IN RE TERRAFORM POWER, INC. STOCKHOLDER LITIGATION

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE TERRAFORM POWER, INC. ) CONSOLIDATED
STOCKHOLDERS LITIGATION ) C.A. No. 2019-0757-SG

MEMORANDUM OPINION

Date Submitted: July 16, 2020
Date Decided: October 30, 2020

Ned Weinberger, Derrick Farrell, and Mark Richardson, of LABATON
SUCHAROW LLP, Wilmington, Delaware; Peter B. Andrews, Craig J. Springer, and
Davis M. Sborz, of ANDREWS & SPRINGER LLC, Wilmington Delaware; OF
COUNSEL: Jeremy S. Friedman and David F.E. Tejtel, of FRIEDMAN OSTER &
TEJTEL PLLC, Bedford Hills, New York; Steven J. Purcell, Douglas E. Julie, Robert
H. Lefkowitz, and Kaitlyn T. Devenyns, of PURCELL JULIE & LEFKOWITZ LLP,
New York, New York, Attorneys for Lead Plaintiffs City of Dearborn Police and
Fire Revised Retirement System (Chapter 23) and Martin Rosson.

Kevin G. Abrams, Eric A. Veres, and Stephen C. Childs, of ABRAMS & BAYLISS
LLP, Wilmington, Delaware; OF COUNSEL: John A. Neuwirth, Stefania D.
Venezia, and Amanda K. Pooler, of WEIL, GOTSHAL & MANGES LLP, New
York, New York, Attorneys for Defendants Brookfield Asset Management Inc., Orion
US Holdings 1 L.P., Brookfield BRP Holdings (Canada) Inc., Brian Lawson, Harry
Goldgut, Richard Legault, Sachin Shah, and John Stinebaugh.

Brian C. Ralston, Seth R. Tangman, and Caneel Radinson-Blasucci, of POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Daniel
M. Sullivan, of HOLWELL SHUSTER & GOLDBERG LLP, New York, New York,
Attorneys for Nominal Defendant TerraForm Power, Inc.

GLASSCOCK, Vice Chancellor
 This matter involves a purported direct action by stockholders against

the corporate controller and certain directors for breach of fiduciary duty. The

Plaintiffs allege that the controller caused the entity to issue it stock for inadequate

value, diluting both the financial and voting interest of the minority stockholders.

Although the Plaintiffs initially asserted both direct and derivative claims, they

subsequently ceased to be stockholders of the entity after the company was acquired

in a merger. The merger ended any viable derivative claims, leaving the Plaintiffs

with only their direct claims to pursue. Unlike derivative claims, a merger does not

terminate a plaintiff’s standing to pursue direct claims. Therefore, any direct claims

survive the merger.

The Defendants have moved to dismiss for lack of standing, arguing that

dilution claims are quintessential derivative claims that belong to the corporation

under the standard articulated in Tooley v. Donaldson, Lufkin & Jenrette, Inc.1 The

Plaintiffs counter that their claims are dual natured under the more specific rubric

established by Gentile v. Rossette, and that their direct claims thus persist.2

The facts of this case are strikingly similar to those of Gentile. The

Defendants do not dispute this. Instead, because Gentile has been both criticized and

1
See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004).
2
See Gentile v. Rossette, 906 A.2d 91 (Del. 2006).
1
applied narrowly in a number of judicial opinions, they urge me to disregard it as

precedent.

It may be tempting for a bench judge to think that a common law that is

composed solely of his best judgement would itself be the perfect expression of the

law. Fear of hubris and its condign results should dissuade any judge from such an

error. More fundamentally, the value of the common law is that it provides for

incremental change only, so that decision makers have a sense of certainty and

predictability in taking actions under its framework. This value requires a careful

balance. Prior decisions by those at the same judicial level, on the same facts, have

strong persuasive value, and a judge should disregard them only when convinced

that the prior conclusions of her colleague were erroneous. Prior on-point decisions

of higher tribunals, by contrast, are controlling. If a plaintiff is to prevail against

such prior case law, then, it must be via appeal.

This principle of stare decisis is the balance by which our common-law system

enables flexibility without sacrificing predictability. Here, Gentile is the controlling

precedent, under which I find that the Plaintiffs have adequately pled a direct claim,

and the Defendants’ Motion to Dismiss must be denied.

I amplify my reasoning, below.

2
I. BACKGROUND 3

A. The Parties

Nominal Defendant TerraForm Power, Inc. (“TerraForm”) is a Delaware

corporation headquartered in New York.4 TerraForm is a publicly traded company

that acquires, owns, and operates solar and wind assets in North America and

Western Europe.5

Defendant Brookfield Asset Management, Inc. (“Brookfield”) is a Canadian

corporation headquartered in Toronto.6 Brookfield is an alternative asset manager

that primarily conducts business through direct and indirect subsidiaries. 7 At the

time the Complaint was filed, Brookfield and its affiliates beneficially owned 61.5%

of TerraForm. 8 Pursuant to TerraForm’s then-operative Certificate of Incorporation

(the “Charter”), Brookfield also had the power to designate four members of

Brookfield’s senior management to TerraForm’s Board of Directors.9

3
The facts, except where otherwise noted, are drawn from the designated operative Verified
Stockholder Derivative and Class Action Complaint, C.A. No. 2020-0050-SG, Dkt. No. 1 (the
“Complaint” or “Compl.”), and are presumed true for the purposes of evaluating the Defendants’
Motion to Dismiss. See Stip. and Order of Consolidation and Appointment of Lead Pls. and Co-
Lead Counsel ¶ 14, Dkt. No. 19.
4
Compl. ¶ 13.
5
Id. Terraform’s common stock trades on the NASDAQ under the ticker “TERP.” Id.
6
Id. ¶ 14.
7
Id. ¶¶ 14–15.
8
Id. ¶ 14.
9
Id. ¶ 2.

3
 Defendant Orion US Holdings 1 L.P. (“Orion Holdings”) is a Delaware

limited partnership and an affiliate of Brookfield.10 Orion Holdings is one of

Brookfield’s affiliates through which Brookfield has held beneficial voting and

dispositive power over Brookfield’s TerraForm shares.11

Defendant Brookfield BRP Holdings (Canada) Inc. (“BRP Holdings”) is a

Canadian corporation and an affiliate of Brookfield.12 BRP Holdings’ sole purpose

appears to be holding stock in TerraForm. 13

Defendant Brian Lawson is a director of TerraForm and Senior Managing

Partner and Chief Financial Officer (“CFO”) of Brookfield.14

Defendant Harry Goldgut is a director of TerraForm and Vice Chair of

Brookfield’s Renewable Group and Brookfield’s Infrastructure Group. 15

Defendant Richard Legault is a director of TerraForm and Vice Chairman of

Brookfield.16

10
Id. ¶ 17.
11
Id. ¶ 14 n.5.
12
Id. ¶ 18.
13
Id.
14
Id. ¶ 19.
15
Id. ¶ 20.
16
Id. ¶ 21.

4
 Defendant Sachin Shah is a director of TerraForm and a Managing Partner of

Brookfield.17 Shah also serves as Chief Executive Officer (“CEO”) of Brookfield

Renewable Partners and BRP Holdings. 18

Defendant John Stinebaugh is TerraForm’s CEO. 19 Stinebaugh was

appointed as TerraForm’s CEO by Brookfield and is employed as a Managing

Partner of Brookfield.20 Stinebaugh receives no direct compensation from

TerraForm for his services as CEO and instead receives his compensation solely

from Brookfield. 21

Plaintiff City of Dearborn Police and Fire Revised Retirement System

(Chapter 23) (“City of Dearborn”) has continuously owned shares of TerraForm

Class A common stock at all times relevant to this action.22

Plaintiff Martin Rosson has continuously owned shares of TerraForm Class A

common stock since January 2018. 23

17
Id. ¶ 22.
18
Id.
19
Id. ¶ 23.
20
Id.
21
Id.
22
Id. ¶ 12.
23
Verified Stockholder Derivative and Class Action Complaint for Breach of Fiduciary Duties
¶ 10, C.A. No. 2019-0757, Dkt. No. 1.

5
 B. Brookfield Becomes TerraForm’s Controlling Stockholder; TerraForm’s
Governance

TerraForm was formed on January 15, 2014 as a wholly-owned indirect

subsidiary of SunEdison, Inc. (“SunEdison”).24 TerraForm completed an initial

public offering (“IPO”) on July 23, 2014.25 Subsequent to its IPO, SunEdison was

TerraForm’s controlling stockholder with 91% of the combined voting power of

Terraform. 26 In April 2016, SunEdison filed for production under Chapter 11 of the

United States Bankruptcy Code.27 Because SunEdison was not performing certain

obligations (including management and administrative services) owed to TerraForm,

TerraForm initiated a process to explore and evaluate strategic alternatives.28

Brookfield ultimately agreed to purchase a controlling interest in Terraform

(the “Merger”).29 As a result of the Merger, Brookfield became TerraForm’s

controlling stockholder, holding through its affiliates 51% of TerraForm’s

outstanding common stock.30 The Merger was effectuated by a Merger and

Sponsorship Transaction Agreement (the “Transaction Agreement”) entered into by

TerraForm and two Brookfield affiliates: Orion Holdings and BRE TERP Holdings,

24
Compl. ¶ 25. TerraForm’s original name was SunEdison Yieldco, Inc.—the company’s name
was changed to TerraForm on May 22, 2014. Id.
25
Id. ¶ 26.
26
Id. ¶ 27.
27
Id. ¶ 29.
28
Id.
29
Id. ¶ 32.
30
Id.

6
Inc. (“Merger Sub”). 31 In connection with the Merger, TerraForm eliminated its

previous share structure—which included three classes of stock—and instead now

has only a single class of stock: Class A, which is entitled to one vote per share.32

Brookfield and several of its affiliates, including Orion Holdings, also entered

into several sponsorship arrangements with Terraform. 33 Pursuant to a Master

Services Agreement between TerraForm, Brookfield, and several Brookfield

affiliates (the “Master Services Agreement”), Brookfield agreed to provide certain

management and administrative services to TerraForm. 34 A Governance Agreement

between TerraForm and Brookfield (through Orion Holdings) (the “Governance

Agreement”) fixed certain rights and obligations of TerraForm and Brookfield

related to TerraForm’s governance. 35

The Master Services Agreement and Governance Agreement granted

Brookfield the exclusive power to appoint TerraForm’s CEO, CFO, and General

Counsel. 36 Following the Merger, Brookfield appointed Defendant Stinebaugh as

TerraForm’s CEO, a position he currently retains.37 Brookfield also appointed

31
Id. ¶ 30.
32
Id. ¶ 31.
33
Id. ¶ 33.
34
Id. ¶ 34.
35
Id.
36
Id. ¶ 35.
37
Id. ¶ 36.

7
TerraForm’s CFO and General Counsel, both of whom, along with Stinebaugh, were

Brookfield employees. 38

Also in connection with the Merger, Terraform amended its Charter; fixing

the size of TerraForm’s Board of Directors (the “Board”) to seven members. 39 The

amended Charter provided that, for so long as Brookfield remains TerraForm’s

controlling stockholder under stock exchange listing rules, Brookfield will have the

right to designate four of the seven Board members. 40 Upon the consummation of

the Merger, Brookfield appointed four members of its senior management to the

Board—Defendants Lawson, Goldgut, Legault, and Shah.41

Pursuant to TerraForm’s Charter, the remaining three directors of TerraForm

must be “independent” under SEC and NASDAQ rules and regulations. 42 The

Governance Agreement requires that TerraForm have a Conflicts Committee

composed of the three non-Brookfield directors (the “Conflicts Committee”). 43 The

Conflicts Committee is responsible for reviewing and approving material

transactions and matters in which a conflict of interest exists between TerraForm

and Brookfield (and its affiliates).44 Since May 23, 2018, Mark McFarland,

38
Id.
39
Id. ¶ 37.
40
Id.
41
Id. ¶ 38.
42
Id. ¶ 39.
43
Id. ¶ 40.
44
Id.

8
Christian S. Fong, and Carol Burke have comprised the Conflicts Committee.45

McFarland was appointed as a non-Brookfield designee, but Brookfield “requested

that [TerraForm] consider appointing” McFarland to the Board following the

Merger. 46

TerraForm acknowledges that it is a “‘controlled company,’ controlled by

Brookfield and its affiliates, whose interest in [TerraForm’s] business may be

different from [TerraForm’s] or other holders of [TerraForm’s] Class A common

stock.”47

C. TerraForm Determines to Acquire Saeta Yield S.A.; Planned Equity
Offering

In or around January 2018, Brookfield approached TerraForm regarding an

opportunity to acquire Saeta Yield, S.A. (“Saeta”), a publicly-traded Spanish yieldco

with 1.0+ gigawatts of contracted onshore wind and solar assets for $1.2 billion (the

“Saeta Acquisition”).48 Saeta had a high-quality operating portfolio and represented

an attractive acquisition target in line with TerraForm’s growth mandate. 49

45
Id. ¶ 41.
46
Id. ¶ 39.
47
Id. ¶ 43.
48
Id. ¶ 44. A “yieldco” is a company formed to own operating assets that produce a predictable
cash flow, primarily through long-term contracts. Id. ¶ 3 n.2.
49
Id. ¶ 45.

9
 TerraForm had the debt capacity to fund most—if not all—of the $1.2 billion

price of the Saeta Acquisition. 50 Notwithstanding this debt capacity, Brookfield

steered TerraForm towards funding a significant portion of the purchase price with

a backstopped equity offering. 51 On January 23, 2018 Brookfield and TerraForm

informed the Conflicts Committee that, in addition to funding the Saeta Acquisition

with debt, TerraForm would raise approximately $600–$700 million of equity in the

public markets.52 Brookfield indicated that in addition to participating up to it’s pro

rata portion of the equity offering—that is, 51%—it was willing to backstop part of

the equity offering. 53

The Conflicts Committee initially did not retain its own financial advisor in

connection with the proposed equity offering and instead relied on the advice of

Barclays, who was serving as TerraForm’s financial advisor.54 Barclays had a

history of advising Brookfield and its affiliates on significant transactions, and,

additionally, Brookfield owns Barclays’ London headquarters and Barclays is

Brookfield’s third-largest tenant. 55 Board and Conflict Committee meeting minutes

50
Id. ¶ 52.
51
Id. ¶ 53.
52
Id. ¶ 54.
53
Id. TerraForm’s management recommended that Brookfield receive a 2.625% upfront free for
providing the equity back-stop. Id.
54
Id. ¶ 55.
55
Id. ¶ 56.

10
do not reflect any discussion, deliberation, or questioning concerning Barclays’s

affiliation with Brookfield.56

The Conflicts Committee met on January 26, 2018 to discuss a proposed $650

million equity offering backstopped in part by Brookfield (the “Equity Offering”).57

The Conflicts Committee tasked Committee member Fong with seeking additional

detail as to the reasons why a funding plan with more debt and less equity was not

as advantageous to TerraForm as the proposed funding plan—Fong was to seek such

information from TerraForm’s CEO Stinebaugh.58

The Conflicts Committee met again on January 29, 2018 at which time it

determined that the proposed backstop was advisable and in TerraForm’s best

interests.59 In forming this conclusion the Conflicts Committee relied on

TerraForm’s management and Brookfield for advice. 60 The Conflicts Committee

still had not engaged or consulted with a financial advisor.61

As of February 6, 2018 the funding plan for the Saeta Acquisition had been

updated to reduce the Equity Offering from $650 million to $400 million due to,

among other things, recent stock market volatility. 62 Brookfield offered to backstop

56
Id.
57
Id. ¶ 57.
58
Id.
59
Id. ¶ 58.
60
Id.
61
Id.
62
Id. ¶ 60.

11
the full amount of the anticipated $400 million Equity Offering for no fee, so long

as the offering price was equal to the five-day volume weighted average price ending

the trading day prior to TerraForm’s announcement of the Saeta Acquisition. 63 At a

meeting that day the Conflicts Committee approved the equity backstop on these

terms, as documented in a support agreement between TerraForm and Brookfield

(the “Support Agreement”).64

The Support Agreement provided that TerraForm’s funding of the Saeta

Acquisition via tender offer might include an equity offering of TerraForm common

stock “on a pro rata basis to existing TerraForm stockholders of up to approximately

$400 million.”65 Brookfield agreed in the Support Agreement to backstop the Equity

Offering if the offering price equaled TerraForm’s five-day weighted average price

ending February 6, 2018, which was $10.66 per share. 66 Brookfield’s backstop

obligations were subject to successful commencement of the tender offer under

applicable Spanish law and to prior effectiveness of the necessary TerraForm

registration statement, if required.67 TerraForm and Brookfield agreed that the

pricing, size, and timing of the Equity Offering—including the decision to use the

63
Id.
64
Id. ¶ 61.
65
Id. ¶ 62.
66
Id. ¶ 63.
67
Id. ¶ 64.

12
backstop—would be subject to prior review and approval of the Conflicts

Committee, together with any other necessary approvals. 68 Finally, it was agreed in

the Support Agreement that TerraForm and the Conflicts Committee would retain

an independent financial advisor—meaning independent from Brookfield—to

provide advice regarding the Equity Offering.69

On February 7, 2018, TerraForm announced that it intended to launch a tender

offer to acquire 100% of Saeta’s outstanding shares for an aggregate purchase price

of approximately $1.2 billion (the “Tender Offer”) and that TerraForm expected to

fund the Tender Offer by (1) conducting a $400 million equity issuance of

TerraForm’s Class A common stock (the Equity Offering) and (2) providing the

remaining $800 million using its available liquidity. 70 On May 3, 2018, TerraForm

commenced the Tender Offer. 71

TerraForm had filed a preliminary Form S-1 registration statement with the

Securities and Exchange Commission (“SEC”) on March 19, 2018 in connection

with the planned public offering of $400 million in TerraForm Class A Common

stock. 72 On May 10, 2018 TerraForm filed its definitive proxy statement with the

68
Id. ¶ 65. The Complaint notes that “[t]he Support Agreement did not ‘require TerraForm to
make or complete any [e]quity [o]ffering’ nor ‘commit TerraForm to an [e]quity [o]ffering at any
particular price, of any particular size or at any particular time.’” Id.
69
Id. ¶ 66.
70
Id. ¶ 67.
71
Id. ¶ 69.
72
Id. ¶ 68.

13
SEC seeking stockholder approval for the issuance of up to 61 million shares of

Class A Common stock in connection with the planned Equity Offering.73

TerraForm’s stockholders approved the share issuance on May 23, 2018 at

TerraForm’s annual stockholder meeting.74

D. TerraForm Enters Into Private Placement with Brookfield

Immediately after TerraForm’s May 23, 2018 annual meeting, the Board met

to discuss the Equity Offering and backstop.75 TerraForm’s CEO Stinebaugh

proposed TerraForm raise $650 million—rather than $400 million—through the sale

of equity because “the market expect[ed] a $650 million total equity offering and

that the impact to the returns on the Saeta transaction would not be material.”76

TerraForm director Shah—also a Brookfield appointee—indicated that Brookfield

would be prepared to increase the size of the backstop from $400 million back up to

$650 million. 77 Stinebaugh then proposed that if the Equity Offering presented too

much market risk, the full amount be offered to Brookfield through a private

placement at $10.66 per share.78 At the conclusion of the meeting, TerraForm’s

73
Id. ¶ 70.
74
Id. ¶ 71.
75
Id. ¶ 73.
76
Id.
77
Id. ¶ 74.
78
Id.

14
Board determined that the Conflicts Committee should consider Brookfield’s

proposal to increase the size of the backstop to $650 million.79

At the conclusion of the full Board meeting on May 23, 2018, the Conflicts

Committee met to discuss the information that had just been presented.80 There was

no discussion of the proposed private placement and only a discussion of the

proposed increase to the equity offering (to $650 million) and commensurate

increase in Brookfield’s backstop.81

That same day, the Conflicts Committee had its first meeting with an

independent financial advisor, Greentech Capital Advisors, LLC (“Greentech”).82

The Conflict Committee’s minutes do not indicate when the Conflicts Committee

determined to retain Greentech, why the Conflicts Committee chose to retain

Greentech specifically, or whether the Conflicts Committee considered retaining

other financial advisors.83 Greentech’s written presentation to the Conflicts

Committee contemplated that Brookfield would backstop the full $650 million even

though, according to meeting minutes, Brookfield first suggested the increased

backstop only a few hours earlier.84 Greentech’s materials do not address or provide

79
Id. ¶ 76.
80
Id. ¶ 77.
81
Id.
82
Id. ¶ 78.
83
Id. ¶ 77.
84
Id. ¶ 78.

15
advice related to the fairness of a private placement with Brookfield.85 At the

conclusion of the meeting, the Conflicts Committee directed Greentech to

“coordinate” with Barclays. 86

The Conflicts Committee met again the following day—May 24, 2018—and

Greentech reviewed with the Conflicts Committee the materials provided the

previous day. 87 The Greentech materials remarked that “a $650 million offering

would be less favorable to [TerraForm] than a $400 million offering because it would

‘significantly reduce returns’ and ‘reduce the accretion from Saeta.’” 88 The

materials continued that the precedent transactions for the Equity Offering implied

a total discount of 4%–7% which “would lead to a discounted stock price lower than

Brookfield’s backstop of $10.66.”89 Nonetheless, Greentech advised the Conflicts

Committee that it would be “difficult to predict the price at which the Equity

Offering could be executed (and whether it could be executed at a price above

[$10.66]).” 90 Greentech also noted that a backstop covering the full amount of the

Equity Offering “was very beneficial.” 91 As with the previous day’s meeting, there

85
Id.
86
Id.
87
Id. ¶ 79.
88
Id. ¶ 80.
89
Id. ¶ 81.
90
Id. ¶ 82.
91
Id. ¶ 83.

16
was no discussion of the proposed private placement. 92 At the conclusion of the

meeting, the Conflicts Committee approved an increase of the backstop to $650

million and amendment to the Support Agreement reflecting such increase.93

On May 25, 2018, the Conflicts Committee met once again, and, following

discussion with Greentech concerning the Equity Offering and backstop, the

Conflicts Committee invited Stinebaugh and other Brookfield representatives to join

the meeting.94 The meeting minutes suggest that Brookfield viewed the backstop

and the private placement as one in the same—i.e. that that backstop was an

agreement to sell $650 million in stock to Brookfield regardless of whether

TerraForm sold any equity to the public. 95 The Conflicts Committee however

received no advice concerning whether a private placement with Brookfield was in

TerraForm’s best interests or in any way superior to other financing alternatives

besides the Equity Offering.96 Both Barclays and Greentech did opine that the

Equity Offering would likely be priced below TerraForm’s trading price (and thus

below the backstop price).97 However, the Complaint criticizes both Barclays’ and

Greentech’s comparable transactions analyses on which they respectively relied in

92
Id.
93
Id. ¶ 84.
94
Id. ¶ 85.
95
Id.
96
Id. ¶ 86.
97
Id. ¶ 87.

17
forming this conclusion. 98 At the conclusion of the May 25, 2018 meeting, the

Conflicts Committee reaffirmed its approval of the increase in the backstop to $650

million. 99

The Conflicts Committee reconvened on May 29, 2018. 100 The meeting was

attended by representatives of Brookfield, including Stinebaugh and Shah, as well

as Barclays. 101 Barclays and the Conflicts Committee discussed certain qualitative

benefits of the Equity Offering, but Barclays advised the Conflicts Committee that

a marketed equity offering would likely be at a 5%–8% discount to TerraForm’s

trading price and therefore below the backstop price ($10.66).102 Barclays stated

that they did not recommend proceeding with the Equity Offering unless the

Conflicts Committee was comfortable with the Equity Offering pricing at an 8%

discount to market price (that is, the high range of Barclays’ projected discount).103

The Conflicts Committee met again on June 4, 2018, at which time it was

clear that Spanish authorities required all funding for the Saeta Acquisition to be in

98
Id. ¶¶ 81, 87.
99
Id. ¶ 88.
100
Id. ¶ 90.
101
Id.
102
Id. ¶ 91. The qualitative benefits included “(i) providing [TerraForm]with an opportunity
directly to address the investor community and communicate [TerraForm’s] story and fundamental
value, (ii) increasing [TerraForm’s] public float and reducing equity overhang, (iii) building and
diversifying [TerraForm’s] stockholder base and (iv) paving a pathway for subsequent offerings.”
Id.
103
Id.

18
place within a week (by June 11, 2018).104 Barclays reiterated their view on the

likely discount should TerraForm proceed with the Equity Offering even though

Barclays had not received any “price feedback” from investors.105 Barclays also told

the Conflicts Committee that Barclays “was not willing to proceed with the Equity

Offering unless [TerraForm] was willing to forego exercising the [backstop] after

the Equity Offering had been launched and to consummate the Equity Offering at

the per share price fixed by the market.” 106 TerraForm’s management advised the

Conflicts Committee that it recommended that TerraForm exercise the backstop in

lieu of proceeding with the Equity Offering.107 That is, though the backstop was

originally conceived to “backstop” any amount of the Equity Offering that was not

purchased by existing TerraForm stockholders, TerraForm management

recommended doing away with the public offering aspect and instead simply sell the

entire amount of the proposed offering directly to Brookfield. Despite the fact that

the Conflicts Committee never received advice concerning a private placement with

Brookfield, the Conflicts Committee accepted TerraForm management’s

recommendation and approved full exercise of the backstop—that is, a private

placement of $650 million of TerraForm stock with Brookfield at $10.66 per share

104
Id. ¶ 92.
105
Id.
106
Id.
107
Id. ¶ 93.

19
(the “Private Placement”). 108 Upon completion of the Private Placement, Brookfield

(through its affiliates) owned 65.3% of TerraForm’s outstanding common stock.109

With the $650 million received from Brookfield, and $471 million in available

liquidity, TerraForm acquired approximately 95% of Saeta’s shares for an aggregate

of $1.12 billion.110 Following the tender offer, TerraForm completed a squeeze-out

under Spanish law for the remaining shares of Saeta that were not tendered.111

TerraForm’s stock increased in the aftermath of the Saeta Acquisition and by June

25, 2018 TerraForm’s stock was trading at $11.77 per share (more than 10% higher

than the Private Placement price). 112

In October 2019, TerraForm conducted a $250 million public offering for

14,907,573 shares of common stock at a price of $16.77 per share.113 Concurrent

with this offering, Brookfield entered into a second private placement, purchasing

2,981,514 shares of common stock for $16.77 per share. 114 Brookfield did not

purchase enough shares in this offering to maintain its equity percentage, which

subsequently decreased from 65.3% to 61.5%. 115

108
Id.
109
Id. ¶ 94.
110
Id. ¶¶ 95–96.
111
Id. ¶ 97.
112
Id. ¶ 98.
113
Id. ¶ 106 n.19.
114
Id.
115
Id. ¶¶105–06.

20
 E. Procedural History

Plaintiff Rosson filed a complaint challenging Private Placement on

September 19, 2019 alleging breach of fiduciary against Brookfield, and its affiliates

(Orion Holdings and BRP Holdings).116 Plaintiff City of Dearborn Police and Fire

Revised Retirement System (Chapter 23) filed a separate complaint on January 27,

2020 also challenging the Private Placement and bringing fiduciary duty claims

against Brookfield and the same affiliates, but additionally bringing breach of

fiduciary duty claims against Brookfield’s director appointees (Lawson, Goldgut,

Legault, and Shah), and TerraForm’s CEO (Stinebaugh). On February 13, 2020, the

Rosson and City of Dearborn actions were consolidated, Rosson and City of

Dearborn were appointed as Lead Plaintiffs, and City of Dearborn’s complaint was

designated as the operative Complaint. 117

The Complaint alleges three counts of breach of fiduciary duty. Count I is

brought against Brookfield, Orion Holdings, and BRP Holdings as controlling

stockholders.118 Count II is brought against Lawson, Goldgut, Legault, and Shah.119

116
See Verified Stockholder Derivative and Class Action Complaint for Breach of Fiduciary
Duties, C.A. No. 2019-0757, Dkt. No. 1.
117
See generally Stip. and Order of Consolidation and Appointment of Lead Pls. and Co-Lead
Counsel, Dkt. No. 19.
118
See Compl. ¶¶ 131–41.
119
See id. ¶¶ 142–45.

21
Count III is brought against Stinebaugh.120 All three counts were brought both

derivatively and directly.

On March 26, 2020, the Defendants moved to dismiss the Plaintiffs’ direct

claims and stay the Plaintiffs’ derivative claims. 121 On April 23, 2020, I denied the

motion to stay the derivative claims orally. 122 On May 27, 2020, the Plaintiffs moved

to strike certain of the affirmative defenses in the Defendants’ Partial Answer.123 On

July 16, 2020, I heard Oral Argument on the Motion to Dismiss and Motion to Strike

and considered the matters submitted for decision on that date. 124 On July 31, 2020,

all outstanding TerraForm shares not already owned by Brookfield were acquired by

Brookfield affiliates Brookfield Renewable Partners L.P. and Brookfield Renewable

Corporation.125 In light of that merger, I granted an order dismissing the derivative

counts of the Complaint. 126 Because the Plaintiffs’ previous Motion to Strike was

exclusively concerned with the Defendants’ affirmative defenses to the derivative

claims, 127 the Order of Partial Dismissal renders the Motion to Strike moot.

Accordingly, this Opinion addresses only the Defendants’ Motion to Dismiss.

120
See id. ¶¶ 146–49.
121
See generally Defs.’ Mot to Dismiss and Stay, Dkt. No. 24.
122
See generally Tr. of Oral Arg., Dkt. No. 78.
123
See generally Pls.’ Mot. to Strike, Dkt. No. 50.
124
See generally Tr. of Oral Arg., Dkt. No. 78.
125
See generally Stip. and Order of Partial Dismissal, Dkt. No. 80.
126
See generally id.
127
See generally Defs.’ Partial Answer and Affirmative Defenses, Dkt. No. 43.

22
 II. ANALYSIS

“A controlling stockholder owes fiduciary duties to the corporation and its

minority stockholders, and it is ‘prohibited from exercising corporate power . . . so

as to advantage itself while disadvantaging the corporation.’” 128 This Memorandum

Opinion resolves whether the Plaintiffs have adequately alleged that the Private

Placement breached fiduciary duties Brookfield owed directly to TerraForm’s

minority stockholders, or whether the Plaintiffs have instead alleged claims of harm

to TerraForm directly, and the minority stockholders only derivatively.

A. Relevant Legal Standard

The Defendants have moved to dismiss this action pursuant to Court of

Chancery Rule 12(b)(6).129 The path to dismissal under Rule 12(b)(6) motion is

well-worn:

(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the nonmoving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof. 130

128
Carr v. New Enter. Assocs., Inc., 2018 WL 1472336, at *22 (Del. Ch. Mar. 26, 2018) (quoting
Thorpe v. CERBCO, Inc., 1995 WL 478954, at *8 (Del. Ch. Aug. 9, 1995).
129
Ct. Ch. R. 12(b)(6).
130
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotation
marks omitted).

23
When reviewing a motion to dismiss, the Court may take into consideration

documents incorporated into the pleadings by reference and judicially noticeable

facts available in public SEC filings. 131

The Defendants suggest that the Plaintiffs lack standing to seek redress for the

injury they allege. The issue of whether the Plaintiffs have standing is an issue

precedent to consideration of a complaint, and is an issue of law. 132

B. Standing

The doctrinal front on which this Motion is contested is whether the Plaintiffs

have standing to pursue direct claims against Brookfield for breach of fiduciary duty.

Standing “refers to the right of a party to invoke the jurisdiction of a court to enforce

a claim or to redress a grievance” and “is a threshold question that must be answered

by a court affirmatively to ensure that the litigation before the tribunal is a case or

controversy that is appropriate for the exercise of the court’s judicial powers.”133

In support of their Motion to Dismiss, the Defendants contend that the

Plaintiffs’ claims are exclusively derivative claims belonging to Terraform.

Consequently, the Plaintiffs lack standing to pursue such claims directly. In Tooley

v. Donaldson, Lufkin & Jenrette, Inc.,134 the Delaware Supreme Court held that the

131
Reith v. Lichtenstein, 2019 WL 2714065, at *1 (Del. Ch. June 28, 2019).
132
El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1256 (Del. 2016).
133
Dover Historical Soc’y. v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110 (Del. 2003)
(citations and internal quotation marks omitted).
134
845 A.2d 1031 (Del. 2004).

24
determination of whether a stockholder’s claim is direct or derivative “must turn

solely on the following questions: (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)?”135

Per the Defendants, the claims asserted—though purportedly brought directly—are

derivative under Tooley, and hence, the Plaintiffs can have no “right to bring an

individual action for injuries affecting [their] legal rights as [] stockholder[s].” 136

The Plaintiffs’ retort is twofold. First, the Complaint states direct claims

under Gentile v. Rossette.137 Second, the Complaint states direct claims under

Tooley alone—even without relying on Gentile. I evaluate these arguments in

reverse order below, finding first that the Complaint does not state direct claims

without Gentile, but that it does state direct claims under Gentile’s rationale. I note

ongoing uncertainty over whether Gentile remains good law, but find that it is

binding Delaware Supreme Court precedent, and thus controlling here.

C. The Complaint Does Not State Direct Claims under a Classic Tooley
Analysis

The Plaintiffs argue that they have made adequate direct claims without

relying on the Gentile doctrine. They allege that the Private Placement inflicted

135
Id. at 1033.
136
Id. at 1036.
137
906 A.2d 91 (Del. 2006).

25
direct harm on TerraForm’s minority stockholders based on the increase in

Brookfield’s voting power from 51% to 65.3%. Specifically, the Complaint pleads

that the Private Placement “solidified Brookfield’s control” over TerraForm. 138 In

briefing, the Plaintiffs contend that without the Private Placement Brookfield would

have eventually lost absolute majority control. They also maintain that Brookfield’s

increased voting power gave it the ability to eliminate or change minority

stockholder protections in TerraForm’s Charter.139 Thus, per the Plaintiffs, the

Private Placement worked a direct injury on the minority stockholders.

I note that, because I find Gentile controlling below, I could simply deny the

Motion to Dismiss on that basis. Because the Tooley analysis necessarily informs

the Defendants’ argument that Gentile is no longer viable precedent, and because of

the procedural posture here, which seems likely to involve a request for interlocutory

appellate relief, I find it appropriate to first briefly examine the Motion to Dismiss

under the rubric set out in Tooley.

1. Dilution is Typically a Derivative Claim Under Tooley

Under Tooley, in order to plead a direct claim a “stockholder must

demonstrate that the duty breached was owed to the stockholder and that he or she

138
Compl. ¶ 10.
139
Pls.’ Answering Br. in Opp’n to Defs.’ Mot. to Dismiss, Dkt. No. 44, at 22–23.

26
can prevail without showing an injury to the corporation.”140 Ordinarily, claims of

corporate overpayment 141 are not regarded as direct “because any dilution in value

of the corporation’s stock is merely the unavoidable result (from an accounting

standpoint) of the reduction in the value of the entire corporate entity, of which each

share of equity represents an equal fraction.” 142 In fact, corporate overpayment is

the quintessence of a claim belonging to an entity: that fiduciaries, acting in a way

that breaches their duties, have caused the entity to exchange assets at a loss. This

rationale extends even where a controlling stockholder allegedly causes a corporate

overpayment in stock and consequent dilution of the minority interest. This claim

is still derivative. If the issuance was for adequate value, obviously, it did not work

a detriment to the stockholder. In that case, the minority simply beneficially owns a

smaller percentage of a bigger corporate pie, enlarged by the proceeds of the sale of

equity; the value of its slice remains the same. If the transaction was for inadequate

value, the worth of the stockholder’s interest is reduced to the extent the entity was

harmed, a classic derivative claim.

The harm is suffered by the entity, and restoring value to the entity would

make both it and, derivatively, its stockholders, whole. While the situation

140
Tooley, 845 A.2d at 1039.
141
That is, claims that the corporation has overpaid for the asset received, and that the controller
underpaid.
142
Gentile, 906 A.2d at 99.

27
addressed in Gentile represents a “species of corporate overpayment claim,” as I

discuss infra, a direct claim does not arise “wherever a controlling stockholder

extracts economic value from an entity to its benefit and to the detriment of the

minority stockholders.” 143 Consequently, a claim that the Private Placement injured

stockholders simply because it diluted their ownership interest in TerraForm is alone

insufficient to state a direct claim under Tooley. 144

2. The Plaintiffs’ Entrenchment Argument Fails Reasonable
Conceivability

In their non-Gentile argument, the Plaintiffs contend that the Private

Placement did not constitute run-of-the-mill dilution giving rise to solely derivative

claims. Instead, the Plaintiffs contend that the Private Placement entrenched

Brookfield as TerraForm’s controlling stockholder, and thus TerraForm’s minority

stockholders suffered a distinct harm, apart from the indirect injury of value and

voting dilution.

The Plaintiffs’ theory is that Brookfield sought to further entrench itself

through the Private Placement as protection against losing its voting majority when

TerraForm conducted a $250 million public offering in October 2019.145 This theory

143
El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1263 n.76 (Del. 2016); see
also In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 818 (Del. Ch. 2005); Avacus
Partners, L.P. v. Brian, 1990 WL 161909, at *6 (Del. Ch. Oct. 24, 1990) (“[I]f a board of directors
authorizes the issuance of stock for no or grossly inadequate consideration, the corporation is
directly injured and shareholders are injured derivatively.”).
144
See Gentile, 906 A.2d at 99–100.
145
Compl. ¶¶ 105–06.

28
is somewhat convoluted: Brookfield theoretically entrenched itself in 2018 in

anticipation of failing to purchase sufficient stock to maintain control in 2019. The

Plaintiffs point to the fact that Brookfield did not purchase enough stock in the 2019

offering to maintain its voting percentage, thereby decreasing its equity ownership

from 65.3 to 61.5% following the offering. 146 In other words, had it not increased

its majority interest in 2018 from 51% to 65.3%, and if it had acted in that

hypothetical situation as it did in fact—not participating pro rata in the 2019 offering

(which occurred over a year after the Private Placement)—Brookfield would have

lost control of TerraForm.

It is not reasonably conceivable that the Plaintiffs’ allegations regarding the

2019 offering state a claim. The Plaintiffs do not allege that anyone knew in June,

2018 that TerraForm would conduct an offering in October, 2019. Moreover, for

the Plaintiffs to state a claim under this theory, it would have to be reasonably

conceivable that even had the Private Placement not occurred, Brookfield would

not have participated on a pro rata basis in the 2019 offering, thereby choosing to

forgo its majority stake. Thus, to adopt the Plaintiffs’ view, I must find it reasonably

conceivable that Brookfield, as controller of TerraForm, would have allowed

TerraForm to issue stock and decrease Brookfield’s ownership stake whereby

Brookfield would then lose its majority stake in TerraForm without compensation.

146
Id. ¶ 106.

29
It is only under such a scenario that the Private Placement could be viewed as

entrenchment, under the threat that the 2019 offering— an offering that Brookfield

as TerraForm’s controller ostensibly approved—would otherwise strip Brookfield

of its majority position.

Given that a control premium has value—and likely significant value at

that147—I find it not reasonably conceivable that Brookfield would have declined to

participate in the 2019 offering if such an action would have cost Brookfield its

majority stake in TerraForm, thereby forfeiting control of a majority of the voting

power of TerraForm for no premium. The required secondary inference imbedded

in such a theory—that the 2018 Private Placement was done in anticipation of the

2019 public offering—is likewise unsupported in the record. Consequently, it is not

reasonably conceivable that the Private Placement constituted Brookfield’s

entrenchment in view of the 2019 offering.

The Plaintiffs in briefing made a second argument. They pointed out that

Article Thirteen of Terraform’s Charter provides that the affirmative vote of at least

66.6% of the combined voting power of all of TerraForm’s outstanding shares is

required to alter, amend, or repeal certain provisions of the Charter (the

“Supermajority Voting Requirement or SVR”).148 The Complaint pleads that

147
See In re Books-A-Million, Inc. S’holders Litig., 2016 WL 5874974, at *13–*14, *16 n.16 (Del.
Ch. Oct. 10, 2016).
148
Compl. ¶ 109.

30
Brookfield intends to use its increased voting power—65.3%, reduced to 61.5% after

Brookfield permitted itself to be diluted in the 2019 offering—to remove the

Supermajority Voting Requirement.149 Thus, according to the Plaintiffs, the Private

Placement put their rights under the SVR at risk, which was a direct injury not shared

by Terraform. There are three defects to this argument: (1) Brookfield never

achieved the level of control necessary to unilaterally remove the SVR rights; (2)

Brookfield never attempted to abrogate the rights and through the 2019 placement

moved further from the ability to do so; and (3) the merger has mooted the issue and

no damages could attach to any such claim.

To recapitulate, the Plaintiffs have argued that their claims are direct under

Tooley without invoking Gentile, citing allegations that Brookfield used the Private

Placement to entrench itself to the detriment of TerraForm’s minority stockholders.

In other words, the Plaintiffs remained minority stockholders in a controlled entity

post-Placement; nonetheless, they argue that Brookfield increased its control via the

Private Placement in a way that directly harmed the minority independent of any

harm to the entity. However, as set out above, I find it not reasonably conceivable

that the Private Placement served to entrench Brookfield’s control of TerraForm.

Without an adequate pleading of entrenchment, the Plaintiffs’ claims are for harm

149
Id. ¶¶ 113–14.

31
that devolved upon the minority as “equity holder[s] in the form of the proportionally

reduced value of [their] units—a classically derivative injury.” 150 Thus, under

Tooley alone, the Plaintiffs’ overpayment claims neatly fall into the derivative

category.

D. The Plaintiffs State Direct Claims under Gentile

What follows is the heart of the Plaintiffs’ argument. It is simple and

compelling: (1) our Supreme Court in Gentile found that where a controller has

caused the corporation to issue stock to it for inadequate compensation, the

stockholders have a direct claim for relief, and (2) the facts here are indistinguishable

from Gentile. Gentile involved a corporation’s CEO and controlling stockholder

who forgave debt the corporation owed to him personally in exchange for additional

equity in the corporation.151 The debt was convertible contractually, but the CEO

and the corporation’s board (the CEO and one other individual) agreed to a lower

conversion price per share, which had the effect of allowing the CEO to obtain more

shares.152 A special stockholders meeting was called to authorize the additional

shares, but the stockholders were not informed of the underlying purpose: to convert

the CEO’s debt to equity. 153 Before the conversion, the CEO held approximately

150
El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1261 (Del. 2016).
151
Gentile v. Rossette, 906 A.2d 91, 94 (Del. 2006).
152
Id. at 94–95.
153
Id. at 95.

32
61.19% of the corporation’s equity—after the conversion, the CEO held 93.49%.154

The CEO later negotiated an acquisition of the corporation whereby he received

“unique benefits.”155 This Court dismissed the minority stockholders’ claim for

breach of fiduciary duty against the CEO arising out of the debt conversion because

it found that the claim was solely derivative under Tooley, and the stockholders lost

standing to pursue claims on the corporate behalf after the merger. 156 The appeal to

our Supreme Court concerned only the dismissal via summary judgment of the

breach of fiduciary duty claim arising from the debt conversion; “the issue before

the court [was] whether that claim was exclusively derivative in character.” 157

Gentile noted that the plaintiffs pled two independent harms arising from the

transaction: (1) that the corporation was caused to overpay (in stock) for the debt

forgiveness, and (2), the minority stockholders lost a significant portion of the cash

value and voting power of their minority interest.158 The Supreme Court continued

that, as noted, supra, claims of corporate overpayment are “[n]ormally . . . treated as

causing harm solely to the corporation and, thus, are regarded as derivative” because,

“in Tooley terms . . . the corporation is both the party that suffers the injury (a

154
Id.
155
Id.
156
Id. at 96–97.
157
Id. at 97.
158
Id. at 99.

33
reduction in its assets or their value) as well as the party to whom the remedy (a

restoration of the improperly reduced value) would flow.” 159 The proportionate

injury resulting from a corporate overpayment—“the reduction in the value of the

entire corporate entity, of which each share of equity represents an equal fraction”—

“is not viewed as, or equated with, harm to specific shareholders individually.” 160

But Gentile continued that there is “at least one transactional paradigm,”

which is “a species of corporate overpayment claim” that is both direct and

derivative in character. 161 A breach of fiduciary duty claim with this dual character

arises where:

(1) a stockholder having majority or effective control causes the
corporation to issue “excessive” shares of its stock in exchange for
assets of the controlling stockholder that have a lesser value; and (2)
the exchange causes an increase in the percentage of the outstanding
shares owned by the controlling stockholder, and a corresponding
decrease in the share percentage owned by the public (minority)
shareholders.162

Of course, such a transaction gives rise to a derivative claim because the means to

achieve the result is an overpayment of shares to the controller, and the corporation

159
Id.
160
Id.
161
Id.
162
Id. at 100. “[T]he Gentile paradigm only applies when a stockholder already possessing
majority or effective control causes the corporation to issue more shares to it for inadequate
consideration.” Cirillo Family Tr. v. Moezinia, 2018 WL 3388398, at *16 (Del. Ch. July 11, 2018),
aff’d, 220 A.3d 912 (Del. 2019) (TABLE) (italics omitted).

34
is harmed to the extent of the overpayment. 163 The derivative nature of this claim is

consistent with the dilution-as-derivative rationale explained, supra.

However, the Gentile court found that the minority stockholders also had a

separate direct claim arising out of this transactional paradigm. “Because the shares

representing the ‘overpayment’ embody both economic value and voting power, the

end result of this type of transaction is an improper transfer—or expropriation—of

economic value and voting power from the public shareholders to the majority or

controlling stockholder.” 164 Consequently, the harm arising from such a transaction

is not limited to an equal dilution of the economic value and voting power of each

minority-held share—instead, “[a] separate harm also results: an extraction from the

public shareholders, and a redistribution to the controlling shareholder, of a portion

of the economic value and voting power embodied in the minority interest.”165 For

these reasons, the minority stockholders are harmed “uniquely and individually” to

the same extent the controller benefits and are entitled to recover the value

represented by the overpayment directly.166

The facts alleged in the Complaint fit Gentile’s transactional paradigm to a T.

The Plaintiffs allege that Brookfield—TerraForm’s controlling stockholder—caused

163
Gentile, 906 A.2d at 100.
164
Id.
165
Id.
166
Id.

35
TerraForm to proceed with the Private Placement and issue shares to Brookfield at

an inadequate price. 167 The Complaint also alleges that the Private Placement caused

Brookfield’s percentage of shares in TerraForm to increase from 51% to 65.3%.168

TerraForm’s minority stockholders suffered a corresponding decrease in their

ownership stake in TerraForm.

The Defendants concede that the facts here are consistent with Gentile;

nonetheless, they argue that I need not follow Gentile and instead should engage in

a Tooley analysis.

The Defendants contend that Gentile is not controlling precedent because it

“explicitly relied upon and expanded the application” of In re Tri-Star Pictures, Inc.,

Litigation, 169 a case which was disapproved of in Tooley. 170 However, Gentile was

decided after Tooley, and Gentile holds that the decision therein “fits comfortably

within the analytical framework mandated by Tooley.” 171 Consequently, to the

extent that Gentile can be said to rely on Tri-Star, the Gentile decision itself

167
Compl. ¶¶ 100–04.
168
Id. ¶ 105.
169
634 A.2d 319 (Del. 1993).
170
Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1038 n.21 (Del. 2004) (“In the
Tri-Star case, however, this Court lapsed back into the ‘special injury’ concept, which we now
discard.”).
171
Gentile, 906 A.2d at 102.

36
forecloses any argument that Gentile’s citation of Tri-Star renders Gentile

irreconcilable with Tooley.172

Ultimately, the Defendants are left to argue that I need not follow Gentile

because it was improperly decided. They point to criticism of and limitations on the

decision in our courts, which I briefly summarize below.

Gentile has been much discussed, and often distinguished, in the case law,

particularly in light of the simple test posed in Tooley for determining whether a

claim is direct or derivative: who has suffered the injury and to whom will the

recovery flow? “Post-Gentile, Delaware courts have struggled to define the

boundaries of dual-natured claims.” 173 In Gentile’s immediate aftermath, this Court

in one decision found it “clear” that the Gentile court intended to confine the scope

of its rulings to only those situations where a controlling stockholder exists because

“any other interpretation would swallow the general rule that equity dilution claims

172
The Defendants in briefing suggested that Gentile is distinguishable from the facts alleged here
because in Gentile the plaintiffs no longer held any stock due to a liquidation in bankruptcy.
Gentile does recognize that in the “specific case” presented there “the sole relief that is presently
available would benefit only the minority stockholders.” Id. at 103. In my view, this does not
mean that the claim was not derivative in character as well; the Supreme Court noted that “under
Tooley the claim could be brought derivatively or directly.” Id. (emphasis added). Nothing in
Gentile limits its application to those instances where the plaintiff stockholders lack standing to
bring derivative claims. Thus, Gentile would not be distinguishable from the facts pled here on
the grounds that the Plaintiffs here continue to hold TerraForm stock. In any event, the point is
moot; the post-complaint merger resulted in the loss of the Plaintiffs’ stock and the extinguishment
of the derivative claims, which have been voluntarily dismissed.
173
Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *7 (Del. Ch. July 26, 2018).

37
are solely derivative, and would cast great doubt on the continuing vitality of the

Tooley framework.” 174 Via El Paso, the Supreme Court has adopted this reasoning,

holding that “the Gentile paradigm only applies when a stockholder already

possessing majority or effective control causes the corporation to issue more shares

to it for inadequate consideration.”175

However, Gentile’s limited application to controller transactions was not

forgone or obvious. This Court in Carsanaro v. Bloodhound Technologies, Inc.,176

for instance, disagreed with a “line in the sand” limiting Gentile to cases involving

a majority stockholder. 177 Instead, Carsanaro held that Gentile also applies to self-

interested stock issuances effectuated by a board lacking a disinterested and

independent majority. 178 Carsanaro noted that the “core insight of [the] dual injury”

framework is “the real-world impact of the transaction upon the shareholder value

and voting power embedded in the (pre-transaction) minority interest, and the

uniqueness of the resulting harm to the minority shareholders individually.” 179 The

Court reasoned that what Gentile termed expropriation applied with equal force

174
Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007), aff’d, 951 A.2d 727 (Del. 2008).
175
Cirillo Family Tr. v. Moezinia, 2018 WL 3388398, at *16 (Del. Ch. July 11, 2018); Carr v.
New Enter. Assocs., Inc., 2018 WL 1472336, at *9 (Del. Ch. Mar. 26, 2018); Feldman, 956 A.2d
at 657.
176
65 A.3d 618 (Del. Ch. 2013).
177
Id. at 658.
178
Id.
179
See id. at 657–58

38
where (for example) a self-interested board issued itself stock at a price below

current market value. 180 Per Carsanaro, Gentile should logically extend to any

situation where “defendant fiduciaries (i) had the ability to use the levers of corporate

control to benefit themselves and (ii) took advantage of the opportunity,” 181 resulting

in expropriation from the minority.

In re Nine Systems Corporation Shareholders Litigation 182 echoed

Carsanaro, finding that if the reasoning of Gentile were to be respected, “it [would

make] little sense to hold a controlling stockholder to account to the minority for

improper expropriation after a merger but to deny standing for stockholders to

challenge a similar expropriation by a board of directors after a merger.” 183 The

board of directors, after all, has the exclusive authority to manage and direct the

corporation’s business affairs, including the power to issue stock. 184 Why then,

asked Nine Systems, should Delaware law hold controlling stockholders to a higher

standard than the board of directors? 185

180
Id. at 658.
181
Id. at 658–59.
182
2014 WL 4383127 (Del. Ch. Sept. 4, 2014).
183
Id. at *28.
184
See id. (citing 8 Del. C. §§ 141(a), 151–53, 157, 161, 166).
185
Id. at *28. Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *10 (Del. Ch. July
26, 2018), noted that “El Paso . . . implicitly rejected the reasoning of decisions such as . . . Nine
Systems, which had extended Gentile to any dilutive issuance approved by a conflicted board.”

39
 Carsanaro and Nine Systems were an attempt reconcile Tooley and Gentile.

Those cases, since abrogated, along with the reversed trial court decision in El Paso,

reasoned that the doctrinally consistent way to read Gentile (given Tooley’s

directive) is that Gentile stands for the dual-natured character of an expropriation

claim. Thus, Carsanaro reasoned that both Tooley questions could be answered

either way for a dilutive issuance. 186 Vice Chancellor Noble, in Nine Systems,

“struggled to articulate” why an expropriation transaction effected by a controller

should give rise to dual-natured claims, but an expropriation transaction effected by

a board was a solely derivative dilution claim. 187 Citing Carsanaro and Nine

Systems, the reversed trial court opinion in El Paso remarked that “Gentile’s core

insight applies to any insider stock issuance where the value transferred directly to

the insider exceeds the share of the loss that the insider suffers through its stock

ownership.” This line of cases can thus be read as attempts to place Gentile within

Tooley’s overarching framework.

In a concurring opinion in El Paso, former Chief Justice Strine proposed

resolving this tension in the opposite way. He wrote that Gentile “is a confusing

decision, which muddies the clarity of our law in an important context.” 188 Instead

186
Carsanaro, 65 A.3d at 656.
187
In re Nine Sys. Corp. S’holders Litig., 2014 WL 4383127, at *28.
188
El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1265–66 (Del. 2016) (Strine,
C.J., concurring).

40
of backing the Carsanaro and Nine Systems approach—searching for a way to read

Gentile as consistent with Tooley—Chief Justice Strine directly questioned the

soundness of Gentile and its ongoing viability, remarking that it “cannot be

reconciled with the strong weight of our precedent.”189

Chief Justice Strine reasoned that a dilution claim is a “quintessential example

of a derivative claim,” that “[a]ll dilution claims involve, by definition, dilution,”

and that “[t]o suggest that, in any situation where other investors have less voting

power after a dilutive transaction, a direct claim also exists turns the most traditional

type of derivative claim—an argument that the entity got too little value in exchange

for shares—into one always able to be prosecuted directly.” 190 The concern

enunciated by Chief Justice Strine in his El Paso concurrence is that Gentile is

inconsistent with Tooley and that no sound reason exists to permit this awkward

carve-out to an otherwise straightforward doctrine.

I have previously noted that limiting Gentile to controller situations, rather

than “expanding it to conflicted board non-controller dilution cases, or overruling it

entirely, is, as a matter of doctrine, unsatisfying”191 for the reasons just articulated.

The El Paso court was able to resolve the issue there narrowly without addressing

189
Id. at 1266.
190
Id. at 1265–66.
191
Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *10 n.147 (Del. Ch. July 26,
2018).

41
the overarching doctrinal issue. The Supreme Court majority in El Paso “decline[d]

the invitation to further expand the universe of claims that can be asserted ‘dually’

to hold here that the extraction of solely economic value from the minority by a

controlling stockholder constitutes direct injury.” This allowed the El Paso court to

preserve the Tooley framework and avoid “largely swallow[ing] the rule that claims

of corporate overpayment are derivative [which would result from] permitting

stockholders to ‘maintain a suit directly whenever the corporation transacts with a

controller on allegedly unfair terms.’” 192

In his El Paso concurrence, Chief Justice Strine agreed with the majority that

the case at hand—involving a limited partnership—did not require the Supreme

Court to consider Gentile’s ongoing viability in the corporate context.193 But the

logic of his dissent has been echoed in this Court in El Paso’s aftermath: “[w]hether

Gentile is still good law is debatable;”194 “the viability of [the Gentile] doctrine has

been called into doubt;”195 “there is reason to question whether Gentile will remain

the law of Delaware.” 196

192
El Paso, 152 A.3d at 1264.
193
Id. at 1266 (Strine, C.J., concurring).
194
ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *26 n.206 (Del. Ch. July 21, 2017).
195
Cirillo Family Tr. v. Moezinia, 2018 WL 3388398, at *16 n.156 (Del. Ch. July 11, 2018).
196
Mesirov v. Enbridge Energy Co., Inc., 2018 WL 4182204, at *8 n.77 (Del. Ch. Aug. 29, 2018).

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 Based upon this case history of Gentile, and notwithstanding the factual

congruence of that case with the one before me, the Plaintiffs argue that stare decisis

is inapplicable here. “Stare decisis . . . is the legal term for fidelity to precedent.”197

The concept is “well established in Delaware jurisprudence,” and “[o]nce a point of

law has been settled by decision of [the Supreme Court], ‘it forms a precedent which

is not afterwards to be departed from or lightly overruled or set aside and it should

be followed except for urgent reasons and upon clear manifestation of error.’”198

Thus, unless Gentile somehow departs from the stare decisis paradigm, it is binding

precedent here. The Defendants maintain that Gentile is not consistently applied and

is not settled law, for the reasons laid out above, and thus stare decisis does not

mandate denial of the outstanding Motion.

“There is no question that, if the Supreme Court has clearly spoken on a

question of law necessary to deciding a case before it, this court must follow its

answer.” 199 In El Paso, 200 the Delaware Supreme Court declined to extend Gentile

to instances where the expropriation of economic value to a controller was not

coupled with any voting rights dilution. 201 El Paso held that the claims there—

197
Fanin v. UMTH Land Development, L.P., 2020 WL 4384230, at *18 (Del. Ch. July 31, 2020).
198
Account v. Hilton Hotels Corp., 780 A.2d 245, 248 (Del. 2001) (quoting Oscar George, Inc. v.
Potts, 115 A.2d 479, 481 (Del. 1955)).
199
In re MFW S’holders Litig., 67 A.3d 496, 520 (Del. Ch. 2013).
200
152 A.3d 1248 (Del. 2016).
201
Id. at 1264.

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involving a limited partner’s claim that the partnership had overpaid the controlling

general partner for assets held by the general partner’s parent—did not “satisfy the

unique circumstances presented by the Gentile ‘species of corporate overpayment

claim[s].’” 202 The takeaway from El Paso is that “Gentile and its progeny should be

construed narrowly,” 203 and that “Gentile must be limited to its facts, which involved

a dilutive stock issuance to a controlling stockholder.” 204 But El Paso did not

overrule Gentile.

I have laid out above the cases involving criticism of Gentile, upon which the

Defendants rely to argue that I am at liberty to disregard the case.

The Defendants argue stoutly that the Gentile doctrine, in light of the case

analysis above, is moribund, and that I should disregard it. That argument is

misplaced. Our system does not work that way, and if it did, the results would bleed

value from the orderly development of the common law. As a trial court judge, I am

not free to decide cases in a way that deviates from binding Supreme Court

precedent. 205 This is not merely a matter of respect for superior authority; the proper

development of the common law, and its utility, rest on a balance of judicial

202
Id. (quoting Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006)). Notably, the limited partner
“never alleged and did not prove” that the partnership’s overpayment increased the general
partner’s or the general partner’s parent’s control at the expense of the limited partners. Id.
203
Mesirov v. Enbridge Energy Co., Inc., 2018 WL 4182204, at *8 n.77 (Del. Ch. Aug. 29, 2018).
204
Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *10 (Del. Ch. July 26, 2018).
205
See, e.g., In re Cornerstone Therapeutics Inc. Stockholder Litig., 2014 WL 4418169 (Del. Ch.
Sept. 10, 2014), rev’d sub nom, In re Cornerstone Therapeutics Inc, Stockholder Litig., 115 A.3d
1173 (Del. 2015).

44
responsiveness and certainty, as represented by employing the doctrine of stare

decisis to bind the trial courts. Under this rubric, if law settled by our Supreme Court

is to be changed, it requires a reasoned analysis by that Court; under this rubric, our

common law develops in an orderly way 206 that provides that consistency that is

itself an attribute of justice. 207

Where a Supreme Court precedent inexorably commands a result, my

obligation as a trial court judge is to follow the Supreme Court’s directive. Here,

the facts alleged are doctrinally indistinguishable from those facts to which Gentile

is limited, a circumstance that the Defendants do not contest. This is the rare case

that perfectly fits the narrow Gentile paradigm, and Gentile mandates that the direct

claims pled survive the Defendant’s Motion to Dismiss.

Consistent with Gentile, the Plaintiffs have made a sufficient pleading that

Brookfield is TerraForm’s controller, that Brookfield caused TerraForm to issue

excessive shares of its stock in exchange for insufficient consideration, and that the

exchange caused an increase in the percentage of the outstanding shares owned by

Brookfield, and a corresponding decrease in the share percentage owned by the

public (minority) stockholders. Such a pleading is sufficient, under controlling

206
E.g Payne v. Tennessee, 501 U.S. 808, 827 (1991) (holding that stare decisis promotes the
“evenhanded, predicable and consistent development” of the law).
207
See State v. Barnes, 116 A.3d 883, 890–911 (Del. 2015) (explaining that “[t]he doctrine of stare
decisis exists to protect the settled expectations of citizens because ‘[e]lementary considerations
of fairness dictate that individuals should have an opportunity to know what the law is and conform
their conduct accordingly’) (citing Landgraf v. USI Film Products, 511 U.S. 244, 256 (1994)).

45
Supreme Court precedent, to withstand the Defendant’s Motion to Dismiss the

Plaintiffs’ direct claims.

III. CONCLUSION

The Defendants’ Motion to Dismiss is DENIED. The parties should submit a

form of order consistent with this Memorandum Opinion.

46