Court Opinion

ID: 4362989
Source: CourtListenerOpinion
Date Created: 2019-01-30 16:05:25.223634+00
Date Added: 2024-06-11T14:48:48.799720
License: Public Domain

IN THE SUPREME COURT OF THE STATE OF DELAWARE

                                                 §
    FITBIT, INC.,                                §
                                                 §   No. 22, 2019
           Nominal Defendant Below,              §
           Appellant,                            §   Court Below—Court of Chancery
                                                 §   of the State of Delaware
           v.                                    §
                                                 §   Consol. C.A. No. 2017-0402
    BRIGHT AGYAPONG, ANNE                        §
    BERNSTEIN, and MICHAEL                       §
    HACKETT,                                     §
                                                 §
          Plaintiffs Below,                      §
          Appellees.                             §

                                   Submitted: January 14, 2019
                                    Decided: January 30, 2019

Before STRINE, Chief Justice; VALIHURA and VAUGHN, Justices.

                                             ORDER

         After considering the notice of appeal from an interlocutory order under

Supreme Court Rule 42, it appears to the Court that:

         (1)     This interlocutory appeal arises from a Court of Chancery opinion,

dated December 14, 2018, denying Fitbit, Inc.’s motion to dismiss a consolidated

derivative action.1 In the derivative action, Fitbit stockholders alleged that members

of the Fitbit board of directors and the chief financial officer breached their fiduciary

duties by using insider knowledge of faults in a key product to sell Fitbit shares in

1
    In re Fitbit, Inc. S’holder Derivative Litig., 2018 WL 6587159 (Del. Ch. Dec. 14, 2018).
initial and secondary public offerings and that other directors breached their

fiduciary duties by allowing the sales to occur. The Court of Chancery held that the

complaint adequately pled demand futility and stated viable claims.

          (2)    On December 24, 2018, Fitbit filed an application for certification of

an interlocutory appeal. Fitbit argued that the opinion decided a substantial issue of

material importance, the opinion conflicted with other trial court decisions on

whether the core operations inference of scienter applies in the context of Court of

Chancery Rule 23.1, the opinion involved a question of law—whether outside

directors who did not sell shares personally could be held liable under Brophy for

sales by funds they were affiliated with—resolved for the first time in Delaware, and

review could terminate the litigation and serve the considerations of justice. The

appellees opposed the application.

          (3)    On January 14, 2019, the Court of Chancery refused to certify the

application for certification.2 Applying the Rule 42 criteria, the Court of Chancery

concluded that the opinion did not decide a substantial issue of material importance

that merited appellate review before final judgment. The Court of Chancery found

that the opinion did not conflict with existing decisions because the core operations

doctrine was not, contrary to Fitbit’s contention, the sole basis for the inference of

scienter. Other facts supporting the reasonable inference of scienter included the

2
    In re Fitbit Inc. S’holder Derivative Litig., 2019 WL 190933 (Del. Jan. 14, 2019).
                                                  2
nature, timing, and size of the offerings, the board’s selective waiver of lock-up

agreements, and the board’s decision to lower Fitbit’s allocation in the offerings,

which led to more of the defendants’ shares being sold. The Court of Chancery also

found that the opinion did not address a novel question of law because it was not

novel or controversial under Delaware law to conclude that a fiduciary cannot avoid

Brophy liability by sharing inside information with a fund that he controls so that the

fund can trade on the inside information. Under these circumstances, the Court of

Chancery concluded that the likely benefits of interlocutory review would not

outweigh the probable costs, such that interlocutory review would be in the interests

of justice.

          (4)    Applications for interlocutory review are addressed to the sound

discretion of the Court.3 We agree with the Court of Chancery’s thoughtful analysis

of the application for certification and conclude that the application does not meet

the strict standards for certification under Rule 42.

          NOW, THEREFORE, IT IS HEREBY ORDERED that the interlocutory

appeal is REFUSED.

                                        BY THE COURT:
                                        /s/ Leo E. Strine, Jr.
                                        Chief Justice

3
    Supr. Ct. R. 42(d)(v).
                                           3