IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JUAN C. ROJAS, derivatively and on 

behalf of J.C. PENNEY COMPANY, 

INC.,

Plaintiff,

v.

MARVIN R. ELLISON, MYRON E. 

ULLMAN III, PAUL J. BROWN, 

COLLEEN BARRETT, THOMAS 

ENGIBOUS, AMANDA GINSBERG, 

B. CRAIG OWENS, LISA A. PAYNE, 

DEBORA A. PLUNKETT, 

LEONARD H. ROBERTS, STEPHEN 

SADOVE, JAVIER G. TERUEL, R. 

GERALD TURNER, and RONALD 

W. TYSOE,

Defendants,

and

J.C. PENNEY COMPANY, INC.,

Nominal Defendant. 

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 C.A. No. 2018-0755-AGB

MEMORANDUM OPINION

Date Submitted: April 30, 2019

Date Decided: July 29, 2019

Thomas A. Uebler and Jeremy J. Riley, MCCOLLOM D’EMILIO SMITH 

UEBLER LLC, Wilmington, Delaware; Melinda A. Nicholson, KAHN SWICK & 

FOTI, LLC, New Orleans, Louisiana; Roger A. Sachar, NEWMAN FERRARA 

LLP, New York, New York, Attorneys for Plaintiff Juan C. Rojas.
William M. Lafferty, Susan W. Waesco, and Riley T. Svikhart, MORRIS, 

NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Meryl L. Young,

GIBSON, DUNN & CRUTCHER LLP, Irvine, California; Jason J. Mendro and 

Lissa M. Percopo, GIBSON, DUNN & CRUTCHER LLP, Washington, D.C.,

Attorneys for Defendants Marvin R. Ellison, Myron E. Ullman III, Paul J. Brown,

Colleen Barrett, Thomas Engibous, Amanda Ginsberg, B. Craig Owens, Lisa A.

Payne, Debora A. Plunkett, Leonard H. Roberts, Stephen Sadove, Javier G. Teruel,

R. Gerald Turner, and Ronald W. Tysoe, and Nominal Defendant J.C. Penney

Company, Inc.

BOUCHARD, C.
1

A stockholder of J.C. Penney Company, Inc. asserts in this derivative action 

that the company’s directors breached their fiduciary duty of loyalty by consciously 

disregarding their responsibility to oversee J.C. Penney’s compliance with 

California laws governing price-comparison advertising. Plaintiff’s central 

allegation is that the directors ignored a red flag in the form of a settlement of a civil 

case known as the Spann action, pursuant to which J.C. Penney agreed to pay up to 

$50 million for the benefit of a state-wide class of California consumers and to 

implement certain improvements to its price comparison advertising policy and 

practices. 

According to plaintiff, J.C. Penney’s board failed to ensure that the company 

abided by the terms of the Spann settlement. Plaintiff implies that, had the board 

done so, the company might have avoided further civil litigation over its pricing 

practices that was launched against the company less than three months after court 

approval of the Spann settlement.

Defendants have moved to dismiss the complaint under Court of Chancery 

Rule 23.1 for failure to make a demand on the board before filing suit. The 

independence of J.C. Penney’s directors is unquestioned and no contention has been 

made that any of them have divided loyalties because of a personal financial interest 

in any underlying transaction. Plaintiff argues only that at least nine of the eleven 

members of the board as it existed when this lawsuit was filed face a substantial 
2

likelihood of personal liability with respect to the oversight claims asserted in this 

case.

The standard under Delaware law for imposing oversight liability on a director 

is an exacting one that requires evidence of bad faith, meaning that “the directors 

knew that they were not discharging their fiduciary obligations.”1 For the reasons 

explained below, I conclude after carefully reviewing the allegations of the 

complaint and the documents incorporated therein that plaintiff has failed to allege 

facts from which it reasonably may be inferred that any of the directors on the board 

when this action was filed consciously allowed J.C. Penney to violate any pricecomparison advertising laws so as to demonstrate that they acted in bad faith.

Plaintiff thus has failed to plead with particularity that these individuals face 

a substantial likelihood of liability for the claims asserted in this case. Accordingly, 

making a demand on the board would not have been futile and the complaint will be 

dismissed with prejudice.

I. BACKGROUND

Unless otherwise noted, the facts recited in this opinion are based on the 

allegations of the Verified Stockholder Derivative Complaint (“Complaint”) and

documents incorporated therein.

2 They include a number of documents produced to 

 

1 Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).

2 See Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013) (holding that “plaintiff 

may not reference certain documents outside the complaint and at the same time prevent 
3

plaintiff in response to a demand for books and records plaintiff made under 8 Del. 

C. § 220.3 Any additional facts are either not subject to reasonable dispute or are 

subject to judicial notice.

A. The Parties

Nominal defendant J.C. Penney Company, Inc. (“J.C. Penney” or the 

“Company”) is a Delaware corporation with its principal place of business in Plano, 

Texas.4 J.C. Penney engages in the business of selling merchandise and services to 

consumers through approximately 865 department stores in the United States and 

Puerto Rico and online through its website. Plaintiff Juan C. Rojas alleges that he 

has been a stockholder of J.C. Penney continuously since at least July 2013.

The defendants consist of fourteen current or former members of the 

Company’s board of directors (the “Board”).

5

 When the Complaint was filed, the 

Board had eleven members (the “Demand Board”), nine of who are named as 

defendants: Paul J. Brown, Amanda Ginsberg, B. Craig Owens, Lisa A. Payne, 

 

the court from considering those documents’ actual terms” in connection with a motion to 

dismiss).

3 The Section 220 documents extended up to June 2017. Compl. ¶ 18 n.7. Plaintiff agrees 

that the court may rely on these documents in deciding this motion. See Tr. 46 (Apr. 30, 

2019) (Dkt. 33).

4 Documents cited herein often refer to the Company as “JCP” or “JCPenney.” Those 

abbreviations have been left unaltered.

5 The Complaint also named former director J. Paul Raines as a defendant, but all claims 

against him were dismissed on November 30, 2018. See Dkt. 8.
4

Debora A. Plunkett, Leonard H. Roberts, Javier G. Teruel, R. Gerald Turner, and 

Ronald W. Tysoe. The other two members of the Demand Board are Wonya Y. 

Lucas and Jill Soltau, who was appointed as the Company’s new CEO effective 

October 15, 2018. Owens, Payne, Plunkett, Teruel, and Roberts currently serve on 

the Board’s Audit Committee.

The remaining five defendants are former directors of J.C. Penney: Colleen 

Barrett, Thomas Engibous, Stephen Sadove, Marvin R. Ellison, who served as J.C. 

Penney’s CEO from July 2015 through May 2018, and Myron E. Ullman III, who 

served as CEO from December 2004 through December 2011 and April 2013 

through July 2015. Sadove is a former member of the Board’s Audit Committee.

B. J.C. Penney’s Early Use of Allegedly False Reference Pricing

Like most retailers, J.C. Penney offers sales and promotions to market 

merchandise. An important concept in this case is “reference pricing.” The price at 

which a product actually has been sold is known as the “reference price.” That price 

provides a point of reference—or a baseline—from which to determine the 

percentage or amount of a discount when a retailer has a sale. To use a simple 

example, if the price at which a retailer actually sold a particular dress is $100 and 

the retailer put that dress on sale for $40, the reference price would be $100 and the 

percentage of the discount would be 60%.
5

Rojas alleges that J.C. Penney began utilizing “false reference pricing” in 

2011, and perhaps earlier. False reference pricing occurs when the “original price” 

for a product identified in an advertisement is higher than the price the product 

actually sold for, which makes the discount appear bigger and “plays on the 

psychology of the consumer’s desire to strike a good bargain.”6 Using the dress 

example, if a retailer were to mark up the price of the dress to $120 (even though the 

retailer previously sold the dress for only $100) and then put that dress on sale for 

$40, the percentage of the discount using a false reference price would be about 67%. 

In January 2012, J.C. Penney’s then-new CEO Ron Johnson allegedly 

“admitted that JCP had been engaging in (illegal) false reference pricing, disclosing 

that for years the Company has been slowly increasing prices, that the Company’s 

purported regular retail prices had ‘no integrity,’ and that almost every single item 

sold by the Company was at a discounted rate.”7 Johnson further stated “during an 

analyst call that fewer than 1 in 500 units were ever sold at the advertised ‘regular 

price.’”

8

 In February 2012, J.C. Penney adopted a new strategy, called “Fair and 

Square Every Day” pricing, under which J.C. Penney “offered its products at 

everyday low pricing” and did not offer sales or discounts on products.9 When 

 

6 Compl. ¶¶ 67-68.

7

Id. ¶ 69.

8

Id. 

9

Id. ¶ 70.
6

Johnson left the Company for failing to “radically overhaul the department store 

chain,” J.C. Penney allegedly returned to using false reference pricing.10 

C. The Spann Action 

In 2012, Cynthia Spann, a J.C. Penney customer, filed an action against J.C. 

Penney in the United States District Court for the Central District of California on 

behalf of a class of California consumers (the “Spann action”). As amended, the 

complaint asserted that J.C Penney had engaged in false reference pricing in 

violation of California consumer protection statutes, including Section 17501 of the 

California Business & Professions Code.

11

 The Spann action concerned alleged 

false reference pricing “of JCP’s private branded and exclusive branded apparel and 

accessories.”

12

 It did not involve any products J.C. Penney sold that also were sold 

at other retailers.

In July 2014, J.C. Penney adopted the “Policy for Former Price Comparison 

Advertising” (the “2014 Pricing Policy”), which provided rules to avoid false 

reference pricing.13 The 2014 Pricing Policy established as a “general rule” that:

The former price to which JCPenney refers in its price comparison 

advertising must be “the actual bona fide price” at which the article was 

 

10 Id. ¶ 71. Although the Complaint does not allege when Johnson stepped down, this must 

have occurred by April 2013 since it is alleged that Ullman began serving a second term 

as CEO at that time. Id. ¶ 26.

11 Id. Ex. A ¶¶ 56-90 (Fourth Amended Complaint).

12 Id. ¶ 73; see also Tr. 15.

13 Compl. ¶¶ 74-75; id. Ex. H.
7

“openly and actively offered for sale, for a reasonably substantial period 

of time, in the recent, regular course of business, honestly and in good 

faith.”14

This language was taken directly from the Federal Trade Commission’s guidelines 

concerning former price comparisons.15 The 2014 Pricing Policy also required that 

the “landing period”—the time when a product initially is sold—be “[a]t least 14 

consecutive days before the first price break event” and that for “basic items” the 

price must be used at least “14 out of every rolling 90 days” and “70 days 

annually.”16 

On July 20, 2015, the Board’s Audit Committee discussed the Spann action.17 

The minutes of the meeting reflect that Janet Link, the Company’s General Counsel,

“reviewed . . . the status of the Spann pricing compliance class action lawsuit” and 

that “[a] discussion ensued during which Ms. Link responded to questions asked and 

comments made by the Committee members.”18 

On September 10 and 11, 2015, the parties in the Spann action entered into a 

Memorandum of Settlement that “included continued oversight of the Company’s 

 

14 Id. ¶ 75 (quoting Ex. H).

15 Id. ¶ 76 (citing 16 C.F.R. § 233.1). 

16 Id. ¶¶ 77-78 (quoting Ex. H).

17 Id. ¶¶ 79-80; id. Ex. I.

18 Id. Ex. I at JCP001274; id. ¶ 82.
8

pricing policies.”19 On September 17, 2015, the full Board of J.C. Penney discussed 

the Spann action at a regular meeting. The minutes of the meeting reflect that the 

General Counsel:

provided an update on the Company’s pricing class action litigation in 

California, titled Spann v. J.C. Penney Corporation, Inc. She reviewed 

the history of the case as well as recent developments. A discussion 

ensued during which Ms. Link responded to questions asked and 

comments made by the directors.20 

On November 10, 2015, the parties in the Spann action filed their formal 

Settlement Agreement with the district court.21 The next day, J.C. Penney issued a 

press release announcing the settlement, in which it stated that “[t]he settlement 

agreement also contemplates that JCPenney will implement and/or continue certain 

improvements to its price comparison advertising policies and practices, including 

periodic monitoring and training programs designed to ensure compliance with 

California’s advertising laws.”

22

 

In the Settlement Agreement, J.C. Penney agreed to pay up to $50 million for 

the benefit of a state-wide class of California consumers, with the amount for 

claimants (after the payment of attorneys’ fees and related costs) to be payable in 

 

19 Id. Ex. B § 1.1.

20 Id. Ex. J at JCP001282; id. ¶ 87. 

21 Id. Ex. B; id. ¶ 82.

22

 Id. ¶ 96 n.29 (citing November 13, 2015 Form 8-K); J.C. Penney Company, Inc., Current 

Report (Form 8-K) (Nov. 13, 2015) (attaching the Company’s November 11, 2015 press 

release). 
9

cash or store credits.23 J.C. Penney also agreed that as of the date of the settlement

it was not violating, and would not violate in the future, federal or California law, 

including California price-comparison advertising laws:

JCPenney agrees that its advertising and pricing practices as of the date 

of this Settlement Agreement, and continuing forward, will not violate 

Federal or California law, including California’s specific pricecomparison advertising statutes. Specifically, JCPenney agrees that 

any former price to which JCPenney refers in its price comparison 

advertising will be the actual, bona fide price at which the item was 

openly and actively offered for sale, for a reasonably substantial period 

of time, in the recent, regular course of business, honestly and in good 

faith. As a further direct result of this Litigation, JCPenney shall 

implement a compliance program, which will consist of periodic (no 

less than once a year) monitoring, training and auditing to ensure 

compliance with California’s price comparison laws.24

The Settlement Agreement contains mutual releases and further provides that 

“JCPenney expressly denies liability for the claims asserted and specifically denies 

and does not admit any of the pleaded facts not admitted in its pleadings in the 

Litigation.”25

On July 28, 2016, J.C. Penney filed with the district court a response to an 

objection to the proposed settlement in which it provided an update concerning its 

implementation of new pricing policies and procedures:

 

23 Id. Ex. B §§ 5.1, 6.1.

24 Id. Ex. B § 6.1.7.

25 Id. Ex. B §§ 13.1 (Settlement Class Members Released Claims), 13.2 (JCPenney 

Released Claims), 17.1 (Statement of No Admission).
10

JCPenney . . . can represent that it has implemented a new pricecomparison advertising policy in direct response to this litigation. This 

policy has remained in effect at all times since it was enacted, including 

since the date of the Settlement Agreement. Moreover, pursuant to this 

new policy, JCPenney has created a Promotional Pricing Governance 

Committee and has instituted regular training sessions. JCPenney has 

also created a new position, Director of Pricing Compliance, whose 

primary responsibility is to monitor and ensure compliance with the 

new pricing policy.26

On September 30, 2016, the district court approved the proposed settlement of the

Spann action.

27

 

D. The California Action 

On December 7, 2016, the Los Angeles City Attorney filed an action against 

J.C. Penney on behalf of the People of the State of California in California Superior 

Court (the “California Action”). As amended, the complaint asserts violations of 

California’s consumer protection statutes.

28

 As part of a coordinated effort, the City 

Attorney filed actions against three other national retailers (Macy’s, Kohl’s, and 

Sears) in the same court, asserting similar claims under the same statutes.

29

 

One of the claims in the California Action is governed by Section 17501 of 

the California Business & Professions Code. That statute provides that:

 

26 Id. Ex. C at 2; id. ¶ 96.

27 Id. ¶¶ 9, 137. 

28 Id. Ex. D ¶¶ 82-107.

29 See id. Ex. F (California Superior Court decision ruling on separate demurrers of Sears, 

Kohl’s, Macy’s, and J.C. Penney); People v. Superior Ct., 246 Cal. Rptr. 3d 128, 134 (Cal. 

Ct. App. 2019).
11

No price shall be advertised as a former price of any advertised thing, 

unless the alleged former price was the prevailing market price . . . 

within three months next immediately preceding the publication of the 

advertisement or unless the date when the alleged former price did 

prevail is clearly, exactly and conspicuously stated in the 

advertisement.30 

The Los Angeles City Attorney interpreted this provision to require that a product 

must be offered at the reference price “for a majority of the days on which it was 

offered during the preceding 90 days,” i.e., for at least forty-six of those ninety 

days.31 

On July 5, 2018, the California Superior Court granted in part and denied in 

part demurrers each of the four retailers had filed to dismiss the claims asserted 

against them. With respect to the claims asserted under Section 17501 of the 

Business and Professions Code, the California Superior Court granted the retailers’ 

motions, finding “on the facts alleged [that] the statute is unconstitutionally vague 

as applied to these Defendants.”32 With respect to the City Attorney’s forty-six-day 

theory, the court explained:

The People’s selection of a 46 day requirement is an arbitrary 

interpretation of section 17501, it is not supported by existing case law, 

and other enforcement authorities are not bound by that interpretation. 

Section 17501 provides no guidance for determining how long within 

a three month period, a price must “prevail” in order to excuse a retailer 

 

30 Cal. Bus. & Prof. Code § 17501.

31 Compl. Ex. D ¶ 97; id. ¶ 102.

32 Id. Ex. F at 5; id. ¶ 108 n.40.
12

from the duty of “clearly, exactly and conspicuously” stating the date 

when the former price did prevail.33

On April 16, 2019, the Court of Appeal of California reversed the dismissal of the 

Section 17501 claims, finding that the statute was not void for vagueness.34 

The Court of Appeal decision highlights an important difference between the 

Spann action and the California Action. As explained above, the Spann action only 

concerned J.C. Penney’s sales of private branded and exclusive branded products. 

By contrast, the California Action concerns J.C. Penney’s sale of products on its 

website, which includes non-exclusive products sold by other retailers.35 With 

respect to non-exclusive goods, the Court of Appeal held that the “prevailing market 

price” for purposes of Section 17501 is based on what all retailers selling a particular 

item have charged and not just the price at which J.C. Penney had sold the item:

The theory in question thus differs from the Spann theory primarily 

with respect to the market or markets in which the prevailing market 

prices are to be determined. Under section 17501, . . . the market for 

each nonexclusive item advertised by a real party consists of all the 

retailers selling the “advertised item” to the consumers targeted by the 

real party’s advertisement. In those markets, the real party’s actual 

price for a nonexclusive item will not establish the item’s prevailing 

market price.36

The California Action is still ongoing.

 

33 Id. Ex. F at 15.

34 People v. Superior Ct., 246 Cal. Rptr. 3d at 135.

35 Compl. ¶ 106; Tr. 16.

36 People v. Superior Ct., 246 Cal. Rptr. 3d at 160.
13

E. The Cavlovic Action

On December 16, 2016, shortly after the California Action was filed, a J.C. 

Penney customer in Kansas filed a putative consumer class action in Kansas state 

court for violations of the Kansas Consumer Protection Act and unjust enrichment 

(the “Cavlovic Action”).37 Cavlovic’s complaint “alleged that she fell victim to [a]

pricing scheme when she paid $171.66 for a pair of earrings that were advertised as 

originally costing $524.98” even though J.C. Penney had never actually sold the 

earrings at this higher price.38 After J.C. Penney unsuccessfully moved to dismiss 

the Cavlovic Action, it settled with Cavlovic on her individual claims only.

39

F. Additional Board Discussions About Pricing

From late 2016 through June 2017,40 the Board engaged in at least two 

additional discussion about pricing,

41 although the minutes of the meetings do not 

refer specifically to any of the lawsuits discussed above or whether J.C. Penney’s 

pricing policy complies with applicable laws.

On November 18, 2016, the Company’s Chief Financial Officer (Ed Record) 

reviewed with the Board a slide presentation and engaged in a discussion of ways to 

 

37 Compl. ¶ 110; id. Ex. E ¶¶ 76-108.

38 Id. ¶ 110.

39 Id. ¶¶ 111-12.

40 As noted above, June 2017 is the endpoint of the documents produced in response to 

Rojas’ demand to inspect the Company’s books and records. Id. ¶ 18 n.7.

41 Id. ¶ 113.
14

“optimize pricing.”

42

 The minutes reflect that Record “discussed the science around 

pricing as well as the Company’s desire to bring more analytical rigor to its pricing 

strategies.”43 

On March 1, 2017, the Company’s Vice President of Pricing (Prosun Niyogi) 

updated the Board on the Company’s pricing initiatives.44 The minutes state that he 

“reviewed the current state of the Company’s pricing and promotional structure” and 

“then discussed the Company’s pricing objectives and key opportunities as well as 

the potential impact to the Company from changes in the pricing process.”45

G. The 2017 Pricing Policy

In May 2017, the Company adopted a new pricing policy (the “2017 Pricing 

Policy”).46 The 2017 Pricing Policy reiterates the “general rule” from the 2014 

Pricing Policy,

47 but contains a number of modifications. For example, the 2017 

Pricing Policy provides that if “a company-wide [Buy More, Save More] event 

occurs during an item’s Landing Period, the item(s) will be included in the company-

 

42 Id. ¶ 114 (citing id. Ex. K).

43 Id. Ex. L at JCP001336.

44 Id. ¶ 116.

45 Id. (quoting id. Ex. M at JCP001747).

46 Id. ¶ 118 (citing id. Ex. N).

47 Id. ¶ 120; compare id. Ex. H at JCP0001752, with id. Ex. N at JCP001915.
15

wide offer” and it expanded “the ability to use an enterprise-wide, store-wide, or 

web-based coupon[] . . . during an item’s landing period.”48 

As noted above, the Settlement Agreement in the Spann action obligated J.C. 

Penney to create a compliance program and, in June 2016, the Company represented 

to the district court that it “created a new position, Director of Pricing Compliance, 

whose primary responsibility is to monitor and ensure compliance with the new 

pricing policy.”49 The 2017 Pricing Policy reflects that, in addition to hiring a new 

Director of Pricing Compliance, the Company also had hired two Compliance 

Specialists.50

H. Procedural History

On October 19, 2018, Rojas filed the Complaint asserting two derivative 

claims. Count I asserts that each of the individual defendants breached their 

fiduciary duties by failing to engage in oversight with respect to the Company’s 

compliance with California’s consumer protection laws. Count II asserts that each 

of the six defendants who currently serve (Owens, Payne, Plunkett, Teruel, and 

Roberts) or previously served (Sadove) on the Audit Committee breached their 

 

48 Id. ¶ 121 (quoting id. Ex. N at JCP001916).

49 Id. Ex. C at 2.

50 Id. Ex. N at JCP001918.
16

fiduciary duties because they “consciously failed to monitor their information and 

reporting systems for compliance relating to the Company’s product pricing.”

51

 

On December 18, 2018, defendants moved to dismiss the Complaint solely 

under Court of Chancery Rule 23.1.

52

II. ANALYSIS

“A basic principle of the General Corporation Law of the State of Delaware 

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

corporation.”

53

 For this reason, the decision to bring or refrain from bringing a 

derivative claim on behalf of the corporation is the responsibility of the board of 

directors in the first instance.

54

 This approach “is designed to give a corporation, on 

whose behalf a derivative suit is brought, the opportunity to rectify the alleged wrong 

without suit or to control any litigation brought for its benefit.”55 

Under Court of Chancery Rule 23.1, a stockholder who wishes to assert a 

derivative claim on behalf of a corporation must “allege with particularity the efforts, 

 

51 Id. ¶ 161. 

52 Defendants advance a cursory argument that certain aspects of plaintiff’s claims are timebarred. See Defs.’ Opening Br. 27 (Dkt. 15). This argument is irrelevant to the question 

of demand futility under Rule 23.1 and thus is not addressed in this opinion. 

53 Spiegel v. Buntrock, 571 A.2d 767, 772-73 (Del. 1990). 

54 Id.

55 Lewis v. Aronson, 466 A.2d 375, 380 (Del. Ch. 1983), rev’d on other grounds, 473 A.2d 

805 (Del. 1984).
17

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.”56 Under the heightened pleading 

requirements of Rule 23.1, conclusory “allegations of fact or law not supported by 

the allegations of specific fact may not be taken as true.”57 

There are two tests under Delaware law for determining whether making a 

demand on the corporation’s board of directors to pursue a claim may be excused as 

futile: the Aronson test and the Rales test.58 This court applies the first test, from

Aronson v. Lewis,

59 when “a decision of the board of directors is being challenged 

in the derivative suit.”60 The second test, from Rales v. Blasband,

61 governs when 

“the board that would be considering the demand did not make a business decision 

which is being challenged in the derivative suit,” such as “where directors are sued 

derivatively because they have failed to do something.”62 

 

56 Del. Ch. Ct. R. 23.1.

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

v. Eisner, 746 A.2d 244 (Del. 2000).

58 Both tests ultimately focus on the same inquiry, whether “the derivative plaintiff has 

shown some reason to doubt that the board will exercise its discretion impartially and in 

good faith.” In re INFOUSA, Inc. S’holders Litig., 953 A.2d 963, 986 (Del. Ch. 2007).

59 466 A.2d 375.

60 Rales v. Blasband, 634 A.2d 927, 933 (Del. 1993).

61 Id.

62 Id. at 933-34 & n.9. Rales also applies “where a business decision was made by the 

board of a company, but a majority of the directors making the decision have been 
18

All parties agree that the Rales test applies in this case because Rojas is not 

challenging a specific board action or decision, but rather an alleged lack of board 

oversight.

63

 This means that demand can be excused only if “the particularized 

factual allegations . . . create a reasonable doubt that, as of the time the complaint 

[was] filed, the board of directors could have properly exercised its independent and 

disinterested business judgment in responding to a demand.”64 

Here, Rojas does not challenge the independence of any members of the 

Demand Board and does not contend that any of them have divided loyalties because 

of a personal financial interest in any underlying transaction. Rojas argues only that 

a majority of the Demand Board is interested because they are exposed to a 

substantial likelihood of personal liability. More specifically, Rojas argues that a 

reasonable doubt exists regarding whether the Demand Board could have 

considered, impartially and in good faith, whether to pursue the claims in the 

Complaint because at least nine of its eleven members face a substantial likelihood 

of liability for failing to exercise their oversight obligations under Caremark. It is 

 

replaced” and where “the decision being challenged was made by the board of a different 

corporation.” Id. at 934. 

63 Defs.’ Opening Br. 13; Pl.’s Answering Br. 27 (Dkt. 19). 

64 Rales, 634 A.2d at 934.
19

black letter law that “the mere threat of personal liability” is insufficient to make this 

showing.

65

 

Chancellor Allen famously remarked in Caremark that to prove liability for 

failing to monitor corporate affairs is “possibly the most difficult theory in 

corporation law upon which a plaintiff might hope to win a judgment.”66 Consistent 

with that sentiment, our Supreme Court held in Stone v. Ritter that, to plead a 

substantial likelihood of liability under Caremark, a stockholder must allege 

particularized facts to show that either (1) “the directors utterly failed to implement 

any reporting or information system or controls” or that (2) “having implemented

such a system or controls, [the directors] consciously failed to monitor or oversee its 

operations thus disabling themselves from being informed of risks or problems 

requiring their attention.”67

Under either theory, the “imposition of liability requires a showing that the 

directors knew that they were not discharging their fiduciary obligations.”

68

 “The 

need to demonstrate scienter to establish liability under an oversight theory follows 

not only from Caremark itself, but from the existence of charter provisions 

 

65 Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984). 

66 In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 967 (Del. Ch. 1996).

67 911 A.2d at 370.

68 Id.
20

exculpating directors from liability for breaches of the duty of care that have become 

ubiquitous in corporate America.”69

Rojas argues that a majority of the Demand Board faces a substantial 

likelihood of liability under both prongs of Caremark.

70

 He further argues that a 

majority of the J.C. Penney Board is conflicted because of the ongoing nature of the 

California Action. The court concludes that each of these arguments is without merit 

for the reasons discussed below and that plaintiff has failed to establish that any 

member of the Demand Board faces a substantial likelihood of liability under 

Caremark or is conflicted based on the California Action.

A. The Complaint Fails to Allege Facts Sufficient to Show that the 

Directors Are Exposed to a Substantial Likelihood of Liability for 

Utterly Failing to Implement a System of Controls 

Rojas makes a faint-hearted attempt to argue that the members of the Demand 

Board face a substantial likelihood of personal liability under the first prong of 

Caremark for “utterly failing” to implement any reporting or information system or 

controls with respect to the Company’s advertising and pricing policies. Focusing 

on when the Spann action settled, Rojas asserted in his Complaint that “there is no 

evidence that any Board member sought to put in place any safeguards to ensure that 

 

69 Reiter v. Fairbank, 2016 WL 6081823, at *7 (Del. Ch. Oct. 18, 2016). It is undisputed 

that J.C. Penney’s certificate of incorporation exculpated the Company’s directors from 

liability for breaches of the duty of care.

70 Pl.’s Answering Br. 48-49. 
21

the Company’s advertising and pricing policies were in conformance with the 

Consumer Protection Laws.”71 When briefing this motion, however, Rojas 

effectively abandoned this position, conceding that: “There is no assertion that the 

reporting system put in place at the time of the Spann settlement is inadequate, or 

that the Board did not know it existed.”72

Earlier this year, in Marchand v. Barnhill, our Supreme Court expounded on 

the duties Delaware law imposes on directors to ensure that board-level monitoring 

and reporting systems are in place:

As with any other disinterested business judgment, directors have great 

discretion to design context- and industry-specific approaches tailored 

to their companies’ businesses and resources. But Caremark does have 

a bottom-line requirement that is important: the board must make a 

good faith effort—i.e., try—to put in place a reasonable board-level 

system of monitoring and reporting.73

The high court further explained that, “[i]n decisions dismissing Caremark claims, 

the plaintiffs usually lose because they must concede the existence of board-level 

systems of monitoring and oversight such as a relevant committee, a regular protocol 

requiring board-level reports about the relevant risks, or the board’s use of thirdparty monitors, auditors, or consultants.”74

 That is the case here.

 

71 Compl. ¶¶ 14-15.

72 Pl.’s Answering Br. 51. 

73 Marchand v. Barnhill, -- A.3d --, 2019 WL 2509617, at *12 (Del. 2019) (internal 

citations omitted).

74 Id. at *14.
22

The Complaint and documents incorporated therein indicate that J.C. Penney 

had a board-level reporting system in place at the time of the Spann action to monitor 

the Company’s compliance with laws and regulations. Specifically, the Board’s

Audit Committee was “charged with legal and regulatory compliance” and its 

charter required it: 

1. To oversee the Company’s compliance with the law and regulation 

and, in connection therewith, to review and assess on no less than an 

annual basis, a report from the Company’s General Counsel regarding 

the implementation and effectiveness of the Company’s legal 

compliance and ethics program; . . .

4. To discuss with management any correspondence with regulators or 

governmental agencies and any litigation or other legal matters that 

raise material issues regarding the Company’s financial statements or 

accounting policies or its compliance with law or regulation.75

Consistent with its mandate, the Audit Committee received a report from the 

Company’s General Counsel, Janet Link, on July 20, 2015, about seven weeks 

before the Company entered into a Memorandum of Settlement in the Spann action. 

Ms. Link reviewed with the Audit Committee “the status of the Spann pricing 

compliance class action lawsuit” and “responded to questions asked and comments 

made by the Committee members.”76

 

75 Compl. ¶ 55.

76 Id. Ex. I at JCP001274; id. ¶ 82. 
23

About two months later, shortly after the Company entered into the 

Memorandum of Settlement but before the formal Settlement Agreement was filed 

with the district court, the matter was reviewed with the Board. On September 17, 

2015, Ms. Link provided an “update” on the Spann action that included a review of 

“the history of the case as well as recent developments.”77

As this court has explained, our Supreme Court appears to have been quite 

deliberate in its use of the adverb “utterly”—a “linguistically extreme 

formulation”—to set the bar high when articulating the first way to hold directors 

personally liable for a failure of oversight under Caremark.

78

 Given the facts just 

recited, it cannot be said that J.C. Penney’s directors “utterly failed to implement 

any reporting or information system or controls” relevant to complying with pricecomparison advertising laws or, in the more recent words of Marchand, that they 

made no good faith effort to “try.”

79

 Accordingly, Rojas has failed to allege facts 

 

77 Id. ¶ 87 (quoting id. Ex. J at JCP001282). The use of the word “update” in the minutes 

suggests that the Board received an earlier report about the Spann action, although no 

minutes have been provided reflecting such a discussion. Furthermore, as discussed above, 

the Board discussed pricing during two subsequent meetings—in November 2016 and 

March 2017—but the minutes of those meetings do not refer specifically to J.C. Penney’s 

pricing policy or its compliance with laws applicable to comparison pricing.

78 Horman v. Abney, 2017 WL 242571, at *8 n.46 (Del. Ch. Jan. 19, 2017) (“‘Utterly failed’

is a linguistically extreme formulation.”) (quoting Bradley R. Aronstam & David E. Ross, 

Retracing Delaware’s Corporate Roots Through Recent Decisions: Corporate 

Foundations Remain Stable While Judicial Standards of Review Continue to Evolve, 12 

Del. L. Rev. 1, 13 n.73 (2010)). 

79 Stone, 911 A.2d at 370; Marchand, 2019 WL 2509617, at *12. 
24

sufficient to support a reasonable inference that the members of the Demand Board

are exposed to a substantial likelihood of personal liability under the first prong of 

Caremark.

B. The Complaint Fails to Allege Facts Sufficient to Show that the 

Directors Are Exposed to a Substantial Likelihood of Liability for 

Consciously Failing to Monitor 

Rojas’ primary argument for establishing demand futility proceeds under the 

second prong of Caremark, i.e., that “having implemented such a system or controls, 

[the directors] consciously failed to monitor or oversee its operations thus disabling 

themselves from being informed of risks or problems requiring their attention.”80 

To establish liability under this theory, “a complaint must allege (1) that the 

directors knew or should have known that the corporation was violating the law, (2) 

that the directors acted in bad faith by failing to prevent or remedy those violations, 

and (3) that such failure resulted in damage to the corporation.”

81

 The typical way 

to plead that the directors knew or should have known that a corporation was 

violating the law is to allege facts demonstrating that the board was alerted to 

“evidence of illegality—the proverbial ‘red flag.’”82 “Under Delaware law, red flags 

 

80 Stone, 911 A.2d at 370.

81 In re Qualcomm Inc. FCPA S’holder Deriv. Litig., 2017 WL 2608723, at *2 (Del. Ch. 

June 16, 2017) (internal quotation marks omitted).

82 South v. Baker, 62 A.3d 1, 15 (Del. Ch. 2012).
25

‘are only useful when they are either waved in one’s face or displayed so that they 

are visible to the careful observer.’”83 

Rojas identifies only one alleged red flag—the Spann settlement—which he 

characterizes as the “ultimate red flag.”84 According to the Complaint:

The disclosure of the [Spann] action and the settlement terms thereof 

put the full Board on notice that the Company’s pricing policies 

violated Consumer Protection Laws and that a lawsuit resulting from 

the use of false reference pricing had already had a material impact on 

the Company’s finances and would do so again in the future if the 

Company continued to violate the law.85

 

Defendants respond with two arguments. First, they contend that the 

Complaint’s “allegations fail to plead any particularized facts supporting the 

inference that the Spann settlement put the directors on notice of ongoing violations 

of law” so as to establish that it was a red flag.

86

 Second, they contend that, even if 

the Spann settlement was a red flag, plaintiff’s answering brief “confirms that the 

Company responded to the Spann settlement extensively and apprised the Board of 

its response.”87 The court agrees with defendants’ first point, which is dispositive 

of plaintiff’s argument under the second prong of Caremark.

 

83 Wood v. Baum, 953 A.2d 136, 143 (Del. 2008) (quoting In re Citigroup Inc. S’holders 

Litig., 2003 WL 21384599, at *2 (Del. Ch. June 5, 2003)).

84 Pl.’s Answering Br. 11; Tr. 59.

85 Compl. ¶ 89; see also id. ¶ 83. 

86 Def.’s Reply Br. 10 (Dkt. 22) (internal quotation marks omitted).

87 Id. at 16.
26

Describing Ms. Link’s presentation to the Board on September 17, 2015, the 

Complaint alleges that she “presumably” explained that:

the Company had settled the [Spann action] for $50 million in cash and 

other non-monetary relief, including JCP’s proposed agreement that 

going forward its advertising and pricing practices would not violate 

the Consumer Protection Laws and that it would implement a method 

by which to monitor, train, and audit the Company’s compliance with 

the law no less than annually.88 

The Complaint and documents incorporated therein confirm what plaintiff alleges 

Ms. Link presumably explained to the Board.

According to the Complaint, the parties to the Spann action “notified the court 

[in September 2015] that they had agreed on settlement terms . . . which included 

continued oversight of the Company’s pricing policies.”89 The Settlement 

Agreement, which was filed with the court two months later, states in more specific 

terms that “JCPenney shall implement a compliance program, which will consist of 

periodic (no less than once a year) monitoring, training and auditing to ensure 

compliance with California’s price comparison laws.”

90 It also represents that 

“JCPenney agrees that its advertising and pricing practices as of the date of this 

 

88 Compl. ¶ 88.

89 Id. ¶ 82. 

90 Id. Ex. B § 6.1.7; id. ¶ 95. 
27

Settlement Agreement, and continuing forward, will not violate Federal or California 

law, including California’s specific price-comparison advertising statutes.”91 

The critical flaw in plaintiff’s “red flag” argument is that the Complaint relies 

on conclusory rhetoric to charge J.C. Penney’s directors with knowledge of 

wrongdoing. Rojas does not allege—as he must—particularized facts from which it 

reasonably can be inferred that the Spann settlement put the directors on notice of 

any ongoing violations of law. In particular, the Complaint does not allege facts

from which it can be inferred that any of the members of the Demand Board were 

aware that the Company had violated any California or other laws regulating pricing 

practices at any time before (or after) the district court approved the Spann

settlement. 

To the contrary, per the Complaint’s allegations, when the Spann action was 

discussed with the Board in September 2015, it was in terms of a settlement to

resolve a consumer class action without any admission of liability, with an express 

acknowledgement that the Company was not then violating any federal or California 

laws, and with a commitment to implement a program to ensure continued 

compliance with California’s price-comparison laws going forward. Also, when the

Spann settlement was approved by the district court one year later, J.C. Penney

 

91 Id. Ex. B § 6.1.7 (emphasis added). 
28

represented to the court that it had “implemented a new price-comparison 

advertising policy in direct response to” the Spann action, pursuant to which J.C. 

Penney “created a Promotional Pricing Governance Committee,” “instituted regular 

training sessions,” and “created a new position, Director of Pricing Compliance, 

whose primary responsibility is to monitor and ensure compliance with the new 

pricing policy.”92

Citing four federal decisions, Rojas contends that “settlements and warnings” 

can “constitute red flags, even absent a liability determination.”93 This is true, of 

course. A settlement of litigation or a warning from a regulatory authority—

irrespective of any admission or finding of liability—may demonstrate that a 

corporation’s directors knew or should have known that the corporation was 

violating the law. But the obverse also is true—such actions do not necessarily 

demonstrate that a corporation’s directors knew or should have known that the 

corporation was violating the law.94 When such events become a “red flag” depends 

 

92 Id. ¶ 8; id. Ex. C at 2.

93 Pl.’s Answering Br. 38.

94 See, e.g., In re Chemed Corp., S’holder Deriv. Litig., 2015 WL 9460118, at *18 (D. Del.

Dec. 23, 2015) (finding that subpoenas alleging wrongdoing are “certainly something to 

be taken into consideration along with a plaintiff’s other red flag allegations” but that 

subpoenas “do not on their own suggest that a board was aware of corporate misconduct”)

(alterations and internal quotation marks omitted), adopted by KBC Asset Mgmt. NV v. 

McNamara, 2016 WL 2758256 (D. Del. May 12, 2016); In re Intel Corp. Deriv. Litig., 621 

F. Supp. 2d 165, 175 (D. Del. 2009) (declining to “place great weight on a ‘preliminary’ 

finding” by a European Commission investigation that a company had infringed the 

European Commission Treaty and finding that the court “therefore cannot conclude that 
29

on the circumstances. Here, the facts of the four federal cases on which Rojas relies 

demonstrate how dissimilar they are from the alleged facts here on the key issue of 

the directors’ knowledge of wrongdoing.

In In re McKesson Corporation Derivative Litigation,

95 the lead case on which 

Rojas relies, the corporation entered into a settlement with the Department of Justice 

in 2008 that required it to implement a controlled substance monitoring program. 

The Northern District of California found the allegations sufficient to establish 

demand futility where certain directors “continued a pattern of noncompliance” after 

the corporation settled.96 Specifically, the audit committee failed to take action even 

after receiving “regular signals” during at least five meetings that the monitoring 

program it had established in connection with the settlement “was failing and 

required more attention.”

97

 

the directors now face a ‘substantial likelihood’ of liability for having allegedly ignored 

the EC investigation”).

95 2018 WL 2197548 (N.D. Cal. May 14, 2018). 

96 Id. at *10. 

97 Id. at *7-10. As Rojas points out, the district court referred to the settlement with the 

Department of Justice as the “first” of multiple red flags. Id. at *7. Unlike here, however, 

where Rojas has failed to allege any facts to support the inference that J.C. Penney’s 

directors were aware of ongoing violations of law at the time of the Spann settlement, the 

plaintiff in McKesson alleged that “the members of McKesson’s board of directors at the 

time” of the 2008 settlement “knew that McKesson had serious problems concerning the 

Company’s compliance with controlled substances laws and regulations for many years 

and spread across many of the Company’s facilities.” Id. (internal quotation marks 

omitted). 
30

In In re Abbott Laboratories Derivative Shareholders Litigation,

98 the 

Seventh Circuit sustained a Caremark claim where the board allegedly was alerted 

to continuing violations on numerous occasions after Abbott entered into a 

Voluntary Compliance Plan with the FDA, causing the FDA to close out the plan for 

noncompliance.99 The court summarized the allegations as follows:

Given the extensive paper trail . . . concerning the violations and the 

inferred awareness of the problems, the facts support a reasonable 

assumption that there was a “sustained and systematic failure of the 

board to exercise oversight,” in this case intentional in that the 

directors knew of the violations of law, took no steps in an effort to 

prevent or remedy the situation, and that failure to take any action for 

such an inordinate amount of time resulted in substantial corporate 

losses, establishing a lack of good faith. We find that six years of 

noncompliance, inspections, 483s, Warning Letters, and notice in the 

press, all of which then resulted in the largest civil fine ever imposed 

by the FDA and the destruction and suspension of products which 

accounted for approximately $250 million in corporate assets, indicate 

that the directors’ decision to not act was not made in good faith and 

was contrary to the best interests of the company.100

In In re Pfizer Inc. Shareholder Derivative Litigation,

101 the Southern District 

of New York found demand to be futile where plaintiff alleged “a large number of 

reports made to members of the board from which it may reasonably be inferred that 

 

98 325 F.3d 795 (7th Cir. 2003).

99 Id. at 799-802, 808-09.

100 Id. at 810.

101 722 F. Supp. 2d 453 (S.D.N.Y. 2010).
31

they all knew of Pfizer’s continued misconduct and chose to disregard it” after three 

prior settlements with the government.

102 The allegations included:

reports to the board of the Neurontin and Genotropin settlements, a 

large number of FDA violation notices and warning letters, several 

reports to Pfizer’s compliance personnel and senior executives of 

continuing kickbacks and off-label marketing, and the allegations of the 

qui tam lawsuits. Many of these disturbing reports were received 

during the same time that the board was obligated by the 2002 and 2004 

CIAs to pay special attention to these very problems.103

And, in Rosenbloom v. Pyott,

104 the Ninth Circuit found that the board acted 

with the necessary scienter because the board not only was aware of and ignored 

ongoing violations of law, but directly participated in illegal conduct: 

These allegations and the inferences that reasonably follow from them 

. . . show that Allergan’s board closely monitored off-label Botox sales 

and repeatedly discussed or authorized programs even after learning 

that those programs involved the same illegal conduct for which 

Allergan was ultimately fined and punished.105 

In sum, in each of the four cases just discussed, stockholders presented strong 

factual allegations of board knowledge of ongoing legal violations in the wake of 

federal government enforcement proceedings (McKesson, Abbott, and Pfizer) and a 

guilty plea in a criminal case (Rosenbloom). Factual allegations of this nature are 

precisely what is missing here. Tacitly conceding as much, Rojas suggests that 

 

102 Id. at 455-57, 460.

103 Id. at 460-61 (citations omitted).

104 765 F.3d 1137 (9th Cir. 2014).

105 Id. at 1152-53.
32

“regardless of whether wrongdoing occurred,” the sheer amount of the settlement 

payment ($50 million) and the fact that the Company “lost multiple motions” in the 

Spann action should satisfy his pleading burden under Court of Chancery Rule 

23.1.

106

 The court disagrees. 

The Spann action was a purely civil matter of the type that commercial parties 

routinely settle after motion practice. It was not brought against the backdrop of a 

prior settlement where clear, repeated violations of a law had been found. Indeed, 

the reference pricing claims in the Spann action were not clear cut—as demonstrated 

by the fact that two California courts later disagreed (in the California Action) over 

whether Section 17501 of the California Business & Professions Code is 

unconstitutionally vague.107 The cost of the Spann settlement, although sizeable, 

secured a release from a state-wide class of California consumers as part of a 

compromise without any admission of liability. 

Our law is clear that “to establish oversight liability a plaintiff must show that 

the directors knew they were not discharging their fiduciary obligations or that the 

directors demonstrated a conscious disregard for their responsibilities such as by 

failing to act in the face of a known duty to act.”108 Thus, a complaint must allege 

 

106 See Pl.’s Answering Br. 35.

107 See supra Section I.D.

108 In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 123 (Del. Ch. 2009) (Chandler, 

C.); see also Reiter, 2016 WL 6081823, at *7. 
33

particularized facts to show “that the directors knew or should have known that the 

corporation was violating the law” in order to state a claim under the second prong 

of Caremark.

109

 In my view, the sheer amount of the Spann settlement payment and 

the posture of the case when it settled are far from sufficient in the context of the 

overall circumstances to support the inference of scienter necessary to demonstrate 

that J.C. Penney’s directors acted in bad faith.

Finally, I disagree with Rojas’ contention that this court’s decision in Horman 

v. Abney110 supports finding that the Spann settlement is a red flag. In Horman, the 

court explained in dictum that a settlement could be a red flag if the company (UPS) 

“had entered the [settlement] and then continued a pattern of non-compliant

[cigarette] shipments immediately thereafter.”

111

 In this case, by contrast, J.C. 

Penney’s pricing practices have never been found—as part of a settlement or in any 

adjudication—to be “non-compliant” in the first place, and there are no well-pled 

allegations in the Complaint that the Board ever became aware that the Company 

failed to implement the procedures required under the Spann settlement. 

At bottom, Rojas asks the court to find that J.C. Penney’s directors have 

demonstrated a conscious disregard for their responsibilities simply because, less 

 

109 Qualcomm, 2017 WL 2608723, at *2 (internal quotation marks omitted).

110 2017 WL 242571.

111 Id. at *11.
34

than three months after the district court approved the Spann settlement, the Los 

Angeles City Attorney initiated coordinated civil proceedings against J.C. Penney 

and three of its competitors asserting complex price-comparison claims that have 

been disputed vigorously, and because a single consumer filed suit in Kansas over a 

pair of earrings in a case that has been settled on an individual basis. Given the lack 

of any particularized factual allegations to support a reasonable inference that the 

members of the Demand Board knew or should have known that the Company was 

violating the law at any time before (or after) those actions were filed, it would be 

unwarranted to make such a finding and the court declines to do so.

* * * * *

For the reasons explained in Sections II.A and II.B above, Rojas has failed to 

allege facts sufficient to support a reasonable inference that the members of the 

Demand Board are exposed to a substantial likelihood of personal liability under 

either prong of Caremark. Accordingly, Rojas has failed to plead adequately that 

demand would have been futile under either of those theories.

C. The Demand Board Is Not Conflicted Because of the Pendency of 

the California Action

Rojas argues lastly that demand should be excused “because bringing the 

claims at issue in this Action would be tantamount to admitting liability in the”
35

California Action.112 In making this argument, Rojas relies on this court’s decisions

in Pfeiffer v. Toll113 and In re Fitbit, Inc. Stockholder Derivative Litigation.114 

In Pfeiffer, a stockholder asserted a derivative claim to recover damages 

resulting from alleged insider trading. The court found that demand was futile under 

Rales because a majority of the board members were defendants in a “companion 

federal securities action” that had survived a motion to dismiss and in which the 

district court “held that the insider trading of the individual defendants—essentially 

the same trades at issue here—raised a ‘powerful and cogent inference of scienter’ 

and was ‘unusual in scope and timing.’”115 In Fitbit, which also involved allegations 

of insider trading, the court similarly considered as “a relevant factor in the Rales 

analysis” the exposure certain directors faced in a related securities action.116 

Both of these cases are readily distinguishable because none of the members 

of the Demand Board is a party to the California Action where the Company is the 

only defendant, and thus none of them has any personal exposure in that action.

117

 

 

112 Pl.’s Answering Br. 54.

113 989 A.2d 683 (Del. Ch. 2010), abrogated on other grounds by Kahn v. Kolberg Kravis 

Roberts & Co., L.P., 23 A.3d 831 (Del. 2011).

114 2018 WL 6587159 (Del. Ch. Dec. 14, 2018).

115 989 A.2d at 690 (citation omitted). 

116 2018 WL 6587159, at *16.

117 See Guttman v. Huang, 823 A.2d 492, 504 (Del. Ch. 2003) (Strine, V.C.) (not 

considering the implications of a companion federal securities action for demand futility 

purposes where “none of [five outside director] defendants is even named as a defendant 

in the pending federal securities suits”); Rattner v. Bidzos, 2003 WL 22284323, at *14 
36

For this reason, the court has no reason to doubt whether any members of the 

Demand Board could consider a demand impartially based on the pendency of the 

California Action. 

III. CONCLUSION

For the reasons explained above, the court concludes that plaintiff has failed 

to allege facts from which it may reasonably be inferred that any of the directors on 

the Demand Board consciously allowed J.C. Penney to violate any price-comparison 

advertising laws so as to demonstrate that they acted in bad faith. Accordingly, 

Rojas has failed to establish that his failure to make a demand should be excused, 

and the Complaint is hereby dismissed with prejudice in its entirety. 

IT IS SO ORDERED. 

 

(Del. Ch. Sept. 30, 2003) (finding that “conclusory and cryptic allegations” about which, 

if any, of the director defendants also were defendants in a companion federal securities 

action were insufficient to merit demand excusal under Rales).