In re Ebix, Inc. Stockholder Litigation

EFiled: Jul 24 2014 12:10PM EDT
Transaction ID 55779872
Case No. 8526-VCN
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE EBIX, INC. : CONSOLIDATED
STOCKHOLDER LITIGATION : C.A. No. 8526-VCN

MEMORANDUM OPINION

Date Submitted: February 20, 2014
Date Decided: July 24, 2014

Michael Hanrahan, Esquire, Paul A. Fioravanti, Jr., Esquire, Kevin H. Davenport,
Esquire, and Eric J. Juray, Esquire of Prickett, Jones & Elliott, P.A., Wilmington,
Delaware; Stuart M. Grant, Esquire, Michael J. Barry, Esquire, and Bernard C.
Devieux, Esquire of Grant & Eisenhofer P.A., Wilmington, Delaware; Seth D.
Rigrodsky, Esquire, Brian D. Long, Esquire, and Gina M. Serra, Esquire of
Rigrodsky & Long, P.A., Wilmington, Delaware; Christine S. Azar, Esquire and
Peter C. Wood, Jr., Esquire of Labaton Sucharow LLP, Wilmington, Delaware;
Mark Lebovitch, Esquire and Jeremy Friedman, Esquire of Bernstein Litowitz
Berger & Grossmann LLP, New York, New York; Marc A. Topaz, Esquire, Lee D.
Rudy, Esquire, Michael C. Wagner, Esquire, Justin O. Reliford, Esquire, and
James H. Miller, Esquire of Kessler Topaz Meltzer & Check, LLP, Radnor,
Pennsylvania; Jeffrey W. Golan, Esquire and Lisa M. Lamb, Esquire of Barrack,
Rodos & Bacine, Philadelphia, Pennsylvania; Carl L. Stine, Esquire of Wolf
Popper LLP, New York, New York; Kent A. Bronson, Esquire and Jessica Sleater,
Esquire of Millberg LLP, New York, New York; and William B. Federman,
Esquire of Federman & Sherwood, Oklahoma City, Oklahoma, Attorneys for
Plaintiffs.

Samuel A. Nolen, Esquire, Catherine G. Dearlove, Esquire, and Christopher H.
Lyons, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware;
Charles W. Cox, Esquire and Kimberly K. Chemerinsky, Esquire of Alston &
Bird LLP, Los Angeles, California; and John A. Jordak, Jr., Esquire of Alston &
Bird LLP, Atlanta, Georgia, Attorneys for Defendants.

NOBLE, Vice Chancellor
 This Court has, on occasion, heard claims asserted by a stockholder of a

Delaware corporation challenging the board of directors’ decision to agree to a

recently-announced merger.1 A stockholder plaintiff typically challenges that

decision as a breach of the directors’ fiduciary duties and often seeks to enjoin the

merger’s consummation—be it due to allegations of a flawed sale process,

unreasonable provisions in the merger agreement, inadequate disclosures in the

proxy materials, or some other theory. Sometimes stockholders are successful in

this endeavor; sometimes they are not. Other times, business realities change, and

the merger may be abandoned for reasons independent of any litigation in this

Court. Stockholder plaintiffs in this last category are then left without a viable

cause of action—or so it would seem. As this lawsuit demonstrates, however,

terminating a merger agreement does not necessarily foreclose stockholder

litigation that, absent the abandoned merger, may not otherwise have been pursued.

Defendant Ebix, Inc. (“Ebix”) agreed to be acquired by an affiliate of

Goldman, Sachs & Co. (“Goldman”) in May 2013. In that going-private merger,

the company’s public stockholders were to receive $20.00 in cash per share, and

several of its largest stockholders were to roll over a portion of their Ebix stock for

equity in the post-merger entity. Defendant Robin Raina (“Raina”), Ebix’s

1
By one recent calculation, more than 90% of mergers involving publicly-traded companies
during 2012 and 2013 were challenged in stockholder lawsuits. See, e.g., Matthew D. Cain &
Steven M. Davidoff, Takeover Litigation in 2013, at 2-3 (Jan. 9, 2014),
http://ssrn.com/abstract=2377001.
1
Chairman and Chief Executive Officer (“CEO”), was in the second group of

stockholders. He agreed to accept $32 million in cash and 29% of the post-merger

entity in exchange for his fully diluted, 9.3% stake in Ebix and his agreeing to

waive any bonus payment due to him from the company under his 2009

Acquisition Bonus Agreement (the “ABA”). By the end of the month, Ebix

stockholders had filed twelve class actions in this Court challenging the terms of

the proposed merger, including the consideration that Raina would receive. But,

the course of the litigation changed in June when Ebix and Goldman terminated

their agreement.

Left without a transaction to challenge, the Plaintiffs2 filed the Amended

Complaint, shifting their focus to the conduct surrounding the ABA. In the

Amended Complaint, the Plaintiffs assert several class and derivative claims

against Ebix and its board of directors (the “Board,” and together with Ebix, the

“Defendants”): (i) a declaratory judgment claim regarding certain terms of the

ABA;3 (ii) a direct breach of fiduciary duty claim regarding the adoption and

effects of, and disclosures about, the ABA;4 (iii) a direct breach of fiduciary duty

claim challenging the company’s 2010 Stock Incentive Plan as invalid because it

2
The Co-Lead Plaintiffs are Desert States Employers & UFCW Union Pension Plan and
Gilbert C. Spagnola. Verified Am. and Supplemented Class Action and Deriv. Compl. (“Am.
Compl.” or the “Amended Complaint”) ¶¶ 12, 14.
3
Id. ¶¶ 91-95.
4
Id. ¶¶ 96-104.
2
was adopted pursuant to a materially uninformed stockholder vote;5 and (iv) a

derivative breach of fiduciary duty claim regarding the adoption and effects of, and

disclosures about, the ABA.6 The Plaintiffs have also asserted direct and

derivative claims against Raina for breach of fiduciary duty and unjust enrichment

for improperly retaining the rights he received under the ABA.7

The Defendants moved to dismiss all of the Plaintiffs’ claims pursuant to

Court of Chancery Rules 23.1 and 12(b)(6). In brief, the Defendants assert that the

claims related to the ABA are either barred by laches or not ripe, that the claims

asserted are all derivative and demand is not excused, and that the Amended

Complaint otherwise fails to state a claim upon which relief may be granted.

For the reasons set forth below, the Court concludes that the Defendants’

motion must be granted in part and denied in part.

I. THE PARTIES

Ebix, a Delaware corporation based in Atlanta, Georgia, provides e-

commerce, software and related services to the insurance industry. Its stock trades

on the NASDAQ.8 Including options, Raina and his eponymous foundation

5
Id. ¶¶ 109-11.
6
Id. ¶¶ 112-16.
7
Id. ¶¶ 105-08, 117-20.
8
Id. ¶ 15.
3
beneficially owned approximately 9.3% of Ebix’s stock as of June 2013, making

him the company’s largest stockholder.9

The Board is comprised of six directors, each of whom is named as a

Defendant in this action: Raina, Pavan Bhalla (“Bhalla”), Neil D. Eckert

(“Eckert”), Rolf Herter (“Herter”),10 Hans U. Benz (“Benz”), and Hans U. Keller

(“Keller”). Each has served as a director since at least 2005.11 Benz and Keller

have constituted the Board’s Compensation Committee since 2009.12 At times, the

Court refers to Bhalla, Eckert, Herter, Benz, and Keller as the “Outside Directors.”

Raina has been Ebix’s CEO since 1999 and Chairman of the Board since

2002.13

The Plaintiffs have been Ebix stockholders at all material times.14

II. BACKGROUND

A. Ebix’s 1996 Stock Incentive Plan

Undoubtedly like most large companies, Ebix has historically had an

incentive-based compensation plan for its officers, directors, and employees.

Ebix’s 1996 Stock Incentive Plan, with the amendments thereto, (the “1996 Plan”)

9
Id. ¶¶ 16, 20.
10
Herter is a director of the Rennes Fondation, Ebix’s second-largest stockholder. In the
proposed Goldman merger, the Rennes Fondation, like Raina, was to rollover a portion of its
Ebix stock into equity in the post-merger entity. Id. ¶ 20.
11
Id. ¶¶ 16-21.
12
Id. ¶¶ 17, 21.
13
Id. ¶ 16.
14
Id. ¶¶ 12, 14.
4
governs the awarding of compensation such as options, stock appreciation rights,

restricted shares, deferred shares, performance shares, and performance units.15

One of the compensation units it authorizes is an Appreciation Right, through

which a recipient would be entitled to up to 100% of the increase in the price of

Ebix stock from the defined base price on the date the right is granted to the

exercise price on the date the right is exercised.16

The 1996 Plan sets forth certain mandatory and permissive terms for

Appreciation Rights. For example, while Appreciation Rights may be conditioned

on a change-in-control transaction, they must be evidenced by an agreement stating

that the grant is subject to all of the terms of the 1996 Plan.17 In addition, a grant

of an Appreciation Right “shall specify . . . a Base Price per Common Share, which

shall be equal to or greater than the Market Value per Share on the Date of

Grant.”18 The Date of Grant, in turn, is “the date specified by the Board on which

a grant of . . . Appreciation Rights . . . shall become effective, which shall not be

earlier than the date on which the Board takes action with respect thereto.”19

15
Id. ¶ 23.
16
Id. ¶ 24.
17
Id. ¶ 25. The written agreement “shall describe the subject Appreciation Rights, identify any
related Option Rights, state that the Appreciation Rights are subject to all of the terms and
conditions of this Plan and contain such other terms and provisions as the Board may determine
consistent with this Plan.” Id.
18
Id.
19
Id. ¶ 26.
5
 The 1996 Plan also contains aggregate award limits. Only 1,137,500 shares

are available under it, and a recipient may receive up to 125,000 shares annually.20

The Board may not increase the aggregate number of available shares, but it may

adjust certain terms of the awards, such as the base price of Appreciation Rights, to

prevent dilution after a stock split, stock dividend, or similar change to the

company’s capital structure.21

Ebix filed the 1996 Plan with the Securities and Exchange Commission

(“SEC”) as an exhibit to its 2004 Form 10-K Annual Report (the “2004 Form 10-

K”).22

B. The Acquisition Bonus Agreement between Ebix and Raina

Based on a recommendation from the Compensation Committee, the Outside

Directors unanimously authorized Ebix to enter into the ABA with Raina on

July 15, 2009.23 The ABA provided to Raina a right to a bonus payment upon a

defined acquisition event. In a Form 8-K Current Report filed with the SEC on

July 21 (the “July 2009 Form 8-K”), the Board disclosed the ABA and summarized

the way in which Raina would be compensated under it:

20
Id. ¶ 23.
21
Id. ¶¶ 23, 28. The Board may also, in “good faith,” adjust the aggregate award limits to reflect
changes in Ebix’s capital structure. Id. ¶ 28.
22
Id. ¶ 23.
23
Id. ¶ 29.
6
 Mr. Raina shall receive in cash an amount equal to 20% of the total
outstanding shares of Ebix common stock, on a fully diluted basis,
prior to the occurrence of such an event less the number of shares of
common stock Mr. Raina beneficially owned at that time, multiplied
by the difference between the per share fair value of the net proceeds
received by the Company less $23.84.24

In effect, because Raina already held just under 10% of Ebix’s fully diluted stock

in July 2009, the ABA granted to him stock appreciation rights on approximately

10% more of the company’s fully diluted stock.25 The ABA further provided to

Raina a gross-up payment, in order to cover any federal excise tax on change-in-

control payments, on both the bonus amount and the gross-up itself.26

The ABA, according to the Plaintiffs, is subject to the 1996 Plan because it

“granted Acquisition Rights within the meaning of the 1996 Plan” to Raina.27 The

Plaintiffs contend that the ABA violates the 1996 Plan in at least three primary

ways: (i) “the Base Price exceeded [the] market value of [Ebix stock on] the Date

of the Grant”; (ii) the awarding of approximately 1.1 million Appreciation Rights

exceeded the 125,000 annual limit per recipient; and (iii) the ABA did not state

that it was subject to the 1996 Plan.28

24
Id. ¶ 34. Raina would also have to be an Ebix employee or have been involuntarily terminated
without cause within the 180-day period preceding the acquisition event. Id. ¶ 36.
25
Id. ¶ 39.
26
Id. ¶ 42.
27
Id. ¶ 44.
28
Id.
7
 The base price for Raina’s rights (the “Base Price”) under the ABA is

perhaps the key issue in dispute in this litigation. Initially, the ABA defined the

Base Price as $23.84.29 That represented, as the Board would later disclose, the

closing price of Ebix stock on March 25, 2009. The Plaintiffs contend that, for the

ABA to comply with the 1996 Plan, the Base Price should have been at least the

market price of Ebix stock on the date the ABA was executed—which was, they

say, $37.32 on July 15, 2009.30 As alleged, the Outside Directors “knew” that the

$23.84 Base Price was not the market value of Ebix’s stock on July 15 when they

approved the ABA.31

Although a number of terms used to calculate Raina’s rights under the ABA

may fluctuate, the definition of the Base Price allegedly does not. Specifically, the

Plaintiffs assert that the ABA “does not contain any anti-dilution provision for a

change in the Base Price in the event of a stock split.”32 While they do recognize

that Ebix and Raina may amend the ABA by written agreement, the Plaintiffs insist

that the ABA—especially the Base Price—has not been amended.33 The

Defendants, when pressed on this issue, were unable to identify a written

29
Id. ¶ 37.
30
Id. ¶ 56.
31
Id. ¶¶ 90, 98.
32
Id. ¶¶ 40, 93
33
Id. ¶¶ 41, 93.
8
amendment to the ABA that may have negated the Plaintiffs’ claim as a matter of

law.34

The July 2009 Form 8-K stated that the ABA was intended to create the

right incentives for Raina “to profitably grow the Company” and to “maximize the

value received by all stockholders of Ebix” in a change-in-control transaction.35

The Board also suggested that the ABA was, in part, a response to its evaluation of

“the potential threat of the Company itself being an acquisition target” because of

its “comparatively low P/E [price/earnings] multiple.”36

Although Ebix promptly disclosed the ABA in the July 2009 Form 8-K, the

company did not mention the agreement in several of its subsequent SEC filings in

2009. For example, in the proxy statement for its October 2009 annual meeting

(the “2009 Proxy Statement”), the Compensation Committee’s report on executive

compensation did not mention the ABA, despite discussing Raina’s other bonus

compensation that the Outside Directors had approved in March 2009.37

34
Tr. of Oral Arg. Defs.’ Mot. to Dismiss 87-88 (“The plaintiffs allege [the ABA] has not [been
amended], and Your Honor would need to take that as a pled fact, as true for purposes of the
motion to dismiss.”).
35
Am. Compl. ¶¶ 31, 33.
36
Id. ¶ 32.
37
Id. ¶¶ 47-48. Under its charter, the Compensation Committee must prepare a report on
executive compensation to be included in the company’s annual meeting proxy statements. The
report is reviewed and approved by Ebix’s CEO and Chief Financial Officer. Id. ¶ 47.
9
C. Ebix’s 3-for-1 Stock Split Via a Two-Share Stock Dividend

In late 2009, Ebix sought to effect a 3-for-1 stock split by way of a two-

share stock dividend. The company issued a proxy statement for a special

stockholders’ meeting (the “2009 Special Meeting Proxy Statement”) to approve a

charter amendment that would increase the number of authorized shares from

20 million to 60 million. The Board “did not mention the Acquisition Bonus

Agreement or indicate that the stock dividend would reduce the Base Price under

that Agreement” in the 2009 Special Meeting Proxy Statement.38 Ebix

stockholders approved the charter amendment, and Ebix issued the dividend.39

D. The Discussion of the ABA in the 2009 Form 10-K

The Defendants submit that the ABA was fully disclosed to stockholders in

the company’s 2009 Form 10-K Annual Report (the “2009 Form 10-K”), which

Ebix filed with the SEC on March 16, 2010.40 In the 2009 Form 10-K, the Board

identified the “Spread” under the ABA as being “calculated by subtracting $23.84

(post three-for-one split, $7.95) from the Net proceeds per share.”41 The Board

38
Id. ¶ 49.
39
Id.
40
The 2009 Form 10-K is extrinsic to the Amended Complaint. But, because the Plaintiffs’
claims (and tolling arguments in response to the Defendants’ laches defense) center on the
Board’s disclosures regarding the ABA, the Court will consider what this SEC filing disclosed.
In doing so, the Court does not accept the truth of what was disclosed. See Vanderbilt Income &
Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 613 (Del. 1996).
41
Lyons Trans. Aff. Ex. 2 (Ebix, Inc. Annual Report (Form 10-K), at 77 (Mar. 16, 2010)).
The Court notes that this disputed adjustment to the Base Price after Ebix’s two-share
dividend would have maintained the same incentive structure for Raina.
10
also explained that $7.95 “represents the approximate price per share of the

Company’s common stock on March 25, 2009 when the independent members of

the Board agreed on the desirability of this type of agreement.”42 The July 15,

2009, date on which the ABA was executed was not discussed in the 2009

Form 10-K, but the date was noted in the exhibit list, which incorporated the ABA

by reference.43

E. The Board Seeks Stockholder Approval of the 2010 Stock Incentive Plan

In the proxy statement for the company’s 2010 annual meeting (the “2010

Proxy Statement”), the Board recommended that Ebix stockholders approve the

proposed 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan would

authorize up to five million additional shares in incentive-based compensation for

Ebix officers, directors, and employees. The Board described the 2010 Plan as

“critical” and “essential” to Ebix’s future, in part, because approximately 80% of

the shares authorized by the company’s prior incentive-based compensation

plans—such as the 1996 Plan—had already been granted.44 The 2010 Plan, much

like the 1996 Plan, provided anti-dilution protection by permitting certain

42
Id. at 78.
43
Id. at 91.
44
Am. Compl. ¶ 50.
11
adjustments to the exercise price for stock options in the event of a stock dividend

or a stock split.45

The Board again explained how Raina would be compensated under the

ABA in the 2010 Proxy Statement. The Base Price was identified as $7.95.46 This

disclosure is the first of several in Ebix proxy statements that the Plaintiffs

challenge as a material misstatement because the Base Price was allegedly never

reduced, by operation of the ABA’s terms or by a written amendment, from

$23.84. Additionally, the Board described the Base Price as the price of Ebix stock

on March 25, 2009, the date “when the independent members of the Board agreed

on the desirability of this type of agreement.”47 Other than on the exhibits list, the

2010 Proxy Statement does not appear to disclose that the Outside Directors

approved the ABA on July 15, 2009; it simply notes that the approval occurred “in

2009.”48

Ebix stockholders presumably approved the 2010 Plan. Following Ebix’s

annual meetings in 2010, 2011, and 2012, the Outside Directors were granted

9,000 options each pursuant to the 2010 Plan. The total value of these awards was

45
Id. ¶¶ 51, 65.
46
Id. ¶¶ 55-56.
47
Id. ¶ 56.
48
Id. ¶ 54.
12
approximately $300,000.49 Raina also received 12,500 restricted shares, worth

approximately $879,298, pursuant to the 2010 Plan in 2012.50

F. The Discussion of the ABA in Ebix’s 2011 and 2012 Proxy Statements

In the proxy statement for the company’s 2011 annual meeting (the “2011

Proxy Statement”), the Board noted that the $7.95 Base Price was a post-stock

dividend price. The included Compensation Committee report stated that the

Outside Directors approved the ABA in 2010 rather than in 2009.51 But, the

following year, in the proxy statement for Ebix’s 2012 annual meeting (the “2012

Proxy Statement”), the Compensation Committee report noted that the approval

was in 2009.52

As it did in the July 2009 Form 8-K, the Board continued to describe the

ABA as having, in part, anti-takeover effects. For example, in the 2010, 2011, and

2012 Proxy Statements, the Board noted:

Considering the continued healthy growth of the Company and the
prevailing comparatively low price to earnings multiple of Ebix’s
common stock, the Board has evaluated the potential threat of the
Company itself being an acquisition target. The Agreement [i.e., the
ABA] serves in part to allow for stockholder value to be maximized
by dissuading a potentially hostile attempt at an unacceptable price.53

49
Id. ¶ 57.
50
Id. ¶ 16.
51
Id. ¶ 61.
52
Id. ¶ 62.
53
Id. ¶ 67.
13
The Board also described the ABA as intended to reward Raina for his

contributions “to the future success and growth of Ebix.”54

In the 2012 Proxy Statement, apparently for the first time, the Board

provided a hypothetical calculation of Raina’s payment rights under the ABA. The

calculation assumed, as had been disclosed in the 2010, 2011, and 2012 Proxy

Statements, that the Base Price was $7.95:

Using the number of shares of common stock held by Mr. Raina on
the record date for the Company’s 2012 Annual Meeting, and, merely
for sake of example, a $24.00 price of the Company’s stock as the Net
Proceeds, Mr. Raina would receive a $92,214,368 payment upon a
liquidation event.55

Given Raina’s stock ownership at the time, this bonus and gross-up figure

represented approximately 10% of Ebix’s value.56

G. The (Abandoned) Merger with Goldman

The Plaintiffs contend that Ebix’s stock price has generally decreased in

recent years. Specifically, it decreased from nearly $29 in February 2011 (which

pegged Ebix’s market capitalization at over $1 billion) to below $14 two years

later.57 During the interim, various persons—first in an anonymous online article

and then in several federal securities class actions—accused Ebix of improper

54
Id.
55
Id. ¶ 68. None of the 2010, 2011, or 2012 Proxy Statements discloses or otherwise references
any amendment to the ABA or the Base Price. Id. ¶ 66.
56
Id. ¶ 68.
57
Id. ¶¶ 69, 73.
14
accounting practices and inadequate financial disclosures.58 Raina and the rest of

the Board have denied these allegations.59

Near the end of this timeframe, according to the Plaintiffs, Raina sought to

take advantage of the “enormous upside” created by the temporary reduction in

Ebix’s stock price.60 To do so, he partnered with Goldman to take Ebix private.61

On May 1, 2013, Ebix and Goldman announced a merger agreement

pursuant to which Ebix’s public stockholders would receive $20.00 in cash per

share. The consideration was approximately 7% above the pre-announcement

closing price of Ebix stock, and the transaction implied an enterprise value,

including assumed debt, of $820 million.62

Concurrently, Raina and Goldman entered into the Investment Letter

Agreement (the “Investment Agreement”) that would govern the consideration he

(and his foundation) would receive in the merger.63 Based on the disclosed $7.95

Base Price and the $20.00 per share merger price, Raina had the right under the

ABA to demand a payment of approximately $84 million from Ebix.64 But, under

the terms of the Investment Agreement, Raina agreed to accept $32 million in cash

58
Id. ¶¶ 70-72. On May 10, 2013, Ebix would disclose that it had received subpoenas from the
SEC related to the issues raised in the securities law class actions. Id. ¶ 74.
59
Id. ¶¶ 71, 74.
60
Id. ¶ 75.
61
Id. ¶ 76.
62
Id.
63
Id. ¶ 77.
64
Id. ¶ 8. The Plaintiffs calculated the total payment owed to Raina as the sum of a bonus of over
$53 million and a tax gross-up of over $30 million. Id. ¶ 79.
15
and approximately 29% of the post-merger entity in exchange for his fully diluted

9.3% interest in Ebix and for waiving his rights under the ABA.65 The Plaintiffs

note that, were the Base Price not $7.95 but rather $23.84, then Raina would not

have been entitled to any payment under the ABA in this transaction.66

The proposed merger and the accompanying flurry of lawsuits filed by Ebix

stockholders in this Court were short-lived. Ebix and Goldman announced on

June 19 that they had agreed to terminate the merger agreement.67 The Investment

Agreement, which was contingent on the merger, was also terminated.68 The

company’s decision was partially based on a letter it had received from the United

States Attorney for the Northern District of Georgia regarding a preliminary

investigation related to the allegations in the securities class action lawsuits.69 In a

press release, Raina and another Ebix director maintained that the underlying

allegations were without merit.70

Despite—or, perhaps, because of—the termination of the merger, the

Plaintiffs pressed forward with their claims related to the ABA against the

Defendants. They filed their Amended Complaint on August 27, 2013.

65
Id. ¶¶ 7-8, 76-77.
66
Id. ¶ 79.
67
Id. ¶ 80.
68
Id. ¶ 78.
69
Id. ¶ 80.
70
Id. ¶ 81.
16
 III. CONTENTIONS

The Plaintiffs plead six causes of action against the Defendants. In addition

to a declaratory judgment claim regarding the ABA Base Price (Count I) and

breach of fiduciary and unjust enrichment claims asserted against Raina

individually (Counts III and VI), the Plaintiffs challenge certain decisions by the

Board or the Outside Directors as a breach of fiduciary duty. They denominate

certain claims as direct (Counts II and IV) and others as derivative (Count V). The

Plaintiffs’ classifications are not dispositive of the Court’s analysis of the nature of

those claims, but a brief overview of them is appropriate before addressing the

Defendants’ motion to dismiss under Court of Chancery Rules 23.1 and 12(b)(6).

The Plaintiffs challenge the following actions by the Board or the Outside

Directors directly (Counts II and IV):

 Approving and maintaining the ABA as an unreasonable anti-takeover

device;71

 Approving the ABA in violation of the 1996 Plan;72

 Omitting material information about the ABA in the 2009 Proxy

Statement and the 2009 Special Meeting Proxy Statement;73 and

71
Id. ¶ 97.
72
Id. ¶ 98.
73
Id. ¶ 100.
17
  Stating inaccurately that the ABA Base Price was $7.95 in the 2010,

2011, and 2012 Proxy Statements.74

In addition, the Plaintiffs challenge the following conduct by the Board or

the Outside Directors derivatively (Count V):

 Approving the ABA in violation of the 1996 Plan;

 Causing Ebix to file materially misleading or false SEC reports; and

 Receiving compensation under the invalid 2010 Plan.75

Among the remedies sought by the Plaintiffs are a declaration regarding the current

ABA Base Price, an injunction preventing the Defendants from claiming that

Raina is entitled to any bonus under the ABA, a declaration that the 2010 Plan was

not validly approved by Ebix stockholders, rescission of the compensation that the

Board has received under the 2010 Plan, and compensatory damages.

IV. ANALYSIS

A. The Procedural Standard of Review

On the Defendants’ motion to dismiss under Rule 12(b)(6), the Court

accepts the well-pled allegations of the Amended Complaint as true and draws all

reasonable inferences from those allegations in the Plaintiffs’ favor.76 Under this

standard, the Court neither accepts conclusory allegations as true nor draws

74
Id. ¶¶ 101, 110.
75
Id. ¶ 114.
76
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011).
18
unreasonable inferences from the Amended Complaint.77 The Court must

determine whether the Plaintiffs could recover on each of their claims under “any

reasonably conceivable set of circumstances susceptible of proof.” If recovery on

a particular claim is not reasonably conceivable, then the Court must grant the

Defendants’ motion and thereby dismiss that claim under Rule 12(b)(6).78

B. Laches

As a court of equity, this Court may dismiss a claim as untimely under the

doctrine of laches. The question the Court asks when considering a laches defense

is whether a party’s unreasonable delay in asserting a claim has unfairly prejudiced

the interests of the party against whom the claim is asserted.79 Although this

standard is simple enough to articulate, it is often not so straightforward to apply

on a Rule 12(b)(6) motion.

The analogous statute of limitations may guide the Court’s laches inquiry,80

but laches may also “bar a plaintiff in equity before the analogous statute of

limitations has run.”81 The analogous limitations period for breach of fiduciary

77
See In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
78
See Cent. Mortg. Co., 27 A.3d at 536.
79
See Reid v. Spazio, 970 A.2d 176, 183 (Del. 2009) (“[T]he laches inquiry is principally
whether it is inequitable to permit a claim to be enforced, the touchstone of which is inexcusable
delay leading to an adverse change in the condition or relations of the property or the parties.”).
80
See U.S. Cellular Inv. Co. of Allentown v. Bell Atl. Mobile Sys., Inc., 677 A.2d 497, 502 (Del.
1996).
81
In re Sirius XM S’holder Litig., 2013 WL 5411268, at *4 (Del. Ch. Sept. 27, 2013).
19
duty and unjust enrichment claims arising under Delaware law is three years.82

This period starts to run when the harm occurs, even if the injured party was

unaware of the harm at the time.83

Typically, a claim filed after the limitations period has run is considered

presumptively untimely, and presumptively untimely claims may be barred under

laches at the pleadings stage unless the party asserting the claim alleges sufficient

facts that warrant tolling.84 The tolling doctrine most relevant here is equitable

tolling, which may apply if the injured party did not learn the facts giving rise to

the cause of action because it “reasonably relied upon the competence and good

faith of a fiduciary.”85 But, tolling is usually unavailable after the injured party is

on inquiry notice of the claim,86 a standard that this Court has articulated in

comparable stockholder litigation as when the exercise of “reasonable diligence”

by a stockholder would have revealed the facts giving rise to the harm.87

82
See 10 Del. C. § 8106.
83
See CertainTeed Corp. v. Celotex Corp., 2005 WL 217032, at *7 (Del. Ch. Jan. 24, 2005).
84
See Whittington v. Dragon Gp., L.L.C., 991 A.2d 1, 9 (Del. 2009).
85
In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 585 (Del. Ch. 2007).
86
See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 319 (Del. 2004)
87
See, e.g., Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 646 (Del. Ch. 2013); Weiss v.
Swanson, 948 A.2d 433, 452 (Del. Ch. 2008); see also In re Tyson Foods, Inc., 919 A.2d at 591
(citing In re Dean Witter P’ship Litig., 1998 WL 442456, at *8 (Del. Ch. July 17, 1998), aff’d,
725 A.2d 441 (Del. 1999) (TABLE)) (“[I]nvestors are under an obligation to exercise reasonable
diligence in their affairs, and no succor from the statute of limitations should be offered a
dilatory plaintiff in the absence of such care.”).
20
 Defendants may, of course, raise laches as an affirmative defense at the

motion to dismiss stage. At times, this Court has dismissed claims on laches

grounds under Rule 12(b)(6).88 However, because of the procedural standard of

review on a motion to dismiss—where the Court must accept the well-pled

allegations as true and draw all reasonable inferences in the non-moving party’s

favor—laches is “not ordinarily well-suited for treatment on such a motion” unless

there is no reasonably conceivable set of circumstances susceptible of proof in

which laches does not bar the claim.89

The Defendants contend that any claim related to the Outside Directors’

adopting the ABA in 2009 or the subsequent reduction of the Base Price alongside

the stock dividend should be dismissed on laches grounds. They maintain that the

Plaintiffs, like all Ebix stockholders, were on inquiry notice of the terms of the

ABA and the reduction in the Base Price by at least March 2010, when the Board

discussed these issues in detail in the 2009 Form 10-K.90 In opposition, the

Plaintiffs submit that, based on their allegations challenging the accuracy of the

Board’s disclosures of the Base Price, the Court should apply equitable tolling, if

88
See de Adler v. Upper N.Y. Inv. Co. LLC, 2013 WL 5874645, at *12 n.145 (Del. Ch. Oct. 31,
2013) (identifying cases in which this Court has dismissed claims as untimely under laches at the
motion to dismiss stage); see also CertainTeed Corp., 2005 WL 217032, at *6 (“The timeliness
of claims may be determined on a motion to dismiss if the facts pled in the complaint, and the
documents incorporated within the complaint, demonstrate that the claims are untimely.”).
89
See Reid, 970 A.2d at 183.
90
Reply Br. in Supp. of Defs.’ Mot. to Dismiss (“Defs.’ Reply Br.”) 2-9; Opening Br. in Supp. of
Defs.’ Mot. to Dismiss (“Defs.’ Opening Br.”) 8-10.
21
not also fraudulent concealment, and conclude that the asserted claims are not

barred by laches.91

The Defendants offer laches as an affirmative defense to primarily three

categories of allegations and related claims: (i) whether the ABA violates the 1996

Plan; (ii) whether the ABA Base Price was reduced after the stock dividend; and

(iii) whether the ABA is an unreasonable anti-takeover device. The Court

addresses each category in turn.

1. Whether the ABA Violates the 1996 Plan (Counts II and V)

First, the Plaintiffs allege that the Outside Directors breached their fiduciary

duties when they approved the ABA on terms that violate the 1996 Plan. To

comply with the 1996 Plan, the ABA Base Price would allegedly have had to have

been at least the market price of Ebix stock on the date the rights were evidenced

by a written agreement—$37.32 on July 15, 2009, which is considerably higher

than the initial $23.84 Base Price. The ABA also allegedly granted rights to Raina

covering approximately 1.1 million shares of Ebix stock, which is considerably

higher than the 1996 Plan’s annual 125,000 share limit per recipient. In other

words, the ABA purportedly violates the 1996 Plan because, among other reasons,

it grants to Raina too many Appreciation Rights at a backdated, below-market Base

Price.

91
Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss (“Pls.’ Answering Br.”) 16-24.
22
 This claim is presumptively untimely because the alleged harm—the Outside

Directors’ approving the ABA in violation of the 1996 Plan—occurred in July

2009, more than three years before the Plaintiffs filed the Amended Complaint.92

However, it is reasonably conceivable, based on the allegations of the Amended

Complaint, that equitable tolling may apply. The Board stands in a fiduciary

relationship with Ebix stockholders, including the Plaintiffs. The Plaintiffs

reasonably relied on the good faith of the Board, specifically the Outside Directors,

to properly administer the 1996 Plan, which, as alleged, the ABA violated.93

Additionally, it is reasonably conceivable that the Plaintiffs were not on

inquiry notice more than three years before filing the Amended Complaint. No

single SEC filing identified by the parties provided all the relevant material

information necessary—such as a statement on whether the ABA is subject to the

1996 Plan—for the Plaintiffs to be deemed on inquiry notice of the alleged harm.

92
The parties largely ignored the issue of whether, for laches purposes, the claims asserted
regarding the ABA in the Amended Complaint, filed on August 27, 2013, should relate back to
the first lawsuit challenging the Ebix and Goldman merger, filed on May 6, 2013.
The Court concludes that the Amended Complaint does not relate back because it challenges
actions by the Board that did not arise “out of the conduct, transaction or occurrence set forth . . .
in the original pleading.” Ct. Ch. R. 15(c). Although the original pleadings sought to challenge
the merger consideration Raina would receive for waiving his rights under the ABA, it is not fair
to say that the Defendants were on sufficient notice that the Plaintiffs might assert the claims
they have in the Amended Complaint. See Telxon Corp. v. Bogomolny, 792 A.2d 964, 972 (Del.
Ch. 2007) (“The crucial consideration is whether a defendant had notice from the original
pleadings that the plaintiff’s new claim might be asserted against him.”). That said, whether the
Amended Complaint relates back is not dispositive of the Court’s laches analysis.
93
See Weis, 948 A.2d at 452 (citing In re Tyson Foods, Inc., 919 A.2d at 950-51).
23
Rather, the relevant dates and contractual terms were scattered throughout several

SEC filings, including:

 The 2004 Form 10-K, discussing the 1996 Plan;

 The July 2009 Form 8-K, disclosing that Ebix and Raina executed the

ABA on July 15, 2009 with a $23.84 Base Price but not stating whether

the ABA was subject to the 1996 Plan or that the $23.84 Base Price was

the price of Ebix stock on March 25, 2009;

 The 2009 Form 10-K, disclosing that the Outside Directors agreed on this

type of compensation for Raina on March 25, 2009, when the price of

Ebix was $23.84 stock but not stating whether the ABA was subject to

the 1996 Plan or discussing that it was executed on July 15, 2009; and

 The 2010, 2011, and 2012 Proxy Statements, disclosing and not

disclosing largely the same information as in the 2009 Form 10-K.

Discovering the alleged harm would have required a careful and close reading of

multiple SEC filings and incorporated exhibits by a stockholder strongly

suspicious of the Board’s disclosures. The Court cannot say, at the pleading stage,

that such effort is required of a reasonably diligent stockholder for laches

purposes.94

94
See Carsanaro, 65 A.3d at 646-47 (“[S]tockholders need only be reasonably diligent. They are
not required to examine every managerial act with a jaundiced eye, independently obtain and cull
through corporate filings, and figure out the implications of four numbers in 27 pages of dense,
24
 Although the Court may conclude otherwise at a later stage in this

proceeding, the Plaintiffs’ claims in Counts II and V regarding whether the ABA

violates the 1996 Plan are not presently barred by laches.

2. Whether the ABA Base Price was Reduced after the
Stock Dividend (Counts I, II, IV, and V)

Second, as part of their declaratory judgment and fiduciary duty claims, the

Plaintiffs allege that the ABA Base Price was never reduced from the initial

$23.84. On this point, were the Plaintiffs simply attacking the reduction of the

Base Price after the stock dividend, then those claims would be barred under

laches. The Plaintiffs would have been on inquiry notice about the purported $7.95

Base Price as early as the 2009 Form 10-K and again in the 2010 Proxy Statement,

and the Plaintiffs would have unduly delayed in asserting their claims, thereby

unfairly prejudicing the Defendants.95

single-spaced, legal text.”); Weiss, 948 A.2d at 452 (“[T]he information needed to put Weiss on
notice of his claims did not appear in one document. In order to discover the alleged pattern of
timing, Weiss would have had to cull through the company’s Form 4s each time they were filed,
compare the grant dates of the options with the timing of the quarterly earnings releases, and
then conduct a statistical analysis in order to uncover the alleged malfeasance. Such an
investigation is beyond ‘reasonable’ diligence.”); In re Tyson Foods, Inc., 919 A.2d at 591 (“[I]t
would be manifest injustice for this Court to conclude, as a matter of law, that ‘reasonable
diligence’ includes an obligation to sift through a proxy statement, on the one hand, and a year’s
worth of press clippings and other filings, on the other, in order to establish a pattern concealed
by those whose duty is to guard the interests of the investor.”).
95
To the extent that part of the derivative breach of fiduciary duty claim asserted in Count V can
be construed as alleging that the Outside Directors “adopted an improperly reduced Base Price,”
Am. Compl. ¶ 114, that claim is barred by laches for these reasons.
25
 But, that is not precisely what the Plaintiffs challenge. Rather, the Plaintiffs

contend that the Base Price was never reduced from $23.84. Because, as alleged,

the ABA does not provide for automatic anti-dilution protection and because, as

further alleged, there has been no written amendment to the ABA, the Base Price is

still $23.84. Based on these allegations, the Board’s repeated disclosures that the

Base Price is $7.95 would be inaccurate.

Again, for similar reasons as to whether the ABA violates the 1996 Plan, it

is reasonably conceivable here that equitable tolling may apply and that the

Plaintiffs were not on inquiry notice more than three years before filing the

Amended Complaint. The Plaintiffs reasonably relied on the good faith of the

Board as fiduciaries to disclose accurately all material information regarding the

terms of the ABA.96 Given the Board’s consistent disclosures in the 2010, 2011,

and 2012 Proxy Statements that the Base Price was $7.95, the Plaintiffs were not

on inquiry notice of the harm because it is unclear how any amount of diligence by

an Ebix stockholder, let alone merely reasonable diligence, would have revealed

that the Base Price was still $23.84. On these facts, that the Board repeatedly

disclosed the $7.95 Base Price in Ebix proxy statements does not foreclose, on

laches grounds, the Plaintiffs from asserting that these disclosure were inaccurate.

96
See Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998); Stroud v. Grace, 606 A.2d 75, 84 (Del.
1992).
26
 Thus, the claims in Counts I, II, IV, and V regarding whether the ABA Base

Price was reduced after the stock dividend are not presently barred by laches.

3. Whether the ABA is an Unreasonable Anti-Takeover Device (Count II)

Third, the Plaintiffs assert that the Board breached its fiduciary duties in

approving and maintaining the ABA because it is an unreasonable anti-takeover

device. In support of their allegations, the Plaintiffs quote from the July 2009

Form 8-K in which the Board suggested that the ABA was approved after the

Board evaluated “the potential threat of the Company itself being an acquisition

target” in light of “the prevailing comparatively low P/E multiple of Ebix’s

common stock.”97 The Plaintiffs note similar statements by the Board about the

anti-takeover effects of the ABA in the 2010, 2011, and 2012 Proxy Statements.98

Any challenge to the July 2009 adoption of the ABA on this ground is

barred by laches. This claim is presumptively untimely because the harm occurred

more than three years before the Plaintiffs filed the Amended Complaint in August

2013. Tolling is inapplicable because the Board did not conceal its understanding

of the effects of the ABA; rather, the Board repeatedly disclosed that the ABA

may, in part, have anti-takeover effects. The Court concludes that the Plaintiffs

have inappropriately “slumber[ed] on their rights” in asserting this claim. 99 Given

97
Am. Compl. ¶ 32.
98
Id. ¶ 67.
99
See Reid, 970 A.2d at 182.
27
the years-long delay between the harm and this lawsuit, even if the Plaintiffs were

arguably not on inquiry notice until the 2010 Proxy Statement, the Plaintiffs have

nonetheless unduly delayed in bringing this claim now. This undue delay has

unfairly prejudiced the Defendants, who are entitled to repose.

That said, the Plaintiffs also assert that the ABA continues to have anti-

takeover effects on Ebix, and the Board’s repeated disclosures to that effect do not

undermine the Plaintiffs’ position. Whether initial director approval of a device

with anti-takeover effects is a valid exercise of business judgment does not

foreclose a subsequent challenge to its continued existence or subsequent

implementation.100 This claim is timely because the alleged injury is ongoing.

Thus, the Plaintiffs’ challenge to the continued existence of the ABA is not barred

by laches.

Accordingly, Count II, insofar as it asserts a claim regarding whether the

ABA was improperly adopted as an unreasonable anti-takeover device (but not

whether it has been improperly maintained as an unreasonable anti-takeover

device), is barred by laches.

100
Cf. Moran v. Household Int’l, Inc., 500 A.2d 1346, 1357 (Del. 1985) (“While we conclude for
present purposes that the Household Directors are protected by the business judgment rule, that
does not end the matter. The ultimate response to an actual takeover bid must be judged by the
Directors’ actions at that time, and nothing we say here relieves them of their basic fundamental
duties to the corporation and its stockholders. Their use of the Plan will be evaluated when and
if the issue arises.”).
28
C. Ripeness

The issue of ripeness most often arises in the context of a petition for

declaratory relief. Where there is an “actual controversy” between two parties,101

this Court may hear a claim seeking a declaratory judgment as to a party’s “rights,

status and other legal relations.”102 It is not enough for the parties to be willing to

litigate or for their allegations to conflict.103 Rather, the Court must find four

elements to conclude that an actual controversy exists:

(1) It must be a controversy involving the rights or other legal
relations of the party seeking declaratory relief; (2) it must be a
controversy in which the claim of right or other legal interest is
asserted against one who has an interest in contesting the claim; (3)
the controversy must be between parties whose interests are real and
adverse; (4) the issue involved in the controversy must be ripe for
judicial determination.104

Even if a controversy appears inevitable, a party seeking declaratory relief must

still “show that there is a substantial controversy . . . of sufficient immediacy and

reality to warrant the issuance of a declaratory judgment.”105

101
See Stroud v. Milliken Enters., Inc., 552 A.2d 476, 479-80 (Del. 1989).
102
10 Del. C. § 6501.
103
See Stabler v. Ramsay, 88 A.2d 546, 549 (Del. 1952) (concluding that there was no actual
controversy regarding the devolution of property pursuant to a will, even though the parties
expressed “a difference of opinion as to the effect of certain legal instruments,” because
“consent[] to jurisdiction is immaterial” to a ripeness inquiry).
104
XL Specialty Ins. Co. v. WMI Liquidating Trust, — A.3d — 2014 WL 2199889, at *5 (Del.
May 28, 2014) (citing Stroud, 552 A.2d at 479-80).
105
Energy P’rs, Ltd. v. Stone Energy Corp., 2006 WL 2947483, at *6 (Del. Ch. Oct. 11, 2006).
29
 Ripeness, however, is not limited to the declaratory judgment context.

Indeed, that the “actual controversy” inquiry for a declaratory judgment claim

requires a controversy to be ripe for judicial determination necessarily means that

it is possible for there to be non-declaratory judgment claims that are not ripe.

Determining whether an issue is ripe for adjudication requires the Court to weigh

various practical considerations including the need for prompt resolution of the

claims, the possibility that future events may lead to a more fully developed

dispute, and the limited nature of judicial resources.106

The Defendants assert that the claims related to the current terms of the

ABA are not ripe because there is no justiciable controversy concerning its

interpretation. In particular, they note that, without the now-abandoned merger

between Ebix and Goldman, there is no pending transaction that may trigger

Raina’s rights. The necessary corollary to their position is that the claims brought

against Raina individually are also not ripe because he cannot presently assert his

right to payment under the ABA.107 The Plaintiffs, meanwhile, submit that this

dispute is ripe for adjudication, contending that no pending transaction is necessary

106
See Schick Inc. v. Amalgamated Clothing & Textile Workers Union, 533 A.2d 1235, 1239
(Del. Ch. 1987).
107
Defs.’ Reply Br. 9-11; Defs.’ Opening Br. 10-13. A fair reading of the Defendants’ brief and
presentation at oral argument reveals that they raised this argument, even if not in the most
explicit manner.
The Defendants contend that Raina agreed to forgo his right to payment under the ABA,
rather than demand a payment, in the abandoned merger. Id. 12.
30
for the Court to declare the proper Base Price under the ABA or, by implication, to

decide whether Raina has breached his fiduciary duties by retaining those rights.108

1. The Declaratory Judgment Claim (Count I)

The Court concludes that the declaratory judgment claim is not ripe.

Although the facts involved—most notably, the ABA Base Price—are largely

static, the disagreement between the parties does not presently rise to the level of

an actual controversy. For example, the Plaintiffs do not allege that Raina’s right

to a payment under the ABA infringes on their stock ownership rights109 or on the

Board’s ability to manage the business and affairs of Ebix.110 Were there a

pending transaction that implicated the ABA—such as the abandoned merger

between Ebix and Goldman—then the Court might have concluded otherwise.111

But, absent a pending transaction, there is no need for prompt resolution of this

claim, let alone a need that outweighs the expense of limited judicial resources.

108
Pls.’ Answering Br. 24-30.
109
See, e.g., Moran v. Household Int’l, Inc., 490 A.2d 1059, 1072 (Del. Ch. 1985) (concluding
that a claim challenging a poison pill that, “because of its deterrent features, presently affects
shareholders’ fundamental rights” was ripe for adjudication), aff’d, 500 A.2d 1346 (Del. 1985).
110
See, e.g., Carmody v. Toll Bros., Inc., 723 A.2d 1180, 1188 (Del. Ch. 1998) (concluding that a
claim challenging a poison pill with “dead hand” features was ripe because of its “alleged current
adverse impact” on the ability of the board to “exercise[e] the full array of powers provided by
statute, including the power to redeem the poison pill”).
111
Cf. In re Digex Inc. S’holders Litig., 789 A.2d 1176, 1206 (Del. Ch. 2000) (concluding that a
breach of fiduciary duty claim challenging the directors’ decision to waive 8 Del. C. § 203 in the
context of a pending transaction was ripe).
31
The Court’s “common sense assessment” of these circumstances does not reveal an

actual controversy warranting judicial resolution at this time.112

Thus, Count I is not ripe and must be dismissed, without prejudice.113

2. The Claims Asserted against Raina Individually (Counts III and VI)

Likewise, the Court concludes that the Plaintiffs’ fiduciary duty and unjust

enrichment claims asserted against Raina are also not ripe. The ABA does not

grant to Raina anything more than a right to payment that depends on, among other

conditions, the status of Raina’s employment with Ebix and the amount of Ebix

stock that he holds at the time of an acquisition transaction. Because there is no

pending transaction, this cause of action is entirely contingent on factual

circumstances that not only may not occur, but also may moot any decision by the

Court.114 In this context, the Plaintiffs’ claims against Raina regarding the ABA

are not ripe.

112
See XL Specialty Ins. Co., 2014 WL 2199889, at *6.
113
The Court acknowledges that part of the Plaintiffs’ theory of why this declaratory judgment
claim is ripe is that the unreasonable anti-takeover effects of the ABA have been magnified by
the Board’s inaccurate disclosures to Ebix stockholders that the Base Price was reduced from
$23.84 to $7.95. It may be the case (or, perhaps more accurately, there may be an expert willing
to testify to the effect) that the difference in the disputed Base Price currently has an “overhang”
effect on Ebix’s stock price. But, those effects are far too speculative to justify the judicial
resources necessary to issue a declaratory judgment. The Court cannot adopt the Plaintiffs’
argument, the logic of which would allow stockholders to bring any number of declaratory
judgment claims involving disputes over the interpretation of contracts to which the corporation
is a party. What mitigates the Court’s conclusion here, however, is the recognition that,
unsurprisingly, the Plaintiffs may allege other, ripe causes of actions that would answer the sole
question implicated by their unripe declaratory judgment claim: the current ABA Base Price.
114
See Multi-Fineline Electronix, Inc. v. WBL Corp. Ltd., 2007 WL 431050, at *8 (Del. Ch.
Feb. 2, 2007) (dismissing a claim against a foreign controlling stockholder on personal
32
 Counts III and VI asserted against Raina individually must be dismissed,

without prejudice, as unripe.

D. The Nature of the Plaintiffs’ Claims

Before analyzing the pleading sufficiency of the Plaintiffs’ claims under

Rules 23.1 and 12(b)(6), the Court must determine whether those claims are direct

or derivative in nature. In Tooley v. Donaldson, Lufkin & Jenrette, Inc.,115 the

Delaware Supreme Court articulated how to distinguish direct and derivative

claims through a two-part test: “(1) who suffered the alleged harm (the corporation

or the suing stockholders, individually); and (2) who would receive the benefit of

any recovery or other remedy (the corporation or the stockholders,

individually)?”116 Generally, harm to the corporation or to all stockholders “pro

rata in proportion with their ownership” would give rise to a derivative claim.117

Conversely, harm to the stockholders independent of any harm to the

corporation—for example, allegations of material misstatements or omissions in a

proxy statement which “impaired the stockholders’ right to cast an informed

jurisdiction grounds but alternatively dismissing the claim regarding how the controlling
stockholder was purportedly required to vote its stock as not ripe because the Court concluded,
based on the allegations of the complaint, that it was “literally impossible to predict” how the
stockholder would vote); Energy P’rs, 2006 WL 2947483, at *7 (“[I]f a plaintiff’s action is
‘contingent,’ that is, if ‘the action requires the occurrence of some future event before the
action’s factual predicate is complete,’ the controversy is not ripe.”) (citations omitted).
115
845 A.2d 1031 (Del. 2004).
116
Id. at 1033.
117
See Feldman v. Cutaia, 951 A.2d 727, 733 (Del. 2008).
33
vote”—would give rise to a direct claim.118 The Court should reach a conclusion

on this issue by evaluating “the nature of the wrong alleged, not merely . . . the

form of words used in the complaint.”119

The parties disagree over whether the asserted claims are direct, derivative,

or perhaps both.120 The Defendants argue that all the claims are derivative under

Tooley because it is Ebix, and not the stockholders, which suffered the alleged

harm and which would benefit from any recovery.121 The Plaintiffs, in response,

submit that they have alleged both direct and derivative claims. In particular, they

contend that their disclosure claims allege conduct that injured Ebix

stockholders—primarily the lack of an informed stockholder vote—and thus are

direct breach of fiduciary duty claims.122

1. The Purportedly Direct Claims (Counts II and IV)

The Plaintiffs allege that certain decisions of the Board or the Outside

Directors represented a breach of fiduciary duty that may be challenged directly.

118
See In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 772 (Del. 2006) (citing In
re Tri-Star Pictures, Inc., Litig., 634 A.2d 319, 330 n.12, 332 (Del. 1993)); see also Thornton v.
Bernard Techs., Inc., 2009 WL 426179, at *4-5 (Del. Ch. Feb. 20, 2009); In re infoUSA, Inc.
S’holders Litig., 953 A.2d 963, 1001 n.82 (Del. Ch. 2007); Albert v. Alex. Brown Mgmt. Servs.,
Inc., 2005 WL 2130607, at *13 (Del. Ch. Aug. 26, 2005).
119
In re Syncor Int’l Corp. S’holders Litig., 857 A.2d 994, 997 (Del. Ch. 2004); see also Hartsel
v. Vanguard Gp., Inc., 2011 WL 2421003, at *16 (Del. Ch. June 15, 2011), aff’d, 38 A.3d 1254
(Del. 2012) (TABLE).
120
See, e.g., Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006) (“There is, however, at least one
transactional paradigm—a species of corporate overpayment claim—that Delaware case law
recognizes as being both derivative and direct in character.”).
121
Defs.’ Reply Br. 11-14; Defs.’ Opening Br. 13-14.
122
Pls.’ Answering Br. 30-35.
34
These actions include: (i) adopting the ABA in violation of the 1996 Plan;

(ii) maintaining the ABA as an unreasonable anti-takeover device; (iii) making

material misstatements in Ebix’s proxy statements; and (iv) adopting the 2010 Plan

pursuant to an uninformed, and thus invalid, stockholder vote.

(i) Adopting the ABA in Violation of the 1996 Plan (Count II)

The ABA purportedly granted Appreciation Rights within the meaning of

the 1996 Plan to Raina. It did not grant any Ebix stock or any stockholder voting

rights to him. The potential harm caused by the ABA—that Raina may receive a

change-in-control payment that is improper under the 1996 Plan—is a harm

suffered by Ebix. Any harm imposed upon individual Ebix stockholders

(including Raina’s own interest as a stockholder) arises pro rata to their investment

in Ebix because of their status as the corporation’s residual claimants.123

Whether the Outside Directors breached their fiduciary duties by adopting

the ABA in violation of the 1996 Plan is a derivative claim.

123
See Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 353 (Del. 1988) (“Suits against
management for waste resulting from excessive payments of corporate funds (whether made to
individual defendants or to third parties) do not affect contractual rights of shareholders
associated with the ownership of common stock . . . . Thus, where a plaintiff shareholder claims
that the value of his stock will deteriorate and that the value of his proportionate share of the
stock will be decreased as a result of alleged director mismanagement, his cause of action is
derivative in nature.”).
35
 (ii) Maintaining the ABA as an Unreasonable
Anti-Takeover Device (Count II)

Determining whether the Plaintiffs’ challenge to the ABA as an

unreasonable anti-takeover device is a direct claim or a derivative claim is a less-

than-precise exercise. This Court, in In re Gaylord Container Corp. Shareholders

Litigation,124 outlined the tension in Delaware corporate law regarding the

relationship between stockholder challenges to anti-takeover devices and

Rule 23.1.125 As Gaylord Container explained, however, this potentially thorny

issue may be largely avoided when resolving the Defendants’ motion to dismiss

under Rule 23.1 if the claim implicates the heightened scrutiny of Unocal

Corporation v. Mesa Petroleum126 and its progeny: if the claim is derivative, then

demand is excused,127 and if the claim is direct, then no demand was ever

necessary under the Court of Chancery Rules.128

Thus, for present purposes, the Court first considers whether this claim

implicates Unocal. “Enhanced judicial scrutiny under Unocal applies “whenever

the record reflects that a board of directors took defensive measures in response to

124
747 A.2d 71 (Del. Ch. 1999).
125
See id. at 75-83.
126
493 A.2d 946 (Del. 1985).
127
In re Gaylord Container Corp., 747 A.2d at 81 (citing Moran, 490 A.2d at 1071).
128
The Court acknowledges that the analysis of Gaylord Container operated within the
framework of the “special injury” test of Lipton v. News Int’l, Plc, 514 A.2d 1075 (Del. 1986),
which may not have survived Tooley. While the underlying Delaware law regarding this Court’s
inquiry into the nature of a stockholder plaintiff’s claim may have changed, the implicit logic of
Gaylord Container on this point remains compelling today.
36
a ‘perceived threat to corporate policy and effectiveness which touches upon issues

of control.’”129 The circumstances here do not fit squarely within the rubric of a

claim challenging either excessive payments to corporate officers or a more

traditional anti-takeover device, such as a poison pill or other defensive-minded

conduct by a board of directors. The ABA, from one persuasive perspective, may

be nothing more than a so-called “golden parachute” agreement, which would

reduce the Plaintiffs’ claim to a derivative, waste claim130 typically outside the

bounds of Unocal. Then again, from another persuasive perspective, the ABA

might just be the type of golden parachute that, because of its size, may be said to

have unreasonable anti-takeover effects by increasing the minimum amount that a

potential acquirer would have to pay above Ebix’s market capitalization for

shareholders to receive consideration above the current trading price.

It is difficult for the Court to reconcile these two perspectives, particularly

given the lack of nuanced arguments submitted in the parties’ briefs and at oral

argument on this issue. But, for purposes of the Defendants’ motion to dismiss

under Rule 23.1 and Rule 12(b)(6), the Court must accept as true the Plaintiffs’

allegations regarding the Board’s disclosures, and a reasonable inference from

those allegations is that the Board considered the ABA to have anti-takeover

129
In re Santa Fe Pac. Corp., 669 A.2d at 71 (quoting Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d
1361, 1372 n.9 (Del. 1995)) (internal quotations omitted).
130
See, e.g., Kramer, 546 A.2d at 353.
37
effects. Although one may have reason to doubt whether those disclosures

foreshadow the Court’s ultimate conclusions of law, those statements by the Board

about its understanding of the ABA cannot be ignored. The Court concludes that

the Plaintiffs’ claim challenging the continuing anti-takeover effects of the ABA

states a reasonably conceivable claim under Unocal because this aspect Count II

sufficiently alleges “threatened external action from which it could reasonably be

inferred that the defendants acted ‘defensively.’”131 Thus, under Gaylord

Container, whether this claim is direct or derivative is immaterial to the present

motion.

The Defendants’ motion to dismiss this aspect of Count II under Rules 23.1

and 12(b)(6) is denied.

(iii) Making Material Misstatements in Ebix Proxy
Statements (Count II)

The Plaintiffs allege that the Board made material misstatements regarding

the ABA and the Base Price in five proxy statements. When the Board requested

stockholder action on a corporate proposal, Delaware law requires that it have

accurately disclosed all material information.132 “Where a shareholder has been

denied one of the most critical rights he or she possesses—the right to a fully

informed vote—the harm suffered is almost always an individual, not corporate,

131
Gantler v. Stephens, 965 A.2d 695, 705 (Del. 2009).
132
See Malone, 722 A.2d at 12; Stroud, 606 A.2d at 84.
38
harm.”133 The material misstatements at issue here—in the 2009 Special Meeting

Proxy Statement and the 2009, 2010, 2011, and 2012 Proxy Statements—allegedly

deprived Ebix stockholders of the ability to cast an informed vote.

These disclosure-based fiduciary duty claims are direct claims.

(iv) Adopting the 2010 Plan Pursuant to an Invalid
Stockholder Vote (Count IV)

The Board sought approval of the 2010 Plan by Ebix stockholders in the

2010 Proxy Statement. The Plaintiffs assert that the 2010 Proxy Statement

included material misstatements regarding the ABA and Base Price such that the

corresponding vote on the 2010 Plan, as required by NASDAQ rules, was

uninformed and thereby invalid. This claim, as an extension of the Plaintiffs’ other

disclosure claims, implicates the right of Ebix stockholders to be fully informed by

the Board about the matter on which they are requested to vote.134 Ebix

stockholders like the Plaintiffs suffered an injury independent of any harm to the

corporation, and Ebix stockholders would benefit from any recovery here.

Thus, the Plaintiffs’ claim regarding whether the Board adopted the 2010

Plan pursuant to an invalid stockholder vote is also a direct claim.

133
In re Tyson Foods, Inc., 919 A.2d at 601; see also In re J.P. Morgan Chase & Co., 906 A.2d
at 772 (citing In re Tri-Star Pictures, Inc., 634 A.2d at 330 n.12, 332) (“This Court has
recognized, as did the Court of Chancery, that where it is claimed that a duty of disclosure
violation impaired the stockholders’ right to cast an informed vote, that claim is direct.”).
134
See In re J.P. Morgan Chase & Co., 906 A.2d at 772; In re Tyson Foods, Inc., 919 A.2d at
601.
39
 2. The Purportedly Derivative Claims (Count V)

The Plaintiffs also denominate derivative breach of fiduciary duty claims

against the Board or the Outside Directors. The allegedly harmful conduct

includes: (i) adopting the ABA in violation of the 1996 Plan; (ii) causing Ebix to

file materially misleading or false statements with the SEC; and (iii) receiving

compensation under the 2010 Plan.

(i) Adopting the ABA in Violation of the 1996 Plan

The Court previously concluded that whether the Board adopted the ABA in

violation of the 1996 Plan is a derivative fiduciary duty claim. Because this aspect

of Count V is entirely duplicative of the same aspect of Count II, one of these

claims should be dismissed. For clarity, the Court concludes that this derivative

claim should proceed under Count V; the related aspect of Count II is dismissed.

(ii) Causing Ebix to Make Misleading or False SEC Filings

The precise claim that the Plaintiffs seek to assert is not entirely clear.135

The Court interprets this claim to assert nothing more than an allegation that the

Board breached its fiduciary duties by filing materially misleading or false

statements with the SEC. This purportedly derivative claim appears to overlap

with the direct disclosure claims, but it is distinct in one fundamental way: the

135
The parties largely did not address the Plaintiffs’ claim that the Board breached its fiduciary
duties by causing Ebix to make misleading or false SEC filings in their briefs or at oral
argument. Nonetheless, the Court will consider the merits of this claim.
40
Board’s disclosing accurate, material information when seeking stockholder action

is a matter of Delaware law under the internal affairs doctrine,136 but the Board’s

complying with SEC rules and regulations when filing information with the SEC is

not. Instead, that issue is governed by the federal securities laws, over which this

Court does not have subject matter jurisdiction.137

Accordingly, this claim must be dismissed under Court of Chancery

Rule 12(h)(3) for lack of subject matter jurisdiction.138

(iii) Receiving Compensation under the 2010 Plan

The Outside Directors were allegedly granted 9,000 options each pursuant to

the 2010 Plan after Ebix’s 2010, 2011, and 2012 annual meetings. Raina also

received restricted shares under the 2010 Plan in 2012. The Plaintiffs challenge

these grants as a breach of fiduciary duty because they were made pursuant to the

2010 Plan that was, in turn, invalidly approved by stockholders because of the

purported material misstatements in the 2010 Proxy Statement. The Court

136
See McDermott Inc. v. Lewis, 531 A.2d 206, 215 (Del. 1987).
137
See, e.g., NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 20 (Del. Ch. 2009) (citing
15 U.S.C. § 78aa).
138
The Court acknowledges that the presence of other circumstances may have changed this
conclusion. For example, were a federal district court to conclude that Ebix’s SEC filings
violated the federal securities laws, then the Court may have jurisdiction to determine whether
such conduct was a breach of fiduciary duty.
41
concludes that primary party injured by this conduct is Ebix, the same party to

whom any recovery would go.139

Thus, whether the Board members breached their fiduciary duties by

receiving compensation under the 2010 Plan is a derivative claim.

3. A Summary of the Plaintiffs’ Claims

In sum, the Court concludes that the Plaintiffs assert the following direct

claims:

 Material misstatements in Ebix’s proxy statements (Count II)

 Invalidity of the 2010 Plan (Count IV)

The Plaintiffs also assert the following derivative claims:

 Adoption of the ABA in violation of the 1996 Plan (Count V)

 Receipt of compensation under the 2010 Plan (Count V)

139
Because the Plaintiffs did not raise whether their breach of fiduciary duty theory here—the
issuance of stock option to directors constituting a majority of the Board pursuant to a stock
option plan that, as the Court will discuss, may not have been effectively ratified by stockholders
due to material, inaccurate statements in the relevant proxy—may also give rise to a direct claim
under Tooley, particularly in light of how Gentile’s “expropriation principle” is described in
Carsanaro, the Court declines to hypothesize an answer to this interesting question of Delaware
corporate law. See Carsanaro, 65 A.3d at 658 (“In my view, the Delaware Supreme Court’s
decisions [in Tooley and Gentile] preserve stockholder standing to pursue individual challenges
to self-interested stock issuances when the facts alleged support an actionable claim for breach of
the duty of loyalty. . . . Standing will also exist if the board that effectuated the transaction
lacked a disinterested and independent majority. Standing will not exist if there is no reason to
infer disloyal expropriation, such as when stock is issued to an unaffiliated third party, as part of
an employee compensation plan, or when a majority of disinterested and independent directors
approves the terms.”).
42
Finally, the Plaintiffs challenge the continued existence of the ABA as an

unreasonable anti-takeover device. For the reasons stated earlier, the nature of this

last claim need not be resolved now.

4. Whether the Plaintiffs May Assert Direct and Derivative Claims

The parties dispute whether it is proper under Delaware law for the Plaintiffs

to assert direct and derivative claims in the same lawsuit.140 One of the primary

concerns where both direct and derivative claims are alleged is the possibility of an

inherent conflict of interest for the Plaintiffs’ counsel: at the same time that the

Plaintiffs assert the direct claims as stockholders against Ebix and the Board, they

are simultaneously asserting derivative claims on behalf of Ebix against the

Board.141 This possible conflict may, in some situations, be strong enough to

warrant bifurcating the litigation or dismissing either the direct or derivative

claims.142 Here, however, there does not appear to be the potential for such a

140
Defs.’ Reply Br. 14-17; Pls.’ Answering Br. 44-46; Defs.’ Opening Br. 14-15.
141
Cf. St. Clair Shores Gen. Employees Ret. Sys. v. Eibeler, 2006 WL 2849783, at *8 (S.D.N.Y.
Oct. 4, 2006) (applying Delaware law and concluding that “[g]iven that an impermissible
conflict of interest may prevent Plaintiff from advancing its derivative and direct disclosure
claims in the same action, and that Plaintiff’s Direct Common Law Disclosure Claims are
primarily derivative in nature, the Court will treat these disclosure claims as derivative for the
purposes of the present motion to stay.”).
142
Cf. Scopas Tech. Co. v. Lord, 1984 WL 8266, 10 Del. J. Corp. L., 306, 310-11 (Del. Ch.
Nov. 20, 1984) (dismissing the stockholder plaintiff’s derivative counterclaims under Rule 23.1
because, among other reasons, the stockholder was not an adequate class representation in light
of the considerably higher damages sought in a simultaneous breach of contract counterclaim
and certain disparaging comments made about the corporation).
43
disabling conflict because the claims are not internally inconsistent.143 Neither

bifurcating nor dismissing part of the action appears to be the most efficient use of

the parties’ or the Court’s resources because the same factual issue underlies all the

claims: the Base Price under the ABA.

Thus, the Court concludes that the Plaintiffs may assert these direct and

derivative claims together in this action.144

E. Demand Futility under Rule 23.1

The Plaintiffs did not make a demand on the Board before filing the

Amended Complaint.145 Therefore, in order to maintain their derivative claims

under Rule 23.1, the Plaintiffs must plead with particularity the reasons why

demand is excused—that is, why making a demand on the Board to assert these

claims, on behalf of Ebix, would have been a futile endeavor.

The demand futility standard embodies one of the fundamental principles of

Delaware corporate law: “[t]he business and affairs” of the corporation—including

the decision about whether to file a lawsuit—is “managed by or under the direction

143
Cf. TCW Tech. Ltd. P’ship v. Intermedia Commc’ns, Inc., 2000 WL 1654504, at *4 (Del. Ch.
Oct. 17, 2000) (consolidating several derivative and class action complaints and appointing lead
counsel because “[t]he derivative and class claims all arise from the same basic facts and none of
the claims are internally inconsistent or conflict with the legal theories supporting any other
claim.”).
144
If a conflict does arise, then the Court may reconsider this conclusion.
145
Am. Compl. ¶¶ 89-90.
44
of a board of directors.”146 Through their derivative claims, the Plaintiffs seek to

stand in the shoes of Ebix, without director approval, and assert claims of the

corporation against the Board. It is only proper for them to do so if there is a

sufficient reason to believe that the Board is “incapable of making an impartial

decision regarding the pursuit of the litigation.”147 The two demand futility tests

under Delaware law—as outlined by the Supreme Court in Aronson v. Lewis148 and

Rales v. Blasband149—represent the framework in which the Court must determine

whether the Plaintiffs may maintain their derivative claims.

Which of Aronson or Rales applies depends on the conduct being challenged

and the composition of the board when the derivative action is filed. In brief, the

Aronson test applies where a stockholder challenges a business decision “made by

the same directors who remain in office at the time [the derivative] suit is filed.”150

Conversely, the Rales test applies when the stockholder does not challenge a

particular business decision or when a majority of the directors who made the

business decision at issue have been replaced by the time the derivative lawsuit is

146
8 Del. C. § 141(a); see also Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990) (citing
Zapata Corp. v. Maldonado, 430 A.2d 779, 782 (Del. 1981)) (“The decision to bring a law suit
or to refrain from litigating a claim on behalf of a corporation is a decision concerning the
management of the corporation.”).
147
Wood v. Baum, 953 A.2d 136, 140 (Del. 2008).
148
473 A.2d 805 (Del. 1984).
149
634 A.2d 927 (Del. 1993).
150
In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, at *15 (Del. Ch. May 21,
2013).
45
filed.151 Here, Aronson governs because the Plaintiffs challenge the business

decisions of the Board or the Outside Directors—the same directors in office when

the Plaintiffs filed the Amended Complaint.

The Court must determine under Aronson whether, “under the particularized

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

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

valid exercise of business judgment.”152 The test is disjunctive; satisfying either

prong is sufficient.153 To meet the first prong of Aronson, the Plaintiffs would

have to demonstrate through particularized allegations that at least half of the

Board is interested or not independent.154 To meet the second Aronson prong, the

Plaintiffs would have to allege “particularized facts sufficient to raise (1) a reason

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

doubt that the board was adequately informed in making the decision.”155

151
See Rales, 634 A.2d at 934 (noting that this test would also apply when “the decision being
challenged was made by the board of a different corporation”).
152
Aronson, 473 A.2d at 814.
153
See Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000).
154
See In re infoUSA, Inc., 953 A.2d at 989-90; see also Beneville v. York, 769 A.2d 80, 86 (Del.
Ch. 2000) (“[I]t thus makes little sense to find that demand is required in an evenly divided
situation. The reality is that a majority vote is required to prevail on a board motion to cause the
corporation to accept a demand; an evenly divided vote does not suffice.”).
155
In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 824 (Del. Ch. 2005), aff’d, 906
A.2d 766 (Del. 2006) (quoting In re Walt Disney Co. Deriv. Litig., 825 A.2d 275, 286 (Del. Ch.
2003)).
46
Demonstrating demand futility under this second prong has been described as a

“heavy burden” for a stockholder plaintiff.156

The Defendants maintain that the Plaintiffs have not satisfied Rule 23.1 for

want of particularized allegations that meet either prong of Aronson. While not

contesting, for this motion, that Raina may be deemed interested in a demand

futility analysis as the counter-party to the ABA, they argue that the Plaintiffs have

utterly failed to plead particularized facts regarding the lack of independence or the

interest of the Outside Directors.157 Similarly, the Defendants submit that the

Plaintiffs have failed to establish, through particularized factual allegations, a

reasonable doubt regarding the merits of the challenged decisions of the Board or

the Outside Directors.158 Rejecting those contentions, the Plaintiffs submit they

have satisfied both prongs of the Aronson demand futility standard. In particular,

they assert that their particularized allegations of fact raise a reasonable doubt as to

whether the Outside Directors’ approving the ABA was a valid exercise of

business judgment because the initial Base Price and number of shares

considerably exceeded what was permitted under Ebix’s 1996 Plan.159

156
See White v. Panic, 783 A.2d 543, 551 (Del. 2001).
157
Defs.’ Reply Br. 17-21.
158
Id. 21-23; Defs.’ Opening Br. 15-18.
159
Pls.’ Answering Br. 35-44.
47
 1. The Procedural Standard of Review

When resolving the Defendants’ motion to dismiss under Rule 23.1, the

Court accepts the particularized factual allegations of the Amended Complaint as

true.160 “[C]onclusory allegations are not considered as expressly pleaded facts or

factual inferences.” The Court also views all reasonable inferences that “logically

flow” from those particularized allegations in the Plaintiffs’ favor.161 “Demand

futility analysis is conducted on a claim-by-claim basis.”162

2. Whether the Outside Directors Violated the 1996 Plan
by Approving the ABA

The Plaintiffs allege that the Outside Directors breached their fiduciary

duties by adopting the ABA in violation of the 1996 Plan. Their theory is two-

fold: (i) the ABA is subject to the 1996 Plan; and (ii) the ABA violates the 1996

Plan—most prominently because the initial Base Price should have been at least

$37.32 instead of $23.84.

Assuming, without deciding, that Raina is interested as the counter-party to

the ABA, the Plaintiffs must still allege with particularity that at least two other

Ebix directors are interested or not independent to establish demand futility under

the first Aronson prong. The relevant interest and lack of independence standards

160
See Rales, 634 A.2d at 931.
161
See Brehm, 746 A.2d at 255.
162
Cambridge Ret. Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del. Ch. June 26, 2014) (citing
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 977 (Del. Ch.
2003), aff’d, 845 A.2d 1040 (Del. 2004)).
48
are familiar. A director is interested by being on both sides of the transaction or by

receiving a material benefit, or suffering a material detriment, that is not shared

with the corporation’s stockholders.163 A director lacks independence if he or she

is “beholden” to another’s interest such that his or her business judgment “would

be sterilized”164 or if a conflicted director votes on a proposal but fails to disclose a

material interest that a reasonable director would regard as significant in evaluating

the proposal’s merits.165 The Court’s inquiry is a “fact-intensive, director-by-

director analysis.”166

The Plaintiffs’ particularized allegations regarding the interest or lack of

independence for the Outside Directors are sparse. Two directors—Benz and

Keller—comprised the Compensation Committee, which recommended that the

Outside Directors approve the ABA. Mere membership on the committee that

recommended the ABA, without more, is not a particularized allegation showing

Benz’s or Keller’s interest or lack of independence.167 The other particularized

allegations of the Amended Complaint about the Compensation Committee, to the

163
See Orman v. Cullman, 794 A.2d 5, 23 (Del. Ch. 2002) (citing Aronson, 473 A.2d at 812).
164
Rales, 634 A.2d at 936; Aronson, 473 A.2d at 814-15.
165
See In re Transkaryotic Therapies, Inc., 954 A.2d 346, 363 (Del. Ch. 2008) (citing Cinerama,
Inc. v. Technicolor, Inc., 663 A.2d 1156, 1168 (Del. 1995)).
166
Postorivo v. AG Paintball Hldgs., Inc., 2008 WL 553205, at *6 (Del. Ch. Feb. 29, 2008).
167
Cf. In re China Auto. Sys. Inc. Deriv. Litig., 2013 WL 4672059, at *8-9 (Del. Ch. Aug. 30,
2013) (“This Court has consistently found that just being a director on the committee where the
alleged wrongdoing is ‘within [its] delegated authority’ does not give rise to a substantial threat
of personal liability under [In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996)]
without supporting allegations of particularized facts showing bad faith.”).
49
extent there are any, do not give rise to any reasonable inference that either Benz

or Keller could not impartially consider a demand.

The particularized allegations regarding the interest or lack of independence

of the three other Ebix directors—Bhalla, Eckert, and Herter—are even weaker

than those about the Compensation Committee. None of these three directors

stood on both sides of the ABA. None received a benefit from or suffered a

detriment due to the ABA, let alone a material benefit or detriment. The Plaintiffs

have failed to allege with particularity that Raina exercised sufficient control over

these individuals as to sterilize their business judgment. Nor could the Plaintiffs

allege that Raina (who did not vote to approve the ABA) failed to disclose his

interest in the ABA—for that interest was obvious. In sum, because there are no

particularized allegations demonstrating that at least half the Board is interested or

not independent, demand is not excused under the first prong of Aronson for this

derivative claim.

Neither is demand excused under the second Aronson prong. Absent

particularized allegations that the Outside Directors were not adequately informed

or not acting in good faith,168 general allegations that they violated the 1996 Plan—

a stockholder-approved, incentive-based compensation plan—are not enough to

168
See In re Walt Disney Co., 825 A.2d at 286.
50
excuse demand.169 Informed decisions made in good faith by independent and

disinterested directors, including decisions interpreting or implementing a stock

option plan, are almost always beyond judicial second-guessing, even if some of

those decisions may not be “correct.”170 Whether the ABA is, in fact, subject to

the 1996 Plan is not dispositive of the Court’s analysis of demand futility.

Rather, as this Court recently noted in Pfeiffer v. Leedle, “demand will be

excused . . . when a plaintiff pleads particularized facts that indicate that the board

knowingly or deliberately failed to adhere to the terms of a stock incentive

plan.”171 Thus, the Court must determine whether the Plaintiffs’ particularized

allegations support a reasonable inference that the Outside Directors knowingly

violated the 1996 Plan by approving the ABA. The Court may be able to infer

reasonably a knowing or intentional violation based on particularized allegations of

the unambiguous terms of the incentive-based compensation plan,172 the

169
Cf. Seinfeld v. Slager, 2012 WL 2501105, at *16 (Del. Ch. June 29, 2012) (concluding that “a
bald assertion of non-conformance with the plan” was not a particularized allegation to excuse
demand regarding a waste claim for payments made under a stockholder-approved incentive plan
designed to encourage “synergies” after a recent merger).
170
See Pfeiffer v. Leedle, 2013 WL 5988416, at *5 (Del. Ch. Nov. 8, 2013) (“So long as
corporate fiduciaries act in the procedurally responsible manner outlined by the business
judgment rule, the substance of their decisions is relevant only in exceptionally rare
circumstances.”); see also Orman, 794 A.2d at 20 (“[T]he judgment of a properly functioning
board will not be second-guessed . . . .”).
171
See Pfeiffer, 2013 WL 5988416, at *5; see also Ryan v. Gifford, 918 A.2d 341, 354 (Del. Ch.
2007) (“A board’s knowing and intentional decision to exceed the shareholders’ grant of express
(but limited) authority raises doubt regarding whether such decision is a valid exercise of
business judgment and is sufficient to excuse a failure to make demand.”).
172
See Friedman v. Khosrowshahi, 2014 WL 3519188, at *12 (Del. Ch. July 16, 2014)
(declining to infer a knowing violation where “[a]t most, [the plaintiff’s] interpretation of the
51
unambiguous terms of the award in dispute,173 the circumstances surrounding the

disputed award,174 or other relevant facts.175

No unambiguous provision of the ABA or the 1996 Plan mandates that the

former be subject to the latter. The ABA is silent as to whether it is subject to the

1996 Plan.176 Neither are the terms of the 1996 Plan dispositive, as the Plaintiffs

have not alleged with particularity that the 1996 Plan governs all incentive-based

compensation that may be issued to Ebix officers, directors, and employees.

Without any particularized allegations about the specific relationship between the

RSU Award raises a potential ambiguity that the Compensation Committee was entitled to
interpret and resolve under the Plan”); Sanders v. Wang, 1999 WL 1044880, at *7-9 (Del. Ch.
Nov. 8, 1999) (inferring a knowing violation because the board, after several recent stock splits,
issued awards in excess of the unambiguous aggregate limits of the stock incentive plan where
other unambiguous terms did not allow for adjustments to those limits, even after a change to the
company’s capital structure).
173
See Pfeiffer, 2013 WL 5988416, at *7-8 (inferring a knowing violation because the board
granted an award in excess of the unambiguous annual per-recipient limit on a form that
unambiguously provided that the award was subject to the company’s stock option plan).
174
See London v. Tyrrell, 2008 WL 2505435, at *6 (Del. Ch. June 24, 2008) (inferring an
intentional violation because the board manipulated the fair market valuation underlying the
option awards and used an exercise price that was lower than the minimum requirement of fair
market value).
175
See, e.g., Conrad v. Blank, 940 A.2d 28, 39 (Del. Ch. 2007) (inferring that the board
knowingly backdated options in violation of the company’s stock option plan in part because the
plaintiff “provided the court with a statistical analysis to bolster the inference that grants were
deliberately backdated to more favorable dates in violation of the company’s stated procedures”);
Ryan v. Gifford, 918 A.2d 341, 354-55 (Del. Ch. 2007) (inferring that the board knowingly
backdated options based in part on specific allegations of “highly suspicious timing” that, in light
of “empirical evidence” suggesting that the “average annualized return of 243% on option grants
to management was almost ten times higher than the 29% annualized market returns in the same
period,” was “too fortuitous to be mere coincidence”).
176
Lyons Trans. Aff. Ex. 1 (Ebix, Inc. Current Report (Form 8-K), at Ex. 99.1 (July 21, 2009)).
The Court may consider the contents of the ABA because, as an integral source of the Plaintiffs’
allegations, it is incorporated into the Amended Complaint. See In re Santa Fe Pac. Corp.
S’holder Litig., 669 A.2d 59, 69–70 (Del. 1995).
52
ABA and the 1996 Plan, it would be unreasonable for the Court to infer that the

Outside Directors knowingly violated the 1996 Plan by agreeing to the ABA.

Aside from their conclusory allegations that the ABA violates the 1996 Plan

because it granted to Raina “Acquisition Rights within the meaning of the 1996

Plan,”177 the Plaintiffs do not otherwise challenge the Outside Directors’ decision

to approve the ABA. Consequently, the Plaintiffs have failed to establish demand

futility under the second prong of Aronson because their particularized allegations

do not raise a reasonable doubt as to the business judgment exercised by the

Outside Directors in approving the ABA.

Because the Plaintiffs have not established demand futility under either

Aronson prong, this derivative claim must be dismissed under Rule 23.1.

3. Whether the Board Members Breached their Fiduciary Duties
by Receiving Compensation Pursuant to the 2010 Plan178

The Plaintiffs also contend that the Board members breached their fiduciary

duties by receiving compensation awards (options for the Outside Directors and

restricted shares for Raina) pursuant to the 2010 Plan that, as alleged, was not

approved by a fully informed stockholder vote. Again, to satisfy the first Aronson

177
Am. Compl. ¶ 44.
178
One could suggest that the Plaintiffs did not argue this derivative claim with quite the fervor
with which their allegations are presented here. Then again, the Plaintiffs’ answering brief
directly responded to the contentions of the Defendants’ opening brief, and the Defendants did
not explicitly seek to dismiss this claim. Even if the Court may be reading too much into the
Plaintiffs’ express arguments, the particularized allegations that substantiate this claim do not
seem to have been alleged for any purpose other than to substantiate this claim.
53
prong, the Plaintiffs must allege with particularity that at least three members of

the Board were interested or not independent.

In many respects, the Plaintiffs’ allegations resemble those in this Court’s

recent decision in Cambridge Retirement System v. Bosnjak. Here, as in Bosnjak,

stockholder plaintiffs challenge the incentive-based compensation received by a

majority of the board. What further informs the Court’s analysis here are the

merits of the Plaintiffs’ claim that stockholder ratification of the 2010 Plan was not

valid because of material, inaccurate statements in the 2010 Proxy Statement.

Regardless of whether the challenged compensation awards were material to the

individuals who received them, the Board is inherently interested, for purposes of

Rule 23.1, in the options or restricted shares they received.179 Thus, demand is

excused because a majority of the Board could not have impartially considered a

demand regarding this claim.

The Defendants’ motion to dismiss this claim under Rule 23.1 is denied.

179
Bosnjak, 2014 WL 2930869, at *3-6; see also London, 2008 WL 2505435, at *5 (“Although
the general rule holds that ‘demand is not excused simply because directors receive
compensation from the company or an executive of the company,’ the receipt of stock options is
different. Directors who have received the options plaintiffs seek to challenge ‘have a strong
financial incentive to maintain the status quo by not authorizing any corrective action that would
devalue their current holdings or cause them to disgorge improperly obtained profits.’”)
(citations omitted); Steiner v. Meyerson, 1995 WL 441999, at *11 (Del. Ch. July 19, 1995 (“As
the outside directors comprise a majority of the Telxon board and are personally interested in
their compensation levels, demand upon them to challenge or decrease their own compensation
is excused.”).
54
F. Failure to State a Claim under Rule 12(b)(6)

1. The Direct Claim Regarding Material Misstatements in
Ebix Proxy Statements (Counts II and IV)

To satisfy the standard of conduct demanded of their position as fiduciaries,

directors of Delaware corporations must “disclose fully and fairly all material

information within the board’s control” when requesting stockholder action.180

This Court reviews alleged violations of this so-called duty of disclosure under a

materiality standard, which seeks to strike the appropriate balance for stockholders

to have enough background to make a fully informed decision without receiving

unnecessary or irrelevant minutia that may frustrate that goal.181

Information is material, and thus must be disclosed, “if there is a substantial

likelihood that a reasonable shareholder would consider it important in deciding

how to vote”—in other words, if it would alter the “total mix” of available

information.182 Whether a particular detail qualifies as material is a “mixed

question of fact and law.”183

180
Stroud, 606 A.2d at 84.
181
See, e.g., In re 3Com S’holders Litig., 2009 WL 5173804, at *6 (Del. Ch. Dec. 18, 2009)
(“[T]oo much information can be as misleading as too little.”); see also Skeen v. Jo-Ann Stores,
Inc., 750 A.2d 1170, 1174 (Del. 2000) (“Omitted facts are not material simply because they
might be helpful.”).
182
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985).
183
See Cede & Co. v. Technicolor, Inc., 636 A.2d 956, 957 (Del. 1994).
55
 Of course, in addition to including all material information, a board’s request

for stockholder action must also disclose accurate information.184

To state a claim for breach of the fiduciary duty of disclosure on the
basis of a false statement or representation, a plaintiff must identify
(1) a material statement or representation in a communication
contemplating stockholder action (2) that is false.185

Directors are subject to this standard of conduct even when they seek stockholder

approval that is not prescribed by Delaware law.186

The failure of a board to disclose all material information accurately when

seeking stockholder action does not necessarily establish that compensatory

damages are appropriate.187 Whether compensatory damages are available

depends, in no small part, on the matter on which the stockholders are being

solicited to vote. In limited circumstances, post-closing damages may be available

for material misstatements or omissions in a proxy statement seeking stockholder

approval of a transaction.188 But, the availability of post-annual-meeting damages

184
Malone, 722 A.2d at 11 (“Inaccurate information in these contexts [including a proxy
statement seeking stockholder action] may be the result of a violation of the fiduciary duties of
care, loyalty, or good faith.”).
185
Pfeffer v. Redstone, 965 A.2d 676, 685 (Del. 2009) (quoting O’Reilly v. Transworld
Healthcare, Inc., 745 A.2d 902, 920 (Del. Ch. 1999)).
186
See, e.g., Lewis v. Vogelstein, 699 A.2d 327, 330 (Del. Ch. 1997) (citing In re Tri-Star
Pictures, Inc., 634 A.2d at 333) (noting that the well-established disclosure obligations apply
even where “shareholder approval was not required for the authorization of [a] transaction and
was sought only for its effect on the standard of judicial review”).
187
See Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 146-47 (Del. 1997) (“[T]here is
no per se rule that would allow damages for all director breaches of the fiduciary duty of
disclosure.”).
188
See In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 53 (Del. Ch. 2014).
56
for misstatements or omissions in a proxy statement for the election of directors is

less clear.

There may be circumstances under which a proxy statement soliciting
votes for the election of directors is actionable under Delaware law for
material misstatements or omissions. Injunctive relief in the form of
corrective disclosures and resolicitation may be appropriate if the
matter is addressed in time by a court of equity. It is difficult to see
how damages may also be available in such a case.189

Regardless of the matter on which stockholders are asked to vote, a stockholder

plaintiff seeking compensatory damages for a material misstatement or omission

must allege “some reasonable relationship between the alleged disclosure claims

and harm suffered by individually by the shareholders.”190 Only compensatory

damages that “arise logically and directly” may be awarded.191

The Plaintiffs’ primary disclosure gripe is that the Board failed to disclose,

or made inaccurate statements about, the ABA or the Base Price in various proxy

statements. These proxy statements can be divided into three groups: (i) the 2009,

2011, and 2012 Proxy Statements; (ii) the 2009 Special Meeting Proxy Statement;

and (iii) the 2010 Proxy Statement. The Court should grant the Defendants’

Rule 12(b)(6) motion to dismiss unless (1) it is reasonably conceivable that the

189
See Loudon, 700 A.2d at 146 (citations omitted).
190
Thornton, 2009 WL 426179, at *5 (citing In re J.P. Morgan Chase & Co., 906 A.2d at 773);
see also In re Orchard Enters., Inc., 88 A.3d at 53 (quoting In re J.P. Morgan Chase & Co., 906
A.2d at 773) (“When seeking post-closing damages for breach of the duty of disclosure,
however, the plaintiffs must prove quantifiable damages that are ‘logically and reasonably
related to the harm or injury for which compensation is being awarded.’”).
191
See In re Tyson Foods, Inc., 919 A.2d at 602.
57
alleged misstatements or omissions were material to a reasonable Ebix stockholder

in deciding how to vote and (2) the Court could grant the requested relief.

(i) The 2009, 2011, and 2012 Proxy Statements (Count II)

The 2009 Proxy Statement, issued in September 2009, allegedly did not

disclose the ABA, which had been approved by the Outside Directors on July 15,

2009. The 2011 and 2012 Proxy Statements allegedly disclosed the incorrect ABA

Base Price—$7.95 instead of $23.84. The Plaintiffs seek only damages for these

purported disclosure violations.

It is reasonably conceivable that there is a substantial likelihood that a

reasonable Ebix stockholder would have considered accurate information about the

ABA and the Base Price important in deciding how to vote at the company’s 2009,

2011, and 2012 annual meetings. But, those annual meetings have long since

occurred, and those annual director terms—lasting from one election to the next—

have long since expired. The Plaintiffs do not allege that any of the 2009, 2011, or

2012 elections has impeded their “rights to a share of economic profits or access to

the shareholder process.”192 On these facts, there is no reasonable relationship

between the alleged misstatements or omissions and damages.193 The Plaintiffs

have failed to allege or otherwise present a theory of damages that arise from these

192
In re Tyson Foods, Inc., 919 A.2d at 602.
193
See Thornton, 2009 WL 426179, at *5.
58
purported disclosure violations. Thus, there is no relief that the Court could grant

for these claims.194

For this reason, these disclosure claims regarding the 2009, 2011, 2012

Proxy Statements are dismissed under Rule 12(b)(6).

(ii) The 2009 Special Meeting Proxy Statement (Count II)

The Board allegedly failed to disclose the existence of the ABA in the 2009

Special Meeting Proxy Statement, which sought stockholder approval to increase

the number of authorized shares. The Board also did not disclose that the intended

stock dividend would decrease the ABA’s Base Price. For these alleged

omissions, the Plaintiffs again seek only compensatory damages.

It is not reasonably conceivable that information regarding the ABA would

have been material to a stockholder’s decision-making process about whether to

vote for the proposed charter amendment. The Court is unwilling to conclude,

even at the motion to dismiss stage, that information about the ABA would have

changed the total mix of information available. Alternatively, the Plaintiffs again

failed to articulate how damages logically flow from or reasonably relate to the

harm they allegedly suffered because of these omissions.

194
See In re Tyson Foods, Inc., 919 A.2d at 602 (“Lacking any form of relief that might be
granted, plaintiffs have failed to state a claim [for purported disclosure violations in a proxy
statement regarding an election of directors.]”).
59
 Thus, this disclosure claim regarding the 2009 Special Meeting Proxy

Statement must also be dismissed under Rule 12(b)(6).

(iii) The 2010 Proxy Statement (Counts II and IV)

The Board requested Ebix stockholder approval of the 2010 Plan in the 2010

Proxy Statement, in which the Board noted that the ABA’s Base Price was $7.95.

This disclosure was purportedly inaccurate because the Base Price at the time of

the 2010 Proxy Statement was, as it still is today, $23.84. The relief requested by

the Plaintiffs includes damages, a declaration that the 2010 Plan was not validly

approved by Ebix stockholders, and rescission of the compensation received by the

Board pursuant to the 2010 Plan.

Based on these allegations, the Court concludes that it is reasonably

conceivable that the ABA Base Price was material to a reasonable Ebix

stockholder in deciding whether to approve the 2010 Plan.

Where shareholder ratification of a plan of option compensation is
involved, the duty of disclosure is satisfied by the disclosure or fair
summary of all of the relevant terms and conditions of the proposed
plan of compensation, together with any material extrinsic fact within
the board’s knowledge bearing on the issue.195

The ABA, even if it is not subject to the 1996 Plan, was an incentive-based form of

compensation granted to Raina, the Chairman and CEO. The 2010 Proxy

Statement sought stockholder action on a substantially similar subject matter:

195
Lewis, 699 A.2d at 333.
60
approval of an incentive-based compensation plan for Ebix officers, directors, and

employees. Given the size of the ABA grant, it is reasonably conceivable that the

difference in Base Price between $7.95 and $23.84 was material.196

Compensatory damages may be available for this allegedly material

misstatement, such as (although the Court may be skeptical of this potential

amount) for any individual harm distinct to Ebix stockholders related to the

Board’s failing to comply with NASDAQ rules regarding stockholder approval of

the 2010 Plan. But, the Plaintiffs have requested more than compensatory

damages; they also seek declaratory relief (i.e., declaring that the Ebix stockholder

approval of the 2010 Plan was invalid) and equitable relief (i.e., rescinding the

compensation received by the Board under the 2010 Plan). These requests for

relief may be available because they logically flow from this claim: they all

196
For example, in the abandoned Goldman merger at $20.00 per Ebix share, a $7.95 Base Price
gave Raina rights to an approximately $84 million payment. Am. Compl. ¶¶ 8, 79. With a
$23.84 Base Price, Raina would not have been entitled to any payment under the ABA.
Separately, that the alleged $23.84 Base Price would have been more favorable to
stockholders than the disclosed $7.95 Base Price does not change the Court’s conclusion.

Withholding information from shareholders violates their rights even if it leads to
them making the “right,” and even highly profitable, result. To hold otherwise
would be to state that a corporation may request consent from its shareholders,
withhold relevant information, and only be liable for damages in those situations
in which it appears ex post that the company has suffered financial damages. This
cannot be, and is not, the law of Delaware.

In re Tyson Foods, Inc., 919 A.2d at 602.
61
reasonably relate to the Board’s alleged failure to obtain fully informed

stockholder approval of the 2010 Plan.197

Accordingly, the Plaintiffs have sufficiently pled a material disclosure claim

regarding the 2010 Proxy Statement and the 2010 Plan.

2. The Derivative Claim Regarding the Board’s Receiving
Compensation Under the 2010 Plan (Count V)

The stock exchange on which Ebix stock is listed, NASDAQ, allegedly

requires stockholder approval of the 2010 Plan.198 It is not alleged that the Outside

Directors received options (or that Raina received restricted stock) that violated the

2010 Plan. Nor do the Plaintiffs allege, for example, that the Board intentionally or

knowingly misled Ebix stockholders in the 2010 Proxy Statement or even that the

Board received this compensation with the knowledge that the NASQAQ-required

vote was materially uninformed or possibly invalid. Rather, the theory of liability

here is that the Board members breached their fiduciary duties by receiving

compensation pursuant to the 2010 Plan that was not validly approved by Ebix

stockholders.

It is plain that, were the Ebix stockholder approval (and thus ratification) of

the 2010 Plan valid—in other words, were the 2010 Proxy Statement not materially

197
See Thornton, 2009 WL 426179, at *5; In re Tyson Foods, Inc., 919 A.2d at 602.
198
The parties did not present, and the Court is unaware of, any requirement under Delaware law
that stockholders must approve a corporation’s incentive-based, compensation plan for officers,
directors, and employees.
62
misleading—then the grants of options to the Outside Directors (or restricted

shares to Raina) under the 2010 Plan would be analyzed under the deferential

business judgment standard of review.199 But, again, that is not what is alleged.

Under the Plaintiffs’ theory, there was no valid Ebix stockholder approval or

ratification. As the Court previously concluded, it is reasonably conceivable, at the

pleadings stage, that stockholder approval of the 2010 Plan may not have been

valid due to material misstatements in the 2010 Proxy Statement regarding the

ABA Base Price. Accordingly, the Plaintiffs have rebutted the business judgment

standard of review of the fairness of these compensation awards. As the Delaware

Supreme Court has observed, “[l]ike any other interested transaction, directoral

self-compensation decisions lie outside the business judgment rule’s presumptive

protection, so that, where properly challenged, the receipt of self-determined

199
See, e.g., Bosnjak, 2014 WL 2930869, at *9 (“Because plaintiff has failed to undermine the
validity of the stockholder approvals on which the equity awards in question were expressly
conditioned, the business judgment rule applies to the board’s decision to grant those awards in
the first instance.”); Desimone v. Barrows, 924 A.2d 908, 934 (Del. Ch. 2007) (“[I]n a situation
where directors are expressly permitted under the terms of a stockholder-approved option plan to
issue below-market options, it would be well within the realm of business judgment to choose to
issue all options to a set of similarly-situated employees at a uniform strike price reflecting the
stock’s low point for the quarter.”); Criden v. Steinberg, 2000 WL 354390, at *4 (Del. Ch.
Mar. 23, 2000) (“Carrying out a predetermined stock option plan, approved by shareholders,
entirely consistently with the plan can hardly be characterized as an act of a ‘disloyal’
fiduciary.”); In re 3COM Corp., 1999 WL 1009210, at *1 (Del. Ch. Oct. 25, 1999) (“Decisions
of directors who administer a stockholder approved director stock option plan are entitled to the
protection of the business judgment rule, and, in the absence of waste, a total failure of
consideration, they do not breach their duty of loyalty by acting consistently with the terms of
the stockholder approved plan.”).
63
benefits is subject to an affirmative showing that the compensation arrangements

are fair to the corporation.”200

Thus, the Defendants’ motion to dismiss this derivative claim under

Rule 12(b)(6) is denied.

G. Exculpation from Monetary Liability for the Board under Ebix’s Charter

1. The Direct Disclosure Claim (Count II and IV)

The requirement for directors to disclose accurately all material information

when seeking stockholder approval is a specific application201 of the standard of

conduct—due care and loyalty—demanded of directors under Delaware law.202

Breaches of the duty of disclosure are within the reach of a corporation’s

exculpatory charter provision adopted pursuant to 8 Del. C. § 102(b)(7).

A Section 102(b)(7) charter provision, such as that in Ebix’s charter,203 may

200
Telxon Corp. v. Meyerson, 802 A.2d 257, 265 (Del. 2002).
201
See Malpiede v. Townson, 780 A.2d 1075, 1086 (Del. 2001) (“[T]he board’s fiduciary duty of
disclosure . . . is not an independent dut[y] but the application in a specific context of the board’s
fiduciary duties of care, good faith, and loyalty.”).
202
See Malone, 722 A.2d at 10; see also Chen v. Howard-Anderson, 87 A.3d 648, 666 (Del. Ch.
2014) (discussing the distinction in Delaware jurisprudence between the standard of conduct
required of directors as fiduciaries and the Court’s standards of review of the conduct of
directors); In re Trados Inc. S’holder Litig., 73 A.3d 17, 35-36 (Del. Ch. 2013) (same).
203
Ebix’s charter provides, in relevant part:

A director shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided that this
sentence shall not eliminate or limit the liability of a director (i) for any breach of
his duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of the law, (iii) under Section 174 of the General Corporation Law, or (iv) for any
transaction from which the director derives an improper personal benefit.
64
exculpate directors from personal liability for a number of claims.204 Even under

the broadest Section 102(b)(7) provision permitted under Delaware law, however,

directors are still personally liable for damages from breaches of the duty of loyalty

or bad faith conduct.205

Because “not every breach of the duty of disclosure implicates bad faith or

disloyalty,” it is possible that directors may be exculpated from monetary liability

for an alleged disclosure violation.206 The Court may apply Ebix’s

Section 102(b)(7) provision at the pleadings stage, and thereby dismiss any claim

for damages against the Board for material misstatements in the 2010 Proxy

Statement, only if it is not reasonably conceivable that the failure to disclose the

information at issue was more than a breach of the duty of care.207 Conversely, if it

is reasonably conceivable that the disclosure violations were due to a breach of the

duty of loyalty or bad faith, then the Court cannot exculpate the Board from

Lyons Trans. Aff. Ex. 3 (Ebix Certificate of Incorporation, Art. XI). Ebix’s charter is extrinsic to
the Amended Complaint. The Court may nonetheless consider the charter at the pleadings stage
because it is subject to judicial notice and because the Plaintiffs do not contest its existence or
authenticity. See Malpiede, 780 A.2d at 1090-92.
204
See, e.g., Malpiede, 780 A.2d at 1094-96 (endorsing the application of a corporation’s Section
102(b)(7) charter provision to exculpate breach of fiduciary duty claims at the pleadings stage).
205
See, e.g., Hamilton P’rs, L.P. v. Highland Capital Mgmt., L.P., 2014 WL 1813340, at *15
(Del. Ch. May 7, 2014) (recognizing the outer limits of a Section 102(b)(7) provision that
provided for exculpation of personal liability for directors “to the fullest extent permitted” under
Delaware law).
206
In re Transkaryotic Therapies, Inc., 954 A.2d at 362-63.
207
See In re Morton’s Rest. Gp., Inc. S’holders Litig., 74 A.3d 656, 676 (Del. Ch. 2013)
(dismissing breach of fiduciary duty claims seeking monetary damages against directors where
the allegations did not support a reasonable inference of a breach of the duty of loyalty or bad
faith conduct).
65
liability at this time. On several occasions, this Court has identified the difficulty

in divining an exclusive duty of care breach from a possible duty of loyalty breach

or bad faith conduct on a Rule 12(b)(6) motion to dismiss a disclosure claim.208

The present claim, however, is not one of those situations. For this breach of

fiduciary duty claim to survive the Defendants’ Rule 12(b)(6) motion in light of

Ebix’s Section 102(b)(7) provision, the Plaintiffs need to allege conduct

“implicating bad faith or a breach of the duty of loyalty” for “at least half of the

directors who approved the decision at issue”209—meaning at least three members

of the Board, who all approved the 2010 Proxy Statement. To challenge whether a

particular director acted loyally, the Plaintiffs need to allege that the director was

interested, not independent, or not acting in good faith.210

The Plaintiffs failed to plead that, other than possibly Raina,211 any member

of the Board who approved the 2010 Proxy Statement was interested, not

208
See, e.g., In re Tyson Foods, Inc., 919 A.2d at 598 (“It is too early for me to conclude that the
alleged failures to disclose do not implicate the duty of loyalty.”); see also Orman, 794 A.2d
at 41 (“Unfortunately for the defendants, however, because Orman has pled facts which make it
reasonable to question the independence and disinterest of a majority of the Board that decided
what information to include in the Proxy Statement, I cannot say, as a matter of law, that the
complaint unambiguously states only a duty of care claim.”).
209
Hamilton P’rs, 2014 WL 1813340, at *15 (citing Cinerama, Inc., 663 A.2d at 1168); see also
Emerald P’rs v. Berlin, 787 A.2d 85, 92 (Del. 2001) (citing Malpiede, 780 A.2d at 1094) (“The
effect of our holding in Malpiede is that, in actions against the directors of Delaware
corporations with a Section 102(b)(7) charter provision, a shareholder’s complaint must allege
well-pled facts that, if true, implicate breaches of loyalty or good faith.”).
210
See In re Alloy, Inc. S’holder Litig., 2011 WL 4863716, at *7 (Del. Ch. Oct. 13, 2011).
211
Again, for purposes of this analysis, the Court assumes, without deciding, that Raina may be
deemed interested in the material misstatements in the 2010 Proxy Statements as the counter-
party to the ABA.
66
independent, or not acting in good faith by failing to disclose the correct ABA

Base Price. It is not reasonably conceivable that the five Outside Directors stood

on both sides of the ABA or that the ABA either provided them with a material

benefit or caused them to suffer a material detriment.212 It is likewise not

reasonably conceivable that the Outside Directors were beholden to another’s

interest or that Raina knew about the inaccuracy and failed to disclose that

information to the Outside Directors.213 Finally, it is not reasonably conceivable

that the Outside Directors failed to act in good faith by, for instance, knowingly

disclosing an incorrect ABA Base Price.214 The basic premise underlying the

Plaintiffs’ theory here is precisely the opposite: the Board did not know about this

potential issue with the ABA Base Price—at least not before this lawsuit.

Because the 2010 Proxy Statement disclosure violations do not implicate

loyalty or bad faith, the Court may apply Ebix’s Section 102(b)(7) charter

provision. Therefore, the Board is exculpated for monetary damages for this

212
See Orman, 794 A.2d at 23.
213
See Rales, 634 A.2d at 936; Aronson, 473 A.2d at 815; see also In re Transkaryotic
Therapies, 954 A.2d at 363.
214
See In re Walt Disney Co., 906 A.2d at 67 (noting that bad faith under Delaware law includes
“where the fiduciary intentionally acts with a purpose other than that of advancing the best
interests of the corporation, where the fiduciary acts with the intent to violate applicable positive
law, or where the fiduciary intentionally fails to act in the face of a known duty to act,
demonstrating a conscious disregard for his duties”).
67
disclosure claim, but the possibility of awarding the requested declaratory and

equitable relief remains.215

2. The Derivative Fiduciary Duty Claim (Count V)

The Court previously concluded that demand is excused for the derivative

breach of fiduciary duty claim regarding the Board’s receipt of options or restricted

shares under the 2010 Plan because at least half the Board is interested. That the

Board is interested for purposes of Rule 23.1 implicates a breach of the duty of

loyalty for purposes of Section 102(b)(7).216 Thus, to the extent that the Plaintiffs

seek compensatory damages that reasonably relate to this claim, the Board is not

presently exculpated from liability pursuant to Ebix’s Section 102(b)(7) charter

provision.

V. CONCLUSION

The Defendants’ motion to dismiss under Rules 23.1 and 12(b)(6) is denied

as to: (i) Counts II and IV asserted against the Board to the extent the Plaintiffs

seek non-monetary relief for material misstatements related to the ABA Base Price

in the 2010 Proxy Statement; (ii) Count II asserted against the Board challenging

the continued existence of the ABA as an unreasonable anti-takeover device; and

215
See Arnold v. Soc’y for Sav. Bancorp, Inc., 678 A.2d 533, 542 (Del. 1996) (“While section
102(b)(7) and charter provisions adopted thereunder will leave stockholders without a monetary
remedy in some instances, they remain protected by the availability of injunctive relief.
Stockholders are not discouraged from pursuing such remedies when warranted.”).
216
See OTK Assocs., LLC v. Friedman, 85 A.3d 696, 723-24 (Del. Ch. 2014).
68
(iii) Count V asserted against the Board regarding the compensation they received

under the 2010 Plan. The Plaintiffs’ other claims are dismissed for the reasons set

forth above.

The Court requests counsel to confer and to submit an implementing form of

order.

69