Delaware Court Of Chancery Again Dismisses Aiding And Abetting Claims For Pleading Deficiencies

Shearman & Sterling LLP

Shearman & Sterling LLP

On July 15, 2019, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery dismissed an aiding and abetting claim asserted against a private equity buyer and its principals in a stockholder class action involving breach of fiduciary duty claims against the former CEO of a technology company in connection with its take-private sale to the private equity buyer.  In re Xura Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. July 12, 2019).  As we discussed in a prior post, Vice Chancellor Slights declined to dismiss a different stockholder’s breach of fiduciary duty claims against the former CEO based on his allegedly self-interested participation in the merger, but the Court dismissed aiding and abetting claims asserted against the buyer and its principals.  In re Xura, Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. Dec. 11, 2018) Ten days after this opinion was issued, a different stockholder filed a “nearly identical” complaint—this time asserting class action claimsraising “the same theories of aiding and abetting” that the Court had dismissed just days earlier.  In a separate summary order, the Court denied the former CEO’s motion to dismiss this new complaint.  In this decision, the Court dismissed the aiding and abetting claims for the same reason it did so in the prior suit—the complaint failed to include “well-pled allegations that [the buyer] ‘knowingly participated’ in the … alleged breaches of fiduciary duty.”

In light of the prior decision, the buyer defendants argued primarily that plaintiff was barred from re-asserting the aiding and abetting claim by res judicata.  But the Court found it unnecessary to reach the res judicata argument, given that the new aiding and abetting claims suffered from the same pleading deficiencies as the earlier complaint. 

According to the Court, “[k]nowing participation”—the touchstone of an aiding and abetting claim—“means just that–the alleged aider and abettor must know the fiduciary is breaching his fiduciary duty and then must participate, in some way, in that breach.”  In this case, there were no well-pled facts demonstrating that the buyer defendants knew about the breach, much less that they knowingly assisted.  Even though the new complaint added allegations that appeared intended to address the prior deficiencies, it did so largely by including allegations that were expressly “[o]n information and belief.”  The Court concluded that “[p]leading serial facts ‘on information and belief’ is no substitute for well-pled facts that will support a reasonable inference of wrongdoing.”  The Court also noted that, as a result of parallel appraisal proceedings and plaintiff’s counsel’s participation in the ongoing prior breach of fiduciary duty suit, plaintiff already had access to a nearly complete discovery record. 

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