IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MATTHEW SCIABACUCCHI, 

Individually and on Behalf of All Others 

Similarly Situated,

Plaintiff,

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v.

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C.A. No. 11418-VCG

LIBERTY BROADBAND 

CORPORATION, JOHN MALONE, 

GREGORY MAFFEI, MICHAEL 

HUSEBY, BALAN NAIR, ERIC 

ZINTERHOFER, CRAIG JACOBSON, 

THOMAS RUTLEDGE, DAVID 

MERRITT, LANCE CONN, and JOHN 

MARKLEY,

Defendants,

and

CHARTER COMMUNICATIONS, 

INC.,

 

 Nominal Defendant.

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MEMORANDUM OPINION

Date Submitted: April 6, 2018

Date Decided: July 26, 2018

Kurt M. Heyman and Melissa N. Donimirski, of HEYMAN ENERIO GATTUSO 

& HIRZEL LLP, Wilmington, Delaware; OF COUNSEL: Jason M. Leviton and 

Joel A. Fleming, of BLOCK & LEVITON LLP, Boston, Massachusetts, Attorneys 

for Plaintiff.

Martin S. Lessner, David C. McBride, James M. Yoch, Jr., and Paul J. Loughman, 

of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; 
OF COUNSEL: William Savitt, Anitha Reddy, and David Kirk, of WACHTELL, 

LIPTON, ROSEN & KATZ, New York, New York, Attorneys for Defendants 

Michael Huseby, Balan Nair, Eric Zinterhofer, Craig Jacobson, Thomas Rutledge, 

David Merritt, Lance Conn, John Markley, and Nominal Defendant Charter 

Communications, Inc.

Donald J. Wolfe, Jr., Peter J. Walsh, Jr., Brian C. Ralston, Tyler J. Leavengood, 

Jaclyn C. Levy, and Aaron R. Sims, of POTTER ANDERSON & CORROON LLP, 

Wilmington, Delaware; OF COUNSEL: Richard B. Harper, of BAKER BOTTS 

LLP, New York, New York, Attorneys for Defendants Liberty Broadband 

Corporation, John Malone, and Gregory Maffei.

GLASSCOCK, Vice Chancellor
1

The Plaintiff here is a stockholder in Charter Communications, Inc., a media 

company. In 2015, Charter made two major acquisitions, of Bright House

Networks and Time Warner Cable. Charter obtained stockholder approval of the 

transactions, but conditioned the acquisitions on stockholder approval of a related

series of transactions, including an issuance of equity to Charter’s largest 

blockholder, Liberty Broadband. The stockholders voting for the acquisitions were 

told that those acquisitions would not close unless the issuance to Liberty was also 

approved. The equity issuance would help finance, in small part, the acquisitions. 

The transactions were approved; the Plaintiff here challenges, among other things,

the transfer of equity to Liberty Broadband.

The Defendants moved to dismiss, on the ground that the stockholder vote 

had cleansed any breaches of duty, citing Corwin v. KKR Financial Holdings 

LLC.

1

 By Memorandum Opinion of May 31, 2017, I found that the vote was 

structured in such a way as to use approval of the lucrative acquisitions to coerce a 

vote for the issuance and a related transaction, negating any ratifying effect of the 

vote.2 The Defendants have also moved to dismiss on two additional grounds. 

They argue that the claims are solely derivative in nature, and that the Plaintiff has

failed to demonstrate that the demand requirement of Court of Chancery Rule 23.1 

 

1

125 A.3d 304 (Del. 2015).

2

Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *20–24 (Del. Ch. May 31, 

2017).
2

should be excused. They also argue that the Complaint fails to state a claim under 

Court of Chancery Rule 12(b)(6).

The Plaintiff has attempted to plead both derivative and direct claims. I 

agree with the Defendants that the claims, in reality, are purely derivative. 

Therefore, the direct claims are dismissed. I also find, however, that the Plaintiff 

has adequately pled facts sufficient to excuse demand on the Charter board as 

futile, and that the Complaint adequately pleads a claim sufficient to invoke entire 

fairness. The Motion to Dismiss the derivative claims is denied, therefore. My 

reasoning follows.

I. BACKGROUND3

The allegations of the Complaint are recounted in great detail in my initial 

motion-to-dismiss opinion.4 I do not duplicate that effort here. Instead, I include 

only those facts necessary to understand the issues that remain following my initial 

decision.

A. Parties

Defendant Liberty Broadband Corporation is a Delaware corporation 

headquartered in Englewood, Colorado.5 Liberty Broadband was once a wholly 

owned subsidiary of non-party Liberty Media Corporation, but Liberty Broadband 

 

3 The facts, drawn from the Complaint and other material I may consider on a motion to dismiss, 

are presumed true for purposes of evaluating the Defendants’ Motions to Dismiss.

4 Liberty Broadband Corp., 2017 WL 2352152, at *4–13.

5 Compl. ¶ 12.
3

was spun-off in 2014, and now both Liberty Broadband and Liberty Media are 

separate, publicly traded companies.6 Defendant John Malone owns approximately 

47% of the voting power of both Liberty Media and Liberty Broadband.7 Malone 

also chairs the boards of directors of both companies.

8

 I refer to Malone and 

Liberty Broadband as the “Stockholder Defendants.”

Nominal Defendant Charter Communications, Inc. is a Delaware corporation 

headquartered in Stamford, Connecticut.9 Charter is one of the largest cable 

providers in the United States.10 Liberty Broadband is Charter’s largest 

stockholder, holding approximately 26% of its stock.11

Charter’s board of directors consists of ten members, four of whom were

designated by Liberty Broadband.12 The directors are Defendants John Malone, 

W. Lance Conn, Michael Huseby, Craig Jacobson, Gregory Maffei, John Markley, 

Jr., David Merritt, Balan Nair, Thomas Rutledge, and Eric Zinterhofer (the 

“Director Defendants”).

13

 Liberty Broadband’s four designees are Malone, 

Huseby, Maffei, and Nair.14

 

6

Id.

7

Id.

8

Id. ¶ 13.

9

Id. ¶ 24.

10 Id.

11 Id. ¶ 2.

12 Id. ¶¶ 13–22, 34.

13 Id. ¶¶ 13–22.

14 Id. ¶¶ 13, 15, 17, 20.
4

Plaintiff Matthew Sciabacucchi held Charter stock at the time of the 

challenged transactions, and he maintains his ownership interest today.15

B. Factual Background

1. Liberty Media Invests in Charter

In May 2013, Liberty Media purchased a 27% stake in Charter.

16

 As part of 

its investment, Liberty Media entered into a stockholders agreement with Charter.17 

That agreement gave Liberty Media the right to designate four directors to the 

Charter board so long as its ownership interest remained at 20% or higher.18 The

agreement also imposed several restrictions on Liberty Media: it could not acquire 

over 35% of Charter’s voting stock before January 2016 (or more than 39.99% 

after January 2016), and it was prohibited from soliciting proxies or consents.19 

Liberty Media’s four board designees were, as just noted, Malone, Maffei, Nair, 

and Huseby.20 In September 2014, Liberty Media assigned all of its rights and 

obligations under the stockholders agreement to Liberty Broadband, one of the 

Defendants in this action.21

Several years before Liberty Media’s investment, Charter had adopted 

provisions in its certificate of incorporation that restricted the company’s ability to 

 

15 Id. ¶ 11.

16 Id. ¶ 32.

17 Id. ¶ 33.

18 Id. ¶ 34.

19 Id. ¶ 35.

20 Id. ¶ 33.

21 Id. ¶ 37.
5

enter into transactions with large stockholders.22 Specifically, the certificate of 

incorporation put restrictions on “Business Combinations” between Charter and an 

“Interested Stockholder.”23 An “Interested Stockholder” was defined as any 

person who held 10% or more of Charter’s voting stock, and “Business 

Combination” was defined to include transfers of Charter assets (and issuances of 

Charter securities) to an Interested Stockholder.

24

 Charter could not effect a 

Business Combination unless (i) a majority of the directors unaffiliated with the 

Interested Stockholder approved the transaction, and (ii) a majority of stockholders 

unaffiliated with the Interested Stockholder voted in favor of the transaction.25

2. The Challenged Transactions

a. The Original Bright House Transaction

Soon after Liberty Media invested in Charter, Rutledge (Charter’s CEO) and 

Maffei met with executives of Time Warner Cable Inc. to discuss a potential 

acquisition of Time Warner.26 The discussions continued into late 2013 and early 

2014, but they broke down in February 2014.27 That month, Comcast Corporation 

and Time Warner announced that Comcast had agreed to acquire Time Warner for 

 

22 Yoch Aff. Ex. A, Ex. 3.1, art. 8(a).

23 Id.

24 Id. art. 8(b)(i)(B), 8(b)(vi).

25 Id. art. 8(a), 8(b)(v).

26 Compl. ¶ 63.

27 Id. ¶ 64.
6

approximately $45 billion.28 Anticipating antitrust challenges to the merger, 

Comcast and Time Warner decided to divest a number of subscribers.29 As part of 

that divestment, Charter would enter into subscriber swaps with Comcast and Time 

Warner, in addition to purchasing a Comcast subsidiary.30 These transactions were 

contingent on the consummation of the Comcast-Time Warner merger.31

Meanwhile, having failed to acquire Time Warner, Charter set its sights on 

Bright House Networks, LLC, a large cable company owned by 

Advance/Newhouse Partnership.32 In June 2014, Advance/Newhouse sent Charter 

a high-level term sheet under which Advance/Newhouse would contribute Bright 

House to a partnership in exchange for, among other things, $1 billion in cash and 

common and preferred partnership units.33 One week later, Charter proposed 

revisions related to Advance/Newhouse’s influence over Charter, “particularly in 

conjunction with the existing share ownership and governance rights of Liberty 

Media Corporation.”34 Negotiations continued, and by October 2014, Charter and 

Advance/Newhouse had reached agreement on a term sheet setting forth the 

material terms of the transaction.35 The parties shared the term sheet with Liberty 

 

28 Id. ¶ 65.

29 Id.

30 Id. ¶ 66.

31 Id.

32 Id. ¶ 68.

33 Yoch Aff. Ex. D, at 137.

34 Compl. ¶ 91 (emphasis omitted).

35 Yoch Aff. Ex. D, at 138.
7

Media, which proposed various changes, including that Advance/Newhouse “grant 

Liberty Media a proxy . . . to vote as many of [Advance/Newhouse’s] shares in 

Charter as would be required to increase Liberty Media’s total voting stake in 

Charter to 25.01%.”36 Liberty Media also proposed that Charter give it 

“preemptive rights to maintain its pro rata ownership stake in Charter after the 

closing of the combination with Bright House in connection with any issuance of 

equity securities of Charter after signing.”37

On October 24, the six Charter directors not appointed by Liberty Media met 

to discuss the term sheet.38 The directors reviewed the potential conflicts of 

interest of Charter’s legal and financial advisors, as well as the directors present at 

the meeting.39 “The independent directors resolved to form a working group 

comprising Eric L. Zinterhofer, Chairman of Charter, John D. Markley Jr. and 

Lance Conn to meet as necessary to consider and negotiate the potential 

transaction.”

40

 Because LionTree Advisors LLC, one of Charter’s financial 

advisors, had “a substantial historic and ongoing relationship with Liberty,” “the 

independent directors of the Charter board of directors negotiated and considered 

the transactions with Liberty without the participation of LionTree.”41

 

36 Id.

37 Id. at 138–39.

38 Id. at 139.

39 Id.

40 Id.

41 Id.
8

Following several weeks of negotiations, on November 21, Charter and 

Liberty Broadband (which had recently completed its spin-off from Liberty Media) 

agreed to pursue the Bright House acquisition based on a revised term sheet that (i) 

gave Liberty Broadband the right to maintain a 25.01% voting interest in Charter, 

and (ii) provided for a thirteen-member board with three designees each for Liberty 

Broadband and Advance/Newhouse.42 The purpose of maintaining a 25.01% 

voting interest in Charter was to allow Liberty Broadband to escape regulation 

under the Investment Company Act of 1940, which does not apply to entities

“primarily engaged . . . in a business or businesses other than that of investing, 

reinvesting, owning, holding, or trading in securities.”

43

On March 30, 2015, the Charter board met to consider the proposed 

transactions.44 After discussing the benefits of the deal, the four directors 

designated by Liberty Broadband voted to approve the acquisition.

45

 Those 

directors (along with representatives of LionTree) then left the meeting.46 The 

remaining six directors proceeded to review the proposed transactions between 

Charter and Liberty Broadband.

47

 The remaining directors determined that the 

 

42 Id.

43 15 U.S.C. § 80a-3(b)(1).

44 Yoch Aff. Ex. D, at 141.

45 Id.

46 Id.

47 Id.
9

contemplated transactions were fair to and in the best interests of Charter’s 

stockholders.48 

Charter announced the Bright House transaction the next day.49 Under the 

agreement, Charter would pay Advance/Newhouse $2 billion in cash, $5.9 billion 

in exchangeable common partnership units, and $2.5 billion in convertible 

preferred partnership units.50 The partnership units would be exchangeable into 

Charter common stock at $173 per share, which represented the sixty-day Charter 

volume-weighted average price.51 Under a new stockholders agreement between 

Charter, Liberty Broadband, and Advance/Newhouse, Advance/Newhouse would 

retain a 26.3% ownership stake in the resulting company, and Liberty Broadband 

would hold a 19.4% ownership stake.

52

 Advance/Newhouse also agreed to grant 

Liberty Broadband a voting proxy on up to 6% of its shares, giving Liberty 

Broadband voting power of at least 25.01% at closing.53 Moreover, both 

Advance/Newhouse and Liberty Broadband would receive preemptive rights 

allowing them to maintain their pro rata ownership.54 Finally, Liberty Broadband 

agreed to purchase $700 million of newly issued Charter shares at $173 per share.55

 

48 Id.

49 Compl. ¶ 69.

50 Id.

51 Id.

52 Id. ¶ 70.

53 Id.

54 Id.

55 Id.
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The Bright House acquisition was contingent on the consummation of the 

subscriber-divestment transactions Charter had entered into with Time Warner and 

Comcast.56 The divestment transactions, in turn, would not close unless Comcast 

merged with Time Warner.57 In April 2015, the Comcast/Time Warner merger 

was terminated following reports that the Federal Communications Commission 

would bring a lawsuit to block the deal.

58

 Thus, the divestment transactions and 

the Bright House deal became void.59

b. The Time Warner Merger, and the New Bright House 

Transaction

The same day Comcast and Time Warner called off the proposed merger, 

Charter and Time Warner began discussing a potential combination.60 Rutledge, 

Charter’s CEO, spoke with Maffei about Charter’s interest in a merger with Time 

Warner, and Maffei indicated his support for such a transaction.61 Maffei also said 

that Liberty Broadband was interested in pursuing “a significant additional 

investment in Charter, including by exchanging its [Time Warner] shares for 

Charter shares, . . . in light of Charter’s potential financing needs and Liberty 

Broadband’s desire to maintain its percentage equity interest in Charter.”62

 

56 Compl. ¶ 69.

57 Id. ¶ 66.

58 Id. ¶ 74.

59 Id.

60 Yoch Aff. Ex. D, at 143.

61 Id.

62 Id.
11

Charter’s board met on May 4, 2015, to discuss the potential acquisition of 

Time Warner.63 The board authorized Charter’s management to offer to acquire 

Time Warner for approximately $172.50 per Time Warner share based on 

Charter’s stock price as of May 4.64 The board also reaffirmed its willingness to 

“complete the Bright House transaction on substantially the same economic and 

governance terms as previously agreed.”65 About two weeks later, Charter and 

Time Warner management discussed the “terms on which Liberty Broadband was 

interested in making an additional investment in Charter shares to partially finance 

the cash portion of the consideration to be paid to [Time Warner] stockholders and 

the terms on which Liberty Broadband would consider exchanging [Time Warner]

shares for Charter shares.”66 The next day, “the independent directors of Charter’s 

board of directors met to receive an update from Mr. Zinterhofer and Wachtell 

Lipton[, Charter’s legal advisors,] regarding the Liberty Broadband investment, 

including the ongoing discussions regarding the aggregate amount of the 

investment and the per share price.”

67

On May 26, 2015, Charter announced that it had reached an agreement to 

merge with Time Warner for a mix of stock and cash.68 The merger valued Time 

 

63 Id. at 144.

64 Id.

65 Id.

66 Id. at 147.

67 Id.

68 Compl ¶ 75.
12

Warner at approximately $78.7 billion.

69

 Charter agreed to provide $100 in cash 

and shares equivalent to 0.5409 Charter shares for each outstanding Time Warner

share in a newly created public parent company, New Charter.70 Liberty 

Broadband and Liberty Interactive would receive all stock for their Time Warner

shares.71 Charter also provided “an election option for each Time Warner Cable

stockholder, other than Liberty Broadband . . . or Liberty Interactive . . . to receive 

$115.00 of cash and New Charter shares equivalent to 0.4562 shares” of Charter 

for each Time Warner share.72 Upon the closing of the merger, Liberty Broadband 

agreed to buy $4.3 billion of newly issued shares of New Charter at $176.95, the 

closing price of Charter as of May 20, 2015.

73

At the same time that Charter announced the Time Warner merger, it 

announced a new Bright House transaction with similar terms as the original 

Bright House transaction.74 Once again, pursuant to a new stockholders agreement 

between Charter, Liberty Broadband, and Advance/Newhouse, 

Advance/Newhouse agreed to grant Liberty Broadband a voting proxy on up to 6% 

of its shares.

75

 Liberty Broadband also agreed to purchase $700 million of newly 

 

69 Id.

70 Id.

71 Id.

72 Id.

73 Id. ¶¶ 79, 81.

74 Id. ¶ 77.

75 Id. ¶ 83.
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issued Charter shares at the previously agreed-to price of $173 per share.76 Liberty 

Broadband received the right to “purchase from any issuance of equity in 

conjunction with capital raising efforts sufficient shares to maintain its investment 

in the Company,” and was carved out from any future stockholders rights plan 

Charter might adopt.

77

 The Time Warner merger and the Bright House transaction 

were conditioned on the Charter stockholders’ approving (i) the stock issuances to 

Liberty Broadband and (ii) the voting proxy agreement.78 

All of these transactions had been approved at a Charter board meeting held 

on May 23.79 At that meeting, the four directors designated by Liberty Broadband 

first unanimously approved the proposed transactions with Time Warner and 

Advance/Newhouse as fair and in the best interests of Charter’s stockholders.80 

They then left the meeting.81 The remaining six directors proceeded to review the 

negotiations over the agreements with Liberty Broadband and Bright House.82

“After further consideration and consultation with their advisors,” the remaining 

directors unanimously approved the Time Warner merger and the transactions with 

Liberty Broadband and Bright House.

83

 

76 Id. ¶ 79.

77 Id. ¶ 84.

78 Id. ¶ 99.

79 Yoch Aff. Ex. D, at 151–52.

80 Id. at 152.

81 Id.

82 Id.

83 Id.
14

On August 20, 2015, Charter filed a definitive proxy statement with the 

Securities and Exchange Commission in connection with the Time Warner merger 

and the agreements with Bright House and Advance/Newhouse.

84

 On September 

21, 2015, 90% of outstanding Charter shares approved the Time Warner merger.

85

 

Excluding shares beneficially owned by Liberty Broadband and its affiliates, 

approximately 86% of outstanding Charter shares, in a single vote, voted in favor 

of issuing stock to Liberty Broadband, allowing Liberty Broadband and Liberty 

Interactive to receive all stock for their Time Warner shares, and granting Liberty 

Broadband a voting proxy on up to 6% of Advance/Newhouse’s shares.

86

 The 

Time Warner merger and the Bright House transaction closed on May 18, 2016.

Before the transactions just described, Charter, Time Warner, and Bright 

House were separate entities. Bright House was wholly owned by 

Advance/Newhouse. Liberty Broadband owned 26% of Charter. After the 

transactions, Charter owned Bright House and had merged with Time Warner. 

Time Warner stockholders owned between 40% and 44% of Charter, 

Advance/Newhouse owned between 13% and 14%, and Liberty Broadband owned 

between 19% and 20%. As a result of its voting proxy, however, Liberty 

 

84 Yoch Aff. Ex. D.

85 Yoch Aff. Ex. F.

86 Id.
15

Broadband retained an additional voting interest of approximately 6%, keeping its 

total voting power about the same as it stood before the transactions.

* * *

To recap, the Plaintiff does not challenge the Time Warner merger or the 

Bright House acquisition. Instead, he attacks four “side deals” Charter entered into 

with Liberty Broadband in connection with the Time Warner and Bright House 

transactions.87 First, the Plaintiff challenges Charter’s issuance of $700 million in 

stock to Liberty Broadband as part of the Bright House acquisition. According to 

the Plaintiff, that issuance was unfair because it was priced at $173 per share, 

which represented a discount to Charter’s market price at the time.88 Second, the 

Plaintiff questions the fairness of Charter’s decision to issue Liberty Broadband 

$4.3 billion in stock valued at $176.95 per share, an issuance made in connection 

with the Time Warner merger. In the Plaintiff’s view, that transaction was unfair 

because, while $176.95 represented Charter’s market price at the time, that price 

failed to take account of financial projections suggesting that the company would 

be worth far more than $176.95 per share once the transactions closed.89

Third, the Plaintiff challenges Charter’s decision to allow only Liberty 

Broadband to receive all stock for its Time Warner shares. That decision 

 

87 Compl. ¶ 99.

88 Id. ¶ 6.

89 Id. ¶ 7 & n.3.
16

purportedly gave Liberty Broadband “a tax benefit not available to public 

stockholders” and enabled it to “fully enjoy the future benefits and synergies of the 

[t]ransactions.”90 Fourth and finally, the Plaintiff attacks Liberty Broadband’s 

receipt of the 6% voting proxy, which allowed it to maintain its preexisting voting 

power. As a result, Liberty Broadband was “the only shareholder to avoid 

significant dilution of its voting interest upon the consummation of the 

[t]ransactions.”91

C. This Litigation

One day after Charter filed the proxy, the Plaintiff filed his original 

complaint for breach of fiduciary duties, alleging that the proxy was materially 

misleading because it failed to disclose certain unlevered free cash flow projections 

and the text of the voting proxy agreement. The Plaintiff sought to enjoin the 

acquisitions based on these purported breaches. Charter supplemented the proxy 

on September 9, 2015, providing the requested projections and the text of the 

voting proxy agreement. The Plaintiff then withdrew his request for injunctive 

relief, acknowledging that “the additional disclosures . . . moot[ed] Plaintiff’s 

pending motions.”92

 

90 Id. ¶ 9.

91 Id. ¶ 8.

92 Sept. 10, 2015 Letter to the Court.
17

The Plaintiff amended his complaint on April 22, 2016. The Complaint 

contains four counts. Count I is brought as a direct claim; it alleges that the 

Director Defendants breached their fiduciary duties by (i) approving the stock 

issuances to Liberty Broadband and the voting proxy agreement, and (ii) “failing to 

disclose all material facts necessary for shareholders to cast an informed vote on . . 

. whether to enter into the [t]ransactions and issue the shares contemplated 

thereunder.”93 The Plaintiff claims that the stock issuances and the voting proxy 

agreement “unfairly expropriate[d] and transfer[red] voting and economic power 

from Charter’s public shareholders to the Stockholder Defendants.”94 Like Count 

I, Count II is brought as a direct claim, and it alleges that the Stockholder 

Defendants, as Charter’s controlling stockholders, breached their fiduciary duties 

by causing the Charter board to approve the transactions challenged in Count I.95 

Counts III and IV mirror Counts I and II, except that they are brought derivatively 

rather than directly.96

On July 22, 2016, the Defendants moved to dismiss the Complaint under 

Court of Chancery Rules 12(b)(6) and 23.1. On May 31, 2017, I issued a 

Memorandum Opinion holding that (i) the Stockholder Defendants were not 

controlling stockholders, and (ii) any purported breaches of fiduciary duty were not 

 

93 Compl. ¶¶ 157–60.

94 Id. ¶ 159.

95 Id. ¶¶ 161–64.

96 Id. ¶¶ 165–72.
18

cleansed by the stockholder vote, because the Complaint adequately alleged that 

the vote was structurally coerced.97 Specifically, I held that the contractual 

restrictions imposed on the Stockholder Defendants—for example, Liberty 

Broadband could not acquire over 35% of Charter’s stock, designate more than 

four out of ten directors, or solicit proxies or consents—defeated any inference that 

the Stockholder Defendants were controlling stockholders.

98

 I then held that the 

Complaint supported a reasonable inference that the stockholder vote in favor of 

the challenged transactions was coerced.99 The coercion stemmed from the way 

the transactions were presented to the stockholders. The Bright House acquisition 

and the Time Warner merger—neither of which the Plaintiff challenges—were 

contingent on stockholder approval of the challenged transactions, that is, the share

issuances to Liberty Broadband and the voting proxy agreement. Thus, the Charter 

board allegedly “presented the stockholders with a simple choice: accept (disloyal) 

equity issuances to the [c]ompany’s largest stockholder, and an agreement granting 

that stockholder greater voting power, or lose two beneficial transactions.”100 That, 

in my view, prevented the stockholder vote from having ratifying effect at the 

pleading stage.101

 

97 Liberty Broadband Corp., 2017 WL 2352152, at *14–24.

98 Id. at *16–20.

99 Id. at *20–24.

100 Id. at *22.

101 Id. at *24.
19

Having found that the stockholder vote did not cleanse any purported 

breaches of fiduciary duty at the motion-to-dismiss stage, I then requested 

supplemental briefing on whether the Plaintiff’s claims are direct or derivative.102 

The parties provided that briefing, and I heard oral argument on the remaining 

issues on April 6, 2018. The Plaintiff concedes in supplemental briefing that 

Counts II and IV, which rest on the allegation that the Stockholder Defendants 

controlled Charter, must be dismissed in light of my holding that the Complaint 

fails to adequately allege those Defendants’ controller status. Thus, this 

Memorandum Opinion considers only whether Counts I and III state viable claims 

for relief.

II. ANALYSIS

The Complaint alleges that the following four transactions “unfairly 

expropriate[d] and transfer[red] voting and economic power from Charter’s public 

shareholders to the Stockholder Defendants”: (i) Charter’s issuance of $700 

million in Charter shares to Liberty Broadband at $173 per share, (ii) Liberty 

Broadband’s receipt of a voting proxy from Advance/Newhouse to vote up to 6% 

of its shares, (iii) Charter’s issuance of $4.3 billion in Charter shares to Liberty 

Broadband at $176.95 per share, and (iv) Liberty Broadband’s receipt of all 

 

102 Id.
20

Charter stock for its Time Warner shares.103 The threshold question is whether 

these allegedly unfair transactions give rise to purely derivative claims. I turn to 

that question now.

A. The Plaintiff’s Claims Are Solely Derivative

“To determine whether a claim is derivative or direct, this Court must 

consider ‘(1) who suffered the alleged harm (the corporation or the suing 

stockholders, individually); and (2) who would receive the benefit of any recovery 

or other remedy (the corporation or the stockholders, individually)?’”104 To plead 

a direct claim, “[t]he stockholder must demonstrate that the duty breached was 

owed to the stockholder and that he or she can prevail without showing an injury to 

the corporation.”

105

 By contrast, “[w]here all of a corporation’s stockholders are 

harmed and would recover pro rata in proportion with their ownership of the 

corporation’s stock solely because they are stockholders, then the claim is 

derivative in nature.”106 Tooley requires this Court to look beyond the labels used 

to describe the claim, evaluating instead the nature of the wrong alleged.107 

“In the typical corporate overpayment case, a claim against the corporation’s 

fiduciaries for redress is regarded as exclusively derivative, irrespective of whether 

 

103 Compl. ¶ 159.

104 Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 655 (Del. Ch. 2013) (quoting Tooley v. 

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

105 Tooley, 845 A.2d at 1039.

106 Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008).

107 E.g., In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 817 (Del. Ch. 2005), 

aff’d, 906 A.2d 766 (Del. 2006).
21

the currency or form of overpayment is cash or the corporation’s stock.”

108

 The 

reason is that, in the typical corporate overpayment case, “any dilution in value of 

the corporation’s stock is merely the unavoidable result (from an accounting 

standpoint) of the reduction in the value of the entire corporate entity, of which 

each share of equity represents an equal fraction.”

109

 In Gentile, however, the 

Supreme Court pointed to “at least one transactional paradigm—a species of 

corporate overpayment claim—that Delaware case law recognizes as being both 

derivative and direct in character.”110 Gentile held that a corporate overpayment 

claim may be both direct and derivative where: 

(1) a stockholder having majority or effective control causes the 

corporation to issue “excessive” shares of its stock in exchange for 

assets of the controlling stockholder that have a lesser value; and (2) 

the exchange causes an increase in the percentage of the outstanding 

shares owned by the controlling stockholder, and a corresponding 

decrease in the share percentage owned by the public (minority) 

shareholders.

111

Post-Gentile, Delaware courts have struggled to define the boundaries of 

dual-natured claims.112 In Feldman, this Court took a limited view of Gentile’s 

reach, finding it “clear” “that the Delaware Supreme Court intended to confine the 

scope of its rulings to only those situations where a controlling stockholder 

 

108 Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006).

109 Id.

110 Id.

111 Id. at 100.

112 See Chester Cty. Emps.’ Ret. Fund v. New Residential Inv. Corp., 2016 WL 5865004, at *7 

(Del. Ch. Oct. 7, 2016) (“There is some tension in recent cases about how far to extend 

Gentile.”), aff’d, 2018 WL 2146483 (Del. May 10, 2018).
22

exists.”113 Feldman reasoned that “any other interpretation would swallow the 

general rule that equity dilution claims are solely derivative, and would cast great 

doubt on the continuing vitality of the Tooley framework.”

114

 Thus, under 

Feldman, a dual-natured claim arises only where “a controlling stockholder, with 

sufficient power to manipulate the corporate processes, engineers a dilutive 

transaction whereby that stockholder receives an exclusive benefit of increased 

equity ownership and voting power for inadequate consideration.”115

Other decisions have taken a more expansive view of Gentile. In 

Carsanaro, this Court held that a dual-natured claim does not require the presence 

of a controlling stockholder on both sides of the transaction.

116 According to 

Carsanaro, Gentile also applies to self-interested stock issuances effectuated by a 

board that lacks a disinterested and independent majority.117 In In re Nine Systems 

Corp. Shareholders Litigation, Vice Chancellor Noble agreed with Carsanaro’s 

approach, reasoning that it made little sense “to hold a controlling stockholder to a 

higher standard than the board of directors.”118 Vice Chancellor Noble also 

emphasized that Gentile “expressly recognized that it only addressed what was ‘at 

least one transactional paradigm’ that had the dual nature of causing direct and 

 

113 Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007), aff’d, 951 A.2d 727.

114 Id.

115 Id.

116 65 A.3d at 658.

117 Id.

118 2014 WL 4383127, at *28 (Del. Ch. Sept. 4, 2014), aff’d sub nom. Fuchs v. Wren Holdings, 

LLC, 129 A.3d 882 (Table) (Del. 2015).
23

derivative harm and permitting direct and derivative recovery.”119 Accordingly,

any “[b]roader language in Gentile . . . about situations not involving a controlling 

stockholder would arguably have been dictum.”120

The Supreme Court revisited Gentile in El Paso Pipeline GP Co., L.L.C. v. 

Brinckerhoff.

121

 El Paso involved a limited partner’s claim that the partnership had 

overpaid the controlling general partner for assets held by the general partner’s 

parent.122 The limited partner did not attempt to prove that the overpayment 

increased the general partner’s voting power at the expense of the unaffiliated 

unitholders.123 Instead, the injury stemmed solely from “the extraction of . . . 

economic value from the minority by a controlling stockholder.”124 Nevertheless, 

the limited partner argued that his challenge to the overpayment gave rise to a 

dual-natured claim under Gentile.

125

 The Supreme Court rejected the limited 

partner’s attempt to fit his claim into the Gentile framework.126 

The Supreme Court emphasized that Gentile involved “a controlling 

shareholder and transactions that resulted in an improper transfer of both economic 

value and voting power from the minority stockholders to the controlling 

 

119 Id. at *27 (quoting Gentile, 906 A.2d at 99).

120 Id.

121 152 A.3d 1248 (Del. 2016).

122 Id. at 1252–53.

123 Id. at 1264.

124 Id.

125 Id.

126 Id.
24

stockholder.”127 Because the challenged transactions in El Paso did not dilute the 

unitholders’ voting rights, the limited partner’s claim failed to “satisfy the unique 

circumstances presented by the Gentile ‘species of corporate overpayment 

claim[s].’”

128

 The limited partner conceded that he had proved only expropriation 

of economic value, and not any dilution of voting rights.

129

 According to the 

limited partner, however, this distinction was “immaterial.”130 The Supreme Court 

disagreed.

131

 It expressly “decline[d] the invitation to further expand the universe 

of claims that can be asserted ‘dually’ to hold here that the extraction of solely 

economic value from the minority by a controlling stockholder constitutes direct 

injury.”

132

 Thus, the Supreme Court held that the limited partner’s overpayment 

claim was “exclusively derivative under Tooley.”133

Chief Justice Strine wrote separately in El Paso to note that Gentile “is 

difficult to reconcile with traditional doctrine” on the direct/derivative 

distinction.134 As the Chief Justice pointed out, “[a]ll dilution claims involve, by 

definition, dilution.”135 Thus, 

 

127 Id. at 1263.

128 Id. at 1264 (emphasis added) (quoting Gentile, 906 A.2d at 99).

129 Id.

130 Id.

131 Id.

132 Id.

133 Id. at 1265.

134 Id. at 1266 (Strine, C.J., concurring).

135 Id.
25

[t]o suggest that, in any situation where other investors have less 

voting power after a dilutive transaction, a direct claim also exists 

turns the most traditional type of derivative claim—an argument that 

the entity got too little value in exchange for shares—into one always 

able to be prosecuted directly.

136

The Chief Justice found this result to be problematic.137

Following El Paso, this Court has had two occasions to consider whether 

Gentile applies in the absence of a controlling stockholder. In Carr v. New 

Enterprise Associates, Inc., Chancellor Bouchard held that, “to invoke the dual 

dynamic recognized in Gentile, a controlling stockholder must exist before the 

challenged transaction.”

138

 Because there was no controller at the time of the 

challenged transaction, the complaint in Carr failed to plead facts giving rise to a 

dual-natured claim.139 The Chancellor confronted this issue again in Cirillo Family 

Trust v. Moezinia.140 There, the Court reached the same conclusion, holding that 

“the Gentile paradigm only applies when a stockholder already possessing 

majority or effective control causes the corporation to issue more shares to it for 

inadequate consideration.”

141

 As in Carr, the Gentile framework did not apply in 

 

136 Id.

137 Id.

138 2018 WL 1472336, at *9 (Del. Ch. Mar. 26, 2018).

139 Id. at *9–10.

140 2018 WL 3388398 (Del. Ch. July 11, 2018).

141 Id. at *16.
26

Moezinia because there was no controlling stockholder (or control group) at the 

corporation before the purportedly improper dilution.142

Here, the Plaintiff alleges that Charter overpaid Liberty Broadband by 

issuing it stock for allegedly unfair consideration. Likewise, the Plaintiff pleads

that Charter received inadequate consideration from Liberty Broadband in 

exchange for agreeing to grant it the 6% voting proxy. These allegations amount

to a corporate overpayment claim—Charter purportedly transferred assets to 

Liberty Broadband for inadequate consideration. Thus, unless the facts alleged in 

the Complaint fit the Gentile paradigm, they give rise only to derivative claims. In 

my view, Gentile does not apply to the challenged transactions, and the Plaintiff’s

claims are thus solely derivative.

In my initial motion-to-dismiss decision, I held that the Complaint failed to 

adequately allege that John Malone and Liberty Broadband were Charter’s 

controlling stockholders.143 That, according to post-El Paso caselaw, is dispositive 

of the direct/derivative question. Because Gentile is limited to transactions 

involving controlling stockholders, the absence of a controller here means that the 

Plaintiff’s claims are not dual-natured.

 

142 Id. In ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *26 n.206 (Del. Ch. July 21, 

2017), aff’d, 184 A.3d 1291 (Table) (Del. 2018), Vice Chancellor Laster went further, writing 

that “[w]hether Gentile is still good law is debatable.”

143 Liberty Broadband Corp., 2017 WL 2352152, at *16–20.
27

Before El Paso, this Court was split on the question whether Gentile applied 

to transactions that did not involve controlling stockholders. El Paso clarified this 

uncertainty by limiting Gentile to “the unique circumstances presented” in that 

case.144 As the Plaintiff correctly points out, El Paso did not squarely address 

whether Gentile is limited to controller transactions. But the Supreme Court in El 

Paso was faced with a similar question: Should Gentile be limited to its facts—that 

is, a transaction that both diluted voting power and expropriated economic value—

or should it be extended to a different set of transactions, namely, those that extract 

only economic value from the minority holders? The Supreme Court answered the 

question in the negative. It rejected the limited partner’s “invitation to further 

expand the universe of claims that can be asserted ‘dually.’”145 

In my view, the reasoning of El Paso, applied here, means that Gentile must 

be limited to its facts, which involved a dilutive stock issuance to a controlling 

stockholder. El Paso thus implicitly rejected the reasoning of decisions such as 

Carsanaro and Nine Systems, which had extended Gentile to any dilutive issuance 

approved by a conflicted board. Notably, the two post-El Paso decisions to have 

considered the question have concluded that Gentile does not apply absent a 

controlling stockholder.146 Because the Complaint here fails to adequately allege 

 

144 El Paso Pipeline GP Co., L.L.C., 152 A.3d at 1264.

145 Id.

146 Moezinia, 2018 WL 3388398, at *16; Carr, 2018 WL 1472336, at *9–10.
28

that the Stockholder Defendants controlled Charter, Gentile does not apply, and the 

Plaintiff’s claims are solely derivative.147

B. Demand is Excused as to the Challenged Transactions

Because the Plaintiff’s challenges to the allegedly unfair transactions give 

rise to purely derivative claims, the Complaint must comply with Court of 

Chancery Rule 23.1.148 The Defendants have moved to dismiss the Complaint for 

failure to plead demand futility. The demand requirement is an extension of the 

fundamental principle that “directors, rather than shareholders, manage the 

business and affairs of the corporation.”149 Directors’ control over a corporation 

embraces the disposition of its assets, including its choses in action. Thus, under 

Rule 23.1, a derivative plaintiff must “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 effort.”150 

 

147 In candor, limiting Gentile to controller situations, rather than expanding it to conflicted board

non-controller dilution cases, or overruling it entirely, is, as a matter of doctrine, unsatisfying. I 

find that the Supreme Court’s treatment in El Paso controls here, however.

148 Because the Plaintiff’s claims are solely derivative rather than dual-natured, I need not decide

whether the heightened pleading requirements of Rule 23.1 apply to dual-natured claims brought 

by stockholders whose ownership stake has not been eliminated by a merger. See, e.g., Calesa 

Assocs., L.P. v. Am. Capital, Ltd., 2016 WL 770251, at *9 (Del. Ch. Feb. 29, 2016) (suggesting 

that “a dual-natured claim should be addressed under the particularized pleading standard of 

Rule 23.1”).

149 Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (citing 8 Del. C. § 141(a)), overruled on 

other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

150 Ct. Ch. R. 23.1(a).
29

Where, as here, the plaintiff has failed to make a presuit demand on the 

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

showing that demand would have been futile.”151 The plaintiff’s “pleadings must 

comply with stringent requirements of factual particularity that differ substantially 

from the permissive notice pleadings governed solely by Chancery Rule 8(a).”152 

Under the heightened pleading requirements of Rule 23.1, conclusory “allegations 

of fact or law not supported by allegations of specific fact may not be taken as 

true.”153 Nonetheless, the plaintiff is “entitled to all reasonable factual inferences 

that logically flow from the particularized facts alleged.”154 In deciding a Rule 

23.1 motion, I am limited to “the well-pled allegations of the complaint, documents 

incorporated into the complaint by reference, and judicially noticed facts.”155

This Court analyzes demand futility under the test set out in Rales v. 

Blasband.

156

 Rales requires a derivative plaintiff to allege particularized facts 

raising a reasonable doubt that, if a demand had been made, “the board of directors 

could have properly exercised its independent and disinterested business judgment 

 

151 Ryan v. Gursahaney, 2015 WL 1915911, at *5 (Del. Ch. Apr. 28, 2015), aff’d, 128 A.3d 991 

(Table) (Del. 2015).

152 Brehm, 746 A.2d at 254.

153 Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm, 746 

A.2d 244.

154 Brehm, 746 A.2d at 255.

155 Breedy-Fryson v. Towne Estates Condo. Owners Ass’n, Inc., 2010 WL 718619, at *9 (Del. 

Ch. Feb. 25, 2010).

156 634 A.2d 927 (Del. 1993).
30

in responding to [it].”157 Aronson v. Lewis addresses the subset of cases, as here, in 

which the plaintiff is challenging an action taken by the current board.158 To 

establish demand futility under Aronson, the plaintiff must allege particularized 

facts creating a reasonable doubt that “the directors are disinterested and 

independent” or the “challenged transaction was otherwise the product of a valid 

exercise of business judgment.”159 The tests articulated in Aronson and Rales are 

“complementary versions of the same inquiry.”160 That inquiry asks whether the 

board is capable of exercising its business judgment in considering a demand.161

Here, the Plaintiff argues that demand is futile because at least half of 

Charter’s ten-person board lacks independence from Malone, who is indisputably

interested in the challenged transactions. Delaware law is clear that directors are 

presumed to be independent for purposes of evaluating demand futility.162 

“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.”

163

 

 

157 Id. at 934.

158 See id. at 933–34 (explaining that Aronson does not apply unless the plaintiff is challenging a

business decision by the board of directors that would be considering the demand).

159 473 A.2d at 814.

160 In re China Agritech, Inc. S’holder Derivative Litig., 2013 WL 2181514, at *16 (Del. Ch. 

May 21, 2013); see also David B. Shaev Profit Sharing Account v. Armstrong, 2006 WL 391931, 

at *4 (Del. Ch. Feb. 13, 2006) (“This court has held in the past that the Rales test, in reality, folds 

the two-pronged Aronson test into one broader examination.”).

161 In re Duke Energy Corp. Derivative Litig., 2016 WL 4543788, at *14 (Del. Ch. Aug. 31, 

2016).

162 See Beam v. Stewart, 845 A.2d 1040, 1055 (Del. 2004) (noting that in “the demand-excusal 

context, . . . the board is presumed to be independent”).

163 Aronson, 473 A.2d at 816.
31

A plaintiff may establish that a director lacks independence by alleging with 

particularity that the director “is sufficiently loyal to, beholden to, or otherwise 

influenced by an interested party to undermine the director’s ability to judge the 

matter on its merits.”164 Put differently, a director is not independent if 

particularized facts support a reasonable inference that she “would be more willing 

to risk . . . her reputation than risk the relationship with the interested [person].”

165

 

“Allegations of mere personal friendship or a mere outside business 

relationship, standing alone, are insufficient to raise a reasonable doubt about a 

director’s independence.”166 Nevertheless, “[s]ome professional or personal 

friendships, which may border on or even exceed familial loyalty and closeness, 

may raise a reasonable doubt whether a director can appropriately consider 

demand.”

167

 Likewise, “substantial past or current relationships . . . of a business . 

. . nature” may, if material to the director, give rise to a pleading-stage inference of 

beholdenness.168 In conducting the independence inquiry, I must “consider all the 

particularized facts pled by the plaintiff[] about the relationships between the 

director and the interested party in their totality and not in isolation from each 

 

164 Frederick Hsu Living Trust v. ODN Holding Corp., 2017 WL 1437308, at *26 (Del. Ch. Apr. 

14, 2017).

165 Beam, 845 A.2d at 1050.

166 Id.

167 Id.; see also Del. Cty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017, 1022 (Del. 2015) (“Close 

friendships [lasting fifty years] are likely considered precious by many people, and are rare. 

People drift apart for many reasons, and when a close relationship endures for that long, a 

pleading stage inference arises that it is important to the parties.”).

168 In re Primedia Inc. Derivative Litig., 910 A.2d 248, 261 n.45 (Del. Ch. 2006).
32

other.”169 “Evaluating a board’s ability to consider a demand impartially thus 

requires a ‘contextual inquiry.’”170

In this case, the relevant board for demand-futility purposes consists of ten 

individuals: Malone, Conn, Huseby, Jacobson, Maffei, Markley, Merritt, Nair, 

Rutledge, and Zinterhofer. The Plaintiff does not challenge the independence of 

Conn, Markley, or Merritt. For their part, the Defendants concede that Malone and 

Maffei lack independence. Thus, to adequately allege demand futility, the Plaintiff 

must plead with particularity that at least three of the remaining five directors lack 

independence from Malone. In my view, the Plaintiff has cleared this hurdle. 

Demand is therefore excused.

1. Nair

Nair has been a Charter director since May 2013, when he became one of 

Liberty Media’s four designees.171 Nair serves as Executive Vice President and 

Chief Technology Officer of Liberty Global plc.172 Malone is the chairman and 

largest stockholder of Liberty Global, in which he holds a 25% stake.173 These 

allegations raise a reasonable doubt that Nair could impartially consider a demand 

to sue Malone.

 

169 Sanchez, 124 A.3d at 1019.

170 In re EZCORP Inc. Consulting Agreement Derivative Litig., 2016 WL 301245, at *34 (Del. 

Ch. Jan. 25, 2016) (quoting Beam, 845 A.2d at 1049), reconsideration granted in part, 2016 WL 

727771 (Del. Ch. Feb. 23, 2016).

171 Compl. ¶ 20.

172 Id.

173 Id. ¶ 13; Yoch Aff. Ex. B, at I-63.
33

Delaware law is clear that “when a director is employed by or receives 

compensation from other entities, and where the interested party who would be 

adversely affected by purs[u]ing litigation controls or has substantial influence 

over those entities, a reasonable doubt exists about that director’s ability to 

impartially consider a litigation demand.”

174

 To establish a lack of independence, a 

plaintiff need not allege that “the interested party can directly fire a director from 

his day job.”

175

 Instead, the question is whether “the director’s ability to act 

impartially on a matter important to the interested party can be doubted because 

that director may feel either subject to the interested party’s dominion or beholden 

to that interested party.”

176

 Delaware law has also recognized that, “[a]bsent some 

unusual fact—such as the possession of inherited wealth—the remuneration a 

person receives from her full-time job is typically of great consequence to her.”

177

Mizel v. Connelly178 illustrates these principles. There, this Court held that 

two senior executives could not be considered independent of the company’s CEO, 

who also held a 32.7% stake.179 The Court found it “doubtful” that these two 

executives could “consider the demand on its merits without also pondering 

 

174 In re EZCORP Inc. Consulting Agreement Derivative Litig., 2016 WL 301245, at *36.

175 Sanchez, 124 A.3d at 1023 n.25.

176 Id.

177 In re The Student Loan Corp. Derivative Litig., 2002 WL 75479, at *3 n.3 (Del. Ch. Jan. 8, 

2002).

178 1999 WL 550369 (Del. Ch. July 22, 1999).

179 Id. at *1, 3.
34

whether an affirmative vote would endanger their continued employment.”180 

Importantly, the Court noted that while “a 32.7% block may not be sufficient to 

constitute control for certain corporation law purposes,” “the pragmatic, realist 

approach dictated by Rales” demanded giving “great weight to the practical power 

wielded by a stockholder controlling such a block.”181 Other courts in this state 

have reached the same conclusion on similar facts.182

Here, while the Complaint does not expressly allege that Nair’s positions as 

Executive Vice President and CTO of Liberty Global constitute his primary 

employment, that is certainly a reasonable inference. Thus, I infer from the

Complaint, Nair works full-time at a company in which Malone is a 25% 

stockholder. Significantly, Malone is also the chairman of that company’s board

of directors. The Complaint does not allege that Malone controls Liberty Global, 

or that he holds a managerial position at the company. Nonetheless, Malone is the 

company’s largest stockholder and chairman, and that puts him “in a position to 

exert considerable influence over” Nair.183 Moreover, while the Complaint does 

not detail Nair’s compensation at Liberty Global, that does not negate a pleading-

 

180 Id. at *3.

181 Id. at *3 n.1.

182 See, e.g., Rales, 634 A.2d at 937 (holding that a director who was also the CEO could not act 

independently of two brothers who held a 44% stake in the company); Steiner v. Meyerson, 1995 

WL 441999, at *10 (Del. Ch. July 19, 1995) (“The facts alleged appear to raise a reasonable 

doubt that Wipff, as president, chief operating officer, and chief financial officer, would be 

unaffected by [the CEO and significant blockholder’s] interest in the transactions that plaintiff 

attacks.”).

183 Rales, 634 A.2d at 937.
35

stage inference of materiality, because the compensation a person receives from 

her full-time employment is “typically of great consequence to her.”

184

 In short, 

the facts alleged in the Complaint suggest that Nair would be unable to objectively 

determine whether to initiate litigation against Malone. Nair thus lacks 

independence for pleading-stage purposes.

2. Rutledge

Rutledge has served as Charter’s CEO since February 2012; he has also been 

a board member since that time.185 The Complaint alleges that Rutledge is a fulltime Charter employee who depends on the company for his livelihood.186

 In 

2014, Rutledge received $16 million in compensation from Charter.187 As noted 

above, Liberty Broadband controls 26% of the voting stock of Charter, and four of 

Charter’s ten directors are Liberty Broadband appointees. Malone, in turn, owns 

47% of Liberty Broadband. Notably, Rutledge gave an interview to the New York 

Times in which he “did not deny Malone’s influence, stating ‘[w]hen he talks, I 

listen. And he is a significant talker.’”188 These allegations are sufficient, to my 

mind, to cast doubt on Rutledge’s independence from Malone.

 

184 In re The Student Loan Corp. Derivative Litig., 2002 WL 75479, at *3 n.3. Indeed, such 

compensation is “usually the method by which bills get paid, health insurance is affordably

procured, children’s educations are funded, and retirement savings are accumulated.” Id.

185 Compl. ¶ 21.

186 Id.

187 Id. ¶ 61.

188 Id. ¶ 88 (alteration in original) (emphasis omitted).
36

The considerations supporting demand futility with respect to Nair apply 

with even more significance to Rutledge. While the Complaint does not 

adequately plead that Malone controls Charter, the facts alleged support a 

reasonable inference that he exercises substantial influence over the company 

through his ownership stake in Liberty Broadband. Indeed, Malone serves on the 

Charter board, and three other directors are designated by Liberty Broadband. 

Malone’s influence over Charter, and Rutledge specifically, is further evidenced by

Rutledge’s admission that “[w]hen [Malone] talks, I listen. And he is a significant 

talker.”189 Rutledge is a highly compensated senior executive at Charter. Given 

that Rutledge presumably receives his primary income from his employment at 

Charter, “it is doubtful that [he] can consider the demand on its merits without also 

pondering whether an affirmative vote would endanger [his] continued 

employment.”190 Thus, like Nair, Rutledge cannot be considered independent from 

Malone at the pleading stage.

3. Zinterhofer

Zinterhofer has served on the Charter board since 2009, and he has been its 

chairman since December 2009.191 Zinterhofer formerly worked as a partner at 

 

189 Id. (alteration in original) (emphasis omitted).

190 Mizel, 1999 WL 550369, at *3.

191 Compl. ¶ 22.
37

Apollo Management, L.P. and Morgan Stanley Dean Witter & Co.192 Zinterhofer 

is also one of three founders of Searchlight Capital Partners, LLC, a private equity 

firm.193 In November 2012, a joint venture between Searchlight and Liberty 

Global bought a Puerto Rican cable company for approximately $585 million.194 

Searchlight owns 40% of the joint-venture entity; Liberty Global owns 60%.195 

Two years after this partnership, Liberty Global and Searchlight announced 

another joint venture to purchase a Puerto Rican cable company, this time for $272 

million.196 The combined business that resulted from this transaction was again a 

60/40 joint venture between Liberty Global and Searchlight, and it became the 

largest cable company in Puerto Rico.197 Thus, as the Complaint points out, 

“Zinterhofer is a current business partner with Liberty Global and Malone in 

corporate enterprises worth almost $1 billion.”198 As noted above, Malone owns 

25% of Liberty Global’s voting stock, and he chairs its board.

It is true that “[a]llegations of . . . a mere outside business relationship, 

standing alone, are insufficient to raise a reasonable doubt about a director’s 

 

192 Id.

193 Id. ¶¶ 22, 55.

194 Id. ¶ 55.

195 Id.

196 Id. ¶ 56.

197 Id.

198 Id. ¶ 57.
38

independence.”199 But it does not follow that a business relationship between a 

director and an interested party can never undermine the presumption of director 

independence.

200

 A pleading-stage inference of beholdenness may arise where the 

plaintiff pleads with particularity that a director’s business relationship with an 

interested party is material to the director.201 Moreover, the Supreme Court has

recently recognized “the importance of . . . mutually beneficial ongoing business 

relationship[s].”202 Indeed, “it is reasonable to expect that [such] . . . 

relationship[s] might have a material effect on the parties’ ability to act adversely 

toward each other.”

203

In this case, Zinterhofer (through Searchlight) and Malone (through Liberty 

Global) are engaged in joint ventures worth almost $1 billion. One of those joint 

ventures involves running the largest cable company in Puerto Rico. It is 

 

199 Beam, 845 A.2d at 1050; see also Orman v. Cullman, 794 A.2d 5, 27 (Del. Ch. 2002) (“The 

naked assertion of a previous business relationship is not enough to overcome the presumption of 

a director’s independence.”).

200 See, e.g., Caspian Select Credit Master Fund Ltd. v. Gohl, 2015 WL 5718592, at *7 (Del. Ch. 

Sept. 28, 2015) (“As explained, Campion and Davis operate in the same line of business as 

Wayzata Partners, which has nominated them to numerous boards of directors. Both have 

engaged in various business dealings with Wayzata Partners, and expect future business 

relations. Wayzata Partners manages investment funds that acquire controlling interests in 

distressed companies. One can reasonably infer that Campion and Davis expect to be considered 

for directorships in companies the Wayzata funds acquire in the future. Even if the actual extent 

of their relationships with Wayzata Partners is not altogether clear at this point in the litigation, 

the existence of these interests and relationships is enough to defeat a motion to dismiss.”

(alterations and internal quotation marks omitted)).

201 See Khanna v. McMinn, 2006 WL 1388744, at *17 (Del. Ch. May 9, 2006) (“Ultimately, the 

inquiry into independence turns in this instance on whether Covad’s business relationship with 

BEA Systems was material to BEA or to Crandall himself as a director of BEA.”).

202 Sandys v. Pincus, 152 A.3d 124, 134 (Del. 2016).

203 Id.
39

reasonable to infer that, if Zinterhofer voted to authorize a derivative suit against 

Malone, the relationship between Searchlight and Liberty Global might be in 

jeopardy. After all, “[c]ausing a lawsuit to be brought against another person is no 

small matter, and is the sort of thing that might plausibly endanger a 

relationship.”204 True, the Complaint does not (i) compare the value of 

Searchlight’s interest in the joint ventures to the overall value of its investment 

portfolio, (ii) allege the size of Zinterhofer’s interest in Searchlight, or (iii) plead 

facts regarding Zinterhofer’s net worth or compensation. And the Complaint 

mentions that Zinterhofer was once a partner at Apollo and Morgan Stanley, 

perhaps suggesting that he is a wealthy man. But at the pleading stage, it is 

reasonable to infer that joint ventures of this size are important to their principals, 

even if those principals have a high net worth. It is equally reasonable to infer that 

joint ventures totaling almost $1 billion are material to the firms involved, even 

absent details regarding the size of those firms’ investment portfolios. Thus, while 

more information would perhaps have made the pleadings stronger, for purposes of 

the current Motion the Complaint adequately alleges that the possibility of 

endangering the Liberty Global/Searchlight joint ventures would weigh heavily on 

 

204 Id.
40

Zinterhofer in evaluating a demand to sue Malone. In my view, that suffices to 

impugn Zinterhofer’s independence at the pleading stage.205

* * *

Because Malone, Maffei, Nair, Rutledge, and Zinterhofer lack independence 

for pleading-stage purposes, at least half of the ten Charter directors who would be 

asked to consider a demand are conflicted. Thus, demand is excused, and I need 

not consider the Plaintiff’s allegations that Huseby and Jacobson lack 

independence for purposes of my analysis under Rule 23.1.

C. The Complaint Pleads a Viable Claim for Breach of Fiduciary Duty

Charter’s board did not change in composition between the approval of the 

challenged transactions and the filing of the Complaint. Accordingly, for the same 

reasons discussed in connection with the demand-futility analysis, the Charter 

board lacked an independent and disinterested majority at the time of the 

challenged transactions. “If a board is evenly divided between compromised and 

non-compromised directors, then the plaintiff has succeeded in rebutting the 

 

205 Park Employees’ & Retirement Board Employees’ Annuity & Benefit Fund of Chicago v. 

Smith, 2017 WL 1382597 (Del. Ch. Apr. 18, 2017), is not to the contrary. There, the plaintiff 

alleged that a director was beholden to an investment bank because he was the cofounder and 

managing partner of a firm that held a minority interest in a corporation that had received advice 

and underwriting services from the investment bank. Id. at *8–9. This Court held that these 

allegations were insufficient to impugn the director’s independence. Id. at *9. Notably, unlike 

the Plaintiff here, the plaintiff in Smith did not plead any facts regarding the size of the business 

relationship between the director and the investment bank. Id. at *8–9. 
41

business judgment rule.”206 Once a plaintiff has rebutted the business judgment 

rule, “the court will review the board’s decision for entire fairness,”207 which 

typically precludes dismissal of a complaint under Rule 12(b)(6).208 

Ordinarily, then, my finding of demand futility would be the end of the 

analysis. As this Court has recognized, “[t]he standard for pleading demand 

futility under Rule 23.1 is more stringent than the standard under Rule 12(b)(6), 

and a complaint that survives a motion to dismiss pursuant to Rule 23.1 will also 

survive a 12(b)(6) motion to dismiss, assuming that it otherwise . . . state[s] a 

cognizable claim.”209 Under the familiar Rule 12(b)(6) standard, a complaint will 

not be dismissed “unless the plaintiff would not be entitled to recover under any 

reasonably conceivable set of circumstances.”210 

Nevertheless, the Defendants argue that even if demand is excused, the 

Complaint must be dismissed because it fails to state a claim for breach of 

fiduciary duty. They point out that, in accordance with Charter’s certificate of 

incorporation, the challenged transactions were not approved by the full Charter 

board. Instead, they were approved by the six directors not designated by Liberty 

 

206 Frederick Hsu Living Trust, 2017 WL 1437308, at *26.

207 Id.

208 See, e.g., Orman, 794 A.2d at 21 n.36 (noting that a finding that entire fairness applies 

“normally will preclude dismissal of a complaint on a Rule 12(b)(6) motion to dismiss”). The 

Defendants do not argue that, even if entire fairness applies, the Complaint should be dismissed 

because it fails to adequately allege that the challenged transactions were unfair.

209 Feuer v. Redstone, 2018 WL 1870074, at *16 (Del. Ch. Apr. 19, 2018) (citation omitted).

210 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 535 (Del.

2011).
42

Broadband: Markley, Merritt, Conn, Jacobson, Zinterhofer, and Rutledge. Thus, 

the Defendants argue, the Complaint cannot rebut the business judgment rule 

unless it successfully attacks the independence of at least three of these six 

directors. If that is correct, the demand-futility analysis and the Rule 12(b)(6) 

analysis could produce different results. Suppose, for example, that Jacobson, 

Markley, Merritt, and Conn were deemed independent, but Malone, Maffei, Nair, 

Rutledge, and Zinterhofer were found to lack independence. In that case, a 

majority of the six directors who approved the challenged transactions would be 

disinterested and independent.211 Of course, demand would be excused because 

the full board lacked an independent majority; but because the relevant decisionmaking body contained an unconflicted majority, the business judgment rule, in the 

Defendants’ view at least, would apply.

212

 

211 Under 8 Del. C. § 141(b), “[a] majority of the total number of directors shall constitute a 

quorum for the transaction of business unless the certificate of incorporation or the bylaws 

require a greater number.” Charter’s certificate does not require a greater number, and thus the 

six directors not appointed by Liberty Broadband constituted a quorum.

212 See In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 995 (Del. Ch. 2007) (“[T]he 

directors implicated by the substantive allegations of the amended consolidated complaint are not 

necessarily the same as must be considered with regard to excusal of demand. Rather, the Court 

focuses on the directors actually alleged to be implicated in the challenged act (or failure to 

act).”); 1 David A. Drexler et al., Delaware Corporation Law and Practice § 15.05[1] (2017) 

(“Although useful as a rule of thumb, it may be something of an over-generalization to state that 

corporate self-interest is automatically created unless a majority of the corporation’s directors is 

individually disinterested. Consider the following example: Assume six of a ten-director board 

have an interest in a particular transaction. If all directors are present at the meeting where the 

transaction is approved, it is an interested corporate transaction, since the affirmative votes of at 

least two interested directors are required for action. However, if only a quorum of six, including 

the four disinterested directors, is present and the transaction is approved with the affirmative 

votes of the four disinterested directors, the transaction arguably may be disinterested. . . . It may 
43

The Plaintiff offers three responses to this argument. First, he argues that 

the Complaint successfully challenges the independence of Jacobson, Zinterhofer, 

and Rutledge. Thus, three of the six directors who approved the challenged 

transactions were conflicted. Second, according to the Plaintiff, the Defendants are 

actually arguing that the six directors not designated by Liberty Broadband 

functioned as a special committee whose approval secured business judgment rule 

review for the transactions at issue. The problem, says the Plaintiff, is that the 

Defendants have failed to meet their burden of showing the six directors in fact

acted as a properly empowered special committee. 

Third, the Plaintiff stresses that the Liberty Broadband designees did 

approve the acquisitions of Bright House and Time Warner, which were 

inextricably linked to the challenged transactions. The Plaintiff’s syllogism runs as 

follows. The acquisitions were contingent on stockholder approval of the 

challenged transactions, and I have already held that this transaction structure 

caused the stockholder vote to be structurally coerced. Specifically, if the 

stockholders voted down the challenged transactions, they would lose the 

 

thus be possible to narrow significantly the scope of interested transactions by mechanical means 

such as limiting the participation of interested directors in board meetings where the transaction 

in which they are interested is considered or delegating decision-making power over such 

decisions to committees of disinterested directors only.”); 1 Stephen A. Radin, The Business 

Judgment Rule 819 (6th ed. 2009) (“[E]ven where a majority of a corporation’s directors are 

interested, the business judgment rule still may govern if the challenged conduct or transaction is 

approved by a majority of the corporation’s disinterested directors or a committee of 

disinterested directors.”).
44

acquisitions, which both parties agree were beneficial to Charter. The six directors 

who approved the challenged transactions were presumably in a similar position: If 

they declined to recommend the allegedly unfair deals with Liberty Broadband, 

Charter would lose out on the opportunity to acquire Time Warner and Bright 

House. Thus, the Liberty Broadband designees’ approval of the acquisitions led to 

the challenged transactions being presented to both the remaining directors and the 

stockholders in a structurally coercive manner. Because all ten Charter directors 

played a role in securing the approval of the challenged transactions, it is the full 

board whose independence counts for Rule 12(b)(6) purposes.

I need not reach the Plaintiff’s first and second arguments, because his third 

argument persuades me that the independence of all ten Charter directors must be 

considered under the Rule 12(b)(6) analysis. The four Liberty Broadband 

designees did not vote on the challenged transactions. But they approved the

acquisitions of Time Warner and Bright House, and the structure whereby those 

deals would not close unless the challenged transactions received stockholder 

approval. Thus, by signing off on the structurally coercive terms of the 

acquisitions, the Liberty Broadband designees helped “‘strong-arm[]’ the 

stockholders into voting for the [challenged] transaction[s] ‘for reasons outside of 
45

the economic merit’ of the decision.”213 They placed the six “independent” 

directors in the same “take it or leave it” circumstances. I find, therefore, that to 

rebut the business judgment rule, the Plaintiff need only plead that at least half of 

Charter’s ten directors lacked independence from Malone.214 Because the Plaintiff 

has alleged with particularity that at least five Charter directors are beholden to 

Malone, entire fairness applies, and the Complaint states a claim for breach of 

fiduciary duty.215

D. The Disclosure Claim

Finally, the Plaintiff purports to assert a disclosure claim based on allegedly 

misleading statements in the proxy. According to the Plaintiff, the proxy is 

materially misleading because it describes Zinterhofer as “independent” without 

disclosing Searchlight’s bias-producing business relationship with Liberty 

 

213 Liberty Broadband Corp., 2017 WL 2352152, at *21 (quoting Gradient OC Master, Ltd. v. 

NBC Universal, Inc., 930 A.2d 104, 119 (Del. Ch. July 12, 2007)).

214 Cf. Valeant Pharm. Int’l v. Jerney, 921 A.2d 732, 753 (Del. 2007) (“Generally speaking, a 

director who does not attend or participate in the board’s deliberations or approval of a proposal 

will not be held liable. This is not an invariable rule and the result may differ where the absent 

director plays a role in the negotiation, structuring, or approval of the proposal.” (footnote 

omitted)).

215 I do not reach the question whether the business judgment rule would apply if the Liberty 

Broadband designees had not approved the acquisitions. Moreover, to the extent the Defendants 

continue to maintain that entire fairness does not apply to the voting proxy agreement, I reject 

that argument. Charter approved the stock issuance to Advance/Newhouse; that issuance 

transferred voting power to Advance/Newhouse; and Advance/Newhouse agreed to transfer 

some of its newly acquired voting power to Liberty Broadband. These transactions were 

approved by both the six Charter directors not designated by Liberty Broadband and a majority 

of the stockholders. Because at least half of Charter’s directors suffered from disabling conflicts, 

the voting proxy—like the other challenged transactions—is subject to entire fairness review.
46

Global.

216

 The Complaint appears to suggest that the stockholders would not have 

approved the allegedly unfair transactions with Liberty Broadband if they had 

known of Zinterhofer’s conflicts. In other words, Charter would not have overpaid 

Liberty Broadband if the proxy had not been materially misleading. In my view,

the Plaintiff’s disclosure claim must be dismissed.

I have already held that the Complaint states a derivative claim based on 

alleged corporate overpayments. Any recovery for that claim would flow to the 

company, and not to the stockholders individually.217 Nevertheless, the Plaintiff’s 

disclosure claim is brought directly, and, just like the derivative claim, it seeks 

recovery for damage done to Charter by the overpayments to Liberty Broadband. 

The Supreme Court confronted a similar situation in In re J.P. Morgan Chase & 

Co. Shareholder Litigation.

218

 There, the plaintiffs brought a derivative corporate 

overpayment claim and a direct disclosure claim.219 The disclosure claim rested on 

the allegation that inaccuracies in the proxy statement caused stockholders to 

approve the overpayment.

220

 The Supreme Court affirmed this Court’s dismissal 

of the disclosure claim to the extent it sought compensatory damages for the 

 

216 Compl. ¶ 142.

217 See, e.g., Tooley, 845 A.2d at 1036 (“Because a derivative suit is being brought on behalf of 

the corporation, the recovery, if any, must go to the corporation.”).

218 906 A.2d 766 (Del. 2006).

219 Id. at 768.

220 Id.
47

overpayment.221 Specifically, the Court held that “‘compensatory damages . . . 

from the [proxy] disclosure violation’ are disallowed when those damages would 

be ‘identical to the damages that would flow to [the company] as a consequence of 

. . . [the] underlying derivative [] claim.’”

222

 As the Court pointed out, the 

plaintiffs’ damages theory implied that “the directors of an acquiring corporation 

would be liable to pay both the corporation and its shareholders the same 

compensatory damages for the same injury.”

223

 “That simply cannot be,” said the 

Court.224

J.P. Morgan compels the dismissal of the Plaintiff’s disclosure claim. Just 

like in J.P. Morgan, the Plaintiff in this case seeks compensatory damages for both

his derivative corporate overpayment claim and his direct disclosure claim. And 

just like in J.P. Morgan, the damages sought for the direct and derivative claims 

are identical. The derivative claim alleges that Charter suffered injury when it 

gave Liberty Broadband corporate assets for too little value. Likewise, the direct 

claim alleges that inaccuracies in the proxy statement caused the stockholders to 

approve the very same transactions, which gave away Charter assets for too little 

value. As the J.P. Morgan Court recognized, permitting the stockholders to 

 

221 Id. at 773–74.

222 Lenois v. Lawal, 2017 WL 5289611, at *20 (Del. Ch. Nov. 7, 2017) (quoting In re J.P. 

Morgan Chase & Co. S’holder Litig., 906 A.2d at 772).

223 In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d at 773.

224 Id.
48

recover individually in these circumstances would violate “the fundamental 

principle governing entitlement to compensatory damages, which is that the 

damages must be logically and reasonably related to the harm or injury for which 

compensation is being awarded.”

225

 Thus, because the Plaintiff seeks only 

compensatory damages for his direct disclosure claim, that claim must be 

dismissed.226

* * *

To sum up, Counts II and IV, which rest on the premise that the Stockholder 

Defendants control Charter, are dismissed. Count I, which is brought as a direct 

claim, is dismissed because (i) the challenged transactions give rise to purely 

derivative claims, and (ii) the direct disclosure claim fails. Count III survives 

because the Complaint adequately alleges demand futility and pleads a viable

derivative claim for breach of fiduciary duty based on the challenged transactions.

 

225 Id.

226 At oral argument, the Plaintiff’s counsel expressly disclaimed any intention of seeking 

nominal damages. See Apr. 6, 2018 Oral Arg. Tr. 49:16–17 (“MR. HEYMAN: We’re not 

pursuing nominal damages.”). And while the Complaint generally seeks “equitable relief,” 

Compl. at 67, a plaintiff cannot avoid the holding of J.P. Morgan by tacking on a makeweight

request for equitable remedies in her complaint, cf. Lenois, 2017 WL 5289611, at *20 (“Plaintiff 

contends that, because he has requested rescissory instead of compensatory damages, J.P. 

Morgan does not apply. Plaintiff misses the point. . . . Were rescission reasonable and 

appropriate, I would undo the Transactions and put the Company back together into its previous 

state. That remedy seems quite obviously to belong to the Company. Rescissory damages, then, 

would flow to the same party, namely the Company.” (footnote omitted)).
49

III. CONCLUSION

For the foregoing reasons, the Defendants’ Motions to Dismiss are granted 

in part and denied in part. The parties should submit an appropriate form of order.