IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

CHESTER COUNTY EMPLOYEES’ 

RETIREMENT FUND, 

 Plaintiff,

 v.

NEW RESIDENTIAL 

INVESTMENT CORP., WESLEY R. 

EDENS, MICHAEL NIERENBERG, 

ALAN L. TYSON, DAVID 

SALTZMAN, KEVIN J. FINNERTY, 

DOUGLAS L. JACOBS, FIG LLC, 

FORTRESS INVESTMENT GROUP 

LLC and FORTRESS OPERATING 

ENTITY I LP,

 Defendants.

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

 C.A. No. 11058-VCMR

MEMORANDUM OPINION

Date Submitted: July 7, 2017

Date Decided: October 6, 2017

Michael Hanrahan, Paul A. Fioravanti, Jr., Corinne Elise Amato, and Kevin H. 

Davenport, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Marc 

A. Topaz, Lee D. Rudy, Michael C. Wagner, and Stacey A. Greenspan, KESSLER 

TOPAZ MELTZER & CHECK LLP, Radnor, Pennsylvania; Attorneys for Plaintiff.

Robert S. Saunders, Ronald N. Brown, III, Sarah R. Martin, and Elisa M.C. Klein, 

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; 

Scott D. Musoff, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, New 

York, New York; Attorneys for Defendants.

MONTGOMERY-REEVES, Vice Chancellor.
2

In this action, a stockholder of New Residential Corp. (“New Residential”) 

purports to assert direct and derivative breach of fiduciary duty claims against the 

members of the New Residential board of directors, New Residential’s manager FIG 

LLC (“FIG”), FIG’s owner Fortress Operating Entity I LP (“FOE I”), and Fortress 

Investment Group LLC (“Fortress”), which allegedly controls New Residential, 

FIG, and FOE I. Plaintiff alleges that the Defendants caused New Residential to 

overpay for the assets of Home Loan Servicing Solutions, Ltd. (“HLSS”) in order to 

advantage other real estate assets of Fortress and to maximize management fees, 

incentive compensation, and stock option awards to Fortress and its affiliates. 

Plaintiff also seeks a declaratory judgment that a termination agreement between 

HLSS and New Residential purporting to release all New Residential stockholder 

claims against HLSS is not a valid defense in this action.

Defendants move to dismiss this complaint under Court of Chancery Rules 

23.1 and 12(b)(6). Defendants argue that all of Plaintiff’s claims are derivative 

claims for corporate overpayment. Defendants contend that a majority of the New 

Residential board is disinterested and independent, and that even if a majority of the 

board is beholden to Fortress, Fortress is not interested in the underlying 

transactions. Defendants also argue that the complaint should be dismissed as to 

Fortress, FOE I, and FIG because they are not controlling stockholders and do not 

owe fiduciary duties to New Residential. As to the declaratory judgment claim, 
3

Defendants contend that Plaintiff’s claim is not ripe because Defendants have not 

raised the termination agreement as a defense.

In this Memorandum Opinion, I hold that the facts alleged give rise to a 

derivative claim. Plaintiff, however, has not pled particularized facts sufficient to 

raise a reasonable doubt that a majority of the directors on the New Residential board 

could have exercised their independent and disinterested business judgment in 

responding to a demand. As a result, demand is not excused as futile. Further, I 

hold that Plaintiff’s declaratory judgment claim is not ripe for judicial review. As 

such, I grant Defendants’ Motion to Dismiss. 

I. BACKGROUND

This is Plaintiff’s third opportunity to challenge New Residential’s purchase 

of the HLSS assets and related transactions. Plaintiff filed its original Complaint in 

this case on May 22, 2015 and its First Amended Complaint on October 30, 2015. I

granted Defendants’ Motion to Dismiss the First Amended Complaint with leave to 

amend on October 7, 2016 (the “First Opinion”).1 After I denied Plaintiff’s Motion 

for Reargument on December 1, 2016 (the “Second Opinion”),2 Plaintiff filed the 

Second Amended Verified Class Action and Derivative Complaint (the 

 

1 Chester Cnty. Emps.’ Ret. Fund v. New Residential Inv. Corp., 2016 WL 5865004 

(Del. Ch. Oct. 7, 2016). 

2 Chester Cnty. Emps.’ Ret. Fund v. New Residential Inv. Corp., 2016 WL 7011350 

(Del. Ch. Dec. 1, 2016). 
4

“Complaint”) on February 27, 2017. On March 30, 2017, Defendants moved to 

dismiss the Complaint pursuant to Court of Chancery Rule 23.1 for failure to bring 

pre-suit demand and Rule 12(b)(6) for failure to state a claim upon which relief can 

be granted, and I heard oral argument on the Motion to Dismiss on July 7, 2017. 

This Memorandum Opinion assumes familiarity with the facts outlined in the First 

and Second Opinions and focuses on those facts pertinent to the resolution of the 

pending Motion to Dismiss.3 “The reader is forewarned that this case involves a 

maze of corporate entities and an alphabet soup of corporate names.”4

A. Parties and Significant Non-Parties

Chester County Employees’ Retirement Fund (the “Plaintiff”) is, and at all 

relevant times has been, a holder of New Residential common stock.5

 

3 Unless otherwise noted, the additional facts in this opinion derive from Plaintiff’s 

Complaint and the documents it incorporates by reference. At times, I rely upon 

certain extraneous documents that are properly before the Court because they are 

integral to Plaintiff’s claims and incorporated by reference into the Complaint. In 

re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 659 n.3 (Del. Ch. 2013) 

(“To be incorporated by reference, the complaint must make a clear, definite and 

substantial reference to the documents.”); see In re Santa Fe Pac. Corp. S’holder 

Litig., 669 A.2d 59, 69-70 (Del. 1995).

4 Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at *2 (Del. Ch. Sept. 18, 2014).

5 Compl. ¶ 11.
5

Nominal defendant New Residential was spun-off to non-party Newcastle 

Investment Corp.’s (“Newcastle”) stockholders on May 15, 2013.6 New Residential 

is a Delaware publicly traded Real Estate Investment Trust (“REIT”) that primarily 

invests in excess mortgage servicing rights (“Excess MSRs”), residential mortgagebacked securities (“RMBS”), call rights for RMBS that are not backed by a 

government agency, and a pool of consumer loans.7 New Residential is a permanent 

capital vehicle in a web of Fortress entities.8 New Residential has no employees and 

is “completely reliant on” FIG to manage its assets.

9

Defendant FIG externally manages New Residential pursuant to a contractual 

management agreement.

10

 Defendant FOE I “100% own[s]” FIG, is FIG’s sole 

managing member, and holds New Residential stock options granted to FIG.11 Non-

 

6

Id. ¶ 12. Newcastle allegedly is controlled by Fortress. Id. Newcastle recently 

changed its name to Drive Shack Inc., but I will refer to it as Newcastle to avoid 

confusion. Id.

7

Id. ¶¶ 12, 107. 

8

Id. ¶ 13.

9

Id. ¶¶ 13, 90.

10 Id. ¶ 13.

11 Id. ¶¶ 42, 44.
6

party FIG Corp. is the general partner of FOE I; FIG Corp. is a wholly owned 

subsidiary of Fortress.

12

Defendant Fortress is an asset-based investment management firm that was 

founded in 1998 and went public in 2007.13 By the close of 2014, Fortress had $67.5 

billion assets under management (“AUM”), and $70.5 billion AUM by the close of 

2015.14 Fortress’s 2014 and 2015 financial disclosure documents reported 100% of 

the income attributable to FIG and FOE I in Fortress’s income calculations.15 

Fortress, its affiliates, and principals held a 7.4% and 5.5% interest in New 

Residential’s common stock on a fully diluted basis by the close of 2014 and 2015, 

respectively.16 Even with this minority equity stake, Plaintiff alleges Fortress 

controls New Residential through (1) its control of FIG Corp, FOE I, and FIG; (2) 

certain of New Residential bylaws; (3) certain articles of New Residential’s 

certificate of incorporation; and (4) New Residential’s board composition.17

 

12 Id. ¶ 44.

13 Id. ¶¶ 46, 52.

14 Id. ¶ 46.

15 Id. ¶ 54.

16 Id. ¶ 58.

17 Id. ¶¶ 54-57.
7

Defendant Wesley R. Edens is a founder, principal, and co-chairman of 

Fortress.18 Edens owns 22.6% of the Class A shares of Fortress and 37.2% of its 

Class B shares.19 Fortress paid Edens compensation of $4,022,688 in 2014 and 

$13,405,669 in 2015.20 Additionally, Edens is chairman of the Newcastle board and 

former chairman of Nationstar Mortgage Holdings, Inc. (“Nationstar”).21 He is a

director of both FIG and FIG Corp., and he is a beneficial owner of FOE I.22 Edens 

served as a director and chairman of New Residential from its inception in 2013 until 

he resigned in May 2016.23 As of April 2, 2015, Edens owned 6.4% of New 

Residential’s outstanding stock.24 As of April 1, 2016, he owned 3.3% of New 

Residential’s outstanding stock.25

 

18 Id. ¶ 15. 

19 Id. 

20 Id. 

21 Id. ¶ 18. Fortress and Fortress’s private-equity funds own 75% of Nationstar. Id. ¶ 

2. 

22 Id. ¶¶ 16-17.

23 Id. ¶ 14.

24 Id. ¶ 17.

25 Id. 
8

Defendant Michael Nierenberg has been a director and the Chief Executive 

Officer of New Residential since November 2013.

26

 He replaced Edens as chairman 

of the New Residential board in May 2016.27 He is also a managing director at

Fortress.28

Defendant Alan L. Tyson has been a director of New Residential since April 

2013.

29

 He is chairman of the Compensation Committee and serves on the Audit 

Committee, as well as the Nominating and Corporate Governance Committee.

30

 

New Residential paid Tyson compensation of $125,009 in 2014 and $150,000 in 

2015.31 He also serves on the Newcastle board, for which he received compensation 

of $135,000 in 2014 and $125,000 in 2015.32 The Complaint alleges that Tyson is 

retired and that his service on these two boards is his only source of employment.

33

 

26 Id. ¶ 37.

27 Id. 

28 Id. ¶ 38.

29 Id. ¶ 39.

30 Id. 

31 Id.

32 Id. ¶ 40.

33 Id. ¶ 41.
9

Defendant David Saltzman has been a director of New Residential since April 

2013, and he serves on its Compensation Committee.34 New Residential paid 

Saltzman compensation of $125,004 in 2014 and $150,000 in 2015.35 He also has

been the Executive Director of the Robin Hood Foundation since 1989.36 Michael 

Novogratz—who was a Fortress principal until January 2016—allegedly is “a 

significant donor to th[at] foundation.”37 Before Saltzman joined the Robin Hood 

Foundation, Saltzman worked for New York City’s Board of Education, Department 

of Health, and Department of Social Services.38 Plaintiff contends that “his 

employment background indicates he has not accumulated great wealth.”39 

Defendant Kevin J. Finnerty has been has been a director of New Residential 

since April 2013.40 He serves on its Audit Committee, the Compensation 

Committee, and the Nominating and Corporate Governance Committee.41 New 

 

34 Id. ¶ 34.

35 Id. 

36 Id. ¶ 35.

37 Id. 

38 Id. ¶ 36.

39 Id.

40 Id. ¶ 19.

41 Id. 
10

Residential paid Finnerty compensation of $125,009 in 2014 and $150,000 in 

2015.42 Finnerty also has been involved with Fortress for nearly twenty years.43 

Finnerty has served on the board of Newcastle Investment Holdings LLC 

(“Newcastle LLC”)—the predecessor of Newcastle—since its inception in 1998.44 

At Newcastle, he has served on the board since 2005, and he has served on its Audit 

Committee, Nominating and Corporate Governance Committee, and Compensation 

Committee.45 Finnerty received $125,000 in compensation from Newcastle in both 

2014 and 2015.46 In 2009, Finnerty received a $500,000 loan from Edens and a 

$500,000 loan from Randal A. Nardone (another principal, director, and officer of 

Fortress).47 Finnerty apparently repaid the two loans in 2015.48 Plaintiff alleges that 

the loans were unsecured and interest-free.49

 

42 Id.

43 Id. ¶ 21. 

44 Id. While the Complaint states that “Newcastle LLC was substantially liquidated in 

June 2013, its funds were distributed and it was cancelled on June 29, 2015,” it is 

unclear when Finnerty’s service on the Newcastle LLC board ended. Id. 

45 Id. ¶ 20. 

46 Id. 

47 Id. ¶ 23. 

48 Id. ¶ 24.

49 Id. ¶ 23.
11

Defendant Douglas L. Jacobs has been a director of New Residential since 

June 2013.50 He currently serves as the chairman of the Audit Committee and a 

member of the Nominating and Corporate Governance Committee.51 New 

Residential paid Jacobs compensation of $135,004 in 2014 and $160,000 in 2015.52 

Jacobs has been a director of Fortress since February 2007, and he serves on 

Fortress’s Audit Committee and Compensation Committee.53 He also is a director 

of Springleaf Holdings, Inc. (“Springleaf”), chairman of its Audit Committee, and 

member of its Compliance Committee.54 “Fortress and its funds” allegedly own a 

majority equity stake in Springleaf, and Springleaf is managed by FIG.55 At the time 

Plaintiff filed its Complaint, Jacobs held approximately 200,000 Class A shares of 

Fortress stock, but fewer than 15,000 shares of New Residential stock.

56

 

50 Id. ¶ 27.

51 Id.

52 Id.

53 Id. ¶ 29.

54 Id. ¶ 30.

55 Id. ¶¶ 43, 51.

56 Id. ¶ 29.
12

Non-party Robert J. McGinnis has been a director on the New Residential 

board since December 2016.57 McGinnis serves on the Audit Committee, the 

Nominating and Corporate Governance Committee, and the Compensation 

Committee.58 He served on the HLSS board from October 2011 to October 2015, 

and he served as its chairman from January to October 2015.59 While chairman of 

HLSS, he explained in a letter to HLSS stockholders in September 2015 that the 

HLSS board unanimously approved the HLSS/New Residential merger, and that it 

was “fair to, and in the best interests of, HLSS and HLSS’s shareholders.”60 

McGinnis also received a portion of the merger consideration in exchange for his 

18,000 HLSS shares.

61

 Lastly, upon joining the New Residential board, he received 

continuing rights to indemnification, advancement, and exculpation from liabilities 

for conduct during his service on the HLSS board.62

 

57 Id. ¶ 170. 

58 Id. 

59 Id. ¶ 171.

60 Id. (emphasis omitted).

61 Id. ¶ 172.

62 Pl.’s Answering Br. 27. 
13

Non-party Andrew Sloves has been a director on the New Residential board 

since July 2016.63 He serves on the Audit Committee, the Nominating and Corporate 

Governance Committee, and the Compensation Committee at New Residential.64 

Sloves is alleged to be a “significant donor to and involved in the Samuel Waxman 

Cancer Research Foundation, which Nierenberg chairs and in which both 

Nierenberg and Edens are significant donors.”65

Non-party HLSS is a publicly traded Cayman Island exempted company that 

invests in MSRs and Excess MSRs.66 HLSS appears to have no ties to Fortress or 

anyone on the New Residential board other than McGinnis. 

B. Pertinent Facts

On February 22, 2015, New Residential and HLSS entered into an Agreement 

and Plan of Merger (the “Initial Merger Agreement”).

67

 Under the Initial Merger 

Agreement, New Residential would acquire approximately 71 million outstanding 

shares of HLSS stock for approximately $1.3 billion.68 But on March 18, NASDAQ 

 

63 Compl. ¶ 178.

64 Id. 

65 Id. ¶ 179.

66 Id. ¶ 108.

67 Id. ¶ 2. 

68 Id. ¶ 127.
14

notified HLSS that it was non-compliant with NASDAQ listing requirements for its 

failure to timely file its 10-K.69 On April 6, HLSS formally notified New Residential 

that HLSS was likely to receive a going-concern qualification unless it entered into 

an alternative transaction with New Residential.70 As such, New Residential and 

HLSS entered into an agreement to terminate the Initial Merger Agreement (the 

“Termination Agreement”).

71

 The Termination Agreement also contained a 

provision whereby New Residential and HLSS mutually released all claims of their

stockholders related to the Initial Merger Agreement and the transactions 

contemplated thereby.72 

Also on April 6, 2015, New Residential and HLSS entered into the Share and 

Asset Purchase Agreement (the “Acquisition Agreement”), whereby New 

Residential purchased “all of the assets of HLSS (except cash) and assumed all 

liabilities of HLSS except its term loan which was paid off and up to $50 million in 

Post-Closing Liabilities.”73 New Residential paid HLSS $1,007,156,145.57 in cash 

and 28,286,980 newly issued shares of New Residential common stock as 

 

69 Id. ¶ 121. 

70 Id. ¶ 122. 

71 Id. ¶ 4. 

72 Id. ¶¶ 4, 116.

73 Id. ¶ 123.
15

consideration for New Residential’s purchase of the assets of HLSS.

74

 HLSS 

planned to sell the New Residential stock received as consideration in a public 

offering “as soon as practicable” after the asset purchase.75 HLSS would then merge 

into a New Residential subsidiary, and New Residential would pay an additional $50 

million in cash to HLSS stockholders in the merger.76 By the end of this series of 

transactions, the total purchase price for the HLSS assets was approximately 

$1,441,200,000.77 

Plaintiff alleges that in connection with New Residential’s purchase of the 

assets of HLSS, Fortress and its affiliates received “large financial benefits,” 

including increased management fees, increased incentive fees, millions of options 

in New Residential stock, and advantages to the real estate assets of other Fortressrelated entities.78

II. ANALYSIS

Plaintiff alleges that Defendants have harmed New Residential and its 

stockholders by forcing New Residential to overpay for the assets of HLSS in order 

 

74 Id. ¶ 123.

75 Id. ¶ 124.

76 Id. ¶ 126.

77 Id. ¶ 127.

78 Id. ¶¶ 6, 129-31.
16

to provide Fortress and its affiliates with significant benefits. Defendants move to 

dismiss Plaintiff’s derivative claims for failure to make a pre-suit demand.79 

A. Rule 23.1 Standard of Review 

“A cardinal precept of the General Corporation Law of the State of Delaware 

is that directors, rather than shareholders, manage the business and affairs of the 

corporation.”80 “Directors of Delaware corporations derive their managerial 

decision making power, which encompasses decisions whether to initiate, or refrain 

from entering, litigation, from 8 Del. C. § 141(a).”81 In order for a stockholder to 

pursue a derivative action and deprive the board of its decision-making authority

regarding the company’s litigation assets, Court of Chancery Rule 23.1 requires 

stockholders to “allege with particularity the efforts, if any, made by the plaintiff to 

obtain the action the plaintiff desires from the directors or comparable authority and 

the reasons for the plaintiff’s failure to obtain the action or for not making the 

 

79 Plaintiff purports to bring a direct breach of fiduciary duty claim in Count I. In my 

First Opinion, I concluded that Count I asserts a derivative claim under Tooley v. 

Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004). Plaintiff 

raises no additional facts to change my analysis. Chester Cnty. Emps.’ Ret. Fund, 

2016 WL 5865004, at *6. Nor does the Delaware Supreme Court’s holding in El 

Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248 (Del. 2016) change 

my analysis. I thus conclude that Counts I and II are duplicative because they 

challenge the same underlying behavior and an identical remedy would flow to the 

corporation. As such, I dismiss Count I, but I consider any alleged misbehavior 

nominally listed under Count I as derivative under Count II.

80 Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (subsequent history omitted).

81 Zapata Corp. v. Maldonado, 430 A.2d 779, 782 (Del. 1981). 
17

effort.”82 Where, as here, the plaintiff has failed to make a pre-suit demand on the 

board,83 the court must dismiss the complaint “unless it alleges particularized facts 

showing that demand would have been futile.”84

The Supreme Court of Delaware articulated the test to analyze demand futility

in two seminal cases. Under Rales v. Blasband, a derivative plaintiff must allege 

particularized facts raising a reasonable doubt that “the board of directors could have 

properly exercised its independent and disinterested business judgment in 

responding to a demand.”85 The Rales test has been said to apply “when a plaintiff 

does not challenge ‘a decision of the board in place at the time the complaint is 

filed.’”86 Under Aronson v. Lewis, demand is futile if the plaintiff alleges 

particularized facts to raise a reasonable doubt that: “(1) the directors are 

disinterested and independent [or] (2) the challenged transaction was otherwise the 

product of a valid exercise of business judgment.”87 Aronson applies when the 

 

82 Ct. Ch. R. 23.1.

83 Compl. ¶ 167. 

84 Ryan v. Gursahaney, 2015 WL 1915911, at *5 (Del. Ch. Apr. 28, 2015), aff’d, 128 

A.3d 991 (Del. 2015).

85 634 A.2d 927, 934 (Del. 1993).

86 Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 65 (Del. Ch. 

2015) (quoting Ryan v. Gifford, 918 A.2d 341, 352 (Del. Ch. 2007)).

87 473 A.2d at 814.
18

plaintiff challenges an action taken by the board that would consider demand.

88

 

Fundamentally, however, Aronson and Rales both “address the same question of 

whether the board can exercise its business judgment on the corporate behalf.”89 The 

“[d]emand futility analysis is conducted on a claim-by-claim basis.”90 The Court

must accept Plaintiff’s particularized allegations of fact as true and draw all 

reasonable inferences that logically flow from such allegations in Plaintiff’s favor.91

The Parties’ briefings focus on the Aronson test, and I do the same for the 

purpose of my analysis. Under the first prong of Aronson, a director is interested if 

he or she appears “on both sides of a transaction” or expects “to derive any personal

financial benefit from it in the sense of self-dealing, as opposed to a benefit which 

devolves upon the corporation or all stockholders generally.”

92

It should be noted, however, that in the absence of selfdealing, it is not enough to establish the interest of a 

director by alleging that he [or she] received any benefit 

not equally shared by the stockholders. Such benefit must 

 

88 Rales, 634 A.2d at 933-34.

89 In re Duke Energy Corp. Deriv. Litig., 2016 WL 4543788, at *14 (Del. Ch. Aug. 

31, 2016); see In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, 

at *16 (Del. Ch. May 21, 2013) (explaining the Aronson and Rales tests are 

“complementary versions of the same inquiry”); see also Brett Kandell v. Dror Niv, 

et al., 2017 WL 4334149, at *11 (Del. Ch. Sept. 29, 2017).

90 Beam v. Stewart, 833 A.2d 961, 977 (Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 

2003).

91 White v. Panic, 783 A.2d 543, 549 (Del. 2000). 

92 Aronson, 473 A.2d at 812.
19

be alleged to be material to that director. Materiality 

means that the alleged benefit was significant enough “in 

the context of the director’s economic circumstances, as to 

have made it improbable that the director could perform 

her fiduciary duties to the . . . shareholders without being 

influenced by her overriding personal interest.”93

“Independence means that a director’s decision is based on the corporate merits of 

the subject before the board rather than extraneous considerations or influences.”94 

A lack of independence may be proven by alleging facts that create “a reasonable 

doubt that a director is so beholden to an interested director that his or her discretion 

would be sterilized.”95

Demonstrating demand futility under the second Aronson prong—that the 

challenged transaction was not the exercise of valid business judgment—requires a 

showing that the situation is one of the “rare cases [in which] a transaction may be 

so egregious on its face that board approval cannot meet the test of business 

 

93 Orman v. Cullman, 794 A.2d 5, 23 (Del. Ch. 2002) (quoting In re Gen. Motors Class 

H S’holder Litig., 734 A.2d 611, 617 (Del. Ch. 1999)); see Cambridge Ret. Sys. v. 

Bosnjak, 2014 WL 2930869, at *5 (Del. Ch. June 26, 2014) (“[A] ‘plaintiff’s burden 

of proof of a director’s self-interest in an arms-length third-party transaction should 

be greater than in a classic self-dealing transaction where a director or directors 

stand on both sides of a transaction.’”) (quoting Cede & Co. v. Technicolor, Inc., 

634 A.2d 345, 362 (Del. 1993)).

94 Aronson, 473 A.2d at 816.

95 Highland Legacy Ltd. v. Singer, 2006 WL 741939, at *5 (Del. Ch. Mar. 17, 2006).
20

judgment, and a substantial likelihood of director liability exists.”96 The second 

Aronson prong applies when the particularized facts are such that it is “difficult to 

conceive” that a director could have satisfied his or her fiduciary duties.97

With respect to the second prong of Aronson, “the threat of liability that 

directors face can be influenced in a substantial way if the corporate charter contains 

an exculpatory charter provision authorized by 8 Del. C. § 102(b)(7).”98 Where, as 

here,99 the company’s charter “insulates the directors from liability for breaches of 

the duty of care, then a serious threat of liability may only be found to exist if the 

plaintiff pleads a non-exculpated claim against the directors”

100 such as a breach of 

the duty of loyalty.

101

 

96 Aronson, 473 A.3d at 815.

97 See Gifford, 918 A.2d at 355.

98 Guttman v. Huang, 823 A.2d 492, 501 (Del. Ch. 2003).

99 Compl. ¶ 84; Brown Aff. Ex. 16, at 8 (“No director shall be personally liable to the 

Corporation or any of its stockholders for monetary damages for breach of fiduciary 

duty as a director, except to the extent such exemption from liability or limitation 

thereof is not permitted under the [Delaware General Corporation Law] as the same 

exists or may hereafter be amended.”).

100 Guttman, 823 A.2d at 501.

101 In re Lear Corp. S’holder Litig., 967 A.2d 640, 648 (Del. Ch. 2008).
21

B. Demand Is Not Excused Under Aronson’s First Prong

Plaintiff argues that demand is excused as futile because a majority of the New 

Residential board members are interested or lack independence.102 At the time 

Plaintiff filed its Complaint, the following seven directors served on the New 

Residential board: Kevin J. Finnerty, Douglas L. Jacobs, Robert J. McGinnis, 

Michael Nierenberg, David Saltzman, Andrew Sloves, and Alan L. Tyson.103 As 

explained below, I find that Plaintiff failed to allege particularized facts sufficient to 

create a reasonable doubt as to the independence of McGinnis, Saltzman, Sloves, 

and Tyson, which constitutes a majority of the board. 

1. McGinnis

Plaintiff argues that McGinnis lacks the independence and disinterest 

necessary to consider a demand because (1) the HLSS acquisition was “critical for 

HLSS,” and thus he “would decline to pursue any corrective action that could 

diminish the benefits he previously secured for HLSS” as the former chairman of 

the HLSS board; (2) he would not want to undermine the “significant reputational 

benefits among his peers in the mortgage industry and among HLSS’s investors” he 

 

102 Compl. ¶ 167.

103 For purposes of this Motion to Dismiss, Plaintiff and Defendants briefed the demand 

analysis based on the seven-member board in place at the time Plaintiff filed its 

Complaint under Braddock v. Zimmerman, 906 A.2d 776, 786 (Del. 2006). 

Notwithstanding this assumption, Plaintiff reserves its right to challenge this issue 

on appeal. Pl.’s Answering Br. 21.
22

received from bestowing “a significant benefit upon stockholders who invested in a 

deeply troubled and failing business;” (3) he received continuing rights to 

indemnification, advancement and exculpation from liabilities for conduct during 

his service on the HLSS board; (4) he had a business relationship with Fortress in 

2004; and (5) he received a portion of the merger consideration because he held 

18,000 HLSS shares.104

Plaintiff’s allegations fail to raise a reasonable doubt that McGinnis could not 

exercise his independent and disinterested business judgment in considering a 

demand for multiple reasons. First, the Complaint does not plead with particularity 

how McGinnis would suffer reputational harm by bringing demand on behalf of New 

Residential after he previously concluded that the transaction benefitted HLSS. Nor 

does Plaintiff explain how his receipt of a portion of the merger consideration would 

impugn his ability to consider demand. For example, there are no allegations that 

McGinnis would be at risk of losing such merger consideration. 

With respect to Plaintiff’s argument regarding McGinnis’s receipt of 

indemnification and exculpation rights, this Court has held that “the receipt of 

indemnification is not [normally] deemed to taint related director actions with a 

presumption of self-interest. That is because indemnification has become 

 

104 Compl. ¶¶ 172-75.
23

commonplace in corporate affairs, and because indemnification does not increase a 

director’s wealth.”105 

Additionally, Plaintiff’s assertion that McGinnis “shared a significant 

business relationship with Fortress”106 because he oversaw the securitization of a 

mortgage loan for Fortress in 2004—over twelve years ago—while working for 

Greenwich Capital Markets similarly fails to plead with particularity how McGinnis 

would not be able to use his independent business judgment to consider a demand. 

Nor does Plaintiff explain how the prior business relationship was “significant.” 

Such vague allegations do not raise a reasonable doubt that McGinnis is disinterested 

and independent. 

2. Sloves

Plaintiff alleges that Sloves lacks the requisite independence and disinterest 

because he (1) is a “significant donor to and involved in the Samuel Waxman Cancer 

Research Foundation, which Nierenberg chairs and in which both Nierenberg and 

Edens are significant donors” and (2) has “several years of social connections” with 

Nierenberg and Edens.107 But Plaintiff fails to plead any particularized facts 

 

105 In re Sea-Land Corp. S’holders Litig., 642 A.2d 792, 804 (Del. Ch. 1993), aff’d sub 

nom. Sea-Land Corp. S’holder Litig. v. Abely, 633 A.2d 371 (Del. 1993).

106 Compl. ¶ 177; Pl.’s Answering Br. 27.

107 Compl. ¶ 179.
24

regarding these “several years of social connections” to infer that Sloves had a longstanding, close “personal friendship”108 with either Nierenberg or Edens that would 

impugn his independence.

Similarly, Plaintiff fails to plead any particularized facts to indicate how or 

why Nierenberg’s and Eden’s involvement in the Samuel Waxman Cancer Research 

Foundation had any influence on Sloves during the relevant time period. For 

example, Plaintiff vaguely asserts that Sloves, Nierenberg, and Edens are 

“significant donors,” but Plaintiff does not provide details regarding their 

contributions to the charity that might illuminate Plaintiff’s understanding of the 

term “significant.”109 Because the Complaint lacks any particularized details that 

might suggest this is something more than a “thin social-circle friendship,”110

Plaintiff fails to create a reasonable doubt as to Sloves’s independence.

111

 

108 Del. Cty. Empls. Ret. Fund v. Sanchez, 124 A.3d 1017, 1021-22 (Del. 2015).

109 Compl. ¶ 179.

110 Sanchez, 124 A.3d at 1022.

111 Compare In re Goldman Sachs Gp., Inc. S’holder Litig., 2011 WL 4826104, at *9 

(Del. Ch. Oct. 12, 2011) (“Crucially, the Plaintiffs fail to provide any information 

on how the amounts given influenced Bryan’s decision-making process. Because 

the complaint lacks such particularized details, the Plaintiffs have failed to create a 

reasonable doubt as to [director] Bryan’s independence.”), with Off v. Ross, 2008 

WL 5053448, at *11 (Del. Ch. Nov. 26, 2008) (“Ross’s substantial donation [of 

$100 million] raises considerable doubt as to the independence of Dolan. . . . [T]he 

donation of such a prodigious sum coupled with the fact that Ross became the 

eponym of the benefiting institution calls into question the independence of 

Defendant Dolan.”).
25

3. Saltzman

Plaintiff alleges that Saltzman lacks the requisite independence and disinterest 

because he has been the Executive Director of the Robin Hood Foundation, a 

charitable organization to which Novogratz (a retired Fortress principal) is a 

“significant donor.”

112

 I reject this argument for the same reason I rejected such 

allegations Plaintiff made with respect to Sloves. 

Additionally, Plaintiff contends that the compensation Saltzman receives as a 

New Residential director is material to him because he worked for New York City’s 

Board of Education, Department of Health, and Department of Social Services 

before joining the Robin Hood Foundation, and thus “his employment background 

indicates he has not accumulated great wealth.”113 But as this Court explained in In 

re Walt Disney, to find that a director lacks independence because he or she is not 

wealthy would “discourage the membership on corporate boards of people of lessthan extraordinary means. Such ‘regular folks’ would face allegations of being 

dominated by other board members, merely because of the relatively substantial 

compensation provided by the board membership compared to their outside 

 

112 Compl. ¶ 35. 

113 Id. ¶ 36.
26

salaries.”114 And “I am especially unwilling to facilitate such a result.” 115 As such, 

Plaintiff’s allegations are insufficient to raise a reasonable doubt that Saltzman is 

interested or lacks independence.

4. Tyson

Plaintiff alleges that Tyson lacks independence because he received $125,009 

in 2014 and $150,000 in 2015 for his service on the New Residential board, and 

$135,000 in 2014 and $125,000 in 2015 for his service on the Newcastle board.

116

 

But Tyson’s compensation from these two boards is insufficient to challenge 

independence because “[u]nder Aronson, receiving reasonable compensation for 

serving as a director for one other company related to an interested director, without 

more, will usually not be enough to create a reasonable doubt as to director 

independence.”117 

Plaintiff argues that it has satisfied the requisite “more” because Tyson is 

retired, and “the compensation from those board seats is a material part of his 

income.”118 But Plaintiff has not articulated any reason why this Court should 

 

114 In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 360 (Del. Ch. 1998), aff’d in part 

and rev’d in part sub nom. Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

115 Id.

116 Compl. ¶¶ 39-40.

117 Kahn v. Portnoy, 2008 WL 5197164, at *13 (Del. Ch. Dec. 11, 2008).

118 Compl. ¶ 41. 
27

assume the materiality of this income to Tyson other than the fact that he is retired. 

A ruling in Plaintiff’s favor with respect to Tyson essentially would be a blanket 

determination that all retired board members lack independence; I decline to adopt 

such a rule. As the Delaware Supreme Court has held, “allegations of payment of 

director’s fees, without more, do not establish any financial interest.”

119

Lastly, Plaintiff seeks to cast doubt on Tyson’s independence by arguing that 

Tyson is reliant upon a Fortress-controlled Nominating and Corporate Governance 

Committee for his nomination to the New Residential board.120 I disagree. The 

Nominating and Corporate Governance Committee is comprised on Finnerty, 

Jacobs, McGinnis, Sloves, and Tyson; I have already determined that McGinnis, 

Sloves, and Tyson are independent, which constitutes a majority of Nominating and 

Corporate Governance Committee. 

In conclusion, Plaintiff fails to raise a reasonable doubt that a majority of the 

board is independent or disinterested for purposes of demand futility under Rule 

23.1; I now turn to the second prong of Aronson.

 

119 In re Walt Disney Co. Deriv. Litig., 731 A.2d at 360 (citing Grobow v. Perot, 539 

A.2d 180, 188 (Del. 1988)).

120 Pl.’s Answering Br. 25.
28

C. Demand Is Not Excused Under Aronson’s Second Prong

Plaintiff articulates two bases to establish that demand is excused as futile 

under the second prong of Aronson. First, Plaintiff asserts that demand would be

futile because the entire fairness standard of review applies to the challenged 

transactions since Fortress allegedly is a controlling stockholder of New 

Residential.121 But even if I were to determine that Fortress is a controlling 

stockholder and is interested in the challenged transactions—which I need not 

determine—the potential resulting application of the entire fairness standard of 

review does not automatically render demand futile. To hold otherwise would mean 

that demand is futile “as a matter of law whenever a transaction between a 

corporation and its putative controlling stockholder implicates the entire fairness 

standard.”122 And while this argument has some “superficial appeal, it is inconsistent 

with controlling authority” in this jurisdiction.123 As this Court explained in Baiera,

 

121 Compl. ¶ 182; Pl.’s Answering Br. 37. 

122 Baiera, 119 A.3d at 65.

123 Id. at n.121 (“Given that the second prong of Aronson asks simply whether ‘the 

challenged transaction was otherwise the product of a valid exercise of business 

judgment,’ Aronson, 473 A.2d at 814, it is understandable how one might find that 

test to be satisfied whenever entire fairness review might be triggered, irrespective 

of the circumstances triggering such review or the nature of the claims to which 

such review might apply. The sole authority on which Plaintiff relies consists of a 

transcript ruling that appears to endorse this approach. I decline to follow this ruling 

because it is inconsistent in my opinion with controlling Supreme Court precedent

. . . .”). 
29

the potential that the entire fairness standard may govern 

Plaintiff’s breach of fiduciary duty claim against [] an 

alleged controlling stockholder [] does not remove that 

claim, or any of the other derivative claims [], from the 

purview of the Demand Board to decide for themselves 

under 8 Del. C. § 141(a) whether to exercise the 

Company’s right to bring such a claim. The focus instead, 

as explained in Aronson and repeated in Beam, is on 

whether Plaintiff’s allegations raise a reasonable doubt as 

to the impartially of a majority of the Demand Board to

have considered such a demand.124 

Here, I have already determined that a majority of the board is independent and 

disinterested; thus, Plaintiff fails to raise a reasonable doubt as to the impartiality of 

a majority of the board to have considered such a demand.

Second, Plaintiff alleges that the decision of the New Residential board to 

terminate the Initial Merger Agreement and enter into the Acquisition Agreement 

and related transactions is not protected by the business judgment presumption 

because the “terms of the revised HLSS acquisition are ‘so egregious on [their] face’ 

that there is ‘a substantial likelihood of director liability.’”125 “A simple allegation 

of potential directorial liability is insufficient to excuse demand, else the demand 

requirement itself would be rendered toothless, and directorial control over corporate 

litigation would be lost.”

126

 “Where, as here, the corporation’s charter includes an 

 

124 Baiera, 119 A.3d at 68.

125 Pl.’s Answering Br. 52 (citing Aronson, 473 A.2d at 815).

126 Baiera, 119 A.3d at 62 (citing Goldman Sachs Gp., 2011 WL 4826104, at *18).
30

exculpatory provision pursuant to 8 Del. C. § 102(b)(7), a substantial likelihood of 

liability ‘may only be found to exist if the plaintiff pleads a non-exculpated claim 

against the directors based on particularized facts.’”127 Plaintiff’s theory to 

challenge the board’s decisions appears to be one of bad faith. 

Plaintiff asserts that the board acted irrationally because it “should have 

extracted a much better price and improved terms compared to the Initial Merger 

Agreement.”128 This “is precisely the type of ‘Monday morning quarterbacking’ that 

this Court routinely rejects as insufficient to establish demand futility.”129 “In the 

absence of well pleaded allegations of director interest or self-dealing, failure to 

inform themselves, or lack of good faith, the business decisions of the board are not 

subject to challenge because in hindsight other choices might have been made 

instead.”130 

Additionally, Plaintiff focuses on what it believes to be an overpayment of at 

least $100 million131 under the subsequent Acquisition Agreement compared to what 

 

127 Id. (quoting Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)).

128 Compl. ¶ 127; Pl.’s Answering Br. 51, 53.

129 Baiera, 119 A.3d at 65.

130 In re Affiliated Computer Servs., Inc. S’holder Litig., 2009 WL 296078, at *10 (Del. 

Ch. Feb. 6, 2009). 

131 The amount Plaintiff alleges that New Residential overpaid differs in various filings. 

Compare Compl. ¶ 127 (alleging it was “nearly $200 million more”), with Pl.’s 

Answering Br. 38 (arguing it was “$100 million more”).
31

was contemplated initially under the Initial Merger Agreement for assets that had 

become less valuable. Plaintiff tries to plead overpayment by comparing apples to 

oranges. The Initial Merger Agreement contemplated a payment of $18.25 per share 

for the approximately 71 million outstanding HLSS shares,132 totaling roughly $1.3 

billion in cash, plus the “assum[ption] [of] all the . . . debts and liabilities” of 

HLSS.

133

 This would include the assumption of HLSS’s $344 million term loan. 

The threat of a going concern qualification threw a wrench into the process, which 

would have “result[ed] in a default by HLSS on its term loan and its mortgage loan 

repurchase and advance financing facilities.”134 The Parties then altered the deal 

structure into a stock and asset purchase, under which HLSS would first “repay[] . . 

. in full . . . [the $344 million] Term Loan,”135 only after which New Residential 

would transfer roughly $1 billion in cash and 28.3 million New Residential shares136

and assume a number of specified liabilities.137 This $1 billion in cash includes 

roughly $385 million for “HLSS Seller Financing,” which appears to correlate with 

 

132 Brown Aff. Ex. 17, at Recitals.

133 Id. § 1.04.

134 Compl. ¶ 121. 

135 Amato Aff. Ex. A, at § 2.01.

136 Id. § 2.02.

137 Id. § 1.04.
32

the value of HLSS’s term loan repayment and any associated prepayment 

penalties.

138

 The total consideration paid for HLSS—which no longer had a term 

loan for New Residential to assume—was $1.49 billion.139 Plaintiff seeks to 

compare the equity purchase price in the initial scenario with the total consideration 

actually paid for the entire HLSS enterprise, which now lacked a $344 million 

liability in its term loan; these are inapposite. Thus, I am not convinced this decision 

was “so far beyond the bounds of reasonable judgment that it seems essentially 

inexplicable on any ground other than bad faith.”140

For both of the aforementioned reasons, I do not find the board’s decision to 

purchase the assets of HLSS to be of the “rare cases [in which] a transaction may be 

so egregious on its face that board approval cannot meet the test of business 

judgment, and a substantial likelihood of director liability therefore exists.”141 Thus, 

demand is not futile under Aronson’s second prong. 

 

138 Brown Aff. Ex. 14, at 11.

139 Compl. ¶ 127.

140 Baiera, 119 A.3d at 63.

141 Aronson, 473 A.2d at 815. 
33

III. CONCLUSION

For the foregoing reasons, Defendants’ Motion to Dismiss is granted. 142

IT IS SO ORDERED.

 

142 In Count III, Plaintiff seeks a declaratory judgment “that the Termination 

Agreement could not and did not release the claims of” New Residential 

stockholders against HLSS. Compl. ¶ 199. In my First Opinion, I dismissed this 

same count as unripe because I dismissed Counts I and II without prejudice. Chester 

Cnty. Emps.’ Ret. Fund, 2016 WL 5865004, at *13. Plaintiff provides no additional 

facts or arguments that change my analysis in the First Opinion; thus, Count III is 

dismissed.