IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ROBERT ELBURN, derivatively on )
behalf of INVESTORS BANCORP, )
INC., and individually and on behalf of
)
himself and all other similarly situated
)
stockholders of INVESTORS )
BANCORP, INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0774-JRS
)
ROBERT C. ALBANESE, DENNIS M. )
BONE, DOREEN R. BYRNES, )
DOMENICK A. CAMA, PETER H. )
CARLIN, WILLIAM V. COSGROVE, )
KEVIN CUMMINGS, JAMES J. )
GARIBALDI, MICHELE N. )
SIEKERKA, PAUL N. )
STATHOULOPOULOS and JAMES H. )
WARD III, )
)
Defendants, )
)
and )
)
INVESTORS BANCORP, INC., a )
Delaware corporation, )
)
Nominal Defendant. )
ORDER REFUSING DEFENDANTS’ APPLICATION FOR
CERTIFICATION OF INTERLOCUTORY APPEAL UNDER
SUPREME COURT RULE 42
WHEREAS, Plaintiff, Robert Elburn, filed a Complaint asserting derivative
claims and a direct claim on behalf of himself and a putative class of stockholders
of Investors Bancorp, Inc. (“Investors Bancorp” or the “Company”), in which he
alleged the Defendants, each a member of the Company’s Board of Directors
(the “Board”), approved compensation awards in breach of their fiduciary duties
(D.I. 1);
WHEREAS, Defendants moved to dismiss the Complaint for failure
adequately to plead demand futility under Court of Chancery Rule 23.1 and failure
to state a viable claim under Court of Chancery Rule 12(b)(6) (D.I. 10);
WHEREAS, this Court issued a Memorandum Opinion, dated April 21, 2020
(D.I. 37), denying the Defendants’ Motion to Dismiss upon concluding Plaintiff’s
Complaint had stated a claim for breach of fiduciary duty and had sufficiently
alleged demand futility under Rule 23.1 because it pled, with particularity, sufficient
facts to raise a reasonable doubt that a majority of the Board would have been able
impartially to consider a litigation demand (the “Opinion”)1;
1
Elburn v. Albanese, 2020 WL 1929169 (Del. Ch. Apr. 21, 2020) (hereinafter the
“Opinion”). Capitalized terms in this Order assume the same meaning as the Opinion
unless otherwise defined.
1
WHEREAS, on July 2, 2020, Defendants timely filed an application for
certification of an interlocutory appeal of the Opinion (the “Application”) (D.I. 42)2;
WHEREAS, the Application asserts five grounds for interlocutory appeal
under Supreme Court Rule 42: (1) the Opinion “resolved important questions of first
impression[,]”—relying on Supreme Court Rule 42(b)(iii)(A)3; (2) the Opinion
conflicts with other decisions of this court and the Supreme Court—relying on
Supreme Court Rule 42(b)(iii)(B)4; (3) the Opinion relates to the construction of a
Delaware statute—relying on Supreme Court Rule 42(b)(iii)(C)5; (4) the Opinion
“sustained the controverted jurisdiction” of this court—relying on Supreme Court
Rule 42(b)(iii)(D)6; and (5) interlocutory review of the Opinion would “serve
considerations of justice”—relying on Supreme Court Rule 42(b)(iii)(H)7;
WHEREAS, on July 13, 2020, Plaintiff opposed the Application (D.I. 44);
and
2
The Application was timely under the Supreme Court of Delaware’s Order, dated June 5,
2020, extending deadlines to accommodate litigants as part of the Judicial Emergency
declaration relating to the COVID-19 pandemic.
3
Application at 7.
4
Application at 7–12.
5
Application at 12.
6
Application at 12–13.
7
Application at 13.
2
WHEREAS, the Court has thoroughly reviewed the Application, Plaintiff’s
response and the criteria set forth in Supreme Court Rule 42;
IT IS HEREBY ORDERED, this 21st day of July, 2020, that:
1. Supreme Court Rule 42 provides that “[n]o interlocutory appeal will be
certified by the trial court or accepted by th[e] [Supreme] Court unless the order of
the trial court decides a substantial issue of material importance that merits appellate
review before a final judgment.”8 With this limitation in mind, “[i]nterlocutory
appeals should be exceptional, not routine, because they disrupt the normal
procession of litigation, cause delay, and can threaten to exhaust scarce party and
judicial resources.”9 Indeed, “parties should only ask for the right to seek
interlocutory review if they believe in good faith that there are substantial benefits
that will outweigh the certain costs that accompany an interlocutory appeal.”10
2. Rule 42(b)(iii) lists the factors the trial court should consider in
deciding “whether and why the likely benefits of interlocutory review outweigh the
probable costs, such that interlocutory review is in the interests of justice. If the
8
Supr. Ct. R. 42(b)(i).
9
Supr. Ct. R. 42(b)(ii).
10
Id.
3
balance is uncertain, the trial court should refuse to certify the interlocutory
appeal.”11
3. “[T]he purpose of [Supreme Court] Rule 42 is to prevent wasteful
piecemeal litigation from overwhelming the docket of the Supreme Court.”12 And
Delaware courts operate under “a strong presumption against granting certification
of an interlocutory appeal if it will lead to piecemeal litigation.”13
4. After careful review, I am satisfied the Opinion does not decide a
substantial issue of material importance such that appellate review of the Opinion
before final judgment “would serve considerations of justice.”14 Specifically, it did
not resolve an issue of first impression, it is not in conflict with precedent and
interlocutory review would likely result in piecemeal litigation. Accordingly,
I cannot certify that the benefits of an interlocutory appeal outweigh the costs. The
Application’s contrary arguments are unpersuasive for the following reasons.
5. First, the Opinion does not decide an issue that “relate[s] to the merits
of the case.”15 As the Opinion made abundantly clear, it was not deciding whether
11
Supr. Ct. R. 42(b)(iii).
12
Stein v. Blankfein, 2019 WL 3311227, at *1 (Del. Ch. July 23, 2019).
13
In re TransPerfect Glob., Inc., 2019 WL 6130807, at *4 (Del. Ch. Nov. 18, 2019).
14
Supr. Ct. R. 42(b)(iii)(H).
15
Castaldo v. Pittsburgh-Des Moines Steel Co., Inc., 301 A.2d 87, 87 (Del. 1973)
(“Generally speaking, the substantive element of the appealability of an interlocutory order
4
Defendants’ compensation awards actually resulted from an improper quid pro quo
arrangement.16 It simply concluded that Plaintiff’s Complaint, backed by well-pled
particularized facts, stated that such an agreement existed and these allegations
supported a finding of demand futility.17 The Supreme Court has previously found
interlocutory review to be inappropriate where “no final determination was being
made on the merits of plaintiff’s claims, but only that plaintiff would be afforded the
right to pursue discovery related to the allegations of the complaint.”18 That is
precisely what the Opinion found here.19
must relate to the merits of the case . . . .”); Levinson v. Conlon, 385 A.2d 717, 720
(Del. 1978) (holding that interlocutory rulings “on the pleadings” should rarely give rise to
interlocutory appeals since they rarely “establish a legal right between the parties”).
16
Opinion at *9 (“I acknowledge that Defendants have wholeheartedly denied that any
quid pro quo occurred . . . Targeted discovery is likely to reveal rather quickly if the quid
pro quo arrangement alleged in the Complaint was actually reached. If it was not,
Defendants are likely to earn summary judgment.”).
17
Id.
18
Fuqua Indus., Inc. v. Lewis, 504 A.2d 571 (Del. 1986) (TABLE) (refusing interlocutory
appeal). See also Musk v. Arkansas Teacher Ret. Sys., 184 A.3d 1292 (Del. 2018) (refusing
interlocutory appeal where, on a motion to dismiss, the trial court determined that plaintiff
had met its burden of pleading facts that allowed a reasonable inference that the company’s
CEO was a controlling stockholder but also acknowledged that discovery might reveal
otherwise).
19
Opinion at *9.
5
6. Second, Defendants argue the Opinion decided an issue of first
impression, warranting interlocutory review.20 I disagree.21 There was absolutely
nothing unusual about the demand futility allegations addressed by the Opinion, or
the means by which the Opinion addressed them.22 Determining the sufficiency of
demand futility allegations is steady grist for the Chancery mill. 23 Apparently
recognizing this reality, and attempting to make more of the Opinion than is justified,
Defendants seize on the fact that the Court chose to “dilate on Rule 23.1’s”
20
Application at 7 (arguing that the Court’s reliance upon Rule 9(b) jurisprudence in the
Rule 23.1 context decided an issue of first impression).
21
Trial judges confront motions for reargument, applications for certification of an
interlocutory appeal and appeals from final judgments as a matter of course, and it is rare
that a trial judge will express any particular reaction to such filings beyond his ruling on
the merits. Occasionally, however, a filing will prompt an additional reaction. See, e.g.,
In re Pure Res., Inc., 2002 WL 31357847, at *1, n.1 (Del. Ch. Oct. 9, 2002) (Strine, V.C.)
(expressing “dismay” at the manner in which the court’s opinion was characterized in an
application for certification of an interlocutory appeal). I do not express “dismay” here. I
do acknowledge some disappointment, however, that Defendants have characterized the
Opinion as having endorsed some radical departure from well-settled standards for
reviewing the sufficiency of demand futility allegations within derivative complaints under
Court of Chancery Rule 23.1. As explained below, no such departure was endorsed or
effectuated here.
22
See generally, Aronson v. Lewis, 473 A.2d 805 (Del. 1984).
23
One month of the court’s written Rule 23.1 output illustrates the point. See, e.g., In re
GoPro, Inc., 2020 WL 2036602 (Del. Ch. Apr. 28, 2020); Hughes v. Xiaoming Hu, 2020
WL 1987029 (Del. Ch. Apr. 27, 2020); Shabbouei v. Potdevin, 2020 WL 1609177
(Del. Ch. Apr. 2, 2020); Buckley Family Trust v. McCleary, 2020 WL 1522549 (Del. Ch.
Mar. 31, 2020).
6
particularity standard before it addressed the sufficiency of Plaintiff’s pleading.24
While it is true the Opinion identified some guideposts that might be useful as our
courts traverse Rule 23.1’s “with particularity” landscape, the Opinion ultimately
applied settled law to the specific allegations in the Complaint to conclude that
Plaintiff had well-pled—under any definition of particularity—that a majority of the
demand board faced a substantial likelihood of liability, such that demand was
futile.25
24
Opinion at *7.
25
Opinion at *9. As explained in the Opinion, Plaintiff alleges Defendants negotiated a
settlement of separate breach of fiduciary duty claims pending against them in this court
arising from excessive awards issued under an Equity Incentive Plan ostensibly by keeping
most of their own awards, but cancelling substantial awards made to two employee
Directors. In reality, however, it is alleged the Defendants had agreed with the two
employee Directors (also Defendants) prior to the consummation of the settlement to make
new, nearly identical awards to them after the settlement was approved by the Court (the
so-called “Replacement Awards”). Opinion at *9. As found in the Opinion, the Complaint
pled with particularity the existence of an “illicit quid pro quo arrangement that led to the
Replacement Awards.” Id. The Complaint also pled, “when the alleged misconduct
occurred, who allegedly participated and what motivated the nonemployee directors to
breach their fiduciary duties.” Id. In reaching this conclusion, the Court considered the
extent to which Delaware’s Rule 9(b) jurisprudence (relating to that rule’s “with
particularity” requirement) might offer insight when applying Rule 23.1’s identical “with
particularity” language. Opinion at *7. The Court embarked on this analytical excursion
in reaction to Defendants’ argument that the Complaint failed to meet Rule 23.1’s pleading
standard because Plaintiff had “failed to present any particularized facts to suspect that the
Individual Defendants entered into a quid pro quo arrangement to [make the Replacement
Awards].” See Opening Brief in Support of the Defendants’ Motion to Dismiss Counts I
and II of the Verified Stockholder Derivative and Class Action Complaint (D.I. 13), at 45
(emphasis supplied). That argument, in my view, was provocative given that Plaintiff had
alleged, inter alia: “As described above, each of these directors were able to retain a
substantial portion of their challenged awards only because Cummings and Cama had
agreed to forfeit all of their awards as part of the Settlement. As it turned out, Cummings
and Cama’s agreement came with strings attached: Before agreeing to the Settlement,
7
7. Third, Defendants argue the Opinion improperly conflated Rule 8(a)’s
notice pleading standards with Rule 23.1’s particularity requirement, in defiance of
well-settled Delaware law.26 Here again, Defendants misconstrue the Opinion.
Indeed, the Opinion made clear that the “stringent requirements of factual
particularity [within Rule 23.1] [] differ substantially from . . . permissive notice
pleadings.”27 And then, in an attempt to clarify Rule 23.1’s oft-repeated
“particularity” standard, the Opinion recognized that the pleading standards for
fraudulent omission cases (where “particularity” is also required by our rules) could
serve as useful “guideposts” when considering the sufficiency of factual allegations
in the Rule 23.1 context, particularly where, as here, the stockholder plaintiff would
have no means of knowing the so-called “newspaper facts” related to the alleged
wrongdoing (i.e., the specific “who, what, when, where and how”).28 As explained
above, after making these observations, the Opinion went on to assess the allegations
in the Complaint to determine if they pled the formation of an illicit quid pro quo
Cummings and [Cama] sought, and received, an undisclosed assurance from the Board’s
non-employee directors that they would ‘replace’ the awards Cummings and Cama were
agreeing to give up, in an amount acceptable to Cummings and Cama.” Compl. ¶ 100.
26
Application at 8–9.
27
Opinion at *6 (quoting In re LendingClub Corp. Deriv. Litig., 2019 WL 5678578, at *6
(Del. Ch. Oct. 31, 2019)).
28
Opinion at *8, *9.
8
agreement with the requisite particularity, in part by referencing the Rule 9(b)
“particularity” guideposts.29 Nowhere did the Opinion apply Rule 8(a) or even
remotely suggest that the lower “notice pleading” standard codified in that rule has
any place in the Rule 23.1 demand futility analysis.
8. In a similar vein, Defendants argue the Opinion “blindly accept[ed]
conclusory allegations unsupported by specific facts.”30 This point simply rehashes
the arguments Defendants made in support of their Motion to Dismiss that the
Opinion considered and rejected. Given the frequency with which defendants in
derivative litigation label the complaint’s allegations as “conclusory,” the Opinion
sought to shed some light on what separates specifically pled facts from conclusory
allegations.31 After undertaking that analysis, the Opinion identified the well-pled,
particularized facts in the Complaint that supported Plaintiff’s claims and rejected
Defendants’ arguments that Plaintiff’s allegations were conclusory.32 There was
nothing unusual or groundbreaking about that process or conclusion.
9. Fourth, Defendants argue the Opinion improperly ignored the rule that
“a plaintiff asserting demand futility based on directors’ alleged involvement in
29
Id. at *9.
30
Application at 8 (quoting Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010)).
31
Opinion at *2, *7–9.
32
Id. at *9.
9
claimed misconduct must plead particularized facts showing not just a claim against
the defendant directors—but also that a majority of the board faces ‘a substantial
likelihood’ of liability for the claim or lacks independence from a defendant who
does.”33 This argument is unfortunate given that the Opinion explicitly recognized
the importance of the demand futility paradigm.34 It then described, at some length,
how the Complaint laid out the manner in which each Defendant (comprising a
majority of the Board) participated in the alleged quid pro quo arrangement, and,
accepting those particularized allegations as true,35 explained the bases for the
Court’s reasonable doubt that a majority of the Board could impartially consider a
litigation demand.36
10. Fifth, Defendants argue the Court improperly lowered the operative
pleading standards “to address a derivative plaintiff’s supposed inability to obtain
pre-complaint discovery.”37 This was error, Defendants argue, because our law
33
Application at 10–11.
34
Opinion at *6 (observing that, under our law, directors, not stockholders, manage a
company’s litigation asset and, therefore, stockholders who seek to wrest control of that
asset away from the board of directors must meet “the stringent requirements” of Rule 23.1,
including a demonstration within the derivative complaint that a majority of the board is
not fit to consider a litigation demand) (citations omitted).
35
Rales v. Blasband, 634 A.2d 927, 931 (Del. 1993).
36
Opinion at *9.
37
Application at 11.
10
encourages potential derivative plaintiffs to utilize the “tools at hand,” including
8 Del. C. § 220, to close this pre-litigation information gap.38 Once again,
Defendants proffer an unfair, alarmist reading of the Opinion.
11. In encouraging the Court to dismiss Plaintiff’s derivative Complaint,
Defendants maintained that Rule 9(b)’s “newspaper facts” pleading standard should
also apply to derivative suits.39 In other words, Defendants argued the Complaint
failed to plead demand futility because Plaintiff could not identify the specifics of
who said what to whom, and specifically when they said it, when formulating the
alleged quid pro quo agreement related to the Replacement Awards. The Opinion
rejected that position because, “[e]ven with Section 220 documents in hand,
derivative plaintiffs would be hard pressed to plead [] ‘who, what, when, where and
how’ facts about fiduciary wrongdoing [of the nature alleged here].”40 The Opinion
made this observation not as a justification to shirk precedent and lower the settled
pleading standards, but as a basis to reject Defendant’s proffered (and extra-
heightened) Rule 23.1 pleading burden.
12. Additionally, the particular circumstances of this case likely would
have caused any useful information in a Section 220 document production to be
38
Id.
39
Opinion at *7.
40
Id. at *8.
11
buried under a sea of redactions. As pled, the decision to grant the Replacement
Awards was made “with the assistance of [the Defendants’] independent legal
advisor . . . .”41 Counsel was also intimately involved in advising the Board
regarding the settlement of the breach of fiduciary duty litigation pending against
them that prompted the alleged illicit quid quo pro arrangement.42 Under these
circumstances, the notion that a Section 220 demand would have allowed Plaintiff
to uncover facts that he could use to plead a more robust derivative complaint blinks
at reality; Defendants would have almost certainly redacted anything substantive in
their 220 production under an attorney-client privilege stamp.
13. Sixth, Defendants argue an interlocutory appeal is appropriate because
resolution of the appeal could terminate the litigation.43 But, Plaintiff’s Complaint
also asserts a direct disclosure claim that is pending and presumably proceeding to
discovery.44 The legal issues Defendants seek to press on appeal have no bearing on
the factual determinations required to adjudicate that direct claim. The outcome of
the appeal, therefore, will not be case dispositive.45 Rather, the certification of this
41
Compl. ¶ 60.
42
Compl. ¶¶ 38–59.
43
Application at 12 (quoting Supr. Ct. R. 42(b)(iii)(D)).
44
Opinion at *10–11.
45
Supr. Ct. R. 42(b)(iii)(D),(G). See also Fuqua Indus., 504 A.2d at 571 (refusing
interlocutory appeal of a motion to dismiss where resolution of the appeal likely would not
12
interlocutory appeal would do nothing more than facilitate wasteful piecemeal
litigation.46
14. Under these circumstances, I cannot certify that the likely benefits of
an interlocutory appeal outweigh the probable costs, such that interlocutory review
is in the interests of justice. Defendants’ application for certification of an
interlocutory appeal, therefore, must be REFUSED.
/s/ Joseph R. Slights III
Vice Chancellor
end the litigation); Murphy v. Berlin, 1999 WL 1223001, at *1 (Del. Super. Ct. Nov. 18,
1999) (Quillen, J.) (same).
46
Stein, 2019 WL 3311227, at *1.
13