Court Opinion

ID: 4529535
Source: CourtListenerOpinion
Date Created: 2020-04-28 20:04:48.851104+00
Date Added: 2024-06-11T08:44:29.848042
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE GOPRO, INC. STOCKHOLDER )                 CONSOLIDATED
DERIVATIVE LITIGATION         )                 C.A. No. 2018-0784-JRS

                         MEMORANDUM OPINION

                        Date Submitted: February 5, 2020
                         Date Decided: April 28, 2020

Seth D. Rigrodsky, Esquire, Brian D. Long, Esquire and Gina M. Serra, Esquire of
Rigrodsky & Long, P.A., Wilmington, Delaware and Melinda A. Nicholson, Esquire
and Nicolas Kravitz, Esquire of Kahn Swick & Foti, LLC, New Orleans, Louisiana,
Attorneys for Lead Plaintiffs Chaile Steinberg, Steve Noury, Barbara Silberfeld and
Richard Silberfeld.

R. Judson Scaggs, Jr., Esquire, Susan W. Waesco, Esquire and Riley T. Svikhart,
Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware and
Susan S. Muck, Esquire, Catherine D. Kevane, Esquire and Marie C. Bafus, Esquire
of Fenwick & West LLP, San Francisco, California, Attorneys for Defendants
Nicholas Woodman, Brian McGee, Anthony Bates, Charles “CJ” Prober, Edward
Gilhuly, Kenneth Goldman, Peter Gotcher, Alexander Lurie, Susan Lyne, Michael
Marks, Frederic Welts and Lauren Zalaznick, and Nominal Defendant GoPro, Inc.

SLIGHTS, Vice Chancellor
      In early 2016, the camera manufacturer, GoPro, Inc. (“GoPro” or the

“Company”), planned to roll out two new products to the market, a drone that would

house state of the art GoPro cameras and the latest iteration of its signature wearable

camera. GoPro provided revenue guidance for 2016 based on projected sales of both

products. The forecasts were positive. The product launch for the drone was

expected to occur in the first half of 2016, and the new camera was to be ready for

market well in advance of the 2016 holiday shopping season.

      Unfortunately, the road to market, especially for the drone, was bumpier than

expected. GoPro announced that the product launch for the drone would be delayed

as it worked out several kinks in the product. Yet its revenue guidance remained

unchanged. Once the products were unveiled in the fall of 2016, the Company faced

production ramp-up issues, inventory shortages, higher than expected product

returns and ultimately a product recall of the drone. GoPro’s board of directors

(the “Board”) eventually caused the Company’s revenue guidance to be adjusted to

account for these problems. When the dust settled, GoPro generated $1.185 billion

in revenue during 2016—short of the Company’s updated revenue guidance of

$1.25–$1.3 billion. The Company’s stock price suffered a 12% decline in response

to the revenue miss.

      In the wake of GoPro’s 2016 difficulties, Company stockholders filed class

action complaints in federal court alleging that certain GoPro fiduciaries violated

                                          1
federal securities laws because, as of October 2015, they knew the Company could

not meet its annual revenue guidance yet failed timely to disclose this reality to

stockholders. Based on similar factual allegations, two groups of Plaintiffs have

filed complaints in this court alleging certain GoPro officers and directors breached

their fiduciary duties. In addition, Plaintiffs seek to hold certain fiduciaries liable

under the theory first articulated in this court’s decision in Brophy v. Cities Service

Co. for trading in GoPro stock in a manner that exploited their knowledge of non-

public Company information.1

          The two actions in this court have been consolidated and a Verified

Stockholder Derivative Complaint (the “Complaint”) has now been designated as

the operative complaint.2 Defendants have filed a Motion to Dismiss (the “Motion”)

that Complaint for failure to state viable claims and failure to plead demand futility

with the particularity required by Delaware law.3

1
    Brophy v. Cities Serv. Co., 70 A.2d 5 (Del. Ch. 1949).
2
  See Verified S’holder Deriv. Compl. (“Compl.”) (D.I. 1) (filed in Consol. Action
No. 2018-0812); Steinberg v. Woodman, et al., C.A. No. 2018-0784-JRS (D.I. 1)
(the “Steinberg Action”); Order for Consolidation of the Related Actions, Appointment of
Co-Lead Counsel and Acceptance of Service (the “Consolidation Order”) (D.I. 5)
(consolidating the Steinberg Action with the later-filed case captioned Noury, et al. v.
Woodman, et al., C.A. No. 2018-0812-JRS).
3
    D.I. 9.

                                              2
      As discussed below, the Motion must be granted. Plaintiffs have failed to

plead with particularity that a majority of the Board in place when the Complaint

was filed (the “Demand Board” as further defined below) is unfit to consider a

demand. Plaintiffs’ theory of demand futility hinges on their conclusory allegations

that a majority of the Demand Board face a substantial likelihood of liability for

breach of fiduciary duty because they knew GoPro could not meet its revenue

guidance even as its management repeated stale, overly optimistic revenue

projections.4 Yet the very Board presentations Plaintiffs point to as support for these

allegations (which have been incorporated by reference into the Complaint) reveal

that GoPro management was regularly advising the Board that, notwithstanding

production difficulties, GoPro was on track to meet its inventory projections and hit

its revenue guidance. The Board was under no obligation to disclose what it did not

know or did not believe to be true. Nor was it obliged to doubt the information it

was receiving from GoPro’s managers.

      Plaintiffs have likewise failed to plead facts that support an inference the

Board could not competently consider a demand in the shadow of the federal

securities litigation for the simple reason that a majority of the Demand Board faced

no liability in that action. Plaintiffs’ final demand futility argument—that a majority

4
 See Compl. ¶¶ 91–93; Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss the Verified
S’holder Deriv. Compl. (“PAB”) (D.I. 20) at 10–11.

                                           3
of the Demand Board was beholden to the Company’s controlling stockholder/CEO

and could not, therefore, have competently considered a demand to prosecute claims

against him—is likewise not well pled. Alleging only that the controller/CEO could

remove Board members “at will” says nothing of their independence for purposes of

demand futility.

         After carefully reviewing the Complaint, I have no reasonable doubt that a

majority of the Demand Board could exercise independent and disinterested business

judgment in responding to a demand. The Complaint, therefore, must be dismissed.5

                         I. FACTUAL BACKGROUND

         I draw the facts from the allegations in the Complaint, documents

incorporated by reference or integral to that pleading and judicially noticeable facts.6

For purposes of this Motion, I accept as true the Complaint’s well-pled factual

allegations and draw all reasonable inferences in Plaintiffs’ favor.7

5
 Given the Court’s conclusion that Plaintiffs have not met their pleading burden under
Rule 23.1, I do not reach the question of whether Plaintiffs have pled viable claims under
Rule 12(b)(6).
6
  See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (quoting
In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 69 (Del. 1995)) (noting that on a
motion to dismiss, the court may consider documents that are “incorporated by reference”
or “integral” to the complaint); D.R.E. 201–02 (codifying Delaware’s judicial notice
doctrine).
7
    Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).

                                            4
         Parties and Relevant Non-Parties

         Nominal defendant, GoPro, is a publicly-traded Delaware corporation

engaged in the consumer electronics business.8 The Company manufactures and

sells mountable and wearable cameras, drones and related accessories.9

         Defendant, Nicholas Woodman, founded GoPro in 2004 and has served as a

Board member and the Company’s CEO since the Company’s inception.10 As of the

time the Complaint was filed, Woodman is alleged to have owned 75.97% of

GoPro’s outstanding shares of common stock.11             In addition to Woodman,

Defendants, Brian McGee (CFO), Anthony Bates (President) and Charles Prober

(COO) (collectively, the “Officer Defendants”) were all GoPro officers during the

period of wrongdoing alleged in the Complaint.12

         The nine-member Board in place as of the filing of the first complaint in this

action (the “Demand Board”) is comprised of Defendants, Woodman, Kenneth

Goldman, Peter Gotcher, Alexander Lurie, Lauren Zalaznick, Susan Lyne and

8
    Compl. ¶¶ 28–29.
9
    Compl. ¶ 3.
10
  Compl. ¶ 30. Woodman has also served as Chairman of the Board since 2014 and served
as President from 2004 until 2014. Id.
11
     Compl. ¶¶ 30, 195.
12
     Compl. ¶¶ 30–34, 44.

                                            5
Frederic Welts, as well as non-parties, Ty Ahmad-Taylor and James Lanzone.13

Goldman, Gotcher and Zalaznick also served on the Board’s Audit Committee

during some or all of the relevant time period.14 Seven of the nine members of the

Demand Board are named as Defendants in this action. The Complaint also names

as Defendants former Board members, Michael Marks and Edward Gilhuly

(collectively, with Woodman, Bates, Goldman, Gotcher, Lurie, Zalaznick, Lyne and

Welts, the “Director Defendants”), both of whom left the Board in June 2017.15

         Plaintiffs, Charlie Steinberg, Steve Noury and Barbara and Richard Silberfeld

were GoPro stockholders during the events alleged in the Complaint and have

remained stockholders since.16 They purport to bring the Complaint derivatively on

behalf of the Company.17

         GoPro’s 2016 Product Line

         GoPro’s initial focus was terrestrial in that it developed cameras for users

either to handle or wear.18 Its first product was the wearable “HERO” camera and

13
     Compl. ¶ 183.
14
     Compl. ¶¶ 36–37, 42, 46, 191.
15
     Compl. ¶¶ 35, 40.
16
     Compl. ¶¶ 21–23; Consolidation Order ¶ 7.
17
     Compl. ¶¶ 1, 21–23, 173.
18
     Compl. ¶ 70.

                                            6
the advanced iterations of this camera continue to comprise the Company’s core

product line.19 In 2016, GoPro planned to take to the air by expanding into the drone

market.20 The Company hoped to make its flying debut with a drone it called

“Karma.”21

           GoPro’s 2016 Revenue Projections and Karma’s Pre-Launch

           GoPro runs an inventory-driven business. And, like many manufacturers,

GoPro utilizes a “real-time” enterprise resource planning (“ERP”) management

system to monitor its supply chain.22 ERP software “integrates areas such as

planning, purchasing, inventory, sales, marketing, finance and human resources.”23

GoPro’s ERP system is enabled by the “NetSuite” software.24

           On February 3, 2016, utilizing NetSuite, GoPro issued full-year revenue

guidance disclosing expected revenue of $1.35–$1.5 billion in 2016.25 As was

customary, the Company cautioned investors that its projections were “forward-

19
     Id.
20
     Compl. ¶¶ 4, 70, 81–82.
21
     Compl. ¶ 5.
22
     Compl. ¶ 72.
23
     Id.
24
     Compl. ¶ 74.
25
     Compl. ¶¶ 4, 82.

                                           7
looking statements regarding future events” that were laced with “risks and

uncertainties.”26    On the same day it disclosed annual revenue forecasts, the

Company announced its plan to enter the drone market “in the first half of 2016.”27

         Three months later, during a May 3, 2016 Board meeting, management

advised the Board that the Company was experiencing “delays” with Karma.28 Even

so, management assured the Board that “Karma deliverables [were] on track” and

that management was “tracking” Karma’s “launch” for a “6/6 announce.”29

         Slides presented to the Board at the May 3 meeting show the Company had

no Karma inventory “on hand” for “Q1’15” through “Q1-16.”30 The Board also

26
   GoPro, Inc., Current Report Ex. 99.1 (Form 8-K) (Feb. 3, 2016) (the “February 8-K”)
(“Note on Forward-looking Statements”); In re Gen. Motors (Hughes) S’holder Litig.,
897 A.2d 162, 170 (Del. 2006) (noting that the trial court may take judicial notice of facts
in SEC filings that are “not subject to reasonable dispute”) (emphasis in original). The
Company identified multiple sources of risk including the Company’s (i) “dependence on
sales” and “third-party suppliers” to “provide components for our products” and
(ii) potential “inability to successfully manage frequent product introductions and
transitions.” See February 8-K.
27
     Compl. ¶ 82.
28
  Id. The Board was told Karma’s “delays [were] adding risk” to a related product referred
to as “Yellowstone,” which is described as a “storytelling, cloud service, subscription.”
Transmittal Aff. of Gina M. Serra in Supp. of Pls.’ Answering Br. in Opp’n to Defs.’ Mot.
to Dismiss the Verified S’holder Deriv. Compl. (“Serra Aff.”) (D.I. 20) Ex. 3 at
NOURY_GPRO220_000051. Bates numbers for documents produced in response to
shareholder inspection demands under 8 Del. C. § 220, cited in the affidavits submitted in
connection with the Motion, are referred to as “GoPro220_XXXXXX.”
29
     Serra Aff. Ex. 3 at GoPro220_000051, 57.
30
     Id. at GoPro220_000046.

                                             8
learned that “Kirkwood” (a codename for the Karma drone) “repairs” were occurring

during the “Q4 2015” through “Q2 2016” timeframe.31

         Two days later, on May 5, Woodman publicly disclosed that Karma’s launch

“would be delayed until [the 2016] holiday season,” even as he touted the drone’s

“revolutionary features.”32 At the same time, McGee, the CFO, reiterated the

Company’s revenue guidance range of $1.35–$1.5 billion.33

         Two months later, in July, management reports to the Board continued to

show the Company had no Karma drones in inventory.34 Nevertheless, GoPro’s

release of Q2 2016 financial results stood by earlier revenue guidance.35 At this

juncture, Bates, the Company’s President, told investors GoPro was “closely

tracking [inventory] and making sure that [GoPro] can ramp into our second half

plans.”36 Similarly, McGee publicly opined the Company had “done a great job in

31
     Compl. ¶ 83; Serra Aff. Ex. 3 at GoPro220_000069.
32
     Compl. ¶¶ 5, 83, 189 (bullet 1).
33
     Compl. ¶ 189 (bullet 2).
34
  Compl. ¶ 85 (citing GoPro220_000093–95). The Complaint states that the Board viewed
these slides on August 2, 2016, when the slides, themselves, state they are part of the
Board’s “July 18, 2016” meeting materials. See Serra Aff. Ex. 5 at GoPro220_000093.
35
     Compl. ¶¶ 84, 189 (bullet 3).
36
     Compl. ¶¶ 87, 189 (bullet 5).

                                            9
channel inventory” and predicted GoPro would “be ready for a heck of a launch in

the second half” of the year.37

           Shortly after these public statements, during an August 2, 2016 meeting, the

Board received updates from GoPro’s management regarding the status of new

product development.38 The Complaint highlights several allegedly troublesome

slides from management’s presentation to the Board.39 In a slide titled “Operating

Expenses,” management disclosed the “spend” for the Karma “project” was

“unfavorable at $5.4M, ($2.9M) to Q2M1.”40              A separate slide titled “Aerial

Products Roadmap” advised the Board that certain aspects of the Karma project that

had been planned for 2017 and 2018 were “at risk.”41

           About one month later, on September 19, 2016, the Company unveiled three

new, highly anticipated products—the HERO5, HERO5 Black and the Karma

drone.42 Karma was scheduled for launch on October 23, 2016, at “select retailers

around the world,” while the HERO5 camera would be distributed “globally”

37
     Compl. ¶ 189 (bullet 4).
38
     Compl. ¶ 88.
39
     Id.
40
     Id.; Serra Aff. Ex. 6 at GoPro220_00101.
41
     Compl. ¶ 88; Serra Aff. Ex. 6 at GoPro220_00106.
42
     Compl. ¶ 89.

                                                10
beginning on October 2.43 Simultaneously with news of these new product launches,

McGee continued to reassure investors the Company was “on track” to meet its

revenue guidance of $1.35–$1.5 billion.44 This reaffirmation was based, in part, on

management’s projection that its trio of new offerings would account for the “vast

majority of GoPro’s full-year revenue occurring in the second half of the year.”45

As of September 19, the Company had only 2,500 Karma drones in inventory

(worth ~$2 million).46

           Less than one month after Karma’s launch announcement, Woodman repeated

that GoPro was ready to make Karma drones “available on October 23.”47

Customers who had signed up for Karma’s pre-sale were told the drone would ship

on November 28, 2016.48

           During the October 6, 2016 Board meeting, management presented a

“Summary” slide to the Board.49               This slide calculated the Company’s total

43
     Compl. ¶¶ 89, 91, 106, 189 (bullet 8).
44
     Compl. ¶¶ 6, 92, 105, 189 (bullet 7).
45
     Compl. ¶ 90 (alteration in original).
46
     Compl. ¶ 93.
47
     Compl. ¶ 96.
48
     Id.
49
     Compl. ¶¶ 97, 105; Serra Aff. Ex. 8 at GoPro220_000121.

                                                11
“Q4 revenue risk” was “($45M–$110M),” of which “Karma” comprised “($20M–

$85M).”50 The Board also reviewed a slide titled “Bull and Bear Case,” which

appears to analyze the Company’s stock price in a “Q3” “Bull” or “Bear” market

assuming Karma was “in retail” or, alternatively, with “No Karma.”51

         Karma’s Turbulent Flight

         As fall approached, GoPro was entering the critical run-up to the holiday

season.52 On October 23, Karma sales began as the Company had projected, and

2,500 customers acquired the drone.53 But GoPro’s inventory fell short of demand.

Several would-be customers posted to GoPro’s customer service website “lamenting

the unavailability of the drone.”54 On October 24, TheStreet, Inc. reported that

shipment dates for “most” Karma drones had been moved to November 28 and that

HERO5 supply was low.55 Soon after, GoPro’s stock price fell ~7%.56

50
     Compl. ¶¶ 97, 105; Serra Aff. Ex. 8 at GoPro220_000121.
51
     Compl. ¶ 107; Serra Aff. Ex. 8 at GoPro220_000122.
52
     See, e.g., Compl. ¶ 105 (highlighting quotes from an October 6, 2016 Board slide).
53
     Compl. ¶ 100.
54
     Compl. ¶¶ 9, 98.
55
     Compl. ¶¶ 10, 99, 106.
56
     Compl. ¶¶ 10, 99, 106.

                                              12
           On the same day TheStreet published its report, the Board’s Audit Committee

met to discuss GoPro’s “Q3” results for the period ended September 30.57 The

Complaint features two slides presented at this meeting.58 First, the committee

reviewed a report stating the Company had no “Aerial” in its inventory as of “Q3’16”

(i.e., before Karma’s October 23 launch).59 Second, the committee was apprised of

“Significant Accounting and Reporting Items,” which included, inter alia, a “Look[]

ahead” to “Q4’16.”60 The look ahead comprised three bullet points, one of which

was captioned “Revenue recognition—Karma sales returns reserve.”61

           Five days after Karma first went on sale, on October 28, Brian Warholak, “one

of the first customers to purchase the Karma drone,” uploaded a video to YouTube

of his new drone crashing to the ground due to a battery defect.62 Other customers

reported the same defect on GoPro’s online support hub.63 The Company eventually

57
     Compl. ¶ 108.
58
     Id.
59
    Compl. ¶¶ 108, 192; Serra Aff. Ex. 12 at GoPro220_000198. “Q3” ended on
“September 30, 2016”—which was before Karma was slated to be available for sale
(i.e., October 23). See Serra Aff. Ex. 12 at GoPro220_000195; Compl. ¶ 7.
60
     Compl. ¶ 108; Serra Aff. Ex. 12 at GoPro220_000197.
61
     Compl. ¶ 108; Serra Aff. Ex. 12 at GoPro220_000197.
62
     Compl. ¶ 100.
63
     Id.

                                             13
determined that the drone’s battery could “pop out” in flight due to a defective latch;

the result, frequently, was a rapid, uncontrolled descent ending in a spectacular

crash.64

         Nine days after Karma hit the shelves, the Board held a meeting on

November 1 to discuss “Supply Chain and Sales Status for HERO5 and Karma

products.”65     The Board reviewed a slide (the “Karma Production Forecast”)

summarizing the “Karma Supply Chain.”66             The Karma Production Forecast

reviewed management’s assessment of GoPro’s ability to manufacture additional

Karma drones, including the “yield rates” of the relevant manufacturing facilities.67

The upshot of the slide was that management’s “Very Early-Targeting” for Karma

production was “80K in 4th quarter.”68

64
     Compl. ¶¶ 12, 100–01.
65
  Transmittal Aff. of Riley T. Svikhart (“Svikhart Aff.”) (D.I. 14) Ex. 6 at
GoPro220_000135, 38; Compl. ¶¶ 98, 100 (Karma went on sale on October 23).
66
     Svikhart Aff. Ex. 6 at GoPro220_000138.
67
  The slide shows a grid of five separate suppliers for six component parts of the Karma
drone (e.g., “Drone,” “Grip,” “Charger,” “Stabilizer/Harness”) as well as the facilities
around the world where the parts were being produced.                   Each facility’s
“Workforce/Capacity” was listed, along with the facility’s “Rolled Yield” for the part it
manufactured. See Svikhart Aff. Ex. 6 at GoPro220_000138.
68
     Svikhart Aff. Ex. 6 at GoPro220_000138.

                                           14
           Notwithstanding the optimistic report on inventory, GoPro was still having

difficulty getting Karma units on retailers’ shelves.69 In light of “production ramp

up issues,” on November 3, 2016, McGee issued a press release lowering GoPro’s

2016 full-year revenue guidance from $1.35 billion to $1.25–$1.3 billion.70 The

press release explained GoPro’s new fourth quarter projections assumed Karma sales

would account for ~10% of the Company’s fourth-quarter revenues.71 Analysts

calculated GoPro would need to generate $60 million in revenue from Karma to meet

the new guidance (~50,000–75,000 units).72

           One day later, on November 4, the market reacted to the updated guidance,

and GoPro’s stock fell 6.5%.73 That same day, the Company filed its Form 10-Q for

the third quarter.74 The 10-Q added new cautionary language for investors, stating

the Company faced risk from potential inability to ensure “the availability of

products in appropriate quantities.”75 Yet, as of the November 4 filing, GoPro

69
     Compl. ¶¶ 9, 98.
70
     Compl. ¶¶ 11, 109.
71
     Compl. ¶¶ 109–10, 189 (bullet 9).
72
     Compl. ¶¶ 111–12.
73
     Compl. ¶ 114.
74
     Compl. ¶ 115.
75
     Id.

                                           15
reassured customers that Karma was and would be “available at major U.S.

retailers.”76

         Shortly after Karma’s initial launch on October 23, and just eleven days after

the first online reports of Karma’s battery latch issue, the Board met on November 8,

2016, to discuss “recent information relating to a power issue with the Karma

drone.”77 Following the meeting, the Board directed a recall of the Karma drone

because of the defect at a time when the Company had sold only 2,500 units.78 The

next day, GoPro’s stock fell another 4%.79 As a result of Karma’s battery defect and

supply chain difficulties, the drone was not available for sale during the 2016 holiday

season.80

         Karma Supply Fallout

         On February 2, 2017, GoPro reported its 2016 results.81 The Company

disclosed it had generated $1.185 billion in revenue for the year (short of the updated

76
     Compl. ¶¶ 117, 189 (bullet 10).
77
     Compl. ¶¶ 98, 100 (noting the original online reports were posted on October 28), ¶ 116.
78
     Compl. ¶¶ 12, 117.
79
     Compl ¶ 117.
80
     Compl. ¶¶ 118–19.
81
     Compl. ¶ 119.

                                              16
November 9 projection of $1.25–$1.3 billion).82          GoPro stated its “biggest

challenge” was the Karma drone.83 On this news, GoPro’s stock fell another 12%.84

Plaintiffs allege Defendants, Woodman, McGee, Bates, Gilhuly and Marks

(the “Selling Defendants”), sold GoPro stock between March and December 2016,

before the 2016 year-end results were released.85

         Procedural Posture

         Following the Company’s lowered Q4 revenue guidance and the resulting

6.5% decline in stock price, certain GoPro stockholders filed a class action complaint

on November 16, 2016, in the United States District Court for the Northern District

of California (the “California Court”) alleging violations of Sections 10(b) and 20(a)

of the Securities Exchange Act.86 On July 26, 2017, the California Court denied a

motion to dismiss, finding plaintiffs had well pled Woodman, McGee and Bates

made false or misleading statements concerning Karma.87

82
     Compl. ¶¶ 109, 119–20.
83
     Compl. ¶¶ 13, 119–20.
84
     Compl. ¶ 120.
85
     Compl. ¶¶ 17, 160–165.
86
   Compl. ¶¶ 109–114; Bielousov v. GoPro, Inc., 2017 WL 3168522, at *1 (N.D. Cal.
July 26, 2017).
87
   Bielousov, 2017 WL 3168522, at *4–6. On October 30, 2018, the California Court
granted an Order Preliminarily Approving Settlement in the Bielousov action. Svikhart
Aff. Ex. 11.

                                         17
         Shortly after proceedings began in the California Court, on September 26,

2017, Plaintiffs sent a series of four separate demands to the Company, requesting

books and records under 8 Del. C. § 220 of the Delaware General Corporation Law.88

In response, the Company produced ~1,100 pages of material.89

         Armed with these documents, while litigation in the California Court was

ongoing and without making a litigation demand on the Board, Plaintiffs filed two

separate derivative complaints in this court.90         The first complaint, filed on

October 30, 2018, has since been consolidated with the operative Complaint, which

was filed days later on November 7, 2018.91

         The Complaint comprises four derivative counts.92 Count I alleges the Officer

Defendants breached their fiduciary duties by, inter alia, “keep[ing] the market

88
     Compl. ¶¶ 24–27, 174–77.
89
     Compl. ¶¶ 24–27.
90
     See Consolidation Order at 3.
91
  See Consolidation Order ¶ 1. The Court entered a Consolidation Order on December 3,
2018 (i) directing all future filings to be submitted to Consolidated Action Number 2018-
0784, (ii) designating the Complaint as the operative complaint and (iii) designating
Plaintiffs, Steinberg, Noury and Barbara and Richard Silberfeld, as lead Plaintiffs.
See id. ¶¶ 2–7.
92
  Compl. ¶¶ 170, 200–28. In their Answering Brief, Plaintiffs clarified they are no longer
pursuing claims based on the now-dismissed consolidated securities class action styled
Park v. GoPro, Inc., which had been filed in the California Court. PAB at 21 n.11.
Plaintiffs also disavowed any claims based on allegedly false and misleading statements
occurring after February 2, 2017. PAB at 21 n.11. In this regard, I note there is a
discrepancy in Plaintiffs’ Answering Brief regarding the cut-off date for their claims.
Compare PAB at 21 n.11 (“February 2, 2018), with PAB at 29 n.12 (“February 2017.”).
                                           18
unaware of problems with inventory and sales.”93 Counts II and III allege the

Director Defendants breached their fiduciary duties when they “allowed, ignored, or

encouraged [] numerous materially false and misleading statements and omissions”

by certain Officer Defendants.94 Count IV is a Brophy claim brought against the

Selling Defendants.95

         On May 2, 2019, Defendants filed the Motion in which they seek dismissal of

the Complaint under Court of Chancery Rules 12(b)(6) and 23.1.96 The Motion was

submitted for decision on February 5, 2020.97

                                   II. ANALYSIS

         As noted, Plaintiffs elected to forego making a pre-suit demand. Accordingly,

under Court of Chancery Rule 23.1, they must “state with particularity” their reasons

Based on the sections of the Complaint Plaintiffs direct the Court to disregard, it appears
the relevant cut-off date is February 2017, not February 2018. See PAB at 21 n.11
(citing Compl. ¶¶ 14–16, 122–59, 169, 185).
93
     Compl. ¶¶ 200–04.
94
     Compl. ¶¶ 205–20.
95
     Compl. ¶¶ 221–28.
96
   D.I. 9. Following briefing on the Motion, Plaintiffs filed a Motion to Strike certain
exhibits Defendants submitted in support of the Motion, arguing they were outside the
scope of documents referenced in the Complaint. D.I. 18. I do not reach the Motion to
Strike as I have not relied on any of the documents to which Plaintiffs object in reaching
my decision on the Motion.
97
     D.I. 38.

                                            19
for not asking the Demand Board to pursue their derivative claims.98 Plaintiffs

advance four arguments as to why their Complaint adequately pleads demand

futility. First, they maintain that a majority of the Demand Board “faces a substantial

likelihood of personal liability” because they “allowed and/or failed to correct”

certain false statements.99 Second, they argue that a majority of the Demand Board

is beholden to Woodman because he could “easily remove[]” any director who “took

an action antithetical to” his wishes.100 Third, they argue the Demand Board would

be interested in any decision to bring a Brophy claim against the Selling Defendants

because “pressing forward” with Count IV would subject them to “liability in

connection with the false and misleading statements” they allowed to be made with

regard to Karma.101 Finally, they allege the Bielousov action, itself, renders a

majority of the Demand Board “interested” in a hypothetical decision to bring

Plaintiffs’ claims because to do so would be “tantamount to admitting liability.”102

98
  Compl. ¶ 182; Ct. Ch. R. 23.1(b); Aronson v. Lewis, 473 A.2d 805, 813–14 (Del. 1984),
overruled in part, Brehm v. Eisner, 746 A.2d 244, 253–54 (Del. 2000).
99
     Compl. ¶¶ 187–89, 191–92.
100
      Compl. ¶ 195.
101
      Compl. ¶¶ 160–65; PAB at 49–50.
102
      Compl. ¶ 184; PAB at 50.

                                          20
          The Rule 23.1 Standard

          As Justice Moore emphasized in his seminal Aronson decision, 8 Del. C.

§ 141(a) codifies a bedrock of Delaware corporate law—the board of directors, not

stockholders, manages the business and affairs of the corporation, including the

business decision to cause the corporation to sue.103 When making this (or any other)

business decision, a board is entitled to “a presumption” that it “acted on an informed

basis, in good faith and in the honest belief that the action taken was in the best

interests of the company.”104

          With these canons as a backdrop, our law has established certain procedural

imperatives to ensure that shareholders do not “imping[e] on the managerial freedom

of directors” lest the board’s judgment be “sterilize[ed].”105 To mount a successful

“challenge to a board of directors’ managerial power” and wrest control of a

corporation’s litigation asset away from that decision-making authority, the

stockholder must demonstrate that demand on the board to pursue the claim would

be futile such that the demand requirement should be excused.106

103
      Aronson, 473 A.2d at 811 (citing 8 Del. C. § 141(a)).
104
      Id. at 812 (citation omitted).
105
   Id. at 811, 814; Pogostin v. Rice, 480 A.2d 619, 624 (Del. 1984), overruled on other
grounds, Brehm, 746 A.2d at 253–54.
106
  Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990); Beam ex rel. Martha Stewart Living
Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1044 (Del. 2004).

                                              21
            In order to meet this heightened pleading burden, the Complaint must

“comply with stringent requirements of factual particularity that differ substantially

from the permissive notice pleadings” sanctioned by Chancery Rule 8.107

Specifically, the plaintiff pleading demand futility must “inform[] [the] defendants

of the precise transactions at issue” by describing “with particularity” the “specific

misconduct in which each defendant is alleged to have participated.”108 When

assessing whether the plaintiff has met this heightened burden under Rule 23.1, the

plaintiff is entitled to “all reasonable inferences” that logically flow from

“particularized facts” alleged in the complaint.109 But the court need not credit

“conclusory allegations” or “inferences that are not objectively reasonable” when

testing the sufficiency of a pleading.110

            “Two tests are available to determine whether demand is futile.”111 “In simple

terms, [both] tests permit a corporation to terminate a derivative suit if its board is

107
   Brehm, 746 A.2d at 254 (noting that conclusory statements or mere notice pleading are
insufficient to satisfy Rule 23.1).
108
   Elburn v. Albanese, 2020 WL 1929169, at *9 (Del. Ch. Apr. 21, 2020) (citations
omitted).
109
      Wood v. Baum, 953 A.2d 136, 140 (Del. 2008).
110
      Id. (internal quotation omitted).
111
      Id.

                                              22
comprised of directors who can impartially consider a demand.”112 The Aronson test

applies to claims “where it is alleged that the directors made a conscious business

decision in breach of their fiduciary duties.”113 The Rales test applies “where the

subject of a derivative suit is not a business decision of the Board” but rather a failure

to act.114

         Although this court has observed that the demand futility analysis frequently

“would be no different” under either Aronson or Rales,115 this court has also noted

the incongruity in pleading that occurs when a plaintiff characterizes the same set of

underlying conduct as both a wrongful “failure to act” and a wrongful “affirmative

decision.”116 Even if acceptable as a matter of alternative pleading, when the

plaintiff struggles consistently to characterize the nature of the underlying wrongful

112
      In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 939 (Del. Ch. 2003).
113
      Wood, 953 A.2d at 140 (emphasis supplied and citation omitted).
114
  Id. (citing Rales v. Blasband, 634 A.2d 927, 932–33 (Del. 1993)); Zucker v. Andreessen,
2012 WL 2366448, at *6 (Del. Ch. June 21, 2012).
115
   See Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 68 n.132
(Del. Ch. July 13, 2015); In re China Agritech, Inc. S’holder Deriv. Litig., 2013
WL 2181514, at *16 (Del. Ch. May 21, 2013).
116
   In re Duke Energy Corp. Deriv. Litig., 2016 WL 4543788, at *15 (Del. Ch. Aug. 31,
2016); Hubert Owens v. Tim M. Mayleben, 2020 WL 748023, at *6 (Del. Ch. Feb. 13,
2020).

                                              23
conduct that gives rise to his claims, this imprecision signals that he may not have

pled such conduct with particularity.117

         As discussed below, Plaintiffs’ Complaint is a model of this sort of

imprecision. On the one hand, Plaintiffs allege Defendants “caused” GoPro publicly

to issue false statements regarding the status of its new product releases and the

corresponding projections of revenue.118 On the other, Plaintiffs allege Defendants

failed to act when they “consciously failed to monitor [the] information and

reporting systems” that could have prevented the same false statements.119 In any

event, while many of Plaintiffs’ demand futility arguments are discordant, the one

clear note is that a majority of the Demand Board face “a substantial likelihood of

liability” for their actions (and/or inactions) surrounding GoPro’s public statements

in 2016.120      But, as discussed below, the Complaint lacks sufficient factual

particularity to support this assertion, either as an affirmative choice to mislead

stockholders or as a matter of poor oversight. Similarly, Plaintiffs’ last-ditch

117
      See Brehm, 746 A.2d at 254.
118
      Compl. ¶¶ 2, 65.
119
   Compl. ¶ 209. Compare Compl. ¶ 210 (Defendants “encouraged” false statements”),
and Oral Arg. on Pls.’ Mot. to Strike and Defs.’ Mot. to Dismiss the Verified S’holder
Deriv. Compl. (“Tr.”) (D.I. 39) at 36–38 (“[W]e don’t think this is a Caremark claim.”),
with PAB at 41 (Defendants “face a substantial risk of liability under a classic Caremark
theory for failing to apprise themselves” of GoPro’s “inadequate Karma drone supply.”).
120
      Compl. ¶¶ 187–92; PAB at 30, 36.

                                           24
arguments related to either the Bielousov action or the Brophy claim also lack merit

as neither impugns the fitness of a majority of the Demand Board to consider a

demand.121

         Plaintiffs Have Failed to Well Plead Demand Futility With Respect to
         Counts II and III

         Demand is excused when a plaintiff adequately alleges a majority of the

Demand Board is “interested” because they face “a substantial likelihood” of

liability if suit were filed.122 Where, as here, the corporation’s charter contains an

exculpatory clause, as authorized under 8 Del. C. § 102(b)(7), “a substantial

likelihood of liability may only be found to exist if the plaintiff pleads a non-

exculpated claim against the directors based on particularized facts.”123

         As noted, to meet this burden, Plaintiffs allege a majority of the Demand

Board face a substantial likelihood of liability for authorizing or failing to prevent

121
      See PAB at 49–53.
122
   See Beam, 845 A.2d at 1049; Rattner v. Bidzos, 2003 WL 22284323, at *9 n.47 (Del. Ch.
Sept. 30, 2003) (“[F]or purposes of determining futility, the Individual Defendants who are
not Director Defendants are largely irrelevant.”); In re Ezcorp Inc. Consulting Agreement
Deriv. Litig., 2016 WL 301245, at *34 (Del. Ch. Jan 25, 2016) (“To determine whether the
Board could properly consider a demand, a court counts heads. If the board of directors
lacks a majority comprising independent and disinterested directors, then demand is
futile.”).
123
   Teamsters Union, 119 A.3d at 62–63 (quotation omitted); Svikhart Aff. Ex. 3, Art. VIII
(the exculpatory provision); In re Tangoe, Inc. S’holders Litig., 2018 WL 6074435, at *12
n.79 (Del. Ch. Nov. 20, 2018) (“A court may take judicial notice of an exculpatory charter
provision in resolving a motion addressed to the pleadings.”) (citation omitted).

                                            25
the alleged misstatements.124 The Complaint begins its narrative by leaving a

breadcrumb trail that appears to lead to a claim of oversight liability under

Caremark.125 But then the trail runs cold as Plaintiffs disclaim any attempt to plead

a failure of Board oversight.126 Then, just as the reader is about to fire the “help me

I’m lost” flare, the Complaint pivots to assert a claim of malfeasance by virtue of the

Board’s role in actively causing GoPro to release false and misleading statements to

its stockholders and the market.127 While Plaintiffs’ inconsistent proffers of their

claim(s) have made the analysis more challenging than, perhaps, it needed to be, at

124
    Compl. ¶ 2. While Plaintiffs’ Answering Brief makes separate arguments concerning
Woodman (whose actions as CEO are unexculpated), the central inquiry remains whether
there exists a majority of independent directors on the Demand Board capable of
considering demand. PAB at 30; McPhadden v. Sidhu, 964 A.2d 1262, 1273 (Del. Ch.
2008) (stating officers do not benefit from a Section 102(b)(7) exculpatory charter
provision). As I find Plaintiffs have failed to allege a majority of the Demand Board is
unfit to consider demand, I do not reach the question whether Woodman faces a substantial
likelihood of liability for his actions as CEO.
125
    See, e.g., Compl. ¶ 187 (“[T]he Demand Defendants learned about the issues with the
Karma drone and HERO5 cameras, and yet still allowed and/or failed to correct the
misleading statements issued by the Company.”), ¶ 189 (“[T]hese defendants permitted
and/or failed to correct multiple materially false and misleading statements.”), ¶ 209
(“In conscious disregard of their duties and responsibilities, the Director Defendants
allowed [or] ignored . . . the numerous materially false and misleading statements.”); PAB
at 41 (Defendants “face a substantial risk of liability under a classic Caremark theory for
failing to apprise themselves” of GoPro’s “inadequate Karma drone supply.”). See also
In re Caremark Intern. Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996) (Chancellor Allen’s
seminal decision drawing the contours of a failure of oversight claim).
126
   PAB at 39 (“Defendants [] mischaracterize Plaintiffs’ claims as ‘Caremark’ claims.”);
Tr. at 36–38 (“[W]e don’t think this is a Caremark claim.”).
127
      Compl. ¶ 209; ¶ 210 (Defendants “encouraged” false statements”); PAB at 39.

                                            26
the end of the day it does not matter since neither theory, as pled, supports a

reasonable inference that a majority of the Demand Board faces a threat of liability.

         1. The False Disclosure Claim

         “Whenever directors communicate publicly or directly with shareholders

about a corporation’s affairs, with or without a request for shareholder action,

directors have a fiduciary duty to shareholders to exercise due care, good faith and

loyalty.”128 If the board of directors intentionally misleads stockholders about the

business of the corporation it serves, then its members will be held liable for breach

of fiduciary duty.129 With this in mind, it follows that directors who knowingly make

materially misleading statements to stockholders “may be considered to be interested

for the purposes of demand.”130

         Only one member of the Demand Board (Woodman) is alleged to have

personally made a false or misleading public statement.131 Plaintiffs attempt to

implicate a majority of the Demand Board by alleging five of its members

contributed to and approved GoPro’s revenue guidance while knowing it was

128
      Malone v. Brincat, 722 A.2d 5, 10 (Del. 1998).
129
      Id. at 14; In re InfoUSA, Inc. S’holders Litig., 953 A.2d 963, 990 (Del. Ch. 2007).
130
      InfoUSA, 953 A.2d at 991.
131
   See Compl. ¶ 189 (alleging false statements by Woodman, McGee and Bates); Tr. at 33
(Plaintiffs’ theory is that a majority of the Demand Board had “access to information that
conflicted” with what management was telling stockholders.).

                                               27
impossible for the Company to achieve the projected results.132 In other words,

Plaintiffs attempt to allege a majority of the Demand Board acted with scienter.

When pressed at oral argument for “some particularized facts that would show the

board was actually affirmatively saying to management, ‘yes, keep telling the market

that we’re going to meet our revenue guidance, notwithstanding these production

issues that we’re having,’” Plaintiffs’ counsel pointed to only one document: the

“Bull and Bear Case” slide the Board reviewed on October 6, 2016.133

         Nether this slide, nor anything else in the Complaint, reasonably supports the

inference Plaintiffs ask the Court to draw. First, the “Bull and Bear Case” slide

appears to be backwards-looking—not a forward-looking encouragement to

continue misstating facts.134 Second, all this slide shows is that the Board was

considering the impact of product releases and macroeconomic trends on GoPro’s

stock price—i.e., that the Director Defendants “monitored” the Company’s

“business risk” as they were obliged to do under our law.135

132
      Compl. ¶¶ 2, 65, 186, 188, 189, 191; PAB at 24.
133
      Tr. at 37–38; Compl. ¶ 107; Serra Aff. Ex. 8 at GoPro220_000122.

  Serra Aff. Ex. 8 at GoPro220_000122 (containing a grid with a “Q3” “Bull” or “Bear”
134

market and with Karma “in retail” or with “No Karma”).
135
      In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 123 (Del. Ch. Feb. 24, 2009).

                                               28
       The fundamental problem with the inference Plaintiffs would have the Court

draw is that Board acquiescence cannot support an inference of affirmative Board-

level misconduct.136 Even if the Board were told by its management that the

Company was not going to meet its revenue projections, and then did nothing as

management publicly stood by its market guidance, that factual predicate would

support a “classic” Caremark claim for failure to respond to “red flags,” not a claim

against the Board for causing the Company to make false disclosures.137 Contrary

to Plaintiffs’ assertion, if directors have “actual knowledge” of wrongdoing and

“fail[] to take corrective action,” that is a Caremark claim.138

136
   See McElrath on Behalf of Uber Tech., Inc. v. Kalanick, 2019 WL 1430210, at *8 n.125
(Del. Ch. Apr. 1, 2019) (“The distinction between affirmative action by a board and
inaction by the board is important when considering how to apply Rales and whether to
apply Aronson.”) (emphasis in original); Teamsters Union, 119 A.3d at 57–58 (holding
that, under Rule 23.1, a court need not draw “hyper-technical and unreasonable” inferences
that are based on “unsupported leap[s] of logic”).
137
    Melbourne Mun. Firefighters’ Pension Trust Fund on Behalf of Qualcomm, Inc. v.
Jacobs, 2016 WL 4076369, at *8 (Del. Ch. Aug. 1, 2016) (describing a failure to respond
to “red flags” as a classic Caremark claim); Sandys v. Pincus, 2016 WL 769999, at *14–
15 (Del. Ch. Feb. 29, 2016), rev’d on other grounds, 152 A.3d 124 (Del. 2016)
(characterizing a claim that directors knowingly “failed to disclose material information to
the public” as a Caremark claim).
138
    PAB at 40; Horman v. Abney, 2017 WL 242571, at *10 (Del. Ch. Jan 19, 2017)
(“To establish demand futility under Caremark’s second prong, the Complaint must plead
particularized facts that the board knew of evidence of corporate misconduct—the
proverbial ‘red flag’—yet acted in bad faith by consciously disregarding its duty to address
that misconduct.”) (emphasis supplied); South v. Baker, 62 A.3d 1, 18 (Del. Ch. 2012)
(reviewing a board’s alleged “knowledge of wrong-doing or conscious indifference to
alleged red flags” under Caremark).

                                            29
         It is not surprising Plaintiffs have failed to plead particularized facts to support

an inference of affirmative Board-level misconduct given that they have failed to

plead any facts that would offer a conceivable explanation of why a majority of the

Demand Board would intentionally cause the Company to release false statements

to the market knowing full well the Karma inventory shortage would be known to

stockholders and the market within a matter of weeks.139 While the Complaint

alleges the Selling Defendants sold shares during 2016 (which might, under different

circumstances, reveal some explanation of why the Board would affirmatively

mislead the market), only one Selling Defendant, Woodman, is a member of the

Demand Board.140 And, as explained below, the Complaint fails to plead any facts

that would allow a reasonable inference that a majority of the Demand Board was

beholden to Woodman or any of the other Selling Defendants such that they would

be motivated to facilitate or cover up illegal insider trading.141

         Plaintiffs’ only half-hearted attempt at pleading the Demand Board lacked

independence is to allege Woodman “controls over 75% of . . . the Company’s

stockholders’ voting power” and could “remove[]” any director who voted against

139
   See Ryan v. Armstrong, 2017 WL 2062902, at *5 (Del. Ch. May 15, 2017) (refusing to
credit allegations of bad faith absent credible motive).
140
      Compl. ¶¶ 160, 183.
141
      Compl. ¶¶ 160–65, 183; PAB at 49.

                                              30
his interests.142 It is well-settled that a controlling stockholder’s voting power and

“select[ion]” of directors do not, without more, render directors “beholden” to the

controller.143 In the absence of a legally cognizable explanation for why the Demand

Board would lie so openly, especially when they were virtually certain to be caught

in the lie, it is unreasonable to infer bad faith malfeasance.144

         2. The Apparent Caremark Claim

         Although Plaintiffs disclaim any effort to plead a Caremark claim, it is

difficult to ignore the allegations in the Complaint that walk and talk like

Caremark.145 Lest there be any question that I have not considered all angles that

might reveal demand futility, I address the Caremark-like allegations below.

142
      Compl. ¶ 195.
143
    Beam, 845 A.2d at 1054 (Even in the face of “overwhelming voting control[,] . . .
[a] stockholder’s control of a corporation does not excuse presuit demand on the board
without particularized allegations of relationships between the directors and the controlling
stockholder demonstrating that the directors are beholden to the stockholder.”); Aronson,
473 A.2d at 815; In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1180
(Del. 2015). Similarly, Plaintiffs’ argument that members of the Demand Board have
“been heavily compensated for their service on the Board” is insufficient to excuse demand
because “ordinary director compensation alone is not enough to show demand futility.”
A.R. DeMarco Enter., Inc. v. Ocean Spray Cranberries, Inc., 2002 WL 31820970, at *5
(Del. Ch. Dec. 4, 2002) (citing cases); Compl. ¶ 196.
144
   See In re Novell, Inc. S’holder Litig., 2014 WL 6686785, at *7 (Del. Ch. Nov. 25, 2014)
(“An analysis of motives is [] key to determining whether a fiduciary acted in bad faith.”);
Armstrong, 2017 WL 2062902, at *5 (same).
145
   See Horman, 2017 WL 242571, at *7 (describing a board knowing “of evidence of
corporate misconduct . . . yet act[ing] in bad faith by consciously disregarding its duty to
address that misconduct” as a Caremark claim).

                                             31
         A director will face liability under Caremark when, in bad faith, she fails to

oversee company operations.146

         Bad faith is established, under Caremark, when ‘the directors
         [completely] fail[] to implement any reporting or information system
         or controls[,] or . . . having implemented such a system or controls,
         consciously fail[] to monitor or oversee its operations thus disabling
         themselves from being informed of risks or problems requiring their
         attention.’147

“Thus, to establish oversight liability a plaintiff must show the directors knew they

were not discharging their fiduciary obligations or that the directors demonstrated a

conscious disregard for their responsibilities such as by failing to act in the face of a

known duty to act.”148

         Where, as here, there is an exculpatory clause in the corporate charter, “it is

not enough to allege that the misleading statements occurred on [the] directors’

watch; nor is it enough to plead facts from which [the court] may infer negligence,

or even gross negligence, in the directors’ failure to cure the misimpression created

by the statements.”149 Instead, Plaintiffs must well plead that the directors acted in

146
      Marchand v. Barnhill, 212 A.3d 805, 820 (Del. 2019).
147
   Id. at 821 (quoting Stone ex rel. AmSouth Bancorp v. Ritter, 911 A.2d 362, 370–72
(Del. 2006)).
148
      Citigroup, 964 A.2d at 123 (emphasis in original).
149
      Ellis v. Gonzalez, 2018 WL 3360816, at *11 (Del. Ch. July 10, 2018).

                                              32
bad faith when they allowed the alleged misstatements to be made and then failed to

correct them.150

       To meet this standard, Plaintiffs’ core allegation is that by September 19, a

majority of the Demand Board knew “there was no way GoPro would meet” its

revenue guidance and yet it failed to cause that guidance to be corrected or to prevent

management from continuing to report that the guidance was attainable.151 I assume,

for this analysis, that Plaintiffs are characterizing this omission as a failure to

respond to “red flags” under Caremark’s second prong.152 Plaintiffs maintain the

Court can reasonably infer this Board-level knowledge because of the following

150
    Id.; Okla. Firefighters Pension & Ret. Sys. v. Corbat, 2017 WL 6452240, at *14
(Del. Ch. Dec. 18, 2017) (“Scienter” requires a showing that a director “knew” he was
acting inconsistently with his fiduciary duties.).
151
    Compl. ¶¶ 91–93; PAB at 10–12; Tr. at 36–39. While not clear, at times in their
Answering Brief, Plaintiffs hint that they may be faulting the Demand Board for not
requiring management to update revenue projections after the Karma recall on
November 8. See PAB at 42. To the extent this is Plaintiffs’ argument, Plaintiffs have not
pled that management knew the full financial impact of the Karma recall until the Company
was ready to release its full-year results. “Management cannot disclose projections that do
not exist.” In re BioClinica, Inc. S’holder Litig., 2013 WL 673736, at *5 (Del. Ch. Feb. 25,
2013). Instead, the Company disclosed what it did know (i.e., the need for the recall and
that GoPro had sold only 2,500 drones to date). Compl. ¶ 117.
152
   Compl. ¶ 209; PAB at 41–42 (arguing Defendants failed to respond to “red flags”). It is
no surprise Plaintiffs do not allege a total failure to implement an oversight system under
Caremark’s first prong because the Board maintained an active Audit Committee and
GoPro had a “real-time” supply chain “monitoring system,” which the Audit Committee
and the Board writ large regularly reviewed with the assistance of Company management.
Compl. ¶¶ 72–75, 85.

                                            33
facts: a majority of the Demand Board had “access to the Netsuite ERP system;”153

consumers posted videos showing Karma’s defect;154 GoPro “had an existing supply

of only 2,500 Karma drones” at the beginning of the fourth quarter;155 Karma had

limited availability after its launch;156 and members of the Board saw various slides

at Board meetings discussing “risk” surrounding Karma.157

         Although Plaintiffs throw everything against the wall, nothing sticks. While

Plaintiffs urge the Court to infer scienter, the Complaint pleads no facts that would

allow a reasonable inference a majority of the Demand Board knew GoPro was

misleading investors with any of its public statements during 2016.

         First, Plaintiffs incorrectly assert Board members had a duty to “access”

Netsuite and extrapolate on its own that the Company had incurable inventory

shortages.158 As Chancellor Allen noted in Caremark, “the duty to act in good faith

to be informed cannot be thought to require directors to possess detailed information

about all aspects of the operation of the enterprise. Such a requirement would simply

153
      Compl. ¶¶ 75, 80.
154
   Compl. ¶ 100; PAB at 36 (alleging Goldman, Gotcher, Lurie and Zalaznick face a
substantial likelihood of liability); see also PAB at 41–42.
155
      Compl. ¶¶ 8, 93, 109.
156
      Compl. ¶¶ 99–100.
157
      Compl. ¶¶ 83, 97, 108.
158
      Compl. ¶ 95.

                                          34
be inconsistent with the scale and scope of efficient organization size in this

technological age.”159 Taking a self-guided tour through an ERP system to check

inventory levels for a product that would comprise only 10% of the Company’s

revenue is not the sort of “oversight” Caremark contemplates.160

         In a similar vein, a few YouTube videos showing Karma’s battery defect

cannot be considered “red flags” that were “waived” in front of the Board.161 Even

if they were red flags, the Board met to discuss “proposed recall plans” just eleven

days after the first video was posted.162 A Caremark claim cannot be squared with

an allegation the Board responded to red flags.163

         Continuing with their unrealistic expectations, Plaintiffs claim the Board

“would have been made aware of [Karma’s] obvious battery defect had [GoPro]

159
      Caremark, 698 A.2d at 971.
160
   Compl. ¶¶ 109–10, 189 (bullet 9). This is especially true when considered against the
backdrop of the Karma Production Forecast, which I discuss in more detail below.
“‘Red flags’ are only useful when they are [] waived in one’s face or displayed so that they
are visible to the careful observer.” In re Citigroup Inc. S’holders Litig., 2003
WL 21384599, at *2 (Del. Ch. June 5, 2003).
161
  Compl. ¶ 76; Citigroup, 2003 WL 21384599, at *2 (To constitute a red flag, Plaintiffs
must plead information “came to the attention of the board.”).
162
      Compl. ¶¶ 98, 100, 116.
163
  White v. Panic, 793 A.2d 356, 371 (Del. Ch. 2000); South, 62 A.3d at 18; Horman, 2017
WL 242571, at *14 (stating that a Caremark claim is incongruous with allegations that
when “red flags were waived,” the “Board responded”).

                                            35
adequately tested the drones.”164 This conclusory pleading is insufficient under

Rule 23.1. Delaware law has long-rejected the notion that board members should

be held personally liable for a company’s “ineffective” attempts to manage business

risk unless the court finds it reasonable to infer a conscious, subjective awareness on

the part of a board member that she was not fulfilling her fiduciary duties.165

Plaintiffs offer no well-pled facts supporting an inference that a majority of the

Demand Board personally knew about Karma’s defect, could meaningfully address

the issue at the Board level and yet elected to do nothing.

         Second, Plaintiffs strenuously assert the Board knew there was “no way

GoPro would meet” its revenue guidance as of September 19 because the Company

had only 2,500 drones in inventory.166 But Plaintiffs offer no reason to infer the

Board should have disregarded management’s November 1 Karma Production

Forecast stating the “Very early-Targeting” for Karma production was “80K in 4th

164
      Compl. ¶ 103.
165
   Citigroup, 964 A.2d at 130 (“[T]he mere fact that a company takes on business risk and
suffers losses” or that a board does not “properly evaluate business risk” “does not evidence
misconduct.”); Stone, 911 A.2d at 368 (same); Desimone v. Barrows, 924 A.2d 908, 935,
936 n.97 (Del. Ch. 2007) (“[T]o hold directors liable for a failure in monitoring, the
directors have to have acted with a state of mind consistent with a conscious decision to
breach their duty of care.”); Okla. Firefighters, 2017 WL 6452240, at *14, *20
(“[A]n ineffective response does not, without more, indicate bad faith.”).
166
      Compl. ¶¶ 91, 93.

                                             36
quarter”—a number of units within the range Plaintiffs allege GoPro needed to meet

its revenue guidance.167

         Considering the presumption of directorial good faith, as well as the Board’s

statutory right to rely on management’s reports, the Karma Production Forecast

renders unreasonable any inference the Board knew GoPro was headed for a

significant revenue miss.168 Management told the Board the Company was capable

of producing 80,000 drones in the fourth quarter based on specific suppliers and

167
    Compl. ¶¶ 91, 93, 111–12 (alleging the Company would need to sell “around 50,000–
75,000 units” to meet its revenue guidance); Svikhart Aff. Ex. 6 at GoPro220_000138.
While Plaintiffs’ Motion to Strike challenges Defendants’ reliance on certain documents,
the Karma Production Forecast is not among the challenged documents. See D.I. 18. I may
review documents cited in the Complaint “to ensure that the plaintiff has not
misrepresented [their] contents and that any inference the plaintiff seeks to have drawn is
a reasonable one.” Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016),
rev’d on other grounds, Tiger v. Boast Apparel, Inc., 2014 A.3d 933 (Del. 2019). Plaintiffs
argue I cannot weigh competing factual interpretations of incorporated documents on a
motion to dismiss. PAB at 34. That is true. But a plaintiff likewise “may not reference
certain documents outside the complaint and at the same time prevent the court from
considering those documents’ actual terms.” Winshall v. Viacom Int’l, Inc., 76 A.3d 808,
818 (Del. 2013). I am permitted to review incorporated documents “to ensure that the
plaintiff cannot seize on a document, take it out of context, and insist on an unreasonable
inference that the court could not draw if it considered related documents.” Id. at 798.
See also In re Clovis Oncology, Inc. Deriv. Litig., 2019 WL 4850188, at *14 n.216
(Del. Ch. Oct. 1, 2019) (noting that while “Section 220 documents, hand selected by the
company, cannot be offered to rewrite an otherwise well-pled complaint,” they can be
offered, and considered by the Court, to ensure the plaintiff is not taking documents out of
context). That is all I have done here. Plaintiffs make much of management’s slides
showing the Company had only 2,500 drones in its inventory as it entered Q4.
See Compl. ¶¶ 93, 109, 113. The Karma Production Forecast merely places that piece of
information in the full context of what management was telling the Board in real time.
168
      Aronson, 473 A.2d at 812; 8 Del. C. § 141(e).

                                              37
specific yield rates.169 The Director Defendants had a right to rely on this report and,

in turn, had a basis reasonably to conclude GoPro would overcome its inventory

shortage.170 The fact that GoPro’s Karma inventory was only 2,500 in the run-up to

the 2016 holiday season is, therefore, not a basis to infer bad faith.171

         Finally, in their Answering Brief, Plaintiffs underscore a number of slides

discussing “risk” associated with Karma, specifically, (i) the May 3 slide stating

Karma’s “delays [were] adding risk”;172 (ii) the October 6 Board slide discussing a

169
    Svikhart Aff. Ex. 6 at GoPro220_000138. Similarly, with the Karma Production
Forecast in hand, the Board could reasonably conclude Woodman’s September 19
representation that Karma would be “distributed . . . globally” was not a misrepresentation.
Compl. ¶ 91.
170
    8 Del. C. § 141(e). While the California Court may have inferred the Bielousov
Defendants “knew that 2,500 drones would be insufficient,” the inquiry this Court must
undertake is different. See Bielousov v. GoPro, Inc., 2017 WL 3168522, at *6 (inferring
certain GoPro officers “knew that 2,500 drones would be insufficient”). First, as noted,
the Court may consider Section 220 documents (such as the Karma Production Forecast)
that have been incorporated by reference. The plaintiffs in the California Court “did not
have access to” the Section 220 materials made available to Plaintiffs here. Tr. at 33.
Second, the claims before the California Court pertained to the conduct of the Bielousov
Defendants (all of whom were GoPro officers). Here, the relevant inquiry is whether
Plaintiffs have well pled a majority of the Demand Board acted with scienter—a standard
that requires Plaintiffs to plead these defendants were “conscious” they were not fulfilling
their fiduciary duties. Desimone, 924 A.2d at 935.
171
   Compl. ¶ 117. Plaintiffs argue “[p]rior [i]nventory [i]ssues” GoPro had with the HERO4
line of cameras in 2015 were “red flags” that the Board ignored in regards to the Company’s
Karma inventory. PAB at 41. Plaintiffs offer no reason why overproduction of an
unrelated product would or should have led the Board to question the Karma Production
Forecast.
172
      Compl. ¶ 83.

                                            38
total “Q4 revenue risk” of “$45–110M” of which “$20M–$85M” was attributed to

Karma;173 and (iii) the October 24 Audit Committee slide “looking ahead” to

“significant accounting and reporting items” for “Q4’16”—one of which was

“revenue recognition—Karma sales returns reserve.”174 I gather Plaintiffs present

these slides as factual support for an allegation the Board ignored red flags since

they reveal “it was almost certain” GoPro could not meet its revenue guidance.175

Nothing about these slides supports a reasonable inference the Board knew the

Company would miss its guidance or consciously disregarded risk. Rather, at best,

they show the Board was making a good faith effort to monitor GoPro’s business

risk as Karma production continued.

         As GoPro warned its stockholders, every business involves risk.176

“The essence of the business judgment of . . . directors is deciding how the company

will evaluate the trade-off between risk and return.”177 Whether the Board properly

struck that balance in the exercise of its business judgment is irrelevant to Plaintiffs’

173
      Compl. ¶ 97; Serra Aff. Ex. 8 at GoPro220_000121.
174
      Compl. ¶ 108; Serra Aff. Ex. 12 at GoPro220_000197.
175
      PAB at 10–11.
176
      See February 8-K.
177
      Citigroup, 964 A.2d at 126.

                                            39
effort to excuse their failure to make a demand. In other words, Plaintiffs cannot

“equate a bad outcome with bad faith.”178

         Plaintiffs Have Failed to Well Plead Demand Futility With Respect to
         Counts I and IV
         In Counts I and IV, Plaintiffs bring claims against the Officer Defendants and

Selling Defendants.179 While Plaintiffs concede the gravamen of their demand

futility allegations pertain to the Demand Board’s alleged liability stemming from

GoPro’s public statements, they make two last-ditch demand futility arguments

related to the Bielousov action and their Brophy claim.180 First, based on this court’s

rulings in In re Fitbit and Pfeiffer v. Toll, Plaintiffs argue that “not a single member

of the Demand Board could have considered a demand impartially because doing so

would have been tantamount to admitting liability in the then-pending Bielousov

178
    Stone, 911 A.2d at 373. Plaintiffs ask for an inference the Board knew the Company
would miss its projections because “the difference between the $54 million in Karma’s
fourth quarter sales that GoPro had led the market to believe would be realized and the
$2.75 million that was actually attainable at the time [was] $51.25 million [which] falls in
the mid-range of the Karma risk profile that the Board internally acknowledged during the
October 6, 2016 Board update.” Compl. ¶ 113. This math shows the Board accurately
assessed risk (not certainty) associated with rolling out the Karma drone. As noted,
management told the Board on November 1, 2016, that the Company was going to be able
to produce enough units to meet inventory projections. This renders unreasonable the
allegation the Board knew GoPro was headed for a significant revenue miss.
179
      Compl. ¶¶ 200–04, 221–28.
180
      PAB at 43, 50.

                                            40
Action.”181 Second, Plaintiffs argue demand is futile as to Count IV because

“pressing forward” with the Brophy claim would “compromise or undercut

[a majority of the Demand Board’s] defense for another claim.”182

         Plaintiffs’ reliance on Fitbit and Pfeiffer is misplaced. Both cases held

demand was futile based on a companion federal securities action in which at least

a majority of the relevant demand board was named as a defendant.183 Here, only

one member of the Demand Board (Woodman) is named as a defendant in either the

Bielousov action or with respect to the Brophy claim sub judice.184 And, as noted,

Plaintiffs have not well pled any member of the Demand Board is beholden to

Woodman.185

181
    PAB at 50 (citing Pfeiffer v. Toll, 989 A.2d 683, 689 (Del. Ch. 2010), rev’d on other
grounds, Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831 (Del. 2011); In re
Fitbit, Inc. S’holder Deriv. Litig., 2018 WL 6587159, at *16 (Del. Ch. Dec. 14, 2018);
Guttman v. Huang, 823 A.2d 492, 502 (Del. Ch. May 5, 2008) (explaining that, under
certain circumstances, demand may be excused under Rales if a majority of a demand board
is “influenced by improper considerations” such as a “substantial likelihood of personal
liability” in related litigation) (quotations omitted).
182
      PAB at 49.
183
    See Pfeiffer, 989 A.2d at 690 (“All of the individual defendants . . . are named as
defendants in a companion federal securities action.”); In re Fitbit, 2018 WL 6587159,
at *11, *16 (Four of seven demand board members were defendants in a federal securities
class action.).
184
      Compl. ¶¶ 30, 183, 189, 222.
185
   Rojas v. Ellison, 2019 WL 3408812, at *14 (Del. Ch. July 29, 2019) (reaching the same
conclusion on similar facts); In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808,
821–22 (Del. Ch. 2005) (stating that directors are neither interested nor beholden to an
                                           41
       Given Plaintiffs’ failure to plead a majority of the Demand Board faces a

substantial likelihood of personal liability, either with respect to the related securities

litigation or the Brophy claim pending here, neither can be deemed a basis to excuse

demand.186 As Plaintiffs have failed to plead particularized facts to support an

inference that the Demand Board cannot manage the Company’s litigation asset,

including its potential claims against the Officer Defendants and the Selling

Defendants for breach of fiduciary duty, these claims also must fail under Rule 23.1.

                               III. CONCLUSION

       For the foregoing reasons, Defendants’ Motion must be GRANTED. The

Complaint is dismissed with prejudice.

       IT IS SO ORDERED.

interested person if their “decision is based on the corporate merits of the subject before
the board rather than extraneous considerations or influences”).
186
    Orman v. Cullman, 794 A.2d 5, 23 (Del. Ch. 2002) (Only a substantial likelihood of
liability would make it “improbable that the director could perform her fiduciary duties to
the shareholders.”) (internal quotation omitted).

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