Suzanne Flannery v. Genomic Health Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
SUZANNE FLANNERY, )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0492-JRS
)
GENOMIC HEALTH, INC., JULIAN C. )
BAKER, FELIX J. BAKER, FRED E. )
COHEN, HENRY J. FUCHS, BARRY P. )
FLANNELLY, GINGER L. GRAHAM, )
GEOFFREY M. PARKER, KIMBERLY J. )
POPOVITS, BAKER BROTHERS LIFE )
SCIENCES, L.P., 14159, L.P., 667, L.P., )
BAKER BROTHERS INVESTMENTS, )
L.P., BAKER BROS. INVESTMENTS II, )
L.P., BAKER/TISCH INVESTMENTS, )
L.P., EXACT SCIENCES CORP., )
SPRING ACQUISITION CORP., and )
GOLDMAN SACHS & CO., LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: May 18, 2021
Date Decided: August 16, 2021
Samuel L. Closic, Esquire and Eric J. Juray, Esquire of Prickett, Jones &
Elliott, P.A., Wilmington, Delaware and Stephen J. Oddo, Esquire, Gregory E.
Del Gaizo, Esquire and Eric M. Carrino, Esquire of Robbins LLP, San Diego,
California, Attorneys for Plaintiff Suzanne Flannery.
Robert S. Saunders, Esquire, Stefania A. Rosca, Esquire and Matthew R. Conrad,
Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware,
Attorneys for Defendant Exact Sciences Corp., Spring Acquisition Corp., Genomic
Health, Inc., Fred E. Cohen, Henry J. Fuchs, Barry P. Flannelly, Geoffrey M. Parker
and Kimberly J. Popovits.
C. Barr Flinn, Esquire, Emily V. Burton, Esquire and Peter J. Artese, Esquire
of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Douglas A.
Rappaport, Esquire and Kaitlin D. Shapiro, Esquire of Akin Gump Strauss Hauer &
Feld LLP, New York, New York, Attorneys for Defendants Julian Baker,
Felix Baker, 14159, L.P., 667, L.P., Baker Brothers Life Sciences, L.P., Baker
Brothers Investments, L.P., Baker Bros. Investments II, L.P. and Baker/Tisch
Investments, L.P.
Daniel A. Mason, Esquire and Brendan W. Sullivan, Esquire of Paul, Weiss,
Rifkind, Wharton & Garrison LLP, Wilmington, Delaware and Daniel J. Toal,
Esquire, Geoffrey Chepiga, Esquire and Caitlin E. Grusauskas, Esquire of Paul,
Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, Attorneys for
Defendant Goldman Sachs & Co. LLC.
William M. Lafferty, Esquire and Daniel T. Menken, Esquire of Morris, Nichols,
Arsht & Tunnell LLP, Wilmington, Delaware and Tariq Mundiya, Esquire of
Willkie Farr & Gallagher LLP, New York, New York, Attorneys for Defendant
Ginger L. Graham.
SLIGHTS, Vice Chancellor
On July 28, 2019, Genomic Health, Inc. (“Genomic” or the “Company”) and
Exact Sciences Corp. (“Exact”) executed an Agreement and Plan of Merger
(the “Merger Agreement”) whereby Exact acquired Genomic for cash and stock
valued, in combination, at $2.8 billion (the “Merger”). The Merger was approved
by 79.40% of Genomic stockholders unaffiliated with any party arguably interested
in the transaction.
Plaintiff, a stockholder of Genomic at the time of the Merger, alleges that the
process leading to the Merger was riddled with defects, including the undue
influence of conflicted controlling stockholders, and that the defects resulted in a
fundamentally unfair price for Genomic stockholders. She has sued the alleged
controllers and members of the Genomic board of directors (the “Board”) for breach
of fiduciary duty, and has sued Genomic’s financial advisor, Goldman Sachs & Co.
(“Goldman”), and Exact for aiding and abetting. She also alleges the Merger was
defective as a matter of statute. All Defendants now move to dismiss.
Plaintiff’s Verified Amended Complaint, filed on November 23, 2020,
comprises six counts.1 Count I asserts the Baker Brothers Entities (later defined),
which together are purportedly the controlling stockholders of Genomic, along with
Exact and Genomic, violated Section 203 of the Delaware General Corporation Law
1
D.I. 38.
1
(“Section 203”) because the Baker Brothers Entities separately agreed to sell their
greater than 15% stake in Genomic to Exact prior to the Merger.2 Count II asserts a
claim for conversion against Genomic, Exact and Spring Acquisition Corp.,
principally based on the supposition that the Merger violated Section 203. Count III
asserts claims for breach of fiduciary duty against all individual defendants, in their
capacities as directors of Genomic, and Kimberly Popovits, the then-CEO of
Genomic, in her capacity as officer. Count IV asserts a claim for breach of fiduciary
duty against the Baker Brothers Entities in their capacity as the controlling
stockholders of Genomic. Finally, Counts V and VI assert claims for aiding and
abetting against Goldman and Exact, respectively, for their roles in facilitating the
breaches of fiduciary duty alleged in Counts III and IV.
Defendants have moved to dismiss the Complaint under Chancery
Rule 12(b)(6) for failure to state viable claims. 3 After careful consideration, I am
satisfied the motions must be granted. Plaintiff’s Section 203 claim fails because it
is clear from properly incorporated documents that the Baker Brothers Entities did
not agree to vote for the Merger or otherwise sell their shares to Genomic until after
the Board executed the Merger Agreement. As for the Baker Brothers Entities’
2
8 Del. C. § 203.
3
D.I. 43–45.
2
alleged status as a conflicted controlling stockholder, the Complaint does not well
plead that these minority blockholders were conflicted controllers, either with
respect to Genomic generally or the process leading to the Merger specifically. Nor
has Plaintiff well pled any other basis to trigger entire fairness review. As to the
claims against each individual defendant as members of the Board, while Plaintiff
argues for the application of enhanced scrutiny under Revlon, that standard of review
does not apply as a matter of law because the Merger was not a change-of-control
transaction.4 Even if Revlon did apply, the Complaint fails to well plead non-
exculpated claims against each director. As to the claims against Popovits in her
capacity as an officer, the Complaint fails to well plead either that she was conflicted,
implicating her duty of loyalty, or that she acted with gross negligence at any time
during the negotiation process, implicating her duty of care. Finally, because
Plaintiff has failed to state breach of fiduciary duty claims, she likewise has failed
to state claims for aiding and abetting breaches of fiduciary duty. My reasoning
follows.
I. BACKGROUND
I have drawn the facts from well-pled allegations in the Verified Amended
Complaint (the “Complaint”) and documents incorporated by reference or integral
4
Revlon v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986).
3
to that pleading. 5 For purposes of the motion, I accept as true the Complaint’s well-
pled factual allegations and draw all reasonable inferences in Plaintiff’s favor.6
A. The Parties
Plaintiff, Suzanne Flannery, was a Genomic stockholder at all relevant times
during the period of alleged wrongdoing through the Merger. 7
Defendant, Genomic, a Delaware corporation prior to the Merger, was a
global provider of genomic-based diagnostic tests.8 Defendant, Exact, also a
Delaware corporation, is a molecular diagnostics company.9 At the time of the
Merger, Exact had no affiliation with Genomic or any of Genomic’s stockholders.
Defendant, Spring Acquisition Corp., is a wholly-owned subsidiary of Exact and
5
Verified Am. Compl. (“Compl.”) (D.I. 38); Wal-Mart Stores, Inc. v. AIG Life Ins. Co.,
860 A.2d 312, 320 (Del. 2004) (noting that on a motion to dismiss, the Court may consider
documents that are “incorporated by reference” or “integral” to the complaint).
As discussed below, Plaintiff received documents in response to her demand for inspection
under 8 Del. C. § 220 that she has incorporated by reference in the Complaint
(the “Section 220 Documents”). Compl. ¶¶ 152–56.
6
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).
7
Compl. ¶ 12.
8
Compl. ¶ 13.
9
Compl. ¶ 27.
4
was formed to facilitate the Merger.10 Genomic was the surviving company in the
Merger and became a wholly-owned subsidiary of Exact.11
Defendants, Baker Brothers Life Sciences, L.P., 14159, L.P., 667, L.P.,
Baker Brothers Investments, L.P., Baker Bros. Investments II, L.P., and Baker/Tisch
Investments, L.P. (together the “Baker Brothers Entities”), all Delaware limited
partnerships, were each significant Genomic stockholders as of the Merger, and each
“irrevocably and unconditionally” agreed to vote in favor of the Merger under a
July 28, 2019 voting agreement with Exact (the “Voting Agreement”).12 The Baker
Brothers Entities are controlled by Julian Baker and Felix Baker. 13
Defendant, Julian Baker, served on the Board from 2001 until the Merger
in 2019. 14 Julian Baker co-founded and manages Defendant, Baker Brothers
Advisors, LP, along with his brother Felix Baker, also a Defendant in this action.15
From 2009 until the Merger, Julian Baker served on Genomic’s Nominating and
10
Compl. ¶ 28.
11
Id.12
Compl. ¶¶ 29–34. Aside from the Voting Agreement, there is no allegation that the
Baker Brothers Entities had any relationship with Exact prior to the Merger.
13
Compl. ¶ 2.
14
Compl. ¶ 14.
15
Id.5
Corporate Governance Committee. 16 He also serves on a number of public company
boards, including Incyte Corporation, where he has served as a director since 2001.17
Defendant, Felix Baker, served on the Board from 2012 to 2019 and, like his
brother, founded Baker Brothers Advisors, LP. 18 He too serves on various public
company boards, including Kiniksa Pharmaceuticals, Ltd. 19
Defendant, Kimberly Popovits, became a member of the Board in 2002, the
CEO of Genomic in 2009 and chairman of the Board in March 2012.20 She
continued to serve as CEO and chairman until the Merger. 21 Ms. Popovits also
serves on the Kiniksa board of directors.22
Defendant, Barry Flannelly, was elected to the Board on January 29, 2019,
and served through the Merger.23 His nomination was recommended by
Julian Baker as a result of his work as Executive Vice President and General
16
Id.17
Id.18
Compl. ¶ 15.
19
Id.20
Compl. ¶ 16.
21
Id.22
Id.23
Compl. ¶ 17.
6
Manager of Incyte, a position he has occupied since 2014. 24 The Baker Brothers
Entities are Incyte’s largest stockholder, owning approximately 15% of the shares
outstanding. 25 As noted, Julian Baker has served on the Incyte board since 2001. 26
Defendant, Geoffrey M. Parker, upon the recommendation of the
Baker Brothers Entities, served on the Board from June 21, 2016 until the Merger.27
As with Flannelly, the Baker Brothers Entities knew Parker from their investments
in other companies. Flannelly served as Anacor Pharmaceuticals, Inc.’s CFO until
mid-2015 and consulted for Anacor for a period thereafter, all while the Baker
Brothers Entities owned 5% of Anacor.28 The Baker Brothers Entities also crossed
paths with Parker at Tricida, Inc., where Parker currently works as an executive vice
president, ChemCentryx, Inc., where Parker has served as a director since 2009, and
Sunesis Pharmaceuticals, Inc., where Parker served as a director from 2016
to 2017. 29
24
Id.25
Id.26
Id.27
Compl. ¶ 19.
28
Id.29
Id.7
Defendant, Fred E. Cohen, served on the Board from 2002 until the Merger. 30
As founder and managing director of Vida Ventures, Cohen has a long history of
investing alongside the Baker Brothers Entities.31
Defendant, Henry J. Fuchs, served on the Board from 2013 until the Merger.32
He served on Genomic’s Nominating and Corporate Governance Committee with
Julian Baker and serves as the President of Worldwide Research at BioMarin
Pharmaceutical, a company in which the Baker Brothers Entities have been investors
since March 2006.33 The Baker Brothers Entities nominated Fuchs as one of eight
nominees to the board of directors at AnorMED, Inc. and, it can be inferred, given
the timing, that Fuchs was also appointed by the Baker Brothers Entities to the Mirati
Therapeutics board of directors. 34
30
Compl. ¶ 20.
31
Id.32
Compl. ¶ 21.
33
Id.34
Compl. ¶ 23.
8
Defendant, Ginger L. Graham, served on the Board from 2009 until the
Merger. 35 She joined the Clovis Oncology, Inc. board of directors in 2013, a year
after the Baker Brothers Entities began investing in Clovis.36
Defendants, Julian Baker, Felix Baker, Flannelly, Parker, Cohen, Graham,
Fuchs and Popovits, are collectively referred to as the “Individual Defendants.”
Defendant, Goldman, a New York LLC, served as a financial advisor to the
Board at various times throughout the relevant time period. 37
B. The Baker Brothers Entities’ Relationship with Genomic
Julian Baker, a founder and controller of the Baker Brothers Entities, joined
the Board in 2001.38 In September 2006, the Baker Brothers Entities disclosed their
beneficial ownership of 6.1% of the outstanding shares in Genomic. 39 By May 2007,
the Baker Brothers Entities had accumulated a roughly 18% stake in the Company.40
That stake increased to 23% by August 2010.41
35
Compl. ¶ 24.
36
Id.37
Compl. ¶ 26.
38
Compl. ¶ 14.
39
Compl. ¶ 35.
40
Compl. ¶¶ 3, 36.
41
Compl. ¶ 36.
9
Felix Baker, the other half of the “Baker Brothers,” joined the Board in
2012. 42 Between August 2010 and June 2013, the Baker Brothers Entities continued
to increase their stake in the Company, topping out at 45.8%.43
On February 13, 2013, the Baker Brothers Entities disclosed in a
Schedule 13D that they intended to engage in mutual discussions with Genomic
regarding a potential sale of the Company but clarified they did not then “have any
plans or proposals with respect to any extraordinary corporate transaction.”44
In June 2013, the Baker Brothers Entities stopped acquiring Genomic’s stock.45
In August 2016, Genomic and the Baker Brothers Entities entered into a
registration rights agreement (“RRA”) whereby, if demanded by the Baker Brothers
Entities, Genomic would register the Baker Brothers Entities’ shares for resale.46
Given how low Genomic’s stock was trading in the months following the RRA,
a price substantially lower than the prevailing price in 2013 when the Baker Brothers
Entities last acquired Company shares, the parties to the RRA understood it was
42
Compl. ¶ 38.
43
Compl. ¶¶ 39, 43.
44
Compl. ¶ 41.
45
Compl. ¶ 44.
46
Compl. ¶ 45.
10
unlikely the Baker Brothers Entities would exercise their rights under the RRA any
time soon.47
By October 2017, the Board had determined that it was appropriate to consider
strategic alternatives for the Company, including a sale.48 Goldman was engaged as
the Company’s financial advisor and, in that capacity, it contacted 27 potential
suitors, convincing 16 (including Exact) to enter into confidentiality agreements.49
Of the 16, only 2 followed with preliminary indications of interest and none offered
more definitive indications of interest.50
In early-to-mid 2018, Genomic began to report more promising results, and
with promising results came rising stock prices.51 As the stock price rose, the Baker
Brothers Entities began to sell off their stake in the Company. 52 By April 12, 2019,
47
Compl. ¶¶ 46–47.
48
Compl. ¶ 48.
49
Compl. ¶ 56.
50
Compl. ¶¶ 57–58.
51
Compl. ¶ 59 (“On June 3, 2018, Genomic announced positive results from a cancer
detection study.”); Compl. ¶ 61 (“Popovits also announced that Genomic’s Board was
raising our full year 2018 guidance and expect to deliver more than 17 percent revenue
growth for the year.” (internal quotations omitted)); id. (noting that Genomic reported that
it “continue[d] to deliver record results” and would be “raising [its] full year 2018
guidance . . .”).
52
Compl. ¶ 62 (charting the Baker Brothers Entities’ stock sales and resulting negative
effects on Genomic’s stock price).
11
after an aggressive six-month selloff, the Baker Brothers Entities were left with a
25.9% stake in Genomic.53
C. The 2019 Sale Discussions
On June 11, 2019, Kevin Conroy, Exact’s CEO, contacted Popovits “out of
the blue” to discuss a potential combination. 54 The parties executed an NDA in short
order, and on June 13, Conroy submitted to Popovits a non-binding proposal to
acquire Genomic for $64 per share, comprising 20% cash and 80% Exact stock.55
Prior to informing the full Board, Popovits instructed Goldman to perform an
analysis of Exact’s proposal. 56 Before doing so, she made no effort to solicit or
interview other banks to take on the assignment. 57
At a June 17 Board meeting, the Board considered Exact’s proposal and
concluded that Exact needed to offer more cash given that Exact’s stock was trading
at historically high levels.58 This Board discussion is not mentioned in the Definitive
53
Compl. ¶¶ 62–63.
54
Compl. ¶ 64; Exact and Genomic Defs.’ Opening Br. in Supp. of Mot. to Dismiss Pl.’s
Verified Am. Compl. (“Genomic OB”) (D.I. 49), Ex. 1 (“Proxy”) at 46.
55
Compl. ¶¶ 65–67.
56
Compl. ¶ 67.
57
Id.58
Compl. ¶ 70.
12
Proxy Statement related to the Merger (the “Proxy”). 59 After Goldman reviewed the
unsuccessful 2017–2018 process with the Board, and the specifics of Exact’s
pending offer, the Board instructed Popovits to inform Exact that its bid was
inadequate. 60 Popovits did as instructed and, on June 19, Conroy returned with a
$68 per share offer, again comprised of a mix of cash and stock. 61 According to the
Proxy, Popovits reported this offer to the Board the same day.62 On June 24, without
express Board authorization or approval, Popovits met with Exact’s financial
advisors to discuss the latest offer and informed them of Genomic’s “double digit
growth projections over the next 5 years.” 63
On June 25, Exact sent a $70 per share offer, comprised of 30% cash and 70%
stock, which Popovits presented to the Board on June 26.64 Bartosz Ostenda,
a banker from Goldman, was the only financial advisor present at the June 26
59
Id.60
Id.61
Compl. ¶ 72.
62
Id.; Proxy at 47. Plaintiff alleges there is no evidence in the Section 220 Documents that
Popovits reported the updated Exact offer to the Board on June 19. Instead, the documents
reveal the report to the Board was made on June 24. Compl. ¶ 72.
63
Compl. ¶ 74.
64
Compl. ¶ 75.
13
meeting.65 The Board asked Ostenda to prepare two separate analyses, one of
Genomic as a standalone company and the other as a combined company with
Exact.66
On June 27, Exact made a presentation to the Board in support of its offer.67
When the Exact representatives left the meeting, the Board asked Goldman to
request that Exact provide its internal financial projections.68 When Goldman later
made the request, Exact declined to provide any projections, citing its fear that a
release of this information might require it to make a public disclosure of its interest
in acquiring Genomic, something it was not willing to do at that time. 69 Ostenda
relayed Exact’s response to the Board at a July 1 meeting.70 At that meeting, Ostenda
also informed the Board of: “(i) Wall Street research and diligence commentary,
(ii) Genomic’s projections for Exact, and (iii) Wall Street projections.”71 Ostenda
advised the Board that Exact would not likely make another offer without a
65
Id.66
Id.67
Compl. ¶ 76.
68
Compl. ¶ 77.
69
Compl. ¶ 78.
70
Compl. ¶ 80. The Proxy did not disclose Exact’s precise reasons for not providing the
financial projections. Compl. ¶ 79.
71
Compl. ¶ 80 (internal quotations omitted).
14
counterproposal.72 Notwithstanding that it had no evidence of Exact’s projected
cash flows, the Board agreed to make a counterproposal of $80 per share, comprised
of 35% cash and 65% stock. 73
Also at the July 1 meeting, the Board considered whether to propose a collar
on the stock portion of the deal in the event the trading price of Exact’s common
stock declined after the parties struck the deal but before closing. 74 In proposing the
collar to Exact later that day, the Board ignored that Exact’s stock was trading at an
all-time high and that the price was likely to decrease in the future. 75 And the Board
made its proposal without any sense of Exact’s future cash flows. 76
Conroy rejected Genomic’s July 1 counterproposal on the spot. 77 In response,
Genomic called a special Board meeting on July 2 and agreed to reduce its counter
by $5 per share, with 33.33% comprised of cash. 78 On July 5, Centerview Partners,
72
Id.73
Id.74
Compl. ¶ 82. Although unclear, it appears the Board was considering a “two-way collar”
at this point, meaning a collar with a low-end and a high-end. That structure certainly was
under consideration later in the negotiations. Compl. ¶ 87.
75
Compl. ¶ 82.
76
Id.77
Compl. ¶ 83.
78
Compl. ¶ 84.
15
Exact’s financial advisor, reported that Exact would not accept Genomic’s July 2
counter and likely would not make another bid. 79 Popovits and Conroy kept talking,
however, leading to Conroy agreeing to sweeten Exact’s offer by increasing the cash
component from 30% to 35%.80 On July 6, the Board discussed the latest Exact
proposal with a focus on the collar, and determined “that the lower bound of the two-
way collar should be set at an Exact [] stock price of $90.00 per share.”81 Once
again, however, the Board failed to take into account the fact that Exact’s stock price
had peaked and failed to acknowledge that it still lacked any meaningful insight into
Exact’s projections. 82
On July 8, the Board met to discuss Exact’s most recent offer, which the Proxy
described as $72 per share, comprised of $27.50 in cash and $44.50 in stock.83 This
was the first meeting that Genomic’s outside counsel, Pillsbury Winthrop Shaw
79
Compl. ¶ 85.
80
Compl. ¶ 86. Plaintiff suggests that Exact, at some point, had increased its 30% cash
offer before increasing it again to 35%. Compl. ¶ 86 (suggesting that Exact increased its
offer by 1.7% to reach 35% cash). But the Complaint’s only reference to a cash component
above 30% is its reference to Genomic decreasing its counter from 35% to 33% cash.
Compl. ¶ 84.
81
Compl. ¶ 87.
82
Id.83
Compl. ¶¶ 88–89.
16
Pittman LLP, attended. 84 At this point, the meeting minutes and Proxy separate,
with the meeting minutes indicating the Board was not prepared to accept the
$72 per share offer, while the Proxy states that, as of July 8, the Board found the
$72 per share acceptable. 85 It is undisputed, however, that, on the next day,
Genomic hired Sullivan & Cromwell as additional counsel to guide the Board
through the potential transaction.86
D. Goldman’s Alleged Conflicts
Immediately prior to a July 18, 2019 Board meeting, the Board was informed
for the first time that Ostenda was a member of the Goldman investment division
team that had performed work for Exact before Merger discussions had
commenced.87 Goldman assured Genomic that Ostenda had not and would not work
for Exact while discussions regarding a potential transaction were ongoing.88 Prior
84
Compl. ¶ 88.
85
Compl. ¶ 89; Proxy at 50. According to the Complaint, the minutes reflect that the Board
would not accept Exact’s most recent offer but “‘indicated that a 10% up and down collar
mechanism would be acceptable provided that’ the measurement periods be worked out.”
Compl. ¶ 89.
86
Compl. ¶ 90; Proxy at 51.
87
Compl. ¶¶ 91–92. According to the disclosure document provided to the Board,
Goldman advised that, “in the past two years, our Investment Banking Division has not
performed any financial advisory and/or underwriting services for any Relevant Party and
Significant Shareholder of any of their respective affiliates.” Genomic OB, Ex. 13
(“Goldman Conflicts Letter”).
88
Compl. ¶ 92.
17
to Goldman’s commitment in this regard, Ostenda had advised Genomic during the
2017 sale process, attended every 2019 Board meeting concerning the potential
Merger, sometimes as Goldman’s only representative, and presented at length to the
Board in most meetings.89 And, prior to the disclosure, the Board had already agreed
on Merger price.90
E. The Voting Agreement and Signing of the Merger Agreement
On July 18, Exact’s counsel, Skadden, Arps, Slate, Meagher & Flom LLP,
demanded that the Baker Brothers Entities enter into a voting agreement and vote
their stock in favor of a future transaction. 91 Five days later, on July 23, the S&P
Dow Jones Indices announced Genomic would be listed on the S&P SmallCap 600
before July 29, causing an immediate 15% increase in the share price to $65.22.92
The Board met on July 26 and recognized the increase in Genomic’s trading price,
but chose not to capitalize on the news by repricing the deal, apparently because it
had already verbally agreed to a price on July 9.93
89
Compl. ¶ 93.
90
Compl. ¶ 96.
91
Compl. ¶ 99.
92
Compl. ¶ 100.
93
Compl. ¶ 101.
18
Also on July 26, Popovits sent an email to the Board in which she expressed
that Exact expected Genomic to move forward with the Merger promptly
notwithstanding the recent spike in Genomic’s stock price.94 On that same day,
negotiations between the Baker Brothers Entities and Exact over the form of the
voting agreement broke down when the Baker Brothers Entities refused to agree to
trading restrictions. Even though negotiations had ceased, counsel for the Baker
Brothers Entities advised Exact that the Baker Brothers Entities still intended to vote
in favor of the transaction. 95 Fueled by reports in Bloomberg News that Genomic
and Exact were discussing a possible combination, on July 27, Exact again wrote to
Genomic urging that the Board move swiftly toward closing. 96 Exact then agreed to
honor the terms of Genomic’s proposed collar in the spirit of moving the deal
along. 97
94
Compl. ¶ 102.
95
Compl. ¶ 103.
96
Compl. ¶ 104. It is alleged that Exact was the source of the leak that prompted
Bloomberg’s report of a possible merger. Id.97
Compl. ¶ 105. The final collar that was agreed to in the Merger Agreement provided
that, “based on the weighted trading price for the 15 days preceding the Merger closing, if
Exact[’s] [] weighted average stock price was equal to or less than $98.79, the exchange
ratio was fixed at 0.45043 Exact [] shares.” Compl. ¶ 120. After signing but before closing,
the stock price rose but subsequently dropped below the collar, with a closing price of
$79.95 on the day of the stockholder vote and $83.66 on the day the Merger closed,
meaning the Merger consideration was fixed at closing at $65.18 per Genomic share.
Compl. ¶¶ 120–24. This per share consideration was less than the unaffected price the day
before the announcement of the Merger. Compl. ¶ 100.
19
The Board convened on July 28 and approved the Merger, resulting in
consideration reflecting a 5% premium over the then current trading price. 98 On the
same day, the Baker Brothers Entities entered into the Voting Agreement with Exact
in which they committed to vote in favor of the Merger. 99 On October 4, 2019, the
Board filed the Proxy with the SEC,100 and the Merger was approved by a
stockholder vote on November 7, 2019.101
II. ANALYSIS
The standard for deciding a motion to dismiss under Court of Chancery
Rule 12(b)(6) is well-settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof. 102
98
Compl. ¶ 106.
99
Compl. ¶ 29.
100
Compl. ¶ 11.
101
Compl. ¶ 159; Genomic OB, Ex. 18 (reflecting that holders of 84.56% of Genomic’s
outstanding shares voted in favor of the Merger, and excluding the Baker Brothers Entities,
79.40% of outstanding shares voted in favor).
102
Savor, 812 A.2d at 896–97 (citation omitted).
20
Applying this standard, I approach the analysis in a now-familiar sequence.103
First, I briefly address Plaintiff’s concerns that Defendants have improperly relied
upon documents not incorporated within or integral to the Complaint in support of
their motions to dismiss and conclude that, even when the disputed documents are
removed from consideration, the Complaint still fails to state viable claims. Second,
I address the claim that the Merger violated Section 203 and conclude that no
statutory violation occurred, thereby resulting in dismissal of both Count I and the
related conversion claim in Count II. Third, I address the breach of fiduciary duty
claims against the Baker Brothers Entities and the Individual Defendants and
conclude: (a) entire fairness does not apply because the Complaint does not well
plead that the Baker Brothers Entities were conflicted controlling stockholders as of
the Merger or that any other fiduciary was burdened by conflicts of interest;
(b) Revlon either does not apply as a matter of law or Plaintiff has not stated a non-
exculpated claim for breach of fiduciary duty when considered under Revlon
enhanced scrutiny; (c) Plaintiff fails to well plead bad faith violations of the
Defendants’ duty of disclosure and, based on the foregoing; (d) the business
judgment rule applies and, without any allegation of waste, the claims against the
103
See In re GGP, Inc. S’holder Litig., 2021 WL 2102326, at *3 (Del. Ch. May 25, 2021)
(noting that the resolution of motions to dismiss post-closing stockholder challenges to
mergers has taken on a recurring and now-familiar cadence).
21
Genomic fiduciaries must be dismissed. Fourth, I take up the claim that Genomic’s
CEO, Kim Popovits, is separately liable for breach of fiduciary duty and, again, find
that claim lacking in any legal or factual support, even after affording Plaintiff all
reasonable inferences. And finally, I briefly address Plaintiff’s aiding and abetting
claims and conclude they must be dismissed for failure to well plead a predicate
breach of fiduciary duty.
A. Defendants’ Reliance on “Incorporated” Documents
As noted, prior to filing her Complaint, Plaintiff made a demand to inspect
documents under Section 220. As a condition to receiving documents in response
to her demand, Plaintiff agreed that if she filed any action that incorporated
“Section 220 Material” into her Complaint, “the entire production of Section 220
Materials [would be] incorporated by reference in any such filing, as provided by
Delaware law.”104 Based on this agreement, Defendants now maintain they may
incorporate any portion of any document that Plaintiff cited in the Complaint for any
104
Genomic OB, Ex. 2, ¶ 2(g). This type of agreement, when properly implemented,
“serves the laudable purpose of eliminating the need for parties and the court to address
whether referring to Section 220 documents has converted a motion to dismiss into a
motion for summary judgment.” In re Clovis Oncology, Inc. Deriv. Litig.,
2019 WL 4850188, at *14 n.216 (Del. Ch. Oct. 1, 2019) (citation omitted); see also
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016) (confirming parties
can agree that Section 220 documents are deemed incorporated by reference in the
complaint without altering the Rule 12(b)(6) standard of review).
22
purpose that suits them in the prosecution of their motions. 105 Defendants, in fact,
take it a step further, and argue that the negotiated language in the Section 220
confidentiality agreement gives them carte blanche to cite to any
Section 220 document, whether cited in the Complaint or not, to be used for any
purpose, even at the motion to dismiss stage. 106 In my view, that is not a correct
characterization of the state of our law.
When parties agree that a document, or in this case, the “entire [Section 220]
production,” is “incorporated by reference,” their agreement “does not enable a court
to weigh evidence on a motion to dismiss. [Instead,] [i]t permits a court to review
the actual documents to ensure that the plaintiff has not misrepresented their contents
and that any inference the plaintiff seeks to have drawn is a reasonable one.”107
Here, the Baker Brothers Entities submitted 19 exhibits, the Genomic
defendants submitted 22 exhibits and Goldman submitted 12 exhibits (including,
in all, 19 Section 220 Documents). Although Defendants frequently proffer the
documents for the proper purpose of questioning inferences Plaintiff would have the
105
In re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *18
(Del. Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021); Clovis, 2019 WL 4850188,
at *14 n.216; Acero Cap., L.P. v. Swrve Mobile, Inc., 2021 WL 2207197 (Del. Ch. June 1,
2021).
106
Telephonic Oral Arg. on Defs.’ Mot. to Dismiss (D.I. 93) at 13–14.
107
Voigt v. Metcalf, 2020 WL 614999, at *9 (Del. Ch. Feb. 10, 2020).
23
Court draw from the documents, in some instances, Defendants rely on documents
for the sake of rewriting the Complaint “in favor of their own version of events with
documents drafted at a time when litigation relating to their contents was likely.”108
That is not how our Chancery Rule 12(b)(6) operates. 109 When a defendant submits
matters outside of the complaint on a motion to dismiss, and then seeks to use those
documents for an improper purpose, “the court may either exclude the extraneous
matter from its consideration or convert the Chancery Rule 12(b)(6) motion into a
motion for summary judgment. . . .” 110
After due consideration, I am satisfied there is no need to convert here.
As explained below, it is clear from the content within the four corners of the
Complaint, and the documents Plaintiff has incorporated by reference, that Plaintiff
has failed to state viable claims. Any improper references Defendants would have
me draw from extraneous matter will be disregarded.
108
CBS, 2021 WL 268779, at *18.
109
Id. (noting parties may not, by agreement, opt out of this court’s rules of procedure and
impose on the court an altered procedural standard of review that is the creature of their
own preferences).
110
Id.24
B. The Section 203 and Conversion Claims
Plaintiff contends that Defendants violated Section 203 because Exact entered
into a business combination with Genomic two days after Exact became an interested
stockholder. Section 203, in relevant part, provides:
(a) Notwithstanding any other provisions of this chapter, a corporation
shall not engage in any business combination with any interested
stockholder for a period of 3 years following the time that such
stockholder became an interested stockholder, unless:
(1) Prior to such time the board of directors of the corporation
approved either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
...
(3) At or subsequent to such time the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the interested stockholder.111
An interested stockholder is defined as one who “is the owner of 15% or more
of the outstanding voting stock of the corporation.”112 An owner, in turn, is defined,
in relevant part, as:
[A] person that individually or with or through any of its affiliates or
associates:
(i) Beneficially owns such stock, directly or indirectly; or . . .
(iii) Has any agreement, arrangement or understanding for the
111
8 Del. C. § 203(a) (emphasis added).
112
8 Del. C. § 203(c)(5) (emphasis added).
25
purpose of acquiring, holding, voting . . . , or disposing of such
stock with any other person that beneficially owns, or whose
affiliates or associates beneficially own, directly or indirectly,
such stock. 113
Plaintiff claims Exact became an interested stockholder of Genomic on
July 26, two days prior to the Board signing the Merger Agreement, when the
Baker Brothers Entities allegedly agreed to vote their shares in favor of the
transaction. Defendants disagree and argue Plaintiff’s Section 203 claim fails for
three reasons: (1) Exact never became an “Interested Stockholder” because the
Baker Brothers Entities did not agree with Exact to vote in favor of the Merger until
after the Board approved the Merger (when the Voting Agreement was actually
executed), (2) the Board implicitly approved the Voting Agreement prior to July 26,
the date Plaintiff claims the two sides came to an agreement, and (3) a majority of
disinterested shares approved the transaction. Because I agree with Defendants, at
a minimum, on their first two proffered bases to defeat the claim, I need not address
the more fact-intensive inquiry as relates to the stockholder vote.
Exact Was Not an Interested Stockholder Prior to the Merger
I begin with an acknowledgment that the Baker Brothers Entities themselves
meet the definition of Interested Stockholder as the beneficial owners of
113
8 Del. C. § 203(c)(9).
26
approximately 25% of Genomic’s stock at the time of the Merger. 114 Plaintiff argues
that Exact became an “owner of 15% or more of [Genomic’s] outstanding voting
stock,” and thus an Interested Stockholder, when the Baker Brothers Entities, as
Interested Stockholders, allegedly committed to Exact on July 26 to vote in favor of
the Merger.115 To support this allegation, Plaintiff points to the Proxy, which states
that on July 26 “representatives of Akin Gump contacted representatives of Skadden
to inform them that the [Baker Brothers Entities] were no longer willing to agree to
transfer restrictions on their shares between signing and closing, but would still agree
to vote in favor of the transaction.”116 This, according to Plaintiff, evidences an
“agreement, arrangement or understanding for the purpose of acquiring . . . such
stock,” in violation of Section 203. 117 That is not a reasonable inference to draw
from the Proxy.
For parties to form an agreement, there must be a meeting of the minds.118
This court has defined “agreement” to mean “a factual conclusion that two (or more)
114
Compl. ¶¶ 3, 129, 182–85; see also 8 Del. C. § 203(c)(9)(i) (providing that an interested
stockholder includes a stockholder that “[b]eneficially owns such stock, directly or
indirectly”).
115
8 Del. C. § 203(c)(5).
116
Proxy at 54; Compl. ¶ 103.
117
8 Del. C. § 203(c)(9)(iii).
118
Chesapeake Corp. v. Shore, 771 A.2d 293, 353 (Del. Ch. 2000) (“‘[A]greement,’
‘arrangement,’ or ‘understanding’ . . . presupposes a meeting of the minds.”).
27
minds have come mutually to accept one or more terms of a proposed contract.”119
“Contract” is defined as “a legal conclusion that the parties have reached agreement
with respect to all of the material items they seek to negotiate and have expressed an
intention to bind themselves to perform the promised acts.”120 Section 203’s
reference to “agreement, arrangement or understanding,” when read against this
backdrop, is reasonably construed, in broad terms, to mean “all arrangements,
whether formal or informal, written or unwritten.”121
The Proxy’s language does not evidence either a formal or informal meeting
of the minds between the Baker Brothers Entities and Exact on July 26. In fact, the
Proxy discloses that the Baker Brothers Entities had plainly rejected Exact’s
proposed voting agreement and that they would only agree to a voting agreement
with different terms. 122 It is simply not reasonable to read the Proxy to say that the
Baker Brothers Entities fully and unconditionally agreed to vote their shares in favor
of the Merger, either formally or informally. That interpretation of the events of
July 26 ignores the unambiguous qualifiers (including that there would be no support
119
Transamerican S.S. Corp. v. Murphy, 1989 WL 12181, at *1 n.1 (Del. Ch. Feb. 14,
1989); see also Siegman v. Columbia Pictures Entm’t, Inc., 576 A.2d 625, 631 (Del. Ch.
1989) (using the definition of agreement in construing Section 203).
120
Transamerican, 1989 WL 12181, at *1 n.1.
121
Siegman, 576 A.2d at 632 (citation omitted).
122
Proxy at 54; Compl. ¶ 103.
28
for the Merger if Exact continued to insist on transfer restrictions), the presence of
which wipes out the notion that an agreement existed in the first instance.123 That
the Baker Brothers expressed their then-present, non-binding intent eventually to
support the Merger does not change the analysis. Without an agreement, Exact
cannot conceivably be classified as an Interested Stockholder and thus cannot have
violated Section 203. This is further bolstered by the existence of the later-executed
Voting Agreement, entered into immediately after the Board approved and executed
the Merger Agreement. 124 That agreement, entirely proper under our law, evidences
nothing more than the commonplace scenario where a large stockholder agrees to
vote its shares in favor of a transaction approved and authorized by the board of the
target company. 125
The Board Implicitly Approved the Voting Agreement Prior to Its
Consummation and Prior to Executing the Merger Agreement
Section 203(a) permits an Interested Stockholder to engage in a business
combination transaction so long as “the board of directors of the corporation
[previously] approved either the business combination or the transaction which
123
Proxy at 54 (“[T]he [Baker Brothers Entities] were no longer willing to agree to transfer
restrictions . . . .”).
124
Compl. ¶ 29.
125
Siegman, 576 A.2d at 632 (holding that an option agreement, executed on the same day
but after a merger agreement, did not create a Section 203 problem because the
interestedness only arose after the transaction was approved by the board).
29
resulted in the stockholder becoming an interested stockholder.”126 Plaintiff argues
that because the Board did not approve either the Merger or the Voting Agreement
prior to July 26, the date the Baker Brothers Entities allegedly agreed to vote in favor
of the transaction, Section 203(a)’s safe harbor is not implicated.127 But the
Complaint lacks any allegations that the Board was unaware that a Voting
Agreement was being contemplated between the Baker Brothers Entities and Exact,
much less that the Board disapproved of Exact’s desire to secure the Baker Brothers
Entities’ commitment to the Merger. In fact, as the Complaint makes clear through
its incorporation of the Proxy, on July 16, Exact’s counsel sent a draft merger
agreement to Genomic’s counsel that expressly contemplated Exact would enter into
certain voting agreements with Genomic stockholders.128 The only reasonable
inference is that the Board well understood Exact would require voting agreements
in connection with the Merger. 129 By continuing to negotiate with Exact on those
terms, the Board demonstrated its agreement to the unremarkable proposition that
Exact would seek to secure the commitment of Genomic’s largest stockholder to the
126
8 Del. C. § 203(a)(1).
127
Pl.’s Corrected Answering Br. in Opp’n to Defs.’ Mot. to Dismiss Pl.’s Verified Am.
Compl. (“AB”) (D.I. 69) at 40–41.
128
Compl. ¶ 133; Proxy at 52.
129
Proxy at 55.
30
Merger prior to the stockholder vote. That agreement to “the transaction which
resulted in [Exact] becoming an Interested Stockholder,” prior to the parties
themselves agreeing, excepts the transaction from Section 203’s proscriptions. 130
This court’s decision in Matador Capital Management Corp. v.
BRC Holdings, Inc. is instructive by way of analogy. 131 There, the court considered
“a transaction negotiated by the [target] board in which [the alleged interested
stockholder’s] agreement to tender was given as an accommodation to the [target]
board in order to satisfy one of [the acquiror’s] demands on it.” 132 The plaintiff
alleged the transaction violated Section 203 and sought a preliminary injunction to
prevent the closing.133 The court held that any potential Section 203 violation was
put to rest by the clear evidence that the target board acknowledged and discussed
the voting agreement, creating a reasonable inference that the target board in fact
consented to the voting agreement when it continued to negotiate with the buyer
without raising any concerns regarding the voting agreement. 134 Similarly, here, the
130
8 Del. C. § 203(a)(1).
131
729 A.2d 280, 299 (Del. Ch. 1998).
132
Id.133
Id. The procedural posture in Matador flags another issue; post-closing challenges to
mergers under Section 203 are awkward affairs as the remedy is difficult to conceive much
less implement.
134
Id.31
Complaint and documents properly incorporated by reference reveal that the Board
acknowledged Exact would require a voting agreement from the Baker Brothers
Entities before the proposed Merger was put to the stockholders for a vote.135 The
Board did not object but, instead, continued to negotiate on that basis. 136 And, again,
the fact the Voting Agreement itself was not signed until after the Board approved
the Merger further suggests this was not an interested stockholder acting to take over
the Company without the Board’s consent, which, as explained below, is the precise
problem Section 203 was designed to solve. 137
Ultimately, Plaintiff’s attempt to pigeonhole Defendants’ conduct into a
violation of Section 203 is inconsistent with the statute’s designated purpose.
Section 203 was intended “to strike a balance between the benefits of an unfettered
market for corporate shares and the well-documented and judicially recognized need
to limit abusive takeover tactics.” 138 Plaintiff’s view of Section 203 would authorize
135
Compl. ¶ 133; Proxy at 55.
136
Compl. ¶ 133; Proxy at 52.
137
See Chesapeake, 771 A.2d at 353.
138
H.B. 396, 134th General Assembly 9 (1987); Chesapeake, 771 A.2d at 353 (same);
see also Timothy Leisz v. MSG Networks, Inc., et al., C.A. 2021-0504-KSJM (Del. Ch.
July 6, 2021) (TRANSCRIPT) at 21 (discussing Section 203’s legislative history at length,
finding the statute’s purpose is “to limit abusive takeover tactics,” and that its effect, when
properly applied, was to “forc[e] any hostile acquirer to negotiate a transaction with the
board”); Apostle Mamakas v. Iconix Brand Gp., Inc., C.A. 2021-0632-KSJM (Del. Ch.
July 26, 2021) (TRANSCRIPT) at 12 (holding that a Section 203 claim was not colorable
32
the court to prevent a merger even when a target’s board was aware of, and did not
object to, a buyer’s attempt to secure the endorsement of a significant stockholder in
favor of a deal that the board itself was attempting to secure for all of the target’s
stockholders. Even if Plaintiff is correct that the Board had not formally approved
of either the Merger or Voting Agreement prior to July 26, and that there was a
meeting of the minds between the Baker Brothers Entities and Exact with respect to
voting on July 26, it is undeniable that the Merger was formally approved by the
Board on July 28 (with full knowledge of the Voting Agreement negotiations) and
endorsed by the Board much earlier than that.139 Nothing about this dynamic
suggests Exact was engaged in “abusive takeover tactics.”140 Because “this court
should be hesitant to strain the statute’s language to cover situations that do not
threaten the interests the statute was designed to protect,” Plaintiff’s Section 203
must be dismissed.141
because, consistent with the statutory purpose of “discourag[ing] hostile takeovers,” the
board was significantly involved in negotiating the transaction in question).
139
Compl. ¶¶ 106, 133; Proxy at 55.
140
Chesapeake, 771 A.2d at 353 (“[T]hey failed to submit convincing evidence that such
deals increase the potential for ‘abusive takeovers.’”).
141
Id. Given that Plaintiff’s conversion claim rests on the premise that Defendants violated
Section 203, Count II must likewise be dismissed.
33
C. The Breach of Fiduciary Duty Claims
Apparently appreciating that “the gating question that frequently dictates the
pleadings stage disposition of a breach of fiduciary duty claim [is] under what
standard of review will the court adjudicate the claim,”142 Plaintiff has pulled out
all stops to implicate either entire fairness review or Revlon enhanced scrutiny in
order to survive dismissal. Defendants work equally hard to cast Plaintiff’s fiduciary
duty claims as poster illustrations of a stockholder’s after-the-fact quibbles with the
exercise of business judgment by corporate fiduciaries that should not be subjected
to judicial second-guessing. On this day, Defendants have the far better of the
argument.
“Section 141 of the Delaware General Corporation Law empowers the board
of directors of a Delaware corporation to manage the corporation’s business and
affairs.”143 When exercising this authority, directors owe unremitting fiduciary
duties of loyalty and care to the company’s stockholders. 144 The default standard of
review guiding this court’s determination of whether directors violated those
fiduciary duties, the business judgment rule, affords corporate fiduciaries a
142
Tornetta v. Musk, 2019 WL 4566943, at *1 (Del. Ch. Sept. 20, 2019).
143
Larkin v. Shah, 2016 WL 4485447, at *8 (Del. Ch. Aug. 25, 2016) (citing 8 Del. C.
§ 141(a)).
144
Cede & Co. v. Technicolor, 634 A.2d 345, 360 (Del. 1993).
34
presumption that they have “acted on an informed basis, in good faith and in the
honest belief that the action taken was in the best interests of the company.”145 When
this deferential standard applies, Delaware courts will not second-guess a board’s
decision unless it “cannot be attributed to any rational business purpose.” 146
Several avenues exist to rebut the business judgment presumption and hold
the conduct of directors to a higher standard of review. 147 Delaware courts will apply
the highest standard of review, entire fairness, where: “(1) properly reviewable facts
reveal that the propriety of a board decision is in doubt because the majority of the
directors who approved it were grossly negligent, acting in bad faith, or tainted by
conflicts of interest; or (2) the plaintiff presents facts supporting a reasonable
inference that a transaction involved a controlling stockholder.”148 Importantly, the
presence of a controller will not per se trigger entire fairness review; this heightened
standard is only appropriate when a controller “engage[s] in a conflicted
145
Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled on other grounds by Brehm
v. Eisner, 746 A.2d 244 (Del. 2000) (citation omitted).
146
Cede, 634 A.2d at 361 (internal quotations omitted) (quoting Sinclair Oil Corp. v.
Levien, 280 A.2d 717, 720 (Del. 1971)).
147
See In re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 663 (Del. Ch. 2013)
(discussing the application of entire fairness, Revlon and the business judgment rule).
148
Larkin, 2016 WL 4485447, at *8 (citations omitted).
35
transaction.”149 And, under our law, a controller engages in a conflicted transaction
when: “(a) the controller stands on both sides; [or] (b) [] the controller competes
with the common stockholders for consideration.”150
Delaware courts will move past the business judgment rule and review
director conduct with enhanced scrutiny under Revlon when directors are confronted
with a change of control transaction that presents the board with the opportunity to
secure “the best value reasonably available to the stockholders.” 151 Revlon duties
can be triggered in three ways:
(1) when a corporation initiates an active bidding process seeking to
sell itself or to effect a business reorganization involving a clear break-
up of the company; (2) where, in response to a bidder’s offer, a target
abandons its long-term strategy and seeks an alternative transaction
involving the break-up of the company; or (3) when approval of a
transaction results in a sale or change of control. 152
149
In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *14 (Del. Ch. Oct. 24,
2014); see also In re Viacom Inc. S’holders Litig., 2020 WL 7711128, at *11 (Del. Ch.
Dec. 29, 2020), as corrected (Dec. 30, 2020) (“That fiduciary duty, reflecting the standard
of conduct expected of the controller, is to be distinguished from the standard of review by
which the court tests whether the fiduciary has met the standard of conduct.”
(citation omitted)).
150
Crimson, 2014 WL 5449419, at *12; see also Larkin, 2016 WL 4485447, at *8
(“Conflicted transactions include those in which the controller stands on both sides of the
deal (for example, when a parent acquires its subsidiary), as well as those in which the
controller stands on only one side of the deal but ‘competes with the common stockholders
for consideration.’” (citation omitted)).
151
Paramount Commc’ns, Inc. v. QVC Network, Inc., 637 A.2d 34, 43 (Del. 1994) (noting
that Revlon requires directors to take reasonable steps to get the best deal).
152
Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1290 (Del. 1994) (cleaned up).
36
Of course, regardless of the standard of review, as a matter of statute, a
plaintiff “still must plead a non-exculpated claim of breach of fiduciary duty” to
survive dismissal when a company’s charter contains “an exculpatory provision
authorized by 8 Del. C. § 102(b)(7) that immunizes the directors for liability for
money damages as a result of the breach of the duty of care.”153 Accordingly, to
overcome Genomic’s exculpatory charter provision, as to each named director
defendant, Plaintiff must “plead[] facts supporting a rational inference that the
director harbored self-interest adverse to the stockholders’ interests, acted to
advance the self-interest of an interested party from whom they could not be
presumed to act independently, or acted in bad faith.” 154
Plaintiff’s pitch for entire fairness review is that the Baker Brothers Entities
controlled Genomic because “it is reasonably conceivable that [their] minority stake
was so potent that independent directors [could not] freely exercise their judgment,
fearing retribution.”155 And, according to Plaintiff, the Baker Brothers Entities’
unique desire to exit their investment in Genomic separated their interests from those
153
Morton’s, 74 A.3d at 663 (citation omitted); see Paramount, 637 A.2d at 46–48.
154
In re Cornerstone Therapeutics Inc, S’holder Litig., 115 A.3d 1173, 1179–80
(Del. 2015) (citation omitted); id. at 1182 (emphasizing that “each director has a right to
be considered individually when the directors face claims for damages in a suit challenging
board action” (citations omitted)).
155
In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *8 (Del. Ch. Dec. 30, 2019)
(internal quotations omitted) (citations omitted).
37
of other stockholders in a way that created a legally cognizable conflict. 156 Plaintiff
must prevail on both arguments to justify review of her breach of fiduciary duty
claims under entire fairness. 157 As explained below, she fails on both fronts.
Plaintiff’s attempt, in the alternative, to justify enhanced scrutiny under
Revlon rests on the argument that the Board was engaged in an “active bidding
process” that led to a “change of control” transaction. As explained below, the pled
facts say otherwise. But, even if Revlon applies, the Individual Defendants, in their
capacities as directors, are protected from liability by Genomic’s exculpatory charter
provision. As explained below, Plaintiff has fallen well short of pleading “a non-
exculpated breach of [] Revlon duties.”158
As a last-ditch effort, Plaintiff attempts to argue that the business judgment
rule is rebutted because members of the Board engaged in bad faith violations of
their duty of disclosure. Even if Plaintiff is correct that the Board failed to include
156
Crimson, 2014 WL 5449419, at *12 (noting that entire fairness review is justified
“where the controller competes with the common stockholders for consideration”).
157
Larkin, 2016 WL 4485447, at *15 (holding that either a lack of control status or a lack
of a conflict each independently deny plaintiff access to entire fairness review).
158
Kahn v. Stern, 183 A.3d 715, 2018 WL 1341719, at *1 n.3 (Del. 2018) (citations
omitted); see also Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001) (affirming
dismissal of Revlon claim where plaintiff failed to well plead that board members were
conflicted or acted in bad faith while “maximizing the sale price of the enterprise”).
38
certain material information in its Proxy ahead of the stockholder vote, the
Complaint does not even purport to allege such action was taken in bad faith.159
This leaves the business judgment rule as the only sustainable standard of
review. With nothing left to rebut the presumption, the fiduciary duty claims against
both the controller and each Individual Defendant, in their capacities as directors,
must be dismissed.160
Entire Fairness Review Not Justified
Plaintiff contends the Merger was the product of the undue influence of a
conflicted controlling stockholder because (1) the Baker Brothers Entities exerted
actual control over the transaction through their domination of a majority of the
Board and (2) the Baker Brothers Entities, as controller, competed with the minority
through the extraction of a non-ratable benefit, namely increased liquidity. Neither
argument holds weight under our law.
a. The Baker Brothers Entities as Controlling Stockholders
“In the seminal Kahn v. Lynch Communications Systems, Inc., the Supreme
Court observed that Delaware courts will deem a stockholder a controlling
stockholder when the stockholder: (1) owns more than 50% of the voting power of
159
Arnold, 650 A.2d at 1287 (holding that Section 102(b)(7) exculpation applies to alleged
duty of disclosure violations).
160
I take up the claims against Popovits as CEO separately.
39
a corporation or (2) owns less than 50% of the voting power of the corporation but
‘exercises control over the business affairs of the corporation.’” 161 Because it is
undisputed that the Baker Brothers Entities owned approximately 25% of Genomic’s
outstanding stock at the time of the Merger, Plaintiff must well plead that they
actually “controlled the business affairs” of Genomic notwithstanding their minority
stake. In other words, Plaintiff must well plead that the Baker Brothers Entities
exercised “such formidable voting and managerial power that [they], as a practical
matter, [are] no differently situated than if [they] had majority voting control.” 162
Plaintiff maintains her Complaint allows a reasonable inference that the Baker
Brothers Entities either “actually dominated and controlled the corporation, its
board or the deciding committee with respect to the challenged transaction,”163 such
that their “presence [was] hard to ignore because [they had] injected [themselves] as
‘dominator’ into the board’s process while it considers the transaction and [were],
in that sense, actually ‘in the board room,’” 164 or they “actually dominated and
161
In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293, at *12 (Del. Ch. Mar. 28,
2018) (emphasis in original) (quoting Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110,
1113–14 (Del. 1994)).
162
Morton’s, 74 A.3d at 665 (citation omitted).
163
In re Rouse Props., Inc., 2018 WL 1226015, at *12 (Del. Ch. Mar. 9, 2018) (citing
Williamson v. Cox Commc’ns, Inc., 2006 WL 1586375, at *4 (Del. Ch. June 5, 2006)).
164
Id.40
controlled the majority of the board generally.”165 In the latter scenario, the Baker
Brothers Entities’ “dominating presence [allegedly] is evidenced by the [B]oard’s
awareness of [their] ability to make changes at the [B]oard level or to push other
coercive levers should [they] be displeased with the [B]oard’s performance or
decision-making.”166
Contrary to Plaintiff’s characterization of her pleading, the Complaint lacks
any well-pled allegations of general control, as the Baker Brothers Entities own a
mere 25% voting interest, hold only two of the eight Board seats and do not meddle
in the day-to-day operations of the Company.167 Simply stated, there is nothing in
the Complaint that would allow a reasonable inference of general control.
Plaintiff’s attempt to cast the Baker Brothers Entities as controlling
stockholder with respect to the Merger fares no better. 168 Delaware law presumes
“that a director’s decision is based on the corporate merits of the subject matter
before the board rather than extraneous considerations or influence.” 169 “In order to
165
Id.166
GGP, 2021 WL 2102326, at *13 (internal quotations omitted) (citation omitted).
167
Compl. ¶¶ 14–15, 182, 185. Contra In re Cysive, Inc. S’holders Litig., 836 A.2d 531,
552 (Del. Ch. 2003) (noting the alleged controller’s “day-to-day managerial supremacy”
as a factor in finding general control).
168
AB 46–55.
169
In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192, at *11 (Del. Ch. May 22, 2000)
(citation omitted).
41
overcome that presumption in the controller context, the plaintiff must plead facts
that support a reasonable inference the director is either beholden to the shareholder
or so under its influence that his discretion is sterilized.”170 Nothing in the Complaint
supports that inference with respect to the relationship between the Baker Brothers
Entities and the Board.
First, there is no well-pled allegation that the Baker Brothers Entities
ultimately “dominated or controlled [Genomic’s] corporate decision-making
process.”171 The best Plaintiff can do here is to allege that the Baker Brothers
Entities were 45% Genomic stockholders and controlled the M&A committee
formed to evaluate the possibility of a merger in 2017. 172 The well-pled allegations
in the Complaint, however, make clear that back in October 2017, while Genomic
170
Rouse, 2018 WL 1226015, at *13 (cleaned up).
171
Id. at *15 (internal quotations omitted) (citation omitted); see also Superior Vision
Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006)
(“[T]he focus of the inquiry has been on the de facto power of a significant (but less than
majority) shareholder, which, when coupled with other factors, gives that shareholder the
ability to dominate the corporate decision-making process.”); Larkin, 2016 WL 4485447,
at *15 (rejecting plaintiff’s unsupported contention that a defendant was a controlling
stockholder and noting the complaint did not allege “either overt or even subtle bullying”);
In re Loral Space & Commc’ns Inc., 2008 WL 4293781, at *21 (Del. Ch. Sept. 19, 2008)
(finding, as an essential component of its ruling that the plaintiff had well pled the existence
of a controlling stockholder, that the controller “controlled Loral’s decision to pursue the
growth strategy that necessitated additional capital financing and the time table for
obtaining that capital”).
172
Compl. ¶¶ 14–24, 43, 48, 51.
42
was considering a sale, no final indications of interest were received. 173 Then,
“Exact [] show[ed] up unsolicited and unannounced” two years later, in June 2019,
to discuss a potential merger. 174 The Complaint is conspicuously silent as to any
indicia of control the Baker Brothers Entities wielded over the negotiations with
Exact. Indeed, the picture the Complaint attempts to paint (albeit with broad strokes
and abstract technique) is of Popovits, not the Baker Brothers Entities, acting as the
force that drove the Board to recommend the Merger to Genomic stockholders. 175
Without any indication that the Baker Brothers Entities steered the
negotiations or otherwise dominated or had the ability to “dominate the corporate
decision-making process,”176 the Complaint’s allegations that Felix and Julian Baker
were friends and business partners with a majority of the Board fall flat. Even if it
were true that a majority of the Board was not independent of the Baker Brothers
Entities, a dubious proposition given the thin pleading here (see below), this still
would not be enough to trigger entire fairness. To hold otherwise would be to
173
Compl. ¶ 58.
174
Compl. ¶¶ 63–64. Again, Plaintiff does not allege that Exact had any relationship with
the Baker Brothers Entities prior to the Merger.
175
See, e.g., ¶ 64 (“[O]n June 11, 2019, Conroy contacted Popovits out of the blue to
request a management meeting for the purpose of exploring a potential combination.”);
see also Compl. ¶¶ 65–75 (alleging Popovits played a substantial role in the Merger
negotiations).
176
GGP, 2021 WL 2102326, at *15.
43
“conflat[e] a pleading that a majority of the Board lacked independence from an
interested party, with a pleading of actual control by that interested party.”177
“Consideration of controller status focuses on the alleged controller, and whether it
effectively controls the board of directors so that it also controls disposition of the
interests of the unaffiliated stockholders.”178 Again, nothing in the Complaint allows
an inference that the Baker Brothers Entities even attempted to control, much less
succeeded in exercising “actual control” over, this transaction.179
Even assuming the relationships between the Baker Brothers Entities and
Board members were relevant here, none of the relationships are of a nature that they
would rebut any director’s presumed independence. Of the six directors not directly
affiliated with the Baker Brothers Entities, Plaintiff challenges the independence of
five: Fuchs, Popovits, Flannelly, Parker and Cohen.180 As to each, it is useful to
reiterate our Supreme Court’s admonition that “[b]are allegations that directors are
friendly with, travel in the same social circles as, or have past business relationships
177
Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *17 (Del. Ch. May 31,
2017).
178
Id.179
But see Rouse, 2018 WL 1226015, at *12 (“[T]he controller’s presence is hard to ignore
because he has injected himself as ‘dominator’ into the board’s process while it considers
the transaction and is, in that sense, actually ‘in the board room.’”).
180
AB 48–56.
44
with the proponent of a transaction . . . are not enough to rebut the presumption of
independence.” 181
Fuchs. The Complaint alleges that Fuchs’ principal job is at BioMarin, a
company in which the Baker Brothers Entities have significant investments.182 The
Complaint fails to mention, however, whether those significant investments gave the
Baker Brothers Entities “unilateral power,” much less substantial sway, over Fuchs’
compensation or future job prospects at BioMarin.183 The Complaint next alleges
that the Baker Brothers Entities’ nomination of Fuchs to the AnorMED, Inc. board
of directors, their suggestion of Fuchs as a compromise pick to the Board and their
role in appointing Fuchs as executive and director at Onyx Pharmaceuticals and
181
Kahn v. M&F Worldwide Corp., 88 A.3d 635, 649 (Del. 2014), overruled on other
grounds by Flood v. Synutra Int’l, Inc., 195 A.3d 754 (Del. 2018); see also Huff Energy
Fund, L.P. v. Gershen, 2016 WL 5462958, at *12 (Del. Ch. Sept. 29, 2016) (“Our law is
clear that personal friendships, without more, and outside business relationships are each
insufficient to raise a reasonable doubt of a director’s ability to exercise independent
busines judgment.”).
182
Compl. ¶ 21.
183
Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 177 (Del. Ch. 2005), aff’d,
906 A.2d 114 (Del. 2006) (“This Court will not find a director beholden unless the
purported controlling person has ‘unilateral’ power to substantially affect the director.”).
Plaintiff points to Del. Cty. Empls. Ret. Fund v. Sanchez, as support for her argument that
“unilateral” power to affect a director is not the appropriate metric by which to evaluate
whether a director is beholden to a controller. 124 A.3d 1017, 1023 n.25 (Del. 2015). Even
if this is accurate, the Court in Sanchez found it reasonably conceivable that a director was
not independent of the controller where the complaint well pled that the controller was
“very influential at [the director’s principal employer] as a whole.” Id. The well-pled facts
here simply do not allow that inference with respect to Fuchs.
45
Andrea Biosciences shortly after the Baker Brothers Entities invested in these
companies supports a reasonable inference that he is beholden to the Baker Brothers
Entities. 184 I disagree. “It is well-settled Delaware law that a director’s
independence is not compromised simply by virtue of being nominated to a board
by an interested stockholder.”185 But that is all Plaintiff has alleged here. That the
Baker Brothers Entities may have participated in Fuchs’ placement on the boards of
various entities, including Genomic, without more, does not support a reasonable
inference that Fuchs was beholden to the Baker Brothers Entities.
Popovits. The Complaint alleges Popovits has been a director and officer at
Genomic for twenty years and received substantial compensation throughout, all
during a time in which the Baker Brothers Entities have held a significant stake in
the Company. 186 This allegation, of course, says nothing of the Baker Brothers
Entities’ control over the Board or any of its members, including Popovits. Plaintiff
184
Compl. ¶¶ 22–23.
185
In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 996 (Del. Ch. 2014), aff’d
sub nom. Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (citations omitted);
see also Aronson, 473 A.2d at 815 (finding that directors who were “personally selected”
by a 47% stockholder did not lack independence); id. at 816 (noting that placement on the
board by “those controlling the outcome of a corporate election” is “the usual way a person
becomes a corporate director”); Frank v. Elgamal, 2014 WL 957550, at *22 (Del. Ch.
Mar. 10, 2014) (“Merely because a director is nominated and elected by a large or
controlling stockholder does not mean that he is necessarily beholden to his initial
sponsor.”) (citation omitted).
186
Compl. ¶¶ 14, 16, 178.
46
then alleges that Popovits became a board member of Kiniksa, Myokardia, Inc. and
Nuvelo, Inc. soon after the Baker Brothers Entities began investing in these
companies, apparently as support for an inference that she was appointed to these
boards by the Baker Brothers Entities.187 The proffered inference stretches beyond
its tolerance, however, as there are no allegations that reveal the level of the
Baker Brothers Entities control at these companies. More to the point, even if the
inference were reasonable, the fact the Baker Brothers Entities appointed Popovits
to these various boards does not, alone, cloud her independence as a Genomic
fiduciary. 188
Flannelly. The Complaint alleges the Baker Brothers Entities are the largest
stockholder of Flannelly’s principal employer, Incyte, and that Julian Baker has been
the lead independent director there since 2015.189 Again, the Complaint’s
allegations do not support a reasonable inference that the Baker Brothers Entities
had sufficient power to influence Flannelly’s decision-making. The same can be
said for Flannelly’s prior appointments to the boards of Onyx and Protara
187
Compl. ¶ 16.
188
KKR, 101 A.3d at 996.
189
Compl. ¶ 17.
47
Therapeutics, Inc. during a time the Baker Brothers Entities were significant
investors. 190
Parker. The Complaint alleges the Baker Brothers Entities are significant
stockholders of Tricida, where Parker is an executive, and significant investors in
other companies where Parker was a director. 191 These allegations fail to rebut
Parker’s independence for the same reasons as the rest; there is no indication the
Baker Brothers Entities had substantial say in his compensation or job prospects at
Tricida and the mere fact he served with or was appointed by the Baker Brothers
Entities as a director at companies in which they invest does not, alone, move the
needle. 192
190
See, e.g., Highland Legacy Ltd. v. Singer, 2006 WL 741939, at *5 (Del. Ch. Mar. 17,
2006) (finding that “serv[ing] together on a few boards of unaffiliated companies” is not
enough to support a lack of independence).
191
Compl. ¶ 19.
192
Plaintiff’s reliance on In re Primedia Inc. Deriv. Litig. for the proposition that a
director’s prior ties to entities associated with the controller de jure compromise the
director’s independence is misplaced. 910 A.2d 248, 258 (Del. Ch. 2006). There, the court
noted that “[w]hile KKR’s nomination of its associates to Primedia’s board, without more,
does not establish actual domination, this is not a case where the plaintiffs allege control
solely on the grounds that KKR made such appointments.” Id. (emphasis added) (citations
omitted). But this is precisely that “case”; Plaintiff’s sole allegation to impugn the
independence of each director is that each director was, at some point, appointed to the
board of a company that the Baker Brothers Entities were invested in and/or was appointed
with the Baker Brothers Entities’ assistance. Neither is sufficient to overcome the
presumption of independence.
48
Cohen. Finally, the Complaint alleges Cohen is beholden to the Baker
Brothers Entities because his firm, Vida Ventures, has a long history of investing
alongside the Baker Brothers Entities.193 It is not surprising that Plaintiff provides
no authority for the proposition that this incidental relationship has a reasonably
conceivable bearing on the director’s ability to act independently of his fellow
investor/traveler.194
b. The Baker Brothers Entities as Conflicted Controllers
Plaintiff’s failure adequately to plead the presence of a controlling stockholder
is an independent reason to dispense with her attempt to invoke entire fairness
review. Even if the Baker Brothers Entities were, together,195 controlling
stockholders, however, Plaintiff still fails to invoke entire fairness review because
she has not well pled a basis to infer that the controller acted under a conflict of
interest with respect to the Merger.
193
Compl. ¶ 20.
194
Cf. Zimmerman ex rel. Priceline.com, Inc. v. Braddock, 2002 WL 31926608, at *11
(Del. Ch. Dec. 20, 2002) (“[A] director’s investment in another company allegedly
controlled by the same individual who is said to be a dominating force in the company
under analysis does not suggest, without more, that the investing director lacks
independence.”).
195
Because there is no need, I decline to go down the rabbit hole to determine whether
Plaintiff has well pled that the Baker Brothers Entities operated as a “control group” under
our law.
49
As discussed, “[e]ntire fairness is not triggered solely because a company has
a controlling stockholder. The controller also must engage in a conflicted
transaction.”196 A controlling shareholder is conflicted when it stands on both sides
of the transaction or competes with the minority for consideration. 197 Plaintiff does
not allege the Baker Brothers Entities had any pre-Merger relationship with Exact,
and thus, does not allege that the Baker Brothers Entities stood on both sides of the
Merger. Thus, Plaintiff must plead a conflict on the basis that the Baker Brothers
Entities somehow competed with Genomic’s other stockholders for consideration in
the Merger. This presents a tall order for any plaintiff.
This court has identified three examples where a controller might compete
with the minority in a manner that creates a legally cognizable conflict: “(1) where
the controller receives greater monetary consideration for its shares than the minority
stockholders; (2) where the controller takes a different form of consideration than
the minority stockholders; and (3) where the controller gets a ‘unique benefit’ by
extracting something uniquely valuable to the controller, even if the controller
nominally receives the same consideration as all other stockholders.” 198 Plaintiff
196
Crimson, 2014 WL 5449419, at *12.
197
Id.198
IRA Tr. FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *6 (Del. Ch. Dec. 11, 2017)
(internal quotations omitted) (citations omitted).
50
does not allege that the Baker Brothers Entities received greater or even different
consideration than Genomic’s minority stockholders; her only argument is that they
managed to extract a “unique benefit” by virtue of the Merger. Specifically, she
argues the Baker Brothers Entities’ supposed desire to exit their investment in
Genomic supports an inference that they directed the Board to recommend the
Merger at an unfair price.199
The conclusory allegation that the Baker Brothers Entities sought liquidity
does not, by itself, support a reasonable inference that they extracted a “unique
benefit” from the Merger.200 “Delaware courts have been reluctant to find that a
liquidity-based conflict rises to the level of a disabling conflict of interest when a
large blockholder receives pro rata consideration.”201 At bottom, controlling
stockholders have “interests identical to other stockholders: to maximize the value
199
Compl. ¶ 160(d) (“The Baker Brother Entities breached their fiduciary duties as
controlling stockholders by insisting on a transaction that was not value maximizing, but
instead by insisting on a transaction at an inopportune time, solely to satisfy their own
desired liquidity.”); AB at 57.
200
In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1035 (Del. Ch. 2012) (“Generally
speaking, a fiduciary’s financial interest in a transaction as a stockholder (such as receiving
liquidity value for her shares) does not establish a disabling conflict of interest when the
transaction treats all stockholders equally . . . .” (citations omitted)).
201
Firefighters’ Pension Sys. of City of Kan. City, Mo. Tr. v. Presidio, Inc., 251 A.3d 212,
256 (Del. Ch. 2021) (cleaned up).
51
of [their] shares.” 202 With this in mind, the court in In re Synthes held that a
“liquidity-based” allegation that a controlling stockholder was conflicted would
support a reasonable inference of conflict only in instances when the plaintiff could
well plead that the transaction was the product of a “fire sale where the controller,
in order to satisfy an exigent need (such as a margin call or default in a larger
investment) agreed to a sale of the corporation without any effort to make logical
buyers aware of the chance to sell, give them a chance to do due diligence, and to
raise the financing necessary to make a bid that would reflect the genuine fair market
value of the corporation.”203 The court reasoned that a mere desire to sell cannot
create a conflict given that controlling stockholders “usually have the largest
financial stake in the transaction and thus have a natural incentive to obtain the best
price for their shares.” 204
More recent decisions have refined this court’s orientation with respect to
alleged liquidity-based conflicts. In In re Mindbody, Inc., for example, this court
found that facts implying a “crisis,” “fire sale” or “exigent need” for “immediate
202
Morton’s, 74 A.3d at 666–67; see also Goodwin v. Live Entm’t, Inc., 1999 WL 64265,
at *27 (Del. Ch. Jan. 25, 1999), aff’d, 741 A.2d 16 (Del. 1999) (noting a controller’s
“natural desire to obtain the best price for its shares”); Synthes, 50 A.3d at 1035 (explaining
a controller’s “natural incentive to obtain the best price for [its] shares”).
203
Synthes, 50 A.3d at 1036.
204
Id. at 1035 (citations omitted).
52
cash” are not necessary to well plead a liquidity-based conflict. 205 While the court
recognized “it is a rare set of facts that will support a liquidity-driven conflict
theory,” the court held that the plaintiff well pled the “rare fact pattern” where a
controller was unable to access his own wealth, was strapped for cash in light of
significant personal expenses and made sure his financial advisors knew that the sale
of his stake was “top of mind.”206
In Firefighters’ Pension System of City of Kansas City, Missouri Trust v.
Presidio, Inc., the court determined that while pleading a “fire sale” is not necessary,
plaintiff must plead “facts that support a reasonable inference of a divergent interest”
with respect to liquidity.207 There, the court found that the cyclicality of private
equity funds, by itself, did not give rise to a liquidity-based conflict.208
Plaintiff has failed to allege anything remotely resembling a fire sale,
substantial liquidity crisis or otherwise divergent interest that would create a
205
2020 WL 5870084, at *17 (Del. Ch. Oct. 2, 2020); see also Presidio, 251 A.3d at 256
(“In Mindbody, Vice Chancellor McCormick discussed Synthes at length, explaining
persuasively why the extreme language in Synthes should not be read as establishing a
general rule.”).
206
Mindbody, 2020 WL 5870084, at *18; see also New Jersey Carpenters Pension Fund v.
Infogroup, Inc., 2011 WL 4825888, at *9 (Del. Ch. Sept. 30, 2011) (holding the complaint
well-pled a liquidity-based conflict where the blockholder owed $25 million, had no source
of income, recently had paid out $4.4 million and wanted to start a new business venture).
207
251 A.3d at 257.
208
Id. at 258.
53
reasonable inference that the Baker Brothers Entities were conflicted with respect to
the Merger. Her flawed conflict theory begins with the unsubstantiated contention
that the Baker Brothers Entities somehow instigated the discussions leading to the
Merger. 209 What the Complaint actually says, however, is that the Board, not the
Baker Brothers Entities, began the consideration of strategic alternatives in 2017.210
Two years later, in 2019, Exact lobbed an unsolicited inbound proposal to Genomic
without any involvement, much less prompting, from the Baker Brothers Entities.211
And nothing in the Complaint supports a reasonable inference that, at the time of the
Exact proposal, the Baker Brothers Entities faced liquidity concerns, needed out of
their Genomic investment or desired (much less sought) to force a quick sale. The
best Plaintiff can muster is an allegation that the Baker Brothers Entities wanted
(not needed) to sell their stake in Genomic,212 but that cannot support an inference
they were willing to accept less than the fair value of their shares and certainly cannot
support an inference they were incentivized to cause the Board to deprive other
stockholders of the fair value of their shares.
209
AB at 58.
210
Compl. ¶ 48.
211
Compl. ¶¶ 63–64.
212
See, e.g., Compl. ¶ 45 (explaining the Baker Brothers Entities’ 2016 failed attempt at
using the Registration Rights Agreement to exit their Genomic investment).
54
Plaintiff then points to the Baker Brothers Entities’ history of stock sales as
evidence of conflict. 213 While I confess the argument is difficult to follow, to the
extent Plaintiff suggests that past stock sales reveal some liquidity crisis or other
driver that would prompt self-sacrificing urgency, I cannot reasonably draw that
inference. The Baker Brothers Entities’ actions are consistent with any investor’s
desire to reap maximum returns; they are in no way indicative of a liquidity crisis or
a desire to extract consideration from the market at the expense of other
stockholders.214 Controlling stockholders “have the right to deal freely with their
shares of stock and to dispose of them at the best price they are able to obtain, so
long as they are acting in good faith.” 215 Ultimately, Delaware law does not demand
213
AB at 58–59 (discussing the Baker Brothers Entities’ decision to sell off large blocks
of Genomic stock in late 2018 when Genomic’s stock price went above $90 per share, to
stop selling in April 2019 when the stock price fell below $50, and then to support the
Merger in the wake of this activity as evidence of conflict).
214
In fact, this theory reveals that the stock was relatively easy to trade, a further indication
that even if the Baker Brothers Entities wanted out of their investment, a quick sale of the
entire company was not necessary. Contra In re Answers Corp. S’holder Litig., 2012
WL 1253072, at *3 (Del. Ch. Apr. 11, 2012) (finding well-pled allegations of a 30%
blockholder’s liquidity-based conflict where, inter alia, it “would only be able to monetize
its entire interest if the whole Company were sold” given that the stock was thinly traded).
215
Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401, 408 (Del. 1985) (citations omitted);
see also Morton’s, 74 A.3d at 670–71 (“Like other stockholders, private equity firms are
entitled to sell at a good price for the benefit of their investors.” (citations omitted));
Synthes, 50 A.3d at 1039 (“It is, of course, true that controlling stockholders are putatively
free under our law to sell their own bloc for a premium or even to take a different premium
in a merger.” (citations omitted)).
55
that a controlling stockholder “engage in self-sacrifice for the benefit of minority
shareholders.”216
Plaintiff also appear to ask the Court to draw the “unusual” and
“counterintuitive” inference that the Baker Brothers Entities made their buy and sell
decisions with an eye towards depressing Genomic’s stock.217 Once again, Plaintiff
seeks more than her Complaint will bear. The fact that a controlling stockholder
does not accede to another deal or allow the minority to get a better price (that may
or may not be out there) than the controller will receive does not make a controller
conflicted. 218
After a careful review of the Complaint, I am satisfied Plaintiff has not pled a
basis upon which the Court could infer that the Baker Brothers Entities extracted a
non-ratable benefit from the Merger that caused their interests to depart from the
interests of other Genomic stockholders. The vague allegation that the Baker
Brothers Entities sought liquidity, without more, does not suffice. Accordingly,
216
Synthes, 50 A.3d at 1040 (citations omitted).
217
Compl. ¶ 48 (“Given the Baker Brothers Entities’ multi-year effort to liquidate their
investment, it is reasonable to infer that they pushed the Board into a sale process.”);
AB at 58–59; see Larkin, 2016 WL 4485447, at *16 (“This court has, in the past, evaluated
liquidity theories of this sort with marked skepticism, characterizing them as ‘unusual,’
‘counterintuitive,’ and ‘aggressive.’” (citation omitted)).
218
Synthes, 50 A.3d at 1041 (“[M]inority stockholders are not entitled to get a deal on
better terms tha[n] what is being offered to the controller, and the fact that the controller
would not accede to that deal does not create a disabling conflict of interest.”).
56
because the Baker Brothers Entities are not conflicted controllers, and Plaintiff has
failed to plead any other fiduciary conflicts, there is no basis to review the Merger
for entire fairness.
Enhanced Scrutiny Not Justified
Plaintiff maintains that enhanced scrutiny under Revlon is justified because
the Merger was, or should have been, the product of an active bidding process that
led to a change-of control transaction. She then argues, under Revlon, that the Board
failed to maximize the value of Genomic and did so in bad faith. The arguments fail
on both accounts.
a. Revlon Not Implicated
Enhanced scrutiny under Revlon is the appropriate standard of review:
“(1) when a corporation initiates an active bidding process seeking to sell itself or to
effect a business reorganization involving a clear break-up of the company[ ];
(2) where, in response to a bidder’s offer, a target abandons its long-term strategy
and seeks an alternative transaction involving the break-up of the company; or
(3) when approval of a transaction results in a sale or change of control [.]”219
219
In re Smurfit-Stone Container Corp. S’holder Litig., 2011 WL 2028076, at *12 (Del. Ch.
May 20, 2011), as revised (May 24, 2011) (citing In re Santa Fe Pac. Corp. S’holder Litig.,
669 A.2d 59, 71 (Del. 1995)) (alterations in original).
57
Contrary to Plaintiff’s assertions, none of these triggers confronted the Board with
respect to the Merger. 220
According to Plaintiff, an “active bidding process” began in October 2017,
when the Company was “put in play” following the Board’s exploration of strategic
alternatives.221 As part of this process, Exact, among others, entered into a
confidentiality agreement with Genomic as it considered whether to make a
proposal.222 By Plaintiff’s lights, this evidences an active bidding process that
worked its way through 2019 until the Merger with Exact closed. 223 But Plaintiff’s
litigation-driven characterization is belied by its own allegations. While Exact may
have sought to get a glimpse behind the curtain in 2017, the Complaint does not
allege that Exact communicated any expression of interest at that time, much less
220
To be clear, even if Genomic was engaged in an active bidding process (it was not),
Revlon would not be implicated unless and until the active bidding process resulted in a
change of control transaction. See In re Paxson Commc’n Corp. S’holders Litig.,
2001 WL 812028, at *7 (Del. Ch. July 12, 2001) (“Revlon does not apply where the
plaintiffs cannot allege that a sale or change of control has taken place or necessarily will
take place such that the public shareholders of a corporation have been or will be deprived
of a control premium.”); Santa Fe, 669 A.2d at 70–71 (“Plaintiffs appear to rest their claim
of a duty to seek the best value reasonably available on allegations that the Board initiated
an active bidding process. Plaintiffs do not consider, however, that this method of invoking
the duty requires that the Board also seek to sell control of the company or take other
actions which would result in a break-up of the company.”).
221
Compl. ¶¶ 48, 56–57, 108 (alleging that 27 parties were contacted following which the
Board received numerous indications of interest).
222
Compl. ¶ 56.
223
AB 60–61.
58
that it made an offer to acquire Genomic. 224 Instead, the only reasonable inference
from the Complaint is that Exact faded away in the mist along with all the other
potential suitors in 2017. All remained quiet on the transaction front from
October 2017 through June 2019, when, according to the Complaint, Exact’s
Conroy “contacted Popovits out of the blue to request a management meeting for the
purpose of exploring a potential combination.”225 After significant back-and-forth
over the next month and a half, the parties came to an understanding and executed
the Merger Agreement.226 This cannot conceivably be characterized as an “active
bidding process.”
Even more importantly, however, there are no well-pled allegations that the
Merger resulted in a change of control. In an all-cash transaction, Revlon applies
“because there is no tomorrow for the corporation’s present stockholders.”227
At issue here is a transaction with both cash and stock offered as consideration.
At best for Plaintiff, the Merger was comprised of 58% stock and 42% cash. 228 The
question, then, is whether that mix of consideration triggers enhanced scrutiny.
224
Compl. ¶¶ 57–58.
225
Compl. ¶ 64 (emphasis added).
226
Compl. ¶ 106.
227
Smurfit-Stone, 2011 WL 2028076, at *13.
228
AB at 17. There is a dispute as to whether the stock component comprised either 58%
or 62% of the total transaction consideration. Giving Plaintiff all reasonable inferences,
59
In the context of a stock-for-stock deal, Revlon will not be triggered unless,
through the structure of the transaction, a company with diffuse ownership is
acquired by a company with a controlling stockholder.229 That relegation of the
target’s stockholders to minority status strips them of the potential for a future
control premium and requires the target’s directors to maximize the target’s value in
the transaction. The concerns that animate Revlon are not implicated, however,
when, after the transaction, the stock retained by the target’s stockholders “stays in
I assume the proper calculation is 58%. Even so, for reasons to be explained, this does not
trigger Revlon.
229
Smurfit-Stone, 2011 WL 2028076, at *12 (“[P]ure stock-for-stock transactions do not
necessarily trigger Revlon. If, for example, the resulting entity has a controlling
stockholder or stockholder group such that the target’s stockholders are relegated to
minority status in the combined entity, Delaware Courts have found a change of control
would occur for Revlon purposes.”); see also Laura Bower Braunsberg, Asking the
Right Question: The Mixed Consideration Denominator Problem, 40 Del. J. Corp. L. 989,
1000–01 (2016) (“Braunsberg”) (“When the acquiring company uses its shares that trade
in a ‘large, fluid, changeable and changing market’ to buy the target shares--so long as
there is no controlling stockholder in the acquiring corporation--the deferential business
judgment rule applies. The court reasons that stock-for-stock exchanges are often
synergistic business combinations that do not signal abandonment of the target’s long-term
strategy. Therefore, the court allows the business judgment rule to apply because the
business of the target corporation is not over and the stockholders’ investment continues.
The most important time to apply Revlon scrutiny to a transaction, rather than the business
judgment rule, is in an end-stage transaction in which the investors have ‘no tomorrow’ for
their chosen investment. When stockholders ‘will forever be shut out from future profits
generated by the resulting entity as well as the possibility of obtaining a control premium
in a subsequent transaction,’ they need recourse if the transaction is the product of an
inadequate process. On the other hand, it would be peculiar and inaccurate to dub someone
an ‘auctioneer’ of an extinguished company when, according to Delaware law, the
company and its stockholders live on.” (citations omitted)).
60
a large, fluid, changeable and changing public market,” and the stockholders have
the possibility of “obtain[ing] a future control premium.”230
Prior to the Merger, there was no controlling stockholder in the picture at
Genomic; thus, its stockholders were fully able to realize a control premium at some
point in the future. 231 And the Complaint offers no basis to infer that the Merger
changed this dynamic. Specifically, the Complaint says nothing of Exact’s capital
structure after the Merger, leaving no means to infer that the stock component of the
Merger compromised the Genomic stockholders’ opportunity to secure a control
premium for their shares in the future. 232
Moreover, the substantial size of the stock component of the consideration
flowing from the Merger reveals there was no change-of-control transaction as
230
Smurfit-Stone, 2011 WL 2028076, at *11; see also Synthes, 50 A.3d at 1048 (“A change
of control ‘does not occur for purposes of Revlon where control of the corporation remains,
post-merger, in a large, fluid market.’” (citation omitted)); Santa Fe, 669 A.2d at 71(“Absent this factual averment, plaintiffs have failed to allege that control of Burlington
and Santa Fe after the merger would not remain in a large, fluid, changeable and changing
market.” (citations omitted)); Arnold, 650 A.2d at 1290 (“[T]here is no sale or change in
control when control of both companies remains in a large, fluid, changeable and changing
market.” (cleaned up)).
231
Contra Paxson, 2001 WL 812028, at *7 (declining to apply Revlon where the target’s
controlling stockholder denied the minority an opportunity to secure a control premium).
232
Smurfit-Stone, 2011 WL 2028076, at *13 (“Notably, the Court highlighted the plaintiffs’
failure to describe Burlington’s capital structure, which left it with little reason to doubt
that control of Burlington and Santa Fe after the merger would [] remain in a large, fluid,
changeable and changing market.” (citing Santa Fe, 669 A.2d at 71) (internal quotations
omitted)).
61
contemplated by Revlon. A brief survey of analogous cases makes the point. For
example, in In re Santa Fe Pacific Corp., our Supreme Court declined to apply
Revlon where stock comprised 66% of the consideration in a mixed cash/stock
transaction since the control of the combined entity following the merger would
remain “in a large, fluid, changeable and changing market.”233 In reaching this
holding, the Court observed, “[c]onspicuoulsy absent from the complaint is a
description of the stock ownership structure of [the buyer].” 234 Similarly,
in In re Synthes, Inc., this court found that Revlon was not implicated because “the
Merger consideration consists of a mix of 65% stock and 35% cash, with the stock
portion being stock in a company whose shares are held in [a] large, fluid market.”235
And there again, the court took note of the fact that the complaint at issue pled no
facts upon which the court could draw inferences regarding the capital structure of
the acquirer such that a determination could be made regarding whether “the stock
portion of [the] consideration was in a controlled company.” 236
On the other hand, in In re Smurfit-Stone Container Corp., this court applied
Revlon where the consideration mix was 50/50 because, the court concluded, “there
233
Santa Fe, 669 A.2d at 71.
234
Id.235
Synthes, 50 A.3d at 1048.
236
Id.62
is no ‘tomorrow’ for approximately 50% of each stockholder’s investment in
Smurfit–Stone.”237 Likewise, in In Re Lukens Inc. Shareholders Litigation, this
court applied Revlon where 62% or the merger consideration was comprised of cash
because, again, “for a substantial majority of the then-current shareholders, ‘there is
no long run.’”238
237
Smurfit-Stone, 2011 WL 2028076, at *14.
238
In re Lukens Inc. S’holders Litig., 757 A.2d 720, 732 n.25 (Del. Ch. 1999), aff’d sub
nom. Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000) (quoting TW Servs., Inc. v.
SWT Acq. Corp., 1989 WL 20290, at *7 (Del. Ch. Mar. 2, 1989)). I note there are
interesting observations within the academy concerning both where our law stands now,
and where it should stand, regarding the application of Revlon to mixed consideration
transactions. See, e.g., Braunsberg, 40 Del. J. Corp. L. at 1011 (arguing that all cash
transactions typically inure to the benefit of stockholders and observing that “directors’
personal incentive to avoid [Revlon scrutiny by agreeing to more stock consideration] . . .
runs counter to the stockholders’ interest in gaining the best price readily available” in a
landscape where director conduct is examined under enhanced Revlon scrutiny only in
transactions where the directors extract more cash than stock as consideration); id. at 1011–
12 (proposing that when considering whether Revlon should apply to a mixed consideration
transaction, the court should compare the market value of the acquirer’s stock paid in the
transaction to the market value of the target’s stock surrendered in the transaction);
Matthew D. Cain et al., Does Revlon Matter? An Empirical and Theoretical Study, 108
Cal. L. Rev. 1683, 1725 (2020) (conducting an empirical study, maintaining as an
assumption that to be classified as a Revlon transaction, “the consideration paid in the
transaction must have consisted of at least 50% cash”); Mohsen Manesh, Defined by
Dictum: The Geography of Revlon-Land in Cash and Mixed Consideration Transactions,
59 Vill. L. Rev. 1, 5, 18 (2014) (maintaining that decisions of this court addressing the
application of Revlon to mixed consideration transactions, including Lukens and Smurfit-
Stone, do so only in dicta after observing that, as the Court has done here, both courts held
that the outcome of the cases would be no different even if Revlon did express the
applicable standard of review). The observations, while often suasive, ultimately do not
influence the outcome here. Our Supreme Court has spoken on the subject. Santa Fe, 669
A.2d at 71 (holding that Revlon did not apply to a mixed consideration transaction).
63
In this case, as of the Merger’s closing, there most certainly was a “tomorrow”
with respect to a “substantial majority” of the consideration to be paid to Genomic’s
shareholders—58% at a minimum.239 And Plaintiff has pled nothing about Exact’s
capital structure to undermine or even add nuance to that conclusion. 240 To be clear,
unlike in Lukens, where a majority of the stockholders could have elected to cash
out their positions entirely, the consideration mix agreed to in the Merger Agreement
dictates that 58% of each Genomic stockholder’s shares would be converted into
Exact stock.241 Ultimately, it cannot be said that Genomic abandoned its long-term
strategy, triggering a duty to maximize short-term gain, where 100% of Genomic’s
stockholders received Exact stock in exchange for 58% of their shares.242 Because
Plaintiff has failed to plead that Exact does not trade in a “a large, fluid, changeable
and changing market” such that Genomic’s stockholders were prevented from
239
Contra Lukens, 757 A.2d at 732 n.25 (“Whether 62% or 100% of the consideration was
to be in cash, the directors were obliged to take reasonable steps to ensure that the
shareholders received the best price available because, in any event, for a substantial
majority of the then-current shareholders, ‘there is no long run.’” (citation omitted)).
240
Santa Fe, 669 A.2d at 71 (discussing the lack of factual allegations regarding the
acquiror’s capital structure as being dispositive at the pleading stage).
241
Lukens, 757 A.2d at 725 (“[E]ach Lukens shareholder would have the right to elect to
receive the consideration in cash, subject to a maximum total cash payout equal to 62% of
the total consideration.”).
242
Braunsberg, 40 Del. J. Corp. L. at 1000 (observing that the judicially professed reason
stock-for-stock transactions fail to trigger Revlon is because they “do not signal
abandonment of the target’s long-term strategy,” but rather reveal that “the stockholders’
investment continues”).
64
obtaining a control premium for their shares in future transactions following the
Merger, there is no reason to apply Revlon under the Court’s holding in Santa Fe.243
b. Plaintiff Has Not Stated a Viable Claim Under Revlon
In the event Revlon applies, the Individual Defendants’ fiduciary duties
required them to act reasonably to obtain the best value reasonably available to
stockholders.244 As mentioned, however, given the exculpatory clause in Genomic’s
charter, Plaintiff must plead a non-exculpated claim of breach of fiduciary duty.245
243
Plaintiff argues that because Genomic stockholders maintain only a 10.4% equity stake
in post-merger Exact, they can only obtain a mere fraction of a future control premium in
the event Exact is sold at a later date. AB at 62. This court already addressed and rejected
this precise argument in In Re Synthes, finding that the proper focus is the mix of pre-
merger consideration rather than the target stockholder’s post-merger stake. 50 A.3d at
1047 (noting that, notwithstanding the fact that the target shareholders would only own 7%
of the post-merger entity, because the merger consideration was comprised of 65% stock
and 35% cash, Revlon did not apply). With that said, like Vice Chancellor Parsons in
Smurfit-Stone, I acknowledge that, since “the Supreme Court has not yet established a
bright line rule for what percentage of merger consideration could be cash without
triggering Revlon,” the Court’s determination that Revlon is inapplicable here is not
“free from doubt.” 2011 WL 2028076, at *13. Thus, while I am satisfied, for reasons
explained, that Revlon does not apply to this particular mixed consideration transaction
under Santa Fe, I continue the analysis on the assumption that Revlon review has been
triggered.
244
See Revlon, 506 A.2d at 184; Malpiede, 780 A.2d at 1083–84 (“Revlon neither creates
a new type of fiduciary duty in the sale-of-control context nor alters the nature of the
fiduciary duties that generally apply. Rather, Revlon emphasizes that the board must
perform its fiduciary duties in the service of a specific objective: maximizing the sale price
of the enterprise. Although the Revlon doctrine imposes enhanced judicial scrutiny of
certain transactions involving a sale of control, it does not eliminate the requirement that
plaintiffs plead sufficient facts to support the underlying claims for . . . breach of fiduciary
duties in conducting the sale.”).
245
See Presidio, 251 A.3d at 253 (“Even when a higher standard of review like enhanced
scrutiny or entire fairness applies, a plaintiff can recover monetary damages for a breach
65
“[T]his means that the defendant directors are entitled to dismissal unless the
plaintiffs have pled facts that, if true, support the conclusion that the defendant
directors failed to secure the highest attainable value as a result of their own bad
faith or otherwise disloyal conduct.”246 The “otherwise disloyal conduct” includes
when a director “harbor[s] self-interest adverse to the stockholders’ interests,
[or acts] to advance the self-interest of an interested party from whom they could not
be presumed to act independently . . . .” 247
I have already found the Complaint fails to well plead that the Baker Brothers
Entities were conflicted controllers with respect to the Merger. The only remaining
conflict that might implicate a duty of loyalty breach is the allegation that Popovits
lacked independence from Exact such that other Board members’ allegiance to
Popovits might have compromised their loyalty to stockholders. These allegations
fall well short of the mark.
According to the Complaint, Popovits and Conroy had a material relationship,
undisclosed to the Board, as evidenced by the facts that Popovits and Conroy grew
of the duty of loyalty [in the face of an exculpatory charter provision] only by proving that
the fiduciary harbored self-interest adverse to the stockholders’ interests, acted to advance
the self-interest of an interested party . . . , or [otherwise] acted in bad faith.” (internal
quotations omitted)).
246
McMillan v. Intercargo Corp., 768 A.2d 492, 502 (Del. Ch. 2000).
247
Cornerstone, 115 A.3d at 1179–80.
66
up five minutes apart in Flint, Michigan and both attended Michigan State
University.248 As noted, these allegations fail to support even an inference that
Popovits and Conroy knew each other prior to the Merger negotiations, much less
that they maintained the kind of “thick[] relationship” that would justify an inference
that Popovits’ presumptive independence and loyalty to Genomic stockholders was
overcome by her allegiance to Conroy. 249 In the absence of well pled allegations
that Popovits was conflicted with respect to the Merger, the nature of the
relationships between Popovits and other Board members is irrelevant to the
fiduciary duty analysis.
248
Compl. ¶ 145. In this regard, I take judicial notice of the fact that the greater
metropolitan area of Flint, Michigan has a population of roughly 400,000 according to the
United States Census Bureau. www.census.gov (last visited Aug. 12, 2021). Michigan
State University has a total enrollment of more than 50,000 students. www.msu.edu
(last visited Aug. 12, 2021). While the numbers may have been less when Popovits and
Conroy grew up in Flint and attended Michigan State, the point is that it is not reasonable
to infer a relationship between the two by virtue of their mere presence in densely populated
locations at the same time (assuming they were present in these locations at the same time,
a fact the Complaint also fails to clarify). Yet, the facts that both resided in Flint and
attended Michigan State are the only “facts” alleged to support the conclusory statement
that “Popovits and Conroy have long known each other.” Compl. ¶ 64.
249
See Sanchez, 124 A.3d at 1024 (describing the “thickness of the relationship” between
a fiduciary and interested party that would justify questioning the fiduciary’s
independence); Kahn v. M&F Worldwide, 88 A.3d at 649 (noting that allegations of
traveling in the same social circles or being friendly is not enough to overcome a director’s
presumption of independence). Notwithstanding its lack of factual context, I have accepted
as true that Popovits and Conroy had “long known each other” when Merger negotiations
began. I have rejected, however, any inference that this compromised Popovits’
independence.
67
Having failed to plead a reasonably conceivable basis to question the loyalty
of the Genomic directors, Plaintiff is left to argue that it is reasonably conceivable
the Board failed to obtain the best value available for shareholders in bad faith. This
requires well-pled allegations that support an inference the Board “intentionally
fail[ed] to act in the face of a known duty to act, demonstrating a conscious disregard
for [their] duties.”250 In other words, Plaintiff must well plead that the Board’s
actions were “so far beyond the bounds of reasonable judgment that it seems
essentially inexplicable on any ground other than bad faith.” 251 As this court has
vividly explained, the complaint that well pleads bad faith “is a [rare bird].” 252
This Complaint does not approach “rare bird” status. Rather, the Complaint
describes a robust process where the Board directed its financial advisor to conduct
an extensive market check in 2017, resulting in contacts with at least 27 separate
potential buyers. 253 When that process did not yield a bona fide suitor, the Board
was content to return to managing Genomic in the ordinary course. That changed in
in June 2019 when Exact made an unsolicited acquisition proposal, which prompted
250
In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006) (citation omitted).
251
In re BJ’s Wholesale Club, Inc. S’holders Litig., 2013 WL 396202, at *7 (Del. Ch.
Jan. 31, 2013) (citation omitted).
252
In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL 3044721, at *1 (Del. Ch.
May 20, 2016).
253
Compl. ¶ 56.
68
a fulsome negotiation leading to a fully arms-length transaction. 254 That transaction
was approved by a disinterested Board, with guidance from disinterested financial
and legal advisors, and then an overwhelming majority of disinterested
stockholders.255
Plaintiff’s attempt to conjure inferences of bad faith fails at every turn. First,
she argues the Board failed to oversee and manage Popovits’ conflicts with Exact’s
CEO, Conroy.256 As discussed, there was no conflict to oversee.
Second, she argues the Board failed to oversee Goldman’s conflicts with the
Baker Brothers Entities. 257 In this regard, Plaintiff points to the alleged historical
relationship between the Baker Brothers Entities and Goldman as support for the
contention that Goldman was conflicted. 258 The Baker Brothers Entities were not
conflicted, however, so their past interaction with any particular advisor is of no
consequence.
254
Compl. ¶¶ 64–90 (detailing the back-and-forth negotiations).
255
Compl. ¶ 90 (explaining Sullivan & Cromwell’s involvement with the process);
Compl. ¶¶ 80–87 (discussing Goldman’s involvement); Compl. ¶ 106 (noting the full
Board’s approval of the Merger); Genomic OB, Ex. 18 (noting the approval of 79.40% of
the stockholders unaffiliated with the Baker Brothers Entities).
256
AB at 64.
257
AB at 64–65.
258
Compl. ¶ 55.
69
Third, Plaintiff points to Goldman’s alleged conflict arising from its ongoing
relationship with Exact. Citing to the conflicts letter Goldman delivered to the Board
on July 17, 2019, the Complaint alleges a key member of the Goldman team advising
the Board, Bartosz Ostenda, was also “a member of the Investment Banking Division
team serving Exact Sciences” who “may have worked and may in the future work
on undisclosed but unrelated assignments [for Exact].”259 This, according to
Plaintiff, illustrates that Ostenda specifically, and Goldman generally, were actively
representing Exact throughout the process leading to the Merger.260
As Defendants point out, the very same letter on which Plaintiff rests her
argument that Goldman was incurably conflicted also assured the Board that
Ostenda “will not work with Exact Sciences while the Company and Exact Sciences
are in active discussions with respect to a Transaction [with Genomic]” and, perhaps
most importantly, revealed to the Board that in the two years immediately preceding
the July 17 letter, the “Investment Banking Division” had “not performed any
financial advisory and/or underwriting services for [Exact].” 261 Because the
Complaint does not support a reasonable inference that Goldman was unable to
259
Compl. ¶ 92; Goldman Conflicts Letter.
260
Compl. ¶¶ 92–93. I note that this alleged conflict was disclosed to the Board well in
advance of its final decision to approve the Merger. Compl. ¶ 98.
261
Goldman Conflicts Letter.
70
deliver independent financial advice to the Board, the Board’s decision to retain
Goldman and rely on its expertise cannot possibly evidence that the Board “utterly
failed to attempt to obtain the best sale price.” 262
Fourth, Plaintiff recites a laundry list of supposedly bad faith decisions related
to the negotiation process, including that the Board (a) did not form a special
committee, (b) engaged with only one bidder during the 2019 process, (c) failed to
have outside counsel review the transaction until the Board had already verbally
expressed its approval, and (d) failed to conduct any post-signing market check.263
Even if one or all of Plaintiff’s concerns reflected “an inadequate or flawed effort to
carry out fiduciary duties,” that still would fall well short of allowing an inference
that the Board acted in conscious disregard of those duties.264 Indeed, under Revlon,
the Board’s “failure to take any specific steps during the sale process” or follow a
“single blueprint” does not even establish a violation of Revlon duties, much less a
262
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 244 (Del. 2009); see also 8 Del. C. § 141(e)
(noting that the board may rely in good faith upon the advice of advisors selected with
reasonable care); In re Formica Corp. S’holders Litig., 1989 WL 25812, at *11 (Del. Ch.
Mar. 22, 1989) (holding the special committee was entitled to rely on valuation advice from
its investment banker)); In re Cheyenne Software, Inc. S’holders Litig., 1996 WL 652765,
at *2 (Del. Ch. Nov. 7, 1996) (finding that the board was entitled to rely on investment
banker’s opinion in considering a tender offer).
263
AB at 66.
264
Lyondell, 970 A.2d at 243.
71
conscious disregard of those duties.265 Yet, that is precisely the road on which
Plaintiff seeks to travel. 266
Plaintiff’s fifth and sixth attempts to expose bad faith under Revlon are
extrapolations from the Board’s purported failures to capitalize on an increase in
265
Id.; C & J Energy Servs., Inc. v. City of Miami Gen. Empls.’ & Sanitation Empls.’ Ret.
Tr., 107 A.3d 1049, 1067 (Del. 2014); see also Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d
1361, 1374–75 (Del. 1995) (“[E]nhanced judicial scrutiny . . . is not intended to lead to a
structured, mechanistic, mathematical exercise . . . [it is] a flexible paradigm that jurists
can apply to the myriad of ‘fact scenarios’ that confront corporate boards.”).
266
Even if the Court were to entertain the notion that the supposed process failures
identified by Plaintiff might lead to an inference of bad faith, when considered on their
merits, the criticisms fall flat. There was no need for a special committee because no Board
member was interested or lacked independence. See In re Plains Expl. & Prod. Co.
S’holder Litig., 2013 WL 1909124, at *5 (Del. Ch. May 9, 2013) (“The formation of a
special committee can serve as ‘powerful evidence of fair dealing,’ but it is not necessary
every time a board makes a decision.” (citation omitted)); Elizabeth Pollman,
Strengthening Special Committees, 9 U.C. Davis Bus. L.J. 137, 141 (2009) (noting a
special committee is required and useful only when “certain directors have a real or
perceived conflict of interest”). The fact the Board focused on only one bidder in 2019 is
not problematic given the thorough market check it conducted in 2017 and the fact that
circumstances at the Company had not materially changed from 2017 to 2019.
See Compl. ¶¶ 56, 64; Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989)
(“Revlon does not demand that every change in the control of a Delaware corporation be
preceded by a heated bidding contest.”). The delay in engaging Sullivan & Cromwell is
likewise no basis for criticism. Compl. ¶ 88. S&C was available to advise the Board before
it committed to the Merger, and available to advise the Board when it recommended the
Merger to stockholders. Compl. ¶¶ 89–90, 106. Finally, the criticism of the Board for
failing to perform a post-signing market check ignores the 2017 market check and wrongly
assumes that the Board was obliged “to employ a specific device such as [an] auction or
market check mechanism.” Herd v. Major Realty Corp., 1990 WL 212307, at *9 (Del. Ch.
Dec. 21, 1990) (citation omitted); see also Smurfit-Stone, 2011 WL 2028076, at *18
(holding that a board does not violate fiduciary duties simply by failing to perform a market
check); Paramount, 637 A.2d at 45 (“If a board selected one of several reasonable
alternatives, a court should not second-guess that choice even though it might have decided
otherwise or subsequent events may have cast doubt on the board’s determination.”).
72
Genomic’s value during negotiations and its ultimate commitment to sell the
Company at an allegedly inadequate price. 267 Again, these reflect mere
disagreements with how the Board negotiated the Merger; neither allows an
inference of bad faith conduct. 268 In the end, Exact determined to “honor the original
terms of the collar and all other legal matters” in the interest of “moving to expedient
resolution.”269 Exact’s decision to cave on certain terms puts a finer point on the
267
AB 67–68.
268
Crimson, 2014 WL 5449419, at *23 (“Mere disagreement with the Board’s ultimate
decision to enter into a merger, rather than proceed as a stand-alone company, however,
does not show bad faith by the Board members.”); Brehm, 746 A.2d at 266 (“But where,
as here, there is no reasonable doubt as to the disinterest of or absence of fraud by the
Board, mere disagreement cannot serve as grounds for imposing liability based on alleged
breaches of fiduciary duty and waste.” (citation omitted)). As revealed in the Complaint,
the Merger process lasted six weeks during which the two companies engaged in a vigorous
back-and-forth on price and other material deal terms with the advice of highly experienced
financial and legal advisors. Compl. ¶ 64 (describing the start of merger talks on June 11,
2019); Compl. ¶ 70 (discussing the first Board meeting regarding the Merger);
Compl. ¶¶ 70–75 (describing multiple offers, counter offers and rejections between
Genomic and Exact); Compl. ¶¶ 80–87 (discussing Goldman’s constant communication
with Genomic throughout the process); Compl. ¶¶ 88–90 (discussing the engagement of
outside legal counsel). As an accent to her inadequate price argument, Plaintiff complains
that the Board’s failure to negotiate an appropriate collar led to the inadequacy of the price.
See Compl. ¶¶ 82, 87 (alleging the negotiation of the collar was uninformed and
unreasonable); Compl. ¶¶ 122, 124 (alleging the final Merger consideration of $83.66 was
below the negotiated collar of $97.28). I note that this argument is not at all fleshed out in
Plaintiff’s brief. But even assuming the collar did have a negative effect on the price, the
Complaint’s allegations in this regard hardly evidence bad faith. In re NYMEX S’holder
Litig., 2009 WL 3206051, at *8 (Del. Ch. Sept. 30, 2009) (finding that a board’s decision
to omit a collar while negotiating various merger terms does not rise to the level of even
gross negligence).
269
Compl. ¶ 105.
73
Board’s ability to extract value from Exact. 270 Contrary to Plaintiff’s proffered
narrative, the Complaint does not well plead a tainted negotiation process that
resulted in a demonstrably bad deal on its face. Indeed, the Complaint acknowledges
the Board extracted a 5% premium over Genomic’s then current trading price at the
time the Merger Agreement was signed, a price that certainly was not “beyond the
bounds of reasonable judgment [such that] it seems inexplicable on any ground other
than bad faith.” 271
No Bad Faith Disclosure Violation
When obliged by law to disclose, a director’s fiduciary duties require that she
“disclose fully and fairly all material information within [her] control.”272 As with
her Revlon claim, Plaintiff’s “claims alleging disclosure violations that do not
otherwise fall within any exception are protected by Section 102(b)(7) . . . .” 273 And,
again, because Plaintiff has not well pled that any fiduciary was interested or lacked
independence, she is, again, obliged to well plead that the Genomic fiduciaries
270
Id.271
Crimson, 2014 WL 5449419, at *23 (citation omitted) (holding that a 7.7% premium
did not evidence bad faith).
272
In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *9 (Del. Ch. Jan. 5, 2017)
(citation omitted).
273
Arnold, 650 A.2d at 1287.
74
“knowingly or deliberately failed to disclose facts they knew were material.”274
In other words, Plaintiff must well plead bad faith.
In her effort to meet this pleading burden, Plaintiff begins by alleging that the
Board failed to disclose in the Proxy material information regarding its advisors.275
According to the Complaint, the Proxy failed to disclose why Goldman was retained,
Goldman’s prior relationship with the Baker Brothers Entities, Goldman’s alleged
conflicts with Exact and the reason Sullivan & Cromwell was retained given that
Genomic already had legal advisors.276
The question of why Goldman was retained can readily be ascertained from
the Proxy, namely, because of its long-standing relationship with Genomic and its
extensive M&A experience.277 Any argument suggesting that the Board retained
Goldman based on alleged conflicts is, as already explained, not born out by the pled
facts. As for the retention of Sullivan & Cromwell, it is hard to discern the
274
Id. at 1288.
275
Compl. ¶ 137; AB at 69–70.
276
Compl. ¶¶ 137–142.
277
Compl. ¶ 137; see also Cty. of York Empls. Ret. Plan v. Merrill Lynch & Co.,
2008 WL 4824053, at *10 (Del. Ch. Oct. 28, 2008) (finding the lack of a colorable duty of
disclosure violation where the proxy detailed the company’s rationale for retaining a
particular financial advisor, based principally on a long-standing relationship).
75
materiality of Genomic’s decision to retain S&C when it did. 278 Even assuming
materiality, however, the Complaint pleads no basis to infer that the Board
“knowingly or deliberately” kept this information from Genomic stockholders
knowing that it was material or for self-interested reasons.
The same is true for the remainder of Plaintiff’s disclosure claims. For
instance, the fact the Proxy did not provide every detail about the Board’s alleged
July 9 verbal agreement on price does not suggest the Board intentionally omitted
this information even though it was material.279 As for Plaintiff’s contention that the
Proxy failed to disclose “the pretextual reasons why Exact Sciences refused to
provide its multi-year projections,” notwithstanding the Board’s demand that Exact
278
In re Merge Healthcare Inc., 2017 WL 395981, at *13 (Del. Ch. Jan. 30, 2017)
(“[D]isclosures relating to the Board’s subjective motivation or opinions are not per se
material, as long as the Board fully and accurately discloses the facts material to the
transaction. Put more simply, [a]sking ‘why’ does not state a meritorious disclosure claim
under our law.” (cleaned up)); Repairman’s Serv. Corp. v. Nat’l Intergroup, Inc.,
1985 WL 11540, at *8 (Del. Ch. Mar. 15, 1985) (“[W]here arm’s-length negotiation has
resulted in an agreement which fully expresses the terms essential to an understanding by
shareholders of the impact of the merger, it is not necessary to describe all [] the bends and
turns in the road which led to that result” (citation omitted)).
279
Compl. ¶¶ 143–44. In this regard, I agree with Defendants that Plaintiff’s argument is
playing semantics. The Proxy itself discloses the July 9 verbal agreement, explaining that
the Board “instructed Ms. Popovits and representatives of Goldman [] to communicate to
Exact [] that a transaction of $72.00 per share, with a cash component of $27.50 and a 10%
two-way collar mechanism, would be acceptable.” Proxy at 50. It is unclear what other
information would “alter the total mix of information” already available to stockholders.
Wayne Cty. Empls.’ Ret. Sys. v. Corti, 954 A.2d 319, 323 (Del. Ch. 2008).
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provide this financial information,280 there was no need for this disclosure when the
Proxy made clear that Exact does “not, as a matter of course, make long-term
projections as to future performance available to the public . . . .” 281 Based on this
practice, the Proxy disclosed that Exact did not furnish to Genomic “any non-public
prospective financial information regarding Exact [], other than with respect to
Exact[‘s] [] second quarter 2019 financial results and increased revenue guidance
for 2019.”282 With these disclosures in hand, Genomic stockholders understood that
Exact would not and did not provide certain projections and that, notwithstanding
the lack of these projections, the Board decided to proceed with the Merger. Again,
it is hard to see where the disclosure fell short; it is even harder to see where the
failure to disclose amounted to bad faith. 283
280
Compl. ¶ 147.
281
Proxy at 71.
282
Id.283
Plaintiff makes two more arguments regarding alleged disclosure violations, both of
which I have already addressed. First, she argues the Proxy does not contain information
related to the relationship between Popovits and Conroy. Compl. ¶ 145. As discussed
above, nothing in the Complaint allows an inference that there was anything there to
disclose. Second, she argues the timing of the Voting Agreement between the Baker
Brothers Entities and Exact was not disclosed. Compl. ¶ 148. Because I have determined
that no agreement occurred between the Baker Brothers Entities and Exact until after
Genomic and Exact signed the Merger Agreement, and because the fact of the final Voting
Agreement was fully disclosed, again, there was nothing to disclose. See Proxy at 57
(“Late in the evening on July 28, Genomic Health and Exact Sciences executed the merger
agreement and Exact Sciences and the [Baker Brothers Entities] executed the voting
agreement.”).
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*****
Given Plaintiff’s failure to justify the application of either entire fairness or
Revlon as the appropriate standards of review, the business judgment presumption
applies. 284 “When a plaintiff fails to rebut the presumption of the business judgment
rule, she is not entitled to any remedy, be it legal or equitable, unless the transaction
constitutes waste.”285 The Complaint does not purport to plead a claim for waste,
and so Plaintiff’s claims against each director must be dismissed.
D. The Fiduciary Duty Claims Against Popovits as a Genomic Officer
While Section 102(b)(7) exculpates each Genomic director from monetary
liability associated with duty of care claims, including Popovits in her capacity as a
director, that exculpation does not extend to corporate officers. 286 Plaintiff may well
plead either a breach of the duty of care or loyalty to overcome Popovits’ motion to
dismiss.
284
Having determined that dismissal is required on other grounds, I do not address whether
and to what extent the Corwin doctrine “cleanses” any potential fiduciary duty violations.
Corwin, 125 A.3d at 312.
285
In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 747 (Del. Ch. 2005), aff’d, 906 A.2d
27 (Del. 2006) (citation omitted).
286
Gantler v. Stephens, 965 A.2d 695, 709 n.37 (Del. 2009) (“Although legislatively
possible, there currently is no statutory provision authorizing comparable exculpation of
corporate officers.”).
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A corporate officer breaches the duty of loyalty just as a director does—by
acting out of self-interest to the detriment of stockholders or by acting in bad faith.287
“To plead a care-based damages claim against a non-exculpated fiduciary, the
plaintiff must plead facts supporting a reasonable inference that the defendant acted
with gross negligence.”288 “Gross negligence involves more than simple
carelessness. To plead gross negligence, a plaintiff must allege ‘conduct that
constitutes reckless indifference or actions that are without the bounds of reason.’”289
“‘Because fiduciaries . . . must take risks and make difficult decisions about what is
material to disclose, they are exposed to liability for breach of fiduciary duty only if
their breach of the duty of care is extreme.’” 290
Plaintiff makes two arguments regarding Popovits’ alleged conflicts, neither
of which creates a reasonable inference that she violated her duty of loyalty. First,
in predictable fashion, Plaintiff points once again to the supposed “longstanding ties”
between Conroy and Popovits going back to their days living five minutes apart in
287
Id. at 709 (“[W]e have implied that officers of Delaware corporations, like directors,
owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the
same as those of directors.” (citations omitted)).
288
Presidio, 251 A.3d at 254 (citations omitted).
289
In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *15 (Del. Ch. Oct. 27,
2020) (quoting Morrison v. Berry, 2019 WL 7369431, at *22 (Del. Ch. Dec. 31, 2019)).
290
Morrison, 2019 WL 7369431, at *25 (quoting Metro Commc’n Corp. BVI v. Advanced
Mobilecomm Techs. Inc., 854 A.2d 121, 157 (Del. Ch. 2004)).
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Flint, Michigan and their days attending Michigan State University at the same
time. 291 As mentioned, at the very best for Plaintiff, she has alleged that the two
CEOs knew each other. That, alone, does not, and cannot, fuel a loyalty breach
claim.
Second, Plaintiff alleges that Popovits was improperly incentivized to close
the Merger quickly so she could exit the Company with a $13.4 million golden
parachute. 292 In Morrison v. Berry, this court found an exclusive compensation
benefit to an executive did not implicate that executive’s fiduciary duties where the
benefit was not tied to a specific buyer and did not uniquely incentivize a sale at an
unfair price.293 Likewise, Popovits’ compensation was not tied to a deal with Exact
exclusively and the Complaint does not plead facts suggesting the compensation
misaligned Popovits’ interests with those of Genomic’s stockholders.294
291
Compl. ¶¶ 145, 177.
292
Compl. ¶ 178.
293
2019 WL 7369431, at *22 (“The change-in-control benefit was not exclusive to a
purchase by Apollo, I note, and would not predispose Duggan to encourage a sale to Apollo
exclusively, nor a sale at an unfair price.”).
294
In re Novell, Inc. S’holder Litig., 2013 WL 322560, at *11 (Del. Ch. Jan. 3, 2013)
(“[T]he possibility of receiving change-in-control benefits pursuant to pre-existing
employment agreements does not create a disqualifying interest as a matter of law.”).
Contra In re Xura, Inc., S’holder Litig., 2018 WL 6498677, at *13 (Del. Ch. Dec. 10, 2018)
(finding a well-pled breach of fiduciary duty claim where a CEO pushed through a merger
notwithstanding a promise of continued employment post-merger “in the face of his
looming termination from” the pre-merger entity); id at *11 (finding a breach of fiduciary
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Accordingly, the Complaint does not state a viable claim that Popovits breached her
duty of loyalty.
Plaintiff’s allegations against Popovits’ for breaches of her duty of care fare
no better. These claims rest on allegations that Popovits negotiated the Merger
without Board knowledge or authorization. Specifically, the Complaint alleges that
Popovits engaged in negotiations with Conroy, including having signed an NDA and
discussing price, without apprising any Genomic director of her moves other than
Julian Baker.295 For example, on June 13, two days after Conroy approached
Popovits regarding a transaction, Conroy submitted a non-binding proposal to
Popovits and Popovits immediately contacted Goldman to seek its advice on the
potential transaction. 296 And the day after the Board rejected Exact’s initial offer,
the Complaint alleges that Popovits, without authorization, discussed due diligence
with Exact. 297
Plaintiff’s attempt to cast Popovits as a rogue CEO amounts to much ado
about very little. The Board was advised of Popovits’ initial discussions with
duty claim well pled against an officer where “Xura was steered into the Transaction by a
fiduciary who had an interest different from shareholders, namely self-preservation”).
295
Compl. ¶¶ 65–69.
296
Compl. ¶ 67.
297
Compl. ¶ 71.
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Conroy and her engagement of Goldman no later than June 17. 298 And the
Complaint acknowledges that, as of at least June 24, Popovits had informed the
Board about her ongoing negotiations and exchanges of diligence with Exact.299 Yet
the Complaint alleges no facts that would support an inference the Board was either
upset or surprised by the revelation. Nothing about Popovits’ conduct, up to this
point, supports a reasonable inference that she acted with “reckless indifference” or
“outside the bounds of reason.” 300
Plaintiff’s final attempt to support a duty of care claim relates to Popovits’
supposed effort, “after Genomic’s stock price shot up, . . . [to] push[] the Board to a
quick close because of Genomic’s valuation.”301 That is not what the Complaint
actually alleges, however. According to the Complaint, Conroy informed Popovits
on July 26 that Exact wished to close quickly and, consistent with her duty of candor,
Popovits informed the Board that Exact had a “heightened sense of urgency” to
298
Compl. ¶ 70 (“At a June 17, 2019 Board meeting, after reviewing the June 13 Proposal,
the Board concluded that Exact Sciences needed to offer more cash given that Exact
Sciences’ current stock price was trading at a historically high level.” (internal quotations
omitted)).
299
Compl. ¶ 72. Popovits followed this revelation with a full presentation to the Board
regarding the status of negotiations on June 26. Compl. ¶ 75.
300
Baker Hughes, 2020 WL 6281427, at *15; Morrison, 2019 WL 7369431, at *24.
301
AB at 78.
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execute the Merger Agreement.302 And it was the Board’s response to this sense of
urgency that prompted Exact to “honor the original terms of the collar and other
legal matters,” decisions that clearly worked to the benefit of Genomic and its
stockholders.303
Even after giving all reasonable inferences to Plaintiff, I cannot conclude she
has well pled a breach of the duty of care claim against Popovits. As revealed in the
Complaint, Popovits was a disinterested, engaged negotiator throughout the process
and kept the Board reasonably apprised of her progress. When the time came to
approve the Merger, the Board was able to do so on an informed basis thanks, in
part, to the work of the Company’s CEO.
E. Aiding and Abetting
Plaintiff alleges Exact and Goldman aided and abetted the Baker Brothers
Entities and the Individual Defendants in their breaches of fiduciary duty.304 To well
plead an aiding and abetting claim, “the complaint must allege facts that satisfy the
four elements of an aiding and abetting claim: (1) the existence of a fiduciary
relationship, (2) a breach of the fiduciary’s duty, (3) knowing participation in that
302
Compl. ¶ 102.
303
Compl. ¶ 105.
304
Compl. ¶¶ 187–96.
83
breach by the defendants, and (4) damages proximately caused by the breach.”305
Because the Complaint fails to well plead a breach of fiduciary duty claim against
any of the Company’s fiduciaries, Plaintiff’s claims for aiding and abetting a breach
of fiduciary duty likewise fail as a matter of law. 306
III. CONCLUSION
For the foregoing reasons, each of the Defendants’ motions to dismiss must be
GRANTED.
IT IS SO ORDERED.
305
Malpiede, 780 A.2d at 1096 (cleaned up).
306
See, e.g., KKR, 101 A.3d at 1003 (“An aiding and abetting claim ‘may be summarily
dismissed based upon the failure of the breach of fiduciary duty claims against the director
defendants.’” (citation omitted)).
84