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Keywords

plaintiffdefendantequitypleamotionfiduciaryfiduciary dutybreach of fiduciary dutymotion to dismiss
plaintiffdefendantfiduciaryfiduciary dutybreach of fiduciary duty

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Zimmerman v. Braddock, Not Reported in A.2d, 2005 WL 2266566

Facts

Plaintiff Mark Zimmerman brought a derivative action against the Selling Defendants, who were directors of priceline.com, Inc., alleging insider trading and misappropriation of confidential information. The court previously dismissed the Amended Complaint for failure to plead demand futility and insufficient particularized facts. The Plaintiff sought to amend the complaint to address these deficiencies, focusing on the relationships among the directors and the entities associated with Priceline, while continuing to assert a claim for breach of fiduciary duty related to insider trading.

The Plaintiff brings forth a claim against the Selling Defendants for breach of fiduciary duty for insider trading and misappropriation of the Company's confidential information.

Issue

Whether the amendment of the Amended Derivative Complaint would be futile due to failure to state a claim and failure to assert well-pled allegations showing that demand upon the Priceline Board would have been futile.

The only issue that remains for the Court to decide is whether amendment of the Amended Derivative Complaint (the “Amended Complaint”) would be futile because (1) the Plaintiff's claim against the Selling Defendants in the Second Amended Complaint for breach of their fiduciary duties by engaging in insider trading and misappropriating confidential information fails to state a claim as a matter of law, and (2) the Plaintiff's Second Amended Complaint fails to assert well-pled allegations to show that demand upon the Priceline Board would have been futile.

Rule

Under Court of Chancery Rule 23.1, a derivative complaint must allege with particularity the efforts made by the plaintiff to obtain the desired action from the directors and the reasons for the plaintiff's failure to obtain the action or for not making the effort. The court evaluates demand futility based on whether a majority of the board was disinterested and independent at the time the initial complaint was filed.

Under Court of Chancery Rule 23.1, a derivative complaint must allege with particularity the efforts made by the plaintiff to obtain the desired action from the directors and the reasons for the plaintiff's failure to obtain the action or for not making the effort.

Analysis

The court analyzed the allegations in the Second Amended Complaint and found that the Plaintiff had adequately alleged that the Selling Defendants were interested for purposes of demand futility analysis. The court noted that the Selling Defendants collectively held a significant equity position in Priceline and had the potential to control the board's decision-making. The court also assessed the independence of other directors and concluded that several were either interested or not independent, thus establishing that demand upon the board would have been futile.

The court analyzed the allegations in the Second Amended Complaint and found that the Plaintiff had adequately alleged that the Selling Defendants were interested for purposes of demand futility analysis.

Conclusion

The court allowed the Plaintiff to file the Second Amended Complaint to assert the fiduciary duty claim against the Selling Defendants, concluding that the allegations of insider trading were sufficient to survive a motion to dismiss.

Therefore, demand futility with regard to Counts II-IV was to be assessed at the time the Second Amended Complaint was filed and not as of the time of the initial complaint.

Who won?

Plaintiff Mark Zimmerman prevailed in part by being allowed to file the Second Amended Complaint, as the court found that the allegations of insider trading and demand futility were sufficiently pled.

The court allowed the Plaintiff to file his Second Amended Complaint to assert this fiduciary duty claim.

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