Court Opinion

ID: 2800224
Source: CourtListenerOpinion
Date Created: 2015-05-12 19:05:48.104649+00
Date Added: 2024-06-11T12:12:19.936740
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IRONWORKERS DISTRICT
COUNCIL OF PHILADELPHIA &
VICINITY RETIREMENT & PENSION
PLAN,

Plaintiff,

V5,;-

LAMBERTO ANDREOTTI, BART
BAUDLER, JOHN BEDBROOK,
SAMUEL W. BODMAN, JAMES
BOREL, RICHARD H. BROWN,
ROBERT A. BROWN, DENNIS
BYRON, BERTRAND P. COLLOMB,
THOMAS M. CONNELLY, DANIEL
J. COSGROVE, CURTIS J.
CRAWFORD, ALEXANDER M.
CUTLER, JOHN T. DILLON,
ELEUTHERE I. DU PONT, ERIK
FYRWALD, MARILLYN A.
HEWSON, CHARLES O. HOLLIDAY,
ROBERT C. IWIG, DANIEL E.
JACOBI, LOIS D. JULIBER, JEFFREY
L.  ELLEN KULLMAN,
MICHAEL LASSNER, TRACY
LINBO, CARL J. LUKACH, JUDITH
MCKAY, WILLIAM NIEBUR, DEAN
OESTREICH, WILLIAM K. REILLY,
THOMAS L. SAGER, PAUL
SCHICKLER, JOHN SOPER, LEE M.

THOMAS, PATRICK J. WARD,

 

Defendants,

and E. I. DU PONT DE NEMOURS
AND COMPANY,

Nominal Defendant...

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C.A. No.9714-VCG

 

MEMQRAELLMDELNJQE.

 

 

 

Date Submitted: February 10, 2015
Date Decided: May 8, 2015

Joanne P. Pinckney, Elizabeth Wilbum Joyce, and Seton C. Mangine, of
PINCKNEY, WEIDINGER, URBAN & JOYCE LLC, Wilmington, Delaware;
OF COUNSEL: John Bradham, Nicholas Brunero, and Peter B. Katzman, of
MAZZEO SONG & BRADHAM LLP, New York, New York; Ariana J. Tadler,
Kent A. Bronson, and Gloria Kui Melwani, of MILBERG LLP, New York, New
York; Jacob A. Goldberg and Alessandra C. Phillips, of COHEN, PLACITELLA
& ROTH, PC, Philadelphia, Pennsylvania, Attorneys for Plaintiﬂ Ironworkers
District Council of Philadelphia & Vicinity Retirement & Pension Plan.

Lewis H. Lazarus, Joseph R. Slights, III, and Thomas E. Hanson, Jr., of MORRIS
JAMES LLP, Wilmington, Delaware; OF COUNSEL: Evan R. Chesler, of
CRAVATH, SWAINE & MOORE LLP, New York, New York, Attorneys for
Defendants Ellen Kullman and Thomas L. Sager.

Michael P. Kelly, Andrew S. Dupre, and Daniel J. Brown, of MCCARTER &
ENGLISH, LLP, Wilmington, Delaware; OF COUNSEL: Donald Scott and Brian
C. Swanson, of BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP,
Chicago, Illinois, Attorneys for Defendants Bart Baudler, John Bedbrook, James
Borel, Dennis Byron, Thomas M Connelly, Daniel J. Cosgrove, Erik Fyrwald,
Robert C. Iwig, Daniel E. Jacobi, Jeffrey L. Keefer, Michael Lassner, Tracy Linbo,
Carl J Lukach, Judith McKay, William Niebur, Dean 0estreich, Paul Schickler,

and John Soper.

Kevin G. Abrams, of ABRAMS & BAYLISS LLP, Wilmington, Delaware,
Attorneys for Defendants Lamberto Andreotti, Samuel W Bodman, Richard H.
Brown, Robert A. Brown, Bertrand P. Collomb, Curtis J. Crawford, Alexander M
Cutler, John T. Dillon, Eleuthere I. du Pont, Marillyn A. Hewson, Charles 0.
Holliday, Lois D. Juliber, William K. Reilly, Lee M Thomas, and PatrickJ. Ward;
OF COUNSEL: David E. Kendall, Douglas R. Marvin, and Ana C. Reyes, of
WILLIAMS & CONNOLLY LLP, Washington, DC, Attorneys for Defendants
Lamberto Andreotti, Richard H. Brown, Robert A. Brown, Bertrand P. Collomb,
Curtis J. Crawford, Alexander M Cutler, Eleuthere I. du Pont, Marillyn A.
Hewson, Lois D. Juliber, Lee M Thomas, and Patrick J. Ward; Charles Bachman
and Edward N. Moss, of O’MELVENY & MYERS LLP, New York, New York,
Attorneys for Defendants Samuel W Bodman, John T. Dillon, Charles 0. Holliday,

 

 

 

Defendants, OfﬁcerﬂEmployee Defendants, and the Nominal Defendant, DuPont,
are together referred to as the “Defendants.”

The Complaint asserts eight counts that can be roughly categorized as
follows6: (l) the fiduciary duty claims based on the facts underlying the Monsanto
litigation, as asserted in Count 1,7 (2) ﬁduciary duty claims based on failure to
disclose information to the Board, as asserted in Counts II and III;8 (3) various
misrepresentation-type claims for communications regarding the Company’s
licensing rights from Monsanto and the nature of its GAT product, as asserted in
Count IV, V, and VI;9 (4) a waste claim for the costs associated with litigation
against Monsanto, including the settlement, asserted in Count VII;10 and (5) a
Caremark claim alleging failure of control and risk oversight related to the facts
underlying the litigation with Monsanto and the misrepresentation—type claims.11 I
will detail the factual basis for these claims in rough chronological order.

B. The Monsanto Arms Race and Development of GAT

a—_=_=_ _ ——=——-—_ _ _

6 Because this is before me on a motion to dismiss under Rule 23.1, my focus is not on deciding
merits of the causes of action asserted in the Complaint. See In re Sanchez Energy Derivative
Litig, 2014 WL 6673895, at *4 (Del. Ch. Nov. 25, 2014) (discussing the differences, both
theoretical and in terms of applicable standards, between a motion under Rule 12(b)(6) and one
under Rule 23.1).

7 Am. Compl. 1111323—29.
8 Id. W 330—38. 1 note that Count II is asserted in the alternative to Count I. The allegation is

that either the Board knew about the facts underlying the Monsanto litigation, and thus breached
its ﬁduciary duties by either sanctioning the conduct that resulted in litigation or by consciously
failing to investigate such conduct, or the Ofﬁcer/Employee Defendants failed to disclose these
facts to the Board prior to May 15, 2009.

9 Idaho 1111 339—56.

'0 Id. 1111 357—62.

” Id. 1111 363—66.

 

 

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Agriculture is a large segment of the Company’s business, accounting for
approximately half of its research and development costs, and nearly a quarter of
the Company’s net sales in 2011. What follows is an only-slightly-abbreviated
play-by—play of the Company’s attempt to develop a competitor to Monsanto’s
Roundup Ready trait, including at least two related ongoing processes: the
Company’s development and marketing of its competitive trait (GAT, as discussed
below), and, while that was ongoing and proving difﬁcult, the Company’s
strategizing and planning for an alternative approach.

Monsanto’s well-known glyphosate-based herbicide, Roundup, led to its
development of a gene trait known as Roundup Ready (“RR”). R alters seeds to
create plants that are resistant to Roundup, so that the herbicide kills only
unwanted plants, not the actual crops. In 2002, DuPont and Pioneer negotiated
non-exclusive license agreements with Monsanto for the right to use the RR gene
in soybean seeds (the “2002 License Agreement”) and corn (together with the 2002
License Agreement, the “2002 License Agreements”).12 The Plaintiff alleges, and
a federal district court judge found, that Section 2.09 of the 2002 License
Agreements prohibited commercialization of “stacked” products—the practice of

combining multiple gene traits—and that this was a prohibition known to, and in

 

,. ._____ ——————————--—_ _ _ _

12 The agreement relating to soybeans is most relevant in this action, but the Complaint
occasionally refers to both agreements. Unless referred to in the plural, any reference to the
2002 License Agreement refers to the agreement with respect to soybeans.

9

 

fact negotiated by, several of the Ofﬁcer/Employee Defendants, which the Plaintiff

3

contends includes Jacobi, Cosgrove, and Miller.1 The Complaint alleges, for

example, that on March 14, 2002, Jacobi circulated to Cosgrove and Miller, among
others, a redline version of the soybean agreement which “ha[d] been modiﬁed to
remove the [anti—]stacking provisions,” a change that would have allowed stacking
but was ultimately rejected and not reﬂected in the ﬁnal agreement.14

Eventually concluding that its annual $100 million fees to Monsanto under
the 2002 License Agreements were creating long-term ﬁnancial disadvantages and
hampering its ability to compete, the Company began to develop its own
glyphosate—resistant gene trait, GAT, which would compete with R and allow the
Company to stop paying licensing fees. The Company thus began its “arms race”
with Monsanto, endeavoring to push GAT to market in advance of Monsanto’s
anticipated release of Roundup Ready 2 (“RR2”), the second generation of the RR
gene;5

On March 2, 2006, Oestreich, then-President of Pioneer, publicly announced
GAT at a trade show. A press release that same day indicated GAT would be

available in 2009 and described it as possessing “unsurpassed glyphosate

13 Am. Compl. W 94—99. See, e.g., id. 1] 95 (quoting a March 26, 2002 email from Miller to
Cosgrove in which Miller wrote, “By the way, I just found out that section 2.09 may be a
problem. . . . Our 1992 agreement is not so restrictive and permits us to commercialize stacks so
long as they still meet the Commercialize Tolerance deﬁnition. We need to get back to that
language so we are not limited”).

‘4 Id. 11 94.

‘5 Id. 11100.

 

10

 

 

tolerance” that would “allow for higher glyphosate application rates and a wider
application window than other products currently available”—i.e., Monsanto’s
RR.16 DuPont’s shares rose by $0.43 that day. In the months that followed, the
Company began negotiating licensing agreements for GAT and informed investors
that it could lead to an additional $200 million or more in annual revenue for the
Company.

By June 2006, however, GAT ﬁeld trials were already producing
disappointing results by way of stunted growth. The trials and poor results
continued into early 2007, but, as the Plaintiff alleges, the Company continued to
represent GAT’s superiority to the market and indicate that it was on track for
commercial release in 2009.17

In August 2006, Monsanto acquired Delta & Pine Land (“Delta Pine”), a
company with which DuPont had previously done business. Speciﬁcally, Delta
Pine had agreed, just prior to the acquisition, to a license for use of GAT in cotton
for a $21 million upfront payment to DuPont. About this time, DuPont launched
its “Project Choice Initiative,” which set out to “push back against Monsanto’s
anticompetitive behavior using legal, regulatory, and public relations resources.”18

Together, the acquisition of Delta Pine and the Project Choice Initiative “created a

"16121. 11—105‘._—“
‘7 See id. 1111 114—116.
‘8 Id. 11101.

l

11

 

 

 

large amount of animosity and distrust between Monsanto and the Company,”

which “colored the parties’ interactions in subsequent years.”19

Beginning in or around early July 2007, Pioneer began considering whether
to stack GAT with R, rather than continue moving forward with GAT as a stand-
alone product. As the Complaint alleges, various groups comprised of Niebur,
Cosgrove, Jacobi, Fyrwald, Bedbrook, Byron, and Oestreich discussed this matter
on July 10, 2007, and Cosgrove, then—Corporate Counsel and IP Group Leader,

stated that he was “of the opinion that you are free to create test crosses with [R]

3:20

and GAT and could start that immediately. On July 13, Byron submitted a

presentation to Soper, non-party Nita Seelinger,21 non-party Daria Schmidt,22
Foley, Stephens, “and others,” which was later presented to then-CEO of the
Company, Holliday. The presentation discussed poor testing, including “stunting
and slight yellowing” as compared to Monsanto’s RR product that lacked these
side effects, and suggested the Company consider stacking GAT with RR.23 The

presentation was later sent to Fyrwald, Bedbrook, Lukach, and Niebur. In spite of

WMﬂlm.
mMﬂlw.
21 Seelinger is the Director of Executive Plans and Business Planning with DuPont. Id. at 38

n.19.
22 Schmidt was the head of the GAT Core Team and a Research Director for Trait

Characterization and Development for Pioneer. “She was also on the Soybean Herbicide
Tolerance Working Team. Prior to 2000, Schmidt was the Soybean Research Manager, the
Oilseeds Technology Coordinator and the Director of Technology Integration/Associative
Genetics for Oilseeds and Field Crops at Pioneer.” Id. at 38 n.20.

BMﬂUQ

12

the known difﬁculties, Fyrwald remained optimistic about GAT’s future in a July
24, 2007 earnings call, stating that GAT would be “a huge drive of earnings
improvement” for the Company and touting what would be the “outstanding
performance” of GAT.24

In a meeting on August 27, 2007, Baudler, Byron, Soper, Iwig, Schmidt,
Linbo, Seelinger, and non—party Tracy Willits25 discussed the poor field test results
and how to move toward a successful launch in spite of them. They also discussed
a biweekly “review with Leadership,” which included Oestreich, Fyrwald, and
Bedbrook.26 That same day, Seelinger asked Cosgrove “and others” about
negotiating the right to commercialize an RIUGAT stack; Cosgrove forwarded the
message to Jacobi, stating, “We might be able to really accelerate timelines if we

can sell a stacked product of [RR] and GAT. Questionable whether we have the

right to do so now.”27

In September, upon receiving a question from Jacobi concerning the “current

advice to R&D on stacking RR and [GAT] in beans,” Cosgrove responded,

2“ I .11121.
25 Willits “was the Employee Communications Manager at Pioneer from October 2002 to May
2007, the Senior Communications Manager, NA Region from May 2007 to April 2011, the
Senior Manager, Communications, America Group from April 2011 to May 2013, and is
currently the North American Communications Manager.” Willits was also on the Soybean
Herbicide Tolerance Working team and was a member of the GAT Core Team. 1d. at 45 n. 23.

26 Id. 11124.

27 Id. 11125.

 

13

 

 

“Current: they can stack but no commercial rights.”28 Meanwhile, an October 16,
2007 report circulated by Seelinger to Oestreich, Niebur, Schickler, Willits, Iwig,
Soper, Linbo, and Byron indicated that only 1—2% of GAT crops met the
Company’s quality standards. The next day, however, the Company issued a press
release reiterating that it was on track to introduce GAT in soybeans by 2009 and
that GAT would “offer[] growers expanded choices for controlling a broad
spectrum of weeds through both glyphosate and ALS herbicide tolerance.”29 That
release did not mention stacking GAT with RR.

In a December 19, 2007 meeting, Byron, Lassner, Schmidt, Cosgrove, and
Foley discussed whether the Company should “[b]ite the bullet and take the hit to
walk away from [GAT];” whether the Company should “blame the government—
could be to our advantage for time;” or “admit it is not ready for release—protect
our brand name;” whether the Company should “[b]ack off promotion to decrease

[the] public’s expectations;” and whether stacking GAT with RR would produce a

“reward worth the cost.”30

By the end of 2007, the research team was recommending against continuing

to pursue GAT as a stand-alone product.31 Throughout this process, regular reports

 

23 Id. 'n 127.
29 Id. 11129.
3° Id. 11130.
3‘ See id. 11 131,,

14

 

were provided to senior employees and by January 2008, according to the

Complaint,

“upper management,” including Fyrwald, Schickler, Oestreich,
Niebur, Bedbrook, Ross, Seelinger, Lassner, Jacobi, Cosgrove, Soper
and Iwig concluded internally that the Company had to officially
abandon GAT as a stand-alone product and to instead pursue stacking
GAT with R, despite the fact that they knew the Company was not
permitted to commercialize such a product pursuant to the 2002
License Agreement with Monsanto (as Cosgrove and Jacobi had
expressly recognized).32

The decision to pursue the GAT/RR Stack was, the Plaintiff contends,
intended to conceal the problems with GAT as a stand-alone product;33 problems
were continuing to become apparent in mid- to late-January and certain employees
recognized that a failure to bring GAT to market would place the Company at
“signiﬁcant competitive risk.”34 It was around this time that the Company began
using the term “GRS” to refer to the GAT/RR Stack internally, while continuing to
publicly promote “GAT,” which was used interchangeably for either the GAT
stand—alone product or the GAT/RR Stack.35

As the Company continued to move forward, on January 19, 2008,

Bedbrook and Fyrwald discussed whether they had stacking rights; upon Fyrwald’s

32 Id. 11134.
33 See id. 1] 126. The Plaintiff also contends that the Company wished to protect its historically
strong market share in corn, which had been slipping to Monsanto; that is, it wanted to “guard
against competitors using soybeans [i.e., RR products] to gain access to our com customers.” Id.
See also id. 1] 135.

34 Idaho 11 138; see also id. 11 136.

35 Id. 11135.

15

 

 

suggestion that Bedbrook conﬁrm with Cosgrove, Bedbrook reported back, “[W]e

7936

don’t have commercial rights. Between January 22 and January 24, 2008,

Soper, Stephens, Schmidt, Lassner, Seelinger, Linbo, and others engaged in a
planning session which included “extensive” discussions of GAT, including talk of
“negotiations with Monsanto for stacking with RR.”37 The group also prepared for
an upcoming presentation of the Soybean Research Leadership Team at which it
would recommend “discontinu[ing] product development for [GAT] alone and
transition[ing] toward a stacking strategy.”38 It recognized the need to “evaluate
legal implications.”39

Around this time, on January 26, 2008, emails between non-party Frank
Ross,40 Niebur, Bedbrook, and Schickler show discussions of efforts to counter
rumors that GAT was performing poorly in the ﬁeld. That same day, a series of
emails show that the Soybean Research Leadership Team was recommending
“discontinuation of GAT-only product evaluation” and a “rapid transition of
breeding efforts toward a stack of GAT with an alternate glyphosate tolerance
gene, if possible.”41 Lassner, Vice President of Trait Discovery for the Company,
responded, “I agree with killing [GAT] as a stand alone product for beans” but
iii—M11139.
37 Idaho 11 141.
3816111142.

39
Idaho
40 Ross was Pioneer’s Vice President and Regional Director, North America. Id. 1] 143,,

“16111144.
16

 

 

noted his objection to ceasing regulatory approval efforts, as a stacked product
would still require regulatory approval.42

In a January 28, 2008 meeting including Soper, lwig, Jacobi, Bedbrook,
Seelinger, Fyrwald, Schickler, Niebur, Oestreich, Ross, Cosgrove, Lassner, and
others, the Soybean Research Leadership Team made its recommendation,
“[b]ased on the off season trial results and given the current situation,” to transition
from developing stand—alone GAT products to a stacked product; the team also
recognized the need to “negotiate access to an alternate glyphosate tolerance
source for stacking.”43 Thus, the Plaintiff contends that “the Ofﬁcer/Employee
Defendants knew that DuPont could not commercialize the GAT/RR Stack without
Monsanto’s approval” as of January 28, 2008.44

That same day, Cosgrove, counsel for the Company, emailed Jacobi and said
that the 2002 License Agreement, speciﬁcally Section 2.09, “seems to limit the
ability to stack GAT plus RR,” and that “[a] conservative reading says we can
stack but may not be able to commercialize, a potentially useless right.”45

As presented in its internal 2008 Annual Report for Soybean Product
Development and Supporting Projects, a “consensus on a new path was reached
with upper management in January of 2008” in which “[p]lans to introduce
 Id.
43 Idaho 11 146.

441d
“tha

17

 

 

and William K. Reilly.

Donald J. Wolfe, Jr. and Michael A. Pittenger, of POTTER ANDERSON
CORROON LLP, Wilmington, Delaware; Edward P. Welch, of SKADDEN,
ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; OF
COUNSEL: Thomas J. Nolan and Allen L. Lanstra, of SKADDEN, ARPS,
SLATE, MEAGHER & FLOM LLP, Los Angeles, California, Attorneys for
Nominal Defendant E. I. du Pont de Nemours and Company.

GLASSCOCK, Vice Chancellor

Optimum GAT—only products were discontinued.”46 Trials on the GAT/RR Stack
began quickly thereafter. The Plaintiff contends, based on this report and the
aforementioned meetings, that the Company stopped pursuing GAT as a stand-

alone product in January of 2008.47

Nonetheless, in a February 11, 2008 email, Ross, who was then-Vice
President of the Company’s North America division, informed North America
operations employees that Fyrwald would be making a presentation on GAT at the
Goldman Sachs Agricultural Bio Forum, reiterated the Company’s “excite[ment]
about the potential Optimum GAT presents to our business,” and noted its “new
approach” for GAT involving a “combination of technologies,” in reference to
combining GAT with a non-trait technology; Ross did not mention the GAT/RR
trait combination.48 In this email, Ross also included a Q&A on GAT as “a guide
to help you answer questions,” the answers for which were “not forthcoming and
highly deceptive,” according to the Plaintiff.49 The same day, Soper emailed
Willits and Seelinger, both Company scientists, and, with respect to any questions
about “a delay in the ramp-up of [GAT] soybean,” instructed them, “[U]nder no

circumstances should you discuss our stacking strategy or speciﬁc yield

 

E _—=_ _‘=——F—— _:

46 Id. ﬁl 145. The Complaint does not indicate whether the Annual Report was dated.

47 See id. 1111 8, 183.

48 Id.. W 153—54 & n.25. This “new approach” was announced as “bring[ing] together our best
germplasm, Optimum GAT and AYT.” 1d. 11 154. The Plaintiff explains that AYT is not a trait
like GAT or RR, but rather, a collection of marker technologies used to enhance crop yield. Id.
at 58 n.25.

49 Idaho 11 155.

18

 

 

w50

enhancement information with anyone who does not need to know. He instead

instructed them to focus on positive messages.

A General Manager of the Company, Martin Fabrizius, responded to the
Q&A document the next day, questioning, “Why do we feel compelled to make
such allusions?”5] Fabrizius further opined that the Q&A “talks about [the new
approach] in a very unfortunate, misleading and untruthful way. We who have to
face sales and the customer will pay for this piece of trash if it gets circulated.”52

At the Goldman Sachs conference, Fyrwald represented that GAT was on
target for a “limited commercial release in 2009.”53 In its February 19, 2008 Form
lO-K, released a week after the conference, the Company indicated “new products
such as Optimum GAT traits . . . will provide signiﬁcant growth.”54 At this time,
the Company was using “Optimum GAT”—previously only used to refer to
GAT—to refer to both GAT alone and the GAT/RR Stack, interchangeably.55

Despite the documents referred to above, and the Plaintiff’s allegation that
stand—alone GAT had been abandoned by early 2008, the Committee’s Report
makes clear that throughout the spring and summer of 2008, the Company

continued trials of GAT as a stand-alone product, in addition to conducting trials of

_ -—‘= 

 

;0_ _ _

Id. Tl 156.
5] Id. 1] 157. The Plaintiff contends that this question was referring to yield potential and
commercialization of GAT, as well as timing of GAT’s release. Id.

52 Id. (alteration in original).
53 Idaho 11 158.

54 Idaho 11 159.
55 Id. 1] 154; see also supra note 35 and accompanying text.

19

 

 

 

 

the GAT/RR Stack. The Committee notes that Company decided not to disclose
its development of a stacked product at that time, after consulting with the legal
department and others and determining that (l) the information was not material
and (2) disclosure might be confusing to the market, as the Company had not made
a ﬁnal decision and testing was ongoing.56 This is contrary to the Plaintiff’s
blanket assertion that the Company ceased its pursuit of GAT as a stand—alone

product in January 2008.57 The Committee found that, in considering multiple

documents, including “certain documents [that] suggest that a decision to pursue

 

stacking (and abandon the :5" "7f"; GAT standalone product) had been deﬁnitely

made at some earlier point, the investigation revealed” that the decision to abandon

stand-alone GAT was not in fact made until the fall of 2008.58

C. Negotiations with Monsanto

Around this same time, in early 2008, in conjunction with ongoing
negotiations internally known as “Project Green,”59 Pioneer informed Monsanto

that it was pursuing development of the GAT/RR Stack and was interested in a

56 Opening Br. in Supp. of Defs.’ and Nominal Def.’s Mot. to Dismiss Pursuant to Rule 23.1 Ex.
A (Report of the Evaluation Committee of the Board of Directors of BL Du Pont de Nemours
and Company) at 75 (the “Report”).

57 See supra notes 44—46 and accompanying text; Am. Compl. ‘ﬁ 8.

53 Report at 75 n.293.

59 See Am. Compl. 1[ 162 (characterizing the nature of the Project Green negotiations as
“attempting to negotiate with Monsanto the right to stack GAT with RR”); but see Report at 90—
91 & n.339 (noting that, more broadly, Project Green involved negotiation of “a potential
collaboration related to output traits in soybeans,” which ultimately included a negotiation for

GAT/RR stacking rights).

 

20

 

“mutual stacking rights exchange?”0 In an April 18, 2008 email, Borel reported to
Schickler, Bedbrook, Seelinger, and Cosgrove that a call with Carl Casale,
Executive Vice President of Strategy and Operations for Monanto, had not gone
well; Borel relayed that Carl “is not willing at this stage to stack Optimum GAT
in.”61 This email, the Plaintiff contends, “demonstrates that the Defendants knew
in April 2008 that it was Monsanto’s position both that they did not have the right
to stack GAT [with] R under the 2002 License Agreement, and that Monsanto

9962

would not agree to same. As outlined above, the Company continued to

publicly promote GAT throughout the spring of 2008, while, the Plaintiff alleges,
continuing to mislead by failing to disclose its true nature as a stack of GAT with
RR.63 On July 17, 2008, for example, the Company issued a press release stating it
had received United States regulatory approval of GAT in soybeans, was planning
demonstration plots in 2009—2010, and would introduce soybeans with GAT in
2011, “continu[ing] to misrepresent to the public that GAT was still a viable

product in its pipeline despite the fact that the Company had abandoned it as a

_;.___— Eu=iu

'60 Am. Compl. 11 163.

6‘ Id. 11168.

62 Idaho 11 169. I note that the Report provides that August 25, 2008 “was the ﬁrst time
management realized Monsanto may be an obstacle to pursuing the [GAT/RR Stack].” Report at
94.

63 See, e.g., Am. Comp]. 111] 174—87.

21

 

 

 

stand-alone product,” all while “continu[ing] to conceal its plan to stack GAT with
RR_,,64

Negotiations continued, and, on August 11, 2008, the Company made a
proposal to Monsanto requesting “a full suite of rights to [RR]” and “stacking and
out—licensing rights.”65 Monsanto rejected that proposal, and in its August 25,
2008 counterproposal, Monsanto offered “a full suite of rights” for a $1.5 billion
payment.66 The Company’s management rejected the offer without consulting the
Board, despite that ﬁgure being beyond the limit within which management could
act without Board approval under the Company’s Delegation of Authority limits.67

Senior management ultimately proceeded toward commercialization of the
GAT/RR Stack without informing the Board and in spite of advice of the
Company’s counsel to Holliday, Kullman, Borel, Connolly, and Sager throughout
2008 “that the likelihood of litigation with Monsanto was high.”68 Likelihood of
litigation is a risk factor mandating Board involvement, the Plaintiff contends.69

The same day as Monsanto’s $1.5 billion counterproposal, in late August

2008, Schickler emailed the “Strategy Team” and “Operating Committee” to

64 Idaho 11 183 (noting further that the press release did not reference the GAT/RR Stack and that
Soper acknowledged in an internal email that the Company had “not yet communicated
externally” about the GAT/RR Stack).

65 10111171.

66 161.11 172.

67 Id. The Delegation of Authority process is discussed below.

63 Id. 11173.

69 Idaho
22

 

discuss branding of the GAT/RR Stack when it would ultimately be introduced to
the public. Schickler recommended referring to the stack as “Optimum GAT

Soybean” and noted that “GRS may be used internally for a period, but all public

13370

and commercial references will be as ‘Optimum GAT Soybean. Alejandro

Munoz, Vice President and Regional Director for the Company’s North American
region, responded, “[W]e want to call both GAT only and GAT stacked with [RR]
the same thing? If these are two different products should we call them
differently?”7’ Upon receiving a forwarded copy of this message, Linbo
responded, “The plan is that we will not sell any GAT only beans, only the

stack . . . and that growers just need to know that they can apply glyphosate to the

crop and not where the tolerance comes from.”72

On October 31, 2008, Monsanto’s Casale wrote to Schickler to “remind [the
Company] of the limitations on Pioneer’s rights” under the 2002 Licensing

Agreement, which “does not permit Pioneer to stack [R] with [its] glyphosate—

v73

tolerant Optimum GAT event. He further explained, “Until such time as an

agreement is reached, Pioneer should stop unauthorized efforts to commercialize

[RR] stacked with Optimum GAT, as this activity is a clear breach of the existing

7° Id. 11 189.

7‘ Id.

72 Id. (alteration in original).
73 Idaho 11 193.

23

 

 

agreement between our companies.”74 In a meeting on November 21, 2008, the
Company’s legal team, which included outside counsel, “began sketching out their

litigation plan regarding Monsanto, including analyzing their reformation and

patent fraud defenses.”75

D. T he Monsanto Litigation

     

_ dgoncurrenﬁS":

 

v

The Report explained that the parties began to engage in contractually
mandated mediation in December 2008 for stacking issues, as well as other issues
not relevant here.77 In the months leading up to mediation, which took place in
May of 2009, the Company began to disclose its plan to stack GAT with R. In
January, the Company “recorded a video presentation given by Soper meant to

publicly disclose in February 2009 DuPont’s plans to stack GAT with RR.”78 In

the video, Soper explained that both traits were used because, as the Company

conducted research trials, it “determined that the combination demonstrated
improved crop tolerance and stronger yields;” the Plaintiff contends that the video
failed to acknowledge that GAT as a stand—alone product had a number of

problems that had been known to the Company for a year, and falsely represented

:74 Id.
75 Idaho 11 195 (quoting Report at 96).
76 Maintaining the attempt to recount the factﬁt in chronological order, this subsection of the

Background Facts involves the ongoing process toward, and in, litigation, as well as
contemporaneous statements made within or by the Company regarding development of GAT.

77 Report at 96—97.

78 Am. Compl. 11 197.

24

 

that the Company had the right to stack.79 On January 23, in preparation for
questions from interested parties, Willits emailed Soper a document for distribution
to the Company’s researchers; it provided, as a response to a question about when
Pioneer assumed the rights to stack R with GAT, that “[d]etails of the agreement
are confidential.”80 Suggesting an “agreement” at all, the Plaintiff argues,
misrepresented that the Company had a right to stack GAT with RR.81 The video
was ﬁrst released internally on February 2, 2009, and a “limited amount of
information regarding GRS was disclosed on February 10, 2009 at the Goldman
Sachs Ag Conference, and the Company followed up with a ‘media day’ where
Linbo presented more details.”82

Mediation was held on May 4, 2009, the same date that Monsanto ﬁled an
action in the US. District Court for the Eastern District of Missouri (the “District
Court”) alleging breach of the 2002 License Agreement, patent infringement,
inducement to infringe, and unjust enrichment based on stacking GAT with RR
(the “Monsanto Litigation”). In a press release the next day, Borel stated that the
“lawsuit incorrectly claims that Pioneer and DuPont may not combine (‘stack’) the

innovative [GAT] trait with any soybeans already containing a Roundup Ready

79 Idaho 11 197,,
8° Id. 'n 199:,
8‘ 1d.

82 Idaho 11198,

25

 

 

n83

trait. It further stated, “Monsanto’s so-called ‘stacking’ restriction is one of

many practices that Monsanto engages in to limit the availability of competitive

products,” referring to a “monopoly.”84 Kullman attached the news release in an

 

email to the Board on May 15, 2009, which included Bodman, R. H. Brown, R. A.

Brown, Collomb, Crawford, Cutler, Dillon, E. du Pont, Hewson, Holliday, Reilly,

85

and Juliber, and informed them of the Monsanto Litigation. According to the

Report, “This was the ﬁrst time the Board had been informed of the Optimum 2
GAT stacking strategy and/or the dispute with Monsanto regarding same.”86 

Meanwhile, the Company continued to promote GAT; at a May 28 g
conference, Kullman presented a slide that listed the value of GAT in corn at over
$400 million, and up to $100 million in soybeans.87 In a June 12 conference call
with analysts, Ross was asked about “numerous reports that [the Company’s]
Optimum GAT just doesn’t wor ,” as well as what the Company would do “if this 
GAT technology just doesn’t work and [it] can’t license Monsanto’s 7
technology?”88 Ross reiterated that the Company would “be bringing Optimum

GAT and soy to the marketplace” in 201 land that the “Optimum GAT soy stack

83 Idaho 11 204. i
84 Id. I
85 Id I
86 Id. (quoting the Report at 97).: I
87 Idaho 11 205.

38 Idaho 11 206. I

26

with Roundup is [] bringing the best products to the market.”89 The Plaintiff points
out that Ross was Vice President for the North American region, and alleges that,
as such, he must have known at the time that GAT did not work as a stand-alone
product and that the GAT/RR Stack breached Monsanto’s licensing agreements.90

In its Answer in the Monsanto Litigation on June 16, 2009, and in a press
release of the same day, the Company took the position that stacking was within
the Company’s rights under the 2002 License Agreement. Borel was quoted as
asserting, “We believe we have every right through our existing Monsanto license
agreement to ‘stack’ our Optimum GAT trait with Pioneer soybean genetics
already containing a Roundup Ready trait,” and that the Company would
“vigorously defend [its] rights to bring valuable new technologies to the market.”91
By July, Kullman stated to the Board the Company’s position that its Optimum
GAT soybean launch was still planned for 2011, but added the caveat that this was
“pending the outcome of Monsanto’s litigation.”92

Upon Monsanto’s motion, a September 6, 2009 order partially stayed

discovery and bifurcated the trial to separate the Company’s antitrust

. . 3
counterclalms from Monsanto’s patent clalms.9

89 Id. (alteration in original).
90
Id.
9‘ Id. 11 207.
92 Idaho 11 208.
93 Report at 101,.

 

27

 

 

The Plaintiff s Veriﬁed Amended Derivative Complaint (the “Complaint”)
seeks recovery on behalf of E. I. du Pont de Nemours and Company (“DuPont” or
the “Company”).1 The dispute centers on the attempt by DuPont and its wholly-
owned subsidiary and seed unit Pioneer Hi-Bred International, Inc. (“Pioneer”) to
develop a product to compete with Monsanto Company’s (“Monsanto”) genetically
modiﬁed seed—a trait known as “Roundup Ready”—which allows beneﬁcial
crops to thrive under application of Monsanto’s well—known herbicide, Roundup.
Under a 2002 license agreement, DuPont and Pioneer had access to Monsanto’s
Roundup Ready technology for corn and soybeans. If DuPont could develop its
own competitor to Roundup Ready, it would avoid signiﬁcant license fees under
the agreement. In the mid-2000s, DuPont began development of that competitive
product, which it called “Optimum GAT” or “GAT.”

DuPont found, however, a commercially viable GAT difﬁcult to produce.
As ﬁeld trials of GAT continued to be disappointing, DuPont began development
of a product that combined, or “stacked,” GAT technology with Monsanto’s
Roundup Ready (the “GAT/RR Stack”). During the development of this product,
some DuPont and Monsanto employees believed that commercialization of the

stacked product would violate the licensing agreement; nonetheless, development

—. ____,—..

1 Unless otherwise speciﬁed, all facts are taken from the Complaint and documents incorporated
by reference therein. Where indicated, some facts are taken from the Report of the Evaluation
Committee of the Board of Directors of E. I. du Pont de Nemours and Company, which is cited

in the Complaint.

 

 

 

 

 

Despite pending litigation, the Company’s efforts to bring the GAT/RR
Stack to market continued, as did, the Plaintiff alleges, a number of
misrepresentations. These misrepresentations include a presentation attached to an
internal email on September 11, 2009, which included a “GAT Technical Update”
that characterized GAT as “[o]n target for 2011 launch” and detailed the regulatory
efforts underway for GAT and the GAT/RR Stack; the GAT/RR Stack was to be
submitted for regulatory approval in the fourth quarter of 2009, but the
presentation noted that some countries would likely reject the application without a
letter of authorization from Monsanto regarding the RR component.94
Accordingly, its “[r]egulatory legal options/strategy” was “in coordination with

”95 Despite ongoing development and licensing problems,

Monsanto litigation.
GAT was referred to as among “DuPont solutions” in a November 3, 2009 investor
meeting in which Kullman described a $700 million investment by the Company in
its research and development.96 The Plaintiff also points to a press release issued
on December 4, 2009 as misleading; the Company “represented that ‘Optimum

GAT soybeans have shown outstanding glyphosate and ALS herbicide tolerance

efficacy and strong multi-year yield results,’ despite the years of research to the

 

 

94 Am. Compl. 1111 210—11. The Complaint provides that the draft presentation was attached to an
internal email chain between Schmidt, Bedbrook, Schickler, Cosgrove, Niebur, Borel, Soper, and
others, and was drafted in part by Stephens. Id. It is not clear from the record to whom the
psresentation was made.

Id. 11 211.
96 Id. 11212.

 

28

 

-.m.-ww.-J.w

contrary,”97 and also represented that a delay in GAT’s commercial launch was
“due to changes in regulatory policy in key import markets and increasing
complexity in managing grain stewardship.”98 In particular, Schickler stated that
the Company’s “continued conﬁdence in the Optimum GAT trait is supported by

signiﬁcant data,” thus showing, the Plaintiff contends, that “the Company

continued the deception it had started years prior by attempting to craft a plausible

excuse for GAT’s delay.” 99

The Plaintiff further alleges that the misrepresentations carried over into the
Monsanto Litigation, where the Company argued that it was permitted to stack
GAT with R. The Plaintiff alleges that “[t]he Individual Defendants knew that

the Company’s position . . . was untrue, but remained silent and/or actively

concealed that the Company knew that it did not have a license to stack.“00

On January 15, 2010, the District Court granted a motion for partial
judgment on the pleadings in favor of Monsanto, simultaneously dismissing a
counterclaim for declaratory judgment, ﬁnding that the 2002 License Agreements
were unambiguous and did not grant DuPont the right to stack with RR.101 The
Board was informed of the District Court’s decision on January 16. The following

week, Kullman updated the Board on the 2009 Business Plan, echoing language

.. — _

971d.1l213.
9“ Id.
991d
100161. 11214.
‘0' Id. 11215.

 

 

29

 

 

 

made publicly in stating, “Optimum GAT soybeans are delivering excellent
efﬁcacy results and superior product performance gains. Regulatory delays now
put introduction at 20137102 The Complaint alleges, however, that “the
Ofﬁcer/Employee Defendants, as well as the Director Defendants, knew that the

reasons for the delay in commercializing the GAT/RR Stack were not ‘regulatory

delays,’ but that the Company did not have licensing rights to the RR trait.”103

On January 29, 2010, the Company ﬁled a motion for reconsideration,

arguing that the District Court should await factual development before certain of

its rulings. That motion was granted on July 30, 2010.104

Upon being granted leave, the Company ﬁled a seconded amended answer

and counterclaims on August 19, 2010, adding details to its reformation claim.105

On March 4, 2011, Monsanto ﬁled its ﬁfth motion to compel the production
of documents, arguing that, through its reformation claim, the Company had put its
state of mind at issue and thus waived attorney-client privilege as to certain related

documents. The District Court agreed and ordered the Company to produce the

documents should they wish to pursue the reformation claim.106

-_=.—_ __

T02—

Id 11 217.
103 Id. The Complaint also asserts that the Defendants were aware, and Monsanto had publicly
stated, that its RR patents would expire in 2014 and that it would allow generics in the

marketplace. Id.
‘04 See Report at 103—104; Am. Compl. at 86 n.29.

‘05 Report at 105-106.
106 The Report explains the Company’s rationale in continuing to pursue its counterclaim even at

the cost of producing privileged documents. See id. at 106—107.
30

 

 

2. §2an50_ti9n~s,

On September 6, 2011, Monsanto ﬁled a motion for sanctions—its ﬁfth in
the litigation—against the Company, alleging that the Company’s arguments that it
had bargained for and received stacking rights during negotiation with Monsanto
were based on false statements. Monsanto argued that document production
enabled by waiver of attorney-client privilege had shown that the Company did not
ever truly believe that it had obtained stacking rights. That same day, the
Company produced 24,416 documents, which the Plaintiff alleges, the District
Court ordered the Company to produce three months prior.107

The District Court granted the motion for sanctions on December 21, 2011,
finding that the Company had “committed a fraud on the Court” and identifying
what it found to be seventeen false statements made in pleadings and other court
documents, which statements were “clearly refuted by internal documents” the
Company produced.108 The Sanctions Order articulated ﬁve categories into which
the false statements fell; the District Court’s attitude toward the Company is
demonstrated by the fact that, in addition to citing the four categories of false

statements alleged by Monsanto, it added one of its own accord, not identified in

Monsanto’s brief. These included: (1) “Defendants’ assertion that [they] could sell

“’7 Am. Compl. 11 227.
'08 Id. 1] 230; see also Report at 108. Although not relevant to the Motions to Dismiss pending
before me, the Plaintiff notes that the Eastern District of Missouri previously sanctioned DuPont
for misconduct in litigation with Monsanto, back in 2001. See Am. Compl. at 92 n.31.

31

 

 

RIV[GAT] stacked seeds;” (2) “Defendants’ assertion that they always believed
they could make RR/[GAT] Stacks under the license agreement;” (3) “Defendants’
assertion that the deﬁnition of ‘licensed ﬁeld’ in Section 2.09 of the license
agreement has no relation to stackingf’ (4) “Defendants’ assertion that they had no
idea that the ‘licensed ﬁeld’ related to stacking until Monsanto told Defendants it
did in 2008;” and (5) “Defendants’ contention that section 3.01(a) does not contain
any type of ﬁeld of use limitation.”109 The District Court found that the
Company’s position that it had the right to stack GAT with R “was never rooted
in fact, but was a fabrication based on a false misrepresentation to the Court.”110
Finding the Company’s behavior “so egregious that only the most severe sanctions
will deter future misconduct,”“l the District Court struck DuPont’s reformation
defense and counterclaims and granted Monsanto its attorneys’ fees.

The Sanctions Order was subject to a protective order that precluded
dissemination even within the parties. The Company, however, sought approval to

share the Sanctions Order with its CEO, General Counsel, and head of its Audit

Committee, a request the District Court ultimately granted.112

 

1—09 See Reimrt 5108—09 (quoting Memorandum and Order, Monsanto Co. v. E. I. du Pont de
Nemours & C0., No. 4:09-cv-00686-ERW (E.D. Mo. Dec. 21, 2011) at 5, 8, 15, 19, 20).

“0 Am. Compl.1[ 230.

m
Id. 11 232.
“2 Report at 108—09. The Report details the discussions with Mr. du Pont, head of the Audit

Committee. See id. at 109—10. When the Sanctions Order was unsealed on November 16, 2012,
Kullman sent the Board an update in which she reiterated that the Company had not defrauded
the Court and expressed her view that there were multiple errors of law in the Order. Id. at 115.

32

e.:..m-m “ax:u«I5:»x.'.\vm\wuvNv.(mh1v.wm-—-\.\:_'.'_ :....\-.-..._-

 

In January of 2012, the Company’s outside counsel advised it to
“proactively take all steps asap to discontinue commercialization of GRS including
withdrawing stack registrations,” a recommendation which was then disseminated
to management.’ ’3

In pre—trial motions decided on June 6, 2012, the District Court granted
Monsanto’s motion for summary judgment on its breach of contract claim, but
granted the Company’s motion for summary judgment on Monsanto’s claim for
$1.2 billion in contract damages, which figure was based on the value of a
commercialization license. The District Court found instead that the damage

would be limited to “a reasonable royalty that contemplates a research and

development license.”114

The parties attempted to engage in settlement discussions, but, as Kullman
relayed to the Board, “[D]iscussions broke down . . . when Monsanto reneged on
key principles of agreement previously endorsed by both parties,” which had been

reviewed with the Board in the prior week.115
Trial on Monsanto’s patent claims began on July 9, 2012. On August 1, the

jury deliberated for less than an hour before returning a verdict in Monsanto’s

— ——_ — —_=-_=__.—E—__=_—_ EE—r—E— ——_-:——

 

 

 

 

___ _.=

The Complaint alleges that the market value of DuPont’s stocR dropped nearE $400_million that

same day. Am. Compl. 11 232.

1’3 Am. Compl. 1i 234. I note, however, that the Report states that the Company had decided to
abandon plans to commercialize the GAT/RR Stack before this point, in November of 2011. See
Report at 111.

“4 Report at 112.

“5 Id. at 113.

 

 

 

 

 

favor and awarding it $1.2 billion in damages, the same ﬁgure the District Court

had rejected as contract damages. Sager met with the Board that day and the next
to discuss the verdict and potential next steps. At a September 14 Board meeting,
Sager reported to the Board that it was “probable” that the award would be
overturned on appeal given the fact that the Company had not actually sold any
stacked seeds, that the District Court judge had been overturned on IP cases in the

past, and that very few verdicts of this size had been upheld on appeal.116 The

Board ultimately decided to proceed with the appeal.

In its Form 10-Q for the period ending September 30, 2012, the Company
indicated that it believed “it will prevail on appeal” and that, the verdict
notwithstanding, “no amounts have been accrued related to this matter.”117 The
Plaintiff alleges that this “violat[ed] GAAP and def[ied] common sense,”118 as did

the Company’s failure to record contingent liabilities in connection with the

Monsanto Litigation in any ofits 2009, 2010, 2011, or 2012 Forms 10—K.119

3. Settlement

_E=..____ _.=.E_—._—__=.—

'“6 Sge id. at 1141115.—
“7 Am. Compl. 11 237 (quoting Form lO-Q, Sept. 30, 2012, at 14).

118
Id.
“9 Id. 11 233. See also id. 111] 218, 219. As the Plaintiff notes, the Company represented over

these years, for example, that it believed the Monsanto Litigation “unlikely to adversely affect
the company’s commercial results for soybean and corn seed,” and indicated that the Monsanto
Litigation had not altered the Company’s “commercialization plans for products with the

Optimum GAT trait.” 1d. 1] 219.

 

34

 

 

At a January 21, 2013 Board meeting, Borel presented that Monsanto had
reached out regarding a potential settlement with Pioneer and that the District
Court had stayed post-trial motions until February 1, 2013 to allow settlement
discussions. Borel noted that the Company’s focus was a settlement with business
value.120 On February 5, Sager sent a memorandum to inform the Board that the
parties had agreed to a term sheet, and advising that he would share further details
as they were finalizedm Ultimately, the Board approved a settlement on March 5,
and it was ﬁnalized by the parties on March 25, 2013 (the “Settlement”). The
Company announced the Settlement on March 26, with its terms including a
payment of $1.75 billion over ten years for the rights to use the patent for R and,
beginning in 2018, a non—exclusive, royalty-bearing license for use of RR2 in the
United States and Canada (the “RR2 Agreement”).122 The Settlement resulted in a
dismissal of the antitrust and patent claims, as well as the jury award, but did not
address the Sanctions Order. The Plaintiff alleges that the Company, “[c]onsistent
with its improper disclosures in its earlier SEC ﬁlings, in its 2013 Form 10-K,”

stated that the patent infringement claims were offset by the antitrust

¢__

'120 Report at—115E.
121 
122   11 

 

 

 

35

 

 

counterclaims, “once again representing that the [j]udgment did not harm the

123
Company.”

On appeal, the Court of Appeals for the Federal Circuit afﬁrmed the
Sanctions Order, ﬁnding “bad faith and vexatious conduct,” but holding that such

conduct “did not satisfy the high standard for ‘fraud on the court.’”124

E. Board Investigation

In September 2012,125 the Board authorized formation of a special
committee (the “Committee”) to “investigate Monsanto’s recent allegations that
DuPont’s senior leadership and Board repeatedly failed to investigate Monsanto’s
claim that DuPont publicly praised the virtues of its GAT technology while
concealing evidence that the GAT technology was failing.”126 The Committee was
also tasked with reviewing “previous ﬁndings of DuPont’s counsel in response to
allegations Monsanto made in 2009 regarding DuPont’s public statements about its

GAT technology and the commercialization of GAT products.”127 The Board

,9__._——_——_=—_——————._.

 

12:61.
'24 Id. 11241.

125 The Complaint alleges the Board authorized the Committee on September 4. See id. 1] 245.
The Report provides that the Board adopted a resolution appointing the Committee on September
14. See Report at 6.

‘26 Am. Compl. 11 245.
'27 Id. 11 246. The Plaintiff notes that no such “ﬁndings of counsel” or Board materials

authorizing such earlier investigation have been provided. See id. at 100 n.35.

36

appointed directors Andreotti and Thomas to the Committee, both of whom had
joined the Board after the Monsanto Litigation was ﬁled.128

On December 21, 2012, the ﬁrst stockholder demand was made (the
“December 2012 Stockholder Demand”). On January 21, 2013, the Board adopted
a resolution authorizing the Committee to investigate that demand, which authority
was later extended to investigate a second stockholder demand dated April 2, 2013
(the “April 2013 Stockholder Demand,” and, together with the December 2012
Stockholder Demand, the “Stockholder Demands”). The Plaintiff concedes that
these demands contained substantially the same allegations made by the Plaintiff
here in its subsequent demand.129 The Committee retained counsel to assist in its

investigation, and the Committee produced its ﬁndings in its detailed Report.130

The Board retained the authority to act with respect to those demands.131

The Report concluded that it was not in the Company’s best interest to
pursue litigation and recommended that the Board reject the stockholders’

demands in ﬁlll. Because the Plaintiff alleges that “[t]he Committee’s

recommendation to reject Plaintiff’s Demand outright[,] and the ‘facts’ and
conclusions that underlie it, raise a reasonable doubt as to the reasonableness and

good faith nature of the Committee’s investigation and recommendation and the

128 See Report at 2; Am. Compl. 1H] 33, 43.

'29 See Am. Compl. 11 244.

‘30 As noted, the Report is cited in the Complaint and incorporated by reference therein;;
13] See Am. Compl. 1] 249.

37

 

 

 

continued. Meanwhile, DuPont continued to tout GAT as a potentially—viable and

proﬁtable product.

When negotiations between the parties involving the GAT/RR Stack and
other licensing issues broke down, Monsanto sued DuPont in federal district court
in the Eastern District of Missouri alleging, essentially, breach of the licensing
agreement and patent infringement claims. DuPont defended on the ground that
the agreement either permitted stacking or should be reformed, and counterclaimed
alleging antitrust claims against Monsanto. The resulting litigation, as described in
the Complaint and in detail below, proved disastrous to DuPont. The district court
found that DuPont’s defense—that it had the ability to stack under the 2002
licensing agreement—was not only incorrect but that it was based on fabrication
and worked a fraud on the court. As sanctions, it struck DuPont’s reformation
defense and counterclaims, and awarded attorneys’ fees (the “Sanctions Order”),
Monsanto’s patent infringement claims were then tried to a jury. Despite the fact
that DuPont had never sold any of the stacked product, the jury found damages due
to Monsanto in the amount of $1.2 billion. DuPont decided it would appeal both
the Sanctions Order and the damages award.

During the pendency of post-trial proceedings, the parties reached a
settlement. The parties entered into a new agreement allowing DuPont to use the

Roundup Ready technology, including, when available in 2018, use of a new,

 

 

“32 I will brieﬂy recount the Report and its ﬁndings. First,

Board’s vote thereon,
however, I think it is important to provide context of the Company’s controls and
processes, as they ﬁgure prominently both in the Report and in the Complaint.

F. DuPont’s Processes and Controls133

1.,I_h§ BM ancLits Cgmﬁrtees,

The Board is comprised of all independent directors, as deﬁned by New
York Stock Exchange rules and the Company’s internal guidelines, with the
exception of the Chairman, who is the CEO. The Lead Director, who serves as
liaison between the Chairman and the rest of the Board and is tasked with
reviewing and approving information sent to the entirety of the Board, is also
independent. The Board has had ten to thirteen members for the period relevant
here.

The Board Operates pursuant to the Company’s Code of Business Conduct
and Ethics. It is responsible for “oversight of management and stewardship of the
Company,” evaluating strategic initiatives, approving strategy and major corporate

actions where appropriate, “ensur[ing] processes are in place to maintain the

Company’s integrity, monitor[ing] the performance of and compensat[ing] the

‘32 Id. 11257.

133 The information that follows is taken from the Report. The Complaint incorporates the
Report by reference, and refers extensively to the Company’s controls and internal procedures,
and so I think it helpful to recount what those controls and procedures are, as articulated by the
Committee, at least in part. The Report is more detailed than I endeavor to be here for present

purposes.

38

 

 

CEO, and supervis[ing] succession planning for the CEO and other key

- - 1 4
pos1t10ns;,” 3

The Board has ﬁve standing committees, all of which were in place in 2006:
the Audit Committee, the Environmental Policy Committee, the Compensation
Committee, the Corporate Governance Committee, and the Science and

Technology Committee. The Report discusses the Audit Committee and Science

and Technology Committee as relevant here.
The Audit Committee is responsible for, among other things,

(1) reviewing with management and the independent auditors the
Company’s ﬁnancial statements and disclosures under Management’s
Discussion and Analysis of Financial Condition and Results of
Operations which are included in the Company’s annual and quarterly
reports; (2) meeting with management periodically to discuss
guidelines and policies governing the processes used to assess,
monitor, and control the Company’s major risk exposures; and (3)
establishing procedures for the receipt, retention and resolution of
complaints regarding accounting, internal controls, or auditing matters,
including procedures for the conﬁdential, anonymous submission of

complaints by employees of the Company.135

The Science and Technology Committee “monitor[s] the state of science and
technology capabilities within the Company, oversee[s] the development of key

technologies essential to the long term success of the Company, and review[s] the

'34 Report at 17.
‘35 1d. at 18.

39

 

evolution of science and technology external to the Company for potential

application within the Company.”136

 

ﬂExecutivg

The Ofﬁce of the Chief Executive (“OCE”) “has responsibility for the
overall direction and operations of the Company’s various businesses.“37 The
OCE “regularly receives reports from each business line (6. g. Pioneer) to review
strategy and execution, and advise with respect to key decisions and

transactions.”138 It regularly reports to the Board and its committees.

 

The Delegation of Authority (“DOA”) process “sets monetary limits for the
approval required for a particular decision,” and governs decisions regarding,
among other things, litigation.139 As relevant here, corporate authority limits for
litigation decisions are as follow: the CEO may approve up to $20 million, the

OCE may approve up to $100 million, and anything higher must be approved by

the Board.140

136 Id. at 19.
137
“Id. at 20.

139
1d.
'40 See id. (noting the corporate authority limits for “Authority to Sign Deﬁnitive Agreements”

and further stating that the limits for making decisions related to “Litigation and Claims” follow
the same scale).

40

 

4. ,thics and  _.;"‘-'ia_ce Central _and==t_he Corporate Comphancfg

 

 

 

“Committee

 

 

Ethics and Compliance Central (“E&CC”) is led by the General Auditor and

Chief Ethics and Compliance Ofﬁcer (“CCO”), with a mission to “[h]elp set the

stage, be a catalyst, provide tools and enable Businesses, Functions, and Regions to

. . . . 14]
track, mon1tor, and manage eth1cs and compl1ance processes on the1r own.”

Compliance Ofﬁcers are assigned various responsibilities and report to the CCO.
They also work with “Process Owners,” employees who are assigned to sixteen

risk areas and are “responsible for driving compliance in his/her respective area

throughout the Company.”142

E&CC handles “maintenance and continual review of DuPont’s Code of

Conduct and training programs.”143

 

5 .___lnternal_§_u_d_i=téy

 

Internal Audit provides “monitoring and independent assurance with regard

to internal controls and ethics compliance?”44 Led by the CCO, it “evaluates the

Company’s existing internal controls, helps identify risk areas, and supports

‘4‘ Id. at 20—21,,
‘42 Id. at 22.
‘43 Id. at 23.
‘44 Id. at 26.

 

41

 

 

business lines in developing ways to mitigate those risks.”145 The CCO reports to
the CFO as well as to the Audit Committee.

6.,Addition_al_Riskii

 

In 2010, at the Audit Committee’s direction, a Board-level “Risk Oversight
Process” was implemented. Its purpose was to “[e]stablish, maintain and regularly
review the oversight process for key risks managed by the OCE and monitored by
the Board to protect the Company from adverse impacts to its ﬁnancial results,

operations and reputation?”46 This process is distinct from the E&CC processes
described above, and involves different, though somewhat overlapping, risk areas
to which Process Owners are assigned.147 Process Owners work with assigned
members of the OCE to comment on proposed presentations by that Process
Owner to the Board. The Board, with the OCE, also conducts a “risk refresh”

annually in which it evaluates the Risk Oversight Process for the year and

determines whether to add new risk areas.

7. Litigation Management

As provided in the Report:

Each litigation matter is managed by an in-house counsel lead, who
retains and coordinates with outside counsel as appropriate. The in-
house counsel reports to, and coordinates strategy with, an Assistant
General Counsel or the General Counsel. The Board and Audit

'14s 1d
‘46 Id. at 29.
'47 Id. at 29 & n91,

 

 

42

 

 

Committee are updated by the General Counsel on the status of the
litigation in three ways: (1) an Annual Litigation Report; (2) regular
reports at Board and Audit Committee meetings; and (3) periodic oral
or written updates on noteworthy developments. The Board and Audit
Committee actively engage on these updates and ensure the Company
is adequately assessing risk associated with legal matters.148

8. gmojlsﬁegarding Disclosure.

As outlined in greater detail in the Report, the Company has a set process it
uses in preparing for ﬁling of the Company’s periodic disclosures with the SEC. It
also has a disclosure committee, as recommended by the SEC, which considers,
among other things, materiality of certain information.

Non-periodic disclosures made to customers, business partners, and
investors involve a different process. Disclosures to investors involve the legal
department, as well as the investor relations group and corporate communications
group, together with members of applicable business units. If the Company is
disclosing highly technical or scientiﬁc information for the ﬁrst time, members of
the applicable research team may be involved. If the Company is disclosing
ﬁnancial ﬁgures, those numbers are reviewed by the relevant groups as well.

Non-investor disclosures may involve marketing, legal, ﬁnance, and investor
relations departments as necessary. “Once the proposed disclosure is reviewed and

approved by these content experts, it is reviewed and approved by senior

 

43

l I;

 

 

leadership.”149 The Committee notes that corporate approval is not necessarily

required if the disclosure is non-substantive, for example, disclosure about opening

 

- - 15 
a new research fa01hty. 0 

9-.._4g_s_t 

The Report notes that the Company has “various oversight policies to help

guide its investments,” given the “inherent[] uncertain[ty]” involved in the

Company’s research and development investments.151 As one example, it points to 2
3
“Stages & Gateways,” a formalized process used by Pioneer to provide “a rigorous 
3%
development roadmap to maximize the probabilities of technical, regulatory and

§
§
1
commercial success” and “transparency into the objectives and status of 
i
i
S

37152

[DuPont’s] biotech research pipeline. The process involves seven phases

(“Stages”), as well as decision points between Stages (“Gateways”). a
10._lim_e<142n_Ltg> 49.42%1; 

“Freedom to Operate” is an “assessment of the ability to develop, make, and 
market products without legal liabilities to third parties.”153 It involves a review

generally conducted when the Company “(1) introduces a new, reformulated or

 

redesigned product or process; (2) learns about the patenting of a competitive

‘49 Id. at 34.
‘50 Id. at 34 & n.113.

'5‘ Id. at 35.

152 Id. at 35 (alteration in original)“
‘53 Id. at 38.

______—_.':=

44

 

product; (3) purchases a business or technology; or (4) receives a letter discussing

- - - 154
pos31b1e infringement.”

11.,‘Jamprovementsto the_Comp_ anéyjs Qversight P_olicies_

The Report details the Company’s regular evaluation of its policies and
procedures and provides examples of changes it has made “relevant to the issues
addressed herein,” including enhancements to Stages & Gateways, modiﬁcation of
disclosure practices relating to disclosure timelines for commercialization of new
products, and creation of new oversight committees and groups tasked with

analyzing contract rights and/or patent infringement issues, including a group

speciﬁcally tasked with interpreting contracts with Monsanto.155

G. The Committee Report
The Report is 179 pages and the product of a nearly year-long investigation
by the Committee with assistance of counsel. In conducting its investigation,

[t]he Committee and its counsel collected and reviewed thousands of
documents from numerous sources both inside and outside the
Company, reviewed over 25 days of sworn deposition testimony and
the entire Monsanto Litigation trial transcript, conducted interviews of
23 witnesses (some more than once), conducted additional factual
research using publicly available documents (such as court and
regulatory ﬁlings, analysts reports, and other media coverage), and
conducted extensive legal research into the claims asserted, relevant
presumptions and burdens affecting the viability of those claims,
potential defenses to the claims, and other considerations.156

 

'55 1d. at 39410,
‘56 Id. at 2—3.

45

 

 

The Committee ultimately concluded that “pursuing the [derivative]
claims . . . is not in the best interests of the Company and its shareholders because
(1) none of the claims has factual or legal merit; and (2) even if they did, the costs

and risks of pursuing litigation far outweigh any potential beneﬁt.”157 In reaching it

that conclusion, however, the Report undertakes an examination of several

categories of facts giving rise to potential causes of action, based on the December

 

2012 Stockholder Demand and the April 2013 Stockholder Demand: the

development of Optimum GAT as a stand-alone product, the decision to pursue

Litigation, the Company’s entrance into the RR2 Agreement that was part of the

testing and commercialization of the stack, the management of the Monsanto
Monsanto settlement, the Company’s disclosures relating to Optimum GAT,

oversight claims, unjust enrichment, and legal malpractice by Company counsel in a
E
the Monsanto Litigation. The Committee also considered “other factors,” which 
§
I

included indemniﬁcation and advancement, statutes of limitations, and the time,

9

expense, and business impact of litigation.158 Each of these areas of the 
investigation is discussed in turn.15

‘57 Id. at 3.
‘58 Id. at 171—73. I
'59 The Report recounts, in far greater detail than I endeavor to undertake here, the factual

ﬁndings from the investigation.

46

     

1..;The Committee’s Anal sis of the Devel"_  of GAT.

l

In considering allegations that certain of the Defendants breached ﬁduciary
duties in connection with the continued development of GAT as a stand—alone
product, “the Committee’s investigation uncovered no evidence that any of the

Company’s directors, ofﬁcers, or employees were grossly negligent, acted in bad

33160

faith or otherwise breached their ﬁduciary duties. On the contrary, the

Committee concluded:

[M]anagement relied upon and executed on formalized business level
processes (including Stages & Gateways) to ensure oversight of
product deve10pment and input of appropriate personnel, including
business leaders, scientists and Legal. The Committee ﬁnds that the
Company’s management was apprised of signiﬁcant developments
and research results relating to Optimum GAT, including interim
testing issues. The Committee further ﬁnds that management made
informed and well—reasoned decisions to continue developing and
testing Optimum GAT despite interim testing concerns.161

Speciﬁcally, the Committee noted that certain adverse testing results in 2006
to mid-2007 were relayed to management but “were viewed as outliers, and no one
questioned the long term viability of the product—particularly in light of the
promising results of previous testing.”162 Rather, “[t]he Committee believe[d] that
management’s decisions related to Optimum GAT were reasonable and must be

analyzed in the overall context of the product development process,” which it

1h; ———_——_—_————=—_ F'.

'60 Id. at 132.
'6' Id. at 133.
162 

47

 

 

presumably improved version of Roundup Ready then in development, a right not
conveyed by the superseded 2002 licensing agreement. Monsanto agreed to forgo
the jury verdict, and DuPont released its antitrust claims. Finally, DuPont agreed
to pay Monsanto $1.75 billion over ten years. The Sanctions Order remained on
appeal and was not addressed by the settlement.

On appeal, the circuit court afﬁrmed the Sanctions Order in part, ﬁnding that
DuPont had litigated in bad faith, but reversed as to the determination that it had
worked a fraud on the Court. DuPont remained liable for certain of Monsanto’s
attorneys’ fees, as a sanction.

Following the litigation, several stockholders, including the Plaintiff here,
made demands on DuPont’s board of directors (the “Board”) to investigate and
consider suit against several ofﬁcers and Board members of DuPont and Pioneer in
connection with the development of GAT, the decision to stack, and the conduct of
the Monsanto lawsuit, alleging breaches of ﬁduciary duties. The Board formed a
special committee, comprised of directors who had joined the Board after the
relevant timeframe at issue (the “Committee”), and the Committee conducted a
detailed investigation of the subjects of the demands, as set forth in a l79-page
report (the “Report”), and determined that a suit against ofﬁcers and directors was
not in the best interest of DuPont. The DuPont Board adopted the recommendation

of the Committee, and rejected the stockholders’ demands. Despite the Board’s

 

 

 

aal63

characterized as, “by its very nature, inherently uncertain. The Committee

concluded that, “at each juncture, management engaged in a thorough analysis of
whether to continue developing Optimum GAT as a standalone product and, given

the potential beneﬁts of the product, made reasonable decisions, acting in good

faith, based on this analysis.”164

2-.-.;Th_e_Cm.1&'_t.te_-e

 

In considering an allegation that certain directors, ofﬁcers, and employees
should be held liable for breaches of ﬁduciary duties “by exposing the Company to
civil liability for patent infringement and breach of contract with Monsanto,” in
pursuing the GAT/RR Stack, the Committee “uncovered no evidence that any of

the Company’s directors, ofﬁcers, or employees were grossly negligent, acted in

,3165

bad faith or otherwise breached their ﬁduciary duties. Rather, “Company’s

management relied upon and executed on formalized business level processes
requiring legal input before making decisions regarding the stacked product.”
Speciﬁcally, the Committee found that “counsel was involved at three key stages
of the stack’s development”: (1) prior to creating test crosses, in July 2007; (2)
when management decided to pursue development of the stack as a commercial
'7” Id. at i34.
‘64 Id. at 135. The Report also considered a waste claim based on a stockholder allegation that
expending resources on GAT as a stand—alone product after discovering it was not viable was a

waste of corporate assets. The Committee found management to have acted in good faith, with

valid business reasons for continuing to develop GAT. See id. at 135—36.
‘65 Id. at 136.

48

-=.:.-.-\Wmm n'm-m: Wm“! H'.“" .-.-ww.-,.w

product, in January 2008; and (3) when Monsanto “ﬁrst objected in August 2008,
asserting that the Company did not actually have the right to stack.”166 Speciﬁcally
addressing some of the facts underlying the District Court’s Sanctions Order, the a
Committee concluded: 

[T]he Company’s legal analysis regarding its stacking rights was
thoughtful and thorough, based both on the plain language of the
[2002 License Agreement] and the negotiation history. Although the
[District] Court ultimately disagreed, the Committee ﬁnds that the
legal team had a good faith basis for its conclusion that the Company
could proceed with the stacking strategy.167

.s.
E
g

a
I

 

As to a claim that the directors, ofﬁcers, and employees wasted Company
assets in connection with the Monsanto litigation, the Committee found, “[I]t
cannot be said that the directors, ofﬁcers or employees ‘irrationally squandered”
corporate assets in connection with the stacking strategy,” having previously

concluded they acted in good faith and on the good faith advice of counsel.168

 

3. Ehe_Cmmittee’s Analysis of the -,   -I-.t_of the Megs-3419,

The December 2012 Stockholder Demand, which was one of the subjects of

 

the Committee’s investigation, alleged that mismanagement of the Monsanto
Litigation resulted in “a billion dollar judgment against the Company, a severe ‘t-

sanctions Order against the Company by a federal judge, [and] untold legal

7“ Id. at 136—38,,
‘67 Id. at 139.
‘68 Id. at 144.

49

 

fees . . . 3’169 Likewise, the Plaintiff in the instant case alleged, in its cause of action

for waste:

Due to the wrongful acts of the Individual Defendants, the Judgment
was entered against the Company in the amount of $1 billion, the
Company was sanctioned by a Federal Judge and millions of dollars
were spent on attorneys’ fees and other expenses in connection with
the Sanctions Order, the Monsanto Litigation and otherwise.170

In responding to the December 2012 Stockholder Demand allegations, the
Committee’s investigation “uncovered no evidence that any of the Company’s lg

directors, ofﬁcers, or employees were grossly negligent, acted in bad faith or

otherwise breached their ﬁduciary duties with respect to the management of the I
Monsanto Litigation.”m Rather, the Committee found that “management made

fully informed decisions, in good faith, that they reasonably believed to be in the

99172

best interests of the Company. Speciﬁcally, the litigation was “well—managed,

i
g
with thoughtful, reasonable strategic decisions made throughout the Litigation.”173 
3
That the District Court disagreed with the arguments presented did not lead the 7
Committee to conclude that the various setbacks in litigation were the result of 5

gross negligence, bad faith, or other breaches of ﬁduciary duty: “Indeed, the

Monsanto Litigation was part of a global strategy designed to push back against

‘69 Id. at 144.
170 Am. Compl. 1] 358. It is not clear if the Plaintiff is speciﬁcally alleging mismanagement of
the Monsanto Litigation, as was raised in the December 2012 Stockholder Demand.

17] Report at 144.

:72 Id

‘73 Id. at 145.

50

 

Monsanto’s attempts to use its trait monopoly to suppress competition through

Project Choice, and the Company had been successful with these efforts in the past

 

in getting Monsanto to change its practices.”174 

The Committee further noted that the Company went into trial with “the 

reasonable belief that its exposure to a large damages award would be limited

because the Company had never sold—and would never sell—the stacked product,

and [the District Court] had held that the damages calculation used by Monsanto’s

expert was ‘speculative.’”175 Ultimately,

é
[a]fter careful analysis, the Committee [found] no basis to conclude 
that the Sanctions Order was the result of gross negligence, bad faith E
or other breaches of ﬁduciary duty on the part of any Company g
directors, ofﬁcers, or employees. To the contrary, the Committee 
believes the Order was not well reasoned and reﬂects a fundamental 
misunderstanding by the Court of the key issues and statements made 
by the Company during the Monsanto Litigation.176 I!

The Committee summarized “the most fundamental problem with the Sanctions
Order” by noting: i

[T]he statements used by the Court to support the fraud finding simply :
do not say what the Court indicated they say; rather, the Committee l
concludes the alleged misrepresentations were true statements taken '
out of context or non—frivolous legal arguments that should not have
formed the basis for a sanctions order.177

w—-——E——_——==‘=—=E-g

774 Id.
“5 Id. at 145—46,;
‘76 Id. at 146. '
“7 Id. at 147.

51

 

The Report details each misrepresentation the District Court found and provides a
summary of its ﬁndings as to why none should have been the basis for sanctions.178

It concluded, in the face of “copious evidence support[ing] [the Company’s] good

faith belief,” that the Sanctions Order “appears to have been an error in judgment

3:179

by the Court. Further, the Committee found the litigation to be “well managed,

with well-informed, reasonable strategic decisions made in good faith, and neither

the Company nor any of its agents made any misrepresentations to the Court.”180

Thus, the Committee found “no basis for asserting that any of the Company’s

directors, ofﬁcers or employees breached their ﬁduciary duties in connection with

the Monsanto Litigation.”181

Similarly, the Committee did not ﬁnd a “viable claim for corporate waste
based on the Company’s decisions relating to the Monsanto Litigation.”182 Having
concluded the strategy was reasonable and in good faith, the Committee was

unable to conclude that “directors, ofﬁcers or employees ‘irrationally squandered’

. . . . . . 18
corporate assets 1n connectlon w1th the Monsanto L1t1gat1on.” 3

1L _—_-=—g—-—-_—__.——~—_

178 The Report also provides internal cross-references to more detailed factual ﬁndings. See id.
at 147—51.

‘79 Id. at 1511-8

‘80 Id. at 152,,

181 1d.

182 M

183 Idaho
52

 

 

The appeal of the Sanctions Order was still pending at the time of the
Report. On May 9, 2014, the Sanctions Order was afﬁrmed in part.184 The Federal
Circuit found that the Company engaged in “bad faith and vexatious conduct” and
“had abused the judicial process and acted in bad faith by making affirmative

factual misrepresentations” to the District Court, but that its conduct “did not

satisfy the high standard for ‘fraud on the court.”’185
4~;.;I.>2h£_€9ml_nitt96’s  snagg- - germ

 

 

 

 

As part of its cause of action alleging waste, the Plaintiff alleged that “the
Company settled with Monsanto for hundreds of millions more than it would have
had to pay for license rights prior to the Monsanto Litigation?”86 The April 2013
Stockholder Demand raised similar issues, asserting claims for breaches of

ﬁduciary duty in addition to waste, which claims were considered in the

Committee’s Report.187

The Report summarized, with references to its earlier more detailed ﬁndings,
the process in which the Company engaged prior to executing the RR2 Agreement

as part of its settlement with Monsanto, including an analysis of both the substance

88

of the agreement and its value.1 Further, to the contention that the Company

should not have paid $1.75 billion for the rights to RR2 because it had previously

i5—=-—— ——————v—-_=—=—_ —_— I.-.
“ '05

‘84 Am. Compl.112821:
‘85 Id. 11 241.

'86 Id. in 358.

'87 Report at 152—53.
'88 Id. at 153—54.

53

 

 

been offered a $1.5 billion settlement, the Committee noted that the earlier offer

“was related to [RR], not RR2, and provided far fewer rights than the RR2

 

Agreement. Thus, the Committee does not believe the two can be directly
compared on a strict economic basis.“89 The Committee further found “no basis”
to the “assertions that the $1.2 billion verdict was somehow incorporated into the
new RR2 Agreement. The Company would have entered into the agreement
irrespective of the settlement of the litigation because . . . the RR2 Agreement

2
g
provided real value to the business, as conﬁrmed by an independent third party 
E

90

appraiser?” Additionally, the Committee noted that the Company did not even

“need to record a gain or loss for the settlement given that there was no delta E
i
3

between the value of the agreement and the agreement’s payment obligations.”19l

Thus, the Committee concluded there was no basis for asserting a breach of
ﬁduciary duty on the part of any director, ofﬁcer, or employee in connection with
the Settlement. Further, there was no valid claim for waste: “it cannot be said that

the directors, ofﬁcers or employees ‘irrationally squandered’ corporate assets by

entering into the RR2 Agreement.”192

I note here that the Plaintiff criticizes the Committee’s ﬁnding that the jury

award had no impact on the Settlement on a number of grounds. The Plaintiff I

'89 Id. at 154.

190101. I
‘9‘ Id. at 154-55.
'92 Id. at 155.

54

 

alleges that the appraiser hired by the Company to value the intellectual property
received in the Settlement “had a longstanding relationship with DuPont, creating

3,193

an apparent conﬂict. Further, the appraiser did not assign a value to the

Settlement; instead, management did so “using a residual approach, receiving no
advice from [the appraiser] or any other expert on whether such an approach was
reasonable in the circumstances.”194 The Plaintiff also alleges that the appraiser
did not “value the primary intellectual property obtained by DuPont in the
settlement, instead backing into the number using a residual ‘plug,’ while it
appropriately calculated values for other, less signiﬁcant intellectual property
rights.”]95 Finally, the Plaintiff asserts that “no facts appear establishing that the
offset of the billion dollar judgment against anti-trust claims that DuPont may have
M96

had, but never brought, is reasonable.

5.? heECommitteeﬂnalysispf Disclosures 

 

 

 

The Committee investigated allegations that

the Company made false and misleading public statements: (1) from
2006 to mid-2007 regarding the efﬁcacy, yield advantage,
commercialization timeline, and economic opportunities presented by
Optimum GAT; (2) from mid—2007 to 2008 regarding the progress
and commercialization timeline for Optimum GAT; and (3) in early
2008 regarding the “new approach” to Optimum GAT and the

 

 

 

 

 

‘93 Am. Compl. at 96 n. 32.
1941a:-
195 Id
I96 Id

55

 

ultimate disclosure that Optimum GAT would be stacked with
Roundup Ready. I 97

As to the first category of statements, made between 2006 and mid-2007, the
Committee found that the “optimistic” statements, examples of which are listed in
the Report,198 were “not false or misleading, but were supported by extensive
research results and reﬂected management’s genuine enthusiasm for the

“99 Though some testing results were negative, the Committee found that

product.
“the evidence demonstrates that these results were only found under stress
conditions and were viewed as outliers—particularly in light of the promising
results of previous testing—that did not jeopardize the future of Optimum
GAT.”200 Ultimately, the Committee concluded that these statements could not be
the basis of a breach of ﬁduciary duty claim as they were not false or misleading,
but were made at a time when “management still believed Optimum GAT to be a
great product that performed well, even in heavy dose situations, under normal
conditions, and was ‘on track’ for commercialization in 2009.”201

The statements made from mid-2007 to 2008 include statements alleged to

be false or misleading because they continued to tout GAT’s progress toward

——_ a?

 

197 Report at 155—56. The Complaint does not allege that claims have been made against the
Company for disclosure violations, or otherwise describe how the Company would show
damages, assuming it brought claims relating to these disclosures, other than a vague allegation
of general reputational injury, which the Plaintiff quantiﬁes as “not less than $1 billion.” See
Am. Compl. W 343, 350, 356.

198 See Report at 157.

‘99 Id. at 157—58.

200161. at 158.

201 1d-

56

commercialization, despite negative test results. The Committee noted that in
summer 2007 the test results became more negative, and thus, were reported to
senior management. The Committee found that, in the fall of 2007, the Company
determined that the timeline for commercialization would likely be affected, but
that “the evidence further demonstrates that the Company continued to believe,
despite testing concerns, that commercialization was still ‘on track’ for 2009; the
Company merely concluded that the release would be ‘limited’ in 2009.”202 The
Committee pointed to a December 3, 2007 earnings call, in which Bedbrook noted
that the release in 2009 would be “introductory,” which was echoed in the

accompanying investor presentation, to be distinguished from the “aggressive”

3

launch planned for a release of Optimum GAT in corn.20 The Committee

concluded, in sum, that the statements in this second category time period were not

false or misleading and thus could not be the basis of a breach of ﬁduciary duty

. 4
claim.20

Finally, the Committee considered the statements made in 2008, with one
subset referring to the “new approach” in GAT and the second subset referring to

use of the umbrella term “Optimum GAT” for both the stand—alone trait and the

stacked product.

202 1d. at 159. i
203 Id. at 159—60.
20“ Id. at 160.

57

 

 

determination not to pursue litigation, the Plaintiff seeks to prosecute such actions
here-R.

A stockholder whose demand has been rejected but who nonetheless seeks to
bring an action arising out of the subject matter of the demand has two pleading
burdens. First, she must allege facts which, if true, are sufﬁcient to state a claim
against the defendants. Second, to have standing to sue derivatively, under Court
of Chancery Rule 23.1 she must allege with particularity facts that raise a
reasonable doubt that in refusing the demand the directors complied with their
ﬁduciary duties. DuPont has moved to dismiss under Rule 23.1; for the following

reasons, that Motion is granted.

1. BACKGROUND FACTS

The casual reader may ﬁnd the following discussion of the facts wearisome.
Its length is in part explained by the dual pleading burden addressed above, in part
because of the complexity of the underlying factual scenario (including the
development of a genetically—modiﬁed seed by DuPont and the resultant
patent/contract litigation in federal district court with Monsanto), in part because
the demands and resulting complaint in this litigation focus on an unusually large
number of allegedly actionable decisions or failures to act by the defendants over a

period of years, and in part because of the unusually detailed investigation and

 

mbmvnxmcaamaH:“‘..'.'~».M'r;.w

 

As does the Plaintiff in this case, the December 2012 Stockholder Demand
asserted that, “[b]y January 2008, the Company ﬁnally concluded internally that it
had to abandon GAT as a standalone-product, but decided on a new strategy of
‘stacking’ GAT with Roundup Ready,”205 a decision not publicly revealed. In that 

context, the Committee investigated seven alleged misrepresentations, all of which

6

are also alleged in the Plaintiff’ s Complaint.20 The Committee concluded that

“these and other statements relating to Optimum GAT during this period were not 2
false or misleading?”7 Its conclusion was premised upon a ﬁnding that, contrary 

t
to the Plaintiff’s allegations and despite evidence that “some individuals on the 1
research team may have recommended transitioning away from the development of '
Optimum GAT as a standalone trait,” taken as a whole “the evidence demonstrates
that management decided testing should continue in order to determine the

seriousness of the issues being encountered and whether the issues could be 3

_ _ = \

205 Id. See also, e. g., Am. Compl. 11 308 (“By January 2008, while DuPont continued to publicly I
trumpet GAT’s revenue-generating potential, falsely blaming delays in the commercial launch on 
Monsanto and the government, it had privately concluded that it had to abandon GAT as a stand- 1
alone product. The Company decided on a new strategy of stacking GAT with RR to conceal the
fact that GAT simply did not work”); id. 1111 8, 134. ._
206 I note this similarity only to emphasize that the Committee has speciﬁcally investigated the 
statements alleged by the Plaintiff in the instant case. Compare Report at 160, ﬁrst bullet point, I
and Am. Compl. 1111 154, 158; compare Report at 161, second bullet point, and Am. Compl. 11
159; compare Report at 161, third bullet point, and Am. Compl. 11 160; compare Report at 161,
fourth bullet point, and Am. Compl. 11 174; compare Report at 161, ﬁfth bullet point, and Am.
Compl. 11 176; compare Report at 161, sixth bullet point, and Am. Compl. 11 183; compare I
Report at 161, seventh bullet point, and Am. Compl. 11 187.
207 Report at 161.

5 8 '

 

n208

resolved through further tests and breeding. “Thus, in early 2008, Pioneer

determined to proceed with the dual path of starting trials of the [GAT/RR Stack],
while continuing trials of Optimum GAT as a standalone product.”209 The
Committee concluded that it was consistent with this “dual path approach” for the
Company to disclose that it was pursuing a “new approach” at the February 12,
2008 Goldman Sachs conference, as this “new approach” “could have included
either the [GAT/RR Stack] or Optimum GAT standalone if breeding has resolved
the issues being encountered under stress conditions.”210 The Committee found
that while the Company had considered disclosing its strategy of pursuing a
stacked product throughout 2008, its decision to wait to do so until 2009, “shortly
after management had decided to pursue the stack as its sole Optimum GAT
strategy” (I note, again, that this is a timeline with which the Plaintiff disagrees),2”
“was reasonable and did not render any public statements misleading.”212 The
Committee concluded that “it would not have made business sense” to disclose the
stacking strategy prior to the decision to pursue that strategy alone, as it could have

been misleading to make such a disclosure and then decide not to pursue that

208 Id. at 161—62.

209 Id. at 162.
2:0 Id.
2” See, e.g., supra note 46 and accompanying text.

212 Report at 162.
59

 

 

strategy; ﬁnally, the Committee noted that the decision was made in consultation

with legal advisors.213

Finally, the Committee turned to the second subset of alleged
misrepresentations made in 2008, those concerning the umbrella term “Optimum
GAT” to refer both to the stand—alone and stacked product. The 2012 Stockholder
Demand alleged, as does the Plaintiff here, that the decision to refer to the stacked
product as “Optimum GAT” was misleading because, in referring optimistically to
“Optimum GAT” trials, the Company concealed the truth with respect to the
negative results in the stand-alone product trials.

The Committee found “that it was reasonable for the Company to refer to the
stacked product under the umbrella term Optimum GAT,” and that there were valid
business reasons for doing so: “The Company had already spent signiﬁcant time
and money educating growers regarding the beneﬁts of its Optimum GAT product
line, . . . [and] [a]s those beneﬁts remained the same, there was good reason to
continue to tout them to the market as Optimum GAT.”214 Additionally, the
Committee pointed out that “analysts were ambivalent to the news” when the
Company expressly disclosed its GAT/RR Stack, because “there was no real

ﬁnancial impact to the stacking strategy in soy.”215 Because of the lack of a

a, __.—_E _= -.-_ =_— ; --_-

213 
2'4 Id. at 1635-:
2‘5 Id. at 164,,

60

 

 

material ﬁnancial impact, the Committee found that the Company’s “generally

optimistic statements” were not rendered misleading by virtue of the lack of clarity

as to the nature of the product to which the statements referred.216
6._,T_l_1eCommittee’sAMysﬂftthazgﬁar/c Cl_aim_:

The Committee considered allegations that the Board failed in its duty of
loyalty by failing to oversee operations and risk, either by utterly failing to institute
and maintain adequate internal controls, or by consciously failing to monitor or
oversee existing controls. This Caremark claim was acknowledged by the
Committee to be “possibly the most difﬁcult theory in corporation law upon which
a plaintiff might hope to win a judgment.”217 Noting further that a plaintiff must
show that the directors knew they were not discharging their ﬁduciary obligations,
the Committee found no basis for an oversight claim.

In considering the ﬁrst prong of Caremark, which requires a board to

implement “information and reporting systems that are reasonably designed to

provide to senior management and to the Board itself, timely, accurate information

37218

to allow each, within its scope, to reach informed judgments, the Committee

outlined the “ﬁve standing committees tasked with overseeing the Company’s

operations and evaluating various elements of risk,” as well as the “various

___—__—_-_-

§=HZTé

216121—311 163—64.
2” Id. at 164—65 (quoting Stone v. Ritter, 911 A.2d 362, 372 (Del. 2006)).
218 Id. at 165 (quoting In re Caremark Int ’1 Inc. Derivative Litig, 698 A.2d 959, 969—70 (Del.

Ch. 1996)).

 

61

 

 

structural and reporting mechanisms in place to ensure that issues are raised to
senior management and then ultimately to the Board or its Committees.”2'9 The
Committee also noted that the Company maintains processes to oversee the various
reporting and oversight programs, including active oversight by the Board.220 In
considering these factors, as well as other speciﬁc policies and procedures outlined
in the Report but not reproduced here, the Committee concluded that, “given the
breadth of internal controls maintained at the Company and overseen by the
Board,” there was “no basis to suggest that the directors ‘utter[ly] fail[ed] to
attempt to assure a reasonable information and reporting system exists,’ as would
be required to ‘establish the lack of good faith that is a necessary condition to
33221

liability’ pursuant to the ﬁrst prong of a Caremark claim.

Turning, then, to the second prong of a Caremark claim, which would

require a showing that the Board “consciously failed to monitor or oversee” the

222

Company’s Operations, the Committee considered that there were no red ﬂags

which would make the Board aware that the “internal controls were inadequate,

that these inadequacies would result in illegal activity, and that the board chose to

d 9:223

do nothing about problems it allegedly knew existe In reaching this

conclusion, the Committee found that the “Board reasonably relied on proper

——— 5

 

i19 Id—
220 Id. at 166.

22‘ Id. at 167 (quoting Stone, 911 A.2d at 369):
2” Id. (quoting Stone, 911 A.2d at 370).

223 Id. (quoting Stone, 911 A.2d at 370).

62

business processes . . . that were in place to ensure oversight” of the development
of GAT, the GAT/RR Stack, and the Monsanto Litigation, and that “[n]o red ﬂags
were ever raised to the Board to make it question the adequacy of these
processes.”224 Accordingly, the Committee was unable to ﬁnd conscious disregard

of oversight duties with respect to the development of GAT, stacking, or the

Monsanto Litigation, including the Sanctions Order.

7-....;Ig;c_:c' Mbwor 

   

 

Finally,225 the Committee turned to a handful of “other factors” bearing on
its decision regarding litigation: (1) advancement and indemniﬁcation, (2) laches
and statutes of limitations issues, and (3) the time, expense, and business impact of
litigation,;

The Report concluded, based on 8 Del. C. § 145 and the Company’s bylaws,
that the Company would be required to advance the legal fees of the individual
Defendants in this action. Advanced legal fees would not be recoverable by the
Company if the directors were successful, i.e., the Company’s claims were
unsuccessful. Thus, having already determined that the directors and ofﬁcers acted

in good faith, did not commit breaches of ﬁduciary duties, or waste corporate

224 Id. at 167—68.
225 The Committee also considered claims for unjust enrichment and legal malpractice. Because
these were not asserted in the Plaintiffs Complaint, I need not recite the Committee’s ﬁndings

here.

63

 

 

assets, the Committee concluded that the Company would likely not recover the
costs of advancement.226

Next, the Committee considered the analogous three-year statute of
limitations under 10 Del. C. § 8106 which could form the bases of a laches defense
to the claims of breach of ﬁduciary duty and waste.227 It considered three tolling
doctrines, determined they were not applicable, and concluded that, in addition to
lacking merit, these claims may be time-barred. It further noted that a federal
securities law claim for misrepresentations would likely be barred as well.228

Finally, the Committee found that the costs by way of “signiﬁcant
distraction and impairment of morale for directors, ofﬁcers, and employees of the
Company” further weighed against bringing any claims.229

H. T he Plaintlﬂ’s Demand

On January 17, 2014, the Plaintiff, in a letter to the Board, demanded
inspection of the Company’s books and records pursuant to 8 Del. C. § 220, and
demanded that the Company investigate the misconduct associated with the

Monsanto Litigation, breaches of fiduciary duties, and waste of corporate assets.

The Plaintiff demanded such action be taken within 20 days and further requested

 

226 Id. at 171—72.
227 Id. The Committee also noted that there would be a laches defense for an unjust enrichment
claim, as well as a three-year statute of limitations for legal malpractice, but such claims are not

asserted in the present litigation.
228 1d. at 173 & n.592. See supra note 197.
229 Report at 173.

64

 

 

 

that the Company provide all materials previously provided to other

stockholders.230

The Company provided the Plaintiff with the same information produced in
response to other stockholder demands?“ On January 28, 2014, the Board
formally rejected “the substantially-similar litigation demands made by two other
stockholders” from December 2012 and April 2013.232 On January 30, the
Company’s outside counsel sent a letter acknowledging that the Plaintiffs demand

was, in its “overwhelming majority,” “identical” to the other stockholder demands

made previously and indicating that it was sent to the Board for “further action.”233

Although the Board did not explicitly reject the Plaintiff s demand, the Defendants

concede that it can be deemed to have done so, given the passage of time without

an explicit response to the demand.234

I. Procedural History

The Plaintiff ﬁled its Complaint on May 29, 2014. The Defendants ﬁled a

Motion to Dismiss on August 1, 2014, after which the Plaintiff ﬁled an Amended
Complaint on September 12, 2014. All of the Defendants moved to dismiss under

Rule 23.1 (the “23.1 Motion”) and the Pioneer Defendants also moved to dismiss

230 Am. Compl. 1] 242. T
23' 1d. 11 243.
2” Id.‘ﬂ 244.

233
Idaho
234 Id. The Defendants do not dispute denial of the demand for purposes of their Rule 23.1

Motion. See Opening Br. in Supp. of Defs.’ and Nominal Def.’s Mot. to Dismiss Pursuant to
Rule 23.1 at 25 n.15.

65

 

 

under Rule l2(b)(2) (the “l2(b)(2) Motion”). I heard oral argument on February
10, 2015 on those motions. For the following reasons, I am granting the Rule 23.1
Motion and dismissing the Complaint. Accordingly, I need not reach the Rule
12(b)(2) Motion.
II. STANDARD OF REVIEW

Rule 23.1 requires plaintiffs to “allege with particularity the efforts, if any,
made by the plaintiff to obtain the action the plaintiff desires from the directors or
comparable authority and the reasons for the plaintiffs failure to obtain the action
or for not making the effort.”235 Where, as here, a plaintiff has made a demand on
the board, the analysis and legal standards applicable are “necessarily different”
from the case where a plaintiff is alleging demand would be futile.236 “A
shareholder plaintiff, by making demand upon a board before ﬁling suit, tacitly
concedes the independence of a majority of the board to respond.”237 The effect of
such concession is that the decision to refuse demand is treated as any other
disinterested and independent decision of the board—it is subject to the business
judgment rule.238 Accordingly, for the Court, the “the only issues to be examined

are the good faith and reasonableness of its investigation.”239

235 Ch. Ct. Rule 23.1.

236 Levine v. Smith, 591 A.2d 194, 212 (Del. 1991) overruled on other grounds by Brehm v.11
Eisner, 746 A.2d 244 (Del. 2000).

237 1d

238 See id.; Spiegel v. Buntrock, 571 A.2d 767, 775—76 (Del. 1990).

239 Levine, 591 A.2d at 212 (internal quotation marks omitted).

66

Stated otherwise, to survive a motion to dismiss under Rule 23.1 where
demand has been made and refused, a plaintiff must allege particularized facts that
raise a reasonable doubt that (l) the board’s decision to deny the demand was
consistent with its duty of care to act on an informed basis, that is, was not grossly
negligent;240 or (2) the board acted in good faith, consistent with its duty of loyalty.
Otherwise, the decision of the board is entitled to deference as a valid exercise of

its business judgment. The pleading burden imposed by this standard is a heavy

. . . . 24]
one, and 1s dlscussed 1n more detall below.

Because of the requirement in Rule 23.1 that allegations be pled with
particularity, “[v]ague or conclusory allegations do not sufﬁce,”242 and this Court

“need not blindly accept as true all allegations, nor must it draw all inferences from

them in plaintiffs’ favor unless they are reasonable inferences.”243

240 See id. at 213 (“Reasonableness implicates the business judgment rule's requirement of
procedural due care; that is, whether the GM Board acted on an informed basis in rejecting
Levine's demand”); Mount Moriah Cemetery on Behalf of Dun & Bradstreet Corp. v. Moritz,
1991 WL 50149, at *4 (Del. Ch. Apr. 4, 1991) (“[T]he alleged deﬁciencies in the Special
Committee's investigation must rise to the level of gross negligence if the directors' decision is to
be condemned as uninformed”), aff'd, 599 A.2d 413 (Del. 1991). The parties also agreed that
the “reasonableness” inquiry requires a determination of whether there was gross negligence. See
Oral Arg. Tr. at 15:15—22, 2429—15.

241 See, e.g., White v. Panic, 783 A.2d 543, 551 (Del. 2001) (“In the present case, the plaintiff
does not contest the Court of Chancery's conclusion that a majority of the ICN directors were
disinterested and independent. The plaintiff must therefore carry the ‘heavy burden’ of showing
that the well-pleaded allegations in the complaint create a reasonable doubt that the board's
decisions were ‘the product of a valid exercise of business judgment.”’).

242 Postorivo v. AG Paintball Holdings, Inc, 2008 WL 553205, at *4 (Del. Ch. Feb. 29, 2008).
243 Higher Educ. Mgmt. Gm, Inc. v. Mathews, 2014 WL 5573325, at *5 (Del. Ch. Nov. 3, 2014).

67

 

 

 

resulting Report by the Committee of independent directors appointed by the
DuPont board in response to the demands.2

A. Parties

The Plaintiff alleges breaches of ﬁduciary duties by DuPont’s Board, certain
DuPont ofﬁcers and employees, as well certain employees of Pioneer, arising out
of litigation with Monsanto, including the events leading to the litigation, conduct
during the litigation, and events following the litigation.

The Complaint names twelve current and four former DuPont directors as
defendants: Lamberto Andreotti, Richard. H. Brown, Robert A. Brown, Bertrand
P. Collomb, Curtis J. Crawford, Alexander M. Cutler, Eleuthere I. du Pont,
Marillyn A. Hewson, Lois D. Juliber, Ellen Kullman, Lee M. Thomas, and Patrick
J. Ward (collectively, the “Current Director Defendants”); and Samuel W.
Bodman, John T. Dillon, Charles O. Holliday, and William K. Reilly (collectively,
the “Former Director Defendants,” and, together with the Current Director
Defendants, the “Director Defendants”).

Additionally named individual defendants are3: Bart Baudler, a Senior
Marketing Manager who was involved with the GAT project since its inception,

“served as the Optimum GAT trait champion for the Company,” was a GAT Core

 

 — —_—_ ___=_—._.__=..

2 Of course, the reader is entitled to blame the prolixity of the writer of this Memorandum

Opinion, as well.
3 All defendants are DuPont employees or directors unless otherwise indicated. All titles are as

stated in the Complaint.

 

III. ANALYSIS

A. Overview

The decision to bring litigation on behalf of a corporation is a quintessential
exercise of business judgment, involving as it does a complex array of costs (both
monetary and otherwise), potential beneﬁts, and the risk of uncertain outcomes.
Under our model of corporate governance, then, the decision to pursue litigation on
behalf of the entity is entrusted to the directors, who must approach that decision in
light of their ﬁduciary duties. Only where the directors will not or cannot act in a
manner consistent with those duties, may stockholders pursue such litigation
derivatively, on behalf of the corporation.

Where, as here, a stockholder makes a demand on the board to consider or
bring legal action, the stockholder has necessarily conceded that, at least at this
stage of the pleadings, he cannot allege facts showing that the board is disqualiﬁed
from the decision by self-interest or lack of independence. Where the board
considers a demand, and determines that pursuit of the litigation demanded is not
in the corporate interest, the stockholder thereafter lacks standing to bring the
litigation derivatively, unless the board’s refusal is wrongful; that is, the refusal
itself is in breach of the directors’ ﬁduciary duties. The burden is on the derivative

plaintiff in that case to refute the presumption of a valid exercise of business

judgment on the part of the board.

68

In order to survive a motion to dismiss under Rule 23.1 in the demand—
refused context, a plaintiff must point to a pleading of particularized facts which,
taken as true, raise a reasonable doubt that the refusal was a valid exercise of
business judgment. Where the plaintiff has made a demand, and thus conceded
that he has no basis to contest the independence of a majority of the board, the only
issue subject to challenge is the good faith and reasonableness of the board’s
investigation of its demand. Where a plaintiff has pled particularized facts which,
taken as true, create a reasonable doubt that the board’s investigation complied
with its duty of loyalty—that is, was undertaken in good faith—or with its duty of
care—that is, was not grossly negligent—he has rebutted the business judgment
rule with respect to the board’s refusal of his demand, and may proceed with the
litigation; otherwise, under Rule 23.1, the derivative litigation must be dismissed,
Below, I review the Plaintiffs pleadings in light of this standard.

As the painfully extensive statement of facts demonstrates, the Plaintiff
wishes to pursue derivatively numerous causes of action; it is not clear as to which
of these the Plaintiff contends that the investigation of its demand fell short. Did
the Board breach its duties in failing to bring suit against the “Ofﬁcer/Employee
Defendants” for the development of the GAT/RR Stack while certain of those

defendants knew the Company’s agreement with Monsanto did not allow

69

 

 

 

commercialization of a stacked product‘.7244 Did the Board breach its duties in
failing to pursue litigation against certain directors for either sanctioning that
conduct or consciously failing to investigate it‘.7245 In the alternative to those two
possibilities, did the Board breach a duty in failing to pursue the
“Ofﬁcer/Employee Defendants’” breach of their ﬁduciary duties for failing to
disclose the Monsanto dispute to the Board prior to May of 2009?246 Did the
Board breach its duties in failing to pursue a claim that some of the Defendants

breached their ﬁduciary duties in declining to disclose to the Board the Sanctions

Order, prior to November of 2012, subject as it was to a federal protective order?247

Should the Board have pursued all Defendants’ breaches of their ﬁduciary duties in

knowingly disseminating false information during the development of GAT,248 or

9249

for misrepresentation or active concealment Should they have pursued an

equitable fraud claim?250 What about a waste of corporate assets claim for the
settlement of the Monsanto Litigation, which included the RR2 Agreement?251 Or
should the Board have pursued one of the most difﬁcult theories under which to

recover in our corporate law—a Caremark claim for failure of oversight relating to

3.1—— _— _,—._—— ———=_ —_—_=5g

244 See Am. Compl. 11 328....
245 Idaho 11 327.

246 Id. 111] 333—34.

247 Id. 1] 338

24“ Id. 11 343.

249 Id. 1[ 350.

25" Id. 11 356.

25‘ Id. 11 358.

70

the development of GAT, statements made thereon, and the Monsanto
Litigation?252

The gravamen of the Plaintiffs argument, that, in rejecting demands, the
board breached its ﬁduciary duties, is not, speciﬁcally, any of the above. It is, in
effect, a species of res z'psa loquitur: that the attempt to monetize GAT, including
by stacking it with Monsanto’s RR product, and the resulting litigation and
settlement thereof, were so botched, and so costly to DuPont, that somebody must
be liable for a breach of fiduciary duties, and that liability is so clear and so
valuable to DuPont that a decision not to pursue that claim must have been made in
bad faith. Counsel for the Plaintiff made this clear when she stated at oral
argument, “In my more than 20 years of experience, a sanctions order of this
magnitude and a billion dollar verdict and judgment, they don't just happen.
They're unusual. They're enough to question whether there is reason to doubt.
There is reason to doubt here.”253

I note that the pertinent “reason to doubt” is not doubt about the propriety of
the underlying conduct, nor is it doubt about whether the Board, in rejecting the

demand, made a wise decision; it is doubt whether the Board’s action, wise or

foolish, was taken in good faith and absent gross negligence.

. ,.l

252 Idaho 11 365.
253 Oral Arg. Tr. at 51 :4—9; see also id. at 60:2—2 12;

71

 

 

 

A derivative plaintiff whose demand has been refused can demonstrate
standing under Rule 23.1 in two ways: She can plead particularized facts that
reasonably imply gross negligence, in that the board acted in an uniformed manner
by failing either to investigate the demand at all or in pursuing such an inadequate
investigation, in light of the seriousness of the demand, that a court may reasonably
infer a breach of the duty of care.254 Or, despite the facial independence of the
board, she can plead facts that show a board decision so inexplicable that a court
may reasonably infer that the directors must have been acting for a purpose
unaligned with the best interest of the corporation; that is, in bad faith.

B. The Board was Adequately Informed

At the time of the initial stockholder demand, the Board had already formed
the Committee to examine problems arising from the development of GAT and the
Monsanto Litigation. The Committee, comprised of two independent directors
whose tenure began after all the underlying malbehavior alleged in the Complaint,

was directed by the Board to consider the related Stockholder Demands as well.

 

— _ ' E];

254 Gross negligence has been defined as “conduct that constitutes reckless indifference or
actions that are without the bounds of reason.” McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del.
Ch. 2008). I note that in considering whether gross negligence has occurred, a court must keep
in mind a central tenet of Delaware corporate law, that there is “no single blueprint a board must
follow to fulﬁll its duties,” Barkan v. Amsted Indus, Inc., 567 A.2d 1279, 1286 (Del. 1989),
including with respect to stockholder demands. Levine v. Smith, 591 A.2d 194, 214 (Del. 1991),
overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (“While a board of
directors has a duty to act on an informed basis in responding to a demand such as Levine's, there
is obviously no prescribed procedure that a board must follow.”).

72

 

The Committee hired well-regarded independent counsel to assist in its
investigation, and over nine months vigorously investigated the circumstances
alleged in the Stockholder Demands, including interviewing 23 witnesses,
reviewing hundreds of documents, reviewing 25 days of deposition testimony and
the entirety of the Monsanto Litigation transcript, and conducting additional
research. At the end of this process, the Committee produced the l79-page Report,
exclusive of exhibits, which Report recommended remedial procedures in light of
its ﬁndings but recommended against pursuit of legal action against any current or
former directors or ofﬁcers. This Report, in turn, was considered, and accepted, by
the full Board. In light of this background, no successful argument can be made
that the Board was uninformed in a manner approaching gross negligence, and thus
the Plaintiff is forced to argue bad faith. The Plaintiff’s counsel conceded at oral
argument that, in light of the facts pled, to successfully defend the Rule 23.1

Motion, rejection of the demand must have been in bad faith.255

255 See Oral Arg. Tr. at 5618—58222. The Plaintiff does argue that the Committee should have
interviewed the current and former CEOs of DuPont, and, of course, failure to conduct a
thorough investigation could, if sufﬁciently egregious, support a reasonable inference of gross
negligence. The allegations with respect to the CEOs are conclusory, however. The Plaintiff
does not disclose how the information unique to these individuals can have changed the Board’s
determination to refuse the demand, in light of the otherwise exhaustive investigation conducted
by the Committee and transmitted to the Board. See Mount Moriah Cemetery on Behalf of Dun
& Bradstreet Corp. v. Moritz, 1991 WL 50149, at *4 (Del. Ch. Apr. 4, 1991), aff'd, 599 A.2d
413 (Del. 1991) (“In any investigation, the choice of people to interview or documents to review
is one on which reasonable minds may differ. This is especially so in a case such as this, where
the challenged conduct covers a period of more than ten years. Inevitably, there will be potential
witnesses, documents and other leads that the investigator will decide not to pursue. That
decision will not be second guessed by this Court on the showing made here. Plaintiffs

73

 

 

 

C. The Board Acted in Good Faith
Demonstrating that directors have breached their duty of loyalty by acting in

bad faith goes far beyond showing a questionable or debatable decision on their

part. As this Court has observed,

A failure to act in good faith may be shown, for instance, where the
fiduciary intentionally acts with a purpose other than that of
advancing the best interests of the corporation, where the ﬁduciary
acts with the intent to violate applicable positive law, or where the
fiduciary intentionally fails to act in the face of a known duty to act,
demonstrating a conscious disregard for his duties.256

For the actions of directors to have been in bad faith, the directors must have acted
with scienter, z'.e., with a motive to harm, or with indifference to harm that will
necessarily result from the challenged decision—here, that decision being rejection
of the Plaintiff s demand.257 As former-Chancellor Chandler observed:
A board may in good faith refuse a shareholder demand to begin
litigation even if there is substantial basis to conclude that the lawsuit

would eventually be successful on the merits. It is within the bounds
of business judgment to conclude that a lawsuit, even if legitimate,

_——..—_:__ —_——'——__ —

 

 

 

 

.13: 5:5 E :—\_h_—=i—t=-_,__ _ =—=—:———_,_ _ ___ _; _ __ - _'

complaint establishes that the Special Committee's investigation spanned more than six

months”).
256 In re Walt Disney Co. Derivative Ling, 907 A.2d 693, 755—56 (Del. Ch. 2005), aﬂ'd, 906
A.2d 27 (Del. 2006).
257 See, e.g., In re Goldman Sachs Grp., Inc. S’holder Ling, 2011 WL 4826104, at *20 (Del. Ch.

Oct. 12, 2011). This Court has also noted the importance of “motive” in this analysis. See, e. g.,
In re BJ’s Wholesale Club, Inc. S’holders Litig, 2013 WL 396202, at *9 (Del. Ch. Jan. 31, 2013)
(“As this Court has stated before, ‘the absence of an illicit directorial motive and the presence of
a strong rationale for the decision . . . makes it difﬁcult for a plaintiff to state a loyalty claim.’”);
In re Novell, Inc. S’holder Ling, 2014 WL 6686785, at *7 (Del. Ch. Nov. 25, 2014) (“An
analysis of motives is also key to determining whether a ﬁduciary acted in bad faith. . . . The
analysis here centers on whether the Board acted upon some other motive than of advancing the

corporation's best interests”).

74

 

 

would be excessively costly to the corporation or harm its long—term
strategic interests.258

Before turning to the speciﬁc claims that the Board has forgone, and to
whether the allegations in the Complaint provide reason to doubt the Board’s good
faith in that regard, it is worth examining the large portion of the Plaintiffs
argument that goes to disagreement with the conclusions of the Committee. It is
clear that mere disagreement with the Committee’s ultimate conclusion, as well as
its subsidiary conclusions leading thereto, will be insufﬁcient to raise a reasonable
doubt that the Board acted in good faith and on an informed basis. The Plaintiff
argues, broadly, the Committee’s alleged mischaracterization of key facts strips the
Board’s reliance on the Report of any presumption of proper business judgment;
In support of that contention, the Plaintiff cites this Court’s decision in London v.
T yrell, where this Court found evidence suggesting members of a special litigation
committee had “prejudged the merits of the suit . . . and then conducted the
investigation with the object of putting together a report that demonstrates the suit
has no merit,” which created “a material question of fact as to the [committee’s]
independenceﬁ’259 But London was in the Zapata context, in which a derivative
suit is brought, demand is excused, and then the company attempts to cleanse

conﬂicts by creating a special litigation committee to determine the course of the

m 1;; re INPOUSA, In—c. S’ho—lders Litig, 953 A.2d 963, 986 (Del. Ch. 2007).
259 2010 WL 877528, at *15 (Del. Ch. Mar. 11, 2010); see also Answering Br. in Opp’n to Defs.’
and Nominal Def.’s Mot. to Dismiss Pursuant to Rule 23.1 at 37.

75

 

 

 

 

 

 

 

 

litigation.260 In that context, “[u]nlike . . . in the pre-suit demand context,” the
special litigation committee “bears the burden of demonstrating that there are no
genuine issues of material fact as to its independence, the reasonableness of its
investigation, and that there are reasonable bases for its conclusions.”261 In the
demand-refused context, a board beneﬁts from the presumption of a proper
exercise of business judgment: only where a board has reason to doubt that a
committee’s report is a good faith and informed recommendation can I infer breach
of duties arising from that board’s reliance on the report.262 In the present case, the
Plaintiff alleges that the Board should have reasonably inferred that the Committee
ignored or mischaracterized evidence in reaching its conclusion in connection with
the underlying Monsanto Litigation. I consider this allegation below.

Speciﬁcally, the Plaintiff reserves its strongest condemnation for the
Committee’s determination that no actionable breach of duty exists in the context

of the Sanctions Order. The District Court found that the Company’s defense—

260 See London, WL 877528, at *11 (“The Supreme Court's decision in Zapata governs demand-
excused derivative cases in which the board sets up an SLC that investigates whether a derivative

suit should proceed and recommends dismissal after its investigation”).
26] Id. at *12, *13. Other Zapata-context cases on which the Plaintiff relied include Sutherland

v. Sutherland, 958 A.2d 235 (Del. Ch. 2008); In re Oracle Corp. Derivative Litig, 824 A.2d 917
(Del. Ch. 2003); Lewis v. Fuqua, 502 A.2d 962 (Del. Ch. 1985); and Kaplan v. Wyatt, 484 A.2d
501 (Del. Ch. 1984).
262 See 8 Del. C. § 141(c) (”A member of the board of directors, or a member of any committee

designated by the board of directors, shall, in the performance of such member's duties, be fully
protected in relying in good faith upon the records of the corporation and upon such information,
opinions, reports or statements presented to the corporation by any of the corporation's ofﬁcers
or employees, or committees of the board of directors, or by any other person as to matters the
member reasonably believes are within such other person's professional or expert competence
and who has been selected with reasonable care by or on behalf of the corporation”).

76

 

that it understood its contract with Monsanto to permit stacking—was not only
untenable, but mendacious, and had worked a fraud on the court. As a result, the
District Court sanctioned DuPont, including by shifting Monsanto’s attorneys’ fees
in an amount not disclosed in the record. At the time the Committee considered
the matter, the order was on appeal; since the Committee’s decision, the appellate
court has upheld that part of the Sanctions Order ﬁnding vexatious litigation on the
part of DuPont, but has overturned the ﬁnding of fraud on the court. While the
Committee found that the actions of DuPont’s counsel underlying the Sanctions
Order were within the bounds of good-faith litigation, the Plaintiff argues that
something akin to collateral estoppel precludes the Committee from reaching that
conclusion, and that the Board, had it been acting in good faith, would have
recognized this and accordingly rejected the Report.

The Plaintiff points to City of Orlando Police Pension Fund v. Page,263 a
decision by the federal district court for the Northern District of California, as
“support[ing] a ﬁnding of reasonable doubt about the Board’s good faith in relying

on a Report that fails to comport with the facts.”264 The Plaintiff relies on Page in

arguing that the facts in the Sanctions Order, which Order was largely upheld on

263 970 F. Supp. 2d 1022 (N.D. Cal. 2013).
264 Answering Br. in Opp’n to Defs.’ and Nominal Def.’s Mot. to Dismiss Pursuant to Rule 23.1

at 33.
77

 

 

Team Member, and “led soybean marketing efforts for Pioneer”;4 John Bedbrook,
Vice President of Agricultural Biotechnology, former-Vice President of Research
and Development, and a Senior Leader; James Borel, an Executive Vice President
identiﬁed as a member of the Ofﬁce of the Chief Executive and designated in the
McKinsey Report as “DuPont leadership;” Dennis F. Byron, a Vice President of
Crop Product Development at Pioneer; Thomas M. Connelly, an Executive Vice
President and the Company’s Chief Innovation Ofﬁcer, as well as a member of the
Ofﬁce of the Chief Executive; Daniel J. Cosgrove, Vice President of Business
Deve10pment, and former—Corporate Counsel for Pioneer, and former-1P Group
Leader/Corporate Counsel; Erik Fyrwald, former-Group Vice President of
Agriculture and Nutrition at DuPont and a Senior Leader; Robert C. Iwig, former-
Vice President of Business Development/Trait Licensing at Pioneer, a Senior
Leader, and a member of the Soybean Herbicide Tolerance Working Team; Daniel
E. Jacobi, former-Corporate Legal Counsel for Pioneer, then the Associate General
Counsel for DuPont Agriculture and Nutrition; Jeffrey L. Keefer, former Executive
Vice President of DuPont; Michael Lassner, Vice President of Trait Discovery;

Traci Linbo, Director of Business and Strategy Planning at DuPont Pioneer for

 

 

4 Am. Compl. ﬂ 52. The Complaint refers to a 2007 report by consulting ﬁrm McKinsey &
Company (the “McKinsey Report”), which identiﬁed certain Company employees as “Senior
Leaders” or among “Senior Leadership.” Other employees were part of the “GAT Core Team,”
which the Complaint alleges was “responsible for oversight, marketing and messaging regarding
GAT.” See id. at 18 n4. The Complaint also notes that, according to the Company’s bylaws,
executive vice presidents and vice presidents are ofﬁcers of the Company. Id.

6

 

 

 

 

- g_=.—____'— ———

ﬁnd the defense in the Monsanto Litigation to have been in bad faith,267 (2) that the
decision to so litigate had been taken in actionable breach of ﬁduciary duty by a
theoretical defendant, and (3) that recoverable damages would have resulted. More
fundamentally, I would then have to ﬁnd that the forgoing appears with such
clarity, and that the resulting damages were so clearly in excess of risks and costs,
that a reasonable doubt exists about the good faith of the Board’s refusal to bring
the litigation. However, the Plaintiff does not identify just what the breach of duty
involved would have been, nor does the Plaintiff identify what the damages would
have been, as would make such litigation an irresistible asset for the Company to
pursue. Instead, the Plaintiff argues that “[u]nder the circumstances here, the Board
acting in good faith could not reasonably determine that the $1 billion verdict and
the since—afﬁrmed Sanctions Order are not products of some wrongdoing or
culpability on the part of at least some members of the Board or senior ofﬁcers of

$3268

the Company. In this context, the recommendation by the Committee to forgo

ﬁduciary duty litigation in connection with the Sanctions Order is not so clearly

erroneous as to raise a reasonable doubt about the good faith of the Board’s

reliance on the Report.

:5_—._=.__— — —_,—.=___— _ _= _—..;

267 Or that the ﬁnder of fact would be constrained to reach such a conclusion under principles of

issue preclusion.
268 Answering Br. in Opp’n to Defs.’ and Nominal Def.’s Mot. to Dismiss Pursuant to Rule 23.1

at 35.
79

 

 

 

The Plaintiff makes essentially the same argument, with even less persuasive
force, with respect to the jury verdict. The jury returned an enormous verdict—
over $1 billion—for Monsanto’s patent claims, which verdict was pending appeal
at the time of settlement. It is not possible, on the facts pled in the Complaint, to
determine the ultimate cost to DuPont of this verdict, subsumed as it was in the
Settlement, which obviated an appeal, surrendered the anti-trust allegations, settled
the litigation, and gave the company new rights to use Monsanto technology, in
return for $1.75 billion over ten years. The Committee found the detriment of the
jury verdict, in light of the appeal and the Settlement, to be virtually zero. One can
dissent from that opinion without doubting the good faith of the Board’s decision
to rely on the recommendation of the Committee that it was not worthwhile to
proceed with fiduciary duty litigation against “at least some” employee or board
member, for the reasons discussed above.

While the Plaintiff makes numerous attacks on the methodology and
conclusions of the Committee in the Report other than those above, none are of the
type that would have been apparent to the Board so as to call into question the

Board’s good—faith reliance on the Report. I now turn to the speciﬁc claims that

80

 

 

 

269

the Complaint alleges the Board elected to forgo, and whether the facts pled

raise a reasonable doubt that those elections were made in good faith.

As noted above, the Committee ultimately concluded that “pursuing the
[derivative] claims . . . is not in the best interests of the Company and its
shareholders because (1) none of the claims has factual or legal merit; and (2) even
if they did, the costs and risks of pursuing litigation far outweigh any potential

270 The Board adopted that recommendation and declined to pursue

beneﬁt.”
ﬁduciary duty litigation arising out of the development of Optimum GAT as a
stand-alone product, the decision to pursue testing and commercialization of the
stack, the management of the Monsanto Litigation, the Company’s entrance into
the RR2 Agreement that was part of the Monsanto settlement, the Company’s
disclosures relating to Optimum GAT, or the Board’s oversight of the Company.

The Board’s refusal to pursue each of these alleged causes of action is discussed

below.

1.;lhe _Board’s Refusal to__l_’i_1rsue theﬂainﬁéff’igounts I 

 

In Count I of its Complaint, the Plaintiff alleges breaches of ﬁduciary duties

by the Board in “sanction[ing] the Company’s activities” with respect to the

 

 

"269 The Plaintiff—s demand was not part of the record, though the Plaintiff conceded that its
demand was “substantially similar” to the December 2012 Stockholder Demand and April 2013

Stockholder Demand. See Am. Compl. ﬂ 244.
270 Report at 3.

81

 

 

27] together with breaches of ﬁduciary duties by the

development of GAT,
Ofﬁcer/Employee Defendants “in the same wrongdoing, both before and after the
ﬁling of the Monsanto Litigation.”272 In Count II, asserted as an alternative to
Count I, the Plaintiff alleges that the Ofﬁcer/Employee Defendants breached their
ﬁduciary duties in failing to disclose to the Board “the material facts associated
with the GAT stacking strategy and the dispute with Monsanto[] until Monsanto
ﬁled suit on or about May 15, 2009.”273

Count I, insofar as it alleges that the Board was aware of the stacking
strategy prior to May 15, 2009, is contrary to the ﬁndings in the Report, and, as I
have found, the pleadings do not raise a reasonable doubt that the Board relied on
the Report in good faith. With respect to the claims in Count I that the
Ofﬁcer/Employee Defendants breached ﬁduciary duties in connection with both
the development of GAT and disclosures related to GAT throughout its
development, as noted more fully above, the Committee concluded that
management had “relied upon . . . formalized business level processes (including
Stages & Gateways) to ensure oversight of product development and input of
appropriate personnel, including business leaders, scientists and Legal.”274
Overall, the Committee concluded “that management’s decisions related to

Ill

27] Am. Compljﬂ 327. To the extent that Count I attempts to state a Caremark claim against the
Board, that claim is examined below.
272 [am 328.
273
Id. 1| 332.
274 Report at 133.

 

 

82

 

Optimum GAT were reasonable and must be analyzed in the overall context of the
product development process,” which it characterized as, “by its very nature,

275 The Committee ultimately found that, “at each juncture,

inherently uncertain.”
management engaged in a thorough analysis of whether to continue developing
Optimum GAT as a standalone product and, given the potential beneﬁts of the
product, made reasonable decisions, acting in good faith, based on this analysis.”276
The Board’s decision to decline to pursue a breach of ﬁduciary duty claim for the
development of GAT was informed and cannot be said to have been in bad faith.
Moreover, and in light of the Committee’s ﬁndings referenced above, the Plaintiff
has also failed to raise a reasonable inference that the Board acted in bad faith in

declining to pursue vague ﬁduciary duty claims against employees for failure to

timely inform the Board about problems with developing GAT.

 

2. gﬂrciﬂagﬁoggsug the_Pl_.aimiff s£ount LIL
The Board also declined to pursue a breach of ﬁduciary duty claim against
Kullman, Borel, Sager, Schickler, McKay, and. E. du Pont for failure to disclose
the Sanctions Order to the rest of the Board prior to November 16, 2012 when it
was unsealed by the District Court. The Plaintiff alleges that the basis for the

Sanctions Order was a number of internal DuPont documents, and that Kullman

i375 [cl-lat 134.
276 Id. at 135. As noted above, the Report also considered and rejected a waste claim for similar
reasons. See id. at 135—36.

83

 

 

and Sager should have “shared the sum and substance of the Sanctions Order with
at a minimum an independent director, if not the full Board, even if a copy of the
Sanctions Order could not be disseminated without the approval of the Court in the
Monsanto Litigation.”277 But the Board can hardly be said to have acted in bad
faith in failing to pursue a ﬁduciary action against Kullman, Borel, Schickler,
McKay, and E. du Pont for abiding by the conﬁdentiality directive imposed by the
District Court, which had just sanctioned the Company. Even if it had been a
breach of ﬁduciary duty not to disclose the sealed Sanctions Order, it is not clear
that there would be damages for such a breach, let alone the potential for damages
so compelling that I may infer bad faith from a refusal to bring the action. In other
words, even if a viable ﬁduciary duty claim exists, and even if that claim portends
cognizable damages (of which I am skeptical), there is no reasonable indication
that the decision not to pursue litigation on such a theory was in the interest of
something other than that of the corporation, sufﬁcient to imply bad faith on the

part of the Board.

3- _I_a—=———_he_B°a¥‘_i’S—1¥f1§_§L   adeLL

 

In Count IV, the Plaintiff asserts claims against the Ofﬁcer/Employee
Defendants and the Director Defendants for “knowing dissemination of false

information [which] caused injury, including reputational injury, to the Company

— —'VE'_=|==I§,:

277 Am. Compl. 11 3o .

 

84

 

and damage to the stockholders.”278 In Count V, the Plaintiff alleges that the
Ofﬁcer/Employee Defendants and the Director Defendants “communicated with
the stockholders regarding GAT, GRS and the Company’s license rights from
Monsanto, and did so knowing that their communications were false or made such
communications with reckless indifference to the truth,”279 also taking “afﬁrmative
action designed or intended to prevent the discovery of the truth regarding GAT,
GRS and the Company’s license rights with Monsanto.”280 In Count VI, the
Plaintiff alleges that the Director Defendants and the Ofﬁcer/Employee Defendants
“either afﬁrmatively disseminated false information or negligently failed to cure
misleading information known to be false in the face of a duty to speak,” and that
they also “took afﬁrmative action designed or intended to prevent the discovery of
the truth regarding GAT, GRS and the Company’s license rights with Monsanto
both inside and outside the Company.”281

As detailed above, the Committee considered disclosures about GAT in
three time periods, including many of the same disclosures the Plaintiff here
alleges,282 and concluded that none of them were false or misleading and, thus,
would not give rise to a breach of ﬁduciary duty on the part of those involved in

making the statements. Again, that the Plaintiff disagrees with the Committee’s

.___ _.—p.

27“ Id. 11343.
279
Idaho 11 346.
23° [am 347.

23‘ Id. 11 355.
282 See supra note 206,...

 

85

 

 

conclusions is simply insufficient to raise a reasonable doubt that the Board’s
adoption of the Committee’s recommendation was made in good faith, and the
Plaintiff has made no other proffer as to why the decision to decline to pursue
litigation on this claim must be in an interest other than that of the corporation-.9.-

4-E_he Bowmlime the— 

 

 

In Count VII, the Plaintiff alleges a waste of corporate assets by the
Ofﬁcer/Employee Defendants and the Director Defendants relating to the
development of GAT, the Monsanto Litigation, and the Settlement “for hundreds
of millions more than [the Company] would have had to pay for license rights prior

to the Monsanto Litigation.”283

The Committee’s conclusions with respect to a waste claim for pursuing a
stacked product, for the conduct of the Monsanto Litigation, including the
Sanctions Order, and for entering the Settlement, are set forth above, and more
fully in the Report. In short, the Committee detailed that the development of the
stacked product involved consultation with counsel, both inside and outside the
Company; that throughout the course of the Monsanto Litigation, counsel acted in
good faith; that the Committee reached this conclusion despite the Sanctions
Order, which the Committee closely examined and found not to be a basis for

fiduciary duty claims against the individuals involved; and that the Settlement

 

86

 

 

involved a reasonable exchange of value. The Plaintiff fails to allege anything
other than conclusory allegations contrary to the ﬁndings set forth by the
Committee in an unsuccessful attempt to raise a reasonable doubt about the

Board’s good faith in declining to pursue a waste claim.

  

Finally, in Count VIII, the Plaintiff alleges Caremark claims against the
Director Defendants, either for “failure to institute and maintain adequate internal
controls over the Company’s information and reporting systems and to make a
good faith effort to correct or prevent the deﬁciencies and problems caused
thereby,” or for the conscious failure “to monitor or oversee existing systems and
operations thereby disabling themselves from being informed of risks or problems
requiring their attention.”284 The Plaintiff’s Caremark claims related to the
Monsanto dispute as well as the alleged misstatements made to stockholders and
the public relating to GAT and the Company’s rights to develop the GAT/RR
Stack.

The Committee’s ﬁndings on the Caremark claims are, again, outlined
above and more thoroughly detailed in the Report. The Committee noted, as do I,
that Caremark claims are among the most difﬁcult theory a stockholder plaintiff

can undertake. The Committee found that the Company’s internal control

87

 

 

Asia, China, Europe, and Africa, former-Senior Marketing Manager for the
Optimum GAT trait at DuPont, and member of the GAT Core Team; Carl J.
Lukach, President of DuPont East Asia and former—Vice President of Investor
Relations for DuPont; Judith McKay, former-Chief Administrative Officer and
General Counsel for DuPont Canada, and former-Vice President and General
Counsel for Pioneer; William Niebur, Vice President and General Manager of
DuPont Pioneer China, and a Senior Leader; Dean Oestreich, former-Vice
President of DuPont, former-President of Pioneer, and former—Chairman of
Pioneer, and also a Senior Leader; Thomas L. Sager, a former-Senior Vice
President and General Counsel of DuPont, a former-Associate General Counsel,
former—Chief Litigation Counsel, and a former-member of the Office of the Chief
Executive; Paul Schickler, the President of Pioneer; John Soper, former—Vice
President of Crop Genetics Research and Development for DuPont; and Ellen
Kullman, named above as a Director Defendant, the Chief Executive Officer of

DuPont (collectively, the “Ofﬁcer/Employee Defendants”).5 The Director

. e..=—#=——-=——C—.—_=u—E—‘L

5 The term “Ofﬁcer/Employee Defendants” is used in the Complaint. Its imprecision is not
unnoticed. Under Delaware law, an employee does not owe fiduciary duties to the corporation
unless he is a “key managerial employee” subject to fundamental principles of agency law. See,
e. g, Sci. Accessories Corp. v. Summagraphics Corp, 425 A.2d 957, 962 (Del. 1980). But given
the plaintiff-friendly standard on a motion to dismiss, I will accept the Plaintiffs characterization
as true rather than consider whether each named defendant owed fiduciary duties by virtue of
applicability of agency law principles, and will use the Plaintiff’s term with its implication in
mind.

 

 

 

systems—which, whether or not operating as designed, certainly existed—not
sufﬁciently deﬁcient so as to satisfy the ﬁrst prong of Caremark, and that there
were no “red ﬂags” that would enable a ﬁnding that the Board consciously failed
to monitor those controls, as required by the second prong of Caremark.285 Once
again, the Plaintiff disagrees with the conclusions of the Committee.

The Plaintiff, recognizing that convincing this Court that a disinterested
decision to forgo a Caremark claim implicates bad faith is a tough row to hoe,
cleverly (but unpersuasively) attempts to depict the breach of duty regarding
internal controls as a coin ﬂip with both sides heads: either the Board had
established no information or reporting system, making the directors liable under
Caremark, or employees with ﬁduciary duties must have failed to comply with that
system, making them liable for breaches of those duties. Demonstrating that a
business plan or system has failed is not the same as demonstrating an actionable
breach of ﬁduciary duty, however. The Committee informed itself about the
Caremark claims and did not ﬁnd an actionable breach of duty worth pursuing;
nothing about the Board’s acceptance of this recommendation implies bad faith.

D. Concluding Thoughts

The facts pled indicate that the development of GAT and the Monsanto

Litigation were failures, causing DuPont (and its stockholders) to incur substantial

—=————:

285 See Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).
88

 

losses. The question here is not whether these losses in fact occurred, or even
whether, assuming they did, the individuals responsible for those losses could be
liable to the Company for breaches of ﬁduciary duties; the Board here examined
these allegations and determined that it was not in the Company’s interest to
pursue litigation. The entire foundation of the demand requirement is that

litigation on behalf of the corporation belongs to the corporation, which is

286
d.

managed by the boar It is up to an informed and independent board to

determine whether potential litigation has merit and whether the costs of that

meritorious litigation are outweighed by the probable beneﬁts of potential

I‘GCOVCI'y.

As noted, the Plaintiff made a demand on the Board, thus conceding, at least

ex ante, that the Board was capable of exercising its business judgment in

considering that demand, i.e., that the Board was disinterested and independent.287

The Plaintiff also does not challenge, ex post, the Board’s interest or

_‘____..‘

286 Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) overruled on other grounds by Brehm v.
Eisner, 746 A.2d 244 (Del. 2000) (“The thrust of Zapata is that in either the demand—refused or
the demand-excused case, the board still retains its Section 141(a) managerial authority to make
decisions regarding corporate litigation”); Spiegel v. Buntrock, 571 A.2d 767, 775 (Del. 1990)
(“The effect of a demand is to place control of the derivative litigation in the hands of the board

of directors”).
287 Am. Compl. 11 18.

89

 

 

8 Nor can the Plaintiff reasonably challenge that the Board

independence.28
informed itself through the work of the Committee.

The Plaintiff disagrees with the Committee’s conclusions, particularly those
contrary to the ﬁndings in the Sanctions Order. But a disagreement, however
vehement, with the conclusion of an independent and adequately represented
committee is not the same as pleading particularized facts that create a reasonable
doubt that the Board acted in what it perceived as the best interests of the
corporatiOn.

The question is not whether the conclusion was wrong; the question is
whether the Board was grossly negligent in failing to inform itself, or intentionally
acted in disregard of the Company’s best interests in deciding not to pursue the
litigation the Plaintiff demanded. I cannot ﬁnd that the Plaintiff has raised a
reasonable doubt that the Board acted in an informed manner and in good faith;

I note that some of the individual defendants have raised jurisdictional
challenges, as well as joining in the Rule 23.1 Motion addressed here. I would

normally decide jurisdiction ﬁrst, but since, in the alternative, the Plaintiff has

requested additional jurisdictional discovery, judicial economy dictated resolution

 

288 See, e.g., Oral Arg. Tr. 17:14—23; Emerald Partners v. Berlin, 2003 WL 21003437, at *43

(Del. Ch. Apr. 28, 2003) (“It is settled Delaware law that a party waives an argument by not
including it in its brief”), aﬂ’d, 840 A.2d 641 (Del. 2003).

90

 

of the Rule 23.1 Motion. Because I am granting that Motion and dismissing this

action, I need not reach the jurisdictional questions.
IV. CONCLUSION

For the foregoing reasons, I grant the Defendants’ Motion to Dismiss under

Rule 23.1. An appropriate order accompanies this Memorandum Opinion.

91

 

 

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IRONWORKERS DISTRICT )
COUNCIL OF PHILADELPHIA & )
VICINITY RETIREMENT & PENSION )
PLAN, )
Plaintiff, )

)

V, ) C.A. No.9714 -VCG

)

LAMBERTO ANDREOTTI, et al., )
)

Defendants, )

,QRDER,

AND NOW, this 8th day of May, 2015,

The Court having considered the Defendants’ Motions to Dismiss under
Rule 23.1 and Rule 12(b)(2), and for the reasons set forth in the Memorandum
Opinion dated May 8, 2015, IT IS HEREBY ORDERED that the Motion to
Dismiss pursuant to Rule 23.1 is GRANTED and the Plaintiff’ s Complaint is

dismissed with prejudice.

SO ORDERED:

ngknﬂaéi—CQMW;

Vice Chancellor