In Re Kraft Heinz Demand Refused Derivative Stockholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE KRAFT HEINZ DEMAND )
REFUSED DERIVATIVE ) CONSOLIDATED
STOCKHOLDER LITIGATION ) C.A. No. 2022-0398-LWW

MEMORANDUM OPINION

Date Submitted: April 10, 2024
Date Decided: July 19, 2024

Carmella P. Keener, COOCH & TAYLOR, P.A., Wilmington, Delaware;
P. Bradford deLeeuw, DELEEUW LAW LLC, Wilmington, Delaware; Benjamin
Kaufman & Patrick Donovan, WOLF HALDENSTEIN FREEMAN & HERZ LLP,
New York, New York; Michael Hynes & Ligaya Hernandez, HYNES &
HERNANDEZ LLC, Malvern, Pennsylvania; Robert C. Schubert & Willem F.
Jonckheer, SCHUBERT JONCKHEER & KOLBE LLP, San Francisco, California;
Richard D. Greenfield, Marguerite R. Goodman & Ann M. Caldweel,
GREENFIELD & GOODMAN LLC, Philadelphia, Pennsylvania; Fred T. Isquith,
Sr., ISQUITH LAW PLLC, New York, New York; Counsel for Plaintiffs

Matthew D. Stachel, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
Wilmington, Delaware; Daniel J. Kramer, Andrew J. Ehrlich & William A.
Clareman, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New
York, New York; Counsel for Nominal Defendant The Kraft Heinz Company and
the Individual Defendants

Michael A. Pittenger, Jacqueline A. Rogers & Caneel Radinson-Blasucci, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Sandra C. Goldstein,
Stefan Atkinson & Kevin M. Neylan, Jr., KIRKLAND & ELLIS LLP, New York,
New York; Counsel for Defendants 3G Capital, Inc., 3G Capital Partners Ltd., 3G
Capital Partners II LP, 3G Global Food Holdings GP LP, 3G Global Food Holdings
LP, and HK3 18 LP

WILL, Vice Chancellor
In August 2018, 3G Capital Inc. sold a portion of its ownership interest in The

Kraft Heinz Company. Six months later, Kraft Heinz announced a $15.4 billion

impairment charge. The plaintiffs in this case contend that 3G’s stock sale occurred

based on material non-public information while Kraft Heinz officers and directors

concealed the looming impairment from the market.

These facts may sound familiar to the reader. I addressed them in a prior

decision that dismissed a derivative suit for failure to plead demand futility. The

present action is the demand-made iteration. The three plaintiffs here each sent the

Kraft Heinz board litigation demands about 3G’s stock sale and impairment-related

disclosures.

The board of Kraft Heinz formed an administrative working group of two

directors to consider the demands. The working group hired independent legal

counsel and a forensic accountant to assist with its investigation. It and its advisors

reviewed more than 150,000 documents, interviewed a dozen people, and considered

a detailed prior investigation led by outside counsel. After a two-year process, the

working group authored a 110-page report summarizing its analysis. It

recommended that the demands be rejected, and the full board agreed.

The plaintiffs spurn the board’s conclusions and allege that the demands were

wrongfully refused. In assessing their arguments, I need not resolve whether Kraft

Heinz fiduciaries made material misstatements to the market or whether 3G engaged

1
in insider trading. The board of Kraft Heinz probed these matters and concluded

that it was not in the company’s interest to pursue litigation about them. Instead, I

must consider whether the plaintiffs have pleaded particularized facts creating a

reasonable doubt that the board investigated and rejected the demands in good faith

and with due care. The complaint lacks any such allegations.

The plaintiffs argue that the working group was “structurally flawed” based

both on its mandate and its membership. Their belief that the board should have

empowered the working group with final decision-making authority is at odds with

their tacit concession of the board’s impartiality. And their concerns about the

working group including a director who chaired the Audit Committee during the

challenged events are meaningless, given the dearth of well-pleaded allegations that

he faced a substantial likelihood of liability.

The plaintiffs also make a series of complaints about the findings and

recommendations in the working group’s report. They amount to unsupported

disagreements. None indicate that the board’s refusal of the demands amounts to a

breach of fiduciary duty.

The case is dismissed under Court of Chancery Rule 23.1.

2
I. BACKGROUND

The following background is drawn from the Consolidated Verified

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

reference.1

A. The Formation of Kraft Heinz

Defendant 3G Capital, Inc. is a private investment firm. 2 In 2013, it and

Berkshire Hathaway, Inc. acquired The H.J. Heinz Company (“Heinz”).3 Two years

later, Heinz merged with Kraft Food Groups, Inc. (“Kraft”) to form nominal

defendant The Kraft Heinz Company.4 Kraft Heinz—a Delaware corporation—is

one of the world’s largest food and beverage companies.5

3G owned 24% of the combined entity’s shares and Berkshire Hathaway

owned 27%. 6 Each was entitled to appoint directors to Kraft Heinz’s Board of

1
Consol. Verified Deriv. Compl. (Dkt. 49) (“Compl.”); see In re Gen. Motors (Hughes)
S’holder Litig., 897 A.2d 162, 170-71 (Del. 2006); Allen v. Encore Energy P’rs, 72 A.3d
93, 96 n.2 (Del. 2013). The books and records produced in response to the plaintiffs’
demands under 8 Del. C. § 220 are deemed incorporated into the complaint. See Compl.
2; see also Reiter ex rel. Cap. One Fin. Corp. v. Fairbank, 2016 WL 6081823, at *2, 5-6,
9 (Del. Ch. Oct. 18, 2016) (considering documents incorporated by reference under
agreements governing stockholder inspection demands).
2
Compl. ¶ 64.
3
Id. ¶ 83.
4
Id. ¶ 2.
5
Id. ¶ 71.
6
See id. ¶ 83; see also In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632, at *6 (Del.
Ch. Dec. 15, 2021), aff’d, 282 A.3d 1054 (Del. 2022) (TABLE).
3
Directors. During the time period relevant to this case, Kraft Heinz had an 11-person

Board. Five members were selected by Kraft, three by Berkshire Hathaway, and

three by 3G.7

Alexandre Behring, Jorge Paulo Lemann, and Marcel Herrmann Telles were

3G’s Board appointees.8 The Board appointed 3G partners Bernardo Hees as Chief

Executive Officer and Paulo Basilio as Chief Financial Officer. 9 Basilio was later

reassigned as Zone President of U.S. Business and 3G partner David Knopf became

Kraft Heinz’s CFO.10

B. Kraft Heinz’s Performance

After the merger of Kraft and Heinz closed, management implemented cost-

cutting measures.11 These measures allegedly reduced product quality, damaged

customer relationships, and caused supply chain problems. 12 Short-term positive

financial results followed, allegedly at the expense of Kraft Heinz’s long-term

outlook and asset value.13

7
Compl. ¶¶ 84-86.
8
Id. ¶ 86.
9
Id. ¶¶ 86-87.
10
Id. ¶ 87.
11
Id. ¶¶ 3-4, 23-24, 94, 100, 105, 115-19, 129, 139, 318.
12
Id. ¶¶ 3-4, 13, 25, 95, 100-02, 108, 111-13, 128, 130-32, 139, 143-45, 148, 155, 157,
177, 197, 200-21.
13
Id. ¶ 4.

4
By April 2018, Kraft Heinz senior management purportedly knew that key

reporting units, trademarks, and brands were struggling. 14 According to the

Complaint, they optimistically projected the value of essential business units,

trademarks, and brands while avoiding the threshold for the early warning disclosure

on impairment. 15 Within weeks of an April 1 impairment analysis, EBITDA

projections were revised downward.16

On July 13, 2018, the Securities and Exchange Commission sent Kraft Heinz

a document preservation request about procurement and impairment-related issues.17

Kraft Heinz’s Audit Committee members were informed of the investigation during

a meeting two weeks later. 18 Meeting attendees—including Knopf and Audit

Committee Chairman John C. Pope—were also allegedly told that certain business

units, trademarks, and brands were on the verge of the early warning disclosure

threshold.19

14
Id. ¶ 5.
15
Id. ¶¶ 5, 6, 8, 14-15, 17, 20, 25, 30, 86, 135, 145-62, 187, 206, 306-07, 317.
16
Id. ¶¶ 17, 151, 160, 185, 288.
17
Id. ¶ 188; see Compl. Ex. J (Report of the Working Group of the Board of Directors of
The Kraft Heinz Company) (“Report”). The Report is expressly incorporated by reference
into the Complaint.
18
Compl. ¶ 188.
19
Id.; see also id. ¶¶ 8, 152-53, 183, 188 n.22.

5
C. The 3G Stock Sale

On August 3, 2018, Kraft Heinz filed a Form 10-Q with the SEC that disclosed

the company’s annual impairment testing. An earnings call was held the same day.20

Management reported that temporary “negative headwinds” were affecting the

business.21 The company did not address any worsening problems with business

units, trademarks, or brands caused by cost-cutting.22 Nor did it say that it was

approaching an impairment of Kraft Heinz’s goodwill and intangible assets.23

On August 7, 3G sold 20.3 million shares of Kraft Heinz stock for proceeds

exceeding $1.2 billion.24 The sale represented approximately 7% of 3G’s ownership

in Kraft Heinz.25 It was timed to coincide with the expiration of an insider selling

blackout period and a lockup period.26

20
Id. ¶ 11.
21
Id. ¶¶ 11-12.
22
Id. ¶¶ 5-6, 8, 10-12, 14-15, 17, 20, 25, 30, 86, 144-62, 187, 206, 208, 231, 317.
23
Id. ¶¶ 24, 99, 171.
24
Id. ¶ 13.
25
Transmittal Aff. of Michael A. Pittenger to the 3G Defs.’ Opening Br. in Supp. of Their
Mot. to Dismiss the Consol. Verified Deriv. Compl. (Dkts. 68, 70, 72) (“Pittenger Aff.”)
Ex. 21.
26
Compl. ¶¶ 146, 187, 190, 198, 291, 305.

6
D. The Subpoena

In October 2018, the SEC served Kraft Heinz with a subpoena about

procurement practices.27 Soon after, Kraft Heinz amended its policy on “Accounting

for Intangible Assets and Goodwill.” 28 The policy change removed subjectivity

from the impairment analysis process.

On November 1, Kraft Heinz reported financial results for the third quarter of

2018. It disclosed a $499 million impairment to the value of certain brands and

goodwill.29 Management maintained that internal controls were effective and no

problems with the impairment status of the company’s foundational business units,

trademarks, or brands were disclosed.30

On December 5, Kraft Heinz’s outside auditor delivered its final 2018 annual

impairment analysis. 31 In late December, Kraft Heinz recognized a triggering

event—a sustained decline in its stock price since the November 1 earnings

release—and ran an interim impairment analysis. Revised projections were used to

target the business units, trademarks, and brands for which the company had not

27
Id. ¶ 191.
28
Id. ¶ 192.
29
Id. ¶ 16.
30
Id. ¶¶ 16-17.
31
Id. ¶¶ 182, 187, 194, 310.

7
issued early warning disclosures or recognized an impairment.32 Kraft Heinz’s stock

price continued to fall.33

E. The Impairment
On February 21, 2019, Kraft Heinz released its 2018 fourth quarter earnings

report and announced a $15.4 billion non-cash impairment to its goodwill and

intangible assets.34 This reduced the company’s reported net income to an annual

loss of $10.3 billion.35 The write-down was tied to impairments in the carrying

amount of goodwill in five reporting units and five brands.36 Kraft Heinz’s stock

price dropped 27.5%.37

One week later, Kraft Heinz disclosed the receipt of the October 2018 SEC

subpoena.38 It also announced that it would delay filing its Form 10-K for the 2018

fiscal year while the Audit Committee oversaw an internal investigation into the

company’s procurement function.

32
Id. ¶¶ 195-96.
33
Id. ¶ 196.
34
Id. ¶ 202; see Pittenger Aff. Ex. 28.
35
Compl. ¶¶ 18, 202.
36
Id. ¶ 202; see Pittenger Aff. Ex. 29.
37
Compl. ¶ 205.
38
Id. ¶ 209; see Pittenger Aff. Ex. 29.

8
On May 6, 2019, Kraft Heinz reported that the investigation was substantially

complete.39 Kraft Heinz restated its financial statements from 2015 to 2018 to reflect

$208 million in cumulative increases to its previously reported $63.7 billion in cost

of products sold during that time.40 Kraft Heinz also disclosed a revision to its

February 2019 write-down, which resulted in an additional impairment loss of

approximately $105 million.41

F. Subsequent Litigation

An array of lawsuits came on the heels of Kraft Heinz’s restatement

announcement.

In February 2019, a federal securities class action was filed in the United

States District Court for the Northern District of Illinois.42 The plaintiff alleged that

certain Kraft Heinz officers and directors committed securities fraud and that 3G’s

August 2018 stock sale was insider trading. The federal court sustained claims for

securities law violations against Kraft Heinz, Hees, Basilio, Knopf, Behring, and 3G,

as well as former Kraft Heinz director George Zoghbi and Executive Vice President

39
Compl. ¶ 212; Pittenger Aff. Ex. 30.
40
Compl. ¶¶ 22, 212; see Pittenger Aff. Ex. 30.
41
Compl. ¶ 214.
42
See Hedick v. The Kraft Heinz Co., et al., C.A. No. 1:19-cv-01339 (N.D. Ill.).

9
and President, International Markets Rafael Oliveira. 43 The parties reached a

settlement for $450 million.44

Beginning in July 2019, derivative lawsuits were filed in this court. The

plaintiffs claimed that 3G, entities affiliated with it, and certain dual fiduciaries of

3G and Kraft Heinz breached their fiduciary duties in connection with 3G’s stock

sale. They alleged that demand on the Kraft Heinz Board was excused. The cases

were consolidated and dismissed for failure to plead demand futility. 45 The

Delaware Supreme Court affirmed the dismissal.46

Despite Kraft Heinz’s Delaware forum selection bylaw, another derivative

suit was filed in the Northern District of Illinois in July 2019.47 The suit was nearly

identical to those filed in this court and alleged demand futility. The federal court

granted a motion to dismiss on June 5, 2023, holding that a majority of the Board

did not face a substantial likelihood of personal liability.48

43
Compl. ¶¶ 223-24, 227-28.
44
Id. ¶ 29; see Transmittal Aff. of Matthew D. Stachel in Supp. of the Opening Br. in Supp.
of Nominal Def.’s and the Individual Defs.’ Mot. to Dismiss under Rules 23.1 and 12(b)(6)
(Dkt. 66) (“Stachel Aff.”) Ex. 1.
45
Kraft Heinz, 2021 WL 6012632.
46
Kraft Heinz, 282 A.3d 1054.
47
In re Kraft Heinz S’holder Deriv. Litig., C.A. No. 1:20-cv-2259 (N.D. Ill.).
48
In re Kraft Heinz S’holder Deriv. Litig., 2023 WL 2745118, at *1 (N.D. Ill. Mar. 31,
2023).
10
G. The Demands

Between May 22, 2019 and October 7, 2021, the plaintiffs here—Stephen

Datnoff, Judy Mesirov, and Adriana D. Felicetti—sent litigation demands to the

Board.49 The letters asked the Board to investigate potential wrongdoing by 3G, 3G

affiliates, and current and former directors and officers of Kraft Heinz.

The demands alleged that certain Kraft Heinz fiduciaries had made false

statements about the company’s financial state and failed to oversee financial

disclosure and reporting internal controls, including cost-cutting. They also accused

Kraft Heinz of overstating the value of goodwill and intangible assets before the

February 2019 impairment disclosure. They maintained that the defendants were

involved in procurement-related accounting misconduct, which was the subject of a

prior internal investigation. And they alleged that 3G sold stock based on material

non-public information about the impending impairment charge.

H. The Working Group

The Board launched an investigation in response to the demands. On April

29, 2020, it created an administrative working group (the “Working Group”) of two

outside directors: Pope and Susan Mulder. 50 Mulder had been appointed to the

49
Compl. ¶¶ 252-54, 262, 264-65; see Report 29. Two other purported stockholders also
served demands. See id.
50
Compl. ¶ 279. The Working Group was formed after the Mesirov demand was received
in the first quarter of 2020. See Report 2 n.1.
11
Board in May 2020, after the challenged events.51 Pope is a former Kraft director

and has served on the Kraft Heinz Board since July 2015.52 The plaintiffs in the

Delaware derivative litigation did not challenge Pope’s disinterestedness or

independence.53 In the federal derivative suit, the court found that allegations about

Pope failed to demonstrate that he faced a substantial likelihood of liability.54

The Working Group was charged with evaluating the allegations in the

demands and recommending an appropriate response to the Board.55 It retained legal

advisors at Simpson Thacher & Bartlett LLP and Young Conaway Stargatt & Taylor,

LLP. 56 Simpson Thacher retained AlixPartners LLP to serve as the Working

Group’s forensic accounting advisor.57

After a two-year process, the Working Group concluded that it was not in

Kraft Heinz’s best interest to pursue litigation based on the issues raised in the

demands. With the “potential exception” of two Kraft Heinz executives—Eduardo

Pelleissone and Klaus Hofmann—who were subjects of “more colorable”

51
Id.; see Report 49-50.
52
Compl. ¶¶ 56, 279.
53
Kraft Heinz, 2021 WL 6012632, at *5 (“The plaintiffs . . . concede that Jackson and Pope
are independent and disinterested for purposes of a demand futility analysis.”).
54
Kraft Heinz, 2023 WL 2745118, at *9.
55
Compl. ¶ 279; see Report 51.
56
Compl. ¶ 262, see Report 4, 50.
57
Report 50.

12
allegations, the Working Group identified no evidence that applicable law had been

violated. Even as to Pelleissone and Hofmann, the Working Group concluded that

litigation was imprudent based on practical considerations. These conclusions and

the Working Group’s findings were memorialized in a 110-page Report of the

Working Group of the Board of Directors of the Kraft Heinz Company, dated April

12, 2022 (the “Report”).58

On April 21, 2022, the Working Group reported to the Board that it believed

litigation on the subjects raised in the demands was unwarranted. It recommended

that the demands be denied. 59 The Board accepted the Working Group’s

recommendation and rejected the demands.60

I. This Litigation

On May 6, 2022, the present derivative action was filed in this court by

Datnoff, Mesirov, and a third stockholder who later withdrew as a party. 61 On

November 18, 2022, the plaintiffs filed an amended complaint.62 On March 6, 2023,

Felicetti filed a separate derivative complaint.63

58
Compl. Ex. J.
59
Compl. ¶ 269; Stachel Aff. Ex. 4.
60
Compl. ¶ 271; Stachel Aff. Ex. 4.
61
Dkt. 1.
62
Dkt. 14.
63
Felicetti v. Behring, C.A. No. 2023-0278-LWW (Dkt. 1) (Del. Ch. Mar. 6, 2023).

13
The two cases were consolidated on April 24, 2023. 64 The operative

consolidated Complaint was filed on May 18, 2023. In it, the plaintiffs allege that

their demands were wrongfully refused. They seek to assert derivative Brophy and

aiding and abetting claims against 3G—the same claims raised in the prior demand

futility actions. 65 They also wish to advance Caremark and Malone breach of

fiduciary duty claims and an unjust enrichment claim against the individual

defendants.66

The defendants moved to dismiss the Complaint on July 24, 2023. 67 On

September 22, 2023, the plaintiffs filed a brief in opposition to the defendants’

motions to dismiss.68 The defendants filed reply briefs in further support of their

motions on November 3, 2023.69 Oral argument was held on April 2, 2024 and the

parties filed letters identifying additional authority on April 8 and 10.70

64
Dkt. 47.
65
Compl. ¶¶ 350-64; see Kraft Heinz, 2021 WL 6012632, at *4.
66
Compl. ¶¶ 334-41, 366-67. They also bring an indemnification and contribution claim.
Id. ¶¶ 342-49.
67
Dkts. 65, 67.
68
Pls.’ Omnibus Br. in Opp’n to Defs.’ Mots. to Dismiss (Dkt. 82) (“Pls.’ Answering Br.”).
69
Dkts. 87, 88.
70
Dkts. 101, 103-04.

14
II. ANALYSIS

It is a “cardinal precept” of Delaware law that “directors, rather than

shareholders, manage the business and affairs of the corporation.” 71 “The decision

to bring a law suit or refrain from litigating a claim on behalf of a corporation is a

decision concerning the management of the corporation.”72 A stockholder may only

assume the power to bring a derivative claim on the corporation’s behalf after

satisfying the strict conditions of Rule 23.1.73 A board’s rejection of a litigation

demand is entitled to the protections of the business judgment rule, which presumes

that the directors acted in good faith and on an informed basis.74

The plaintiffs bear the heavy burden of pleading “particularized facts which,

taken as true, raise a reasonable doubt that the refusal was a valid exercise of

business judgment.”75 These “stringent requirements of factual particularity . . .

71
Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984), overruled on other grounds by
Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
72
Spiegel v. Buntrock, 571 A.2d 767, 73 (Del. 1990)
73
See White v. Panic, 783 A.2d 543, 546-47 (Del. 2001) (explaining that the demand
requirement of Rule 23.1 “implement[s] the principle that the cause of action belongs to
the corporation”).
74
See Aronson, 473 A.2d at 812; Grimes v. Donald, 673 A.2d 1207, 1217 (Del. 1996)
(“After investing the time and resources to consider and decide whether or not to take
action in response to the demand, the Board is entitled to have its decision analyzed under
the business judgment rule unless the presumption of that rule can be rebutted.”), overruled
on other grounds by Brehm, 746 A.2d 244.
75
Ironworkers Dist. Council of Phila. & Vicinity Ret. & Pension Plan v. Andreotti, 2015
WL 2270673, at *26 (Del. Ch. May 8, 2015), aff’d, 132 A.3d 748 (Del. 2016).
15
differ substantially from” the notice pleading standard of Rule 8(a).76 “Vague or

conclusory allegations do not suffice” and the court will neither “blindly accept as

true all allegations” nor draw unreasonable inferences in the plaintiffs’ favor.77

A. The Plaintiffs’ Tacit Concessions
By making a demand, the plaintiffs “waived any claim they might otherwise

have had that” the Board as then constituted “cannot act independently on the

demand.”78 Their demands “place[d] control of the derivative litigation in the hands

of the board of directors.” 79 Although the Complaint nevertheless contested the

directors’ independence and disinterestedness, the plaintiffs have since

acknowledged that they tacitly conceded the Board as a whole could impartially

consider the demands.80

76
Brehm, 746 A.2d at 254.
77
Ironworkers, 2015 WL 2270673, at *25 (citation omitted); see also Brehm, 746 A.2d at
255 (“[C]onclusory allegations are not considered as expressly pleaded facts or factual
inferences.”).
78
Scattered Corp. v. Chi. Stock Exch., Inc., 701 A.2d 70, 74 (Del. 1997), overruled on
other grounds by Brehm, 746 A.2d 244; see also Thorpe v. CERBCO, Inc., 611 A.2d 5, 10
(Del. Ch. 1991) (explaining that by making a demand, the plaintiff “made an important
concession: that the board is able to function on the question” of whether claims should be
pursued).
79
Spiegel, 571 A.2d at 775.
80
See Compl. ¶¶ 284-85; Tr. of Oral Arg. on Defs.’ Mots. to Dismiss (Dkt. 104) (“Hr’g
Tr.”) 37 (The Court: “You’re not refuting that you tacitly conceded that the board as a
whole could consider the demand impartially; is that right?” Counsel: “Yes, that is correct.”
The Court: “You’re focused solely on Mr. Pope.” Counsel: “We are focused solely on Mr.
Pope.”). The plaintiffs’ answering brief does not argue that a majority of the Board was
conflicted either at the time the demands were made or when the demands were refused.
16
Even if the plaintiffs had not abandoned their argument that the Board was

biased, it would fail. The purported conflicts raised in the Complaint—that the

directors were involved in the challenged events, named as defendants in the federal

derivative complaint, or have ties to 3G—were known when the first demand was

made by Mesirov in May 2019. 81 By opting to serve demands rather than file

demand excused suits, the plaintiffs conceded that at least six of the eleven directors

ex ante could impartially act on a demand.82

The Board membership changed between the making of the first demand in

2019 and the rejection of the demands in 2022, with six directors turning over and

five remaining. 83 The purported conflicts affecting the recomposed Board are,

however, either the same as or weaker than those allegedly existing when the first

demand was made.84 The new directors were neither named in the federal suits nor

See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”).
81
See Compl. ¶¶ 284-85; Stachel Aff. Ex. 6 ¶¶ 16, 19-28.
82
See FLI Deep Marine LLC v. McKim, 2009 WL 1204363, at *3 (Del. Ch. Apr. 21, 2009)
(reasoning, in the wrongful refusal context, that it would be inappropriate to “part ways
with established Delaware law to grant the Plaintiffs relief from a strategic decision they
now regret”).
83
Compl. ¶ 284.
84
As discussed below, a number of new directors joined the Board between the time
Mesirov made her demand and when Datnoff and Felicetti made their demands (and
Mesirov made a supplemental demand). See infra notes 88-91 and accompanying text; see
also Report 29; Compl. ¶¶ 252, 261, 264-65. The plaintiffs neglect to address the import
of the director turnover relative to their respective demands.
17
involved in the events raised in the demands. There are no changed circumstances

pleaded between the time of the demands and the Board’s refusal of the demands

that would put in doubt the independence or disinterestedness of a majority of these

directors.85

The best the plaintiffs can muster is to insinuate that the Board as comprised

in 2022 was dominated by 3G, which they argue was a controlling stockholder.86

That argument is without factual or legal support. During the relevant period, 3G

was Kraft Heinz’s second largest stockholder (after Berkshire Hathaway) with less

than a quarter of the company’s stock.87 It lacked the ability to control the Kraft

Heinz Board and appointed just three of the Board’s eleven directors.

85
See Andersen v. Mattel, Inc., 2017 WL 218913, at *5 (Del. Ch. Jan. 19, 2017) (holding
a plaintiff to his tacit concession where he “ha[d] not pled any facts suggesting that the
board became interested or beholden” to an interested party); see also FLI Deep Marine,
2009 WL 1204363, at *3 (rejecting the plaintiffs’ attempt to avoid their concession where
they “maintain[ed] the Board lacked independence since at least the time of their demand”);
Ironworkers, 2015 WL 2270673, at *32 (noting that the plaintiff had conceded that the
board at the time of the demands could consider a demand and did “not challenge, ex post,
the Board’s interest or independence”). In fact, the federal court rejected similar
allegations against the directors after the demands were made. See Kraft Heinz, 2023 WL
2745118, at *6-9.
86
See, e.g., Compl. ¶¶ 1, 173, 282, 284-85, 287, 293, 303.
87
See supra note 6 and accompanying text. The plaintiffs argue that a company’s second-
largest stockholder can be deemed controlling based on the Court of Chancery’s decision
in Williamson v. Cox Communications, Inc. 2006 WL 1586375, at *5-6 (Del. Ch. June 5,
2006); see Pls.’ Answering Br. 59; Dkt. 101. That case does not aid them. In Williamson,
the court considered whether it was reasonably conceivable that two minority
stockholders—Cox Communications and Comcast Corporation—were controlling
stockholders of At Home Corporation. Cox and Comcast were viewed as a single unit
throughout the court’s analysis about a transaction in which they allegedly caused At Home
18
In any event, the same number of directors with alleged disabling ties to 3G

were on the 2019 and 2022 Boards. Between the making of the first demand and

rejection of the demands, 3G partners Lemann and Telles left the Board, with

Behring remaining.88 The plaintiffs make only the conclusory assertion that two

new directors—Joao M. Castro-Neves (who joined the Board in June 2019) and

Miguel Patricio (who joined the Board in May 2021)—“were closely related to and

not independent of 3G” and “beholden” to it “for their livelihoods.”89

Notably, though, Castro-Neves was on the Board when Datnoff made his

demand in March 2020 and when Mesirov made a supplemental demand in October

2020. 90 And both Castro-Neves and Patricio were on the Board when Felicetti made

her demand in October 2021.91 No other directors who joined the Board post-2019

are alleged to have been interested or lack independence with regard to the demands.

to transfer complete control to a third stockholder, AT&T. It was sufficiently pleaded that
Cox and Comcast had “significant leverage” over At Home and wielded board-level veto
power. Williamson, 2006 WL 1586375, at *5-6. Based on a reasonable inference that Cox
and Comcast were controlling stockholders, the court sustained a claim that they had
breached their fiduciary duties by causing the company to undertake a transaction
benefitting them and AT&T with no regard for At Home’s other stockholders. Id.
88
Compl ¶¶ 47, 51.
89
Id. ¶ 284; see also Kraft Heinz, “Board of Directors,”
https://ir.kraftheinzcomany.com/company-profile/board-of-directors (last visited July 17,
2024); The Kraft Heinz Company, Sched. 14A (filed with the SEC on Mar. 27, 2020) at 1.
90
Report 29; see also id. at 29 n.54 (noting that Felicetti made a further demand on the full
Board on May 7, 2022); supra note 89 and accompanying text.
91
Id.; see supra note 89 and accompanying text.

19
B. The Board’s Good Faith and Due Care

With the disinterestedness and independence of a majority of the Board

conceded, “the only issues to be examined are the good faith and reasonableness of

its investigation.”92 The plaintiffs argue that they have sufficiently put these matters

in doubt for two reasons. First, they point to “structural flaws” in the Working Group

that they say undermine the Board’s independence and good faith in responding to

the demands. 93 Second, they assert that the Working Group’s rejection of the

demands was based on a grossly negligent and bad faith “flawed process.”94

Bad faith requires the pleading of particularized allegations that a director’s

“decision was so far beyond the bounds of reasonable judgment that it seems

essentially inexplicable” on any other ground.95 A plaintiff must allege that a board

“intentionally act[ed] with a purpose other than that of advancing the best interests

92
Spiegel, 571 A.2d at 777.
93
Pls.’ Answering Br. 27-36.
94
Id. at 36-57.
95
In re J.P. Stevens & Co., Inc. S’holders Litig., 542 A.2d 770, 780-81 (Del. Ch. 1988).

20
of the corporation.”96 The directors must have acted with scienter—either an intent

to harm or knowing indifference to the harm caused.97

Gross negligence is “conduct that constitutes reckless indifference or actions

that are without the bounds of reason.” 98 In the wrongful refusal context, “[t]he

gross negligence inquiry focuses on whether the board properly informed itself of

material information reasonably available to it before refusing the demand.”99 The

court considers whether the plaintiff has pleaded with particularity that the board

failed to investigate or pursued a process so inadequate that it may reasonably infer

gross negligence.100

96
Ironworkers, 2015 WL 2270673, at *27; see also In re Walt Disney Co. Deriv. Litig.,
906 A.2d 27, 67 (Del. 2006) (“A failure to act in good faith may be shown, for instance,
where the fiduciary intentionally acts with a purpose other than that of advancing the best
interests of the corporation[.]”).
97
See, e.g., Ironworkers, 2015 WL 2270673, at *27 (“For the actions of directors to have
been in bad faith, the directors must have acted with scienter, i.e., with a motive to harm,
or with indifference to harm that will necessarily result from the challenged decision—
here, that decision being rejection of the Plaintiff’s demand.”).
98
McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008).
99
Andersen, 2017 WL 218913, at *4.
100
See Ironworkers, 2015 WL 2270673, at *26 (explaining that to demonstrate wrongful
refusal, a plaintiff can “plead particularized facts that reasonably imply gross negligence,
in that the board acted in an uniformed manner by failing either to investigate the demand
at all or in pursuing such an inadequate investigation, in light of the seriousness of the
demand, that a court may reasonably infer a breach of the duty of care”); see also
Drachman v. Cukier, 2021 WL 5045265, at *8 (Del. Ch. Oct. 9, 2021) (concluding that
bad faith was adequately alleged where the board did “nothing” to investigate before
sending a response that gave the demand the “back of the hand”).
21
No well-pleaded facts support a reasonable inference of bad faith or gross

negligence. The plaintiffs’ assertions about the Working Group’s formation and

structure are conclusory at best. As to the Working Group’s process, the plaintiffs

have not made particularized allegations putting the Board’s good faith and care in

doubt. The Complaint must be dismissed for failure to demonstrate wrongful refusal

under Rule 23.1.

1. The Alleged “Structural Flaws”

The plaintiffs allege that the Board acted in bad faith by forming a

“structurally flawed” Working Group. 101 In their view, the Board should have

delegated its decision-making authority over the demands to an independent

committee rather than form an administrative Working Group. They also insist that

the Board left the Working Group “hopelessly conflicted” when it appointed Pope—

a director “with exposure to a substantial likelihood of liability.”102

These arguments fail for several reasons. The Board that formed the Working

Group is concededly unconflicted. It was empowered to decide how to investigate

the demands as a matter of business judgment. That disinterested and independent

Board was also free to appoint Pope to the Working Group. Even if this choice were

101
Compl. ¶ 279; id. ¶ 285; see also Pls.’ Answering Br. 35-36.
102
Compl. ¶ 281.

22
imperfect, it is not fatal. There are no particularized allegations calling into doubt

Pope’s independence or disinterestedness.

a. The Working Group’s Authority

The plaintiffs allege that the “hopelessly conflicted Board[’s]” retention of

“ultimate control over whether to sue its members” or 3G “affiliates of its members”

indicates the “sham nature” of its process.103 This theory ignores that the plaintiffs

opted to make demands on the Board that formed the Working Group.104 Having

chosen that path, the plaintiffs can no longer argue that the Board was incapable of

proceeding impartially. There are also no particularized facts alleged suggesting that

the Board became conflicted post-demands such that it could no longer act

impartially in responding to them.105

There is no set path a board must take in assessing and responding to a

litigation demand.106 The Board was not required to vest the committee with its full

decision making authority.107 It was entitled to decide how to form and empower

103
Id. ¶ 285.
104
The Working Group was formed the month after Datnoff’s demand and well before
Felicetti’s demand. See supra note 50; Report 29.
105
See supra notes 83-85 and accompanying text.
106
See Levine v. Smith, 591 A.2d 194, 214 (Del. 1991), overruled on other grounds by
Brehm, 746 A.2d 244.
107
See Andersen, 2017 WL 218913, at *5 (“Plaintiff’s argument that Mattel’s investigation
was flawed because the board did not form a special committee also fails.”); see also
Bresalier v. Good, 246 F. Supp. 3d 1044, 1055 (D. Del. 2017) (rejecting an argument that
23
the Working Group. There is no basis for the plaintiffs or this court to second guess

that choice.

b. The Working Group’s Membership

The plaintiffs also argue Pope’s service on the Working Group indicates that

the Board’s response to the demands was a “sham.”108 In their view, Pope’s role as

Chairman of the Audit Committee left him unable to objectively investigate “the

Company’s accounting and financial statements or its filings with the SEC.”109 They

believe that the Board should have appointed a director who joined the Board after

the relevant period to serve alongside Mulder.110

The plaintiffs’ position relies on precedent where boards delegated their full

decision-making authority to committees, such as special litigation committees.111

the board should have appointed a special litigation committee instead of a demand review
committee).
108
Compl. ¶ 285; id. ¶ 280; see Pls.’ Answering Br. 35-36.
109
Compl. ¶ 280.
110
Compl. ¶ 281; see Hr’g Tr. 37-38 (arguing that the Board “had other options who were
not even on the [B]oard at the time of the wrongdoing” and were “available to be part of
this Working Group process”).
111
See Pls.’ Answering Br. 29 (“[M]ember independence is paramount in the special
litigation committee process.”); e.g., London v. Tyrell, 2010 WL 877528 (Del. Ch. Mar.
11, 2010); Lewis v. Fuqua, 502 A.2d 962 (Del. Ch. 1985); In re Oracle Corp. Deriv. Litig.,
824 A.2d 917 (Del. Ch. 2003); see also City of Tamarac Firefighters’ Pension Trust Fund
v. Corvi, 2019 WL 549938, at *1-2 (Del. Ch. Feb. 12, 2019) (considering and rejecting
allegations that a special committee was interested or lacked independence where it was
given the “authority to act on behalf of the Board”); id. at 8-9 (observing that the tacit
concession doctrine should not be extended to committees with full decision making
authority).
24
In that context, the committee must demonstrate that its independence is “above

reproach” because the board is overall unqualified to consider a demand or

lawsuit. 112 Here, however, a different standard applies. The plaintiffs have

acknowledged that the Board was qualified to respond to the demands and have not

sufficiently pleaded that the Board became conflicted when its membership changed.

The fact that the plaintiffs made demands does not, of course, mean that the

Board’s independence and disinterestedness has been conclusively established.113

Still, Pope’s appointment to the Working Group does not give me reason to question

the Board’s good faith in forming it. There are no particularized allegations

indicating that Pope lacked independence, faced a substantial likelihood of liability

for the issues raised in the demands, or was otherwise biased to a degree affecting

his judgment.114 Pope is not alleged to have benefitted—in any way—from the

wrongdoing alleged in the Complaint. He has no disabling ties to 3G or any

purportedly conflicted individual.

112
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1055
(Del. 2004) (quoting Lewis, 502 A.2d at 967).
113
Scattered Corp., 701 A.2d at 74 (“Simply because the composition of the board
provides no basis ex ante for the stockholder to claim with particularity and consistently
with Rule 11 that it is reasonable to doubt that a majority of the board is either interested
or not independent, it does not necessarily follow ex post that the board in fact acted
independently, disinterestedly or with due care in response to the demand.”).
The plaintiffs make no argument that Mulder or the Working Group’s outside advisors
114

were conflicted. They also do not argue that any member of the Board was beholden to
Pope.
25
The plaintiffs’ sole critique is that Pope was the Audit Committee Chairman

during the relevant events.115 Pope’s role alone does not, however, mean that he

faces a substantial likelihood of liability for a non-exculpated claim.116 Delaware

courts reject the premise that “membership on the Audit Committee is a sufficient

basis to infer the requisite intent.”117

To show that Pope faced a substantial likelihood of liability for the breach of

fiduciary duty claims in the Complaint, the plaintiffs would need to demonstrate bad

faith.118 For their Malone claim, they must plead with particularity that Pope knew

public statements he disseminated were materially misleading when made.119 For

115
Pls.’ Answering Br. 34-35.
116
See Stachel Aff. Ex. 7 (Kraft Heinz certificate of incorporation) art. VIII(B).
117
Wood v. Baum, 953 A.2d 136, 142 (Del. 2008) (explaining that a director’s service on
an audit committee was an insufficient basis to infer liability); see also Rattner v. Bidzos,
2003 WL 22284323, at *12-13 (Del. Ch. Sept. 30, 2003); Kraft Heinz, 2023 WL 2745118,
at *8 (“Members of the Audit Committee may have a specific responsibility for oversight
of matters related to the allegedly misleading shareholder communications, but it does not
follow that they had knowledge of deception or wrongdoing in the dissemination of those
communications or the materials they relied on, particularly considering that board
members are entitled to rely in good faith on the reports of employees and officers.”).
118
See McElrath v. Kalanik, 224 A.3d 982, 991-92 (Del. 2020) (explaining that to identify
a non-exculpated claim, a plaintiff must plead that a director was “motivated by an actual
intent to do harm,” consciously disregarded his duties, or “knew he was so acting” (citation
omitted)).
119
See Malone v. Brincat, 722 A.2d 5, 14 (Del. 1998) (explaining that a plaintiff must plead
facts showing that a director “knowingly disseminat[ed] materially false information” and
was “deliberately misinforming shareholders”).
26
their Caremark claim, they must sufficiently allege that Pope consciously

disregarded a red flag of misconduct.120 They do neither.

The plaintiffs merely state that Pope attended Board and Audit Committee

meetings where the distressed reporting units, trademarks, and brands suffering from

impairment risks were discussed with Knopf before 3G’s stock sale. 121 Pope

purportedly received some unspecified information at these meetings. He also

“caused” Kraft Heinz to issue Form 10-Ks in 2017 and 2018 that made disclosures

about impairment testing.122 From that vague premise, the plaintiffs assert that Pope

knew Kraft Heinz’s impairment testing was ineffective, covered it up, and allowed

it to continue.

Pleading that a director “‘caused’ or ‘caused or allowed’ the [c]ompany to

issue certain statements is not sufficient particularized pleading” under Rule 23.1.123

120
See Stone ex rel. AmSouth Bancorp. v. Ritter, 911 A.2d 362, 370 (Del. 2006). The
plaintiffs do not plead that Pope utterly failed to cause Kraft Heinz to establish a system of
controls. They concede the existence of an Audit Committee and relevant corporate
policies. See TVI Corp. v. Gallagher, 2013 WL 5809271, at *15-16 (Del. Ch. Oct. 28,
2013) (dismissing a Caremark claim where the plaintiffs “acknowledge[d] that the Board
maintained an audit committee”).
121
Compl. ¶ 280 (“Pope was present at the Audit Committee Meetings where the distressed
reporting units, trademarks, and brands on the fringe of impairment were identified and
discussed with . . . Knopf before 3G Capital sold a huge block of stock at artificially inflated
prices.”); see Transmittal Aff. of Carmella P. Keener in Supp. of Pls.’ Omnibus Br. in
Opp’n to Defs.’ Mot. to Dismiss (Dkt. 82) (“Keener Aff.”) Ex. 1.
122
Compl. ¶¶ 168-169.
123
In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 133, n.88 (Del. Ch. 2009);
see also In re Zimmer Biomet Holdings, Inc. Deriv. Litig., 2021 WL 3779155 (Del. Ch.
27
Nor is merely alleging that a director served on a committee tasked with overseeing

matters within which a corporate trauma occurred.124 Even if the allegations suggest

that Pope understood Kraft Heinz was facing business headwinds or approaching

impairment triggers, I cannot reasonably conclude that he knew misconduct was

occurring or that Kraft Heinz’s public statements were untrue.125 Any such inference

is further undercut by the plaintiffs’ acknowledgement that Pope contemporaneously

relied on reports of officers and outside advisors.126

The limited statements in the Complaint about Pope cannot support an

inference that he knowingly issued false statements or allowed misconduct to

proceed unabated. There are no particularized allegations that he received

information placing him on notice of wrongdoing. Pope’s receipt of presentations

Aug. 25, 2021) (“A statement that the documents were signed by the Director Defendants,
or that they ‘approved’ the disclosures and ‘caused’ or ‘consented to’ their filing is not—
without more—a particularized allegation of fact.” (citation omitted)), aff’d, 279 A.3d 356
(Del. 2022) (TABLE).
124
See Citigroup, 964 A.2d at 128; South v. Baker, 62 A.3d 1, 17 & n.6 (Del. Ch. 2012)
(“[A]n allegation that the underlying cause of a corporate trauma falls within the delegated
authority of a board committee does not support an inference that the directors on that
committee knew of and consciously disregarded the problem.” (citation omitted)).
125
See Citigroup, 964 A.2d at 130 (“[T]he mere fact that a company takes on business risk
and suffers losses—even catastrophic losses—does not evidence misconduct.”).
126
See Compl. ¶¶ 90, 95, 97, 99, 102, 107, 108, 118, 123, 130, 137, 142, 147, 150, 154,
172, 178, 182-83, 186, 189, 245, 296; see also 8 Del. C. § 141(e); Graham v. Allis-
Chalmers Mfg. Co., 188 A.2d 125, 130 (Del. 1963) (“[D]irectors are entitled to rely on the
honesty and integrity of their subordinates until something occurs to put them on suspicion
that something is wrong.”).
28
about impairment risks or oversight responsibility for Kraft Heinz’s financial

reporting comes nowhere close to indicating disloyalty. Regardless of whether Pope

was the best choice for the Working Group, his involvement is not grounds to second

guess the Board’s good faith in investigating the demands.127

2. The Alleged Process Flaws

The plaintiffs next argue that the demands were wrongfully refused because

the Working Group’s process and conclusions are flawed. They believe that the

process was grossly negligent because certain information was not obtained and

prior investigatory work was relied upon. They also maintain that the determinations

in the Report are contradicted by evidence and common sense, indicating bad faith.

Each argument is deficient.128

127
The Complaint also brings claims against Pope (and the other individual defendants)
for unjust enrichment and contribution and indemnification. See supra note 66. Other than
Pope’s receipt of ordinary director fees and stock awards (Compl. ¶ 51), these claims rest
on the same conclusory allegations addressed above. The plaintiffs also seemingly
abandoned their argument that Pope faces a substantial likelihood of liability for the federal
derivative action. See Reply Br. in Supp. of Nominal Def.’s and the Individual Defs.’ Mot.
to Dismiss Under Rules 23.1 and 12(b)(6) (Dkt. 88) 7; Pls.’ Answering Br. 32. It would
fail in any event. The federal derivative action was dismissed. Further, Delaware courts
reject the notion that directors face a substantial likelihood of liability because they were
named defendants in lawsuits or “would be deciding to sue themselves.” Citigroup, 964
A.2d at 121; see Aronson, 473 A.2d at 815 (explaining that naming directors as defendants
is insufficient to plead a substantial likelihood of liability).
128
The plaintiffs’ accusations of bad faith and gross negligence are muddled because they
argue that matters reflect both bad faith and gross negligence. I have tried to address the
allegations in a logical way that considers whether they appear aimed at undermining the
directors’ care or good faith. It should be understood that none of the plaintiffs’ allegations
are sufficient to rebut either.
29
a. Adequacy of the Investigation

The Working Group’s process spanned two years. It and its advisors reviewed

more than 150,000 Kraft Heinz documents, plus SEC and court filings and other

materials.129 They interviewed 12 people, including current and former Kraft Heinz

directors and officers. The Working Group reviewed a 63-page report by

AlixPartners on accounting issues related to the $15.4 billion impairment charge.130

Simpson Thacher also conducted an evaluation of the prior investigation into

procurement-related issues, which had been led by Gibson Dunn & Crutcher LLP.131

Simpson Thacher spent 5,000 hours on the investigation and AlixPartners devoted

1,500 hours to its work.132 At the end of this process, the Working Group produced

a 110-page Report (excluding exhibits) that was accepted by the full Board.133

Despite these facts, the plaintiffs argue that the Working Group’s process was

deficient for three reasons.134 The Working Group did not request 3G’s internal

documents. 135 It did not interview the confidential witnesses discussed in the

129
Report 55-57.
130
Report App’x A.
131
Report 52.
132
Id. at 4-5.
133
Stachel Aff. Ex. 4; see Compl. ¶ 271.
134
Pls.’ Answering Br. 42-46.
135
Compl. ¶ 303.

30
securities class action complaint.136 And it relied on Gibson Dunn’s procurement-

related investigation.137

Although directors are obligated to act with care when responding to a

demand, “there is obviously no prescribed procedure that a board must follow.”138

The Working Group’s “choice of people to interview or documents to review is one

on which reasonable minds may differ.” 139 The critical inquiry is whether the

directors neglected to consider material facts that are reasonably available.140

According to the Report, the Working Group determined that 3G and

affiliated persons lacked material non-public information belonging to Kraft Heinz

before the August 2018 stock sale. 141 The focus of a Brophy analysis is on the

corporation’s confidential information, and the Working Group determined from

Kraft Heinz’s documents that there was no material non-public information at issue.

136
Id. ¶ 315.
137
Id. ¶¶ 301-02.
138
Levine, 591 A.2d at 214.
139
Mount Moriah Cemetery v. Moritz, 1991 WL 50149, at *4 (Del. Ch. Apr. 4, 1991),
aff’d, 599 A.2d 413 (Del. 1991).
140
See Brehm, 746 A.2d at 259 (explaining that “the informational component of the
directors’ decisionmaking does not mean that the Board must be informed of every fact”
but that they are “responsible for considering only material facts that are reasonably
available, not those that are immaterial or out of the Board’s reasonable reach”); Andersen,
2017 WL 218913, at *4 (“The gross negligence inquiry focuses on whether the board
properly informed itself of material information reasonably available to it before refusing
the demand.”).
141
Report 92-103.

31
It is unclear why 3G’s internal documents were needed to reach this conclusion or

why they would have altered the Working Group’s findings and recommendations.

As to the confidential witness interviews, there is no basis to conclude that

they would have been material rather than cumulative. The plaintiffs aver that the

Working Group should have spoken with the 26 confidential witnesses because

certain statements from them were used in the securities action complaint. But an

investigatory committee is not required to speak to every person with relevant

information.142 The plaintiffs’ suggestion that these witnesses had unique material

information compared to the dozen witnesses interviewed and tens of thousands of

documents reviewed is speculative.143 There is no factual basis to infer that the

interviews would have altered the Working Group’s conclusions or the Board’s

decision to refuse the demands.144

142
See Moritz, 1991 WL 50149, at *4 (“Inevitably, there will be potential witnesses,
documents and other leads that the investigator will decide not to pursue. That decision
will not be second guessed by this Court on the showing made here.”); Belendiuk v.
Carrión, 2014 WL 3589500, at *6 (Del. Ch. July 22, 2014) (“This Court repeatedly has
held that a stockholder’s criticisms regarding the types of documents reviewed or the
persons interviewed in connection with an investigation do not rise to the level of gross
negligence, because those choices are ones on which reasonable minds may differ.”).
143
Compl. ¶¶ 315-19.
144
See Ironworkers, 2015 WL 2270673, at *26 n.255 (rejecting an argument that a
committee was grossly negligent for failing to interview certain individuals where there
were no particularized allegations that “information unique to these individuals” would
“have changed the Board’s determination to refuse the demand, in light of the otherwise
exhaustive investigation conducted”).
32
The Working Group’s use of Gibson Dunn’s prior investigatory work is also

not indicative of a defective investigation. 145 According to the plaintiffs, the

Working Group’s reliance on a “years-old investigation into the issues” suggests that

it “was interested only in absolution, not the truth.”146 This theory is undermined by

the Report.147

Simpson Thacher concluded that Gibson Dunn’s process was sufficiently

robust that the Working Group could rely on it; the Working Group agreed. Gibson

Dunn had collected and reviewed 2.2 million documents from 24 custodians and

conducted 105 interviews of 77 current and former Kraft Heinz employees. 148

Simpson Thacher supplemented Gibson Dunn’s investigation in several respects,

including additional witness interviews and a separate evaluation of the remedial

145
See Kops v. Hassell, 2016 WL 7011569, at *4 (Del. Ch. Nov. 30, 2016) (holding that
the board was entitled to rely on a prior investigation conducted in response to a previous
stockholder demand and rejecting arguments that such reliance implied gross negligence
or bad faith by a demand review committee); see also Gould ex rel. Bank of Am. v.
Moynihan, 275 F. Supp. 3d 487, 496-97 (S.D.N.Y. 2017) (applying Delaware law and
concluding that the board “was adequately informed when it refused the Demand” where
it “had been responding to significant regulatory investigations and civil lawsuits” and
“drew on its existing knowledge developed in the course of responding to related
allegations”).
146
Compl. ¶ 321.
147
Report 52-54.
148
Id. at 52.

33
measures implemented by the company.149 This record in no way implies grossly

negligence—much less bad faith—by the Working Group.

b. Reasonableness of the Conclusions

The Report stated that, with the “potential exception” of Pelleissone and

Hofmann, there was no evidence showing the individuals and entities named in the

demands had violated applicable law.150 The Working Group determined there was

no basis to conclude that material misstatements or omissions were made with

scienter in Kraft Heinz’s public statements, SEC filings, or consolidated

financials.151 The Working Group found no evidence of wrongdoing concerning the

Company’s procurement function or the $15.4 billion impairment charge. 152 It

identified no evidence “establishing that there are colorable claims relating to insider

trading” by 3G. 153 With respect to Pelleissone and Hofmann, it concluded that

litigation would not be in Kraft Heinz’s best interest based on practical

considerations.154

149
Id. at 54.
150
Id. at 12.
151
Id. at 14-15, 61-76.
152
Id. at 16-18, 77-88.
153
Id. at 91.
154
Id. at 12-14, 63-64, 77-78. It bears noting that neither Pelleissone nor Hofmann were
3G partners.
34
The plaintiffs take issue with these assessments as incorrect, unsupported, or

incredible. 155 But there are no well-pleaded facts contradicting them. “[M]ere

disagreement with the [Working Group’s] ultimate conclusion, as well as its

subsidiary conclusions leading thereto, will be insufficient to raise a reasonable

doubt that the Board acted in good faith and on an informed basis.”156

The plaintiffs’ lead argument is that both internal documents and common

sense belie the Working Group’s finding that 3G lacked material non-public

information when it sold stock in August 2018. Much is made of a July 24, 2018

email from a 3G employee to Knopf—an email discussed in the Report.157 The

Working Group found that this email reflects notice of 3G’s intention to sell

approximately 19 million shares from its Fund IV and requests information from

Kraft Heinz in connection with the sale. 158 The plaintiffs read the email as

evidencing insider trading because the sender sought Kraft Heinz’s valuation using

“realistic” assumptions “based on [the] current 2019 view.”159 The plaintiffs say that

this statement implies the publicly available information was unrealistic and

155
See Pls.’ Answering Br. 37-39, 47-50.
156
Ironworkers, 2015 WL 2270673, at *27.
157
Keener Aff. Ex. 2 (email from M. Romaniero of 3G to D. Knopf and T. Dadon of Kraft
Heinz); see Pls.’ Answering Br. 47; Hr’g Tr. 40-43.
158
Report 92. The email also references a lockup pertaining to Fund III; the intended sale
was for Fund IV. Keener Aff. Ex. 2.
159
Keener Aff. Ex. 2.

35
unreliable, requiring 3G to seek out non-public “realistic” information directly from

Kraft Heinz.160

The plaintiffs’ interpretation is strained. The email came at the end of the

quarter.161 It does not express any concern about the reliability of the projections

or—more importantly—the impairment risks. Nor does it suggest that the trading

defendants learned material information different from what the market knew.162 It

is hardly a smoking gun.

Regardless, it was the Working Group’s prerogative to evaluate the document.

The email was assessed after the Working Group and its counsel reviewed the

circumstances surrounding the sale, including by interviewing Knopf (who received

the email) and Behring (who made the information request).163 “The existence of

160
See Hr’g Tr. 41 (plaintiffs’ counsel explaining this theory).
161
Compl. ¶ 172.
162
See In re Camping World Hldgs., Inc. S’holder Deriv. Litig., 2022 WL 288152, at *9-
10 (Del. Ch. Jan. 31, 2022) (explaining that an assessment of materiality requires well-
pleaded allegations of a “substantial likelihood” that the information “would have assumed
actual significance in the deliberations of a person deciding whether to buy, sell, vote, or
tender stock” and that “the context of the supposedly material information, including the
information that was known to the market” is relevant (citation omitted)), aff’d, 285 A.3d
1204 (Del. 2022); Tilden v. Cunningham, 2018 WL 5307706, at *19 (Del. Ch. Oct. 26,
2018) (stating that courts will not credit conclusory allegations that “because [defendants]
were on the Board and in management” they “must have obtained some additional, material
nonpublic information”).
163
Report 57.

36
one or a few troubling documents is insufficient” to support an inference of bad faith

by the Working Group and Board.164

Next, the plaintiffs quarrel with the results of AlixPartner’s forensic

accounting review.165 In a report attached as Appendix A to the Working Group’s

Report, AlixPartners opined that Kraft Heinz did not experience a sustained decline

in market capitalization or share price before November 1, 2018 that would have led

it to recognize an impairment triggering event. 166 The plaintiffs insist that this

analysis is flawed because Kraft Heinz allegedly faced business headwinds and other

“potential triggering events” during this period. 167 Conclusory allegations and

164
Zucker v. Hassell, 2016 WL 7011351, at *10 (Del. Ch. Nov. 30, 2016). The plaintiffs
say that Zucker is distinguishable because the committee there was shown the document in
question but the directors here relied on counsel. Pls.’ Answering Br. 48. This argument
is meritless. The Working Group and Board were entitled to rely on Simpson Thacher.
See 8 Del. C. § 141(e). The “informed decision to delegate a task is as much an exercise
in business judgment as any other.” Grimes, 673 A.2d at 1214, overruled on other grounds
by Brehm, 746 A.2d 244. The email here is also not so “troubling,” as in Zucker, that I
would expect the Working Group to have personally reviewed it.
165
Compl. ¶¶ 294-95, 306-10.
166
Report App’x A at 18-22 (stating that there was no sustained decline in share price or
market capitalization before November 1, 2018 both in “absolute terms and relive to [Kraft
Heinz’s] peers”). Although the Complaint alleges other share price declines, it does not
allege with particularity that there was a sustained decline both in absolute terms and
relative to the company’s peers.
167
Pls.’ Answering Br. 52; see also id. at 51-53.

37
suppositions cannot, however, put in doubt the Board’s good faith in weighing the

analysis of its independent advisor.168

The plaintiffs further attack the Working Group for giving short shrift to the

opinion denying a motion to dismiss the securities class action in the Northern

District of Illinois. Twice, though, the Report states that the Working Group

carefully considered the pleadings in that case while remaining mindful that the

operative standard in the opinion required the federal court to treat allegations as

true.169 As the report correctly noted, a different benchmark guided the Working

Group’s efforts. The Working Group was not accepting allegations but charged with

making a fact-based inquiry into whether pursuing litigation would be in the best

interest of Kraft Heinz and its stockholders.170

168
Ironworkers, 2015 WL 2270673, at *30 (“[T]hat the Plaintiff disagrees with the
Committee’s conclusions is simply insufficient to raise a reasonable doubt that the Board's
adoption of the Committee's recommendation was made in good faith, and the Plaintiff has
made no other proffer as to why the decision to decline to pursue litigation on this claim
must be in an interest other than that of the corporation.”).
169
Report 10-11, 16.
170
Id. at 11. The argument that the Working group “downplay[ed] the SEC’s Order,” in
which accounting improprieties were found, is similarly baseless. Pls.’ Answering Br. 5.
The Report explains that the Working Group considered all finance and gatekeeping
personnel in addition to Hofmann and Pelleissone. Id. at 79-80. It further details the
Working Group’s consideration of the facts of the misconduct and the company’s remedial
measures. Id. at 77-82.
38
Finally, the plaintiffs disagree with the Working Group’s conclusion that five

practical factors cut against litigation.171 These factors are: (1) that the costs of

litigation would outweigh any potential recovery from the demands’ targets,

especially considering advancement and indemnification obligations; (2) the

exculpatory provision in the company’s charter; (3) the diversion of key personnel

that would impede the business, especially given existing remedial efforts; (4) the

risk of undermining the company’s defenses in pending litigation; and

(5) unwarranted reputational harm to Kraft Heinz.172 The Working Group weighed

these factors individually and collectively in concluding that litigation was

unadvisable, including against Pelleissone and Hofmann.173 The factors were not

assessed in a vacuum but in view of the Working Group’s findings on the merits.

The plaintiffs’ insistence that I reject these considerations as “unpersuasive”

may be the worst example of their desire to substitute their subjective views for the

Board’s.174 “It is within the bounds of business judgment” for a board to refuse a

litigation demand after concluding “that a lawsuit, even if legitimate, would be

171
Pls.’ Answering Br. 54-57.
172
Report 107-110.
173
Id.
174
See Pls.’ Answering Br. 54.

39
excessively costly to the corporation or harm its long-term strategic interests.”175

Disagreement does not plead bad faith.

* * *

Viewed together, the plaintiffs’ allegations fail to meet the Rule 23.1 standard

for pleading wrongful refusal. The fact of their demands concedes that the Board ex

ante could consider them impartially. There are no well-pleaded facts calling into

question the Board’s disinterestedness or independence ex post. Arguments about

“structural flaws” in the Working Group fail on that basis, and because Pope did not

face a substantial likelihood of liability.

The plaintiffs’ challenges to the Working Group’s process and Board’s

response to the demands are similarly lacking. The Working Group undertook a

thorough investigation and reached conclusions based upon evidence and

independent advice. There are no well-pleaded facts creating a reasonable doubt

that the Board acted in good faith and with due care when it rejected the demands.

175
In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 986 (Del. Ch. 2007); see also In
re AbbVie Inc. S’holder Deriv. Litig., 2015 WL 4464505, at *6 (Del. Ch. July 21, 2015)
(observing that Delaware courts have “long recognized that derivative litigation is
burdensome to companies, by way of the direct costs of the litigation, including
advancement and indemnification obligations, as well as indirect costs, such as distraction
to management and the board, and possible detriment to employee morale” (citation
omitted)); Busch ex rel. Richardson Elecs., Ltd. v. Richardson, 2018 WL 5970776 (Del.
Ch. Nov. 14, 2018) (holding that a complaint failed to plead bad faith, in part, because the
special committee concluded that it was “unclear that the Company was harmed,” that an
exculpatory charter provision might apply, and that the “potential costs of bringing any
lawsuit outweigh the potential benefits”).
40
III. CONCLUSION

The plaintiffs have failed to allege that the Kraft Heinz Board wrongfully

refused their demands. The defendants’ Rule 23.1 motion to dismiss is granted and

the Complaint is dismissed with prejudice. As a result, the Rule 12(b)(6) motion to

dismiss is moot.

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