IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MATTHEW FISHER, Derivatively on Behalf of LENDINGCLUB CORPORATION ,

Plaintiff,

v. SCOTT SANBORN, THOMAS W. CASEY, BRADLEY COLEMAN, SAMEER GULATI, JOHN C. MORRIS, DANIEL T. CIPORIN, SIMON WILLIAMS, TIMOTHY J. MAYOPOULOS, KE N NETH DENMAN, PATRICIA MCCORD, LAWRENCE SUMMERS, JEFFREY CROWE, JOHN J. MACK, and MARY MEEKER , Defendant s , and LENDINGCLUB CORPORATION, a Delaware c orporation,

Nominal Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) C.A. No. 2019

- 0631

- AGB

MEM O RANDUM OPINION Date Submitted: September 2, 2020 Date Decided: March 30 , 2021 Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Brian J. Robbins, Stephen J. Oddo, Emily R. Bishop, ROBBINS LLP, San Diego, California; Attorneys for Plaintiff Matthew Fisher.A. Thompson Bayliss, Joseph A. Sparco, ABRAMS & BAYLISS LLP, Wilmington,

Delaware; James N. Kramer, Alexander K. Talarides, ORRICK HERRINGTON & SUTCLIFFE LLP, San Francisco, California; Attorneys for Defendants Scott Sanborn, Thomas W. Casey, Bradley Coleman , Sameer Gulati, John C. Morris, Daniel T. Ciporin, Simon Williams, Timothy J. Mayopoulos, Ke n neth Denman, Patricia Mc C

ord, Lawrence Summers, Jeffrey Crowe, John J. Mack, Mary Meeker , and Nominal Defendant LendingClub Corporation

.

BOUCHARD , C hancellor1

A stockholder of LendingClub Corporation asserts in this derivative action that the company’s directors breached their fiduciary duty of loyalty and unjustly enriched themselves by utterly failing to implement a board

- level monitoring system
and consciousl y disregarding their duty to oversee LendingClub’s compliance with consumer protection laws. The impetus behind this claim was a lawsuit the Federal Trade Commission (“FTC”) filed against LendingClub in April 2018 , alleging it had engaged in unfair and de ceptive practices with consumers

. Plaintiff also asserts that the directors breached their fiduciary dut y of loyalty by making false and misleading statements about the subject matter of the FTC’s investigation , which the company learned about in May 201 6, almost two years before the FTC filed suit. In particular, plaintiff alleges that certain of the company’s disclosures created the false and misleading impression that the FTC was investigating weaknesses in the company’s internal controls, which the c ompany publicly disclosed (coincidentally) in May 2016 after conducting an internal board review and which prompted separate investigations by the United States Department of Justice and the Securities and Exchange Commission.
Defendants have moved to di smiss the complaint under Court of Chancery
Rule 23.1 for failure to make a demand on the LendingClub board of directors before filing suit and under Court of Chancery Rule 12(b)(6) for failure to state a claim for
relief . As to the former issue , plaintif f primarily contends that demand would have2

been futile because seven of the eight members of LendingClub’s board when the complaint was filed face a substantial likelihood of personal liability for the underlying claims. The standard under Delaware law for imposing liability on a director exculpated from breaches of the duty of care in a case such as this is an exacting one that requires evidence of bad faith

. For the reasons explained below, the court

con clude s after carefully reviewing the allegations in the complaint and the documents incorporated therein that plaintiff has failed to allege particularized facts from which it reasonably may be inferred that a majority of the directors on LendingClub’s board when this action was filed utterly failed to implement a board

level monitoring system, consciously allowed LendingClub to violate consumer protection la ws, or knowingly made false and misleading statements

. Plaintiff thus
has failed to demonstrate that the directors face a substantial likelihood of liability for acting in bad faith so as to excuse his failure to mak e a demand before filing suit.
Accordi ngly, the complaint will be dismissed with prejudice under Court of Chancery Rule 23.1

.3

I. BACKGROUND Unless otherwise noted, t he facts recited in th is opinion come from the
Verified Second Amended Stockholder Derivative Complaint for Breach of Fiduciary Duty and Unjust Enrichment (the “Complaint”) and d ocuments incorporated therein , includ ing documents produced to plaintiff in response to an inspection demand under 8 Del. C. § 220

. 1
A. The Parties Nominal defendant LendingClub Corporation (“LendingClub” or the “Company”) is a Delaware corporation with its princip al place of business in San Francisco, California. 2 LendingClub operates an online lending marketplace platform that connects borrowers with investors willing to fund entire loans , portions
of individual loans, or portions of loan pools

. 3 LendingClub uses “issuing bank partners” to originate the loans that it purchases and then services. 4 The Company

1 Plaintiff agreed that the Complaint “shall be deemed to incorporate by reference the entirety of the books and records” that were produced to him in response to his Section 220 demand. Transmittal Aff. of Joseph A. Sparco, Esq. (“Sparco Aff.”) Ex. A § 1.11 (Dkt. 43). “In the end, the only effect” of this condition is “to ensure that the plaintiff cannot seize on a document, take it out of context, and insist on an unreasonable inference that the court could not draw if it considered related documents.” Ama lgamated Bank v. Yahoo! Inc. , 132 A.3d 752, 798 (Del. Ch. 2016), abrogated on other grounds , 214 A.3d 933 (Del. 2019).
2 Ver. Second Am. S’holder Deriv. Compl. (“Compl.”) ¶ 18 (Dkt. 26).
3 Id

. ¶ 59.
4 Id.4

receives an initial origination fee and subsequent servicing fees from the borrower for its role in facilitating each loan. 5 In 2016 and 2017, o rigination fees ma d e up “the overwhelming majority” of LendingClub’s revenue. 6 Plaintiff Matthew Fisher alleges he has been a LendingClub stockholder continuously since “the time of the wrongdoing complained of” in this action

. 7
The Complaint names as defendants fourteen individuals consisting of eleven
current or former members of the Company’s board of directors (the “Board”) and
three current or former officers. 8
The Board consisted of eight members when th is action was filed on August 19, 2019 : defendants Scott Sanborn, Daniel T. Ciporin, John C. Morris, Ke n neth Denman, Patricia McCord, S imon Williams, and Timothy J. Mayopoulos , and non

party Susan Athey (the “Demand Board”). 9 Sanborn, who has been LendingClub’s
CEO since 2016 , is the only employee

- director on the Demand Board. 10 Ciporin, Morris, Williams, and Mayopoulos currently serv e or previously served on the

5 Id.
6 Id. ¶ 63.
7 Id. ¶ 17.
8 The Complaint also named LendingClub’s former CFO Carrie L. Dolan as a defendant. She has since been voluntarily dismissed from the case. Dkt. 38.
9 Compl. ¶ 191.
10 See i d. ¶ 19.5

Board’s Risk Committee. 11 These four directors, along with Denman, also currently serve or previously served on the Board’s Audit Committee. 12 The remaining seven defendants are former LendingClub directors and current or former LendingClub officers. Defendants Lawrence Summers, Jeffrey Crowe, John Mack, and Mary Meeker left the Board before the Complaint was
filed. 13 Defendant Thomas W. Casey is LendingClub’s CFO. 14 Defendants Sameer Gulati and Bradley C oleman are former officers of the Company. 15
B. LendingClub Discloses Material Weaknesses in its Inter n al Controls Over Financial Reporting
On May 9 , 2 016, LendingClub disclosed that its then

- CEO and Chairman, Renaud Laplanche, had resigned after the Boar d conducted an internal review that
identified “material weaknesses in [its] internal control over financial reporting

. ” 16

11 Morris and Williams have served on the Risk Committee since at least A pril 2015. Id. ¶¶ 24, 26. Ciporin served on the Risk Committee from at least April 2015 to at least April 2017. Id. ¶ 2 5 . Mayopoulos served on the Risk Committee from at least April 2018 to June 2019. Id. ¶ 27.
12 Id. ¶¶ 24

- 28.
13 Summers, who served on the Risk Committee from at least April 2016 to May 2018, left the Board in May 2018. Id. ¶ 30. Crowe, who served on the Audit Committee from at least April 2016 to at least April 2017, left the Board in October 2017. Id. ¶ 31. Mack and Meeker both left the Board in June 2019. Id. ¶¶ 32

- 33.
14 Id. ¶ 20.
15 Gulati served as LendingClub’s C hief O perations O fficer from May 20 16 to December 2018. Id. ¶ 23. Coleman served as Corporate Controller, Principal Accounting Officer, and Interim CFO at various times between December 2013 and August 2017. Id. ¶ 22.
16 Id

. ¶¶ 71, 73 , 76 (alteration in original)

.6

The Board review related to “ undisclosed self

- dealing, sales of nonconforming loans, and backdated loan applications.” 17 The Company’s stock price fell 35% in one day on th e news
. 18 Analysts downgraded LendingClub’s stock, citing the Company’s “control failures” and need to improve “oversight and compliance related to internal control issues.” 19 The
United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) opened investigations into the Company’s business practices. 20 Investors filed lawsuits against the Company, including a derivative action in the Delaware Court of Chancery that later was dismissed under Court of Chancery Rule
23.1

. 21 On May 16, 2016 , the Company disclosed the DOJ and SEC investigation s in
its Form 10

- Q for the first quarter of 2016

. 22 On August 9, 2016, the Company disclosed additional details concerning its internal control weaknesses in its Form
10

- Q for the second quarter of 2016, as follows:

17 Id. ¶ 71.
18 Id. ¶ 72

. 19 Id.
20 Id.
21 See In re LendingClub Corp. Deriv. Litig. , 2019 WL 5678578 (Del. Ch. Oct. 31, 2019).
22 Compl. ¶ 75.7

Changes in Internal Control Over Financial Reporting During the second quarter of 2016, and in connection with a board review, with the assistance of independent outside counsel and other advisors, regarding specific near

- prime loan sales and other compliance matters described elsewhere herein, we identified a material weakness in our internal c ontrol over financial reporting. As a result, the Company has concluded that, as of June 30, 2016, the Company’s internal control over financial reporting was ineffective.
* * * * * The material weakness relates to the aggregation of control deficiencies in the Company's “ tone at the top ” and manifested in three primary areas described further below.
* * * * *

• Sales of near
- prime loans : During March and April of 2016, the Company effected sales of $22.3 million of near

- prime loans in private transactions with an institutional investor that certain senior managers of the Company apparently were aware were not compliant with a specific non

- credit, non

- pricing requirement of the investor.
* * * * *

• Review of related party transactions : The Bo ard did not have the information required to review and approve or disapprove investments made by its former CEO in 2015 and 2016, and a member of its board of directors in 2015, in a holding company for a family of funds (Cirrix Capital, L.P.) that purcha ses loans and interests in loans from the Company in accordance with Company policies, including the Code of Conduct and Ethics.
* * * * *

• Lack of transparent communication and appropriate oversight of investor contract amendments : In 2015 and more extensively during the first quarter of 2016, the Company entered into contract amendments with platform investors, related to existing business8

arrangements. The Company failed in a number of cases to appropriately document or obtain au thorizations of these amendments, assess the impact such amendments could have on pre

- existing agreements and to communicate these amendments to the appropriate departments. 23 Over two years later, in September 2018, the Company paid $4 million in a
settlement with the SEC

. 24 Around the same time, the Company paid $125 million

to settle a securities class action lawsuit filed in the U nited States District Court for
the Northern District of California relating to the Company’s internal control
weaknesses

. 25
C. The FTC Investigation Also in May 2016, the same month the Company disclosed material weaknesses in its internal controls, LendingClub received a Civil Investigative
Demand (“CID”) from the FTC. 26 “ A CID is a kind of subpoena . . . that seeks documents or other information related to an FTC investigation. ” 27 This decision refers to the CID the Company received in May 2016 as the “May 2016 CID.”

23 Id. ¶ 76 (quoting Form 10

- Q for Q2 2016).
24 Id. ¶ 78.
25 Id.
26 Id. ¶ 111.
27 Transmittal Aff. of Blake A. Bennett (“Bennett Aff.”) Ex. A at 2 (Dkt. 47).9

By at least September 22, 201 6, the Board ’s Risk Committee was made aware
of the May 2016 CID. 28 A presentation to the Risk Committee on that date included the following slide:

▪ FTC Civil Investigative Demand (CID)

▪ Data and information request from Federal Trade Commission

▪ Driven by May 9 th events and FTC looking at on

- line lending and data security; particularly complaints received by FTC regarding LC [LendingClub]

▪ LC was working with FTC on advance fee scammers using our name
▪ FTC departments did not communicate that compla ints were not actually about LC

▪ Nearly done with production 29
On November 9 , 2016, t he Company disclosed that it had been contacted by
the FTC in its Form 10

- Q for the third quarter of 2016 , as follows : On May 9, 2016, following the announcement of the board review described elsewhere in this filing, the Company received a grand jury subpoena from the U.S. Department of Justice (DOJ)

. The Company was also contacted by the SEC and the Federal Trade Commission (“FTC”). The Company con tinues cooperating with the DOJ, SEC, FTC and any other governmental or regulatory or agencies. No assurance can be given as to the timing or outcome of these matter s
. 30

28 Compl. ¶ 107.
29 Sparco Aff. Ex. B at LC

- Fisher

_ 000802.
30 LendingClub Corp. Quarterly Report at 36 (Form 10

- Q) (Nov. 9, 2016) (quoted at Compl. ¶ 123)

.10

Over the next year, the Company made similar disclosures in its public filings every quarter and in its Form 10

- K

. 31 During the same period, the FTC investigation was included as a topic in quarterly presentations to the Board’s Risk Committee. 32
O n December 5, 2017, the FTC sent LendingClub a “proposed complaint

. ” 33 A subsequent presentation to the Audit Committee indicated that th e filing of the complaint came as a surprise: “FTC unexpectedly sent [a] proposed complaint on 12/5/17 with 5 alleged violations.” 34 O n December 13, 2017 , the Risk Committee
was informed that “[a]fter several months with no contact, FTC’s enforcement
division reach ed out to discuss a number of issues, including disclosure o f origination fees and concerns about [LendingClub’s] privacy policy

. ” 35 On February 22, 2018, the Company disclose d in its 2017 annual report on
Form 10

- K that “ [t]he FTC Staff [was] investigating questions concerning certain of the Company’s policies and practices and related legal compliance” and that the Company had cooperated with “FTC Staff as they evaluate potential claims of

31 Compl. ¶¶ 133 (Form 10

- K for 2016 ) , 141 (Form 10

- Q for Q1 2017 ), 149 (Form 10

- Q for Q2 2017 ), 155 (Form 10

- Q for Q3 2017 ).
32 Sparco Aff. Ex. B at LC

- Fisher_ 0 00802 (Sept. 22, 2016 Risk Committee presentation) , 0 0 0849 (Dec. 14, 2016 Risk Committee presentation) , 0 00888 (Mar. 15, 2017 Risk Committee presentation) , 0 00905 (June 28, 2017 Risk Committee presentation) , 0 00922 (Sept. 26, 2017 Risk Committee presentation); see also Compl. ¶¶ 107

- 08.
33 Compl. ¶ 109.
34 Sparco Aff. Ex. B at LC

- Fisher_001038 (Feb. 7, 2018 Audit Committee pr esentation) (emphasis added); see also Compl . ¶ 109.
35 Sparco Aff. Ex. B at LC

- Fisher

_ 001006; see also Compl. ¶¶ 166

- 67.11

deception or unfairness under the FTC Act and other consumer protection laws enforced by the FTC.” 36
D. T he FTC Action On April 25, 2018, the FTC filed a complaint against LendingClub in the
United States Distri ct Court for the Northern District of California alleging that the Company had engaged in deceptive and unfair practices in violation of the Federal Trade Commission Act (“FTC Act”) and had violated the Gramm

- Leach

- Bliley Act (the “GLB Act”)

. 37 On t he day the FTC action was filed, LendingClub’s stock fell by approximately 15 %

. 38 On October 22, 2018 , the FTC filed an amended complaint asserting four
claims

. 39 Count s I and II of the amended complaint in the FTC action allege that LendingClub engaged in deceptive practices by (i) promising consumers there would be “no hidden fees” on their loans but then charging origination fees that were deducted from the specified loan amount 40 and (ii) misleading consumers about
whether the ir loan applications have been approved when LendingClub knew many

36 Compl. ¶ 163 (quoting 2017 Form 10

- K)

. 37 Id. ¶¶ 169

- 171.
38 Id. ¶ ¶ 1 2 , 173.
39 Id. ¶ 8 n.2 ; Sparco Aff. Ex. C ¶¶ 56

- 67.
40 Sparco Aff. Ex. C ¶¶ 10, 56

- 58.12

such consumers would never receive a loan. 41 Count III alleges that LendingClub engaged in unfair practices by withdrawing double payments from some consumers’ accounts and continuing to c harge customers who cancelled automatic payments or paid off their loans. 42 Count IV alleges that LendingClub failed to provide consumers with clear and conspicuous privacy notices in violation of the Privacy Rule and Reg. P of the GLB Act. 43 LendingClub disputes and has defended itself vigorously against all of the
claims in the FTC a ction

. 44 On June 1, 2020, in a lengthy decision addressing several motions, the district court in the FTC action (i) denied the FTC’s motion for summary judgment on Counts I and IV; (ii) granted in part ( as to certain representation s ) the FTC’s motion for summary judgment on Count II; (ii i ) denied the parties ’ cross - motion s for summary judgment on Count III ; and (iv) granted the Company’s cross - motion for summary judgment on Count IV as to the relief sought
and dismissed Count IV as moot for lack of an available remedy. 45

41 Id. ¶¶ 10, 59

- 61.
42 Id. ¶¶ 10, 62

- 64.
43 Id. ¶¶ 51 , 65

- 67.
44 See generally Sparco Aff. Ex. D.
45 Federal Trade Comm’n v. LendingClub Corp. , 2020 WL 2838827, at *17, * 21, * 22, * 24, * 37 (N.D. Cal. June 1, 2020).13

On August 20, 2020, the district court stayed all proceedings in the FTC action pending a decision o n a case presently before the United States Supreme Court

. 46 In
that case, the Supreme Court is asked to decid e whether Section 13(b) of the FTC
Act permits the FTC to seek monetary relief for past violations. In granting the stay,

t he district court explained that “LendingClub has ceased virtually all of the conduct
at is sue in [the FTC action]” and “ the only issue remaining is the FTC’s recovery of restitution” under Section 13(b). 47 The district court reasoned that “[g]oing forward with trial would needlessly burden LendingClub to put on a trial defense only to possibly have the entire enterprise mooted by the FTC’s inability to seek any monetary relief under Section 13(b)” and that “exposing LendingClub to the risk of a monetary judgment when the ability of the FTC to collect such a judgment at all is pending review

— and could be rendered moot by the Supreme Court

— is fundamentally inequitable.” 48 The stay remains in place.

46 See AMG Capital Mgmt., LLC v. Federal Trade Comm’n, 141 S. Ct. 194 (2020) (granting certiorari).
47 Federal Trade Comm’n v. LendingClub Corp. , 2020 WL 4898136, at * 2 (N.D. Cal. Aug. 20, 2020).
48 Id. at *3.14

E. T he Securities Action On May 2, 2018, one week after the filing of the FTC action, stockholders of LendingClub filed a securities class action in the United States District Court for the
Northern District of California on behalf of purchasers of LendingClub stock between May 9, 2016 and April 25, 2018 (the “Securities Action”). 49 The crux of the Securities Action, as plead ed in a consolidated amended complaint, “was that LendingClub misled investors by failing to disclose the alleged deceptive consumer

facing practices charged in the FTC Compl aint.” 50 On November 4, 2019, the
district court dismissed the consolidated amended complaint but granted plaintiffs
leave to amend. 51 On December 12, 2019, plaintiffs filed a second amended complaint against LendingClub and three of its officers ( Sanborn, Coleman, and Casey ), alleging they violated Sections 10(b) of the Securities Exchange Act and Rule 10b

- 5 and that the individual defendants violated Section 20(a) of the Securities Exchange Act as “control ling persons” of LendingClub

. 52 The second amended complaint alleged a “completely different theory of liability” than the prior complaint, namely that :

49 Veal v. LendingClub Corp. , 2020 WL 3128909, at *1 (N.D. C al. June 12, 2020).
50 Id. at *3.
51 Veal v. LendingClub Corp. , 423 F. Supp. 3d 785 , 819 (N.D. Cal. 2019).
52 LendingClub Corp. , 2020 WL 3128909, at *1, * 3 , *16

.15

Defendants made false or misleading statements because (1) Defendants first failed to disclose the FTC Investigation that started in May 2016 and (2) when, in November 2016, Defendants finally disclosed that the FTC was investigating the Company, they misl ed the investors by lumping together all regulatory investigations, and omitting that the FTC Investigation involved wholly distinct conduct from the Board Review

. 53
On June 12, 2020, the district court granted defendants’ motion to dismiss the

s econd a mended c omplaint in its entirety, holding , among other things, that the complaint failed to plead a false or misleading statement or that defendants acted
with scienter. 54 This decision is on appeal in the United States Court of A ppeals for
the Ninth Circuit.
II. P ROCEDURAL HISTORY On August 12, 2019 , plaintiff filed his initial complaint in this action , which
he amended twice in the face of dismissal motions

. The operative Complaint
contains two c ounts. Count I asserts essentially three different claims for breach of fiduciary: (i) an oversight claim under Caremark 55 and its progeny against all defendants , (ii) a

53 Id. at *3. The term “Board Review” refers to the Company’s May 2016 disclosure of “the circums tances related to the internal control weaknesses” and its summary of “a ‘board review’ of those circumstances.” Id. at *2

. 54 Id. at *6

- 17. On August 11, 2020, plaintiffs in federal derivative action s asserting state law and federal disclosure claims “ba sed on substantially the same alleged misstatements at issue” in the Securities Action stipulated to a voluntary dismissal of their cases “in light of the dismissal of the Securities Action.” Dkt. 57 Ex. A at 2

. 55 In re Caremark Int’l Inc. Deriv. Litig. , 698 A.2d 959 (Del. Ch. 1996).16

disclosure claim against all defendants, which plaintiff “cut and paste some” from the second amended complaint in the Securities Action , 56 and (iii) an insider trading
claim under Brophy 57 and its progeny against six of the defendants

— Sanborn, Casey, Dolan, Coleman, Gulati, and Williams

— for selling LendingClub shares at
various times between June 2016 and November 2017

. 58 Count II asserts a claim for unjust enrichment against all defendants on the theory that they “were unjustly enriched as a result of the compensation and director
remuneration they received whi le breaching their fiduciary duties owed to LendingClub

. ” 59 Count II also asserts that the targets of the Brophy claim “were unjustly enriched through their exploitation of material and adverse inside information.” 60
On March 30, 2020 , defendants moved to dismiss both claims under Court of Chancery Rule 23.1 for failure to make a demand on the Board before filing suit and
under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief . The matter was fully submitted on S eptember 2, after the receipt of supplemental filings.

56 Oral Arg. Tr. at 31 (Feb. 26, 2020) (Dkt. 42).
57 Brophy v. Cities Serv. Co. , 70 A.2d 5 (Del. Ch. 1949).
58 Compl. ¶¶ 177

- 83, 205.
59 Id. ¶ 209.
60 Id. ¶ 210.17

I I I. ANALYSIS During oral argument, plaintiff’s counsel appropriately made t wo concessions: (i) that demand was not excused under Court of Chancery Rule 23.1
for the Brophy claim in Count I , which is asserted against only two of the eight directors on the Demand Board, and (ii) that the viability of the unjust enrichment
claim in Count II would rise or fall on whether the oversight and disclosure claims
in Count I survive

. 61 For the reasons explained below, the court conclude s that
demand was not excused under Rule 23.1 for either the oversight claim or the
disclosure claim , which thus must be dismissed . Accordingly, the Complaint will be dismissed in its entirety under Rul e 23.1 and the court does not need to reach defendants’ 12(b)(6) argument s
. A. Legal Standard Governing Demand Futility “A cardinal precept of [Delaware law] is that directors, rather than

s hareholders, manage the business and affairs of the corporation.” 62 Because

61 Mot. to Dismiss Hr’g Tr. at 80

- 81 (July 2, 2020) (Dkt. 56) . The transcript contains an obvious typographical error on page 81 where the word “not” inadvertently was omitted from the first concession. See id. (“So moving on to the Brophy claim, after further analysis of the recent GoPro decision and the realization that our facts are very similar to what was alleged in GoPro and where the Brophy claim was disallowed, plaintiff is willing to concede that demand would [not] be futile on that claim.”).
62 Aronson v. Lewis , 473 A.2d 805, 811 ( Del. 1984) (citing 8 Del. C. § 141(a)), overruled on other grounds by Brehm v. Eisner , 746 A.2d 244 (Del. 2000).18

derivative litigation “impinges on the managerial freedom of directors,” 63 it is the responsibility of the board of directors to decide whether to bring derivative claims
in the first instance. 64 This approach “is designed to give a corporation, on whose behalf a derivative suit is brought, the opportunity to rectify the alleged wrong without suit or to control any litigation brought for its benefit.” 65 Court of Chancery Rule 23.1 embodies these principles . It requires that a stockholder plaintiff wishing to pursue derivative claims on behalf of the corporation “allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors . . . and the reasons for the plainti ff’s failure to obtain the action or for not making the effort.” 66 In other words, the plaintiff must
either make demand on the board or allege that making demand on the board would
have been futile

. Rule 23.1 carries heightened pleading requirements . S t ockholders choosing

to forego making a demand “must comply with stringent requirements of factual particularity.” 67 “Rule 23.1 is not satisfied by conclusory statements or mere notice

63 Id.
64 Spiegel v. Buntrock , 571 A.2d 767, 772

- 73 (Del. 1990).
65 Lewis v. Aronson , 466 A.2d 375, 380 (Del. Ch. 1983), rev ’ d on other grounds , 473 A.2d 805 (Del. 1984)

. 66 Ct. Ch. R. 23.1.
67 Brehm , 746 A.2d at 254.19

pleading.” 68 Instead, the plaintiff “must set forth . . . particulariz ed factual statements that are essential to the claim.” 69 “Demand futility under Rule 23.1 must be determined pursuant to either the
standards articulated in Aronson v. Lewis or those set forth in Rales v. Blasband .” 70
The c ourt applies the Aronson test w hen “a decision of the board of directors is being challenged in the derivative suit.” 71 The c ourt applies the Rales test 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.” 72 Under either test, a plaintiff “must impugn the ability of at least half the directors in office when [plaintiff] initiated [its] action . . . to have considered a demand impartially.” 73

68 Id.
69 Id.
70 Braddock v. Zimmerman , 906 A.2d 776, 784

- 85 (Del. 2006) (citing Aronson , 473 A.2d 805 and Rales v. Blasband , 634 A.2d 927 (Del. 1993)).
71 Rales , 634 A.2d at 933.
72 Id. at 933

- 34 & n.9. The Rales test also applies “where a business decision was made by the board of a company, but a majority of the directors making the decision ha ve been replaced” and where “the decision being challenged was made by the board of a different corporation.” Id. at 934.
73 Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera , 119 A.3d 44, 57 (Del. Ch. 2015).20

“Demand futility analysis is conducted on a claim

- by

- claim basis

. ” 74 T he
Rales test applies to “alleged violations of the board’s oversight duties

. ” 75 The court also will apply the Rales test to the disclosure cl aim because it implicates the Board’s oversight over statements made in the Company’s public filings and during an
investor call

. 76 Thus, the court will apply the Rales test to both to oversight and
disclosure claims in Count I. 77
Under Rales , a plaintiff successfully pleads demand futility only if “the particularized factual allegations

. . . create a reasonable doubt that, as of the time the complaint [was] filed, the board of directors could have properly exercised its independent and disintere sted business judgment in responding to a demand.” 78 “A

74 Beam ex rel. Martha Stewart Living Omnimed ia, Inc. v. Stewart , 833 A.2d 961, 977 n.48 (Del. Ch. 2003), aff’d , 845 A.2d 1040 (Del. 2004)

. 75 City of Birmingham Ret. & Relief Sys. v. Good , 177 A.3d 47, 55 (Del. 2017).
76 See Steinberg v. Bearden , 2018 WL 2434558, at *5, * 8 (Del. Ch. May 30, 2018) (applying Rales test to claim that directors and officers breached their fiduciary duties “by making, allowing, or failing to correct [certain] materially false and misleading misrepresentations and omissions”); Sandys v. P incus , 2016 WL 769999, at *14

- 15 (Del. Ch. Feb. 16, 2016) (citing Wood v. Baum , 953 A.2d 136, 140 (Del. 2008) and In re Dow Chem. Co. Derivative Litig. , 2010 WL 66769, at *6 n.25 (Del. Ch. Jan. 11, 20 10) ) (applying Rales test to claim that director defendants “failed to disclose material information to the public”) , rev ’ d on other grounds , 152 A.3d 124 (Del. 2016)

. 77 As many members of this court have commented, it ultimately is inconsequential whether the Aronson or Rales test applies since both tests functionally take into account the same considerations. F or this reason, our law wou ld be well

- served to use Rales as the general test. See United Food & Commercial Workers Union v. Zuckerberg , 2020 WL 6266162, at *9

- 18 (Del. Ch. Oct. 26, 2020).
78 Rales , 634 A.2d at 934.21

director cannot exercise . . . independent and disinterested business judgment where [the] director is either interested in the alleged wrongdoing or not independent of someone who is.” 79
The Demand Board consists of eight directors. Plaintiff does not challenge the impartiality of non

- party director Athey. Thus, the question before the court is whether plaintiff has plead with particularity sufficient facts to create a reasonable
doubt about the di sinterestedness or independence of four of the other seven
members of the Demand Board.
Plaintiff primar ily argues that a m ajority of the Demand Board members are interested because they face a substantial likelihood of liability with respect to the

over sight and disclosure claims asserted in the Complaint. 80 It is black

- letter law that “the mere threat of personal liability

. . . is insufficient to challenge either the

79 Teamsters Local 443 Health Servs. & Ins. Plan v. Chou , 2020 WL 5028065, at *15 (Del. Ch. Aug. 24, 2020) (internal quotation marks omitted).
80 Plaintiff also asserts that Sanborn lacks independence from the other directors on the Demand Board because they control the substantial amount of compensation he receives as th e Company’s CEO. See Pl.’s Answering Br. at 55

- 57 (Dkt. 47). It is not necessary to reach this issue because Sanborn is just one of eight Demand Board directors and thus the issue of demand futility will turn on whether four of them face a substantial li kelihood of personal liability.22

independence or disinterestedness of directors

. ” 81 Rather, “ a majority of the board must face a ‘substantial likelihood’ of personal liability for demand to be excused.” 82 LendingClub’s certificate of incorporation contains a provision exculpating its directors for breaches of the duty of care, as permitted under Section 102(b)(7) o f the Delaware General Corporation Law. 83 Thus, to demonstrate demand futility, Plaintiff must allege with particularity facts demonstrating that at least half of the directors on the Demand Board face a substantial likelihood of liability with respect

to a claim for breach of the duty of loyalty. With the foregoing principles in mind, the court considers the sufficiency of the Complaint’s allegations with respect to the oversight and disclosure claims , in turn , below

. B. The Complaint Fails to Allege Facts Sufficient to Show that a Majority of the Demand Board Face s a Substantial Likelihood of Liability under Caremark Oversight liability under Caremark “ is possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” 84 To plead a substantial likelihood of liability under Caremark , a stockholder must allege

81 Aronson , 473 A.2d at 815.
82 Melbourne Mun

. Firefighters’ Pension Tr

. Fund v. Jacobs , 2016 WL 4076369, at *6 (Del. Ch. Aug. 1, 2016) (quoting Aronson , 473 A.2d at 815).
83 Sparco Aff. Ex. H art. VII § 1. Certificates of incorporation are judicially noticeable . In re Wheelabrator Techs. Inc. S’holder Litig. , 1992 WL 212595, at *11

- 12 (Del. Ch. Sept. 1, 1992).
84 Caremark , 698 A.2d at 967

.23

particularized facts sufficient to show that (1) “the directors utterly failed to implement any reporting or information system or controls,” or (2) “hav ing implemented such a system or controls, [the directors] consciously failed to monitor or oversee its operations thus disabling themselves from being informed of the risks or problems requiring their attention.” 85 Either prong of Caremark “requires a
sh owing that the directors knew that they were not discharging their fiduciary obligations.” 86 This scienter requirement follows not only from Caremark itself, but from the existence of exculpatory provisions such as the one in LendingClub’s
certificate of incorporation

. 87 Plaintiff argues that a majority of the Demand Board faces a substantial likelihood of liability with respect to both prongs of Caremark

. The court considers next the Complaint’s allegations relevant to each category.

1. The First Caremark Prong In discussing the first prong of Caremark , the Delaware Supreme Court explained in Marchand v. Barnhill that “d irectors have great discretion to design

context

- and industry

- specific approaches tailored to their companies’ businesses
and re sources. But Caremark does have a bottom

- line requirement that is important:

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

. 86 Id.
87 Reiter v. Fairbank , 2016 WL 6081823, at *7 (Del. Ch. Oct. 18, 2016).24

the board must make a good faith effort

— i.e. , try

— to put in place a reasonable
board

- level system of monitoring and reporting.” 88 The high c ourt further observed that, “[i]n dec isions dismissing Caremark claims, the plaintiffs usually lose because they must concede the existence of board

- level systems of monitoring and oversight such as a relevant committee, a regular protocol requiring board

- level reports about
the relevant risk s, or the board’s use of third

- party monitors, auditors, or consultants.” 89 That is the case here. Plaintiff argues that a majority of the Demand Board faces a substantial likelihood of personal liability because “there were no procedures to detect issues critical to the Company’s functioning.” 90 But the Complaint tells a different story. The Complaint acknowledges , as it must, that LendingClub had board

- lev el reporting systems in place

. I n addition to having an Audit Committee, 91 the Board

88 212 A.3d 805, 821 (Del. 2019) (Strine, C.J.) (citations omitted)

. 89 Id. at 823.
90 Pl.’s Answering Br. at 37. In the same paragraph , plaintiff’s brief asserts that a June 2015 pr esentation to the Risk Committee “warned” that “‘[a]ctions likely to cause significant reputational risk do not get proper Management and/or Board review and approval.’” Id. at 37

- 38 (quoting Sparco Aff. Ex. B at LC

- Fisher_001443). This is a gross mischaracterization. The quote from the presentation on which plaintiff relies was not a factual finding about the Board’s oversight performance, but rather an explanatory statement used to define one of the risks ( i.e. , “reputational risk”) that the Risk Committee was monitoring. See Sparco Aff. Ex. B at LC

- Fisher

_ 001443. Indeed, the presentation indicates that this risk, as measured by the “Number of Type I and II Complaints per 1,000 issued loans,” was a “low risk” t hat had decreased between March and April 2015. Id.
91 Compl. ¶¶ 42

- 44.25

establi shed a separate Risk Committee to , among other things, (i) “oversee the Company’s risk management structure , ” (ii) “ oversee the Company’s risk management and risk assessment guidelines and policies regarding[] credit, operational, technology, security, leg al, and compliance risk,” (iii) “monitor the Company’s enterprise risk management plan,” and (iv) “monitor and evaluat e the performance of the Company’s risk management function.” 92
The Risk Committee was tasked to “ review at least quarterly the major risk exposures of the Company and its business units,” including compliance risk, and to receive reports from the Company’s Chief Risk Officer “at least quarterly” concerning the “results of risk management reviews and assessments.” 93 It also was

re quired to receive “reports and recommendations from management and the Company’s internal Management Risk Committee on risk tolerance.” 94 Contrary to the notion that the Company lacked a board

- level reporting system, t he Complaint specifically alleges that t he Risk Committee was “routinely apprised of mou nting complaints from consumers

. ” 95 On March 22, 2016, for example, a slide deck covering “Complaints Monitoring and Trending” was

92 Id. ¶ 45 (internal quotation marks omitted).
93 Id.
94 Id. ¶ 46.
95 Id. ¶ 99.26

presented to the Risk Committee. 96 That presenta tion contained a break

- do wn of

cons umer complaints by category, summarized complaint trends, and noted on a slide titled “Actively managing key drivers of complaint volume” that the Company had implemented or was in the process of implementing systems to address issues giving rise to consumer complaints

. 97 The Complaint alleges the Risk Committee received similar presentations concerning consumer complaint volume in
June 2017, 98 Septe mber 2017, 99 and December 2017. 100 The Complaint further alleges that “[ t ] he Risk Committee was routinely updated on the FTC’s investigation.” 101 On September 22, 2016, for example, the
Risk Committee received a “Legal Risk Updates” presentation discuss ing the Company ’s receipt of the May 2016 CID from the FTC. 102 The presentation explained that the CID was “[d]riven by [the] May 9 th events”

— referring to the
disclosure of a Board review that identifi ed material weaknesses in the Company’s

96 Id. ; Sparco Aff. Ex. B at LC

- Fisher_ 000791

- 92

. 97 Sparco Aff. Ex. B at LC

- Fisher_000793

- 95.
98 Compl. ¶ 103 ; Sparco Aff. Ex. B at LC

- Fisher_000904

- 11 (presentation covering “Consumer Complaint Activity” from March 1, 2017 to April 30, 2017).
99 Compl. ¶¶ 104

- 05; Sparco Aff. Ex. B at LC

- Fisher_000921

- 29 (presentation covering “Consumer Com plaint Activity” from Ma y 1, 2017 to August 31, 2017).
100 Compl. ¶ 106; Sparco Aff. Ex. B at LC

- Fisher_ 0 01002

- 12 (presentation covering “Consumer Complaint Activity” from September 1, 2017 to October 31, 2017).
101 Compl. ¶ 108.
102 Compl. ¶ 107; Sparco Af f. Ex. B at LC

- Fisher_000802 (Sept. 22, 2016 Risk Committee presentation).27

internal controls

— and that the FTC was “looking at on

- line lending and data

se curity ; particularly complaints received by [the] FTC regarding [LendingClub]

. ” 103 The May 2016 CID was referenced in quarterly Risk Committee presentation s over the next five quarters. 104 Plaintiff’s own brief concedes that the

“ Demand Board was well awar e of the [FTC] investigation, received detailed reports on the investigation, and routinely discussed the investigation.” 105 As this court has explained, our Supreme Court was quite deliberate in its use of the adverb “ utterly ”

— a “linguistically extreme formulation”

— to set a high bar when articulating the standard to hold directors personally liable for a failure of oversight under the first Caremark prong
. 106 Given the factual allegations from the Complaint just recited , it reasonably cannot be said that the LendingClub’s directors “utterly fail ed to implement any reporting or information system or controls” 107 relevant to monitoring compliance with consumer protection laws or, in the words

103 Compl. ¶ 107; Sparco Aff. Ex. B at LC

- Fisher_00080 2.
104 Compl. ¶¶ 108, 166; Sparco Aff. Ex. B at LC

- Fisher_0 0 0849 (Dec. 14, 2016 meeting); 0 0 0888 (Mar. 15, 2017 meeting); 0 00905 ( June 28, 2017 meeting); 0 00922 (Sept. 26, 2017 meeting); 001006 (Dec. 13, 2017 meeting).
105 Pl.’s Answering Br. at 43; see also id. at 13 (“ In 2017, the Director Defendants discussed the FTC ’ s investigation on several occasions .” ).
106 Horman v. Abney , 2017 WL 2425 71, at *8 n.46 (Del. Ch. Jan. 19, 2017) (“‘Utterly failed’ is a linguistically extreme formulation.”) (quoting Bradley R. Aronstam & David E. Ros s, Retracing Delaware ’ s Corporate Roots Through Recent Decisions: Corporate Foundations Remain Stable While Judicial Standards of Review Continue to Evolve , 12 Del. L. Rev. 1, 13 n.73 (2010) )

. 107 Stone , 9 11 A.2d at 370

.28

of Marchand , that they made no good faith effort to “try.” 108 Accordingly, plaintiff
has failed to allege facts to support a reasonable inference that any members of the Demand Board are exposed to a substantial likelihood of liability under the first
Caremark prong so as to excuse plaintiff ’s failure to make a demand

. 109

2. The Second Caremark Prong To establish liability under the second Caremark prong , “a complaint must allege (1) that the directors knew or should have known that the corporation was violating the law, (2) that the directors acted in bad faith by failing to prevent or remedy those violations, and (3) that such failure resulted in damage to the corporation.” 110 To meet this pleading burden, plaintiffs typically allege facts demonstrating that the directors were alerte d to “evidence of illegality

— the

108 Marchand , 212 A.3d at 821.
109 The facts here do not come close to the allegations in dicating a lack of board

- level systems or controls in the two cases on which plaintiff relies. In Marchand , where food safety was “essential and mission critical” to the company, the complaint alleged, among other things, that “no board committee that add ressed food safety existed,” “no regular process or protocols that required management to keep the board apprised of food safety compliance practices, risks, or reports existed” and “the board meetings [were] devoid of any suggestion that there was any reg ular discussion of food safety issues.” 212 A.3d at 82 2

- 24. In Inter

- Marketing G roup USA, Inc. v. Plains All Am erican Pipeline, L.P. , which involved an oil spill caused by corrosion in the company’s pipelines, the complaint included testimony from the co mpany’s CEO in a parallel criminal proceeding that the board did not establish a subcommittee responsible for overseeing pipeline integrity and “did not discuss pipeline integrity policy or procedure” generally, and that “decisions regarding pipeline integ rity were made at lower levels of the company” rather than at the board level. 2020 WL 756965, at *12

- 13 (Del. Ch. Jan. 31, 2020)

. 110 In re Qualcomm Inc. FCPA S’holder Deriv. Litig. , 2017 WL 2608723, at *2 (Del. Ch. June 16, 2017) (internal quotation marks and citation omitted).29

proverbial ‘ red flag, ’” yet acted in bad faith by consciously disregarding their duty
to address that misconduct. 111 “Under Delaware law, red flags ‘are only useful when they are either waved in one’s face or displayed so t hat they are visible to the careful observer.’” 112 Plaintiff argues that the Demand Board faces a substantial likelihood of liability under the second prong of Caremark because the Board was “presented with evidence LendingClub was deceiving borrowers and violating the law , and the Board did nothing in res ponse.” 113 For support, p laintiff points to two purported red flags : (i) that “the FTC initiated an investigation” of LendingClub in May 2016 , which the Board “routinely discussed , ” and (ii) that the Demand Board “ received presentations showing an increasing number of Origination Complaints from customers.” 114

111 South v. Baker , 62 A.3d 1, 15 (Del. Ch. 2012).
112 Wood , 953 A.2d at 143 (quoting In re Citigroup Inc. S’holders Litig. , 2003 WL 21384599, at *2 (Del. Ch. June 5, 2003)).
113 Pl.’s Answering Br. at 43.
114 Id. The Complaint alleges that internal memoranda from LendingClub’s compliance team and an email from a LendingClub investor’s counsel warned of potential problems w ith the Company’s consumer practices. See, e.g. , Compl. ¶¶ 82, 83, 84, 97. Plaintiff’s bri ef does not assert that these communications were brought to the Board’s attention so as to constitute red flags, thus waiving the issue. Emerald P’rs v. Berlin , 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”) (citations omitted) . In any event, the Complaint contains no factual allegations indicating that any member of the Demand Board received or was made aware of these communications

— a necessary predicate to pleading the existence of red flag. Okla. Firefighters Pension & Ret. Sys. v. Corbat , 2017 WL 6452240, at *21 (Del. Ch. Dec. 8, 2017) ( finding that “ t he Complaint does not say whether these issues were brought to the defendants’ attention ,” which

“ prevents them from serving as red flags”).30

Although the FTC “sometimes sends CIDs to obtain information from others who are not the subjects of investigation,” 115 it is reasonable to infer the Risk
Committee un derstood that LendingClub was the target of an FTC investigation at least by September 2016

. That is when the Risk Committee received a presentation indicating the FTC had received “complaints . . . regarding [LendingClub] ” and “did
not communicate that [ the] complaints were not actually about [LendingClub ].” 116 The issuance of a subpoena or the launch of a regulatory investigation does not “necessarily demonstrate that a corporation’s directors knew or should have known that the corporation was violating the law.” 117 “When such events become a

115 Bennett Aff. Ex. A at 2.
116 Sparco Aff. Ex. B at LC

- Fisher

_ 000802.
117 Rojas , 2019 WL 3408812, at *11; see also In re Universal Health Servs., Inc. Deriv. Litig. , 2019 WL 3886838, at *37 (E.D. Pa. Aug. 19, 2019) ( holding that “ t he fact that the government opened an investigation into UHS for potential violations of the False Claims Act does not mean that the company actually violated the False Claims Act or that the Board kn ew that any violations occurred”); Kococinski v. Collins , 935 F. Supp. 2d 909, 924 (D. Minn. 2 013) ( ruling that “ t he fact that the Board may have known that [a government] investigation was underway does not support an inference that the Board actually knew that illegal conduct was occurring”); In re Chemed Corp., S’holder Deriv. Litig. , 2015 WL 94 60118, at *18 (D. Del. Dec. 23, 2015) (finding that subpoenas “alleging” wrongdoing are “certainly something to be taken into consideration along with a plaintiff’s other red flag allegations” but receipt of subpoenas “do not on their own suggest that a bo ard was aware of corporate misconduct

— they suggest only that the board was aware that the company was under investigation”) (alterations and internal quotation marks omitted ). In re Intel Corp. Deriv. Litig. , 621 F. Supp. 2d 165, 175 (D. Del. 2009) ( explai ning that “ t he Court does not place great weight on a ‘preliminary’ finding of [a government investigation] and therefore cannot conclude that the directors now face a ‘substantial likelihood’ of liability for having allegedly ignored the [] investigation” ).31

‘red flag’ depends on the circumstances.” 118 If a plaintiff is able to “present[] strong factual allegations of board knowledge of ongoing legal violations in the wake of federal government enforcemen t proceedings,” for example, then the mere fact of a regulatory investigation would take on more significance at the pleading stage. 119 Plaintiff suggests the May 2016 CID constituted a red flag that LendingClu b was violating the law in the manner alleged in the complaint the FTC filed agains t the Company almost two years later, in April 2018. 120 For whatever reason, plaintiff did not obtain a copy of the May 2016 CID before filing this action as part of his
boo ks and records inspection, 121 and thus the Complaint does not describe the specific subject matter for which the FTC sought documents from the Company or any other contents of the May 2016 CID that may have shed light on the nature of the FTC’s investigation at that point . As such, plaintiff has failed to plead with particularity that, even if the Demand Board had reviewed the May 2016 CI D , t he

118 Rojas , 2019 WL 3408812, at *11.
119 Id. (collecting cases).
120 See Pl.’s Answering Br. at 8, 26, 43.
121 Mot. to Dismiss Hr’g Tr. at 9 1 (July 2, 2020) (Dkt. 56)

.32

Demand Board would or should have known at the time that the Company was violating the law. 122
W orking from what the Complaint does allege , there are no particularized
fact ual allegations indicating that the FTC warned LendingClub it was violating the
law before D ecember 5, 2017

. That is when, as stated in a February 7, 2018 presentation to the Audit Committee , t he “FTC unexpectedly sent [a] proposed complaint on 12/5/17 with 5 alleged violations.” 123 Pr evious presentations made to

122 On August 24, 2020, after oral argument in this case, Vice Chancellor Glasscock found it reasonable to infer that the directors of AmerisourceBergen Corporation were aware of allegations in a quit tam action filed by its former COO and the contents of a De partment of Justice subpoena based on the directors having signed annual reports on Form 10

- K disclosing the quit tam action and the subpoena. Chou , 2020 WL 5028065, at *21, * 24. Importantly, the specific contents of the qui tam complaint, which alleged that the company was engaged in illegal activity, and of the subpoena were detailed in the complaint. See id. at *8, * 13. In a supplemental submission, plaintiff cites Chou as “relevant to Plaintiff’s argument that the board of directors . . . was aware o f the allegations underlying the Federal Trade Commission’s investigation.” Dkt. 59 at 2 . The implication of the submission is that the court should infer that the directors on the Demand Board who signed a Form 10

- K disclosing the May 2016 CID were awar e of the contents of that document. Even if the court were to draw such an inference, however, it would not aid plaintiff because in this case, unlike in Chou , the contents of the May 2016 CID are not alleged in the Complaint. Indeed, contrary to plainti ff’s suggestion that the May 2016 CID would show that the FTC believed LendingClub was violating consumer protection laws, documents cited in the Complaint indicate that the Company believed the May 2016 CID was “[d]riven by [the] May 9 th events” that rela ted to the Board review that identified material weaknesses in the Company’s internal controls. See, e.g. , Sparco Aff. Ex. B at LC

- Fisher_0 0 0802 (Sept. 22, 2016 Risk Committee presentation) , 0 0 0849 (Dec. 14, 2016 Risk Committee presentation) , 00 0 888 (Mar. 15, 2017 Risk Committee presentation) (cited at Compl. ¶¶ 107

- 08).
123 Sparco Aff. Ex. B at LC

- Fisher_001038 (Feb. 7, 2018 Audit Committee presentation) (emphasis added) ; see Compl. ¶ 109

.33

the Risk Committee on a quarterly basis , quoted below, referenced the FTC investigation but without providing any specific indicati on the FTC believe d the Company was violat ing the law:

• I n September 2016, December 2016, and March 2017 , the Risk Committee was informed that t he May 2016 CID was “ [d]riven by May 9 th events and [the] FTC looking at on

- line lending and data security; particularly complaints received by FTC regarding [LendingClub].” 124

• I n June 2017 and September 2017 , the Risk Committee was informed that the Company was “continuing to cooperate” with the FTC and that there were “no significant developments since [the] last update.” 125 On December 13, 2017, shortly after the FTC sent LendingClub the proposed complaint, the Risk Committee was informed that “[a]fter several months with no contact, FTC’s enforcement division reached out to discuss a number of issues, including disclosure of origination fees and concerns about o u r privacy policy” and that Company representatives “will be meeting with representatives [of the FTC] to discuss in detail.” 126 Several months later, in April 2018, the FTC formally filed suit against LendingClub alleging that it had engag ed in deceptive and unfair

124 Sparco Aff. Ex. B at LC

- Fisher_ 0 00802 (Sept. 22, 2016 Risk Committee presentation); 0 0 0849 (Dec. 14, 2016 Risk Committee presentation); 0 00888 (Mar. 15, 2017 Risk Committee presentation) ; see Compl. ¶¶ 107

- 08

. 125 Sparco Aff. Ex. B at LC

- Fisher_00905 (June 28, 2017 Risk Committee presentation) , 0 00922 (Sept. 26, 2017 Risk Committee presentation) ; see Compl. ¶ 108

. 126 Sparco Aff. Ex. B at L C

- Fisher_001006 (D ec. 13, 2017 Risk Committee presentation) ; see Compl. ¶¶ 109, 166.34

practices. 127 As discussed in Part I.D , LendingClub denies any wrongdoing in the
FTC action and has defend ed itself against the FTC’s claims vigorously since th e action was filed. Tacitly recognizing that the Risk Committee’s knowledge of the FTC’s investigation before the Company received a draft complaint from the FTC in
December 2017 is insufficient by itself to serve as a red flag of illegal activity , plaintiff argues that the B oard’s awareness of the investigation “coupled with

consumer complaints” during this period “was sufficient to put the Board on notice that LendingClub was violating the law.” 128 For support, p laintiff identifies four presentations allegedly “showing an in creasing number of Origination Complaint s from customers ” that were made to the Risk Committee on March 22, 2016, June 28, 2017, September 26, 2017, and December 13, 2017

. 129 None of these presentations , however, allege facts sufficient to support a reasonable inference that any member of the Risk Committee knew that LendingClub was violating the law

. Plaintiff focuses primarily on the March 22, 2016 presentation , which showed that “origination complai nts” increased from 0.15 per 1,000 applications in the fourth quarter of 2015 to 0.20 per 1,000 applications in the first quarter of 2016 after

127 Compl . ¶¶ 169

- 171.
128 Pl.’s Answering Br. at 48.
129 Id. at 43 (citing Co mpl. ¶¶ 99, 103

- 06)

.35

LendingClub allegedly “increased the prominence of the ‘No hidden fees’ representation and decreased the promine nce of the tooltip.” 130 Significantly, t he slide presenting these data explains that the “[r]elative increase in complaint volume [was] driven by internal Operations awareness training.” 131 T he March 2016 presentation also reported that (i) Level 1 132 Personal Loan complaint volume actually “ fell as a percentage of Applications and Originations ,” 133 (ii) the volume of externally reported complaints remained “lower or equal relative to [ LendingCl ub’s ] peers,” 134 and (i ii ) management determined there were “ no major
trends or issues across channels ” 135 and was “actively managing key drivers of complaint volume

. ” 136 The Complaint alleges that the June 28, 2017 presentation “stated that ‘Level 3 complai nts increased significantly’” and that “prelisting complaints ‘increase[d] in

130 Id. at 44; Sparco Aff. Ex. B at LC

- Fisher_000795.
131 Pl.’s Answering Br. at 43

- 44 (citing Sparco Aff. Ex. B at LC

- Fisher_00 0 795); see also Sparco Aff. Ex. B at LC

- Fisher_ 0 00793 (“Personal Loan complaint volume increased relative to business volume as we conducted internal awareness training”).
132 “Complaints that are externally reported by a re gulatory agency or the Better Business Bureau are categorized as Level 1, as well as internally reported complaints concerning fair lending or discrimination, fraud, and UDAAP .” Compl. ¶ 10 n.4 (citing LC

Fisher_000897)

. 133 Sparco Aff. Ex. B at LC

- Fisher_ 0 0079 5.
134 Id. at LC

- Fisher_ 0 00793

. 135 Id. at LC

- Fisher_ 0 0079 8.
136 Id. at LC

- Fisher_ 0 00793

.36

volume in relation to number of applications.’” 137 As to the first point, t he presentation actually stated that “Level 3 complaints increased significantly” due to
the fact that “advance fee scammers” had been misrepresenting themselves as LendingClub. 138 In fact, t he presentation reported that complaints relat ing to advance fee scam mers comprised 50% of the Company’s complaint volume. 139 As to the second point, t he presentat ion explained that the Company was “researching [the] root cause (s) ” for the increase in volume of “ prelisting complaints ” and “any potential compliance issues with [ the ] Marketing and Compliance teams.” 140 The Complaint alleges that the September 26, 201 7 presentation “noted that the ‘[v]olume of complaints as a percentage of key metrics . . . [is] trending upwards,’” that “the ‘[a]verage monthly volume of Level 1 complaints has doubled,’” and “that ‘[a]pproximately 10% of Level 1 complaints [were] deemed substantiated ( all UDAAP related ).’” 141 The Complaint further alleges that the

137 Compl. ¶ 103. “Level 3” complaints include “failure to follow established procedures, process deficiency, threat of litigation, threat to file a complaint with a regulatory agency, and those involving a specific consumer detriment that does not meet the standards for Tier 1 or Tier 2.” Id. ¶ 103 n.6.
138 Sparco Aff. Ex. B at LC

- Fisher

_ 000909; see id. at LC

- Fisher

_ 000908 (“As of April 1, Advance Fee Scam (AFS) cases a re tracked as complaints.”); see also id. at LC

Fisher

_ 000802 (“LC was working with FTC on advance fee scammers using our name”).
139 Id. at LC

- Fisher

_ 000908.
140 Id. at LC

- Fisher

_ 000909.
141 Co mpl. ¶¶ 104

- 05 (citing LC

- Fisher

_ 000927, 000929). “UDAAP” is an acronym that describes claims for “Unfair, Deceptive, and Abusive Acts or Practices” under the Dodd

Frank Wall Street Reform and Consumer Protection Act. Id. ¶ 9 n.3.37

presentation “lists sales, marketing, and advertising as one of the ‘[t]op 5 reasons for complaints’” received between May and August 2017 and “that the ‘spike’ in this category was ‘driven by pre

- screen complaints (borrower received pre

- approval marketing material, then denied).’” 142
The September 2017 presentation explain ed , however, that the increase in Level 1 complain t volume did “not appear to be a systemic breakdown in [LendingClub] processes” and , rather, was “attributable to the . . . refresher training provided to [the Company’s consumer advocacy team] by [the compliance team] for UDAAP and Fair Lending in an ongoing effort to hone classification of complaints” 143 and efforts to “be conservative in [LendingClub’s] assessment

. ” 144 The presentation also explain ed that, although “[a]pproximately 10% of Level 1 complaints [were] deemed substantiated (all UDAAP related) ; formal coaching [was] provided to reinforce [the] importance of following [LendingClub] protocol and procedures.” 145 T he presentation further specified that the Company would implement a “revised marketing model ” in the next month that “ should result in improved targeted marketing” and address the “spike” in “Sales/ Marketing/Advertising ” complaint volume “ driven by pre - screen

142 Id. ¶ 105 (citing LC

- Fisher

_ 000928).
143 Sparco Aff. Ex. B at LC

- Fisher

_ 0009 27.
144 Id

. at LC

- Fisher

_ 000929

. 145 Id.38

complaints. ” 146 F inally, the presentation noted that “98% of complaints [were] resolved within 20 business days, as per p olicy.” 147 The Complaint alleges that the December 13, 2017 presentation “ noted that the Company received ‘[a]pproximately 1,300 and 1,400 complaints’ in September and October, respectively, and explained that the ‘[v]olume of complaints as percentage of ke y metrics is trending upwards

. ’” 148 It further alleges that “LendingClub received 185 ‘Level 1 Complaints’ between September and October, 148 of which were classified as UDAAP related” and that one of the “‘top 5 reasons’ for level 1 complaints ” was that t he “ consumer [was] upset that he/she received pre

approval marketing, then was denied a loan.” 149 Notably, the “Sales/Marketing/Advertising” category the Complaint focused

on as one of the “Top 5” complaint categories the previous quarter 150 showed a decline in complaints (from 34 to 23) and di d not appear as one of the “Top 5” complaint categories in the December 2017 presentation. 151 The presentation also

146 Id. at LC

- Fisher

_ 000928.
147 Id. at LC

- Fisher

_ 000927.
148 Compl. ¶ 106 (alterations in original) ( quoting LC

- Fisher

_ 001008).
149 Id. (citing LC

- Fisher

_ 001012).
150 Id. ¶ 105 (citing LC

- Fisher

_ 000928).
151 Sparco Aff. Ex. B at LC

- Fisher

_ 001010

- 11 (listing as the “Top 5 reasons for complaints” from September to October 2017: “Advanced Fee Scam (47%),” “Credit Bureau Reporting (12%),” “Credit Determination (8%),” “Application Processing (6%),” and “Onlin e Acc ount Management (6%).”).39

pointed out that a “ technical bug” had caused higher complaint volume in three of
the “ T op 5 ” complaint categories from September to October , that “[a]ll regulatory deadlines for complaint responses [had been] met , ” and that “98% of complaints [were] resolved within 20 business days, as per policy.” 152 The minutes for the December 13, 2017 Risk Committee meeting also reflect that management “summarized the initiatives that [the] Company has taken to address consumer complaints.” 153 To summarize, the four pr esentations just discussed show that the Risk
Committee was made aware on a regular basis of trends in customer complaint volume, the driving factors behind those trends, and steps the Company had taken
to address those trends whe n necessary
. But n one of the se presentations indicate
that th e Company had violate d consumer protection laws

. In other words, the four Risk Committee presentation s on which plaintiff relies did not constitute a “red flag.” 154

152 Id.
153 Id. at LC

- Fisher

_ 001016.
154 See Reiter , 2016 WL 6081823, at *13 (“None of these reports . . . states that the Company’s . . . controls and procedures actually had been found to violate statutory requirements at any time or t hat anyone within [the company] had engaged in fraudulent or criminal conduct. In other words, the core factual allegations of the Complaint do not amount to red flags of illegal conduct.”).40

Plaintiff equates the allegations of the Complaint to those pled in two federal cases, bu t those cases are clearly inapposite. In In re Abbott Laboratories Derivative Shareholders Litigation , 155 the United States Court of Appeals for the Seventh Circuit, applying Delaware law, reversed a Caremark dismissal where it was alleged that a health care company engaged in “continuing violations of federal regulations over a period of six years.” 156 After “ four formal certified Warning Letters” from the FDA, 157 the FDA’s refusal to continue its voluntary compliance plan with the company “after finding continued deviations from the regulations,” 158 an FDA lawsuit that resulted in “the largest penalty ever imp osed for a civil violation of FDA regulations at that time,” 159 and the mandatory destruction of certain non

- compliant testing kits accounting for almost $250 million in annual revenue, 160 stockholders
filed suit and claimed that the board had breached its f iduciary duty. Emphasizing the “extensive paper trail

. . . concerning the violations and inferred [board] awareness of the problems,” the court held that the board’s decision not to address “the magnitude and duration of the FDA violations” was a failure of oversight. 161

155 325 F.3d 795 (7th Cir. 2003).
156 Id. at 808.
157 Id. at 799.
158 Id. at 800.
159 Id. at 801.
160 Id.
161 Id. at 809.41

In In re Veeco Instruments, Inc. Securities Litigation , 162 the United States
District Cou rt for the Southern District of New Yor k sustained a Caremark claim where it was alleged that “the Audit Committee abdicated its responsibility to monitor legal compliance and investigate whistleblower claims relating to the Company’s allegedly flagrant, systematic, and repeated violations of export control laws.” 163 The complaint in Veeco asserted that, after receiving an employee report concerning the shipment of restricted items, the company “conducted an audit which revealed that at least nine other shipments . . . also had violated federal export control laws.” 164 S even months after the company discovered these violations of law ,
moreover, the same employee reported “a second set of export violations.” 165 Finding that the complaint sufficiently alleged board knowledge of these repeat export violations, the Court held that the board members faced a substantial likelihood of liability with respect to the claims asserted against them. 166 The particularized factual allegations in Abbott and Veeco demonstrating
board aware ness of violat ions of law stand in stark contrast to what is alleged here

. In short, the Complaint does not allege any particularized facts from which it

162 434 F. Supp. 2d 267 (S.D.N.Y. 2006).
163 Id. at 277

- 78.
164 Id. at 278.
165 Id.
166 Id.42

reasonably can be inferred that any member of the Demand Board was put on notice that the Company had violated federal consumer protection laws in the manner alleged in the FTC action

— a litigation that remains ongoing and is hotly disputed 167

— or otherwise . Given this fatal shortcoming, plaintiff has failed to demonstrate that a majority of the Demand Board faces a substant ial likelihood of liability so as to excuse his failure to make demand under Rule 23.1 with respect to plaintiff’s oversight claim under the second Caremark prong. C. The Complaint Fails to Allege Facts Sufficient to Show that a Majority of the Demand Board F aces a Substantial Likelihood of Liability for Allegedly False and Misleading Statements The second claim for breach of fiduciary duty embedded in Count I is a disclosure claim. Plaintiff argues that, “[d]espite knowing that the FTC was investigating Len dingClub over deceitful conduct against borrowers, Defendants . . . falsely represented that the [FTC] investigation related to the board review and

167 See Rojas , 2019 WL 3408812, at *14 (rejecting the theory that the board demonstrated a conscious disregard for its duties “ simply because . . . the Los Angeles City Attorney initiated coordinated civil proceedings against [the company] and three of its competitors asserting complex . . . claims that have been disputed vigorously”).43

previously disclosed internal control failures” 168 that w as the subject of DOJ and SEC investigations. 169

“ [ E ] ven in the absence of a request for shareholder action, shareholders are entitled to honest communication from directors, given with complete candor and in good faith.” 170 “When there is no request for shareholder action, a shareholder plaintiff can dem onstrate a breach of fiduciary duty by showing that the directors

‘ deliberately misinform[ed] shareholders about the business of the corporation, either directly or by a public statement. ’ ” 171 Where, as here, directors are protected by an exculpatory chart er provision, a plaintiff can demonstrate a substantial likelihood of liability that would excuse demand only by making “particularized factual allegations that support the inference that the disclosure violation was made in bad faith, knowingly, or intent ionally.” 172 Plaintiff argues that a majority of the Demand Board directors face a substantial risk of liability for making and/or allowing LendingClub to make “ false

168 Pl.’s Answering Br. at 29.
169 See supra Part I.B.
170 In re infoUSA, Inc. S’holders Litig., 953 A.2d 963, 990 (Del. Ch. 2007).
171 In re Citigroup Inc. S’holder Deriv. Litig. , 964 A.2d 106, 132 (Del. 2009) (quoting Malone v. Brincat , 722 A.2d 5, 14 (Del. 1998)).
172 Id. (internal quotation marks and citation omi tted).44

statements and omissions that misrepresented and concealed the conduct the FTC
was invest igating.” 173 Plaintiff challenges essentially three different statements

. The first is the statement that appeared in the Company’s public filings from
November 2016 to November 2017 to disclose the Company ’s recei pt of a grand jury subpoena from the DOJ on May 9, 2016 and contacts made by t he SEC and
FTC. 174 Importantly, e ach of these disclosures w as made before the Company received a draft of the FTC complaint in December 2017. The first disclosure , which appeared in t he Company’s Form 10

- Q for the third quarter of 2016, filed on November 9, 2016, stated the following: On May 9, 2016, following the announcement of the board review described elsewhere in this filing, the Company received a grand jury subpoena from the U.S. Department of Justice (DOJ). The Company was also contacted by the SEC and Federal Trade Commission (“FTC”). The Company continues cooperating with the DOJ, SEC, FTC and any other governmental or regulatory authorities or agencies. No assurance can be given as to the timing or outcome of these matters. 175
The next four disclosures

— which plaintiff admits were “virtually identical” 176

— app eared in the Company’s 2016 annual report on Form 10

- K and its quarterly

173 Pl.’s Answering Br. at 22

- 23.
174 Id. at 29 (citing Compl. ¶¶ 123, 141, 149, 154

- 55).
175 LendingClub Corp. Quarterly Report at 36 (Form 10

- Q) (Nov. 9, 201 6) (quoted at Compl. ¶ 123).
176 Pl.’s Answering Br. at 29.45

reports on Form 10

- Q for the first, second, and th ird quarter s of 2017. 177 This opinion refers to the se fi ve disclosures collectively as the “Pre

- December 2017
D isclosure s .” The second challenged statement consists of the disclosure that appeared in the Company’s 2017 annual report on Form 10

- K filed on February 22, 2018

— after the Company received a draft complaint from the FTC in December 2017 alleging
five violations

. 178 Unlike the disclosure in the five previous reports , this disclosure described the nature of the claims the FTC was investigating:

177 Id. (citing Co mpl. ¶¶ 141 (quoting Form 10

- Q for Q1 2017), 149 (quoting Form 10

- Q for Q2 2017), 155 (quoting Form 10

- Q for Q3 2017)). The court takes judicial notice that these reports were file d on May 5, 2017, August 8, 2017, and November 8, 2017, respectively. Plai ntiff’s brief references a similar statement from the Company’s annual report on Form 10

- K for 2016, filed on February 28, 2017, but provides no citation to the Complaint for such statement. Id

. Plaintiff also contends that a disclosure in the Company’s 2017 Form 10

- K is “virtually identical” to these disclosures. Id. (citing Compl. ¶ 163). As discussed above, however, the relevant disclosure in the 2017 Form 10

- K is qualitatively different th an these previous disclosures.
178 Compl. ¶¶ 109, 160.46

On May 9, 2016, following the announcement of the Board Review, the Company received a grand jury subpoena from the U.S. Department of Justice (DOJ). The Company also received formal requests for information from the SEC and Federal Trade Commission (FTC). The FTC Staff is investi

gating questions concerning certain of the Company’s policies and practices and related legal compliance. We have worked and continue to work to respond to the FTC's information requests, and have cooperated closely with FTC Staff as they evaluate potentia l claims of deception or unfairness under the FTC Act and other consumer protection laws enforced by the FTC

. While we are not able to predict with certainty the timing, outcome, or consequence of this investigation, we believe that we are in compliance wi th all applicable federal and state laws related to this matter. The Company continues cooperating with the DOJ, SEC, FTC, and other governmental or regulatory authorities or agencies. No assurance can be given as to the timing or outcome of these matter s. However, to the extent that the Company continues to incur expenses to defend or respond to these investigations, insurance policy coverage limits have been met, as described above, so that the Company will not have insurance available to offset any cos ts. 179 This opinion refers to this disclosure as the “Post

- December 2017 Disclosure.”
The third challenged statement comes from comments S anborn made during
a conference call for stockhol ders and analysts on February 20, 2018 , allegedly “in
the context of having settled a class action lawsuit alleging violations of the Exchange Act

. ” 180 The Complaint begins by quoting the following comments
Sanborn made:

179 Id. ¶ 163 (quoting Form 10

- K for 2017) (emphasis added).
180 Id. ¶ 158.47

I do want to remind you that we are still addressing other outstanding legacy issues that will result in elevated legal costs. They are detailed in our upcoming 10

- K that include litigation, ongoing government investigations from the SEC, DOJ and FTC and indemnification obligations for former employees. While it may take a few quarters for us to get these issues resolved, today’s announcement is a major step forward in putting the events of 2016 behind us. 181 The Complaint next quotes Sanborn’s response t o a question about “which cases
ha ve been settled” and “ the magnitude of the remaining cases : ” 182
So , in terms of lawsuits, this is the federal and the state class action lawsuits, they were arising out of the 2016 disclosures. In terms of the scale of the se, we do believe that these represented our largest financial exposure. The remaining issues, as I indicated, are derivative lawsuit [sic] from this which is not against the company and then some ongoing government investigations with the SEC, DOJ and FTC, so obviously, difficult to predict the outcome of those with any certainty, but we are cooperating there and moving quickly to resolve those. 183
Plaintiff asserts that all of the challenged statements were “false and misleading because, by lumping together the FTC investigation with SEC and DOJ investigations and relating them all to the board review of the investor fraud, Defendants created the impression that the FTC’s investigation was rel ated to the
sales of non

- conforming loans and the reporting of related party transactions which

181 Id.
182 Id. ¶ 159.
183 Id.48

the market knew the DOJ and SEC were investigating.” 184 Defendants counter that plaintiff has failed to allege particularized facts showing that a majority of t he Demand Board deliberately lied to investors

— i.e. , did so “in bad faith, knowingly or intentionally” 185

— so as to face a substantial likelihood of personal liability. The court agrees with d efendants for several reasons. First, none of the challenged stat ements was materially false or misleading.
T o begin, t he Post

- December 2017 Di sclosure expressly states that the FTC was

“ investigating questions concerning certain of the Company’s policies and practices and related legal compliance” pertaining to “poten tial claims of deception or unfairness under the FTC Act and other consumer protection laws enforced by the
FTC.” 186 T his statement on its face reasonably cannot be construed to create the misleading impression that the FTC was investigating the sales of n on - conforming loans or the reporting of related party transaction s
. The Pre

- December 2017 Disclosures also are not materially false or misleading because they do not identify the subject matter of any of the DOJ, SEC ,

or FTC inquiries

. 187 They only disclose that the Company received inquiries from
three government agencies

— one of which occurred on May 9, 2016, after the

184 Pl.’s Answering Br. at 30.
185 In re Citigroup, 964 A.2d at 132.
186 Compl. ¶ 163.
187 See id

. ¶¶ 123, 141, 149, 155.49

“ announcement of the board review”

— and that the Company was continuing to cooperate with each agency

. 188 Without some explanation c oncerning the subject
matter of the DOJ and SEC inquiries, a reasonable stockholder would not conclude that the FTC inquiry must have concerned the same subject matter as the DOJ and
SEC inquir ies , particularly given that the Company’s public filings disclosed that the FTC enforces prohibitions against “unfair and deceptive acts or practices in or affecting commerce.” 189
As for Sanborn’s statements on the February 20, 2018 conference call , they merely pointed out that, despite settling the securities litigation arising out of the Company ’s disclosure of material weaknesses in i t s internal controls, LendingClub was still subject to other litigation and “government investigations” by the SEC, DOJ, and FTC that would “result in elevated legal costs.” 190 Once again, nothing was said about the subject matter of the DOJ, SEC, or FTC inquiries so as to create any misimpression about the nature of the FTC investigation. As the district court
reasoned in the Securities Action, Sanborn did not create a false impression about the FTC investigation because his comments “say nothing about the substance of any of the investigations

– they simply disclose that the Company has and will

188 Id.
189 Id. ¶¶ 118, 134.
190 Id. ¶¶ 158

- 59.50

continue to incur costs in connection with government investigations and lawsuits.” 191 Second, the Complaint fails to allege particularized f acts demonstrat ing that any of the Demand Board directors face a substantial likelihood of personal liability concerning Sanborn’s comments for two additional reasons. T he first reason is that Complaint fails to allege facts to support a reasonable inference that Sanborn
in tended to mislead investors about what the FTC was investigating. To the contrary, Sanborn expressly qualified his comments by telling investors that the FTC investigation would be “detailed” in the “upcoming 10

- K , ” which was issued two days later and una mbiguously explained that the FTC was investigating “claims of deception or unfairness under the FTC Act and other consumer protection laws enforced by the FTC.” 192 This qualification negates any reasonable inference of an
intention by Sanborn to mislead. The second reason, which relates to the other members of the Demand Board, is that the Complaint fails to allege that any of the outside directors played a role in the making of Sanborn’s comments during the February 20, 2018 conference call. 193

191 LendingClub Corp. , 2020 WL 3128909, at *10.
192 Compl. ¶¶ 158, 163.
193 See In re Citigroup , 964 A.2d at 134 ( holding that “ t he Complaint does not contain specific factual allegations that re asonably suggest sufficient board involvement in the preparation of the disclosures that would allow me to reasonably conclude that the director defendants face a substantial likelihood of personal liability”).51

Third, as to the Pre

- December 2017 Disclosures, the Complaint fails to plead particularized facts creating a reasonable inference that a majority of the Demand
Board directors acted with scienter. The premise of plaintiff’s claim is that “by September 2016,” the D emand Board “possessed actual knowledge that the FTC’s investigation did not concern investor fraud, but wholly unrelated conduct.” 194 The Complaint fails, however, to plead particularized facts to support this assertion

. To start, the Complaint does not identify the contents of the May 2016 CID and does not allege that any member of the Demand Board reviewed the May 2016
CID. Although the pre - December 2017 presentations to the Risk Committee cited
in the Complaint touch on the subj ect matter of the May 2016 CID , the ir descriptions are ambiguous and provide no clarity on what the FTC was investigating

. For example, the September 2016, December 2016, and March 2017 Risk Committee presentations described the May 2016 CID as : “ D riven b y [the] May 9 th events and [the] FTC is looking at on

- line lending and data security; particularly complaints received by FTC regarding [LendingClub]. ” 195 On the one hand, the reference to “[d]riven by [the] May 9 th events” suggests that the FTC investigat ion related to the
internal control weaknesses that the Company announced on May 9, 2016. On the

194 Pl.’s Answering Br. 23.
195 Sparco Aff. Ex. B at LC

- Fisher_ 0 00802, 00 0 849, 00 0 888 (cited at Compl. ¶¶ 107, 108, 125, 136, 143).52

other hand, the references to “on

- line lending and data security” and “complaints received by [LendingClub]” suggest that the FTC may have been investigating
conduct unrelated to internal control weaknesses , but those references are simply too
vague to draw any clear conclusions

. 196 In short, the Complaint fails to plead particularized facts to support plaintiff’s contention that a majority of the Demand Board directors “possessed actual knowledge” before December 2017 that the subject matter of the FTC’s investigation concerned conduct “wholly unrelated” to the investor fraud allegations arising from the internal control weaknesses the Company identified in May 2016. 197 Thus, assuming for the sake of argument that a reasonable stockholder would have been misled by the Pre

- December 2017 Disclosures into believing that the DOJ,
SEC , and FTC each were investigating investor fraud , the Complaint does not
suffi ciently plead that the Demand Board directors possessed the information necessary to have knowingly lied to investors with respect to those disclosures.

196 Plaintiff cites paragraphs 137 and 144 of the Complaint for the assertion that “Board materials are clear that the Director Defendants discussed the FTC’s investigation as unrelated to the investigations by the DOJ and SEC.” Pl.’s Answering Br. 23. The cited paragraphs quote parts of the minutes of Risk Committee meetings held on December 14, 2016 and March 17, 2017. Those excerpts show that the Risk Committee was updated on the status of a series of regulatory matters and investigations, but they do no t describe the subject matter of the FTC investigation (or any of the other investigations) and thus do not support plaintiff’s contention that the directors “possessed actual knowledge” that the FTC investigation was “wholly unrelated” to the investigatio ns relating to investor fraud.
197 Pl.’s Answering Br. 23.53

Fourth, even accepting as true plaintiff’s contention that the Demand Board
directors knew before Dece mber 2017 that the FTC investigation did not concern investor fraud, the Complaint still does not sufficiently plead that the Demand Board
directors deliberately lied to investors about the FTC investigation because none of
the Pre

- December 2017 Disclosure s represented that the FTC was investigating
investor fraud . On this point, the district court’s analysis in the Securities Action again is instructive : [E]ven if Defendants knew what practices the FTC was investigating, Plaintiffs’ allegations fail to e stablish each Defendant’s state of mind. Plaintiffs do not argue that any of the statements were false on their face

– only that Defendants omitted at first the existence of an FTC investigation, and later the specific targets of that investigation. To suf ficiently plead scienter for allegedly misleading omissions, however, Plaintiffs must allege “a highly unreasonable omission” and facts to support the inference that Defendants either knew that their omissions were misleading the investors or that the pote ntial for misleading the public was so obvious that Defendants must have been aware of i t. . . . None of the facts alleged in the [complaint] establish the state of mind of any of the Defendants. 198 In sum, to plead that LendingClub’s directors face a substantial likelihood of liability so as to excuse the failure to make a demand with respect to a disclosure claim, plaintiff must allege particularized facts showing that a majority of the
Demand Board deliberately lied to investors

— i.e. , did so “in bad faith, knowingly

198 LendingClub Corp. , 2020 WL 3128909, at *15 (internal citation omitted).54

or intentionally.” 199 Because the Complaint fails to do so for the reasons explained,
the disclosure claim within Count I must be dismissed

. * * * * * For the reasons explained in Parts III.B

- C, the oversight and disclosure claims
embedded in Count I must be dismissed for failure to make a demand. Plaintiff has conceded, furthermore, that demand was not excused as to Brophy claim within Count I. Thus, Count I must be dismissed in its entirety under Rule 23.1.
D. Demand is Not Excused for the Unjust Enrichment Claim Count II of the Complaint asserts that defendants were “ unjustly enriched as a result of the compensation and director remuneration they receiv ed while breaching fiduciary duties owed to LendingClub.” 200 Given p laintiff ’s concession that this claim rises or falls with the viability of the breach of fiduciary duty claim
in Count I , Count II also must be dismissed for failure to make a demand

. 201
IV. CONCLUSION For the foregoing reasons , d efendants’ motion to dismiss the Complaint in its entirety is GRANTED.

199 In re Citigroup, 964 A.2d at 132.
200 Compl. ¶ 209.
201 Mot. to Dismiss Hr’g Tr. at 81 (July 2, 2020) (Dkt. 56)

.