Court Opinion

ID: 9929867
Source: CourtListenerOpinion
Date Created: 2024-02-05 16:04:17.502883+00
Date Added: 2024-06-11T10:57:37.313528
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

MICHAEL CONTE, derivatively on         )
behalf of SKECHERS U.S.A., INC.,       )
                                       )
                 Plaintiff,            )
                                       )
  v.
                                       ) C.A. No. 2022-0633-MTZ
ROBERT GREENBERG, MICHAEL              )
GREENBERG, DAVID WEINBERG,             )
KATHERINE BLAIR, MORTON                )
ERLICH, RICHARD SISKIND,               )
JEFFREY GREENBERG, GEYER               )
KOSINSKI, and RICHARD                  )
RAPPAPORT,                             )
                                       )
                 Defendants,           )
                                       )
  and                                  )
                                       )
SKECHERS U.S.A., INC.,
                                       )
                 Nominal Defendant.    )

                         MEMORANDUM OPINION
                       Date Submitted: October 19, 2023
                        Date Decided: February 2, 2024

Thomas A. Uebler, Terisa A. Shoremoun, MCCOLLOM D’EMILIO SMITH
UEBLER LLC, Wilmington, Delaware; Melinda A. Nicholson, Nicolas Kravitz,
KAHN SWICK & FOTI, LLC, New Orleans, Louisiana; Roger A. Sachar,
NEWMAN FERRARA LLP, New York, New York; Domenico Minerva,
LABATON SUCHAROW LLP, New York, New York, Attorneys for Plaintiff
Michael Conte.

A. Thompson Bayliss, E. Wade Houston, Eliezer Y. Feinstein, Daniel G. Paterno,
ABRAMS & BAYLISS LLP, Wilmington, Delaware; Brad D. Brian, John M.
Gildersleeve, Abraham B. Dyk, MUNGER, TOLLES & OLSON LLP, Los
Angeles, California, Attorneys for Defendants Katherine Blair, Morton Erlich,
Richard Siskind, Jeffrey Greenberg, Geyer Kosinski, and Richard Rappaport.

Kenneth J. Nachbar, Susan W. Waesco, Miranda N. Gilbert, MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware; Abby F. Rudzin,
O’MELVENY & MYERS LLP, New York, New York, Attorneys for Defendants
Robert Greenberg, Michael Greenberg, and David Weinberg.

Matthew F. Davis, Tyler J. Leavengood, POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; Kenneth A. O’Brien, Jr., SHEPPARD MULLIN
RICHTER & HAMPTON LLP, Los Angeles, California, Attorneys for Nominal
Defendant Skechers U.S.A., Inc.

ZURN, Vice Chancellor.
      Plaintiff Michael Conte (“Plaintiff”) is a stockholder of Skechers U.S.A., Inc.

(“Skechers” or the “Company”). He alleges the Company’s board of directors (the

“Board”) failed to impose meaningful restraints on executives’ personal use of the

Company’s two corporate airplanes. Skechers’ founder, his family, and another

officer made liberal use of Skechers’ corporate airplanes, racking up millions in

expenses. The COVID-19 pandemic exacerbated this perceived problem: business

travel waned more than their personal use of the airplanes. At the peak, more than

50% of each airplane’s use was for personal travel. Plaintiff alleges the higher ratio

of personal use caused the Company to lose certain favorable tax treatment and

demonstrates the second airplane was no longer needed. He filed this action

asserting claims for breach of the duty of oversight, waste, breach of contract, and

disclosure violations. The defendants moved to dismiss.

      Plaintiff did not make a demand on Skechers’ Board and therefore must plead

demand was futile under Court of Chancery Rule 23.1. The parties disagree as to

whether certain directors face a substantial likelihood of liability for the oversight,

waste, and disclosure claims. I conclude they do not. They also disagree as to

whether one of the directors lacks independence from Skechers’ founder and largest

stockholder. I conclude he does not. Plaintiff has failed to plead demand is futile,

and the motions to dismiss are granted.

                                          1
         I.     BACKGROUND 1

         Nominal defendant Skechers is a shoe company founded by defendant Robert

Greenberg. Robert serves as Skechers’ CEO and chairman of the Board. One of

Robert’s sons, defendant Michael Greenberg, serves as Skechers’ president and a

director. Another son, defendant Jeffrey Greenberg, is a Skechers vice president and

served as a director until December of 2021. Together they hold 55% of Skechers’

voting power. Robert alone controls about 52% of Skechers’ voting power.2

         Skechers owns and operates two corporate airplanes. Relevant here, Robert,

Michael, and defendant and Skechers’ COO David Weinberg (together, “the

Management Defendants”) used the corporate airplanes for personal and business

1
  The facts are drawn from the operative complaint, the documents integral to it, and those
incorporated by reference. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312,
320 (Del. 2004). Plaintiff demanded and received books and records before filing his
complaint in this action. That production was made pursuant to an agreement providing
that documents Skechers produces “shall be deemed incorporated by reference in any
complaint . . . filed by [Plaintiff].” D.I. 26 at Aff. [hereinafter “Houston Aff.”], Ex. 24 ¶
8. Those books and records are incorporated by reference. See Amalgamated Bank v.
Yahoo! Inc., 132 A.3d 752, 796–98 (Del. Ch. 2016), abrogated on other grounds by Tiger
v. Boast Apparel, Inc., 214 A.3d 933 (Del. 2019). Further, “[t]he court may take judicial
notice of facts publicly available in filings with the SEC.” Omnicare, Inc. v. NCS
Healthcare, Inc., 809 A.2d 1163, 1168 (Del. Ch. 2002). Because multiple defendants in
this action share the surname Greenberg, I will refer to each by their first name for clarity.
I intend no familiarity or disrespect.
2
    See D.I. 1 at Compl. ¶¶ 162–65 [hereinafter “Compl.”].
                                              2
travel from 2018 through at least 2021. Their employment agreements grant them

“reasonable use” as a perquisite. 3 Those agreements read, in relevant part:

         Employee will be entitle [sic] to reasonable use of the Company’s
         private airplane, subject to availability determined by the Company’s
         business needs and the ranking of Company employees who are entitled
         to use the airplane. Use of the airplane solely for business purposes
         will not be treated as compensation to Employee. Use of the airplane
         with a guest or for other personal matters will be treated as
         compensation to Employee, and will be reported on an IRS W-2 Form
         issued to Employee. The Compensation Committee of the Company’s
         Board of Directors will have sole discretion (i) to determine whether or
         not Employee’s use of the airplane will be treated as compensation to
         Employee, (ii) to determine the amount of compensation that will be
         attributed to Employee, in accordance with IRS regulations, and (iii) to
         put limitations on Employee’s use of the airplane for purposes treated
         as compensation to Employee.4

         If the Management Defendants do not reimburse Skechers for their personal

airplane travel, their use is treated as taxable personal income.5 Skechers provides

3
  Houston Aff., Ex. 4 at 1812 [hereinafter “Emp. Agr.”] § 4.8. The parties included
Weinberg’s employment agreement as an exhibit but did not provide the Court with a copy
of Robert’s or Michael’s employment agreements. Nevertheless, the parties do not dispute
that Michael’s employment agreement includes the same reasonableness limitation and
proceed under the understanding the agreements are the same. The Management
Defendants contend that Robert’s employment agreement is no longer in effect. D.I. 23 at
5 n.2. But because the complaint pleads Robert’s personal use of the airplane is regulated
by his employment agreement, and the Management Defendants offer no cognizable basis
to set that allegation aside at this stage, I assume at this stage in the proceedings that such
an agreement is in effect.
4
    Emp. Agr. § 4.8.
5
    Compl. ¶ 79; Houston Aff. Ex. 21 at 27 [hereinafter “2021 Proxy”].
                                              3
the Management Defendants with a payment equal to those taxes, called a tax

gross-up payment.6

                A.     Airplane Use

         Plaintiff details fifty-two instances in which Weinberg or a member of the

Greenberg family used a Company airplane for personal travel between 2019 and

2021. 7 Many of the trips included the Management Defendants’ friends and family.

At times, the Management Defendants’ friends and family members traveled without

the Management Defendants, and that use was imputed to the Management

Defendants.       The Company disclosed in public filings that the Management

Defendants received about $5.3 million worth of compensation attributable to

personal airplane use between 2018 and 2021. 8               The filings describe that

compensation in terms of “incremental costs.”9 “Incremental costs” comprise tax

gross-up payments and “variable operating costs, which generally include the cost

of crew travel expenses, landing fees, trip-related hangar/parking costs, fuel and

6
    Compl. ¶ 79; 2021 Proxy at 27.
7
 Compl. ¶ 119. Plaintiff takes issue with the Management Defendants’ personal use of the
airplanes in 2018, but does not point to any specific instances of personal travel in 2018.
8
  See Skechers U.S.A., Inc., Proxy Statement (Form DEF 14A), at 27–28 (Apr. 12, 2019)
[hereinafter “2019 Proxy”]; Skechers U.S.A., Inc., Proxy Statement (Form DEF 14A), at
30–31 (Apr. 9, 2020) [hereinafter “2020 Proxy”]; 2021 Proxy at 30–31; Skechers U.S.A.,
Inc., Proxy Statement (Form DEF 14A), at 30–31 (Apr. 14, 2022) [hereinafter “2022
Proxy”].
9
    See, e.g., 2021 Proxy at 31.
                                            4
other variable costs.” 10      The chart below provides reported compensation by

defendant and year.11

                           Michael       Robert        Weinberg          Total
             2018 Use      $610,078     $138,823        $188,366        $937,267
             2019 Use     $1,079,146    $199,734        $357,952       $1,636,832
             2020 Use      $802,038     $277,010        $331,805       $1,410,853
             2021 Use      $509,742     $368,355        $418,980       $1,297,077
             Total Use    $3,001,004    $983,922       $1,297,103      $5,282,029

Plaintiff alleges that by comparison, “the median value of aircraft perquisites among

S&P 500 executives in 2015 was $53,967.”12

           With one exception, the Management Defendants’ airplane perquisite

compensation represented about 0.5% to about 4.9% of each executives’ total

compensation during these years. 13 Personal use of both airplanes exceeded business

use in 2020, and personal use exceeded business use for one airplane in 2021. 14 Still,

the combined personal use attributed to the Management Defendants decreased from

2019 to 2020, and again from 2020 to 2021. Plaintiff alleges that Skechers could

10
     Id.
11
  All figures from the chart are drawn from Skechers’ proxy filings filed in the years 2019
through 2022. 2019 Proxy at 27–28; 2020 Proxy at 30–31; 2021 Proxy at 30–31; 2022
Proxy at 30–31.
12
     Compl. ¶ 16 (citation omitted).
13
  In 2019, personal airplane use represented about 10.3% of Michael’s compensation.
2020 Proxy at 30–31.
14
     See Compl. ¶¶ 108–10, 112–14.
                                            5
not “take advantage of the bonus depreciation available under § 280F of the Internal

Revenue Code” in years when personal use of an airplane exceeded 50%. 15

                  B.     The Compensation Committee Considers Further
                         Limiting Personal Airplane Use.

         Defendants Katherine Blair, Morton Erlich, and Richard Siskind (the

“Committee Defendants”) all serve on Skechers’ compensation committee (the

“Committee”). Siskind was the Committee’s chairman at all relevant times. The

Committee’s responsibilities include:

         (i) discharging the Board’s responsibilities relating to compensation of
         our executive officers, . . . (iv) overseeing risks related to [Skechers’]
         compensation programs, (v) the appointment, compensation,
         independence and performance of the Compensation Committee’s
         independent compensation advisor, and (vi) producing a report on
         executive compensation for inclusion in our proxy statement in
         accordance with the applicable rules of the SEC. This includes
         reviewing and approving the annual compensation of [Skecher’s] Chief
         Executive Officer and other executive officers, reviewing and making
         recommendations to the Board with respect to executive compensation
         plans, including incentive compensation and equity-based
         compensation, and reviewing and approving performance goals and
         objectives with respect to the compensation of our Chief Executive
         Officer and other executive officers consistent with our executive
         compensation plans. 16

         Since at least 2018, the Committee has requested information pertaining to

Skecher’s executives’ personal use of company airplanes.17 In March of 2018, the

15
     Id. ¶ 127.
16
     2021 Proxy at 11.
17
     Houston Aff., Exs. 2–3.
                                             6
Committee directed management to review the methodology and procedures the

Company uses to calculate such income, including retaining a consultant for that

purpose. 18     The Committee received updates on management’s progress and

followed up. 19 The Committee also received other updates and information from

management concerning executive perquisite compensation and discussed the

topic. 20

         In April of 2018, the Committee asked Skechers’ CFO to “provide

recommendations for limits to be placed on . . . personal use of the Company’s

airplanes by officers and other employees.” 21 It does not appear the CFO provided

any recommendations. On November 26, 2019, the Committee “requested that

management develop for review a policy covering personal use of the Company’s

aircraft.”22 As of the filing of this action in July 2022, the Committee did not receive

any such policy, nor did it follow up on management’s progress in developing the

policy.

18
     Houston Aff., Ex. 4 at 1808.
 Houston Aff., Ex. 6 at 1837; Houston Aff., Ex. 10; Houston Aff., Ex. 11 at 1857; Houston
19

Aff., Ex. 12.
 Houston Aff., Ex. 7 at 1848; Houston Aff., Ex. 13; Houston Aff., Ex. 19 at 0394; Houston
20

Aff., Ex. 20 at 0432; Houston Aff, Ex. 22 at 0463; Houston Aff, Ex. 23 at 2021.
21
     Houston Aff., Ex. 5 at 1833.
22
     Houston Aff., Ex. 13.
                                           7
                   C.    The Committee Retains A Compensation Consultant.

          On May 27, 2020, Skechers reached a settlement in another action that

resolved a dispute over equity grant awards for its executives (the “Equity Grant

Litigation”).23 The settlement stipulation required the Committee to “engage a

compensation consultant and obtain its recommendations on an annual basis

concerning new equity awards to be made to any of Robert Greenberg, Michael

Greenberg, and David Weinberg.”24 The Court approved the proposed settlement

on August 12. 25 On September 11, the Committee retained compensation consultant

FW Cook.26

          In addition to the settlement’s mandate to review equity compensation awards,

FW Cook also reported on other aspects of executive compensation, including

perquisites.27 At a July 20, 2021 meeting, the Committee “requested FW Cook to

provide a review and analysis of potential changes to various policies regarding the

Company’s officers’ compensation at the Committee’s next meeting in October

23
  Police & Fire Ret. Sys. of the City of Detroit v. Greenberg, C.A. No. 2019-0578-MTZ
[hereinafter “Detroit Litig.”], D.I. 35 at Stip. for Compromise & Settlement (Del. Ch.
May 27, 2020).
24
     Id. ¶ 4(a).
25
     Detroit Litig., D.I. 55.
26
     Houston Aff., Ex. 18.
27
     Houston Aff., Ex. 20 at 0431; Houston Aff., Ex. 22 at 0470.
                                              8
2021.” 28 FW Cook delivered a report at the October 21 meeting. 29 In that report,

FW Cook identified eliminating the tax gross-up payments as a “[p]otential [a]rea[]

for [c]hange in 2022,” and noted that stockholders and Institutional Shareholder

Services view “[t]ax gross-ups on aircraft and auto perquisites [as] a most

problematic pay practice.”30 FW Cook recommended eliminating the tax gross-ups

without increasing “other compensation amounts due to [a] lack of market

prevalence and [the] size of other compensation components.” 31 “The Committee

also requested FW Cook to prepare a review of the directors’ compensation to be

presented at a future meeting of the Committee.”32 The pleading-stage record does

not reflect that FW Cook ever presented that information.

                    D.   The Company Issues A Proxy Statement In Connection With
                         Its 2021 Annual Meeting.
           In April of 2021 the Company issued its proxy in connection with its

upcoming annual meeting (the “Proxy”).33 The Proxy included only one proposal

for the stockholders to vote on: the election of directors for three Board seats. 34 As

28
     Houston Aff., Ex. 22 at 0463.
29
     Houston Aff., Ex. 23 at 2021.
30
     Id. at 2027.
31
     Id.
32
     Id. at 2021.
33
     2021 Proxy.
34
     Id. at 4.
                                           9
in prior years, the Proxy also disclosed the amount of compensation attributable to

Robert’s, Michael’s, and Weinberg’s “personal use” of the airplanes.35 The Proxy

disclosed that those amounts were based on incremental costs.36 A portion of those

incremental costs are attributed to the Management Defendants as follows: “The

aggregate incremental cost of use of [Skechers’] aircraft for personal travel by

[Michael, Robert, and Weinberg] is allocated entirely to the highest-ranking [of the

Management Defendants] present on the flight, unless circumstances indicate a

different allocation is warranted.” 37 The Proxy stated that because the “aircraft are

designated primarily for business travel . . . [Skechers] do[es] not include [in the

income attributed to the Management Defendants] the fixed costs that do not change

based on usage, such as salaries, . . . aircraft acquisition costs, insurance and general

maintenance costs.”38

                  E.    This Litigation

           Plaintiff sent a books and records demand to the Company in September of

2021 and received documents over the following months.39 Plaintiff filed his

complaint in this action in July of 2022 (the “Complaint”). He asserts four derivative

35
     Id. at 31.
36
     Id.
37
     Id.
38
     Id.
39
     Compl. ¶¶ 85–87.
                                           10
counts focusing on the Management Defendants’ personal airplane use and the

Board’s perceived failure to curtail it. Count I asserts a claim against the Committee

Defendants; additional Company directors Geyer Kosinski and Richard Rappaport;

and Jeffrey, who resigned as a director in 2021, (together with the Management

Defendants, “Defendants”)40 for “allowing the Greenbergs and Weinberg to utilize

the [a]ircraft primarily for personal use, and failing to put in place safeguards

(including at a minimum, a personal use policy for the [a]ircraft) even after being

put on notice.” 41 Count I further alleges that Robert, Michael, and Jeffrey breached

their fiduciary duties “by expropriating [Skechers’] assets” for their own personal

use.42 Count II asserts a claim for waste against Defendants for failing to prevent

the allegedly excessive personal airplane use. Count III asserts claims for breaches

of the duties of disclosure and candor against Robert, Michael, Jeffrey, Weinberg,

Erlich, Kosinski, and Siskind for causing Skechers to issue the Proxy, which

allegedly omitted material information and included materially false or misleading

information about the Management Defendants’ personal airplane use. Count IV

asserts the Management Defendants breached their employment agreements through

“unreasonable” personal use of the airplanes.

40
  The Complaint names Thomas Walsh as a defendant, but Plaintiff voluntarily dismissed
the claims against Walsh on August 22, 2022. D.I. 11.
41
     Compl. ¶ 178.
42
     Id. ¶ 179.
                                         11
          Blair, Erlich, Siskind, Jeffrey, Kosinski, and Rappaport moved to dismiss the

Complaint.43 In the absence of a demand, they argue Court of Chancery Rule 23.1

mandates dismissal because Plaintiff failed to plead demand futility. They also

moved under Rule 12(b)(6) for failure to state a claim upon which relief can be

granted. The Management Defendants separately moved to dismiss the Complaint

under Rules 12(b)(6) and 23.1. 44 They joined in the other defendants’ Rule 23.1

argument.45

          II.    ANALYSIS

          I begin with the gating question of demand futility and conclude Plaintiff

failed to plead demand is futile. Under Court of Chancery Rule 23.1, a derivative

complaint must “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 plaintiff’s failure to obtain the action or for not making the

effort.”46 A stockholder may pursue a derivative claim on behalf of a corporation

 D.I. 26 at Mot. to Dismiss. Nominal defendant Skechers joined in these defendants’
43

motion to dismiss. D.I. 25.
44
     D.I. 22 at Mot. to Dismiss.
45
     D.I. 23 at 1.
46
   Ct. Ch. R. 23.1(a) (2007). Rule 23.1 was amended on September 25, 2023. In re:
Amendments to Rules 7, 10, 17–25, and 171 of the Court of Chancery Rules, Sections, III,
IV, and XVI (Del. Ch. Sept. 25, 2023) (ORDER). No substantive revisions were made to
the relevant portion of Rule 23.1. Id. at 29. Nevertheless, I proceed under the Rules as
they were drafted at the time this action was filed. Lebanon Cnty. Emps’. Ret. Fund v.
Collis, -- A.3d --, 2023 WL 8710107, at *2 n.19 (Del. Dec. 18, 2023).
                                            12
only if either: “(a) she has first demanded that the directors pursue the corporate

claim and they have wrongfully refused to do so; or (b) such demand is excused

because the directors are deemed incapable of making an impartial decision

regarding the pursuit of the litigation.”47 Plaintiff did not make a demand and

therefore the Complaint “must be dismissed unless it alleges particularized facts

showing that demand would have been futile.” 48 In Zuckerberg, our Supreme Court

adopted a three-part demand futility test.49         It asks the following on a

director-by-director basis:

47
  Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048
(Del. 2004).
48
  Ryan v. Gursahaney, 2015 WL 1915911, at *5 (Del. Ch. Apr. 28, 2015), aff’d, 128 A.3d
991 (Del. 2015).
49
  United Food & Com. Workers Union & Participating Food Indus. Emps. Tri-State
Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021).
                                         13
           (i) whether the director received a material personal benefit from the
           alleged misconduct that is the subject of the litigation demand;

           (ii) whether the director faces a substantial likelihood of liability on any
           of the claims that would be the subject of the litigation demand; and

           (iii) whether the director lacks independence from someone who
           received a material personal benefit from the alleged misconduct that
           would be the subject of the litigation demand or who would face a
           substantial likelihood of liability on any of the claims that are the subject
           of the litigation demand.50

“If the answer to any of the questions is ‘yes’ for at least half of the members of the

demand board, then demand is excused as futile.” 51 “Demand futility is ‘conducted

on a claim-by-claim basis.’”52

           The demand board includes seven directors: Blair, Erlich, Michael, Robert,

Siskind, Weinberg, and nonparty Zulema Garcia. Plaintiff does not allege that

Garcia fails any part of the Zuckerberg test. Defendants do not contest that Robert,

Michael, and Weinberg either received a material personal benefit in connection

with the challenged conduct or face a substantial likelihood of liability. Thus,

Plaintiff must plead that demand is futile as to one of Blair, Erlich, or Siskind.

50
     Id.
51
     Id.
52
  In re Vaxart, Inc. S’holder Litig., 2021 WL 5858696, at *15 (Del. Ch. Dec. 1, 2021)
(quoting Cambridge Ret. Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del. Ch.
June 26, 2014)).
                                               14
Plaintiff argues all three of the Committee Defendants face a substantial likelihood

of liability. 53 Plaintiff also argues Siskind lacks independence from Robert.

                       A.     Substantial Likelihood Of Liability

         Plaintiff argues the Committee Defendants face a substantial likelihood of

liability for failing to limit the Management Defendants’ personal airplane use and

for waste. He argues that Erlich and Siskind face a substantial likelihood of liability

for causing the Company to issue the Proxy, which allegedly included defective

disclosures. This opinion concludes the Committee Defendants do not face a

substantial likelihood of liability in connection with any of Plaintiff’s claims.

                            1.   Caremark Liability

         I start with whether the Committee Defendants face a substantial likelihood

of liability for bad faith failure to exercise adequate oversight, otherwise known as

a Caremark claim. 54 Plaintiff argues that red flags put the Committee Defendants

on notice that the Management Defendants were excessively using the airplanes for

personal travel. He contends they ignored these red flags and failed to implement a

53
   Defendants argue that the Equity Grant Litigation settlement stipulation included a
release that bars Plaintiff’s claims to the extent they are based on conduct occurring before
May 2, 2020. D.I. 38 at Op. Br. 19–22. The parties agree that the release’s language, as
drafted, does not bar the claims, but Defendants contend the release includes a scrivener’s
error, which they urge me to disregard. Unsurprisingly, Plaintiff disagrees and asserts that
disregarding a scrivener’s error is inappropriate on a motion to dismiss. Because I resolve
the motions to dismiss on other grounds, I do not reach the issue of whether the settlement
release affects Plaintiff’s claims.
54
     In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996).
                                              15
policy to limit such use, and the absence of such a policy caused Skechers to incur

excessive operating costs and tax gross-up payments and to lose favorable tax

treatment.

         Directors “must make a good faith effort to oversee the company’s

operations.”55 Directors are liable for an oversight failure where “(a) the directors

utterly failed to implement any reporting or information system or controls; or (b)

having implemented such a system or controls, consciously failed to monitor or

oversee its operations thus disabling themselves from being informed of risks or

problems requiring their attention.” 56 The latter can be pled by “alleging that the

board’s information system generated red flags indicating wrongdoing to which the

directors failed to respond.” 57

         A plaintiff asserting a board ignored a red flag in bad faith has taken fault with

the directors’ conscious disregard for their duties, and therefore the board’s decision

not to act.58 A board’s conscious decision to respond to a red flag, including a

55
     Marchand v. Barnhill, 212 A.3d 805, 820 (Del. 2019).
56
     Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006).
57
     In re McDonald’s Corp. S’holder Deriv. Litig., 291 A.3d 652, 676 (Del. Ch. 2023).
58
  The business judgment rule applies only where a board makes a business decision, and
so “inaction is not protected unless it is the result of a conscious decision not to act.” 1
Stephen A. Radin, The Business Judgment Rule: Fiduciary Duties of Corporate Directors
87 (6th ed. 2009) [hereinafter “Radin”]. Plaintiff presses, as he must to state a claim, that
the Committee was conscious that it was not acting, which necessarily requires that the
Committee decided not to act. See, e.g., D.I. 44 at Ans. Br. 25 [hereinafter “Pl. Ans. Br.”]

                                             16
decision not to act, is protected by the business judgment rule. 59 Where a board

consciously decides not to act, it is presumed to have done so in good faith; a plaintiff

must plead facts supporting the displacing inference of bad faith.60                 Because

Caremark derives from the requirement that directors act in good faith, a showing

of bad faith is “essential to establish director oversight liability.” 61 And Caremark

liability centers on a particular type of bad faith: “‘intentional dereliction of duty’

or ‘conscious disregard for one’s responsibilities,’ which ‘is more culpable than

(“That is precisely what happened here—sustained and conscious inaction in the face of
red flags indicating serious misconduct.”).
59
   McDonald’s, 291 A.3d at 676 (“The decision about what to do in response to a red flag
is one that an officer or director is presumed to make loyally, in good faith, and on an
informed basis, so unless one of those presumptions is rebutted, the response is protected
by the business judgment rule.”); Garfield ex rel. ODP Corp. v. Allen, 277 A.3d 296, 336
(Del. Ch. 2022) (“Delaware law recognizes that conscious inaction represents as much of
a decision as conscious action.”); Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984)
(“[U]nder applicable principles, a conscious decision to refrain from acting may
nonetheless be a valid exercise of business judgment and enjoy the protections of the
rule.”), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
60
  See Aronson, 473 A.2d at 813 (explaining conscious inaction can be a decision protected
by the business judgment rule); Garfield, 277 A.3d at 336–39 (same); Lebanon Cnty.
Emps’. Ret. Fund v. Collis (Collis I), 2022 WL 17841215, at *16 (Del. Ch. Dec. 22, 2022)
(concluding the pled facts supported both an inference that the board made a legitimate and
protected business decision not to act, and a competing inference that the board consciously
decided not to act in disregard of their duties, and concluding the plaintiffs got the
pleading-stage benefit of the inference they seek), rev’d on other grounds -- A.3d --, 2023
WL 8710107 (Del. Dec. 18, 2023)); In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 52
(Del. 2006) (explaining the business judgment rule’s “presumptions can be rebutted if the
plaintiff shows that the directors breached their fiduciary duty of care or of loyalty or acted
in bad faith”).
61
     Stone, 911 A.2d at 369–70.
                                              17
simple inattention or failure to be informed of all facts material to the decision.’”62

The plaintiff must plead facts allowing “a reasonable inference that the corporate

wrongdoing was of such a magnitude and duration that the [b]oard must have known

they were not doing their job to look after the corporation’s best interests.”63

          Some risks are of such a magnitude that inaction alone can support an

inference of bad faith.64 Some risks are so severe that there is only one right answer:

to take tangible action addressing that risk. 65 But as the magnitude or severity of the

risk decreases, more facts are required to support an inference of bad faith:

continued monitoring, or even intentional inaction, may not alone rebut the business

judgment rule.66 “A failure to undertake immediate remediation of a reported defect,

62
  Horman v. Abney, 2017 WL 242571, at *7 (Del. Ch. Jan. 19, 2017) (quoting Disney, 906
A.2d at 66).
63
     Id. at *14.
64
   E.g., Teamsters Loc. 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *25
(Del. Ch. Aug. 24, 2020) (concluding the plaintiff pled a prong two Caremark claim where
it pled a failure to take “tangible action” to “address mission critical compliance risks”).
65
   See Garfield, 277 A.3d at 338 (“The clear answer was to fix the Challenged Awards, and
the failure to take that action supports an inference of bad faith conduct.”); cf. Chou, 2020
WL 5028065, at *25 (“Calling attention to the hiring of law firms to review alleged
illegality, without more, is insufficient to refute well-pled allegations that the Board failed
to address mission critical compliance risks.”).
66
   See Garfield, 277 A.3d at 337–38 (offering a hypothetical in which “the Board would
not have an easy fix available,” suggesting in such a case “[t]he Board might reason that
letting the issue go would be better for the Company in the long run,” and explaining under
those facts a challenge to the board’s decision not to act “would founder on the rocks of
the business judgment rule”); Melbourne Mun. Firefighters’ Pension Tr. Fund ex rel.
Qualcomm, Inc. v. Jacobs, 2016 WL 4076369, at *12 (Del. Ch. Aug. 1, 2016) (concluding
the board adequately responded to red flags suggesting regulatory misconduct and other

                                              18
even where immediate action would be wise, is not evidence of bad faith unless it

implies a need to act so clear that to ignore it implies a conscious disregard of

duty.” 67 And if a board does act, merely challenging “the manner and timing of the

[b]oard’s response” will not suffice. 68 In all cases, the polestar remains whether the

plaintiff adequately pled facts supporting the inference of bad faith. 69

         Here, it is undisputed that the Committee was aware of the Management

Defendants’ personal airplane use as of November 2019. 70               That month, the

Committee directed management to develop a policy on personal airplane use for

violations of law where the board monitored the red flags and then elected to address the
relevant regulatory and legal actions through appeals and by focusing on educating industry
participants and government officials as to why its practices were legal), aff’d, 158 A.3d
449 (Del. 2017); see also Pettry ex rel. FedEx Corp. v. Smith, 2021 WL 2644475, at *9
n.101 (Del. Ch. June 28, 2021) (“The number of illegal cigarette shipments dwarfs in
comparison to the total number of shipments companywide. To be sure, the illegal
cigarette shipments were problematic, needed to be addressed and were addressed. But
Plaintiff’s Caremark claim supposes that this was the only challenge confronting this
Board. That also is not reasonably conceivable.”), aff’d, 273 A.3d 750 (Del. 2022).
67
     In re MetLife Inc. Deriv. Litig., 2020 WL 4746635, at *18 (Del. Ch. Aug. 17, 2020).
68
   Pettry, 2021 WL 2644475, at *9; In re Qualcomm Inc. FCPA S’holder Deriv. Litig.,
2017 WL 2608723, at *4 (Del. Ch. June 16, 2017) (“These board decisions do not rise to
the level of bad faith. Instead, Plaintiffs here simply seek to second-guess the timing and
manner of the board’s response to the red flags, which fails to state a Caremark claim.”);
Jacobs, 2016 WL 4076369, at *9 (“Simply alleging that a board incorrectly exercised its
business judgment and made a ‘wrong’ decision in response to red flags . . . is insufficient
to plead bad faith.”).
69
     See Collis I, 2022 WL 17841215, at *16.
70
  Defendants dispute that the airplane use was a red flag for purposes of Caremark, but
contend the Committee nevertheless acted to address the alleged problem at the November
2019 meeting. D.I. 38 at Op. Br. 25–32.
                                               19
the Committee’s review.71 The Committee’s action supports the inference that it

viewed either the degree of use or absence of meaningful guardrails as a matter worth

addressing. Management never presented that policy. The Committee did not

receive the policy and did not follow up for more than two and a half years. There

was no policy in place when Plaintiff filed suit.

         Plaintiff first sees bad faith in the Committee’s decision to direct management

to draft the policy. Plaintiff contends members of management depended on the

Greenberg family for their continued employment, and therefore would be unwilling

to curtail their personal airplane use. Delegating the initial drafting of the policy to

potentially conflicted individuals does not demonstrate bad faith because the

Committee retained oversight over the process and the policy’s contents.72

Plaintiff’s challenge amounts to a criticism of the manner and timing of the

Committee’s response, which is insufficient to state a Caremark claim. 73

         From there, Plaintiff’s theory of bad faith relies on the fact that the Committee

ultimately did not produce a policy restricting personal airplane use. For a time, the

71
     Houston Aff., Ex. 13.
72
   See City of Fort Myers Gen. Emps’. Pension Fund v. Haley, 235 A.3d 702, 721 n.69
(Del. 2020) (“There is nothing inherently wrong with a Board delegating to a conflicted
CEO the task of negotiating a transaction. But the conflict must be adequately disclosed
to the Board, and the Board must properly oversee and manage the conflict.” (citation
omitted)).
73
     Supra note 68.
                                            20
Committee was acting in other ways, displacing Plaintiff’s theory of bad faith

inaction for that period. In May of 2020, Skechers reached a settlement in the Equity

Grant Litigation.74 The Court approved that settlement in August of 2020.75 Though

the settlement called for a consultant to make recommendations as to only equity

grant compensation, the Committee directed FW Cook to consider other areas of

executive compensation and recommend potential changes to its compensation

policies.76 In October of 2021, FW Cook identified eliminating the tax gross-up

payments as a “[p]otential [a]rea[] for [c]hange in 2022,” and noted that stockholders

and Institutional Shareholder Services view “[t]ax gross-ups on aircraft . . .

perquisites [as] a most problematic pay practice.” 77            FW Cook recommended

eliminating the tax gross-up payments without a corresponding increase in other

compensation.78 The Committee’s request that FW Cook study the executive

compensation and make recommendations as to policy changes, and its receipt of a

74
     Detroit Litig., D.I. 35 at Stip. Compromise & Settlement ¶ 4(a).
75
     Detroit Litig., D.I. 55.
76
   Houston Aff., Ex. 22 at 0463. Plaintiff takes issue with the Committee’s decision to
delegate the initial policy drafting to management given members of management allegedly
relied on Robert for their continued employment. As explained, I disagree with Plaintiff
on this point. Nevertheless, given Plaintiff’s contention, it seems he would view the
decision to have FW Cook evaluate executive perquisite compensation and provide
recommendations as a prudent decision.
77
     Houston Aff., Ex. 23 at 2027.
78
     Id.
                                              21
recommendation, reflect attention to the issue, not conscious disregard. 79 The

absence of a formal policy during this period is not, alone, sufficient to demonstrate

bad faith. Plaintiff’s theory of bad faith during this time falters as a mere criticism

of the manner and timing of the Committee’s response.

       After FW Cook presented its report, nine months passed without Committee

action, and no formal policy was generated. From this point on, Plaintiff’s theory of

bad faith relies entirely on the absence of a formal policy limiting personal airplane

use. I assume for purposes of this analysis that Plaintiff has pled the Committee

intended to take no further action and decided to not implement a formal policy.

       Plaintiff has not met his significant burden of pleading that the allegedly

excessive compensation was such that a decision not to address it with a formal

policy, alone, supports an inference of bad faith.80 That risk was contained; it was

limited to the use of two corporate assets by a discrete group of individuals, as

79
   See Pettry, 2021 WL 2644475, at *8 (concluding the fact that the board was “kept
apprised of the ongoing enforcement actions from inception through settlement,” and
received updates on “eleven separate occasions,” did not support “an inference of bad faith
indifference”).
80
   Cf. IBEW Loc. Union 481 Defined Contribution Plan & Tr. ex rel. GoDaddy, Inc. v.
Winborne, 301 A.3d 596, 626–27 (Del. Ch. 2023) (concluding that the company paid $850
million for tax receivable agreement rights worth $175.3 million supported an inference of
bad faith and reasoning “[t]he contrast between those figures is so glaring as to support a
claim of waste and hence an inference of bad faith on that basis alone”).
                                            22
compared to a widespread operational deficiency.81 The Company was not violating

an internal policy or any regulations, which can support an inference of bad faith.82

         The allegedly excessive personal airplane use was also of a relatively minimal

magnitude. In 2021, Skechers’ gross profit exceeded $3 billion and its operating

expenses totaled about $2.5 billion.83        The Management Defendants’ airplane

perquisite compensation totaled about $5.3 million over four years; with one

81
   See In re Boeing Co. Deriv. Litig., 2021 WL 4059934, at *33–34 (Del. Ch. Sept. 7, 2021)
(concluding the plaintiff pled a prong two Caremark claim where the board of an airplane
manufacturer ignored red flags reflecting widespread airplane safety issues); Chou, 2020
WL 5028065, at *25 (concluding the plaintiff pled the demand board faced a substantial
likelihood of liability for a prong two Caremark claim where the board of a pharmaceutical
company ignored red flags showing “contravention of mission critical drug health and
safety regulations”); see also Marchand, 212 A.3d at 820–24 (reasoning the plaintiff pled
a prong one Caremark claim where an ice cream manufacturer lacked any board-level
system to monitor “whether it is ensuring that the only product it makes—ice cream—is
safe to eat”).
82
  See Garfield, 277 A.3d at 336–340 (concluding the plaintiff adequately pled a prong two
Caremark claim where the board consciously decided to leave in place an equity award
that violated the applicable equity compensation plan); Boeing, 2021 WL 4059934, at *33–
34 (concluding the plaintiff pled a prong two Caremark claim where the board of an
airplane manufacturer did not meaningfully respond to airplane crashes and a related news
article reporting that its airplane software “had serious engineering defects that were
concealed from regulators”); Chou, 2020 WL 5028065, at *25 (concluding the plaintiff
pled the demand board faced a substantial likelihood of liability for a prong two Caremark
claim where the board was aware of red flags showing “contravention of mission critical
drug health and safety regulations” and “mission critical compliance failures”). At most,
there was a breach of the employment agreements’ reasonable use requirement. But
Plaintiff did not present his Caremark claim as relying on the Board’s or the Committee’s
decision not to enforce those agreements as written; Plaintiff argued the Board and
Committee failed to put limits on personal use of the airplanes. Compl. ¶¶ 29, 178; Pl.
Ans. Br. 24, 30, 32, 36. Only one passing reference in Plaintiff’s brief suggests otherwise.
Pl. Ans. Br. 35.
83
     Houston Aff. Ex. 25 at 27.
                                            23
exception, it represented between about 0.5% and 4.9% of each of the Management

Defendants’ annual compensation during that time. The tax gross-up payments—

the only aspect of the airplane perquisite compensation FW Cook identified as

problematic—represent even less of that compensation: about $1.6 million over the

same period. On average, the tax gross-up payments made up less than 1% of the

executives’ total compensation from 2018 through 2021.

         Plaintiff has failed to demonstrate that the Management Defendants’

excessive personal use of Skechers’ airplanes, even if in violation of their

employment agreements, was of such a scope, magnitude, or questionable legality

that the only good faith response was to create a policy. For inaction on that risk to

constitute bad faith, Plaintiff would have to plead more.

                          2.   Waste

         Nor do the Committee Defendants face a substantial likelihood of liability for

waste. Plaintiff alleges they face such liability for “consciously allowing” the

Management Defendants to “expropriat[e] the Company’s [a]ircraft for personal

use.” 84 The Complaint alleges “[n]o person of ordinary, sound business judgment

could possibl[y] conclude that the type, and extent, of personal use described here

represents a prudent use of the Company’s assets.”85 Plaintiff identifies as evidence

84
     Pl. Ans. Br. 44.
85
     Compl. ¶ 184.
                                           24
of waste the expenses imputed to each of the Management Defendants as

compensation, lost tax benefits due to a high ratio of personal travel as compared to

business travel in 2020 and 2021, and the cost of maintaining a second airplane.

       A claim for waste derives from the duty of loyalty’s subsidiary element of bad

faith.86 It can operate as an “equitable escape hatch that permits a court to allow a

claim to proceed past the pleading stage where something appears sufficiently amiss

to warrant discovery.” 87 “Conceived more realistically, the doctrine of waste is a

residual protection for stockholders that polices the outer boundaries of the broad

86
   CanCan Dev., LLC v. Manno, 2015 WL 3400789, at *20 (Del. Ch. May 27, 2015)
(“Although traditionally viewed as a separate cause of action, a waste claim is best
understood as one means of establishing a breach of the duty of loyalty’s subsidiary
element of good faith.” (citing Stone, 911 A.2d at 370); Se. Pa. Transp. Auth. v. Abbvie
Inc., 2015 WL 1753033, at *14 n.114 (Del. Ch. Apr. 15, 2015) (“This Court has found that,
doctrinally, waste is a subset of good faith under the umbrella of the duty of loyalty . . . .”);
Disney, 907 A.2d at 749 (“The Delaware Supreme Court has implicitly held that
committing waste is an act of bad faith.” (citing White v. Panic, 783 A.2d 543, 553–55
(Del. 2001))).
87
   McDonald’s, 291 A.3d at 694; Harbor Fin. P’rs v. Huizenga, 751 A.2d 879, 895 (Del.
Ch. 1999) (referring to waste as an “equitable safety valve” (quoting 1 R. Franklin Balotti
& Jesse A. Finkelstein, The Delaware Law of Corporations & Business Organizations §
4.35, at 4–234 (3rd ed. 1997)); Sample v. Morgan, 914 A.2d 647, 670 (Del. Ch. 2007)
(“The doctrine of waste, however, allows a plaintiff to pass go at the complaint stage even
when the motivations for a transaction are unclear by pointing to economic terms so one-
sided as to create an inference that no person acting in a good faith pursuit of the
corporation’s interests could have approved the terms.”); 1 R. Franklin Balotti & Jesse A.
Finkelstein, The Delaware Law of Corporations & Business Organizations, § 4.16[A], at
4-150 to -151 (4th ed. 2023 Supp.) [hereinafter “Balotti”] (“[E]ven if a transaction has been
approved by a disinterested majority of the board or the requisite vote of disinterested
stockholders, there is still an equitable safety valve in the form of the court’s determination
of whether the transaction constituted a gift or waste.”).
                                               25
field of discretion afforded directors by the business judgment rule.” 88 The waste

inquiry is an objective one.89 Plaintiffs can assert a “version of waste” by pleading

that “a decision [was] so extreme as to be inexplicable on any basis other than bad

faith.”90

         Our case law frames waste in the context of director approval of an irrational

“exchange” or transaction, often with a focus on whether the company received

88
     Sample, 914 A.2d at 669.
89
     See Winborne, 301 A.3d at 621–22.
90
     McDonald’s, 291 A.3d at 694.
                                           26
adequate consideration. 91 Leading treatises are in accord. 92 This focus is consistent

with waste’s roots in the ultra vires doctrine. 93 But Plaintiff does not challenge the

91
   Disney, 906 A.2d at 74 (“To recover on a claim of corporate waste, the plaintiffs must
shoulder the burden of proving that the exchange was ‘so one sided that no business person
of ordinary, sound judgment could conclude that the corporation has received adequate
consideration.’” (quoting Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)); White, 783
A.2d at 554 (“A board’s decisions do not constitute corporate waste unless they are
exceptionally one-sided. Accordingly, we have defined ‘waste’ to mean ‘an exchange of
corporate assets for consideration so disproportionately small as to lie beyond the range at
which any reasonable person might be willing to trade.’” (footnote omitted) (quoting
Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)); Brehm v. Eisner, 746 A.2d 244, 263
(Del. 2000) (“Most often the claim is associated with a transfer of corporate assets that
serves no corporate purpose; or for which no consideration at all is received. Such a
transfer is in effect a gift.” (internal quotation marks omitted) (quoting Lewis v. Vogelstein,
699 A.2d 327, 336 (Del. Ch. 1997)); Grobow v. Perot, 539 A.2d 180, 189 (Del. 1988)
(“[T]he issue becomes whether the complaints state a claim of waste of assets, i.e., whether
‘what the corporation has received is so inadequate in value that no person of ordinary,
sound business judgment would deem it worth that which the corporation has paid.’”
(quoting Saxe v. Brady, 184 A.2d 602, 610 (Del. Ch. 1962), overruled on other grounds by
Brehm, 746 A.2d 244; McDonald’s, 291 A.3d at 693 (“A transaction constitutes waste
when it is so one-sided that no rational person acting in good faith could approve it. Put
differently, it involves ‘an exchange that is so one-sided that no businessperson of ordinary,
sound judgment could conclude that the corporation has received adequate consideration.’”
(quoting Brehm, 746 A.2d at 261); Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997)
(“The judicial standard for determination of corporate waste is well developed. Roughly,
a waste entails an exchange of corporate assets for consideration so disproportionately
small as to lie beyond the range at which any reasonable person might be willing to trade.”);
id. at 338 (describing the “classical waste test” as “no consideration; gift; no person of
ordinary prudence could possibly agree, etc.”); Saxe v. Brady, 184 A.2d 602 (Del. Ch.
1962) (“Where waste of corporate assets is alleged, the court, notwithstanding independent
stockholder ratification, must examine the facts of the situation. Its examination, however,
is limited solely to discovering whether what the corporation has received is so inadequate
in value that no person of ordinary, sound business judgment would deem it worth what
the corporation has paid.”).
92
  2 Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in
the Delaware Court of Chancery § 15.05[e][1][iii], at 15-47 (2023) (“A transaction will be
deemed to constitute waste only when the consideration received for corporate assets is ‘so
disproportionately small as to lie beyond the range at which a reasonable person might be

                                              27
directors’ decisions to enter into the Management Defendants’ employment

agreements granting reasonable personal airplane use.                Rather, Plaintiff faults

Defendants for not intervening to prevent the Management Defendants’ ongoing

allegedly excessive use. Plaintiff cites no case in which a Delaware court has

willing to trade’” (quoting Lewis, 699 A.2d at 336); 1 David A. Drexler et al., Delaware
Corporation Law and Practice § 14.03[1], at 14-10 (2022) (“The term ‘corporate waste’
in the context of officer compensation has been defined as a circumstance where ‘no person
of ordinary, sound business judgment would be expected to entertain the view that the . . .
[service to be rendered] was a fair exchange for the [compensation] which was given.’”
(alterations in original) (quoting Saxe, 184 A.2d at 610); 1 Balotti § 4.16[A], at 4-150
to -151 (explaining where a transaction was “approved by a disinterested majority of the
board or the requisite vote of disinterested stockholders . . . “[t]he only inquiry . . . is into
whether the consideration paid in the transaction is so inadequate that no reasonable person
could conclude the transaction was other than a gift or waste, thereby rendering the
business judgment doctrine inapplicable”); id. § 4.11[A], at 4-51 (framing waste standard
applied to compensation decisions as evaluating an exchange in terms of a quid pro quo);
1 Radin at 388 (“A waste claim requires showing that the corporation has entered into a
transaction in which it received consideration ‘“so inadequate in value that no person of
ordinary, sound business judgment would deem it worth what the corporation has paid.”’”
(quoting Grobow, 539 A.2d at 190)); 3A Fletcher Cyclopedia of the Law of Corporations
§ 1102 (Sept. 2023 Update) (“Corporate waste has been defined as an exchange of
corporate assets for consideration so disproportionately small as to lie beyond the range at
which any reasonable person might be willing to trade. To state a claim for waste, a
plaintiff must allege particularized facts that lead to a reasonable inference that the director
defendants authorized an exchange that is so one sided that no business person of ordinary,
sound judgment could conclude that the corporation has received adequate consideration.”
(footnote omitted)); see also Harwell Wells, The Life (and Death?) of Corporate Waste,
74 Wash. & Lee L. Rev. 1239, 1240 (2017) (stating the “classic definition of waste” is “a
transaction in which ‘what the corporation has received is so inadequate in value that no
person of ordinary, sound business judgment would deem it worth what the corporation
has paid . . . .’” (quoting Saxe, 184 A.2d at 610)).
93
  McDonald’s, 291 A.3d at 693 (citing Harwell Wells, The Life (and Death?) of Corporate
Waste, 74 Wash. & Lee L. Rev. 1239, 1243–48 (2017)); Huizenga, 751 A.2d at 895–96
(“The origin of this rule is rooted in the distinction between voidable and void acts, a
distinction that appears to have grown out of the now largely abolished ultra vires
doctrine.” (footnote omitted)).
                                               28
evaluated a claim for waste based on a failure to act to prevent ongoing harm as

opposed to challenging the decision to enter into a transaction, and I am aware of

none. Though the parties briefed the waste argument more generally, neither party

briefed this specific issue.

      Assuming waste could doctrinally apply here, Plaintiff failed to carry his

burden. The Committee’s decision not to implement a formal policy curtailing

personal airplane use was not extreme by any metric. As explained, the entirety of

the Management Defendants’ airplane perquisite compensation totaled about $5.3

million between 2018 and 2021, representing about 2.6% of their total compensation

during that time. FW Cook identified only the tax gross-up payments as potentially

problematic, which represent only about $1.6 million, or less than 1%, of their total

compensation from 2018 to 2021. These figures are not sufficiently extreme to serve

as objective indicia that the Committee Defendants’ decision not to intervene was

extreme, irrational, or suffered from deeper, less visible problems.

      Plaintiff also sees evidence of waste in the Company’s retention of a second

airplane even though personal use for both airplanes exceeded business use in 2020

and personal use for one airplane exceeded business use in 2021. Plaintiff does not

plead the airplanes had any uses other than personal travel and business travel. The

Management Defendants’ total personal use decreased from 2019 to 2020, and then

decreased again from 2020 to 2021. For personal use to have surpassed business

                                         29
use, business use must have decreased even more.94 Plaintiff pled no facts showing

that trend would continue, and in fact he pleads business travel increased from 2020

to 2021.95 I cannot infer bad faith from the retention of a second airplane in the

context of a short-term drop in business travel relative to personal use.

         Finally, the loss of favorable tax treatment for both airplanes in 2020 and one

airplane in 2021 does not constitute evidence of waste. Plaintiff has not pled the

Committee Defendants were aware that personal travel exceeded business travel in

these years as it was occurring. In other words, though Plaintiff could argue these

amounts are damages flowing from waste, Plaintiff has not pled the Committee

Defendants had this information and ignored it in bad faith.               This argument

resembles an attempt to impose liability by hindsight, which our courts have rejected

in the waste context.96 Plaintiff’s waste claim fails.

94
  Plaintiff’s brief conceded that business travel decreased. D.I. 49 at Ans. Br. 3 (“Indeed,
their misuse of the Company [a]ircraft was exacerbated during the pandemic; when
Skechers’ personal use rose exponentially, and business use dropped, meaning that the
Company gave up huge potential tax benefits.”).
95
     See Compl. ¶¶ 108–10, 112–14.
96
  Winborne, 301 A.3d at 621 (“What actually happens down the road is a different issue
than whether the decision appears extreme when made. Inferring bad faith because a
decision turned out badly would impose liability by hindsight.”); Ash v. McCall, 2000 WL
1370341, at *8 (Del. Ch. Sept. 15, 2000) (explaining “examining a corporate transaction
with perfect 20/20 hindsight and declaring that it turned out horribly” to substantiate a
waste claim “confuses the due care standard with substantive due care—a concept that is
foreign to the business judgment rule”); see Protas v. Cavanagh, 2012 WL 1580969, at *9
(Del. Ch. May 4, 2012) (“[A] finding of waste is inappropriate, even if hindsight proves
that the transaction may have been ill-advised.”).
                                            30
                            3.    Disclosure Claims

         Plaintiff argues Erlich and Siskind face a substantial likelihood of liability for

violating their duties of disclosure and candor. Directors can be liable for causing a

corporation to issue a proxy that is materially false or misleading, or that omits

material information. 97 “In the absence of a request for stockholder action, the

Delaware General Corporation Law does not require directors to provide

shareholders with information concerning the finances or affairs of the

corporation.”98 But when the board chooses to speak outside of that context, or is

compelled by another source of law to speak, the directors may not knowingly cause

the company to issue false disclosures.99

         “When directors request discretionary stockholder action, they must disclose

fully and fairly all material facts within their control bearing on the request.”100 A

misstatement or omission gives rise to a disclosure claim only where it is material

as to the stockholder vote in question. 101 This is true even where the plaintiff alleges

97
     See New Enter. Assocs. 14, L.P. v. Rich, 292 A.3d 112, 144 (Del. Ch. 2023).
98
     Malone v. Brincat, 722 A.2d 5, 11 (Del. 1998).
99
   Dohmen v. Goodman, 234 A.3d 1161, 1168–69 (Del. 2020); see also Malone, 722 A.2d
at 10 (Del. 1998) (“[W]hen directors communicate publicly or directly with shareholders
about corporate matters the sine qua non of directors’ fiduciary duty to shareholders is
honesty.”).
100
      Dohmen, 234 A.3d at 1168.
101
   See id.; Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170, 1174 (Del. 2000) (“Omitted facts
are not material simply because they might be helpful. To be actionable, there must be a

                                             31
an omission rendered a partial disclosure misleading.102 Information is material “if

there is a substantial likelihood that a reasonable shareholder would consider it

important in deciding how to vote.” 103 “Put another way, there must be a substantial

likelihood that the disclosure of the omitted fact would have been viewed by the

reasonable investor as having significantly altered the ‘total mix’ of information

made available.” 104 “Materiality is determined with respect to the shareholder action

being sought.”105 “The burden of demonstrating a disclosure violation and of

substantial likelihood that the undisclosed information would significantly alter the total
mix of information already provided.”); In re Santa Fe Pac. Corp. S’holder Litig., 669
A.2d 59, 66 (Del. 1995) (“Non-disclosure claims must provide some basis for a court to
infer that the alleged omissions were material.”); see also Malone, 722 A.2d at 10 (“The
duty of disclosure obligates directors to provide the stockholders with accurate and
complete information material to a transaction or other corporate event that is being
presented to them for action.”).
102
   Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009) (“Corporate fiduciaries can breach
their duty of disclosure under Delaware law . . . by making . . . a partial disclosure that is
materially misleading.” (first alteration in original) (internal quotation marks omitted)
(quoting Pfeffer v. Redstone, 2008 WL 308450, at *8 (Del. Ch. Feb. 1, 2008), aff’d, 965
A.2d 676 (Del. 2009))); Zirn v. VLI Corp., 681 A.2d 1050, 1057 (Del. 1996) (“The partial
disclosure rule is implicated only where the omission of a related fact renders the partially
disclosed information materially misleading.”); see also O’Reilly v. Transworld
Healthcare, Inc., 745 A.2d 902, 916 (Del. Ch. 1999) (“Corporate fiduciaries can breach
their duty of disclosure under Delaware law . . . by making a partial disclosure that is
materially misleading.”).
103
   Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994) (internal
quotation marks omitted) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449
(1976)).
104
   Id. (internal quotation marks omitted) (quoting TSC Indus., Inc. v. Northway, Inc., 426
U.S. 438, 449 (1976)).
  Malone, 722 A.2d at 12; In re Ebix, Inc. S’holder Litig., 2016 WL 208402, at *22 (Del.
105

Ch. Jan. 15, 2016) (“[T]he challenged disclosures must be material and ‘connect[ed] to the

                                             32
establishing the materiality of requested information lies with the plaintiffs.” 106 To

plead a loyalty claim based on false or otherwise deficient disclosures, the plaintiff

“must allege a knowing or intentional” violation.107

          Plaintiff alleges five omissions or misstatements. First, Plaintiff alleges the

Proxy’s statement that “the [a]ircraft are ‘designated primarily for business

travel’”108 was false because “Skechers’ [a]ircraft is primarily designated for [the

Management Defendants’] personal travel.” 109 Plaintiff’s only support for this

position is the fact that personal use for both airplanes exceeded business use in

2020, and personal use for one airplane exceeded business use in 2021. Plaintiff has

not shown or argued each airplane’s designation is tied to the airplane’s use in any

given year. Plaintiff failed to meet his burden in establishing this statement was

false.

          Second, Plaintiff claims that “because the [a]ircraft were primarily designated

for personal use, [fixed costs (such as maintenance, aircraft acquisition costs, and

request’ for [requested stockholder] actions.” (first alteration in original) (quoting Malone,
722 A.2d at 12); see also Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992) (“Delaware law
imposes upon a board of directors the fiduciary duty to disclose fully and fairly all material
facts within its control that would have a significant effect upon a stockholder vote.”).
106
   In re CheckFree Corp. S’holders Litig., 2007 WL 3262188, at *2 (Del. Ch.
Nov. 1, 2007).
107
   In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *11 (Del. Ch.
Dec. 30, 2019).
108
      Compl. ¶ 123 (quoting 2021 Proxy at 31).
109
      Id. ¶ 124.
                                             33
pilot salaries)] should have been included in the [Management Defendants’] listed

perquisites.” 110 As explained, Plaintiff failed to demonstrate that the airplanes were

primarily designated for personal use. Because Plaintiff’s argument depends on that

proposition, Plaintiff has failed to substantiate this alleged violation.

         Third, Plaintiff argues the Proxy should have disclosed “the sheer volume of

the [Management Defendants’] personal use of the [a]ircraft as compared to the

[a]ircraft’s total flight hours,” because “a reasonable stockholder would find it

material that the Company needs a second [a]ircraft because roughly 53% of the

combined flight time of the [a]ircraft is attributable to personal use by the Greenberg

family, along with Weinberg.”111 Plaintiff must show this omission was material to

the stockholder vote in question to establish liability.112 Skechers’ stockholders were

being asked to vote in a director election. Plaintiff has not shown that the relative

amount of the Management Defendants’ personal airplane use, which was

compensation for their service as officers, was material to a vote to elect directors.

Plaintiff argues the alleged disclosure deficiencies reflect the Board was unwilling

or unable to “act adverse to Defendant Robert’s interests.” 113 But as explained,

110
      Pl. Ans. Br. 43; Compl. ¶¶ 125–26.
111
      Pl. Ans. Br. 15; Compl. ¶ 128.
112
      Malone, 722 A.2d at 12.
113
      Pl. Ans. Br. 42.
                                           34
Plaintiff failed to establish that the Committee’s decision not to further limit the

Management Defendants’ airplane perquisite compensation was wrongful.114

         Fourth, Plaintiff alleges that the Proxy was misleading because it “disclosed

that ‘[d]uring 2020, Robert Greenberg, Michael Greenberg and David Weinberg

used [Skechers’] aircraft for personal travel,’” and “omit[ed] that other Greenberg

family members” used the airplane and “attributed that use to” the Management

Defendants. 115 The Proxy disclosed how Skechers calculated the total compensation

114
   Plaintiff also argues that all the alleged disclosure issues were material because an SEC
publication states that “[i]n light of the importance of the subject to many investors, all
participants should approach the subject of perquisites and personal benefits thoughtfully.”
Id. (alteration in original) (internal quotation marks omitted) (citation omitted)).
Additionally, Plaintiff cites federal regulations requiring the disclosure of perquisites over
a certain dollar value. Id. at 42 n.23 (citing 17 C.F.R. § 229.402). Neither source states
that all matters concerning executive compensation are material for purposes of the
fiduciary duties of disclosure or candor. I decline to adopt Plaintiff’s proposed per se
materiality rule, for which he has cited no case law for support.
        Similarly, Plaintiff suggests that “fixed costs should be included in aircraft
disclosures when personal usage exceeds 20% to 30%.” Pl. Ans. Br. 43. The only support
Plaintiff identifies is a 2012 news article reflecting an Atlanta-based attorney’s view that
“companies should probably include fixed costs in their aircraft disclosures when
personal usage exceeds 20% to 30% of the overall flying time. ‘To do otherwise would
be misleading.’” Id. at 43 n.24 (emphasis in original). I do not reach the issue of whether
this disclosure was misleading, and therefore do not consider this argument.
      Finally, Plaintiff argues that because Robert and Erlich were seeking reelection in
connection with the 2021 annual meeting, they “clearly benefited significantly from
keeping the true information related to the magnitude and nature of the “Management
Defendants’] perquisites and the resultant tax implications for the Company from
stockholders.” Pl. Ans. Br. 44. I read this argument to go to those defendants’ scienter,
and do not see Plaintiff as having gone the next step of tying this theory to materiality for
stockholders.
115
      Pl. Ans. Br. 39–40; Compl. ¶ 190.
                                             35
attributed to the Management Defendants: “The aggregate incremental cost of use

of [Skechers’] aircraft for personal travel by [Michael, Robert, and Weinberg] is

allocated entirely to the highest-ranking [of the Management Defendants] present on

the flight, unless circumstances indicate a different allocation is warranted.”116 Even

assuming it is misleading to not disclose that the last clause covers situations in

which the Management Defendants are not on the airplanes, Plaintiffs have not

shown this information is material in relation to the director election. 117

         Fifth, Plaintiff argues the Proxy failed “to disclose to its shareholders that it

has significant and material disallowed tax deductions, and gross up payments, in

addition to being unable to take advantage of the bonus depreciation available under

§ 280F of the Internal Revenue Code” because personal use exceeded business use

during 2020 and 2021. 118 Plaintiff has not shown these matters were material to the

director election at issue and therefore failed to meet his burden of showing this

omission was material.

         Plaintiff has not pled Erlich and Siskind face a substantial likelihood of

liability in connection with the disclosure claims.

116
      2021 Proxy 31.
117
   To the extent Plaintiff is challenging the failure to disclose that others traveled on the
airplane with the Management Defendants, he has failed to show both that the Proxy was
misleading and that this information was material.
  Compl. ¶ 127. The Proxy disclosed the gross-up payments made to each of the
118

Management Defendants. 2021 Proxy at 31.
                                             36
                      B.     Lack Of Independence

         Plaintiff argues Siskind lacks independence from Robert, who received a

material personal benefit from his airplane use and who faces a substantial likelihood

of liability. Delaware law presumes directors are independent.119 “[A] lack of

independence turns on ‘whether the plaintiffs have pled facts from which the

director’s ability to act impartially on a matter important to the interested party can

be doubted because that director may feel either subject to the interested party’s

dominion or beholden to that interested party.’”120 A lack of independence can be

established through social, financial, or other ties reflecting the existence of a

bias-producing relationship. 121 “[T]he question is ‘whether, applying a subjective

standard, those ties were material, in the sense that the alleged ties could have

affected the impartiality of the individual director.’” 122 The inquiry is holistic123 and

the Court evaluates independence on a “case-by-case basis.”124 Though Rule 23.1

  Friedman v. Dolan, 2015 WL 4040806, at *6 (Del. Ch. June 30, 2015) (citing In re
119

MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013)).
120
   Marchand, 212 A.3d at 818 (alteration in original) (internal quotation marks omitted)
(quoting Sandys v. Pincus, 152 A.3d 124, 128 (Del. 2016)).
121
      See Beam, 845 A.2d at 1051.
122
   Zuckerberg, 262 A.3d at 1061 (quoting Kahn v. M&F Worldwide Corp., 88 A.3d 635,
649 (Del. 2014), overruled on other grounds by Flood v. Synutra Int’l, Inc., 195 A.3d 754
(Del. 2018)).
123
      Del. Cnty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017, 1022 (Del. 2015).
124
      Beam, 845 A.2d at 1051.
                                            37
requires that a plaintiff plead this lack of independence with particularity, the Court

will draw all reasonable inferences in the plaintiff’s favor. 125

         Plaintiff argues Siskind lacks independence from Robert because he “depends

on Robert and the Greenberg family for his continued employment as a director.”126

This fact alone, without other particularized allegations that Siskind is beholden to

Robert, does not impugn Siskind’s independence. 127

         Plaintiff also contends that Robert and Siskind “share[] a unique and

reciprocally-beneficial relationship.” 128 Some of that relationship runs through a

company called Stage II Apparel Pty Ltd., where Siskind was president and CEO.

The first tie is a 1999 sale of certain Skechers trademarks from the Greenberg family

trust to Stage II. Plaintiff alleges Robert caused Siskind to be appointed to Skechers’

Board shortly after the sale was completed. Plaintiff also alleges the two also served

together on Stage II’s board of directors. Finally, Plaintiff alleges that Robert served

on Stage II’s compensation committee until 2002, and that Siskind currently serves

on Skechers’ compensation committee.

125
      Sanchez, 124 A.3d at 1020.
126
      Pl. Ans. Br. 49.
127
   City of Hialeah Emps’. Ret. Sys. ex rel. nCino, Inc. v. Insight Venture P’rs, LLC, 2023
WL 8948218, at *9 (Del. Ch. Dec. 28, 2023) (citing Beam, 845 A.2d at 1054; and
Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 67–68 (Del. Ch.
2015)).
128
      Pl. Ans. Br. 50.
                                           38
       Plaintiff has not pled facts from which the Court can infer that the trademark

sale was anything other than an arms-length transaction. Plaintiff has not pled what

was purchased, the price, or whether Siskind or Robert were personally involved.

And absent additional facts, Robert’s service on Stage II’s compensation committee

while Siskind was Stage II’s president and CEO, and Siskind’s service on Skechers’

compensation committee while Robert was a Skechers executive, does not represent

a benefit to either man. Plaintiff requests that I presume, without any support, that

from some time in 1999 through 2002, both Siskind and Robert used their committee

positions to benefit the other. But our law presumes that directors will carry out

their duties in good faith. 129 Finally, the fact that the two overlapped in their service

on Stage II’s board of directors does not alone impugn Siskind’s independence.130

       Plaintiff also points to ties between Siskind and Robert outside their

professional lives. 131 Plaintiff alleges Siskind sold Robert a home in Boca Raton,

Florida in 1998. He alleges that Robert now has another home nearby, such that the

two are neighbors. Most remarkably, Plaintiff alleges “their piers for their watercraft

129
   In re Straight Path Commc’ns Inc. Consol. S’holder Litig., 2023 WL 6399095, at *18
(Del. Ch. Oct. 3, 2023) (“This Court presumes directors’ fidelity to their fiduciary duties.”).
130
   Patel v. Duncan, 2021 WL 4482157, at *20 (Del. Ch. Sept. 30, 2021), aff’d 277 A.3d
1257 (Del. 2022).
131
    Plaintiff briefed and argued the more abstract position that geographic proximity
indicated friendship, but did not go so far as to plead that Greenberg and Siskind are friends.
Rule 23.1 requires particularized pleading. I will consider only what Plaintiff has actually
pled.
                                              39
face each other.” 132 From these facts, Plaintiff concludes that “[d]emanding that

Siskind sue his neighbor, and twenty-plus year fellow Board member, Robert

Greenberg, would be futile.”133

          Plaintiff has not pled a relationship that would impugn Siskind’s

independence. Selling another a home nearly twenty-five years ago does not alone

establish a material relationship. It is simply not the case that neighbors are

unwilling to sue each other: this Court’s equitable docket is rife with such suits, and

this judicial officer has presided over many. That leaves one allegation: that the

piers face each other. Plaintiff offers no explanation as to why this fact would

disable Siskind from independently performing his duties as a Delaware director. I

can think of none. Plaintiff has failed to plead that Siskind lacks independence from

Robert.

          III.     CONCLUSION

          Plaintiff has failed to plead that demand is futile under Court of Chancery

Rule 23.1. Defendants’ motions are GRANTED.

132
      Compl. ¶ 173.
133
      Id. ¶ 175.
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