IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE USG CORPORATION STOCKHOLDER LITIGATION ) ) CONSOLIDATED C.A. No. 2018

- 0602

- SG

MEMORANDUM OPINION Date Submitted : June 22, 2020 Date Decided : August 31, 2020
Blake A. Bennett , of COOCH & TAYLOR, P.A. , Wilmington, Delaware ; OF COUNSEL : Michael J. Palestina , of KAHN SWICK & FOTI, LLC , New Orleans, Louisiana; Juan E. Monteverde and Miles D. Schreiner, of MONTEVERDE & ASSOCIATES, New York, New York , Attorneys for Plaintiffs

. Raymond J. Dicamillo, Srinivas M. Raju, Robert L. Burns, Matthew D. Perri, and Angela Lam , of RICHARDS, LAYTON & FINGER, P.A. , Wilmington, Delaware ; OF COUNSEL: Robert S. Faxon, Andrienne F. Mueller, and Robert E. Johnson , of JONES DAY , Clevel and, Ohio , Attorneys for Defendants

.

GLASSCOCK, Vice Chancellor1

This matter involves the acquisition (the “Acquisition”) of USG Corporation (“USG”) 1 , a building materials company, by a strategic buyer, Gebr. Knauf KG . The Plaintiffs, former USG stockholders, allege that USG’s directors

— party Defendants

—

breached fiduciary duties in connection with USG’s sale to Knauf

. 2 They seek monetary damages.
USG ’s stockholders overwhelmingly approved the sale. The Defendants ha ve moved to dismiss; first, they seek a dismiss al under the rubric of Corwin v. KKR Financial Holdings, LLC

. 3 That case stands for the proposition that where the
stockholder

- owners of a corporation are given an opportunity to approve a transaction, are fu lly informed of the facts material to the transaction, and where the transaction is not coercive, there is no agency problem for a court to review, and litigation challenging the transaction is subject to dismissal under the business judgment rule . The De fendants’ M otion in reliance on Corwin is ra ther easy to deal with, as the Plaintiffs’ Verified Amended Complaint (the “Amended Complaint”) specifically pleads facts, which I must assume at this pleading stage are true, that
make it reasonably conceivable that USG’s stockholders were not fully informed at the time they approved the Acquisition . The Plaintiffs allege that USG’s Board of

1 USG makes a popular product so dominant in its field that it risks becoming a common noun: the famous “Sheetrock” wallboard. 2 Knauf, as defined below, includes Gebr. Knauf KG, together with affiliated entities and individuals. 3 125 A.3d 304 (Del. 2015).2

D irectors (the “Board”) had reached a subjective be lief that USG had an intrinsic
value nearly 15% higher than the deal price , yet the directors failed to disclose this
fact to USG’s stockholders. Breaches of duty inherent in the Acquisition , therefore,
cannot be deemed clean sed under the Corwin rationale. This raises the question of what bearing the determination describe d above
has on the balance of the Defendants’ Motion to Dismiss, which alleges that the Plaintiffs have failed to state a claim upon which relief can be granted against the Defendants. Due to an exculpation clause in USG’s charter , the Plaintiffs will be required to demonstrate a breach of th e duty of loyalty, or its doppelganger bad faith, to recover damages. 4 It became clear in briefing and at O ral A rgument that the
Plaintiff s make two assumptions that I find unwarranted. T he first is that, having pled facts that raise a reasonable inference of disclosure deficiencies sufficient to
scuttle the Corwin defense, they have necessarily cleared the bar of pleading bad
fait h on the part of the Defendant d irectors for purpose of withstanding a dismissal
under R ule 12 (b)(6). Doctrinally, however, the concept of bad faith, and the determination of adequate disclosure for Corwin purposes, are fundamentally separate. They involve different inquiries, the outcomes of which are not ne cessarily mutually supportive.

4 In re Cornerstone Therapeutics Inc

. S ’h older Litig. , 115 A.3d 1173, 1179

– 80 (Del. 2015)

.3

A series of hypotheticals may help illustrate the distinction. First, consider an allegation, for example, that d irectors omitted from a proxy statement the fact that they had received a kickback from the buyer , in return fo r which they cut short a sales p rocess. Such an allegation, if adequately pled, would easily support a rejection of Corwin cleansing and a pleading of breach of loyalty. But the focus of the two inquires would be different. For Corwin purposes, the focus would be on
what the stockhold ers were told; the 12(b)(6) analysis would focus on th e director’s allegedly faithless actions. By counter example, this hypothetical bribe , if fully disclosed to the stockholders in way of a non

- coercive vote, and in the (unlikely)
scenario that the stock holders nonetheless approved the transaction, theoretically
would result in dismissal under Corwin despite adequate pleading of a clear breach of loyalty on the part of the directors. 5
Conversel y, posit a situation where the d efendant directors have approved and
subm itted a merger in which the stockholders will receive $9.50/share. They authorize a proxy statement that discloses, truthfully and completely, that their financial advisor has opined that a range of fair value for the company is $9.00

– $9.99 per share. No w assume that, via a printer’s error, half the proxies issued erroneously g ive the fairness range as $6.00

– $6.66 per share. The stockholders approve the sale , half of them in theoretical reliance on the erroneous fairness range

.

5 I concede that likeliho od that any vote in such a scenario would be coercive.4

Clearly, the error would be material and would render Corwin inapplicable. Such a finding by the court would have no bearing, however, on whether the complaint
othe rwise adequately pled bad faith or breach of the duty o f loyalty against the
directors sufficient to wit hstand a motion under Rule 12(b)(6). In my view, civil litigation in general can be seen as akin to a steeplechase, where the plaintiff must clear a series of obstacles: first, sufficient pleading to state
a claim and withstand a motion to dismiss under 12 (b)(6); next, perhaps, amassing a record sufficient to carry across a motion for summary judgment, and finally proof by a prepond erance of the evidence at trial. A fter having cleared such hurdles the plaintiff would be entitled to a remedy. But fiduciary duty litigation in the corporate

arena , of the type before me here, is designed to address problems of agency , and
where fiduciaries can elimin ate agency problems by satisfying Corwin , they may seek dismissal on that ground. The n, the course is never run : the starting tape never drops to allow the steeplechase to begin. Where a court determines that Corwin does not apply , conversely, the race is on; the starter calls, the tape falls away, and the litigants are off

— to run the same course that lies in front of them just as they would
had the defendants never sought to dismiss under Corwin

. Viewed in that light, and having determined that Corwin does not cleanse the
transaction here, I must turn to the allegation s of the Amended Complaint to see whether a claim h as been pled upon which I may grant relief

.5

The Plaintiffs’ second assumption

— erroneous, in my view

— is that they must simply plead claims that are reasonably conce ivable as a breach of duty under
Revlon 6 and its progeny to withstand a motion to dismiss . That is, according to the Plaintiffs, they have stated a claim by merely alleging facts that make it reasonably
conceivable that the Defendant d irectors did not act reasonably with regard to achieving maximum value for USG’s stoc kholders via the Acquisi tion . I n this post

closing damages action , however, the Defendants are exculpated from liability for damages by a provision in USG ’s charter, absen t breach of the duty of loyalty or bad faith. Therefore, to plead a claim sufficient to withstand the Defen dants’ Motion to Dismiss , the Plaintiffs must plead facts that make it reasonably conceivable that the Defendants have acted with the requisite culpability. I find that the disclosure deficiency alleged , although it prevents the application of Corwin , is insufficient to reasonably imply bad faith, and that the other facts alleged likewise fail to state a claim of breach of the duty of loyalty or reasonably imply actions taken in bad faith. Accordingly, the Defendants ’ Motion to Dismiss is granted. The fa cts, together with a more detailed statement of my rationale, are laid out, below.

6 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. , 506 A.2d 173 (Del. 1986)

.6 I. BACKGROUND 7
A. The Parties and Relevant Non

- Parties Non

- party USG was a Delaware corporation headquartered in Chicago,
Illinois. 8 USG was a manufacturer and distributor of building materials, and is best
known as the manufacturer and seller of Sheetrock brand drywall and wall products. 9
At the time of the Acquisition , USG was the largest distributor of wallboard in the
United Sta tes and the largest manufacturer of gypsum products in North America. 10 Defendant Steven F. Leer was a director of USG from July 2005 through the
close of the Acquisition , and was Chairman of the Board at all relevant times. 11
Defendant Jennifer F. Scanlon w as USG’s Chief Executive Officer and President from November 2016 through the close of the Acquisition, and was a director of USG from September 2016 through the close of the Acquisition. 12 Defendant Jose Armario was a director of USG from January 2007 thro ugh the close of the Acquisition. 13 Armario was not re

- elected to the Board at USG’s

7 The facts, except where otherwise noted, are drawn from the Plaintiff s ’ Verified Amended Class Action Complaint, D.I. 78 (the “ Amended Co mplaint” or “ Am. Compl. ”), and are presumed true for the purposes of ev aluating the Defendants’ Motion to Dismiss. 8 Am. Compl., ¶ 21. 9 Id . ¶ 2. 10 Id

. 11 Id . ¶ 11. 12 Id . ¶ 12. 13 Id . ¶ 13.7

2018 annual stockholder meeting, but continued to serve as a holdover director at all
relevant times. 14 Defendant William H. Hernandez was a director of USG from September 2009 through the close of the Acquisition. 15 Hernandez was not re

- elected to the Board at USG’s 2018 annual stockholder meeting, but continued to serve as a
holdover director at all relevant times. 16
Defendant Richard P. Lavin was a director of USG from Nov ember 2009 through the close of the Acquisition. 17 Defendant Brian A. Kenney was a director of USG from February 2011 through the close of the Acquisition. 18
Defendant Gretchen R. Haggerty was a director of USG from May 2011 through the close of the Acquisition. 19 Haggerty was not re

- elected to the Board at USG’s 2018 annual stockholder meeting, but continued to serve as a holdover
director at all relevant times. 20 Defendant Matthew Carter, Jr. was a director of USG from September 2012 through the clos e of the Acquisition. 21

14 Id

. 15 Id . ¶ 14. 16 Id

. 17 Id . ¶ 15. 18 Id . ¶ 16. 19 Id . ¶ 17. 20 Id

. 21 Id . ¶ 18.8

Defendant Thomas A. Burke was a director of USG from September 2013 through the close of the Acquisition. 22
Non

- party Gebr. Knauf KG (“Gebr. Knauf”) is a limited partnership organized under the laws of the Federal Republic of Germany. 23 Gebr. Knauf is owned and controlled by members of the Knauf family. 24 C&G Verwaltungs GmbH (“C&G”) is a limited liability company organized under the laws of the Federal Republic of Germany and is an indirect subsidiary of Gebr. Knauf. 25 World Cup Acqui sition Corporation (“Merger Sub”) is a Delaware corporation and wholly owned subsidiary of Gebr. Knauf. 26 Gebr. Knauf together with its various affiliated individuals and entities including Alexander Knauf (“Mr. Knauf”), Manfred Grundke, C&G, and Merger Su b, are collectively referred to herein as “ Knauf. ” 27 Knauf is a German manufacturer of building materials. 28 Knauf beneficially owned approximately 10.6% of USG’s outstanding common stock at the time of the
execution of the agreement and plan of merger be tween USG, Gebr. Knauf , and Merger Sub (the “Merger Agreement”). 29

22 Id . ¶ 19. 23 Id . ¶ 22. 24 Id

. 25 Id . ¶ 23. 26 Id . ¶ 24. 27 Id . ¶ 25. I refer to all individuals in this Memorandum Opinion by only their last name other than Alexander Knauf, who I refer to as Mr. Knauf. I use the honorific only to distinguish Mr. Knauf from the Knauf entities. 28 Id . ¶ 3. 29 Id . ¶ 25.9

Berkshire Hathaway Inc. is a Delaware corporation headquartered in Omaha,
Nebraska

. 30 Berkshire Hathaway Inc. is a holding company that owns subsidiaries engaged in various business activiti es including insurance, freight, rail transportation, utilities , and consumer goods

. 31 The famed investor Warren Buffe t t is Berkshire Hathaway Inc.’s Chairman and controller. 32 Berkshire Hathaway Inc. together with its various affiliated entities is collec tively referred t o herein as “Berkshire Hathaway ” or “Berkshire.” 33 At the time of the execution of the Merger Agreement Berkshire Hathaway beneficially owned approximately 31.1% of USG’s outstanding common stock. 34
Plaintiffs Kevin D . Anderson and Susan Fitzgerald are, a nd at all times pertinent were, stockholders of USG. 35
B. Knauf and Berkshire Hathaway Amass Stakes in USG Knauf initially acquired USG stock in October 2000 when Knauf International GmbH purchased approximately 4.3 million shares of USG commo n stock on the

30 Id . ¶ 26. 31 Id . ¶ 47. 32 Id

. 33 Berkshire Hathaway Inc.’s affiliated entities include, but are not limited to: Berkshire Hathaway Life Insurance Company of Nebraska, a Nebraska corporation; Berkshire Hathaway Assurance Corporation, a New York corporation; National Indemnity Company, a Nebraska corporation; General Re Life Corporation, a Connecticut corporation; General Reins urance Corporation, a Delaware corporation; and General Re Corporation, a Delaware corporation. Id . ¶¶ 27

– 32. 34 Id . ¶ 33. 35 Id . ¶ 10. I assume by this pleading the Plaintiffs intend to convey that they were stockholders of USG until the Acquisition close d.10

open market. 36 Subsequently , Knauf representatives regularly met with USG’s senior management to discuss Knauf’s ownership in USG and opportunities for
transactions between USG and Knauf. 37 In 2001, USG and Knauf formed a joint

venture to ma nufacture and distribute concrete panels through out Europe and the
former Soviet Union. 38 Knauf began purchasing mo re USG shares on the open
market in 2007, and by January 8, 2008 had amassed a stake of 14.5% of USG’s outstanding common stock. 39 USG explor ed an equity offering in 2008, and Knauf approached USG about expanding its equity stake in USG with a path to acquiring a controlling interest and/or eventual full ownership of USG, but Knauf ultimately
decline d to participate in the equity offering. 40 In 2012 , Knauf acquired USG’s European ceilings and surfaces business for approximately $80 million, and in
December 2015 , Knauf acquired USG’s interest in USG and Knauf’s
aforementioned European joint venture for approximately €48 million in cash. 41
Knauf e xplored additional possibilities of commercial cooperation between itself and USG, although they did not ultimately come to fruition. 42

36 Id . ¶ 44. 37 Id

. 38 Id

. 39 Id

. 40 Id . ¶ 45. 41 Id . ¶ 46. 42 Id

.11

Berkshire Hathaway first acquired an interest in USG in November 2000 by purchasing 6.5 million shares on the open market

. 43 In January 2006, during the pendency of USG’s Chapter 11 reorganization, Berkshire Hathaway provided a backstop commitment to purchase up to 45 million shares of USG as part of a rights offering transaction that formed part of the funding for USG’s then

- proposed Chapter 11 plan of reorganization and bankruptcy exit. 44 Berkshire Hathaway committed to a maximum aggregate purchase price of $1.8 billion in connection with the rights offering , and was paid a non

- refundable commitment fe e of $100 million by USG

. 45 Berkshire Hathaway acquired beneficial ownership of an additional 6,969,274
shares of USG common stock pursuant to the rights offering transaction

. 46 Berkshire Hathaway immediately began purchasing more shares of USG on the open market and by October 4, 2006, Berkshire Hathaway had increased its stake in USG to 17,072,192 shares, equivalent to 19% of USG ’s outstanding common stock. 47
In November of 2008 , Berkshire Hathaway purchase d an aggregate of $300 million of 10% Contingent Convertible Senior Notes due 2018 (the “Notes”), which became convertible into USG common stock at any time prior to the Notes’ final

43 Id . ¶ 48. 44 Id . ¶ 50. 45 Id

. 46 Id . ¶ 52. 47 Id

.12

maturity (unless repurchased or redeemed by USG). 48 By April 11, 2014 , Berkshire Hathaway had converted all of the Notes i nto common stock

— pursuant to such conversion Berkshire Hathaway beneficially owned an aggregate of 43,387,980 shares of USG, amounting to 30.4% of USG’s outstanding common stock. 49
C. Knauf Approaches USG and Berkshire Hathaway Regarding an Acquisition; Knauf and Berkshire Hathaway ’s Initial Discussions; Knauf Makes a Formal Offer to USG Knauf had long cited USG as a potential acquisition target that would allow Knauf to secure a significant beachhead in the North American market. 50 At a January 25, 2017 meetin g between K nauf’s principals (Mr. Knauf and Grundke) and certain members of USG’s management (including Defendant Scanlon, USG’s CEO), Knauf indicated that it was looking for ways to partner with USG. 51 On February 8, 2017 , Scanlon updated USG’s Board regarding the January 25 meeting , and noted that following Knauf’s then

- recent acquisition of a wallboard plant in
Mexico , Knauf was potentially considering entering the U.S. wallboard market (wallboard being USG’s primary business). 52 The next day, the Bo ard indicated to Knauf that USG would not be in a position to respond to its inquiry until the completion of a strategic review process expected to be complete d in mid

- 2017. 53

48 Id . ¶¶ 53

– 54. 49 Id . ¶ 55. 50 Id . ¶ 61. 51 Id . ¶ 62. 52 Id . ¶ 63. 53 Id . ¶ 64.13

In March 2017 , Knauf (through its financial advisor Morgan Stanley Bank
AG ( “Morg an Stanley” ) ) reached out to Berkshire Hathaway regarding Knauf’s plans and the sides discussed such plans throughout the month. 54 By mid

- May 2017 it was clear to Knauf that Berkshire Hathaway was ready to sell its stake in USG and
that it would do so at o r near $40 per share. 55 Indeed , at Berkshire Hathaway Inc. ’s May 6, 2017 annual stockholder meeting , Warren Buffe t t noted that Berkshire Hathaway’s USG investment was “disappointing,” not a “brilliant investment,” and “not one of my great ideas.” 56 Knowing it would have Berkshire Hathaway’s support for an acquisition that valued USG at over $40 per share, Knauf began to
consider how to structure such a transaction. 57 Knauf sought to avoid executing a formal agreement with Berkshire Hathaway in the short ter m to avoid disclosure obligations under U.S. securities laws. 58 Knauf and Berkshire Hathaway continued to negotiate and began communicating directly (rather than through Morgan Stanley) in July of 2017. 59 On September 19, 2017 , USG informed Knauf that based on its strategic
review USG did not see value in a combination. 60 On October 4, 2017, Morgan

54 Id . ¶ 65. 55 Id . ¶ 66. 56 Id . ¶ 67. 57 Id . ¶ 68. 58 Id

. 59 Id . ¶ 69. 60 Id . ¶ 70.14

Stanley delivered a Knauf

- USG Acquisition Analysis Presentation to Berkshire Hathaway that assumed a purchase price of $40 per USG s hare. 61 On October 18, 2017, Knauf (represented by Mr. Knauf and Grundke) and Berkshire Hathaway (represented by Buffe t t and his first lieutenant Combs) met in Omaha, Nebraska to
discuss USG , and at the meeting agreed to a price of $40 per share. 62
On Novem

ber 29, 2017, Knauf met with Scanlon

— along with USG’s Chief
Financial Officer and General Counsel

— and informed USG of Knauf’s intention to make a proposal to acquire USG in an all

- cash transaction. 63 At the meeting Knauf
delivered to USG an indicative and non - binding proposal to acquire USG for $40.10 per share in cash

— the offer stated that it was not to be disclosed except to the Board, USG’s advisors, and Berkshire Hathaway. 64 USG’s Board met on December 15,
2017 and discussed the possibility of a hostile tender offer by Knauf or others , and discussed Knauf’s business and the relationship between USG and Knauf generally

. 65 Berkshire Hathaway’s interest in USG was also discussed, including Berkshire Hathaway’s previously stated desire for an exit from its U SG
investment. 66 The Board recognized that Berkshire Hathaway was practically unable

61 Id . ¶ 72. 62 Id . ¶ 74. 63 Id . ¶ 79. 64 Id

. 65 Id . ¶ 83. 66 Id . ¶ 84.15

to exit its USG investment at the market price given its large position. 67 The Board decided to contact Berkshire Hathaway prior to responding to Knauf’s offer to inquire about Berkshire Hathaway’s interactions with Knauf. 68 Informed by its own determination of USG’s intrinsic value, the Board determined at the meeting that Knauf’s offer was “inadequate and insufficient.” 69 At the meeting management noted that USG was experiencing positive momentum in the fourth quarter of 2017 and specifically expressed confidence in management’s long term plan for USG. 70 The Board also received a detailed review of valuation analyses conducted by its financial advisors. 71
On December 19, 2017 , Scanlon and USG’s General Counsel held a call with
Buffet t where Buffe t t acknowledged that Berkshire Hathaway had communicated with Knauf’s financial advisors as of that morning

— Buffe t t did not disclose the parties’ previous discussions. 72 Buffet t also remarked that he would not take independent action. 73 Scanlon stated that the Board had determined that Knauf’s offer was “not in the range of [USG’s] intrinsic value”

— Buffe t t communicated his support for an all

- cash acquisition and encouraged Scanl on to engage with Knauf. 74

67 Id . ¶ 85. 68 Id

. 69 Id . ¶ 86. 70 Id . ¶ 83. 71 Id

. 72 Id . ¶ 87. 73 Id

. 74 Id

.16

On December 20, 2017 , USG formally notified Knauf that the Board had determined Knauf’s offer was “wholly inadequate given [USG’s] intrinsic value and therefore it was not in the best interests of [USG’s] stockholders.” 75 Berkshir e Hathaway indicated to Knauf that it viewed the Board’s rejec tion as “absolutely disgusting,” that Berkshire Hathaway was “willing to vote against the directors,” and that Berkshire Hathaway would share its opinion publicly should the offer become public. 76
D. Knauf Makes a Second Offer; Knauf’s Overtures Become Public Knauf and Berkshire Hathaway continued to engage in discussions regarding an acquisition of USG in late 2017 and early 2018

— Berkshire Hathaway made clear that it would vote against the Board tho ugh it was not yet willing to say so publicly. 77 On February 8, 2018 , Knauf contacted Leer, USG’s Chairman, and demanded a meeting to “establish a relationship” with Leer. 78 On March 8, 2018 , USG held its inaugural “Investor Day” presentation , the primary purpose of which was to “help investors and analysts understand the long

- term value proposition of [USG]”

— at the Investor Day USG disclosed certain financial projections through the end of USG’s 2020 fiscal year. 79

75 Id . ¶ 89. 76 Id . ¶ 91. 77 Id . ¶ 93. 78 Id . ¶ 94. 79 Id . ¶ 96.17

On March 12, 2018 , Mr. Knauf and G r undke met with Leer and Scanlon and reiterated Knauf’s “determination” to acquire USG, indicated that a revised proposal would be forthcoming, and threatened that it would approach USG’s stockholders directly if the Board would not “play ball.” 80 Three days late r Knauf delivered to USG a revised takeover proposal for $42.00 per share. 81 The proposal stated : “S hould you choose not to engage in good faith discussions with us we may reconsider our behavior.” 82 USG and Berkshire Hathaway thereafter discussed Knauf’s revised proposal. 83 On March 23, 2018 , the Board met to discuss Knauf’s revised proposal. 84 At the meeting one of USG’s financial advisors noted the “possibility of a change of behavior” by Knauf, and that USG’s 52

- week high stock price and the median and
h ighest analyst stock prices had all increased. 85 The financial advisors also informed the Board that USG’s discounted cash flow (“DCF”) valuation had increased since
December 2017 , and that Knauf’s revised proposal was at the low end of their DCF
value ran ges and below the average for various premium analysis metrics. 86 The Board discussed its thoughts regarding USG’s “intrinsic value.” 87 The Board also

80 Id . ¶ 97. 81 Id . ¶ 98. 82 Id

. 83 Id . ¶ 99. 84 Id

. ¶ 100. 85 Id

. 86 Id

. 87 Id

.18

discussed Berkshire Hathaway and specifically recognized that “they could not substitute the judgment of one shareholder for what they believed to be in the best interest of all shareholders, particularly given the different posture of that one shareholder.” 88 T he Board further discussed the possibility that Knauf would attempt to acquire USG for “less than i ts intrinsic value” and that Knauf may
“at tempt to push for a shareholder vote.” 89 The Board unanimously determined that Knauf’s revised proposal was “wholly inadequate.” 90
On that same day , Berkshire Hathaway and Knauf met , and at the meeting
Berk shire Hat haway proposed to grant Knauf an option to purchase all of Berkshire Hathaway’s USG stock for $42.00 per share. 91 On March 25, 2018 , Berkshire Hathaway notified Morgan Stanley that it would publicly disclose the existence of Knauf’s proposal, Knauf and Ber kshire Hathaway’s communications, and that Berkshire Hathaway had offered Knauf an option to buy Berkshire Hathaway’s USG stock at $42.00 per share. 92 Knauf sought to persuade Berkshire Hathaway to not make the pub lic disclosure, and also sought at a minimum to edit some of the text of the proposed disclosure. 93

88 Id . ¶ 101. 89 Id . ¶ 102. 90 Id

. 91 Id . ¶ 104. 92 Id . ¶ 105. 93 Id . ¶¶ 106

– 08.19

On March 26, 2018 , Berkshire Hathaway amended its Schedule 13D to disclose the March 23, 2018 conversation and option offer

— Knauf likewise amended its own Schedule 13D to disclose the opti on offer and its revised proposal. 94 Neither filing substantively disclosed the coordination between Knauf and Berkshire Hathaway that had occurred in the previous year. 95 Also on March 26, 2018 , USG’s Board formally rejected Knauf’s revised proposal as “wh olly inadequate”

— the Board was “focused on the intrinsic value of our long

- term strategic plan and measuring that against the proposal price.” 96 On the same day , USG issued a press release that acknowledged its receipt of Knauf’s proposal, disclosed that t he Board has unanimously rejected the revised proposal, and stated that the $42.00 per share offer “substantially undervalues the Company and is not in the best interest of all of USG’s shareholders , ” and that the revised proposal “does not reflect USG’s intrinsic value.” 97
E. Knauf Initiates the Withhold Campaign ; Berkshire Hathaway Publicly Supports Knauf’s Bid and Withhold Campaign After the public disclosures , Knauf took measures consistent with the

commencement of hostile stockholder action , specifically a n 8 Del. C. § 220 demand requesting a list of USG’s stockholders in advance of USG’s 2018 annual meeting

94 Id . ¶ 111. 95 Id

. 96 Id . ¶ 112. 97 Id

.20

with a stated purpose of communication regarding the stockholders’ mutual interests “including the solicitation of proxies for the election of direct ors in connection with the annual meeting.” 98 At an April 5, 2018 meeting between USG and Knauf’s respective advisors , USG’s advisors remarked that Knauf’s offer was not within a range to support engaging in a diligence process and that it did not appear that Knauf would be willing to propose a price that would reflect the Board’s intrinsic value of USG. 99 When asked about its intentions regarding the § 220 demand, Knauf stated that it “simply intended to preserve [its] options.” 100 Knauf left the meeting w ith an understanding that an offer of $45.00 per share would guarantee it access to additional
information. 101 On that same day , Buffett and Scanlon spoke in order to provide Buffett with a confidential update on the USG’s engagement with Knauf to date

— Buffett encouraged continued engagement with Knauf and communicated that he thought USG’s stockholders would approve a transaction. 102 Buffett confirmed that Berkshire Hathaway was “ engaging ” with Knauf on Berkshire Hathaway’s option
offer. 103

98 Id . ¶ 115. 99 Id . ¶ 116. 100 Id

. 101 Id

. 102 Id . ¶ 117. 103 Id

.21

An April 9, 201 8 Knauf internal presentation remarked on Knauf’s leverage
over the Board considering Berkshire Hathaway’s support, and Knauf determined not to pursue Berkshire Hathaway’s option offer because it already had Berkshire Hathaway’s public support at $42 per s hare “without having to pay for it upfront.” 104 The next day USG indicated that Knauf’s § 220 demand did not comply with the
statute and asked for additional evidence that Knauf was a stockholder of USG. 105 On April 10, 2018 , Knauf issued a press release anno uncing its intention to solicit proxies from USG’s stockholders against USG’s four director nominees in connection with the 2018 annual meeting and filed its preliminary proxy materials in connection with Knauf’s withhold campaign (the “Withhold Campaign”)

. 106 Knauf’s press release acknowledged that Knauf had Berkshire Hathaway’s support for any offer over $42.00 per share and reserved the right to nominate one or more
individuals for election as directors. 107 USG issued a reactionary press release
wherein Le er stated that USG’s offer was “wholly inadequate, opportunistic, and

104 Id . ¶¶ 119

– 20. 105 Id . ¶ 121. 106 Id . ¶ 122. “ In uncontested director elections

— and the overwhelming majority of elections are uncontested

— the only choice for shareholders who do not want to vote for a board nominee is to mark their proxy card (or voting instruction form) to withhold authority to vote for the direct or at issue. ” Marcel Kahan & Edward Rock, The Insignificance of Proxy Access , 97 Va. L. Rev. 1347, 1358 (2011). 107 Am. Compl., ¶ 122.22

does not reflect the intrinsic value of the company.” 108 Scanlon stated that Knauf “ha[d] not indicated any willingness to pay full value to all of our shareholders.” 109 On April 12, 2018 , the Board issued a formal letter to USG’s stockholders urging stockholders to vote for the election of USG’s four director nominees at the 2018 annual meeting. 110 The Board stated that Knauf’s campaign was a “misguided attempt to pressure the Board into acc epting a proposal from Knauf to purchase USG, that we believe is substantially below our intrinsic value,” and that “[t]he Board is creating value for all our stockholders through the execution of our strategic plan[.]” 111 On the same day , Berkshire Hathaway publicly communicated its intent to support Knauf and vote against the Board’s nominees. 112 Knauf stated that it was “pleased” that Berkshire Hathaway had indicated its support for the Withhold Campaign and reiterated that its offer “present[ed] and [sic] immediate, high

- value
and cash

- certain monetization opportunity for all USG shareholders.” 113 The
Plaintiffs note a “ strong suggestion ” that Berkshire Hathaway ’s and Knauf’s public
statements were coordinated. 114 Morgan Stanley told Knauf that Buffett “pushed it

108 Id . ¶ 123. 109 Id

. 110 Id . ¶ 124. 111 Id

. 112 Id . ¶ 126. 113 Id . ¶ 127. 114 Id . ¶ 128.23

into the public and now declared his vote against the company; never does this; speaks volume [sic] .” 115 On April 16, 2018 , USG’s Board met to discuss the “new reality.” 116 At the meeting , representatives of the Board’s legal counsel reviewed the Board’s legal obligations and provided an update on the possible outcome of a vote against USG’s
director nominees. 117 On the same day , Knauf publicly responded to the rejection of its § 220 demand and threatened liti gation. 118 On April 17, 2018 , Knauf filed materials with the Securities and Exchange Commission (“SEC”) including a presentation touting Berkshire Hathaway’s support for Knauf’s $42.00 per share offer. 119 Knauf issued a press release on the same day similarly emphasizing Berkshire Hathaway’s support for the offer and the Withhold Campaign, stating that Berkshire Hathaway “ has offered Knauf an option at $42, which Knauf believes validates the value of its offer, and has publicly stated its intention to VOTE AGAINST USG’s four director nominees .” 120 Knauf similarly publicized Berkshire Hathaway’s support in other public filings and

115 Id . ¶ 130. 116 Id . ¶ 137. 117 Id

. 118 Id . ¶ 138. 119 Id . ¶ 139. 120 Id . ¶ 140 (capitalization in original).24

statements, with one opining: “[r]arely does Berkshire Hathaway take such public positions

. ” 121 On April 20, 2018 , Knauf and USG both filed their respective proxy materials in connection with the Withhold Campaign. 122 Around this date , both Knauf and Berkshire Hathaway spoke separately with Institutional Shareholder Services (“ISS”). 123 On April 24, 2018, Knauf met with Shapiro Capital (“Shapiro”), USG’s
fifth

- largest stockholder

— Shapiro stated that they would publicly announce their intention to vote against the Board. 124 On the same day, Morgan Stanley circulated to Knauf an analysis of voting scenarios that estimated 57% of withholds in the “base case” of just Knauf and Berkshire Hathaway voting against out of the large proxy institutions and proxy advisors, 65% withholds if ISS endorsed the Withhold Campaign but without the support of the other large stockholders, and 74% with support of the proxy advisors and largest institutions other than Vanguard and
Harris. 125 USG’s Board met on April 25, 2018. 126 During the meeting , Scanlon
informed t he Board that both Berkshire Hathaway and Shapiro had publicly indicated their support for the Withhold Campaign, and that with 45% of USG’s

121 Id . ¶¶ 140, 144. 122 Id . ¶ 142. 123 Id . ¶ 143. 124 Id . ¶ 145. 125 Id . ¶ 146. 126 Id . ¶ 147.25

stockholders already indicating they would vote against the director nominees it was likely that USG’s director nom inees would not receive a majority of the votes cast at USG’s 2018 annual meeting. 127 The Board considered providing its view of value to either Knauf or publicly, but “deferred doing so at that time and until other potential acquirers were ruled out.” 128 US G issued a press release the same day announcing its first quarter 2018 results and filed its quarterly report in connection
with the same

— USG disclosed a 4% increase on an adjust ed basis in net sales year

over - year. 129 Scanlon was quoted as saying that the quarter “reinforces our confidence in our strategy” and that USG had “the opportunity and available capital to focus on growth and shareholder value creation with a balance sheet that supports our plan.” 130 The following day , Knauf issued a press release r eaffirming its proposal to acquire USG at $42.00 per share and promoting the Withhold Campaign. 131 On April 26, 2018 , the Board filed a letter and presentation to all of USG’s stockholders; the presentation was entitled “USG Maximizing Value for All
Sharehol ders.” 132 The presentation described Knauf’s of fer as “significantly
undervalu [ing] USG” and that it did not “adequately compensate[] ALL

127 Id

. 128 Id

. 129 Id . ¶ 148. 130 Id

. 131 Id . ¶ 149. 132 Id . ¶ 150 (bold in original).26

shareholders.” 133 The presentation also stated that the Board rejected the bid “based on USG’s intrinsic value.” 134 The l etter reiterated many of the same themes, and remarked that the Withhold Campaign was designed “to undermine YOUR Board’s ability to negotiate to maximize value for ALL stockholders” and that Knauf was “trying to get you to pressure the USG Board into acce pting its opportunistic proposal.” 135 The Board continued: “YOU OWN the industry’s CROWN JEWEL and its does not make sense to sell below intrinsic value.” 136 The Board began receiving interest from other potential buyers in April
2018. 137 The Amended Complaint states that USG interfaced with a “Company A” regarding Company A’s potential interest in making a proposal for USG, but Company A later communicated that it was unable to pursue a transaction with USG
at that time. 138 Companies “C” and “D” indicated poten tial interest in a strategic transaction with USG but were not in a position to do so at that time. 139 While it was awaiting Company’s A’s response, the Board reviewed the pros and cons of engaging with Knauf or waiting until USG received further informatio n regarding

133 Id . (capitalization in original). 134 Id

. 135 Id . ¶ 151 (capitalization in original). 136 Id . (capitalization in original). 137 Id . ¶ 152. 138 Id

. 139 Id

.27

Company A’s interest , but ultimately declined to make a decision and decided to “discuss further actions at a later date.” 140
F. Knauf Prevails in its Withhold Campaign; Knauf and USG Agree to the Acquisition USG’s Board meet on April 30, 2018 , an d Scanlon informed the Board that the last of the few potential competing bidders with whom the Board had attempted to engage was unwilling or unable to pursue a transaction at that time. 141 Scanlon
also notified the Board that proxy voting advisory service s ISS and Glass Lewis had publicly announced their support for the Withhold Campaign , and that the Board was “facing the likelihood of a majority vote against its four director nominees.” 142 At the same meeting , the Board authorized Scanlon to begin negotia tions within a unanimously

- agreed range of $48.00 to $51.00 per share. 143 This range was informed by the Board’s view of USG’s intrinsic value, and the Board held a detailed discussion with input from its financial advisor to this end. 144 USG’s management
sp ecifically recommended against the Board publicly stating its views on USG’s intrinsic value, and the Board determined not to make such a statement; the Board

140 Id

. 141 Id . ¶ 154. 142 Id

. 143 Id . ¶ 155. 144 Id

.28

concluded that Knauf’s $42.00 per share offer did not reflect USG’s intrinsic
value. 145
Knauf and U SG met later that day and Knauf stated its “desire to have assurances regarding the final price that the Board would accept before making a further offer” and remarked on the likelihood that the Board would want a resolution
before the upcoming 2018 annual meeting to avoid a vote against USG’s four
director nominees. 146 On May 1, 2018 , USG issued a press release announcing the Board’s authorization for USG to begin negotiations with Knauf; Scanlon called Buffett that same day to discuss the public announceme nt of the commencement of negotiations with Knauf. 147 USG’s Board held a meeting on May 3, 2018 where it again considered issuing a public statement on USG’s intrinsic value but did not do so. 148 The Board also discussed the length of a standstill with Knauf, which was then being negotiated; Knauf sought a 30

- day standstill at most while USG proposed a 12

- month standstill, and the parties eventually entered into a confidentiality agreement with a four

- month standstill period. 149

145 Id

. 146 Id . ¶ 156. 147 Id

. 148 Id . ¶ 158. 149 Id

.29

On May 7, 2018, two days before U SG’s annual meeting, Buffett was interviewed on CNBC and stated that this may have been the first time in 53 years that Buffett and Berkshire Hathaway had vot ed against a slate of directors; Buffett remarked: “we felt that they

– they did not represent our interest, and we said that we intended to vote against them at the annual meeting . . . . [W]e just think that directors are there to represent shareholders. And we do not feel that they were certainly representing us with a 30% interest.” 150 On May 8, 20 18 , USG met with Knauf and communicated a counterproposal of $50.00 per share. 151 USG’s 2018 annual meeting was held on May 9, 2018. 152 At the meeting approximately 75% of shares voted were cast against each of USG’s director
nominees. 153 As a result, Defendants Armario, Haggerty, and Hernandez were not duly re

- elected and only continued to serve as holdover directors; Dana Cho was not
elected to the Board and the Board voted to reduce its size. 154 The Board met later that day, and Scanlon discussed the defeat as well as the decision to propose $50 per share as USG’s counterproposal to Knauf, which Scanlon said was based on DCF

150 Id . ¶ 159. 151 Id . ¶ 160. 152 Id . ¶ 161. 153 Id

. 154 Id

.30

valuations performed by the Board’s financial advisors and was within the authority approved by the Board. 155 On May 22, 2018 , Knauf rejected USG’s $50.00 per share counteroffer and
indicated that it was willing to increase its offer to $43.50 per share. 156 During a meeting the next day , Knauf informed Scanlon and Leer that if “Knauf and USG [were] not able to reach agre ement, Knauf did not intend to stop pursuing an acquisition of USG.” 157 In response, Scanlon and Leer reiterated to Knauf “that the Board believes the intrinsic value of [USG] is $50 a share and that conversations with shareholders led [the Board] to believ e that stockholder expectations were closer to the Board’s view of value.” 158 Nevertheless, Scanlon and Leer indicated that they believed the Board may be willing to support a sale as low as $47.00 per
share. 159 USG’s Board met on May 24, 2018 to discuss the ongoing negotiations. 160 The Board was told that Knauf was not assuming any value from synergies, not engaging with the Board’s bankers in a typical fashion, and that Knauf did not consider the $47.00 per share suggested by Scanlon and Leer to be a formal

155 Id . ¶ 162. 156 Id . ¶ 164. 157 Id

. 158 Id

. 159 Id

. 160 Id . ¶ 165.31

c ounteroffer. 161 The Board noted its concerns and the risk that Knauf would walk away from negotiations and engage in a hostile acquisition of USG at or be low $42.00 per share or pursue an alternative transaction with one of USG’s domestic competitors. 162 Sca nlon recounted to the Board Mr. Knauf’s assertion that “Knauf did not intend to stop pursuing an acquisition of USG.” 163 Scanlon informed the Board that she intended to “reiterate the Board’s view of intrinsic value” in upcoming negotiations with Knauf and intended to “ground th[ose] conversation[s] in the Board’s view of intrinsic value.” 164 The Board acknowledged that $47 was a “walk away price for Knauf” and contemplated the likely next steps by Knauf and
Berkshire Hathaway in the even t the parties were un able to agree on a transaction. 165 Leer polled each of the directors as to what they believed USG’s walk away price should be, though those views are not recorded in the Board ’s minutes. 166 After discussion, the Board approved the negotiation of a transaction as low as $44.00 per
share. 167 Throughout May 2018, USG and Knauf continued to engage in negotiations. 168 During this time the Board authorized outreach to Company A and

161 Id

. 162 Id

. 163 Id

. 164 Id . ¶ 166. 165 Id

. 166 Id . ¶ 167. 167 Id

. 168 Id . ¶ 168.32

four other potent ial bidders, but each potential bidder indicated that they were unable or unwilling to submit a competing bid for USG at that time. 169 On May 29, 2018 , Knauf reaffirmed its $43.50 per share proposal and prepared internally to present USG’s Board with a “best and final” ultimatum of $44.00 per share. 170 Knauf recognized internally that USG’s Board was unwilling to go below $45.00 per share and Knauf’s advisors noted that Knauf’s representatives should “avoid making direct threats.” 171 On June 5, 2018 , Knau f deliv ered to USG a “best and final” offer of $44.00 per share, consisting of $43.50 per share in cash at closing plus $0.50 per share in a conditional special dividend that USG would be permitted to pay upon obtaining stockholder approval of adoption of the M er ger A greement. 172 USG’s Board met and discussed Knauf’s revised offer on June 6, 2018. 173 The Board determined that it was willing to accept this offer, and in coming to the decision specifically “discussed whether [a bsent a deal] Knauf would be obligated to vote for [USG’s] director nominees at the next annual meeting[.]” 174 The Board also discussed Knauf’s “perseverance” and Knauf’s representation that it expected

169 Id

. 170 Id . ¶ 169. 171 Id

. 172 Id . ¶ 170. 173 Id . ¶ 171. 174 Id

.33

the support of Berkshire Hathaway. 175 The next day , Scanlon and USG’s General Counsel spoke with Buffett on a con fidential basis to inform him that Knauf wanted Berkshire Hathaway to sign a voting agreement supporting a transaction with USG (the “Voting Agreement”)

. 176 Buffett informed Scanlon that he supported the dea l,
and Knauf communicated that it was “very import ant that Berkshire continue to demonstrate its support for the transaction.” 177 On June 10, 2018 , USG’s Board unanimously approved the Merger Agreement at $44.00 per share and the parties executed the Merger Agreement on the same day. 178 Berkshire Hathaway ex ecuted the Voting Agreement, pursuant to which Berkshire Hathaway agreed to vote all of its beneficially owned share s in favor of the adoption of the Merger Agreement and the approval of the Acquisition , and agreed to vote all of its shares then owned agai nst any acquisition proposal, whether or not it was a superior proposal. 179 On June 11, 2018, USG and Knauf issued a joint press release announcing the execution of the Merger Agreement. 180 On that same day , Knauf and Berkshire

175 Id

. 176 Id . ¶ 172. 177 Id

. 178 Id . ¶ 174. 179 Id . Berkshire Hathaway also agreed “to vote (or cause to be voted) all of its shares then owned against . . . any action or omission that would result in a breach of any representation, warranty, covenant, agreement or other obligation of Berkshire Hathaway under the Voting Agreement[.]” Id

. 180 Id . ¶ 175.34

Hathaway amended their respective Form SC 13D/As to disclose the execution of the Voting Agreement and Knauf’s concomitant shared voting power with respect to Berkshire Hathaway’s USG stock. 181 On August 23, 2018 , the Board authorized USG’s filing of a proxy statement in connecti on with the Acquisition (the “Proxy Statement”). 182 USG’s stockholders voted on and approved the Merger Agreement on September 26, 2018 , and the Acquisition closed on April 24, 2019. 183
G. Procedural History The original complaint in this Action was filed on August 13, 2018. After two substantially similar putative class actions challenging the Acquisition were consolidated, I heard oral argument on the Plaintiffs’ motion for preliminary injunction seeking to enjoin the Acquisition on the basis that the Plaintiffs were likely to succeed in showing that the Acquisition violated 8 Del. C. § 203 and that
the Proxy Statement failed to make material disclosures

. 184 I denied the Plaintiffs’ motion for a preliminary i njunction on September 25, 2018, finding that the Proxy Statement provided an adequate description of Berkshire Hathaway’s role in the Acquisition , and that 8 Del. C. § 203 was not implicated because Berkshire Hathaway and Knauf never entered a meeting of the minds that would allow Knauf

181 Id . ¶ 176. 182 Id . ¶ 179. 183 Id . ¶ 180. 184 Pls.’ Opening Br. in Support of Mot. for Prelim. Inj., D.I. 51, at 62

– 69; see Pls.’ Reply Br. in Further Support of Mot. for Prelim. Inj., D.I. 65.35

to control Berkshire Hathaway’s shares. 185 As noted, supra , the Acquisition closed on April 24, 2019. The Plaintiffs filed the Amended Complaint on November 26, 2019. The Amended Complaint pleads one count: breach of fiduci ary duty against each of USG’s directors at the time of the Acquisition. 186 The Amended Complaint alleges that USG’s stockholders “did not receive the highest available value for their equity interest in USG,” and “suffered the injury of an uninformed stock holder vote” ; the Plaintiffs seeks damages including by way of quasi

- appraisal. 187 The Defendants moved to dismiss this Action on February 5, 2020. I heard Oral Argument on the Defendants’ Motion on June 22, 2020, and considered the
matter submitted for dec ision on that date.
II. ANALYSIS The Defendants have moved to dismiss this Action pursuant to Chancery Court Rule 12(b)(6). 188 The standard of review for a Rule 12(b)(6) motion is 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

185 Telephonic Ruling of the Court Re Pls.’ Mot. for Prelim. Inj. Relief, D.I. 71. I specifically found that “[t]he record demonstrates that Berkshire Hathaway retained control of its stock to pursue its interest, regardless of whether that interest diverged from that of Knauf.” Id . at 12:17

– 12:20. 186 Am. Compl., ¶¶ 207

– 11. 187 Id . ¶ 211. 188 Ch. Ct. R. 12(b)(6).36

in favor of the nonmoving party; and (iv) dismissal is inappropriate unless the plaintiff would not be entitle d to recover under any reasonably conceivable set of circumstances susceptible of proof. 189 When reviewing a motion to dismiss, the Court may tak e into consideration
documents incorporated into the pleadings by reference and judicially noticeable facts available in public SEC filings. 190 The Amended Complaint pleads a single claim for breach of fiduciary duty against each of the nine members of USG’s Board regarding their approval of the Acqu isition. The Plaintiffs allege that USG’s Board failed to obtain the “highest value available for USG in the marketplace,” in a process that, per the Plaintiffs, was infected by both a conflicted controlling stockholder (Knauf) and approved in bad
faith b y an interested (and/or non

- independent) Board

. In moving to dismiss , the
Defendants contend that the Plaintiffs’ claims are subject to business judgment rule
review under the rationale of Corwin v. KKR Fin ancial Holdings LLC

. 191 The Defendants argue that Knauf was not USG’s controller , and that Corwin ’s cleansing
effect bars me from engaging in a substantive review of the Acquisition

. 192

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

– 97 (Del. 2002) (f ootnotes and internal quotation marks omitted). 190 Reith v. Lichtenstein , 2019 WL 2714065, at *1 (Del. Ch. June 28, 2019) . I take judicial notice of the Proxy Statement filed with the SEC in connection with the Acquisition, which is attached as Exhibit B to the Defendants’ Opening Brief in support of their Motion to Dismiss, and quoted through out the Amended Complaint. 191 125 A.3d 304 (Del. 2015). 192 Singh v. Attenborough , 137 A.3d 151, 151

– 52 (Del. 2016) (“ When the business judgment rule standard of rev iew is invoked because of a vote, dism issal is typically the result. That is because the vest igial waste exception has long had little real

- world relevance , because it has been37

Because the Plaintiffs allege that Knauf was a conflicted controlling
stockholder of USG , I first must determine whether the Plaintiffs have sufficiently pled that Knauf was a conflicted controller before reaching the Defendants ’ Corwin
defense. 193 After review, I find that it is not reasonably conceivable that Knauf was USG’s controlling stockholder, and it is consequently not reasonably conceivable that the Plaintiffs’ claims are subject to entire fairness on that ground.
I next determine that though USG’s stockholder vote could have cleansed the Acquisition under Corwin , it did not do so because a r ational inference exists, based on the facts pled, that the vote was not fully info rmed due to a material omission in the Proxy Statement. 194
But that the Acquisition is not cleansed under Corwin does not end my inquiry at this motion to dismiss stage

. I n light of USG’s charter’s 8 Del. C. § 102(b)(7) exculpatory clause , to su rvive the Motion to Dismiss the Plaintiffs must plead facts making it r easonably conceivable that the D efendant directors breached their duty

understood that stockholders would be unlikely to approve a transaction that is wasteful. ” (footnotes omitted)); see e.g. In re Merge Healthcare Inc. S ’ holders Litig. , 2017 WL 395981, at *1 3 (Del. Ch. Jan. 30, 2017); I n re Solera Holdings, Inc. S’ holder Litig. , 2017 WL 57839, at *13 (Del. Ch. Jan. 5, 2017). 193 See In re Rouse Props. , Inc. Fi duciary Litig. , 2018 WL 1226015, at *11 (Del. Ch. Mar. 9, 2018) (noting that the Corwin analysis “must be deferred” until the allegation that the defendant was a conflicted controller is addressed); Larkin v. Shah , 2016 WL 4485447, at *8 (Del. Ch. Aug. 25, 2016). 194 See Corwin , 125 A.3d at 309 ; Morrison v. Berry , 191 A.3d 268, 282 (Del. 2018).38

of loyalty or acted in bad faith. 195 Because I find that the Plaintiffs have not adequately pled such facts, this Action must be dismissed.
A. Knauf Was Not USG’s Controlling Stockholder In Corwin , the Delaware Supreme Court held that “ when a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, th e business judgment rule applies.” 196 In Larkin v. Shah , 197 Vice Chancellor Slight clarified that “a transaction not subject to the entire fairness standard,” as used in Corwin , should not be read “rigorously
literal [ly]”

— that is Corwin should not be read to hold that all transactions subject to
entire fairness for any reason are not subject to Corwin cleansing

— and is instead meant only to refer to certain entire fairness transactions involving a controlling
stockholder

. 198 Moreover, “the mere presence of a con troller does not trigger entire
fairness per se . Rather, coercion is assumed, and entire fairness invoked, when the controller engages in a conflicted transaction, which occurs when a controller sits on
both sides of the transacti on, or is on only one sid e but ‘ competes with the common

195 In re Cornerstone Therapeutics Inc. S ’h older Li tig. , 115 A.3d 1173, 1179 (Del. 2015)

. 196 Corwin , 125 A.3d at 309. 197 2016 WL 4485447 (Del. Ch. Aug. 25, 2016). 198 Id . at *1 (Del. Ch. Aug. 25, 2016) (“ In the absence of a controlling stockholder that extracted personal benefits, the effect of disinterested s tockholder approval of the merger is review [ed]” under business judgment , “ even if the transaction might otherwise have been subject to the entire fairness standard due to conflicts faced by individual directors. ”).39

stockholders for consideration. ’ ” 199 Where a controller exists, i t is t hus only those
instances where the controll er has engaged in a conflicted transaction that Corwin necessarily has no application. 200 Corwin cannot cleanse such a n “inherently coercive” transaction because of the concern that “f ear of controller retribution in the face of a thwarted transaction may overbear a determination of best corporate interest by the unaffiliated majority. ” 201
The Plaintiffs contend that Knauf was a conflicted controller of USG. Knauf undoubtedly sat on both sides of the Acquisition, as both the purchaser and a blockholder of USG stock . Consequently, Corwin is inapplicable i f the Plaintiffs have adequately alleged Knauf ’s controller status

. A stockholder can be found to be a controll er under Delaware law where they “( 1) own[] more than 50% of the voting po wer of a corporation or (2) own[] less than 50% of the voting power o f the corporation but exercise[] control over the
busine ss aff

airs of the corporation. ” 202 The Plaintiffs plead that Knauf beneficially owned only 10.6% of USG’s common stock outstanding at the time the Merger

199 In re Merge Healthcare Inc. S ’ h olders Litig. , 2017 WL 395981, at *6 (Del. Ch. Jan. 30, 2017) (citing Larkin , 2016 WL 4485447, at * 8; Kahn v. M &F Worldwide Corp. , 88 A.3d 635, 644 (Del. 2014) ). 200 Larkin , 2016 WL 4485447, at *15; M erge , 2017 WL 395981, at *6 ; In re Solera Holdings , Inc. S’holder Liti g. , 2017 WL 57839, at *6 n. 28 (Del. Ch. Jan. 5, 2017). 201 Sciabacucchi v. Liberty Broadband Corp. , 2017 WL 2352152, at *15 (Del. Ch. May 31, 2017). 202 Sheldon v. Pinto Tech. Ventures, L.P. , 220 A.3d 245, 251 (Del. 2019) (quoting In re KKR Fin. Holdings LLC S’ holder Litig. , 101 A.3d 980, 991 (Del. Ch. 2014) ) (internal quotation marks omitted); accord In re Rouse Prop s . , Inc. Fiduciary Litig. , 2018 WL 1226015, at *11 (Del. Ch. Mar. 9, 2018).40

Agreement was executed , far below the 50% threshold

. 203 Consequently, to plead control, the Plaintiffs must ad equately pled that Knauf was a controller under the “actual control” test. 204 To plead actual control, a plaintiff must allege facts that support a reasonable inference of either “ (i) control over the corporation’s business and affairs in general or (ii) control over the corporation specifically for purposes of the challenged
transaction. ” 205 Pleading general control requires that a plaintiff allege facts showing that a defendant or a group of defendants “ exercised sufficient influence that they, as a pract ical matter, are no differently situated than if th ey had majority voting control.” 206 The Plaintiffs do not attempt to plead that Knauf had general
control over USG. But pleading such ubiquitous control is not required, because even a stockholder who does not exercise actual control over a corporation generally can

“ exercise actual control over the board of directors during the cour se of a particular transaction,” and consequently “ assume fiduciary duties f or purposes of that transaction.” 207 Thus, a plaintiff can plead control by pleading facts supporting a

203 Am. Compl., ¶ 25. 204 Rouse , 2018 WL 1226015, at *11. 205 Voigt v. Metcalf

, 2020 WL 614999, at *11 (Del. Ch. Feb. 10, 2020). 206 Id . (quoting In re PNB Holding Co. S’holders Litig. , 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)) (internal quotation marks omitted). 207 Basho Techs. Holdco B, LLC v. Georgetown Basho Inv’ rs, LLC , 2018 WL 3326693, at *26 (Del. Ch. July 6, 2018).41

reasonable inference that the defendant “in fact exercised actual control with regard to the particular transaction that is being challenged.” 208 The challenged transac tion here is, of course, Knauf’s Acquisition of USG. Therefore, to invoke entire fairness
on the basis of Knauf being USG’s controlling stockholder , the Amended Complaint
must contain well

- pled facts demonstrating Knauf’s actual control over USG with

r egard to the Acquisition. 209 “It is impossible to identify or foresee all of the possible sources of influence that could contribute to a finding of actual control over a particular decision , ” but, “[i]nvariably, the facts and circumstances surrounding the par ticular transaction will loom large.” 210 In determining actual control over a challenged transaction, the court “can consider whether the [alleged controller] insisted on a particular course of action, whether there were indications of resistance or second thoughts from other
fiducia ries, and whether the [alleged controller’s] efforts to get its way extended beyond ordinary advocacy to encompass aggressive, threatening, disruptive, or punitive behavior. ” 211

208 Voigt , 2020 WL 614999, at *11 (quoting Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co. , 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006) ) (internal quotation marks omitted). 209 Sciabacucchi v. Liberty Broadb and Corp. , 2017 WL 2352152, at *16 (Del. Ch. May 31, 2017) (“ To invoke entire fairness, the Complain t must contain well

- pled facts ‘demonstrating [the stockholder’ s] actual control with regard to the particular transa ction that is being challenged.’” (quot ing In re KKR Fin. Holdings LLC S’holder Litig. , 101 A.3d 980, 991 (Del. Ch. 2014))). 210 Basho , 2018 WL 3326693, at *26, *28. 211 Id . at *28 (citing Kahn v. Lynch Commc’ n Sys. , Inc. , 638 A.2d 1110, 1114 (Del. 1994); In re Tesla Motors, Inc. S ’ holder Litig. , 2 018 WL 1560293, at *15 (Del. Ch. Mar. 28, 2018); New Jersey Carpenters Pension Fund v. Infogroup, Inc. , 2011 WL 4825888, at *11 (Del. Ch. Sept. 30, 2011)).42

A s an initial matter, it is, to my mind, not reasonably conceivable that Knauf
exercised actual control over the Board before the culmination of the Withhold Campaign. That is, the Plaintiffs’ allegations of a hard

- fought proxy contest urging USG’s stockholders to withhold votes from USG’s direc tor nominees makes it not reasonably conceivable that prior to the s uccess of the Withhold Campaign, Knauf had “such formidable voting and managerial power that they, as a practical matter, [were] no differently situated than if they had majority votin g control [of USG]

. ” 212
The rea son for this is simple: the Board appointed its nominees for election; Knauf fought tooth

- and

- nail such that those nominees would not be re

- elected by a vote of USG’s stockholders; had Knauf exercised control over USG’s Board, it inferably
would have been able to control who the Board’s nominees were; and , inferably
would not have consented to the appointment of nominees who it would then oppose in a public and bruising campaign.
Knauf did not formally prevail in the Withhold C ampaign until USG’s 2018 annual meeting on May 9, 2018. 213 But the Plaintiffs have pled that USG’s Board acknowledged the “writing on the wall” 214

— that Knauf would be victorious

— on

212 KKR , 101 A.3d at 992 (quoting In re PNB Holding Co. S’holders Litig. , 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006) )

. 213 Am. Compl., ¶ 161. 214 This is an apt referen ce by the Plaintiffs given that it meant that the days of the directors ’ reign were numbered.43

April 30, 2018. 215 Consequently, even drawing all reasonable inferences in favor of
th e Plaintiffs, as I must, it is not reasonably conceivable that Knauf had actual control over USG’s Board with regard to the Acquisition before April 30, 2018.
This leaves t he crux of the Plaintiffs’ control claim : is it reasonably
conceivable that Knauf ex ercised actual control over USG’s Board with regard to the Acquisition between April 30, 2018 and June 10, 2018, the date that the Board
unanimousl y approved the Merger Agreement?
The Plaintiffs ’ briefing cite s to scattershot alleg ations of the Amended Complaint regarding Knauf and Berkshire Hathaway’s relationship, including that Knauf (independently and through its coordination with Berkshire Hathaway) “wielded substantial control” and that Knauf and Berkshire Hathaway had aligned
interests that manife sted in a coordinated effort to pressure the Board into selling to Knauf. 216 The Plaintiffs contend that Knauf forced the Board into the Acquisition and the Board succumbed because it was “confronted with the reality that its two largest shareholders were w orking together to force the [Acquisition].” 217

215 Id . ¶ 154 (“Defendant Scanlon also informed the Board that both ISS and Glass Lewis had publicly a nnounced their support for the [ W ] ithhold [C] ampaign and that, ‘in light of these recommendations, and the fact that Berkshire and Shapiro have publicly stated that they intend to vote against the directors,’ the Board was facing the likelihood of a majority vote against its four director nominees.”). 216 Br. in Opp ’ n to Def s.’ Mot

. to Dismiss the Verified Am

. Class Action Compl ., D.I. 95 “(Pls.’ Opp’n Br.”), at 47. 217 Id . at 47

– 48.44

“ Stockholde rs can collectively form a control group where those shareholders are connected in some legally significant way

— e.g. by contract, common ownership, agreement, or other arrangement

— to work together to ward a shared goal.” 218 But w hile the Plaintiffs’ briefing insinuates that Knauf and Berkshire Hathaway formed a control group, the Amended Complaint does not explicitly allege a control group

— inferably, the Plaintiffs concede that such a finding is
foreclo sed by m y previous finding s that Knauf and Berkshire Hathaway “never entered a meeting of the minds” and that Berkshire Hathaway’s interests were “allied with the other unaffiliated stockholders.” 219 Regardless, t he Amended Complaint
offers no con tradicting reasonable inferences. The Plaintiffs have pled facts from which I can reasonably infer that both Knauf and Berkshire sought a sale of USG, but, importantly, the Plaintiffs have pled
no facts to permit me to reasonably infer the existence of a control group given the
fact that Knauf ’s and Berkshire Hathaway’s interests diverged regarding the most important detail of the Acquisition: the price. The only reasonable inference is that Berkshire Hathaway’s interests aligned with the Board

— not Knauf

— insofar as the Acquisition price was concerned. Inferably, Knauf (as the buyer) soug ht to pay as

218 van der Fluit v. Yates , 2017 WL 5953514, at *5 (Del. Ch. Nov. 30, 2017) (quoting Frank v. Elgamal , 2012 WL 1096090, at *8 (Del. Ch. Mar. 30, 2012)) (internal quotation marks omitte d). 219 Telephonic Ruling of the Court Re P ls.’ Mot. for Prelim. Inj. Relief, D.I. 71, at 12:21

– 13:1, 18:5

– 18:7.45

little as possible , and Berkshire Hathaway (as USG’s largest stock holder ) sought to obtain as high a price as possible for its USG stock

. Berkshire Hathaway allegedly wished an exit, but that only indicates Berkshire Hathaway would have supported an acquisition at the highest price exceeding its minimum return. Indee d, while there are plenty of allegations that the Board (and Knauf) considered Berkshire
Hath away’s potential actions after the culmination of the Withhold Campaign , there are meager allegations of coordination between Knauf and Berkshire Hathaway. 220 According to the Amended Complaint it was, in fact, USG’s CEO who informed Berkshire Hathaway that Knauf wanted Berkshire Hathaway to sign the Voting Agreement supporting the Acquisition and that “Knauf’s counsel would be in touch with Berkshire Hathaway’s counsel.” 221 That the Plaintiffs have pled that USG ’s CEO was the one to inform Berkshire Hathaway that Knauf wanted Berkshire

220 E.g. Am. Compl., ¶¶ 166 (“In the same breath, though, the Board also acknowledged that $47 was ‘a walk away price for Knauf’ and worried over ‘the likely next steps by Knauf and other shareholders i.e. , Berkshire in the event that the parties are unable to reach terms. During this meeting, the Board also specifically considered the fact that, while Knauf was limited to making only one publ ic statement during its standstill period, Berkshire was not so limited, and the Board engaged in a discussion of ‘the potential paths for Berkshire to exit USG’s stock, with a banker noting that none of them are likely if Berkshire believes a sale of [sic ] Knauf is possible.’ The Board also received a presentation on alternative ways for Berkshire to exit its investment.”), 169 (“On May 29, 2018, Mr. Knauf reaffirmed Knauf’s $43.50 per share proposal. Internally, Knauf prepared to present the Board with a ‘best and final’ ultimatum of $44.00 per share. In so doing, it internally planned to leverage Berkshire’s continued support.”), 171 (“On June 6, 2018, following discussion, which included a discussion of Knauf’s ‘perseverance in the current instance’ a nd Mr. Knauf’s representation to Defendant Scanlon that Knauf expected the support of Berkshire Hathaway, the Board determined that it wa s willing to accept this offer

— marking a decrease of more than $1 billion in what the Board considered fair value for the Company.”). 221 Id . ¶ 172.46

Hathaway’s support for a sale of USG at $44.00 per share hardly suggests that Knauf and Berkshire Hathaway were in coordination . At most, the Amended Complaint pleads a shar ed goal of a sale of USG , supported by the Plaintiffs ’ allegations regarding the Withhold Campaign , but the Plaintiffs “ must allege more than mere
concurrence of self

- interest among certain stockholders to state a claim based on the existence of a control group .” 222 Because it is not reasonably conceivable th at Knauf
and Berkshire Hathaway formed a control group with respect to Knauf’s Acquisition of USG at $44.00 per share, to the exten t that the Amended C omplaint implies that

a control group was formed , such implication is not supported by well

- pled facts

. Left with the allegation that Knauf

— a 10.6% stockholder, mind you

— was a controller in its own right, the Amended Complaint fails to plead facts from which I can reasonably infer Knauf’s actual control over USG’s Board. In In re Tesla Motors, Inc. Stockhol der Litigation , 223 Vice Chancellor Slights remarked that “t he cases where this Court has found that a minority blockholder was, in fact, a controlling stockholder recogni ze that it is the controller’s ‘ ability to dominate the

co rporate decision

- making proces s’ that is important to the controlling stockholder analysis. ” 224 Likewise, i n In re Cysive, Inc. Shareholders Litigation , 225 a post

- trial

222 van der Fluit , 2017 WL 5953514, at *5 (quoting In re Crimson Expl. Inc. S’holder Litig. , 2014 WL 5449419, at *15 (Del. Ch. Oct. 24, 2014) )

. 223 2020 WL 553902 (Del. Ch. Feb. 4, 2020). 224 Id . at *5 (quoting Superior Vision Servs ., Inc. v. ReliaStar Life Ins. Co. , 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006)). 225 836 A.2d 531 (Del. Ch. 2003).47

opinion, a 35% stockholder, who was the company’s “visionary founder and a ‘hands

- on’ Chairman and CEO” was found to be a controlling stockholder. 226 The
CEO in Cysive “had placed two of his close family members in exec utive positions at the company, ” giving him influence over “the ordinary ma nagerial operations of
the company.” 227 Thus, under these circumstances the minority blockholder “possessed, as a practical matter, a combination of stock voting power and

man agerial authority that enabled him to control th e corporation, if he so wished .” 228 Notably, the Plaintiffs do not plead that Knauf had any managerial authority. Moreover, t here is no reasonable inference that Knauf’s stock voting power alone enabled Knauf to control USG “if [ it ] so wished.” 229 Recognizing that a 10.6% voting stake leaves a steep uphill climb to plead the Knauf was USG’s controlling stockholder , the Plaintiffs note that “[a]ctual control over business affairs may stem from sources extraneous to stock ownership.” 230 The Plaintiffs argue that Knauf was a controller because it had the ability to take “retributive action in the wake of rejection by an inde pendent board.” 231 The

226 In re KKR Fin. Holdings LLC S’holder Litig. , 10 1 A.3d 980, 991 (Del. Ch. 2014) (citing Cysive , 836 A.2d 531). 227 Cysive , 836 A.2d at 551

– 52 ; see In re Morton’s Rest. Grp., Inc. S’holders Litig. , 74 A.3d 656, 665

– 66 (Del. Ch. 2013). 228 Morton’s , 74 A.3d at 666 (quoting Cysive , 836 A.2d at 55 3) (internal quotation marks and alterations omitted). 229 Id

. (quoting C

ysive , 836 A.2d at 55 3) (internal quotation marks and alterat ions omitted). 230 In re Zhongpin Inc. S’holders Litig. , 2014 WL 6735457, at *8 (Del. Ch. Nov. 26, 2014) rev’d on other grounds , In re Cornerstone Therapeutics Inc. S ’ holder Litig. , 115 A.3d 1173 (Del. 2015). 231 In re Pure Res., Inc., S ’ holders Litig. , 808 A. 2d 421, 441 (Del. Ch. 2002)

.48

retributive action doctrine concerns the “risk that that those who pass upon the propriety of the transaction might perceive that disapproval may result in retaliation by the controlling shareholder .” 232 Examples of retaliatory acts by a controlling stockholder include “decid[ing] to stop dividend payments or to effect a subsequent cash out merger at a less favorable price .” 233
The “retributive action” put forth by the Plaintiffs is that Knauf launched the Withhold Campaign. 234 But the P laintiffs fail to identify what precisely is retributive
about the attempt to obtain support from other stockholders in order to influence the course of corporate decision making. Further, even if the Board’s defeat in the Withhold Campaign led to the directors acceding to the Acquisition, it was the approximately 75% vote of USG’s stockholders that would have caused such a decision by the Board, not Knauf ’s decision to launch the Withhold Campaign in the first place. With this in mind , the Plaintiffs ’ retributive action argument must then rely only on the allegation that the simple decision to embark on the Withhold Campaign was a retributive act

. But any stockholder could have engaged in such a

232 Cysive , 836 A.2d at 552 n.31 (quoting Kahn v. Tremont Corp. , 694 A.2d 422, 428 (Del. 1997)). 233 Pure , 808 A.2d at 436 n.18 (quoting Kahn v. Lynch Commc’n Sys., Inc. , 638 A.2d 1110, 1116 (Del. 1994)). 234 Pls.’ Opp’n Br., at 49 (“Here, Plaintiffs have adequately alleged that Knauf exercised ‘actual control’ and secured the sale that it demanded through its ability to take ‘retributive action,’ that it did as a matter of fact take retributive action against the Board through its Withhold Campaign when its overtures were initially rejected, and that the Board responded by acceding to the [Acquisition].”).49

campaign. For these reason s, it is not reasonably conceivable that the Withhold Campaign was a retributive act evincing Knauf’s controller status

. The Plaintiffs have failed to plead facts from which I can reasonably infer that Knauf exercised actual control over USG’s Board . Cons equently, it is not reasonably conceivable that Knauf was a conflicted controller of USG, nor that the Acquisition is subject to entire fairness review on tha t basis. Thus, the Acquisition
is eligible for Corwin cleansing. 235
B. The Stockholder Vote Was Not Fu lly Informed Under Corwin , the Acquisition will be reviewed under the business judgment rule if it was approved by a “fully informed, uncoerced majority of the disinterested stockholders.” 236 88.07% of USG’s votes outstanding approved the adoption of the Merger Agreement. 237 The Amended Complaint does not allege nor do the Plaintiffs argue that a majority of USG’s disinterested stockholders did not approve the Acquisition or that such disinterested stockholders were coerced. However, t he
Plaintiffs do ple ad that the stockholder vote was not fully informed. 238

235 Larkin v. Shah , 2016 WL 4485447, at *15 (Del. Ch. Aug. 25, 2016 ) ; In re Solera Holdings , Inc. S’holder Litig. , 2017 WL 57839, at *6 n. 28 (Del. Ch. Jan. 5, 2017). 236 Corwin v. KKR Fin. Holdings LLC , 125 A.3d 304, 306 (Del. 2015). 237 Opening Br. in Support of Def s.’ M ot

. to Dismiss the Verified Am

. Class Action Compl ., D.I. 87 (“Defs.’ Opening Br.”), Ex. D., at 2. I take judicial notice of USG’s Form 8

- K, filed with the SEC on September 26, 2018, disclosing the results of the stockholder vote to approve the Merger Agr eement. 238 Am. Compl., ¶ 204.50

In analyzing whether USG’s stockholder vote was fully informed, I must
determine whether USG’s disclosures “apprised stockholders of all material information and did not materially mislead them.” 239 The operative question is
whether the Amended Complaint “supports a rational inference that material facts were not disclosed or that the disclosed information was otherwise materially misleading.” 240 This inquiry is “necessarily fact intensive and the Court sh ould deny a motion to dismiss when developing the factual record may be necessary to make a materiality determination as a matter of law. ” 241 To show that USG’s stockholder vote was uninformed, the Plaintiffs must adequately allege that material facts were n ot disclosed or that the disclosures made were materially misleading. “An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” 242 Stated otherwise, materiality tur ns on whether there is “ a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” 243 That disclosures must not be materi ally misleading means that

239 Morrison v. Berry , 191 A.3d 268, 282 (Del. 2018) (citing Appel v. Berkman , 180 A.3d 1055, 1057 (Del. 2018)). 240 Id

. 241 Chester Cty. Emp s . ’ Ret. Fund v. KCG Holdings, Inc. , 2019 WL 2564093, at *10 (Del. Ch. June 21, 2019). 242 Mor rison , 191 A.3d at 282 ( quoting Rosenblatt v. Getty Oil Co

. , 493 A.2d 929, 944 (Del. 1985)). 243 Id . at 283 ( quoting Rosenblatt , 493 A.2d at 944 ).51

“ once [D] efendants traveled down the road of partial disclosure of the hist ory leading up to the [Acquisition]

. . . they had an obligation to provide [USG’s] stockholders with an accurate, full, and fair characterization of those historic

events. ” 244 Once the Plaintiffs identify a deficiency in the Proxy Statement the Defendants have the burden to “ establish that the alleged deficiency fails as a matter of law in order to secure the cleansing effect of the vote .” 245
The Plaintiffs a llege that the Proxy Statement issued by the Board in connection with the stockholder vote did not disclose: (1) the Board’s internal valuation of USG on an inherent, standalone basis, and t he Board’s “internal misgivings” that $44.00 per share did not reflect USG’s intrinsic value, 246 (2) information regarding the Board’s motive to support the Acquisition, 247 and (3)
certain preliminary banker analyses that led the Board to reject Knauf’s $42.00 per
share offer

. 248

1. The Board’s View of USG’s Intrins ic Value The Plaintiffs’ allegations regarding the Board’s view of USG’s intrinsic
value t est the line between omissions and misleading disclosures. That is, the

244 Id . ( quoting Arnold v. Soc’ y for Sav. Bancorp, Inc. , 650 A.2d 1270, 1280 (Del. 1994) ). 245 English v. Narang , 2019 WL 1300855, at *10 (Del. Ch. Mar. 20, 2019) (quoting In re Solera Holdings , Inc. S ’ holder Litig. , 2017 WL 57839, at *8 (Del. Ch. Jan. 5, 2017)). 246 Am. Compl., ¶ 205. 247 Id . ¶¶ 84, 165, 171. 248 Id . ¶ 100.52

Plaintiffs essentially plead that the Board determined USG had an intrinsic value , that the Bo ard did not disclose this material fact, and that by not disclosing its
intrinsic valuation the Board’s other disclosures, namely its representations that the Acquisition was favorable to USG’ s stockholders, were rendered materially misleading. 249
The Plaintiff

s have alleged that the Board believed that USG’s intrinsic value was $50 .00 per share , and ha ve pled that this fact was not disclosed to USG’s
stockholders

. 250 Among other retorts , the Defendants dispute whether the Board had a “personal and unani mous” opinion of USG’s intrinsic value. 251 But t he Proxy

249 The Proxy Statement reads: “The Board considered that the transaction value was more favorable to our stockholders than the potential value that would reasonably be expected to result from other alternatives available to the Company, including the continu ed operation of the Company on a standalone basis and other potential actionable strategic transacti ons.” Defs .’ Opening Br., Ex. C (“Proxy Statement”), at 45. 250 Am. Compl., ¶¶ 164, 193. 251 For example, the Plaintiffs cite USG’s opening counteroffer of $50 .00 per share, t ogether with the disclosure that the counteroffer was informed by the Board’s view of intrinsic value, as support for their allegation that the Board had a view of USG’s intrinsic value. See Pls.’ Opp’n Br., at 8. The Defendants urge that the USG’s negotiating position ( i.e. USG’s counteroffer of $50.00 per share) should not be confused with the Board’s opinion of USG’s value. See In re OPENLANE, Inc. , 2011 WL 4599662, at *15 (Del. Ch. Sept. 30, 2011) (“[A] counteroffer is not necessarily a reliable indicator of a Board’ s view of t he Company’ s value .”); Van de Walle v. Unimation, Inc. , 1991 WL 29303, at *17 (Del. Ch. Mar. 7, 1991) (“[T] he $120 to $150 million figures were not intended as the board’s opinion of the company’ s value. They were merely an asking price, deliberately set high . . . .”). The Defendants are correct that basic negotiation tactics instruct that a counteroffer is not necessarily representative of value. OPENLANE , 2011 WL 4599662, at *15 (“[R] egardless of what a selli ng party may consider a company’ s fair value to be, that person will seek the highest price she can receive, even if that price is far above the presumed fair value. Thus, it is not clear from a counteroffer w hat a seller believes a company’ s fair value to be. ”). But, the Plaintiffs cite the counteroffer merely as support of their allegation, which is explicitly pled, that the Board’s view of intrinsic value was $50.00; thus, the Defendants’ argument in this regard is unpersuasive.53

Statement frequently cites to the Board’s view of USG’s intrinsic value. 252 Therefore, it is not an unreasonable inference that the Board actually had formed a

252 By my count, the Proxy Statement references USG’s intrinsic value fifteen times. Proxy Statement, at 3 (“Our focus on intrinsic value , not daily share price, is evident in the timing of our proposal.”), 35 (“She also informed Mr. Buffett that the Board had determined that the per share price proposed by Knauf did not adequately reflect the Company’s intrinsic value .”) (“Ms. Scanlon stated that the Board would consider any bona fide offer that reflected the Company’s intrinsic value .”) (“On December 20, 2017, the Company provide d a written response to Knauf indicating that the Board, in consultation with its financial and legal advisors, had considered Knauf’s proposal and had determined that the per share purchase price was wholly inadequate given the Company’s intrinsic value a nd therefore it was not in the best interest of the Company’s stockholders.”) (“Ms. Scanlon explained certain factors the Board considered in determining the Company’s intrinsic value , as well as how the Board viewed U.S. tax reform.”) (“She also noted tha t Knauf would need to offer a higher value before the Company’s senior management would be authorized to share non

- public information and that the Board would consider all bona fide proposals that reflected the Company’s intrinsic value .”), 36 (“The Board, members of the Company’s senior management and the advisors also discussed certain possible transaction complexities that could arise relating to the Company’s UBBP joint venture, the fact that Berkshire Hathaway was positioned differently than the Compan y’s other stockholders and would need to take a substantial discount to market to exit its position in the Company’s stock in the absence of a sale of the Company, the supermajority vote required by the Company’s stockholders to approve a merger with Knauf and possible actions by Knauf or other stockholders to attempt to acquire the Company for less than its intrinsic value .”) (“The Board then discussed with the Company’s senior management and representatives of Jones Day, Goldman Sachs and J.P. Morgan the possible responses to Knauf’s revised proposal and methods to give Knauf additional direction that could cause Knauf to meaningfully improve its proposal to better reflect the Company’s intrinsic value , including the strategy of rejecting Knauf’s offer so that Knauf would further increase its proposal.”) (“The Board authorized Ms. Scanlon to send a written response to Knauf rejecting the current $42.00 proposal, while also providing additional information regarding the elements of the Company’s business pla n that the Board believed supported a higher intrinsic value for the Company.”), 37 (“Ms. Scanlon again reiterated that the Board would engage around any bona fide proposal that reflects the Company’s intrinsic value , and offered to have a meeting between the respective financial advisors to discuss the Company’s views on value.”) (“The Board requested that legal counsel attend any meeting of financial advisors given the competitive concerns and also confirmed that the purpose of the meeting was not to nego tiate value, but to provide insights on how the parties were thinking about intrinsic value .”) (“The Company’s advisors again reiterated that Knauf’s proposed price was not within a range to support the additional costs and distraction to the Company of en gaging in a diligence process with Knauf or the risks to the Company of sharing material non

- public information with a strategic competitor, and it did not appear that Knauf would be willing to propose a price per share that would be reflective of the Boar d’s view of the intrinsic value of the Company.”), 38

– 39 (“The letter to stockholders indicated that although the Board had not made a decision to sell the Company, it remained open to evaluating any proposal to acquire the Company, as it had done with Kna uf’s proposals, and that if Knauf, or any54

view of USG’s intrinsic value, supported by the Plaintiffs’ pleading that Scanlon told Knauf that “the Board believes that the intrinsic value of [USG] is $50 a share.” 253
The Defendants also contend th at if the Board did have an opinion of USG’s
intrinsic value the Board disclosed this opinion by disclos ing (i ) that it authorized Scanlon to begin negotiations within a range of $48.00 to $51.00 per share , and (ii ) USG’s first counterproposal to Knauf of $50.00. 254 T he Defendants argue that these disclosures, along with the disclosure that USG at tempted to persuade Knauf t o increase its offer based on the Board’s view of USG’s intrinsic value , were sufficient to make the stockholder vote fully informed

. 255 But , as the Defendants themselves have successfully argued, 256 negotiating price is not indicative of a vi ew of intrinsic value. More fundamentally, it cannot be seriously disputed that the Proxy Statement did not disclose the Board’s view of USG’s intrinsic value , because the Proxy

other viable bidder, made a proposal that reflected the Company’s intrinsic value , the Board would seek to negotiate an appropriate confidentiality arrangement to allow it to share information with the potential co unterparty.”) (“The Company also filed a letter to its stockholders, which among other things, outlined its disagreements with Knauf’s public statements and reiterated the Board’s view that Knauf’s proposal did not represent the intrinsic value of the Comp any.”), 40 (“The Board also authorized Ms. Scanlon to begin negotiations on value within a range of $48.00 and $51.00 per share and discussed the pros and cons of issuing a public statement regarding the Board’s view of intrinsic value , but decided not to issue such a statement.”) (emphasis added to all). 253 Am. Compl., ¶ 164. 254 See Proxy Statement, at 40

– 41. 255 See i d

. at 41

– 42. 256 See n.251 , supra .55

Statement discloses that the Board determined not to disclose its view of int rinsic value

. 257 Even if the Board had a view of intrinsic value, and even if it did not disclose such a view, the Defendants argue that the Board’s undisclosed belief of US G’s
intrinsic value was not material. To this end, Vice Chancellor Laster noted in I n re Apprai sal of Stillwater Mining Co. 258 : “W hether called fundamental value, true value, intrinsic value, or fair value, the really

- real value of something is always an unobservable concept. No valuation methodology provides direct access to it.
Fund amental value is like a Platonic form, and the various valuation methodologies only cutouts casting shadows on the wall of the cave. ” 259 In this vein , t he Defendants
contend that any belief the Board may have had regarding USG ’s intrinsic value was amorphous , and that the material fact required to be disclosed, and that was
disclosed , was that the Board considered $44.00 a share to provide “attractive value” to USG’s stockholders considering financial valuations of the company 260 and “the possibility t hat, in the absence of a proposed strategic transaction with Knauf, when factoring in the cyclicality of the industry in which [USG] operates, the trading price

257 Proxy Statement, at 40 (“The Board also authorized Ms. Scanlon to begin negotiations on value within a range of $48.00 and $51.00 per share and discussed the pros and cons of issuing a public statement regarding the Board’s view of intrinsic value, but de cided not to issue such a statement .” (emphasis added)). 258 2019 WL 3943851 (Del. Ch. Aug. 21, 2019). 259 Id . at *51. 260 On DCF, unaffected market price, recent precedent transact ions, and trading multiple bases.56

of [USG’s] common stock . . . may decrease in relation to its trading price prior to
the initia l public announcement of Knauf’s proposal.” 261
I a gree with Vice Chancellor Laster ’ s eloquent explanation that “ intrinsic value” or “fair value” are nebulous, even illusory, concepts

. B elief in any particular intrinsic value, by any being less than an omniscient god, is necessarily a belief that is subjective in nature. 262 But that is not determinative of the disclosure issue at
hand. The Amended Complaint avers that the Defendants had a belief as to the precise intrinsic value of USG , and that their disclosures in the Proxy Statement repeatedly imply that such a belief was formed . They, as directors, had a better opportunity to develop a reliable, if still subjective, belief as to intrinsic va lue than
did USG’s unaffiliated stockholders. The animating question is whether by disclosing that the d irectors had reached a conclusion as to intrinsic value, and in not disclosing what that conclusion was but nonetheless recommending the Acquisition , is it reasonably conceivable that the Defendants created a proxy that was materially misleading to stockho lders. I find that the answer is yes. USG’s stockholders should have been “informed of the value that the [Board] placed on [USG] at a point in the negotiations when it had sufficient financial

261 Proxy Statement, at 45. 262 But see 8 Del. C. § 262.5 7

information to make a serious offer.” 263 This disclosure requirement ordinarily refers to the value of a price proposal in negotiations. 264 But here , because the Proxy
Statement disclosed that the Board held a view of intrinsic value and frequently
referenced such a view during its disclosures about the sales pro cess , 265 USG’s
stockholders were entitled to know the Board’s opinion of USG’s intrinsic value, even if it was unachievable due to market forces and Knauf’s threats to launch a
hostile takeover. If the Board “ believed that one estimate was more accurate or realistic than another, it was free to endorse that estimate and to explain the reason for doing so; but full disclosure, in [my] view, was a prerequisite. ” 266 The Amended Complaint supports a rational inference that the Board held a view of USG’s intrinsi c value that
it referred to and relied on throughout the sales process , and that the Board’s view of intrinsic value was not disclosed to USG’s stockholders

. There is a substantial likelihood that a reasonable stockholder would have considered the Board’s oft

mentioned view of intrinsic important in deciding how to vote. 267 Because this view of intrinsic value was not disclosed, there is a rational inference that material facts

263 In re Dell Techs. Inc. Class V S’holders Litig. , 2020 WL 3096748, at *40 (Del. Ch. June 11, 2020) (quoting In re S. Peru Copper Corp. S’holder Deriv. Litig. , 52 A.3d 761, 795 (Del. Ch. 2011) ). 264 E.g. i d

. ; S. Peru Copper , 52 A.3d at 795

. 265 See n.2 52 , supra . 266 Lynch v. Vickers Energy Corp. , 383 A.2d 278, 281 (Del. 1977). 267 Morrison v. Berry , 191 A.3d 268, 283 (Del. 2018).58

were not disclosed, and consequently, USG’s stockholder vote was not fully
infor med

. 268 Since the stockholder vote was insufficient to impose Corwin , I could end my
Corwin analysis here. However, given the distinct but related issues regarding whether the Board’s disclosures were in good faith, I think it is appropriate to discuss
the other alleged non

- disclosures in the Proxy Statement.

2. The Board’s Motive s The Plaintiffs also contend that the Proxy Statement misrepresented the Board’s motive s for approving the Acquisition. The Plaintiffs cite allegations that
the Board did not disclos e its discussion of Berkshire Hathaway’s “previously stated desire for an eventual exit,” that Knauf “did not intend to stop pursuing an acquisition of USG,” and the Board’s concern of whether Knauf “would be obligated to vote for [USG’s] director nominees at the next annual meeting.” 269 Regarding Berkshire Hathaway’s desires, the Plaintiffs essentially contend that Berkshire Hathaway forced the Board to capitulate to the Acquisition, and the Proxy Statement did not disclose that this was the source of the Board’s support for the Acquisition. The Proxy Statement did disclose that “[t]he Board considered the

268 To the extent disclosures in the Proxy Statement were rendered materially misleading because the Board’s view of USG’s intrinsic value was not disclosed, USG’s stockholder vote was likewise not fully informed. 269 Am. Compl., ¶¶ 94, 165, 171.59

fact that a significant number of the Company’s stockholders had urged the Company to engage with Knauf following the public disclosure of Knauf’s propo sal to acquire the Company for $42.00 per share.” 270 It is not reasonably conceivable that this was not a disclosure of the Board’s consideration of stockholder desires for a sale of USG, particularly because the Withhold Campaign was framed by both
sides a s a referendum on USG’s $42.00 per share offer. 271 USG’s director nomi nees lost by a wide margin , and even “[g] etting a substantial, but less than a majority,
withhold vote is still an embarrassment and often induces board actions. ” 272 The Amended Complaint also acknowle dges that Berkshire Hathaway’s support for the Withhold Campaign was widely known. 273 Thus, it is not reasonably conceivable that the effect of the loss of the Withhold Campaign, i.e. overwhelming support of Berkshire Hathaway’s desire for a sale at $42.00 per share, was c oncealed from
USG ’ s stockholders via the Proxy Statement . It is therefore not reasonably

270 Proxy Statement, at 47. 271 E.g. Am. Compl., ¶¶ 140 (A Knauf press release stated: “Additionally, after Knauf initiated its ‘Withhold’ campaign, Berkshire Hathaway publicly stated its intention to vote against USG’s director nominees. Knauf believes that t his is a clear indication that Berkshire Hathaway views $42.00 as a reasonable offer price.”), 150 (The Board’s investor presentation stated: “If Knauf wants to buy USG, it should meaningfully improve its offer price

— a vote FOR USG’s Board nominees stren gthens our negotiating position with Knauf.” (capitalization in original)), 151 (“The Board also stated: ‘Knauf . . . has launched a campaign to encourage you to vote against USG’s Board nominees. Knauf is doing this in support of its $42 per share propos al to acquire USG . . . .’”). 272 Sherwood v. Ngon , 2011 WL 6355209, at *10 (Del. Ch. Dec. 20, 2011) (quoting Marcel Kahan & Edward Rock, The Insignificance of Proxy Access , 97 Va. L. Rev. 1347, 1419 (2011)). 273 Am. Compl., ¶ 140 (“Berkshire Hathaway, a long

- term USG shareholder with an approximately 31% ownership stake . . . has publicly stated its intention to VOTE AGAINST USG’s four director nominees.” (capitalization in original)).60

conceivable that the Proxy Statement did not disclose the effect of Berkshire Hathaway’s desire to exit its investment on the Board’s decision to app rove the Acquisition. The Plaintiffs also contend that the Proxy Statement only disclosed that a delay in negotiations “could result in Knauf potentially . . . commencing a hostile tender offer to acquire [USG] at a lower price,” when the Plaintiffs allege that the
Board knew as a certainty that Knauf would launch a hostile tender offer because Mr. Knauf told Scanlon that “should Knauf and USG not be able to reach agreement, Knauf did not intend to stop pursuing an acquisition of USG.” 274 But it is not

reaso nably conceivable that the Board knew as a certainty that Knauf would launch a hostile tender offer, 275 and, nevertheless, the Amended Complaint “ alleges no facts suggesting that the undisclosed information is inconsistent with, or otherwise significantly di ffers from, the disclosed information .” 276 What the Proxy Statement
disclosed

—

that failure to approve the Acquisition could result in Knauf launching a
hostile tender offer

— does not materially differ from Mr. Knauf’s alleged statement made in the midst of t ense negotiations. Consequently, it is not reasonably
conceivable that there was a material omission in the Proxy Statement with regard

to the prospect of a hostile tender offer by Knauf

.

274 Proxy Statement, at 45 (emphasis added); Am. Compl., ¶ 165. 275 There is no allegation that any Board member is a clairvoyant. 276 Skeen v. Jo

-

Ann Stores, Inc. , 750 A.2d 1170, 1174 (Del. 2000).61

Remaining of the Plaintiffs’ allegations regarding omission s of the Board’s
motive s is the Board’s consideration of whether , absent the transaction, Knauf “would be obligated to vote for [USG’s] director nominees at the next an nual meeting.” 277 But it is unclear what e ffect the Amended Complaint alleges the Board’s consideration of an upcoming stockholder meeting had on its motive s to approve the Acquisition, and to the extent it was tied to Knauf’s ability to engage in
further hostilities , that was disclosed. It is not reasonably conceivable that disclosing whether Knauf would have supported the Board’s nominees at the following year’s annual meeting would have “ been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available,” when the Proxy Statement already disclosed the possibility that Knauf would go hostile if the
stockholders did not immediately approve the Acquisition. 278 It is clear from the Proxy Statement that in recommen ding that USG’s stockhold ers approve the Acquisition the Board considered and disclosed the possibility of future hostilities
between itself and Knauf.

277 Am. Compl., ¶ 171. 278 Morrison v. Berry , 191 A.3d 268, 283 (Del. 2018) ( quoting Rosenblatt v. Getty Oil Co

. , 493 A.2d 929, 944 (Del. 1985) ).62 3. Banker Analyses The final alleged nondisclosure is the banker analyses that informed the Board’s decision to reject Knauf’s $42.00 per share offer as “wholly inadequate.” 279 Specifically, the Plaintiffs contend that these preliminary analyses showed that the $42.00 per sha re proposal was at the low end of the analyses’ DCF valuations, below the average for premium analyses, and did not appear to account for lower corporate

tax rates. 280 But the Board was only required to provide a “fair summary of the substantive work perfo rmed by the investment bankers upon whose advice the recommendations of their board as to how to vote on a merger or tender rely .” 281 T he Proxy Statement
did provide a fair summary of the preliminary analyses, and regardless the financial analyses underlyin g the Board’s recommendation that USG’s stockholders approve the Acquisition 282 were disclosed in a manner that the Plaintiffs do not challenge.
The Plaintiffs attempt to fit the square peg of the facts alleged here into the
round hole of Clements v. Rodgers , 283 which involved two analyses where the latter was “more pessimistic,” and there was a plausible inference “that the [valuations] changed in order to justify a bargaining outcome.” 284 Conversely, there is no

279 Am. Compl., ¶¶ 100

– 02. 280 Id . ¶ 100. 281 In re Pure Res., Inc., S’ holders Litig. , 808 A.2d 421, 449 (Del. Ch. 2002). 282 Proxy Statement, at 36, 50

– 63. 283 790 A.2d 1222 (Del. Ch. 2001). 284 Id . at 1243

.63

allegation here that the analyses underlying the Acquisition were fudged to support the Board’s desired

- for outcome, nor any allegation from which I can reasonably infer that differences that could have existed between the preliminary and final analyses were pretense. Consequently, it is not reasonably conceivable that material facts were not disclosed regarding the preliminary banker analyses.
C. The Plaintiffs Have Not Adequately Pled a Non

- Exculpated Claim for Breach of Fiduciary Duty Because t here is a rational inference that USG’s stockholder vote was not fully informed, Corwin is inapplicable, and the Plaintiffs are entitled to a review of whether they have adequately pled breach of fiduciary duty claims against USG’s
directors

. USG’s Restat ed Certificate of Incorporation (the “Charter”) contains an exculpatory provision under 8 Del. C. § 102(b)(7) that insulates the Defendants from liability for violations of their duty of care. 285 Consequently, under In re Cornerstone Therapeutics Inc. Stock holder Litigation , 286 the Plaintiffs must plead a

non - exculpated breach of fiduciary duty claim , that is, one that implicates the Defendants’ duty of loyalty

. 287 “This ‘ rule applies regardless of the underlying
standard of review for the transaction. ’ ” 288

285 Defs.’ Opening Br., Ex. E., at Article Eleventh. I ta ke judicial notice of USG’s Charter. 286 115 A.3d 1173 (Del. 2015). 287 Id . at 1179

– 80. 288 Reith v. Lichtenstein , 2019 WL 2714065, at *18 (Del. Ch. June 28, 2019) (quoting Cor nerstone , 115 A.3d at 1179).64

To plead a non - exculpated claim sufficient to survive this M otion to D ismiss,
the Plaintiffs must plead facts “ supporting a rationa l inference that the director[s]
harbored self

- inter est adverse to the stockholders’ interests, acted to advance the
self

- int erest of an interested party from whom they could not be presumed to act independently, or acted in bad faith. ’ ” 289 A “ plaintiff must [adequately plead] a loyalty breach against each individual director; so

- called ‘group pleading’ will not
suffice .” 290
The Pl aintiffs allege that the Board breached its duty of loyalty because it lacked independence and was interested in the Acquisition . The Plaintiffs also
contend that the Board otherwise acted in bad faith in approving the Acquisition.
But , to my mind, i t is not reasonably conceivable under the facts pled that the Board
breached a non

- exculpated duty, and consequently the Plaintiffs’ claims must be
dismissed.
1. It is Not Reasonably Conceivable that the Board Lacked

Independence or Was Interested in the Acquisit ion Other than by pleading bad faith (which I address, infra ) , a plaintiff can plead

a non - exculpated breach of duty by pleading facts from which it is reasonably

289 C ornerstone , 115 A.3d at 1179

– 80. 290 Reith , 2019 WL 2714065 , at *18 (quoting In re T angoe, Inc. S’holders Litig. , 2018 WL 6074435, at *12 (Del. Ch. Nov. 20, 2018)).65

conceivable that the defendants lacked independence or were interested in the
transaction. 291
“Ind ependence means that a director’ s decision is based on the corporate merits of the subject before the board rather than extraneous considerations or
influences. ” 292 “ Establishing a lack of independence requires pleading allegations
that the directors a re beholden to the [interested party] or so under [its] influence that their discretion would be sterilized.” 293 The Plaintiffs allege that the Defendant
Board members lacked independence from Knauf because of their alleged fear of
Knauf

. The Plaintiffs con tend that after Knauf succeeded in its Withhold Campaign, the Board abandoned its standalone plan for USG, rushed or abandoned other potential buyers, and acceded to the Acquisition even though it had “misgivings”
about the deal

. 294 But the Plaintiffs alleg e no facts from which it can be reasonably inferred that the Board’s actions were the result of anything other than the corporate merits of the subject. The Plaintiffs simply argue that the Board’s actions “have little rational explanation other than fear of Knauf.” 295 But “Delaware law presumes

291 Morrison v. Berry , 2019 WL 7369431, at *13 (Del. Ch. Dec. 31, 2019). 292 In re Crimson Expl. Inc. S’ holder Litig. , 2014 WL 5449419, at *21 (Del. Ch. Oct. 24, 2014) (quoting Aronson v. Lewis , 473 A.2d 805 , 816 (Del. 1984) )

. 293 Id . (quoting Rales v. Blasband , 634 A.2d 927, 936 (Del. 1993) ) (internal quotation marks omitted)

. 294 Am. Compl., ¶ 8; see Pls.’ Opp’n Br., at 52

. 295 Pls.’ Opp’n Br., at 52.66

the independence of corporate directors,” and the Plaintiffs must overcome the presumption by alleging facts as to Board’s lack of independence. 296 The Plaintiffs ’ conclusory allegation that no other explanation exis ts for the Board’s actions is insufficient to carry their burden. 297 That the Board chose to approve the Acquisition three months after it had told Knauf that its $42.00 proposal was “wholly inadequate” and that the Board was “highly focused on the intrinsi c value of [ its ] long

- term strategic plan and measuring that against [$42.00 per share]” 298 is insufficient to reasonably infer lack of independence because the Plaintiffs offer no reasonable basis from which to conclude that the Board’s d ecision to acc ept the later $44.00 offer was the result of “extraneous considerations or influences.” 299 Again,
it is the Plaintiffs’ burden to plead lack of independence. 300 Additionally , to my mind it is not clear how “fear” evinces lack of independence when such fear, as alleged, results from a withhold campaign that the Board vigorously contested . The Plaintiffs fail to allege facts that show the Board simpl y capitulated after its defeat; on the contrary the Proxy Statement reflect s

296 In re KKR Fin. Holdings LLC S’ holder Litig. , 101 A.3d 980, 995 (Del. Ch. 2014). 297 Pfeffer v. Redstone , 965 A.2d 676, 685 (Del. 2009) (“[C] onclusory allegations need not be treated as true, nor should inferences be drawn unless they truly are reasonable. ” (quoting Feldman v. Cutaia , 951 A.2d 727, 731 (Del. 2008) )). 298 Am. Compl., ¶ 112; 299 In re Crimson Expl. Inc. S’ holder Litig. , 2014 WL 5449419, at *21 (Del. Ch. Oct. 24, 2014) (quoting Aronson v. Lewis , 473 A.2d 805 , 816 (Del. 1 984) ). 300 Actions inexplicable as a matter of business judgment, of course, may be relevant to allegations of lack of good faith, a matter addressed, infra

.67

robust negotiations between USG and Knauf in May and June of 2 018. 301 The only reasonable inference is that any influence that Knauf had on the Board resulted from quotidian calculations of corporate interest, not a d isabling lack on independence. “Fear” of a corporate takeover threat

— here fully just ified after Knauf’s resounding

w ithhold victory

— is a nod to reality, not a disabling extraneous influence

. For these reasons, it is not reasonably conceivable that the Board lac ked independence from
Knauf. The Plaintiffs also attempt to plead a non

- exculpated claim by inv oking the Defendants’ alleged interestedness in the Acquisition

. The Plaintiffs plead that all
Defendants other than Scanlon

— that is, all eight of USG’s Board members other than USG’s CEO (the “Non

- Scanlon Defendants”)

— were interested in the Acquisition b ecause a public ouster by Knauf would have imperiled their other business and career interests, which they were not willing to sacrifice in light of their relatively small financial interest in a higher sale price. If adequately pled, such a
claim would s urvive the Defendants’ Motion to Dismiss because “[w]hen entire
fairness is invoked at the pleading stage, the plaintiffs will be able to survive a motion to dismiss by interested parties regardless of the presence of an exculpatory

301 E.g. Am. Compl., ¶¶ 164 (“Mr. Knauf rejected the Company’s $50.00 per share counterproposal and indicated that Knauf was willing to increase its proposed price per share to $43.50 . . . Defendants Scanlon and Leer . . . indicated that they believe d that the Board may be willing to support a sale as low as $47.00 per share.”), 170 (“On June 5, 2018, Mr. Knauf delivered by email a revised written proposal, together with a markup of the merger agreement, in which he communicated Knauf’s ‘best and fina l’ offer of $44.00 per share.”).68

charter provision becau se their conflicts of interest support a pleading

- stage inference of disloyalty .” 302 “ Intereste dness means that the directors ‘ appear on both sides of a transaction [or] expect to derive any personal benefit from it in the sense
of self

- dealing, as opposed to a benefit which devolves upon the corporation or all stockholders genera lly.’” 303 That the extraneous “ benefit ” here is actually the avoidance of a detriment is of no moment to the analysis. The Defendant directors must be considered individually in determining whether they were interested in the Acquisition in breach of their duty of loyalty

. 304
The Amended Comp laint details the other business interests and positions of
the Non

- Scanlon Defendants which the Plaintiffs contend made the Non

- Scanlon Defendants interested in the Acquisition. They include director and officer positions at other public companies, and b oard positions at nonprofit organizations. 305 Though the Defendants must be considered individually, it suffices to say that the Plaintiffs’ argument w ith respect to each of the Non

- Scanlon Defendants ’ interest in the Acquisition (given their various reputational interests) is identical. The Plaintiffs allege that each of the Non

- Scanlon Defendants faced an “inherent positional

302 In re Straight Path Commc’ns Inc. Consol. S’holder Litig. , 2018 WL 3120804, at *19 n.244 (Del. Ch. June 25, 2018) (quoting In re Cornerstone Therapeutics Inc. S’ holder Litig. , 115 A.3d 1173, 1180

– 81 (Del. 2015)). 303 Crimson , 2014 WL 5449419, at *21 (quoting Aronson , 473 A.2d at 812)

. 304 Cor nerstone , 115 A.3d at 1182 (“[E] ach director has a right to be considered individually when the directors face claims for damages in a suit challenging board action. ”). 305 Am. Compl., ¶ 186.69

conflict” regarding the Acquisition because they had much to lose from a “potentially career

- ending and reputation killing proxy fight loss,” little to gain from standing up to Knauf, and the Acquisition af forded them a liquidity event in the sale of their equity interests in USG. 306
The Plaintiffs’ principal argument is that Non

- Scanlon Defendants capitulated

to Knauf because Knauf had made it known they would not stop pursuing an acquisition of USG, and a pr oxy fight loss would damage their other business interests, positions in other companies, and memberships on other public boards. 307 Quoting at length a law review article by then

- Chief Justice Strine, the Plaintiffs
contend that independent directors

— such as th e Non

- Scanlon Defendants

— are “highly sensitive to resisting institutional campaigns at any company on whose board they serve for fear that they will be targeted for withhold campaigns at all companies with which they are affiliated.” 308 Regardless of the merits of Chief Justice Strine’s argument , it is simply not applicable here. Un der the facts all eged, it is not reasonably conceivable that the
Non

- Scanlon Defendants capitulated to K nauf in selfish defense of their outside reputational interests because USG’s directo rs had already lost a public fight with

306 Id . ¶¶ 186

– 91; see Pls.’ Opp’n Br., at 53. 307 See Am. Compl., ¶ 186. 308 Pls.’ Opp’n Br., at 55 (quoting Leo E. Strine, Jr., Who Bleeds When the Wolves Bite?: A Flesh

and

- Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System , 126 Yale L.J. 1870, 1926 (2017)).70

Knauf

. W ithhold votes were first proposed by Professor Grundfest as a referendum on managerial performance , and they “represent an important form of shareholder activism.” 309 The Amended Complaint recounts at length the publicity surrounding the Withhold Campaign, including Warren Buffett ’s public opposition to the Board , and that both ISS and Glass Lewis supported Knauf. Thus, the Board had already lost exactly the type of public fight that the Plaintiffs contend ma d e the Board
interested. 310 In fact, the Plaintiffs plead that in the midst of the Withhold Campaign, Knauf “threat[ened]” that the Board “would surely want resolution [on a deal] prior to the annual meeting of stockholders scheduled for May 9, 2018, to av oid a vote against
the C ompany’s four director nominees.” 311 That is, Knauf alluded to the Defendants’ opportunity to take the path that the Plaintiffs suggest amounts to a breach of the duty of loyalty. But the Board declined this course of action , instea d proceeding with negotiations on a more measured timeline , thereby a ccepting the reputational
harm of a n institutional campaign defeat i n order to continue to pursue the corporate
interest

.

309 Marcel Kahan & Edward Rock, The Insignificance of Proxy Access , 97 Va. L. Rev. 1347, 1358, 1374 (2011). 310 Pope Clement VII learned in dealing with Henry VIII that excommunication is a tool that loses its e dge after it is emp loyed. It is the same with withhold campaigns, I presume. 311 Am. Compl., ¶ 156 (internal quotation marks omitted).71

Likewise, the Plaintiffs ask me to draw the inference that the Non

- Scanlon
Defendants “ for the purpose of protecting their reputations as fiduciaries, breached their fiduciary duties, risking the far greater blackening of their fiduciary reputations .” 312 Ironic if true. This sounds like a misplaced motivation, because , I believe it is. Given the cir cumstances alleged by the Plaintiffs, it is not reasonably
conceivable that the Non

- Scanlon Defendants capitulated to Knauf to protect their reputations , after the Withhold Campaign ’ s success, when any reputational loss that could come from a public loss to Knauf had already occurred.
The Plaint iffs’ remaining allegations regarding the interestedness of the Non

Scanlon Defendants are likewise not reasonably conceivable. The Plaintiffs allege
that the Non

- Scanlon Defendants did not have enough of a financial interest to push Knauf for a better pr ice but at the same time had enough pecuniary interest in a liquidity event such that they were interested in the Acquisition. But this Court has
held that “[w] hen dir ectors or their affiliates own ‘material’ amounts of common stock, it aligns their inter ests with other stockholders by giving them a ‘motivation to seek the highest price’ and the ‘ personal incentive as stockholders to think about
the tradeoff between selling now and the risks of not doing so.’” 313 The Non

- Scanlon
Defendants ’ personal financi al interest in liquidating their USG stock thus aligned

312 Morrison v. Berry , 2019 WL 7369431, at *14 (Del. Ch. Dec. 31, 2019). 313 Chen v. Howard

-

Anderson , 87 A.3d 648, 671 (Del. Ch. 2014) (quoting I n re Dollar Thrifty S’ holder Litig. , 14 A.3d 573, 600 (Del. Ch. 2010) )

.72

their interests with stockholders and they did not receive a benefit in that regard other
than “ a benefit which devolves upon the corporation or all stockholders
genera lly. ” 314 Given that it is not rea sonably conceivable that the Non

- Scanlon Defendants were interested in the Acquisition due to their fear of a public loss to Knauf, it is likewise not reasonably conceivable that the personal give of pushing for a higher price ( i.e. putting their reputatio ns on the line) was not worth the get (in the form of increased consideration). 315 Consequently, it is not reasonably
conceivable that the Non

- Scanlon Defendants’ incentives were akilter, nor that they were interested in the Acquisition. I note that the Amended Complaint is silent with respect to any individual director’s need for “fire sale” liquidity, nor does the lengthy resistance to Knauf indicate it is reasonably conceivable. With regard to Scanlon , the Plaintiffs simply allege t hat she stood to receive a more than $36 million “golden parachute” in connection with the Acquisition. 316
But I need not address whether Scanlon was interested in the Acquisition ; s ince the Plaintiffs have not pled facts from which it is reasonably conceivable that a majority

314 Aronson v. Lewis , 473 A.2d 805 , 812 (Del. 1984) ; accord Chen , 87 A.3d at 6 71 (“ If the decision is made to sell, ‘ [a] director who is also a shareholder of his corporation is more likely to have interests that are aligned with the other shareholders of that corporation as it is in his best interest, as a shareholder, to negotiate a transaction that will result in the large st return for all shareholders.’” (quoting Orman v. Cullman , 794 A.2d 5, 27 n. 56 (Del. Ch. 2002 ))). 315 Notwithstanding the Plaintiffs ’ allegation that the Defendants owned relatively little USG stock, Am. Compl., ¶ 188, because there was no further threat of reputational harm, they faced only the upside of increased consideration for their USG stock. 316 Id . ¶ 190.73

of the Board was interested in the Acquisition , i t is not reasonably conceivable that the Acquisition would be subject to entire fairness due to the interestedness of
S canlon alone

. 317 Consequently, there can be no pleading

- stage inference of disloyalty in this regard , and the Plaintiffs’ allegations of inter estedness are
insufficient to state a non

- exculpated claim for breach of fiduciary duty

.

2. It is Not Reasonably Conceivable that the Defendants Acted in Bad Faith Other than pleading lack of independence or interestedness, the Plaintiffs can survive the Defendants’ Motion to Dismiss by pleading facts supporting a rational
inference that the Defendants acted in bad faith. 318 “A director acts in bad faith
where he or s he ‘intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his or her duti es.’ ” 319 “ A demonstration of bad faith requires acts or omissions taken against the interest of [USG] , with
scienter. ” 320

317 City of Miami Gen. Emps.’ & Sanitation Emps.’ Ret. Tr. v. Comstock , 2016 WL 4464156, at *18 (Del. Ch. Aug. 24, 2016) (“ If a plaintiff alleging a duty of loyalty breach is unable to plead facts demonstrating that a majority of a board that approved the transaction in dispute was interested and/or lacked independence, the entire fairness standard of review is not applied and the Court respects the business judgment of the board.” (quoting Orman , 794 A.2d at 23 )). 318 In re Cor

nerstone Therapeutics Inc. S’ holder Litig. , 115 A.3d 1173, 1180 (Del. 2015). 319 van der Fluit v. Yates , 2017 WL 5953514, at *8 (Del. Ch. Nov. 30, 2017) (quoting In re Answers Corp. S’ holder Litig. , 2012 WL 1253072, at *7 (Del. Ch. Apr. 11, 20 12) )

. 320 Morrison v. Berry , 2019 WL 7369431, at *14 (Del. Ch. Dec. 31, 2019).74 a. Omissions in the Proxy Statement The Plaintiffs suggest that the material non

- disclosure of the Board’s view of intrinsic value (and its consequent “misgivings” about the Acquisition) give rise to

an inference of bad faith. This non

- disclosure, of course, permitte d the Plaintiffs to plead around Corwin

. In contrast with the required showing to plead around Corwin , a plead ing of bad faith “requires a pleading of facts with respect to the [ maldisclosu res] from which I may reasonably infer breach of the duty of loyalty, and not simply adequate pleading of a [ maldisclosure ]

. ” 321 A n adequate pleading of bad faith must plead that
the m aldisclosure was “ intentional and constitute [d] more than an error of judgment or gross negligence. ” 322 This standard is entirely distinct from the req uired pleading
to show an uninformed vote under Corwin , which merely requires that the complaint

“ when fairly read, supports a rational inference that material facts were not disclosed or that the disclosed information was otherwise materially misleading. ” 323 Nowhere
does the standard for pleading a material non

- disclosure or materially misleading
disclosure under Corwin refer to, or incorporate, any inquiry regarding knowledge and purpose of the non

- disclosure. The focus is on the stockholder

- reader, not t he

321 Id . at *18 (Del. Ch. Dec. 31, 2019) (citing Nguyen v. Barrett , 2016 WL 5404095, at *3 (Del. Ch. Sept. 28, 2016) ). 322 Id

. 323 Morrison v. Berry , 191 A.3d 268, 282 (Del. 2018).75

drafter

. But when analyzing bad faith, the creator is the crux of the analysis, and the why is the locus of the inquiry

. 324 Consequently , even if allegations of omissions or misleading disclosures are sufficient to preclude business judgment review under
Corwin , where the same omissions or misleading disclosures are pled as evincing
bad faith , the pleading is subject to a finer

- tooth ed comb

— that of scienter

— which
is among our law’s most straightened

. 325 To plead bad faith bas ed on the non

disclosure of the Board’s view of USG’s intrinsic value , the Plaintiffs must plead
that the Defendant directors intentionally withheld their view of intrinsic value i n conscious disregard of their fiduciary duti es. 326
The Plaintiffs ’ allegations of bad faith omissions intimate that the Board did
not disclose its view of USG’s intrinsic value so that USG’s stockholders would approve a transaction that the Board did not believe offered USG’s stockholders fair
value. But as noted, supra , it is not reasonably conceivable that the Board lacked independence or was interested in the Acquisition, and so there is no reasonable inference that the disclosure deficiency emanated from extraneous influences or

324 Ironworkers Dist. Council of Philadelphia & Vicinity Ret. & Pension Plan v. Andreotti , 2015 WL 2270673, at *27 n.257 (Del. Ch. May 8, 2015), aff’d 132 A.3d 748 (Del. 2016) ( T ABLE ) (noting the role of motive in determining whether bad faith is adequately pl ed). 325 Mesirov v. Enbridge Energy Co., Inc. , 2018 WL 4182204, at *13 (Del. Ch. Aug. 29, 2018) (“ The scienter pleading requirement is among the most difficult in our law to satisfy. ” (citing RBC Capital Mkts. , LLC v. Jervis , 129 A.3d 816, 862 (Del. 2015))). 326 van der Fluit v. Yates , 2017 WL 5953514, at *8 (Del. Ch. Nov. 30, 2017)

.76

considerations

. The Plaintiffs thus m ust allege bad faith “in the disclosures themselves.” 327 Of course, the Board’s view of intrinsic value

— $50 .00 as alleged by the
Plaintiffs

— is not the same as the $44.00 per share deal price. At the same time, t he Proxy Statement disclosed that “[t ] he Board considered that [$44.00 per share] was more favorable to our stockholders than the potential value that would reasonably be expected to result from other alternatives available to [USG], including the continued operation of the [USG] on a standalone basis and other potential actionable strategic transactions, in light of a number of factors.” 328 Thus, as t he Board told it, consideration of whether the deal price wa s favorable was influenced by many considerations, including considerations external to the operations of USG’s business. This is unsurprising to any market observer. Assuming that the Defendant directors believed intrinsic value to be $50 .00 , in isolation their state ment that $44 .00 is higher than the “reasonably . . . expected” value of continued operations on a “standalone basis,” appears inconsistent. That inconsistency tends to disappear in light of the threat of hostile action should the “standalone” option be p ursued; it certainly does not create a reasonable inference
of bad faith.

327 Morrison , 2019 WL 7369431, at *18. 328 Proxy Statement, at 45.77

Considering the other disclosures in the Proxy Statement, it is not reasonably conceivable that the Proxy Statement “represents the knowingly

- crafted deceit or knowing indifference t o duty that would show bad faith .” 329 The Proxy Statement
disclosed that the Board initially approved Scanlon to begin negotiations with USG within a range of $48 .00 to $51 .00

. 330 Thus, it was no secret to USG’s stockholders that the Board preferred to sell USG for more than $44.00 per share . Moreover, the Proxy Statement disclosed that the approval of that negotiation range was informed by the Board’s view of intrinsic value, and that the Board’s view of intrinsic value was itself informed by information ga thered from USG’s management and
bankers. 331 Further, notably, the Board’s approval of the negotiating range occurred after it was obvious that the Withhold Campaign would succeed. At that point,

329 Morrison , 2019 WL 7369431, at *18. 330 Proxy Statement, at 40. 331 Id . at 36 (“Representatives of Goldman Sachs reviewed with the Board the key terms in the revised proposal from Knauf. Goldman Sachs also reviewed changes to certain financial analyses since December 2017, noting that since then there had been an increase in the Company’s 52

- week high stock price, a s well as an increase in the median and highest analyst target stock prices. The discussion then turned to a review by Goldman Sachs and J.P. Morgan of their preliminary financial analyses and certain inputs that had changed since December 2017 based on m arket changes and other factors, including the passage of U.S. tax reform.”) (“The Board then discussed with the Company’s senior management and representatives of Jones Day, Goldman Sachs and J.P. Morgan the possible responses to Knauf’s revised proposal and methods to give Knauf additional direction that could cause Knauf to meaningfully improve its proposal to better reflect the Company’s intrinsic value, including the strategy of rejecting Knauf’s offer so that Knauf would further increase its proposal. ”) (“The Board authorized Ms. Scanlon to send a written response to Knauf rejecting the current $42.00 proposal, while also providing additional information regarding the elements of the Company’s business plan that the Board believed supported a higher in trinsic value for the Company.”), 37 (“Ms. Scanlon again reiterated that the Board would engage around any bona fide proposal that reflects the Company’s intrinsic value, and offered to have a meeting between the respective financial advisors to discuss th e Company’s views on value.”).78

hostile action absent a negotiated t ransaction was likely, and the Board’s position with respect to negotiations needed to be reasonable to avoid such hostile action. In that context, the only reasonable inference is that the Board’s approv al of a $48 .00

to $51 .00 negotiating range represented its view of a realistic transaction price, not an overblown opening gambit that risked driving Knauf away, as such a position could have been catastrophic to a negotiated (rather than hostile) transactio n. The fact that the Board disclosed this range in the P roxy Statement belies any bad faith attempt to conceal “intrinsic value”; a stockholder reading the P roxy Statement
would be well aware that the d irectors believe d a sale should occur in the $48 .00 to $51 .00 range, although t he Board was unable to achieve such a price. Moreover, it is not reasonably conceivab le that the d irectors would have
demonstrated a conscious indifference to t heir fiduciary duties by not disclosing
their view of intrinsic value, while at the same time disclosing to USG’s stockholders
that t he Board had chosen not to make that very disclosure

. 332 It is ne ar inconceivable ( and thus not r easonably conceivable) that a n independent and
disinterested Board acting disloyally would have profess ed its bad faith to USG’s
stockholders in the Proxy Statement. While I may infer that the Proxy Stateme nt

332 Id . at 40 (“The Board also authorized Ms. Scanlon to begin negotiations on value within a range of $48.00 and $51.00 per share and discussed the pros and cons of issuing a public statement regarding the Board’s view of intr insic value, but decided not to issue such a statement .” (emphasis added)).79

negligently failed to inform USG’s stockholders of the Board’s view of USG’s intrinsic value, in light of the other disclosures made, it is not re asonably conceivable
that such non

- disclosure rises to the level of conscious disregard of duty.

b. Revlon Cla im Finally, the Plaintiffs argue that the sales process was not reasonable, and that the Defendants failed to comply with duties im posed under Revlon

. 333 The Plaintiffs maintain that, even if they have not pled a non

- exculpated breach of loyalty, they may nonetheless survive this Rule 12(b)(6) Motion to Dismiss if they have pled facts by which I may reasonably infer the Defendant d irectors have breached their “ Revlon duties.” That is, they assert that a freestanding “ Revlon claim” for damages has been adequately been pled against the Defendant d irectors. Describing the duties of directors in way of a control transaction as “ Revlon duties,” to my mind, is something of a misnomer; the fiduciary duties are loyalty and care, in any situation

— the specific situation, however, dictates the actions required for fulfilment of those duties. Accordingly, where a board decides to sell the com pany and thus terminate stockholder ownership, the director’s fiduciary duties mandate that they concentrate on securing the best price. Put differently, to comply with Revlon , “when a board engages in a change of control transaction, it must not take actions inconsistent with

333 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. , 506 A.2d 173 (Del. 1986).80

achieving the highest immediate value reasonably attainable.” 334 There is no dispute that the Acquisition constituted a change of control triggering Revlon and that

“ Revlon can provide a contextual inquiry about whether the [] Defendants’ choices

were ‘ reasonable under the circumstances as a good faith attempt to secure the highest value reasonably attainable. ’ ” 335 The Plaintiffs argue that it follows, that if it is reasonably conceivable that the Defendants’ actions regarding the Acquisitio n were less than reasonable, the Motion to Dismiss must be denied. I disagree. Revlon “duties” should not be confused with the Revlon standard of review , applicable principally outside the damages context, under which directors must act reasonably. 336 The Revlon dir ective that the Defendant d irectors, having made a decision to sell, must focus on price, does not alter the Plaintiffs’ pleading burden here. The Plaintiffs seek only post

- closing money damages in this A ction. As our Supreme Court has noted, Revlon “[was ] not [a] tool[] designed with post

- closing money damages claims in mind, the standards [it] articulate[s] do not match the gross negligence standard for director due care liability under Van Gorkom , and with the prevalence of exculpatory charter provision s, due care liability [itself] is rarely even

334 C & J Energy Servs., Inc. v. City of Miami Gen. Emps. ’ & Sanitation Emps.’ Ret. Tr. , 107 A.3d 10 49, 1067 (Del. 2014) (citing Revlon , 506 A.2d at 182). 335 Morrison v. Berry , 2019 WL 7369431, at *15 (Del. Ch. Dec. 31, 2019) (quoting RBC Capital M kts. , LLC v. Jervis , 129 A.3d 816, 849 (Del. 2015) ). 336 For instance, a showing that directors have constructed an unreasonable sales process can support pre

- merger injunctive relief. See e.g. In re Del Monte Foods Co. S ’ holders Litig. , 25 A.3d 813 (Del. Ch. 2011)

.81

available.” 337 So it is here; under USG’s Charter , the Defendants are exculpated from damages for all but loyalty breaches. Consequently, although “ Revlon can provide a contextual inquiry about whether the [] Defendants’ choices were reasonable under the circumstances as a good faith attempt to secure the highest value reasonably attainable,” the Plaintiffs still bear the burden to plead a non

- exculpated claim. 338 Therefore, an allegation impl ying that a D efenda nt failed to satisfy Revlon is insufficient on its own to plead

a non - exculpated breach of the duty of loyalty, 339 and a sufficient pleading must reasonably imply that the directors’ failure to act reasonably to maximize price was tainted by interestedness or bad faith. 340 “In the context of a sale of corporate control, bad faith is qualitatively different from ‘an inadequate or flawed effort’ to

337 Corwin v. KKR Fin. Holdings LLC , 125 A.3d 304, 312 (Del. 2015) (citing Smith v. Van Gorkom , 488 A.2d 858 (Del. 1985)). 338 Morrison , 2019 WL 7369431, at *15 (quoting RBC , 129 A.3d at 849) (internal quotation marks omitted). 339 See In re Essendant, Inc. S’holder Litig. , 2019 WL 7290944, at *17 (Del. C h. Dec. 30, 2019) (“In this regard, I have already determined that Plaintiffs have failed to plead viable breach of fiduciary duty claims against the Essendant Board. But that determination was in the context of, and informed by, Essendant’s Section 102(b )(7) charter provision; in other words, the focus was on whether the Complaint contained well

- pled allegations of a loyalty breach. There remains a possibility that Plaintiffs have well pled a breach of the Essendant Board’s Revlon duties flowing from the duty of care . . . .” (footnotes omitted)). 340 See Morrison , 2019 WL 7369431, at *15 (“In this context, such a pleading requires the Plaintiff to show that it is reasonably conceivable that the Director Defendants knowingly chose to ignore their duty once a sale process was commenced; to maximize stockholder value.”); In re Saba Software, Inc. S’holder Litig ., 2017 WL 1201108, at *20 (Del. Ch. Mar. 31, 2017) (“In light of the exculpatory provision, to state an actionable Revlon claim, Plaintiff must plead t hat the Individual Defendants consciously disregarded their duties, ‘knowingly and completely failed to undertake their responsibilities,’ and ‘utterly failed to attempt to obtain the best sale price.’” (quoting Lyondell Chem. Co. v. Ryan , 970 A.2d 235, 24 3

– 44 (Del. 2009))); Chester Cty. Emps.’ Ret. Fund v. KCG Holdings, Inc. , 2019 WL 2564093, at *16 (Del. Ch. June 21, 2019).82

obtain the highest value reasonably available for a corporation.” 341 Moreover, absent sufficient allegation of dire ctors’ “improper intent, a plaintiff must point to ‘a decision [that] lacked any rationally conceivable basis’ associated with maximizing stockholder value to survive a motion to dismiss.” 342 The Plaintiffs set forth copious allegations d esign ed to demonstrate the unreasonableness of the Board’s sales process. These include that after Knauf’s successful Withhold Campaign, the Board abandoned USG’s standalone plan and undertook a sale, that the Board rushed the sale and/or abandoned other bidders, and
that the Board ultimately capitulated to a sale to Knauf at only $44 .00 when it had repeatedly stated that Knauf’s takeover attempts at $42.00 per share undervalued USG, were opportunistic, and did not compensate all stockholders for USG’s
intrinsic value.
But for the P laintiffs to adequately plead a non

- exculpated breach of duty, they must not only allege that the Board’s sales process was unreasonable, they must also allege that the Board’s alleged failure to run a Revlon

- compliant sales process was an “ intentional fai lure or a conscious disregard of the duty to seek the highest price reasonably available.” 343 Importantly, where (as here) the re is no adequate pleading of conflicted interests or lack of independence on the part of the directors,

341 Essendant , 2019 WL 7290944, at *13 (quoting Lyondell , 970 A.2d at 243). 342 Id . (quoting Chen v. Howard

- Anderson , 87 A.3d 648, 684 (Del. Ch. 2014)). 343 Id

. at *14 (citing Lyondell , 970 A.2d at 243) (emphasis in original).83

the scienter requirement c ompels that “a finding of bad faith should be reserved for situations where ‘the nature of [the director’s] action[s] can in no way be understood as in the corporate interest.’” 344 The Plaintiffs overall gripe is that the Board did not insulate itself from t he pressures of its two largest stockholders and sold at a price less than 5% above an
offer 345 the Board had previously stated “substantially undervalues the Company and is not in the best interest of all of USG’s shareholders.” 346 But, as an initial matter,
the Revlon mandate

—

best price

— did not kick in until the Board began negotiating
to sell USG , 347 so that an analysis under Revlon excludes the Board’s rejection of Knauf’s first two offers and its resistance to the Withhold Campaign.
Is it nonetheless reason ably conceivable that the Defendants acted in bad faith in agreeing to the Acquisition in the aftermath of the Withhold Campaign? The story painted by the Plaintiffs is that after their defeat, the Defendant directors surrendered to Knauf, simply asking K nauf to “pay a small ‘obstinance tax’ . . . that allow[ed] the [B]oard to save face and claim it protected shareholders from a heist.” 348

344 Saba , 2017 WL 1201108, at *20 (quoting In re Chelsea Therapeutics Int’l Ltd. S’holders Litig. , 2016 WL 3044721, at *1 (Del. Ch. May 20, 2016)). 345 $42.00. 346 Am. Comp l., ¶ 112. 347 Lyondell , 970 A.2d at 242 (Del. 2009). In any event, there is no reasonable inference that these actions were in bad faith

— they were intended to resist an offer that the Board, and Plaintiffs here, agree was too low. 348 Am. Compl., ¶ 157.84

However, after review of the allegations in the Amended Complaint I find it not reasonably conceivable that the Defendan ts intentionally acted outside of the corporate interest, or intentionally disregarded that interest. After the Withhold Campaign’s success was a foregone conclusion, the Board authorized negotiations within a range t hat includes what the Plaintiff s plead was USG’s actual value. The Amended Complaint pleads no facts from which I can reasonably infer that the negotiation process was a sham or that the Board was not actually seeking a higher price for USG. The Plaintiffs may contend that the Board negotiat ed poorly, perhaps unreasonably, 349 but that alone is insufficient to plead bad faith. 350 “[T]here is a vast difference between an inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those duties.” 351
Given the Board’s situation

— against the ropes after being trounced by its two largest stockholders in the Withhold Campaign

— the Board sought a s ale at a price
above what Knauf had offered. The Board obtained counsel and advice from financial professionals ; 352 sought competin g bids; 353 negotiated for a higher price; 354

349 Be cause a Revlon violation absent bad faith is exculpated from liability, I need not reach, and do not reach, a conclusion as to whether the Defendants ’ actions were unreasonable. 350 See Lyondell , 970 A.2d at 243 (“[T]here are no legally prescribed steps that directors must follow to satisfy their Revlon duties. Thus, the directors’ failure to take any specific steps during the sale process could not have demonstrated a conscious disregard of their duties.”); In re Morton’s Rest. Grp., Inc. S’holders Litig. , 7 4 A.3d 656, 676 n.112 (Del. Ch. 2013). 351 Lyondell , 970 A.2d at 243. 352 Am. Compl., ¶ 155. 353 Id . ¶ 152. 354 Id . ¶ 164.85

and attempted to persuade Knauf that the Board’s view of value was correct. 355 These allegations are a far cry from the “extreme set of facts” necessary to support a reasonable inference that USG’s Board acted in bad faith in its sale process. 356 Ultimately, the Plaintiffs are unsatisfied with the price that resulted from the
Defendants ’ efforts, but as succinctly explained by Vice Chancellor Slights, “criticizing the price at which a board agrees to sell a company, wi thout more, does not a bad a faith claim make.” 357
The Revlon reasonableness standard survives as a pleading standard, in a post

closing action for damages, where a plaintiff alleges liability on the part of a third party who has aided and abetted directors’ breach of the standard. 358 No such liability is alleged here. In order to avoid dismissal, a pleading from which I can merely infer an unreasonable sales process is not enough to overcome an exculpatory clause’s protec tions; to survive, such pleading must reasonably imply breach of a

non - exculpated duty . Even if (exculpated) directors have failed to conduct a reasonable sales process, a viable damages claim based on that process requires well

pled allegations that impl icate the Board’s duty of loyalty. 359 Because the allegations

355 Id

. 356 In re Essendant, Inc. S’holder Litig. , 2019 WL 7290944, at *14 (Del. Ch. Dec. 30, 2019). 357 Id

. 358 See Kahn v. Stern , 183 A.3d 715, at *1 n.4 (Del. 2018) ( T ABLE ). 359 In re Saba Software, Inc. S’holder Litig. , 2017 WL 1201108, at *20 (Del. Ch. Mar. 31, 2017) (“In light of the exculpatory provision, to state an actionable Revlon claim, Plaintiff must plead that the Individual Defendants cons ciously disregarded their duties, ‘knowingly and completely failed to undertake their responsibilities,’ and ‘utterly failed to attempt to obtain the best sale86

here, together with the reasonable inferences therefrom, do not make it reasonably conceivable that the Board acted in bad faith in the sales process, the Plaintiffs have not stated a “ Revlon ” cl aim upon which relief may be granted.
III. CONCLUSION The Defendants’ Motion to Dismiss is GRANTED. The parties should submit a form of order consistent with this Memorandum Opinion.

price.’”); Chester Cty. Emps.’ Ret. Fund v. KCG Holdings, Inc. , 2019 WL 2564093, at *18 (Del. Ch . June 21, 2019) (“The allegations support a pleadings

- stage inference that the Director Defendants breached their duty of care by failing to employ a reasonable process that managed [their financial advisor’s] influence. Whether the Director Defendants’ actions in this regard rose to the level of bad faith or merely state a claim for breach of the duty of care is a close call.”); Morrison v. Berry , 2019 WL 7369431, at *15 (Del. Ch. Dec. 31, 2019) (“More to the point, the Plaintiff must plead facts from wh ich I may reasonably infer that the Director Defendants were aware of these alternatives, understood that they would maximize value, but nonetheless chose instead to act against the interests of the Company and its stockholders.”).