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Zomolosky v. Kullman

United States District Court, D. Delaware

September 12, 2014

ROBERT ZOMOLOSKY, derivatively on behalf of E.I. DU PONT DE NEMOURS AND COMPANY, Plaintiff,
v.
ELLEN KULLMAN, LOIS D. JULIBER, CURTIS J. CRAWFORD, RICHARD H. BROWN, MARILLYN A. HEWSON, ROBERT A. BROWN, BERTRAND P. COLLOMB, ALEXANDER M. CUTLER, WILLIAM K. REILLY, SAMUEL W. BODMAN, and JOHN T. DILLON. Defendants, and, E.I. DU PONT DE NEMOURS AND COMPANY, Nominal Defendant

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[Copyrighted Material Omitted]

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Blake A. Bennett, Esquire and Gregory F. Fischer, Esquire of Cooch and Taylor, P.A., Wilmington, Delaware. Counsel for Plaintiff. Of Nancy Kaboolian, Esquire and Richard B. Margolies, Esquire of Abbey Spanier, LLP, and Deborah R. Gross, Esquire of Law Offices Bernard M. Gross, and Laurence D. Paskowitz, Esquire of Paskowitz Law Firm, P.C.

Lewis H. Lazarus, Esquire, Joseph R. Slights, III, Esquire, and Thomas E. Hanson, Jr., Esquire of Morris James LLP, Wilmington, Delaware. Counsel for Defendant Ellen Kullman. Of Evan R. Chester, Esquire of Cravath, Swaine & Moore LLP.

Kevin G. Abrams, Esquire and Steven C. Hough, Esquire of Abrams & Bayliss LLP, Wilmington, Delaware. Counsel for Defendants Lois D. Juliber, Curtis J. Crawford, Richard H. Brown, Marillyn A. Hewson, Robert A. Brown, Bertrand P. Collomb, Alexander M. Cutler, William K. Reilly, Samuel W. Bodman, and John T. Dillon. Of David E. Kendall, Esquire, Douglas R. Marvin, Esquire, and Ana C. Reyes, Esquire of Williams & Connolly LLP for Defendants Lois D. Juliber, Curtis J. Crawford, Richard H. Brown, Marillyn A. Hewson, Robert A. Brown, Bertrand P. Collomb, and Alexander M. Cutler. Charles Bachman, Esquire, and Edward N. Moss, Esquire of O'Melveny & Myers LLP for William K. Reilly, Samuel W. Bodman, and John T. Dillon.

Michael A. Pittenger, Esquire, Donald J. Wolfe, Jr., Esquire, and Jennifer C. Wasson, Esquire of Potter Anderson & Corroon LLP and Edward P. Welch, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware. Counsel for Nominal Defendant El DuPont De Nemours and Company. Of Thomas J. Nolan, Esquire and Lance E. Etcheverry, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP.

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MEMORANDUM OPINION

Sue L. Robinson, United States District Judge.

I. INTRODUCTION

On January 16, 2013, plaintiff Robert Zomolosky (" Zomolosky" ), as a shareholder, filed this action derivatively on behalf of E.I. du Pont de Nemours and Company (" DuPont" ), a Delaware corporation, against certain present and former members of DuPont's board of directors. (D.I. 1) On March 18, 2013, Zomolosky amended the complaint. (D.I. 9) After defendants filed a motion to dismiss (D.I. 23), Zomolosky filed a second amended complaint (" SAC" ) on May 31, 2013. (D.I. 28) Zomolosky alleges demand futility and breach of fiduciary duty regarding defendants' conduct relating to a litigation with Monsanto Company (" Monsanto" ). (D.I. 28) Presently before the court is defendants' motion to dismiss the second amended complaint under Federal Rules of Civil Procedure 23.1 and 12(b)(6). (D.I. 29) The court has jurisdiction pursuant to 28 U.S.C. § 1332.

II. BACKGROUND

A. The Parties

Plaintiff is a Pennsylvania citizen and has been a DuPont shareholder throughout the time of the alleged misconduct. (D.I. 28 at ¶ 15) Nominal defendant DuPont is a Delaware corporation and a world leader in science and innovation in several disciplines, including agriculture and food development. ( Id. at ¶ 32) On August 8, 1997, DuPont acquired a 20% interest in, and entered into a " research alliance" with, Pioneer Hi-Bred International (" Pioneer" ). On March 15, 1999, Dupont acquired the remaining shares of Pioneer Hi-Bred International (" Pioneer acquisition" ). (D.I. 28 at ¶ 33)

The individual defendants are present and former members of DuPont's board of directors (" board" ). Defendant Ellen Kullman (" Kullman" ) has served as Chief Executive Officer since January 2009, director since 2008, and Chair of the Board of Directors since 2009. Kullman was president from October 1 through December 31, 2008. Kullman has also served as the executive vice president and a member of DuPont's Office of the Chief Executive. ( Id. at ¶ 17) Defendant Lois D. Juliber (" Juliber" ) has been a director since 1995 and is a member of DuPont's Compensation and Corporate Governance committees. ( Id. at ¶ 18) Defendant Curtis J. Crawford (" Crawford" ) has served as a

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director since 1998 and is a member of DuPont's Compensation and Science and Technology committees. ( Id. at ¶ 19) Defendant Richard H. Brown (" Richard Brown" ) has served as a director since 2001 and is a member of DuPont's Compensation and Corporate Governance committees. ( Id. at ¶ 20) Defendant Marillyn A. Hewson (" Hewson" ) has served as a director since 2007 and is a member of DuPont's Environmental Policy, Audit and Compensation committees. ( Id. at ¶ 21) Defendant Robert A. Brown (" Robert Brown" ) has served as a DuPont director since 2007 and is a member of DuPont's Environmental Policy, Audit and Science and Technology committees. ( Id. at ¶ 22) Defendant Bertrand P. Collomb (" Collomb" ) has served as a DuPont director since 2007 and is a member of DuPont's Environmental Policy and Corporate Governance committees. ( Id. at ¶ 23) Defendant Alexander M. Cutler (" Cutler" ) has served as a DuPont director since 2008 and is a member of DuPont's Compensation and Corporate Governance committees. ( Id. at ¶ 24) Defendant William K. Reilly (" Reilly" ) served as a director from 1993 until 2012, during which time he was also a member of DuPont's Corporate Governance, Environmental Policy and Science and Technology committees. ( Id. at ¶ 25) Defendants Kullman, Juliber, Crawford, Richard Brown, Hewson, Robert Brown, Collomb, Cutler, and Reilly signed DuPont's 10-K forms for December 31, 2010 through 2011. ( Id. at ¶ ¶ 17-25)

Defendant Samuel W. Bodman (" Bodman" ) served as a director from 2009 until 2011 and was a member of DuPont's Compensation, Corporate Governance, Environmental Policy and Science and Technology committees. ( Id. at ¶ 26) Defendant John T. Dillon (" Dillon" ) served as a director from 2004 until 2011 and was a member of the DuPont's Audit, Compensation and Science and Technology committees. ( Id. at ¶ 27) Bodman and Dillon signed DuPont's 10-K forms for December 31, 2010. ( Id. at ¶ ¶ 26-27)

B. The Technology

Monsanto is a leading global provider of agricultural products for farmers; it manufactures Roundup brand glyphosate herbicides.[1] (D.I. 28 at ¶ 34) Monsanto markets " Roundup Ready" seed products (including corn and soybeans),[2] which are glyphosate-resistant. Monsanto continues to develop new patented versions of Roundup Ready crops.[3] ( Id. at ¶ 35) By about 2008, roughly 90% of soybean and cotton seeds were Roundup Ready, with corn seeds almost as high. ( Id. at ¶ 37)

Beginning in 2005, DuPont and Pioneer began developing an herbicide-resistant technology, Optimum GAT (" OGAT" ), to compete with Monsanto, investing almost $4 billion on research and development. DuPont planned to gradually phase out the Roundup Ready seed varieties and replace them with OGAT varieties. On July 2, 2007, DuPont announced that it had completed regulatory submissions to the U.S. Food & Drug Administration and the U.S. Department of Agriculture for its OGAT trait in corn. On October 17, 2007, DuPont issued a press release stating it was

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" preparing to launch its new Optimum[TM] GAT[TM] trait in soybeans, . . . [and the] trait also will be introduced in corn and other crops." ( Id. at ¶ ¶ 37, 60-69)

By July 2007, OGAT test results revealed significant problems and DuPont began considering alternatives. A presentation to DuPont's former CEO and Chairman of the Board, Charles Holliday, Jr. (" Holliday" ), discussed the test results and an alternative, stacking the product with Roundup Ready. In 2008, DuPont recognized that it would not be able to launch OGAT as a standalone product and began efforts to develop a stacked product using OGAT and Roundup Ready, called GAT Roundup Ready Stack (" GRS" ). DuPont and Pioneer described the potential new product as " Optimum GAT/RR" at a March 2009 investor conference. ( Id. at ¶ ¶ 40-42, 70-76)

C. Licenses and Litigation

1. 1993 Development agreement and 1997 Pioneer/Monsanto ...


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