Vrajeshkumar Patel v. Timothy S. Duncan

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

VRAJESHKUMAR PATEL, )
individually and on behalf of all others
)
similarly situated, and derivatively on
)
behalf of Nominal Defendant TALOS
)
ENERGY INC., )
)
Plaintiff, )
)
v. ) C.A. No. 2020-0418-MTZ
)
TIMOTHY S. DUNCAN, NEAL P. )
GOLDMAN, CHRISTINE HOMMES, )
JOHN “BRAD” JUNEAU, DONALD R. )
KENDALL, JR., RAJEN )
MAHAGAOKAR, CHARLES M. )
SLEDGE, ROBERT M. TICHIO, )
JAMES M. TRIMBLE, OLIVIA C. )
WASSENAAR, RIVERSTONE )
HOLDINGS, LLC, RIVERSTONE )
TALOS ENERGY EQUITYCO LLC, )
RIVERSTONE TALOS ENERGY )
DEBTCO LLC, APOLLO GLOBAL )
MANAGEMENT, INC., APOLLO )
TALOS HOLDINGS, L.P., AP TALOS )
ENERGY DEBTCO LLC, and )
GUGGENHEIM SECURITIES, LLC, )
)
Defendants, )
)
and )
)
TALOS ENERGY INC., )
)
Nominal Defendant. )

MEMORANDUM OPINION
Date Submitted: September 30, 2021
Date Decided: September 30, 2021
Stephen E. Jenkins and F. Troupe Mickler IV, ASHBY & GEDDES, P.A.,
Wilmington, Delaware; Eduard Korsinsky, Gregory M. Nespole, and Daniel Tepper,
LEVI & KORSINSKY, LLP, New York, New York, Attorneys for Plaintiff.

Kevin R. Shannon, Matthew F. Davis, and Justin T. Hymes, POTTER ANDERSON
& CORROON LLP, Wilmington, Delaware; David M. Zensky and Brian Carney,
AKIN GUMP STRAUSS HAUER & FELD LLP, New York, New York; Scott Barnard,
AKIN GUMP STRAUSS HAUER & FELD LLP, Dallas Texas, Attorneys for
Defendants Timothy S. Duncan, Neal P. Goldman, Christine Hommes, John “Brad”
Juneau, Donald R. Kendall, Jr., Rajen Mahagaokar, Charles M. Sledge, Robert M.
Tichio, James M. Trimble, and Olivia C. Wassenaar and Nominal Defendant Talos
Energy Inc.

David E. Ross, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware;
Andrew B. Clubok, J. Christian Word, and Stephen P. Barry, LATHAM &
WATKINS, LLP, Washington, D.C., Attorneys for Defendants Defendant Riverstone
Holdings, LLC, Riverstone Talos Energy Equityco LLC and Riverstone Talos
Energy Debtco LLC.

Rudolf Koch and Matthew D. Perri, RICHARDS LAYTON & FINGER, P.A.,
Wilmington, Delaware; Bruce Birenboim, Susanna M. Buergel, and Christopher L.
Filburn, PAUL, WEISS, RIFKIND, WHARTON & GARRISON, LLP, New York,
New York, Attorneys for Defendants Apollo Global Management, Inc., Apollo Talos
Holdings, L.P., and AP Talos Energy Debtco LLC.

William B. Chandler, III and Andrew D. Cordo, WILSON SONSINI GOODRICH
& ROSATI, Wilmington, Delaware; Mark A. Kirsch and Randy M. Mastro,
GIBSON DUNN & CRUTCHER, New York, New York, Attorneys for Defendant
Guggenheim Securities, LLC.

ZURN, Vice Chancellor.
 In February 2020, an oil and gas company purchased a set of oil-producing

assets from an affiliate of one of its private equity sponsors. The plaintiff in this

action, one of the company’s public stockholders, challenges the fairness of that

transaction. He alleges the company’s financial advisor gave a flawed fairness

opinion, severely undervaluing the company while significantly overvaluing the

assets it purchased. The advisor had done business with affiliates of a second private

equity sponsor. Based on the advisor’s discrepant opinion, the company overpaid

for the assets and, because the transaction involved issuing and transferring stock to

the sellers, unfairly diluted the company’s minority stockholders.

The stockholder challenges the transaction as manifestly unfair. He starts

with the advisor’s flawed opinion and works backwards, alleging the transaction

must have been effectuated by the two private equity sponsors as a control group.

While, if treated as a group, the two sponsors control a majority of the company’s

stock, the stockholder has not sufficiently pled that the two firms formed such a

group. He alleges the sponsors effectuated the transaction to continue a cycle of

saving each other from bad investments. But he falls short of alleging any agreement

between the sponsors that would support such a finding, or any other indication of a

transaction-specific connection. In short, despite relying on a purported wink-and-

nod agreement between the private equity sponsors, the stockholder alleges neither

a wink nor a nod. Rather, he rests his theory on the facts that each transaction

1
involved an affiliate of one of the two sponsors, and that, in his view, both

transactions were substantively unfair. Even at this early stage, these allegations are

insufficient. This opinion concludes the stockholder has failed to allege the private

equity sponsors formed a control group and so, the breach of fiduciary duty counts

against them must be dismissed.

From there, the rest of the stockholder’s claims unravel. In light of the

Delaware Supreme Court’s decision early last week in Brookfield Asset

Management, Inc. v. Rosson,1 the stockholder voluntarily dismissed his direct claims

by a stipulation filed today. He is therefore left to pursue derivative claims on the

company’s behalf. But under the new universal test for demand futility announced

late last week in United Food and Commercial Workers Union v. Zuckerberg

(Zuckerberg II),2 he lacks standing to bring those claims under Court of Chancery

Rule 23.1. For the reasons that follow, I grant the defendants’ motions to dismiss in

their entirety.

I. BACKGROUND3

The Verified Stockholder Derivative and Class Action Complaint (the

“Complaint”) in this action challenges nominal defendant Talos Energy Inc.’s

1
— A.3d —, 2021 WL 4260639 (Del. Sept. 20, 2021).
2
— A.3d —, 2021 WL 4344361 (Del. Sept. 23, 2021).
3
On this motion to dismiss, I draw the following facts from plaintiff’s Verified Class
Action Complaint, available at Docket Item (“D.I.”) 1 [hereinafter “Compl.”], as well as
the documents attached and integral to it. See, e.g., Himawan v. Cephalon, Inc., 2018 WL

2
(“Talos” or the “Company”) February 28, 2020, purchase of certain oil-producing

assets (the “Challenged Transaction”). Plaintiff Vrajeshkumar Patel (“Plaintiff”)

was a Talos stockholder at all relevant times, and purports to bring his claims

derivatively and on behalf of Talos’s other similarly situated public stockholders.

A. The Parties Form Talos With Backing From Private Equity
Sponsors.

In 2012, Defendant Timothy S. Duncan formed the Company’s predecessor,

Talos Energy LLC (“Old Talos”). From its inception, Old Talos was backed by

funds affiliated with defendants Riverstone Holdings, LLC, (“Riverstone Parent”)

and Apollo Global Management, Inc. (“Apollo Parent”). Riverstone Parent invested

in Old Talos through defendants Riverstone Talos Energy Equityco LLC and

Riverstone Talos Energy Debtco LLC (the “Riverstone Funds,” and together with

Riverstone Parent, “Riverstone”). Apollo Parent similarly invested in Old Talos

through defendants Apollo Talos Holdings, L.P., and AP Talos Energy Debtco LLC

(the “Apollo Funds,” and together with Apollo Parent, “Apollo”). Together,

Riverstone and Apollo are the “Venture Capital Defendants.”

6822708, at *2 (Del. Ch. Dec. 28, 2018); In re Gardner Denver, Inc. S’holders Litig., 2014
WL 715705, at *2 (Del. Ch. Feb. 21, 2014). Citations in the form of “Hymes Decl. ––”
refer to the exhibits attached to the Transmittal Declaration Pursuant to 10 Del. C. § 3927
of Justin T. Hymes to Opening Brief in Support of the Talos Defendants’ Motion to
Dismiss, available at D.I. 27 and D.I. 29.

3
 Nonparty Gregory A. Beard was instrumental in the Venture Capital

Defendants’ initial investment in Old Talos. Beard co-founded Riverstone, but

moved to Apollo in 2010. In 2012, he “orchestrated” the transaction through which

Riverstone and Apollo “gained control of Old Talos,” aided by Riverstone’s other

co-founders, nonparties Pierre Lapeyre and David Leuschen.4 Lapeyre and

Leuschen had also worked with Duncan in a previous oil company, Phoenix

Exploration Co. LP. After investing in Old Talos, Lapeyre and Leuschen publicly

commented: “We are excited to build another company with Tim. This investment

exemplifies Riverstone’s strategy of re-partnering with proven management teams.

We look forward to repeating the success we had with Phoenix.”5

The Venture Capital Defendants received substantial yearly fees for their

“management consulting and advisory services” for Old Talos, as well as a

“transaction fee” equal to 2% of their initial investment.6

1. The Stone Energy Combination

On May 18, 2018, Old Talos and nonparty Stone Energy Corporation (“Stone

Energy”) combined to form Talos (the “Combination”). The Combination resulted

in the Riverstone Funds owning 27.5% of the Company’s shares, the Apollo Funds

4
Compl. ¶ 37.
5
Id. ¶ 23 (alteration omitted).
6
Id. ¶ 13.

4
owning 35.4%, and Stone Energy’s former stockholders owning the remaining

37.1%. The Company became a publicly traded Delaware corporation, describing

itself as “a leading offshore energy company focused on oil and gas exploration and

production in the United States Gulf of Mexico and offshore Mexico.”7 Since the

Combination, the Company has been managed by a ten-member board of directors

(the “Board”). The Company’s certificate of incorporation contains a provision

exculpating the Board from breaches of the duty of care pursuant to 8 Del. C.

§ 102(b)(7).8

2. The Stockholders’ Agreement

Contemporaneously with the Combination, the Venture Capital Defendants,

through their affiliated funds, entered into a Stockholders’ Agreement (the

“Stockholders’ Agreement”).9 In the Stockholders’ Agreement, the Venture Capital

7
Id. ¶ 11 (alteration omitted).
8
See Hymes Decl. Ex. 2 § 7.1.
9
See Hymes Decl. Ex. 6.

5
Defendants agreed to a paradigm for jointly designating six members of Talos’s

Board:

The Company Board shall initially consist of ten members comprised
of (i) two directors designated by the Apollo Parties, (ii) two directors
designated by the Riverstone Parties, (iii) one Independent Director
jointly designated by the [Venture Capital Defendants], (iv) the Chief
Executive Officer of the Company and (v) four directors, including the
chairman of the Company Board, that are Company Independent
Directors, initially designated by Stone Energy in accordance with the
[Combination] Agreement. Until the second annual meeting of
stockholders held after the date of this Agreement, the Company and
each Stockholder shall take all Necessary Action to cause the Chairman
of the Company Board to be a Company Independent Director.10

In sum, Riverstone and Apollo each designated two Board directors, agreed to

designate one director jointly, and also agreed Duncan, the Company’s CEO, should

sit on the Board; the remaining four directors were initially designated by Stone

Energy.11

After the Combination, the Company filed a Form S-4 Registration Statement

on September 14, 2018. That filing indicated that Talos is a “controlled company”

under applicable New York Stock Exchange (“NYSE”) rules:

We are controlled by Apollo Funds and Riverstone Funds. The
interests of Apollo Funds and Riverstone Funds may differ from the
interests of our other stockholders.

10
Id. § 3.1(a). The parties agreed to support one another’s nominees to effectuate the goal
outlined above. See id. § 3.1(c); see also id. § 1.1 (defining “Necessary Action”).
11
Id. at § 3.1(a); see also Hymes Decl. Ex. 25 at 173.

6
 Immediately following the closing of the [Combination], the
stakeholders of Talos Energy LLC beneficially owned and possessed
voting power over 63% of our common stock. Under the Stockholders’
Agreement, dated as of May 10, 2018, among certain Apollo Funds,
certain Riverstone Funds and the Company (the “Stockholders’
Agreement”), the Apollo Funds and the Riverstone Funds may acquire
additional shares of our common stock without the approval of the
Company Independent Directors.

Through their ownership of a majority of our voting power and the
provisions set forth in our charter, bylaws and the Stockholders’
Agreement, the Apollo Funds and the Riverstone Funds have the ability
to designate and elect a majority of our directors. As a result of the
Apollo Funds’ and the Riverstone Funds’ ownership of a majority of
the voting power of our common stock, we are a “controlled company”
as defined in [NYSE] listing rules and, therefore, we are not be [sic]
subject to NYSE requirements that would otherwise require us to have
(i) a majority of independent directors, (ii) a nominating committee
composed solely of independent directors, (iii) director nominees
selected, or recommended for the board’s selection, either by a majority
of the independent directors or a nominating committee composed
solely of independent directors, and (iv) the compensation of our
executive officers determined by a majority of the independent
directors or a compensation committee composed solely of independent
directors. Under the Stockholders’ Agreement, our board of directors
has five directors not designated by the Apollo Funds and the
Riverstone Funds and five directors designated by the Apollo Funds
and the Riverstone Funds.12

3. Talos’s Post-Combination Board

At the time of the Challenged Transaction, and at the time this lawsuit was

filed, the Board had ten members, all of whom are defendants in this action: Duncan,

12
Hymes Decl. Ex. 25 at 12–13. Plaintiff points out, and Defendants do not dispute, that
the Stockholders’ Agreement here actually permits Riverstone and Apollo to together
appoint six members of the Company’s Board, including Duncan.

7
Neal Goldman, Christine Hommes, John Juneau, Donald Kendall, Jr., Rajen

Mahagaokar, Charles Sledge, Robert Tichio, James Trimble, and Olivia Wassenaar

(together, the “Director Defendants”). Three directors, Mahagaokar, Tichio and

Wassenaar were recused from considering the Challenged Transaction due to their

connection with Riverstone and Riverstone’s affiliation with the sellers in the

Challenged Transaction (the “Recused Directors”). Mahagaokar and Tichio are

Riverstone’s designees on the Board. Both are Riverstone insiders: the Complaint

describes Mahagaokar as a “principal” and Tichio as a “partner.”13 Both were

recused from discussions on the Challenged Transaction, given their status as

Riverstone fiduciaries. Wassenaar is one of Apollo’s two designees on the Board.

She is a senior partner at Apollo, which she joined in 2018 after serving as a

managing director at Riverstone. She continues to own an interest in a Riverstone

affiliate and so was also recused from discussions on the Challenged Transaction.

Beyond the three Recused Directors, there are seven remaining Director

Defendants. Four Director Defendants—Goldman, Sledge, Trimble, and Juneau—

are former Stone Energy directors (the “Stone Energy Directors”). The three

remaining Director Defendants are Duncan, Kendall, and Hommes. Duncan and

Kendall are designated to the Board jointly by Apollo and Riverstone. Hommes is

13
Compl. ¶¶ 28, 30. The Complaint goes on to also describe Tichio as a “principal.” Id. ¶
162(h).

8
an Apollo partner and Board designee. Plaintiff alleges some experiential ties

between the directors, which I discuss below as they become relevant.

B. Pre-Challenged-Transaction Ties Between The Venture
Capital Defendants

After they invested in Old Talos in 2012, the Venture Capital Defendants

crossed in a 2013 energy-sector transaction. In 2013, Apollo led a buyout group

including Riverstone that bought nonparty EP Energy Corp. (“EP Energy”) for

approximately $7.2 billion. In that transaction, Apollo and Riverstone together held

68.95% of EP Energy’s stock; and, through a stockholders’ agreement, they

designated seven of EP Energy’s eleven directors, including Beard, Tichio, and

Mahagaokar. In 2019, EP Energy filed for bankruptcy. Apollo lost over $2 billion

as a result; Riverstone lost over $600 million.

The Complaint also describes Talos’s 2018 acquisition of Whistler Energy II,

LLC (“Whistler”). Whistler was another oil company that held assets in the Gulf of

Mexico. In July 2013 and October 2014, Apollo loaned Whistler a total of $135

million in secured financing. Whistler suffered several operational issues, and in

March 2019, several creditors commenced involuntary bankruptcy proceedings

against it. Apollo asserted senior secured creditor claims of approximately $143.7

million. Whistler emerged from bankruptcy in March 2018. Apollo had received

only $35 million in cash on its loans, but also received new membership interests

9
that would entitle it to receive 100% of any distributions until it was paid back on its

original loans, interest, and fees.

On August 31, Talos acquired Whistler from Apollo for $52.3 million,

allegedly making Apollo nearly whole on its Whistler investment.14 But this came

at a price: according to the Complaint, “[m]aking Apollo whole required Talos to

greatly overpay for Whistler,”15 at a premium of between 61% and 66% over a fair

price.

According to the Complaint, that transaction “bailed Apollo out of a

disastrous investment” and was the first half of the alleged quid pro quo at the heart

of this action, to be followed by the overpayment for Riverstone assets in the

Challenged Transaction.16 The Complaint alleges that “[h]aving agreed to let Talos

bail out Apollo from the Whistler debacle, Riverstone was rewarded with its own

sweetheart deal in the Controllers’ next interested-party transaction—the

Challenged Transaction.”17 The Complaint offers no other allegations that

14
See id. ¶ 55 (“On August 31, 2018, Talos acquired Whistler from Apollo for $52.3
million (including the assumption of $23.8 million in liabilities). The consideration also
included the release of $46 million of cash collateral securing Whistler’s surety bonds, for
a total value to Apollo of $98.3 million. Together with the $35 million that Apollo received
from the bankruptcy, this made Apollo nearly whole on its $135 million Whistler
investment.”).
15
Id. ¶ 56.
16
Id. ¶ 43.
17
Id. ¶ 58 (emphasis added); see also id. ¶¶ 4–5 (“First, the controllers caused Talos to buy
Whistler, a failing energy company owned by Apollo, at an inflated price that was designed
to let Apollo recoup its substantial losses on this troubled investment. Apollo then returned

10
Riverstone was involved in the Whistler transaction, or that it struck any agreement

with Apollo to support the Whistler deal in exchange for a future favor.

C. The Challenged Transaction

On December 10, 2019, Talos announced that it had entered into agreements

to acquire a portfolio of U.S. Gulf of Mexico oil-producing assets, prospects and

acreage from non-parties Castex Energy 2014, LLC, ILX Holdings, LLC, and their

affiliates (together, “Sellers”). Sellers are affiliated with Riverstone. The

arrangement between Talos and Sellers would ultimately become the Challenged

Transaction at issue here.

Based on an “extensive valuation analysis” in the Complaint, Plaintiff alleges

that Talos “grossly overpaid” in the Challenged Transaction, giving Riverstone an

unfair windfall.18 Plaintiff alleges the Challenged Transaction is the second half of

the quid pro quo between the Venture Capital Defendants, in which Talos overpaid

for a Riverstone asset to make up for Talos overpaying Apollo in the Whistler

transaction. To support this claim, the Complaint describes the evolution of the

Challenged Transaction’s terms, and then devotes substantial space to criticize the

Challenged Transaction’s fairness.

the ‘favor’ by agreeing for Talos to buy assets from Riverstone at an inflated price, giving
Riverstone a windfall.”).
18
Id. ¶ 8.

11
 1. The Challenged Transaction’s Evolving Terms

Despite the benefit of books and records, the Complaint offers few details on

the process leading up to the Challenged Transaction. It appears the Board was

responsible for negotiating the terms of the Challenged Transaction in the first

instance.19 Because Sellers were known Riverstone affiliates, the Recused Directors

did not participate in Board meetings discussing the Challenged Transaction and did

not vote on it. The rest of the Board discussed the Challenged Transaction several

times in late 2019.20 Andrew Wilson, a Riverstone representative, attended all these

meetings, and the minutes do not indicate that he left the room while the Board

discussed the Challenged Transaction.21 Jerry Chen, an Apollo representative, also

attended, though neither Chen nor Wilson appear to have spoken.22 Representatives

19
See, e.g., id. ¶ 83 (“the Board failed to assess”); id. ¶ 84 (“the Board failed to obtain”);
id. ¶ 87 (same); id. ¶ 88 (“the Board deliberately did not submit the Challenged Transaction
to a vote”); id. ¶ 89 (“the Board did not take steps to confirm”).
20
See Hymes Decl. Ex. 11 (outlining Board minutes from an October 4 meeting); Hymes
Decl. Ex. 12 (outlining Board minutes from an October 22 meeting); Hymes Decl. Ex. 13
(outlining Board minutes from an October 29 meeting); Hymes Decl. Ex. 14 (outlining
Board minutes from a December 6 meeting).
21
See Hymes Decl. Ex. 11 at TAL0000001; Hymes Decl. Ex. 12 at TAL0000576; Hymes
Decl. Ex. 13 at TAL0000005; Hymes Decl. Ex. 14 at TAL0000009; Compl. ¶ 65; see also
infra notes 36–40 and accompanying text (relying on these exhibits rather than board
minutes amended and produced after litigation began).
22
See generally Hymes Decl. Ex. 11; Hymes Decl. Ex. 12; Hymes Decl. Ex. 13; Hymes
Decl. Ex. 14. The only mention of Wilson in these minutes is to include his name in the
list of attendees. Chen was similarly only mentioned in the attendees list, except for in the
October 4 meeting minutes, which note that he dropped from the call when Goldman
announced the Board would begin discussing “the proposed transaction with Riverstone.”
Hymes Decl. Ex. 11 at TAL0000002.

12
from Talos’s financial advisor, Defendant Guggenheim Securities, LLC

(“Guggenheim”), and its legal advisor, Vinson & Elkins LLP, also attended.23

Plaintiff alleges Apollo affiliates had retained Guggenheim to advise on three

unrelated transactions. Plaintiff casts this as a conflict, notes that the Board did not

discuss this conflict, and alleges Guggenheim’s fairness opinion (the “Fairness

Opinion”) was tainted as a result. After negotiating the Challenged Transaction, and

with another potential bidder apparently in the mix,24 the Board unanimously

approved the Challenged Transaction on December 6.25

Under the Challenged Transaction’s original terms, Sellers would receive

$385 million in cash, plus 11 million new shares of Talos common stock, which was

worth approximately $691 million at the time. Talos’s January 30, 2020 Form

PREM 14C disclosed those terms to Talos’s shareholders. According to Plaintiff,

23
See Hymes Decl. Ex. 11 at TAL0000001; Hymes Decl. Ex. 12 at TAL0000576; Hymes
Decl. Ex. 13 at TAL0000005; Hymes Decl. Ex. 14 at TAL0000009.
24
See Compl. ¶ 89 (“[D]espite being informed by defendant Duncan of another company’s
interest in [buying the Seller’s assets], the Board did not take steps to confirm the existence
of a bona fide competing bidder or consider how much a competing bidder might have
been willing to pay. Instead, the Board accepted, without question, the existence of the
competing bidder and that competing with them to acquire the target assets reduces Talos
leverage. . . . The Section 220 documents produced by the Company confirm the Board’s
failure to take steps to confirm the existence of a bona fide competing bidder.” (alterations
and internal quotation marks omitted)).
25
See Hymes Decl. Ex. 14 at TAL0000014.

13
NYSE rules required approval by a majority of the common stockholders to issue

the 11 million shares of common stock.26

Sometime after these initial terms were set, the Challenged Transaction

changed course. Instead of compensating Sellers with 11 million shares of Talos

common stock, the Company would instead issue 110,000 shares of new Series A

Convertible Preferred Stock. Each share of preferred stock would thereafter

automatically convert into 100 shares of common stock twenty calendar days after

the Challenged Transaction closed (the “Conversion”). There was no Board meeting

discussing, or resolution approving, the changing of these terms.

According to Plaintiff, this change had two primary benefits. First, it allowed

the Challenged Transaction to close twenty days earlier because the majority of the

common stockholders no longer needed to approve the issuance of preferred stock;

rather, they would only be asked to approve the Conversion.27 Second, and relatedly,

Riverstone and Apollo could effectuate the approval of that Conversion “without the

need for a stockholder vote,” thus “depriv[ing] the Company’s non-controlling

26
See Compl. ¶ 69 (“The change from paying the Sellers 11 million shares of common
stock to 110,000 shares of preferred stock allowed the Challenged Transaction to close
[twenty] days earlier because, while Rules 312.03(b) and 312.03(c) of the New York Stock
Exchange Listed Company Manual required approval by a majority of the common
stockholders to issue the 11 million shares of common stock contemplated in the [original
transaction], the issuance of 110,000 shares of preferred stock contemplated in the
[changed transaction] did not; only the conversion required such approval.”).
27
See id.

14
stockholders of the opportunity to object, or to seek to enjoin the Challenged

Transaction.”28 Riverstone and Apollo did so via a joint written consent dated

February 24 (the “Written Consent”).29 With the Written Consent in hand, the

Company filed a revised information statement the next day disclosing the new

terms. On this basis, Plaintiff alleges “the Board deliberately did not submit the

Challenged Transaction to a vote of the Company’s public stockholders, but instead

allowed it to be approved by written consents from Apollo and Riverstone.”30

The Challenged Transaction closed shortly thereafter, on February 28. On

March 10, Talos issued a revised Information Statement Form PRER 14-C.31 This

filing presented the Challenged Transaction as complete, noting that the

28
Id. ¶¶ 71–72. It is not immediately apparent to me why subjecting the Challenged
Transaction to a stockholder vote would have given minority stockholders more of a voice,
given that the Venture Capital Defendants control a majority of the Company’s stock, and
could have carried the vote without minority input. Under the Company’s Amended and
Restated Certificate of Incorporation, stockholders “may consent to any action required or
permitted to be taken at any annual or special meeting” using written consents, subject to
8 Del. C. § 228. See Hymes Decl. Ex. 2 § 6.1.
29
See Hymes Decl. Ex. 16. When they executed the Written Consent, Riverstone and
Apollo also approved certain amendments to the “Registration Rights Agreement” and the
Stockholders’ Agreement, by which the stock Sellers received would count on a fully
converted basis toward Riverstone’s ownership percentage for purposes of appointing
directors, but excluded for NYSE controlled company rubrics.
30
Compl. ¶ 88.
31
Hymes Decl. Ex. 5.

15
stockholders need not approve it because Riverstone and Apollo (referred to by the

defined term “Majority Stockholders”) already had.32

Because the Challenged Transaction issued Talos stock to a Riverstone

affiliate, Riverstone’s Talos holdings were substantially increased: from 27.5% to

39.8%. Other stockholders, including Apollo, saw a dilution of their shares.

2. The Challenged Transaction’s Price

Plaintiff devotes over a third of his Complaint to detailing why he believes the

Challenged Transaction was unfair to Talos and its minority stockholders. 33 The

majority of this discussion is focused on alleged defects in Guggenheim’s Fairness

Opinion, presenting a “technical valuation analysis” on the Challenged

Transaction.34 The Fairness Opinion evaluated the Challenged Transaction in part

by drawing comparisons between Talos, Sellers, and other comparable companies.

According to Plaintiff, Guggenheim failed to draw these comparisons

systematically, employing a flawed valuation method that consistently undervalued

Talos and overvalued the Sellers’ assets. These valuation discrepancies were

animated in part by the differences between the value of oil and natural gas, causing

Guggenheim to overvalue Sellers’ gas-skewed reserves and undervalue Talos’s oil-

32
E.g., id. at 5, 16.
33
See generally Compl. ¶¶ 80–148.
34
D.I. 48 at 6; see Compl. ¶¶ 91–148.

16
heavy reserves. The Fairness Opinion also did not account for one of Talos’s main

Mexican oil assets, known as the Zama field. Plaintiff alleges that had Guggenheim

considered Zama, its Fairness Opinion could not have supported the Challenged

Transaction. Based on these and other deficiencies, Plaintiff concludes the

Challenged Transaction was unfair to the Company and its minority stockholders.

Plaintiff repeatedly alleges these problems were obvious and “could not have been

overlooked by persons knowledgeable in the energy industry.”35

D. Plaintiff Seeks Books And Records.

Motivated by problems in the Fairness Opinion, Plaintiff served the Board

with a demand to inspect Talos’s books and records pursuant to 8 Del. C. § 220 on

March 31, 2020.36 The parties did not litigate Plaintiff’s demand and agreed to a

35
Compl. ¶ 118; see id. ¶ 100; see also id. ¶ 64 (“Although Guggenheim’s fairness opinion
found that the consideration payable to the Sellers was fair to the Company, its opinion
was fatally flawed for the reasons in ¶¶ 91-148, infra. Many of these flaws should have
been obvious to the defendants, and particularly as persons experienced in the oil and gas
business.”); id. ¶ 91 (“The Challenged Transaction was also unfair to Talos because it was
caused to overpay for the [Sellers’ assets] – and defendants had to have been aware of that
fact.”); id. ¶ 102 (“By comparing the [Sellers’ assets] to firms that expected production
growth, Guggenheim significantly overvalued them – and it had to have known it.”); id. ¶
137 (“The need to consider AROs in calculating the value of an asset is well known to
petroleum industry professionals like defendants. Guggenheim failed to do so.”); id. ¶¶
146–47 (“These failures should have been obvious to defendants, all of whom are
experienced in the petroleum industry, and cannot be the product of negligence. Had
Guggenheim properly examined the Challenged Transaction, it could not have opined that
it was fair to the Company. Rather, it would have been forced to conclude that the
Challenged Transaction resulted in Talos overpaying for [Sellers’ assets] by hundreds of
millions of dollars. This is unfair to the Company on its face.”).
36
See Hymes Decl. Ex. 7 at 1.

17
stipulated production on May 14.37 The parties memorialized that production with

a “Confidentiality and Non-Disclosure Agreement,” which included the following

incorporation by reference provision:

Incorporation Into Complaint. The Stockholder agrees that the
complaint in any lawsuit that it files, including but not limited to any
derivative lawsuit pursuant to Delaware Court of Chancery Rule 23.1,
relating to, involving or in connection with the Demand or any books
and records produced in connection therewith, including but not limited
to any Confidential Information, shall be deemed to incorporate by
reference the entirety of the books and records of which inspection is
permitted.38

After Plaintiff filed his complaint, the Company produced other documents it claims

are responsive to Plaintiff’s Section 220 demand.39 It has also brought forward

“amended” Board minutes that are inconsistent with those the Company produced

to Plaintiff earlier.40 In making plaintiff-friendly inferences at this stage, I have

relied only on Plaintiff’s allegations as framed by the Board minutes and other

documents the Company produced to the Plaintiff before he filed his Complaint.

37
See id. at 8.
38
Id. § 8(i).
39
See D.I. 57.
40
See D.I. 57; D.I. 60. In particular, those amendments remove Riverstone’s
representative, Wilson, from attendance at the Board meetings involving the Challenged
Transaction.

18
 E. Plaintiff Files This Action.

On May 29, Plaintiff filed his derivative and class action Complaint.41 The

Complaint asserts seven counts. Counts I and IV allege the Director Defendants

breached their fiduciary duties by consummating the Challenged Transaction. Count

I is direct and Count IV is derivative. Counts II and V allege the Venture Capital

Defendants breached their fiduciary duties as controlling stockholders. Count II is

direct and Count V is derivative. Counts III and VI allege Guggenheim aided and

abetted the Director Defendants’ breaches of fiduciary duty. Count III is direct and

Count VI is derivative. Count VII alleges Riverstone was unjustly enriched by the

Challenged Transaction, a claim Plaintiff brings derivatively.

On August 8, Defendants filed four motions to dismiss the Complaint under

Court of Chancery Rule 12(b)(6) (the “Motions”).42 The parties fully briefed the

Motions and the Court heard oral argument on February 19, 2021.43

Plaintiff originally named only Riverstone Parent and Apollo Parent as

defendants, despite admitting these entities do not own any Talos stock. On May

17, I issued a letter opinion concluding that because the Complaint sought to impose

fiduciary duties on the absent Riverstone Funds and Apollo Funds, the Court could

41
See generally Compl.
42
D.I. 24; D.I. 25; D.I. 27; D.I. 28.
43
D.I. 73; D.I. 76 [hereinafter “Hr’g Tr.”].

19
not afford complete relief among the parties currently before it under Rule 19.44 I

held the Motions in abeyance until the parties joined the relevant Apollo Funds and

Riverstone Funds, which they did by stipulation on June 7.45 The Apollo Funds and

Riverstone Funds declined to present any additional briefing.

Earlier this afternoon, Plaintiff filed a stipulation voluntarily dismissing his

direct claims in Counts I, II, and III.46 This opinion therefore addresses only his

derivative claims in Counts IV, V, VI, and VII.

II. ANALYSIS

The standards governing a motion to dismiss under Court of Chancery

Rule 12(b)(6) for failure to state a claim for relief are well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are “well-pleaded” if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
unless the “plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.”47

44
D.I. 77; Patel v. Duncan, 2021 WL 2144855 (Del. Ch. May 17, 2021).
45
D.I. 81.
46
D.I. 82.
47
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted); accord
In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *5 (Del. Ch. Oct. 27, 2020).

20
Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’”48 This standard is “minimal”49 and “plaintiff-friendly.”50 “Indeed,

it may, as a factual matter, ultimately prove impossible for the plaintiff to prove his

claims at a later stage of a proceeding, but that is not the test to survive a motion to

dismiss.”51 Despite this forgiving standard, the Court need not “accept conclusory

allegations unsupported by specific facts” or “draw unreasonable inferences in favor

of the non-moving party.”52 “Moreover, the court is not required to accept every

strained interpretation of the allegations proposed by the plaintiff.”53

Plaintiff complains that Talos’s fiduciaries caused the Company to engage in

the Challenged Transaction via an unfair process54 and at an unfair price.55 To

properly position that claim before the Court, Plaintiff relies on his theory that the

Challenged Transaction is subject to entire fairness review because of the presence

48
Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537
(Del. 2011).
49
Id. at 536 (citing Savor, 812 A.2d at 896).
50
See, e.g., Clouser v. Doherty, 175 A.3d 86 (Del. 2017) (TABLE); In re Trados Inc.
S’holder Litig., 2009 WL 2225958, at *9 (Del. Ch. July 24, 2009).
51
Cent. Mortg., 27 A.3d at 536.
52
Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011) (citing Clinton v.
Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by
Ramsey v. Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255, 1277 (Del. 2018).
53
Trados, 2009 WL 2225958, at *4 (internal quotation marks omitted) (quoting In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006)).
54
E.g., Compl. ¶¶ 80–90, 166, 184–85.
55
E.g., id. ¶¶ 91–148, 166, 184–85.

21
of a conflicted control group. Plaintiff does not focus on any particular wrongdoing

by a fiduciary. He instead builds a theory of liability on the fact of overpayment,

inferring that overpayment to Riverstone must have been the result of Riverstone

partnering with Apollo to implement a quid pro quo.56 But even with the benefit of

plaintiff-friendly inferences on a fact-specific inquiry, Plaintiff has failed to plead

that the Venture Capital Defendants are a control group. Accordingly, the

Challenged Transaction is presumptively subject to the business judgment rule’s

deference.

Stripped of the presence of a control group, it is unclear what breach of

fiduciary duty Plaintiff asserts to rebut the business judgment rule. Plaintiff does

not go so far as to allege waste.57 But even assuming Plaintiff has fairly pled

derivative breaches of the duties of loyalty or care, Plaintiff has failed to allege

demand futility for those claims.

A. Plaintiff Fails To Plead The Venture Capital Defendants
Formed A Control Group.

Plaintiff’s theory that the Venture Capital Defendants formed a control group

is the central feature in the Complaint. The viability of this theory informs the

56
See Hr’g Tr. 127–129.
57
See generally Compl.; D.I. 48. At argument, Plaintiff’s counsel repeatedly characterized
his breach of fiduciary duty claims as “waste,” despite acknowledging that this
characterization is absent from the complaint and his brief. See, e.g., Hr’g Tr. 137–138.

22
standard of review, the availability of breach of fiduciary duty claims against the

Venture Capital Defendants, and the number of Board members that may be

considered interested in the Challenged Transaction.

“Delaware law imposes fiduciary duties on those who effectively control a

corporation.”58 The premise for contending that a controller owes fiduciary duties

“is that the controller exerts its will over the enterprise in the manner of the board

itself.”59 If a controller or control group is present, entire fairness review arises

“when the board labors under actual conflicts of interest” stemming from the

controller standing on both sides of a challenged transaction or competing with the

minority for consideration.60

The controller analysis “must take into account whether the stockholder, as a

practical matter, possesses a combination of stock voting power and managerial

58
Voigt v. Metcalf, 2020 WL 614999, at *11 (Del. Ch. Feb. 10, 2020) (internal quotation
marks omitted) (quoting Quadrant Structured Prods. Co. Ltd. v. Vertin, 102 A.3d 155,
183–84 (Del. Ch. 2014), and citing S. Pac. Co. v. Bogert, 250 U.S. 483, 487–88 (1919)).
59
Abraham v. Emerson Radio Corp., 901 A.2d 751, 759 (Del. Ch. 2006).
60
FrontFour Cap. Gp. LLC v. Taube, 2019 WL 1313408, at *20 (Del. Ch. Mar. 11, 2019)
(quoting Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011)), and citing
Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997), and Kahn v. Lynch Commc’ns
Sys., Inc., 638 A.2d 1110, 1115 (Del. 1994), and Weinberger v. UOP, Inc., 457 A.2d 701,
710 (Del. 1983), and In re John Q. Hammons Hotels Inc. S’holder Litig., 2009 WL
3165613, at *12 (Del. Ch. Oct. 2, 2009), and In re Delphi Fin. Gp. S’holder Litig., 2012
WL 729232, at *12 n.57 (Del. Ch. Mar. 6, 2012), and also citing In re Primedia, Inc.
S’holders Litig., 67 A.3d 455, 487 (Del. Ch. 2013)).

23
authority that enables him to control the corporation, if he so wishes.”61 “The

question whether a shareholder is a controlling one is highly contextualized and is

difficult to resolve based solely on the complaint.”62 “[T]here is no magic formula

to find control; rather, it is a highly fact specific inquiry.”63

To plead a control group, the plaintiff must first plead the connection among

the purported members was “legally significant.”64 Plaintiff must then allege that

the control group exercised de facto control by actual domination or control of the

board generally, or actual domination or control of the corporation, its board, or the

deciding committee with respect to the challenged transaction. 65 In Garfield v.

BlackRock Mortgage Ventures, then-Vice Chancellor McCormick helpfully framed

the pleading stage inquiry as two questions: (1) whether the alleged control group

was indeed a group, and (2) whether the alleged control group exercised sufficient

61
In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 553 (Del. Ch. 2003).
62
Williamson v. Cox Commc’ns, Inc., 2006 WL 1586375, at *6 (Del. Ch. June 5, 2006);
accord In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293, at *13 (Del. Ch.
Mar. 28, 2018) (“Whether a large blockholder is so powerful as to have obtained the status
of a ‘controlling stockholder’ is intensely factual and it is a difficult question to resolve on
the pleadings.” (alterations and internal quotation marks omitted)); Cysive, 836 A.2d at
550–51 (same).
63
Calesa Assocs., L.P. v. Am. Cap., Ltd., 2016 WL 770251, at *11 (Del. Ch. Feb. 29, 2016)
(citing In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *10 (Del. Ch.
Oct. 24, 2014)).
64
Sheldon v. Pinto Tech. Ventures, L.P. (Sheldon II), 220 A.3d 245, 251–52 (Del. 2019),
aff’g Sheldon v. Pinto Tech. Ventures, L.P. (Sheldon I), 2019 WL 336985, at *9 (Del. Ch.
Jan. 25, 2019).
65
See FrontFour, 2019 WL 1313408, at *22.

24
control.66 The critical question here is the first one: whether Plaintiffs sufficiently

plead the Venture Capital Defendants formed a group. If bound as a group, the

Venture Capital Defendants owned more than 50% of Talos’s outstanding shares

and so would be a control group owing fiduciary duties.67

The Delaware Supreme Court recently addressed the requirements for

pleading a control group in Sheldon v. Pinto Technology Ventures, L.P. (Sheldon II),

adopting the “legally significant connection” standard applied by multiple decisions

of this Court:

To demonstrate that a group of stockholders exercises control
collectively, the [plaintiff] must establish that they are connected in
some legally significant way—such as by contract, common ownership,
agreement, or other arrangement—to work together toward a shared
goal. To show a legally significant connection, the [plaintiff] must
allege that there was more than a mere concurrence of self-interest
among certain stockholders. Rather, there must be some indication of
an actual agreement, although it need not be formal or written.68

66
2019 WL 7168004, at *8 (Del. Ch. Dec. 20, 2019).
67
See In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 991 (Del. Ch. 2014)
(“[T]he Delaware Supreme Court described two scenarios in which a stockholder could be
found a controller under Delaware law: where the stockholder (1) owns more than 50% of
the voting power of a corporation or (2) owns less than 50% of the voting power of the
corporation but exercises control over the business affairs of the corporation.” (internal
quotation marks omitted) (quoting Lynch, 638 A.2d at 1113–14), aff’d sub nom. Corwin v.
KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015); Compl. ¶ 14 (alleging “Apollo and
Riverstone respectively owned 35.4% and 27.5% (a total of 62.9%) of the Company’s
stock” before the Challenged Transaction).
68
220 A.3d at 251–52 (footnotes and internal quotation marks omitted) (quoting Crimson
Expl., 2014 WL 5449419, at *15, and Carr v. New Enter. Assocs. Inc., 2018 WL 1472336,
at *10 (Del. Ch. Mar. 26, 2018)).

25
While the plaintiff-friendly pleading standard and fact-intensive nature of the control

group inquiry loom large at this stage, these concerns do not require the Court to

“pile up questionable inferences until such a conclusion is reached.”69

Plaintiff relies heavily on Garfield, which built on the “playbook” outlined in

In re Hansen Medical Shareholders Litigation.70 The plaintiffs in those cases

succeeded in pleading a control group because they went beyond alleging mere

parallel interests, and pointed to “an array of plus factors” like historical ties and

transaction-specific ties that support a reasonable inference of an actual agreement.71

Together, those cases stand for the proposition that a combination of “voting power,

concurrence of interests, historical ties, and transaction-specific coordination” can

“give rise to a reasonably conceivable inference” that an alleged control group struck

69
Crimson Expl., 2014 WL 5449419, at *15.
70
2018 WL 3025525 (Del. Ch. June 18, 2018).
71
Id. at *6 (“Although parallel interests alone are insufficient as a matter of law to support
the inference that the shareholders were part of a control group, parallel interests, in
addition to other facts alleged by plaintiffs, can support a reasonable, but not necessarily
conclusive, inference that a control group existed.” (alterations and internal quotation
marks omitted) (quoting Zimmerman v. Crothall, 2012 WL 707238, at *11 (Del. Ch.
Mar. 27, 2012))); Garfield, 2019 WL 7168004, at *9 (discussing Hansen and noting that
“an array of plus factors” beyond a “mere concurrence of self-interest” could “allow[] the
Court to infer some indication of an actual agreement.” (internal quotation marks omitted)
(quoting Sheldon II, 220 A.3d at 252)).

26
an “actual agreement to work together in connection with” a challenged

transaction.72

Plaintiff attempts the same path here. His brief points to four factors that he

argues support an inference that the Venture Capital Defendants formed a control

group: (1) their historical relationship, including Beard’s roles at both funds, the

funds’ investments in Old Talos, Talos’s purchase of Whistler, and the EP Energy

transaction; (2) the Company’s “admission” that it is “controlled by Apollo Funds

and Riverstone Funds” in its September 2018 registration statement; (3) the

Stockholders’ Agreement, permitting the Venture Capital Defendants to appoint a

majority of the Board’s directors, and (4) that representatives from Riverstone and

Apollo attended the meetings where the Board discussed the Challenged

Transaction.73

I begin with the Venture Capital Defendants’ historical relationship, as

compared to those between the alleged controllers in Hansen and Garfield, on which

Plaintiff relies. In Hansen, the plaintiff alleged extensive historical ties between the

alleged controllers, including: their “long history of cooperation and coordination”

spanning “almost a quarter of a century”; their twenty-one year history of

72
Garfield, 2019 WL 7168004, at *10 (internal quotation marks omitted) (citing Hansen,
2018 WL 3025525).
73
See D.I. 48 at 22–27.

27
“coordinating their investment strategy in at least seven different companies”; their

self-designation as a “group” in SEC filings unrelated to the company; their

involvement as the only participants in a private placement which made them the

company’s largest shareholders; and the company’s grouping of them in several

related documents.74 Garfield similarly involved extensive historical ties between

the alleged controllers, including their “ten-year history of co-investment” in the

company, which they “decided to start . . . together as the Company’s founding

sponsors,” and the company’s repeated use of defined terms to interchangeably and

collectively refer to the two entities in its LLC agreement and a litany of public

filings.75

The historical ties between the Venture Capital Defendants here are weaker.

Outside of Talos, the Venture Capital Defendants are alleged to have crossed paths

only once, in the EP Energy transaction. Allegations that “venture capital firms in

the same sector crossed paths in a few investments” are insufficient to show the

“long history of cooperation and coordination” this Court found significant in

Hansen.76

74
2018 WL 3025525, at *7.
75
2019 WL 7168004, at *9.
76
Sheldon I, 2019 WL 336985, at *9 (quoting Hansen, 2018 WL 3030808, at *7).

28
 Within Talos, the Venture Capital Defendants’ sustained relationship is

significant. Their common principal Beard and Riverstone’s co-founders

orchestrated their takeover of Old Talos, from which they received advisory and

transaction fees. After the Combination with Stone Energy, the Venture Capital

Defendants’ Stockholders’ Agreement enabled their nominees to make up a majority

of the Board.77

The Stockholders’ Agreement also led Talos to disclose it is a “controlled

company” under NYSE rules. A company’s public description of investors as a

powerful unitary group in public filings, like “strategic investors” or “sponsor

members,” contribute to the “plus factors” supporting the presence of a control

group.78 While Talos’s disclosure is relevant, it is important to understand it in

context. Section 303A.00 of the NYSE’s Listed Company Manual defines a

“controlled company” as:

A listed company of which more than 50% of the voting power for the
election of directors is held by an individual, a group or another
company is not required to comply with the requirements of Sections
303A.01, 303A.04 or 303A.05. Controlled companies must comply
with the remaining provisions of Section 303A.79
77
See Hymes Decl. Ex. 6 § 3.1(a).
78
Garfield, 2019 WL 7168004, at *9; see also Hansen, 2018 WL 3025525, at *7 (noting
that the alleged controllers “declared themselves to the SEC as a ‘group’ of stockholders”
in public filings).
79
N.Y. Stock Exchange, Listed Company Manual § 303A.00 (2018), available at
https://nyse.wolterskluwer.cloud/listed-company-manual; see also Hymes Decl. Ex. 25
at 118 (“Under NYSE rules, a ‘controlled company’ is defined as a listed company of
which more than 50% of the voting power for the election of directors is held by an

29
In compliance with this rule, Talos’s September 2018 registration statement

indicated Talos is “controlled by Apollo Funds and Riverstone Funds.”80 Talos

explained this was based on the Stockholders’ Agreement and the Venture Capital

Defendants’ voting power:

Through their ownership of a majority of our voting power and the
provisions set forth in our charter, bylaws and the Stockholders’
Agreement, the Apollo Funds and the Riverstone Funds have the ability
to designate and elect a majority of our directors. As a result of the
Apollo Funds’ and the Riverstone Funds’ ownership of a majority of
the voting power of our common stock, we are a “controlled company”
as defined in [NYSE] listing rules and, therefore, we are not be [sic]
subject to [certain NYSE requirements].81

This NYSE-compelled disclosure is not as strong as the repeated public statements

that supported the outcome in Garfield,82 or the self-designation the alleged

individual, a group, or another company. The Company is a controlled company within
the meaning of NYSE rules.”).
80
Hymes Decl. Ex. 25 at 12.
81
Id.
82
See 2019 WL 7168004, at *9 (“From inception, the LLC Agreement has referred to
BlackRock and HC Partners interchangeably and as ‘Sponsor Members.’ Documents filed
in connection with the Public REIT IPO one year after the founding of PennyMac refer to
the two entities as ‘strategic investors.’ The Up-C public offering documents filed four
years later also continue to describe BlackRock and HC Partners as ‘strategic partners.’
Plaintiff further alleges that subsequent public disclosures continued to use the same joint
nomenclature with respect to BlackRock and HC Partners. Just as in Hansen, Plaintiff has
alleged a multi-year history of co-investment between group members that was identified
and recognized by the Company as well as the group itself in public disclosures.” (footnotes
omitted)).

30
controllers themselves made in Hansen.83 While the Venture Capital Defendants’

historical and company ties are weaker than those in Hansen and Garfield, they still

offer a nondispositive “backdrop” against which to consider transaction-specific

ties.84

Turning to transaction-specific ties, Plaintiff begins with the Stockholders’

Agreement. But that agreement deals only with the election of directors and does

not bind the Venture Capital Defendants as to the Challenged Transaction. In

Sheldon II, the Delaware Supreme Court affirmed that a similar voting agreement,

which “did not bear on the [challenged transaction] or bind the [alleged control group

members] beyond selecting directors,” did not represent a legally significant

connection to work toward a shared goal.85 Sheldon II built on van der Fluit v. Yates,

in which this Court found that the alleged controllers’ “Investor Rights Agreement”

fell short because it contained “no voting, decision-making, or other agreements that

83
See 2018 WL 3025525, at *7 (“[The alleged controllers’] history began almost a quarter
of a century ago when they entered into a voting agreement and declared themselves to the
SEC as a ‘group’ of stockholders in Quidel.”); see also Sheldon II, 220 A.3d at 255 (noting
“[t]he complaint does not allege that [the alleged controllers] held themselves out as a
group of investors or that they reported as such to the SEC”).
84
See Garfield, 2019 WL 7168004, at *9 (describing the alleged controllers’ historical ties
as a “backdrop” for their transaction-specific ties); see also Hansen, 2018 WL 3025525, at
*7 (discussing the alleged controller’s transaction-specific ties “in light of the [their]
twenty-one year coordinated investing history”).
85
See 220 A.3d at 253–54.

31
bear on the transaction challenged in the instant case.”86 Here, the Stockholders’

Agreement similarly binds the Venture Capital Defendants only to elect certain

directors. Riverstone, Apollo, and the directors they appointed “were free to vote in

their discretion on all other matters,” just as in Sheldon II.87 That the director

agreement may warrant disclosure under NYSE rules does not change its

significance under Delaware law.88 The Stockholders’ Agreement, as limited to

86
2017 WL 5953514, at *6 (Del. Ch. Nov. 30, 2017).
The van der Fluit Court also noted that other signatories were parties to the voting
agreement and criticized the plaintiff for not offering any “explanation for why [the alleged
controllers] are members of an alleged control group while numerous other signatories to
these agreements are not.” Id. The trial court in Sheldon I similarly noted this problem.
2019 WL 336985, at *10. When the appellant challenged this conclusion on appeal, the
Delaware Supreme Court did not consider this detail and reiterated that the agreement did
not implicate the challenged transaction. Sheldon II, 220 A.3d at 254 (“Moreover, although
the Appellants contend on appeal that the Voting Agreement contractually bound the
Venture Capital Firms (and not the other Shareholders) to vote together and designate
additional directors, it does not require them to vote together on any transaction and was
not implicated in the approval of any of the transactions in connection with the [challenged
transaction].” (footnotes, alterations, and internal quotation marks omitted)). While the
Stockholders’ Agreement here was between only the Venture Capital Defendants, I
similarly view that detail as less significant than the fact that it did not bind them with
respect to the Challenged Transaction.
87
See 220 A.3d at 255. In fact, as Defendants point out, the Stockholders’ Agreement’s
only effect on the Challenged Transaction is to limit the Venture Capital Defendants from
voting in favor of it absent prior approval from the disinterested directors. See Hymes
Decl. Ex. 6 § 3.6 (prohibiting the Venture Capital Defendants from causing the Company
to enter into a “Related Party Transaction” unless it had been approved by a majority of
the disinterested directors); see also id. § 1.1 (defining a “Related Party Transaction”).
88
See, e.g., Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 61–62
(Del. Ch. 2015) (discussing the differences between the “bright-line rule of disqualification
for independence” in the NYSE rules and the “case-by-case fact specific inquiry” into that
question under Delaware law and noting “a board’s determination of director independence
under the NYSE Rules is qualitatively different from, and thus does not operate as a
surrogate for, this Court’s analysis of independence under Delaware law for demand futility

32
board appointees, is insufficient to bind the Venture Capital Defendants in a control

group.89

In search of a transaction-specific connection, Plaintiff also points out that

representatives from both Riverstone and Apollo were present at Board meetings

discussing the Challenged Transaction.90 Plaintiff cites no authority to support the

conclusion that their mutual presence demonstrates an agreement to work together

in a control group.91 In my view, the fact that two large stockholders sent

representatives to Board meetings does not support an inference that they were tied

to each other.

These representatives’ passive presence at Board meetings discussing the

Challenged Transaction stands in stark contrast to the facts in Hansen and Garfield,

where the alleged controllers were deeply involved in negotiating and structuring

purposes.”); see also In re EZCORP Inc. Consulting Agreement Deriv. Litig., 2016 WL
301245, at *36 & n.35 (Del. Ch. Jan. 25, 2016) (noting “[t]he independence standards
established by stock exchanges and the requirements of Delaware law, such that a finding
of independence (or its absence) under one source of authority is not determinative for
purposes of the other, but the two sources of authority are mutually reinforcing and seek to
advance similar goals[,]” and compiling sources (footnote omitted)).
89
See, e.g., Sheldon II, 220 A.3d at 253–54.
90
See D.I. 48 at 24–25.
91
Plaintiff cites only the statement in In re Primedia Inc. Derivative Litigation that
“[a]llegations of control over the particular transaction at issue are enough.” 910 A.2d 248,
257 (Del. Ch. 2006). But this statement addresses the extent to which a stockholder or
recognized group must exercise “control” to be considered a “controller”; in considering a
single controller, Primedia did not address whether two or more stockholders formed a
control group. Id. at 257–58.

33
the challenged transactions. In Garfield, for example, the alleged controllers “met

jointly” with management to “negotiate the [challenged transaction], granting them

preferential review and exclusive weigh-in before the Board had considered the

proposal.”92 The Garfield plaintiff alleged several other meetings between the

decision makers and the alleged controllers, where the controllers participated

heavily, management “depicted [the alleged controllers] as belonging to a collective

unit,” and “treated [the alleged controllers] as a collective unit whose opinion was

more of a priority than the Board’s.”93 The alleged controllers in Hansen, identified

by the board as “Key Stockholders,” similarly had a preferential and exclusive role

in negotiating the challenged transaction.94 They also contemporaneously executed

voting agreements that required them to vote in favor of the transaction.95 These

extensive transaction-specific ties are absent here.96

92
2019 WL 7168004, at *10.
93
Id.
94
See 2018 WL 3025525, at *7.
95
See id.
96
I note another fact mentioned in the Complaint: that the Venture Capital Defendants
jointly executed the Written Consent that approved the Conversion. Plaintiff did not argue
the Written Consent suggested an actual agreement between the Venture Capital
Defendants, instead, pointing to the Written Consent as evidence of the Challenged
Transaction’s substantive unfairness. See D.I. 48 at 23–27, 37–38; see also id. at 79.
“Issues not briefed are deemed waived.” Emerald P’rs v. Berlin, 726 A.2d 1215, 1224
(Del. 1999). I note nevertheless that this Court has been skeptical of such an argument in
the past. See Dubroff v. Wren Hldgs., LLC, 2009 WL 1478697, at *5 (Del. Ch. May 22,
2009); see also Silverberg v. Padda, 2019 WL 4566909, at *6 (Del. Ch. Sept. 19, 2019).

34
 And so, to fashion a transaction-specific tie between the Venture Capital

Defendants, Plaintiff is left to rely heavily on his theory that the Challenged

Transaction was part of an unspoken quid pro quo arrangement.97 Plaintiff argues

that in 2018, Riverstone agreed to let Talos overpay for Whistler to Apollo’s benefit

and, in exchange, Apollo agreed to support the Challenged Transaction for

Riverstone’s benefit. But his Complaint falls short of pleading such an agreement.

He does not allege Riverstone had any role in the Whistler deal; he alleges only that

Riverstone “agreed to let Talos” consummate it and overpay Apollo.98 As to the

allegedly compensatory Challenged Transaction, the Complaint only alleges that

Apollo supported it, not that it struck any agreement with Riverstone (before or after

the Whistler deal).

Plaintiff’s bare allegations are similar to those this Court rejected in Silverberg

v. Padda.99 Building on Dubroff v. Wren Holdings, LLC,100 Silverberg held the

plaintiff failed to sufficiently plead that the company’s private equity sponsors

formed a control group:

97
See D.I. 48 at 25–29.
98
Compl. ¶ 58.
99
2019 WL 4566909.
100
2009 WL 1478697.

35
 Plaintiffs argue that the venture capital fund defendants shared an
unspoken quid pro quo, whereby each of their board representatives
approved current offerings in consideration for past or future support
from other venture capital funds. But the only facts Plaintiffs allege are
that the venture capital funds voted to amend the Certificate of
Incorporation or their board representatives[] approved the challenged
transactions. Thus, the Second Amended Complaint suffers the same
flaw as in Dubroff in that it fails to allege that the venture capital funds
in this case are connected in a legally significant way relating to voting,
decision-making, or other agreements that bear on the transactions at
issue in this case. In so doing, it improperly conflates acts of consensus
with the act of forming a group.101

Plaintiff’s allegations here, which similarly conflate the Venture Capital Defendants’

“consensus” to the Whistler deal and the Challenged Transaction as “acts of forming

a group,” fail for the same reasons.102

When pressed on these deficiencies at argument, Plaintiff fell back on what

has consistently been his primary position: that the Challenged Transaction was so

egregiously one-sided that it can only be explained by the presence of a conflicted

control group.103 Despite not alleging a transaction-specific agreement between the

101
2019 WL 4566909, at *7 (footnotes, alterations, and internal quotation marks omitted)
(quoting van der Fluit, 2017 WL 5953514, at *5–6).
102
See id.; see also Crimson Expl., 2014 WL 5449419, at *15 (“Basically, Plaintiffs ask
the Court to infer that, because ACEC could have (and may have) invested in the Second
Lien and, because Oaktree did invest in the Second Lien, Oaktree and ACEC were in
cahoots. I decline to pile up questionable inferences until such a conclusion is reached.
The simple fact that the interests of two entities are aligned is legally insufficient to
establish the existence of a control group.” (footnotes omitted)).
103
See Hr’g Tr. 127 (“THE COURT: Before we move past the quid pro quo, I want to be
sure I understand. What, other than the fact that these transactions happened in the
sequence that they did, in the complaint indicates that this was in fact a quid pro quo?
MR. TEPPER: Well, Your Honor, as Mr. Jenkins described, we submit that the challenged

36
Venture Capital Defendants, Plaintiff encourages the Court to infer one from the

Challenged Transaction’s final terms.104 Counsel conceded Plaintiff’s theory has

evolved and is now essentially waste, while acknowledging the word “waste” does

not appear in the Plaintiff’s Complaint or brief.105 In effect, Plaintiff would have the

Court impose fiduciary duties on the Venture Capital Defendants and analyze the

Challenged Transaction under the entire fairness standard because, in his view, the

Challenged Transaction was not entirely fair. I cannot follow Plaintiff down this

circular and hindsight-driven path.

And so, Plaintiff has failed to plead a legally significant agreement between

the Venture Capital Defendants to pursue the Challenged Transaction, and so falls

transaction, the transaction at issue in this case, is so egregious on its face that it cannot be
the product of business judgment. So that gives rise to two inferences, either that the board
of directors agreed to a transaction that makes absolutely no economic sense because they
were absolutely incompetent -- and we don’t think they are incompetent -- or it gives rise
to the inference that they did so for another reason, and that reason is the quid pro quo.”).
104
See id.; see also id. 128–129 (“MR. TEPPER: Well, Your Honor, the quid pro quo --
again, if the quid pro quo is an inference, the transaction, as my colleague discussed, makes
no sense. There are just too many mistakes in the valuation in order to be mistakes. It’s
more consistent with Guggenheim putting its finger on the scales to arrive at a certain
valuation. So the question then becomes why was this transaction agreed to? And,
certainly, looking back, looking back at the history of Apollo and Riverstone -- we are
limited in what we can allege based on what’s in the public domain and the 220 documents
without discovery, but certainly we have alleged facts consistent with the quid pro quo for
purposes of the motion to dismiss. . . . But there simply is no other explanation for entering
into this unfair transaction other than an agreement or that the board completely dropped
the ball. So that is the inference we submit should be taken here. And we submit it’s a
reasonable inference under the facts and circumstances in the case.”).
105
See id. 129, 137–138. See generally Compl.; D.I. 48.

37
short of pleading they formed a control group. As this Court has noted in several

cases, including Hansen, it is possible to plead a control group despite the failure of

any individual factor, or any lesser combination thereof, to carry the day.106 I have

given serious consideration to that possibility here, particularly given this plaintiff-

friendly stage and the fact-intensive nature of the control group inquiry. But I cannot

reasonably draw the inference Plaintiff seeks. In the end, Plaintiff’s most significant

pleading deficiency lies in the failure of his quid pro quo, the only argument he

makes to support a transaction-specific agreement between the Venture Capital

Defendants. Though it is true Riverstone and Apollo have coinvested in Talos and

crossed paths previously, the absence of any allegation or indication that they struck

an agreement to work together, as in Silverberg, is fatal to Plaintiff’s theory.

***
Plaintiff has not pled that a conflicted control group effectuated the

Challenged Transaction. This failure has many consequences. First, Count V, which

106
See, 2018 WL 3025525, at *7 (“Although each of these factors alone, or perhaps even
less than all these factors together, would be insufficient to allege a control group existed,
all of these factors, when viewed together in light of the Controller Defendants’ twenty-
one year coordinated investing history, make it reasonably conceivable that the Controller
Defendants functioned as a control group during the Merger.”); see also Garfield, 2019
WL 7168004, at *11 (“In the end, because the analysis for whether a control group exists
is fact intensive, it is particularly difficult to ascertain at the motion to dismiss stage. In
this case, the sum-total of the facts alleged and inferences therefrom make it at least
reasonably conceivable that BlackRock and HC Partners formed a control group that
exercised effective control over PennyMac in connection with the Reorganization.”
(footnotes, alterations, and internal quotation marks omitted) (quoting Hansen, 2018 WL
3025525, at *6)).

38
alleges breach of fiduciary duty claims against the Venture Capital Defendants, fails

because Plaintiff has failed to allege Riverstone and Apollo were controllers, and

thus fiduciaries, of the Company. The Motions are therefore granted with respect to

that Count.

Second, and more broadly, the Challenged Transaction is not subject to review

under the entire fairness standard, because Riverstone as Sellers’ affiliate is not also

standing on the buy side as a Talos fiduciary. Plaintiff does not attempt to subject

the Challenged Transaction to entire fairness on any other grounds.107 Accordingly,

the Challenged Transaction is presumptively subject to the business judgment rule

unless Plaintiff can rebut it. Plaintiff makes little effort in this regard. But even if

Plaintiff pled breaches of fiduciary duty, he could not pursue them here because he

has not established proper derivative standing.

B. Plaintiff Lacks Standing To Pursue Derivative Claims.

Counts IV, VI, and VII allege derivative claims for breach of fiduciary duty

against the Director Defendants, for aiding and abetting against Guggenheim, and

for unjust enrichment against Riverstone. Derivative claims belong to the Company

and the decision whether to pursue the claim presumptively lies with the Board.108

107
See D.I. 48 at 31–34.
108
White v. Panic, 783 A.2d 543, 550 (Del. 2001) (“In most situations, the board of
directors has sole authority to initiate or to refrain from initiating legal actions asserting
rights held by the corporation.”); see Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (“A
cardinal precept of the General Corporation Law of the state of Delaware is that directors,

39
But our law recognizes that, “[i]n certain circumstances, stockholders may pursue

litigation derivatively on behalf of the corporation as a matter of equity to redress

the conduct of a torpid or unfaithful management . . . where those in control of the

company refuse to assert (or are unfit to consider) a claim belonging to it.”109

“Because stockholder derivative suits by [their] very nature . . . impinge on the

managerial freedom of directors, our law requires that a stockholder satisfy the

threshold demand requirements of Court of Chancery Rule 23.1 before he is

permitted to assume control of a claim belonging to the corporation.”110

Rule 23.1 requires pleadings to “comply with stringent requirements of factual

particularity that differ substantially from the permissive notice pleadings governed

solely by Chancery Rule 8(a).”111 To meet the Rule 23.1 requirements, the

stockholder must plead with particularity either that she made a demand on the

company’s board of directors to pursue particular claims and was wrongfully

refused, or why any such demand would be futile, thereby excusing the need to make

rather than shareholders, manage the business and affairs of the corporation.”), overruled
on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
109
In re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *27 (Del.
Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021) (quoting Cumming v. Edens, 2018 WL
992877, at *11 (Del. Ch. Feb. 20, 2018) (internal quotation marks omitted)).
110
Horman v. Abney, 2017 WL 242571, at *6 (Del. Ch. Jan. 19, 2017) (quoting Aronson,
473 A.2d at 811) (internal quotation marks omitted).
111
Brehm, 746 A.2d at 254; accord In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d
106, 120–21 (Del. Ch. 2009).

40
a demand altogether.112 Where, as here, the stockholder plaintiff foregoes a demand

on the board, she “must plead particularized facts creating a reasonable doubt

concerning the Board’s ability to consider the demand.”113

Demand futility turns on “whether the board that would be addressing the

demand can impartially consider [the demand’s] merits without being influenced by

improper considerations.”114 Historically, Delaware Courts applied one of two tests

in determining whether a Plaintiff met that standard. The first, established in

Aronson v. Lewis, “applie[d] to claims involving a contested transaction i.e., where

it is alleged that the directors made a conscious business decision in breach of their

fiduciary duties.”115 The second, established in Rales v. Blasband,116 applied where

a majority of the current members of the board “had not participated in the

112
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048–
49 (Del. 2004); Wood v. Baum, 953 A.2d 136, 140 (Del. 2008).
113
CBS, 2021 WL 268779, at *28; Citigroup, 964 A.2d at 121 (“Demand is not excused
solely because the directors would be deciding to sue themselves. Rather, demand will be
excused based on a possibility of personal director liability only in the rare case when a
plaintiff is able to show director conduct that is so egregious on its face that board approval
cannot meet the test of business judgment, and a substantial likelihood of director liability
therefore exists.” (footnotes and internal quotation marks omitted)).
114
Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).
115
Wood, 953 A.2d at 140 (explaining the two demand futility tests) (citing Aronson, 473
A.2d at 814). Under Aronson, the plaintiff must plead particularized facts that create a
reasonable doubt that (i) the directors are disinterested and independent or (ii) the
challenged transaction was otherwise the product of a valid exercise of business judgment.
Id. at 140.
116
634 A.2d at 927.

41
challenged decision,”117 or “where the subject of a derivative suit is not a business

decision . . . [such as when the board is alleged to have violated its] oversight

duties.”118 Last year, in United Food and Commercial Workers Union v. Zuckerberg

(Zuckerberg I), Vice Chancellor Laster called the viability of this binary approach

into question, criticizing Aronson and applying a three-part “blended” test.119

The Defendants filed their opening briefs last year before Zuckerberg I,

arguing that Aronson was the governing test and that Plaintiff failed to meet it.120

Plaintiff responded, similarly applying Aronson only days before Zuckerberg I was

issued.121 While the Director Defendants’ reply brief discussed Zuckerberg I, the

parties’ claims at oral argument continued to focus on Aronson.122

The continued viability of this binary approach to demand futility was

resolved late last week, when the Delaware Supreme Court affirmed Zuckerberg I

117
Zuckerberg I, 250 A.3d at 887.
118
Wood, 953 A.2d at 140; see also Horman, 2017 WL 242571, at *6 (holding that Rales
applies “when a plaintiff challenges board inaction such as when a board is alleged to have
consciously disregarded its oversight duties”).
250 A.3d 862, 877 (Del. Ch. 2020) (observing that “the Aronson test has proved to be
119

comparatively narrow and inflexible in its application, and its formulation has not fared
well in the face of subsequent judicial developments”).
120
See D.I 27 at 19–32 (arguing “Plaintiff fails to adequately plead either Aronson
requirement); see also D.I. 24 at 2, 9 (incorporating the Director Defendants’ argument by
reference); D.I. 26 at 22 (same); D.I. 28 at 2 n.1 (same).
121
See D.I. 48 at 61–78.
122
See Hr’g Tr. 19 (“The parties agree Aronson applies to demand futility here, so there’s
no dispute about that.”).

42
in Zuckerberg II.123 In doing so, it adopted Zuckerberg I’s “universal test” for

determining demand futility under Rule 23.1:

[F]rom this point forward, courts should ask the following three
questions on a director-by-director basis when evaluating allegations of
demand futility:

(i) whether the director received a material personal benefit from the
alleged misconduct that is the subject of the litigation demand;

(ii) whether the director faces a substantial likelihood of liability on any
of the claims that would be the subject of the litigation demand; and

(iii) whether the director lacks independence from someone who
received a material personal benefit from the alleged misconduct that
would be the subject of the litigation demand or who would face a
substantial likelihood of liability on any of the claims that are the
subject of the litigation demand.

If the answer to any of the questions is “yes” for at least half of the
members of the demand board, then demand is excused as futile. It is
no longer necessary to determine whether the Aronson test or the Rales
test governs a complaint’s demand-futility allegations.124

Zuckerberg’s three-pronged test blends Aronson and Rales and is “consistent with

and enhances” those cases and their progeny.125 Because of that continuity, the

123
2021 WL 4344361.
124
Id. at *17.
125
Id. (“This Court adopts the Court of Chancery’s three-part test as the universal test for
assessing whether demand should be excused as futile. . . . Blending the Aronson test with
the Rales test is appropriate because both address the same question of whether the board
can exercise its business judgment on the corporation’s behalf in considering demand; and
the refined test does not change the result of demand-futility analysis.”) (footnotes,
alterations, and internal quotation marks omitted) (quoting Lenois v. Lawal, 2017 WL
5289611, at *9 (Del. Ch. Nov. 7, 2017)).

43
Supreme Court did not directly overrule Aronson and “cases properly construing

Aronson, Rales, and their progeny remain good law.”126

Applying the Zuckerberg test to the facts here, I conclude Plaintiff cannot

show that at least half the members of the Company’s Board were incapable of fairly

and impartially considering a litigation demand. Talos’s Board has ten members.

Defendants concede that the three Recused Directors would have been interested for

demand futility purposes.127 Under Zuckerberg prong one, demand would have been

futile as to those directors because their affiliation with Riverstone caused them to

receive “a material personal benefit from the alleged misconduct that is the subject

of the litigation demand.”128 The question is therefore whether the remaining seven

directors could have fairly considered a demand. I conclude that at least six could

have, and so, Plaintiff cannot show that demand would have been futile for at least

half of the Board’s ten directors.

I first consider whether any directors stood to receive a material personal

benefit from the Challenged Transaction, under what is now conceived as

Zuckerberg’s first prong, or lacked independence from someone who did, under

Zuckerberg’s third prong. In advancing his argument that certain Board members

126
Id. In light of these similarities, I spared the parties the time and expense of
supplemental briefing.
127
See Hr’g Tr. at 18.
128
Zuckerberg II, 2021 WL 4344361, at *17.

44
faced such disabling conflicts, Plaintiff leans heavily on his quid pro quo theory,

particularly regarding Hommes, one of Apollo’s designees, and Kendall, the Venture

Capital Defendants’ joint designee.129 Hommes was a partner at Apollo and, thus,

certainly shared any interest Apollo had in the Challenged Transaction.130 But

absent Plaintiff’s failed quid pro quo and control group theories, there is no basis for

concluding that Apollo, or Hommes by extension, received any unique benefit from

the Challenged Transaction that was not shared by Talos’s other stockholders. As

for Kendall, he is not alleged to have any ownership stake in Riverstone or Apollo.

His status as the Venture Capital Defendants’ joint designee does not automatically

make him beholden to Riverstone, or otherwise impute Riverstone’s conflicts onto

him. Delaware law is “well-settled . . . that a director’s independence is not

compromised simply by virtue of being nominated to the board by an interested

stockholder.”131

129
See Compl. ¶¶ 162(c), (e).
130
See id. ¶ 25.
131
KKR, 101 A.3d at 996; see, e.g., Andreae v. Andreae, 1992 WL 43924, at *5 (Del. Ch.
Mar. 3, 1992) (addressing plaintiff’s argument that board members were “beholden to” the
company’s single voting shareholder who elected them and noting “it is not enough to
charge that a director was nominated by or elected at the behest of those controlling the
outcome of a corporate election. That is the usual way a person becomes a corporate
director. It is the care, attention and sense of individual responsibility to the performance
of one’s duties, not the method of election, that generally touches upon independence.
Stated differently, the relevant inquiry is not how the director got his position, but rather
how he comports himself in that position.” (internal quotation marks omitted) (quoting
Aronson, 473 A.2d at 816)); see also Sheldon II, 220 A.3d at 253 n.38 (compiling sources

45
 None of the Stone Energy Directors (Goldman, Juneau, Sledge, and Trimble)

are alleged to have received any unique benefit from the Challenged Transaction,

nor does Plaintiff advance such an argument. Instead, he points to ties between them

and Duncan, along the lines of Zuckerberg’s third prong. Even assuming Duncan,

who has deep ties with Riverstone,132 would be interested under Zuckerberg prong

one, there are insufficient allegations to suggest any of the Stone Energy Directors

lacked independence from him or from one another. Plaintiff’s allegations resemble

the types of loose social and business ties this Court has repeatedly rejected.

that refute the proposition that a director necessarily lacks independence from the
stockholder who nominated her); KKR, 101 A.3d at 996 n.64 (same).
132
See Compl. ¶ 23 (“Defendant Duncan has been a member of the Board and the
Company’s President and CEO since the Combination. He was designated to the Board
jointly by Apollo and Riverstone, with whom he has a long history. In 2006, Duncan co-
founded non-party Phoenix Exploration Co. LP . . . with $350 million in equity
commitments from Riverstone and its partners. In 2012, he founded Old Talos with $600
million in equity commitments from Riverstone and Apollo and served as Old Talos’[s]
President and CEO and a member of its board from April 2012 until the Combination.
When Old Talos was formed, Riverstone’s founders [Lapeyre and Leuschen] announced,
‘We are excited to build another company with Tim. This investment exemplifies
Riverstone’s strategy of re-partnering with proven management teams. We look forward
to repeating the success we had with Phoenix.’” (alteration omitted)); see also id. ¶ 162(a)
(“Duncan was designated to the Board jointly by Apollo and Riverstone. He voted in favor
of the Challenged Transaction and is alleged to have breached his fiduciary duties as set
forth herein. Duncan’s 2017 compensation from Old Talos was $1,033,367. His 2018
compensation from Old Talos and the Company was $4,278,604. His 2019 compensation
from the Company was $5,617,864. His multi-year, multi-million dollar compensation
from the Company would be jeopardized if he were to antagonize the [Venture Capital
Defendants]. Moreover, as set forth in the Company’s Schedule 14-A filed on April 8,
2020, the Company does not consider Duncan to be independent.” (emphasis omitted)).

46
 Plaintiff’s allegations against Goldman, Juneau, and Sledge focus on their

overlapping board service at other companies. Goldman, the Board’s chairman since

the Combination, is on three other boards with his fellow Stone Energy Directors or

their associates: he is a director of Weatherford International plc with Sledge; a

director of PetroQuest Energy, Inc. with Juneau, and a director of Ultra Petroleum

Corp. with Sylvia Barnes, Trimble’s wife.133 Juneau was also once a director at

Castex Energy, an affiliate of one of the Sellers and, by extension, Riverstone.134

These allegations resemble those in Highland Legacy Ltd. v. Singer.135 There,

the plaintiff alleged that certain board members served together on boards of other

companies and, from that fact, sought an inference that those directors were

dependent or beholden to a potentially conflicted director, raising a doubt as to

whether they could fairly consider a litigation demand adverse to that director.136

The Highland Legacy plaintiff, like Plaintiff here, did not make any allegations that

directors were “in any way controlled by or financially beholden” to the director in

question.137 The Court concluded that the plaintiff’s allegations that the directors

“served together on a few boards of unaffiliated companies” were insufficient to

133
See id. ¶¶ 162(b), (d), (g).
134
See id. ¶ 162(d).
135
2006 WL 741939 (Del. Ch. Mar. 17, 2006).
136
See id. at *5.
137
See id.

47
show that they were dominated by or beholden to one another.138 So too here. And

the more robust allegation that Juneau served on a board of Riverstone’s affiliate in

the past does not alone show that he lacked independence from Riverstone.139

As for Trimble, Plaintiff focuses on the fact that he graduated from

Mississippi State University, where he majored in petroleum engineering; Duncan

also attended Mississippi State and earned the same degree.140 Both Trimble and

Duncan have been honored by Mississippi State as Alumni Fellows, Trimble in 2004

and Duncan in 2013.141 And both made six-figure donations to the Mississippi State

University Foundation, where Duncan sits on the board of directors.142 Even if these

attenuated connections could support the inference of a social relationship or

personal friendship between the two men, such allegations, standing alone, are

insufficient to raise a reasonable doubt about a director’s independence.143 And

138
See id.; see also id. n.64 (collecting cases).
139
See In re Rouse Props., Inc., 2018 WL 1226015, at *15 (Del. Ch. Mar. 9, 2018)
(“Likewise, Hegarty’s prior position on the board of Brookfield Office is insufficient in
and of itself to raise a reasonable inference that he cannot objectively evaluate a transaction
with Brookfield; indeed, Plaintiffs have not even attempted to plead how those supposed
ties were in any way material.” (citing Odyssey P’rs, L.P. v. Fleming Cos., 735 A.2d 386,
408 (Del. Ch. 1999), and In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013),
aff’d sub nom. Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014))).
140
See Compl. ¶ 162(i).
141
See id.
142
See id.
143
See, e.g., Benihana of Tokyo, Inc. v. Benihana, Inc., 891 A.2d 150, 178–79 (Del. Ch.
2005) (“Next BOT asserts that Becker lacked independence from Schwartz because he had
been Schwartz’s close friend for 40–45 years and the two met every ten to fourteen days.

48
while “Delaware courts have previously recognized that philanthropic relationships

with institutions may give rise to questions about a director’s independence,” those

cases “had many more particularized facts about the materiality of the relationship

in question that would create a reasonable doubt about the independence of the

directors.”144

In short, none of Hommes, Kendall, Goldman, Juneau, Sledge, or Trimble

stood to gain a material personal benefit from the Challenged Transaction or are

alleged to have lacked independence from someone who did.

As to Zuckerberg’s second prong, Plaintiff did not advance a cohesive theory

as to why any of the Company’s directors faced a substantial likelihood of

liability.145 To the extent Plaintiff attempts to make this argument through a last-

This relationship does not destroy Becker’s independence, however. Allegations of mere
personal friendship or a mere outside business relationship, standing alone, are insufficient
to raise a reasonable doubt about a director’s independence.” (alterations and internal
quotation marks omitted) (quoting Beam, 845 A.2d at 1050)), aff’d, 906 A.2d 114 (Del.
2006).
144
See In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 823 n.48 (Del. Ch.
2005) (discussing and distinguishing the philanthropic relationships in several cases,
including In re Oracle Corp. Deriv. Litig., 824 A.2d 917 (Del. Ch. 2003), In re The Limited,
Inc. S’holders Litig., 2002 WL 537692 (Del. Ch. Mar. 27, 2002), and Lewis v. Fuqua, 502
A.2d 962 (Del. Ch. 1985)), aff’d, 906 A.2d 766 (Del. 2006).
145
See D.I. 48 at 63–64. He similarly failed to advance a theory that any of the directors
lacked independence from someone who faced a substantial likelihood of liability.

49
minute change-of-course at oral argument, casting the Challenged Transaction as

waste, that theory was neither pled nor briefed, and so was waived.146

Finally, I note that Plaintiff consistently advanced the position that “[d]emand

is excused under the second prong of the Aronson test because the Challenged

Transaction is subject to review under the entire fairness standard.”147 As I have

explained, the Challenged Transaction is not subject to entire fairness review due to

the presence of a conflicted controller, because Riverstone and Apollo did not form

a control group. And more fundamentally, Plaintiff’s theory conflating a structurally

inspired standard of review with a board-level demand futility rationale was

definitively rejected by Zuckerberg II:

146
See Hr’g Tr. at 137–138; Emerald P’rs v, 726 A.2d at 1224.
147
D.I. 48 at 62; see also Hr’g Tr. 150.

50
 Although not entirely clear, [plaintiff] appears to argue that because the
entire fairness standard of review applies ab initio to a conflicted-
controller transaction, demand is automatically excused under
Aronson’s second prong. As the Court of Chancery noted below, some
cases have suggested that demand is automatically excused under
Aronson’s second prong if the complaint raises a reasonable doubt that
the business judgment standard of review will apply, even if the
business judgment rule is rebutted for a reason unrelated to the conduct
or interests of a majority of the directors on the demand board. The
Court of Chancery’s case law developed in a different direction,
however, concluding that demand is not futile under the second prong
of Aronson simply because entire fairness applies ab initio to a
controlling stockholder transaction. As the Court of Chancery has
explained, the theory that demand should be excused simply because
an alleged controlling stockholder stood on both sides of the transaction
is “inconsistent with Delaware Supreme Court authority that focuses
the test for demand futility exclusively on the ability of a corporation’s
board of directors to impartially consider a demand to institute litigation
on behalf of the corporation—including litigation implicating the
interests of a controlling stockholder.”

...

[Plaintiff] cannot satisfy the demand requirement by pleading—for
reasons unrelated to the conduct or interests of a majority of the
directors on the demand board—that the entire fairness standard of
review would apply to the Reclassification.148

Plaintiff’s theory similarly fails here.

In sum, Plaintiff has not alleged that a majority of the Board is incapable of

“impartially consider[ing] [the demand’s] merits without being influenced by

148
Zuckerberg II, 2021 WL 4344361, at *13–14 (footnotes omitted) (quoting Teamsters
Union 25 Health Servs. & Ins. Plan v. Baiera, 2015 WL 4192107, at *1 (Del. Ch.
July 13, 2015)).

51
improper considerations.”149 Demand would not have been futile as to at least six

of the ten Board members, so Plaintiff lacks standing to pursue derivative claims on

the Company’s behalf under Rule 23.1. His derivative claims in Counts IV, VI, and

VII are dismissed.

III. CONCLUSION

For the foregoing reasons, Defendants’ Motions are GRANTED in full.150

149
Rales, 634 A.2d at 934.
150
On the last page of his brief, Plaintiff seeks the opportunity to replead. See D.I. 48 at
83. This is not permitted under Court of Chancery Rule 15(aaa).

52