The Raj and Sonal Abhyanker Family Trust v. Mason Blake and UpCounsel

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
THE RAJ AND SONAL ABHYANKER )
FAMILY TRUST, derivatively on behalf )
of UpCounsel, Inc., )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0521-KSJM
)
MASON BLAKE, MATTHEW )
FAUSTMAN, and GREG RUDIN, )
)
Defendants, )
)
and )
)
UPCOUNSEL, INC. )
)
Nominal Defendant. )
MEMORANDUM OPINION
Date Submitted: March 4, 2021
Date Decided: June 17, 2021
Ann M. Kashishian, KASHISHIAN LAW LLC, Wilmington, Delaware; Raj Abhyanker,
Nicholas Craft, Wensheng Ma, LEGALFORCE RAPC WORLDWIDE, Mountain View,
California; Counsel for Plaintiff The Raj and Sonal Abhyanker Family Trust.
Alan D. Albert, O’HAGAN MEYER PLLC, Wilmington, Delaware; Todd A. Roberts,
Nicole S. Healy, ROPERS MAJESKI, Redwood City, CA; Counsel for Defendants Mason
Blake, Matthew Faustman, and Greg Rudin.
McCORMICK, C.
In 2019, UpCounsel, Inc. (“UpCounsel” or the “Company”) entered into an
agreement to license its software to LinkedIn Corporation (the “LinkedIn Agreement”).
The LinkedIn Agreement required the Company to cease operations, dissolve, and use
commercially reasonable efforts to ensure that certain employees accept employment
offers from LinkedIn. The transaction was approved by 85% of the UpCounsel
stockholders acting by written consent, and UpCounsel closed on the transaction.
The Raj and Sonal Abhyanker Family Trust (“Plaintiff” or the “Trust”) refused to
consent to the transaction on the belief that it would adversely impact the value of
UpCounsel. Through its trustee, Raj Abhyanker, Plaintiff demanded that UpCounsel: not
re-direct traffic to LinkedIn, require that certain directors be recused from board decisions
and removed from the board, and initiate litigation against certain directors and LinkedIn.
The board refused Plaintiff’s demands.
Plaintiff then filed this litigation against UpCounsel’s former CEO Mason Blake,
former interim CEO Greg Rudin, and Chairman Matthew Faustman (collectively,
“Defendants”). Plaintiff claims that Defendants breached their fiduciary duties by
approving the transaction, were unjustly enriched by the transaction, and violated
Section 275 of the Delaware General Corporation Law (the “DGCL”) by adopting a plan
of dissolution without stockholder approval. Defendants have moved to dismiss the
complaint pursuant to Court of Chancery Rules 23.1 and 12(b)(6), and this decision largely
grants that motion.
I. FACTUAL BACKGROUND
The facts are drawn from the Verified Complaint (the “Complaint”), its exhibits,
and documents incorporated by reference.1
At all relevant times, UpCounsel’s board of directors (the “Board”) comprised
Martina Lauchengco, Venky Ganesan, Matthew Faustman, and Mason Blake. Faustman
is the Board Chairman. Blake has been the Company’s CEO since February 2019. Greg
Rudin was the interim CEO for about one week in February 2019. The Complaint does
not state whether Rudin was involved in any decisions relevant to Plaintiff’s claims during
his one-week stint as CEO.
Plaintiff is a family trust that owns UpCounsel common stock. Plaintiff’s trustee,
Abhyanker, and his law firm were engaged in a federal lawsuit against UpCounsel from
2018 to 2019. UpCounsel settled the lawsuit by issuing common stock to Plaintiff. After
the settlement, Abhyanker agitated for reform at UpCounsel and even offered to resign
from his position to become UpCounsel’s CEO. According to the Complaint, UpCounsel
rebuffed these offers and did not provide Abhyanker with information about the sales
process that led to the LinkedIn Agreement.
The sales process culminated in September 2019, when the Board unanimously
recommended the LinkedIn Agreement to stockholders. As part of the LinkedIn
Agreement, UpCounsel agreed to make “commercially reasonable efforts” to: (1) ensure
1
C.A. No. 2020-0521-KSJM, Docket (“Dkt.”) 1 (“Compl.”); see also Furman v. Del. Dep’t
of Transp., 30 A.3d 771, 774 (Del. 2011) (permitting consideration of a document outside
the pleadings “where [the] extrinsic document is integral to a plaintiff’s claim and is
incorporated into the complaint by reference”).
2
that certain employees, including Faustman and Blake, would “commence employment”
with LinkedIn; (2) “cease commercial operations;” and (3) “wind-down its business within
120 days of the Closing Date . . . and liquidate and dissolve the Company as a corporation
as promptly as practicable thereafter.”2
The Board determined to seek stockholder approval for the LinkedIn Agreement.
Stockholders were provided an Information Statement that included the proposed
transaction documents with LinkedIn. After obtaining written consents authorizing the
transaction from stockholders holding more than 85% of shares entitled to vote, UpCounsel
entered into the LinkedIn Agreement.
Blake provided Abhyanker with notice of the stockholder written consents on
October 1, 2019, pursuant to Section 228(e) of the DGCL. Blake wrote, by email: “Over
the next 3-4 months, UpCounsel will be migrating certain assets, clients, lawyers and
demand over to LinkedIn. Also, some UpCounsel employees accepted job offers to join
LinkedIn. At the end of this 3-4 month migration window, UpCounsel will be winding
down and dissolving the business.”3 Blake also stated that “[a]fter paying the company’s
liabilities, the remaining assets of the company will be well below the liquidation
preference payable [to] the company’s Series A Preferred Stock stockholders pursuant to
the certificate of incorporation” and “[a]s a result, there will be no assets remaining to
distribute to the holders of . . . Common Stock.”4 Blake described the “transaction with
2
Dkt. 11 (“Blake Decl.”) Ex. 2 ¶¶ 8–9.
3
Compl. Ex. F.
4
Id.3
LinkedIn” as “the culmination of an extensive process we went through with our board and
investors and many potential acquirers to determine the best outcome for UpCounsel.”5
Blake requested that Abhyanker keep the information confidential.6
After receiving the October 1, 2019 communication, Abhyanker emailed Blake to
express his disappointment. He demanded to inspect UpCounsel’s books and records
pursuant to Section 220 of the DGCL, but the Company rejected the demand because
Abhyanker had expressly waived information rights when entering into the settlement
agreement through which Plaintiff acquired stock.
Abhyanker initiated a lawsuit seeking to enjoin the LinkedIn Agreement in
California state court on October 9, 2019. The California court denied both motions on the
grounds that Plaintiff failed to establish irreparable harm and was not substantially likely
to prevail on the merits.
Subsequently, Abhyanker made a series of demands on UpCounsel in his capacity
as Plaintiff’s trustee.
On January 25, 2020, Abhyanker sent the Board a demand to not redirect traffic to
LinkedIn, to have Blake and Faustman recuse themselves from decisionmaking on various
matters, and to institute litigation against Blake, Faustman, and LinkedIn.7 Abhyanker
entitled the January 25 email: “URGENT NOTICE - Minority Shareholder NOTICE to
5
Id.6
Id.7
Blake Decl. Ex. 4. The court may consider pre-suit communications for Rule 23.1
purposes. City of Tamarac Firefighters’ Pension Tr. Fund v. Corvi, 2019 WL 549938,
at *2 & n.3 (Del. Ch. Feb. 12, 2019).
4
UpCOUNSEL board ->>>> Notice of Objection to Prospective Action by UpCounsel, Inc.
& LinkedIn.”8 Abhyanker stated in the email that “[u]ntil our lawsuit [sic] filed against
UpCounsel . . . are resolved,” the Board is on notice that redirecting traffic to LinkedIn
would cause the Trust to “suffer irreparable harm” due to UpCounsel’s “diminished”
goodwill, revenue diverted to LinkedIn, and decreasing asset value.9 Abhyanker asserted
that the Board’s redirection of traffic to LinkedIn would be “a gross breach of [their]
fiduciary duties” and would “give rise to . . . a shareholder derivivitive [sic] lawsuit.”10
Abhyanker also made a “demand that Matthew Faustman, Mason Blake recuse themselves
from ANY and ALL decision [sic]” regarding traffic redirection to LinkedIn.11 He
additionally “demand[ed] that Mason Blake be removed as the ‘part time CEO’” of
UpCounsel.12
On January 27, 2020, Abhyanker sent a another demand to the Board to terminate
Faustman and Blake and to file a contract interference tort claim against LinkedIn,
Faustman, and Blake.13 Abhyanker entitled the January 27 email: “Immediate Demand to
Act, UpCounsel, Inc. Board.”14 Abhyanker stated in the email that “[t]his email serves as
an Official Notice to the Board, per Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993) . . .
8
Blake Decl. Ex. 4 at 1.
9
Id.10
Id.11
Id.12
Id.13
Blake Decl. Ex. 5.
14
Id. at 1.
5
[and] serves as a former [sic] demand” by the Trust.15 Abhyanker demanded that the Board
“[i]mmediately terminate . . . Faustman and Blake from the UpCounsel, Inc. board . . . and
sue them for breaching their fiduciary duties, and unjust enrichment and self dealing
[sic].”16 If the Board refused to take such action, Abhyanker demanded that the Board
“[i]mmediately file a Third Party Interference of Contract claim against LinkedIn,
Faustman, and Blake.”17
Defendants state that the Board met to discuss Abhyanker’s various demands,
including whether the Company should proceed with performance of its contractual
obligations to LinkedIn in light of these demands, whether Faustman and Blake should
recuse themselves from voting on these matters, and whether the Company should sue
LinkedIn, Faustman, or Blake.18 Defendants assert these facts based on documents outside
of the pleadings, which the court need not consider for purposes of the instant motion.
On February 7, 2020, Plaintiff filed a complaint in the Superior Court of California
against LinkedIn and Defendants asserting claims for breach of contract, fraud, failure to
comply with 8 Del. C. § 275, breach of duty of loyalty, and unjust enrichment.19 On
March 5, 2020, in light of a Delaware forum selection provision in the Company’s
certificate of incorporation, the Superior Court of California dismissed all of Plaintiff’s
15
Id.
16
Id.
17
Id.
18
Blake Decl. ¶¶ 12–13.
19
Dkts. 11, 17 (“Barnes Decl.”) Ex. 2.
6
claims except the breach of contract and fraud claims.20 Almost four months later, Plaintiff
filed this action.21
The Complaint nominally asserts four causes of action, but the first two causes of
action are indistinguishable:
• In Counts I and II, Plaintiff alleges that Defendants breached their fiduciary
duties.22
• In Count III, Plaintiff alleges that Defendants breached Section 275 of the
DGCL pertaining to dissolution.
• In Count IV, Plaintiff claims that Defendants were unjustly enriched by the
LinkedIn Agreement.
20
Barnes Decl. Ex. 7.
21
Plaintiff moved for expedited, injunctive relief, which the court denied on the basis of
laches. See Dkts. 2, 45.
22
The second claim is cast as a breach of fiduciary duty “to the company,” Compl. at
Second Claim for Relief, but that is no different from Count I. Aside from circumstances
inapplicable here, fiduciary duties are owed to the corporation and its stockholders.
See, e.g., Dohmen v. Goodman, 234 A.3d 1161, 1168 (Del. 2020); OptimisCorp v. Waite,
137 A.3d 970, 2016 WL 2585871, at *3 (Del. Apr. 25, 2016) (TABLE); Polk v. Good, 507
A.2d 531, 536 (Del. 1986). At oral argument, Plaintiff indicated that it intended Count I
to be a direct claim and that the Complaint contained “a mere scrivener’s error.” Dkt. 44
at 27. Because a party cannot verbally amend a complaint at oral argument, this argument
does not serve to amend the pleadings. See Ct. Ch. R. 15 (outlining the process for
amending and supplementing pleadings).
Count I also alleges that Defendants, who are all fiduciaries, aided and abetted in
breaches of fiduciary duties. Compl. at First Claim for Relief. Under Delaware law, only
a non-fiduciary can be liable for aiding and abetting a breach of fiduciary duties. See
Gotham P’rs, L.P. v. Hallwood Realty P’rs, L.P., 817 A.2d 160, 172 (Del. 2002) (“The
elements of a claim for aiding and abetting a breach of a fiduciary duty are . . . a defendant,
who is not a fiduciary, knowingly participated in a breach . . . .”). Perhaps for this reason,
Plaintiff later abandoned its claim for aiding and abetting by failing to brief it. See Dkt. 39
(“Pl.’s Answering Br.”); see also Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999)
(“[I]ssues not briefed are deemed waived.”).
7
As relief, Plaintiff seeks a permanent injunction, “economic damages including, but
not limited to, compensatory and consequential damages incurred in lost time, attorney’s
fees, and expenses in uncovering breaches of fiduciary duty,” its costs and fees, pre- and
post-judgment interest, restitution, and other relief that this court lacks the ability to award,
such as “punitive damages.”23
Defendants have moved to dismiss Counts I, II, and IV pursuant to Court of
Chancery Rule 23.1, and to dismiss all claims pursuant to Court of Chancery Rule 12(b)(6).
The parties fully briefed the motion and the court heard oral argument on March 4, 2021.
II. LEGAL ANALYSIS
This decision first addresses Rudin’s motion to dismiss the claims asserted against
him. It then addresses Blake’s and Faustman’s Rule 23.1 motion as to Plaintiff’s claims
for breach of fiduciary duty and, separately, Plaintiff’s claim for unjust enrichment. It last
addresses Blake’s and Faustman’s Rule 12(b)(6) motion as to Plaintiff’s claim under
Section 275 of the DGCL.
23
See Compl. at Request for Relief; JSS, Ltd. v. Steelpoint CP Hldgs., LLC, 2019 WL
5092896, at *4 n.22 (Del. Ch. Oct. 11, 2019) (citing Beals v. Wash. Int’l, Inc., 386 A.2d
1156, 1157–60 (Del. Ch. 1978)) (noting that this court lacks the jurisdiction to award
punitive damages).
8
A. Rudin
Rudin argues that Plaintiff fails to state a claim against him because Plaintiff alleges
no facts specific to him and the relevant allegations are asserted “Against All Defendants,”
which is impermissible group pleading.24
The Complaint states that Rudin “was the interim Chief Executive Officer . . . for
about a week.”25 The Complaint fails, however, to allege a single fact related to Rudin’s
weeklong stint as CEO in February 2019. In fact, every reference in the Complaint to
events occurring in February 2019 mention Blake and Faustman by name but do not
mention Rudin.26
The Complaint groups Rudin in the defined term “Defendants,” but many of the
factual allegations that reference “Defendants” occurred before or after February 2019.27
A plaintiff must adequately plead a breach of fiduciary duty claim “against each individual
director [or officer]; so-called ‘group pleading’ will not suffice.”28
Because there are no specific factual allegations as to Rudin in his capacity as
interim CEO, it is not reasonably conceivable that he breached his fiduciary duties. To the
extent that the allegations encompass Rudin by nature of Plaintiff’s reference to
24
See Dkt. 33 (“Defs.’ Opening Br.”) at 24. Because Plaintiff failed to respond to this
argument in its answering brief, any response is deemed waived. See Pls.’ Answering Br.;
Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”)
25
Compl. ¶ 6.
26
See id. ¶¶ 16–17, 20.
27
See, e.g., id. ¶¶ 21–23, 41–42, 56.
28
See In re USG Corp. S’holder Litig., 2020 WL 5126671, at *23 (Del. Ch. Aug. 31, 2020)
(quoting Reith v. Lichtenstein, 2019 WL 2714065, at *18 (Del. Ch. June 28, 2019)).
9
“Defendants,” that constitutes impermissible group pleading. Accordingly, all Counts
brought against Rudin are dismissed.
B. Breach of Fiduciary Duty
Blake and Faustman argue that Plaintiff’s derivative claims for breach of fiduciary
duty be dismissed under Court of Chancery Rule 23.1. Blake and Faustman contend that
Plaintiff’s pre-suit communications with the Board constitute pre-suit demand under
Rule 23.1 and, therefore, the tacit concession doctrine bars Plaintiff from pursuing claims
that relate to the subject matter of the demand. Plaintiff counters that the pre-suit
communications may not be considered by the court and that they do not constitute pre-
suit demands under Delaware law in any event.
The tacit concession doctrine is an aspect of the demand requirement procedurally
embodied in Rule 23.1, which derives from the bedrock principle that the board of
directors, rather than stockholders, manage the business and affairs of the corporation.29 A
board’s authority to manage the business and affairs of the corporation includes deciding
to pursue or refrain from pursuing litigation on behalf of the corporation.30
As part of this board-centric model, Rule 23.1 presents a stockholder wishing to
bring a derivative action with two options. Either the stockholder makes a pre-suit demand
29
See Ct. Ch. R. 23.1; 8 Del. C. § 141(a).
30
Spiegel v. Buntrock, 571 A.2d 767, 772–73 (Del. 1990); Aronson v. Lewis, 473 A.2d
805, 811–12 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244(Del. 2000).
10
that the board of directors pursue the claims at issue,31 or the stockholder must plead with
particularity that it would have been futile to present the matter to the board.32
Of the two potential routes presented by Rule 23.1—pleading demand excusal with
particularity or making a pre-suit demand—the former is a steep road, but the latter is
“steeper yet.”33 By making a pre-suit demand, a stockholder “tacitly concedes” the
disinterest and independence of a majority of the board to respond to the demand, as the
Delaware Supreme Court held in Spiegel v. Buntrock. 34
31
Ct. Ch. R. 23.1; see also Spiegel, 571 A.2d at 773.
32
Ct. Ch. R. 23.1; see also Spiegel, 571 A.2d at 774; Klein v. H.I.G. Cap., L.L.C., 2018 WL
6719717, at *5 (Del. Ch. Dec. 19, 2018); Zucker v. Hassell, 2016 WL 7011351, at *1
(Del. Ch. Nov. 30, 2016).
33
Zucker, 2016 WL 7011351, at *1.
34
Spiegel, 571 A.2d at 777 (“By electing to make a demand, a shareholder plaintiff tacitly
concedes the independence of a majority of the board to respond. Therefore, when a board
refuses a demand, the only issues to be examined are the good faith and reasonableness of
its investigation.”); see also Levine v. Smith, 591 A.2d 194, 212 (Del. 1991) (“[B]y making
demand upon a board before filing suit, [a stockholder plaintiff] tacitly concedes the
independence of a majority of the board to respond.” (internal quotation marks omitted)),
overruled on other grounds by Brehm, 746 A.2d 244; Grimes v. Donald, 673 A.2d 1207,
1218–19 (Del. 1996) (“If a demand is made, the stockholder has spent one—but only one—
‘arrow’ in the ‘quiver.’ The spent ‘arrow’ is the right to claim that demand is excused.”),
overruled on other grounds by Brehm, 746 A.2d 244; Scattered Corp. v. Chi. Stock Exch.,
Inc., 701 A.2d 70, 74 (Del. 1997) (stating that “if the stockholders make a demand, as in
this case, they are deemed to have waived any claim they might otherwise have had that
the board cannot independently act on the demand”), overruled on other grounds by Brehm,
746 A.2d 244; Espinoza v. Dimon, 124 A.3d 33, 36 (Del. 2015) (“Delaware law . . . requires
that the decision of an independent committee to refuse a demand should only be set aside
if particularized facts are pled supporting an inference that the committee, despite being
comprised solely of independent directors, breached its duty of loyalty, or breached its duty
of care, in the sense of having committed gross negligence.”);, 2019 WL 549938, at *8
(clarifying that, by making a pre-suit demand, “the plaintiff accepts that the number of
board members necessary to carry a vote, typically a majority, lacks conflicts with respect
to the demand”); Busch v. Richardson, 2018 WL 5970776, at *8 (Del. Ch. Nov. 14, 2018)
(“[A] stockholder plaintiff who makes a demand ‘concedes that the board had the requisite
11
By operation of the tacit-concession doctrine, a board’s decision to refuse a demand
is subject to the business judgment rule. After making a pre-litigation demand, a
stockholder plaintiff may not pursue claims challenging the subject matter of the demand;
the stockholder is limited to a claim that the board wrongfully refused the demand. 35
Blake and Faustman contend that the January 2020 emails between Plaintiff and the
Board were pre-suit demands under Rule 23.1 that limit Plaintiff to claims for wrongful
refusal of the demands.
Plaintiff first responds that the court may not consider these communications when
resolving a pleading-stage motion because they are not included or referenced in the
complaint. This argument is fundamentally inconsistent with Delaware law. A plaintiff
may not avoid the effects of the tacit-concession doctrine by omitting reference to pre-suit
communications in the complaint.36
independence and disinterest to evaluate the demand objectively,’ [and] the ‘decision to
refuse a plaintiff’s demand is afforded the protection of the business judgment rule unless
the plaintiff alleges particularized facts that raise a reasonable doubt as to whether the
board’s decision to refuse the demand was the product of valid business judgment.’”
(quoting Friedman v. Maffei, 2016 WL 1555331, at *8 (Del. Ch. Apr. 13, 2016))).
35
Spiegel, 571 A.2d at 775 (“A shareholder who makes a demand can no longer argue that
demand is excused.”).
36
Corvi, 2019 WL 549938, at *2 (Del. Ch. Feb. 12, 2019); see also 4 Stephen A. Radin,
The Business Judgment Rule 4495 (6th ed. 2009) (“The board’s letter refusing a demand is
part of the record before the court on a motion to dismiss a complaint alleging wrongful
refusal of demand . . . pursuant to the principle that ‘when the plaintiff fails to introduce a
pertinent document as part of her pleading, . . . the defendant may introduce the document
as an exhibit to a motion attacking the sufficiency of the pleading.’” (quoting 5A Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1327, at 438–39 (3d
ed. 2004 & Supp. 2009))).
12
Plaintiff next argues that the pre-suit communications do not constitute pre-suit
demands for purposes of Rule 23.1, but this argument too is amiss.
The burden of demonstrating that a pre-suit stockholder communication qualifies as
a demand under Rule 23.1 lies with the party asserting as much—here, Blake and
Faustman.37 There are no “‘magic words’ establishing that a communication is a
demand.”38 Nor is there an “all-inclusive legal formula” serving such a purpose.39 Rather,
“[t]hat determination is essentially fact-driven.”40
In Yaw, then-Vice Chancellor Jacobs established three criteria for determining
whether a pre-suit communication constitutes a pre-suit demand.41 A pre-suit
communication is a demand for purposes of Rule 23.1 if it provides “(i) the identity of the
alleged wrongdoers, (ii) the wrongdoing they allegedly perpetrated and the resultant injury
to the corporation, and (iii) the legal action the shareholder wants the board to take on the
corporation’s behalf.”42 Although the test contains three parts, it calls for a holistic analysis
of the nature of the communication, asking whether the communication substantively
places a board on notice of the claim to be pursued.43
The pre-suit communications in this case constitute pre-suit demands under Yaw.
37
See Corvi, 2019 WL 549938, at *8–9.
38
Khanna v. McMinn, 2006 WL 1388744, at *13 (Del. Ch. May 9, 2006).
39
Yaw v. Talley, 1994 WL 89019, at *7 (Del. Ch. Mar. 2, 1994).
40
Id.41
Id.42
Id.43
See Solak v. Welch, 2019 WL 5588877, at *5 (Del. Ch. Oct. 30, 2019).
13
As to the first Yaw factor, Abhyanker’s January 25 email to Blake and Faustman
specifically charges them with “a gross breach of [their] fiduciary duties.” 44 Blake and
Faustman are therefore identified as alleged wrongdoers in the communication.
Abhyanker’s January 27 email likewise is sent to Blake and Faustman, who are again
charged with “breaching their fiduciary duties.”45 The first Yaw factor, that pre-suit
communications identify the alleged wrongdoers, is thus satisfied.
As to the second Yaw factor, the communications identify the wrongdoing that
Blake and Faustman allegedly perpetrated and the resultant injury to UpCounsel.
Abhyanker’s January 25 email asserts that re-directing traffic to LinkedIn would be “a
gross breach of [their] fiduciary duties” and would cause UpCounsel to be harmed due to
“diminished” goodwill, revenue diverted to LinkedIn, and its asset value decreasing.46
Abhyanker’s January 25 email notes any redirection would “give rise to . . . a shareholder
derivative lawsuit” due to the resulting harm to UpCounsel.47 The January 27 email also
charges the board members with “breaching their fiduciary duties . . . and self
dealing [sic].”48 The second Yaw factor, that the pre-suit communications identify the
wrongdoing allegedly perpetrated by the wrongdoers and the resultant injury to the
corporation, is also satisfied.
44
Blake Decl. Ex. 4.
45
Blake Decl. Ex. 5.
46
Blake Decl. Ex. 4.
47
Id.48
Blake Decl. Ex. 5.
14
As to the third Yaw factor, both pre-suit communications identify the legal action
that Abhyanker urges the Board to take on UpCounsel’s behalf. In his January 25 email,
entitled “URGENT NOTICE - Minority Shareholder NOTICE to UpCOUNSEL board -
>>>> Notice of Objection to Prospective Action by UpCounsel, Inc. & LinkedIn,”
Abhyanker made a “demand that Matthew Faustman, Mason Blake recuse themselves from
ANY and ALL decisions” regarding redirection of traffic to LinkedIn.49 He also
“demand[ed] that Mason Blake be removed as the ‘part time CEO’” of UpCounsel and
demanded that the Board not redirect traffic to LinkedIn.50 Furthermore, in Abhyanker’s
January 27 email entitled “Immediate Demand to Act, UpCounsel, Inc. Board,” he asserts
that “this email serves as a former [sic] demand” by the Abhyanker Family Trust for
UpCounsel’s Board to “[i]mmediately terminate . . . Faustman and Blake from the
UpCounsel, Inc. board . . . and sue them for breaching their fiduciary duties . . . and self
dealing [sic].”51 In the event the Board refused such action, Abhyanker next demanded
that the Board “[i]mmediately file a Third Party Interference of Contract claim against
LinkedIn, Faustman, and Blake.”52
The third Yaw factor, that the pre-suit communication contains legal action the
stockholder wants the board to take on the corporation’s behalf, is therefore also satisfied.
49
Blake Decl. Ex. 4.
50
Id.51
Blake Decl. Ex. 5.
52
Id.15
Moreover, in his two emails, Abhyanker said “demand” multiple times and made
various demands upon the Board. Furthermore, in his January 27 email, Abhyanker cites
Rales v. Blasband, noting that “[t]his email serves as an Official Notice to the Board, per
Rales v. Blasband.”53 It would be an unreasonable contortion of these communications to
conclude that they were anything other than a demand for the purposes of Rule 23.1.
Because Plaintiff made multiple pre-suit demands, Plaintiff is limited to claiming
that the Board wrongfully refused the demands. The Complaint, however, does not assert
a claim for wrongful refusal. Instead, the Complaint does precisely what Spiegel bars: it
makes a claim for demand futility following multiple, actual demands made upon the
Board. As such, Counts I and II for breach of fiduciary duty are dismissed pursuant to
Rule 23.1.
C. Unjust Enrichment
Blake and Faustman argue that Plaintiff’s derivative claims for breach of unjust
enrichment should also be dismissed under Court of Chancery Rule 23.1.
Post-Spiegel, “a judicial determination that a plaintiff has made a demand carries
with it significant legal consequences.”54 Delaware courts have toed a hard line against
stockholder plaintiffs attempting to game the tacit concession doctrine, applying the
53
Id.54
Yaw, 1994 WL 89019, at *6.
16
doctrine to bar all derivative claims arising from the subject matter of the demand, even
legal theories not expressly identified by the stockholder or considered by the board.55
Plaintiff’s unjust enrichment claim arises from the subject matter of the demands
and thus must also be dismissed under Rule 23.1.56 The unjust enrichment claim arises
from the LinkedIn Agreement. Plaintiff alleges that Blake and Faustman were unjustly
enriched because the LinkedIn Agreement was a “sweetheart deal” for them.57 According
to Plaintiff, Blake and Faustman “worked together to approve the wind-down plan” in
connection with the LinkedIn Agreement because it would result in increased
compensation for them.58 If there were any doubt that the unjust enrichment claims were
55
See, e.g., Solak, 2019 WL 5588877, at *4 (“[A] stockholder may not pursue demand
refusal and demand excusal strategies simultaneously in order to ‘cover all the bases.’ The
Delaware Supreme Court has broadly interpreted this limitation to apply to all derivative
claims arising from the subject matter of the demand, even legal theories not expressly
identified by the stockholder or considered by the board.” (quoting Levit v. Shrontz,
1992 WL 81228, at *5 (Del. Ch. Apr. 20, 1992))), aff’d, 228 A.3d 690 (Del. 2020); see also
Grimes, 673 A.2d at 1219 (“[P]laintiff may not bifurcate his theories relating to the same
claim . . . . [Plaintiff’s] demand letter conceded that demand was required for all legal
theories arising out of the set of facts described in the demand letter.”); Deborah A. Demott
& David F. Cavers, Shareholder Derivative Actions: Law and Practice § 5.10, at 725
(2018) (“[A] demand implicitly encompasses all legal theories or remedies arising out of
the same set of circumstances. Under this rule, there is no incentive to bifurcate or hold
back legal theories, in the hope that demand might be excused on the unexpressed claim
arising out of the same set of facts.” (citing Grimes, 673 A.2d at 1219)).
56
See supra Section II.B. Plaintiff seems to agree in its answering brief that the two claims
arise from the same subject matter. See Pl.’s Answering Br. at 25 (“Courts are hesitant to
deny a claim for unjust enrichment simply because it is duplicative of an earlier count.”).
57
Compl. ¶ 90.
58
Id. ¶¶ 91–93.
17
part and parcel of the pre-suit communications, Abhyanker’s January 27 email eliminates
it by specifically charging Blake and Faustman with “unjust enrichment.”59
Because Plaintiff’s unjust enrichment claims arise from the subject matter of the
pre-suit demands, Plaintiff is limited to claiming that the Board wrongfully refused the
demands. As discussed above, however, the Complaint does not do so. Accordingly,
Count IV for unjust enrichment is also dismissed pursuant to Rule 23.1.
D. Section 275 of the DGCL
Plaintiff seeks to dismiss Plaintiff’s claim under Section 275 of the DGCL pursuant
to Court of Chancery Rule 12(b)(6).
On a motion to dismiss pursuant to Rule 12(b)(6), the court accepts “all well-
pleaded factual allegations in the Complaint as true, [and] accept[s] even vague allegations
in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim.”60
The court “is not, however, required to accept as true conclusory allegations without
specific supporting factual allegations.”61 The court draws “all reasonable inferences in
favor of the plaintiff, and den[ies] the motion unless the plaintiff could not recover under
any reasonably conceivable set of circumstances susceptible of proof.”62
59
Blake Decl. Ex. 5.
60
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
61
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (internal
quotation marks omitted).
62
Cent. Mortg., 27 A.3d at 536 (citing Savor, 812 A.2d at 896–97).
18
Blake and Faustman argue that Plaintiff’s claim for violation of Delaware General
Corporation Law Section 275 should be dismissed because UpCounsel’s Board has neither
proposed nor implemented a plan of dissolution. Plaintiff counters that Blake notified
Plaintiff that a plan of dissolution was being carried out and UpCounsel would soon
dissolve but that Plaintiff neither receive notice of a meeting to vote on nor provided written
consent for such plan.
Blake and Faustman respond by arguing that, “as is evident on the record already
developed in this action, . . . no plan of dissolution has been proposed to the
stockholders.”63 When advancing this argument, they rely primarily on exhibits not
incorporated in the Complaint. For example, they cite to: the Declaration of Mason Blake;
a September 11, 2019 consent solicitation and letter to stockholders regarding the LinkedIn
Agreement; the LinkedIn Agreement; and signed stockholder consents to the LinkedIn
Agreement.64 The court cannot consider these documents on a motion pursuant to
Rule 12(b)(6).
Because Defendants rely on documents outside of the pleadings in support of their
motion, the motion will be treated as one for summary judgment under Rule 56. 65 Plaintiff
63
Defs.’ Opening Br. at 23.
64
See id. at 23–26 (citing Blake Decl.; Blake Decl. Exs. 1–3); Dkt. 40 at 18–20 (citing
Blake Decl.).
65
See Ct. Ch. R. 12(b)(6); Acero Cap., L.P. v. Swrve Mobile, Inc., 2021 WL 2207197, at *2
& n.5 (Del. Ch. June 1, 2021) (collecting authorities); Lavi v. Wideawake Deathrow Ent.,
LLC, 2011 WL 284986, at *1 (Del. Ch. Jan. 18, 2011); see also Black v. Gramercy
Advisors, LLC, 2007 WL 2164286, at *1 (Del. Ch. July 23, 2007) (“It [is] not the court’s
duty to wade through the defendants’ voluminous submissions, to search for arguments or
19
is granted leave to respond to the motion as a Rule 56 motion, submitting an affidavit
pursuant to Rule 56(e) if appropriate.
III. CONCLUSION
For the foregoing reasons, Rudin’s motion to dismiss the Complaint is GRANTED.
Blake’s and Faustman’s motion to dismiss Counts I, II, and IV is GRANTED. As to
Count III, Blake’s and Faustman’s motion is converted to a motion pursuant to Rule 56,
and the parties shall confer on a schedule for resolving that motion.
subarguments that could be decided on the basis of the well pleaded facts of the complaint
alone.”).
20