IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

JACOB KASHER HINDLIN,

 Plaintiff,

 v.

LUKASZ GOTTWALD, LAWRENCE J. 

SPIELMAN and RENEE KARALIAN,

 Defendants.

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 C.A. No. 2019-0586-JRS

MEMORANDUM OPINION

Date Submitted: May 7, 2020

Date Decided: July 22, 2020

Brian E. Farnan, Esquire and Michael J. Farnan, Esquire of Farnan LLP, 

Wilmington, Delaware and Andrew J. Goodman, Esquire and Diana Breaux, Esquire 

of Foster Garvey P.C., New York, New York, Attorneys for Plaintiff Jacob Kasher 

Hindlin.

Chad M. Shandler, Esquire, Katharine L. Mowery, Esquire and Angela Lam, Esquire 

of Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for 

Defendants Lukasz Gottwald and Renee Karalian.

Dawn C. Doherty, Esquire and Marc Sposato, Esquire of Marks, O’Neill, O’Brien, 

Doherty & Kelly, Wilmington, Delaware, Attorneys for Defendant Lawrence J. 

Spielman.

SLIGHTS, Vice Chancellor
1

Plaintiff, Jacob Kasher Hindlin (“Hindlin”), was encouraged by his business 

manager, Defendant, Lawrence Spielman (“Spielman), to invest in Core 

Nutrition LLC (“Core”) in February 2015. In connection with this investment,

Hindlin signed a Joinder Agreement and Signature Page to the Limited Liability 

Company Agreement of Core Nutrition, LLC (the “LLC Agreement”). Hindlin

acquired additional Core units, again at Spielman’s urging, in early 2017. More than 

a year later, Core was acquired by Keurig Dr. Pepper Inc. (“KDP”) for an aggregate 

transaction value of $449 million. Based on his 0.6% ownership stake in Core as of 

the end of 2017, Hindlin believed he was entitled to $2.75 million for his units. Core 

maintained he was owed only $393,582.89. 

Hindlin brings this action to recover what he believes he is owed by Core

against three former members of Core’s Board of Managers (the “Board”). 

He alleges Defendants, Spielman, Lukasz Gottwald (“Gottwald”) and Renee 

Karalian (“Karalian”), improperly diluted Core’s minority shareholders in breach of 

their fiduciary duties and the covenant of good faith and fair dealing implied within 

the LLC Agreement. Defendants have moved to dismiss the Complaint under Court 

of Chancery Rule 12(b)(6) for failure to state a claim, Rule 23.1 for failure 

adequately to plead demand futility and 6 Del. C. §§ 18-1001–1003 for lack of 

standing (the “Motion”). 
2

After carefully reviewing the Complaint and the parties’ arguments in 

connection with the Motion, I am satisfied the Complaint must be dismissed. As an 

initial matter, the Complaint is devoid of well-pled factual allegations that any of the 

named Defendants did anything actionably wrong. Beyond the factual deficiencies 

in the pleading, the Complaint also fails as a matter of law. Hindlin has not 

adequately alleged a gap in the LLC Agreement that the implied covenant may be 

invoked to fill. And, because Hindlin’s dilution claim is derivative in nature and 

Hindlin is no longer a Core unitholder, he lacks standing to bring a breach of 

fiduciary duty claim. My reasoning follows. 

I. BACKGROUND

I have drawn the facts from the well-pled allegations in the Complaint,1

documents incorporated by reference or integral to the Complaint and those matters 

of which I may take judicial notice.2

 1 Citations to the Complaint are to “Compl. ¶ __.” 

2 Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on 

a motion to dismiss, the Court may consider documents that are “incorporated by 

reference” or “integral” to the complaint); In re Gen. Motors (Hughes) S’holder Litig., 897 

A.2d 162, 170 (Del. 2006) (holding this Court may, when considering a motion to dismiss, 

take judicial notice of documents not subject to reasonable dispute). 
3

A. The Parties

Plaintiff, Jacob Hindlin, is a “highly successful” writer and producer of pop 

music.3

 He first invested in Core in 2015.4

Defendant, Lukasz Gottwald, is a “highly successful” music industry 

publisher and producer.5

 Gottwald was a co-founder and the Chief Cultural Officer 

of Core, and served on the Board at all relevant times.6

 Gottwald promoted Core as 

an investment opportunity to his peers in the music industry.7

Defendant, Lawrence Spielman, is a certified public accountant who served 

as Hindlin’s business manager from November 2010 until July 2018.8

 Spielman 

encouraged Hindlin to invest in Core, and was on the Board at all relevant times.9

 3 Compl. ¶ 2. Hindlin is known professionally as Jacob Kasher. 

4 Compl. ¶ 10. 

5 Compl. ¶ 3. Gottwald is known professionally as Dr. Luke. 

6 Compl. ¶ 7. Defendants note that Gottwald resigned from the Board in 2016. 

See Opening Br. in Supp. of Defs.’ Mot. to Dismiss (“OB”), Ex. G. As the document relied 

upon by Defendants to demonstrate Gottwald’s resignation was not attached to or 

incorporated by reference in the Complaint, I cannot consider it on a motion to dismiss. 

See Wal-Mart Stores, 860 A.2d at 320. Regardless, Gottwald’s Board status does not 

ultimately impact my analysis. 

7 Compl. ¶¶ 3, 5. 

8 Compl. ¶ 4. 

9 Compl. ¶¶ 5, 7. 
4

Defendant, Renee Karalian, is a lawyer who provides various legal services 

to Gottwald.10 She was a member of the Board at all relevant times.11

B. Hindlin’s Investment in Core and the Subsequent Sale to KDP

Spielman pitched an investment in Core to Hindlin in February 2015.

12

Hindlin acquired 2,000 Core units for $12,000 soon after.

13 In connection with this 

initial investment, Hindlin signed a joinder binding him to the LLC Agreement.14 In 

early 2017, Gottwald directed Core’s President to send Hindlin a Private Placement 

Memorandum in hopes that Hindlin would participate in Core’s latest fundraising 

round.15 Again following Spielman’s recommendation, Hindlin acquired an 

additional 2,000 Core units, this time for $120,000.16 

On October 1, 2018, Hindlin was informed that Core was being acquired by

KDP for an enterprise value of $525 million (the “Acquisition”).

17 The Acquisition 

 10 Compl. ¶ 6. 

11 Compl. ¶ 7. 

12 Compl. ¶ 10.

13 Id. 

14 Compl. ¶ 11. 

15 Compl. ¶ 13. 

16 Compl. ¶ 14. 

17 Compl. ¶ 16. 
5

closed in November 2018 for an adjusted price of $449,462,907, and Hindlin did not 

challenge the Acquisition’s terms or fairness.18 According to his 2017 Core K-1, 

Hindlin owned about .613% of Core’s equity at year-end 2017.19 Based on this 

stake, Hindlin believes he should have received $2,755,207 for his units following 

the Acquisition.

20 Instead, Hindlin was offered consideration totaling 

$393,582.89.21

C. The Alleged Dilution of Plaintiff’s Shares

Hindlin alleges the discrepancy between what he is owed and what he was 

offered is the result of the Core Board’s improper dilution of the Company’s 

minority unitholders.22 While the Complaint is frustratingly vague, Hindlin appears 

to offer three bases to infer dilution. First, he alleges the Company issued some 

number of so-called “Incentive Units” prior to the KDP transaction.23 These

Incentive Units allegedly constituted approximately 18% of the Core units 

exchanged for KDP shares in the Acquisition, and Hindlin alleges Core’s refusal to 

 18 Compl. ¶ 17. 

19 Compl. ¶ 18. 

20 Id. 

21 Compl. ¶ 19. 

22 Compl. ¶ 22. 

23 See Compl. ¶ 22; OB Ex. A, (the “LLC Agreement”) §§ 5.1(b), (c)(iii).
6

identify to whom these units were allotted suggests their purpose was to dilute 

minority shareholders.

24 As Spielman individually received merger consideration 

exceeding $76 million, Hindlin believes many of these Incentive Units were granted 

to Spielman, which he argues further supports an inference of improper dilution.

25 

Next, Hindlin identifies changes in Core’s 2017 capital accounts as evidence 

of dilution.26 Core issued 271,829 units that year.27 If these units had been issued 

at the same price Hindlin paid for his units in 2017, these sales should have raised 

$16.3 million and the Company’s year-end capital should have totaled

$24.6 million.28 Instead, the Company recorded a year-end capital balance of 

$1.4 million.29 Core’s capital losses that year were $18.37 million, $4.85 million 

less than the year-end capital total suggests.30 Hindlin argues this discrepancy can 

only be explained by the issuance of dilutive units.31 

 24 Compl. ¶ 22. 

25 Compl. ¶ 23. 

26 Compl. ¶ 26. 

27 Id. 

28 Id. 

29 Id. 

30 Id. 

31 Id. 
7

Last, Hindlin notes that a shift in the proportion of his membership interest to 

capital interest allows an inference of dilution.32 In 2015 and 2016, Hindlin’s

membership interest was three to four times greater than his capital interest.33 By the 

end of 2017, however, his membership interest was only about 15% of his capital 

interest, and he alleges this must be the result of dilution.

34

D. Procedural History

Hindlin first filed suit in New York state court in early 2019. In light of the 

LLC Agreement’s mandatory Delaware forum selection provision, Hindlin

voluntarily dismissed the New York action and filed his Complaint in this Court on

July, 30 2019.35 Count I alleges a breach of the implied covenant of good faith and 

fair dealing against each Defendant for diluting Core’s minority members.36 

Count II alleges a breach of fiduciary duty against each Defendant for the same 

 32 Compl. ¶¶ 27–28. 

33 Compl. ¶ 28. 

34 Id.

35 Hindlin has separately filed suit to compel an accounting in New York. That proceeding 

is ongoing. Compl. ¶ 24. 

36 Compl. ¶¶ 31–34.
8

alleged dilution.37 Hindlin seeks compensatory and punitive damages and attorneys’

fees.38 

Defendants moved to dismiss the Complaint on September 27, 2019, under

Court of Chancery Rule 12(b)(6) for failure to state a claim, Rule 23.1 for failure to 

plead demand futility and 6 Del. C. §§ 18-1001–1003 for lack of standing. The

matter was submitted for decision on May 7, 2020. 

II. ANALYSIS

The standards by which this court reviews a motion to dismiss for failure to 

state a claim are well-settled. Under Chancery Rule 12(b)(6), the court will dismiss 

a complaint only if the plaintiff would be unable to recover under “any reasonably 

conceivable set of circumstances susceptible of proof” based on the facts pled in the 

complaint.39 “All well-pleaded factual allegations are accepted as true[,]” and “the 

Court must draw all reasonable inferences in favor of the non-moving party. . . .”40 

 37 Compl. ¶¶ 35–38. 

38 Compl. ¶ 39. Plaintiff did not address Defendants’ Motion to the extent it sought 

dismissal of his request for punitive damages either in his Answering Brief or at oral 

argument, apparently recognizing that this court of equity has no jurisdiction to award

exemplary damages. See Beals v. Washington Int’l, Inc., 386 A.3d 1156, 1159 (Del. Ch. 

1978). 

39 Gen. Motors, 897 A.2d at 168. 

40 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted). 
9

“[The Court] do[es] not, however, blindly accept conclusory allegations unsupported 

by specific facts . . . .”41

A. Plaintiff’s Complaint Lacks Sufficient Pled Facts To Put Defendants on 

Notice of the Claims Against Them

All complaints in this court, at a minimum, must satisfy Chancery Rule 8(a)

to survive dismissal.

42 While “Rule 8(a) does not demand [] that plaintiffs present a 

paragon of the well-organized complaint,” it does require that a complaint at least 

“give general notice of the claim asserted . . . .”43 This so-called “notice pleading” 

standard sets a low bar.44 And yet, this Complaint does not clear it. 

 41 Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010). 

42 See Ct. Ch. R. 8(a) (“A pleading which sets forth a claim for relief . . . shall contain [] 

a short and plain statement of the claim showing that the pleader is entitled to relief . . . .”). 

43 In re Infousa, Inc., 2007 WL 3325921, at *26 (Del. Ch. Aug. 13, 2007); Rabkin v. 

Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985). See also In re Coca-Cola 

Enters., Inc. S’holder Litig., 2007 WL 3122370, at *4 n.28 (Del. Ch. Oct. 17, 2007) 

(“[P]laintiffs must allege facts sufficient to show that the legal elements of a claim have 

been satisfied.”), aff’d sub nom., Int’l Bhd. of Teamsters v. Coca-Cola Co., 954 A.2d 910 

(Del. 2008).

44 See generally, Brehm v. Eisner, 746 A.2d 244, 254 (Del. 2000) (describing notice 

pleading standards as “permissive”); VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 

606, 611 (Del. 2003) (“under Delaware’s judicial system of notice pleading, a plaintiff 

need not plead evidence.”).
10

Dilution, of course, is not per se wrongful.

45 As a matter of basic arithmetic,

shareholders are diluted every time a company issues new equity. To survive 

dismissal on a wrongful dilution claim, therefore, a plaintiff must plead not only that 

he was diluted, but also that the defendants did something wrongful that caused him 

to be improperly diluted.

46 On this front, the Complaint falls short. 

Stated simply, the Complaint is devoid of any allegations that any Defendant 

did anything wrong. Spielman is alleged to have received a “large allocation of 

acquisition consideration[,]” worth $76,095,630.47 He is also alleged to have 

ignored Hindlin’s requests for information about the Acquisition.48 Beyond that, the 

Complaint says nothing of how Spielman breached fiduciary duties or violated the 

implied covenant of good faith and fair dealing. It appears, instead, that Hindlin

would have the Court draw an inference of wrongdoing from the fact that Spielman 

received more from the Acquisition than he did. Without more, that inference is not 

reasonable. 

 45 See Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 188 (Del. Ch. 2005) 

(“Therefore, Benihana had legitimate reasons for considering a stock issuance that might 

have the effect of diluting the BOT shares.”).

46 Id. 

47 Compl. ¶ 23. 

48 Compl. ¶ 24. 
11

The allegations against the other Defendants fare no better. Hindlin accuses 

“the Board”—of which Defendants were only a subset—and “Core” of issuing 

dilutive Incentive Units to divert consideration from minority shareholders to 

insiders, but then pleads no facts whatsoever to back that conclusory allegation.

49 

Hindlin’s pleading strategy, instead, is to complain about a lack of information—

not as an independent claim—but as an excuse for his failure to plead facts to support 

the claims actually asserted.

50 To be sure, Hindlin has asked for information and 

Core’s Board, allegedly, has refused to provide it.51 But that fact does not relieve 

Hindlin of his burden to plead sufficient facts to place Defendants on notice of his 

claims.52

 49 Compl. ¶¶ 31–38. Indeed, Gottwald is not specifically alleged to have done anything 

beyond serving as a member of Core’s Board, recommending that Hindlin invest in Core 

and then receiving some unspecified amount of consideration from the Acquisition.

Compl. ¶¶ 7, 13, 33. Karalian is named as a party, and then never mentioned again in the 

Complaint. Compl. ¶¶ 6–7.

50 Compl. ¶¶ 22, 24, 29.

51 Id.; see also D.I. 28 Oral Arg. on Defs.’ Mot. to Dismiss (“OA”) 31–32 (describing 

hostile responses to Plaintiff’s information requests). For reasons unclear, Hindlin did not 

pursue a claim for breach of the LLC Agreement's "Books and Records" provision 

(Section 15) either before the close of the Acquisition or at the time his requests for 

information were denied (assuming valid demands for inspection were made). Nor is it 

clear why he did not wait to file in Delaware until after he obtained the fruits of his 

accounting action in New York. Compl. ¶ 24.

52 Ct. Ch. R. 8(a); In re Coca-Cola Enters., 2007 WL 3122370, at *4 n.28.
12

As best I can tell, Hindlin appears to be invoking a form of res ipsa loquitur, 

whereby the Court would infer wrongdoing because: (i) Hindlin believed his stake 

in Core was worth more than he was offered following the KDP Acquisition; 

(ii) Defendants received significant consideration from that transaction; and 

(iii) Defendants (and others) have refused Hindlin’s requests for details of the 

payouts to insiders following the Acquisition.53 The fact that Hindlin cannot well 

plead that any Defendant did anything wrong is, under this theory, of no 

consequence. 

Hindlin points to no authority—and this Court is aware of none—that would 

allow the Court to draw res ipsa-like inferences of wrongdoing in the context of 

claims against corporate fiduciaries. This, of course, is not surprising. Presumptive 

inferences of wrongdoing cannot be squared with Delaware’s business judgment 

rule, which presumes corporate fiduciaries have acted in good faith and with due 

care.54 In the absence of pled facts, the Court cannot presume wrongdoing. 

 53 Compl. ¶¶16–29. See Gen. Motors Corp. v. Dillon, 367 A.2d 1020, 1023 (Del. 1976) 

(“While negligence is never presumed from the mere fact of an injury, if the particular 

manner in which the plaintiff shows the injury to have occurred is so unaccountable that 

the only fair inference of the cause was the negligence of the defendant, or, stated another 

way, if the manner in which the injury occurred would lead reasonable persons to conclude 

that it would not have happened in the absence of some negligence on the part of the 

defendant, then the doctrine of Res ipsa loquitur is properly applicable to establish the 

negligence of the defendant.”). 

54 See In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 52 (Del. 2006) (“Our law presumes 

that ‘in making a business decision the directors of a corporation acted on an informed 

basis, in good faith, and in the honest belief that the action taken was in the best interests 
13

B. Plaintiff Has Not Stated a Claim for Breach of the Implied Covenant of 

Good Faith and Fair Dealing

Assuming, arguendo, that the Complaint adequately puts Defendants on 

notice of the claims against them, Hindlin still fails to state a claim for breach of the 

implied covenant of good faith and fair dealing as a matter of law. Hindlin has 

alleged that Defendants breached the implied covenant by approving the issuance of 

dilutive units.

55 Defendants respond that the implied covenant is not implicated by 

those pled facts because the LLC Agreement explicitly addresses the issuance of 

potentially dilutive shares.56 With contractual language directly on point, 

Defendants argue, there is no “gap” for the implied covenant to fill.57 

 

of the company.’” (quoting Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)); Corwin v. 

KKR Fin. Hldgs. LLC, 125 A.3d 304, 312–13 (Del. 2015) (holding business judgment rule 

applies to fiduciaries of a limited liability company); Brinckerhoff v. Enbridge Energy Co., 

Inc., 159 A.3d 242, 260 (Del. 2017) (holding that fiduciaries in a limited partnership were 

entitled to an inference of good faith absent contrary language in the limited partnership 

agreement); Binks v. DSL.net, Inc., 2010 WL 1713629, at *5 (Del. Ch. Apr. 29, 2010) 

(“Under Delaware law, courts apply a presumption that directors of corporations act 

independently, with due care, in good faith and in the honest belief that their actions were 

in the stockholders’ best interests. This presumption, the ‘business judgment rule,’ is at 

the foundation and at the core of Delaware corporate law.” (quotations omitted)). 

55 Compl. ¶¶ 31–34. 

56 OB 10–12. See LLC Agreement §§ 5.1(b), (c)(iii).

57 OB 10–12. See Oxbow Carbon & Minerals Hldgs., Inc. v. Crestview-Oxbow Acq., LLC, 

202 A.3d 482, 507 (Del. 2019) (observing that the implied covenant “fills gaps in the 

contract’s provisions”). 
14

The implied covenant of good faith and fair dealing “attaches to every 

contract.”58 Our Supreme Court, however, has recently emphasized that “the 

implied covenant is a cautious enterprise.”59 It may only be invoked “when the 

contract is truly silent concerning the matter at hand.”60 And, even when a contract 

is indeed “truly silent” on a matter, the court should still “be most chary about 

implying a contractual protection when the contract could easily have been drafted 

to expressly provide for it.”61

Hindlin has not adequately alleged the existence of a contractual gap to justify 

his reliance upon the implied covenant. As Defendants correctly observe, the LLC 

Agreement addresses the issuance of both Incentive Units specifically, and the 

issuance of units generally.62 At Section 5.1(b), the LLC Agreement authorizes the 

Company’s Board of Managers to “cause the Company to offer to the Members or 

other Persons additional Units or other securities of the Company on such terms and 

 58 Dunlap v. State Farm Fire and Cas. Co., 878 A.2d 434, 442 (Del. 2005). 

59 Oxbow Carbon & Minerals Hldgs., 202 A.3d at 506–07 (emphasizing that the implied 

covenant should be viewed as providing “a limited and extraordinary legal remedy”). 

60 Id. at 507 (quoting Allied Capital Corp. v. GC–Sun Hldgs., L.P., 910 A.2d 1020, 1033 

(Del. Ch. 2006)). 

61 Id. (quotation omitted). 

62 LLC Agreement § 5.1.
15

at prices as the Board of Managers shall determine in its discretion.”63 

At Section 5.1(c)(iii), the Board is empowered to issue Incentive Units under the 

Company’s equity incentive plan.64

Notwithstanding these clear contractual allowances, Hindlin would have the 

Court invoke Delaware authority holding that “a claim for violation of the implied 

covenant of good faith and fair dealing can survive if, notwithstanding contractual 

language on point, the defendant failed to uphold the plaintiff’s reasonable 

expectations under that provision.”65 That general and important proposition of law 

is, of course, valid, but it is not as sweeping as Hindlin suggests. As our Supreme 

Court has recently emphasized, “the implied covenant of good faith and fair dealing

cannot be employed to impose new contract terms that could have been bargained 

for but were not[.]”66 There is nothing unforeseeable about dilution; for this reason, 

anti-dilution clauses are common contractual provisions within the governing 

documents of closely held business organizations.67 Hindlin either could have 

 63 LLC Agreement § 5.1(b). 

64 LLC Agreement § 5.1(c)(iii).

65 Pl.’s Answering Br. in Opp’n to Defs.’ Mot. to Dismiss (“AB”) 8 (quoting Renco Gp., 

Inc. v. MacAndrews AMG Hldgs. LLC, 2015 WL 394011, at *6 (Del. Ch. Jan. 29, 2015)). 

66 Oxbow Caron & Minerals Hldgs., 202 A.3d at 503 (quoting Blaustein v. Lord Baltimore 

Capital Corp., 84 A.3d 954, 959 (Del. 2014)). 

67 See generally Almond for Almond Family 2001 Trust v. Glenhill Advisors LLC, 2018 

WL 3954733, at *11 (Del. Ch. Aug. 17, 2018) (discussing anti-dilution provisions); 
16

attempted to bargain for anti-dilution protection, or he could have chosen not to 

invest in Core in the absence of this protection. For whatever reason, he did neither. 

Under these circumstances, Hindlin’s attempt to invoke the implied covenant rings 

hollow.

68 Count I of the Complaint must be dismissed.

C. Plaintiff’s Breach of Fiduciary Duty Claim Must Be Dismissed

Count II of the Complaint pleads a breach of fiduciary duty claim against 

Defendants arising from the same allegedly dilutive issuance of Core units.69 

Defendants argue the dilution claim is “classically derivative,” and Hindlin’s

standing to prosecute the claim was extinguished upon completion of the KDP 

Acquisition.

70 Hindlin responds that he is asserting a “dual-natured claim” as 

described by Gentile v. Rossette,

71 and therefore his direct claim has survived the 

Acquisition.

72 

For purposes of this analysis, I again assume that Hindlin has pled sufficient 

facts to put Defendants on notice of the breach of fiduciary duty claim. Even so, as 

 

Amazon.com, Inc. v. Hoffman, 2009 WL 2031789, at *1 (Del. Ch. June 30, 2009) (same); 

Robotti & Co., LLC v. Liddell, 2010 WL 157474, at *2 (Del. Ch. Jan. 14, 2010) (same). 

68 Oxbow Carbon & Minerals Hldgs., 202 A.3d at 507. 

69 Compl. ¶¶ 35–39. 

70 OB 15. 

71 906 A.2d 91 (Del. 2006). 

72 AB 13. 
17

explained below, I agree with Defendants that Count II asserts a purely derivative 

claim that Hindlin no longer has standing to prosecute.

This court addresses whether a party has standing as a threshold issue in order 

to “ensure that the litigation before the tribunal is a ‘case or controversy’ that is 

appropriate for the exercise of the court’s judicial powers.”73 Derivative standing is 

“a creature of equity,” whereby a stockholder plaintiff is permitted to assert an action 

on behalf of a corporation “solely to prevent an otherwise complete failure of 

justice.”74 When an action is derivative in nature, “[the] loss of a plaintiff’s status 

as a shareholder generally extinguishes the plaintiff’s standing.”75 “In the context 

of a merger transaction, the derivative-individual distinction is essentially outcomedeterminative of any breach of fiduciary duty claims that can be asserted in 

connection with the merger by the target company stockholders.”76

This court applies a two-part test to determine whether a claim is direct or 

derivative: “(1) who suffered the alleged harm (the corporation or the suing 

 73 Dover Historical Soc’y v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110 

(Del. 2003). The Court’s analysis of the grounds for dismissal of Count II begins and ends 

with the threshold issue of standing. If the Court were to proceed from there, the failure 

even to attempt to plead demand futility or a non-exculpated claim of breach of fiduciary 

duty (see LLC Agreement § 8.3) would likewise justify dismissal.

74 Schoon v. Smith, 953 A.2d 196, 202 (Del. 2008). 

75 El Paso Pipeline GP Co. L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1256 (Del. 2016). 

76 Golaine v. Edwards, 1999 WL 1271882, at *4 (Del. Ch. Dec. 21, 1999). 
18

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

or other remedy (the corporation or the stockholders, individually)?”77 “Where 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.”78 Under this paradigm, the “traditional rule 

[is] that dilution claims are classically derivative.”79

There is, however, a narrow exception to the general characterization of 

dilution claims as derivative. In Gentile, our Supreme Court held that a shareholder 

dilution claim is both derivative and direct when: 

(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 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.80

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

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

79 El Paso Pipeline GP Co., 152 A.3d at 1251. 

80 Gentile, 906 A.2d at 101. 
19

The Supreme Court clarified Gentile in El Paso Pipeline GP Co. by holding that 

dilution claims are only dual-natured when there is some expropriation of control, 

in addition to economic value, from minority stockholders.81 

No such expropriation of control is alleged here. More importantly, even 

assuming such an allegation could be mined from the Complaint, Hindlin does not 

well-plead the existence of a controller or control group.

82 To state a dual-natured 

claim, “a plaintiff must plead facts from which the Court can reasonably infer an 

agreement or arrangement among the alleged [control] group members. A complaint 

fails to meet this standard if all it alleges is that a group of shareholders have ‘parallel 

interests.’”83 The Complaint is devoid of allegations that Defendants had any such 

agreement, much less that a control group existed. 

Because Hindlin has failed adequately to plead that his breach of fiduciary 

duty claim is dual-natured under Gentile, it is proper to characterize the claim as 

“classically derivative.” Accordingly, Hindlin lost his standing to prosecute his 

dilution-based breach of fiduciary claims upon consummation of the Acquisition,

and for that reason, Count II must be dismissed.84

 81 El Paso Pipeline GP Co., 152 A.3d at 1264. 

82 Gentile, 906 A.2d at 101. 

83 Silverberg v. Padda, 2019 WL 4566909, at *6 (Del. Ch. Sept. 19, 2019). 

84 El Paso Pipeline GP Co., 152 A.3d at 1256. 
20

III. CONCLUSION

Based on the foregoing, Defendants’ Motion to Dismiss must be GRANTED.

IT IS SO ORDERED.