IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE TRUECAR, INC. STOCKHOLDER DERIVATIVE LITIGATION ) ) ) ) C ONSOL. C.A. No. 201 9

- 06 72

- AGB

MEMORANDUM OPINION
Date Submitted: June 11 , 20 20 Date Decided: September 30 , 2020 Thomas A. Uebler and Jeremy J. Riley, MCCOLLOM D’EMILIO SMITH UEBLER LLC , Wilmington, Delaware; P. Bradford deLeeuw, DELEEUW LAW LLC , Wilmington, Delaware; Melinda A. Nicholson , Nicolas Kravitz , and Eda Ayrim Walker, KAHN SWICK & FOTI, LLC , New Orleans, L ouisiana; Ashley R. Rifkin and Steven R. Wedeking , ROBBINS LLP, San Diego, California; Jeffrey S. Abraham and Michael J. Klein , ABRAHAM, FRUCHTER & TWERSKY, LLP , New York, New York ; Attorneys for Plaintiff s David Bryan, Subash D’Souza, and Herbert Silverberg.
Shannon E. German , WILSON SONSINI GOODRICH & ROSATI, P.C., Wilmington, Delaware; Jerome F. Birn, Jr. and Catherine Moreno , WILSON SONSINI GOODRICH & ROSATI, P.C., Palo Alto, Ca lifornia; Attorneys for Defendants Abhishek Agrawal, Robert Buce, Christopher Claus, Steven Dietz, Neeraj Gunsagar, Michael Guthrie, John Krafcik, Erin Lantz, John Mendel, Wesley Nichols, Victor “Chip” Perry, John Pierantoni, Brian Skutta, Jeff Swart, and Ion Yadigaroglu, and Nominal Defendant TrueCar, Inc. Gregory P. Williams, Brock E. Czeschin, and Kevin M. Regan, RICHARDS , LAYTON & FINGER, P.A., Wilmington, Delaware; Attorneys for Defendant Neeraj Gunsagar

. Albert H. Manwaring, IV and Albert J. Carroll , MORRIS JAMES LLP , Wilmington, Delaware; Brian Michael Lutz and Michael J. Kahn , GIBSON, DUNN & CRUTCHER LLP, San Francisco, California ; Attorneys for Defendants United Services Automobile Association and USAA Property Holdings, Inc.Jon E. Abramczyk and Ryan D. Stottmann , MORRIS , NICHOLS , ARSHT &

TUNNELL LLP, Wilm i ngton, Delaware; Attorney s for Defendants Upfront II, L.P., Upfront III, L.P., Upfront II Investors, L.P., Upfront II Partners, L.P., Upfront III Investors, L.P., Upfront II I Partners, L.P., Capricorn AIP

- Private Investment Fund I, L.P., HIT Splitter, L.P., Capricorn Investment Group, LLC, and Carthage, L.P. Jon E. Abramczyk and Ryan D. Stottmann , MORRIS , NICHOLS , ARSHT & TUNNELL LLP, Wilmington, Delaware; Ralph C. Ferrara and Ann M. Ashton , PROSKAUER ROSE LLP , Washington, District of Columbia; Julia D. Alonzo, PROSKAUER ROSE LLP , New York, New York; Attorneys for Defendant Vulcan Capital Growth Equity Management LLC.

BOUCHARD, C ha ncellor1

TrueCar, Inc. operates a platform designed to connect consumers looking to purchase a car with automobile dealers via the internet. Most of the consumers come to TrueCar’s platform from its affinity partners. In November 2017, TrueCar announced it had sustained a loss in the third quarter and was lowering it s guidance. During an earnings call the same day, management explained that TrueCar’s most important affinity partner, USAA , recently launched a significant website redesign
and th at sales generated by USAA were down 5% from the prior year. TrueCar’s stock price fell over 35% the next day. A federal securities action followed. This
action followed after that. In this action, stockholders of TrueCar assert derivative claims for br each of fiduciary duty, insider trading, unjust enrichment, contribution and indemnification , and aiding and abetting a breach of fiduciary duty against fifteen current and former
officers and/or directors of TrueCar and against a series of entities that sold stock in a secondary offering in May 2017. Each of the defendants moved to dismiss the complaint. The threshold issue in this case is whether plaintiffs’ failure to make a demand
on the TrueCar board to initiate litigation should be excused. Plaintiffs advance a host of reasons why they believe making a demand would have been futile on the theory that a majority of the directors on the board when this action was filed acted2

in bad faith and would face a substant ial likelihood of liability with respect to the
claims in this case. In this decision, the court concludes that plaintiffs have failed to plead particularized facts sufficient to impugn the ability of any of the members of the
demand board , let alone a maj ority, to have considered a demand impartially. For this and the other reasons discussed herein, the complaint will be dismissed in its entirety.
I. BACKGROUND Unless otherwise noted, the facts recited in this opinion are based on the allegations of the Verified Consolidated Stockholder Derivative Complaint (“Complaint”) and documents incorporated therein. 1 Any additional facts are subject to judicial notice.
A. The P arties
Nominal Defendant TrueCar , Inc., (“TrueCar” or the “ Company” ) is a Delaware corporation that connects customers via the internet with automobile
dealers

. I ts principal place of business is in Santa Monica, California. 2

1 Verified Consolidated S’holder Deriv. Compl. (“Compl.”) (Dkt. 16). See Winshall v. Viacom Int’l, Inc. , 76 A.3d 808, 818 (Del. 2013) (“[P]laintiff may not reference certain documents outside the complaint and at the same time prevent the court from co nsidering those documents’ actual terms” in connection with a motion to dismiss).
2 Compl. ¶¶ 25, 75.3

The plaintiffs in this case are David Bryan, Subash D ’ Souza, and Herbert Silverberg (collectively, “ Plaintiffs”). They allege they were stockholders of
TrueCar at the time of the alleged misconduct and have been stockholders continuously since th en. 3
The defendants in this case include six of TrueCar ’s current and former
officer s, nine current and former members of TrueCar’s board of directors ( the
“Board” ), and four groups of entities that sold shares of TrueCar in a secondary offering that closed in early May 2017 (the “ Secondary Offering ”)

. 4 The first group of stockholder entities is United Ser vices Automobile
Association (“USAA”) and its affiliate USAA Property Holdings, Inc. USAA is an unincorporated association with its primary offices in San Antonio, Texas. 5 USAA offers its members “services related to insurance, banking, investing, real e state, retirement and IRAs, health insurance, and shopping and discounts.” 6 USAA was TrueCar’s largest s tock holder and h eld approximately 14% of the Company’s

3 Id. ¶¶ 22

- 24.
4 Id. ¶ 8. The Complaint alleges that TrueCar conducted the Secondary Offering on April 26, 2017, and that various sales in connection with the Secondary Offering occurred on May 2, 2017. Id. ¶¶ 112, 176.
5 Id. ¶ 41.
6 Id.4

common stock as of January 2017. 7 In the Secondary Offering , USAA sold approximately 26% of its holdings and received over $51 million in proceeds. 8 The second group of stockholder entities is comprised of Upfront II, L.P., Upfront III, L.P., Upfront II Investors, L.P., Upfront II Partners, L.P., Upfront III Investors, L.P., and Upfront I II Partners, L.P., (collectively “Upfront”) , which sold approximately 1.5 million shares in the Secondary Offering

. 9 The third group of
stockholder entities includes Capricorn AIP

- Private Investment Fund I, L.P., HIT Splitter, L.P., Capricorn Investment G roup , LL C , and Carthage, L.P., (together “Capricorn”) , which sold approximately 50 9 ,000 shares in the Secondary Offering

. 10
The fourth group consists of Vulcan Capital Growth Equity Management , LLC (“Vulcan ”), an affiliate of which sold approximately 1. 1 million shares in the Secondary Offering

. 11 Defendants Victor Perry, Michael Guthrie, John Pierantoni, Neeraj Gunsagar, Jeff Swart, and Brian Skutta are current and former TrueCar officers. Perry served
as TrueCar’s President and C hief E xecutive O fficer , and as a member of the Board

7 Id. ¶¶ 1, 79.
8 Id. ¶¶ 8, 165.
9 Id. ¶ 42.
10 Id. ¶¶ 33, 43.
11 Id. ¶ 44.5

from December 2015 until July 2019. 12 Guthrie served as TrueCar’s C hief F inancial
O fficer from January 2012 until January 2018. 13 Pierantoni, Gunsagar, Swart, and Skutta, served as TrueCar’s Chief Accounting Officer, Chief Mar keting Officer, General Counsel, and Executive Vice President of Dealer Sales and Services , respectively. 14 In addition to Perry, Defendants Abhishek Agrawal, Robert Buce, Christopher Claus, Steven Dietz, John Krafcik , Erin Lantz, John Mendel, Wesley Nichols, and Ion Yadigaroglu are current or former members of TrueCar’s Board. Agrawal served on the Board from November 2013 through May 18, 2017,
and served as Managing Director and Global Head of Growth Equity at Vulc an and on the Investment Advisory Board of one of the Capricorn entities

. 15 Mendel replaced Agrawal on the Board in May 2017. 16
Claus has served on the Board since April 2014 and as Chairman of the Board since February 2016. 17 Before joining TrueCar’s Boa rd, Claus served in various

12 Id. ¶ 27.
13 Id. ¶ 26.
14 Id. ¶¶ 34

- 36.
15 Id. ¶ 29.
16 Id. ¶ 40.
17 Id. ¶ 37.6

senior executive positions at USAA for over 20 years. 18 Claus also served since January 2009 as a director of USAA Real Estate Company, “the real estate
investment arm of USAA.” 19 Dietz served on the Board from February 2006 unti l his resignation in October
2018 and “ managed ” Upfront

. 20 Nichols has served on the Board since November
2016 and “ advise d” Upfront. 21
Buce , Krafcik , Lantz, and Yadigaroglu have served on the Board since April
2005 , February 2014, November 2016, and August 2007, respectively. 22 Yadigaroglu has been Managing Principal at one of the Capricorn entities since
2004. 23
This opinion refer s , at times, to the fifteen current and former directors and
officers named as defendants , collectivel y, as the “Individual Defendants” ; to Guthrie, Pierantoni, Agrawal, Buce, Dietz, Krafcik, Yadigaroglu, Gunsagar, Swart,
and Skutta as the “ Individual Selling Defendants ” ; to USAA, Upfront, Capricorn,

18 Id.
19 Id.
20 Id. ¶¶ 31, 42.
21 Id. ¶¶ 39, 42.
22 Id. ¶¶ 30, 32 , 38.
23 Id. ¶¶ 33, 42.7

and Vulcan, collectively as the “Entity Defendants” ; and to all defendants , collectively , as “Defendants.”
B. TrueCar’s Partnership with USAA and the February Meeting TrueCar’s financial success depends on its ability to draw consumers to its

car
- buying platform, which leads to sales of cars , referred to as “units.” 24 The majority of TrueCar’s unit sales are through it s “affinity group marketing partners.” 25 TrueCar’s most important and longest standing affinity partner is
USAA. 26 As part of its partnership with USAA, TrueCar hosted a co

- branded website
onl y accessible to USAA members, which was the “largest source of user traffic and unit sales from [TrueCar’s] affinity group marketing partners” in 2016

. 27 More specifically, the website generated 32% of TrueCar’s annual unit sales and 45% of
its total contr ibution profit in 2016

. 28 TrueCar was responsible for maintaining the

24 Id. ¶ 76.
25 Id. ¶ 77.
26 Id. ¶¶ 78, 81.
27 Id . ¶¶ 92, 94.
28 Id. ¶¶ 81, 94.8

website but USAA had “broad discretion” to determine how the website was “promoted and marketed” to its members. 29
In early 2015, Stuart Parker became USAA’s CEO. 30 In this role, Parker sought to make USAA a more “advice

- centric organization” and suggested that USAA members might be encouraged to delay purchasing vehicles to improve their
financial health

. 31 C onsistent with this new direction, USAA notified TrueCar in or around January 2 017 that it was redesigning the co
- branded website. 32 The redesign added several steps before USAA members could access the TrueCar platform , including a series of questions concerning personal and financial information and warnings about the cost of car o wnership. 33 These changes would take several months to implement and were expected to be fully implem ented by June 2017. 34 On February 9, 2017 , all but two of the fifteen Individual Defendants attended a meeting of the Board

. 35 At th is m eeting, the attendees discussed TrueCar’s

29 Id. ¶¶ 82

- 84.
30 Id. ¶ 88.
31 Id. ¶ 89.
32 Id. ¶ 91.
33 Id. ¶¶ 91, 92, 122, 141, 156.
34 Id. ¶ 92.
35 Id. ¶ 94.9

“ongoing efforts [to] enhance the relationship with USAA.” 36 A presentation to the
Board stated that the Company had a goal to “re

- energize” the relationship with USAA to “continue growth” and included a slide iden tifying “USAA underperformance” among a list of TrueCar’s top risks for 2017. 37 The meeting materials also included a “2017 Financial Model,” which forecasted year
- over
- year quarterly growth in 20 17 , and USAA year

- over
- year unit growth of 15%, 12%, 11%,

an d 10% over the next four quarters

. 38
On February 16, 2017, TrueCar issued a press release announcing its financial results for the fourth quarter and year

- end 2016. 39 In the press release, Perry stated
that TrueCar was “re

- accelerating [its] top

- line growth” and would “continue to
drive double

- digit rates of unit and revenue growth for some time.” 40 That same day, Perry and Guthrie reiterated their expectations on an earnings call and Guthrie
stated that USAA units were at “an all

- time high.” 41

36 Id.
37 Id

. 38 Id. ¶ 95; German Aff. Ex. 2 (“February 2017 Board Presentation”), at 58 (Dkt. 31)

. 39 Compl. ¶ 97.
40 Id.
41 Id. ¶¶ 98

- 99.10

On March 1, 2017, TrueCar filed its 2016 Form 10

- K with the SEC. 42 All
members of the Board at the time and officers Guthrie and Pierantoni signed the
2016 Form 10

- K

. 43 It included various disclosures concerning USAA and the website and its potential to negatively impact TrueCar’s business:
USAA has broad discretion in how the car

- buying site we maintain for USAA is promoted and marketed on its own website. Changes in this promotion and marketing have in the past and may in th e future adversely affect the volume of user traffic we receive from USAA. Changes in our relationship with USAA or its promotion and marketing of our platform could adversely affect our business and operating results in the future. 44 According to the Complaint, the Form 10

- K also explained that “a significant reduction in the number of cars purchased . . . by members of [TrueCar’s] affinity group marketing partners would reduce [ the Company ’s ] revenue and harm [ TrueCar’s ] operating res ults” and that TrueCar’s relationship with affinity groups “might change” in which case its “operating results and prospects may be harmed.” 45

42 Id. ¶ 104.
43 Id.
44 Id. ¶ 106 (emphasis omitted).
45 Id. ¶¶ 104

- 05 (alterations in original).11

C
. The Secondary Offering and the Website Redesign On April 17, 2017, the Board approved a resolution authorizin g a secondary offering of TrueCar stock, defined above as the “ Secondary Offering.” 46 As part of
the Secondary Offering , TrueCar’s officers, directors, and affiliates, agreed to a 90

- day “Lock

- Up Period , ” which prevented them from selling any TrueCar s tock until
after the Lock

- Up expired on July 25, 2017. 47
T he Secondary Offering was conducted pursuant to a shelf registration filed with the SEC, dated January 19, 2017; a Prospectus filed with the SEC, dated January 19, 2017; and a Prospectus Supplement filed with the SEC, dated April 26,
2017. 48 This opinion refers to these documents collectively as the “Secondary Offering Documents.” On April 26, 2017, TrueCar conducted the Secondary Offering of
10.35 million shares for $16.50 per share. 49 The Entity D efendants received approximately 64% of the proceeds, totaling approximately $ 110 million. 50 From and including the Secondary Offering until October 16, 2017, the Entity Defendants

46 Id. ¶ 108.
47 Id. ¶¶ 114

- 15.
48 Id. ¶ 8 n.2.
49 Id. ¶ 112.
50 Id.12

and the Individual Selling Defendants sold approximately 8 million shares o f TrueCar stock, generating over $135 million in proceeds. 51 On May 3, 2017, after the Secondary Offering closed, the Audit Committee consisting of Buce, Claus, Guthrie, Lantz , and Pierantoni met to discuss “ changes to the Company ’ s risk factors in its SEC filings

. . . . [and] approved filing the Form 10

- Q without updating the risk disclosure regarding USAA .” 52 On May 9, 2020, during an earnings call with investors , Guthrie highlighted USAA’s “healthy [unit] growth of 16% in the first quarter

. ” 53 The nex t day, TrueCar filed its Form 10

- Q , which repeated the same disclosures set forth in the Company’s 2016 Form 10

- K regarding the relationship with USAA and the website. 54 On June 1, 2017, USAA’s website redesign was implemented

. 55 USAA members described the newly designed website as “a nightmare to use” and the changes “caused [USAA members] to pause, perhaps not continue, perhaps come
back at a later date.” 56

51 Id. ¶ 176.
52 Id. ¶ 117 (emphasis omitted).
53 Id. ¶¶ 119

- 20.
54 Id. ¶ 118.
55 Id. ¶¶ 122, 157.
56 Id. ¶¶ 141, 147, 195.13

On July 26, 2017

— the day after the Lock

- Up Period expired

— certain officers
of TrueCar began selling shares of TrueCar stock :

 On July 26, Swart and Pierantoni sold over $690,000 and $1.1 million worth of TrueCar stock, respectively;

 O n July 26 and July 27, Gunsagar sold over $3 million worth of TrueCar stock; and

 Over the week after the Lock

- Up Period expired , Guthrie sold over $13.9 million worth of TrueCar stock. 57
O n July 27, 2017, during a Board meeting , Perry explained to the Board that “[t]he partner business is driving lots of growth

. . . USAA, however, is a fragile relationship and needs more attention

. ” 58 Included in the Board meeting materials was a presentation that explained that USAA had made a minor change to its website
in late 2016 , which had resulted in an “11% decrease in total new car search v isitors”
and a loss of USAA new car traffic

. 59 On August 8, 2017, the Company released its second quarter results. 60 During

an earnings call that same day, Guthrie told investors that TrueCar was currently seeing “continued strong growth in units” in the third quarter that was “really

57 Id. ¶¶ 115, 127, 176.
58 Id . ¶ 129 (emphasis omitted).
59 Id. ¶ 130 (emphasis omitted).
60 Id. ¶ 132.14

fantastic

. ” 61 Guthrie also stated that TrueCar expected “Q3 units to be in the range of . . . 20% to 22% year

- over
- year growth.” 62 On August 9, 2017, TrueCar filed a Form 10

- Q for the second quarter of 2017, which was approved by the Audit Committee on August 3

. 63 It continued to warn of the “risk” that if USAA were to change the website “in the future,” its business would be significantly harmed. 64
D . The Website Redesign Negatively Impacts TrueCar On September 15, 2017, the Bo ard held a special meeting at which it was advised that “preliminary August results indicate[d] below guidance performance”
and “USAA [unit] performance [was] significantly affected in Q3 2017,” resulting
in $1.8 million in lost USAA revenue for the quarte r. 65 Th e same day as the special
Board meeting, officers Pierantoni and Gunsagar sold more than 20,000 shares of
their TrueCar stock , generat ing over $300,000 in proceeds

. 66

61 Id. ¶ 134.
62 Id

. 63 Id. ¶ 132.
64 Id. ¶¶ 132

- 33.
65 Id. ¶¶ 137

- 38.
66 Id. ¶ 140.15

On October 26, 2017, the Board held a meeting where it again was advised that USAA struggled in the third quarter and the website changes had “significantly impacted USAA’s performance.” 67 On November 6, 2017, TrueCar issued a press release announcing that the Company sustained a $9.5 million net loss for the third quarter and was lowering its guidance

. 68 On an earnings call that day, Perry and Guthrie disclos ed that USAA units had declined by 5%. 69 Guthrie disclosed that “[t]he year

- over
- year contraction in units at USAA contributed to the deceleration in used car growth versus last quarter as our USAA channel has the highest ratio of used car sales.” 70 He also told
investors that TrueCar’s “unique visitors” growth rate had fallen to 1%

— the slowest growth rate since 2013. 71 During the earnings call, Perry stat ed that “we saw the se [changes] coming. It wasn’t like we were blind to them , ” and Guthrie assured
investors that TrueCar “work [s] with [USAA] on a daily basis and we’ re well

connected.” 72

67 Id. ¶ 141.
68 Id. ¶¶ 143

- 44.
69 Id. ¶¶ 144.
70 Id. ¶¶ 145.
71 Id.
72 Id. ¶¶ 149, 152.16

On November 7, 2017, TrueCar’s stock fell over 35%

. 73 O n January 28, 2018,
Guthrie resigned as CFO. 74 On February 15, 2018, TrueCar announced its fourth quarter and full year results for 2017. 75 TrueCar’s affinity partnership with USAA produced 58,975 units, down 14% from the prior year. 76
E . The Securities Class Action On March 30, 201 8, a securities class action was filed in the United States District Court for the Central District of California against TrueCar and eleven of
the fifteen Individual Defendants in this action: Guthrie, Perry, Pierantoni, Agrawal, Buce, Claus, Dietz, Kraf

cik, Lantz, Nichols, and Yadigaroglu (the “Securities Class Action”). 77 The complaint in that action assert ed various claims under the Securities Act and the Exchange Act based on TrueCar’s public disclosures concerning USAA and its prospects for 2017

. Th is opinion refers to the defendants in the Securities
Class Action as the “ Securities Class Action Defendants .”

73 Id. ¶ 154.
74 Id. ¶ ¶ 26, 158.
75 Id. ¶ 159.
76 Id

. 77 Id. ¶¶ 26

- 33, 37

- 39, 178

- 79.17

On February 5, 2019, the district court in the Securities Class Action denied the defendants’ motion to dismiss the complaint in a two

- paragraph order

. 78 On August 2, 2019, the parties in the Securities Class Action executed a Stipulation and Agreement of Settlement (the “Settlement Agreement”) to fully and finally resolve
the case
. 79 The district court preliminarily approved th e settlement on October 15 , 2019, and granted final approval on January 27, 2020. 80
II . PROCEDURAL HISTORY Beginning on August 22, 2019, Plaintiffs filed three separate action s in this court against the Defendants after seeking books and records under 8 Del. C. § 220. 81
T hose actions were consolidated on October 9, 2019, and Plaintiffs filed a consolidated complaint (as defined above, the “ Complaint ”) on November 7, 2019. 82 The Complaint asserts four counts derivatively on behalf of TrueCar . Count
I asse rts essentially t wo distinct claims for breach of fiduciary duty against different
sets of defendants

.

78 Id. ¶ 179.
79 Id. ¶ 181; German Decl. Ex. 11 (“Preliminary Approval Order”), at 2 (Dkt. 31).
80 Preliminary Approval Order; Uebler Aff . Ex. A (“Final Approval Order”) (Dkt. 48) ; German Decl. Ex. 25 (“Settlement Agreement”) (Dkt. 58).
81 See Dkt. 5; Compl. ¶ 15.
82 Dkt. 5; Dkt. 16.18

The first claim within Count I is asserted against the Individual Defendants
for : (i) failing to disclose the truth about the impending material chang es to the USAA co

- branded website and its expected negative impact on the Company’s financial performance; (ii) making or failing to correct false and misleading statements and omissions regarding the same; (iii) allowing the [Individual Selling Defendants and USAA] to engage in the sale of stock based on insider information; and/or (iv) failing to provide adequate oversight of the Company to prevent any of the above. 83
This claim is referred to herein as the “Disclosure C laim” and the fourth part of the
claim is referred to as the “ Caremark ” claim.
The second claim within Count I is assert ed against the Individual Selling
Defendants and USAA under Brophy v. Cities Service Company 84 for possessing “material, adverse, nonpublic information regarding the impe nding material changes to the USAA site and the expected significant negative impact, and ma[king] stock sales . . . on the basis of that information while the price of the Company’s shares was artificially inflated.” 85 Plaintiffs seek restitution and disg orgement of profits for

83 Compl. ¶ 205. Although this part of Count I also is asserted against USAA, Plaintiffs did not address the alleged Disclosure Claim or the Caremark claim against USAA in their brief and thus waived the se issues

. See USAA Reply Br. 5 n.2. Emerald P’rs v. Berlin , 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”).
84 70 A.2d 5 (Del. Ch. 1949).
85 Compl. ¶¶ 206.19

this claim. 86 This claim overlaps with Count II , which asserts a claim for unjust enrichment against the Individual Selling Defendants and USAA for selling

“ TrueCar stock while in possession of material, nonpublic information that artificially inflated the price of TrueCar stock.” 87
Count III seeks contribution and indemnification on behalf of the Company
from the Securities Class Action Defendants for “expos[ing] t he Company to significant liability under various federal and state laws

. ” 88
Count IV asserts a n aiding and abetting claim against the Entity Defendants
for “knowingly participat[ing]” in breaches of fiduciary duty by Agrawal, Claus, Dietz, Nichols and Ya digaroglu for “ selling shares motivated in whole or in part by
material adverse inside information” the fiduciaries shared with them

. 89 Count IV is asserted against USAA in the alternative to Count I , to the extent USAA does not owe fiduciary obligations to TrueCar. 90

86 Id. ¶ 211.
87 Id. ¶¶ 215

- 16.
88 Id. ¶¶ 219

- 22.
89 Id. ¶¶ 223

- 32.
90 Id. at 112 n.15.20

On December 19, 2019, each of the Defendants moved to dismiss the Complaint. 91 After briefing, the court he ard oral argument on June 11, 2020. 92
III. ANALYSIS
The Individual Defendants and USAA have moved to dismiss the Complaint under Court of Chancery Rule 23.1 for failure to plead demand futility and all
D efendants have moved under Rule 12(b)(6) to dismiss the Complaint for failure to state a claim for relief against each of them.
Altho ugh it would be typical to analyze first whether Plaintiffs’ failure to make a demand should be excused, Defendants’ motions raise a host of subsidiary issues that impact the Rule 23.1 analysis. I n order to streamline th at analysis, the
court will conside r first two of those subsidiary issues , namely (i) whether USAA

owe d fiduciary duties to TrueCar and (ii) whether the sales of stock by certain Entity
Defendants (Capricorn, Upfront, and USAA) should be attributed to certain directors
on the Demand Board w ho allegedly were affiliated with those entities. These issues
are addressed in Sections A and B below. The court then will consider whether
Plaintiffs have ple a d particularized facts sufficient to show that making a demand
on the TrueCar Board before filing their primary derivative claims would have been

91 Dkt. 27 (USAA Mot.); Dkt. 28 (Entity Defs.’ Mot.); Dkt. 31 (Individual Defs.’ Mot.).
92 Dkt. 71.21

futile

. This issue is discussed in Section s C

- E below. Finally, the court will consider
whether Count III states a claim for relief in Section F below.
A. Whether USAA Owed Fiduciary Dutie s Plaintiffs a ssert a Brophy claim against USAA and , in the alternative, an aiding and abetting claim against USAA “ solely to the extent USAA is found not to have owed fiduciary obligations to TrueCar .” 93 To state a claim under Brophy , a plaintiff must allege that , “1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because she was motivated, in whole or in part, by the
substance of that informatio n
. ” 94
US A A has moved to dismiss the Brophy claim for failure to state a claim for relief on the ground that USAA is not a fiduciary of TrueCar. 95 The standards governing a motion to dismiss under Rule 12(b)(6) for failure to state a claim for
relief are well

- settled: (i) all well

- pleaded factual allegations are accepted as true; (ii) even vague allegations are well

- pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non

- moving pa rty; and [(iv)] dismissal is inappropriate

93 Compl. at 112 n.15.
94 In re Oracle Corp. Deriv. Litig. , 867 A.2d 904, 934 (Del. Ch. 2004).
95 USAA Opening Br. at 13 (Dkt. 27).22

unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof. 96
Plaintiffs allege USAA owed fiduciary obligations to TrueCar because of its

“ sign ificant TrueCar stockholdings which they have maintained since TrueCar ’ s inception, representation on TrueCar ’ s Board via its designee (Defendant Claus) as Board Chairman and attendant observation rights, and control over TrueCar via the
contractual Servic es Agreement and its substantial contribution to TrueCar ’ s revenues and profits as TrueCar ’ s most significant affinity partner .” 97
C iting this court’s 1973 decision in Cheese Shop International, Inc. v. Steele , 98 Plaintiffs assert that USAA “occupied a special position of trust and confidence analogous to that of a fiduciary

. ” 99 Although a venerable decision for its articulation of the attributes that generally define a fiduciary relationship , Cheese Shop does not
address the specific circumstances und er which our law imposes fiduciary duties on
a stockholder of a corporation . A long line of Delaware precedent address es that

96 Savor, Inc. v. FMR Corp. , 812 A.2d 894, 896

- 97 (Del. 2002) (internal quotations and citations omitted).
97 Compl. ¶ 204.
98 303 A.2d 689, 690 (Del. Ch. 1973) (finding that a licensee under a license agreement did not owe fiduciary duties to the licensor) , rev’d on other grounds , 311 A.2d 870 (Del. 1973).
99 Pls.’ Answering Br. at 73

- 75 (Dkt. 47).23

precise issue . That precedent , which Plaintiff s relegate to a conclusory footnote in
their brief , provide s the operative standards to apply here. 100
I t is well

- settled under Delaware law that a stockholder owes fiduciary duties when “the stockholder (1) owns more than 50% of the voting power of a corporation or (2) owns less than 50% of the voting power of the c orporation but ‘ exercises
control over the business affairs of the corporation.’” 101 As of January 2017, USAA
held 14% of TrueCar’s outstanding stock. 102 Th e test for minority stockholder s to
be deemed a controller “ is not easy to satisfy, and can only be met where stockholders who, although lacking a clear majority, have such formidable voting and managerial power that they, as a practical matter, are no differently situated than if they had majority voting control. ” 103 Here, t he Complaint does not allege sufficient facts to show that USAA
exercise d control over the business affairs of the corporation or that any director was controlled by or beholden to USAA

. USAA contends that Claus served as USAA’s

100 See id. at 76 n.26.
101 In re KKR Fin. Hldgs. LLC S’holder Litig. , 101 A.3d 980, 991 (Del. Ch. 2014) (citing Kahn v. Lynch Commc’n Sys., Inc. , 638 A.2d 1110, 1113

- 14 (Del. 1994) (quoting Ivanhoe P’rs v. Newmont Mining Corp. , 535 A.2d 1334, 1344 (Del. 1987)), aff’d sub nom. Corwin v. KKR Fin. Hldgs. LLC , 125 A.3d 304 (Del. 2015).
102 Compl. ¶ 41.
103 In re KKR , 101 A.3d at 992 (int ernal quotation marks and citations omitted).24

“ representative ” on the Board , but the court finds for the reasons explained in
Part III.E below that the Complaint does not plead facts sufficient to create a reasonable doubt about Claus’s independence from USAA

. A lthough USAA has been TrueCar’s largest stockholder a nd most importan t affinity partner since the C ompany’s inception, 104 USAA maintained a commercial relationship with TrueCar , documented in a Services Agreement that delineated the companies’ respective rights and obligations, similar to that of TrueC ar’s oth er affinity partners

. 105 Absent from t he Complaint are any allegations that th e Services Agreement granted USAA the power to restrict TrueCar’s Board or provided USAA such formidable managerial power so as to control TrueCar’s business affairs. In
short , the Complaint does not allege any facts to suggest that USAA ha d anything other than a significant commercial relationship with TrueCar during the period
relevant to this action . This does not give rise to fiduciary dut y obligation s
. 106
Because it is not reasonably conceivable from the allegations in the Complaint
that USAA owe s fiduciary obligations to TrueCar , the Brophy claim against USAA

104 See Compl. ¶¶ 79

- 82.
105 See id. ¶¶ 83

- 84; Mot. to Dismiss Hr’g Tr. (“Tr.”) at 80

- 81 (June 11, 2020) (Dkt. 72).
106 In re Delta & Pine Land Co. S’holders Litig. , 2000 WL 875421, at *7 (Del. Ch. June 21, 2000) (“ To assert that contractual relationships necessarily cause one contracting party to control the other is an unsupported exaggeration. If this were so, customers and suppliers would control every existing company.”).25

will be dismissed. The court will address Plaintiffs’ alternative aiding and abetting
claim against USAA in the next section

. B. Whether the Stock Sales of USAA, Upfront , and Capricorn are Attributable to Member s of the Demand Board When Plaintiffs filed their initial complaint, the Board consisted of eight members: Buce, Claus, Krafcik, Lantz, Nichols, Yadigaro glu, Mendel, and non

party McKoy (collectively, the “Demand Board” ). 107 The Complaint alleges that five of these individuals ( Buce, Claus, Krafcik , Nichols, and Yadigaroglu ) engaged in insider selling in breach of their fiduciary dut ies

. 108 The Complaint does not allege that Claus, Nichols, or Yadigaroglu sold any shares of TrueCar stock they held personally at any time relevant to this action. 109 Plaintiffs argue nevertheless that
stock sales made by USAA, Upfront, and Capricorn should be att ributed to Claus, Nichols, and Yadigaroglu, respectively, 110 under this court’s decision in In re Fitbit , Inc. Stockholder Derivative Litigation

. 111

107 Compl. ¶ 192.
108 Id. ¶¶ 206

- 10, 225.
109 See id. ¶¶ 33, 37, 39, 169, 176, 226.
110 Pls.’ Answering Br. at 51

- 52, 88.
111 2018 WL 6587159 (Del. Ch. Dec. 14, 2018).26

In Fitbit , the court considered “whether a fiduciary may be held liable on a Brophy claim for trades that an e ntity or fund associated with that fiduciary executed
in its name.” 112 In finding that a fiduciary could be liable in th e s e circumstances, Vice Chancellor Slights explained as follows: Here, the Selling Defendants seek a ruling that would permit a director to trade on inside material information without consequence just because the director did not trade personally but rather passed the information to an entity with which he is affiliated ( and over which he exercised control ) to do the trading. That is not and cannot be our law. Indeed, to allow these directors, through their controlled funds, to profit from inside information without recourse would be inconsistent with the policy of extinguishing all possibility of profit flowing from a breach of the confid ence imposed by the fiduciary relation that undergirds Delaware’s insider trading law. 113 Applying this principle, the court found that plaintiffs had pled particularized facts concerning two directors who “share voting and dispositive power over the Fitbit stock owned by their respective funds” to allow a reasonable inference at the pleadings stage that they “personally and materially profited from the challenged stock sales through their ownership and control of their affiliated funds.” 114 Here,
the C omplaint fails to plead any facts to warrant attributing the stock sales of USAA

112 Id. at *13.
113 Id. at *13

- 14 (internal quotation marks and citations omitted) (emphasis added).
114 Id. at *14.27

and Upfront to Claus and Nichols, respectively, but does allege sufficient facts to attribute Capricorn’s stock sales to Yadigaroglu at the pleadings stage. Starting with Cl aus, the Complaint is devoid of any facts connecting him to the USAA entities that sold stock in the Secondary Offering when those sales
occurred

. In fact , Claus left his employment at USAA in 2014, over three years
before USAA sold shares in the Secondary Offering, and although Claus sat on the board of a related USAA entity, that entity is not alleged to have sold any stock at any time relevant to this action

. 115 Because USAA’s sales cannot be attributed to Claus, Plaintiffs cannot state a claim f or breach of the fiduciary duty of loyalty for
insider trading against him. 116 Thus, t he aiding and abetting claim against USAA , which is predicated on a claim for insider trading against Claus, will be dismissed
for failure to state a claim for an underlyi ng breach. With respect to Nichols, t he Complaint similarly does not allege any facts regarding the advisory role Nichols played at Upfront or allege that Nichols

115 Compl. ¶¶ 37, 41, 80.
116 Count I of the Complaint, which asserts a Brophy claim against the “Individual Selling Defendants,” does not apply to Claus by its terms because he was not included in the definition of the term “Individual Selling Defendants.” See id. ¶¶ 45, 209. Th e aiding and abetting claim in Count IV of the Complaint nevertheless asserts that Claus breached his fiduciary duty of loyalty by engaging in insider trading. Id. ¶ 225.28

exercised any control over Upfront’s investment in TrueCar. 117 Consistent with this,

t he Compl aint notably does not contain any demand futility allegations regarding Upfront’s sales being attributable to Nichols. 118
In contrast to USAA and Upfront , the Complaint specifically alleges that “[v]oting and dispositive decisions on behalf of Capricorn were made by an investment committee consisting of four individuals, including Yadigaroglu.” 119 This allegation is sufficient at the pleadings stage to attribute Capricorn’s sales to Yadigaroglu under Brophy b ased on the reasoning in Fitbit , where the court
attributed stock sales to two directors who shared “voting and dispositive power over the Fitbit stock owned by their respective funds

. ” 120
C. The Demand Requirement Under Court of Chancery Rule 23.1, a stockholder who wishes to bring a derivative claim on behalf of a corporation must “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the

117 See id. ¶¶ 39, 42, 164

- 76.
118 See id. ¶ 197. Although the court does not need to a ddress the issue given its conclusions on the issue of demand futility, p laintiffs assert a Brophy claim against another director (Dietz) , who is not a member of the Demand Board , on the theory that Upfront’s sales may be attributed to him. See id. ¶¶ 206

- 09, 226.
119 Id. ¶¶ 227; id. ¶ 169 n.13; German Aff. Ex. 18 (Prospectus Supplement on Form 424B5, filed with the SEC on April 27, 2017), at S

- 48.
120 Fitbit , 2018 WL 6587159, at *14.29

directors or c omparable authority and the reasons for the plaintiff’s failure to obtain the action or for not making the effort.” 121 This requirement stems from a “basic principle of the Delaware General Corporation Law . . . that the directors, and not the stockholders, manage the business and affairs of the corporation.” 122 “The decision to bring or to refrain from bringing suit on behalf of the corporation is the responsibility of the board of directors.” 123 This allows “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.” 124 Under the heightened pleading requirements of Rule 23.1, “conclusionary allegations of fact or law not supported by the allegatio ns of specific fact may not
be taken as true.” 125

121 C h . C t . R. 23.1.
122 FLI Deep Marine LLC v. McKim , 2009 WL 1204363, a t *2 (Del. Ch. Apr. 21, 2009)

. 123 Id.
124 Lewis v. Aronson , 466 A.2d 375, 380 (Del. Ch. 1983), rev’d on other grounds , 473 A.2d 805 (Del. 1984).
125 Grobow v. Perot , 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm v. Eisner , 746 A.2d 244 (Del . 2000).30

This c ourt employ s two different tests for determining whether demand may
be excused under Delaware law : the Aronson test and the Rales test. 126 Th e court applies the test from Aronson v. Lewis 127 when “a de cision of the board of directors is being challenged in the derivative suit.” 128 On the other hand, Rales v. Blasband 129 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.” 130 Under either test, a plaintiff “must impugn the ability of at least half the directors in office when [ plaintiff

] initiated [ its ] action . . . to have consi dered a demand impartially.” 131

126 B oth tests ultimately focus on the same inquiry, i.e. , 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 9 63, 986 (Del. Ch. 2007).
127 4 73 A.2d a t 810 ( the court asks “whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent [or] (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.”)

. 128 Rales v. Blasband , 634 A.2d 927, 933 (Del. 1993).
129 Id. at 934 (“ a court must determine whether or not the particularized factual allegations of a derivative stockholder complaint create a reasonable d oubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.” ).
130 Id. at 933

- 34 , 934 n.9. Rales also applies “where a business decisio n was made by the board of a company, but a majority of the directors making the decision have been replaced” and where “the decision being challenged was made by the board of a different corporation.” Id. at 934.
131 Teamsters Union 25 Health Servs. & Ins . Plan v. Baiera , 119 A.3d 44, 57 (Del. Ch. 2015) (citation omitted).31

To do so, a plaintiff must allege a “constellation of facts that, taken together, create a reasonable doubt about [the director]’s ability to objectively consider a
demand.” 132 As discussed above, the Demand Board consisted of eight members: Buce, Claus, Krafcik, Lantz, Nichols, Yadigaroglu, Mendel, and non

- party McKoy

. 133 Plaintiffs do not challenge McKoy’s impartiality. 134 Thus, the question before the court is whether Plaintiffs have plead with particularity sufficient facts t o create a
reasonable doubt about the disinterestedness or independence of four of the other

seven members of the Demand Board so as to impugn the ability of a majority of the Demand Board to consider a demand impartially as to each claim. Plaintiffs primarily argue that demand is excused because at least four
directors on the Demand Board face a substantial likelihood of liability with respect
to the claims asserted in the Complaint

. To establish a substantial likelihood of liability at th e pleading stage, a plaintiff must “make a threshold showing, through the allegation of particularized facts, that their claims have some merit .” 135

132 In re Oracle Corp. Deriv. Litig. , 2018 WL 1381331, at *18 (Del. Ch. Mar. 19, 2018).
133 Compl. ¶ 192.
134 Rales , 634 A.2d at 930.
135 Rales , 634 A.2d at 934.32

TrueCar’s c ertificate of i ncorporation contains a provision exculpating its
directors for breaches of the d uty of care , as permitted under Section 102(b)(7) of the Delaware General Corporation Law

. 136 Thus, to demonstrate that directors on
the Demand Board face a substantial likelihood of liability with respect to the claims asserted against them , Plaintiffs must allege with particularity facts demonstrating
the re is some merit to a claim for breach of the duty of loyalty. As discussed next , Plaintiffs’ lead argument is that six of the eight directors on the Demand Board acted in bad faith, i.e. , that they “intentionally fail[ed] to act in the face of a known duty to act, demonstrating a conscious disregard for [their] duties.” 137
D . Whether Demand is Excused as to the Disclosure Claim The Complaint challenges the accuracy of certain statements that TrueCar officers made in press releases and during earnings calls at various times in 2017. By contrast, t he only disclosures Plaintiffs challenge in which directors on the
Demand Board are alleged to have “directly participated” consists of three

st atements in the “risk factors” section of TrueCar’s 2016 Form 10

- K (the

136 German Aff., Ex. 12 (TrueCar ’s Certificate of Incorporation) § 8.1; Lyondell Chem. Co. v. Ryan , 970 A.2d 235, 239 (Del. 2009).
137 Lyondell , 970 A.2d at 243 (citation and internal quotations omitted).33

“ Challenged Statements”) , which were repeated in the Secondary Offering
Documents

. As stated in Plaintiffs’ brief: The Demand Defendants themselves directly participated in the subter fuge by signing TrueCar 2016 Form 10

- K, which misleadingly represented [i] that TrueCar’s “relationship with affinity groups might change ,” [ ii ] that those partners “ might de
- emphasize the automobile buying programs within their offerings,” and [ iii ] that changes in USAA’s promotion and marketing on its own website “ may in the future adversely affect the volume of user traffic” received from USAA , when the Demand Board already kn e w those risks were certain to come to pass

. 138
The risk factors section in It em 1A of TrueCar’s 2016 Form 10

- K is approximately twenty pages long. 139 The first two statements quoted above come from the part of
the risk factors section discussing TrueCar’s affinity group marketing partners generally. 140 The third statement comes from the part discuss ing TrueCar’s relationship with USAA specifically. 141 Plaintiffs advance essentially three arguments why a majority of the Demand Board faces a substantial likelihood of liability with respect to the Challeng ed

138 Pls.’ Answering Br. 34 (emphasis in original). See also Compl. ¶ ¶ 104

- 07.
139 TrueCar Form 10

- K filed with the SEC on March 1, 2017, at 9

- 30. See In re General Motors (Hughes) S’holder Litig. , 897 A.2d 162, 170 (Del. 2006) (permitting the court to take judicial notice of “hearsay in SEC filings” that is not subject to reasonable di spute) (internal quotation marks, alterations, and citations omitted).
140 German Aff. Ex. 1 ( Excerpts of TrueCar ’s 2016 Form 10

- K), at 14

- 15.
141 Id. at 15.34

Statements , i.e. , (i) they failed to correct these statements even though they allegedly
knew about changes USAA was planning to make to its website several months
before th e changes were implemented in June 2017 ; (ii) in the alternative, they
breached their oversight duties under I n re Caremark Int’l Inc. Derivative Litig ation ; 142 and (iii) they were conflicted due to the Securities Class Action. The court discusses each of these arguments, in turn, below.

1. T he Demand Board ’s State of Know ledge About the USAA Website Redesign “Whenever directors communicate publicly or directly with shareholders about the corporation’s affairs, with or without a request for shareholder action, directors have a fiduciary duty to shareholders to exercise due care, good faith and loyalty .” 143 To plead a disclosure claim whe n there is no request for stockholder action, as is the case here, a plaintiff must allege that the directors “deliberately misinform[ed] shareholders about the business of the corporation, either directly or by a public statement.” 144 “[D]irectors who knowingly disseminate false information that results in corporate injury . . . violate their fiduciary duty . . . .” 145

142 698 A.2d 959 (Del. Ch. 1996).
143 Malone v. Brincat , 722 A.2d 5, 10 (Del. 1998).
144 Id. at 14

. 145 Id. at 9; see also In re INFOUSA, Inc. S’holders Litig. , 953 A.2d 963, 990 (Del. Ch. 2007) (“When a Delaware corporation communicates with its shareholders, even in the35

“A determination of whether the alleged misleading statements or omissions

were m ade with knowledge or in bad faith requires an analysis of the state of mind
of the individual director defendants.” 146 Thus, to adequately allege that a director faces a substantial likelihood of liability for disclosure violation s, the plaintiff must plea d specific factual allegations showing “that the director defendants had knowledge that any disclosures or omissions were false or misleading.” 147 With respect to disclosures that appear in “annual reports and other publicly filed financial reports,” our Su preme Court has held that the “Board’s execution of [the company’s] financial reports, without more, is insufficient to create an inference that the directors had actual or constructive notice of any illegality.” 148 This is

absence of a request for shareholder action, shareholders are entitled to honest communica tion from directors, given with complete candor and in good faith. Communications that depart from this expectation, particularly where it can be shown that the directors involved issued their communication with the knowledge that it was deceptive or incom plete, violate the fiduciary duties that protect shareholders. Such violations are sufficient to subject directors to liability in a derivative claim.”).
146 In re Citigroup Inc. S ’ holder Deriv. Litig. , 964 A.2d 106, 134 (Del. Ch. 2009).
147 Id.
148 Wood v. Baum , 953 A.2d 136, 142 (Del. 2008) (citing Guttman v. Huang , 823 A.2d 492, 498 (Del. Ch. 2003) (Strine, V.C.) ( dismissing complaint that was “devoid of any pleading regarding the full board’s involvement in the preparation and approval of the company’s fi nancial statements” and of “particularized allegations of fact demonstrating that the outside directors had actual or constructive notice of the accounting improprieties.”) ; see id. (“ We conclude that the Court of Chancery correctly applied Delaware law in declining to infer from the Board’s approval either that (i) each member of the Board knew that the alleged transactions were improper or that (ii) the Board consciously and in bad faith failed to discharge fiduciary or contractual responsibilities with r espect to those transactions.”)

.36

because, without “particularized facts to connect the board” to the challenged statements, “there is reason to doubt that the board knew that the statements were false or misleading or acted in bad faith by not adequately informing themselves
about the statements.” 149 Thus, in determining whether scienter has been sufficiently plead, the court looks for allegations demonstrating “ sufficient board involvement in the preparation of the disclosures ” or that the director defendants “were otherwise responsible for” the disclosures. 150
The Complaint alleges that by “ early 2017 , USAA informed TrueCar that it would significantly redesign the co

- branded car

- buying site, and that the changes

149 In re Dow Chem

. Co. Deriv. Litig. , 2010 WL 66769, at *11 (Del. Ch. Jan. 11, 2010). See also Steinberg on behalf of Hortonworks, Inc. v. Bearden , 2018 WL 2434558, at *10 (Del. Ch. May 30, 2018) (holding that although a dir ector who signed a SOX certification for a Form 10

– Q was differently situated from the other directors who were not alleged to have played any specific role concerning the inclusion of disclosures in the Form 10

– Q, none faced a substantial likelihood of li ability because plaintiffs had failed to allege scienter ); Ellis v. Gonzalez , 2018 WL 3360816, at *10 (Del. Ch. July 10, 2018) (plaintiffs failed to establish a substantial likelihood of liability for the disclosures because “[t]he Complaint fails to plead any particularized facts supporting a reasonable inference that the Directo r Defendants knew about the September 29 letters

— much less that they signed off on them”) (emphasis added); In re China Auto. Sys. Inc. Deriv. Litig. , 2013 WL 4672059, at *8 (Del. Ch. Aug. 30, 2013) (plaintiffs alleged that “all five directors attested to the misleading financial statements by signing one of the SEC filings at issue,” but did “not allege with particularity any direct or personal involvement . . . in the Company’s preparation of its financial statements, in the Board’s or Audit Committee’s review of SLF’s auditing of the financial statements, or in any other capacity by which the Court could reasonably infer that a majority of the Defendants had any knowledge that their actions or inactions were harmful to the corporation or a breach of thei r fiduciary duties”) (emphasis added).
150 Citigroup , 964 A.2d 106 at 133 n.91, 134.37

would require USAA members to answer a multitude of a dditional questions about their personal finances, and to review information related to [the] total cost of new car ownership, before being able to access the TrueCar car buying site

. ” 151 This
initiative reflected USAA’s shift to a more “advice

- centric organization” that would
focus on its members’ financia l health and de

- emphasize new car purchases. 152 According to Plaintiffs, six of the Demand Board directors learned about the
USAA website redesign at the Board’s February 9, 201 7 meeting and were obligated to cause the Company to correct the Challenged Statements thereafter because th e redesign was expected to have a material adverse impact on TrueCar’s financial performance , but they failed to do so . Plaintiffs further contend that the se six
directors subsequently “continued to conceal the truth and af firmatively mislead
investors.” 153 As discussed below, the court finds that Plaintiffs have failed to plead with particularity facts demonstrating that any of the directors on the Demand Board
knew about the USAA website redesign before they were briefed on the issue at a Board meeting in September 2017 , and thus Plaintiffs have failed to sufficiently

151 Compl. ¶ 92.
152 Id. ¶ 89.
153 Pls.’ Answering Br. at 36

.38

plead facts demonstrating scienter concerning the alleged inaccuracy of the Challenged S tatements up to that time. To examine the state of the directors’ knowledge , the court considers Plaintiffs’ allegations chronologically for three time periods: (i) up to the Secondary Offering , which closed by early May 2017 ; (ii) after
the close of the Secondary Offering and befo re the September 2017 meeting where
the Board was briefed on the USAA website red e sign ; and (ii) from the September 2017 Board meeting until November 6, 2017 , when TrueCar released its results for
i t s third quarter end ing September 30, 2017 and publicly di sclosed the USAA website redesign and the impact it had on TrueCar’s business in the third quarter.

a. The Demand Directors’ Knowledge up to the Secondary Offering As discussed above, USAA direct s customers to TrueCar through a website it

co
- branded with TrueCar and that TrueCar “hosted, managed and operated

. ” 154 “In or around January 2017,” USAA decided to redesign the website “to deemphasize car purchasing.” 155 According to t he Complaint, a lthough the changes to the website
did not become e ffective until June 1, 2017 , USAA informed TrueCar about the
website redesign by “ early 2017. ” 156 It is logical that members of TrueCar’s

154 Compl. ¶ 82.
155 Id. ¶ 91.
156 Id. ¶¶ 91

- 92.39

management would have bec o me aware of the website redesign at some point in advance of its implementation

— although it is not clear precisely what they knew about the redesign and when they knew it

— given that “any changes USAA made to the car buying site required TrueCar’s implementation.” 157 Indeed, during the November 6, 2017 earnings call, TrueCar ’s CEO at t he time acknowledged that the Company saw the “changes coming.” 158 The critical question before the court, however, is not when TrueCar’s management learned about the website re design,
but when the members of the Demand Board were informed about the redesig n and
understood its significance to TrueCar’s financial performance.
Plaintiffs contend that six of the eight members of the Demand Board (Buce, Krafcik, Yadigaroglu, Claus, Lantz, and Nichols) learned about the USAA website redesign during a regularly scheduled Board meeting held on February 9, 2017. For support, Plaintiffs point to t wo statements and a chart in the Board materials for the meeting. The first statement is that one of the Compan y’s goals for 2017 was to “re

energize” its relationship with USAA. 159 The second statement appears on a page identifying nine risks for the Company in 2017, one of which was “USAA

157 Id. ¶ 82.
158 Id. ¶ 149.
159 Compl. ¶ 94; see also February 2017 Board Presentation at 40.40

underperformance.” 160 The chart , as described by Plaintiffs, showed that “ USA A’s
year
- over
- year unit growth had peaked at 16% in the fourth quarter of 2016, an d was expected to fall sequentially to 15%, 12%, 11%, and 10% over the next four quarters

. ” 161 In my opinion, these references are insufficient to demonstrate with particulari ty that the directors present at the February 2017 Board meeting were told
about the USAA website redesign at that meeting , much less that the y knew the redesign would negatively impact TrueCar’s financial performance in a materially
adverse manner. To start, the Board materials never mention the co - branded website or that
USAA planned to redesign its website

. Nor is there any such reference in the minutes of the meeting. 162 Second, the chart Plaintiffs rely on do es not show that the Company’s sales a ttributable to USAA were expected to suffer later in 2017, when the website redesign was to be implemented. To the contrary , the chart show s that
TrueCar’s overall outlook, and its outlook for sales generated by USAA in particular, was positive for 2017

.

160 Compl. ¶ 94; see also February 2017 Board Presentation at 67. The other nine factors covered a range of items, including a litigation risk, “monetization,” “data costs,” and “macroeconomics.” February 2017 Board Presentation at 67.
161 Compl. ¶ 95.
162 See German Aff. Ex. 13 (February 9, 2017 Board meeting minutes)

.41

W ith respect to USAA specifically , the chart projected (i) increasing unit sales for 2017, growing from 64.2 million in the first quarter to 75.5 million by the fourth quarter of 2017 ; (ii) overall growth of approximately 12% from fiscal year 20 16 to
f iscal year 20 17 , i.e. , from approximately 255 units in 2016 to 285 units in 2017 ; (iii) year
- over
- year quarterly growth for all the quarters in 20 17 ; (iv) and growth for the second half of 2017, after the website changes were to be implemented

. 163 Th is
fore cast is flatly inconsistent with the suggestion that the Board was informed at its February 2017 meeting that USAA’s plan to change its website would negatively impact TrueCar’s financial performance. Plaintiffs’ counsel acknowledged as much

at oral argum ent, conceding it was a “ reasonable infer ence” that “the upcoming change to the USAA website, . . . , was not taken into account in the forecast.” 164 At bottom, Plaintiffs’ contention that six of the Demand Board directors knew in February 2017 that the Challenged Statements were false depends on two references in the Board materials about risk of “USAA underperformance” and the
desire to “re

- energize” the Company’s relationship with USAA. 165 G iven th e

163 See February 2017 Board Presentation at 58

. 164 Tr. at 54 (emphasis added).
165 It is no surprise that “USAA underperformance” would be listed as one of the Company’s nine risks for 2017 given, as Plaintiffs allege, USAA accounted for 32% of the units TrueCar sold and 45% of its total contribution profit for 2016. Compl. ¶ 94. To that end, TrueCar’s Board presentations in 2017 regularly separated out the data for USAA fro m TrueCar’s other affinity partners. See February 2017 Board Presentation ; German42

vagueness of these phra ses , which are susceptible to multiple interpretations ; the absence of any direct reference to the USAA website or its redesign in the Board package or the minutes of the meeting ; and that the forecast in the Board package provided no indication that TrueC ar expected its sales from USAA to be adversely impacted in 2017 and, to the contrary, projected that those sales would increase ; Plaintiffs have failed to allege with particularity facts sufficient to support a
reasonable inference of scienter , i.e. , that the directors in attendance at the meeting
knew before they signed or approved the Company’s 2016 Form 10

- K th at TrueCar’s business , and specifically its USAA channel , would suffer in the second
half of 2017

. 166 On April 17, 2017, the Board held a special meeting during which it authorized the Secondary Offering. 167 The Complaint allege s that the same six
directors on the Demand Board sign ed off on the same risk disclosures in the Secondary Offering Documents

. 168 T he Complaint does not allege , however, any

Aff. Exs. 5 (May 2017 Board Presentation ) , 6 (July 2017 Board Presentation ) , 8 (September 2017 Board Presentation )

. 166 According to the Complaint, six members of the Demand B oard (Buce, Krafcik, Yadigaroglu, Claus, Lantz, and Nichols) signed the 2016 Form 10

- K and three of them (Buce, Claus, and Lantz) served on the Audit Committee that “reviewed and approved” the Form 10

- K for filing with the SEC. Compl. ¶¶ 103

- 04.
167 Id. ¶ 108.
168 Id. ¶¶ 114, 116.43

facts indicating that the Board learned any information about the website redesign
between the February Board m eeting and when the Secondary Offering Documents were completed on April 26, 2017

. Without more, there is no basis to infer that any of the Demand Board directors knew that the Challenged Statements were inaccura te
when the final documents for the Secondary Offering were approved

. Plaintiffs ’ allegations regarding TrueCar stock sales also do not support an
inference of scienter on behalf of a ny of the Demand Board directors

. To begin,

none of the Demand Board directors are alleged to have sold shares of TrueCar personally before or in connection with the Secondary Offering. 169 Plaintiffs
contend that e ntities affiliated with Claus (USAA), Nich ols (Upfront) , and Yadigaroglu (Capricorn) sold a substantial number of shares in the Secondary Offering

. 170 As discussed in Part III.B above , however, the shares sold by USAA
and Upfront can not be attributed to Claus and Nichols

. A lthough Capricorn’s sales

ma y be attributed to Yadigaroglu at this stage of the case, the circumstances of Capricorn’s stock sales , b y themselves, do not support a reasonable inference of
scienter with respect to Yadigaroglu for the reasons discussed in Part III.E below

.

169 See Compl. ¶ 176.
170 Id. ¶¶ 33, 113, 176.44

Finally, Plaintiffs contend the court may infer scienter because “ Directors are presumed to have knowledge of the corporation’s core operations that drive the Company’s bottom line, as is the case here with respect to the significant website changes implem ented by TrueCar’s single

- greatest contributor to its revenues and profits .” 171 Plaintiffs again cite Fitbit for support, but this case does not aid them

. 172
In Fitbit , Vice Chancellor Slights specifically stated that the core operations

“ doctrine is not sufficient on its own in the context of generally pled allegations to
establish scienter .” 173 In addition to pleading “ that the products featuring
the

. . . technology [at issue] accounted for 80% of Fitbit ’ s revenue ,” the Plaintiffs
in Fitbit also plead:

t hat Fitbit experienced serious problems with the technology early on, that Fitbit attempted to design fixes to the problems and those fixes were not working, that management was keeping the Board apprised of the problems and the efforts to address them , an d that, all the while, Fitbit was touting the promise and success of [the technology] to the market. 174
The Fitbit c o urt thus concluded that “[t] he totality of the facts Plaintiffs have pled with particularity allow a reasonable pleading stage inference that, because the

171 Pls.’ Answering Br. at 32 (internal quotation marks and emphasis omitted).
172 2018 WL 6587159, at *15 & n.179 (Del. Ch. Dec. 14, 2018).
173 Id. (emphasis added).
174 Id. at *15 (emphasis added)

.45

problems with [the technology ] were profound and .

. . drove the Company’s bottom line,

. . . the Board knew of the alleged mater ial, nonpublic information. ” 175
Here , unlike in Fitbit , Plaintiffs do not allege particularized facts to allow a
reasonable inference that TrueCar management provide d reports to or otherwise
informed the Board about any expected changes to the USAA website at any time
before the Secondary Offering closed

. 176 Given the absence of such allegations, the core operations doctrine “on its own” does not allow the court to infer scienter based on the general allegation that USAA was the single

- greatest contributor to TrueCar’s revenues and profits

. 177

175 Id.
176 See id. at *5, *7, *12 (alleging that directors received reports detailing the company’s inability to remedy problems , that there were internal management reports detailing the inability to fix the problems , and that management sought to c onceal this information by instructing employees to destroy sensitive presentation slides).
177 2018 WL 6587159, at *15 & n.179.46 b. The Demand Directors’ Knowledge Between the Secondary Offering and the September Board Meeting This section considers Plaintiffs’ allegations of scienter for the period after the close of the Secondary Offering in early May 2017 and before the September 15,
2017 Board meeting. On May 3, 2017, Demand Board directors Buce, Claus, and Lantz participated in a meeting of the Audit Committee that “d iscussed changes to the Company ’ s risk factors in its SEC filings

. . . . [and] approved filing the Form 10

- Q without updating the risk disclosure regarding USAA, despite the fact that

. . . the roll

- out of the redesigned USAA co

- branded car buying website

. . . was mere weeks away .” 178
T he Complaint does not allege any particularized facts concerning this meeting that
would allow the court to infer that the se individuals had learned of any information concerning USAA’s website redesign. Absent such allegations, the court cannot reasonably infer that Buce, Claus, and Lan tz had the requisite scienter to face a substantial likelihood of liability for failing to change the risk disclosures in the Company ’s Form 10

- Q for the first quarter of 2017 , which was issued in May

. The Complaint next alleges that, after TrueCar implemented the website changes on June 1, 2017, “[t]he I ndividual Defendants were immediately aware of

178 Compl. ¶ 117 (emphasis omitted).47

USAA ’ s sales declines because they had real

- time access to the Company ’ s transactions

. ” 179 This allegation, however, is unsupported by any particularize d facts concerning the knowledge of any of the Demand Board directors

. Accepting as true
that members of TrueCar management overseeing the USAA relationship had real

time access to sales transactions generated by USAA, and that they “were immediately aware” of declines or , as Guthrie, TrueCar’s CFO at the time, told investors during an earnings call, at least “ started to see [the shortfall] in August and September [,] ” t he Complaint pleads no facts suggesting that this subject was brought
to the attention of the Board at any time until its September 15 meeting. 180
A t its July 27, 2017 meeting , the Board discussed “a minor change that USAA had previously implemented to its website” that was unrelated to the website redesign implemented in June 2017. 181 Notably, t he Complaint cites this event as

179 Id. ¶ 124 (alleging that, at an investor conference in May 2017, Guthrie discussed the Comp any’s access to “dealer management software,” which “showed all car sales at the dealership in real time, including for the Company’s affinity partner sites such as USAA’s: ‘What that allows us to do is see every transaction that flows through the dealers hip. We know every transaction that comes through either our branded business or through our affinity business .’”) (emphasis omitted).
180 Id. ¶ 151; German Aff. Ex. 10 (November 6, 2017 earnings call transcript), at 12.
181 Compl. ¶ 130 (“A slide in the presentation materials distributed to the Board noted an ‘11% decrease in total new car search visitors’ from the first quarter of 2016 to the second quarter of 2017, and explained that ‘USAA loss of new car traffic [was] due to remo val of site link.’”); see also German Aff. Ex. 6, at 6.48

evidence that t he Board was “ closely monitoring USAA ’ s co
- branded website .” 182 Yet, t he only other allegation s concerning the July Board meeting relevant to USAA are vague references in the Board materials for the CEO ’s update that the relationship with USAA was “fragile” and “needs more attention.” 183 The only other facts alleged for the period from early May until the Board’s September meeting involving the Demand Board directors relate to an Audit
Committee meeting held on August 3, 2017 , which Buce, Claus, and Lantz attended , and several stock sales by Buce , Krafcik, and Yadigaroglu in August

. 184 Here too

t he Complaint does not allege that the Audit Committ ee discussed the USAA
website redesign or any expected negative results from its implementation to support
a reasonable infer ence of scienter when the Company’s second quarter Form 10

- Q

was approved for filing a t that meeting

. 185 Finally, t he Complaint alleges that Buce , Krafcik and Yadigaroglu (through Capricorn) sold shares in the latter part of August

. 186 A s discussed below in

182 Compl. ¶ 130

. 183 Id. ¶ 129.
184 Id. ¶¶ 132, 176.
185 Id. ¶ 132.
186 Id. ¶ 176.49

Part III.E , the circumstances of these sales , by themselves, do not raise suspicion to
warrant an inference of scienter

.

c. The September Board Meeting and Later Events This section considers Plaintiff’s allegations for the period from September 15, 2017, when the Board was informed about the USAA website redesign, to the Company’s earnings release on November 6 , 2017. According to the Complaint, the Board held a special meeting on September 15, 2017 where a presentation was made concerning USAA’s website redesign. Specifically, the presentation included a slide titled “ Old vs. New USAA Consumer Experience ” that illustrated the redesign with screenshots comparing USAA’s “ Old Experience Landing Page , ” which was devoted almost entirely to searching and shopping for cars, to its “ New Experience Landing Page , ” which show s only one box titled “ Find My Next Car ” am ong several other boxes concerning financing, insurance, and budgeting

. 187 The presentation also explained that “preliminary August results indicate below guidance performance,” that “USAA [unit] performance significantly affected

. . . Q3 2017,” and that TrueCar was projecting

187 Id. ¶ 139; German Aff. Ex. 8, at 12.50

approximately 12,000 lost USAA sales for the third quarter , equating to approximately $1.8 million in lost USAA revenue for the quarter. 188 The Complaint next discusses the Board’s regular meeting on October 26, 2017, whe re the Company ’ s Chief Product Officer g a v e a presentation regarding the new user experience on the USAA site. 189 The presentation showed that the “USAA [channel] struggled in Q3” and “ USAA ’ s new experience introduces more barriers to entry into the car buying ser vice ,” which “ significantly impacted USAA ’ s [unit] performance .” 190 A few days later, during a regular meeting of the Disclosure Committee held on October 30, the Company’s Deputy General Counsel “ discussed updates to the Risk Factors included in the Form 10

- Q ” and the “Committee
discussed certain disclosures related to the Company’s relationship with USAA and the effect of recent changes to the user experience on USAA’s car buying service on the Company.” 191 On November 6, 2017, TrueCar released its results for the third quarter ended September 30, 2017 and reported a net loss of $9.5 million. 192 During an earnings

188 German Aff. Ex. 8, at 4, 11; Compl. ¶ 138

. 189 Compl. ¶ 141; German Aff. Ex. 9 (October 2017 Board Presentation ) , at 71.
190 Compl. ¶ 141; German Aff. Ex. 9, at 70

- 71.
191 Compl. ¶ 142.
192 Id. ¶ 143.51

call held that day, management discussed the changes to USAA’s website and its impact o n TrueCar’s business , including a 5% decline in units genera ted by USAA in the third quarter. 193 Guthrie, TrueCar’s CFO at the time, explained during the call that USAA’s performance was “pretty good” in July and that the Company “ started

to see ” the shortfall caused by the USAA website redesign in August. 194 The Complaint does not allege that any of the Demand Board directors sold sales shares of TrueCar from September 15, 2017 to the earnings release on November 6, 2017, either personally or, in the case of Yadigaroglu, through Capricorn. 195
* * * * *
To summa rize the above discussion , the Complaint fails to allege with particularity facts to support a reasonable inference that any of the members of the
Demand Board knew about the USAA website redesign that was implemented in
Ju ne 2017 or its potential impact on TrueCar’s financial performance until they were briefed on the issue at the September 15, 2017 Board meeting. Given Plaintiffs’
failure to sufficiently allege scienter , Plaintiffs have failed to show that any of the

193 Id. ¶ 144

. 194 Id. ¶ 151.
195 Id. ¶ 176.52

Demand Board direct ors acted in bad faith so as to face a substantial likelihood of liability for failing to correct the three Challenged Statements during this period. The Board’s actions after learning about the USAA website redesign at the September 15 Board meeting are discussed in the next section in response to
Plaintiffs’ contention that directors on the Demand Board ignored red flags and thus
face a substantial li kelihood liability under a Caremark theory

.

2. The Caremark Claim Plaintiffs argu e that even if “ the Demand Board did not have actual knowledge
of the USAA/TrueCar Website changes and their inevitable negative effects, they still face a substantial risk of liability under a classic Caremark theory for failing to apprise themselves of such information .” 196
T o plead a substantial likelihood of liability under Caremark , a stockholder must allege particularized facts to show that either ( i ) “the directors utterly failed to implement any reporting or information system or controls” or that ( ii ) “having implemented such a system or controls, [the directors] consciously fai led to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.” 197 Plaintiffs make no effort to plead a Caremark

196 Pls.’ Answering Br. at 46.
197 Reiter v. Fairbank , 2016 WL 6081823, at *7 (Del. Ch. Oct. 18, 2016).53

claim under the first theory, nor could they do so . The Complaint acknowledges that TrueCar had systems in place to review and approve its public filings, including an
Audit Committee and a Disclosure Committee charged with handling the Company’s public filings with the SEC

. 198 Plaintiffs instead argue t hat, “assuming TrueCar had a Board

- level monitoring system in place, the Demand Board failed to utilize that system in the face of significant red flags,” for which they point to the following: the prior USAA website change to the location and prominence of links to TrueCar’s platform that led to a substantial loss of traffic from USAA, and numerous Board presentations identifying the USAA relationship as ‘fragile,’ that ‘USAA underperformance’ was a top risk, and projecting a declining USAA growth rate f or all of 2017

. 199
T hese allegations are woefully insufficient to support a reasonable inference that the “directors were conscious of the fact that they were not doing their jobs, and that they ignored red flags indicating misconduct

. ” 200 As discussed above, the vague references to a “fragile” relationship and “USAA underperformance” in Board presentations fail to demonstrate with

198 See Compl. ¶¶ 58 (Audit Committee responsible for, among other things, reviewing the Company’s annual and quarterly reports on Form 10

- K and 10

- Q), 60 (Disclosure Committee responsible for, among other things, adopting and impl ementing procedures and policies concerning the preparation of SEC reports).
199 Pls.’ Answering Br. at 46

- 47 (citing Compl. ¶¶ 94

- 95, 129) (emphasis omitted).
200 In re LendingClub , 2019 WL 5678578, at *11 (citation omitted).54

particularity that the directors were made aware of USAA’s website redesign , much
less that the y knew that the redesign would have a material adverse impact on TrueCar’s financial performance

. 201 Indeed, t he forecast provided to the Board in February 2017 presented a positive outlook for sales generated by USAA

. 202 Additionally, the fact that the Board was made aware in July 2017 of a “prior USAA website change” and told in September 2017 about the website redesign that USAA implemented in June 2017 , demonstrates that the Company’s monitoring systems kept the Board apprised of imp ortant developments concerning its relationship with
USAA. 203 Finally, the Complaint’s allegations belie Plaintiffs’ suggestion that the Board failed to do anything to correct the Challenged Statements after learning about the website redesign. To the cont rary, the allegations of the Complaint depict a reasonable progression of events over the course of about seven weeks : (i) calling a special meeting on September 15 to brief the Board about the website redesign after preliminary results for August raised a concern that the USAA channel was perform ing below guidance , 204 (ii) discuss ing the Company’s third quarter results at

201 See supra Part s III. D .1.a

- b.
202 See supra Part III. D .1.a.
203 See supra Part s III. D .1.b

- c. 204 Compl. ¶¶ 137

- 39.55

a regular Board meeting on October 26, 205 and (iii) the n releas ing the Company’s results ten days later with an explanation concerning USAA ’s website redesign and its impact on TrueCar

. 206 In short, t his is not a case where the Board “ had notice of serious misconduct and simply failed to investigate .” 207 Based on the allegations in the Complaint , none of the members of the Demand Board face a substantial likelihood of liability for a
Caremark claim.

3. The Securities Class Action
Plaintiffs assert for their final demand futility argument as to the Disclosure
C laim that “ not a single member of the Demand Board could have considered a
deman d impartially because doing so would have undercut or even compromised the
defense of the then

- pending Securities Class Actio n.” 208 In making this argument, Plaintiffs quote part of a sentence from a two

- paragraph order the district court in
the Securities Class Action entered in deny ing defendants’ motion to dismiss , as follows: “[T]he court had found that the plaintiff adequately alleged ‘a strong inference of scienter by alleging that Defendants knew about USAA’s website

205 Id. ¶¶ 141; German Aff. Ex. 8.
206 Compl. ¶¶ 143

- 49, 151

- 53.
207 South v. Baker , 62 A.3d 1, 15 (Del. Ch. 2012).
208 Pls.’ Answering Br. at 55

- 58.56

redesign and its impact as of January 2017.’” 209 The district court’s entire analysis, including the quoted statement , is provided below : The Court has reviewed Plaintiff’s Amended Class Action Complaint and Defendants’ motion to dismiss. For purposes of the motion

- to

dismiss stage, Plaintiff has adequately alleged

— under both the plausibility and heightened pleading standards

— that Defendants made materially false and misleading statements by making risk statements regarding TrueCar ’ s reliance on USAA ’ s website witho ut alerting the public that the risk had already come to fruition and by falsely representing that USAA would be a key driver of unit and revenue growth in 2017. Furthermore, Plaintiff has adequately alleged a strong inference of scienter by alleging that Defendants knew about USAA ’ s website redesign and its impact as of January 2017 and that Guthrie and Pierantoni sold TrueCar stock in sales that were suspicious in their timing, size, and amount, especially in light of Guthrie ’ s and Pierantoni ’ s prior sal es. Assuming, as it must, the allegations to be true, the Court DENIES Defendants ’ motion to dismiss. 210 Plaintiffs’ argument fails for two reasons in my view. First, as plead in the Complaint, although the Securities Class Action asserted
scienter

- based claims against certain TrueCar officers, including Perry, Guthrie, and Pierantoni, 211 it only asserted “strict liability and negligence claims” against the non
-

209 Pls.’ Answering Br. at 56.
210 Milbeck , 2019 WL 476004, at *1 (citations omitted).
211 Compl. ¶¶ 26

- 28 (alleging that claims under Section 10(b) of the Exchange Act, Rule 10b

- 5 promulgated thereunder, and Section 20(a) of the Exchange Act were asserted against Guthrie (CFO), Perry (Presid ent and CEO), and Pierantoni (CAO)).57

officer directors of TrueCar , which includ e six members of the Demand Board

. 212
G iven TrueCar’s exculpatory charter provision and the absence of scienter

- based claims against the Demand Board directors named in the Securities Class Action,
those directors would not face a substantial likelihood of personal liability in that
action so as to compromise their ability to impartially consider a demand with respect to the Disclosure Claim here

. Vice Chancellor McCormick reached a similar conclusion in In re LendingClub Corp. Derivative Litigation

. 213 There, plaintiffs contended that a related federal securities action asserting strict liability and negligence claims against members of a demand board compromised those directors’ ability to impartially consider a demand concerning the subject matter in that action

. 214 The LendingClub court cogently explained that:

212 Id. ¶¶ 29

- 33, 37

- 39 (alleging “strict liability and negligence claims . . . under Sections 11, 12(a)(2), and 15 of the Securities Act” against current and former TrueCar directors).
213 2019 WL 5678578 (Del. Ch. Oct. 31 , 2019).
214 Id. at *15

- 16.58

To hold the Director Defendants liable in this action, Plaintiffs must prove that the directors acted in bad faith

— that is, there must be some factual support speaking to the Director Defendants ’ state of mind at the time the chall enged conduct occurred. By contrast, the Section 11 claims sustained against the Director Defendants in the Securities Class Action did not require a showing of scienter. The only claims that required a showing of scienter in the Securities Class Action we re the Section 10(b) and Rule 10b

- 5 claims asserted exclusively against [non

Demand Board members] . Liability under Section 11 would not, in and of itself, have gotten to the heart of whether the directors acted in bad faith concerning wrongdoing at issue in both actions. There is thus no basis for this Court to conclude that the Demand Board members would have viewed the Securities Class Action as posing a substantial likelihood of liability concerning the Caremark claims in this case. 215 Although the compa nion federal securities action in LendingClub did not survive a
motion to dismiss until after the complaint was filed in the Court of Chancery , Vice Chancellor McCormick went on to explain that “ the federal court ’ s [eventual]
decision to sustain the Section 11 claims in the Securities Class Action does not alter the analysis, because the Section 11 claims do not speak to the main ground in this

case

— the Director Defendants ’ good faith. ” 216 Second, the parties in the Securities Class Action executed a Settlement Agreement that was filed with the district court on August 2, 2019, before the first complaint in this action was filed on August 22, 2019

. 217 As is typical, the

215 Id.
216 Id. at *16.
217 See Dkt. 5.59

Settlement Agreement denies all wrongdoing and releas es all claims in the case

. 218 Although the district court did not finally approv e the settlement until January 27, 2020, 219 after this action commenced, execution of the Settlement Agreement eliminated as a practical matter any reason to doubt that the Securities Class Action would compr omise the ability of the Demand Board d irectors to impartially consider a demand with respect to the Disclosure Claim out of concern that those directors were exposed to personal liability in the Securities Class Action

. Once again citing Fitbit , Plaintiff s argue that “ the Defendants could not consider a demand to prosecute this action without compromising their factual
defenses in the Securities Class Action ” because they “ are premised on the same underlying factual conduct .” 220 After determ in ing that the plaintiffs h ad alleged
sufficient “ well

- pled facts

. . . [ to ] adequately support a reasonable inference that the Selling Defendants sought to ma k e trades based on nonpublic information , ” the
Fitbit court considered the findings in a companion federal case

. 221 In particular, the

218 See Settlement Agreement , at 8 (Part III “Defendants’ Denial of Wrongdoing and Liability”), 29 ( § 5 “Release of Claims”). The court may take judicial notice of these terms because they are not subject to reasonable dispute between the parties. In re Rural Metro Corp. S’holder Litig. , 2013 WL 6634009, at *9 (Del. Ch. Dec. 17, 2013) (taking judicial n otice of a federal court filing).
219 Final Approval Order

. 220 Pls.’ Answering Br. at 58.
221 2018 WL 6587159, at *15

- 16.60

Court of Chancery noted that t he district court had found “that a holistic review of the allegations suffices to establish scienter [,] ” which bolstered the Court of Chancery’s conclu sion that knowledge had been sufficiently pled against four of

seven Fitbit demand board members

. 222 The Court of Chancery thus reasoned that a majority of the demand board was incapable of considering a demand impartially
because th ose directors faced a substantial likelihood of liability in the companion
federal case. 223 Here, i t is unclear from the pa ragraph quoted above containing the district court’s analysis in the Securities Class Action whether its comments concerning
scienter were intended to apply to all defendants in th at a ction or

— as would be logical

— only to those who were the subject of scienter

- based claims, such as
Guthrie and Pierantoni , two officers who m the district court found had engaged in suspicious stock sales. The term “Defendants” is not defined in the district court’s order, nor does the district court discuss the allegations on which it relied or the rationale for its conclusions, other than relating to Guthrie and Pierantoni.

222 Id. at *16

- 17.
223 Id. at *11, *16

.61

As for Plaintiffs’ argument, i t also is unclear what “factu al defenses” a director would fear having compromised in a case that only assert s claims for strict liability and negligence against him , for which the director would be exculpated from personal liability. 224 In any event, here, unlike in Fitbit , (i) the al legations in the Complaint do not support a reasonable inference of scienter , i.e. , that the directors on the Demand Board knew of the website redesign or its impact at the time of the alleged misconduct and (ii) even if they did, there was an executed
Set tlement Agreement in place before this action was filed that, for all intents and purposes, eliminate d any reason to doubt the ability of the Demand Board directors to impartially consider a demand with respect to the Disclosure Claim

. 225

224 The issue of personal liability is typically the core inquiry for assessing a director’s impartiality with respect to companion actions concerning the same or similar alleged misconduct. See, e.g. , In re GoPro, Inc. , 2020 WL 2036602, at *15 & n.181 (Del. Ch. Apr. 28, 2020) (demand not excused because plaintiffs failed to plead that “a majority of the Demand Board faces a substantial likelihood of personal liability, either with respect to the related securities litigation or the Brophy claim pending here” and “only a substantial likelihood of liability would make it ‘improbable that the director could not perform her fiduciary duties to the shareholders’”); Rojas on behalf of J.C. Penney Co., Inc. v. Ellison , 2019 WL 3408812, at *14 (Del. Ch. July 29, 2019 ) (demand not excused because plaintiffs failed to allege that a majority of the demand board faced a substantial likelihood of liability for consciously failing to monitor and none had “any personal exposure in [the related federal securities] action”); P feiffer v. Toll , 989 A.2d 683 (Del. Ch. 2010) (demand was futile because a majority of the demand board faced a substantial likelihood of liability for claims in a pending parallel securities class action), abrogated on other grounds by Kahn v. Kolberg Kr

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

. 225 Fitbit , 2018 WL 6587159, at *9, *17 (companion federal case settled nearly a year after the Court of Chancery action was initiated).62

For the reasons explained above, Plaintiffs have failed to plead with particularity facts sufficient to impugn the impartiality of any of the members of the Demand Board to consider a demand with respect to the Disclosure Claim based on
the pendency of the Securities Class Action when this action was filed.

* * * * * More broadly, for all the reasons explained in Parts III.D.1

- 3 , Plaintiffs have failed to plead with particularity facts sufficient to impugn the impartiality of any of
the members of the Demand Board to consider a demand with respect to the Disclosure Claim based on any of the theories they have advanced , i.e. , (i) for failing to correct the Challenged Statements, (ii) based on a Caremark theory, or (iii) based on the pendency of the S ecurities Class Action.
E . Whether Demand is Excused as to the Brophy and Unjust Enrichment Claims
Plaintiffs appear to assert essentially four arguments why a majority of the
Demand Board could not impartially consider the Brophy and unjust enrichment
claim s, which will be referred to hereafter, together, a s the Brophy claim

. 226 The first three grounds overlap with arguments the court already has addressed and the

226 The parties analyzed the Brophy and unjust enrichment claims together, as will the court. This is sensible because “the public policy underlying a Brophy claim is to prevent unjust enrichment based on the misuse of confidential corporate information.” In re Fitbit, Inc. S’holder Deriv. Litig. , 2019 WL 190933, at *4 n.26 (Del. Ch. Jan. 14, 2019).63

fourth ground concerns the Demand Board directors who are targets of the Brophy claim. The court addresses each of these arguments in turn. First, Plaintiffs assert that seven of the eight members of the Demand Board (all but non

- party McKoy) are conflicted “because the Brophy claim is premised on the same facts (and knowledge/scienter) as the false and m isleading statements claim
for which all of the Demand Defendants face a substantial likelihood of liability

. ” 227
As explained in Part s III.D.1

- 2, none of the Demand Board directors face a substantial likelihood of liability with respect to the Disclosure Claim and thus there is no reason to doubt their impartiality to consider a demand as to that claim

. Second, Plaintiffs contend that a majority of the Demand Board is conf licted
due to the Securities Class Action. As discussed in Part III.D.3 , none of the six
Demand Board directors named in that case face a substantial likelihood of liability in the Securities Class Action because they would be exculpated for all the claim s asserted against them (for strict liability and negligence) and because an executed Settlement Agreement was in place in that action before this case was filed. Thus ,

227 Pls.’ Answering Br. at 51.64

there is no reason to doubt their impartial ity to consider a demand at to the Brophy

c laim, which requires proof of scienter

. Third, Plaintiffs assert that Claus is “conflicted with respect to this claim due to his signif

icant affiliation with USAA.” 228 There are two basic problems with this
contention. The first is that Claus’ independen ce is an academic question because
the Brophy claim fails to state a claim for relief against USAA because USAA does not owe a fiduciary duty to TrueCar or its stockholders for the reasons explained in
Part III.A

. The second problem is that Plaintiffs have failed to plead facts sufficient
to create a reasonable doubt about Claus’ s independence from USAA. The Complaint alleges that Claus was last employed by USAA in March 2014 , serves on the board of a USAA affiliate ( USAA Real Estate Company ) , and ser ves on the TrueCar Board as USAA’s “representative.” 229 Apart from the fact that
Claus’ s employment with USAA ended about three and a half years before this action was filed, the Complaint fails to allege any additional facts about his former employment with USAA

— such as any significant relationships with USAA’s current leadership

—

to overcome the presumption of independence directors are

228 Pls.’ Answering Br. at 51.
229 Compl. ¶¶ 37, 80.65

accorded under Delaware law. 230 Nor does the Complaint allege that Claus receive d material compensation for his service on U SAA Real Estate’s board or that USAA
has the unilateral power to remove Claus from that board or the TrueCar Board , such
that his “discretion would be sterilized

. ” 231 Without more, it is not reasonable to doubt Claus’s independence from USAA for purposes of considering a demand

. Fourth, and finally, Plaintiffs contend that

— at most 232

— Buce, Claus, Krafcik, Nichols, and Yadigaroglu could not impartially consider a demand with respect to
the Brophy claim because each is a target of the claim and faces a substanti al likelihood of liability for breach ing his fiduciary duty of loyalty for insider trading

. 233 For the reasons explained in Part III.B , the Complaint fails to state a Brophy claim against Claus or Nichols because neither is alleged to have sold

230 Odyssey P ’ rs, L.P. v. Fleming Cos. , 735 A.2d 386, 408 (Del. Ch. 1999) (past employment with an interested party is not enough to rebut independence); Baiera , 119 A.3d at 60.
231 See Rales , 634 A.2d at 934

- 36; MCG Capital Corp. v. Maginn , 2010 WL 1782271, at *20 (Del. Ch. May 5, 2010) (plaintiff failed to allege that $100,000 in director compensation was material to tw o directors, and thus failed to allege that their “judgment would be impaired by the threat of losing” that compensation).
232 It is unclear whether Plaintiffs i ntend ed to assert a Broph y claim against Claus and Nichols as neither is included in the definition of “Individual Selling Defendants” as to which the Brophy claim is asserted. See Compl. ¶¶ 45, 209, 215. Also, Plaintiffs’ brief does not identify Claus as a target of the Brophy c laim. See Pls.’ Answering Br. at 47

- 53.
233 Pls.’ Answering Br. at 49.66

TrueCar shares personally and because the stock sales of USAA and Upfront are not
attributable to Claus and Nichols , respectively

. Given the points addressed above, Plaintiffs have failed to impugn the impartiality of a majority of the eight

- person Demand Board, i.e. , Claus, Lantz, Mendel, Nichols, and non

- party McKoy. For the sake of completeness, the court
will address Plaintiffs ’ arguments concerning the Brophy claim with respect to the remaining three directors

— Buce, Krafcik, and Yadiga roglu

. To repeat, t o state a claim under Brophy , a plaintiff must allege that , “1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because she was motivated, in whole or in part, by the substance of that information

. ” 234 As to
the first element, this court explained some of the circumstances t o consider when determining whether a reasonable inference of scienter has be en made concerning
an insider’s trade of stock , as follows : At the pleading stage, by necessity, a Brophy claim usually rests on circumstantial facts and a successful claim typically includes allegations of unusually large, suspiciously timed trades that allow a reasonable inference of scienter. While the fact a fiduciary sells stock near the time he learns of mat erial, nonpublic information might be evidence of the seller ’ s motive, temporal proximity alone generally is insufficient to support an inference of scienter that will survive a motion to dismiss. The other important piece of circumstantial evidence that,

234 In re Oracle , 867 A.2d at 934.67

along with timing, might support an inference of scienter is the size of the trade relative to the defendant ’ s overall stock holdings. If a defendant sells only a small portion of her holdings and retains a “huge stake in the company,” then it is difficu lt reasonably to infer she was “fleeing disaster or seeking to make an unfair buck.” 235 The Complaint alleges that Buce sold 32,999 shares on August 18, 2017 , yielding proceeds of approximately $545,000 ; and that Krafcik sold a total of 20,000
shares on Aug ust 15 and 31 , 2017, yielding proceeds of $334,500

. 236 T hese sales do not raise suspicion to warrant an inference of scienter given that the amount of shares traded were small relative to each of their overall holdings

— only about 3% for
Krafcik and 7% for B uce

— and given that the trades were made several weeks after
the Lock

- Up for the Secondary Offering had expired , on July 25, 2017

. 237 Nor do Plaintiffs allege that these sales were inconsistent with Buce and Krafcik’s past trading practices

. 238

235 In re Clovis Oncology, Inc. Derivative Litigation , 2019 WL 4850188, at *15 (Del. Ch. Oct. 1, 2019) (quoting Oracle , 867 A.2d at 954) (alterations omitted)

. 236 Compl. ¶ 176.
237 Id. ¶¶ 115, 127, 176. German Aff. Exs. 14

- 15, 17 at 18 (Buce sold 7% of his holdings and Krafcik sold 3% of his holdings). See Oracle , 867 A.2d at 954 (sales of 7% and 2% of holdings, despite generating nearly a billion dollars, did not indicate scienter )

. 238 Clovis , 2019 WL 4850188, at *1 6 (“Noticeably absent from the Complaint are any well

pled facts that the trades at issue represented a deviation from the sellers’ past trading practices.”).68

Plaintiffs make a perfunctory argument that the larger sales of other insiders raise suspicion about Buce and Krafcik’s sales. 239 This argument fails. A s this court explained in Guttman v. Huang , a p laintiff must allege scienter for “each sale by
each individual defe ndant.” 240 Plaintiffs fail to plead facts sufficient to support a
reasonable inference of scienter as to Buce and Krafcik not only because the
circumstances of their stock sales are not inherently suspicious , but because, after obtaining books and records and investi gati ng the matter, Plaintiffs fail ed to plead facts supporting a reasonable inference that Buce or Krafcik knew about the USAA website redesign or its potential impact on TrueCar until September 2017 , after they
made their sales

. 241
As to Yadiga roglu , to whom Capricorn’s sales are attributed, the Complaint alleges that Capricorn entities sold approximately 509,000 shares of TrueCar stock in the Secondary Offering on May 2, 2017 , and an approximately 175,000 shares in
late August 2017, for total proceeds of approximately $11.28 million

. 242 The

239 Pls.’ Answering Br. at 50 n.17.
240 823 A.2d at 505 (citation omitted) (“[T]he doctrine is not designed to punish inadvertence, but to police intentional misconduct[,]” thus, “it must be shown that each sale by each individual defendant was entered into and completed on the basis of, and because of, adverse material non

- public information.”).
241 See Parts III.D.1.a

- b.
242 Compl. ¶¶ 169, 176

.69

Complaint alleges that these sales “ are suspicious given that they occurred when
TrueCar ’ s stock traded at or near all

- time highs and represented more than 31% of [Yadigaroglu’s] holdings .” 243 Although a clos er call, the sheer size of Capricorn ’ s sales are not sufficient to support a reasonable inference of scienter in my view. In Guttman , when addressing larger insider trades

— 100% and 50% of the shares held by two insiders

— then

- Vice
Chancellor Strine found that the size of the trades alone d id not support an inference
of scienter so as to expose those directors to a “real threat of liability” :
I n the absence of any fact pleading that supports a rational inference that any of these directors had some basis to believe that [ the ] statements were materially misleading in a manner that inflated the company ’ s stock price, the mere fact that two of the directors sold large portions of their stock does not, in my view, support the conclusion that these director s f

ace a real threat of liability

. 244
The court was even less receptive to the claim against other directors who sold “much smaller stakes” of 32%, 20%, and 10% of their shares. 245

243 Id. ¶ 169.
244 Guttman , 823 A.2d at 504; see also Silverberg ex rel. Dendreon Corp. v. Gold , 2013 WL 6859282, at *11

- 13, *15 (Del. Ch. Dec. 31, 2013) (board materials showed discussions and awareness, for over a year, of problems and directors sold 77% and 58% of their holdings).
245 Guttman , 823 A.2d at 504

.70

Here, as with Buce and Krafcik, t he Complaint is devoid of any well

- pled
facts that Capricorn’s trades represented a deviation from its past trading practices

. Most importantly, to repeat, despite investigating the matter, Plaintiffs were unable

to plead facts supporting a reasonable inference that Yadigaroglu knew about the
USAA we bsite redesign or its potential impact on TrueCar until September 2017 , after each of Capricorn’s stock sales. In sum, as to Buce, Krafcik, and Yadigaroglu, Plaintiffs have failed to allege particularized facts that support a reasonable inference that a ny of them possessed material nonpublic information when they traded, much less that they consciously acted to exploit such information. Accordingly, Plaintiffs have failed to show that Buce, Krafcik, or Yadigaroglu would face a substantial likelihood of liability for the Brophy claim so as to impugn their i mpartiality to consider a demand

. * * * * * For the reasons explained above, the Complaint fails to plead with particularity facts sufficient to impugn the impartiality of any of the members of the Demand Board to consider a demand with respect to the Brophy and unjust
enrichment claim s . Acco r dingly, those claims will be dismissed for failure to plead demand futility under Cour t of Chancery Rule 23.1.71

The aiding and abetting claim in Count IV asserted against the Entity Defendants (Capricorn, Upfront, USAA, and Vulcan) also will be dismissed because “[t]he dismissal of the underlying insider selling and fiduciary duty claims l ogically compels the dismissal of the aiding and abetting claims.” 246
F . T he Contribution and Indemnification Claims Count IV of the Complaint seeks contribution and indemnification on behalf of the Company from the Securities Class Action Defendants for “e xposing the Company to significant liability under various federal and state laws by their disloyal
acts.” 247 The Individual Defendants moved to dismiss Count IV under Court of Chancery Rule s 12(b)(6) and 2 3.1 contending, in part, that the claim “is unripe and will likely never ripen.” 248 Plaintiffs responded that the district court in the Securities Class Action “obviate[ed] any ripeness arguments” by granting final approval of the settlement in that action on January 27, 2020. 249 For simplicity, the court addresses this claim under Rule 12(b)(6).

246 Park Empls.’ & Ret. Bd. Empls.’ Annuity & Benefit Fund of Chicago v. Smith , 2017 WL 1382597, at *10 & n.105 (Del. Ch. Apr. 18, 2017). Even if this did not logically follow, Plaintiffs have failed to plead demand futility as to this claim because only three of the eight Demand Board members (Claus, Nichols, and Yadigarog lu) are implicated in the aiding and abetting claims.
247 Compl. ¶ 219.
248 Individual Defs.’ Opening Br. at 40; see also id. at 55.
249 Pls.’ Answering Br. at 53.72

The court takes judicial notice of the Settlement Agreement and the district court’s final approval of the settlement in the Securities Class Action , the terms of
whic h are not subject to reasonable dispute between the parties

. 250 The Settlement Agreement , which the parties entered into to fully and finally resolve the Securities Class Action, provides for a payment in the amount of $28.5 million for the benefit
of a cla ss of TrueCar stockholders to be paid by the “Parties and Defendants’ directors’ and officers’ liability insurance carriers” (as defined in the Settlement Agreement, the “D&O Insurers”). 251 The Settlement Agreement further provides that the payments from th e D&O Insurers “are the only payments to be made on behalf of any and all of the Defendant Releasees in connection with the
Settlement.” 252 Given the express terms of the Settlement Agreement, which the district court has approved, Plaintiffs cannot state a reasonabl y conceivable claim
for contribution o r indemnification from the Securities Class Action Defendants
because they face no personal exposure with respect to that litigation

.

250 Del. R. Evid. 201

- 02; In re Rural Metro , 2013 WL 6634009, at *7

- 9 (discussing Del. R. Evid. 20 1

- 02 and taking judicial notice of a federal court filing). Plaintiffs submitted a copy of the Final Approval Order with their brief.
251 Settlement Agreement § 2.1.
252 Id. at § 2.2. The term “Defendant Releasees” includes the Demand Board directors named as defendants in the Securities Class Action, i.e. , Buce, Claus, Krafcik, Lantz, Nichols, and Yadigaroglu. See id. §§ 1.12, 1.21.73

Plaintiffs ’ fallback position is that, “even if the settlement is, in fac t, paid by insurance,” TrueCar’s “future policies will cost more as a result of the settlement.” 253 This is sheer speculation that does not state a ripe, reasonably conceivable claim for
relief. 254 For the reasons explained above, Count III will be dismissed for failure to
state a claim for relief.
IV. CONCLUSION
For all the reasons explained above, Defendants’ motions to dismiss the Complaint are GRANTED. The Complaint is hereby dismissed with prejudice in its entirety.
IT IS SO ORDERED.

253 Pls.’ Answering Br. at 5 5

. 254 See Baiera , 119 A.3d 44 (“A simple allegation of potential directorial liability is insufficient to excuse demand, . . . .”) (quoting In re Goldman Sachs Gp., Inc. S ’ holder Litig. , 2011 WL 4826104, at *18 (Del. Ch. Oct. 12, 2011)).