Court Opinion

ID: 4510428
Source: CourtListenerOpinion
Date Created: 2020-02-26 15:02:47.85045+00
Date Added: 2024-06-11T12:13:33.556356
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

                                                   )
IN RE AMTRUST FINANCIAL SERVICES,                  )   Consolidated
INC. STOCKHOLDER LITIGATION                        )   C.A. No. 2018-0396-AGB
                                                   )

                         MEMORANDUM OPINION

                       Date Submitted: November 5, 2019
                        Date Decided: February 26, 2020

Ned Weinberger, Thomas Curry, and Mark D. Richardson, LABATON
SUCHAROW LLP, Wilmington, Delaware; Jay W. Eisenhofer, Michael J. Barry,
and Kyle J. McGee, GRANT & EISENHOFER P.A, Wilmington, Delaware; Marcus
E. Montejo, Stephen D. Dargitz, and John G. Day, PRICKETT, JONES &
ELLIOTT, P.A, Wilmington, Delaware; Carl L. Stine, Adam J. Blander, and
Antoinette Adesanya, WOLF POPPER LLP, New York, New York; Jeremy
Friedman, Spencer Oster, and David Tejtel, FRIEDMAN OSTER & TEJTEL PLLC,
New York, New York; Eric L. Zagar, Robin Winchester, Michael C. Wagner, and
Christopher M. Windover, KESSLER TOPAZ MELTZER & CHECK, LLP,
Radnor, Pennsylvania; David Wales and Edward Timlin, BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP, New York, New York; Joseph E. White, III and
Adam D. Warden, SAXENA WHITE P.A, Boca Raton, Florida; Steven B. Singer
and Joshua Saltzman, SAXENA WHITE P.A, White Plains, New York; Attorneys
for Plaintiffs Arca Investments, a.s., Arca Capital Bohemia, a.s., Krupa Global
Investments, Pompano Beach Police & Firefighters’ Retirement System, City of
Lauderhill Police Officers’ Retirement System, West Palm Beach Police Pension
Fund, and Cambridge Retirement System.

Edward B. Micheletti and Bonnie W. David, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP, Wilmington, Delaware; Attorneys for Defendants Stone
Point Capital LLC, Trident VII Professionals Fund, L.P., Trident VII, L.P., Trident
VII DE Parallel Fund, L.P., Trident VII Parallel Fund, L.P, and Trident Pine
Acquisition LP.
Gregory P. Williams, Blake Rohrbacher, Daniel E. Kaprow, and Ryan D.
Konstanzer, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware;
Tariq Mundiya and Sameer Advani, WILLKIE FARR & GALLAGHER LLP, New
York, New York; Attorneys for Defendants Donald T. DeCarlo, Susan C. Fisch,
Abraham Gulkowitz, and Raul Rivera.

Daniel A. Mason, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP,
Wilmington, Delaware; Andrew G. Gordon and William A. Clareman, PAUL,
WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York;
Attorneys for Defendants Barry D. Zyskind, George Karfunkel, Leah Karfunkel, The
Estate of Michael Karfunkel, Evergreen Parent, L.P., K-Z Evergreen, LLC and
Evergreen Merger Sub, Inc.

BOUCHARD, C.
      This case concerns a transaction in which the controlling stockholders of

AmTrust, Inc.—George Karfunkel, Leah Karfunkel, and Barry Zyskind—teamed up

with a private equity firm to take AmTrust private through a merger that closed in

November 2018. In conveying their initial proposal to acquire the rest of the shares

of the company for $12.25 per share, the buyout group conditioned the transaction

on receiving the approval of a special committee of the company’s board of directors

and a majority of AmTrust’s minority stockholders.

      On February 28, 2018, after negotiating with the buyout group for about seven

weeks, the special committee voted to approve a $13.50 per share merger with the

buyout group. The proposed merger drew criticism from major stockholders of the

company, including Carl Icahn, who sued the controlling stockholders for breach of

fiduciary duty and opposed the proposed share price as inadequate. On June 3, 2018,

the day before the stockholder meeting scheduled to consider the proposal, the

company adjourned the meeting when it became apparent that a majority of the

unaffiliated stockholders would not approve the proposal.

      On June 4, one day after the company adjourned the ill-fated stockholder

meeting, Icahn indicated his willingness to support a transaction at $14.75 per share

during discussions with Zyskind and George Karfunkel. The special committee did

not participate in these discussions. On June 6, the special committee and the

company’s board approved an amended merger agreement with a price of $14.75
per share. In connection with amending the merger agreement, Icahn entered into a

settlement agreement in which he agreed to drop his lawsuit, support the merger, and

forego his appraisal rights. Thereafter, 67.4% of the unaffiliated stockholders of

AmTrust approved the amended merger proposal.

         Plaintiffs are former stockholders of AmTrust. Their consolidated complaint

asserts several claims for breach of fiduciary duty and aiding and abetting against

the controlling stockholders, AmTrust’s directors, and other participants in the

buyout. All of the defendants moved to dismiss the complaint under Court of

Chancery Rule 12(b)(6) for failure to state a claim for relief.

         The primary issue before the court is whether the transaction complied with

the framework set forth in Kahn v. M & F Worldwide Corp. (“MFW”)1 for subjecting

a squeeze-out merger by a controlling stockholder to business judgment review

rather than the entire fairness standard. Plaintiffs argue there are many reasons it did

not. For the reasons explained below, the court concludes that the transaction did

not satisfy the MFW standard because the complaint pleads a reasonably conceivable

set of facts that three of the four members of the special committee had a material

self-interest in the transaction, which was expected to extinguish viable derivative

claims exposing each of them to significant personal liability.

1
    88 A.3d 635 (Del. 2014).
                                           2
         The net result of this decision is that the plaintiffs’ claims for breach of

fiduciary duty against the controlling stockholders and the self-interested members

of the special committee will survive, and the court will dismiss the remaining claims

for failure to state a claim for relief.

I.       BACKGROUND

         Unless otherwise noted, the facts recited in this opinion are based on the

allegations of the Amended Verified Consolidated Class Action Complaint

(“Complaint”) and documents incorporated therein.2           Any additional facts are

subject to judicial notice.

         A.    The Players

         AmTrust, Inc. (“AmTrust” or the “Company”) is a Delaware corporation

engaged in the property and casualty insurance businesses. AmTrust was founded

in 1998 by two brothers: Michael Karfunkel and George Karfunkel.3

         Plaintiffs in this case are Arca Investments, a.s., Arca Capital Bohemia, a.s.,

Krupa Global Investments, (collectively, “Arca”), Pompano Beach Police &

Firefighters’ Retirement System, City of Lauderhill Police Officers’ Retirement

2
  Am. Verified Compl. (“Compl.”) (Dkt. 87). See Winshall v. Viacom Int’l, Inc., 76 A.3d
808, 818 (Del. 2013) (“[P]laintiff may not reference certain documents outside the
complaint and at the same time prevent the court from considering those documents’ actual
terms” in connection with a motion to dismiss).
3
    Compl. ¶¶ 48-49.
                                            3
System, West Palm Beach Police Pension Fund, and Cambridge Retirement System

(together, “Plaintiffs”). They each held AmTrust common stock through the closing

of the buyout transaction at issue in this action (the “Transaction”), with Arca

holding approximately 2.4% of AmTrust’s outstanding shares.4

          Defendant Barry D. Zyskind has served on the Company’s board of directors

(the “Board”) since 1998 and as the Chairman of the Board since May 2016.

Zyskind has served as CEO and President of AmTrust since 2000, and serves as an

officer and director of AmTrust’s many wholly-owned subsidiaries.5 Zyskind is

married to the daughter of co-founder Michael Karfunkel, who died in 2016.

          Defendant George Karfunkel has served as a director on the Board since 1998.

He is the brother of the Michael Karfunkel.6 Defendant Leah Karfunkel has served

as a director on the Board since May 2016. She is the widow of Michael Karfunkel,

the sister-in-law of George Karfunkel, and the mother-in-law of Zyskind.7

          George Karfunkel, Leah Karfunkel, and Zyskind are referred to together in

this opinion as the “K-Z Family.” Members of the K-Z Family have controlled

4
    Id. ¶¶ 43-47.
5
    Id. ¶ 48.
6
    Id. ¶ 49.
7
    Id. ¶ 50.
                                            4
AmTrust since its founding, and owned or controlled approximately 55% of its

outstanding shares at the time of the Transaction.8

         At the times relevant to this action, the Board consisted of seven

members: George Karfunkel, Leah Karfunkel, Zyskind, and four others who served

on a special committee formed to negotiate the terms of the Transaction (the “Special

Committee”). The members of the Special Committee were defendants Donald T.

DeCarlo, Abraham Gulkowitz, Susan C. Fisch, and Raul Rivera. DeCarlo and

Gulkowitz joined the Board in 2006.9 Fisch and Rivera joined the Board in 2010

and August 2016, respectively.10

         To undertake the Transaction, the K-Z Family teamed up with Stone Point

Capital LLC (“Stone Point”), a private equity firm, and certain funds that Stone Point

manages, namely defendants Trident VII Professionals Fund, L.P., Trident VII, L.P.,

Trident VII DE Parallel Fund, L.P., and Trident VII Parallel Fund, L.P. The Trident

funds participated in the Transaction through defendant Trident Pine Acquisition

L.P.11      This decision refers to Stone Point and these various Trident entities

collectively as the “Stone Point Defendants,” and to the K-Z Family and the Stone

Point Defendants together as the “MBO Group.”

8
    Id. ¶¶ 16, 51.
9
    Id. ¶¶ 52, 59.
10
     Id. ¶¶ 54, 66.
11
     Id. ¶¶ 68-70.
                                          5
          The remaining three defendants in this action, which are referred to

collectively as the “Evergreen Entities,” served as investment or merger vehicles to

effectuate the Transaction: Evergreen Parent, L.P., Evergreen Merger Sub, Inc., and

K-Z Evergreen, LLC.12

          B.     The Previous Derivative Actions

          In April 2015, Cambridge Retirement System, an AmTrust stockholder, filed

a derivative action in this court on behalf of AmTrust (the “Cambridge Action”).

The Cambridge Action included claims against the members of the K-Z Family and

four outside directors (DeCarlo, Fisch, Gulkowitz, and Jay J. Miller) “for breaching

their fiduciary duties of loyalty and usurping a corporate opportunity from AmTrust

in connection with the Company’s and the Karfunkel-Zyskind Family’s dealings

with insurance company Tower Group International, Ltd.”13

          All of the defendants in the Cambridge Action except Miller answered the

complaint in lieu of filing a motion to dismiss.14 Miller retired from the Board before

the events relevant to this case. In denying his motion to dismiss in the Cambridge

Action, the court commented that the core allegations of the complaint were “very

12
     Id. ¶¶ 71-74.
13
     Id. ¶ 97.
14
     Cambridge Ret. Sys. v. DeCarlo, Del. Ch., C.A. No. 10879-CB, Dkts. 39, 42, 43, 45.
                                             6
troubling” and “describe a very unusual set of circumstances” concerning the

approval of a conflicted transaction.15

           In May and June 2017, AmTrust stockholders filed two derivative actions in

the United States District Court for the District of Delaware, which the district court

consolidated. The complaint asserts claims for “violations of Sections 10(b), 20A,

and 29(b) of the Securities Exchange Act, breaches of fiduciary duties, unjust

enrichment, and corporate waste” against AmTrust’s management and Board,

including Rivera.16

           The district court action was filed in response to various alleged disclosure

violations, including “restatements of multiple years of the Company’s financials

stemming from issues with its financial reporting, increases in the Company’s loss

reserves, and the public revelation of a long-running SEC investigation.”17

According to the Complaint, this series of negative disclosures caused AmTrust’s

stock price to fall by more than 50% in the year before the Transaction, from $27 in

the first quarter of 2017 to $13 at the end of the third quarter of 2017.18

15
     Cambridge Action, Mot. to Dismiss Hr’g Tr. (“Cambridge Action Tr.”) 46, 47 (Dkt. 82).
16
     Konstanzer Aff. Ex. 31, at 10.
17
     Compl. ¶ 167.
18
     Id.
                                             7
         C.       The K-Z Family Sets the Stage for the Transaction

         In early May 2017, there were reports that the K-Z Family would seek to take

the Company private.19 The K-Z Family denied the reports at the time.20

         On May 8, 2017, Zyskind told investors on an earnings call that the Company

was “exploring several ways to monetize the value of [AmTrust’s] fee business” and

that the Company was seeking to sell a 51% stake to a “private equity-like partner.”21

Later that summer, AmTrust issued 24,096,384 shares of common stock to members

of the K-Z Family through a private placement at $12.45 per share, increasing their

ownership of the outstanding shares of common stock from 49% to 55%.22

         Sometime in September 2017, Stone Point initiated discussions with Zyskind

regarding a potential take-private transaction, but the discussions did not progress.23

         On November 6, 2017, AmTrust announced it would sell 51% of its fee

business to Madison Dearborn Partners.24 On November 9, 2017, the credit rating

agency A.M. Best announced that AmTrust was “under review with negative

implications until: (1) the Fee Business Sale closed, and A.M. Best assessed the

19
     Id. ¶ 203.
20
     Id. ¶ 191.
21
     Id. ¶ 206.
22
     Id. ¶¶ 51, 204.
23
     Id. ¶ 210.
24
     Id. ¶ 337; Konstanzer Aff. Ex. 1 (“Proxy”), at 22 (Dkt. 94).
                                               8
transaction’s impact on risk-adjusted capital; and (2) the Company’s annual report

on Form 10-K for fiscal year 2017 . . . was filed.”25      That same month, the

Company’s Form 10-Q stated that AmTrust’s $13.46 stock price at the end of the

third quarter of 2017 was well below its “fair value” and its recent “share price

decline . . . is relatively short-term in nature.”26

          D.      The Initial Take-Private Proposal

          On November 16, 2017 Zyskind informed the Board that “the Company had

begun to receive unsolicited calls from potential investors,” and that “senior

management was in the process of negotiating non-disclosure agreements with

certain parties so they could commence due diligence and have discussions with

Company management.”27 At this meeting, “various alternative transactions were

discussed, including not only a going-private transaction, but also ‘a significant

investment from an unrelated third party or possibly a combination of a third party

investor with the Karfunkel and Zyskind families participating.’” 28 On November

17, 2017, Stone Point entered into a confidentiality agreement with the Company.29

25
     Compl. ¶¶ 215, 217.
26
     Id. ¶ 27.
27
     Id. ¶ 218.
28
     Id. ¶ 219.
29
     Id. ¶ 221; Proxy at 22.
                                             9
           On December 27, 2017, Zyskind asked the Board to grant Stone Point, “who

he and the Karfunkel Family have known . . . for many years,” a waiver under 8 Del.

C. § 203 to allow it to discuss a joint proposal with the K-Z Family (the “Waiver”).30

The K-Z Family’s lawyers, Paul, Weiss, Rifkind, Wharton and Garrison LLP, then

advised the Board on “the requirements for the Waiver.”31

           On December 29, 2017, the Board formed a limited special committee

comprised of DeCarlo, Fisch, Gulkowitz, and Rivera to consider the Waiver.32 On

January 8, 2018, the limited special committee granted the Waiver, allegedly for no

consideration.33

           On January 9, 2018, Stone Point and the K-Z Family entered into a joint

bidding agreement.34       That same day, the MBO Group made a confidential

presentation to a ratings agency, disclosing that they intended to make an offer to

take AmTrust private.35 After the presentation, the MBO Group made their initial

proposal to the Board for them to acquire all outstanding shares of common stock

unaffiliated with the K-Z Family for $12.25 per share in cash,36 conditioned “on

30
     Compl. ¶ 230-31.
31
     Id.
32
     Id.¶ 233.
33
     Id. ¶ 234.
34
     Id. ¶ 252.
35
     Id. ¶ 238.
36
     Id. ¶ 243.
                                          10
approval by an independent special committee and a fully informed majority of

AmTrust’s minority stockholders.”37 The initial proposal also stated that the K-Z

Family had no interest in selling any of their shares of AmTrust:

           [T]he Family Stockholders have no interest in selling any of the shares
           of common stock of AmTrust owned or controlled by them. As such,
           the Family Stockholders would not expect, in their capacity as
           stockholders of AmTrust, to vote in favor of any alternative sale,
           merger or similar transaction involving AmTrust. If the special
           committee does not recommend, or the stockholders of AmTrust do not
           approve, the proposed transaction, the Family Stockholders currently
           intend to continue as long-term stockholders of AmTrust.38

           Also on January 9, 2018, the Board formed the Special Committee to negotiate

and evaluate the initial proposal.39 The Special Committee retained Willkie Farr &

Gallagher LLP as its legal counsel and Deutsche Bank as its financial advisor.

According to the Complaint, the Special Committee retained Deutsche Bank before

reviewing any conflicts of interest.40

37
     Id. ¶ 244.
38
     Id.
39
     Id. ¶¶ 239, 249.
40
  Id. ¶ 242; see also id. ¶¶ 325-27 (alleging conflicts of interests Deutsche Bank had based
on prior work it performed for Stone Point, AmTrust, and their respective affiliates).
                                             11
         E.       The Negotiation Process41

         On January 16, 2018, the Special Committee met to evaluate the MBO

Group’s proposal. According to the proxy statement for the Transaction (the

“Proxy”), the Special Committee determined that projections that had been prepared

based on the Company’s ordinary course annual budgeting and planning process

“were no longer current, and that updated projections from Company management

would be necessary.”42

         The next week, AmTrust management provided the Special Committee and

Deutsche Bank with a new set of financial projections (the “Case 1 Projections”).

According to the Proxy, “the Case 1 Projections were inconsistent with financial

analysts’ consensus estimates for the Company and the Company’s peer group,” and

“did not appear to reflect certain adverse industry trends and Company issues

discussed with the Company management at a January 23, 2018 Audit Committee

meeting.”43 DeCarlo thus requested another set of projections. On January 31, 2018,

AmTrust management delivered the lower projections (the “Case 2 Projections”) to

the Special Committee.44

41
  With respect to the Special Committee’s process, the Complaint points out a number of
discrepancies in the description of events in the Company’s minutes versus the Proxy. See
Compl. ¶¶ 277, 281, 305.
42
     Id. ¶¶ 275-77.
43
     Id. ¶ 280.
44
     Id. ¶ 282.
                                              12
         On February 8, 2018, the Special Committee communicated a counter-

proposal at $17.50 per share. Between February 14 and 18, the Special Committee

met with the MBO Group and then Company management to discuss their views on

the Company’s financial position and the effect any potential going-private

transaction could have on the Company’s rating by A.M. Best.45 Shortly thereafter,

the Special Committee requested a third set of financial projections (the “Special

Committee Case Projections”).46 The same day it received the Special Committee

Case Projections, which were lower than the Case 2 Projections, the Special

Committee revised its counteroffer to $15.10 per share, despite receiving no formal

rejection of the $17.50 per share offer.47

         During a meeting on February 16, 2018, DeCarlo informed the Special

Committee that he was recusing himself “from all discussions and decisions made

by the Special Committee in respect of the Cambridge [Action]” as a result of his

“involvement” in that litigation.48

         On February 23, 2018, the MBO Group rejected the $15.10 counteroffer and

increased its offer to $13.00 per share.49 The MBO Group also rejected the inclusion

45
     Id. ¶¶ 289-92.
46
     Id. ¶ 292.
47
     Id. ¶ 293.
48
     Id. ¶ 383.
49
     Id. ¶ 293.
                                             13
of a “go shop” and a voting agreement requiring the K-Z Family to vote in favor of

a superior proposal.50

           On February 25, 2018, the Special Committee asked to review the Company’s

current draft of its 2017 10-K, which was going to be filed late, and requested another

set of financial projections based on the scenario that the Company’s rating would

be downgraded by A.M. Best.51 On February 26, 2018, the Special Committee made

a counteroffer of $14.00 per share.52

           According to the Proxy, the MBO Group made a counteroffer of $13.50 to the

Special Committee later on February 26, 2018.53 The Proxy also states that the

Special Committee “resolved to approve and adopt the Special Committee Case

Projections” on February 26, and directed Deutsche Bank to use these projections in

its financial analysis.54

           On February 28, 2018, Deutsche Bank provided a presentation to the Special

Committee that referenced a “contingent litigation asset (based on upper end of

Willkie [Farr] estimate)” worth between $15 million and $25 million.55 This was

50
     Id.
51
     Id. ¶¶ 294-95.
52
     Id. ¶¶ 302-03.
53
     Id. ¶ 305.
54
     Id. ¶ 306.
55
     Id. ¶ 388.
                                           14
the first time a value for the Cambridge Action was discussed with the Special

Committee.

         Later on February 28, the Special Committee recommended that the Board

approve the MBO Group’s $13.50 offer, which it did that evening.56 On March 1,

2018, AmTrust announced that it had entered into the merger agreement.57

         F.       The Transaction Negotiated by the Special Committee Fails to
                  Obtain the Support of the Public Stockholders
         The $13.50 per share proposal that the Special Committee negotiated was met

with opposition by major stockholders, including Carl Icahn, who held more than

9.3% of the Company’s outstanding shares and had started soliciting proxies to

oppose the transaction.58 According to Icahn, “management’s own claim that the

Company expected a future return on operating equity of 12–15% implied a

valuation significantly higher than $13.50 per share based on the Company’s book

value per share as of March 31, 2018,” and another analysis suggested that the shares

should trade at “a price of $26.06 to $31.86 per share.”59 On May 21, 2018, Arca

56
     Id. ¶¶ 317-18.
57
     Id. ¶ 321.
58
     Id. ¶ 364.
59
     Id. ¶¶ 368-69.
                                           15
also announced its opposition to the $13.50 per share proposal that the Special

Committee had negotiated.60

           On May 25, 2018, Institutional Shareholder Services (“ISS”) criticized the

Special Committee’s “less-than-robust sale process,” and recommended voting

against the $13.50 per share proposal because “a standalone scenario seems to be a

preferable alternative to the currently proposed transaction.”61 ISS suggested that a

valuation range between $14.35 and $20.82 per share was more appropriate.62

           On June 3, 2018, “a preliminary assessment of proxies received by . . . the

Company’s proxy solicitor” showed that a majority of the public stockholders would

not support the $13.50 per share proposal.63 Also on June 3, the Company adjourned

the special meeting of stockholders scheduled for the next day to consider the $13.50

proposal.64

           G.     The Public Shareholders Approve a Revised Transaction
           On June 4, 2018, during a meeting with Zyskind, George Karfunkel, and the

Company’s financial and legal advisors, Icahn informed them that he would support

60
     Id. ¶ 372.
61
     Id. ¶ 374.
62
     Id.
63
     Id. ¶ 400 & n.37; Konstanzer Aff. Ex. 2 (“Proxy Supp.”) at S-5 (Dkt. 94).
64
     Compl. ¶ 400 n.37.
                                              16
a transaction at $14.75 per share.65 Later that evening, Zyskind informed Icahn that

he was prepared to increase the price to $14.75 per share subject to Icahn entering

into a satisfactory support agreement.66 The Special Committee was not part of these

discussions.67

           On June 6, 2018, after the merger agreement was amended to a price of $14.75

per share, the Special Committee and the Board approved the revised transaction.68

On June 7, 2018, the Company announced that it had entered into an amendment

whereby the MBO Group increased its offer from $13.50 to $14.75 per share.69 In

connection with the amendment, Icahn entered into a settlement in which he agreed

to support the Transaction, dismiss his breach of fiduciary duty action, and forego

any appraisal rights.70

           On June 21, 2018, the Company reconvened the special meeting of

stockholders to vote on the adoption of the amended merger agreement. It was

approved by 67.4% of the unaffiliated stockholders.71

65
     Id. ¶ 396 n.36; Proxy Supp. at S-6.
66
     Compl. ¶ 396 n.36; Proxy Supp. at S-6.
67
     Compl. ¶ 396 n36; Proxy Supp. at S-6.
68
     Compl. ¶ 8; Proxy Supp. at S-6.
69
     Compl. ¶ 396.
70
     Id.
71
     Id. ¶ 400.
                                              17
           H.     The A.M. Best Downgrade
           On July 3, 2018, A.M. Best downgraded the financial strength of AmTrust’s

insurance companies from an “A” to “A-.”72 A.M. Best noted that “[t]he rating

actions reflect AmTrust’s balance sheet strength, which A.M. Best categorizes as

very strong.”73 A.M. Best also noted that “[t]he recently approved plan under which

[AmTrust] will be privatized has a neutral impact on the rating.”74 After A.M. Best

announced the downgrade, the MBO Group stated that it would not be asserting its

right to terminate the Transaction due to the ratings downgrade, which it had

specifically negotiated for in the merger agreement.75

           On August 9, 2018, AmTrust issued its second quarter Form 10-Q, which

stated the following concerning the A.M. Best downgrade:

           Although a ratings downgrade occurred, A.M. Best categorizes our
           balance sheet as very strong with a high-quality capital profile. In
           addition, our risk-adjusted capitalization, as measured by A.M. Best’s
           Capital Adequacy Ratio (BCAR) strengthened materially through the
           first quarter of 2018. From a credit strength perspective, we are not
           aware of any significant implications to our business as a consequence
           of the downgrade, and do not believe it has materially impacted our
           access to the capital markets. We are not aware of any significant loss
           of business or change in business mix related to this event. The
           downgrade had no impact on any of our debt covenants or credit
           facilities, as we did not fall below any minimum credit rating
           requirements.

72
     Id. ¶ 401.
73
     Id.
74
     Id. ¶ 402.
75
     Id. ¶ 403; Proxy at 38.
                                             18
         On November 29, 2018, the Transaction closed.76            The closing of the

Transaction eliminated Plaintiffs’ standing to maintain the Cambridge Action,77

which the parties dismissed by stipulation on January 30, 2019.78

II.      PROCEDURAL HISTORY

         From May 2018 to February 2019, Plaintiffs filed three separate class action

complaints challenging the Transaction, which the court consolidated.79 On May 8,

2019, Plaintiffs filed the Amended Verified Consolidated Class Action Complaint

(as defined above, the “Complaint”).

         The Complaint asserts four claims.        Count I asserts that the “Director

Defendants breached their fiduciary duties by supporting and/or acquiescing to the

Transaction that greatly undervalued AmTrust and provided consideration to

AmTrust’s minority stockholders that was grossly unfair.”80 Count II asserts that

Zyskind breached his fiduciary duty as an officer “by placing his own interests ahead

76
     Compl. ¶ 408.
77
   See In re Massey Energy Co. Deriv. & Class Action Litig., 160 A.3d 484, 497-98 (Del.
Ch. 2017) (“[I]t has been a matter of well-settled Delaware law for over three decades that
stockholders of Delaware corporations must hold shares not only at the time of the alleged
wrong, but continuously thereafter throughout the litigation in order to have standing to
maintain derivative claims, and will lose standing when their status as stockholders of the
company is terminated as a result of a merger . . . .”) (citing Lewis v. Anderson, 477 A.2d
1040 (Del. Ch. 1984)).
78
     Cambridge Action, Dkt. 227.
79
     Dkts. 56, 86.
80
     Compl. ¶ 451.
                                            19
of those of AmTrust’s public stockholders. . . . [and] orchestrating a deal that

guaranteed that AmTrust’s insiders would take the Company private at an artificially

low price. . . .”81 Count III asserts that Zyskind, George Karfukel, and Leah

Karfunkel breached their fiduciary duties as controlling stockholders by

“manipulat[ing] and control[ing] the Transaction process, including the Company’s

financial projections and the valuation process used by the conflicted Special

Committee.”82 Count IV asserts that the Stone Point Defendants “aided and abetted

the Director Defendants and Zyskind as an officer defendant, in the aforesaid breach

of their fiduciary duties.”83

         In June 2019, each of the Defendants moved to dismiss the Complaint under

Court of Chancery Rule 12(b)(6) for failure to state a claim for relief as to each of

them. After briefing, the court held oral argument on November 5, 2019.

III.     ANALYSIS

         The standards governing a motion to dismiss under Rule 12(b)(6) for failure

to state a claim for relief are well settled:

81
     Id. ¶ 457.
82
     Id. ¶¶ 460, 470.
83
     Id. ¶¶ 475-78.
                                            20
         (i) all well-pleaded factual allegations are accepted as true; (ii) even
         vague allegations are well-pleaded if they give the opposing party
         notice of the claim; (iii) the Court must draw all reasonable inferences
         in favor of the non-moving 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.84

         Defendants’ briefs are lengthy but they raise essentially four issues. First,

should the Transaction be subject to business judgment review under the framework

our Supreme Court articulated in MFW?85 Second, if the MFW standard is not

satisfied, does the Complaint state a non-exculpated claim for breach of fiduciary

duty against each of the Special Committee members in accordance with the test set

forth in In re Cornerstone Therapeutics Inc, Stockholder Litigation?86 Third, does

the Complaint state a claim for breach of fiduciary duty against Zyskind as an officer

of the Company? Fourth, does the Complaint state a claim for aiding and abetting

against the Stone Point Defendants? The court addresses each issue in turn below.87

84
   Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal quotations and
citations omitted).
85
     88 A.3d 635.
86
     115 A.3d 1173 (Del. 2015).
87
  The K-Z Family asserts that the court should dismiss the Evergreen Entities because the
Complaint “does not assert any claims against them.” K-Z Family Opening Br. ¶ 15 (citing
Chester Cty. Ret. Sys. v. Collins, 2016 WL 7117924, at *3, ¶ 12 (Del. Ch. Dec. 6, 2016)
(ORDER) (granting motion to dismiss), aff’d, 165 A.3d 286 (Del. 2017) (TABLE)) (Dkt.
99). The court agrees. None of the counts in the Complaint are directed against the
Evergreen Entities, see Compl. ¶¶ 449-78, and Plaintiffs made no effort to explain why
they should not be dismissed. See Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999)
(“Issues not briefed are deemed waived.”) (citations omitted); see also Brinckerhoff v.
                                           21
           A.    Defendants’ MFW Defense

           In MFW, our Supreme Court held that the business judgment rule is the

appropriate standard of review for a challenge to a squeeze-out merger by a

controlling stockholder if the transaction satisfies certain procedural protections:

           We hold that business judgment is the standard of review that should
           govern mergers between a controlling stockholder and its corporate
           subsidiary, where the merger is conditioned ab initio upon both the
           approval of an independent, adequately-empowered Special Committee
           that fulfills its duty of care; and the uncoerced, informed vote of a
           majority of the minority stockholders.88

In so holding, the high court reasoned that the “simultaneous deployment of [these]

procedural protections . . . create a countervailing, offsetting influence of equal—if

not greater—force” than the undermining influence of a controller.89 The high court

further explained that the dual protections of special committee review and approval

of a majority of the minority stockholders are “consistent with the central tradition

of Delaware law, which defers to the informed decisions of impartial directors,

especially when those decisions have been approved by the disinterested

stockholders on full information and without coercion.”90 Although MFW itself was

Enbridge Energy Co., Inc., 2012 WL 1931242, at *1 (Del. Ch. May 25, 2012), aff’d, 67
A.3d 369 (Del. 2013). Accordingly, the Evergreen Entities will be dismissed.
88
     88 A.3d at 644.
89
     Id.
90
     Id.
                                            22
decided after discovery on a motion for summary judgment, courts have applied its

framework at the pleadings stage as well.91

          In Flood v. Synutra International, Inc., our Supreme Court addressed some

“confusing dicta in MFW” to clarify that the focus of the inquiry is on process, not

price.92 Specifically, the high court explained that its previous affirmance of the

Court of Chancery’s decision in Swomley v. Schecht “eliminat[ed] any ambiguity

created by MFW and confirm[ed] that a plaintiff can plead a duty of care violation

only by showing that the Special Committee acted with gross negligence, not by

questioning the sufficiency of the price.”93

          Plaintiffs assert that the MFW framework does not apply to the Transaction

because it “was not negotiated by a Special Committee and approved by minority

stockholders.”94 From Plaintiffs’ perspective, “[t]he Special Committee’s work”—

which yielded a proposed transaction for $13.50 per share—“was rejected by

minority stockholders” and the Transaction that the minority stockholders did

approve—for $14.75 per share—was “negotiated directly between Icahn and the K-

91
  See In re Books-A-Million Inc. S’holders Litig., 2016 WL 5874974 (Del. Ch. Oct. 10,
2016), aff’d, 164 A.3d 56 (Del. 2017) (TABLE); Swomley v. Schlecht, C.A. No. 9355–
VCL (Del. Ch. Aug. 27, 2014) (TRANSCRIPT), aff’d, 128 A.3d 992 (Del.
2015) (TABLE).
92
     195 A.3d 754, 767 (Del. 2018).
93
     Id. at 768.
94
     Pls.’ Answering Br. 51.
                                          23
Z Family without any involvement by the Special Committee” as their negotiating

agent.95 This is significant, according to Plaintiffs, not only because Icahn (rather

than the Special Committee) was responsible for the transaction on which the

stockholders actually voted, but because Icahn had no access to non-public

information about the Company, owed no fiduciary duty to AmTrust’s other

stockholders, and had his own short-term motivations to bump the price and sell his

shares quickly. Plaintiffs’ argument seems to find support in Synutra, where the

high court emphasized that “the entire point of the MFW standard is to recognize the

utility to stockholders of replicating the two key protections that exist in a third-party

merger: an independent negotiating agent whose work is subject to stockholder

approval.”96

         Defendants counter that MFW does not require that “every aspect of the

challenged transaction be negotiated by the Special Committee” and, even if it did,

“the Special Committee remained involved in the negotiations with the [MBO]

Group and approved the subsequent increase to the deal price.”97 Defendants further

contend that “the fundamental policy underlying MFW does not exclude—and, in

fact, welcomes—the notion that price bumps may be due to both the Special

95
     Id. 51-52.
96
     195 A.3d at 766-76 (emphasis added).
97
     Special Committee Reply Br. 4-5 (Dkt. 123).
                                            24
Committee’s negotiations and the unaffiliated stockholders’ veto power” and that

the price bump Icahn extracted “is proof that MFW worked—not the opposite.”98

Although the parties have identified an interesting and seemingly novel question, the

court need not resolve it, at least at this time, because Plaintiffs have pled sufficient

facts to demonstrate that at least one of the conditions of the MFW standard has not

been satisfied.

            In summarizing its holding, the Supreme Court in MFW identified six

conditions that must be satisfied to invoke business judgment review of a squeeze-

out merger by a controlling stockholder:

            [I]n controller buyouts, the business judgment standard of review will
            be applied if and only if: (i) the controller conditions the procession of
            the transaction on the approval of both a Special Committee and a
            majority of the minority stockholders; (ii) the Special Committee is
            independent; (iii) the Special Committee is empowered to freely select
            its own advisors and to say no definitively; (iv) the Special Committee
            meets its duty of care in negotiating a fair price; (v) the vote of the
            minority is informed; and (vi) there is no coercion of the minority. 99

“If a plaintiff can plead a reasonably conceivable set of facts showing that any or all

of those enumerated conditions did not exist,” the plaintiff would state a claim for

relief and be entitled to conduct discovery.100 “If, after discovery, triable issues of

98
     Id. 6-7.
99
  MFW, 88 A.3d at 645 (formatting altered), overruled on other grounds by Synutra,
195 A.3d 754.
100
      Id.
                                               25
fact remain about whether either or both of the dual procedural protections were

established, or if established were effective, the case will proceed to a trial in which

the court will conduct an entire fairness review.”101

         Plaintiffs contend that the last five of the six conditions enumerated in MFW

have not been satisfied here. As just discussed, the court need not address each of

these contentions because the failure to comply with a single condition is sufficient

to defeat reliance on the MFW standard. For the reasons discussed next, the court

concludes that Plaintiffs have pled a reasonably conceivable set of facts that the

second condition has not been satisfied based on the Complaint’s allegations that

three of the four members of the Special Committee had a material self-interest in

the Transaction.

         Before addressing Plaintiffs’ factual allegations, it bears mention that the

second MFW condition speaks in terms of the “independence” of members of a

special committee. In my opinion, however, this condition—and the overall MFW

framework—was intended to ensure not only that members of a special committee

must be independent in the sense of not being beholden to a controlling stockholder,

101
      Id. at 645-46.
                                           26
but also that the committee members must have no disabling personal interest in the

transaction at issue.102

         It is well established under Delaware law that directors are interested in a

transaction if they “expect to derive any personal financial benefit” from the

transaction “as opposed to a benefit which devolves upon the corporation or all

stockholders generally.”103 In the absence of self-dealing, for the interest of a

director to be disabling, the “benefit must be alleged to be material to that

director.”104

         Plaintiffs argue that “each of DeCarlo, Fisch, and Gulkowitz was interested in

the Transaction because it extinguished potential liability in the Cambridge

Action.”105 Relying on In re Riverstone National, Inc. Shareholder Litigation,

Plaintiffs argue that the relevant inquiry in this context is whether the pled facts

demonstrate that the directors “were aware that they faced a derivative claim at the

102
    See Orman v. Cullman, 794 A.2d 5, 23-24 (Del. Ch. 2002) (discussing the separate
issues of independence and interestedness).
103
      Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) (citations omitted).
104
  Orman, 794 A.2d at 23 (citing Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del.
1993)).
105
   Pls.’ Answering Br. 60. Plaintiffs contend that for MFW to apply, “all members of the
Special Committee must have been disinterested and independent.” Id. at 59. Given that
the court finds that a majority of the members of the Special Committee had a material
self-interest in the Transaction, it is not necessary to address this argument.
                                             27
time they were considering the [Transaction], that the claim was viable, and that

potential liability was material to [the directors].”106

            In Riverstone, plaintiffs argued “that by orchestrating a merger that

extinguished a possible derivative action, the Director Defendants obtained a special

benefit for themselves, and were thus interested in the transaction.”107 In addressing

this argument, Vice Chancellor Glasscock cautioned that “much ground for strike

suits and other mischief would be possible” if the court were to endorse the theory

based on “a conclusory allegation,” but found the argument to be persuasive where

plaintiffs had:

            plead particularized facts with respect to individual directors showing
            the existence of a chose-in-action against the directors which, if brought
            as a claim would have survived a motion to dismiss; that the director at
            the time of negotiating and recommending the merger was aware of the
            potential action; that the potential for liability was material to the
            director; and that the directors obtained and recommended an
            agreement that extinguished the claim directly by contract.108

Although the court shares Vice Chancellor Glasscock’s concern for caution,

Riverstone sets forth an appropriate framework in my opinion to evaluate Plaintiffs’

argument that the second MFW condition has not been satisfied.

106
      2016 WL 4045411, at *15 (Del. Ch. July 28, 2016).
107
      Id. at *8.
108
      Id.
                                               28
         Significantly, Defendants do not challenge (i) that DeCarlo, Fisch, and

Gulkowitz were aware that they faced a derivative claim in the Cambridge Action

when they were considering whether to approve the Transaction, (ii) that the claim

was viable, or (iii) that the potential liability they faced was material to each of them

personally.109 Nor could they credibly do so.

         DeCarlo, Fisch, and Gulkowitz (and all the other defendants in the Cambridge

Action except Miller) tacitly conceded the viability of the claims against them by

answering Cambridge’s complaint in lieu of making a pleadings stage motion.110 In

denying Miller’s motion to dismiss, furthermore, the court found that the core

allegations of the complaint in the Cambridge Action, which concerned the approval

of a conflicted transaction, were “very troubling” and “very unusual.”111

         As to the materiality of the derivative claim, the Complaint alleges that

(i) Cambridge’s expert valued the claim to be worth “in excess of $300 million” and

109
    To be clear, Defendants do challenge the materiality of the potential liability in the
Cambridge Action relative to the $2.95 billion value of the Transaction. This comparison
is relevant to the inquiry addressed in In re Primedia, Inc. S’holders Litig., 67 A.3d 455
(Del. Ch. 2013), which considers whether a stockholder whose standing to pursue a
derivative claim was extinguished by a merger nevertheless may challenge the merger
directly based on the target board’s failure to obtain sufficient value for the derivative
claim. In that scenario, “the value of the derivative claim must be material in the context
of the merger.” Id. at 477. Here, the question is simply whether the special committee
members had a material self-interest in approving the merger. The relevant focus in this
scenario is whether the potential liability in the Cambridge Action was material to those
directors personally.
110
      Cambridge Action, Dkts. 39, 42, 43, 45.
111
      Cambridge Action Tr. 46-48.
                                                29
(ii) the Special Committee’s financial advisor (Deutsche Bank) informed the Special

Committee that the estimated “net settlement value” of the claim was “between $15

million and $25 million.”112 It certainly is reasonably conceivable that the prospect

of joint and several liability for a claim with a settlement value in this range—from

which it is reasonable to infer the amount of the exposure was much higher—would

be material to DeCarlo, Fisch, and Gulkowitz personally.113

         The Special Committee members attempt to distinguish Riverstone on its facts

because, unlike in that case, the Plaintiffs here do not allege that “the merger

agreement the directors obtained and recommended . . . eliminated any pursuit of the

matter as a corporate asset purchased by the acquirer, as a matter of contract.”114

This distinction does not make a substantive difference in my view.

         Riverstone involved a merger with a third party, Greystar Real Estate Partners,

LLC, in which Riverstone’s stockholders were cashed out and control of the

company transferred to Greystar.115 In this context, a contractual release of claims

against the former Riverstone directors who had been accused of usurping a

112
      Compl. ¶¶ 379, 388; Special Committee Opening Br. 27.
113
    See Orman, 794 A.2d at 31 (“I think it would be naïve to say, as a matter of law, that
$3.3 million is immaterial.”) (finding it “reasonable to infer” director “suffered a disabling
interest when considering how to cast his vote in connection with the challenged merger
when the Board’s decision on that matter could determine whether or not his firm would
receive $3.3 million”).
114
      Special Committee Reply Br. 30 (quoting Riverstone, 2016 WL 4045411, at *1).
115
      Riverstone, 2016 WL 4045411, at *5.
                                             30
corporate opportunity would be important to the directors because, post-merger, the

company and the fate of the claims would be in the hands of a third party with no

exposure to the claims.

      Here, by contrast, the Transaction involves a squeeze-out merger in which

AmTrust’s controlling stockholders (the K-Z Family)—who are the focus of the

usurpation claim at the heart of the Cambridge Action—retained control of the

Company when they took it private. In this context, the absence of a contractual

release of claims would be of little, if any, importance to DeCarlo, Fisch, or

Gulkowitz because it stands to reason that, post-merger, the K-Z Family would never

press claims relating to their own alleged usurpation of a corporate opportunity.

      In sum, for the reasons stated above, the court concludes that Plaintiffs have

pled a reasonably conceivable set of facts showing that each of the conditions

necessary to apply the MFW framework to subject the Transaction to business

judgment review have not been satisfied.116 Accordingly, subject to the court’s

116
    In a footnote, Defendants argue that, “[s]hould the Court decline to dismiss the
Complaint under MFW, the Court should shift the burden of persuasion to Plaintiffs.”
Special Committee Opening Br. 61 n.18. The basis for this request is that the presence of
either of the two procedural protections upon which MFW is premised (i.e., a functioning
special committee of independent directors or approval of an informed and uncoerced vote
of a majority of the unaffiliated stockholders) would shift the burden of persuasion on the
issue of fairness. See MFW, 88 A.3d at 642 (citing Kahn v. Lynch Comm’n Sys., Inc., 638
A.2d 1110. 1117 (Del. 1994)). Although a burden shift ultimately may be appropriate in
this case, it would be premature to shift the burden of persuasion at this stage, before
discovery has been completed.
                                            31
disposition of the Special Committee defendants’ motion to dismiss under

Cornerstone, which is discussed in the next section, Counts I and III of the

Complaint state claims for relief for which Plaintiffs are entitled to take discovery.117

       B.     The Special Committee Defendants’ Cornerstone Defense

       In addition to relying on MFW, the Special Committee defendants argue that

the court should dismiss them from this action because the Complaint fails to allege

a non-exculpated claim for breach of fiduciary duty against them.

       The Special Committee defendants are protected by a Section 102(b)(7)

provision in Amtrust’s certificate of incorporation.118           As our Supreme Court

explained in Cornerstone, “[w]hen a director is protected by an exculpatory charter

provision, a plaintiff can survive a motion to dismiss by that director defendant by

pleading facts supporting a rational inference that the director harbored self-interest

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

117
   MFW, 88 A.3d at 645 (“If a plaintiff that can plead a reasonably conceivable set of facts
showing that any or all of those enumerated conditions did not exist, that complaint would
state a claim for relief that would entitle the plaintiff to proceed and conduct discovery.”).
During oral argument, Defendants argued for the first time that even if the court concludes
that MFW does not apply, the court should prohibit Plaintiffs from challenging the value
the Special Committee attributed to the Cambridge Action as part of their direct challenge
to the overall fairness of the Transaction. Mot. to Dismiss Hr’g Tr. 56 (November 5, 2019)
(Dkt. 129). Defendants did not fairly present this argument during briefing and thus the
court declines to impose any such limitation at this time.
118
   See Konstanzer Aff. Ex. 33 Art. XI (Dkt. 95); see also McMillan v. Intercargo Corp.,
768 A.2d 492, 501 n.40 (Del. Ch. 2000) (noting the court may take judicial notice of the
Company’s certificate of incorporation).
                                             32
interested party from whom they could not be presumed to act independently, or

acted in bad faith.”119

         For the reasons discussed above, Plaintiffs have pled facts supporting a

rational inference that DeCarlo, Fisch, and Gulkowitz harbored self-interest adverse

to the interests of Amtrust’s minority stockholders when they approved the

Transaction because, as a practical matter, it would have extinguished viable claims

against each of them for which they faced significant potential liability.

Accordingly, the motion to dismiss Count I for failure to state a non-exculpated

claim for breach of fiduciary duty is denied as to these three individuals.

         The fourth member of the Special Committee, Rivera, is situated differently

than its other three members. Rivera joined the Board in August 2016, almost two

years after the transaction challenged in the Cambridge Action closed, and was not

named as a defendant in the Cambridge Action.120 Plaintiffs do not allege that Rivera

had a material self-interest in the Transaction. Nor do they allege facts challenging

Rivera’s independence. Given the absence of any such allegations, Plaintiffs’ claim

against Rivera turns on whether the Complaint alleges sufficient facts from which it

is reasonably conceivable he acted in bad faith.

119
      115 A.3d at 1179-80.
120
      Compl. ¶¶ 66, 154.
                                          33
         To support an assertion of bad faith, Plaintiffs must plead facts demonstrating

that Rivera “intentionally fail[ed] to act in the face of a known duty to act,

demonstrating a conscious disregard for [his] duties.”121 Plaintiffs have not done so.

         There are few allegations in the Complaint specifically about Rivera.

Lumping him together with the other three members of the Special Committee,

Plaintiffs argue through group pleading that he acted in bad faith because the Special

Committee defendants (i) sought downward projections, (ii) failed to engage

actively in the sale process with Icahn, and (iii) knew the Proxy was materially

misleading. As to each of these acts or omissions, however, Plaintiffs’ allegations

are conclusory and do not provide factual support that rises to the level of bad faith.

         With respect to the disclosures in the Proxy, for example, Plaintiffs state that

the Special Committee members “knew language in the Proxy was materially

misleading”122 but they provide no factual support to backup this assertion, much

less to suggest that Rivera intended to disregard his obligation to ensure that the

Company disclosed all material information to its stockholders. To be sure, the

series of revisions to the Company’s projections in the midst of negotiations with

the MBO Group and the Special Committee’s lack of involvement with Icahn and

121
   Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (citation and internal
quotations omitted).
122
      Pls.’ Answering Br. 88.
                                            34
members of the K-Z Family as they separately discussed a price increase, raise

significant questions about the process that the Special Committee undertook and its

effectiveness. Plaintiffs have failed, however, to allege facts concerning these

matters that rise to the level of bad faith on the part of the Special Committee

members, including Rivera.

                                        *****

         For the reasons discussed above, the motion to dismiss Count I is denied as to

DeCarlo, Fisch, and Gulkowitz, but granted as to Rivera.

         C.    The Claim Against Zyskind in his Capacity as an Officer

         Count II of the Complaint asserts that Zyskind, in his capacity as an AmTrust

officer, “breached his fiduciary duties by placing his own interests ahead of those of

AmTrust’s public stockholders.”123 The K-Z Family defendants argue that the court

should dismiss this claim because Zyskind “is not alleged to have taken any actions

in his capacity as an officer that would constitute a breach of his fiduciary duties to

the Company’s stockholders.”124

         Although the Complaint repeatedly refers to AmTrust management in

describing the negotiation process, it does not contain allegations regarding specific

actions taken or statements made by Zyskind in his capacity as an officer during the

123
      Compl. ¶ 457.
124
      K-Z Family Opening Br. ¶ 14.
                                           35
negotiations. When the Complaint specifically mentions Zyskind, it does so in his

capacity as a director of AmTrust. Plaintiffs did not address this deficiency in their

brief or at oral argument, and thus waived the issue.125 Accordingly, the court will

grant the motion to dismiss Count II. Zyskind, of course, will remain in the case as

a defendant for purposes of Counts I and III in his capacity as a director of the

Company and part of its control group.

         D.    The Aiding and Abetting Claim Against the Stone Point
               Defendants
         Count IV of the Complaint asserts that the Stone Point Defendants “aided and

abetted the Director Defendants and Zyskind as an officer defendant, in the aforesaid

breach of their fiduciary duties.”126 The elements of a claim for aiding and abetting

a breach of fiduciary duty are: “(1) the existence of a fiduciary relationship, (2) a

breach of the fiduciary’s duty, (3) knowing participation in that breach by the

defendants, and (4) damages proximately caused by the breach.”127 “An aider and

abettor knowingly participates in a breach when it acts with the knowledge that the

conduct advocated or assisted constitutes such a breach.”128

  See Emerald P’rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”) (citations
125

omitted).
126
      Compl. ¶¶ 475-78.
  In re Volcano Corp. S’holder Litig., 143 A.3d 727, 750 (Del. Ch. 2016), aff’d, 156 A.3d
127

697 (Del. 2017).
128
  Chester Cty. Emps.’ Ret. Fund v. KCG Holdings, Inc., 2019 WL 2564093, at *18 (Del.
Ch. June 21, 2019) (internal citations omitted).
                                           36
         For the reasons discussed above, Plaintiffs have satisfied the first two

elements of an aiding and abetting claim by successfully pleading claims for breach

of fiduciary duty against three of the four members of the Special Committee and

against the three members of the K-Z Family as directors of the Company. Plaintiffs

advance essentially two arguments in an effort to satisfy the element of knowing

participation, but both fail to plead facts demonstrating that the Stone Point

Defendants knew that their conduct advocated for or assisted in a breach of fiduciary

duty by any of the individual defendants.

         First, Plaintiffs contend that the Stone Point Defendants “knew the members

of the Special Committee were not independent and disinterested.”129 In support of

this contention, Plaintiffs assert that it was widely known that “[t]he chairperson of

the Special Committee (DeCarlo) was a longtime friend, lawyer, business associate

and ally of the Karfunkel-Zyskind Family.”130 Plaintiffs also assert that “Stone Point

had to have been aware of the Cambridge Derivative Action and the Accounting

Derivative Action,” that these actions “undoubtedly would have been analyzed as

part of Stone Point’s due diligence,” and thus Stone Point must have known “it was

not paying value for [those derivative actions] despite ‘deeply troubling’ conduct

129
      Pls.’ Answering Br. 90.
130
      Id. 90-91 (citing Compl. ¶ 375).
                                          37
observed by this Court.”131 The Complaint, however, fails to allege facts sufficient

to support these assertions such that it would be reasonable to infer that the Stone

Defendants “knowingly participated” in a breach of fiduciary duty.

          Plaintiffs ask the court to infer that Stone Point Defendants knew DeCarlo

would not consider the merits of the Transaction independently based on a single

allegation in the Complaint. The relevant allegation is that ISS reported three

months after the Transaction was announced that “DeCarlo ‘has served since 2006

as an AmTrust director and since 2010 as a director of [NGHC], an insurance

company where Zyskind has been a director since 2013 and whose CEO Barry

Karfunkel.’”132 This allegation of board service on the AmTrust Board and one other

company controlled by the K-Z Family, without more, is insufficient to support a

reasonable inference that DeCarlo did not have the independence to serve on the

Special Committee.133 Plaintiffs’ assertions that the Stone Point Defendants must

have known members of the Special Committee were interested in the Transaction

131
      Id. 91.
132
   Id. 91 n.298 (citing Compl. ¶ 375). “NGHC” refers to National General Holdings Corp.,
an entity the K-Z Family controlled that played a role in the transaction involving Tower
Group International, Ltd., which was the subject of the Cambridge Action. Compl. ¶ 17.
133
   See In re BGC P’rs, Inc., 2019 WL 4745121, at *7-8 (Sept. 30, 2019) (Although “our
law is not blind to the practical realities of serving as a director of a corporation with a
controlling stockholder,” this allegation alone is insufficient to establish a lack of
independence from the controller.).
                                            38
due to the Cambridge Action are not only speculative as stated in their brief, they

are unsupported by any citations to the Complaint and thus are conclusory.134

         Second, Plaintiffs argue that the court should infer that the Stone Point

Defendants acted with scienter because they and the K-Z Family met privately with

A.M. Best and later explained to the Special Committee their “views on the

Company’s financial position and the effect that the going private transaction could

have on the Company’s rating by A.M. Best Company.”135 The flaw in this theory

is that Plaintiffs do not explain why it would be reasonable to infer that the MBO

Group’s alleged discussions with the Special Committee about the potential impact

a transaction would have on its rating by A.M. Best—which had placed AmTrust

“under review with negative implications” months earlier136—amounted to anything

other than arm’s-length negotiations.137

134
    See Pls.’ Answering Br. 91. As discussed above, the Complaint pleads a reasonably
conceivable set of facts that three of the four members of the Special Committee had a
material self-interest in the Transaction. See Part III.A. With respect to the aiding and
abetting claim, however, the critical failure of the Complaint is the lack of any factual
allegations supporting a reasonable inference that the Stone Point Defendants knew about
and exploited this conflict of interest in its dealings with the Special Committee.
135
      Id. 92-93 (citing Compl. ¶ 289).
136
   Compl. ¶ 215 (“On November 9, 2017, A.M. Best announced that AmTrust was ‘under
review with negative implications.’”).
137
   Morgan v. Cash, 2010 WL 2803746, at *8 (Del. Ch. July 16, 2010) (“[A]rm’s-length
bargaining is privileged and does not, absent actual collusion and facilitation of fiduciary
wrongdoing, constitute aiding and abetting.”).
                                            39
      In sum, Plaintiffs have failed to plead facts sufficient to support a reasonable

inference that the Stone Point Defendants knowingly participated in a breach of

fiduciary duty by the members of the Special Committee or the K-Z Family.

Accordingly, the court will grant the motion to dismiss Count IV.

IV.   CONCLUSION

      For the reasons explained above, the court grants in part, and denies in part,

the Defendants’ motions to dismiss the Complaint. The parties should confer and

submit an order implementing this decision within five business days.

                                         40