IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE CARVANA CO.

STOCKHOLDERS LITIGATION

)

)

CONSOLIDATED

C.A. No. 2020-0415-KSJM

MEMORANDUM OPINION

Submitted: December 18, 2023

Decided: March 27, 2024

Christine M. Mackintosh, Rebecca A. Musarra, GRANT & EISENHOFER, P.A.,

Wilmington, Delaware; Kimberly A. Evans, Robert Erikson, Irene R. Lax, BLOCK & 

LEVITON LLP, Wilmington, Delaware; Jason M. Leviton, Amanda R. Crawford, 

BLOCK & LEVITON LLP, Boston, Massachusetts; Ned Weinberger, Mark 

Richardson, Jiahui (Rose) Wang, LABATON KELLER SUCHAROW LLP,

Wilmington, Delaware; Domenico Minerva, John Vielandi, LABATON KELLER 

SUCHAROW LLP, New York, New York; Counsel for Plaintiffs Anthony Franchi, 

Construction Industry and Laborers Joint Pension Trust for Southern Nevada, St. 

Paul Electrical Construction Pension Plan, St. Paul Electrical Construction Workers

Supplemental Pension Plan (2014 Restatement), and Retirement Medical Funding

Plan for the St. Paul Electrical Workers.

Joseph R. Slights III, Brad D. Sorrels, Shannon E. German, Leah E. León, WILSON 

SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Counsel for the 

Special Litigation Committee of the Board of Directors of Carvana Co. 

David E. Ross, Adam D. Gold, R. Garrett Rice, ROSS ARONSTAM & MORITZ LLP,

Wilmington, Delaware; Brian M. Lutz, GIBSON, DUNN & CRUTCHER LLP, San 

Francisco, California; Colin B. Davis, Katie Beaudin, GIBSON, DUNN & 

CRUTCHER LLP, Irvine, California; Counsel for Nominal Defendant Carvana Co.

John L. Reed, Ronald N. Brown, III, Peter H. Kyle, Kelly L. Freund, DLA PIPER LLP

(US), Wilmington, Delaware; Counsel for Defendants Ernest Garcia III and Ernest

Garcia II.

McCORMICK, C.
This case arises from a direct offering made by Carvana Co. (“Carvana” or the 

“Company”) in late March 2020. Controlling stockholders Ernest Garcia II and 

Ernest Garcia III (the “Garcias”) participated in the direct offering. Later in 2020, 

Garcia II sold over $1 billion of his Carvana shares. The plaintiff-stockholders assert 

derivative claims against the Garcias for breach of fiduciary duty, alleging that the 

Garcias enriched themselves through the offering by acquiring shares at a depressed 

price.

After the court denied the defendants’ motions to dismiss, the Company formed

a two-person special litigation committee (the “SLC”). The SLC conducted a sevenmonth investigation, reviewing over 100,000 documents and interviewing many 

witnesses with assistance from advisors. The SLC concluded, in a 170-page report,

that no wrongdoing occurred and that terminating the action was in Carvana’s best 

interest. The SLC then moved to dismiss the lawsuit.

This court evaluates a special litigation committee’s motion to dismiss under 

Zapata Corporation v. Maldonado.

1 Under Zapata, a special litigation committee has 

the burden to show its independence and that it undertook, in good faith, an

investigation of reasonable scope that yielded reasonable bases supporting its 

conclusions. The court then applies its own business judgment to determine whether 

dismissal is in the best interests of the corporation. This decision finds that the SLC

has met its burden under Zapata and grants the motion to dismiss.

1 430 A.2d 779 (Del. 1981).
2

I. FACTUAL BACKGROUND

The court draws the facts from the record submitted by the SLC and the 

plaintiffs (“Plaintiffs”), which includes the SLC report (the “SLC Report”), the 115 

exhibits attached to the SLC Report, and the transcripts of the depositions of the two 

SLC members and a representative of its financial advisor, Houlihan Lokey, Inc.

2

A. Carvana 

Carvana is a Delaware corporation that sells used cars. “[F]amous for its 

multistory car vending machines,” Carvana runs an e-commerce platform, Carvana 

Group LLC, that facilitates the sale of cars across the United States.3 Carvana also 

offers financing services and connects buyers with insurance providers.4 Carvana is 

the senior corporate entity in the “Up-C” structure between Carvana and Carvana 

Group LLC.5

Garcia II and Garcia III are Carvana’s controlling stockholders.6 Garcia III cofounded the company in 2012 and is its CEO, President, and Board Chairman.7 

Carvana went public through an IPO in 2017.8

2 See C.A. No. 2020-0415-KSJM, Docket (“Dkt.”) 122, Ex. A (“SLC Report”); Dkt. 132, 

Ex. A (“Maroone Dep. Tr.”); Dkt. 132, Ex. B (“Parikh Dep. Tr.”); Dkt. 132, Ex. C 

(“Taylor Dep. Tr.”). 

3 SLC Report at 38. 

4 Id. 

5 Id. at 40. 

6 Id. at 1.

7 Id. at 29. 

8 Id. 
3

Carvana experienced growth until the COVID-19 pandemic (the “Pandemic”).9

In response to the Pandemic, Carvana began cutting costs and laying off employees.10

Its stock price suffered.11 The Company also “beg[an] to consider potential capitalraising opportunities.”12

B. The Direct Offering

On March 15, 2020, representatives of Greenoaks Capital Partners, LLC 

(“Greenoaks”), a potential new investor, reached out to Garcia III to discuss acquiring

$300 to $500 million of Carvana preferred stock.

13 The Company engaged in 

conversations with Greenoaks and existing investors.14 Mike Levin (the Company’s 

investor relations lead) contacted “many of Carvana’s largest investors” at the time.15 

Lone Pine Capital LLC also expressed interest in an equity raise.16 The Company 

had $300 million of debt capacity, so it also considered debt financing.

17 “Citi and 

9 Id. at 43–47. 

10 Id. at 55–56. 

11 Id. at 5. Carvana’s stock price “dropp[ed] more than 20% from an opening price of 

$83.37 on the morning of Monday, March 2, to a closing price of $66.02 on the 

afternoon of Friday, March 6.” Id. 

12 Id. at 53.

13 Id. at 56–57. 

14 Id. at 56–58.

15 Id. at 57.

16 Id. at 60.

17 Id. at 58.
4

Goldman pitched potential structured financing deals[,]” to which the Company did 

not respond.18 

As the Company explored financing options, Carvana’s operational 

performance worsened, and its access to capital contracted.

19 The Company’s stock 

closed at $29.35 on March 20, 2020—40% down from the week prior.20

On March 24, 2020, the Carvana Board of Directors (the “Board”) met to 

discuss a potential deal with Greenoaks. The proposed deal, at that point, consisted 

of a convertible preferred stock transaction priced between $45 and $50 per share, 

with a coupon of 8.5% to 9%.21 After the meeting, Garcia III told Greenoaks that he 

hoped to “[g]et terms finalized ASAP (tonight).”

22 

The Board met again on March 25 to discuss the Greenoaks deal and potential 

alternatives,

23 such as an underwritten public offering or a pro-rata public offering to 

existing stockholders.24 The Board determined that neither alternative was a viable

option given time constraints.25 The Board also discussed a stock offering to its

largest stockholders.26

18 Id. at 60.

19 Id. at 60–63.

20 Id. at 63.

21 Id. at 67. 

22 Id. at 67–68.

23 Id. at 69.

24 Id.

25 Id.

26 Id. at 70.
5

Although negotiations with Greenoaks progressed, the Board harbored 

concerns that the deal would not close fast enough, and so the Board shifted its focus 

to a direct offering (the “Direct Offering”). On March 26, Mark Jenkins (Carvana’s 

CFO) presented the Board with a list of 24 investors that management identified as 

targets for the Direct Offering.

27 After the meeting, management engaged in 

conversations with the targeted investors.28 

Multiple investors entered NDAs and expressed interest in the deal.29 Given 

this interest, the Board convened and “authorized management to sell up to $600 

million in common stock with the stock priced between $35 to $55 per share[.]”

30 It 

also “agreed that the Garcias would participate in the deal, likely contributing $50 

million but in any event limiting their contribution to $75 million at most.”

31

Management then engaged in price negotiations with the targeted investors. 

T. Rowe Price Group, Inc. became the anchor investor32 and heavily influenced the 

price of the Direct Offering.33 Initially, Carvana sought $50 per share relative to the 

$56.55 trading price at the close of market on Thursday, March 26, but T. Rowe Price 

27 Id. at 76.

28 Id. at 79.

29 Id. at 79–80.

30 Id. at 80. 

31 Id. at 81.

32 Id. at 80–83.

33 Id. at 83.
6

offered $43.50, with an explicit goal of not exceeding $45 per share.34 Garcia III 

pushed for $46 per share, but T. Rowe Price held firm.

35 

T. Rowe Price confirmed later that day, on March 26, that it would agree to a 

price of $45 per share.36 Tiger Global Management, LLC also agreed to participate 

in the deal at $45 per share.37 At the time, Tiger Global thought that the Direct 

Offering—which would raise, by their estimate, at least $700 million—would allow 

Carvana to survive the Pandemic and beyond.38

On Friday, March 27, a subset of the Carvana directors met with 

management.39 Management informed them that the investors had agreed to 

contribute to a capital raise that totaled $800 to $900 million at a price of $45 per 

share.40 They decided, however, to limit the Direct Offering to $600 million at $45 

per share,41 which represented “an 8.2% discount to the stock’s unaffected trading 

price.”

42 The Garcias agreed to contribute $50 million. 

34 Id.

35 Id.

36 Id. at 83–84.

37 Id. at 84. 

38 Id. at 84–85.

39 Id. at 85. 

40 Id.

41 Id.

42 Id. at 1.
7

Carvana announced the Direct Offering on March 30, 2020.43 It was 

oversubscribed. The Garcias’ allocation remained at $50 million, despite the 

oversubscription, because “management had committed to investors that the Garcias 

would contribute $50 million.”44 Carvana’s CFO attributed this to “the Company 

[wanting] to avoid backing away from this commitment for fear that it would be 

viewed as a re-trade.”45 The market responded positively to the announcement.46 

Carvana’s stock price closed at $52.38 on March 30.47 

The Company then “complete[d] a public offering of Class A Common Stock at 

a price of more than $92 per share, for a total of almost $500 million” on May 18, 

2020.48 The price of Carvana stock climbed during the ensuing months.49 Carvana’s 

efforts yielded approximately $1 billion in total liquidity.50 By the end of 2020, 

Carvana’s stock price closed at $239.54.51

Section 16(b) of the Securities Exchange Act restricted the Garcias from 

realizing profits from their shares purchased through the Direct Offering until 

43 Id. at 89.

44 Id. at 88. 

45 Id.

46 Id. at 89.

47 Id.

48 Id. at 5.

49 Id. at 92.

50 Id. at 91. 

51 Id. at 93. 
8

September 30, 2020.52 Garcia II entered a Rule 10b5-1 Trading Plan on June 15, 

2020.53 “Between October 30, 2020, and December 31, 2020, Garcia II sold 5,567,979 

shares of Class A Common Stock for a total of $1,239,333,468.02.”

54 Garcia III did 

not sell any stock during this period.

55

C. The Motions To Dismiss

Between May 28 and December 3, 2020, three Carvana stockholders filed 

separate complaints in this court. The court consolidated the actions, and Plaintiffs 

filed a consolidated complaint (the “Complaint”) on August 20, 2021.56 

Plaintiffs alleged that the Garcias breached their fiduciary duties by forcing

the Direct Offering at an artificially low price. Plaintiffs also alleged that the Direct 

Offering was not needed in the wake of the Pandemic because Carvana’s “business 

model [was] almost tailor-made to profit from social distancing,” Carvana was on 

“firm financial footing,” and the Company had no urgent need to raise capital.57 

Plaintiffs theorized that the Garcias pushed the Direct Offering through quickly at 

an unfair price and by means of an unfair process.58 Plaintiffs initially asserted both 

direct (Count I) and derivative (Count II) claims challenging this conduct, but they 

52 Id.

53 Id.

54 Id.

55 Id. at 93–94.

56 Dkt. 66. 

57 Id. ¶ 6. 

58 Id. ¶¶ 5–6, 111–13, 115–16, 135, 137, 140, 142, 152, 154, 156, 158, 176.
9

voluntarily dismissed Count I based on the Delaware Supreme Court’s decision in 

Brookfield Asset Management, Inc. v. Rosson.

59

The Garcias and Carvana moved to dismiss the Complaint on October 15, 2021, 

under Court of Chancery Rules 23.1, 12(b)(6), and 12(b)(2).60 The court denied the 

motions in two separate decisions.

61 The court concluded that demand was excused 

because Plaintiffs adequately alleged that three of the six Carvana directors were 

either interested in the transaction or lacked independence from the Garcias.

62 The 

court also concluded that Plaintiffs had stated a claim and that the court had personal 

jurisdiction over Garcia II.

63 Garcia II filed an interlocutory appeal of the court’s 

denial of his motion to dismiss for lack of personal jurisdiction.64 The court denied 

Garcia II’s application to certify interlocutory appeal on October 3, 2022, and the 

Delaware Supreme Court refused the appeal on October 19, 2022.65

59 261 A.3d 1251 (Del. 2021); see also Dkt. 71.

60 Dkt. 72, Nominal Def. Carvana’s Mot. to Dismiss (“Carvana’s Mot. to Dismiss”); 

Dkt. 74, Defs. Ernest Garcia III and Ernest Garcia II’s Mot. to Dismiss (“Garcia Defs.’ 

Mot. to Dismiss”).

61 In re Carvana Co. S’holders Litig., 2022 WL 2352457 (Del. Ch. June 30, 2022) 

(“Carvana I”); In re Carvana Co. S’holders Litig., 2022 WL 3923826 (Del. Ch. Aug. 

31, 2022) (“Carvana II”).

62 Carvana I at *6–16.

63 Id. at *16–18; Carvana II at *2–7.

64 Dkt. 102.

65 Dkt. 109, Oct. 3, 2022, Order Refusing Certification of Interlocutory Appeal; Garcia 

v. Franchi, No. 362, 2022 (Del. Oct. 19, 2022) (ORDER).
10

D. The Special Litigation Committee Investigation

On August 15, 2022, the Company formed the SLC66 and tasked it with 

investigating the claims made in the Complaint.67 The Board appointed directors 

Michael Maroone and Neha Parikh to the SLC.68 

1. The SLC Members

Maroone, who holds a Bachelor of Science degree in small business 

management from the University of Colorado Boulder,69 has substantial experience 

in the automotive industry.70 Maroone was the CEO and President of Mike Maroone 

Automotive Group.71 He then served on the board of directors, as President, and as 

Chief Operating Officer at AutoNation, Inc.72 Maroone also has experience serving 

on other boards.73 He joined the Board in April 2017.74 Prior to joining the Board, 

Maroone did not know any of the other directors or have a personal relationship with 

the Garcias.75 Maroone served on the Board when it approved the Direct Offering.76

66 SLC Report at 19.

67 Id. at 6, 19. 

68 Id. at 6, 19. 

69 Id. at 23.

70 Id. at 22.

71 Id.

72 Id.

73 Id. at 23.

74 Id.

75 Id.

76 Id. at 24.
11

Parikh, who holds a Master of Business Administration degree from the 

Kellogg School of Management at Northwestern University, has served in various 

executive capacities.77 When the investigation was underway, she served as the CEO 

of Waze Mobile Ltd., “a company that maintains a community-driven navigation 

application that helps users solve transportation-related challenges.”

78 From 2017 to 

2019, Parikh was the President of Hotwire, Inc.

79 Parikh also has experience working 

in high-level positions in the Expedia Group, Inc.

80 She joined the Board in April 

2019 and served on the audit committee and compensation and nominating 

committee.

81 Prior to joining the Board, Parikh did not know any of the other 

directors or have a relationship with the Garcias.82 Parikh served on the Board when 

it approved the Direct Offering.83

2. The SLC Investigation 

On September 27, 2022, the SLC asked the court to stay the action for six 

months to allow it to investigate the allegations in the Complaint.84 On October 3, 

77 Id. at 21.

78 Id.

79 Id.

80 Id.

81 Id. at 22.

82 Id.

83 Id. at 24.

84 SLC Report at 20; Dkt. 106. 
12

2022, the court stayed the action until April 3, 2023.85 The court then granted a brief 

extension until May 5, 2023.86 The investigation lasted a total of seven months.

87

The SLC hired a legal and a financial advisor. Carvana management provided 

the SLC with two recommendations for independent counsel to assist its 

investigation, and the SLC selected Wilson Sonsini as its counsel.88 The SLC selected 

Houlihan Lokey as its financial advisor.89

The SLC and Wilson Sonsini “met with co-lead counsel for co-lead Plaintiffs 

via Zoom to hear Plaintiffs’ perspectives and theories of the case.”

90 

Wilson Sonsini and counsel for Plaintiffs negotiated and set the parameters for 

the SLC’s document collection.91 The negotiations resulted in a collection of “emails, 

text messages, electronically-stored documents, Slack messages, and notes.”

92 Wilson 

Sonsini collected and reviewed over 100,000 pages of documents.

93

Wilson Sonsini reviewed 18,000 documents collected from eighteen custodians.94 

The remaining documents included public filings, news articles, pleadings, and 

85 SLC Report at 20; Dkt. 110. 

86 SLC Report at 20; Dkt. 120. 

87 SLC Report at 6–7.

88 Id. at 20.

89 Id. at 28.

90 Id. at 25.

91 Id. at 26–27.

92 Id. at 26.

93 Id. at 7.

94 Id. at 26.
13

documents collected in response to stockholder demands to inspect books and 

records.

95

Wilson Sonsini interviewed sixteen witnesses. Among the interviewees were 

“the Garcias, all Board members, members of Carvana management involved in the 

Offering, the Company’s in-house and outside counsel, and other third parties such 

as potential and actual investors in the Company[.]”96

Houlihan Lokey analyzed the Direct Offering, assessing its price, Carvana’s

financing needs at the time, potential alternatives, and the economic impact of the 

Direct Offering on the Garcias’ interests.97

3. The SLC Findings

The SLC investigation resulted in a 170-page report, which concluded “that 

the costs associated with continuing to pursue the Action or any other claims in 

connection with the Direct Offering outweigh any benefits[,]” noted that the “claims 

against the Garcias for alleged breaches of fiduciary duty lack merit (whether 

assessed under the business judgment rule or the entire fairness standard),” and did 

not “identify any other potential claims that would be likely to succeed.”98 The SLC

reached this conclusion in light of the litigation costs to the Company, stating that 

“[t]he prospects of a monetary recovery against the Garcias and/or Carvana’s other 

fiduciaries for any potential claims in connection with the Direct Offering are low and 

95 Id. at 26–27.

96 Id. at 27–28.

97 Id. at 28. 

98 Id. at 169. 
14

are more than offset by the costs associated with continued litigation. Likewise, 

pursuing a settlement is not likely to result in a material benefit to the Company.”99

As to the remaining count of the Complaint for breach of fiduciary duty against 

the Garcias, the SLC concluded that “the Garcias likely would be able to present a 

strong argument that they were incentivized not to cause the Direct Offering to occur 

unless it was truly necessary and/or beneficial to the Company and that they were 

incentivized to maximize the price of the Direct Offering.”100 Among other things, the 

SLC determined that the “net impact” of the Garcias’ dilution and subsequent stock 

purchase was “materially harmful” to their “aggregate economic interest in 

Carvana.”101 

The SLC Report asserted reasons why the business judgment standard might 

apply in the final analysis but also concluded that the claim would pass entire 

fairness scrutiny. 

On process, the SLC concluded that there was no evidence of opportunistic 

timing,102 an unengaged, controlled board in the process,103 and “the investigatory 

record [did] not support that Garcia III’s role in [] negotiations led to the terms of the 

Direct Offering being any less favorable to Carvana.”104 Concerning Carvana’s use of 

99 Id. at 169–70.

100 Id. at 108. 

101 Id. at 109. 

102 Id. at 116.

103 Id. at 117–20.

104 Id. at 123.
15

outside advisors, the SLC concluded that “the investigatory record reflects that 

[Carvana’s advisors] well understood Carvana’s capital needs, was advising the 

Company on its options, and was fully informed on the state of play when negotiations 

of the Direct Offering ensued.”105 Although the SLC recognized that the Board could 

have “done more to manage [Garcia III’s] arguable conflicts[,] . . . appointed a special

committee of independent directors to evaluate alternatives and negotiate with 

potential counterparties[,]” or slowed down the process, “none of those protective 

measures would have been consistent with the uniquely challenging dynamics facing 

the Board at the time.”106 Also, the SLC noted that running a “textbook” process 

would have cost the Company significantly more time and opportunity to complete 

its capital raise.107 In sum, the SLC concluded that “the [c]ourt likely would find [that] 

the process leading to the Direct Offering was fair.”108

On price, the SLC relied on Houlihan Lokey’s analysis of the implied values, 

and that analysis showed that the implied value of Carvana stock “varied widely 

depending on which scenario one assumed and whether greater weight was placed on 

the revenue multiple or the gross profit multiple.”109 Given this variation, the $45 

price fell within the range of fairness.110 The SLC also considered data points, 

105 Id. at 123–24.

106 Id. at 125–26.

107 Id. at 126. 

108 Id. at 127. 

109 Id. at 130. 

110 Id.
16

including historical averages, historical performance versus peer groups, analyst 

reports, and Carvana’s liquidity outlook.111

The SLC also considered the size of the offering, noting that outside analysts’

and representatives’ estimates were in line with an offering of $500 million to $700 

million.112 In addition, the SLC noted that the Garcias’ $50 million investment in the 

Direct Offering was fair because it was expected by many of the investors in the Direct 

Offering and was relatively small compared to the Garcias’ pre-offering ownership 

percentage.113 The SLC investigated alternative transactions and concluded that 

those options—including raising debt—would have been too slow to execute given the 

market conditions at the time.114

The SLC determined “that the Direct Offering’s price was the result of a bona 

fide negotiation between Carvana management . . . and the lead investor in the 

Offering, T. Rowe[.]”115 The SLC noted the back and forth in the negotiation and that 

one of T. Rowe’s funds “passed” on the $45 price because it was too high.116 Together, 

these elements also bolstered the process analysis, showing that the price “replicated” 

an arm’s length-negotiated price in the absence of any conflict.117

111 Id. at 130–31. 

112 Id. at 133–34.

113 Id. at 135–36. 

114 Id. at 139. 

115 Id. at 131.

116 Id. at 132.

117 Id.
17

Taking all these considerations into account, the SLC concluded that the Direct 

Offering is entirely fair.118

After considering the transaction under the entire fairness standard, the SLC 

also analyzed whether the Garcias could be subject to personal liability for breach of 

fiduciary duty.119 The SLC concluded that the evidence showed that Garcia III did 

not act in bad faith or with gross negligence.120 The same was true for Garcia II.121

The SLC considered whether the Company would be able to pursue claims for 

breach of fiduciary duty against other Carvana directors and officers in connection 

with the Direct Offering, an unjust enrichment claim against the Garcias, and claims 

against the Company’s advisors and participants in the Direct Offering.122 The SLC 

concluded that none of the Carvana directors—even those alleged to be conflicted (Ira 

Platt and Gregory Sullivan)—could be shown to have favored the interests of the 

Garcias over the Carvana stockholders, conflicts and personal relationships 

notwithstanding.123 The same was true for Carvana management.124 

As for unjust enrichment, the SLC concluded that there was no evidence that 

the Garcias were enriched or that the Direct Offering impoverished Carvana or its 

118 Id. at 140. 

119 Id. at 143.

120 Id. at 143–46. 

121 Id. at 146–48. 

122 Id. at 96–97.

123 Id. at 150–54.

124 Id. at 155–58.
18

stockholders, so any such claim was deemed likely to fail.125 And the SLC concluded 

that no viable aiding and abetting claims existed against any third party.126

4. The SLC Motion

On May 12, 2023, the SLC moved to terminate the litigation.

127 It filed its 

opening brief on October 18, 2023.128 The parties completed briefing on December 11, 

2023, and the court heard oral argument on December 18, 2023.

129

II. LEGAL ANALYSIS 

Zapata calls for a two-step analysis. In the first step, the court must “review[] 

the independence of SLC members and consider[] whether the SLC conducted a good 

faith investigation of reasonable scope that yielded reasonable bases supporting its 

conclusions.”

130 In the second step, the court applies “its own business judgment to 

the facts to determine whether the corporation’s best interests would be served by 

dismissing the suit.”

131 

Zapata motions present an “atypical procedural posture”—a “hybrid between 

Court of Chancery Rules 41(a)(2) and 56.”132 “To terminate derivative litigation, the 

125 Id. at 159–61.

126 Id. at 161–63.

127 Dkt. 122.

128 Dkt. 132 (“SLC’s Opening Br.”). 

129 See Dkt. 134 (“Pls.’ Answering Br.”); Dkt. 138 (“SLC’s Reply Br.”).

130 Diep ex rel. El Pollo Loco Hldgs., Inc. v. Sather, 2021 WL 3236322, at *14 (Del. Ch. 

July 30, 2021) (citing London v. Tyrrell, 2010 WL 877528, at *11 (Del. Ch. Mar. 11, 

2010)), aff’d, 280 A.3d 133 (Del. 2022). 

131 Id. (citing London, 2010 WL 877528, at *11). 

132 El Pollo Loco, 280 A.3d at 151.
19

SLC must show, and the court must be satisfied, that no disputed issues of material 

fact exist about the independence, good faith, and reasonableness of the SLC’s 

investigation and whether the SLC had reasonable bases for its conclusion.”133 

A. The First Step

In the first step of Zapata,

the Court should inquire into the independence and good 

faith of the committee and the bases supporting its 

conclusions. . . . The corporation should have the burden of 

proving independence, good faith and a reasonable 

investigation, rather than presuming independence, good 

faith and reasonableness. If the Court determines either 

that the committee is not independent or has not shown 

reasonable bases for its conclusions, or, if the Court is not 

satisfied for other reasons relating to the process, including 

but not limited to the good faith of the committee, the Court 

shall deny the corporation’s motion.134

The court thus evaluates the independence of the SLC members, along with the 

reasonableness of their investigation and their conclusions.

1. The SLC Members Were Independent.

Concerning the independence analysis called for by Zapata, the Delaware 

Supreme Court has explained:

In most challenges to director independence, the court 

must confront the personal and professional relationships 

between those who judge and those being judged. Directors 

have relatives and friends. They have acquaintances who 

may be classmates, professional associates, or business 

contacts. They hold memberships in clubs and other 

organizations and have political affiliations. They own 

property, make financial investments, and have other 

business activities. It is a fact of life that “business dealings 

133 Id. 

134 Zapata, 430 A.2d at 788–89.
20

seldom take place between complete strangers” and “it 

would be a strained and artificial rule which required a 

director to be unacquainted or uninvolved with fellow 

directors in order to be regarded as independent.”135

The SLC “bear[s] the burden of proving that there is no material question of 

fact about their independence” because “the situation is typically one in which the 

board as a whole is incapable of impartially considering the merits of the suit.”

136 

Still, “the substantive contours of the independence doctrine” remain unchanged from 

the demand futility context.137 “At bottom, the question of independence turns on 

whether a director is, for any substantial reason, incapable of making a decision with 

only the best interests of the corporation in mind,” and the analysis, therefore, focuses 

on “impartiality and objectivity.”

138 

Under this inquiry, the court considers the many factors that “[go] beyond 

determining whether SLC members are under the ‘domination and control’ of an 

interested director,” and includes “lesser affiliations” that can impair independence 

135 El Pollo Loco, 280 A.3d at 151–52.

136 El Pollo Loco, 2021 WL 3236322, at *15 (citing London, 2010 WL 877528, at *13).

137 Id. at *15 & n. 216 (quoting London, 2010 WL 877528, at *13 (“[I]t is conceivable 

that a court might find a director to be independent in the pre-suit demand context 

but not independent in the Zapata context. . . . [I]t is primarily a function of the shift 

in the burden of proof from the [p]laintiff to the corporation when the suit moves from 

the pre-suit demand zone to the Zapata zone.”)). 

138 Id. at *15 (emphasis added) (citing In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 

938 (Del. Ch. 2003)).
21

if they “present a material question of fact as to whether the SLC member can make 

a totally unbiased decision.”

139

“Given the common personal and professional relationships between board 

members, the independence question ‘is a fact-specific determination made in the 

context of a particular case.’”140 The analysis calls on the court to determine whether 

the director was positioned to “base [the director’s] decision on the merits of the issue 

rather than . . . extraneous considerations or influences.”141 This requires the court 

to “ask whether the SLC member would be more willing to risk her reputation than 

the personal and professional relationship with the director subject to 

investigation.”142 The analysis is thus contextually “tailored”—because the court may 

presume that “special litigation committee members are persons of typical 

professional sensibilities,” the key inquiry is whether “an unacceptable risk of bias”

is present.143

Plaintiffs advance four arguments to impugn the SLC members’ independence. 

First, they argue that Maroone and Parikh were “improperly influenced” by the SLC’s 

outside counsel, Wilson Sonsini.144 Second, they argue that Maroone and Parikh had 

139 In re Baker Hughes, a GE Co., Deriv. Litig., 2023 WL 2967780, at *11 (Del. Ch. 

Apr. 17, 2023), aff’d, In re Hughes, 2024 WL 371962 (Del. Feb 1. 2024) (TABLE).

140 El Pollo Loco, 280 A.3d at 152 (quoting Beam ex rel. Martha Stewart Living 

Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049 (Del. 2004)).

141 Id. (quoting Kaplan v. Wyatt, 499 A.2d 1184, 1189 (Del. 1985)).

142 Id (citing Beam, 845 A.2d at 1052). 

143 Oracle, 824 A.2d at 941–42, 947.

144 Pls.’ Answering Br. at 18.
22

a personal interest in the investigation due to potential liability in two other Carvanarelated lawsuits.

145 Third, they argue that Maroone and Parikh prejudged the merits 

of the investigation.146 Finally, they argue that Maroone was both financially and 

personally compromised.147

To start, Plaintiffs argue that the SLC was improperly influenced by outside 

counsel. Their sole support for this theory is the fact that Carvana management 

recommended Wilson Sonsini. When the SLC was formed, Carvana’s General 

Counsel Paul Breaux presented the SLC with two options for counsel and made it 

clear that the SLC could “select[] whatever counsel [it] wish[ed.]”

148 Plaintiffs’ story 

is that those two firms were hand-picked by management to be interviewed, the SLC 

only interviewed those two firms and then hired one of them. According to Plaintiffs, 

this sequence of events “raises serious questions about the SLC members’

independence.”

149 But this is a bad argument. Accepting a recommendation from 

management alone does not evidence a lack of independence of the SLC, and that is 

all that happened here. 

Second, Plaintiffs argue that the SLC members were compromised by separate 

lawsuits against them. The first, a federal securities lawsuit, involved claims of 

145 Id. at 20–21. 

146 Id. at 26–28. 

147 Id. at 26 n.113. 

148 SLC’s Opening Br., Ex. G at ZAP_CVNA_SLC_005169; Parikh Dep. Tr. at 36:8–9.

149 Pls.’ Answering Br. at 18.
23

insider trading and listed Maroone and Parikh as defendants alongside Garcia II.

150 

The second, filed in this court, involved Brophy claims and listed Maroone and Parikh 

as defendants alongside the Garcias and Carvana directors and officers.

151 Plaintiffs 

argue that the SLC members’ status as investigation targets and defendants in 

concurrent litigation raises the possibility that they might not have made a “totally 

unbiased decision” when they decided to terminate this litigation.152 

This theory might gain traction in other circumstances. But neither of these 

cases impugn the SLC’s independence here because those cases are not related to this

case. The other actions concern events that occurred after the Direct Offering. Also, 

in the securities action, Maroone and Parikh are named defendants under a strict 

liability theory because they are board members; the complaint does not allege that 

they engaged in wrongdoing. Indeed, Maroone was not aware of the securities action 

during his deposition.153 It is unclear how an unrelated securities action about events 

that occurred after the events scrutinized in the report would compromise the SLC 

members. The same is true for the fiduciary action. The complaint in that action 

was filed after the SLC Report was released.

154 

150 See Lead Plaintiffs’ Consol. Complaint for Violations of the Federal Securities 

Laws ¶ 415, In re Carvana Co. Sec. Litig., No. 2:22-cv-02126-MTL,

(D. Ariz. Feb. 14, 2023), ECF No. 36. 

151 See Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949); Schertz v. Garcia, et al., 

C.A. No. 2023-0600-KSJM, Dkt. 1 (Del. Ch. June 7, 2023). 

152 London, 2010 WL 877528, at *12.

153 Maroone Dep. Tr. at 237:18–19. Plaintiffs did not ask Parikh about the securities 

action.

154 Schertz v. Garcia, et al., C.A. No. 2023-0600-KSJM, Dkt. 1 (Del. Ch. June 7, 2023). 
24

Third, Plaintiffs argue that the SLC members prejudged the investigation. In 

order to establish that an SLC member prejudged the merits, there must be more 

than “[m]ere familiarity” with the issue.155 Although operating “with the object of 

putting together a report that demonstrates the suit has no merit . . . will create a 

material question of fact as to the SLC’s independence,” “simply [being] exposed to or

. . . familiar with a derivative suit . . . may not be enough to create a material 

question.”156 An SLC member must have “approved or participated in a substantive 

way in the decision to file the motion” in order for the court to find that the merits 

were prejudged.157

Plaintiffs identify two factual bases for arguing that the SLC members 

prejudged the investigation. First, both SLC members voted to approve it in March 

2020.

158 Second, both SLC members “supported or acquiesced to” the motion to 

dismiss in the underlying case.

159 

The first argument fails under Delaware law. Generally speaking, a director’s 

approval of a transaction does not establish the director’s inability to impartially take 

action with respect to that transaction at a later time.160 

155 El Pollo Loco, 280 A.3d at 154 (“Mere familiarity with an issue does not 

compromise independence.” (citing Katell v. Morgan Stanley Gp. Inc., 1995 WL 

376952, at *10 (Del. Ch. June 15, 1995))). 

156 London, 2010 WL 877528, at *15.

157 El Pollo Loco, 280 A.3d at 153.

158 Pls.’ Answering Br. at 27.

159 Id.

160 See Kaplan, 499 A.2d at 1189 (“[A] director’s approval of the transaction in 

question does not establish a lack of independence.”).
25

The second argument is stronger, but it too fails. For this proposition, 

Plaintiffs rely on two cases, El Pollo Loco and London, but neither provides

support.161

El Pollo Loco illustrates that an SLC member’s mere presence on a board when 

a motion to dismiss is filed does not create a disabling conflict. There, SLC members 

attended the board meeting and discussed the motion. The plaintiffs argued that an 

inference of prejudgment should be made because the members “reviewed, analyzed, 

and prejudged the merits” of the litigation.162 The court rejected this argument, and 

the high court affirmed on appeal. The Delaware Supreme Court explained that the 

driving factor is whether SLC members “approved or participated in a substantive 

way in the decision to file the motion.”

163 Here, both SLC members’ only knowledge 

regarding the decision was based on updates received at Board meetings.164 And the 

Board did not vote on whether the Company would dismiss the motion.165 The SLC 

members did not participate in a substantive way in the decision to file the motion.

London stands for the proposition that: 

[I]f evidence suggests that the SLC members prejudged the 

merits of the suit based on . . . prior exposure or familiarity, 

and then conducted the investigation with the object of 

putting together a report that demonstrates the suit has no 

161 Pls.’ Answering Br. at 26–27 (citing El Pollo Loco, 280 A.3d at 152–55; London, 

2010 WL 877528, at *15).

162 El Pollo Loco, 2021 WL 3236322, at *16.

163 El Pollo Loco, 280 A.3d at 153 (emphasis added).

164 SLC’s Reply Br. at 15.

165 SLC’s Opening Br. at 47.
26

merit, this will create a material question of fact as to the 

SLC’s independence.166

There, the SLC members, through their investigation, admitted that they “attacked . 

. . “the merits of [the] plaintiffs’ claims, rather than objectively considering [the] 

plaintiffs’ claims.”167 Here, the SLC members did not “attack” the investigation or 

even act in a manner resembling an attack. 

Finally, Plaintiffs argue in a footnote that Maroone had disabling financial 

conflicts due to having “on several occasions, engaged in business deals with the 

Garcias.”

168 Specifically, Maroone’s auto dealerships participated in a Carvana pilot 

program and Maroone’s dealership leased storage from the Garcias months after the 

SLC investigation.169 Plaintiffs do not elaborate on the magnitude of these business 

dealings or how they might have affected Maroone. On their face, the allegations do 

not seem significant.

The SLC has demonstrated its independence for the purposes of Zapata.

2. The SLC Conducted A Reasonable Investigation In Good 

Faith. 

In addition to establishing its independence, an SLC must “prove also that it 

conducted a reasonable investigation of the matters alleged in the complaint in good 

faith.”

170 “A good faith investigation is one that is pursued in an unbiased manner 

166 London, 2010 WL 877528, at *15.

167 Id. at *16 (emphasis in original) 

168 Pls.’ Answering Br. at 26 n.113.

169 Maroone Dep. Tr. at 27:18–28:25.

170 El Pollo Loco, 2021 WL 3236322, at *19 (citing Kaplan, 484 A.2d at 507).
27

and without a predetermined conclusion.”

171 The SLC bears the burden of proving 

that it “acted in good faith and conducted a thorough investigation.”172 An SLC must 

engage in a reasonable investigation, not a “selective investigation[.]”173

A reasonable SLC investigation should “thoroughly investigate[] the factual 

elements underlying” the plaintiffs’ claims and should result in “an in depth inquiry 

and . . . [a] well documented report.”

174 It should also “investigate all theories of 

recovery asserted in the plaintiffs’ complaint” and “explore all relevant facts and 

sources of information that bear on the central allegations in the complaint.”

175 

Further, “[t]o demonstrate that its recommendations are supported by reasonable 

bases, the SLC must show that it correctly understood the law relevant to the case.”

176

The SLC investigation lasted seven months and included 100,000 pages of 

documents, 16 witness interviews, and nine SLC meetings. These efforts compare 

favorably with SLC investigations upheld by this court.177 Plaintiffs, though, attack 

171 Baker Hughes, 2023 WL 2967780, at *17 (quoting London, 2020 WL 877528, at 

*11). 

172 Id. (quoting London, 2020 WL 877528, at *11).

173 El Pollo Loco, 2021 WL 3236322, at *19 (citing Sutherland, 958 A.2d at 244).

174 Id. (quoting Kahn v. Kolberg Kravis Roberts 8 Co., L.P., 23 A.3d 831, 842 (Del. 

2011)).

175 Id. (quoting London, 2010 WL 877528, at *17).

176 Id. (quoting London, 2010 WL 877528, at *17).

177 Compare with Baker Hughes, 2023 WL 2967780, at *8, *17 (stating that the 

investigation lasted nine months and involved reviewing more than 110,000 

documents and interviewing 22 witnesses); El Pollo Loco, 2021 WL 3236322, at *12–

13 (stating that the investigation lasted over a year and involved reviewing over 

249,000 documents and interviewing 14 witnesses, in addition to reviewing 14 

deposition transcripts). 
28

the thoroughness and scope of the investigation and the reasonableness of its 

conclusions. 

a. Thoroughness 

Plaintiffs argue that the SLC members failed to thoroughly investigate 

Plaintiffs’ claims in seven ways. 

First, Plaintiffs argue that the SLC members’ conflicts made them “[b]arely 

[p]articipate[] in the [i]nvestigation” and rendered them too “passive[.]”178 Plaintiffs 

rely on In re Oracle Corp. Derivative Litigation, where this court observed that there

“are dangers posed by investigators who harbor reasons not to pursue the 

investigation’s targets with full vigor.”

179 In Oracle, however, the court found that 

the SLC members had close ties to the targets of the investigation and thus had a 

reasonable motivation for their less-than-vigorous performance.

180 This decision has 

already rejected Plaintiffs’ arguments attacking the independence of Maroone and 

Parikh. There is no reason to think that Maroone and Parikh harbored any conflicts 

that prompted them to do a less-than-vigorous job.

Second, Plaintiffs argue that Wilson Sonsini played an outsized role in the 

investigation because the SLC members delegated the development of the 

investigation plan, identification of document custodians, creation of search terms, 

178 Pls.’ Answering Br. at 21–25.

179 Id. at 25–26 (quoting Oracle, 824 A.2d at 941).

180 Oracle, 824 A.2d at 920.
29

and administration of interviews.181 But this level of delegation is in line with 

precedent. 

In Baker Hughes, the SLC relied heavily on counsel. Counsel identified

relevant participants in the underlying transaction, coordinated interviews, and 

controlled communications with the financial advisor. The court found that this was 

not unreasonable. In fact, the court held that “[t]he SLC’s reliance on experienced 

advisors ‘is not only allowed but is evidence [of] good faith and the overall fairness of 

the process.’”

182

Similarly, in Carlton Investments v. TLC Beatrice International Holdings, Inc.

“the SLC delegated a large percentage of [the] work to its counsel and their expert 

assistants.”183 The counsel “spent over 4000 hours reviewing facts and then 

presenting the information,” while the SLC members only spent about “100 hours.”184 

Although the “SLC’s counsel performed the vast preponderance of the legal and 

factual research required to analyze the eleven claims,” the court still found that the 

SLC investigated in good faith.185 The court observed that “[w]hile the directors bear 

ultimate responsibility for making informed judgments, good faith reliance by a[n]

181 Pls.’ Answering Br. at 21–22.

182 Baker Hughes, 2023 WL 2967780, at *18 (alteration in original) (quoting In re W. 

Nat’l Corp. S’holders Litig., 2000 WL 710192, at *23 n.67 (Del. Ch. May 22, 2000)).

183 1997 WL 305829, at *8 (Del. Ch. May 30, 1997).

184 Id.

185 Id. at *12.
30

SLC on independent, competent counsel to assist the SLC in investigating claims is 

legally acceptable, practical, and often necessary.”

186 

Here, less delegation occurred than in Baker Hughes and Carlton. SLC 

members met formally nine times and informally many times;187 they participated in 

decisions regarding sources of document collection, identification of document 

custodians, and what third-party witnesses should be contacted;188 and they attended 

the interviews of Garcia III, Garcia II, Mark Jenkins, Paul Breaux, Ira Platt, former 

Vice President Dan Quayle, and Gregory Sullivan.189 The record indicates that the

SLC’s level of engagement was sufficient. 

Third, Plaintiffs argue that the SLC members lacked knowledge of the 

investigation because they could not remember details of the investigation when 

interviewed.190 But memory is a fleeting thing. That is why humans write things 

down. And this court has held that, as long as the conclusion is “well documented” 

and “supported by facts,” an SLC member’s “lack of recall . . . is not significant.”191 

Here, the report is exhaustive, it is well documented, and it includes the relevant 

facts. So, the SLC members’ lack of memory is not an indication that the 

investigation was not performed in good faith. 

186 Id.

187 SLC’s Reply Br. at 20.

188 Id.

189 Id. at 22.

190 Pls.’ Answering Br. at 22–24.

191 Teamsters Local 443 Health Servs. & Ins. Plan v. Chou, 2023 WL 7986729, at *30 

(Del. Ch. Nov. 17, 2023).
31

Fourth, Plaintiffs highlight “concerning statements” made by Maroone.

192 

When interviewed, Maroone explained that he “was concerned about how much time 

[the SLC process] would take.”

193 He also jokingly stated that he “wasn’t honored” to 

join the SLC.194 Additionally, Maroone discussed the role with Breaux, stating that 

he had “no staff” and viewed serving on the SLC as “a part-time responsibility.”

195 

He worried that someone else should take on the role unless “the involvement [was] 

minimal and include[d] no personal exposure[.]”

196 

Comments of this nature are not helpful to an SLC’s cause. As explained above, 

however, Plaintiffs have not shown that Maroone failed to conduct the investigation 

in good faith once he committed to the role. Similar arguments were raised in Baker 

Hughes. There, the plaintiffs noted that an SLC member “conceded his ‘lack of 

enthusiasm’ for the SLC investigation, which he dismissed as ‘an understandable 

consequence of serving on an SLC.’”

197 Maroone’s lack of enthusiasm for the job was 

honest. It was perhaps too honest. However, there is no evidence that it affected his 

diligence. It does not render the SLC’s investigation unreasonable or evidence bad 

faith.

192 Pls.’ Answering Br. at 24–25.

193 Id.

194 Id. at 25.

195 Maroone Dep. Tr. at 182:6–8.

196 Pls.’ Answering Br. at 25. 

197 In re Baker Hughes, a GE Co. Deriv. Litig., C.A. No. 2019-0201-LWW, Dkt. 137 at 

5 (Del. Ch. Aug. 25, 2022). 
32

Fifth, Plaintiffs argue that the SLC did not sufficiently engage in witness 

interviews. Plaintiffs’ contentions regarding witness interviews are as follows: first, 

SLC members did not attend all interviews; second, Mark Walter was interviewed 

after the SLC reached its decision; third, the SLC prepared interview summaries 

after it made its decision; fourth, SLC members failed to provide specific evidence 

that they reviewed interview summaries, and fifth, it is implausible that Maroone 

came to his conclusions after only reviewing summaries.198 

Plaintiffs’ contentions regarding the sufficiency of the SLC’s witness interview 

process are unpersuasive. To start, the delegation of witness interviews to SLC 

counsel does not undermine an investigation’s integrity. Precedent establishes that 

such delegation “is not only allowed but is ‘evidence [of] good faith and the overall 

fairness of the process.’”

199 For instance, in Katell v. Morgan Stanley Group, Inc., the 

SLC fully delegated all interviews to counsel yet the court found the investigation 

was conducted in good faith.200 Here, the SLC members themselves attended many 

key interviews and actively reviewed draft summaries as they were prepared prior to 

making their final decision, belying any claim of rubber-stamping the process.201 

One or both SLC members attended the interviews of Garcia III, Garcia II, Mark 

Jenkins, Paul Breaux, Ira Platt, former Vice President Dan Quayle, and Gregory 

198 Pls.’ Answering Br. at 29–32.

199 Baker Hughes, 2023 WL 2967780, at *18 (alteration in original) (quoting W. Nat’l 

Corp. S’holders Litig., 2000 WL 710192, at *23 n.67). 

200 1995 WL 376952, at *9–10 (Del. Ch. June 15, 1995).

201 SLC’s Reply Br. at 22–23.
33

Sullivan.202 The SLC members also received draft summaries of all interviews, except 

Walter’s, on a rolling basis prior to their final decision. Both members testified that 

they reviewed these summaries as they were prepared.

203 

Plaintiffs’ other arguments regarding the purported evidentiary deficiencies of 

the interview summaries and timing are equally unavailing. The dates on the 

finalized summaries reflect administrative wordsmithing, not their initial 

preparation and review by the SLC members.204 And although Walter’s interview 

postdated the SLC’s decision, his limited role in the investigation and the Direct 

Offering makes that timing immaterial.205 Further, Plaintiffs’ implication that the 

SLC members did not actually review the summaries is entirely speculative and 

contradicted by Maroone’s testimony confirming receipt and consideration of the 

drafts.206 In sum, the record amply demonstrates the SLC’s good faith efforts to 

thoroughly investigate the allegations through a reasonable interview process.

Sixth, Plaintiffs take aim at the timing of the release of Houlihan Lokey’s final 

report.

207 Although the final presentation was dated after the SLC decided to 

terminate the litigation and one day before filing its report, this chronology alone 

202 Id. at 22.

203 Id. at 23.

204 Id. at 23 n.83.

205 Id. at 23–24.

206 Pls.’ Answering Br. at 31–32.

207 Id. at 53–54.
34

does not indicate a “conclude first, fill-in-details later approach[.]”208 The record 

reflects that the SLC reviewed Houlihan Lokey’s analyses and conclusions prior to 

moving to terminate the litigation.209 And though Plaintiffs criticize Maroone’s 

purported equivocation about reviewing the report,210 “lack of recall. . . is not 

significant.”

211 Moreover, Maroone made clear he did review the summaries, with 

his only hesitation being the exact date.212 Further, the court pushed the SLC to 

conclude its investigation timely so that, in the event it recommended that the 

litigation proceed or the court denied any motion to terminate, Plaintiffs’ claims were 

not prejudiced by delay. 

Finally, Plaintiffs argue that the SLC should have gathered text messages 

from Platt and Sullivan, as well as Garcia II, Garcia III, Breaux, Jenkins, and 

Maroone. But the SLC conducted an expansive document collection. It included 

emails, electronic documents, Slack messages, and text messages from 18 custodians. 

In this context, the SLC’s motion cannot stand or fall on a failure to gather text 

messages. Plaintiffs’ critique of the information gathering, as well as their other 

criticisms, falls short of raising a material question considering the strength and 

thoroughness of the SLC’s investigation into Plaintiffs’ claims.

208 Id. at 33–34.

209 For instance, the March 28 meeting minutes show discussion of Houlihan Lokey’s 

analysis, and the firm provided a draft report on April 4, which the SLC discussed on 

April 6. SLC’s Reply Br. at 24. 

210 Pls.’ Answering Br. at 33–34.

211 Teamsters Local 443 Health Servs., 2023 WL 7986729, at *30.

212 Pls.’ Answering Br. at 33–34.
35

b. Scope

Plaintiffs argue that the SLC allegedly failed to consider “critical aspects” of 

their claims in reaching its conclusions. “If the SLC fails to investigate facts or 

sources of information that cut at the heart of plaintiffs’ complaint this will usually 

give rise to a material question about the reasonableness and good faith of the SLC’s 

investigation.”

213 “Where the SLC decides ‘not to explore specific acts of alleged 

misconduct,’ it must ‘carefully analyze whether a summary investigation of those 

specific acts could shed light on the more serious allegations,’ because a ‘total failure 

to explore the less serious allegations in plaintiffs’ complaint may cast doubt on the 

reasonableness and good faith of an SLC’s investigation.’”

214

First, Plaintiffs assert that the SLC failed to consider Garcia II’s stock sales, 

but that is incorrect. The SLC investigated Garcia II’s stock sales, and the SLC Report 

addressed them. The report states that “there is no basis to conclude that Garcia II

could have predicted that Carvana’s stock price would climb as it did in the months 

following the Direct Offering.”

215 The report also found that “Garcia II did not sell 

any shares of the Class A common stock he purchased in the Direct Offering . . . 

[i]nstead, the stock sales . . . originated from his LLC units in Carvana Group, LLC, 

which Garcia II had held since Carvana’s IPO[.]”216 

213 El Pollo Loco, 2021 WL 3236322, at *19 (quoting London, 2010 WL 877528, at 

*17).

214 Id. (quoting London, 2010 WL 877528, at *17). 

215 SLC Report at 148.

216 Id. 
36

Plaintiffs argue that the SLC Report “glosses over key information regarding 

the stock sales”

217 and made a “suspicious[]” mistake when it described Garcia II’s 

stock sale as one of two million dollars instead of shares.218 In support, Plaintiffs cite 

Sutherland v. Sutherland.

219 There, the SLC report completely omitted central 

information,220 and the SLC member failed to record “several of the most important 

interview[] . . . answers”221 or take notes when reviewing ledgers that witnesses found 

relevant to the investigation.222 No similar omissions occurred here. Although the 

facts may not have been discussed to the extent Plaintiffs wish, they were included 

in the SLC Report. Plaintiffs also assert that the SLC members did not investigate 

Garcia II’s 10b5-1 trading plan,223 noting that Parikh and Maroone failed to recall 

details regarding the plan.224 Yet, the SLC Report addressed the trading plan and 

attached the plan for reference.225 

Second, Plaintiffs argue that the SLC did not adequately investigate the 

non-ratable benefits the Garcias allegedly received from the Direct Offering.

226 

217 Pls.’ Answering Br. at 39.

218Id. at 40 (“Maroone acknowledged this was yet another ‘mistake’ at his 

deposition.”).

219 958 A.2d 235, 242–43 (Del. Ch. 2008).

220 Id. at 242.

221 Id. at 243.

222 Id. at 243–44.

223 Pls.’ Answering Br. at 38.

224 Id. at 38–39.

225 SLC Report at 93; Ex. 84 (Garcia II’s 10b5-1 Sales Plan).

226 Pls.’ Answering Br. at 41.
37

Plaintiffs argue that “nowhere in the Report or any of the supporting documentation 

did the SLC undertake any effort to investigate whether” unaffiliated stockholders 

had the ability to purchase shares in the public market at the same price as the Direct 

Offering.227 But the report addresses this issue. It includes a Carvana share price 

chart and findings from Houlihan Lokey that stated “Carvana’s trading volume on 

April 2 and April 3, 2020[,] was over 3 million shares per day, which indicates more 

than sufficient liquidity and volume for any non-participating Carvana stockholder 

who wanted to purchase additional Carvana Class A common shares to do so on those 

days.”

228 

In its report, the SLC concluded that “the economic dilution [the Garcias]

suffered from the Direct Offering far outweighed any benefit they received from 

participating”

229 and that the Garcias were “diluted far more than any other 

stockholder on an absolute dollar value basis[.]”230 

Plaintiffs argue that Houlihan Lokey’s analysis supporting these conclusions 

was “flawed or otherwise supports Plaintiffs’ claims” for two reasons.231 First, 

Houlihan Lokey did not “perform[]” an “analysis of whether” the economic value 

earned was “material to the Garcias.”232 However, the Garcias ended up “hundreds 

227 Id. 

228 SLC Report at 111 n.418.

229 Id. at 109. 

230 Id. at 28–29.

231 Pls.’ Answering Br. at 41.

232 Id. at 42.
38

of millions of dollars worse off than they would have been had the Direct Offering not 

occurred at all.”233 The suggested analysis was unnecessary. Second, Plaintiffs find 

error with the discount calculation Houlihan Lokey used when it performed a 

comparison to discounts used in other equity offerings at the same time.234 This 

contention was already addressed by John Taylor of Houlihan Lokey in his 

deposition.235 Regardless, the dispute is not very meaningful—the implementation 

of Plaintiffs’ critiques would change the median discount by less than two percent.236

Third, Plaintiffs argue that the SLC Report failed to address “two dozen 

related-party transactions with Garcia-affiliated entities in 2019 and 2020[.]”237 Yet 

the SLC determined that “none of the transactions had a connection to the Direct 

233 SLC’s Reply Br. at 29–30 (emphasis in original).

234 Pls.’ Answering Br. at 44.

235 SLC’s Opening Br. at 36 (“Taylor testified at length why Houlihan Lokey’s 

methodologies were reasonable notwithstanding Plaintiffs’ disagreements with 

them.” (citing Taylor Dep. Tr at 202:14–205:5)).

236 SLC’s Reply Br. at 30. Plaintiffs identify two aspects of Houlihan Lokey’s analysis 

that they say support their position. First, Plaintiffs argue that Houlihan Lokey’s 

analysis “confirms that Carvana’s liquidity outlook in March 2020 was strong.” Pls.’ 

Answering Br. at 42. This seems to exaggerate the findings. The report indicates 

that “Carvana might have been able to stay alive for twelve months without a cash 

infusion—but only if it went into ‘survival mode.’” Id. at 44. Second, Plaintiffs 

contend that Houlihan Lokey’s analysis “confirmed that . . . Garcia III steered the 

Company into the transaction.” Id. The proof for this serious assertion is that the 

report found that “all of the alternatives were reasonable and that none of them 

w[ere] impossible” and that there was a lack of assessment regarding whether a lower 

equity raise would have been adequate. Id. at 43. In all events, the fact that Plaintiffs 

liked aspects of Houlihan Lokey’s report suggests that it gave the SLC a balanced 

take on Plaintiffs’ claims.

237 Id. at 47. 
39

Offering” and so the investigation into these transactions was not worth the cost.

238

From this conclusion, there is no reason to believe these allegations bear on the 

fundamental theories of recovery.

Fourth, Plaintiffs advance that the SLC failed to sufficiently investigate 

directors Platt and Sullivan.239 Plaintiffs assert that the SLC Report’s conflict 

analysis was detail-free, “eliding” the ties between Platt and the Garcias.240 But the 

SLC did investigate the directors and their conflicts and found that although “neither 

[were] independent from the Garcias as a matter of law, both acted independently 

and loyally to Carvana regarding the Direct Offering.”241 The SLC interviewed both 

Platt and Sullivan and made reasonable conclusions as to each, and so this argument 

lacks merit.

In sum, the SLC’s investigation and report adequately considered the 

allegations contained in the Complaint and evaluated the facts and law relevant to 

those allegations. The SLC has met its burden of establishing that its investigation 

was reasonable in scope. 

c. Bases

Plaintiffs contend that the SLC did not have reasonable bases for its 

conclusions. Plaintiffs draw comparisons to In re WeWork Litigation where the court 

238 SLC’s Opening Br. at 36–37.

239 Pls.’ Answering Br at 48; Carvana I at *8–16. 

240 Pls.’ Answering Br at 48. 

241 SLC’s Reply Br. at 31. 
40

found an SLC investigation unreasonable.242 There, “[u]nlike a typical Zapata special 

litigation committee, the [SLC] did not investigate the factual allegations of the 

Special Committee’s Complaint and offer[ed] no opinion on the merits of the 

Company’s claims against SBG and Vision Fund.”

243 Plaintiffs argue that “[t]he 

deficiencies here are similarly egregious,” but this contestation is based on allegations 

that the court has already rejected—Maroone’s “self-serving” and supposedly “false 

testimony” and his alleged prejudgment of the claims’ merits. Again, neither set of 

allegations moves the needle. Through its investigation and report, the SLC met its 

burden and established that its conclusions were the product of a reasonable, good 

faith investigation. None of Plaintiffs’ arguments raise a genuine question of 

material fact as to the thoroughness of the investigation, the reasonableness of the 

scope of the SLC’s investigation, or the presence of reasonable bases for the SLC’s 

conclusions.

B. The Second Step

The court’s “task in the second step is to determine whether the SLC’s 

recommended result falls within a range of reasonable outcomes that a disinterested 

and independent decision maker for the corporation, not acting under any compulsion 

and with the benefit of the information then available, could reasonably accept.”

244

242 Pls.’ Answering Br. at 54.

243 In re WeWork Litig., 250 A.3d 976, 997 (Del. Ch. 2020).

244 In re Primedia, Inc. S’holders Litig., 67 A.3d 455, 468 (Del. Ch. 2013); accord Obeid 

v. Hogan, 2016 WL 3356851, at *12 n.14 (Del. Ch. June 10, 2016) (collecting cases). 

The second step of the Zapata analysis has been described by Delaware courts as “the 

essential key,” on the one hand, Zapata, 430 A.2d at 789, and “discretionary” on the 
41

The court has already probed Plaintiffs’ challenge to the SLC’s investigation and 

findings and found that the scope of the investigation and conclusions were 

reasonable. That analysis informed the conclusion that the recommended result is 

appropriate. At bottom, a disinterested and independent decision-maker for the 

Company, not acting under any compulsion and with the benefit of the information 

available to the SLC, could reasonably accept the SLC’s recommendation to dismiss 

Plaintiffs’ claims. 

III. CONCLUSION

The SLC’s motion to dismiss is granted.

other. Kaplan, 484 A.2d at 520; accord WeWork, 250 A.3d at 1012–13 (noting that 

the second step “permits the court in its discretion to use its own independent 

business judgment in determining whether the motion to dismiss should be granted” 

(emphasis added) (internal quotation marks omitted)); Sutherland, 658 A.2d at 239 

(noting that “the court may nonetheless exercise its own business judgment and deny 

the motion to dismiss” (emphasis added)). Given the salutary and “innovative” 

nature of the second step, this jurist is inclined to view it as essential. See Obeid, 

2016 WL 3356851, at *12.