Court Opinion

ID: 4547869
Source: CourtListenerOpinion
Date Created: 2020-07-13 18:02:26.94438+00
Date Added: 2024-06-11T08:18:55.508557
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE HOMEFED CORPORATION                ) CONSOLIDATED
STOCKHOLDER LITIGATION                   ) C.A. No. 2019-0592-AGB
                                         )

                         MEMORANDUM OPINION

                         Date Submitted: April 3, 2020
                         Date Decided: July 13, 2020

Peter B. Andrews, Craig J. Springer, and David M. Sborz, ANDREWS &
SPRINGER LLC, Wilmington, Delaware; Ned Weinberger, LABATON
SUCHAROW LLP, Wilmington, Delaware; Jeremy S. Friedman and David F.E.
Tejtel, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New York; John
Vielandi and David MacIsaac, LABATON SUCHAROW LLP, New York, New
York; D. Seamus Kaskela, KASKELA LAW LLC, Newtown Square, Pennsylvania;
Attorneys for Plaintiffs Richard Rose and Dennis E. Murray Sr.

S. Mark Hurd and Alexandra M. Cumings, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; John P. Stigi III, SHEPPARD, MULLIN,
RICHTER & HAMPTON LLP, Los Angeles, California; Kristin P. Housh,
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, San Diego, California;
Attorneys for Defendants Patrick Bienvenue and Paul Borden.

Bradley R. Aronstam and S. Michael Sirkin, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; Joseph S. Allerhand, Evert J. Christensen Jr. and Elizabeth
M. Sytsma, WEIL, GOTSHAL & MANGES LLP, New York, New York; Attorneys
for Defendants Brian Friedman, Jimmy Hallac, Joseph Steinberg, and Jefferies
Financial Group Inc.

BOUCHARD, C
      This case concerns a transaction in which Jefferies Financial Group Inc., the

70% stockholder of HomeFed Corporation, acquired the rest of the shares of the

company in July 2019 by exchanging two of its shares for each share of HomeFed

held by its minority stockholders. The transaction traces its roots back to 2017, when

a HomeFed director proposed that Jefferies take HomeFed private in a 2:1 share

exchange. In December 2017, a special committee of HomeFed’s board of directors

was put in place to negotiate with Jefferies. The special committee paused its

process in March 2018, when Jefferies told the special committee it was no longer

interested in pursuing the transaction.

      Over the next eleven months, despite indicating a lack of interest in a

transaction, Jefferies engaged in direct discussions concerning a potential transaction

with HomeFed’s largest minority stockholder (BMO), whose support was essential

to get a deal done with the approval of the minority stockholders. In early February

2019, BMO indicated to Jefferies that it would support a 2:1 share exchange. Shortly

thereafter, Jefferies formally proposed acquiring the rest of HomeFed’s shares in a

2:1 share exchange conditioned on obtaining the approval of a special committee

and a majority of the minority stockholders. After some back and forth, the

reactivated special committee ultimately approved the 2:1 share exchange that

Jefferies originally proposed.

                                          1
         Plaintiffs are former stockholders of HomeFed. Their complaint asserts

claims for breach of fiduciary duty against HomeFed’s directors and Jefferies as its

controlling stockholder. All of the defendants moved to dismiss the complaint under

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

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

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

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

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

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

pleads a reasonably conceivable set of facts that the transaction did not satisfy the

requirements of MFW. This is because, according to the complaint, Jefferies did not

commit itself to the dual protections of MFW before engaging in substantive

economic discussions concerning the transaction that anchored later negotiations

and undermined the ability of the special committee to bargain effectively on behalf

of the minority stockholders. The court also concludes that the complaint states non-

exculpated claims against two of the directors who were not affiliated with Jefferies

at the time of the transaction. Accordingly, defendants’ motions to dismiss will be

denied.

1
    88 A.3d 635 (Del. 2014).

                                          2
I.        BACKGROUND

          Unless otherwise noted, the facts recited in this opinion come from the

allegations of the Verified Class Action Complaint (“Complaint”) and documents

incorporated therein.2 Any additional facts are subject to judicial notice.

          A.    The Parties

          Plaintiffs Richard Rose and Dennis E. Murray, Sr. (together, “Plaintiffs”) each

held shares of stock of HomeFed Corporation (“HomeFed” or the “Company”) at all

times relevant to the buyout transaction at issue in this action (the “Transaction”).3

          HomeFed is a Delaware corporation engaged in the development and

ownership of residential and mixed-use real estate projects in California, Virginia,

South Carolina, Florida, Maine, and New York.4

          The Complaint names as defendants Jefferies Financial Group Inc.

(“Jefferies”) and the seven members of HomeFed’s board of directors (the “Board”)

when the Transaction was approved: Joseph Steinberg, Brian Friedman, Jimmy

Hallac, Patrick Bienvenue, Paul Borden, Timothy Considine, and Michael Lobatz.

Three of these individuals (Steinberg, Friedman, and Hallac) held senior positions

2
 Verified Compl. (“Compl.”) (Dkt. 1). See Winshall v. Viacom Int’l, Inc., 76 A.3d 808,
818 (Del. 2013) (“[P]laintiff may not reference certain documents outside the complaint
and at the same time prevent the court from considering those documents’ actual terms” in
connection with a motion to dismiss).
3
    Compl. ¶ 16.
4
Id. ¶ 26.

                                             3
at Jefferies and were not “independent” under Nasdaq listing rules.5 Together with

Jefferies, these three individuals are referred to collectively as the “Jefferies

Defendants.”

           Jefferies, formerly known as Leucadia National Corporation, is a diversified

holding company with an array of businesses and investments.6 As of the closing of

the Transaction, Jefferies owned an aggregate of 10,853,123 shares of HomeFed

stock, or approximately 70% of the Company’s common stock.7

           Steinberg served on the Board since 1998 and as Chairman of the Board since

1999.8 Steinberg is also Chairman of Jefferies’ board of directors, served as

Jefferies’ President from January 1979 until March 2013, and serves as a director of

Jefferies Group LLC, a wholly-owned subsidiary of Jefferies.9

           Friedman served on the Board since April 2014.10 Friedman has served on

Jefferies’ board of directors since March 2013 and succeeded Steinberg as President

in March 2013.11 Friedman also has been a director and executive officer of Jefferies

5
Id. ¶¶ 17-19 (citing HomeFed’s definitive proxy statement filed with the Securities and
Exchange Commission on June 28, 2018).
6
Id. ¶ 24.
7
Id. ¶¶ 24, 31.
8
Id. ¶ 17.
9
Id.
10
     Id. ¶ 18.
11
Id.

                                             4
Group LLC and served as Chairman of its Executive Committee since 2002, along

with serving on several boards of subsidiaries and investee companies of Jefferies

Group.12

           Hallac served on the Board since March 2017.13 Hallac has been employed at

Jefferies since 2002 and currently serves as managing director.14 He also serves on

the boards of various Jefferies’ portfolio entities.15

           Considine and Lobatz, who joined the Board in 1992 and 1995, respectively,

served on a special committee tasked to negotiate the terms of the Transaction (the

“Special Committee”).16 The remaining two directors, Bienvenue and Borden, both

joined the Board in May 1998.17

           B.    The Stockholders Agreement

           In 1998, Leucadia spun-off HomeFed to its stockholders.18 In 2014, after

Leucadia merged with Jefferies the year before, Jefferies increased its ownership of

HomeFed from approximately 31% to approximately 65% of HomeFed’s

12
Id.
13
     Id. ¶ 19.
14
Id.
15
     Id.
16
Id. ¶¶ 22-23, 37.
17
Id. ¶¶ 20-21.
18
Id. ¶ 28.

                                            5
outstanding shares.19 In connection with that transaction, Jefferies and HomeFed

entered into a Stockholders Agreement.20

         In the Stockholders Agreement, Jefferies agreed it “shall not directly or

indirectly” acquire “additional securities of the Company” (i) without the prior

approval of a special committee of “Independent Directors” and (ii) “if the proposed

transaction is subject to Rule 13e-3 under the Exchange Act,” without obtaining “the

affirmative vote of a majority of the Outstanding Voting Securities held by the

Disinterested Stockholders.”21

         C.     The Considine Letter

         On September 26, 2017, Considine wrote a letter to Steinberg proposing a

potential merger of HomeFed and Jefferies with a 2:1 exchange ratio (i.e., two

Jefferies shares for each HomeFed share), which implied a price of $50 per each

share of HomeFed (the “Considine Letter”).22 Shortly after receiving the Considine

Letter, Steinberg, acting on behalf of Jefferies, reached out to a portfolio manager at

Beck, Mack and Oliver, LLC (“BMO”) to discuss a potential HomeFed-Jefferies

19
Id. ¶¶ 29-30.
20
Id. ¶ 30. The Stockholders Agreement was entered into under Jefferies’ former name,
Leucadia National Corporation. Transmittal Affidavit of Bradley R. Aronstam (“Aronstam
Aff.”) Ex. E (“Stockholders Agreement”) Preamble (Dkt. 24).
21
     Stockholders Agreement § 3.
22
     Compl. ¶ 34.

                                          6
merger.23 At the time, BMO was HomeFed’s largest stockholder behind Jefferies,

owning approximately 9% of HomeFed’s common stock, or approximately 36% of

the shares unaffiliated with Jefferies.24 Discussions with BMO did not progress

because its thoughts on an appropriate exchange ratio were very different from those

of Jefferies.25

          In December 2017, Considine and Lobatz wrote a letter alerting the Board that

“[a] discussion has taken place concerning the feasibility of having a stock

transaction merging HomeFed into [Jefferies]” and requesting, “as the only

independent directors” on the Board, to be appointed “to investigate a potential stock

transaction acting as an independent Special Committee.”26 On December 11, 2017,

the Board adopted resolutions (the “December 2017 Resolutions”) expanding the

authority of a previously created committee consisting of Considine and Lobatz (as

defined above, the “Special Committee”) to include:

          the exclusive power and authority (1) to review, evaluate and propose
          the terms and conditions, and determine the advisability of a Potential
          Transaction and any other alternative transactions, (2) to communicate
          and negotiate (or to direct communications and negotiations) with any
          other party that the Special Committee of Independent Directors deems
          appropriate with respect to the terms and conditions, or the

23
Id. ¶ 35.
24
   Id.; Aronstam Aff. Ex. F (May 20, 2019 Definitive Proxy Statement of HomeFed filed
on Schedule 14A) (“Proxy”), at 106-07; Aronstam Aff. Ex. G (Apr. 12, 2019 Presentation),
at -0238.
25
     Compl. ¶ 35.
26
Id. ¶ 37.

                                            7
           implementation, of a Potential Transaction and any other alternative
           transactions, . . . [and] (7) to communicate with the full Board, the
           stockholders and other parties to a Potential Transaction and any further
           alternatives.27

The December 2017 Resolutions further provided that “the officers of [HomeFed]

are hereby directed not to have or direct any negotiations or related material

communications with any other party to a Potential Transaction . . . unless a

Chairman of the Special Committee of Independent Directors has approved of or is

present at such communications or negotiations.”28

           In January 2018, the Special Committee engaged Sheppard, Mullin, Richter

& Hampton LLP (“Sheppard Mullin”) as “Special Counsel” to the Company for a

potential strategic transaction with Jefferies and engaged Seltzer Caplan McMahon

Vitek and Morris, Nichols, Arsht & Tunnell LLP as its counsel.29 The Special

Committee also selected Houlihan Lokey as its financial advisor but did not formally

engage the firm at that time.30

27
Id. ¶ 38 (quoting Aronstam Aff. Ex. I (“December 2017 Resolutions”)).
28
Id. ¶ 39 (same).
29
Id. ¶ 42.
30
Id.

                                              8
          D.     Jefferies Pauses Negotiations with the Special Committee While
                 Continuing to Communicate with HomeFed Stockholders

          On March 15, 2018, Hallac emailed Sheppard Mullin on behalf of Jefferies to

communicate that Jefferies no longer wanted to pursue a strategic transaction.31

Around this time, HomeFed’s stock was trading around $55 per share while

Jefferies’ stock was trading at around $24 per share.32 With the proposed 2:1

exchange ratio, this translated to an approximately 13% negative premium for

HomeFed stockholders.

          On March 26, 2018, the Special Committee determined to “pause” its process

of exploring a potential transaction.33 Although paused on the Special Committee’s

end, Jefferies “repeatedly” held discussions with BMO from March 2018 through

February 2019 about a potential transaction in which Jefferies would acquire the

remaining shares of HomeFed that it did not already own.34 These discussions did

not progress because “BMO and Jefferies were too far apart with respect to an

appropriate exchange ratio.”35 This changed in early February 2019. As explained

in the Proxy:

31
Id. ¶ 45.
32
Id. ¶ 44.
33
Id. ¶ 46; Aronstam Aff. Ex. O, at 2 (Mar. 26, 2018 Special Committee minutes).
34
  Compl. ¶ 47; see also Proxy 19 (referencing discussions between Jefferies and BMO
occurring from “time to time throughout 2018” and in “early February 2019”).
35
     Compl. ¶ 47.

                                             9
         In early February 2019, Mr. Steinberg and Richard Handler, chief
         executive officer of Jefferies, met with a representative of BMO. The
         representative of BMO encouraged Jefferies to make a proposal,
         subject to the terms of the stockholders’ agreement, whereby Jefferies
         would acquire all of the shares of HomeFed common stock that it did
         not already own for an exchange ratio of two shares of Jefferies
         common stock for each share of HomeFed common stock and indicated
         that BMO would support such a transaction. The representative of
         BMO also asked Mr. Steinberg if he, in his personal capacity as a
         beneficial owner of HomeFed common stock, would also support such
         a transaction, and Mr. Steinberg said he would. The representative of
         BMO also indicated that he had been in contact with a representative of
         an investment adviser firm that advised accounts holding a substantial
         number of shares of HomeFed common stock, which we refer to as
         Advisor A, and the representative of Advisor A indicated that Advisor
         A, too, would support such a transaction.36

         On February 13, 2019, the Special Committee first learned about these

discussions between Jefferies and BMO.37 At a meeting of the Special Committee,

Lobatz and Considine “indicated that, to their knowledge, the Board had taken no

action to dissolve the Special Committee or to modify the December 11, 2017

Authorizing Resolutions.”38 The Special Committee then directed Sheppard Mullin

to request more information about Jefferies’ discussions with BMO and to ask

Jefferies’ counsel to “remind all of the members of the Board who are also officers

36
     Proxy 19; see also Compl. ¶ 50; Aronstam Aff. Ex. A, at 1.
37
     Compl. ¶ 48.
38
     Aronstam Aff. Ex. P (Feb. 13, 2019 Special Committee minutes), at 2.

                                             10
or directors of Jefferies that the Special Committee expects they will abide by the

December 11, 2017 Resolutions for so long as they are in effect.”39

          On February 15, 2019, Sheppard Mullin informed the Special Committee that

Jefferies had indeed been in discussions with BMO and not only would BMO

support a 2:1 transaction, but also “someone that advises a significant number of

holders of HomeFed shares . . . would be supportive and recommend in favor of such

a transaction.”40 The “someone” was RBC Capital Markets (“RBC”), which is

referred to as “Adviser A” in the Proxy. BMO and RBC together represented

approximately 70% of the shares of HomeFed unaffiliated with Jefferies.41

          E.     The February 2019 Offer

          On February 19, 2019, Jefferies issued a press release announcing its proposal

to acquire all remaining HomeFed common stock in exchange for two shares of

Jefferies stock (the “February 2019 Offer”).42 The next day, on February 20,

Jefferies filed an amendment to its Schedule 13D announcing the February 2019

Offer. The amendment stated that the February 2019 Offer “will include a condition

that the proposed transaction will require the approval of a majority of the

outstanding shares of [HomeFed]’s Common Stock not already owned by Jefferies

39
     Compl. ¶ 49 (quoting Feb. 13, 2019 Special Committee minutes).
40
Id. ¶ 50.
41
     See id. ¶¶ 96-97; Proxy 25.
42
     Compl. ¶ 52.

                                            11
(or its affiliates)” and that “[i]t is anticipated that the proposed transaction will be

considered by a Special Committee of the Company’s Board of Directors, comprised

of Independent Directors of the Company’s Board, whose affirmative

recommendation to the Company’s Board of Directors will be required under

the . . . Stockholders Agreement.”43

         On February 20, 2019, the Special Committee held a meeting to discuss the

February 2019 Offer.44 Shepherd Mullin reported that Jefferies “was in favor of

reauthorization [of the Special Committee] but would recommend that the

reauthorization resolutions make clear the ability of Joseph Steinberg (and

potentially other representatives of Jefferies) to speak with HomeFed minority

stockholders.”45       The Special Committee rejected this recommendation and

reiterated that “the Committee desires to control communications with the

Corporation’s minority stockholders.”46

         On February 25, 2019, during a Special Committee meeting, Shepherd Mullin

informed the Special Committee members that the Board would “reauthorize” the

Special Committee with the same power and authority as previously adopted in the

43
     Aronstam Aff. Ex. B (Feb. 20, 2019 Jefferies Schedule 13D/A), at 3.
44
     Aronstam Aff. Ex. R (Feb. 20, 2019 Special Committee minutes), at 2.
45
     Compl. ¶ 54 (quoting Feb. 20, 2019 Special Committee minutes).
46
     Compl. ¶ 55; Aronstam Aff. Ex. R, at 2.

                                               12
December 2017 Resolutions.47 Shortly after the Special Committee meeting, the

Board met and unanimously approved a resolution that “confirms that the Special

Committee . . . is authorized to take any and all actions, and to exercise all of the

authority, granted to [it] in the resolutions of the Board of Directors dated as of

December 11, 2017.”48

         During the February 25 Board meeting, Steinberg provided the Board with an

overview of events occurring since receipt of the Considine Letter, including his

discussions with Lyman Delano of BMO over the past year.49 With respect to his

most recent discussions, the Special Committee minutes state that:

         Within the last two weeks, Mr. Delano met with Mr. Steinberg and
         Richard Handler, Jefferies’ CEO. Mr. Delano said he would support a
         2-for-1 deal and asked Mr. Steinberg if he as a major holder would also.
         Mr. Steinberg said yes. Mr. Delano also confirmed that another major
         shareholder similarly would be supportive. Given this encouragement,
         Jefferies’ officers sought and received approval of its board and made
         public its proposal.50

The minutes also reflect that, after Steinberg summarized his discussion with BMO,

both Considine and Lobatz essentially equated Jefferies’ proposal to the one

Considine proposed to Steinberg in September 2017:

         Messrs. Considine and Lobatz thanked Mr. Steinberg for persevering
         along the lines expressed by Mr. Considine and for leading the effort to
47
     Compl. ¶ 56; Aronstam Aff. Ex. II, at 1.
48
     Compl. ¶ 58; Aronstam Aff. Ex. A (Feb. 25, 2019 Board minutes), at 2.
49
     Compl. ¶ 58.
50
     Aronstam Aff. Ex. A, at 1.

                                                13
           make a proposal that the Special Committee can consider along with its
           counsel and financial advisors. Mr. Lobatz also commended Mr.
           Considine for writing the September 26, 2017 letter and initiating the
           potential transaction.51

Steinberg then agreed he would “not have substantive communications with

shareholders without clearing such communications with the Special Committee

until definitive agreements are reached or until the potential transaction is

abandoned.”52

           F.    Negotiations in Response to the February 2019 Offer

           In March 2019, the Special Committee formally engaged Houlihan as its

financial advisor and began evaluating the February 2019 Offer.53 In evaluating the

value of Jefferies, the Special Committee exclusively relied on Jefferies’ trading

price.54 Houlihan did not conduct any other analysis of Jefferies’ value or consider

projections of Jefferies’ future performance.55

           During a March 15 meeting of the Special Committee, Lobatz reported that a

HomeFed stockholder contacted him to convey that the stockholder did not think the

2:1 ratio was fair.56 On March 18, the Special Committee asked Houlihan to reach

51
Id. at 2.
52
     Compl. ¶ 56; Aronstam Aff. Ex. A, at 2.
53
     Compl. ¶ 64.
54
Id. ¶ 68.
55
Id.
56
     Id. ¶ 67.

                                               14
out to BMO without informing Jefferies.57 BMO later confirmed to Houlihan

Steinberg’s account of their conversations since the Considine Letter and expressed

that although BMO “believed the proposal . . . was ‘inadequate,’” BMO “understood

Jefferies’ position and believed that such proposal was superior to the status quo.”58

Houlihan also reached out to other significant minority stockholders, which

expressed similar concerns.         Specifically, Houlihan reported that RBC, which

advised holders of approximately 750,000 HomeFed shares, was “begrudgingly

supportive” and was concerned about Jefferies stock price decreasing.59

          On March 25, 2019, the Special Committee decided to propose a $42 fixed

value counteroffer to the February 2019 Offer.60 The next day, Hallac emailed

Considine and Lobatz to see if one of them could speak over the phone regarding a

question about the Special Committee’s counteroffer.61 When Considine called

Hallac, he sought approval for Jefferies’ CEO to contact BMO to discuss the

counteroffer.62 After Considine told Hallac he did not object, Jefferies’ CEO

(Richard Handler) immediately reached out to BMO without any input from

57
Id. ¶ 73; Aronstam Aff. Ex. W, at 3.
58
     Compl. ¶ 75.
59
Id. ¶ 76.
60
Id. ¶ 77; Aronstam Aff. Ex. Y, at 2-3.
61
     Compl. ¶ 79.
62
Id. ¶ 80.

                                              15
Lobatz.63 In his discussions with BMO, Handler did not tell BMO about the Special

Committee’s proposal of a fixed value structure at $42 per share and instead implied

that the 2:1 fixed exchange ratio was a “take it or leave it” proposition.64 BMO

preferred this proposal to the status quo and thus expressed support.65

           When Lobatz learned that Jefferies had spoken with BMO, he immediately

contacted Hallac to make clear that he did not consent to Jefferies speaking directly

to BMO.66 At the next Special Committee meeting on March 26, 2019, which

occurred later in the day after Handler spoke to BMO, the Special Committee

discussed its concerns about its “continued effectiveness” in light of Jefferies’

behavior.67      Specifically, the Special Committee directed Sheppard Mullin to

communicate to Jefferies that “there should be no further contact from anyone

affiliated with Jefferies with any stockholder of the corporation not affiliated with

Jefferies without Committee approval, which would occur only after the Committee

had consulted with its legal and financial advisors.”68

63
Id. ¶¶ 80-81.
64
Id. ¶ 81.
65
Id.
66
     Id. ¶ 84.
67
Id. ¶ 85.
68
Id.

                                         16
          On March 27, 2019, Jefferies rejected the Special Committee’s $42 fixed

value counteroffer and reiterated its offer at 2:1 fixed exchange ratio.69 Hallac

communicated that Jefferies rejected the counteroffer based on the 2:1 exchange

ratio proposed in the Considine Letter and BMO’s support for the 2:1 exchange

ratio.70

          Later on March 27, at a meeting of the Special Committee, Lobatz reiterated

his displeasure with Jefferies’ conversations with BMO, which he considered “so

damaging to the Committee’s negotiating position” that he and Considine “discussed

excluding BMO from the majority of the minority stockholder vote.”71 The Special

Committee ultimately decided against taking this action.72

          On April 2, 2019, the Special Committee agreed to Jefferies’ 2:1 exchange

ratio but proposed a collar with a low threshold of $38 and a high threshold of $42

to protect against a decrease in Jefferies’ stock price.73 Jefferies agreed to this

structure, which was documented in a merger agreement HomeFed and Jefferies

entered into on April 12.74

69
Id. ¶ 88; Aronstam Aff. Ex. AA, at 1.
70
     Compl. ¶ 88.
71
Id. ¶ 89.
72
Id. ¶ 92.
73
Id. ¶ 91.
74
Id. ¶¶ 92-93. Specifically, the April 12 merger agreement provided that minority
stockholders would receive their choice of either $38 per share in cash or no more than two
shares of Jefferies stock and, if Jefferies stock was worth more than $21 per share when
                                             17
           G.    Stockholders Renegotiate the Transaction Directly with Jefferies

           On April 15, 2019, HomeFed and Jefferies publicly announced the terms of

April 12 merger agreement, to which BMO and RBC promptly expressed their

opposition to the $42 upper collar.75 On April 16, the Special Committee decided to

permit Jefferies to communicate directly with BMO and RBC about their concerns

but only after Houlihan spoke to them first.76

           The following week, the Special Committee spoke with RBC, which

expressed concerns about the upper collar and that “any cash option was not

attractive.”77 RBC claimed to speak for BMO as well, which meant it was relaying

the views of more than 70% of the HomeFed shares not affiliated with Jefferies.78

           On April 27, 2019, the Special Committee proposed removing the upper

collar.79 Jefferies rejected the proposal unless the $38 cash alternative also was

removed, to which the Special Committee agreed on April 29, 2019.80

the Transaction closed, the exchange ratio would reduce from 2:1 to ensure that the
Jefferies stock the HomeFed minority stockholders received would not be worth more than
$42 in total. Id. ¶ 93.
75
Id. ¶ 94.
76
Id. ¶ 94; Aronstam Aff. Ex. EE, at 2.
77
     Compl. ¶ 97.
78
Id.
79
     Id. ¶ 98.
80
Id. ¶¶ 98-99; Aronstam Aff. Ex. FF, at 1.

                                                 18
         On May 2, 2019, the Special Committee and the Board approved an

amendment to the merger agreement to remove the upper collar and cash option.81

The minority stockholders voted to approve the Transaction on June 28, 2019. 82

II.      PROCEDURAL HISTORY

         On August 1, 2019, Plaintiffs filed this action, which was consolidated with a

related action on September 3, 2019.83 On September 16, 2019, Plaintiffs designated

the Verified Class Action Complaint (as defined above, the “Complaint”) as the

operative complaint.84

         The Complaint asserts two claims. Count I asserts a breach of fiduciary duty

claim against the seven individual defendants for agreeing to the Transaction that

provided the minority stockholders “unfairly low consideration for their shares of

HomeFed common stock.”85 Count II asserts a breach of fiduciary duty claim

against Jefferies as HomeFed’s controlling stockholder for devising and

orchestrating “the unfair and self-dealing Transaction.”86

81
     Compl. ¶ 100; Aronstam Aff. Ex. GG.
82
  Aronstam Aff. Ex. HH (June 28, 2019 HomeFed Form 8-K), at 3. Of the 3,772,780
shares of HomeFed stock held by the Company’s minority stockholders, 2,987,231 shares
voted for the Transaction, 73,974 shares voted against the Transaction, and 1,476 shares
abstained. Id.
83
     Dkt. 11.
84
     Dkt. 19.
85
     Compl. ¶ 135.
86
Id. ¶ 139.

                                           19
         In November 2019, each of the Defendants moved to dismiss the Complaint

under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief.87 On

December 17, 2019, the parties stipulated to the dismissal of Considine and Lobatz

without prejudice.88 After briefing, the court held oral argument on April 3, 2020.

III.     ANALYSIS

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

to state a claim for relief are well settled:

         (i) all well-pleaded factual allegations are accepted as true; (ii) even
         vague allegations are well-pleaded if they give the opposing party
         notice of the claim; (iii) the Court must draw all reasonable inferences
         in favor of the non-moving party; and [(iv)] dismissal is inappropriate
         unless the plaintiff would not be entitled to recover under any
         reasonably conceivable set of circumstances susceptible of proof.89

         The Jefferies Defendants’ sole argument for dismissal of the claims against

them is that the Transaction is subject to business judgment review because the

Transaction complied with the framework set forth in Kahn v. M & F Worldwide

Corp. (“MFW”).90 The remaining two defendants (Borden and Bienvenue) join in

the MFW argument and advance one additional argument, i.e., that the Complaint

fails to plead a non-exculpated claim against them under In re Cornerstone

87
     Dkt. 24; Dkt. 25.
88
     Dkt. 32.
89
   Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal quotations and
citations omitted).
90
     88 A.3d 635 (Del. 2014).

                                            20
Therapeutics Inc., Shareholder Litigation.91 The court addresses each issue in turn

below.

           A.    The MFW Defense

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

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

controlling stockholder if the transaction satisfies certain procedural protections:

           We hold that business judgment is the standard of review that should
           govern mergers between a controlling stockholder and its corporate
           subsidiary, where the merger is conditioned ab initio upon both the
           approval of an independent, adequately-empowered Special Committee
           that fulfills its duty of care; and the uncoerced, informed vote of a
           majority of the minority stockholders.92

The high court reasoned that the “simultaneous deployment of [these] procedural

protections . . . create a countervailing, offsetting influence of equal—if not

greater—force” than the undermining influence of a controller.93 In this way, the

“controller irrevocably and publicly disables itself from using its control to dictate

the outcome of the negotiations.”94

91
     115 A.3d 1173 (Del. 2015).
92
88 A.3d at 644.
93
Id.
94
     Id.

                                            21
           In summarizing its holding, the Supreme Court in MFW identified six

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

out merger by a controlling stockholder:

           [I]n controller buyouts, the business judgment standard of review will
           be applied if and only if: (i) the controller conditions the procession of
           the transaction on the approval of both a Special Committee and a
           majority of the minority stockholders; (ii) the Special Committee is
           independent; (iii) the Special Committee is empowered to freely select
           its own advisors and to say no definitively; (iv) the Special Committee
           meets its duty of care in negotiating a fair price; (v) the vote of the
           minority is informed; and (vi) there is no coercion of the minority. 95

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

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

relief and be entitled to conduct discovery.96 “If, after discovery, triable issues of

fact remain about whether either or both of the dual procedural protections were

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

the court will conduct an entire fairness review.”97

           Plaintiffs contend that entire fairness review presumptively applies to the

Transaction because the Complaint’s factual allegations support more than a

reasonable inference that three of the six conditions required under MFW were not

95
Id. at 645 (formatting altered), overruled on other grounds by Flood v. Synutra Int’l,
Inc., 195 A.3d 754, 763 (Del. 2018).
96
     Id.
97
Id. at 645-46.

                                              22
satisfied. For the reasons discussed next, the court concludes that Plaintiffs have

plead a reasonably conceivable set of facts that Jefferies did not impose the MFW

conditions ab initio based on the Complaint’s allegations concerning Jefferies’

discussions with BMO before Jefferies made the February 2019 Offer.98

      Plaintiffs contend that adherence to the MFW framework required imposition

of its dual protective devices in 2017, after Considine sent Steinberg a letter

proposing a potential merger of HomeFed and Jefferies based on a 2:1 exchange

ratio. According to Plaintiffs, the Considine Letter led to a continuous series of

substantive negotiations concerning a potential transaction that Jefferies had before

it committed to the MFW framework, first with the Special Committee from

December 2017 to March 2018 and then directly with BMO from March 2018 to

February 2019.

      Relying on this court’s decision in In re Books-A-Million, Inc. Stockholders

Litigation,99 Defendants counter that the process with the Special Committee that

began in December 2017 ended in March 2018, when Jefferies abandoned pursuit of

a transaction, and that the February 2019 Offer began a separate process. As to the

98
  Given the court’s conclusion on this issue, it not necessary to address the two other MFW
conditions that Plaintiffs contend were not satisfied, namely that “the Special Committee
was neither well-functioning nor an effective negotiating agent” and that the “Proxy was
materially incomplete and misleading.” Pls.’ Answering Br. 25 (Dkt. 33).
99
  2016 WL 5874974, at *8 (Del. Ch. 2016), aff’d, 164 A.3d 56 (Del. 2017) (quoting MFW,
88 A.3d at 644).

                                            23
second process, Defendants contend that Jefferies satisfied the MFW pre-condition

requirement on the theory that the Stockholders Agreement provided the “rules of

the road . . . for any potential going-private transaction with Jefferies.”100 They

further contend this requirement was met because, “within days of Jefferies

informing Lobatz and Considine about BMO’s support for a potential two-for-one

transaction in February 2019, and before Jefferies made the [February 2019 Offer],

Jefferies made clear that it expected any transaction to comply with MFW’s strictures

and the Stockholders Agreement.”101

            As an initial matter, Defendants’ reliance on Books-A-Million is misplaced.

There, this court found it was not reasonably conceivable that a proposal from a

controller made “nearly three years after” a special committee rejected an initial

proposal from the controller containing “a different price and different terms” was a

continuation of the first proposal.102 Here, by contrast, the Complaint alleges that:

       The Board never repealed the December 2017 Resolutions or dissolved
        the Special Committee;

       As reflected in its minutes and the Proxy, the Special Committee only
        “determined to pause its process” in March 2018 when Jefferies
        indicated it no longer wanted to pursue a transaction;

       Despite asserting a lack of interest in a transaction in March 2018,
        Jefferies “repeatedly” held substantive economic discussions

100
      Jefferies Opening Br. 33 (Dkt. 24).
101
Id.
102
      Books-A-Million, 2016 WL 5874974, at *9.

                                             24
         concerning a potential transaction over the next eleven months with the
         Company’s largest minority stockholder (BMO) notwithstanding the
         fact that the December 2017 Resolutions gave the Special Committee
         the “exclusive power and authority . . . to communicate with . . . the
         stockholders;” and

       Those discussions culminated in BMO expressing support for a
        transaction with the same structure (i.e., a 2:1 exchange ratio) proposed
        in the Considine Letter that triggered the need for the Special
        Committee in the first place.103

Given these well-plead allegations, it is reasonably conceivable that the February

2019 Offer was part of the same process that led to the adoption of the December

2017 Resolutions that empowered the Special Committee and caused it to retain

multiple legal advisors shortly thereafter.104 That process failed to comply with the

MFW framework because Jefferies did not condition a transaction ab initio upon the

dual MFW protections before that process began.

103
   Compl. ¶¶ 38, 46-48 (emphasis in original); Aronstam Aff. Ex. O (Mar. 26, 2018 Special
Committee minutes); Aronstam Aff. Ex. P (Feb. 13, 2019 Special Committee minutes);
Proxy 19; December 2017 Resolutions at -1381.
104
    Defendants ask the court to draw inferences in their favor to find that the Special
Committee process that began in December 2017 ended in March 2018 because Considine
and Lobatz sought “reauthorization” from the Board after receiving the February 2019
Offer and because they declined to engage Houlihan formally until the Board approved the
reauthorization. Jefferies Opening Br. 37, 43. This would be inappropriate. The court
may not weigh evidence on a motion to dismiss to resolve a factual dispute. Rather, the
court’s task is to determine whether plaintiff would be entitled to recover “under any
reasonably conceivable set of circumstances” while drawing “all reasonable inferences in
favor of the non-moving party.” Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs.
LLC, 27 A.3d 531, 535 (Del. 2011).

                                           25
       Although it is reasonably conceivable that the February 2019 Offer was part

of the process that began in December 2017, it ultimately makes no difference in my

opinion whether it was or whether the February 2019 Offer triggered a new process.

This is because, in either case, Jefferies did not commit to the MFW protections

before engaging in substantive economic discussions concerning the Transaction.

Rather, Jefferies engaged in a series of discussions with BMO until Jefferies

received an indication of support for a 2:1 share exchange from BMO—whose

support was essential to get a deal done with minority stockholder approval105—as

well as from RBC before Jefferies agreed to the dual MFW protections. To be more

specific, Jefferies received these indications of support in early February 2019 but

did not agree to the MFW protections until, at the earliest, February 20, 2019, when

it amended its Schedule 13D.106 Defendants advance essentially two arguments why

this should not matter. Neither has merit.

105
   Mot. to Dismiss Hr’g Tr. 27 (Apr. 3, 2020) (Dkt. 47) (Jefferies Defendants’ counsel:
“the reality is that BMO, owning 9 percent of the stock – which, in fact, translated into 36
percent of the minority – no deal was ever going to get done without BMO’s interest and
support.”).
106
    See supra Part I.E. Jefferies appears to argue it agreed to the MFW protections a few
days earlier, on February 18. That is when its counsel confirmed to Shepherd Mullin the
details of Steinberg’s discussions with BMO and “indicated that any transaction would be
subject to the approval of the Special Committee and a majority of the outstanding shares
of the Corporation’s Common Stock not already owned by Jefferies or its affiliates.” See
Jefferies Opening Br. 13-14 (quoting Feb. 18, 2019 Special Committee minutes), 33. But
this was not a public commitment to the MFW protections and, in any event, the key
discussion with BMO occurred before February 18. See MFW, 88 A.2d at 644 (“[W]here
the controller irrevocably and publicly disables itself from using its control to dictate the
outcome of the negotiations and the shareholder vote, the controlled merger then acquires
                                             26
         First, Defendants contend the Stockholders Agreement “all but eliminated the

risk of Jefferies pursuing a going-private transaction without the support of

HomeFed’s independent directors and minority stockholders.”107 This is incorrect.

The requirement in the Stockholders Agreement for approval of a majority of the

minority stockholders only applies to transactions subject to Rule 13e-3 of the

Exchange Act.108 The Stockholders Agreement thus did not preordain that any

buyout of HomeFed’s minority stockholders would be subject to a majority of the

minority approval requirement. Indeed, it appears that the Transaction fell within

an exception to Rule 13e-3 because HomeFed stockholders received “only an equity

security” (i.e., Jefferies stock) that carried substantially the same rights as HomeFed

stock.109 Jefferies does not contend otherwise.

         Second, Defendants argue that Jefferies’ discussions with BMO before the

February 2019 Offer did not pass the point of no return for invoking MFW’s

protections because those discussions were “preliminary” and only involved “an

the shareholder protective characteristics of third-party, arm’s-length mergers, which are
reviewed under the business judgment standard.”) (emphasis added).
107
      Jefferies Reply Br. 20 (Dkt. 36).
108
      See supra Part I.B.
109
      See Pls.’ Answering Br. 27 n.31 (citing 17 CFR § 240.13e-3(g)(2)).

                                             27
unaffiliated minority stockholder with no ability or authority to bind the corporation

or any other stockholder.”110 The court disagrees.

         “The first requirement of [MFW] is that the controller condition the

transaction ‘ab initio upon both the approval of an independent, adequately-

empowered Special Committee that fulfills its duty of care; and the uncoerced,

informed vote of a majority of the minority stockholders.’”111 “[T]he purpose of the

words ‘ab initio,’ and other formulations like it in the MFW decisions, require the

controller to self-disable before the start of substantive economic negotiations, and

to have both the controller and Special Committee bargain under the pressures

exerted on both of them by these protections.”112

         As this court recently explained in In re Dell Technologies Inc. Class V

Stockholders Litigation, “MFW’s dual protections contemplate that the Special

Committee will act as the bargaining agent for the minority stockholders, with the

minority stockholders rendering an up-or-down verdict on the committee’s work.”113

A special committee is uniquely qualified to perform this task because directors have

“superior access to internal sources of information,” can deploy “the Board’s

statutory authority under Section 141(a) as delegated to the committee under Section

110
      Jefferies Opening Br. 39-40.
111
      In re Books-A-Million, 2016 WL 5874974, at *8 (quoting MFW, 88 A.3d at 644).
112
      Synutra, 195 A.3d at 763.
113
      2020 WL 3096748, at *17 (Del. Ch. June 11, 2020).

                                            28
141(c), and can ‘act as an expert bargaining agent.’”114 Directors also owe fiduciary

duties and do not suffer from the collective action problem of disaggregated

stockholders whereas minority stockholders are unencumbered by fiduciary duties

(absent special circumstances) and “may have divergent interests in a transaction,

whether economic or otherwise.”115

         Here, the Complaint sufficiently alleges that, by engaging in substantive

economic discussions with BMO before committing itself to the twin MFW

protections, Jefferies failed to disable and subject itself to the pressures of

negotiating with the Special Committee with those protections in place. Instead,

according to the Complaint, Jefferies anchored the negotiations and undermined the

Special Committee’s ability to bargain effectively as the minority stockholders’

agent. To that end, the Complaint specifically alleges that Jefferies cited BMO’s

support for a 2:1 exchange ratio when it rebuffed the Special Committee’s $42 fixed

value counteroffer.116

114
Id. (quoting In re Cox Commc’ns, Inc. S’holders Litig., 879 A.2d 604, 618 (Del. Ch.
2005); see 8 Del. C. § 141.
115
      2020 WL 3096748, at *18 (citations omitted).
116
   Compl. ¶ 88 (alleging that “Jefferies only received” the “purported support of BMO for
a 2:1 exchange ratio” that Hallac stated was one of “the bases for Jefferies’ decision to
reject” the Special Committee’s counteroffer by “repeatedly violating the [December 2017]
Resolutions to pressure and deceive BMO into agreeing to an unfair Transaction”). See
also id. ¶ 89 (Lobatz complaining that Jefferies’ March 2019 conversations with BMO
damaged the Special Committee’s “negotiating position” to the point that “the Special
Committee discussed excluding BMO from the majority-of-the-minority stockholder
vote”).

                                            29
         Defendants’ contention that Jefferies’ discussions with BMO were simply

“preliminary” is inconsistent with well-plead allegations that those discussions

concerned the key economic term of the Transaction—the price. Although the value

realized from a pure share exchange is inherently subject to the relative prices of the

underlying shares of stock in the exchange, one would be hard-pressed not to view

the exchange ratio as an important substantive economic term. In fact, the 2:1 ratio

to which BMO indicated support just days before Jefferies purported to commit itself

to the MFW protections ultimately dictated the final price HomeFed’s minority

stockholders received for their shares in the Transaction a few months later.

         Finally, Defendants’ position implies that substantive economic discussions

preceding invocation of MFW’s twin protections should not preclude a pleading-

stage dismissal under MFW if they occur between the controller and a minority

stockholder with no authority to bind the company as opposed to an authorized

representative of the controlled company.        Neither party identified any legal

authority addressing this precise scenario. In Dell, the court held that defendants

were not entitled to receive a pleading-stage dismissal under MFW where the

controller bypassed the special committee in favor of direct negotiations with

stockholders after invoking MFW’s protections.117

117
      Dell, 2020 WL 3096748, at *19-20.

                                          30
       As previously mentioned, the animating principle of MFW is to require a

controller to disable and negotiate with an independent and adequately empowered

committee of directors under the pressures of the dual protections. If the controller

does so in accordance with the six conditions enumerated in MFW, the controller

effectively will secure a pleading-stage dismissal of a case that otherwise would be

subject to entire fairness review.118 To my mind, it would be imprudent to endorse

a rule that would allow a controller to undermine the effectiveness of a special

committee preemptively through direct negotiations with a stockholder under the

circumstances plead here as much as it would be to do so after the committee has

been authorized formally.

       For the reasons explained above, the court denies Defendants’ motion to

dismiss both claims in the Complaint based on their MFW defense. Accordingly,

Plaintiffs are entitled to proceed to take discovery.119

118
   See id. at *14 (explaining that the business judgment rule resulting from application of
MFW is essentially “irrebuttable” because “[i]t is ‘logically difficult to conceptualize how
a plaintiff can ultimately prove a waste or gift claim in the face of a decision by fully-
informed, uncoerced, independent stockholders to ratify the transaction’”) (quoting Harbor
Fin. P’rs v. Huizenga, 751 A.2d 879, 889 (Del. Ch. 1999)).
119
   MFW, 88 A.3d at 645 (“If a plaintiff that can plead a reasonably conceivable set of facts
showing that any or all of those enumerated conditions did not exist, that complaint would
state a claim for relief that would entitle the plaintiff to proceed and conduct discovery.”).

                                             31
         B.     The Cornerstone Defense

         Defendants Bienvenue and Borden are protected by a Section 102(b)(7)

provision in HomeFed’s certificate of incorporation.120               “When a director is

protected by an exculpatory charter provision, a plaintiff can survive a motion to

dismiss by that director defendant by pleading facts supporting a rational inference

that the director harbored self-interest adverse to the stockholders’ interests, acted to

advance the self-interest of an interested party from whom they could not be

presumed to act independently, or acted in bad faith.”121 For the reasons discussed

next, Plaintiffs have plead facts supporting a rational inference that, by voting to

approve the Transaction, Bienvenue and Borden acted to advance the self-interest of

an interested party (Jefferies) that stood on both sides of the Transaction from which

they could not be presumed to act independently.

120
    Transmittal Affidavit of Alexandra Cumings Ex. 1, § 8 (Dkt. 26). “The court may take
judicial notice of an exculpatory charter provision in resolving a motion addressed to the
pleadings.” McMillan v. Intercargo Corp., 768 A.2d 492, 501 n.40 (Del. Ch. 2000).
Plaintiffs assert in a footnote that Borden cannot secure dismissal under Section 102(b)(7)
because he was an officer of the Company in addition to being a director, but Plaintiffs
fails to allege any facts demonstrating that Borden took any action in this capacity relevant
to Count I. See Arnold v. Soc’y for Sav. Bancorp., Inc., 650 A.2d 1270, 1288 (Del. 1994)
(finding that a breach of fiduciary duty claim against a dual director-officer asserted “in his
role as an officer” “lacks merit” where plaintiff “failed to highlight any specific actions
[the officer-director] undertook as an officer (as distinct from actions as a director)” so as
to fall outside of Section 102(b)(7)’s protection).
121
      In re Cornerstone, 115 A.3d at 1179-80.

                                                32
         With respect to Bienvenue, the Complaint alleges he served in a variety of

executive roles for Jefferies from January 1996 until April 2011, and has served on

the HomeFed Board since 1998.122 In addition to his continued service on the Board,

Bienvenue provided paid consulting services to HomeFed for several years and as

recently as the first quarter of 2019. More specifically, Plaintiffs allege that, aside

from his HomeFed director role, Bienvenue’s consulting role was his “sole

employment” and he received approximately $10,000, $39,000, $155,000, and

$50,000 in consulting fees from HomeFed for 2016, 2017, 2018, and the first quarter

of 2019, respectively.123       Even under the more onerous particularity pleading

standard of Rule 23.1, this court has found that a “consulting agreement suggests a

lack of independence.”124

         Turning to Borden, the Complaint alleges he was a Jefferies Vice President

from August 1988 to October 2000, served as HomeFed’s President for twenty years

from May 1998 to February 2018, and was serving as Vice Chairman of the

122
      Compl. ¶ 20.
123
    Id.; HomeFed 10-Q, filed with the SEC on May 9, 2019, at 16, 28. The court may take
judicial notice of this fact because it is not subject to reasonable dispute between the parties.
In re General Motors (Hughes) S’holder Litig., 897 A.2d 162, 170 (Del. 2006) (“[I]n acting
on a Rule 12(b)(6) motion to dismiss, trial courts may consider hearsay in SEC filings to
ascertain facts appropriate for judicial notice under Delaware Rule of
Evidence 201. . . [however] it [can] only take judicial notice of facts not subject to
reasonable dispute.”) (internal quotation marks, alterations, and citations omitted).
124
   Orman v. Cullman, 794 A.2d 5, 30 (Del. Ch. 2002) (finding it “reasonable to infer that
$75,000 would be material” to the director in question and that he would be “beholden to
the controlling shareholders for future renewals of his consulting contract.”).

                                               33
Company—an executive officer position—under an employment agreement when

the Transaction was approved.125 “Under the great weight of Delaware precedent,

senior corporate officers generally lack independence for purposes of evaluating

matters that implicate the interests of a controller.”126 Borden also was not listed as

“independent” under Nasdaq listing rules in HomeFed’s 2018 Proxy.127

         The Complaint also alleges that the members of the Special Committee

recognized Bienvenue and Borden’s lack of independence from Jefferies in 2017

when a Jefferies buyout of the minority stockholders was first proposed.

Specifically, Considine and Lobatz wrote a letter to the Board in December 2017

stating that, “as the only independent directors, we would like to request that

you . . . appoint [us] to investigate a potential stock transaction acting as an

independent special committee.”128 When they sent this letter, Considine and Lobatz

had served on the Board together with Bienvenue and Borden for nearly twenty years

125
    Compl. ¶ 21; Proxy 42 (“No executive officer is a party to any employment agreement
other than Paul J. Borden.”); HomeFed Schedule 14A, filed with the SEC on June 28, 2018,
at 13 (“As Vice Chairman, Mr. Borden remains an executive officer of the Company and
it is expected that he will continue his service through December 31, 2019.”).
126
   In re Ezcorp Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at *35 (Del.
Ch. Jan. 25, 2016) (collecting authorities).
127
      Compl. ¶ 21.
128
Id. ¶ 37 (emphasis added).

                                          34
and were well-positioned to understand the work Bienvenue and Borden did for

HomeFed and the relationship they had with Jefferies.129

         Bienvenue and Borden argue that the December 2017 letter is “immaterial”

because it does not speak to their independence when they approved the Transaction

in May 2019.130 As discussed above, however, Plaintiffs allege that Bienvenue and

Borden continued to serve as a consultant and officer of HomeFed, respectively,

throughout 2018 and into 2019, similar to when their fellow directors (Considine

and Lobatz) did not view them to be independent in December 2017.

         Bienvenue and Borden also contend that Plaintiffs’ allegations primarily

concern their ties to HomeFed and have no bearing on their ties to Jefferies. This

argument ignores the indisputable reality that Jefferies controlled HomeFed for

several years leading up to the Transaction. As this court discussed in In re BGC

Partners, Inc., “our law is not blind to the practical realities of serving as a director

of a corporation with a controlling stockholder.”131 Indeed, “Delaware Supreme

Court decisions have recognized the risk that directors laboring in the shadow of a

controlling stockholder face a threat of implicit coercion because of the controller’s

ability to not support the director’s re-nomination or re-election, or take the more

129
Id. ¶¶ 20-23.
130
      Bienvenue and Borden Reply Br. 9-10 (Dkt. 37).
131
      2019 WL 4745121, at *7 (Del. Ch. Sept. 30, 2019).

                                            35
aggressive step of removing the directors.”132 Although the presence of a controller

does not alone overcome the presumption of director independence, it is relevant

when considering Plaintiffs’ allegations holistically.

      Here, when viewed collectively, the Complaint’s allegations show that when

Borden and Bienvenue cast their votes—which were essential to secure approval of

a transaction benefitting the controller (Jefferies)133—(i) Borden was simultaneously

serving as an executive officer of the controlled company (HomeFed); (ii)

Bienvenue had been receiving consulting fees from HomeFed as his sole

employment apart from serving as a HomeFed director for years and as recently as

about one month earlier; and (iii) two of their fellow directors had questioned their

independence. Accepting the well-plead allegations of the Complaint as true and

drawing all reasonable inferences in favor of Plaintiffs as the court must under Rule

12(b)(6), the Complaint supports a rational inference that Bienvenue and Borden

could not be presumed to act independently from Jefferies and acted to support its

self-interest by approving the Transaction.134

132
   In re Ezcorp, 2016 WL 301245, at *20 (citing Kahn v. Lynch Commc’n Sys. Inc., 638
A.2d 1110, 1116-17 (Del. 1994); and Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del.
1997)).
133
    It is reasonable to infer that the affirmative votes of Bienvenue and/or Borden were
essential to approve the Transaction given that three of the seven members of the Board
(Steinberg, Friedman, and Hallac) “abstained from voting due to their affiliation with
Jefferies.” Proxy 26.
134
   Bienvenue and Borden argue that the Complaint fails to state a non-exculpated claim
against them based on the court’s analysis in Klein v. H.I.G. Capital, L.L.C., 2018 WL
36
IV.    CONCLUSION

       For the reasons explained above, the Defendants’ motions to dismiss are

denied.

       IT IS SO ORDERED.

6719717 (Del. Ch. Dec. 19, 2018).                       Klein involved three inter-related
transactions: (i) HIG’s sale of its 54% interest in Surgery Partners, Inc. to an affiliate of
Bain, (ii) Surgery Partners’ acquisition of another company from a third party, and
(iii) Surgery Partners’ issuance of preferred stock to Bain. Id. at *1. The court found that
the complaint raised a reasonable doubt concerning the independence of one director
(Doyle) for purposes of determining demand futility but that “no facts [were] alleged in the
Complaint specific to Doyle that indicate that he advanced HIG’s self-interest as plaintiff
theorizes” so as to state a non-exculpated claim against him. Id. at * 11-12, 18. Here, the
Complaint not only pleads facts that call into question Bienvenue’s and Borden’s
independence from Jefferies, but alleges that they approved the Transaction in breach of
their fiduciary duties in order to facilitate Jefferies’ purchase of the minority stockholders’
shares for “unfairly low consideration.” See Compl. ¶¶ 133-35.

                                              37