Court Opinion

ID: 4191540
Source: CourtListenerOpinion
Date Created: 2017-08-01 17:07:17.125269+00
Date Added: 2024-06-11T14:39:57.879992
License: Public Domain

COURT OF CHANCERY
                                          OF THE
                                    STATE OF DELAWARE

TAMIKA R. MONTGOMERY-REEVES                                       Leonard L. Williams Justice Center
       VICE CHANCELLOR                                             500 N. King Street, Suite 11400
                                                                  Wilmington, Delaware 19801-3734

                                Date Submitted: June 2, 2017
                                Date Decided: August 1, 2017

      Ned Weinberger, Esquire                      Anne C. Foster, Esquire
      Thomas Curry, Esquire                        Brian F. Morris, Esquire
      Labaton Sucharow LLP                         Richards, Layton & Finger, P.A.
      300 Delaware Avenue, Suite 1340              One Rodney Square
      Wilmington, DE 19801                         920 North King Street
                                                   Wilmington, DE 19801

            RE:   H&N Management Group, Inc. & Aff Cos Frozen Money Purchase
                  Plan v. Robert M. Couch et al., Civil Action No. 12847-VCMR

     Dear Counsel:

            This letter opinion addresses Defendants’ motion to dismiss Plaintiff H&N

     Management Group, Inc. & Aff Cos Frozen Money Purchase Plan (“H&N”)’s

     Verified Amended Stockholder Derivative Complaint (the “Complaint”) for failure

     to make demand under Court of Chancery Rule 23.1 and failure to state a claim for

     breaches of fiduciary duty under Court of Chancery Rule 12(b)(6). For the reasons

     discussed below, I hold that Plaintiff has sufficiently alleged a reason to doubt the

     board was adequately informed when approving each transaction at issue. Because

     the relevant exculpation provision does not protect the board from liability for gross

     negligence, and Plaintiff has met the heightened pleading standard for demand

     futility under Aronson v. Lewis, I deny the defendants’ motion to dismiss.
H&N Mgmt. Gp. v. Couch et al.
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I.       BACKGROUND
         The facts are taken from the Complaint and all documents incorporated

therein.1     Plaintiff H&N is a stockholder of AGNC Investment Corp. (the

“Company”), a Delaware real estate investment trust (“REIT”) that invests primarily

in mortgage-backed securities. The Company was externally managed by American

Capital Mortgage Management, LLC (the “Manager”), a wholly-owned subsidiary

of the private equity firm, American Capital, Ltd. (“American Capital”). The

Manager also managed another REIT, American Capital Mortgage Investment

Corporation (“MTGE”). Defendant Malon Wilkus founded American Capital and

serves as its Chairman and CEO. Wilkus also was the CEO of the Company and

MTGE until March 2016 and the CEO of the Manager until September 2016.

         From February 2013 until May 2016, the Company and MTGE had the same

board.      In March 2016, Defendant Gary Kain became CEO, President, Chief

Investment Officer (“CIO”), and a director of the Company and MTGE. Kain has

been President of the Manager since 2011; and he served as a Senior Vice President

and Managing Director of American Capital from January 2009 to July 2009.

1
         In re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 659 n.3 (Del. Ch. 2013);
         In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
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      The Manager managed the operations of both the Company and MTGE, as

neither had employees of their own. The Manager managed the Company pursuant

to an agreement executed on May 20, 2008, and amended on July 29, 2008 and

September 30, 2011 (the “Management Agreement”). The Management Agreement

specifically allowed for termination after the initial term ended in 2011; but the

agreement was renewed each year through the 2016 term (the “Renewals”). On July

1, 2016, the Company acquired the Manager in a $562 million cash deal (the

“Internalization”), and the Manager’s subsidiary continued to manage MTGE.

      Plaintiff filed this action on October 21, 2016. On December 12, 2016,

Plaintiff filed the operative Complaint.     Plaintiff alleges that the individual

defendants breached their fiduciary duties by allowing the agreement to

automatically renew for the years 2014, 2015, and 2016. Plaintiff argues that the

Company was overpaying for the Manager’s services and bankrolling MTGE’s

operations year after year. Plaintiff contends that the board did not consider all

material information and did not have access to the entire financial picture when

deciding whether to renew. Plaintiff also alleges that certain individual defendants

knowingly withheld material information from the board, including the Company’s

payment of more than double the Manager’s costs.
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      The Complaint also asserts that the individual Defendants did not act in the

best interests of the Company when considering the Internalization. Rather, Plaintiff

alleges that the Defendants acted collectively for MTGE and the Company, even

though the two entities had diverging interests. Plaintiff argues that the Company

unnecessarily paid an exorbitant amount for the Manager while MTGE, a competing

REIT, paid nothing. Plaintiff contends that much more reasonable options were

available, such as the termination of the Management Agreement. Finally, Plaintiff

alleges that the Internalization constituted waste because the terms of the transaction

were so lop-sided that no person acting in good faith would have approved the deal.

      On January 12, 2017, Defendants filed their motion to dismiss. Defendants

assert that the majority of the board is disinterested, is independent, and does not

face a substantial threat of liability from either the Renewals or the Internalization.

Therefore, in Defendants’ view, Plaintiff has failed to plead demand futility.

Additionally, Defendants move to dismiss on the grounds that Plaintiff has failed to

state a claim for breach of fiduciary duty or waste. On June 2, 2017, the Defendants

filed a letter correcting their opening brief, and this Court held oral argument.

II.   ANALYSIS
      In order to bring a derivative action under Rule 23.1, a stockholder must

“allege with particularity the efforts, if any, made by the plaintiff to obtain the action
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the plaintiff desires from the directors or comparable authority and the reasons for

the plaintiff’s failure to obtain the action or for not making the effort.”2       In

considering a motion to dismiss under Rule 23.1, “[t]he Court must assume the

truthfulness of all well-pleaded facts in the complaint and is required to make all

reasonable inferences that logically flow from the face of the complaint in favor of

the plaintiff.”3 The Complaint does not allege that Plaintiff made demand on the

Company’s board. Therefore, in order for this action to go forward, Plaintiff must

allege that demand on the board is futile.

      “Under Delaware law, the Court applies one of two tests to determine whether

a plaintiff’s demand upon the board would be futile.”4 “[W]hen a plaintiff is

challenging a decision of the board of directors,” the two-prong Aronson v. Lewis

test applies.5 Under Aronson, demand is futile if “under the particularized facts

alleged, a reasonable doubt is created that: (1) the directors are disinterested and

independent [or] (2) the challenged transaction was otherwise the product of a valid

2
      Ct. Ch. R. 23.1(a).
3
      McPadden v. Sidhu, 964 A.2d 1262, 1269 & n.7 (Del. Ch. 2008).
4
      Reiter ex rel. One Fin. Corp. v. Fairbank, 2016 WL 6081823, at *6 (Del. Ch. Oct.
      18, 2016).
5
      Id. (citing Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984)).
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exercise of business judgment.”6

      The Rales v. Blasband test applies, however, “where the board that would be

considering the demand did not make a business decision which is being challenged

in the derivative suit.”7 Specifically, this type of situation arises

             (1) where a business decision was made by the board of a
             company, but a majority of the directors making the
             decision have been replaced; (2) where the subject of the
             derivative suit is not a business decision of the board; and
             (3) where . . . the decision being challenged was made by
             the board of a different corporation.8

Under Rales, the inquiry is whether “the particularized factual allegations of a

derivative stockholder complaint create a reasonable doubt that, as of the time the

complaint is filed, the board of directors could have properly exercised its

independent and disinterested business judgment in responding to the demand.”9

      To survive a motion to dismiss under Rule 12(b)(6), the Court accepts all

“well-pleaded factual allegations” as true.10 “[E]ven vague allegations are ‘well-

6
      Aronson, 473 A.2d at 814.
7
      Rales v. Blasband, 634 A.2d 927, 933-34 (Del. 1993).
8
      Id.
9
      Id. at 934.
10
      In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting
      Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002)).
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pleaded’ if they give the opposing party notice of the claim.”11 “[T]he Court must

draw all reasonable inferences in favor of the non-moving party;” and the Court

cannot dismiss the case “unless ‘the plaintiff would not be entitled to recover under

any reasonably conceivable set of circumstances susceptible of proof.’”12 If the

complaint survives the “more onerous” pleading standard required by Rule 23.1,

“assuming that it otherwise contains sufficient facts to state a cognizable claim,”13 it

necessarily will survive the Rule 12(b)(6) notice pleading standard.14 Thus, “the

issue of whether demand is futile so as to be excused is logically antecedent to

whether plaintiff states a claim because, if demand is not made or is not otherwise

excused, the complaint will be dismissed without any further inquiry into the merits

of the complaint.”15 Therefore, I analyze the claims under demand futility first.

11
      Id.
12
      Id.
13
      McPadden v. Sidhu, 964 A.2d 1262, 1270 (Del. Ch. 2008) (citing Ryan v. Gifford,
      918 A.2d 341, 357 (Del. Ch. 2007)).
14
      Id. at 1269-70 (citing Gen. Motors, 897 A.2d at 168)).
15
      Id. at 1270 (citing Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984)).
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      “[U]nder Delaware law, the demand futility analysis ‘is conducted on a claim-

by-claim basis.’”16 Here, Plaintiff challenges the board’s annual review process in

allowing the Renewals and the board’s decision to approve the Internalization. The

current board approved the Internalization and three of the four current directors,

approved the Renewals.17 Thus, the Aronson test applies to each of the Renewals

and the Internalization.18

      Here, Plaintiff argues that demand is excused under Aronson’s second prong

because there is a reasonable doubt that the Renewals and the Internalization were

the products of the valid exercise of business judgment.19 Under the second prong

16
      Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 58 n.71 (Del.
      Ch. 2015) (quoting Cambridge Ret. Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del.
      Ch. June 26, 2014)).
17
      Teachers’ Ret. Sys. of Louisiana v. Aidinoff, 900 A.2d 654, 666 (Del. Ch. 2006)
      (“One of the reasons why contracts have termination clauses is to permit a fresh
      business decision to be made about continuing past practices. Here, the complaint
      clearly pleads that the AIG board breached its fiduciary duties by deciding to
      continue dealings with Starr, even though the MGA Agreements gave them the
      opportunity to stop.”).
18
      The parties dispute whether Aronson or Rales applies. “Whether the Rales test or
      the Aronson test applies ultimately makes no substantive difference in my view
      because ‘the Rales test, in reality, folds the two-pronged Aronson test into one
      broader examination.’” Reiter ex rel. Capital One Fin. Corp. v. Fairbank, 2016 WL
6081823, at *6 n.35 (Del. Ch. Oct. 18, 2016) (quoting Baiera, 119 A.3d at 67 n.131);
      see also Ryan v. Armstrong, 2017 2062902, at *14 & n.144 (Del. Ch. May 15, 2017).
19
      Pl.’s Answering Br. 28-58.
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of Aronson, “plaintiffs must plead particularized facts sufficient to raise (1) a reason

to doubt that the action was taken honestly and in good faith or (2) a reason to doubt

that the board was adequately informed in making the decision.”20                    When

considering whether the board was adequately informed, “[p]re-suit demand will be

excused in a derivative suit only if the . . . particularized facts in the complaint create

a reasonable doubt that the informational component of the directors’

decisionmaking process, measured by concepts of gross negligence, included

consideration of all material information reasonably available.”21

       A.     Plaintiff Has Raised a Reason to Doubt that the Board was
              Adequately Informed When Approving the Renewals
       Plaintiff alleges that demand is excused as to the Renewals because: (1) the

board did not adequately inform itself before making the decision to continue the

Management Agreement; and (2) the majority of the board also was on the MTGE

board and, thus, had the “dual fiduciary problem identified in Weinberger v. UOP,

Inc., 457 A.2d 701, 710 (Del. 1983).”22

20
       In re Walt Disney Co. Deriv. Litig., 825 A.2d 275, 286 (Del. Ch. 2003).
21
       In re Goldman Sachs Gp., Inc. S’holder Litig., 2011 WL 4826104, at *15 (Del. Ch.
       Oct. 12, 2011) (quoting Brehm v. Eisner, 746 A.2d 244, 259 (Del. 2000)).
22
       Pl.’s Answering Br. 29 (citing In re Trados S’holder Litig., 73 A.3d 17, 46 (Del. Ch.
       2013)).
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      The initial term of the Management Agreement ended on May 20, 2011, but

Section 10(b) of the Management Agreement provided: “After the Initial Term, this

Agreement shall be deemed renewed automatically each year for an additional one-

year period (an “Automatic Renewal Term”) unless the Company or Manager elects

not to renew this Agreement.”23 The Management Agreement provided that after

the initial term, either the Company or the Manager “may, without cause, in

connection with the expiration of the Initial Term or any Automatic Renewal Term,

decline to renew this Agreement.”24 If the Company terminated the agreement, it

was obligated to pay a Termination Fee that was three times the average annual

management fee paid to the Manager during the prior 24-month period.25

      Every year in October, the Company’s Compensation and Corporate

Governance Committee (the “Compensation Committee”) met to decide whether to

renew the Management Agreement on its existing terms. An examination of the

minutes reveals the same process for each review for the years 2013, 2014, and

2015. The Compensation Committee consisted of people on both the boards of the

23
      Compl. n.3.
24
      Morris Aff. Ex. 3, at 20.
25
      Id.
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Company and MTGE. The Compensation Committee met for 15 minutes or less

either concurrently with or after the board meeting.26 The minutes do not reflect any

pause, break out session, or other opportunity to suggest that the Compensation

Committee further considered the Renewals.         At the 2015 and 2016 renewal

meetings, a 250-page slide deck was included in the Compensation Committee’s

materials but distributed only during the brief meetings. The slide decks were

prepared by the Manager that the Compensation Committee was considering

firing. The Compensation Committee never had any advisor, despite the fact that

this was the company’s biggest business decision (in terms of expenditures) every

year. Each year, the Compensation Committee recommended that the board approve

the Renewals, and each year, the board approved the Renewals.

      Further, Plaintiff contends that the Company was subsidizing the management

of MTGE because the Company paid over $100 million in management fees

annually, whereas MTGE paid less than $20 million, which on its own, would not

cover the Manager’s costs.27 Also, Plaintiff maintains that the Company and MTGE

26
      For example, at the 2014 renewal meeting, the Compensation Committee met an
      hour-and-a-half after the full board meeting for fifteen minutes. Compl. ¶ 59. At
      the 2015 meeting, they met concurrently with the board for ten minutes without
      adjourning the full board meeting. Compl. ¶ 70.
27
      Under the Management Agreement, the Company pays monthly management fees
      to the Manager equal to one-twelfth of 1.25% of the Company’s month-end
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were competitors in the agency-backed securities market, and this arrangement gave

MTGE investment opportunities to which it otherwise would not have access.

      Defendants respond that (1) the board adequately considered the Renewals

and did not act in bad faith or with gross negligence; and (2) there is no material

conflict because MTGE’s and the Company’s interests were aligned with respect to

the Renewals. Defendants argue that Plaintiff’s reading of the board minutes is

“tortured” and that the board had adequate information regarding the Manager’s

performance to consider whether to incur the termination fee or keep a well-

performing manager in place. Additionally, Defendants contend that the Company

and MTGE both were incentivized to keep the Manager within the fold, and any fee

paid by MTGE was well within market rates.28

      stockholders’ equity, adjusted to exclude the effect of any unrealized gains or losses
      included in retained earnings or other comprehensive income. American Capital
      and Wilkus entered into a similar arrangement for the Manager to manage MTGE;
      however, MTGE’s monthly fee was one-twelfth of 1.5% of its month-end
      stockholders’ equity, rather than 1.25%. MTGE is significantly smaller than the
      Company—whereas the Company paid over $100 million in fees to the Manager
      annually ($113 million, $136 million, $119 million, and $116 million in 2012, 2013,
      2014, and 2015, respectively), MTGE paid less than $20 million annually ($10
      million, $19 million, $18 million, and $17 million, in each of these years,
      respectively). Compl. ¶¶ 25, 32.
28
      Defs.’ Reply Br. 18-20, 23-24.
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      In order to rule in Defendants’ favor, I would need to read words into the

Compensation Committee minutes that do not appear and take inferences in their

favor. At this stage in the pleadings, I must take all reasonable inferences in favor

of the non-moving party. Plaintiff alleges that for the board’s biggest yearly

decision, (1) the Compensation Committee met briefly as a formality during or after

the board meeting; (2) the Compensation Committee did not retain advisors; (3) the

Compensation Committee was conflicted because non-renewal would directly affect

MTGE, a company to which all the members also owed fiduciary duties; (4) the

Compensation Committee received its only information (which it did not have time

to review in the meeting) from the self-interested Manager; and (5) the

Compensation Committee purportedly relied on the previous year’s “review,” even

though a detailed review never occurred. The Complaint alleges particularized facts

sufficient to raise a reason to doubt that the board was adequately informed in its

consideration of the Renewals. Thus, demand on the board is futile under Aronson.

      B.     Plaintiff Has Raised a Reason to Doubt that the Board was
             Adequately Informed When Approving the Internalization
      Plaintiff argues that demand is excused as to the Internalization because (1)

the committee that considered the transaction breached its duty of care; (2) Wilkus

and Kain breached their fiduciary duties; (3) the committee members acted in bad

faith by working for the collective interests of MTGE and the Company in approving
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the Internalization; and (4) the board committed waste.29

      On November 25, 2015, American Capital announced that it was conducting

a “full strategic review of all alternatives,”30 including a possible sale. In response

to American Capital’s announcement, the Company and MTGE formed a joint

subcommittee to act on behalf of both companies consisting of board members of

both the Company and MTGE (the “Joint Committee”). The Joint Committee

retained legal and financial advisors to advise the Company and MTGE “in their

strategic planning and evaluation of potential alternatives . . . .”31

      The Joint Committee met for the first time on March 6, 2016 and noted that

“no significant information had been provided by American Capital or its advisors .

. . despite multiple requests that had been made by individual directors and their

attorneys.”32 Minutes from a meeting three days later state that an American Capital

special committee member wanted to give information to the Joint Committee but

that “Wilkus had prevented him from providing more information to the Funds about

29
      Pl.’s Answering Br. 49.
30
      Compl. ¶ 91.
31
      Id. ¶ 100.
32
      Id. ¶ 105.
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the American Capital strategic review process.”33

      The March 15, 2016 meeting minutes state:

              Goldman Sachs and Credit Suisse stated that if the Funds
              do not work with [American Capital], the Funds would be
              treated as a counterparty and no information would be
              provided to the Funds about the [American Capital]
              strategic review process until such time that the consent of
              the independent directors is requested to approve the
              potential purchaser. . . .

              Mr. Wilkus and Mr. Flax were surprised and upset at the
              Funds’ initiating their own process.34

      At the March 15, 2016 Joint Committee meeting, the committee discussed

Kain’s expression of “his preference for internalization of the managers by the

Funds, and that he believed that to be the optimal solution for the Funds’ respective

shareholders.”35 At the March 16, 2016 Joint Committee meeting, Kain informed a

committee member that he “had received instructions to pursue the internalization

of the managers with the funds.”36 On March 17, 2016, Wilkus resigned as CEO of

the Company and MTGE, and Kain was appointed CEO, CIO, President, and a

33
      Id.
34
      Morris Aff. Ex. 22, at 1.
35
      Id. at 2.
36
      Compl. ¶ 113.
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director of the Company and MTGE. Kain also served as President of the Manager

during that time.37

      At the March 23, 2016 Joint Committee meeting, a committee member

“conveyed Mr. Kain’s strong desire for [the Company] and [MTGE] to internalize

its managers.”38 At the March 25, 2016 Joint Committee meeting, J.P. Morgan’s

representative “proposed that Mr. Kain be asked to conduct an analysis on

internalization, refine the analysis with J.P. Morgan, and then present it to the

independent directors of the Funds.”39 The Joint Committee unanimously agreed. At

the March 30, 2016 meeting, the Joint Committee requested that J.P. Morgan

“work[] with Messrs. Kain and Federico to present an internalization proposal to the

Funds.”40

      At an April 10, 2016 meeting, J.P. Morgan and Jones Day outlined four

options: (1) joint acquisition of the Manager by the Company and MTGE; (2) sole

37
      Kain was promoted to CEO of the Manager on July 1, 2016. Compl. n.25. As of
      January 1, 2016, Kain’s annual base salary from the Manager was $4,384,744.00
      with incentive compensation tied to the performance of the Company and MTGE
      that was several times greater than his base salary. Id. n.26.
38
      Compl. ¶ 115.
39
      Id.
40
      Id. ¶ 116.
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acquisition of the Manager by the Company, which would then externally manage

MTGE; (3) sole acquisition of the Manager by the Company and the liquidation of

MTGE; and (4) liquidation of both the Company and MTGE. The Joint Committee

deferred deciding which avenue to pursue “until J.P. Morgan had an opportunity to

review the liquidation analysis conducted by Gary Kain and the independent

directors had an opportunity to have further discussions with J.P. Morgan . . . .”41

      By the next day, the Joint Committee had decided to pursue internalization

and at an April 11, 2016 meeting, Kain told the Joint Committee that “he believed a

safe, clearing level purchase price [for the Manager] would be around $600 to $650

million, but given the situation and the steps of the Funds thus far, a purchase price

of $525 to $550 million could also be acceptable to [American Capital].”42 Kain

also stated “that a price in the $400 million range would be too close to what

[American Capital] is entitled to under the management agreement.”43

      At the April 14, 2016 meeting, the directors agreed to submit an initial bid of

$500 million to American Capital. American Capital rejected this initial bid.

41
      Id.
42
      Id. ¶ 120.
43
      Id.
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Subsequently, a $575 million bid was made and agreed to by American Capital. At

the April 22, 2016 meeting, Kain “shared with the group that his preferred

transaction structure would be for [the Company] to purchase [the Manager] and

manage MTGE externally.”44 J.P. Morgan delivered its fairness opinion as to the

purchase price of the Manager based on an evaluation of the Manager’s “standalone

prospects as an independent entity” with a discounted cash-flow analysis based on

the external management contracts with the Company and MTGE.45 J.P. Morgan

stated that the “intrinsic value” of the Manager was between $636 million and $787

million. The Company eventually agreed to pay $562 million in cash to acquire the

Manager, with the Manager’s subsidiary continuing to manage MTGE under the

existing fee arrangement. The Internalization was completed on July 1, 2016.

      Similar facts have been presented to this Court. Specifically, in McPadden v.

Sidhu, the board at issue allowed a conflicted manager, whose affiliate ended up

buying the company’s subsidiary, to lead the sales process with minimal oversight.46

This, the Court found, was enough to plead a duty of care violation and created a

44
      Id. ¶ 124.
45
      Id. ¶ 125.
46
      964 A.2d 1262 (Del. Ch. 2008).
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reasonable doubt that the transaction was the product of a valid exercise of business

judgment, rendering demand futile.47 As in McPadden, the Joint Committee here

was fully aware of Kain’s conflict as a fiduciary of the Company, MTGE, and the

Manager; yet the Joint Committee allowed him to dominate their process, dictate the

transaction structure, and direct the ultimate deal terms.48 Kain repeatedly stressed

his “strong desire” for internalization as “his preferred transaction structure” and that

he had “received instructions” to pursue the Internalization.49 The Joint Committee

knew that the investment banker’s analysis was prepared “at the direction” of Kain.

In fact, the Joint Committee directed J.P. Morgan to work with Kain to present an

internalization proposal.50 Kain then suggested a price range that would be palatable

to American Capital, and the Joint Committee accepted it. These facts are sufficient

to raise a reason to doubt that the board was adequately informed when it approved

the Internalization. Thus, demand is futile as to the Internalization.

47
      Id. at 1270-71.
48
      Id.
49
      Compl. ¶¶ 113, 115, 124.
50
      Id. ¶ 116; see McPadden, 964 A.2d at 1272.
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       C.    The Complaint States a Claim for Breach of Fiduciary Duty
       Because Plaintiff has alleged particularized facts sufficient to excuse demand

based on potential breaches of the duty of care with regard to both the Renewals and

the Internalization, Plaintiff meets the lesser pleading standard required by Rule

12(b)(6).51 Defendants do not benefit from a provision that exculpates them for

grossly negligent conduct; therefore, the complaint proceeds against the Defendants.

III.   CONCLUSION

       For the foregoing reasons, I hold that Plaintiff has adequately alleged that

demand is futile under Aronson and stated a claim for breach of fiduciary duty

against Defendants. Thus, the motion to dismiss is denied.

       IT IS SO ORDERED.

                                              Sincerely,

                                              /s/Tamika Montgomery-Reeves

                                              Vice Chancellor

TMR/jp

51
       See McPadden, 964 A.2d at 1269-70.