Patrick Ayers v. William P. Foley

Summary

The Delaware Court of Chancery considers defendants’ motion to dismiss a stockholder derivative action challenging a founder’s one-time equity grant and compensation awarded to directors. The court holds that demand is not excused regarding the founder’s equity grant, but allows claims concerning director compensation to proceed in part under the entire fairness standard. The motion to dismiss is granted in part and denied in part.

Holdings

1. The 2024 director compensation and Foley's equity grant were distinct transactions and must be analyzed separately because they had different purposes, approval processes, and timing.
2. Demand was not excused as to the equity-grant claims because the plaintiff failed to plead that at least six of the eleven directors were interested, lacked independence, or faced a substantial likelihood of non-exculpated liability.
3. Section 144(d)(2)'s heightened presumption of director disinterestedness applies broadly, including when assessing demand futility under Rule 23.1, and requires substantial and particularized facts showing a material interest or material relationship.
4. The complaint did not plead a substantial likelihood of liability because it did not allege particularized facts supporting bad faith, gross negligence, nondisclosure of material facts, or other non-exculpated misconduct.
5. The claim survived against Compensation Committee members who approved the challenged compensation but was dismissed against directors who merely received the compensation without participating in its approval or knowingly accepting a wrongful award.
6. The unjust-enrichment claim survived against all directors who retained the challenged compensation, including passive recipients, although the related breach-of-fiduciary-duty claim was dismissed against some of them.

Questions Presented

1. Whether demand was excused under Court of Chancery Rule 23.1 for claims challenging Foley's $50 million equity grant.
2. Whether separate approval of the 2024 director compensation and Foley's equity grant should be treated as a single transaction for demand-futility purposes.
3. Whether 8 Del. C. § 144(d)(2) creates a heightened presumption of disinterestedness applicable to demand-futility analysis.
4. Whether the complaint pleaded a substantial likelihood of director liability despite 8 Del. C. § 144(a)(1) and FNF's 8 Del. C. § 102(b)(7) exculpatory provision.
5. Whether the complaint stated breach-of-fiduciary-duty and unjust-enrichment claims concerning 2022, 2023, and 2024 director compensation.

Disposition

other