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Ironworkers District Council of Philadelphia & Vicinity Retirement & Pension Plan v. Lamberto Andreotti

Court of Chancery of Delaware

May 8, 2015

IRONWORKERS DISTRICT COUNCIL OF PHILADELPHIA & VICINITY RETIREMENT & PENSION PLAN, Plaintiff,
v.
LAMBERTO ANDREOTTI, BART BAUDLER, JOHN BEDBROOK, SAMUEL W. BODMAN, JAMES BOREL, RICHARD H. BROWN, ROBERT A. BROWN, DENNIS BYRON, BERTRAND P. COLLOMB, THOMAS M. CONNELLY, DANIEL J. COSGROVE, CURTIS J. CRAWFORD, ALEXANDER M. CUTLER, JOHN T. DILLON, ELEUTHERE I. DU PONT, ERIK FYRWALD, MARILLYN A. HEWSON, CHARLES O. HOLLIDAY, ROBERT C. IWIG, DANIEL E. JACOBI, LOIS D. JULIBER, JEFFREY L. KEEPER, ELLEN KULLMAN, MICHAEL LASSNER, TRACY LINBO, CARL J. LUKACH, JUDITH MCKAY, WILLIAM NIEBUR, DEAN OESTREICH, WILLIAM K. REILLY, THOMAS L. SAGER, PAUL SCHICKLER, JOHN SOPER, LEE M. THOMAS, PATRICK J. WARD, Defendants, and E. I. DU PONT DE NEMOURS AND COMPANY, Nominal Defendant.

Submitted: February 10, 2015

Joanne P. Pinckney, Elizabeth Wilburn Joyce, and Seton C. Mangine, of PINCKNEY, WEIDINGER, URBAN & JOYCE LLC, Wilmington, Delaware; OF COUNSEL: John Bradham, Nicholas Brunero, and Peter B. Katzman, of MAZZEO SONG & BRADHAM LLP, New York, New York; Ariana J. Tadler, Kent A. Bronson, and Gloria Kui Melwani, of MILBERG LLP, New York, New York; Jacob A. Goldberg and Alessandra C. Phillips, of COHEN, PLACITELLA & ROTH, PC, Philadelphia, Pennsylvania, Attorneys for Plaintiff Ironworkers District Council of Philadelphia & Vicinity Retirement & Pension Plan.

Lewis H. Lazarus, Joseph R. Slights, III, and Thomas E. Hanson, Jr., of MORRIS JAMES LLP, Wilmington, Delaware; OF COUNSEL: Evan R. Chesler, of CRAVATH, SWAINE & MOORE LLP, New York, New York, Attorneys for Defendants Ellen Kullman and Thomas L. Sager.

Michael P. Kelly, Andrew S. Dupre, and Daniel J. Brown, of MCCARTER & ENGLISH, LLP, Wilmington, Delaware; OF COUNSEL: Donald Scott and Brian C. Swanson, of BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP, Chicago, Illinois, Attorneys for Defendants Bart Baudler, John Bedbrook, James Borel, Dennis Byron, Thomas M. Connelly, Daniel J. Cosgrove, Erik Fyrwald, Robert C. Iwig, Daniel E. Jacobi, Jeffrey L. Keefer, Michael Lassner, Tracy Linbo, Carl J. Lukach, Judith McKay, William Niebur, Dean Oestreich, Paul Schickler, and John Soper.

Kevin G. Abrams, of ABRAMS & BAYLISS LLP, Wilmington, Delaware, Attorneys for Defendants Lamberto Andreotti, Samuel W. Bodman, Richard H. Brown, Robert A. Brown, Bertrand P. Collomb, Curtis J. Crawford, Alexander M. Cutler, John T Dillon, Eleuthere I. du Pont, Marillyn A. Hew son, Charles O. Holliday, Lois D. Juliber, William K. Reilly, Lee M. Thomas, and Patrick J. Ward; OF COUNSEL: David E. Kendall, Douglas R. Marvin, and Ana C. Reyes, of WILLIAMS & CONNOLLY LLP, Washington, D.C., Attorneys for Defendants Lamberto Andreotti, Richard H. Brown, Robert A. Brown, Bertrand P. Collomb, Curtis J. Crawford, Alexander M. Cutler, Eleuthere I. du Pont, Marillyn A. Hewson, Lois D. Juliber, Lee M. Thomas, and Patrick J. Ward; Charles Bachman and Edward N. Moss, of O'MELVENY & MYERS LLP, New York, New York, Attorneys for Defendants Samuel W. Bodman, John T. Dillon, Charles O. Holliday, and William K. Reilly.

Donald J. Wolfe, Jr. and Michael A. Pittenger, of POTTER ANDERSON CORROON LLP, Wilmington, Delaware; Edward P. Welch, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; OF COUNSEL: Thomas J. Nolan and Allen L. Lanstra, of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Los Angeles, California, Attorneys for Nominal Defendant E. I. du Pont de Nemours and Company.

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

The Plaintiffs Verified Amended Derivative Complaint (the "Complaint") seeks recovery on behalf of E. I. du Pont de Nemours and Company ("DuPont" or the "Company").[1] The dispute centers on the attempt by DuPont and its wholly-owned subsidiary and seed unit Pioneer Hi-Bred International, Inc. ("Pioneer") to develop a product to compete with Monsanto Company's ("Monsanto") genetically modified seed-a trait known as "Roundup Ready"-which allows beneficial crops to thrive under application of Monsanto's well-known herbicide, Roundup. Under a 2002 license agreement, DuPont and Pioneer had access to Monsanto's Roundup Ready technology for com and soybeans. If DuPont could develop its own competitor to Roundup Ready, it would avoid significant license fees under the agreement. In the mid-2000s, DuPont began development of that competitive product, which it called "Optimum GAT" or "GAT."

DuPont found, however, a commercially viable GAT difficult to produce. As field trials of GAT continued to be disappointing, DuPont began development of a product that combined, or "stacked, " GAT technology with Monsanto's Roundup Ready (the "GAT/RR Stack"). During the development of this product, some DuPont and Monsanto employees believed that commercialization of the stacked product would violate the licensing agreement; nonetheless, development continued. Meanwhile, DuPont continued to tout GAT as a potentially-viable and profitable product.

When negotiations between the parties involving the GAT/RR Stack and other licensing issues broke down, Monsanto sued DuPont in federal district court in the Eastern District of Missouri alleging, essentially, breach of the licensing agreement and patent infringement claims. DuPont defended on the ground that the agreement either permitted stacking or should be reformed, and counterclaimed alleging antitrust claims against Monsanto. The resulting litigation, as described in the Complaint and in detail below, proved disastrous to DuPont. The district court found that DuPont's defenseĀ—that it had the ability to stack under the 2002 licensing agreement-was not only incorrect but that it was based on fabrication and worked a fraud on the court. As sanctions, it struck DuPont's reformation defense and counterclaims, and awarded attorneys' fees (the "Sanctions Order"). Monsanto's patent infringement claims were then tried to a jury. Despite the fact that DuPont had never sold any of the stacked product, the jury found damages due to Monsanto in the amount of $1.2 billion. DuPont decided it would appeal both the Sanctions Order and the damages award.

During the pendency of post-trial proceedings, the parties reached a settlement. The parties entered into a new agreement allowing DuPont to use the Roundup Ready technology, including, when available in 2018, use of a new, presumably improved version of Roundup Ready then in development, a right not conveyed by the superseded 2002 licensing agreement. Monsanto agreed to forgo the jury verdict, and DuPont released its antitrust claims. Finally, DuPont agreed to pay Monsanto $1.75 billion over ten years. The Sanctions Order remained on appeal and was not addressed by the settlement.

On appeal, the circuit court affirmed the Sanctions Order in part, finding that DuPont had litigated in bad faith, but reversed as to the determination that it had worked a fraud on the Court. DuPont remained liable for certain of Monsanto's attorneys' fees, as a sanction.

Following the litigation, several stockholders, including the Plaintiff here, made demands on DuPont's board of directors (the "Board") to investigate and consider suit against several officers and Board members of DuPont and Pioneer in connection with the development of GAT, the decision to stack, and the conduct of the Monsanto lawsuit, alleging breaches of fiduciary duties. The Board formed a special committee, comprised of directors who had joined the Board after the relevant timeframe at issue (the "Committee"), and the Committee conducted a detailed investigation of the subjects of the demands, as set forth in a 179-page report (the "Report"), and determined that a suit against officers and directors was not in the best interest of DuPont. The DuPont Board adopted the recommendation of the Committee, and rejected the stockholders' demands. Despite the Board's determination not to pursue litigation, the Plaintiff seeks to prosecute such actions here.

A stockholder whose demand has been rejected but who nonetheless seeks to bring an action arising out of the subject matter of the demand has two pleading burdens. First, she must allege facts which, if true, are sufficient to state a claim against the defendants. Second, to have standing to sue derivatively, under Court of Chancery Rule 23.1 she must allege with particularity facts that raise a reasonable doubt that in refusing the demand the directors complied with their fiduciary duties. DuPont has moved to dismiss under Rule 23.1; for the following reasons, that Motion is granted.

I. BACKGROUND FACTS

The casual reader may find the following discussion of the facts wearisome. Its length is in part explained by the dual pleading burden addressed above, in part because of the complexity of the underlying factual scenario (including the development of a genetically-modified seed by DuPont and the resultant patent/contract litigation in federal district court with Monsanto), in part because the demands and resulting complaint in this litigation focus on an unusually large number of allegedly actionable decisions or failures to act by the defendants over a period of years, and in part because of the unusually detailed investigation and resulting Report by the Committee of independent directors appointed by the DuPont board in response to the demands.[2]

A. Parties

The Plaintiff alleges breaches of fiduciary duties by DuPont's Board, certain DuPont officers and employees, as well certain employees of Pioneer, arising out of litigation with Monsanto, including the events leading to the litigation, conduct during the litigation, and events following the litigation.

The Complaint names twelve current and four former DuPont directors as defendants: Lamberto Andreotti, Richard. H. Brown, Robert A. Brown, Bertrand P. Collomb, Curtis J. Crawford, Alexander M. Cutler, Eleuthere I. du Pont, Marillyn A. Hewson, Lois D. Juliber, Ellen Kullman, Lee M. Thomas, and Patrick J. Ward (collectively, the "Current Director Defendants"); and Samuel W. Bodman, John T. Dillon, Charles O. Holliday, and William K. Reilly (collectively, the "Former Director Defendants, " and, together with the Current Director Defendants, the "Director Defendants").

Additionally named individual defendants are[3]: Bart Baudler, a Senior Marketing Manager who was involved with the GAT project since its inception, "served as the Optimum GAT trait champion for the Company, " was a GAT Core Team Member, and "led soybean marketing efforts for Pioneer";[4] John Bedbrook, Vice President of Agricultural Biotechnology, former-Vice President of Research and Development, and a Senior Leader; James Borel, an Executive Vice President identified as a member of the Office of the Chief Executive and designated in the McKinsey Report as "DuPont leadership;" Dennis F. Byron, a Vice President of Crop Product Development at Pioneer; Thomas M. Connelly, an Executive Vice President and the Company's Chief Innovation Officer, as well as a member of the Office of the Chief Executive; Daniel J. Cosgrove, Vice President of Business Development, and former-Corporate Counsel for Pioneer, and former-IP Group Leader/Corporate Counsel; Erik Fyrwald, former-Group Vice President of Agriculture and Nutrition at DuPont and a Senior Leader; Robert C. Iwig, former-Vice President of Business Development/Trait Licensing at Pioneer, a Senior Leader, and a member of the Soybean Herbicide Tolerance Working Team; Daniel E. Jacobi, former-Corporate Legal Counsel for Pioneer, then the Associate General Counsel for DuPont Agriculture and Nutrition; Jeffrey L. Keefer, former Executive Vice President of DuPont; Michael Lassner, Vice President of Trait Discovery; Traci Linbo, Director of Business and Strategy Planning at DuPont Pioneer for Asia, China, Europe, and Africa, former-Senior Marketing Manager for the Optimum GAT trait at DuPont, and member of the GAT Core Team; Carl J. Lukach, President of DuPont East Asia and former-Vice President of Investor Relations for DuPont; Judith McKay, former-Chief Administrative Officer and General Counsel for DuPont Canada, and former-Vice President and General Counsel for Pioneer; William Niebur, Vice President and General Manager of DuPont Pioneer China, and a Senior Leader; Dean Oestreich, former-Vice President of DuPont, former-President of Pioneer, and former-Chairman of Pioneer, and also a Senior Leader; Thomas L. Sager, a former-Senior Vice President and General Counsel of DuPont, a former-Associate General Counsel, former-Chief Litigation Counsel, and a former-member of the Office of the Chief Executive; Paul Schickler, the President of Pioneer; John Soper, former-Vice President of Crop Genetics Research and Development for DuPont; and Ellen Kullman, named above as a Director Defendant, the Chief Executive Officer of DuPont (collectively, the "Officer/Employee Defendants").[5] The Director Defendants, Officer/Employee Defendants, and the Nominal Defendant, DuPont, are together referred to as the "Defendants."

The Complaint asserts eight counts that can be roughly categorized as follows[6]: (1) the fiduciary duty claims based on the facts underlying the Monsanto litigation, as asserted in Count I;[7] (2) fiduciary duty claims based on failure to disclose information to the Board, as asserted in Counts II and III;[8] (3) various misrepresentation-type claims for communications regarding the Company's licensing rights from Monsanto and the nature of its GAT product, as asserted in Count IV, V, and VI;[9] (4) a waste claim for the costs associated with litigation against Monsanto, including the settlement, asserted in Count VII;[10] and (5) a Caremark claim alleging failure of control and risk oversight related to the facts underlying the litigation with Monsanto and the misrepresentation-type claims.[11] I will detail the factual basis for these claims in rough chronological order.

B. The Monsanto Arms Race and Development of GAT

Agriculture is a large segment of the Company's business, accounting for approximately half of its research and development costs, and nearly a quarter of the Company's net sales in 2011. What follows is an only-slightly-abbreviated play-by-play of the Company's attempt to develop a competitor to Monsanto's Roundup Ready trait, including at least two related ongoing processes: the Company's development and marketing of its competitive trait (GAT, as discussed below), and, while that was ongoing and proving difficult, the Company's strategizing and planning for an alternative approach.

Monsanto's well-known glyphosate-based herbicide, Roundup, led to its development of a gene trait known as Roundup Ready ("RR"). RR alters seeds to create plants that are resistant to Roundup, so that the herbicide kills only unwanted plants, not the actual crops. In 2002, DuPont and Pioneer negotiated non-exclusive license agreements with Monsanto for the right to use the RR gene in soybean seeds (the "2002 License Agreement") and corn (together with the 2002 License Agreement, the "2002 License Agreements").[12] The Plaintiff alleges, and a federal district court judge found, that Section 2.09 of the 2002 License Agreements prohibited commercialization of "stacked" products-the practice of combining multiple gene traits-and that this was a prohibition known to, and in fact negotiated by, several of the Officer/Employee Defendants, which the Plaintiff contends includes Jacobi, Cosgrove, and Miller.[13] The Complaint alleges, for example, that on March 14, 2002, Jacobi circulated to Cosgrove and Miller, among others, a redline version of the soybean agreement which "ha[d] been modified to remove the [anti-]stacking provisions, " a change that would have allowed stacking but was ultimately rejected and not reflected in the final agreement.[14]

Eventually concluding that its annual $100 million fees to Monsanto under the 2002 License Agreements were creating long-term financial disadvantages and hampering its ability to compete, the Company began to develop its own glyphosate-resistant gene trait, GAT, which would compete with RR and allow the Company to stop paying licensing fees. The Company thus began its "arms race" with Monsanto, endeavoring to push GAT to market in advance of Monsanto's anticipated release of Roundup Ready 2 ("RR2"), the second generation of the RR gene.[15]

On March 2, 2006, Oestreich, then-President of Pioneer, publicly announced GAT at a trade show. A press release that same day indicated GAT would be available in 2009 and described it as possessing "unsurpassed glyphosate tolerance" that would "allow for higher glyphosate application rates and a wider application window than other products currently available"-i.e., Monsanto's RR.[16] DuPont's shares rose by $0.43 that day. In the months that followed, the Company began negotiating licensing agreements for GAT and informed investors that it could lead to an additional $200 million or more in annual revenue for the Company.

By June 2006, however, GAT field trials were already producing disappointing results by way of stunted growth. The trials and poor results continued into early 2007, but, as the Plaintiff alleges, the Company continued to represent GAT's superiority to the market and indicate that it was on track for commercial release in 2009.[17]

In August 2006, Monsanto acquired Delta & Pine Land ("Delta Pine"), a company with which DuPont had previously done business. Specifically, Delta Pine had agreed, just prior to the acquisition, to a license for use of GAT in cotton for a $21 million upfront payment to DuPont. About this time, DuPont launched its "Project Choice Initiative, " which set out to "push back against Monsanto's anticompetitive behavior using legal, regulatory, and public relations resources."[18] Together, the acquisition of Delta Pine and the Project Choice Initiative "created a large amount of animosity and distrust between Monsanto and the Company, " which "colored the parties' interactions in subsequent years."[19]

Beginning in or around early July 2007, Pioneer began considering whether to stack GAT with RR, rather than continue moving forward with GAT as a standalone product. As the Complaint alleges, various groups comprised of Niebur, Cosgrove, Jacobi, Fyrwald, Bedbrook, Byron, and Oestreich discussed this matter on July 10, 2007, and Cosgrove, then-Corporate Counsel and IP Group Leader, stated that he was "of the opinion that you are free to create test crosses with [RR] and GAT and could start that immediately."[20] On July 13, Byron submitted a presentation to Soper, non-party Nita Seelinger, [21] non-party Daria Schmidt, [22]Foley, Stephens, "and others, " which was later presented to then-CEO of the Company, Holliday. The presentation discussed poor testing, including "stunting and slight yellowing" as compared to Monsanto's RR product that lacked these side effects, and suggested the Company consider stacking GAT with RR.[23] The presentation was later sent to Fyrwald, Bedbrook, Lukach, and Niebur. In spite of the known difficulties, Fyrwald remained optimistic about GAT's future in a July 24, 2007 earnings call, stating that GAT would be "a huge drive of earnings improvement" for the Company and touting what would be the "outstanding performance" of GAT.[24]

In a meeting on August 27, 2007, Baudler, Byron, Soper, Iwig, Schmidt, Linbo, Seelinger, and non-party Tracy Willits[25] discussed the poor field test results and how to move toward a successful launch in spite of them. They also discussed a biweekly "review with Leadership, " which included Oestreich, Fyrwald, and Bedbrook.[26] That same day, Seelinger asked Cosgrove "and others" about negotiating the right to commercialize an RR/GAT stack; Cosgrove forwarded the message to Jacobi, stating, "We might be able to really accelerate timelines if we can sell a stacked product of [RR] and GAT. Questionable whether we have the right to do so now."[27]

In September, upon receiving a question from Jacobi concerning the "current advice to R&D on stacking RR and [GAT] in beans, " Cosgrove responded, "Current: they can stack but no commercial rights."[28] Meanwhile, an October 16, 2007 report circulated by Seelinger to Oestreich, Niebur, Schickler, Willits, Iwig, Soper, Linbo, and Byron indicated that only 1-2% of GAT crops met the Company's quality standards. The next day, however, the Company issued a press release reiterating that it was on track to introduce GAT in soybeans by 2009 and that GAT would "offer[] growers expanded choices for controlling a broad spectrum of weeds through both glyphosate and ALS herbicide tolerance."[29] That release did not mention stacking GAT with RR.

In a December 19, 2007 meeting, Byron, Lassner, Schmidt, Cosgrove, and Foley discussed whether the Company should "[b]ite the bullet and take the hit to walk away from [GAT];" whether the Company should "blame the government- could be to our advantage for time;" or "admit it is not ready for release-protect our brand name;" whether the Company should "[b]ack off promotion to decrease [the] public's expectations;" and whether stacking GAT with RR would produce a "reward worth the cost."[30]

By the end of 2007, the research team was recommending against continuing to pursue GAT as a stand-alone product.[31] Throughout this process, regular reports were provided to senior employees and by January 2008, according to the Complaint,

"upper management, " including Fyrwald, Schickler, Oestreich, Niebur, Bedbrook, Ross, Seelinger, Lassner, Jacobi, Cosgrove, Soper and Iwig concluded internally that the Company had to officially abandon GAT as a stand-alone product and to instead pursue stacking GAT with RR, despite the fact that they knew the Company was not permitted to commercialize such a product pursuant to the 2002 License Agreement with Monsanto (as Cosgrove and Jacobi had expressly recognized).[32]

The decision to pursue the GAT/RR Stack was, the Plaintiff contends, intended to conceal the problems with GAT as a stand-alone product;[33] problems were continuing to become apparent in mid- to late-January and certain employees recognized that a failure to bring GAT to market would place the Company at "significant competitive risk."[34] It was around this time that the Company began using the term "GRS" to refer to the GAT/RR Stack internally, while continuing to publicly promote "GAT, " which was used interchangeably for either the GAT stand-alone product or the GAT/RR Stack.[35]

As the Company continued to move forward, on January 19, 2008, Bedbrook and Fyrwald discussed whether they had stacking rights; upon Fyrwald's suggestion that Bedbrook confirm with Cosgrove, Bedbrook reported back, "[W]e don't have commercial rights."[36] Between January 22 and January 24, 2008, Soper, Stephens, Schmidt, Lassner, Seelinger, Linbo, and others engaged in a planning session which included "extensive" discussions of GAT, including talk of "negotiations with Monsanto for stacking with RR."[37] The group also prepared for an upcoming presentation of the Soybean Research Leadership Team at which it would recommend "discontinuing] product development for [GAT] alone and transition[ing] toward a stacking strategy."[38] It recognized the need to "evaluate legal implications."[39]

Around this time, on January 26, 2008, emails between non-party Frank Ross, [40] Niebur, Bedbrook, and Schickler show discussions of efforts to counter rumors that GAT was performing poorly in the field. That same day, a series of emails show that the Soybean Research Leadership Team was recommending "discontinuation of GAT-only product evaluation" and a "rapid transition of breeding efforts toward a stack of GAT with an alternate glyphosate tolerance gene, if possible."[41] Lassner, Vice President of Trait Discovery for the Company, responded, "I agree with killing [GAT] as a stand alone product for beans" but noted his objection to ceasing regulatory approval efforts, as a stacked product would still require regulatory approval.[42]

In a January 28, 2008 meeting including Soper, Iwig, Jacobi, Bedbrook, Seelinger, Fyrwald, Schickler, Niebur, Oestreich, Ross, Cosgrove, Lassner, and others, the Soybean Research Leadership Team made its recommendation, "[b]ased on the offseason trial results and given the current situation, " to transition from developing stand-alone GAT products to a stacked product; the team also recognized the need to "negotiate access to an alternate glyphosate tolerance source for stacking."[43] Thus, the Plaintiff contends that "the Officer/Employee Defendants knew that DuPont could not commercialize the GAT/RR Stack without Monsanto's approval" as of January 28, 2008.[44]

That same day, Cosgrove, counsel for the Company, emailed Jacobi and said that the 2002 License Agreement, specifically Section 2.09, "seems to limit the ability to stack GAT plus RR, " and that "[a] conservative reading says we can stack but may not be able to commercialize, a potentially useless right."[45]

As presented in its internal 2008 Annual Report for Soybean Product Development and Supporting Projects, a "consensus on a new path was reached with upper management in January of 2008" in which "[p]lans to introduce Optimum GAT-only products were discontinued."[46] Trials on the GAT/RR Stack began quickly thereafter. The Plaintiff contends, based on this report and the aforementioned meetings, that the Company stopped pursuing GAT as a standalone product in January of 2008.[47]

Nonetheless, in a February 11, 2008 email, Ross, who was then-Vice President of the Company's North America division, informed North America operations employees that Fyrwald would be making a presentation on GAT at the Goldman Sachs Agricultural Bio Forum, reiterated the Company's "excite[ment] about the potential Optimum GAT presents to our business, " and noted its "new approach" for GAT involving a "combination of technologies, " in reference to combining GAT with a non-trait technology; Ross did not mention the GAT/RR trait combination.[48] In this email, Ross also included a Q&A on GAT as "a guide to help you answer questions, " the answers for which were "not forthcoming and highly deceptive, " according to the Plaintiff.[49] The same day, Soper emailed Willits and Seelinger, both Company scientists, and, with respect to any questions about "a delay in the ramp-up of [GAT] soybean, " instructed them, "[ITJnder no circumstances should you discuss our stacking strategy or specific yield enhancement information with anyone who does not need to know."[50] He instead instructed them to focus on positive messages.

A General Manager of the Company, Martin Fabrizius, responded to the Q&A document the next day, questioning, "Why do we feel compelled to make such allusions?"[51] Fabrizius further opined that the Q&A "talks about [the new approach] in a very unfortunate, misleading and untruthful way. We who have to face sales and the customer will pay for this piece of trash if it gets circulated."[52]

At the Goldman Sachs conference, Fyrwald represented that GAT was on target for a "limited commercial release in 2009."[53] In its February 19, 2008 Form 10-K, released a week after the conference, the Company indicated "new products such as Optimum GAT traits . . . will provide significant growth."[54] At this time, the Company was using "Optimum GAT"-previously only used to refer to GAT-to refer to both GAT alone and the GAT/RR Stack, interchangeably.[55]

Despite the documents referred to above, and the Plaintiffs allegation that stand-alone GAT had been abandoned by early 2008, the Committee's Report makes clear that throughout the spring and summer of 2008, the Company continued trials of GAT as a stand-alone product, in addition to conducting trials of the GAT/RR Stack. The Committee notes that Company decided not to disclose its development of a stacked product at that time, after consulting with the legal department and others and determining that (1) the information was not material and (2) disclosure might be confusing to the market, as the Company had not made a final decision and testing was ongoing.[56] This is contrary to the Plaintiffs blanket assertion that the Company ceased its pursuit of GAT as a stand-alone product in January 2008.[57] The Committee found that, in considering multiple documents, including "certain documents [that] suggest that a decision to pursue stacking (and abandon the Optimum GAT standalone product) had been definitely made at some earlier point, the investigation revealed" that the decision to abandon stand-alone GAT was not in fact made until the fall of 2008.[58]

C. Negotiations with Monsanto

Around this same time, in early 2008, in conjunction with ongoing negotiations internally known as "Project Green, "[59] Pioneer informed Monsanto that it was pursuing development of the GAT/RR Stack and was interested in a "mutual stacking rights exchange."[60] In an April 18, 2008 email, Borel reported to Schickler, Bedbrook, Seelinger, and Cosgrove that a call with Carl Casale, Executive Vice President of Strategy and Operations for Monanto, had not gone well; Borel relayed that Carl "is not willing at this stage to stack Optimum GAT in."[61] This email, the Plaintiff contends, "demonstrates that the Defendants knew in April 2008 that it was Monsanto's position both that they did not have the right to stack GAT [with] RR under the 2002 License Agreement, and that Monsanto would not agree to same."[62] As outlined above, the Company continued to publicly promote GAT throughout the spring of 2008, while, the Plaintiff alleges, continuing to mislead by failing to disclose its true nature as a stack of GAT with RR.[63] On July 17, 2008, for example, the Company issued a press release stating it had received United States regulatory approval of GAT in soybeans, was planning demonstration plots in 2009-2010, and would introduce soybeans with GAT in 2011, "continuing] to misrepresent to the public that GAT was still a viable product in its pipeline despite the fact that the Company had abandoned it as a stand-alone product, " all while "continuing] to conceal its plan to stack GAT with RR."[64]

Negotiations continued, and, on August 11, 2008, the Company made a proposal to Monsanto requesting "a full suite of rights to [RR]" and "stacking and out-licensing rights."[65] Monsanto rejected that proposal, and in its August 25, 2008 counterproposal, Monsanto offered "a full suite of rights" for a $1.5 billion payment.[66] The Company's management rejected the offer without consulting the Board, despite that figure being beyond the limit within which management could act without Board approval under the Company's Delegation of Authority limits.[67]

Senior management ultimately proceeded toward commercialization of the GAT/RR Stack without informing the Board and in spite of advice of the Company's counsel to Holliday, Kullman, Borel, Connolly, and Sager throughout 2008 "that the likelihood of litigation with Monsanto was high."[68] Likelihood of litigation is a risk factor mandating Board involvement, the Plaintiff contends.[69]

The same day as Monsanto's $1.5 billion counterproposal, in late August 2008, Schickler emailed the "Strategy Team" and "Operating Committee" to discuss branding of the GAT/RR Stack when it would ultimately be introduced to the public. Schickler recommended referring to the stack as "Optimum GAT Soybean" and noted that "GRS may be used internally for a period, but all public and commercial references will be as 'Optimum GAT Soybean.'"[70] Alejandro

Munoz, Vice President and Regional Director for the Company's North American l region, responded, "[W]e want to call both GAT only and GAT stacked with [RR] the same thing? If these are two different products should we call them differently?"[71] Upon receiving a forwarded copy of this message, Linbo responded, "The plan is that we will not sell any GAT only beans, only the stack . . . and that growers just need to know that they can apply glyphosate to the crop and not where the tolerance comes from."[72]

On October 31, 2008, Monsanto's Casale wrote to Schickler to "remind [the Company] of the limitations on Pioneer's rights" under the 2002 Licensing Agreement, which "does not permit Pioneer to stack [RR] with [its] glyphosate-tolerant Optimum GAT event."[73] He further explained, "Until such time as an agreement is reached, Pioneer should stop unauthorized efforts to commercialize [RR] stacked with Optimum GAT, as this activity is a clear breach of the existing agreement between our companies."[74] In a meeting on November 21, 2008, the Company's legal team, which included outside counsel, "began sketching out their litigation plan regarding Monsanto, including analyzing their reformation and patent fraud defenses."[75]

D. The Monsanto Litigation

1. Litigation, Verdict, and Concurrent Statements on GAT [76]

The Report explained that the parties began to engage in contractually mandated mediation in December 2008 for stacking issues, as well as other issues not relevant here.[77] In the months leading up to mediation, which took place in May of 2009, the Company began to disclose its plan to stack GAT with RR. In January, the Company "recorded a video presentation given by Soper meant to publicly disclose in February 2009 DuPont's plans to stack GAT with RR."[78] In the video, Soper explained that both traits were used because, as the Company conducted research trials, it "determined that the combination demonstrated improved crop tolerance and stronger yields;" the Plaintiff contends that the video failed to acknowledge that GAT as a stand-alone product had a number of problems that had been known to the Company for a year, and falsely represented that the Company had the right to stack.[79] On January 23, in preparation for questions from interested parties, Willits emailed Soper a document for distribution to the Company's researchers; it provided, as a response to a question about when Pioneer assumed the rights to stack RR with GAT, that "[d]etails of the agreement are confidential."[80] Suggesting an "agreement" at all, the Plaintiff argues, misrepresented that the Company had a right to stack GAT with RR.[81] The video was first released internally on February 2, 2009, and a "limited amount of information regarding GRS was disclosed on February 10, 2009 at the Goldman Sachs Ag Conference, and the Company followed up with a 'media day' where Linbo presented more details."[82]

Mediation was held on May 4, 2009, the same date that Monsanto filed an action in the U.S. District Court for the Eastern District of Missouri (the "District Court") alleging breach of the 2002 License Agreement, patent infringement, inducement to infringe, and unjust enrichment based on stacking GAT with RR (the "Monsanto Litigation"). In a press release the next day, Borel stated that the "lawsuit incorrectly claims that Pioneer and DuPont may not combine ('stack') the innovative [GAT] trait with any soybeans already containing a Roundup Ready trait."[83] It further stated, "Monsanto's so-called 'stacking' restriction is one of many practices that Monsanto engages in to limit the availability of competitive products, " referring to a "monopoly."[84] Kullman attached the news release in an email to the Board on May 15, 2009, which included Bodman, R. H. Brown, R. A. Brown, Collomb, Crawford, Cutler, Dillon, E. du Pont, Hewson, Holliday, Reilly, and Juliber, and informed them of the Monsanto Litigation.[85] According to the Report, "This was the first time the Board had been informed of the Optimum GAT stacking strategy and/or the dispute with Monsanto regarding same."[86]

Meanwhile, the Company continued to promote GAT; at a May 28 conference, Kullman presented a slide that listed the value of GAT in corn at over $400 million, and up to $100 million in soybeans.[87] In a June 12 conference call with analysts, Ross was asked about "numerous reports that [the Company's] Optimum GAT just doesn't work, " as well as what the Company would do "if this GAT technology just doesn't work and [it] can't license Monsanto's technology?"[88] Ross reiterated that the Company would "be bringing Optimum GAT and soy to the marketplace" in 201 land that the "Optimum GAT soy stack with Roundup is [] bringing the best products to the market."[89] The Plaintiff points out that Ross was Vice President for the North American region, and alleges that, as such, he must have known at the time that GAT did not work as a stand-alone product and that the GAT/RR Stack breached Monsanto's licensing agreements.[90]

In its Answer in the Monsanto Litigation on June 16, 2009, and in a press I release of the same day, the Company took the position that stacking was within the Company's rights under the 2002 License Agreement. Borel was quoted as asserting, "We believe we have every right through our existing Monsanto license agreement to 'stack' our Optimum GAT trait with Pioneer soybean genetics already containing a Roundup Ready trait, " and that the Company would "vigorously defend [its] rights to bring valuable new technologies to the market."[91]By July, Kullman stated to the Board the Company's position that its Optimum GAT soybean launch was still planned for 2011, but added the caveat that this was "pending the outcome of Monsanto's litigation."[92]

Upon Monsanto's motion, a September 6, 2009 order partially stayed discovery and bifurcated the trial to separate the Company's antitrust counterclaims from Monsanto's patent claims.[93]

Despite pending litigation, the Company's efforts to bring the GAT/RR Stack to market continued, as did, the Plaintiff alleges, a number of misrepresentations. These misrepresentations include a presentation attached to an internal email on September 11, 2009, which included a "GAT Technical Update" that characterized GAT as "[o]n target for 2011 launch" and detailed the regulatory efforts underway for GAT and the GAT/RR Stack; the GAT/RR Stack was to be submitted for regulatory approval in the fourth quarter of 2009, but the presentation noted that some countries would likely reject the application without a letter of authorization from Monsanto regarding the RR component.[94]Accordingly, its "[r]egulatory legal options/strategy" was "in coordination with Monsanto litigation."[95] Despite ongoing development and licensing problems, GAT was referred to as among "DuPont solutions" in a November 3, 2009 investor r meeting in which Kullman described a $700 million investment by the Company in its research and development.[96] The Plaintiff also points to a press release issued on December 4, 2009 as misleading; the Company "represented that 'Optimum GAT soybeans have shown outstanding glyphosate and ALS herbicide tolerance efficacy and strong multi-year yield results, ' despite the years of research to the contrary, "[97] and also represented that a delay in GAT's commercial launch was "due to changes in regulatory policy in key import markets and increasing complexity in managing grain stewardship."[98] In particular, Schickler stated that the Company's "continued confidence in the Optimum GAT trait is supported by significant data, " thus showing, the Plaintiff contends, that "the Company continued the deception it had started years prior by attempting to craft a plausible excuse for GAT's delay."[99]

The Plaintiff further alleges that the misrepresentations carried over into the Monsanto Litigation, where the Company argued that it was permitted to stack GAT with RR. The Plaintiff alleges that "[t]he Individual Defendants knew that the Company's position . . . was untrue, but remained silent and/or actively concealed that the Company knew that it did not have a license to stack."[100]

On January 15, 2010, the District Court granted a motion for partial judgment on the pleadings in favor of Monsanto, simultaneously dismissing a counterclaim for declaratory judgment, finding that the 2002 License Agreements were unambiguous and did not grant DuPont the right to stack with RR.[101] The Board was informed of the District Court's decision on January 16. The following week, Kullman updated the Board on the 2009 Business Plan, echoing language made publicly in stating, "Optimum GAT soybeans are delivering excellent efficacy results and superior product performance gains. Regulatory delays now put introduction at 2013."[102] The Complaint alleges, however, that "the Officer/Employee Defendants, as well as the Director Defendants, knew that the reasons for the delay in commercializing the GAT/RR Stack were not 'regulatory delays, ' but that the Company did not have licensing rights to the RR trait."[103]

On January 29, 2010, the Company filed a motion for reconsideration, arguing that the District Court should await factual development before certain of its rulings. That motion was granted on July 30, 2010.[104]

Upon being granted leave, the Company filed a seconded amended answer and counterclaims on August 19, 2010, adding details to its reformation claim.[105]

On March 4, 2011, Monsanto filed its fifth motion to compel the production of documents, arguing that, through its reformation claim, the Company had put its state of mind at issue and thus waived attorney-client privilege as to certain related documents. The District Court agreed and ordered the Company ...


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