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, Cleveland, Ohio, Attorneys for Defendants.

GLASSCOCK, Vice Chancellor
1

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 have 

moved to dismiss; first, they seek a dismissal 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 fully 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 Defendants’ Motion in reliance on Corwin is rather 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

Directors (the “Board”) had reached a subjective belief 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 cleansed under the Corwin rationale.

This raises the question of what bearing the determination described 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 the duty of loyalty, or its doppelganger bad faith, 

to recover damages.4 It became clear in briefing and at Oral Argument that the 

Plaintiffs make two assumptions that I find unwarranted. The 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 

faith on the part of the Defendant directors for purpose of withstanding a dismissal 

under Rule 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 necessarily 

mutually supportive.

 

4

In re Cornerstone Therapeutics Inc. S’holder 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 directors omitted from a proxy statement the fact that 

they had received a kickback from the buyer, in return for which they cut short a 

sales process. 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 stockholders were told; the 12(b)(6) analysis would focus on the director’s 

allegedly faithless actions. By counterexample, this hypothetical bribe, if fully 

disclosed to the stockholders in way of a non-coercive vote, and in the (unlikely) 

scenario that the stockholders 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

Conversely, posit a situation where the defendant directors have approved and 

submitted 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. Now assume that, via a printer’s error, half the proxies issued 

erroneously give 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 likelihood 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 

otherwise adequately pled bad faith or breach of the duty of loyalty against the 

directors sufficient to withstand 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 preponderance of the evidence at trial. After 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 eliminate agency problems by satisfying Corwin, they may 

seek dismissal on that ground. Then, 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 allegations of the Amended Complaint to see

whether a claim has 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 conceivable as a breach of duty under

Revlon6and 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 directors did not act reasonably with regard to 

achieving maximum value for USG’s stockholders via the Acquisition. In this postclosing damages action, however, the Defendants are exculpated from liability for 

damages by a provision in USG’s charter, absent breach of the duty of loyalty or bad 

faith. Therefore, to plead a claim sufficient to withstand the Defendants’ 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 facts, 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. BACKGROUND7

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 States 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 was 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 through 

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 Plaintiffs’ Verified Amended Class 

Action Complaint, D.I. 78 (the “Amended Complaint” or “Am. Compl.”), and are presumed true 

for the purposes of evaluating 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 November 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 close 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 

Acquisition 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 Sub, 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 between 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 activities including insurance, freight, rail 

transportation, utilities, and consumer goods.

31

 The famed investor Warren Buffett 

is Berkshire Hathaway Inc.’s Chairman and controller.32 Berkshire Hathaway Inc. 

together with its various affiliated entities is collectively referred to 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, and 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 common 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 Reinsurance 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 closed.
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 manufacture and distribute concrete panels throughout Europe and the 

former Soviet Union.38 Knauf began purchasing more 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 explored 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 

declined 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 explored 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 fee 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 purchased 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 into 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 meeting between Knauf’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 Board 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 completed 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 (“Morgan 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 or near $40 per share.55 Indeed, at Berkshire Hathaway Inc.’s 

May 6, 2017 annual stockholder meeting, Warren Buffett 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 term 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 share.61 On October 18, 

2017, Knauf (represented by Mr. Knauf and Grundke) and Berkshire Hathaway 

(represented by Buffett 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 November 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 USG 

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 

Buffett where Buffett acknowledged that Berkshire Hathaway had communicated 

with Knauf’s financial advisors as of that morning—Buffett did not disclose the 

parties’ previous discussions.72 Buffett 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”—Buffett communicated his 

support for an all-cash acquisition and encouraged Scanlon 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 Berkshire 

Hathaway indicated to Knauf that it viewed the Board’s rejection 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 though 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 Grundke 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 later Knauf delivered to 

USG a revised takeover proposal for $42.00 per share.81 The proposal stated: 

“Should 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 

highest 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 ranges 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 The Board further discussed the possibility that Knauf would 

attempt to acquire USG for “less than its intrinsic value” and that Knauf may 

“attempt 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

Berkshire Hathaway 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 Berkshire 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 public 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 option 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 “wholly 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 the 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 an 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 directors 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 with 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, 2018 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 share “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 announcing 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 Leer 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 director 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 accepting 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 litigation.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 the 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 nominees 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 USG 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 adjusted basis in net sales yearover-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 reaffirming 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

Shareholders.”132 The presentation described Knauf’s offer 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 letter 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 accepting 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 potential 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 information 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, and 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 services 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 negotiations 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 

specifically 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 USG 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 announcement 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 USG’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 voted 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, 2018, 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 agreement, 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 believe 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

counteroffer.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 below 

$42.00 per share or pursue an alternative transaction with one of USG’s domestic 

competitors.162 Scanlon 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 event the parties were unable 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 potential 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, Knauf delivered 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 Merger Agreement.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 [absent 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 confidential 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 deal, 

and Knauf communicated that it was “very important 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 executed the Voting Agreement, pursuant to 

which Berkshire Hathaway agreed to vote all of its beneficially owned shares 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 against 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 connection 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 injunction 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 fiduciary 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 stockholder 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 decision 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 entitled to recover under any 

reasonably conceivable set of circumstances susceptible of proof.189

When reviewing a motion to dismiss, the Court may take 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 

Acquisition. 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 by 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 Financial 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) (footnotes 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 

throughout 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 review is invoked because of a vote, dismissal is typically the result. That is because 

the vestigial waste exception has long had little real-world relevance, because it has been 
37

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 rational inference exists, based 

on the facts pled, that the vote was not fully informed 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. In light of USG’s charter’s 8 Del. C. § 102(b)(7) 

exculpatory clause, to survive the Motion to Dismiss the Plaintiffs must plead facts 

making it reasonably conceivable that the Defendant 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 

*13 (Del. Ch. Jan. 30, 2017); In re Solera Holdings, Inc. S’holder Litig., 2017 WL 57839, at *13 

(Del. Ch. Jan. 5, 2017).

193 See In re Rouse Props., Inc. Fiduciary 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, the 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 controller 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 transaction, or is on only one side but ‘competes with the common 

 

195 In re Cornerstone Therapeutics Inc. S’holder Litig., 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 stockholder 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, it is thus only those 

instances where the controller has engaged in a conflicted transaction that Corwin 

necessarily has no application.200 Corwin cannot cleanse such an “inherently 

coercive” transaction because of the concern that “fear 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 if the Plaintiffs 

have adequately alleged Knauf’s controller status.

A stockholder can be found to be a controller under Delaware law where they 

“(1) own[] more than 50% of the voting power of a corporation or (2) own[] less 

than 50% of the voting power of the corporation but exercise[] control over the 

business affairs 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’holders 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; Merge, 2017 WL 395981, at *6; In re Solera Holdings, Inc. 

S’holder Litig., 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 Props., 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 adequately 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 practical matter, are no differently situated than if they 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 course of a particular 

transaction,” and consequently “assume fiduciary duties for 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 transaction 

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 

regard 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 particular 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 

fiduciaries, 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 Broadband Corp., 2017 WL 2352152, at *16 (Del. Ch. May 31, 2017) 

(“To invoke entire fairness, the Complaint must contain well-pled facts ‘demonstrating [the 

stockholder’s] actual control with regard to the particular transaction that is being challenged.’”

(quoting 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., 2018 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

As 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 director nominees makes it not 

reasonably conceivable that prior to the success 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 voting control [of USG].”

212

 

The reason 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 Campaign 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 reference 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 

the 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 the crux of the Plaintiffs’ control claim: is it reasonably 

conceivable that Knauf exercised actual control over USG’s Board with regard to 

the Acquisition between April 30, 2018 and June 10, 2018, the date that the Board 

unanimously approved the Merger Agreement?

The Plaintiffs’ briefing cites to scattershot allegations 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 manifested 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 working together to force the [Acquisition].”217

 

215 Id. ¶ 154 (“Defendant Scanlon also informed the Board that both ISS and Glass Lewis had 

publicly announced 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 Defs.’ Mot. to Dismiss the Verified Am. Class Action Compl., D.I. 95 “(Pls.’ 

Opp’n Br.”), at 47.

217 Id. at 47–48.
44

“Stockholders 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 toward a shared 

goal.”218 But while 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 

foreclosed by my previous findings 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, the Amended Complaint 

offers no contradicting 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) sought 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 omitted).

219 Telephonic Ruling of the Court Re Pls.’ 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 stockholder) 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. Indeed, while there 

are plenty of allegations that the Board (and Knauf) considered Berkshire 

Hathaway’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 public 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’ and Mr. Knauf’s representation to Defendant Scanlon that Knauf expected the support 

of Berkshire Hathaway, the Board determined that it was 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 shared 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 that Knauf 

and Berkshire Hathaway formed a control group with respect to Knauf’s Acquisition 

of USG at $44.00 per share, to the extent that the Amended Complaint 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. Stockholder Litigation,

223 Vice Chancellor Slights remarked that “the 

cases where this Court has found that a minority blockholder was, in fact, a 

controlling stockholder recognize that it is the controller’s ‘ability to dominate the 

corporate decision-making process’ that is important to the controlling stockholder 

analysis.”

224

 Likewise, in 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 executive positions 

at the company,” giving him influence over “the ordinary managerial operations of 

the company.”227 Thus, under these circumstances the minority blockholder 

“possessed, as a practical matter, a combination of stock voting power and 

managerial authority that enabled him to control the corporation, if he so wished.”228 

Notably, the Plaintiffs do not plead that Knauf had any managerial authority. 

Moreover, there 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 independent board.”231 The 

 

226 In re KKR Fin. Holdings LLC S’holder Litig., 101 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 553) (internal quotation marks and 

alterations omitted).

229 Id. (quoting Cysive, 836 A.2d at 553) (internal quotation marks and alterations 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 Plaintiffs 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 reasons, 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. Consequently, it is not 

reasonably conceivable that Knauf was a conflicted controller of USG, nor that the 

Acquisition is subject to entire fairness review on that basis. Thus, the Acquisition 

is eligible for Corwin cleansing.235

B. The Stockholder Vote Was Not Fully 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, the 

Plaintiffs do plead 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 Defs.’ Mot. 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 

Agreement.

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 should 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 not 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 turns 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 materially 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. Emps.’ Ret. Fund v. KCG Holdings, Inc., 2019 WL 2564093, at *10 (Del. Ch. 

June 21, 2019).

242 Morrison, 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 history 

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 allege 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 the 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 Intrinsic Value

The Plaintiffs’ allegations regarding the Board’s view of USG’s intrinsic

value test 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 Board 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 Plaintiffs have alleged that the Board believed that USG’s intrinsic value

was $50.00 per share, and have 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 unanimous” opinion of USG’s intrinsic value.251 But the 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 continued operation of the 

Company on a standalone basis and other potential actionable strategic transactions.” 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, together 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 the 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 selling 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 what 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 provided 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 and 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 

that 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 Company’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 plan 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 negotiate 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 engaging 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 Board’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 Knauf’s proposals, and that if Knauf, or any 
54

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 that if the Board did have an opinion of USG’s 

intrinsic value the Board disclosed this opinion by disclosing (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 The Defendants argue that these 

disclosures, along with the disclosure that USG attempted to persuade Knauf to 

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 view 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 counterparty.”) (“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 Company.”), 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 id. at 41–42.

256 See n.251, supra.
55

Statement discloses that the Board determined not to disclose its view of intrinsic 

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 USG’s 

intrinsic value was not material. To this end, Vice Chancellor Laster noted in In re 

Appraisal of Stillwater Mining Co.258: “Whether 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. 

Fundamental 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, the 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 company260 and “the 

possibility that, 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 decided 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 transactions, and trading multiple bases.
56

of [USG’s] common stock . . . may decrease in relation to its trading price prior to 

the initial public announcement of Knauf’s proposal.”261

I agree with Vice Chancellor Laster’s eloquent explanation that “intrinsic 

value” or “fair value” are nebulous, even illusory, concepts. Belief 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 value than 

did USG’s unaffiliated stockholders.

The animating question is whether by disclosing that the directors 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 stockholders. 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.
57

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 process,

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

265 See n.252, 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 

informed.

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 Motives

The Plaintiffs also contend that the Proxy Statement misrepresented the 

Board’s motives for approving the Acquisition. The Plaintiffs cite allegations that 

the Board did not disclose 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 proposal 

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 as a referendum on USG’s $42.00 per share offer.271 USG’s director nominees 

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 acknowledges 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 concealed 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 this 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 strengthens 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 proposal 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 approve 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 

reasonably 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 differs 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 tense 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 omissions of the Board’s 

motives is the Board’s consideration of whether, absent the transaction, Knauf 

“would be obligated to vote for [USG’s] director nominees at the next annual 

meeting.”277 But it is unclear what effect the Amended Complaint alleges the 

Board’s consideration of an upcoming stockholder meeting had on its motives 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 recommending that USG’s stockholders 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 share 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 performed by the investment bankers upon whose advice the recommendations 

of their board as to how to vote on a merger or tender rely.”281 The Proxy Statement 

did provide a fair summary of the preliminary analyses, and regardless the financial 

analyses underlying the Board’s recommendation that USG’s stockholders approve 

the Acquisition282 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 there 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 Restated 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. Stockholder 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 take 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 Cornerstone, 

115 A.3d at 1179).
64

To plead a non-exculpated claim sufficient to survive this Motion to Dismiss, 

the Plaintiffs must plead facts “supporting a rational inference that the director[s]

harbored self-interest adverse to the stockholders’ interests, acted to advance the 

self-interest 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 Plaintiffs 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, it 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 Acquisition

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 Cornerstone, 115 A.3d at 1179–80.

290 Reith, 2019 WL 2714065, at *18 (quoting In re Tangoe, 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 

“Independence 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 are 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 contend 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 allege 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 exists 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 intrinsic 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 decision to accept 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 

simply capitulated after its defeat; on the contrary the Proxy Statement reflects

 

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. 1984)).

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 2018.301 The only 

reasonable inference is that any influence that Knauf had on the Board resulted from 

quotidian calculations of corporate interest, not a disabling lack on independence. 

“Fear” of a corporate takeover threat—here fully justified after Knauf’s resounding 

withhold victory—is a nod to reality, not a disabling extraneous influence. For these 

reasons, it is not reasonably conceivable that the Board lacked independence from 

Knauf.

The Plaintiffs also attempt to plead a non-exculpated claim by invoking 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 because 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 survive 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 believed 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 final’ offer of $44.00 per share.”).
68

charter provision because their conflicts of interest support a pleading-stage 

inference of disloyalty.”302“Interestedness 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 generally.’”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 Complaint 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 board positions at nonprofit organizations.305 Though 

the Defendants must be considered individually, it suffices to say that the Plaintiffs’ 

argument with 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 Cornerstone, 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 afforded 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 proxy 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 the 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. Under the facts alleged, it is not reasonably conceivable that the 

Non-Scanlon Defendants capitulated to Knauf in selfish defense of their outside

reputational interests because USG’s directors 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 Fleshand-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System, 

126 Yale L.J. 1870, 1926 (2017)).
70

Knauf. Withhold 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 made 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 avoid a vote against 

the Company’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, instead proceeding 

with negotiations on a more measured timeline, thereby accepting the reputational 

harm of an institutional campaign defeat in 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 edge after it is employed. 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 circumstances 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 Plaintiffs’ remaining allegations regarding the interestedness of the NonScanlon 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 price 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 directors or their affiliates own ‘material’ amounts of common 

stock, it aligns their interests 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 financial 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 In 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 

generally.”

314

 Given that it is not reasonably 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 reputations 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 that 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; since 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 671 (“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 largest 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, it is not reasonably conceivable that 

the Acquisition would be subject to entire fairness due to the interestedness of 

Scanlon alone.

317

 Consequently, there can be no pleading-stage inference of 

disloyalty in this regard, and the Plaintiffs’ allegations of interestedness 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 she ‘intentionally fails to act in the face of a known duty to act, 

demonstrating a conscious disregard for his or her duties.’”

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 Cornerstone 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, 2012)).

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, permitted the Plaintiffs to 

plead around Corwin.

In contrast with the required showing to plead around Corwin, a pleading of

bad faith “requires a pleading of facts with respect to the [maldisclosures] from 

which I may reasonably infer breach of the duty of loyalty, and not simply adequate 

pleading of a [maldisclosure].”

321

 An adequate pleading of bad faith must plead that 

the maldisclosure was “intentional and constitute[d] more than an error of judgment 

or gross negligence.”

322

 This standard is entirely distinct from the required 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 the 

 

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-toothed comb—that of scienter—which 

is among our law’s most straightened.

325 To plead bad faith based on the nondisclosure 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 in

conscious disregard of their fiduciary duties.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) (TABLE) 

(noting the role of motive in determining whether bad faith is adequately pled).

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 must 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, the 

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 the 

Board told it, consideration of whether the deal price was 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 statement 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 pursued; 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 to 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 gathered 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, as 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 market 

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 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.”).
78

hostile action absent a negotiated transaction 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 approval 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) transaction. The 

fact that the Board disclosed this range in the Proxy Statement belies any bad faith 

attempt to conceal “intrinsic value”; a stockholder reading the Proxy Statement

would be well aware that the directors believed a sale should occur in the $48.00 to 

$51.00 range, although the Board was unable to achieve such a price.

Moreover, it is not reasonably conceivable that the directors would have 

demonstrated a conscious indifference to their fiduciary duties by not disclosing

their view of intrinsic value, while at the same time disclosing to USG’s stockholders 

that the Board had chosen not to make that very disclosure.

332

 It is nearinconceivable (and thus not reasonably conceivable) that an independent and 

disinterested Board acting disloyally would have professed its bad faith to USG’s 

stockholders in the Proxy Statement. While I may infer that the Proxy Statement 

 

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 intrinsic 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 reasonably conceivable 

that such non-disclosure rises to the level of conscious disregard of duty.

b. Revlon Claim

Finally, the Plaintiffs argue that the sales process was not reasonable, and that 

the Defendants failed to comply with duties imposed 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 directors have breached their “Revlon

duties.” That is, they assert that a freestanding “Revlon claim” for damages has been 

adequately been pled against the Defendant directors. 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 company 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 Acquisition

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 directive that the Defendant directors, 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 Action. 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 provisions, 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 

1049, 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 

Mkts., 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 

implying that a Defendant 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. Ch. 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 that 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, 243–44 (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 directors’ “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 designed 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 Plaintiffs 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 failure or a conscious disregard of the duty to seek the highest 

price reasonably available.”343 Importantly, where (as here) there 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 compels 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 the 

pressures of its two largest stockholders and sold at a price less than 5% above an 

offer345 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 reasonably 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 Knauf 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. Compl., ¶ 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 Defendants 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 that includes what the Plaintiffs 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 negotiated 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 sale at a price 

above what Knauf had offered. The Board obtained counsel and advice from 

financial professionals;

352 sought competing bids;353 negotiated for a higher price;354

 

349 Because 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., 74 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, without more, does 

not a bad a faith claim make.”357

The Revlon reasonableness standard survives as a pleading standard, in a postclosing 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 protections; 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 wellpled allegations that implicate 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) (TABLE).

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 consciously disregarded their duties, ‘knowingly and completely 

failed to undertake their responsibilities,’ and ‘utterly failed to attempt to obtain the best sale 
86

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” claim 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 which 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.”).