Tag: Sufficiency of Pleadings

IN REJECTING DEFENDANTS’ MOTION FOR DISMISSAL, CHANCERY COURT FINDS THAT INDIVIDUAL FIDUCIARY MAY BE HELD LIABLE FOR TRADES THAT AN ASSOCIATED ENTITY OR FUND MAKES

By: Scott E. Waxman and Adrienne Wimberly

In the consolidated stockholder derivative litigation, In re Fitbit, Inc., CA No. 2017-0402-JRS (Del. Ch. Dec. 14, 2018), the Delaware Court of Chancery denied the Defendants’ motion to dismiss Plaintiffs’ insider trading and breach of fiduciary duty claims. The claims stem from alleged insider knowledge of members of Fitbit’s Board of Directors (the Board) and chief financial officer that Fitbit’s PurePulse™ technology was not as accurate as the company claimed. Plaintiffs alleged that members of the Board structured the company’s Initial Public Offering (IPO) and Secondary Offering (together, “the Offerings”) to benefit Fitbit insiders and voted to waive employee lock-up agreements, thereby allowing those insiders, to prematurely sell stock in the Secondary Offering. As a result of their sales, the alleged insiders sold about 6.2 million shares for over $115 million in the IPO and about 9.62 million shares for over $270 million in the Secondary Offering.

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Chancery Court Tosses Complaint For Lacking Foundational Facts Available To Plaintiffs-Stockholders Under Delaware General Corporation Law § 220

By Annette Becker and Max E. Kaplan

In Thermopylae Capital Partners, L.P. v. Simbol, Inc. C.A. No. 10619-VGC (Jan. 29, 2016), Vice Chancellor Glasscock granted defendants’ motion to dismiss, with prejudice.  After attempting to unravel the allegations in plaintiffs’ pleadings as to a dilution claim, the Court of Chancery held that the complaint’s omission of pertinent facts tested the limits of “reasonable conceivability” by requiring the Court to speculate as the fundamental facts necessary for plaintiffs to prevail—facts available to plaintiffs under Delaware General Corporation Law § 220.

Plaintiffs—stockholders and former management of defendant Simbol, Inc. (“Simbol”)—claimed that Simbol’s board of directors, executives, and certain defendants-stockholders diluted plaintiffs’ shares in the corporation as part of an elaborate “scheme” to usurp corporate control for the benefit of defendants-stockholders Mohr Davidow Ventures (“MDV”) and Itochu Corporation (“Itochu”).  By so doing, defendants purportedly breached their fiduciary duties to minority stockholders, causing them direct harm.

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