A.2d at 812 (noting that if “the transaction is not approved

by a majority consisting of the disinterested directors, then the business judgment
rule has no application”). The voting power formulation is necessary because the
Delaware General Corporation Law authorizes a charter to grant some directors
greater voting rights. 8 Del. C. § 141(d); see Marchand v. Barnhill, 212 A.3d 805, 815
(Del. 2019) (evaluating demand futility where one director exercised multiple votes).
Independent and disinterested directors who acted with due care and in good faith
may therefore deliver the requisite majority of the director voting power, even if they
do not constitute a majority of the humans on the board. The requisite majority could
also be a supermajority if that is what the entity’s governing documents require.

149 Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993), overruled in part on other

grounds by United Food & Com. Workers Union & Participating Food Indus. Emps.
Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034 (Del. 2021); accord Cede & Co.
v. Technicolor, Inc., 634 A.2d 345, 362 (Del. 1993) (“Classic examples of director self-
interest in a business transaction involve either a director appearing on both sides of
a transaction or a director receiving a personal benefit from a transaction not received
by the shareholders generally.”), modified on other grounds, 636 A.2d 956 (Del. 1994);
Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984) (“Directorial interest exists
whenever . . . a director either has received, or is entitled to receive, a personal
financial benefit from the challenged transaction which is not equally shared by the
stockholders.”), overruled in part on other grounds by Brehm, 746 A.2d 244. “[A]
subjective ‘actual person’ standard [is used] to determine whether a ‘given’ director

51
fiduciary and owed a competing duty of loyalty to an entity that itself stood on the

other side of the transaction or received a unique benefit not shared with the

stockholders.150 Or to plead that a director lacked independence and therefore cannot

count toward the requisite board majority, a plaintiff can plead facts showing a

director is sufficiently loyal to, beholden to, or otherwise influenced by an interested

party to undermine the director’s ability to judge the matter on its merits.151

was likely to be affected in the same or similar circumstances.” McMullin v. Beran,
765 A.2d 910, 923 (Del. 2000) (quoting Technicolor Plenary IV, 663 A.2d at 1167).
“[T]he benefit received by the director and not shared with stockholders must be ‘of a
sufficiently material importance, in the context of the director’s economic
circumstances, as to have made it improbable that the director could perform her
fiduciary duties . . . without being influenced by her overriding personal interest.’”
Trados I, 2009 WL 2225958, at *6 (quoting In re Gen. Motors Class H S’holders Litig.,
734 A.2d 611, 617 (Del. Ch. 1999)).

150 See Weinberger v. UOP, Inc., 457 A.2d 701, 710–11 (Del. 1983) (holding that

officers of parent corporation faced conflict of interest when acting as subsidiary
directors regarding transaction with parent); accord Sealy Mattress Co. of N.J., Inc.
v. Sealy, Inc., 532 A.2d 1324, 1336–38 (Del. Ch. 1987) (same); see also Trados I, 2009
WL 2225958, at *8 (treating directors as interested for pleading purposes in
transaction that benefited preferred stockholders when “each had an ownership or
employment relationship with an entity that owned Trados preferred stock”).

151 Aronson, 473 A.2d at 815 (stating that one way to allege successfully that

an individual director is under the control of another is by pleading “such facts as
would demonstrate that through personal or other relationships the directors are
beholden to the controlling person”); Friedman, 1995 WL 716762, at *4 (“The
requirement that directors exercise independent judgment, (insofar as it is a distinct
prerequisite to business judgment review from a requirement that directors exercise
financially disinterested judgment), directs a court to an inquiry into all of the
circumstances that are alleged to have inappropriately affected the exercise of board
power. This inquiry may include the subject whether some or all directors are
‘beholden’ to or under the control, domination or strong influence of a party with a
material financial interest in the transaction under attack, which interest is adverse
to that of the corporation.”). Classic examples involve familial relationships, such as

52
A plaintiff also may challenge a director’s decision by alleging facts that call

into question whether the director acted in good faith. Delaware law “clearly permits

a judicial assessment of director good faith” for the purpose of rebutting the business

judgment rule.152

The question is whether the plaintiffs have alleged facts sufficient to rebut one

of the presumptions of the business judgment rule, thereby creating a pleading-stage

inference that the directors would bear the burden of proving that their actions were

entirely fair. If the plaintiffs have alleged facts at the pleading stage that support an

inference of unfairness, then the court must credit those allegations. The defendants

a parent’s love for and loyalty to a child. See, e.g., Harbor Fin. P’rs v. Huizenga, 751
A.2d 879, 889 (Del. Ch. 1999) (“That Hudson also happens to be Huizenga’s brother-
in-law makes me incredulous about Hudson’s impartiality. Close familial
relationships between directors can create a reasonable doubt as to impartiality. The
plaintiff bears no burden to plead facts demonstrating that directors who are closely
related have no history of discord or enmity that renders the natural inference of
mutual loyalty and affection unreasonable.” (footnote omitted)); Chaffin v. GNI Gp.
Inc., 1999 WL 721569, at *5 (Del. Ch. Sept. 3, 1999) (holding father-son relationship
was sufficient to rebut presumption of independence) (“Inherent in the parental
relationship is the parent’s natural desire to help his or her child succeed . . . . [M]ost
parents would find it highly difficult, if not impossible, to maintain a completely
neutral, disinterested position on an issue, where his or her own child would benefit
substantially if the parent decides the issue a certain way.”); see also London v.
Tyrrell, 2010 WL 877528, at *14 n.60 (Del. Ch. Mar. 11, 2010) (“[I]n the pre-suit
demand context, plaintiffs can often meet their burden of establishing a lack of
independence with a simple allegation of a familial relationship. Surely then . . . it
will be nigh unto impossible for a corporation bearing the burden of proof to
demonstrate that an SLC member is independent in the face of plaintiffs’ allegation
that the SLC member and a director defendant have a family relationship.”).

152 In re Walt Disney Co. Deriv. Litig. (Disney II), 906 A.2d 27, 53 (Del. 2006);

accord eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 40 (Del. Ch. 2010).

53
cannot introduce evidence at the pleading stage, nor can a court weigh competing

evidence. Therefore, a plaintiff who has alleged facts sufficient to rebut the business

judgment rule and support an inference of unfairness will survive a Rule 12(b)(6)

motion.153

The Complaint’s allegations about the Class F Financing do not implicate

enhanced scrutiny, so the business judgment rule presumptively applies. The

Complaint’s allegations, however, rebut the business judgment rule’s presumptions

and therefore trigger entire fairness. The Complaint’s allegations also support an

inference of unfairness. The fiduciary claims against the directors survive pleading-

stage dismissal.

2. The Standard Of Review And The Class F Financing

The Class F Financing was an interested transaction to which the entire

fairness test inferably applies. At the time of the Class F Purchase Agreement, ten

directors comprised the Board. The Complaint fails to plead facts sufficient to raise

an inference that four were conflicted. They are Sferruzza, Brun, Krzanich, and

Daly.154 The Complaint pleads facts sufficient to raise an inference that four were

153 NEA, 292 A.3d at 159–60.

154 The plaintiffs challenge Daly’s independence because he was ZenCap’s
designee, but that alone is not enough. See, e.g., Aronson, 473 A.2d at 816 (“[I]t is not
enough to charge that a director was nominated by or elected at the behest of those
controlling the outcome of a corporate election. That is the usual way a person
becomes a corporate director. It is the care, attention and sense of individual
responsibility to the performance of one’s duties, not the method of election, that
generally touches on independence.”); Goldstein v. Denner, 2022 WL 1671006, at *2

54
conflicted. They are Thompson, Bettegowda, Kirsten, and Easler. That leaves the

final two directors, one of whom was a senior officer and the other who resigned as a

senior officer in January 2023, just before the Class F Financing. Although Delaware

cases do not appear to have addressed this exact situation before, it is reasonable to

infer at the pleading stage that the remaining member of management was interested

in the Class F Financing, resulting in the Board lacking a disinterested and

independent majority. Entire fairness therefore inferably applies.

a. Thompson, Bettegowda, Kirsten, And Easler

The plaintiffs seek to call into question the disinterestedness of Thompson,

Bettegowda, Kirsten, and Easler by alleging that each is a dual fiduciary. In

Weinberger, the Delaware Supreme Court famously held that there is “no dilution” of

the duty of loyalty when a director “holds dual or multiple” fiduciary roles. 155 “If the

interests of the beneficiaries to whom the dual fiduciary owes duties are aligned, then

(Del. Ch. May 26, 2022) (“Although a director’s nomination to a board standing alone
is not enough to call into question the director’s independence from the nominating
party, a pattern of facts surrounding the director’s service can do the trick.”); In re
Viacom Inc. S’holders Litig., 2020 WL 7711128, at *21 n.238 (Del. Ch. Dec. 29, 2020)
(“The Viacom Committee Defendants contend the mere fact a director was appointed
to the board by an interested stockholder does not alone compromise that director’s
independence. . . . I agree.”); In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980,
996 (Del. Ch. 2014) (“It is well-settled Delaware law that a director’s independence is
not compromised simply by virtue of being nominated to a board by an interested
stockholder.”), aff’d sub nom. Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del.
2015).

155 457 A.2d at 710.

55
there is no conflict.”156 But if the interests of the beneficiaries diverge, the fiduciary

faces an inherent conflict of interest. “There is no ‘safe harbor’ for such divided

loyalties in Delaware.”157

Thompson is Cleveland’s CEO. In that capacity, Thompson owes fiduciary

duties to Cleveland. Because of his dual roles, when considering the Class F

Financing, Thompson faced a conflict between doing what was best for the Company

and doing what was best for Cleveland.

The Complaint alleges that the Class F Financing offered Cleveland the

opportunity to acquire a large stake in the Company at a disproportionately low price.

The value Cleveland extracted included the Class F shares, the Koch family’s

redeemed shares, and the Class A-1 shares. It is reasonable to infer at the pleading

stage that the benefits were material to Cleveland. Thompson cannot qualify as

independent and disinterested.

The same is true for Bettegowda, who is Olympus’s managing partner. Like

Thompson, the Class F Financing presented Bettegowda with a conflict between

fulfilling his fiduciary duties to the Company and serving Olympus’s best interests.

Olympus received all of the same non-ratable benefits as Cleveland, except for the

Koch family’s shares. It is reasonable to infer at the pleading stage that the benefits

156 Trados II, 73 A.3d at 46–47; see Van de Walle v. Unimation, Inc., 1991 WL

29303, at *11 (Del. Ch. Mar. 7, 1991).

157 Weinberger, 457 A.2d at 710.

56
were material to Olympus and that Bettegowda cannot qualify as independent and

disinterested.

The same is true for Kirsten, who is a non-executive director with Movendo

and inferably owes fiduciary duties to Movendo in that capacity. Movendo received

all of the same non-ratable benefits as Olympus. It is reasonable to infer at the

pleading stage that the benefits were material to Movendo and that Kirsten cannot

qualify as independent and disinterested.

The same is true for Easler as the founder and principal of Zenfinity, the entity

that controls ZenCap. In the Class F Financing, ZenCap received material, non-

ratable benefits in the form of a $10 million share redemption and a favorable share

conversion. It is reasonable to infer at the pleading stage that the benefits were

material to ZenCap and that Easler cannot qualify as independent and disinterested.

b. Chung

There are thus four interested directors and four disinterested directors. If the

Board only had eight members, then the requisite disinterested and independent

majority would not exist, and entire fairness would apply.158 Here, however, there are

two additional directors: Chung, the Chief Technology Officer, and Swope, who

158 See Gentile v. Rossette, 2010 WL 2171613, at *7 n.36 (Del. Ch. May 28, 2010)

(“A board that is evenly divided between conflicted and non-conflicted members is not
considered independent and disinterested.”); see also Beam v. Stewart, 845 A.2d 1040,
1046 n.8 (Del. 2004) (noting for demand futility purposes that a board evenly divided
between interested and disinterested directors could not exercise business judgment
on a demand); Beneville v. York, 769 A.2d 80, 85 (Del. Ch. 2000).

57
resigned as CEO in January 2023, just before the Class F Financing. The plaintiffs

do not challenge Swope’s independence, so the standard-of-review analysis turns on

Chung.

Under Delaware law, a fiduciary is not disinterested and independent unless

the fiduciary can exercise independent judgment on the merits.159 Officer-directors

can be interested in a transaction.160 They can also be non-independent. When a

controlling stockholder is present or when the board has an interested majority,

Delaware cases generally infer at the pleading stage that an officer-director cannot

act independently.161 In that setting, there is reason to doubt that the officer would

vote contrary to the interests of the controller or interested majority “without also

pondering whether an affirmative vote would endanger their continued

employment.”162 In addition, as a corporate agent, the officer owes a fiduciary duty of

159 In re Straight Path Commc’ns Inc. Consol. S’holder Litig., 2022 WL 484420,

at *15 (Del. Ch. Feb. 17, 2022) (quoting Pattern Energy, 2021 WL 1812674, at *66).

160E.g., In re EngageSmart, Inc. S’holder Litig., — A.3d —, —, 2026 WL
554442, at *33 (Del. Ch. Feb. 27, 2026); Goldstein, 2022 WL 1671006, at *42–44.

161 See Manti Hldgs., 2022 WL 1815759, at *11 (“Under the great weight of

Delaware precedent, senior corporate officers generally lack independence for
purposes of evaluating matters that implicate the interests of a controller.” (internal
quotation marks omitted)); accord Berteau v. Glazek, 2021 WL 2711678, at *20 (Del.
Ch. June 30, 2021); EZCORP, 2016 WL 301245, at *35.

162 Mizel, 1999 WL 550369, at *3.

58
obedience to the decision of the board majority.163 That duty adds another pleading-

stage reason to doubt that an officer could act contrary to a board majority.

Listing standards are also informative. Until the Safe Harbor Amendments,

the independence standards established by stock exchanges operated as persuasive

authority for evaluating independence or disinterestedness, but did not have legal

effect.164

163 E.g., Firefighters’ Pension Sys. of City of Kan. City v. Found. Bldg. Materials,

Inc., 318 A.3d 1105, 1138 (Del. Ch. 2024) (noting that officers are agents and
explaining that “[w]hen the board has made a decision, the duty of obedience may
require compliance with that decision, even if the officer might independently have
followed a different course”); see generally Arxada Hldgs. NA Inc. v. Harvey, 351 A.3d
519, 571–73 (Del. Ch. 2026) (discussing duty of obedience).

164 E.g., Kahn v. M & F Worldwide Corp., 88 A.3d 635, 648 n.26 (Del. 2014)

(agreeing with Court of Chancery that “directors’ compliance with NYSE
independence standards ‘does not mean that they are necessarily independent under
[Delaware] law in particular circumstances’”), overruled on other grounds by Flood v.
Synutra Int’l, Inc., 195 A.3d 754 (Del. 2018); Teamsters Union 25 Health Servs. & Ins.
Plan v. Baiera, 119 A.3d 44, 61 (Del. Ch. 2015) (“[A] board’s determination of director
independence under the NYSE Rules is qualitatively different from, and thus does
not operate as a surrogate for, this Court’s analysis of independence under Delaware
law for demand futility purposes.”); In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 941
& n.62 (Del. Ch. 2003) (citing listing standards and observing that “even the best
minds have yet to devise across-the-board definitions that capture all the
circumstances in which the independence of directors might reasonably be
questioned. By taking into account all circumstances, the Delaware approach
undoubtedly results in some level of indeterminacy, but with the compensating
benefit that independence determinations are tailored to the precise situation at
issue.”); see Yucaipa Am. All. Fund II, L.P. v. Riggio, 1 A.3d 310, 315 (Del. Ch. 2010)
(“I do not lightly ignore [that Del Giudice had been determined to be independent
under the NYSE listing standards], but on the limited record before me I cannot
conclude that the business and political ties between Del Giudice and Riggio render
Del Giudice independent of Riggio.”), aff’d, 15 A.3d 218 (Del. 2011) (TABLE).

59
Under the New York Stock Exchange Rules, a listed company must have a

majority of independent directors,165 and an employee of a listed company cannot

qualify as an independent director.166 Under the Nasdaq listing standards, a majority

of a listed company’s board of directors must be comprised of independent directors,167

and an employee of a listed company cannot be an independent director. 168 The

Company does not have a majority of independent directors, and Chung could not be

independent under the listing standards.

Under Delaware precedent and the persuasive authority of the listing

standards, Chung is inferably not independent for purposes of the decision to approve

the Class F Financing. The Funds were offering financing vital to the Company’s

continued existence, making the transaction essential to Chung’s continued

employment as a senior officer. After the Class F Financing closed, Fund-affiliated

Under the Safe Harbor Amendments, a determination of disinterestedness or
independence under a national listing standard gives rise to a “heightened”
presumption of disinterestedness or independence for purposes of Delaware law that
“may only be rebutted by substantial and particularized facts that such director has
a material interest in such act or transaction or has a material relationship with a
person with a material interest in such act or transaction.” 8 Del. C. § 144(d)(2). The
Safe Harbor Amendments do not address what effect, if any, a finding of non-
independence has, but inferably it should carry comparable weight.

165 New York Stock Exchange Listed Company Manual Rule 303A.01.

166 Id. 303A.02(b)(i).

167 Nasdaq Listed Company Manual Rule 5605(b)(1).

168 Id. 5605(a)(2)(A).

60
directors would comprise three of the four-member Board, and Chung would owe a

duty of obedience to that Board majority. On those pled facts, it is reasonably

conceivable that Chung could not have considered the Class F Financing purely on

its merits and would inferably have sided with the Fund-affiliated directors.

c. Entire Fairness Applies.

Five of the ten directors inferably faced a conflict of interest for purposes of the

Class F Financing. The plaintiffs therefore succeeded in rebutting the business

judgment rule. Entire fairness inferably applies to the Class F Financing.

3. A Pled Claim Under The Entire Fairness Standard

The plaintiffs have pled claims for breach of fiduciary duty under the entire

fairness standard. That standard of review is a singular test with interwoven

substantive and procedural dimensions. Although the two aspects may be examined

separately, they are not separate elements. “All aspects of the issue must be examined

as a whole since the question is one of entire fairness.”169

The substantive dimension of the fairness inquiry examines the transactional

result. The cases that developed the entire fairness test historically involved freeze-

outs or squeeze-outs. The earliest freeze-outs involved corporations selling all of their

assets for a package of consideration, typically cash, then dissolving and distributing

169 Weinberger, 457 A.2d at 711.

61
the net cash to stockholders.170 After mergers became the preferred transactional

vehicle, the leading cases involved squeeze-outs in which the minority shares were

converted into the right to receive a specific amount of cash.171 The substantive

fairness of the transaction therefore largely turned on the price that the minority

stockholders received, and “fair price” became the dominant nomenclature for the

substantive dimension. In that setting, the fair price inquiry generally involved

comparing what the stockholders received with their proportionate share of the

corporation’s value as a going concern. Thus, in the canonical framing, fair price

“relates to the economic and financial considerations of the proposed merger,

including all relevant factors: assets, market value, earnings, future prospects, and

any other elements that affect the intrinsic or inherent value of a company’s stock.”172

But the substantive dimension of the entire fairness inquiry has never been narrowly

focused on price. The true “test of fairness” is whether the minority stockholder

receives at least “the substantial equivalent in value of what he had before.”173

170 See Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1033–35

(Del. Ch. 2020) (describing history of asset sales and mergers).

171 Id. at 1033–34 & n.6.

172 Weinberger, 457 A.2d at 711.

173 Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 114 (Del. 1952); accord

Rosenblatt v. Getty Oil Co., 493 A.2d 929, 940 (Del. 1985) (“[T]he correct test of
fairness is ‘that upon a merger the minority stockholder shall receive the substantial
equivalent in value of what he had before.’” (quoting Sterling, 93 A.2d at 114)); see
Lawrence A. Hamermesh & Michael L. Wachter, The Fair Value of Cornfields in
Delaware Appraisal Law, 31 J. Corp. L. 119, 139 (2005) (arguing for a remedial

62
The procedural dimension of the entire fairness inquiry examines the process

that generated the result. Known as “fair dealing,” it “focuses upon the conduct of the

corporate fiduciaries in effectuating the transaction.”174 The procedural dimension

addresses how the transaction came about and “embraces questions of when the

transaction was timed, how it was initiated, structured, negotiated, disclosed to the

directors, and how the approvals of the directors and the stockholders were

obtained.”175

The procedural dimension matters because the substantive dimension is often

contestable. “The concept of fairness is of course not a technical concept. No litmus

paper can be found or [G]eiger-counter invented that will make determinations of

fairness objective.”176 Instead, a judgment concerning fairness “will inevitably

constitute a judicial judgment that in some respects is reflective of subjective

reactions to the facts of a case.”177 Thus, if fiduciaries successfully replicate arm’s-

standard that “provides the minority shareholders with the value of what was taken
from them”).

174 Kahn v. Tremont Corp. (Tremont II), 694 A.2d 422, 430 (Del. 1997).

175 Weinberger, 457 A.2d at 711.

176 Kahn v. Tremont Corp. (Tremont I), 1996 WL 145452, at *8 (Del. Ch. Mar.

21, 1996) (Allen, C.), rev’d on other grounds, Tremont II, 694 A.2d 422; id. at *1 (“A
fair price is a price that is within a range that reasonable men and women with access
to relevant information might accept.”).

177 Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary III), 663 A.2d 1134,

1140 (Del. Ch. 1994) (Allen, C.), aff’d, Technicolor Plenary IV, 663 A.2d 1156.

63
length bargaining, then that evidence of fair dealing can validate a debatable

outcome. But the opposite is also true: a dubious process can call into question a low

but nominally fair price.178 “Factors such as coercion, the misuse of confidential

information, secret conflicts, or fraud could lead a court to hold that a transaction

that fell within the range of fairness was nevertheless unfair compared to what

faithful fiduciaries could have achieved.”179 When those factors are present, a court

178 See Tremont II, 694 A.2d at 432 (“[H]ere, the process is so intertwined with

price that under Weinberger’s unitary standard a finding that the price negotiated by
the Special Committee might have been fair does not save the result.”); Basho, 2018
WL 3326693, at *37 (“Just as a fair process can support the price, an unfair process
can taint the price.”); Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, 1183 (Del.
Ch. Nov. 4, 1999) (“[T]he unfairness of the process also infects the fairness of the
price.”), aff’d per curiam, 766 A.2d 437 (Del. 2000).

179 ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *19 (Del. Ch. July

21, 2017), aff’d, 184 A.3d 1291 (Del. 2018) (TABLE).

64
may conclude that the transaction is not entirely fair. As a remedy, the court could

award a “fairer price”180 or rescissory damages.181

When entire fairness is the standard of review, and when a plaintiff “alleges

facts making it reasonably conceivable that the transaction was not entirely fair to

stockholders, the granting of a motion to dismiss is inappropriate, because the burden

is on the defendants to develop facts demonstrating entire fairness.”182

The plaintiffs have pled facts supporting the inference that the Class F

Financing was not entirely fair. At the pleading stage, the Complaint’s allegations

180 Id. at *20; accord Reis, 28 A.3d at 467 (“Depending on the facts and the

nature of the loyalty breach, the answer can be a ‘fairer’ price.”); see, e.g., In re Dole
Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *2 (Del. Ch. Aug. 27, 2015)
(finding that controller and his associate had engaged in fraud; holding that “[u]nder
these circumstances, assuming for the sake of argument that the $13.50 price still
fell within a range of fairness, the stockholders are not limited to a fair price. They
are entitled to a fairer price designed to eliminate the ability of the defendants to
profit from their breaches of the duty of loyalty.”); HMG/Courtland Props., Inc. v.
Gray, 749 A.2d 94, 116–17 (Del. Ch. 1999) (finding that although price fell within
lower range of fairness, “[t]he defendants have failed to persuade me that HMG would
not have gotten a materially higher value for Wallingford and the Grossman’s
Portfolio had Gray and Fieber come clean about Gray’s interest. That is, they have
not convinced me that their misconduct did not taint the price to HMG’s
disadvantage.”); Bomarko, 794 A.2d at 1184–85 (holding that although the
“uncertainty [about] whether or not ITI could secure financing and restructure”
lowered the value of the plaintiffs’ shares, the plaintiffs were entitled to a damages
award that reflected the possibility that the company might have succeeded absent
the fiduciary’s disloyal acts).

181 See, e.g., Duncan v. TheraTx, Inc., 775 A.2d 1019, 1023–24 (Del. 2001);

Lynch v. Vickers Energy Corp., 429 A.2d 497, 501–03 (Del. 1981), overruled on other
grounds by Weinberger, 457 A.2d at 703–04.

182 Salladay v. Lev, 2020 WL 954032, at *8 (Del. Ch. Feb. 27, 2020).

65
call into question the Class F Financing for purposes of the “fair price” dimension of

the entire fairness test. A large valuation gap exists between the agreed-upon equity

value of the Company in the Class F Financing and valuation indications from other

contemporaneous transactions. Most notably, two bridge loans valued the Company

at $1 billion, as did the Apollo Proposal. The Class F Financing afforded the Company

a pre-money valuation of $500 million. The gap is sufficient to support a pleading-

stage inference of financial unfairness.

The plaintiffs have also pled facts sufficient to call the procedural dimension

into question. In Weinberger, the Delaware Supreme Court held that the entire

fairness test requires compliance with the duty of disclosure and incorporated this

principle into the fair dealing dimension.183 On the facts of the case, the Weinberger

court held that “[m]aterial information, necessary to acquaint [the minority]

shareholders with the bargaining positions of [the majority stockholder], was

withheld under circumstances amounting to a breach of fiduciary duty.”184 The

183 The Weinberger decision referred to the duty of disclosure as the “duty of

candor.” 457 A.2d at 711. The Delaware Supreme Court coined this phrase in Lynch
v. Vickers Energy Corp. (Vickers I), 383 A.2d 278, 281 (Del. 1977). Delaware decisions
used it consistently until Stroud v. Grace, 606 A.2d 75 (Del. 1992), when the Delaware
Supreme Court criticized the term as potentially misleading. The Stroud court
clarified that the duty of candor “represents nothing more than the well-recognized
proposition that directors of Delaware corporations are under a fiduciary duty to
disclose fully and fairly all material information within the board’s control when it
seeks shareholder action.” Id. at 84. After Stroud, the prevailing Delaware
terminology shifted from the “duty of candor” to the “duty of disclosure.”

184 457 A.2d at 703.

66
Delaware Supreme Court “therefore conclude[d] that this merger does not meet the

test of fairness.”185

Here, the Company distributed the Term Sheet to stockholders, but it failed to

disclose the depressed valuation attributed to the Company for the Class F Financing.

It failed to disclose adequately that two bridge loans used a $1 billion valuation for

the Company, rather than the $500 million valuation used for the Class F Financing.

That information was material because it directly addressed the fairness of the Class

F Financing.186

The Term Sheet also failed to disclose (1) the $35 million share redemption and

additional potential cash payout for the Koch family, (2) the $10 million payment and

favorable share conversion for ZenCap, (3) the Apollo Proposal, (4) the Shuler

Proposal, (5) the Funds’ favorable share conversions, (6) amendments to the

Company’s charter less than a month earlier that benefitted Cleveland, and (7) the

other non-ratable benefits received by the Funds.

185 Id.; accord Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del.

1985) (“This duty of fairness certainly incorporates the principle that a cash-out
merger must be free of fraud or misrepresentation.”).

186 See, e.g., Gilmartin v. Adobe Res. Corp., 1992 WL 71510, at *10 (Del. Ch.

Apr. 6, 1992) (“[I]t is axiomatic that the fairness of the consideration offered in a
merger or tender offer is material to a shareholder considering whether to vote in
favor of the transaction.”).

67
4. The Implications Of The Opportunity To Participate

The defendants respond that the Class F Financing cannot constitute a breach

of fiduciary duty or be subject to entire fairness because they gave all of the

Company’s stockholders the opportunity to participate on the same economic terms

as the Funds. That is not a fair characterization of the law or the pled facts.

The idea that an opportunity to participate defeats an entire fairness claim is

traceable to WatchMark.187 There, a preferred stockholder challenged the issuance of

a new series of preferred stock that included a pay-to-play provision under which

preferred stockholders who did not participate would have their shares converted to

common to the pro-rata extent of their non-participation. The court found that all

preferred stockholders had an equal opportunity to participate.188 The court reasoned

that “[a]ny disparate treatment between the preferred stockholders [was] . . . a self-

imposed consequence and not the result of any self-dealing” and held that the

business judgment rule governed.189

187 WatchMark Corp. v. ARGO Glob. Cap. LLC, 2004 WL 2694894 (Del. Ch.

Nov. 4, 2004).

188 Id. at *1, *5.

189 Id. at *5.

68
In some circumstances, an opportunity to participate can be evidence of fair

dealing.190 In other settings, however, a pay-to-play structure can be actionably

coercive and inferably unfair.

“Coercion is a multi-faceted concept in Delaware law. At least five strands of

case law use the term, but the different strands involve different factual scenarios

and approach the concept of coercion in different ways.”191 This case involves

fiduciaries allegedly taking action to coerce their own beneficiaries. By doing so, the

fiduciaries act disloyally. A fiduciary who engages in coercion of its own beneficiaries

“may only avoid a finding of breach by proving that the transaction was nevertheless

entirely fair, notwithstanding the fiduciary’s use of coercion.”192

The seminal case in this line of authority is AC Acquisitions.193 There, a third

party acquirer launched an all-cash, all-shares tender offer for the target company at

$56 per share. In response, the target company board of directors caused the company

190 See In re Dura Medic Hldgs., Inc. Consol. Litig., 331 A.3d 796, 829 (Del. Ch.

2025) (“In some circumstances, an opportunity to participate can be evidence of fair
dealing.”); Cancan Dev., LLC v. Manno, 2015 WL 3400789, at *24 (Del. Ch. May 27,
2015) (finding capital calls were entirely fair where investor “was the only possible
source of funds” and that investor gave other unitholders “the opportunity to
participate on equal terms”), aff’d, 132 A.3d 750 (Del. 2016) (TABLE).

191 In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *20 (Del.

Ch. June 11, 2020) (describing different strands of coercion under Delaware law).

192 Id. at *23.

193 AC Acquisitions Corp. v. Anderson, Clayton & Co., 519 A.2d 103 (Del. Ch.

1986).

69
to offer $60 per share in cash for approximately 65% of its stock.194 The board sought

to justify the partial self-tender offer “as the creation of an option to shareholders to

permit them to have the benefits of a large, tax-advantaged cash distribution together

with a continuing participation in a newly-structured, highly-leveraged Anderson,

Clayton.”195 Chancellor Allen accepted that some stockholders, if able to choose freely,

might prefer the company’s offer, and he agreed that “[t]he creation of such an

alternative, with no other justification, serves a valid corporate purpose.”196

Chancellor Allen nevertheless issued a preliminary injunction against the self-

tender offer, concluding that it was structurally coercive. He explained that “[i]f all

that defendants have done is to create an option for shareholders, then it can hardly

be thought to have breached a duty.”197 He further explained that if that option was

“so attractive to shareholders as to command their majority approval, that fact alone,

while disappointing to [the third party acquirer], can hardly be thought to render the

Board’s action wrongful.”198 But the board’s self-tender offer was problematic because

no rational stockholder could risk accepting the third-party offer and failing to tender

into the company’s partial self-tender offer:

194 Id. at 104.

195 Id. at 112.

196 Id.

197 Id. at 113.

198 Id.

70
The record is uncontradicted that the value of the Company’s stock
following the effectuation of the Company Transaction will be materially
less than $60 per share. . . . What is clear . . . is that a current
shareholder who elects not to tender into the self-tender is very likely,
upon consummation of the Company Transaction, to experience a
substantial loss in market value of his holdings. The only way, within
the confines of the Company Transaction, that a shareholder can protect
himself from such an immediate financial loss, is to tender into the self-
tender so that he receives his pro rata share of the cash distribution that
will, in part, cause the expected fall in the market price of the Company’s
stock.199

The board therefore had not presented stockholders with a choice. It had created a

coercive structure that forced rational stockholders into its favored alternative.200

Chancellor Allen concluded that the business judgment rule would not apply

to the coercive partial self-tender offer and that the transaction could only be

sustained “if it is objectively or intrinsically fair.”201 Because of the difficulties the

defendants would face in proving that the transaction was entirely fair, he issued a

preliminary injunction blocking the partial self-tender offer.202

199 Id. at 113–14.

200 Id. Notably, this was the same basic structure presented by Katz v. Oak

Indus., Inc., 508 A.2d 873 (Del. Ch. 1986), where holders of the company’s debt could
not rationally decline to tender lest they be left with securities stripped of important
legal protections. In the context of the arm’s-length, contractual relationship in Katz,
that structure did not give rise to an actionable wrong. In the context of a fiduciary
relationship, it suggested a breach of the duty of loyalty.

201 AC Acquisitions, 519 A.2d at 115.

202 Id. at 115–16. Chancellor Allen did not enjoin the entire transaction
pending trial. He rather suggested that he would issue a targeted injunction, “limited
in time and perhaps conditional in nature,” that “would strive to remove the coercive
aspects of the Company Transaction” by requiring the company to keep the

71
The AC Acquisitions case dealt with fiduciaries who structured a transaction

so that the second step would be demonstrably worse for stockholders who did not

accept their fiduciaries’ chosen alternative. Other cases demonstrate that fiduciaries

can coerce stockholders by threatening to make their situation worse.

The leading example is Lacos Land, where a board of directors recommended

that stockholders approve the creation of a new class of Class B common stock that

enjoyed ten votes per share and was entitled to elect 75% of the members of the board

of directors, but carried diminished dividend rights and had limited transferability.203

The company contemporaneously offered to exchange any shares of the company’s

Class A common stock for the new Class B shares.204 Although nominally available

to all stockholders, the new shares were most attractive to the company’s CEO, who

owned 16.9% of the Class A shares and could increase his voting power to 67.7% of

the outstanding by exchanging all of his shares.205

A holder of Class A common stock sought a preliminary injunction against the

recapitalization. The transaction itself was not structurally coercive, because the

transaction open for a short period, such as thirty days, so that any stockholder who
wished could tender into the third-party offer and still be free to participate in the
company’s self-tender offer if the third-party offer failed to close. Id. at 116. That form
of relief would not appear to be viable today. See C & J Energy Servs., Inc. v. City of
Mia. Gen. Emps.’ & Sanitation Emps.’ Ret. Tr., 107 A.3d 1049, 1071 (Del. 2014).

203 Lacos Land Co. v. Arden Gp., Inc., 517 A.2d 271, 272–73 (Del. Ch. 1986).

204 Id. at 272–74.

205 Id. at 274–75.

72
stockholders theoretically could block it by voting against the charter amendments

necessary to create the new Class B shares. Chancellor Allen nevertheless held that

the CEO had created a coercive environment by threatening that if the

recapitalization was not approved, then he might exercise his powers, including the

powers he held as a fiduciary, to thwart corporate transactions that might otherwise

be in the Company’s best interests.206 As a result of these threats, the “board in

recommending the charter amendments and [the] shareholders in approving them

were both placed, inappropriately, in a position that made it significantly less likely

than it might otherwise have been that approval of the plan to effectively transfer all

shareholder power to [the CEO] would have been given.”207 Other cases illustrate the

same general principle, while exploring the distinction between statements that can

legitimately be viewed as threats and truthful disclosures about the unattractive

consequences of rejecting a transaction.208

206 Id. at 276, 278–79.

207 Id. at 276.

208 Compare Eisenberg v. Chi. Milwaukee Corp., 537 A.2d 1051, 1062 (Del. Ch.

1987) (holding that inaccurate disclosures rendered a self-tender offer coercive), with
Williams v. Geier, 671 A.2d 1368, 1382–83 (Del. 1996) (explaining that a fiduciary is
obligated to give truthful disclosures about the negative consequences of a particular
course of action, even if they may dissuade stockholders from adopting it), and
Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A.2d 104, 120–21 (Del. Ch.
2007) (“Accurately disclosing circumstances or realities surrounding a [transaction] .
. . is not actionably coercive.”).

73
Under this strand of Delaware law, coercion exists when a fiduciary has taken

action that causes its beneficiaries to act—whether by voting or making an

investment decision like tendering shares—for some reason other than the merits of

the proposed transaction.209 If stockholders can reject the transaction and maintain

the status quo, then the transaction is not coercive.210 The status quo may be

undesirable or unpleasant, but that fact does not make the transaction coercive.211

As in AC Acquisitions, “[i]f all that defendants have done is to create an option for

shareholders, then it can hardly be thought to have breached a duty.”212

209 See Williams, 671 A.2d at 1382–83 (“Wrongful coercion may exist where the

board or some other party takes actions which have the effect of causing the
stockholders to vote in favor of the proposed transaction for some reason other than
the merits of that transaction.”); Weiss v. Samsonite Corp., 741 A.2d 366, 372 (Del.
Ch.) (“A tender offer that is ‘actionably’ or ‘wrongfully’ coercive is one that . . . induces
shareholders who were the victims of inequitable action to tender for reasons
unrelated to the economic merits of the offer.”), aff’d, 746 A.2d 277 (Del. 1999)
(TABLE); see also In re Marriott Hotel Props. II Ltd. P’ship, 2000 WL 128875, at *18
(Del. Ch. Jan. 24, 2000) (dismissing coercion claim at pleading stage where complaint
did not allege a “threatened bad consequence resulting from the conduct of [the
defendants] that compelled a decision to tender”).

210 See Gen. Motors Class H, 734 A.2d at 620.

211 See Solomon v. Armstrong, 747 A.2d 1098, 1131–32 (Del. Ch. 1999), aff’d,

746 A.2d 277 (Del. 2000) (TABLE); Gen. Motors Class H, 734 A.2d at 621.

212 AC Acquisitions, 519 A.2d at 113. The status quo need not be precisely

identical to the stockholders’ former position. See Gradient, 930 A.2d at 119 (“Keeping
the shareholders in the ‘same’ position . . . does not require an ‘identical’ position” but
only that stockholders are not “forced into ‘a choice between a new position and a
compromised position’ for reasons other than those related to the economic merits of
the decision.” (quoting Gen. Motors Class H, 734 A.2d at 621)). The corporation’s
condition may be deteriorating, or it may be necessary for a corporation to expend
funds or make agreements to secure a favorable option for the stockholders. The

74
Under this test, the Class F Financing was coercive. Non-participating

stockholders did not have the opportunity to maintain the status quo. They either

had to invest or have their rights eviscerated.

The foregoing analysis assumes that the Class F Financing was in fact open to

all stockholders on the same terms. But it inferably was not. The Funds filled 90% of

the round themselves, so other investors only had access to the last 10%. Those

investors had only three weeks to make an investment decision, and they had to

return a signed subscription agreement and fund their portion of the deal before they

could access a data room to conduct due diligence. The Board also retained the right

to exclude any prospective investor for any reason. That was not treatment equal to

what the Funds received. They received preferential access to information about the

Company and had the ability to develop and propose the terms of the Class F

Financing.

The Class F Financing was inferably unfair. It was inferably coercive and did

not offer all stockholders an opportunity to participate on the same terms. The

obligation to pay a reasonable termination fee in a merger agreement, for example,
may mean that stockholders cannot freely reject a deal and return precisely to the
pre-deal status quo, but agreeing to pay that fee (and making the other investments
in transaction-related expenses) may be necessary to generate the favorable option.
See, e.g., In re Family Dollar Stores, Inc. S’holder Litig., 2014 WL 7246436, at *8, *11
n.80 (Del. Ch. Dec. 19, 2014); In re Lear Corp. S’holder Litig., 967 A.2d 640, 656–57
(Del. Ch. 2008); In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 997, 1014–22
(Del. Ch. 2005); H.F. Ahmanson & Co. v. Great W. Fin. Corp., 1997 WL 305824, at *8
(Del. Ch. June 3, 1997).

75
plaintiffs have stated a claim for breach of fiduciary duty under the entire fairness

test.

5. Exculpation

The claims for breach of fiduciary duty implicate yet another issue:

exculpation. All of the directors seek dismissal on the basis of exculpation. This

decision dismisses Sferruzza, Brun, Krzanich, and Daly.

Section 102(b)(7) of the Delaware General Corporation Law authorizes a

certificate of incorporation that shields directors from monetary liability for a breach

of the duty of care.213 The Company’s certificate of incorporation contains an

exculpation provision.214

Since 2015, “[a] plaintiff seeking only monetary damages must plead non-

exculpated claims against a director who is protected by an exculpatory charter

provision to survive a motion to dismiss, regardless of the underlying standard of

review for the board’s conduct—be it Revlon, Unocal, the entire fairness standard, or

the business judgment rule.”215 To plead a non-exculpated claim, a complaint must

allege “facts supporting a rational inference” that the director (1) “harbored self-

interest adverse to the stockholders’ interests,” (2) “acted to advance the self-interest

213 1 David A. Drexler et al., Delaware Corporation Law and Practice § 6.02[7],

at 6-18 (2022); accord Presidio, 251 A.3d at 253 & n.5.

214 Dkt. 65, Ex. 18, art. IX.

215 Cornerstone, 115 A.3d at 1175–76 (footnotes omitted).

76
of an interested party from whom they could not be presumed to act independently,”

or (3) “acted in bad faith.”216

“[E]ach director has a right to be considered individually.”217 “So applied, the

existence of an exculpatory provision operates more in the nature of an immunity,

comparable to the extent to which sovereign immunity typically protects government

employees from suit, rather than as an affirmative defense.”218

The Complaint fails to plead a non-exculpated claim against Sferruzza, Brun,

Krzanich, and Daly. Each is facially independent and disinterested, so the Complaint

would have to allege facts supporting an inference that they nevertheless acted

disloyally or in bad faith.219 It falls short.

The duty of loyalty requires that disinterested, independent directors act in

good faith.220 A director fails to act in good faith when “the fiduciary intentionally

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

corporation.”221 A plaintiff can call into question a director’s good faith by pleading

216 Id. at 1179–80.

217 Id. at 1182–83.

218 In re EZCORP Inc. Consulting Agreement Deriv. Litig., 130 A.3d 934, 940

(Del. Ch. 2016).

219 Cornerstone, 115 A.3d at 1179–80.

220 In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL 3044721, at

*1 (Del. Ch. May 20, 2016).

221 Disney II, 906 A.2d at 67.

77
facts supporting an inference that the director acted for some other purpose. 222 Bad

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

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

the corporation,” including greed, “hatred, lust, envy, revenge, . . . shame or pride.”223

A director can also act in bad faith by engaging in an “intentional dereliction of duty”

such as by showing a “conscious disregard for one’s responsibilities.”224

The standard for bad faith is not whether the action taken is “so beyond the

bounds of reasonable judgment that it seems essentially inexplicable on any other

ground.”225 The Delaware Supreme Court rejected that standard in Kahn v. Stern,

where the justices considered an appeal from a decision that declined to draw a

222 Id. at 53 (noting that Delaware law “clearly permits a judicial assessment

of director good faith” at the pleading stage); accord eBay, 16 A.3d at 40.

223 In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *15 (Del. Ch. Jan.

31, 1989) (Allen, C.); see Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003)
(“The 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.”).

224 Disney II, 906 A.2d at 66; accord Lyondell Chem. Co. v. Ryan, 970 A.2d 235,

240 (Del. 2009).

225 Leung v. Schuler, 2000 WL 1478538, at *6 (Del. Ch. Oct. 2, 2000), aff’d, 783

A.2d 124 (Del. 2001) (TABLE), abrogated by Brinckerhoff v. Enbridge Energy Co.,
Inc., 159 A.3d 242, 258–60 (Del. 2017), and Kahn v. Stern, 183 A.3d 715, 715 (Del.
2018) (TABLE).

78
pleading-stage inference that directors had acted in bad faith.226 While agreeing with

the result, Chief Justice Strine went out of his way to state that

to the extent that the Court of Chancery’s decision might be read as
suggesting that a plaintiff in this context must plead facts that rule out
any possibility other than bad faith, rather than just pleading facts that
support a rational inference of bad faith, we disagree with that
statement.227

In support, he cited Brinckerhoff, a 2017 decision in which the Delaware Supreme

Court overruled an earlier precedent in which the justices had used the standard of

“so far beyond the bounds of reasonable judgment that it seems essentially

inexplicable on any ground other than bad faith.”228 The Brinckerhoff decision held

that to plead action not in good faith, a plaintiff need only plead facts supporting an

inference that the defendant did not reasonably believe that the transaction was in

the best interests of the entity or its equity holders.229

To be sure, showing that conduct is “inexplicable on any ground than bad faith”

remains one means of establishing bad faith, but a plaintiff is not required to plead

facts meeting that standard to survive a motion to dismiss. A plaintiff need not “plead

facts that rule out any possibility other than bad faith.”230 At trial, a plaintiff need

226 Kahn, 183 A.3d at 715.

227 Id.

228 Id. at 715 n.5 (citing Brinckerhoff, 159 A.3d at 258–60).

229 Brinckerhoff, 159 A.3d at 258–60.

230 Kahn, 183 A.3d at 715.

79
not rule out other explanations; the plaintiff need only show by a preponderance of

the evidence that the fiduciary acted for a purpose other than the best interest of the

corporation.231 Likewise, at the pleading stage, a plaintiff need only plead facts

supporting a reasonably conceivable inference that the fiduciary acted for a purpose

other than the best interest of the corporation.

Here, the plaintiffs have not pled enough. They allege generally that the

directors acted disloyally and in bad faith by approving the Class F Financing to

advance the interests of the Funds. They allege that, “upon information and belief,”

“it is reasonable to assume, based on the circumstances, that [the Funds] gave

[Krzanich, Chung, Daly, Easler, and Brun] something of value to approve the

transaction, consistent with how [the Funds] secured approval of the transaction from

ZenCap and Koch.”232 They also allege that the directors received a material, non-

ratable benefit from the Class F Financing because they avoided liability for Koch-

related claims that were settled after they approved the transaction.

The Complaint’s allegations do not support an inference that Sferruzza, Brun,

Krzanich, or Daly acted disloyally or in bad faith. The Complaint’s allegations against

them could at most support an exculpated breach of the duty of care. The allegation

231 See Brinckerhoff, 159 A.3d at 259–60.

232 Compl. ¶ 123.

80
that any directors received “something of value” from the Funds in exchange for

approving the Class F Financing lacks factual support.233

The Complaint’s allegations also do not support an inference that the directors

faced a non-exculpated claim advanced by the Koch family. Absent some insight into

the nature of the claim, the release of Koch’s claims does not translate into a material

director-level benefit.

Sferruzza, Brun, Krzanich, and Daly are therefore dismissed. The dismissal is

necessarily interlocutory. If discovery shows that any of these directors had a more

significant and compromising role, then subject to the law of the case doctrine, the

plaintiffs could seek to revisit the dismissal, if good cause exists for doing so.234

233 Allegations “upon information and belief” need not be accepted as true when

unsupported by well-pled facts. See, e.g., O’Gara v. Coleman, 2020 WL 752070, at *6
(Del. Ch. Feb. 14, 2020) (“The Amended Complaint also makes several allegations
‘upon information and belief’ to link Coleman, Hunter, and Binkley in an alleged
conspiracy. . . . Neither allegation is supported by or inferred from well-pleaded facts
in the Amended Complaint, and the Court thus need not accept them as true.”);
Griffin Corp. Servs., LLC v. Jacobs, 2005 WL 2000775, at *6 (Del. Ch. Aug. 11, 2005)
(addressing one of plaintiffs’ allegations made only “[u]pon information and belief”
and concluding that “[s]uch a bald statement, without further factual allegations to
support it, is merely conclusory and need not be accepted as true” (citing Haber v.
Bell, 465 A.2d 353, 357 (Del. Ch. 1983))).

234 See Zirn v. VLI Corp., 1994 WL 548938, at *2 (Del. Ch. Sept. 23, 1994)

(“Once a matter has been addressed in a procedurally appropriate way by a court, it
is generally held to be the law of that case and will not be disturbed by that court
unless compelling reason to do so appears.”).

81
a. Thompson, Bettegowda, Kirsten, Easler, And Chung

When the entire fairness standard “is invoked at the pleading stage, the

plaintiffs will be able to survive a motion to dismiss by interested parties regardless

of the presence of an exculpatory charter provision because their conflicts of interest

support a pleading-stage inference of disloyalty.”235 This decision has already found

that entire fairness applies because Thompson, Bettegowda, Kirsten, Easler, and

Chung were inferably not disinterested and independent. The same pleading-stage

rulings apply to exculpation. Thompson, Bettegowda, Kirsten, Easler, and Chung are

not entitled to exculpation because it is reasonably conceivable that they acted to

advance the self-interest of an interested party.

6. The Duplicative Claims Argument

The defendants argue that the plaintiffs cannot assert breach of fiduciary duty

claims against the directors in Counts V to VIII because even if the allegations of the

Complaint support those claims, they are “merely restated versions” of the breach of

the implied covenant claim that this court addressed separately.236 Of course, the

defendants maintained that the plaintiffs did not state and could not prove a claim

for breach of the implied covenant. They nevertheless argued that by asserting an

implied covenant claim, the plaintiffs made an election. Under the defendants’

235 See Cornerstone, 115 A.3d at 1180–81.

236 Dkt. 64 at 57.

82
modern-day reprise of form pleading, the plaintiffs chose a claim for breach of the

implied covenant and, having made that choice, could not resort to another.

a. A Refresher On Pleading Doctrine

In language whose significance may have faded with the passage of time, Court

of Chancery Rule 2 states, “There is one form of action—the civil action.”237

Implemented when Delaware adopted the federal rules, Rule 2 tracks its federal

model. The adoption of Rule 2 had several important consequences. In the federal

system, Rule 2 both merged the separate systems of law and equity and abolished

any remaining vestige of the forms of action.238 In Delaware, which maintained its

separate court of equity, Rule 2 did not have the first effect, but it did have the second.

Form pleading developed under the English common law. A plaintiff who

wished to file suit in the Court of Common Pleas or before the King’s Bench “had to

purchase a royal writ . . . to authorize the commencement of proceedings.”239 The

clerks “kept model writs to be copied as requested by individual plaintiffs.”240 To bring

a case, a plaintiff had to use one of the model writs, although in an exceptional case

237 Ct. Ch. R. 2.

238 4 Charles Alan Wright, Arthur R. Miller & Adam N. Steinman, Federal

Practice and Procedure §§ 1042–1044 (4th ed.), Westlaw (database updated Apr.
2026).

239 J.H. Baker, An Introduction to English Legal History 49 (2d ed. 1979).

240 Daniel R. Coquillette, The Anglo-American Legal Heritage 151 (2d ed. 2004).

83
a clerk could issue a new writ if “consonant with reason and not contrary to the law,

provided it has been granted by the King and approved by his council.”241

Over time, however, so many writs arose that a request for a new writ “was

seen as something of a grievance.”242 By 1300, the available writs had largely become

fixed.243 If the plaintiff could not find a writ that applied to his situation, then “he

was without remedy as far as the two benches (King’s Bench and Common Pleas)

were concerned.”244

The selection of a writ was not only necessary to commence the case.

The choice of writ governed the whole course of litigation from beginning
to end, and the plaintiff selected the most appropriate writ at his peril.
. . . The classification of writs was therefore more than just a convenience
for reference purposes; it was a classification of all the procedures, and
in course of time of the substantive principles, of the common law.245

Because the different writs resulted in the application of different law and procedure,

the writs became known as “forms of action.”246

Using a famous dueling metaphor, two commentators emphasized the

consequences of choosing a particular form:

241 Id. (quoting Henry de Bracton, De Legibus et Consuetudinibus Regni
Angliae [On the Laws and Customs of England], fol. 413b).

242 Baker, supra, at 51.

243 Coquillette, supra, at 151.

244 Id. at 152.

245 Baker, supra, at 51–52.

246 Id. at 52.

84
[The collection of forms] contains every weapon of medieval warfare
from the two-handed sword to the poniard. The man who has a quarrel
with his neighbor comes thither to choose his weapon. The choice is
large; but he must remember that he will not be able to change weapons
in the middle of the combat and also that every weapon has its proper
use and may be put to none other. If he selects a sword, he must observe
the rules of sword-play; he must not try to use his crow-bow as a mace.
To drop metaphor, our plaintiff is not merely choosing a writ, he is
choosing an action, and every action has its own rules.247

Even as some jurisdictions sought to update their rules of pleading, the plaintiff’s

obligation to plead a single route to relief persisted under a concept known as the

“theory of the pleadings.”248 As with the common law writs, this doctrine required

that a complaint “proceed upon some definite theory, and on that theory the plaintiff

must succeed, or not succeed at all.”249

Under these approaches to pleading, “[a]lternative and hypothetical pleading

generally was not permitted.”250 The underlying rationale was that a plaintiff needed

to plead with “certainty in the hope of apprising the adversary of the precise issues

involved in the litigation.”251 But it had many negative consequences:

As a result, a party was required to elect a particular set of facts and a
legal theory at the pleading stage. Unfortunately, this forced a litigant
to set forth his allegations with a degree of certainty that often was not
warranted in terms of the state of the pleader’s knowledge at that point

247 2 Sir Frederick Pollock & Frederic William Maitland, The History of English

Law Before the Time of Edward I, at 588–89 (2d ed. 1898).

248 See 5 Wright & Miller, supra, § 1219.

249 Mescall v. Tully, 91 Ind. 96, 99 (1883).

250 5 Wright & Miller, supra, § 1282.

251 Id.

85
in the case. If the facts he asserted in the pleadings were not confirmed
by later proof, the action or defense would fail even if the proof
demonstrated a right to relief or defense on some other theory.252

The adoption of Rule 2 abrogated these concepts. After the adoption of the rule, “the

common law forms of action have lost all significance, and it no longer is a basis for

objection that the relief sought is inconsistent with the theory of the complaint or that

the relief granted was not demanded in the pleadings.”253

In Delaware, the adoption of Rule 2 carried particular significance. Unlike the

federal courts, the New York courts, and some other states that had moved away from

the common law system, Delaware still followed the rules of common law pleading:

Before 1948, Delaware adhered to the common law system of pleading
as it had been developed and existed in England at the time of the
separation of the American colonies. In England, in 1834, important
changes had been made by the Hilary Rules and the later Procedural
Acts. But in Delaware, the changes in pleading thereby effected were
disregarded and, except for few statutory or constitutional
modifications, the common law system of pleading as it existed at the
time of our independence was the system of pleading in use. Our practice
and procedure were still controlled by the Statute of 27 Elizabeth c. 5
and the Statute of 4 Anne c. 16. Prior to 1948, we dealt with the
replication de injuria, the similiter, the absque hoc, the negative
pregnant and the action of detinue. We concerned ourselves with pleas
of nul tiel record and the court was called upon to announce that the
opposite party “may not traverse the inducement of a special
traverse.”254

252 Id.

253 4 Wright & Miller, supra, § 1044.

254 Daniel L. Herrmann, The New Rules of Procedure in Delaware, 18 F.R.D.

327, 336–37 (1956) (footnote omitted).

86
It was in 1948, through the adoption of the Court of Chancery Rules and the

analogous Superior Court Rules, that Delaware “shook off the shackles of mediaeval

scholasticism and adopted Rules governing civil procedure modeled upon the Federal

Rules.”255

Looking back on the adoption of the rules after nearly a decade of use, Chief

Justice Herrmann explained that the purpose of adopting the Rules was “the

elimination of the fine technicalities of pleading.”256 Continuing, he explained that

[n]otice pleading has replaced fully informative common law pleading
and it has been stated that the “theory underlying the present rules is
that a plaintiff must put a defendant on fair notice in a general way of
the cause of action asserted, which shifts to the defendant the burden to
determine the details of the cause of action by way of discovery for the
purpose of raising legal defenses.”257

Pertinent to the current case, Chief Justice Herrmann stressed that “[t]he de-

emphasis upon pleadings and the re-emphasis upon ascertainment of truth is

reflected in the procedure for alternative pleading and the almost automatic

amendment of pleadings.”258

The centerpiece of the operative approach to pleading is Court of Chancery

Rule 8. Dispensing with any requirement to select or plead a particular cause of

255 Id. at 327 (internal quotation marks omitted).

256 Id. at 338.

257 Id. at 342 (quoting Klein v. Sunbeam Corp., 94 A.2d 385, 391 (Del. 1952)).

258 Id. at 338.

87
action, Rule 8 states: “A pleading that states a claim for relief must contain . . . a

short and plain statement of the claim showing that the pleader is entitled to relief;

and . . . a demand for the relief sought, which may include relief in the alternative or

different types of relief.”259 Confirming the abolition of the forms of action, Rule

8(d)(1) states that “[n]o technical form is required.”260

Unlike at common law, Rule 8(d) explicitly permits a party to plead alternative

and even inconsistent theories:

A party may set out two or more statements of a claim or defense
alternatively or hypothetically, either in a single count or defense or in
separate ones. . . . A party may state as many separate claims or
defenses as it has, regardless of consistency.261

The Court of Chancery Rules thus explicitly reject the “single weapon theory” of

common law pleading by permitting pleaders “to choose as many theoretical weapons

as [they] think [their] case needs.”262

b. The Contractual Preclusion Argument

In a throwback to common law pleading, the defendants argue that because

the plaintiffs sought to plead a claim for breach of the implied covenant, the plaintiffs

cannot maintain claims for breach of fiduciary duty. As the defendants see it, by

259 Ct. Ch. R. 8(a).

260 Id. 8(d)(1).

261 Id. 8(d)(2)–(3).

262 John W. Curran, Afterthoughts of the Institute on Federal Rules of Civil

Procedure at Cleveland, July, 1938, 14 Notre Dame L. Rev. 103, 105 (1938).

88
attempting to plead a claim for breach of the implied covenant, the plaintiffs have

selected a weapon that precludes resort to others. That logic conflicts with modern

pleading doctrine. The plaintiffs can plead in the alternative. By this point, the court

has dismissed the implied covenant claim. The fiduciary duty claim can proceed. 263

C. Count X: The Claim For Aiding And Abetting Against The Funds

In Count X, the plaintiffs contend that the Funds aided and abetted the

directors in breaching their fiduciary duties. That count pleads a claim on which relief

can be granted.

1. The Elements Of An Aiding And Abetting Claim

“A claim for aiding and abetting has four elements: (1) the existence of a

fiduciary relationship, (2) a breach of fiduciary duty, (3) knowing participation in that

breach, and (4) damages proximately caused by the breach.”264 “[A] claim for aiding

263 The only other basis for dismissal the defendants raise is that the plaintiffs

cannot assert claims both directly and derivatively. This is another modern-day
reprise of form pleading. The fact that the plaintiffs style their claims as both direct
and derivative is not an adequate basis to dismiss the direct versions at the pleading
stage. The plaintiffs can plead in the alternative.

Regardless, demand is futile, rendering the distinction between direct and
derivative claims meaningless at the pleading stage. The four Current Directors
comprise the demand board. Three of them are dual fiduciaries who were not
disinterested and independent for purposes of the Class F Financing and therefore
face a substantial threat of liability in this action. The court will enter a separate
order to that effect.

264 EngageSmart, 2026 WL 554442, at *35 (citing Malpiede v. Townson, 780

A.2d 1075, 1096 (Del. 2001)).

89
and abetting often turns on meeting the ‘knowing participation’ element.”265 The

“knowing participation” element “involves two concepts: knowledge and

participation.”266

There are two dimensions to the knowledge concept.267 First, the secondary

actor must know that the primary wrongdoer’s conduct constituted a breach.268

Second, the secondary actor must know that its own participation in the wrongful

conduct was legally improper.269 The secondary actor’s conduct need not be wrongful

or tortious in its own right, but the secondary actor must know that it was acting

wrongfully by participating.270

265 Buttonwood Tree Value P’rs, L.P. v. R. L. Polk & Co., Inc., 2017 WL 3172722,

at *9 (Del. Ch. July 24, 2017).

266 Presidio, 251 A.3d at 275.

267 RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 861–62 (Del. 2015).

268 Id.; accord Malpiede, 780 A.2d at 1097 (“Knowing participation in a board’s

fiduciary breach requires that the third party act with the knowledge that the conduct
advocated or assisted constitutes such a breach.”).

269 RBC Cap. Mkts., 129 A.3d at 862.

270 NEA, 292 A.3d at 176 (“The aider and abettor must knowingly assist
another in committing a wrongful act. The means by which an aider and abettor
provides assistance need not be independently wrongful.”); e.g., Found. Bldg., 318
A.3d at 1171 (“The plaintiff has not pled that RBC took action that was independently
wrongful, but that is not required. . . . RBC worked closely with the Lone Star-
affiliated directors to secure proposals that included a maximum Early Termination
Payment. RBC played an integral part in the effort to sell the Company through a
transaction that would trigger the Early Termination Payment. The complaint states
a claim against RBC for aiding and abetting that alleged breach.”).

90
“Because the involvement of secondary actors in tortious conduct can take a

variety of forms that can differ vastly in their magnitude, effect, and consequential

culpability,” the participation concept “requires that the secondary actor have

provided ‘substantial assistance’ to the primary violator.”271 To assess substantial

assistance, Delaware law applies a five-factor test derived from Section 876 of the

Restatement (Second) of Torts. “That framework calls for considering (1) the nature

of the act encouraged, (2) the amount of assistance given by the defendant, (3) his

presence or absence at the time of the tort, (4) his relation to the other, and (5) his

state of mind.”272

Two recent Delaware Supreme Court decisions made the knowing

participation element tougher for both knowledge and participation. In Columbia

Pipeline, the justices held that the aider and abettor’s knowledge “must be actual

knowledge,” not the lower bar of reckless indifference.273 In Mindbody and Columbia

271 Dole Food, 2015 WL 5052214, at *41.

272 EngageSmart, 2026 WL 554442, at *35 (citing Dole, 2015 WL 5052214, at

*42); accord In re Mindbody, Inc., S’holder Litig., 332 A.3d 349, 395–96 (Del. 2024).

273 In re Columbia Pipeline Gp., Inc. Merger Litig., 342 A.3d 324, 368 (Del.

2025). The justices defined “actual knowledge” as “‘clear and direct knowledge.’” Id.
at 356 & n.194 (quoting Deutsche Bank Nat’l Tr. Co. v. Goldfeder, 86 A.3d 1118, 2014
WL 644442, at *2 (Del. 2014) (TABLE) (“Actual knowledge is defined as direct and
clear knowledge. Constructive knowledge is defined as knowledge that one using
reasonable care or diligence should have, and therefore that is attributed by law to a
given person.” (internal quotation marks omitted)). Under RBC Capital, constructive
knowledge was enough. RBC Cap. Mkts., 129 A.3d at 862 (“To establish scienter, the
plaintiff must demonstrate that the aider and abettor had actual or constructive
knowledge that their conduct was legally improper.” (internal quotation marks

91
Pipeline, the justices limited what qualifies as “substantial assistance.” At least for a

third-party acquirer, the plaintiff must plead or prove affirmative conduct, 274 and the

conscious failure to act in the face of a known duty to act is not sufficient. 275 Thus,

“[a]t the pleading stage, a complaint must contain factual allegations supporting a

reasonable inference that the aider and abettor actually knew that the primary

violator’s conduct was a fiduciary breach, actually knew that its own conduct was

legally improper (even if not inherently illegal), and actively participated in the

primary violator’s misconduct.”276

omitted)); id. (explaining that the aider and abettor must act “knowingly,
intentionally, or with reckless indifference” (internal quotation marks omitted)). In
the transition from Mindbody to Columbia Pipeline, the justices also seem to have
wanted more to support a finding of knowledge. Compare Mindbody, 332 A.3d at 397–
98 (“[T]he record, particularly as to the November 6 and November 10 tips, supports
the conclusion that Vista likely knew that the conduct of the primary violator,
Stollmeyer, constituted a breach. This knowledge satisfies the first type of required
knowledge for a finding of scienter.”) with Columbia Pipeline, 342 A.3d at 357 n.198
(rejecting as insufficient the trial court’s finding that “[t]he plaintiffs proved that
TransCanada knew that Skaggs and Smith were engaging in a breach of the duty of
loyalty and that the Board was failing to provide meaningful oversight”).

274 Mindbody, 332 A.3d at 403 & n.137 (holding that a failure to act is
insufficient absent an independent duty between the alleged aider and abettor and
the plaintiff); Columbia Pipeline, 342 A.3d at 368–69 (discussing and adopting the
“affirmative action” requirement in Mindbody).

275 Columbia Pipeline and Mindbody do not address how the new
understanding of the active participation requirement applies to aiders and abettors
other than third-party acquirers. See EngageSmart, 2026 WL 554442, at *41.

276 Id. at *41; accord Calumet Cap. P’rs LLC v. Victory Park Cap. Advisors,

LLC, 353 A.3d 88, 117 (Del. Ch. 2026).

92
Mindbody and Columbia Pipeline were issued on appeal from post-trial

decisions. They also involved third-party acquirers sued for aiding and abetting

breaches of fiduciary duty by sell-side fiduciaries.

When a plaintiff alleges that a third-party acquirer knowingly participated in

a breach of fiduciary duty by sell-side directors, Delaware law imposes an

appropriately high pleading burden because an acquirer is expected to bargain in its

own interest.277 A plaintiff must plead meaningful facts to support an inference that

the acquirer attempted to create or exploit conflicts of interest on the board or

otherwise conspired with the directors to engage in a fiduciary breach. 278 Policy

reasons also lead Delaware to impose a high pleading burden when a plaintiff alleges

that a third-party advisor aided and abetted sell-side directors in breaching their

duties.279

A case involving an affiliate of an allegedly culpable fiduciary presents a

different situation.280 The claim here is simply that the Funds carried out their

277 E.g., Rouse Props., 2018 WL 1226015, at *25 (explaining that the buyer was

“entitled to negotiate the terms of the Merger with only its interests in mind; it was
under no duty or obligation to negotiate terms that benefited [the seller] or otherwise
to facilitate a superior transaction for [the seller]”).

278 See Malpiede, 780 A.2d at 1097–98; In re Del Monte Foods Co. S’holders

Litig., 25 A.3d 813, 837 (Del. Ch. 2011).

279 Singh v. Attenborough, 137 A.3d 151, 152–53 (Del. 2016).

280 See, e.g., MultiPlan, 268 A.3d at 818 (inferring at pleading stage that
affiliate of interested controller who acted as financial advisor for transaction aided
and abetted breach of duty by controller); La. Mun. Police Emps.’ Ret. Sys. v. Fertita,

93
scheme both with and through their Board designees (Thompson, Bettegowda, or

Kirsten).

For purposes of a motion to dismiss under Rule 12(b)(6), a complaint need only

plead facts supporting a reasonable inference of knowledge. 281 Under Rule 9(b), a

plaintiff can plead knowledge generally; “there is no requirement that knowing

participation be pled with particularity.”282 To plead participation, a plaintiff can

plead that the advisor “participated in the board’s decisions, conspired with [the]

board, or otherwise caused the board to make the decisions at issue.” 283 But

“‘[c]onclusory statements that are devoid of factual details to support an allegation of

2009 WL 2263406, at *7 n.27 (Del. Ch. July 28, 2009) (inferring at pleading stage that
affiliated entities that controller used to effectuate an interested transaction
knowingly participated in the breach and were subject to viable claim for aiding and
abetting); see also Dole Food, 2015 WL 5052214, at *39 (holding after trial that
affiliated entities that controller used to effectuate an unfair transaction knowingly
participated in the breach of duty and were jointly and severally liable with controller
for aiding and abetting the breach); In re Emerging Commc’ns, Inc. S’holders Litig.,
2004 WL 1305745, at *38 (Del. Ch. May 3, 2004) (same); Carlton Invs. v. TLC Beatrice
Int’l Hldgs., Inc., 1995 WL 694397, at *15–16 (Del. Ch. Nov. 21, 1995) (Allen, C.)
(denying a motion to dismiss aiding and abetting claims against controlling
stockholder and his affiliates where the complaint alleged “overarching control” by
the stockholder such that the court could “infer[] ‘knowing’ participation” by his
affiliates).

281 See Dent v. Ramtron Int’l Corp., 2014 WL 2931180, at *17 (Del. Ch. June

30, 2014).

282 Id.

283 Malpiede, 780 A.2d at 1098.

94
knowing participation will fall short of the pleading requirement needed to survive a

Rule 12(b)(6) motion to dismiss.’”284

2. Knowing Participation

The defendants do not dispute that the Complaint adequately pleads the

existence of a fiduciary relationship (the first element) and damages proximately

caused by the breach (the fourth element). They contend that the Complaint fails to

adequately plead an underlying breach of fiduciary duty (the second element) and

knowing participation in the breach (the third element).

This decision has already held that Thompson, Bettegowda, and Kirsten

inferably breached their fiduciary duties to the Company.

The Complaint pleads sufficient facts to support the Funds’ knowing

participation in their respective Board designee’s acts. The aiding and abetting claim

in this case is perhaps better understood as a claim for civil conspiracy. Between the

two theories of secondary liability, “aiding and abetting is a cause of action that

focuses on the wrongful act of providing assistance, unlike civil conspiracy that

focuses on the agreement.”285 Delaware cases have viewed aiding and abetting as the

larger, more encompassing theory because it focuses on assistance, which may

284 Jacobs v. Meghji, 2020 WL 5951410, at *7 (Del. Ch. Oct. 8, 2020) (quoting

McGowan v. Ferro, 2002 WL 77712, at *2 (Del. Ch. Jan. 11, 2002)).

285 WaveDivision Hldgs., LLC v. Highland Cap. Mgmt. L.P., 2011 WL 5314507,

at *17 (Del. Super. Nov. 2, 2011), aff’d, 49 A.3d 1168 (Del. 2012).

95
overlap with conspiratorial conduct or exist independent of it.286 “In the fiduciary duty

context, conspiracy is treated essentially as coterminous with aiding and abetting.”287

Consequently, “the confederation requirement includes ‘knowing participation’ in the

conspiracy.”288

The Complaint supports an allegation of knowing participation in the sense of

a conspiracy. Knowledge of Thompson, Bettegowda, and Kirsten’s breaches is

imputed to the Funds because each Board designee inferably acted on its behalf.

Thompson is Cleveland’s founder and CEO. Bettegowda is Olympus’s

managing partner. For them, it is easy to infer an agreement between each Board

designee and his employer to carry out the employer’s scheme.

Kirsten was Movendo’s non-executive director. He therefore faced a conflict as

a dual fiduciary of Movendo and the Company. At the pleading stage, the court can

inferably impute his knowledge to Movendo. At a later stage of the case, Movendo

and Kirsten may show otherwise, but not at the outset of the case.

The participation prong is also satisfied. The Complaint supports an inference

that the Funds actively participated in and supported their Board designee’s actions.

It is inferable that the Funds formulated a plan to get the Class F Financing

286 NEA, 292 A.3d at 177.

287 OptimisCorp v. Waite, 2015 WL 5147038, at *57 (Del. Ch. Aug. 26, 2015),

aff’d, 137 A.3d 970 (Del. 2016) (TABLE).

288 Id.

96
approved. They were present for the Board’s deliberations regarding the Class F

Financing through their designees.

The defendants insist that the plaintiffs offer only conclusory allegations that

the Funds were “in cahoots” with their Board designees.289 That is not an accurate

description. Cleveland employed Thompson. Olympus employed Bettegowda. Kirsten

served on Movendo’s board. The Complaint’s allegations support the inference that

Thompson, Bettegowda, and Kirsten approved the Class F Financing to advance the

interests of the Funds at the expense of the minority stockholders. That is inferably

what each of the Funds wanted each of them to do, and they did it.290

Count X states a claim against the Funds for aiding and abetting Thompson,

Bettegowda, and Kirsten’s breaches of fiduciary duty.

D. Count XI: The Claim For Civil Conspiracy Against The Funds,
Thompson, Bettegowda, And Kirsten

Count XI asserts a claim for civil conspiracy against the Funds, Thompson,

Bettegowda, and Kirsten. That count states a claim on which relief can be granted.

“The elements for civil conspiracy under Delaware law are: (1) a confederation

or combination of two or more persons; (2) an unlawful act done in furtherance of the

289 Dkt. 61 at 37.

290 The defendants also argue that the plaintiffs’ allegation that “it is
reasonable to assume” the Funds gave the directors “something of value to approve”
the Class F financing round is conclusory. Id. This decision has already rejected that
allegation as lacking factual support in the exculpation analysis. That allegation does
not support an inference of knowing participation.

97
conspiracy; and (3) actual damage.”291 A plaintiff pursuing a civil conspiracy claim

must “establish facts suggesting ‘knowing participation’ among the conspiring

partners,” which can be accomplished by showing “a meeting of the minds on the

object or course of action.”292 Although Rule 9(b) requires a fraud claim to be pled

with particularity, “[t]he existence of a confederation may be pled by inference [and]

is not subject to the specificity requirement of Rule 9(b).”293 At the same time, “[t]o

simply allege that two or more parties have committed the same wrong, without

more, is not enough to satisfy this element; at the pleading stage, the Plaintiff must

allege that the parties knowingly participated in the conspiracy and that there was

coordination of action among the parties.”294

The civil conspiracy claim against Thompson, Bettegowda, and Kirsten must

be dismissed because they were fiduciaries at all times when they allegedly acted,

rendering Count XI against them superfluous. The civil conspiracy claim against the

Funds survives pleading-stage dismissal for the same reasons as the aiding-and-

291 AeroGlobal Cap. Mgmt., LLC v. Cirrus Indus., Inc., 871 A.2d 428, 437 n.8

(Del. 2005) (citing Nicolet, Inc. v. Nutt, 525 A.2d 146, 149 (Del. 1987)).

292 Binks v. DSL.net, Inc., 2010 WL 1713629, at *11 (Del. Ch. Apr. 29, 2010).

293 Agspring Holdco, LLC v. NGP X US Hldgs., L.P., 2020 WL 4355555, at *21

(Del. Ch. July 30, 2020) (alterations in original) (quoting Great Hill Equity P’rs IV,
LP v. SIG Growth Equity Fund I, LLP, 2014 WL 6703980, at *20 (Del. Ch. Nov. 26,
2014)).

294 Lechliter v. Del. Dep’t of Nat. Res. Div. of Parks & Recreation, 2015 WL

7720277, at *11 (Del. Ch. Nov. 30, 2015) (citing OptimisCorp, 2015 WL 5147038, at
*57–59).

98
abetting count. The conspiracy claim adds little beyond the aiding-and-abetting claim

and could be duplicative or unnecessary, but those are not bases for pleading-stage

dismissal.

E. Count XII: The Claim For Unjust Enrichment Against The Funds

Count XII asserts a claim for unjust enrichment against the Funds. The

defendants do not dispute that Count XII states a claim but argue that it must be

dismissed as duplicative of the breach of fiduciary duty and aiding and abetting

claims. Not so.

A plaintiff can simultaneously assert two claims even if they overlap.295 A

plaintiff therefore can assert breach of fiduciary duty and aiding and abetting claims

and an unjust enrichment claim.296 The claim for unjust enrichment often adds little

295 See Frank v. Elgamal, 2012 WL 1096090, at *11 (Del. Ch. Mar. 30, 2012)

(denying motion to dismiss an unjust enrichment claim that defendants argued was
duplicative of a fiduciary breach claim because “Delaware law . . . appears to permit
a plaintiff to simultaneously assert two equitable claims even if they overlap” (citing
MCG Cap. Corp. v. Maginn, 2010 WL 1782271, at *25 n.147 (Del. Ch. May 5, 2010)));
MCG Cap., 2010 WL 1782271, at *25 n.147 (“In this case, then, for all practical
purposes, the claims for breach of fiduciary duty and unjust enrichment are
redundant. One can imagine, however, factual circumstances in which the proofs for
a breach of fiduciary duty claim and an unjust enrichment claim are not identical, so
there is no bar to bringing both claims against a director.”).

296 See Dubroff v. Wren Hldgs., LLC, 2011 WL 5137175, at *11 (Del. Ch. Oct.

28, 2011) (denying motion to dismiss an unjust enrichment claim that “appear[ed] to
be duplicative” of a fiduciary breach claim because “Delaware law does not appear to
bar bringing both claims,” but noting plaintiffs “will, at most, receive one recovery”);
Calma v. Templeton, 114 A.3d 563, 591–92 (Del. 2015) (concluding that it was
reasonably conceivable the plaintiff could recover on an unjust enrichment claim
where it stated a claim for breach of fiduciary duty on the same, “duplicative”
allegations); Delman v. GigAcquisitions3, LLC, 288 A.3d 692, 729 (Del. Ch. 2023)

99
and could be duplicative or unnecessary.297 But that determination need not be made

at the pleading stage.298 The motion to dismiss Count XII is denied.

F. Count IV: The Claim Against The Directors For Tortious Interference
With Prospective Business Relations

The last claim is Count IV. It alleges that the directors tortiously interfered

with the Shuler, Apollo, and Ariel Proposals in furtherance of the Funds’ self-

interested plan to push through the Class F Financing. That theory fails to state a

claim on which relief can be granted.

“To prove a claim for tortious interference with prospective business relations,

a plaintiff must show: (1) a reasonable probability of a business opportunity; (2)

intentional interference by a defendant with that opportunity; (3) proximate

causation; and (4) damages.”299 “The torts of interference with contract and

(observing that there is no bar to allowing parallel unjust enrichment and fiduciary
duty claims to survive a motion to dismiss, but noting plaintiff “cannot obtain a
double recovery”).

297 Principal Growth Strategies, LLC v. AGH Parent LLC, 2024 WL 274246, at

*13 (Del. Ch. Jan. 25, 2024).

298 McPadden v. Sidhu, 964 A.2d 1262, 1276–77 (Del. Ch. 2008) (“[D]efendants’

argument that plaintiff has conflated the unjust enrichment claim and the breach of
fiduciary [duty] claim is unavailing. If plaintiff has pleaded and then prevails in
demonstrating that the same conduct results in both liability for breach of
[defendant’s] fiduciary duties and disgorgement via unjust enrichment, plaintiff then
will have to elect his remedies. But, at this time, defendants have again wholly failed
to satisfy their burden to justify dismissal of this count.”).

299 Beard Rsch., 8 A.3d at 607–08; accord Triton Const. Co. v. E. Shore Elec.

Servs., Inc., 2009 WL 1387115, at *17 (Del. Ch. May 18, 2009), aff’d, 988 A.2d 938

100
interference with prospective business relations are similar but not identical causes

of action.”300 “The main difference between the two, other than the existence of a

contract, is that the tort of interference with prospective business relations ‘must be

considered in light of a defendant’s privilege to compete or protect his business

interests in a fair and lawful manner.’”301

The basic concept underlying a claim for tortious interference is that someone

external to the business relationship interferes with the business relationship. “It is

axiomatic . . . that the tort of interference . . . can only lie against a third-party to the

business relationship.”302 Accordingly, “an agent acting within its authority cannot

tortiously interfere with a prospective business relationship.”303 Likewise, “an agent

for a party to a contract cannot interfere with her principal’s own contract, provided

the agent does not exceed the scope of her authority.”304

(Del. 2010) (TABLE); Empire Fin. Servs., Inc. v. Bank of N.Y., 900 A.2d 92, 98 & n.19
(Del. 2006).

300 Triton Const., 2009 WL 1387115, at *17.

301 Id. (quoting DeBonaventura v. Nationwide Mut. Ins. Co., 419 A.2d 942, 947

(Del. Ch. 1980), aff’d, 428 A.2d 1151 (Del. 1981)).

302 Aureus Hldgs., LLC v. Kubient, Inc., 2021 WL 3465050, at *6 (Del. Super.

Aug. 6, 2021) (quoting Gill v. Del. Park, LLC, 294 F. Supp. 2d 638, 646 (D. Del. 2003)).

303 Id.; see OptimisCorp, 2015 WL 5147038, at *78 (rejecting claim that CEO

tortiously interfered with a potential business relationship by negotiating poorly as
“so flimsy that it borders on frivolous”).

304 Est. of Carpenter v. Dinneen, 2007 WL 2813784, at *7 (Del. Ch. Apr. 11,

2007); accord Hecate Hldgs. LLC v. Repsol Renewables N. Am., Inc., 2026 WL 80833,

101
Directors are not agents of the corporation or its stockholders.305 But like

agents acting on behalf of a principal, they are internal to the relationship rather

than external. The Board is the corporate actor who could cause the Company to

consider or ignore the proposals.306

If the directors had taken action individually, outside of their internal director

roles, then they might face some type of claim.307 When acting as directors, they were

not separate from the Company; they were the decision-makers for the Company.

Just as a principal cannot sue an agent for tortious interference if the agent

improperly rejects an opportunity on the principal’s behalf, stockholders cannot

assert a comparable claim against directors.

at *2 (Del. Ch. Jan. 12, 2026); Anthony v. Bickley, 2014 WL 3943687, at *3 (Del. Super.
Aug. 8, 2014), aff’d, 113 A.3d 1080 (Del. 2015) (TABLE).

305 “A board of directors, in fulfilling its fiduciary duty, controls the corporation,

not vice versa. It would be an analytical anomaly, therefore, to treat corporate
directors as agents of the corporation when they are acting as fiduciaries of the
stockholders in managing the business and affairs of the corporation.” Arnold v. Soc’y
for Sav. Bancorp., Inc., 678 A.2d 533, 540 (Del. 1996) (footnote omitted); see also
Presidio, 251 A.3d at 286 (“Rather than treating directors as agents of the
stockholders, Delaware law has long treated directors as analogous to trustees for the
stockholders.”). The principal-agent problem uses the language of economic theory,
not the language of legal relationships.

306 See 8 Del. C. § 141(a).

307 E.g., Prairie Cap. III, L.P. v. Double E Hldg. Corp., 132 A.3d 35, 60 (Del.

Ch. 2015) (noting that corporate officers could be liable for fraud for statements they
made, despite their status as corporate officers). Perhaps there could be a claim for
tortious interference against a director who acted outside of his capacity as a director
and thereby jeopardized a corporation’s business opportunity. That is not what the
plaintiffs allege here.

102
The proper stockholder claim for analyzing whether the directors dealt

improperly with the Ariel, Apollo, and Shuler Proposals is breach of fiduciary duty.

The plaintiffs have pled that the directors breached their duties by proceeding with

the Class F Financing. That claim can readily incorporate the notion that the

directors should have pursued the Ariel, Apollo, or Shuler Proposal instead. Count IV

is dismissed.

III. CONCLUSION

The Rule 12(b)(6) motions are granted as to Counts IV and IX and the claims

for breach of fiduciary duty against Sferruzza, Brun, Krzanich, and Daly. Otherwise,

the Rule 12(b)(6) motions are denied.

103