In Re Kraft Heinz Company Derivative Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
IN RE KRAFT HEINZ COMPANY ) CONSOLIDATED
DERIVATIVE LITIGATION ) C.A. No. 2019-0587-LWW
)
MEMORANDUM OPINION
Date Submitted: October 4, 2021
Date Decided: December 15, 2021
Joel Friedlander, Jeffrey Gorris, and Christopher M. Foulds, FRIEDLANDER &
GORRIS P.A., Wilmington, Delaware; P. Bradford deLeeuw, DELEEUW LAW
LLC, Wilmington, Delaware; David A. Jenkins and Robert K. Beste III, SMITH,
KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Eduard Korsinsky,
Gregory M. Nespole, Nicholas I. Porritt, and Daniel Tepper, LEVI & KORSINSKY
LLP, New York, New York; Jeffrey S. Abraham, Mitchell M. Z. Twersky, Atara
Hirsch, and Michael J. Klein, ABRAHAM, FRUCHTER & TWERSKY, LLP, New
York, New York; Lawrence P. Eagel, W. Scott Holleman, Melissa A. Fortunato, and
Marion C. Passmore, BRAGAR EAGEL & SQUIRE, P.C., New York, New York;
Michael VanOverbeke, VANOVERBEKE, MICHAUD & TIMMONY, P.C.,
Detroit, Michigan; Deborah Sturman, STURMAN LLC, New York, New York;
Counsel for Plaintiffs General Retirement System of the City of Detroit, Police &
Fire Retirement System of the City of Detroit, and Erste Asset Management GmbH
Michael A. Pittenger, Jacqueline A. Rogers, and Caneel Radinson-Blasucci,
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Sandra C.
Goldstein, Stefan Atkinson, and 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
Matthew D. Stachel, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
Wilmington, Delaware; Daniel J. Kramer, Andrew J. Ehrlich, and William A.
Clareman, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New
York, New York; Counsel for Defendants Bernardo Hees, Alexandre Behring, Jorge
Paulo Lemann, Marcel Herrmann Telles, Paulo Basilio, David Knopf, and Eduardo
Pelleissone, and Nominal Defendant The Kraft Heinz Company
WILL, Vice Chancellor
This stockholder derivative action arises from 3G Capital, Inc’s sale of 7% of
its then-24% stake in The Kraft Heinz Company. The sale was followed by Kraft
Heinz disclosing disappointing financial results and its stock price dropping
significantly. 3G’s proceeds from the sale exceeded $1.2 billion.
In this litigation, the plaintiffs contend that defendants 3G, entities affiliated
with it, and certain dual fiduciaries of 3G and Kraft Heinz breached their fiduciary
duties to Kraft Heinz stockholders. The plaintiffs’ claims are based on allegations
that the defendants either approved 3G’s stock sale based on adverse material
nonpublic information or allowed 3G to effectuate the sale to the detriment of Kraft
Heinz and its non-3G stockholders.
As with every stockholder derivative action, the plaintiffs must adhere to
Court of Chancery Rule 23.1 by making a demand on the board of directors or
demonstrating that a demand would have been futile. The plaintiffs did not make a
demand on the Kraft Heinz board and maintain that demand should be excused
because a majority of the board is not independent of 3G. For the reasons explained
below, the plaintiffs have failed to establish demand futility. As such, the action is
dismissed in its entirety.
1
I. BACKGROUND
The following facts are drawn from the Consolidated Amended Verified
Stockholder Derivative Complaint (the “Complaint”) and the documents it
incorporates by reference.1
A. The Kraft Heinz Company Is Formed.
The Kraft Heinz Company is a publicly traded Delaware corporation that
describes itself as “one of the largest global food and beverage companies.” 2 Kraft
Heinz was formed in 2015 when Kraft Food Groups, Inc. (“Kraft”) merged with The
H.J. Heinz Company (“Heinz”).
Heinz was jointly purchased by global investment firm 3G Capital, Inc.3 and
Berkshire Hathaway Inc. in 2013.4 3G and Berkshire each took a 50% stake in the
1
Consolidated Am. Verified Stockholder Derivative Compl. (“Compl.”) (Dkt. 117). See
Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013) (“[A] plaintiff may not
reference certain documents outside the complaint and at the same time prevent the court
from considering those documents’ actual terms.”); Freedman v. Adams, 2012 WL
1345638, at *5 (Del. Ch. Mar. 30, 2012) (“When a plaintiff expressly refers to and heavily
relies upon documents in her complaint, these documents are considered to be incorporated
by reference into the complaint . . . .”). The parties agreed that documents produced by
Kraft Heinz pursuant to 8 Del. C. § 220 would be deemed incorporated into any complaint
the plaintiffs filed. See Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch.
2016).
2
Compl. ¶ 53.
3
For the reader’s benefit, the court will, at times, refer to the defendant 3G-affiliated
entities (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) together as “3G.”
4
Compl. ¶ 3.
2
company and contributed $4 billion in capital as part of the deal. 5 3G was charged
with managing the day-to-day operations of Heinz. 3G partners (and defendants)
Bernando Hees and Paulo Basilio were named CEO and CFO, respectively.6
3G—founded by defendants Jorge Paulo Lemann, Alexandre Behring, and
Marcel Herrmann Telles, among others—had previously and successfully rolled up
brand-name companies in the food and beverage and hospitality sectors.7 For
example, 3G was involved in the creation of Anheuser-Busch InBev (“AB InBev”),
in which Berkshire once held a large stake.8 Berkshire also invested alongside 3G
in Burger King’s 2014 acquisition of Canadian fast food chain Tim Hortons.9
On March 24, 2015, Heinz entered into an Agreement and Plan of Merger
with Kraft to form Kraft Heinz.10 Kraft stockholders approved the merger agreement
on July 1, 2015 and the merger closed the next day.11 Post-closing, 3G and Berkshire
together owned roughly 51% of Kraft Heinz, with 3G holding 24.2% and Berkshire
5
Id. ¶ 64.
6
Id.
7
Id. ¶ 25.
8
Id. ¶¶ 26(a), 47.
9
Id. ¶ 47.
10
Id. ¶ 69.
11
Id. ¶ 73.
3
holding 26.8%.12 Legacy Kraft stockholders owned the remaining 49% of the
company.13
Under the Merger Agreement, Kraft Heinz’s eleven-member board of
directors (the “Board”) was composed of five former Kraft directors, three 3G
designees, and three Berkshire designees.14 3G appointed Behring, Lemann, and
Telles to the Board.15 Berkshire appointed Gregory Abel, Warren Buffett, and Tracy
Britt Cool.16 John T. Cahill, the former CEO and chairman of Kraft, was among the
five former Kraft directors who completed the original Board.17 3G’s Hees and
Basilio became the CEO and CFO of Kraft Heinz.18 Basilio was later replaced by
another 3G partner, defendant David Knopf.19
The day the merger closed, 3G and Berkshire entered into a Shareholders’
Agreement.20 The Shareholders’ Agreement required Berkshire and 3G to vote their
12
Id. ¶ 79.
13
Id.
14
Id. ¶ 72.
15
Id. ¶ 73.
16
Id.
17
Id.
18
Id. ¶¶ 2, 75.
19
Id. ¶ 75.
20
Id. ¶ 76.
4
shares in favor of each other’s Board nominees.21 3G and Berkshire also agreed not
to take any action “to effect, encourage, or facilitate” the removal of the other’s
director designees.22 Kraft Heinz’s March 3, 2016 proxy statement explained that
“Berkshire Hathaway, Mr. Buffett and the 3G Funds may be deemed to be a group
for purposes of Section 13(d) of the Exchange Act.”23
B. 3G Sells $1.2 Billion of Kraft Heinz Stock.
On August 2, 2018, Hees, Knopf, and Kraft Heinz’s then-Executive Vice
President (and defendant) Eduardo Pelleissone informed the Board that Kraft Heinz
was unlikely to achieve its EBITDA target for the first half of 2018 and was expected
to miss its 2018 full year target by over $700 million.24 The news came after Kraft
Heinz had already missed its 2017 EBITDA target of $8.5 billion by $440 million,
missed its target for the first quarter of 2018, and reduced its 2018 full year EBITDA
projections from $8.4 billion to $8 billion.25 Behring, Lemann, Telles, and Basilio
21
Stachel Decl. Ex. 14 at F-3 (Dkt. 127); Compl. ¶¶ 48, 76-78. The number of designees
that 3G or Berkshire had to actively support per the Shareholders’ Agreement fell at a
predetermined rate alongside their voting power relative to the signing date. See Stachel
Decl. Ex. 14 at F-3.
22
Stachel Decl. Ex. 14 at F-3; Compl. ¶ 48.
23
Compl. ¶ 79.
24
Id. ¶¶ 10, 40, 152
25
Id. ¶¶ 93, 111, 118. The Complaint alleges that 2017 EBITDA projections were missed
by $530 million. Kraft Heinz Board slides show a miss of $440 million. See Rogers Decl.
Ex. 9 at 7 (Dkt. 124).
5
(in addition to Hees and Knopf) were present at the meeting.26 The Audit Committee
and Knopf had previously been informed that Kraft Heinz’s goodwill and intangible
asset valuations were largely driven by Kraft Heinz management’s revenue and cash
flow forecasts.27
Four days after the Board meeting, on August 7, 2018, 3G sold 7% of its stake
in Kraft Heinz for proceeds of over $1.2 billion.28 The trade was made possible by
Kraft Heinz removing the shares’ restrictive legends.29 Before their removal, a 3G
partner had provided Kraft Heinz’s counsel with a statement that 3G “is not in
possession of any material, non-public information.”30 Pelleissone personally sold
about $2.3 million of his Kraft Heinz shares on the same day.31
C. Kraft Heinz Announces Poor Financial Results and an
Accounting Impairment.
A pair of financial announcements followed by significant one-day price
drops came next. On November 1, 2018, Kraft Heinz reported its third quarter 2018
financial results—it had missed its EBITDA target for the quarter by $232 million.32
26
Compl. ¶ 152.
27
Id. ¶ 107.
28
Id. ¶ 169.
29
Id. ¶¶ 168, 171.
30
Id. ¶ 171.
31
Id. ¶ 40.
32
Id. ¶¶ 186, 193.
6
Kraft Heinz’s stock price fell nearly 10% from close on November 1 to close on
November 2, 2018.33 On February 21, 2019, Kraft Heinz reported its fourth quarter
and full year 2018 financial results, again missing internal targets by hundreds of
millions of dollars.34 It also disclosed an adjustment to its goodwill and intangible
assets resulting in a non-cash impairment charge of $15.4 billion.35 Kraft Heinz’s
stock price fell roughly 27.5% from close on February 21 to close on February 22,
2019.36
Litigation followed. On February 24, 2019, a federal securities class action
was filed in the United States District Court for the Northern District of Illinois (the
“Federal Securities Action”) against Kraft Heinz, various 3G entities, Hees, Basilio,
Knopf, Behring, and certain non-parties to this action including Board member
George Zoghbi, a former Kraft Heinz executive.37 A consolidated class action
complaint was filed in that action on January 6, 2020.38
33
Id. ¶ 195.
34
Id. ¶¶ 202, 204.
35
Id. ¶¶ 204-05.
36
Id. ¶ 208.
37
See id. ¶¶ 34, 44, 242-44.
38
Hedick v. Kraft Heinz Co., 2021 WL 3566602, at *1-2 (N.D. Ill. Aug. 11, 2021).
7
D. This Litigation
Kraft Heinz stockholders began filing derivative complaints related to 3G’s
sale in this court on July 30, 2019.39 Those actions were consolidated on January
22, 2020.40 On March 13, 2020, the court designated the General Retirement System
of the City of Detroit, the Police & Fire Retirement System of the City of Detroit,
and Erste Asset Management GmbH as co-lead plaintiffs.41 On April 27, 2020, the
plaintiffs filed the Complaint, which relied upon documents obtained pursuant to 8
Del. C. § 220.42
The Complaint advances three counts on behalf of Kraft Heinz. Count I
alleges breaches of fiduciary duty under Brophy v. Cities Service Company43 for
either approving 3G’s August 7, 2018 block sale of Kraft Heinz stock based on
adverse material nonpublic information or allowing the sale to the detriment of Kraft
Heinz’s non-3G stockholders.44 Count II seeks contribution and indemnification
from the defendants for allegedly causing Kraft Heinz to issue false and misleading
statements in violation of federal securities laws.45 Count III brings aiding and
39
See Dkt. 39 (listing the various derivative complaints filed against Kraft Heinz).
40
Id.
41
Dkt. 106.
42
Dkt. 117.
43
70 A.2d 5 (Del. Ch. 1949).
44
Compl. ¶¶ 237-40.
45
Id. ¶¶ 241-53.
8
abetting claims against several 3G entity defendants that were “the mechanisms
through which 3G accomplished” the sale.46
The defendants moved to dismiss the Complaint on June 12, 2020.47
Following the denial of two motions to dismiss in the Federal Securities Action,48
the parties were given an opportunity to submit supplemental briefing on any effect
the Federal Securities Action decision might have on the issues presented here.49
II. LEGAL ANALYSIS
The defendants have moved to dismiss the Complaint under Court of
Chancery Rule 23.1 for failure to make a demand on the Kraft Heinz Board and
under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief. In the
alternative, the individual defendants have moved to stay this action pending the
resolution of the Federal Securities Action.50
As with all derivative cases, demand excusal is a threshold issue. My analysis
begins and ends there. After conducting a demand futility analysis on a director-by-
46
Id. ¶¶ 254-57; see supra note 3 (listing those 3G entities).
47
Dkts. 124, 125. Chancellor Bouchard heard argument on the motions to dismiss on
November 5, 2020. See Dkt. 146. After this matter was reassigned to me, I heard
reargument on June 29, 2021. See Dkt. 155.
48
See Hedick, 2021 WL 3566602, at *1.
49
Dkt. 157. The parties also submitted unsolicited letters addressing the Delaware
Supreme Court’s decision in United Food & Commercial Workers Union v. Zuckerberg.
See Dkts. 169, 170; infra notes 60-63 and accompanying text.
50
Dkts. 124, 125.
9
director basis, I conclude that a majority of the Board was disinterested and
independent. Demand is therefore not excused, and the plaintiffs lack standing to
press this derivative action.
A. The Demand Futility Standard
Under Court of Chancery Rule 23.1, a stockholder who seeks to displace the
board’s authority by asserting a derivative claim on behalf of a corporation must
“allege with particularity the efforts, if any, made by the plaintiff to obtain the action
the plaintiff desires from the directors or comparable authority and the reasons for
the plaintiff's failure to obtain the action or for not making the effort.” 51 This
requirement is rooted in the “basic principle of the Delaware General Corporation
Law . . . that the directors, and not the stockholders, manage the business and affairs
of the corporation.”52 “It is designed to give a corporation, on whose behalf a
derivative suit is brought, the opportunity to rectify the alleged wrong without suit
and to control any litigation brought for its benefit.”53
Stockholders who forego a demand must “comply with stringent requirements
of factual particularity” when alleging why demand should be excused.54 “Rule 23.1
51
Ct. Ch. R. 23.1.
52
FLI Deep Marine LLC v. McKim, 2009 WL 1204363, at *2 (Del. Ch. Apr. 21, 2009).
53
Lewis v. Aronson, 466 A.2d 375, 380 (Del. Ch. 1983), rev’d on other grounds, 473
A.2d 805 (Del. 1984).
54
Brehm v. Eisner, 746 A.2d 244, 254 (Del. 2000).
10
is not satisfied by conclusory statements or mere notice pleading.”55 Instead, “[w]hat
the pleader must set forth are particularized factual statements that are essential to
the claim.”56
The court is confined to the well-pleaded allegations in the Complaint, the
documents incorporated into the Complaint by reference, and facts subject to judicial
notice while conducting a Rule 23.1 analysis.57 All reasonable inferences from the
particularized allegations in the Complaint must be drawn in the plaintiffs’ favor.58
Under the heightened pleading requirement of Rule 23.1, “conclus[ory] allegations
of fact or law not supported by the allegations of specific fact may not be taken as
true.”59
The Delaware Supreme Court recently established a three-part, “universal
test” for assessing demand futility in United Food & Commercial Workers Union v.
Zuckerberg.60 The test is “consistent with and enhances” the standards articulated
55
Id.56
Id.57
See, e.g., White v. Panic, 783 A.2d 543, 546-47 (Del. 2001); In re Gen. Motors (Hughes)
S’holder Litig., 897 A.2d 162, 169-70 (Del. 2006).
58
Brehm, 746 A.2d at 255.
59
Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988).
60
2021 WL 4344361, at *9 (Del. Sept. 23, 2021).
11
in Aronson, Rales, and their progeny, which “remain good law.”61 Under
Zuckerberg, this court must consider, director-by-director:
(i) whether the director received a material personal benefit from the
alleged misconduct that is the subject of the litigation demand;
(ii) whether the director faces a substantial likelihood of liability on
any of the claims that would be the subject of the litigation demand;
and
(iii) whether the director lacks independence from someone who
received a material personal benefit from the alleged misconduct that
would be the subject of the litigation demand or who would face a
substantial likelihood of liability on any of the claims that are the
subject of the litigation demand.62
If “the answer to any of these three questions is ‘yes’ for at least half of the members
of [a] demand board,” demand is excused as futile.63
B. The Demand Futility Analysis in This Case
“The court ‘counts heads’ of the members of a board to determine whether a
majority of its members are disinterested and independent for demand futility
purposes.”64 The Board in place when this litigation was first filed on July 30, 2019
had eleven members: (1) defendant Lemann; (2) defendant Behring; (3) non-party
Joao M. Castro-Neves, a 3G partner; (4) non-party Abel, a Berkshire designee;
61
Id. at *17.
62
Id.
63
Id.
64
See In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., 2021 WL 3779155, at *10 (Del. Ch.
Aug. 25, 2021).
12
(5) non-party Cool, a Berkshire designee;65 (6) non-party Cahill, a former Kraft
Heinz consultant and the former CEO of Kraft; (7) non-party Zoghbi, a former Kraft
Heinz executive and current consultant; (8) non-party Alexandre Van Damme, a
director of AB InBev; (9) non-party Feroz Dewan, who joined the Board in 2016;
(10) non-party Jeanne P. Jackson, a former Kraft director; and (11) non-party John
C. Pope, a former Kraft director.66 This decision refers to those eleven directors as
the “Demand Board.”
The defendants concede that the three 3G-affiliated directors—Lemann,
Behring, and Castro-Neves—could not exercise impartial judgment regarding a
demand.67 The plaintiffs, for their part, concede that Jackson and Pope are
independent and disinterested for purposes of a demand futility analysis.68
65
The parties disagree on whether Cool or non-party and Berkshire designee Timothy
Kenesey was the eleventh member of the Demand Board. Cool is the relevant Board
member because she was on the Board when the first complaint in this action was filed.
See Braddock v. Zimmerman, 906 A.2d 776, 785-86 (Del. 2006). Regardless, the parties
agree that the independence analysis as to Kenesey or Cool is largely the same. See
Opening Br. in Supp. of Nom. Def.’s and Individual Defs.’ Mot. to Dismiss 21 n.8
(“Individual Defs.’ Opening Br.”) (Dkt. 126); Pls.’ Answering Br. 56 n.9 (Dkt. 134) (“Cool
was replaced on the Board by longtime Berkshire executive Kenesey . . . so the demand
futility analysis is not meaningfully changed by Cool’s departure.”).
66
See Compl. ¶¶ 34-35, 42-47, 49, 51-52; Pls.’ Answering Br. 48.
67
See Individual Defs.’ Opening Br. 18 (“[T]he Complaint’s allegations do not
demonstrate that 8 of Kraft Heinz’s 11 directors . . . would lack independence in connection
with a demand . . . .”).
68
The Complaint does not allege any facts challenging Jackson or Pope’s independence,
and the plaintiffs did not mention either director in their answering brief opposing the
motion to dismiss. See generally Compl.; Pls.’ Answering Br.
13
That leaves six directors for consideration: Dewan, Abel, Cool, Cahill,
Zoghbi, and Van Damme. Only the third prong of the Zuckerberg test is relevant to
that assessment. None of these directors are alleged to have sold Kraft Heinz stock
during the relevant period or personally benefitted from 3G’s sale. These non-party
directors would not face a substantial likelihood of liability, even if were assumed
that the court might find in the plaintiffs’ favor after trial.69 The demand futility
analysis hinges entirely on whether the directors had disabling connections to 3G.
If four of these six directors could exercise their independent and disinterested
judgment regarding a demand to sue 3G, Rule 23.1 mandates dismissal.
1. The Plaintiffs’ Control Allegations
The plaintiffs contend that the “demand futility analysis is strengthened by
3G’s status as a controlling stockholder.”70 “[T]he presence and influence of a
controller is an important factor that should be considered in the director-based focus
69
See Compl. ¶ 44. The plaintiffs argue that the federal court’s denial of motions to dismiss
in the Federal Securities Action “confirm[s] that [Zoghbi] faces a substantial threat of
liability.” Dkt. 163 at 11; see Pfeiffer v. Toll, 989 A.2d 683, 689-90 (Del. Ch. 2010)
(finding demand futile where the director defendants were also named in a companion
federal securities action that survived a motion to dismiss). But demand futility is
measured at the time a complaint is filed. See Rales v. Blasband, 634 A.2d 927, 937
(Del. 1993) (“[T]he appropriate inquiry is whether [the complaint] raises a reasonable
doubt regarding the ability of a majority of the Board to exercise its business judgment . . .
at the time this action was filed.”); In re LendingClub Corp. Deriv. Litig., 2019 WL
5678578, at *15 (Del. Ch. Oct. 31, 2019) (explaining that the survival of a federal securities
action against a motion to dismiss did not affect demand futility allegations in a complaint
filed before that motion to dismiss was decided).
70
Pls.’ Answering Br. 48-49.
14
of the demand futility inquiry . . . particularly on the issue of independence.”71 As
Chancellor Chandler explained in Orman v. Cullman, an independence inquiry
focuses on whether a director’s decision would “result[] from that director being
controlled by another,” meaning that the director was dominated by or beholden to
“the allegedly controlling entity.”72
3G is not Kraft Heinz’s largest stockholder. At the filing of this litigation
(post-sale), 3G owned approximately 22% of Kraft Heinz’s stock.73 3G had the right
to appoint three of the Board’s 11 members under the Shareholders’ Agreement.74
Berkshire—which was disinterested in the stock sale—beneficially owned about
71
In re BGC P’rs, Inc., 2019 WL 4745121, at *8 (Del. Ch. Sept. 30, 2019) (“Put simply,
‘Delaware is more suspicious when the fiduciary who is interested is a controlling
stockholder.’” (citing Leo E. Strine, Jr., The Delaware Way: How We Do Corporate Law
and Some of the New Challenges We (and Europe) Face, 30 Del. J. Corp. L. 673, 678
(2005))); see also id. at *7 (“Our law is not blind to the practical realities of serving as a
director of a corporation with a controlling stockholder.”); In re Ezcorp Inc. Consulting
Agreement Deriv. Litig., 2016 WL 301245, at *29 n.24 (Del. Ch. Jan. 25, 2016) (explaining
that in the context of a controlling stockholder transaction, directors may “preserve their
positions and align themselves with the controller by not doing something, viz. by not
initiating litigation”).
72
794 A.2d 5, 25 n.50 (Del. Ch. 2002).
73
See Compl. ¶¶ 79, 170 (discussing a prior transfer of 2.8 million shares).
74
Id. ¶ 72; see Williamson v. Cox Commc’ns, Inc., 2006 WL 1586375, at *4 (Del. Ch.
June 5, 2006) (“The fact that an allegedly controlling shareholder appointed its affiliates to
the board of directors is one of many factors Delaware courts have considered in analyzing
whether a shareholder is controlling.”).
15
27% of Kraft Heinz and could also designate three directors under the Shareholders’
Agreement.75
The plaintiffs maintain that 3G and Berkshire should be viewed as a “control
group” because they are bound together in a legally significant way based on the
Shareholders’ Agreement.76 The defendants disagree.77 Like the voting agreement
in Sheldon v. Pinto Technology Ventures—which did not establish a control group—
the Shareholders’ Agreement “only govern[ed] the election of certain directors,” did
not require the stockholders “to vote ‘together’ on any transaction,” and was not
“implicated” in the transaction.78
Whether 3G should be deemed a controlling stockholder (on its own or
together with Berkshire) does not, however, “change[] the director-based focus of
the demand futility inquiry.”79 As the Delaware Supreme Court explained in
Aronson, even “proof of majority ownership of a company does not strip the
75
Compl. ¶¶ 72, 79.
76
Id. ¶¶ 2, 48; Pls.’ Answering Br. 40-44; see Sheldon v. Pinto Tech. Ventures, L.P., 220
A.3d 245, 252 (Del. 2019).
77
See 3G Defs.’ Reply Br. 30-32 (Dkt. 139).
78
220 A.3d at 253-54.
79
Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 67 (Del. Ch.
2015); see also Lenois v. Lawal, 2017 WL 5289611, at *13 & n.103 (Del. Ch. Nov. 7,
2017) (discussing Baiera and declining to find demand excused solely because an
“interested transaction with a conflicted controller” was at issue).
16
directors of the presumption of independence” in the demand context.80 Instead,
“[t]here must be coupled with the allegation of control such facts as would
demonstrate that through personal or other relationships the directors are beholden
to the controlling person.”81 Regardless of whether 3G controlled Kraft Heinz
together with Berkshire, the plaintiffs cannot overcome the presumption of
independence for a majority of the Demand Board.
2. The Demand Board’s Independence from 3G
As discussed above, demand futility will be determined by whether at least
four of Dewan, Abel, Cool, Cahill, Zoghbi, and Van Damme could have
independently considered a demand to sue 3G. At the motion to dismiss stage, “a
lack of independence turns on ‘whether the plaintiffs have pled facts from which the
director’s ability to act impartially on a matter important to the interested party can
be doubted because that director may feel either subject to the interested party’s
dominion or beholden to that interested party.’”82
80
Aronson, 473 A.2d at 815.
81
Id.; see Baiera, 119 A.3d at 68 (explaining that, in assessing demand futility where a
controller is alleged to have engaged in self-dealing, the “focus” is “on whether [the
p]laintiff’s allegations raise a reasonable doubt as to the impartiality of a majority of the
Demand Board to have considered such a demand”); Beam v. Stewart, 845 A.2d 1040,
1054 (Del. 2004) (rejecting the premise that majority control overcame the other directors’
presumed independence in the demand futility context).
82
Sandys v. Pincus, 152 A.3d 124, 128 (Del. 2016) (quoting Del. Cty. Empls. Ret. Fund v.
Sanchez, 124 A.3d 1017, 1023 n.25 (Del. 2015)).
17
When assessing independence, “our law cannot ignore the social nature of
humans or that they are motivated by things other than money, such as love,
friendship, and collegiality.”83 The court must “consider all the particularized facts
pled by the plaintiffs about the relationships between the director and the interested
party in their totality and not in isolation from each other, and draw all reasonable
inferences from the totality of those facts in favor of the plaintiffs.”84
After doing so, I conclude that the plaintiffs have not pleaded particularized
facts sufficient to create reasonable doubt about the independence of Dewan, Abel,
Cool, and Cahill. Because they join the concededly independent and disinterested
Jackson and Pope to form a majority of the Demand Board, demand is not excused
under Rule 23.1.
a. Dewan
Feroz Dewan has served on the Board since October 2016.85 The plaintiffs
assert that he is beholden to 3G but do not plead any particularized facts undermining
his independence. The only grounds provided to question Dewan’s independence
are (1) that Dewan’s private foundation held more than 12% of its investment
83
Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (internal quotation marks omitted).
84
Sanchez, 124 A.3d at 1019; Ezcorp, 2016 WL 301245, at *34 (“Evaluating a board’s
ability to consider a demand impartially . . . requires a ‘contextual inquiry.’” (quoting
Beam, 845 A.2d at 1049)).
85
Compl. ¶ 46.
18
portfolio in a 3G fund as of 2016, and (2) that Dewan chairs a non-profit that receives
donations from organizations including 3G-controlled Restaurant Brands
International (“RBI”).86 No further context is provided, including whether Dewan’s
foundation remained invested in a 3G fund when this litigation was filed, whether
3G had a role in RBI’s donation, and whether RBI’s donation was material to the
charity.87 Without that information, it is not possible to infer that Dewan lacks
independence from 3G.88
b. Abel and Cool
Gregory Abel previously served on the Heinz board and has served as a
Berkshire designee on the Board since the merger.89 He is a member of Berkshire’s
86
Id. The foundation Dewan chairs listed RBI alongside eleven other “donor foundations
and organizations” on its website. Id. Additionally, the plaintiffs note that 3G “has a
practice of inviting its investors to join the boards of companies it acquires” but do not
indicate that 3G nominated Dewan to the Board. Id.87
See In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 822-23 (finding
allegations that a director serving as president and a trustee of a museum that received
contributions from the interested party were insufficient to demonstrate a lack of
independence because plaintiffs “never state[d] how” the contributions “could, or did,
affect the decision-making process” of the director); Beam, 845 A.2d at 1050 (“[T]o render
a director unable to consider demand, a relationship must be of a bias-producing nature.”);
see also Zuckerberg, 2021 WL 4344361, at *19 (following the lower court’s reasoning that
“[t]here is no logical reason to think that a shared interest in philanthropy would undercut
[the director’s] independence” (citation omitted)).
88
The plaintiffs acknowledged Dewan’s independence at oral argument on the motion to
dismiss. See Mot. to Dismiss Hr’g Tr. Nov. 5, 2020, at 69 (Dkt. 146) (plaintiffs’ counsel
representing that because there are “only five people” that “the Court needs to pay attention
to”—Abel, Cool, Van Damme, Cahill, and Zoghbi—“[t]he Court can ignore Dewan
because it falls by the wayside”).
89
Compl. ¶ 47.
19
board of directors and its Vice Chairman of Non-Insurance Business Operations.90
The plaintiffs allege that he “lacks independence given Berkshire’s close co-
investing relationship with 3G and Buffett’s close friendship with Lemann.”91
Tracy Britt Cool also served on the Heinz board and served as a Berkshire
Board designee after the merger until January 2020.92 Cool joined Berkshire in 2009
as a financial assistant to Buffett and has served as a director of several Berkshire
companies and as the CEO of a Berkshire subsidiary.93 She allegedly has a close
relationship with Buffett, who “walked Cool down the aisle at her wedding in
2013.”94 The plaintiffs aver that she lacks independence “by virtue of her personal
relationship with Buffett and her career as a longtime Berkshire executive.”95
The parties’ arguments with regard to the independence of Abel and Cool are
substantively identical. Considered in their totality, the plaintiffs’ allegations
provide no reason to doubt that either director could not exercise disinterested and
independent judgment regarding a demand.96
90
Id.91
Id.92
Id. ¶ 49.
93
Id.
94
Id.
95
Id.
See id. ¶¶ 47, 49; Individual Defs.’ Opening Br. 21; Pls.’ Answering Br. 56 (arguing that
96
Abel and Cool lack independence from 3G “because they owe their careers to Warren
Buffett, who is close friends with Lemann”); Reply Br. in Supp. of Nominal Def.’s and the
20
i. Berkshire’s Relationship with 3G
Neither Abel nor Cool has any direct relationships with 3G or its defendant
partners. Rather, Abel and Cool are allegedly not independent of 3G because they
are beholden to Berkshire and Buffett who, in turn, are beholden to 3G and its
partners. This transitive theory of independence does not impugn Abel or Cool’s
independence for several reasons.97
First, the plaintiffs assert that Abel and Cool’s employment and potential for
promotion at Berkshire “would be jeopardized by causing [Kraft Heinz] to sue 3G
or Lemann.”98 This argument ties back, in some respects, to the plaintiffs’ allegation
that Berkshire and 3G are a control group.99 Delaware courts have recognized that
when a controller is interested in a transaction, directors may seek to “preserve their
positions and align themselves with the controller” by declining to initiate litigation
against it.100 That logic might apply if Abel and Cool were asked to consider
Individual Defs.’ Mot. to Dismiss 4 (Dkt. 138); Mot. To Dismiss Hr’g Reargument Tr.
June 29, 2021, at 132 (Dkt. 156) (plaintiffs’ counsel noting that the distinctions between
Abel and Cool are “probably a moot point . . . because the same analysis applies to both or
either”).
97
See In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 997-98 (Del. Ch. 2014)
(analyzing similar “transitive” independence allegations), aff’d, 125 A.3d 304 (Del. 2015).
98
Pls.’ Answering Br. 56. The plaintiffs’ brief also asserts that “Buffett retains influence
over how Berkshire director designees vote.” Id. at 57. This contention includes no citation
back to the Complaint, lacks any well-pleaded facts for support, and is conclusory.
99
See supra Part II.B.1.
100
In re BGC P’rs, 2019 WL 4745121, at *8 (quoting Ezcorp, 2016 WL 301245, at *29
n.24).
21
pursuing litigation against Berkshire. But Berkshire is not a defendant. It was
uninvolved in the challenged stock sale and is not alleged to have received any
benefit from it.101
The plaintiffs argue that Abel and Cool could not impartially sue 3G because
of Berkshire and 3G’s history of co-investment, totaling $25 billion since 2013.102
The vast majority of those investments are Kraft Heinz related: $12.4 billion from
the Heinz acquisition and $10 billion from the Kraft Heinz merger.103 The only other
co-investment specified in the Complaint is Berkshire’s 2014 $3 billion investment
in Burger King’s acquisition of Tim Horton’s.104 It cannot be reasonably inferred
from these allegations that Berkshire—which had nearly $447 billion in total assets
as of December 31, 2019105—relies on 3G to gain access to investments.106 Even if
101
See Beam, 845 A.2d at 1054 (explaining that the presence of a controlling stockholder
“does not excuse presuit demand on the board without particularized allegations of
relationships between the directors and the controlling stockholder demonstrating that the
directors are beholden to the stockholder”). Like Berkshire, the controlling stockholder in
Beam was not alleged to have engaged in a self-interested transaction. See generally id.;
see also Baiera, 119 A.3d at 66.
102
Pls.’ Answering Br. 56; see Compl. ¶ 47.
103
Compl. ¶ 47.
104
Id. The plaintiffs also allege that “Berkshire previously owned a large stake in AB
InBev” but offer no supporting details. Id.
105
Stachel Decl. Ex. 1 at K-114; see In re Gen. Motors, 897 A.2d at 170 (permitting the
court to take judicial notice of “hearsay in SEC filings” that is not subject to reasonable
dispute).
106
See Pls.’ Answering Br. 56-57. This case is therefore different from Sandys v. Pincus,
where two directors were found to lack independence from a controlling stockholder
because they had “a mutually beneficial network of ongoing business relations with” the
22
it could, the necessary link to Abel and Cool is missing. There are no particularized
allegations supporting a conclusion that Abel or Cool felt subject to 3G’s dominion
or beholden to 3G based on those investments.107
The plaintiffs further allege that Abel and Cool’s independence was
compromised given Buffett’s “close relationship” with 3G co-founder Lemann.108
According to the plaintiffs, Buffett has described Lemann as a friend, views him
favorably as a business partner, attended one of his birthday parties, and joined him
for three professional workshops.109 Those facts (if true) would hardly be sufficient
controller that they were “not likely to risk” and because their venture capital firm operated
in a space where “networks arise of repeat players who cut each other into beneficial roles
in various situations.” 152 A.3d at 131-34.
107
See Olenik v. Lodzinski, 2018 WL 3493092, at *18 (Del. Ch. July 20, 2018) (“Here,
there are no well pled facts that allow an inference that [the director] might feel subject to
[the controller’s] domination (if any) because [an entity the director was CEO of] made
investments (of unspecified size), spanning nearly three decades, in five [controller]-led
entities.”); In re Goldman Sachs Gp., Inc. S’holder Litig., 2011 WL 4826104, at *12
(finding that an allegation that a director lacked independence from Goldman because he
was the CEO of an entity that had received large loans from Goldman was insufficient
where the plaintiff “failed to plead facts that show anything other than a series of market
transactions occurred between [the two companies]”); Zuckerberg, 2021 WL 4344361, at
*19 (rejecting allegation that a director who founded a company (Netflix) that did business
with the controller’s company (Facebook) showed a lack of independence; reasoning that
“[e]ven if Netflix had purchased advertisements from Facebook, the complaint does not
allege that those purchases were material to Netflix or that Netflix received anything other
than arm’s length terms under those agreements”).
108
Compl. ¶ 47.
109
Id. Specifically, the plaintiffs allege that Buffett is beholden to Lemann because: they
“have known each other since 1998 when they served together on Gillette’s board of
directors”; they are “longstanding friends” who have a “close relationship”; Buffett refers
to Lemann as “Georgie” and has called him a “good friend” and “an absolutely outstanding
human being”; “Buffett has accompanied Lemann to three workshops with Jim Collins [a
23
to show that Buffett lacks independence. His relationship with Lemann is not
“suggestive of the type of very close personal relationship that, like family ties, one
would expect to heavily influence a human’s ability to exercise impartial
judgment.”110 Allegations that individuals “moved in the same social circles,”
“developed business relationships before joining the board,” or described each other
as “friends” are insufficient, without more, to rebut the presumption of
independence.111 And one step removed from Abel and Cool, these allegations are
of little consequence.112
business professor and mentor of Lemann]”; Buffett said in 2017 that “I consider it one of
the largest mistakes in my life that [Lemann and I] didn’t really team up as partners until
considerably later”; and Buffett attended Lemann’s seventy-fifth birthday party. Id.110
Sandys, 152 A.3d at 130. The plaintiffs rely on the Delaware Supreme Court’s decision
in Sandys v. Pincus to support their argument that Buffett lacks independence from
Lemann. There, the court found that a director of was not independent from the company’s
controlling stockholder because the director was a “close family friend” of the controller
and their families “own[ed] an airplane together.” Id. at 129-30. The court held that “the
facts support an inference that [the director] would not be able to act impartially when
deciding whether to move forward with a suit implicating a very close friend with whom
she and her husband co-own a private plane.” Id. at 130-31. The plaintiffs allege no
equivalent ties between Buffett and Lemann.
111
Beam, 845 A.2d at 1051.
112
See In re KKR, 101 A.3d at 997-98 (rejecting “transitive” independence allegations
where the plaintiff’s argument focused on a director’s “past business relationship” with
another director, who was allegedly not independent of the interested entity); see also
In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 989 (Del. Ch. 2007) (performing a
director-by-director inquiry and observing that “[t]o excuse demand in this case it is not
enough to show that the defendants” furthered the CEO’s self-interests because the plaintiff
“must provide the Court with reason to suspect that each director did so not because they
felt it to be in the best interests of the company, but out of self-interest or a loyalty to, or
fear of reprisal from, [the CEO]”).
24
ii. Shareholder’s Agreement
The plaintiffs also maintain that the Shareholders’ Agreement would prevent
Abel and Cool from exercising their independent judgment regarding a demand.
According to the Complaint, the Shareholders’ Agreement “prevents any of
Berkshire’s designees from voting to cause [Kraft Heinz] to sue 3G’s designees.”113
Section 2.1(c)(ii) of the Shareholders’ Agreement provides that “Berkshire . . .
agrees it will not vote its Shares or take any other action to effect, encourage or
facilitate the removal of any 3G Designee elected to the Board therefrom . . . without
the consent of . . . 3G.”114 The plaintiffs’ theory is that pursuing litigation against
3G on behalf of Kraft Heinz could “‘effect, encourage or facilitate the removal’ of
the 3G-designated directors from the Board” under 8 Del. C. § 225(c).115
The plaintiffs seemingly waived any argument about the effect of the
Shareholders’ Agreement on Abel and Cool’s independence after failing to advance
it in their briefing.116 In any event, the Shareholders’ Agreement has little bearing
on the demand futility analysis for several reasons. It did not bind Abel and Cool,
113
Compl. ¶ 48.
114
See Stachel Decl. Ex. 14 at F-3; see Compl. ¶¶ 48, 76-77.
115
Compl. ¶ 48; see Pls.’ Answering Br. 42.
116
See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are
deemed waived.”).
25
who are not parties to it.117 The plain language of Section 2(c)(ii) would only cause
Berkshire to prevent an “Affiliate” that “hold[s] shares” from acting to facilitate the
removal of a 3G Board designee. Neither Abel nor Cool fit that definition.118 And
pursuing litigation against 3G is not equivalent to automatic removal from the Board
under Section 225(c). More fundamentally, there are no particularized allegations
indicating that Abel or Cool would have been guided by the Shareholders’
Agreement in assessing a demand to sue 3G.
Taken together, the plaintiffs’ allegations are insufficient. Even when viewed
in the context of the Shareholders’ Agreement, Berkshire’s ties to 3G cannot support
a reasonable inference that either Abel or Cool is personally beholden to 3G.
c. Cahill
John T. Cahill has served as Vice Chairman of the Board since the merger.
He previously served as the CEO of Kraft and, after the merger, worked as a
117
See Huff Energy Fund, L.P. v. Gershen, 2016 WL 5462958, at *7 (Del. Ch. Sept. 29,
2016) (holding that directors who were not parties to a shareholders’ agreement were “not
personally obligated to perform under the contract and cannot be held liable for breach” of
the agreement).
118
“Affiliate” is defined in the Shareholders’ Agreement as a legal person “controlling,
controlled by or under common control with” another legal person and “control” as “the
possession directly or indirectly, of the power to direct the management and policies of a
Person through the ownership of voting securities.” Stachel Decl. Ex. 14 at F-1; see
Individual Defs.’ Opening Br. at 23-25. It is unclear how a Berkshire Board designee could
be “controlled” under this definition and therefore be deemed an “affiliate.” See P’rs
Healthcare Sols. Hldgs., L.P. v. Universal Am. Corp., 2015 WL 3794535, at *7, *9 (Del.
Ch. June 17, 2015) (construing substantially identical definitions and concluding that they
did not refer to board designees in their capacities as corporate directors).
26
consultant to Kraft Heinz. The plaintiffs assert that Cahill lacks independence from
3G because of (1) his consulting relationship and director compensation, (2) his
status as not “independent” under Nasdaq listing standards in Kraft Heinz’s 2019
proxy, and (3) his son’s employment at AB InBev. Taken together, these allegations
do not impugn Cahill’s ability to impartially consider a demand.
First, the plaintiffs allege that Cahill lacks independence from 3G because his
prior consulting compensation of $500,000 per year, coupled with his director
compensation of about $235,000 per year, constituted more than half of Cahill’s
publicly reported income in 2018.119 Cahill’s consulting agreement with Kraft Heinz
terminated on July 1, 2019—before this action was filed.120 There are no facts
alleged indicating that Cahill expected his consulting arrangement to resume.121
At the time the Complaint was filed, Cahill’s income from Kraft Heinz was
limited to standard director compensation. That compensation accounted for
119
Compl. ¶ 43.
120
Id.121
Compare Orman, 794 A.2d at 30 (finding consulting fees comprising director’s primary
employment were material where the director was beholden to a controller for “future
renewals”); Friedman v. Beningson, 1995 WL 716762, at *1, *5 (Del. Ch. Dec. 4, 1995)
(finding regular receipt of consulting fees over 12 years to be material where an interested
party could affect future receipts of such fees).
27
roughly 17% of his publicly reported income.122 “[D]irector compensation alone
cannot create a reasonable basis to doubt a director’s impartiality.”123
Even if the court were to infer that Cahill’s past consulting and director fees
were material to him at that time,124 it is not clear why they would create a sense of
“owingness” to 3G.125 Cahill had no relationship with 3G before Kraft was merged
with Heinz. The Complaint lacks any particularized allegations supporting a
pleading-stage inference that 3G was responsible for his directorship or consulting
122
See Compl. ¶ 43.
123
Robotti & Co., LLC v. Liddell, 2010 WL 157474, at *15 (Del. Ch. Jan. 14, 2010); see
also In re Oracle Corp. Deriv. Litig., 2018 WL 1381331, at *18 (Del. Ch. Mar. 19, 2018)
(noting that “even this lucrative compensation [of $548,005] would form insufficient cause
to doubt [a director’s] impartiality” because “[t]here [we]re no allegations that the director
compensation . . . is material to [the director]”).
124
Although the Complaint alleges that the consulting agreement and director fees
“together constituted more than half (52%) of Cahill’s publicly reported income in 2018,”
the defendants argue that figure fails to contextualize this amount in view of his prior
compensation as Kraft’s CEO. Compl. ¶ 43; see Stachel Decl. Ex. 25 at 45 (SEC filings
disclosing that Cahill earned several million dollars per year in 2012, 2013, and 2014); see
also McElrath v. Kalanick, 2019 WL 1430210, at *17 (Del. Ch. Apr. 1, 2019) (“The
materiality inquiry must focus on the financial circumstances or personal affinities of the
particular director in question.”), aff’d, 224 A.3d 982 (Del. 2020); Panic, 793 A.2d at 366
(finding it “unnecessary” to consider consulting fees paid to directors as part of an
independence analysis in part because “the complaint contains no allegations of fact
tending to show that the fees paid were material” to the directors).
125
See In re Trados Inc. S’holder Litig., 73 A.3d 17, 54-55 (Del. Ch. 2013) (discussing
how an investors’ appointment as CEO of a company and as director to various startup
boards resulted in a sense of “owingness” to the fund partners who appointed him); In re
Primedia Inc. Deriv. Litig., 910 A.2d 248, 261 n.45 (Del. Ch. 2006) (noting that the
directors at issue had “substantial past or current relationships, both of a business and of a
personal nature” with the controller and that “the court can infer that each of them felt a
‘sense of owingness’ to their mutual patron” (internal quotation marks omitted)).
28
arrangement with Kraft Heinz or had the power to strip him of potential future
consulting fees or his Board position.126
The fact that Kraft Heinz’s 2019 proxy stated that the Board does not consider
Cahill independent from Kraft Heinz for Nasdaq listing purposes does not change
that conclusion.127 The Delaware Supreme Court has held that “the criteria
NASDAQ has articulated as bearing on independence are relevant under Delaware
law,” but do not “perfectly marry with the standards” applicable under Rule 23.1.128
An independence determination under stock exchange rules “is qualitatively
different from, and thus does not operate as a surrogate for, this Court’s analysis of
independence under Delaware law for demand futility purposes.”129 Delaware
courts recognize that exchange rules, such as the criteria Nasdaq has articulated as
bearing on independence, should be considered as part of a holistic demand futility
126
None of the plaintiffs’ control-based contentions—which focus on whether 3G owed
fiduciary duties and could face Brophy liability—indicate otherwise. See In re Delta &
Pine Land Co. S’holders Litig., 2000 WL 875421, at *8 (Del. Ch. June 21, 2000) (finding
demand futility not established where the plaintiff did not allege “particularized facts
showing influence or control over the employment, the livelihood, or the financial interests
of the directors on an individual and personal basis”); see also Ezcorp, 2016 WL 301245,
at *37 (explaining that an ongoing consulting arrangement with the interested counterparty
to challenged agreements was “not automatically disqualifying”).
127
Compl. ¶ 43.
128
Sandys, 152 A.3d at 131.
129
Baiera, 119 A.3d at 61; see also Ezcorp, 2016 WL 301245, at *36 (“The fact that a
director qualifies as independent for purposes of a governing listing standard is therefore a
helpful fact which, all else equal, makes it more likely that the director is independent for
purposes of Delaware law.”).
29
analysis.130 But the determination of whether Cahill is independent under Nasdaq
rules concerns his independence from Kraft Heinz—not from 3G.131 In my view,
that determination carries little weight given the dearth of particularized allegations
suggesting that Cahill is beholden to 3G.132
The plaintiffs’ final attempt to impugn Cahill’s independence concerns his
son’s employment as a District Sales Manager at AB InBev following his completion
of its “highly selective management trainee program.”133 The plaintiffs assert that
those who complete the program “can maintain a direct relationship with 3G
founding partner Telles.”134 That allegation is conclusory. There are no
particularized allegations tying Cahill’s son’s employment to 3G or suggesting that
he, in fact, had a “direct relationship” with Telles. Thus, there is no well-pleaded
130
See Sandys, 152 A.3d at 131-33 (“The NASDAQ rules’ focus on whether directors can
act independently of the company or its managers has important relevance to whether they
are independent for purpose of Delaware law.”).
131
Stachel Decl. Ex. 5 at 13 (“For a director to be considered independent, the Board must
affirmatively determine . . . that a director has no direct or indirect material relationship
with Kraft Heinz that would interfere with his or her exercise of independent judgment in
carrying out his or her responsibilities as a director.”).
132
See Baiera, 119 A.3d at 62. The defendants argue that Cahill was deemed not
independent based on a bright-line listing rule because of his former status as a consultant.
Individual Defs.’ Opening Br. 35. That statement is unsupported by the Complaint and
would require the court to draw an inference against the plaintiffs. I decline to do so.
133
Compl. ¶ 43.
134
Pls.’ Answering Br. 55 (emphasis added).
30
basis from which to infer that Cahill’s son’s employment at AB InBev would bear
on Cahill’s ability to assess a demand.135
The allegations regarding Cahill’s son are insufficient to overcome his
presumed independence, even when viewed holistically with the plaintiffs’ other
allegations. It would not be reasonable to infer that Cahill is so beholden to 3G that
he would be motivated to cover up insider trading.
d. Zoghbi and Van Damme
George Zoghbi has served on the Board since April 2018.136 He was Kraft
Heinz’s Chief Operating Officer from the time of the merger until October 2017,
when he became a Special Advisor.137 The plaintiffs’ arguments about Zoghbi
largely overlap with those about Cahill, except that he is alleged to have received a
larger consulting fee, which was ongoing as of July 2019 and accounts for a
comparatively greater percentage of his income.138 Whether Zoghbi is independent
of 3G is therefore a closer call than Cahill.
135
See Cal. Pub. Empls.’ Ret. Sys. v. Coulter, 2002 WL 31888343, at *9 (Del. Ch. Dec. 18,
2002) (finding allegations that a director’s son’s “livelihood [wa]s dependent” on the
interested party were insufficient to raise a reasonable doubt as to the director’s
independence).
136
Compl. ¶ 44.
137
Id.138
Id.31
Alexandre Van Damme has also served on the Board since April 2018.139 The
Complaint describes Van Damme as immersed in an “intricate web of personal,
professional and financial ties to 3G and its principals.”140 The particularized
allegations that make up that web, taken as true and in their totality, come closest to
supporting a reasonable doubt about a non-3G director’s ability to objectively
consider a demand.
Because this decision has already found that six of the Demand Board’s eleven
directors were able to consider a demand impartially, I need not resolve whether
Zoghbi or Van Damme are independent.
III. CONCLUSION
The plaintiffs have failed to plead particularized facts creating a reasonable
doubt that six of the eleven Demand Board members lack independence from 3G or
its defendant partners. The plaintiffs have conceded the independence of Jackson
and Pope. Abel and Cool do not lack independence from 3G based on their ties to
Berkshire. And the plaintiff’s allegations about Cahill and Dewan do not, in totality,
impugn their independence from 3G. Accordingly, demand is not excused.
The defendants’ motions to dismiss the Complaint pursuant to Rule 23.1 are
granted. The Complaint is dismissed with prejudice in its entirety.
139
Id. ¶ 45.
140
Id.
32