In Re Transunion Derivative Stockholder Litigation

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CONSOLIDATED
IN RE TRANSUNION DERIVATIVE
C.A. No. 2022-1103-LWW
STOCKHOLDER LITIGATION
MEMORANDUM OPINION
Date Submitted: June 7, 2024
Date Decided: October 1, 2024
Kevin M. Gallagher & Spencer V. Crawford, RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; Sandra C. Goldstein, Victoria J. Ryan & Mike Rusie,
KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants George
M. Awad, William P. Bosworth, Christopher A. Cartwright, Suzanne P. Clark,
Kermit R. Crawford, John T. Danaher, Russell P. Fradin, Pamela A. Joseph,
Siddharth N. Mehta, Thomas L. Monahan, III, Leo F. Mullin, James M. Peck, and
Andrew Prozes, and Nominal Defendant TransUnion
Samuel L. Closic, John G. Day & Seth T. Ford, PRICKETT, JONES & ELLIOTT,
P.A., Wilmington, Delaware; Laurence Paskowitz, THE PASKOWITZ LAW FIRM
P.C., Rego Park, New York; Emily Komlossy, KOMLOSSY LAW, P.A.,
Hollywood, Florida; Frederic S. Fox, KAPLAN FOX & KILSHEIMER LLP, New
York, New York; Matthew M. Houston, GLANCY PRONGAY & MURRAY LLP,
New York, New York; D. Seamus Kaskela & Adrienne Bell, KASKELA LAW
LLC, Newtown Square, Pennsylvania; Alfred G. Yates, LAW OFFICE OF
ALFRED G. YATES, JR., P.C., Pittsburgh, Pennsylvania; Counsel for Plaintiffs
Richard Delman, Donna Nicosia, and Charles R. Blackburn
WILL, Vice Chancellor
Boards of directors are duty bound to ensure that the corporations they manage
operate lawfully. To meet this obligation, directors must establish a reporting system
informing them of material risks to the business and attend to clear signs of non-
compliance. If they do so with reasonable care, the court will not second guess the
directors’ attempts to exercise oversight.
Although there are rare exceptions, independent directors scarcely abandon
this basic duty. Claims for failed oversight usually amount to retrospective critiques
of good faith acts. Since liability can only attach where a plaintiff pleads facts
showing a disloyal state of mind, steps toward compliance defeat such claims—even
where corporate traumas unfold.
The plaintiffs here recognize the high bar to pleading that a board snubbed its
oversight duties. Their complaint details board-level engagement on legal
compliance, which contradicts any inference of knowing failures to monitor reported
risks. And so, the plaintiffs take another approach and argue that the board’s
awareness of flaws in compliance efforts suggests willful lawbreaking.
TransUnion—a consumer credit reporting company—submitted to a
regulatory consent order requiring it to change its advertising and billing practices.
TransUnion worked to correct these practices with the oversight of its board. But it
had a disagreement with the regulator on the details of certain changes.
1
Because the board learned that the regulator’s views diverged from
TransUnion’s, the plaintiffs assert that the board purposefully violated the law for
greater profit. The misconduct complained of, however, amounts to minor
interpretive differences of the consent order’s terms—disclaimer font size, phrase
usage, and check box placement. TransUnion and the regulator are contesting these
issues in related federal litigation.
Regardless of whose interpretation proves correct in that suit, there are no
facts—much less particularized ones—suggesting that TransUnion’s board breached
its duty of loyalty. Imperfect compliance is not bad faith. Demand was not futile,
and this case is dismissed.
I. FACTUAL BACKGROUND
Unless otherwise noted, the following facts are drawn from the Second
Amended and Consolidated Verified Stockholder Derivative Complaint (the
“Complaint”) and the documents it incorporates by reference, including books and
records produced by TransUnion in response to 8 Del. C. § 220 demands.1
1
Verified S’holder Deriv. Am. Consol. Compl. (Dkt. 27) (“Compl.”); Freedman v. Adams,
2012 WL 1345638, at *5 (Del. Ch. Mar. 30, 2012) (“When a plaintiff expressly refers to
and heavily relies upon documents in her complaint, these documents are considered to be
incorporated by reference into the complaint[.]”) (citation omitted).
Exhibits to the Affidavit of Spencer V. Crawford, Esq. in Support of Defendants’
Opening Brief in Support of their Motion to Dismiss or Stay Proceedings (Dkts. 32-33) are
cited as “Defs.’ Ex. __.” Exhibits produced in response to pre-suit books and records
demands under confidentiality agreements with incorporation by reference provisions are
deemed incorporated by reference into the Complaint. See Defs.’ Ex. 1 § 10; see also
2
A. The 2017 Consent Order
Nominal defendant TransUnion is a Delaware corporation headquartered in
Chicago, Illinois. TransUnion provides credit reporting services to millions of
consumers globally.2
As a participant in consumer financial markets, TransUnion is subject to the
oversight authority of the Consumer Financial Protection Bureau (CFPB). 3 The
CFPB is authorized by the Consumer Financial Protection Act to conduct
examinations and investigations and enforce the statute.4
In 2015, the CFPB launched an examination of the advertising and marketing
practices used for TransUnion’s credit reporting services.5 It concentrated on two
main subjects. The first was statements in TransUnion’s online advertisements
about the utility of credit scores generated by TransUnion’s proprietary model,
VantageScore (the “VantageScore Disclosure”). The second was TransUnion’s use
of a “negative billing structure” that automatically enrolled consumers in credit
Pettry ex rel. FedEx Corp. v. Smith, 2021 WL 2644475, at *8 n.90 (Del. Ch. June 28, 2021)
(noting that “Section 220 documents[] [were] incorporated by reference into the Complaint
to the extent [they] directly dispute[d] [p]laintiff’s conclusory assertion[s]”). Exhibits
lacking internal pagination are cited by the last three digits of their Bates stamps.
2
Compl. ¶ 2.
3
Id. ¶ 59.
4
12 U.S.C. § 5492(a).
5
Compl. ¶ 62.
3
monitoring services after a trial period (the “Negative Option”) and related
advertisements.6
The CFPB’s examination and subsequent investigation culminated in a
January 3, 2017 Consent Order.7 The Consent Order detailed the CFPB’s findings
on TransUnion’s violations of the Consumer Financial Protection Act. It also
outlined remediation efforts that TransUnion had agreed to undertake. Relevant here
are changes to the VantageScore Disclosure and Negative Option, as well as
compliance and redress plans.
1. VantageScore Disclosure
The CFPB found TransUnion’s VantageScore Disclosure to be inaccurate and
deceptive.8 It concluded that TransUnion’s marketing on its own and third-party
websites falsely represented that VantageScore provided the same credit score used
by lenders to determine creditworthiness.9 TransUnion’s disclosures about the
differences between VantageScore and models relied on by lenders were hidden in
small, low contrast text at the bottom of its webpage.10
6
Id. ¶¶ 67-69.
7
Id. ¶ 63; Defs.’ Ex. 2 (“Consent Order”).
8
Compl. ¶¶ 65-67; Consent Order ¶ 31.
9
Compl. ¶ 66; Consent Order ¶¶ 10, 27-29.
10
Compl. ¶ 67; Consent Order ¶ 27.
4
The Consent Order outlined changes that TransUnion would make to its
VantageScore advertisement practices. TransUnion agreed to modify its
advertisements to “substantially state[]” that the VantageScore “is not likely to be
the same score used by lenders or other commercial users for credit decisions[.]”11
TransUnion also agreed to provide a header with the phrase “What You Need to
Know” in text double the size of its disclosure about the utility of VantageScore.12
2. Negative Option
The CFPB found that TransUnion’s “free” credit score and “$1” credit report
promotions were misleading.13 These offers included a Negative Option billing
structure by which consumers who signed up for a trial of TransUnion’s services
were automatically enrolled in a paid subscription when the trial expired.14 The
CFPB described these advertisements as “unfair, deceptive or abusive” because they
gave the misimpression that credit scores or reports were no or low cost without
highlighting the Negative Option enrollment.15
11
Consent Order ¶ 40(c)(ii); see Compl. ¶ 100 n.32.
12
Consent Order ¶ 40(c)(iii); see Compl. ¶ 74.
13
Compl. ¶ 68; Consent Order ¶¶ 32-39.
14
Compl. ¶ 68; Consent Order ¶¶ 32-39.
15
Compl. ¶ 68; Consent Order ¶¶ 38-39.
5
The Consent Order required TransUnion to obtain express consent from
consumers before enrolling them in any service with a Negative Option feature.16
TransUnion agreed to include “a check box on the final order page” for free or
discounted trials “conspicuously stat[ing]” that the consumer consented to be billed
for the service after the trial.17 The Consent Order also mandated that TransUnion
create a “simple mechanism for a consumer to immediately cancel the purchase.”18
3. Compliance Plan
TransUnion had to submit a “comprehensive compliance plan” detailing how
it would implement the Consent Order’s conduct provisions (the “Compliance
Plan”).19 It was required to, “[w]ithin 90 days” of the Consent Order becoming
effective, submit the Compliance Plan to the CFPB “for review and determination
of non-objection . . . .”20 The Compliance Plan needed to include, “at a minimum,”
“[d]etailed steps for addressing each action required by [the] Consent Order . . . and
[s]pecific timeframes and deadlines for implementation of the[se] steps . . . .”21
16
Compl. ¶ 71; Consent Order ¶ 40(b)(i).
17
Consent Order ¶ 40(b)(i); see Compl. ¶ 71.
18
Consent Order ¶ 40(b)(ii); see Compl. ¶ 72.
19
Consent Order ¶ 41; see Compl. ¶ 75.
20
Consent Order ¶ 41; see Compl. ¶ 75.
21
Consent Order ¶ 41; see Compl. ¶ 75.
6
The Consent Order addressed how the CFPB would provide feedback on and
approve the Compliance Plan:
[(1)] The [CFPB] will have the discretion to make a determination of
non-objection to the Compliance Plan or direct [TransUnion] to revise
it. If the [CFPB] directs [TransUnion] to revise the Compliance Plan,
[TransUnion] must make the revisions and resubmit the Compliance
Plan to the [CFPB] within 30 days.
[(2)] After receiving notification that the [CFPB] has made a
determination of non-objection to the Compliance Plan, [TransUnion]
must implement and adhere to the steps, recommendations, deadlines,
and timeframes outlined in the Compliance Plan.22
4. The Redress Plan
The Consent Order also required TransUnion to provide $13.9 million in
consumer redress and to prepare a plan to pay affected consumers (the “Redress
Plan”).23 As with the Compliance Plan, the Consent Order described the process for
the CFPB to approve the Redress Plan.24 TransUnion was also ordered to pay a $3
million penalty to the CFPB.25
22
Consent Order ¶¶ 42-43; see Compl. ¶ 75.
23
Compl. ¶ 80; Consent Order ¶¶ 47-51.
24
Consent Order ¶ 48.
25
Compl. ¶ 80; Consent Order ¶ 52.
7
B. Early Compliance Efforts
TransUnion took several initial steps to address the Consent Order.26 Outside
counsel—a former CFPB enforcement attorney—advised on these efforts.27
On January 11, 2017, TransUnion deposited the $13.9 million redress funds
into a dedicated account for distribution.28 TransUnion wired the $3 million penalty
to the CFPB two days later.29 It eliminated the Negative Option entirely and moved
to a no-trial, full-price offer for credit monitoring on its website.30 TransUnion
“updated online cancellation functionality” and “improved agent scripting to ensure
consumer understanding of their transactions.”31 It also enhanced the VantageScore
Disclosure on its product order page.32
TransUnion management kept the company’s Board of Directors apprised of
the CFPB investigation, the Consent Order, and TransUnion’s efforts to comply with
the Consent Order. For example, on February 2, 2017, TransUnion distributed the
Consent Order to its directors and officers, as well as others with compliance
26
See Compl. ¶¶ 99, 155.
27
See id. ¶¶ 128-29; Defs.’ Ex. 19 (Feb. 20, 2020 declaration) ‘957.
28
Defs.’ Ex. 4 (Feb. 9, 2017 A&C Committee presentation) ‘304.
29
Id.
30
Defs.’ Ex. 3 (June 12, 2019 Letter from TransUnion to CFPB) (“Response to PARR
Letter”) ‘620; see Compl. ¶ 88.
31
Response to PARR Letter ‘619.
32
Compl. ¶ 100; Response to PARR Letter ‘619.
8
responsibilities.33 The next week, the Audit and Compliance Committee of the
Board (the “A&C Committee”) was updated on the planned submission of the
Redress Plan and Compliance Plan to the CFPB.34 Later that month, the Board was
updated on the Consent Order and engagement with the CFPB by TransUnion’s
General Counsel John Blenke and John Danaher—President of TransUnion’s
operating subsidiary that sold services to consumers.35
C. Submission of the Redress Plan
In April 2017, the A&C Committee was told that TransUnion had submitted
its Redress Plan to the CFPB and was “[a]waiting non-objection from [the] CFPB
prior to initiating redress activities.”36 On August 1, the CFPB directed TransUnion
to revise the Redress Plan, which TransUnion did that month.37 The CFPB provided
TransUnion with a determination of non-objection to the Redress Plan a few months
33
Defs.’ Ex. 5 (Summary of Consent Order Acknowledgment) ‘545. Nine of the eleven
directors acknowledged receipt of the Consent Order.
34
Defs.’ Ex. 4 at ‘304-05.
35
Defs.’ Ex. 6 (Feb. 28, 2017 Board minutes) ‘349, ‘352; see Compl. ¶ 82.
36
Defs.’ Ex. 7 (Apr. 24, 2017 A&C Committee presentation) ‘361; see Compl. ¶ 96.
37
Defs.’ Ex. 11 (Oct. 27, 2017 memorandum from J. Blenke to Board) ‘514; Defs.’ Ex. 12
(Aug. 30, 2017 letter from D. Norgle to CFPB) ‘562.
9
later.38 As reported to the Board, TransUnion began to implement the Redress Plan
after receiving the CFPB’s confirmation of non-objection.39
D. Submission of the Compliance Plan
The submission and feedback process for the Compliance Plan was less
orderly. The CFPB had granted TransUnion an extension to June 30, 2017 to submit
a Compliance Plan.40 A week before the deadline, a draft Compliance Plan was
presented to the A&C Committee that listed dozens of actions TransUnion would
take to comply with the Consent Order, including changes to the VantageScore
Disclosure and the Negative Option.41 It listed timelines for starting and completing
each action pegged to the “date determination of non-objection is received from the
38
Defs.’ Ex. 13 (Nov. 7, 2017 letter from A. Hrdy to D. Norgle) ‘614.
39
Defs.’ Ex. 14 (Feb. 16, 2018 memorandum from J. Blenke to Board) ‘571; Defs.’ Ex. 15
(Feb. 8, 2018 A&C Committee deck) ‘543.
40
Defs.’ Ex. 7 at ‘363.
41
See, e.g., Defs.’ Ex. 16 (“Compliance Plan”) ‘546; id. at ‘548 (stating, regarding the
Negative Option, that TransUnion would “utilize and test disclosure and consent
mechanisms that are consistent with those used by our competitors that we understand have
been condoned by the CFPB subsequent to the Consent Order”); id. at ‘549 (stating,
regarding the Negative Option, that TransUnion would “perform a review of all existing
Credit-Related Products cancellation mechanisms and channels to determine any
enhancements that should be made to telephone cancellations”); id. at ‘553 (stating,
regarding the VantageScore Disclosure, that TransUnion would “review and implement
the ‘What You Need To Know’ disclosure language on written offer communications”).
10
CFPB . . . .”42 The A&C Committee reviewed the Compliance Plan before its
submission to the CFPB.43
A few months later, Blenke advised the Board that it did “not need to make
any of the proposed changes until [TransUnion] receive[d] confirmation from the
CFPB that it does not object to the submitted Compliance Plan.”44 This advice
aligned with guidance given by the former CFPB enforcement attorney who was
serving as TransUnion’s outside counsel and had negotiated the Consent Order on
TransUnion’s behalf.45
TransUnion awaited a determination of non-objection from the CFPB.46 It
never came.
E. The PARR Letter
TransUnion next heard from the CFPB over a year later in October 2018,
when a second examination was launched.47 An onsite examination of TransUnion’s
42
Compliance Plan ‘546.
43
Id.
44
Defs.’ Ex. 11 at ‘515.
45
Compl. ¶ 129; see Defs.’ Ex. 19 ¶ 8 (“It was expected that [TransUnion] would receive
. . . a letter from the CFPB stating its non-objection to particular approaches for compliance
with the consent order.”).
46
Defs.’ Ex. 11 at ‘515; Defs.’ Ex. 14 at ‘572; Defs.’ Ex. 18 (July 27, 2017 memorandum
from J. Blenke to Board) ‘454; Defs.’ Ex. 25 (May 4, 2018 memorandum from J. Blenke
to Board) ‘613.
47
Compl. ¶¶ 13, 116.
11
compliance with the Consent Order took place in January 2019.48 Management
reported to the A&C Committee that TransUnion cooperated throughout the
process.49
In May 2019, the CFPB issued a Potential Action and Request for Response
(PARR) letter to TransUnion.50 The PARR letter reported the CFPB’s “preliminary
findings that TransUnion may have violated several conduct provisions” of the
Consent Order and that an enforcement action might follow.51 It conveyed the
CFPB’s view that a statement of non-objection was not “required to subject
TransUnion to the conduct provisions of the Consent Order.”52
The PARR letter identified three potential violations of the Consent Order that
related to the VantageScore Disclosure and the Negative Option. 53 First, regarding
the VantageScore Disclosure, TransUnion failed to include the requisite text on
“display ads” on third-party websites.54 Second, the language TransUnion used to
describe the utility of VantageScore differed from the specific language suggested
48
Id. ¶ 116.
49
Defs.’ Ex. 23 (Feb. 2019 A&C Committee deck) ‘733.
50
Defs.’ Ex. 28 (May 19, 2019 Letter from CFPB) (“PARR Letter”).
51
PARR Letter ‘615; see Compl. ¶ 116.
52
Compl. ¶ 97; PARR Letter ‘616.
53
Compl. ¶¶ 100-01.
54
PARR Letter ‘615; see Compl. ¶ 100.
12
in the Consent Order.55 Third, the “What You Need to Know” header above the
VantageScore Disclosure was less than double the size of the other text. 56 In
addition, TransUnion had “advertised and offered a [N]egative [O]ption feature
through internet ads placed on [third-party website] annualcreditreport.com” without
a check box for affirmative consent on the order page.57
F. TransUnion’s PARR Letter Response
On June 12, 2019, TransUnion responded to the PARR letter.58 It observed
that although the CFPB’s views on “display ads” drew on an expansive reading of
the Consent Order, TransUnion would “review an appropriate implementation of a
form of disclosure on applicable display ads.”59 It noted that its VantageScore
Disclosure was “substantially consistent with the illustrative language in the Consent
Order.”60 And it explained that the font size used for the “What You Need to Know”
header was selected to prevent the text from breaking across two lines.61 As to the
Negative Option, TransUnion explained that the transunion.com offer had been
55
Compl. ¶ 100; PARR Letter ‘615-16.
56
PARR Letter ‘616.
57
Id.; see Compl. ¶ 100.
58
Compl. ¶ 100.
59
Response to PARR Letter ‘619; see Compl. ¶ 100.
60
Response to PARR Letter ‘619; see Compl. ¶ 100.
61
Response to PARR Letter ‘619-20.
13
removed before the Consent Order’s effective date.62 TransUnion clarified that it
had corrected another isolated Negative Option offer that appeared on
annualcreditreport.com without a check box shortly after discovering it in January
2019.63
The next month, TransUnion’s Chief Compliance Officer updated the A&C
Committee about the PARR letter and TransUnion’s response. He reported that
TransUnion was “in compliance with three of the four potential findings” in the
PARR letter.64
A few months later, TransUnion learned that the CFPB’s Office of
Supervision & Examinations had referred the matter to its Office of Enforcement.65
TransUnion management promptly relayed this development to the A&C Committee
and the Board.66 The A&C Committee was also told that TransUnion had hired
different outside counsel to engage with the CFPB.67
62
Id. at ‘620.
63
Id.
64
Defs.’ Ex. 29 (July 22, 2019 A&C Committee minutes) ‘859.
65
Compl. ¶ 102.
66
Id.; Defs.’ Ex. 31 (Oct. 21, 2019 A&C Committee minutes) ‘897.
67
Defs.’ Ex. 31 at ‘898.
14
G. The CIDs and Steering Committee
In October 2019, the CFPB issued a civil investigative demand (CID) to
TransUnion, seeking information about the VantageScore Disclosure and Negative
Option.68 In March 2020, a second CID was served that concerned TransUnion’s
advertisements on annualcreditreport.com and legal advice relied upon in
implementing the Compliance Plan.69 TransUnion produced materials in response
to both CIDs and continued to engage with the CFPB.70 TransUnion management
kept the A&C Committee and the Board apprised of these matters throughout the
first quarter of 2020.71
While the CFPB was investigating, TransUnion formed a Steering Committee
composed of senior legal, compliance, and business personnel (including Danaher)
to implement the Consent Order’s conduct requirements.72 The Steering Committee
began its preliminary work in January 2020 and held its first meeting in April 2020.73
By year end, TransUnion formed the Enterprise Risk Management Committee (the
68
Compl. ¶¶ 104, 116.
69
Id. ¶¶ 105, 116; Defs.’ Ex. 39 (CEO Board Report – Q1 2020) ‘034.
70
See Compl. ¶ 104.
71
Id. ¶¶ 105, 116; Defs.’ Ex. 32 (Feb. 13, 2020 A&C Committee minutes) ‘932; Defs.’ Ex.
33 (CEO Board Report – Q4 2019) ‘967; Defs.’ Ex. 34 (Q1 2020 Board Meeting – Legal
and Regulatory Update) ‘972; Defs.’ Ex. 35 (Feb. 27, 2020 Board minutes) ‘979; Defs.’
Ex. 38 (May 2020 A&C Committee deck) ‘009; Defs.’ Ex. 39 at ‘034.
72
Compl. ¶ 118.
73
Defs.’ Ex. 36 (Apr. 3, 2020 Steering Committee memorandum) ‘991.
15
“ERM Committee”), which included TransUnion’s CEO and officers and received
monthly updates on the Steering Committee’s progress.74
H. The NORA Letter
On June 26, 2020, the CFPB issued a Notice of Opportunity to Respond and
Advise (NORA) letter stating that it might pursue an enforcement action against
TransUnion.75 Soon after, TransUnion management informed the A&C Committee
that the company was preparing a response to the NORA letter and “seeking
engagement with CFPB Senior Management in [an] effort to resolve the matter.”76
In July 2020, TransUnion responded to the NORA letter.77 TransUnion
management updated the A&C Committee on the response and TransUnion’s
remediation efforts under the Consent Order, reporting that they were “targeting the
end of the year” for completion.78 TransUnion tried to engage with the CFPB, met
with the CFPB’s senior enforcement team in October 2020, and did not hear
anything further from the CFPB until March 2021.79
74
Defs.’ Ex. 62 (“Revised Compliance Plan”) ‘723-24.
75
Compl. ¶ 116; Defs.’ Ex. 40 (July 2020 A&C Committee deck) ‘076.
76
Compl. ¶ 108; Defs.’ Ex. 40 at ‘076.
77
Defs.’ Ex. 42 (July 30, 2020 A&C Committee minutes) ‘088.
78
Compl. ¶ 108; Defs.’ Ex. 42 at ‘088.
79
Defs.’ Ex. 42 at ‘088; see also Defs.’ Ex. 43 (Aug. 5, 2020 general counsel presentation
to Board) ‘093; Defs.’ Ex. 44 (Aug. 5, 2020 Board minutes) ‘106; Defs.’ Ex. 45 (Oct. 30,
2020 A&C Committee presentation) ‘134; Defs.’ Ex. 46 (CEO Board Report – Q3 2020)
‘176; Defs.’ Ex. 47 (Nov. 11, 2020 Legal & Public Policy update) ‘181; Defs.’ Ex. 48 (Feb.
16
I. The Subsequent CIDs and NORA Letter
In March 2021, the CFPB issued two additional CIDs that sought more
information about new Negative Option enrollments and TransUnion management’s
knowledge of the Consent Order.80 Both the A&C Committee and the Board were
informed about the CIDs at their next regularly scheduled meetings.81
The CFPB issued another NORA letter in June 2021, which raised other
allegations about TransUnion’s representations of consumer enrollment practices,
credit monitoring products, and aspects of the Consent Order.82 The A&C
Committee was told about this NORA letter at a meeting held the next month.83
TransUnion responded to the NORA letter in August.84 Soon after,
TransUnion management reported to the ERM Committee that they were
“[d]eveloping [a] plan to address allegations [in the NORA letter] as appropriate.”85
The Board received an update on the NORA letter later that month.86
18, 2021 Legal & Public Policy update) ‘276; Defs.’ Ex. 49 (Feb. 2021 Q4 2020 Board
Materials – Legal & Public Policy Update) ‘319.
80
Compl. ¶¶ 112; 116.
81
Id. ¶ 113; Defs.’ Ex. 52 (Apr. 29, 2021 A&C Committee deck) ‘338; Defs.’ Ex. 53 (CEO
Board Report – Q1 2021) ‘441; Defs.’ Ex. 54 (May 11, 2021 Q1 2021 Board materials –
Legal & Public Policy Update) ‘455; Defs.’ Ex. 55 (May 2021 Board minutes) ‘445.
82
Compl. ¶ 114; Defs.’ Ex. 56 (July 29, 2021 A&C Committee deck) ‘619, ‘621.
83
Defs.’ Ex. 57 (July 29, 2021 A&C Committee minutes) ‘616.
84
Defs.’ Ex. 58 (Aug. 10-11, 2021 Board minutes) ‘649.
85
Defs.’ Ex. 59 (Aug. 19, 2021 ERM Committee minutes) ‘701.
86
Compl. ¶ 114; Defs.’ Ex. 58 at ‘649.
17
J. The Revised Compliance Plan
On August 19, 2021, the A&C Committee met to discuss the latest NORA
letter and TransUnion’s response.87 At the meeting, the A&C Committee reviewed
a timeline of TransUnion’s actions to comply with the Consent Order and a revised
Compliance Plan (the “Revised Compliance Plan”) that would be submitted to the
CFPB.88 The A&C Committee endorsed the Revised Compliance Plan, which
outlined how TransUnion had addressed each of the Consent Order’s conduct
provisions.89
Regarding the Negative Option, the Revised Compliance Plan explained that
TransUnion had moved to eliminate such features as early as December 2016, taken
additional steps to address their usage on annualcreditreport.com, and resolved
“process gaps that enabled consumers to continue to enroll via Negative Options as
a result of legacy ‘offer codes.’”90 TransUnion further described its ongoing and
“regular reporting to monitor the creation of new offer codes, the performance of
existing offer codes and to verify that the decommissioning process was effective.”91
87
Defs.’ Ex. 60 (Aug. 19, 2021 A&C Committee minutes) ‘721.
88
Id.; Defs.’ Ex. 61 (Timeline: TransUnion January 3, 2017 Consent Order Compliance).
89
Defs.’ Ex. 60 at ‘721.
90
Revised Compliance Plan ‘725.
91
Id. at ‘726.
18
As to the VantageScore Disclosure, TransUnion explained its position on the
language used and invited the CFPB to discuss “any remaining concerns . . . .”92
TransUnion confirmed that the VantageScore Disclosure and “What You Need to
Know” header “w[ould] be included on all new webpages, including through the
marketing checklist that [its] Marketing Team must submit prior to releasing new or
making changes to existing marketing materials . . . .”93
The Revised Compliance Plan also addressed TransUnion’s compliance
reporting structure. It highlighted the Board’s oversight of TransUnion’s response
to the Consent Order, the work of the Steering Committee, and the ERM
Committee’s receipt of “monthly status updates regarding Consent Order
compliance.”94 TransUnion offered to “submit to the [CFPB] additional Compliance
Reports or other requested information under penalty of perjury, provide sworn
testimony, or produce documents within 30 days of receipt of a written request from
the [CFPB].”95
The Revised Compliance Plan noted that TransUnion had “received no
comments from the [CFPB] regarding its original Compliance Plan, notwithstanding
92
Id. at ‘728.
93
Id. at ‘729.
94
Id. at ‘723-24.
95
Id. at ‘733.
19
[TransUnion’s] numerous requests for feedback on any deficiencies or non-
objection over the course of the last four years.”96
K. The Federal Litigation
In September 2021, the CFPB sent TransUnion a proposed settlement term
sheet addressing consumer redress, civil monetary penalties, and injunctive relief
against TransUnion and certain of its officers. TransUnion management explained
their assessment of the proposal to the Board at a meeting the next month.97
TransUnion and the CFPB exchanged additional settlement proposals, and the Board
discussed each one.98
While settlement discussions of the regulatory investigation continued, the
CFPB commenced litigation against TransUnion, its subsidiaries, and Danaher in
the United States District Court for the Northern District of Illinois in April 2022
(the “Federal Action”).99 In the Federal Action, the CFPB seeks to enforce specific
terms of the Consent Order and brings claims for violations of the Consumer
96
Id. at ‘723.
97
Defs.’ Ex. 63 (Oct. 10, 2021 Board minutes) ‘825.
98
Id.; Defs.’ Ex. 64 (Oct. 28, 2021 A&C Committee presentation) ‘910; Defs.’ Ex. 65
(Nov. 9-10, 2021 Board minutes) ‘033; Defs.’ Ex. 66 (Feb. 23, 2022 A&C Committee
minutes) ‘275.
99
Compl., CFPB v. TransUnion, LLC, et al., No. 1:22-cv-01880 (N.D. Ill. 2022).
20
Financial Protection Act, the Electronic Fund Transfer Act, and the Fair Credit
Reporting Act.100
The CFPB issued two additional NORA letters to TransUnion in March and
August 2022 about matters related to the Federal Action and the marketing practices
at issue in this suit.
In November 2022, TransUnion’s motion to dismiss the Federal Action was
denied.101 The court rejected TransUnion’s argument that the CFPB’s statement of
non-objection was “a condition precedent to the enforceability of the Consent Order
as a whole.”102
The Federal Action remains pending.
L. This Litigation
On November 30, 2022, TransUnion stockholder Richard Delman filed a
derivative action in this court.103 The suit followed TransUnion’s production of
books and records in response to Delman’s Section 220 demand. 104 In December,
2022, stockholder Donna Nicosia filed a near-identical complaint.105 A week later,
100
See id.
101
Consumer Fin. Prot. Bureau v. TransUnion, 641 F. Supp.3d 474, 478 (N.D. Ill. 2022)
(denying TransUnion and Danaher’s motions to dismiss).
102
Id. at 479.
103
Dkt. 1.
104
Compl. at 1.
105
Compl. ¶ 21.
21
stockholder Charles R. Blackburn entered an appearance as an interested party and
told the court of his pending Section 220 demand.106
On January 31, 2023, the court consolidated Delman and Nicosia’s suits and
added Blackburn as a plaintiff.107 The plaintiffs filed a consolidated complaint on
March 31, 2023.108 After the defendants moved to dismiss on June 2, 2023, the
plaintiffs filed the operative Complaint on August 1, 2023.109
On October 2, 2023, the defendants moved to dismiss the Complaint.110
Briefing was completed on January 12, 2024.111 Oral argument on the motion to
dismiss was held on June 7, 2024.112
II. LEGAL ANALYSIS
The Complaint lists two counts but advances one claim. Count I is a
derivative claim for breach of fiduciary duty against present and former Board
members.113 Count II is a request for a mandatory injunction “reforming the manner
106
Dkts. 6, 7.
107
Dkt. 9.
108
Dkt. 10.
109
Dkts. 14, 27.
110
Dkt. 29.
111
Dkt. 43.
112
Dkt. 54.
113
Compl. ¶¶ 151-59.
22
in which the Board oversees [TransUnion’s] legal and regulatory obligations in the
area of consumer law.”114 “Injunctions are a form of relief, not a cause of action.”115
The defendants have moved to dismiss the Complaint under Court of
Chancery Rule 23.1 for failure to plead demand excusal and under Rule 12(b)(6) for
failure to state a claim upon which relief can be granted.116 In the alternative, they
seek a stay in favor of the Federal Action.
The requirements of Rule 23.1 apply to derivative actions where stockholders
seek to usurp the board’s authority to control a corporate litigation asset.117 Rule
23.1 sets heightened pleading requirements for derivative claims “to prevent abuse
and to promote intracorporate dispute resolution.”118 A stockholder must “allege
114
Compl. ¶ 20.
115
Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 203 (Del. Ch. 2014).
Defs.’ Opening Br. in Supp. of Their Mot. to Dismiss or Stay Proc. (Dkt. 31) (“Defs.’
116
Opening Br.”) 1-2.
117
See In re GoPro, Inc. S’holder Deriv. Litig., 2020 WL 2036602, at *8 (Del. Ch. Apr.
28, 2020) (observing “a presumption” that directors have managerial authority over
corporate affairs); FLI Deep Marine LLC v. McKim, 2009 WL 1204363, at *2 (Del. Ch.
Apr. 21, 2009) (“The decision to bring or to refrain from bringing suit on behalf of a
corporation is the responsibility of the board of directors.” (citing 8 Del. C. § 141(a))).
118
Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984), overruled on other grounds by Brehm
v. Eisner, 746 A.2d 244 (Del. 2000).
23
with particularity the efforts, if any” made to obtain the desired board-level action
and the reasons for her “failure to obtain the action or for not making the effort.”119
The plaintiffs here declined to make a pre-suit demand on the Board. They
assert that demand would be futile because a majority of the Board members could
not impartially consider a demand.120
In assessing demand futility, the court “is confined to the well-pleaded
allegations in the Complaint, the documents incorporated into the Complaint by
reference, and facts subject to judicial notice . . . .”121 Facts are considered “in their
totality” and all reasonable inferences are drawn in the plaintiffs’ favor.122
Conclusory allegations “are not considered as expressly pleaded facts or factual
inferences.”123
The plaintiffs assert that the summary judgment standard should apply instead
since the defendants rely on extraneous documents.124 But TransUnion’s Section
119
Ct. Ch. R. 23.1; see Brehm, 746 A.2d at 254 (“Rule 23.1 is not satisfied by conclusory
statements or mere notice pleading.”).
120
Compl. ¶ 19.
121
In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632, at *4 (Del. Ch. Dec. 15, 2021)
(citing White v. Panic, 783 A.2d 543, 546-47 (Del. 2001)), aff’d, 282 A.3d 1054 (Del.
2022) (TABLE).
122
Del. Cty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017, 1019 (Del. 2015).
123
Brehm, 746 A.2d at 255.
124
See Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss (Dkt. 37) (“Pls.’ Answering
Br.”) 25-27.
24
220 production is incorporated by reference into the Complaint.125 The court can
evaluate whether the plaintiffs have taken these documents out of context or ignored
them entirely.126 There are no grounds to convert the defendants’ motion to dismiss
into one for summary judgment.
A. The Fiduciary Duty Claim
The plaintiffs allege that a majority of the Board members “either knowingly
permitted [TransUnion] to repeatedly violate the Consent Order . . . or chose to bury
their heads in the sand and to ignore [TransUnion’s] continuing illegal conduct . . .
despite the knowable and grave risks raised by such improper conduct . . . .”127 The
plaintiffs believe that their allegations support two distinct claims: one akin to the
Court of Chancery’s decision in Massey and another under Caremark.128 For their
so-called “Massey claim,” they allege that the Board knew the Consent Order was
125
See Defs.’ Ex. 1 ¶ 10 (confidentiality agreement stating that TransUnion’s Section 220
production “shall be deemed incorporated by reference into the operative version of the
complaint”); see also Amalgamated Bank v. Yahoo!, Inc., 132 A.3d 752, 797-98 (Del. Ch.
2016), abrogated on other grounds by Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del.
2019); supra note 1.
126
See Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *16 (Del.
Ch. Dec. 18, 2017) (“[T]he documents incorporated by reference in the Complaint make
clear that the Plaintiffs’ narrative is unsupported by the materials on which they relied in
drafting their pleading.”); Newman v. KKR Phorm Invs., L.P., 2023 WL 5624167, at *4
(Del. Ch. Sept. 5, 2023) (noting that Section 220 documents “necessarily shape the range
and outcomes of pleading-stage inferences”) (citation omitted).
127
Compl. ¶ 153.
128
Pls.’ Answering Br. 27 (“The Complaint sufficiently pleads both Massey and Caremark
claims.”).
25
being violated but chose to prioritize profits over compliance.129 For their Caremark
claim, they assert that the Board ignored red flags marking violations of the Consent
Order.130 By this logic, the court would run the same allegations about the same
facts through two separate doctrinal rubrics to see if one sticks.
Neither precedent nor logic supports the bright line the plaintiffs work to draw
between Caremark and Massey. Both of the plaintiffs’ theories draw on the
obligation of boards to take corporate compliance seriously. Directors who try to
fulfill their oversight duties in good faith are not liable under either formulation
advanced by the plaintiffs.
I begin by briefly exploring the legal landscape framing the plaintiffs’ claim.
I then consider how their claim should be examined. And I end by addressing
whether the plaintiffs have adequately pleaded that a majority of the Board faces a
substantial likelihood of liability for the claim. I conclude that they have not.
1. The Plaintiffs’ Legal Theories
In his iconic Caremark decision, Chancellor Allen spurred directors to be
heedful of their “duty to attempt in good faith to assure that a corporate information
and reporting system, which the board concludes is adequate, exists . . . .”131 There,
129
Compl. ¶¶ 94, 98, 100.
130
Id. ¶¶ 16, 102, 131, 156.
131
In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 970 (Del. Ch. 1996).
26
the nominal defendant had paid substantial fines after sales and marketing
employees were found to be bribing doctors to use its products. The directors were
disinterested and independent, with no involvement in the underlying wrongdoing.
But Chancellor Allen observed that the directors’ distance from the misconduct did
not grant them license to turn a blind eye.
“[T]he Caremark decision is rightly seen as a prod towards the greater
exercise of care by directors in monitoring their corporations’ compliance with legal
standards[.]”132 It stems from the core mandate in 8 Del. C. § 141(a) that the board
is charged with overseeing the corporation’s business and affairs. Delaware law
presumes that directors are discharging this responsibility in good faith and with
reasonable care, even if their actions turn out poorly in hindsight.133
Thus, the threshold for liability based on failed oversight “is quite high” and
requires a “lack of good faith as evidenced by sustained or systematic failure of a
director to exercise reasonable oversight.”134 Directors who “try” to implement and
attend to a “reasonable board-level system of monitoring and reporting” have met
132
Guttman v. Huang, 823 A.2d 492, 506 (Del. Ch. 2003).
133
See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) (“It is a presumption that in
making a business decision the directors of a corporation acted on an informed basis, in
good faith and in the honest belief that the action taken was in the best interests of the
company.”) overruled on other grounds by Brehm, 746 A.2d 244.
134
Caremark, 698 A.2d at 971; id. at 967 (observing that a claim for failed oversight is
“possibly the most difficult theory in corporation law upon which a plaintiff might hope to
win a judgment”).
27
their baseline duty.135 Though directors may strive to exceed this bar, they cannot
be held liable unless their conduct falls beneath it.
Ten years after Caremark, the Delaware Supreme Court confirmed the
stringent liability standard applicable to a claim for absent oversight. In Stone v.
Ritter, the court observed that this claim requires “a showing of bad faith conduct”
breaching a director’s duty of loyalty.136 It cautioned that a Caremark claim cannot
lie where a plaintiff, “[w]ith the benefit of hindsight . . . seeks to equate a bad
outcome with bad faith.”137 Directors may face liability only where a plaintiff shows
“that the directors knew that they were not discharging their fiduciary
obligations.”138
The court in Stone articulated “the necessary conditions predicate for director
oversight liability . . . .”139 These conditions have come to be called the two “prongs”
of Caremark.140 They arise when: “(a) the directors utterly failed to implement any
135
Marchand v. Barnhill, 212 A.3d 805, 821 (Del. 2019).
136
Stone v. Ritter, 911 A.2d 362, 369-70 (Del. 2006).
137
Id. at 373.
138
Id. at 370.
139
Id.
140
See Constr. Indus. Laborers Pension Fund ex rel. SolarWinds Corp. v. Bingle, 2022
WL 4102492, at *6 (Del. Ch. Sept. 6, 2022), aff’d, 297 A.3d 1083 (Del. 2023) (TABLE).
28
reporting or information system or controls; or (b) having implemented such a
system or controls, consciously failed to monitor or oversee its operations . . . .”141
In Massey, then-Vice Chancellor Strine was faced with an extreme version of
these scenarios.142 There, stockholders asserted that the director defendants had, in
agreeing to a merger, failed to secure sufficient value for derivative claims arising
from a massive coal mine explosion that killed 29 workers. The derivative claims
not only alleged that the company’s directors and officers failed to make a good faith
effort to ensure that mining safety laws were complied with. They also went further,
accusing the directors and officers of knowingly breaking applicable safety laws to
prioritize coal production and profits.143
But Massey did not create a separate claim untethered from those explored in
Caremark and Stone.144 All flow from the most basic obligation of directors and
officers: to ensure that, in seeking profit, a corporation conducts lawful business by
141
Stone, 911 A.2d at 370.
142
In re Massey Energy Co., 2011 WL 2176479 (Del. Ch. May 31, 2011).
143
Id. at *19.
144
See Lebanon Cnty. Emps. Ret. Fund v. Collis, 311 A.3d 773, 780 n.17 (Del. 2023)
(declining to recognize that Massey “established a freestanding claim independent of
Caremark”); see also McElrath v. Kalanick, 2019 WL 1430210, at *13 (Del. Ch. Apr. 1,
2019) (describing “Massey and similar progeny of Caremark”); Firefighters Pension Sys.
of Kansas City v. Found. Bldg. Materials, Inc., 318 A.3d 1105, 1182 (Del. Ch. 2024)
(describing Massey as a “sibling theory” of Caremark); City of Detroit Police and Fire Ret.
Sys. v. Hamrock, 2022 WL 2387653, at *17 (Del. Ch. June 30, 2022) (addressing a claim
styled as a Massey theory under the Caremark doctrine).
29
lawful means.145 Loyal fiduciaries must endeavor in good faith to maintain the
corporation’s fidelity to its material legal duties.146 If they intentionally fail to do
so, personal liability for breach of fiduciary duty may follow.
Although claims for breaching this oversight duty concern diverse fact
patterns, they are pleaded in three typical ways.
At the extreme end of the spectrum is a claim that directors and officers
purposely caused the corporation to break the law in pursuit of greater profits. The
145
See 8 Del. C. § 101(b) (“A corporation may be incorporated or organized under this
chapter to conduct or promote any lawful business or purposes . . . .”); id. § 102(a)(3) (“It
shall be sufficient to state . . . that the purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized . . . and by such statement all lawful
acts and activities shall be within the purposes of the corporation . . . .”); Massey, 2011 WL
2176479, at *20 (“Delaware law allows corporations to pursue diverse means to make a
profit, subject to a critical statutory floor, which is the requirement that Delaware
corporations only pursue ‘lawful business’ by ‘lawful acts.’”); Desimone v. Barrows, 924
A.2d 908, 934 (Del. Ch. 2007) (“Although directors have wide authority to take lawful
action on behalf of the corporation, they have no authority knowingly to cause the
corporation to become a rogue, exposing the corporation to penalties from criminal and
civil regulators.”); see also Leo E. Strine, Jr., Kirby M. Smith & Reilly S. Steel, Caremark
and ESG, Perfect Together: A Practical Approach to Implementing an Integrated, Efficient
and Effective Caremark and EESG Strategy, 106 Iowa L. Rev. 1885, 1893 (2021)
(describing “the first principle of corporate law: corporations may only conduct lawful
business by lawful means”).
146
E.g., Desimone, 924 A.2d at 934-35 (“The knowing use of illegal means to pursue profit
for the corporation is director misconduct.”); Metro Commc’n Corp. BVI v. Advanced
Mobilecomm Techs. Inc., 854 A.2d 121, 131 (Del. Ch. 2004) (“Under Delaware law, a
fiduciary may not choose to manage an entity in an illegal fashion, even if the fiduciary
believes that the illegal activity will result in profits for the entity.”); Massey, 2011 WL
2176479, at *20 (“[A] fiduciary cannot be loyal to a Delaware corporation by knowingly
causing it to seek profit by violating the law.”); In re Walt Disney Co. Deriv. Litig., 906
A.2d 27, 67 (Del. 2006) (explaining that where “[a] fiduciary acts with the intent to violate
positive law,” she violates the duty of loyalty) (citation omitted).
30
alleged flouting of mine safety laws to lower costs and raise earnings at the expense
of worker safety in Massey is one example. Other cases in this vein have addressed
allegations about illegal but profitable business practices that led to criminal
sanctions and employee or consumer deaths.147 These are meaningful—not trifling
or technical—violations of laws integral to the company’s operations.
The second scenario involves a claim that the board knowingly failed to
implement a system to monitor legal compliance. This obligation was recognized
in Caremark, where Chancellor Allen admonished directors to implement a
reasonable reporting system allowing information about significant risks to the
business to reach the board level. These are known as Caremark “prong one” claims,
based on the first necessary condition to oversight liability recognized in Stone.148
The Delaware Supreme Court’s decision in Marchand, where the directors of an ice
147
E.g., La. Mun. Police Emps.’ Ret. Sys. v. Pyott, 46 A.3d 313, 356 (Del. Ch. 2012)
(holding that the plaintiffs had pleaded a Caremark claim based on allegations that the
board approved an illegal business plan and the company “pled guilty to criminal
misdemeanor [and] . . . paid criminal fines of $375 million”), rev’d on other grounds, 74
A.3d 612 (Del. 2013); Ontario Provincial Council of Carpenters’ Pension Tr. Fund v.
Walton, 2023 WL 3093500, at *48 (Del. Ch. Apr. 26, 2023) (holding that directors faced a
substantial likelihood of liability where the board did not cause the company to change
business practices for the distribution of prescription opioids despite the threat of a criminal
indictment).
148
See Stone, 911 A.2d at 370; Firemen’s Ret. Sys. of St. Louis ex rel. Marriott Int’l, Inc.
v. Sorenson, 2021 WL 4593777, at *12 (Del. Ch. Oct. 5, 2021) (“For directors to face
liability under Caremark’s first prong, a plaintiff must show that the director made no good
faith effort to ensure the company had in place any system of controls.”) (citation omitted).
31
cream company allegedly made no effort to monitor compliance with essential food
safety laws, is an example.149
The third situation has shades of the other two. A board that adopts a reporting
system must monitor it and make a good-faith effort to address identified risks.150 A
conscious failure to do so may support a claim under “prong two” of Caremark—
the second necessary condition to oversight liability recognized in Stone.151 For
liability to attach, the risks identified and ignored cannot be business matters on
which deference to the directors’ decision-making is owed.152 They must be legal
violations so obvious and material that disregarding them amounts to bad faith.153
149
212 A.3d at 824 (“In Blue Bell’s case, food safety was essential and mission critical.
The complaint pled facts supporting a fair inference that no board-level system of
monitoring or reporting on food safety existed.”); see also In re Boeing Co. Deriv. Litig.,
2021 WL 4059934, at *26 (Del. Ch. Sept. 7, 2021) (holding that demand was excused
where the board allegedly failed to establish a reporting system for airplane safety risks).
150
See Stone, 911 A.2d at 373; Corbat, 2017 WL 6452240, at *17.
151
See Stone, 911 A.2d at 370.
152
See In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 125 (Del. Ch. 2009)
(remarking that lowering the bar for Caremark liability to include business risks would
“eviscerate the core protections of the business judgment rule—protections designed to
allow corporate managers and directors to pursue risky transactions without the specter of
being held personally liable if those decisions turn out poorly”); In re ProAssurance Corp.
S’holder Deriv. Litig., 2023 WL 6426294, at *14 (Del. Ch. Oct. 2, 2023) (discussing the
difference between legal and business risks under Caremark).
153
See, e.g., David B. Shaev Profit Sharing Acct. v. Armstrong, 2006 WL 391931, at *5
(Del. Ch. Feb. 13, 2006) (stating that allegations that a board “had notice of serious
misconduct and simply failed to investigate . . . would survive a motion to dismiss, even if
the committee or board was well constituted and was otherwise functioning”), aff’d, 911
A.2d 802 (Del. 2006) (TABLE).
32
Although categorizing these claims is helpful, it is incidental to the bottom-
line principles underpinning them. Each is rooted in the fundamental rule that
Delaware corporations operate lawfully. Each requires a showing that directors
utterly failed to oversee the corporation’s compliance with the material laws
constraining it. And for each, a sincere effort by directors to fulfill their oversight
duties removes the potential for personal liability.
2. The Plaintiffs’ Claim
With that framing, I consider where the plaintiffs’ claim falls along the
continuum of Caremark and its progeny.
The plaintiffs’ lead argument is that the Board “resisted the terms of the
Consent Order” by waiting to implement remedial efforts based on “knowingly
incorrect and unsupported” legal advice.154 In an effort to analogize to Massey, the
plaintiffs assert that the Board “allowed [TransUnion’s] pursuit of profits to take
precedence over its legal compliance.”155 At the same time, they contend that the
Board is liable under the second prong of Caremark for consciously disregarding
TransUnion’s non-compliance with the Consent Order.156 The latter argument
154
Pls.’ Answering Br. 30.
155
Id. at 39 (citing Compl. ¶¶ 37-44, 87-88, 93-94, 99-100).
156
Id. at 45.
33
stands in tension with the former, since the same conduct would reflect action and
inaction. It cannot logically be both.
One must wonder, then, why the plaintiffs make a full-throated pitch for the
most extreme iteration of a failed oversight claim—affirmative lawbreaking for
profit—over a missing check box, the use of “may not” versus “not likely,” and the
wrong font size. This is hardly Massey. Their reasoning seems to be the following.
The Complaint acknowledges that the Board took steps to comply with the Consent
Order, which undermines the plaintiffs’ Caremark prong two theory. There were,
however, some potential gaps between TransUnion’s compliance and the Consent
Order’s terms. The plaintiffs therefore insist that the Board’s knowledge of these
alleged flaws supports a reasonable inference that it encouraged TransUnion to
violate the Consent Order.
This view turns Caremark jurisprudence on its head. Delaware courts have
consistently held that imperfect attempts at compliance are not indicative of bad
faith.157 A weak “prong two” theory cannot morph into Massey-like purposeful
157
E.g., Horman v. Abney, 2017 WL 242571, at *11 (Del. Ch. Jan. 19, 2017); Sorenson,
2021 WL 4593777, at *16 (“[A]n attempted yet failed remediation effort generally cannot
implicate bad faith.”); Richardson v. Clark, 2020 WL 7861335, at *11 (Del. Ch. Dec. 13,
2020) (granting a motion to dismiss where the “[d]efendants acknowledge[d] that
[corporate] services were being used to launder money and commit fraud” and “[i]n
response, per the [p]laintiff’s own allegations, . . . took action”).
34
lawbreaking simply because the directors’ good faith efforts ultimately fell short of
positive law.
Regardless of the nomenclature applied, the claim presented is deficient. The
Complaint details the Board’s knowledge of the Consent Order and of TransUnion’s
efforts to comply with it, which erodes any reasonable inference of bad faith. The
plaintiffs’ second-guessing of the speed and thoroughness of TransUnion’s response
amounts to the sort of backward-looking critiques warned of in Stone.158
B. The Demand Futility Analysis
To survive the defendants’ Rule 23.1 motion, the plaintiffs must plead
particularized facts supporting a reasonable inference that a majority of the Board
acted in bad faith. “In this context, bad faith means ‘the directors were conscious of
the fact that they were not doing their jobs, and that they ignored red flags indicating
misconduct in defiance of their duties.’”159 No such facts are found in the Complaint.
The plaintiffs’ allegations fall into two main periods: before and after the May
2019 receipt of the PARR letter. In the first, the plaintiffs question TransUnion’s
delay in implementing the Compliance Plan. In the second, they criticize how
TransUnion interpreted the Consent Order. I consider each in turn.
158
Stone, 911 A.2d at 373 (“[T]he directors’ good faith exercise of oversight responsibility
may not invariably prevent employees from violating criminal laws, or from causing the
corporation to incur significant financial liability, or both.”).
159
Horman, 2017 WL 242571, at *10 (quoting Armstrong, 2006 WL 391931, at *5).
35
1. Pre-May 2019 Events
The Board knew that the Consent Order required TransUnion to make changes
to its VantageScore Disclosure and Negative Option usage.160 But according to the
plaintiffs, the Board “resisted” these obligations.161 Instead, it allegedly “hid[]
behind” outside counsel’s “knowingly incorrect and unsupported” interpretation of
the Consent Order and failed to correct TransUnion’s violations for over two
years.162
No reasonable inference of bad faith can arise from these facts. That is so for
at least two reasons.
First, the plaintiffs’ charge is belied by TransUnion’s immediate efforts to
comply with the Consent Order. Before the Consent Order’s effective date,
TransUnion removed the Negative Option from its website.163 In January 2017,
TransUnion made it easier for consumers to cancel orders or services through an
online cancellation feature.164 TransUnion promptly paid the requisite $3 million
civil penalty to the CFPB and deposited $13.9 million of redress funds into an
160
Compl. ¶¶ 5, 7, 70-74; see Consent Order ¶¶ 3(h), 40.
161
Pls.’ Answering Br. 30; see Compl. ¶¶ 9-13.
162
Pls.’ Answering Br. 30-31; see Compl. ¶¶ 16, 99, 116.
163
Response to PARR Letter ‘620.
164
Id. at ‘619.
36
account for affected consumers.165 It prepared and submitted a Redress Plan to the
CFPB, which was implemented after the CFPB issued a statement of non-objection
in November 2017.166 The Board and A&C Committee were kept apprised of these
steps throughout.167
The plaintiffs concede that TransUnion “actually began partially
implementing the Order almost immediately . . . .”168 They insist that further
remediation efforts were “stopped” because TransUnion “noticed that compliance
with the [Consent] Order was decreasing the company’s revenue.”169 But an
inadequate, delayed, or misguided response to red flags cannot support a claim for
breach of the duty of loyalty—no matter how it is categorized.170 The conduct
165
Defs.’ Ex. 4 (Feb. 9, 2017 A&C Committee deck) ‘304.
166
Defs.’ Ex. 12 at ‘562; Defs.’ Ex. 13 at ‘614; Defs.’ Ex. 14 at ‘571; Defs.’ Ex. 67
(TransUnion Redress Plan); Defs.’ Ex. 68 (Aug. 1, 2017 Letter from CFPB to TransUnion).
167
See, e.g., Defs.’ Ex. 4; Defs.’ Ex. 6 (Feb. 28, 2017 Board minutes); Defs.’ Ex. 7 (Apr.
24, 2017 A&C Committee deck); Defs.’ Ex. 15 at ‘543-44; Defs.’ Ex. 17 (July 24, 2017
A&C Committee deck) ‘420, ‘435; Defs.’ Ex. 20 (Oct. 23, 2017 A&C Committee deck)
‘482-83, ‘486; Defs.’ Ex. 21 (CEO Board Report – Q3 2017) ‘507.
168
Compl. ¶ 99(a).
169
Id.170
See Melbourne Mun. Firefighters’ Pension Tr. Fund v. Jacobs, 2016 WL 4076369, at
*9 (Del. Ch. Aug. 1, 2016) (“Simply alleging that a board incorrectly exercised its business
judgment and made a ‘wrong’ decision in response to red flags . . . is insufficient to plead
bad faith.”); see also Sorenson, 2021 WL 4593777, at *16 (dismissing a Caremark claim
where the directors were informed that remedial actions were taken to address known data
security issues though “the implementation plan was probably too slow”).
37
described in the Complaint is far from an “intentional dereliction of duty,”171 much
less “law-flouting.”172
Second, it cannot fairly be inferred that the Board relied on counsel in bad
faith. The outside counsel in question was a former a CFPB enforcement attorney.173
She advised TransUnion that it could wait to implement the Compliance Plan until
it received the CFPB’s statement of non-objection. The Consent Order states that
TransUnion was obligated to implement the steps listed in its Compliance Plan
“[a]fter receiving notification that the [CFPB] ha[d] made a determination of non-
objection.”174 This advice was relayed to the Board at least five times by Blenke,
TransUnion’s General Counsel.175
In May 2019, TransUnion learned through the PARR letter that the CFPB
disagreed with this interpretation of the Consent Order.176 But whether counsel’s
advice proved correct is beside the point. There are no particularized facts in the
Complaint supporting a reasonable inference that the Board’s reliance on the advice
171
Boeing, 2021 WL 4059934, at *25.
172
Massey, 2011 WL 2176479, at *20.
173
See Compl. ¶ 129; Defs.’ Ex. 19; Defs.’ Opening Br. 13.
174
Consent Order ¶ 43. The CFPB provided a statement of non-objection regarding the
Redress Plan. See supra 9-10.
175
E.g., Defs.’ Ex. 8 (Apr. 28, 2017 memorandum from J. Blenke to Board) ‘399; Defs.’
Ex. 11 at ‘514; Defs.’ Ex. 14 at ‘571; Defs.’ Ex. 18 at ‘454; Defs.’ Ex. 25 at ‘613.
176
Compl. ¶ 97.
38
suggests a breach of its duty of loyalty. Under 8 Del. C. § 141(e), directors are “fully
protected in relying in good faith” on professionals and experts “selected with
reasonable care . . . .”177
2. Post-May 2019 Events
Most of the plaintiffs’ allegations post-date TransUnion’s receipt of the PARR
letter.178 According to the Complaint, the PARR letter put the Board on notice of
ongoing Consent Order violations.179 The series of CIDs, NORA letters, and CFPB
investigations that followed allegedly underscored this continued non-
compliance.180 The plaintiffs assert that the Board nevertheless “purposely avoided
any effort to bring TransUnion into compliance . . . to maintain [certain] revenue
streams.”181 This conclusion lacks well-pleaded support.
177
8 Del C. § 141(e); see also Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1134, 1142
(Del. Ch. 1994) (explaining that directors are presumed to act in good faith when relying
on “the written or oral advice or opinions of any professionals and experts who are selected
with reasonable care and are reasonably believed to be acting within the scope of their
expertise” (citation omitted)), aff’d, 663 A.2d 1156 (Del. 1995); cf. In re Chemours Co.
Deriv. Litig., 2021 WL 5050285, at *20 (Del. Ch. Nov. 1, 2021).
178
See Compl. ¶ 13 (alleging that the CFPB did not inform TransUnion of supposed
violations of the Consent Order until May 2019).
179
Compl. ¶¶ 38, 100-01; see PARR Letter ‘615-16.
180
Compl. ¶ 116.
181
Pls.’ Answering Br. 40.
39
a. PARR Letter
The May 2019 PARR letter informed the Board of the CFPB’s preliminary
view that TransUnion was non-compliant with the Consent Order.182 It invited
TransUnion to “provide a response setting forth any reasons of fact, law, or policy
as to why the CFPB should not take action against TransUnion.”183
TransUnion did so two weeks later. It told the CFPB that despite never
receiving any feedback or non-objection to the Compliance Plan submitted in June
2017, it had made “significant efforts to comply with the conduct provisions of the
Consent Order.”184 TransUnion said that it was “committed to working with the
[CFPB] to demonstrate full compliance with the language and spirit of the Consent
Order.”185
The plaintiffs assert that two types of “gross violations” of the Consent
Order’s conduct provisions remained—one concerning the VantageScore Disclosure
and another concerning the Negative Option.186 They allege that despite learning
about TransUnion’s breaches of these provisions, the Board remained disobedient.187
182
Compl. ¶ 116 (outlining multiple alleged “red flags”).
183
PARR Letter ‘616.
184
Response to PARR Letter ‘618-19.
185
Id. at ‘620.
186
Pls.’ Answering Br. 34.
187
Id. at 40.
40
But the Complaint and documents it incorporates indicate that the Board oversaw
and understood that management was working to correct both the VantageScore
Disclosure and Negative Option.188
i. VantageScore Disclosure
The Consent Order required TransUnion to make two changes to its
VantageScore Disclosure. First, TransUnion agreed the disclosure would
“substantially state[]” that VantageScore was “not likely to be the same score used
by lenders or other commercial users for credit decisions.”189 Second, TransUnion
agreed to provide a “What You Need to Know” header above the disclosure in a font
double the rest of the text.190
The PARR letter expressed the CFPB’s view that these requirements were
unmet. One identified issue was TransUnion’s use of the phrase “may not” rather
188
E.g., Defs.’ Ex. 30 (Aug. 7, 2019 Board minutes) ‘862; e.g., Sorenson, 2021 WL
4593777, at *16 (dismissing a Caremark claim where “management told the Board that it
was addressing or would address the issues presented”); Pettry, 2021 WL 2644475, at *10
(holding that “our law does not demand board action in all instances; if action is taken by
the Company to remediate the alleged harm, that is a reflection of a lack of bad faith on the
part of the Board”), aff’d, 273 A.3d 750 (Del. 2022) (TABLE); In re Zimmer Biomet
Hldgs., Inc., Deriv. Litig., 2021 WL 3779155, at *22-23 (Del. Ch. Aug. 25, 2021) (crediting
management’s “multiple attempts to cure ongoing [regulatory] violations and regular
updates to the Board”), aff’d, 279 A.3d 356 (Del. 2022) (TABLE); Horman, 2017 WL
242571, at *13-14 (concluding that a plaintiff failed to plead bad faith where the board was
informed of management’s remediation efforts).
189
Consent Order ¶ 40(c)(ii)(1).
190
Id. ¶ 40(c)(iii).
41
than “not likely” to describe lenders’ potential use of VantageScore.191 In its
response to the PARR letter, TransUnion explained that its selection of “may not”
was “substantially consistent with the illustrative language in the Consent Order.”192
It expressed concern that the phrase “not likely” might inaccurately “suggest to
consumers that they should assign no weight to their VantageScore . . . .”193 The
other issue was the font size TransUnion chose for the “What You Need to Know”
header.194 TransUnion told the CFPB that the header was in a 19.63-point rather
than 24-point font to prevent the text from breaking across two lines, which would
be “more difficult for the consumer to read.”195
The plaintiffs believe that the Board’s knowledge of these issues shows
purposeful—or at least conscious ignorance of—lawbreaking. They analogize to
Pyott, where directors allegedly “continued to approve and oversee business plans
that depended on illegal activity” despite understanding that pharmaceutical drugs
191
PARR Letter ‘615-16.
192
Response to PARR Letter ‘619; see Consent Order ¶ 40(c)(ii) (requiring that the
VantageScore Disclosure “substantially state[]” the illustrative language).
193
Response to PARR Letter ‘619.
194
PARR Letter ‘616; see Consent Order ¶ 40(c)(iii).
195
Response to PARR Letter ‘623 (“This approach ensured that the label was sufficiently
large enough to be recognizable, easily readable, and able to capture the consumer’s
attention, relative to the disclosure itself, and is consistent with other labels on the order
flow.”).
42
were being promoted for off-label use.196 Those directors pleaded guilty to criminal
misdemeanors and paid $375 million in fines.197
Here, by contrast, the Board was informed about and oversaw improvements
to TransUnion’s business practices to comply with the Consent Order.198 These
affirmative steps toward and regular updates about compliance undercut any
inference that the Board acted in bad faith.199 Unlike the serious offenses in Pyott,
the remaining deficiencies raised in the PARR letter concern minor technical
disagreements over whether TransUnion’s changes went far enough. These same
issues remain contested in the Federal Action.200
ii. Negative Option
TransUnion also agreed in the Consent Order to implement two changes to
the order flow for credit monitoring products with Negative Option features. First,
196
Pyott, 46 A.3d at 356; see Pls.’ Answering Br. 44.
197
Pyott, 46 A.3d at 356.
198
E.g., Defs.’ Ex. 29 at ‘859.
199
See, e.g., Zimmer Biomet, 2021 WL 3779155, at *22-23 (holding that any inference of
bad faith was contradicted by allegations showing “multiple attempts to cure ongoing FDA
violations and regular updates to the Board”); Jacobs, 2016 WL 4076369, at *12; Pettry,
2021 WL 2644475, at *10; Horman, 2017 WL 242571, at *13-14.
200
See Fisher v. Sanborn, 2021 WL 1197577, at *16 (Del. Ch. Mar. 30, 2021) (concluding
that ongoing litigation about a “hotly disputed” alleged violation of federal consumer
protection laws did not support an inference that the board knowingly permitted violations
of those laws); Rojas v. Ellison, 2019 WL 3408812, at *14 (Del. Ch. July 29, 2019)
(rejecting the assertion that a board consciously disregarded its duties based on the
initiation of civil proceedings where the issues where “disputed vigorously”).
43
TransUnion would add “a check box on the final order page that consumers must
affirmatively check to select the Negative Option feature.”201 Second, TransUnion
would “provide a simple mechanism for a consumer to immediately cancel the
purchase of any” credit-related product and end billing for future payments.202
The plaintiffs acknowledge that TransUnion established the requisite
cancellation mechanism.203 They focus on the check box required to affirm
consent.204 But as TransUnion told the CFPB in response to the PARR letter, its
website lacked any Negative Option features after December 2016.205
The problem, according to the plaintiffs, is that in March 2017, Danaher
allegedly caused TransUnion to “cease using the check box in affiliate marketing”—
not TransUnion’s own website.206 The Consent Order contemplated that Negative
Option-related conduct provisions would apply to credit monitoring products
TransUnion “offered for sale directly to consumers.”207 TransUnion read this term
of the Consent Order to exclude affiliate marketing.208 The proper interpretation
201
Consent Order ¶ 40(b)(i)(1).
202
Id. ¶ 40(b)(ii).
203
See Defs.’ Ex. 36 at ‘994.
204
See Pls.’ Answering Br. 16-17, 21-22.
205
Response to PARR Letter ‘620.
206
Compl. ¶¶ 28, 88(j); see Pls.’ Answering Br. 41.
207
2017 Consent Order ¶ 3(f).
208
See Defs.’ Ex. 9 (TransUnion Offer Code Creation and Offer Code Review Policy).
44
remains at issue in the Federal Action. Even if the CFPB’s view were correct,
though, these facts reflect a genuine dispute over the Consent Order’s reach. They
do not support a reasonable inference that the Board acted disloyally.209
The sole new issue raised in the PARR letter was the use of a Negative Option
feature for a TransUnion product offered on annualcreditreport.com.210 But by the
time of the PARR letter, TransUnion resolved this issue. As it told the CFPB, it had
identified an “isolated case” where its credit products were being marketed on
annualcreditreport.com with Negative Option enrollments but no check box.211 This
issue was fixed “immediately upon discovery,” and “senior leadership” directed the
Steering Committee to identify any similar offerings.212 These proactive steps are
ignored in the Complaint.213
b. Enforcement Division Referral, CIDs, and NORA Letters
The plaintiffs describe the CFPB’s October 2019 referral of the matter to its
enforcement division as another red flag of non-compliance.214 They also point to
the Board’s awareness of three CIDs, three investigational hearings, and four NORA
209
See Fisher, 2021 WL 1197577, at *16; Corbat, 2017 WL 6452240, at *16.
210
PARR Letter ‘616.
211
PARR Letter Response ‘620.
212
Id.; see also Defs.’ Ex. 29 at ‘859; Defs.’ Ex. 36 at ‘992.
213
See, e.g., Desimone, 924 A.2d at 940; Sorenson, 2021 WL 4593777, at *16.
214
Compl. ¶¶ 102, 116.
45
letters.215 The plaintiffs argue that the Board defied the Consent Order despite these
developments putting it on notice of the CFPB’s concerns.216 Yet the Complaint and
the documents it incorporates highlight the Board’s oversight of TransUnion’s
compliance with the Consent Order.
First, after the CFPB referred the matter for enforcement, TransUnion formed
the Steering Committee to fulfill the conduct provisions of the Consent Order.217
The plaintiffs allege that the Steering Committee is irrelevant to demand futility
since it was not constituted by the Board.218 But the A&C Committee was apprised
of the Steering Committee’s work.219 After TransUnion established the ERM
Committee in May 2020, the Steering Committee reported to the ERM Committee
which, in turn, updated the A&C Committee.220
Second, TransUnion management consistently informed the Board of actions
taken after the CFPB’s enforcement division became involved.221 For instance,
management told the Board it replaced the outside counsel who had advised that the
215
See id. ¶ 116.
216
Pls.’ Answering Br. 16.
217
Compl. ¶ 118; Defs.’ Ex. 36 at ‘991.
218
See Compl. ¶¶ 119-20.
Defs.’ Ex. 64 at ‘920; Defs.’ Ex. 65 at ‘031; Defs.’ Ex. 71 (Oct. 28, 2021 A&C
219
Committee minutes) ‘901; Defs.’ Ex. 73 (Oct. 30, 2020 A&C Committee minutes) ‘129.
220
Revised Compliance Plan ‘724; Defs.’ Ex. 72 (Feb. 18, 2021 A&C Committee minutes)
‘269.
221
Defs.’ Ex. 31 at ‘897-98.
46
CFPB’s non-objection was a condition to implementing the Compliance Plan.222 It
also reported to the Board that it was “actively engaged” with the CFPB to resolve
the regulatory proceeding “expeditiously and without a public order.”223
The Board was regularly informed that TransUnion was working with the
CFPB in response to the CIDs, NORA letters, and other inquiries.224 For example,
in February 2020, the Board learned that TransUnion management was cooperating
with the CFPB during investigational hearings.225 The Board was also told that
TransUnion was fulfilling CID information requests.226 As to the NORA letters, the
A&C Committee was kept apprised of TransUnion’s planned responses. 227 A
Revised Compliance Plan was prepared and reviewed by the A&C Committee, with
the advice of outside counsel, before it was submitted to the CFPB.228
These facts cannot reasonably be viewed to suggest that the Board knew
TransUnion was purposefully breaking the law. Rather, they demonstrate that the
222
Id. at ‘898.
223
Defs.’ Ex. 69 (CEO Board Report – Q3 2019) ‘906-07.
224
See, e.g., Compl. ¶¶ 105, 116; Defs.’ Ex. 32 at ‘932; Defs.’ Ex. 33 at ‘967; Defs.’ Ex.
34 at ‘972; Defs.’ Ex. 35 at ‘979; Defs.’ Ex. 38 at ‘009; Defs.’ Ex. 39 at ‘034.
225
Defs.’ Ex. 34 at ‘972; see Compl. ¶¶ 105, 116.
226
Defs.’ Ex. 38 at ‘009; Defs.’ Ex. 39 at ‘034.
227
Defs.’ Ex. 57 at ‘616; Defs.’ Ex. 58 at ‘649; Defs.’ Ex. 60 at ‘721; see Compl. ¶ 114.
228
See Defs.’ Ex. 60; Defs.’ Ex. 61.
47
Board understood TransUnion had remediated or was working to resolve remaining
problems.229 That is a long way from doing “nothing.”230
c. The Federal Litigation
Finally, the plaintiffs assert that the filing of the Federal Action in November
2022 was “a red flag alerting [TransUnion] that it was failing to comply with the
Consent Order.”231 As the defendants point out, however, TransUnion disputes the
allegations in the Federal Action and has tried to reach an amicable resolution with
the CFPB. The Board maintained oversight; it reviewed and discussed each of the
CFPB’s settlement proposals.232 The plaintiffs’ only argument in response is to call
the defendants’ position “preposterous.”233
* * *
The tale spun by the plaintiffs is one of a protracted dispute between
TransUnion and the CFPB over the scope of the Consent Order. The CFPB
maintains that TransUnion ran afoul of the Consent Order by waiting for a statement
of non-objection, removing a Negative Option check box from affiliate marketing,
229
See, e.g., Sorenson, 2021 WL 4593777, at *16; Zimmer Biomet, 2021 WL 3779155, at
*22-23.
230
Horman, 2017 WL 242571, at *11; see Jacobs, 2016 WL 4076369, at *9, *12.
231
Pls.’ Answering Br. 52; see also id. at 21-22.
232
Defs.’ Ex. 63 at ‘825; Defs.’ Ex. 64 at ‘910; Defs.’ Ex. 65 at ‘033; Defs.’ Ex. 66 at ‘275.
233
Pls.’ Answering Br. 52.
48
and using the wrong language and font size for its VantageScore Disclosure.
TransUnion, for its part, believes that it satisfied the Consent Order.
For purposes of this motion, I accept as true that TransUnion should ideally
have implemented the Compliance Plan sooner. I also accept that the Board knew
about the CFPB’s views on what the Consent Order required and the escalating
actions taken by the CFPB to compel compliance. It may also be that TransUnion
profited from the challenged VantageScore Disclosures and Negative Option
features.
Still, the Board does not face a substantial likelihood of liability. The
Complaint and documents it incorporates evidence that the Board attempted to fulfill
its oversight function in good faith. Information about potential compliance
problems made its way to the Board through counsel, management, and committee-
level reports. These updates outlined the steps taken by TransUnion to satisfy the
Consent Order and resolve lingering disputes with the CFPB over remediation.234
The remaining issues complained of are quibbles about whether TransUnion’s
compliance efforts went far enough fast enough. They boil down to check box
placement on affiliate websites, whether the phrase “may not” is similar to “not
likely,” and whether 19.63-point font should have been 24 point. These are matters
234
See GoPro, 2020 WL 2036602, at *12-13 (“A Caremark claim cannot be squared with
an allegation the Board responded to red flags.”).
49
over which reasonable minds can differ.235 Regardless of which side prevails in the
Federal Action, the plaintiffs’ allegations fall materially short of suggesting bad
faith. “[T]here is a vast difference between an inadequate or flawed effort to carry
out fiduciary duties and a conscious disregard for those duties.”236 There is an even
wider gulph between imperfect compliance and purposeful lawbreaking.
III. CONCLUSION
The plaintiffs have failed to plead particularized allegations demonstrating
that a majority of the Board could not impartially consider a demand. The
defendants’ motion to dismiss is granted under Rule 23.1. The Complaint is
dismissed with prejudice.
235
Reiter v. Fairbank, 2016 WL 6081823, at *14 (Del. Ch. Oct. 18, 2016).
236
Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009); see Corbat, 2017 WL
6452240, at *17 (explaining that the relevant question is whether the board “took no steps
in a good faith effort to prevent or remedy [the] situation”); Clem v. Skinner, 2024 WL
668523, at *8 (Del. Ch. Feb. 19, 2024) (“Claims that quibble with the timing or success of
corrective action necessarily fail.”).
50