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Cumming v. Edens

Court of Chancery of Delaware

February 20, 2018

JOHN CUMMING, derivatively on behalf of NEW SENIOR INVESTMENT GROUP, INC., Plaintiff,

          Submitted: November 21, 2017

          Jeffrey Gorris, Esquire, Christopher Foulds, Esquire and Christopher Quinn, Esquire of Friedlander & Gorris P.A., Wilmington, Delaware; David Wales, Esquire, David Maclsaac, Esquire and John Vielandi, Esquire of Bernstein Litowitz Berger & Grossmann LLP, New York, New York; Adam Warden, Esquire of Saxena White P. A., Boca Raton, Florida; Steven B. Singer, Esquire and Joshua H. Saltzman, Esquire of Saxena White P. A., White Plains, New York; J. Elazar Fruchter, Esquire of Wohl & Fruchter LLP, New York, New York, Attorneys for Plaintiff.

          Robert S. Saunders, Esquire, Ronald N. Brown, III, Esquire, Sarah R. Martin, Esquire and Elisa M.C. Klein, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, Attorneys for Defendants.


          SLIGHTS, Vice Chancellor.

         Plaintiff, John Cumming, is a stockholder of nominal defendant, New Senior Investment Group, Inc. ("New Senior"). He initiated this action derivatively on behalf of New Senior against members of the New Senior board of directors alleging they breached their fiduciary duties in connection with their approval of a transaction whereby New Senior acquired assets at an unfair price from an entity controlled by Fortress Investment Group, LLC ("Fortress"). Cumming asserts that a majority of the New Senior board was either interested in the transaction or disabled by conflicts arising from various relationships with a principal of Fortress, Wesley Edens. He further alleges that the transaction, comprised of three related and equally unfair elements, must be subject to the entire fairness standard of review. For both of these reasons, Cumming maintains that he is excused from demanding that the managers of New Senior assert these claims directly under either or both "prongs" of Aronson.[1]

         Defendants have moved to dismiss Cumming's complaint under Court of Chancery Rules 23.1 and 12(b)(6). They argue he has failed to plead particularized facts to demonstrate demand excusal under Rule 23.1 and has failed to plead viable, non-exculpated claims that can survive their challenge under Rule 12(b)(6). I disagree. The complaint pleads sufficiently particularized facts to create a reasonable doubt that a majority of the New Senior board was disinterested or independent. It also pleads facts that support a reasonable inference that the defendants breached their duty of loyalty by approving a conflicted, unfair transaction, and thereby pleads a non-exculpated claim under 8 Del. C. § 102(b)(7). Finally, the complaint pleads a reasonably conceivable claim of aiding and abetting a breach of fiduciary duty against Fortress (and its affiliates) by alleging that Fortress, as seller, knowingly exploited conflicts of interest among members of the New Senior board in order to facilitate the transaction and thereby advance its own interests (and those of the interested directors) at the expense of New Senior stockholders. Accordingly, the motion to dismiss must be denied as to all counts of the complaint.

         I. BACKGROUND

         The relevant facts are drawn from the complaint's well-pled allegations, the documents the complaint incorporates by reference and those matters I am permitted to consider by stipulation of the parties.[2] For purposes of this motion to dismiss, the Court accepts as true the well-pled facts in the Complaint and draws all reasonable inferences in Plaintiff s favor.[3]

         A. Parties and Relevant Non-Parties

         Plaintiff, John Cumming, was a stockholder of New Senior at all relevant times and remains a New Senior stockholder today.[4] He purports to bring this action derivatively on behalf of New Senior.

         Nominal Defendant, New Senior, is a Delaware corporation with its principal place of business in New York.[5] It has no employees of its own.[6] Rather, it is an externally-managed, publicly-traded real estate investment trust ("REIT") that owns a portfolio of senior housing facilities totaling 154 properties across the United States.[7] New Senior was originally formed as a subsidiary of Drive Shack, Inc. ("Drive Shack"), which is another publicly-traded REIT managed and dominated by Fortress.[8] New Senior was spun off from Drive Shack in November 2014.[9]

         Defendant, Fortress, is a global asset and investment management firm.[10]It was founded by, among others, Defendant, Wesley Edens ("Edens"), in 1998 and went public in 2007.[11]

         Defendant, Fig LLC ("FIG"), is New Senior's manager and an indirect subsidiary of Fortress.[12] FIG is wholly owned and managed by Defendant, Fortress Operating Entity ILP ("FOE I").[13] FOE Fs sole general partner is FIG Corporation ("FIG Corp."), a wholly-owned Fortress subsidiary.[14] FIG Corp. and Fortress' three "principals" (including Edens) own 100% of FOE Fs limited partnership interests.[15]"Fortress, FIG, FOE I, FIG Corp., Drive Shack, and New Senior all operate out of the same offices."[16]

         Defendant, Holiday Acquisition Holdings LLC ("Holiday"), [17] "is the second largest private owner and operator of independent living communities for seniors in the United States."[18] In 2007, Holiday was acquired by Fortress Holiday Investment Fund ("FHIF"), a Fortress-managed private equity fund. Since then, it has been "controlled and majority-owned by Fortress, " primarily through FHIF.[19]

         At the time of the challenged transactions, New Senior's board of directors (the "Board" or the "New Senior Board") had six members: Edens, Susan Givens, Virgis Colbert, Michael Malone, Stuart McFarland and Cassia van der Hoof Holstein, all of whom joined the Board by Fortress' designation in October 2014.[20]The committee of New Senior's board of directors organized to negotiate and consummate the transaction at issue here (the "Transaction Committee") comprised Malone, Van der Hoof Holstein, Colbert and McFarland.[21] As of the filing of this action, the Board consisted of seven members, the six members serving at the time of the challenged transaction and Robert Savage.[22] Savage is not a defendant in this action.

         Defendant, Edens, is Fortress' founder and one of its "Principals."[23] He is also Fortress' largest stockholder[24] and the co-chairman of its board of directors.[25]At Fortress, "Edens is responsible for Fortress' private equity and publicly traded alternative investment businesses, which include both Holiday and New Senior."[26] Edens has been the Chairman of the New Senior Board since October 2014.[27]He also serves as a director of FIG Corp., as officer and general partner of the funds that own Holiday, and as a director of non-party, A&K Global Health LLC ("A&K"), which was founded by Fortress in 2011.[28] Along with Givens, he was designated as one of two members of the New Senior Board's pricing committee that determined the price of the equity offering used, in part, to fund the transaction at issue (the "Pricing Committee").[29]

         Defendant, Givens, is New Senior's CEO and a member of its Board.[30]Givens also serves as managing director of Fortress' private equity group[31] and holds interests in Holiday through Fortress' private equity fund.[32] She was New Senior's lead negotiator in the acquisition of the portfolio of properties challenged here and, as noted, served on the two-person Pricing Committee alongside Edens.[33]

         Defendant, Malone, served as Chairman of the Transaction Committee.[34]From 2008 to 2012, Malone served as managing director of Fortress.[35] He also sits on the boards of directors of a Fortress-affiliated company, non-party Nationstar Mortgage Holdings ("Nationstar"), and Walker & Dunlop, which provided financing for the challenged transaction.[36] Malone holds ownership interests in Fortress, New Senior and Walker & Dunlop.[37] At the time of the challenged transaction, Malone had retired from his Senior Executive Banker and Managing Director positions at Bank of America after 24 years of service and, thus, did not have full-time employment.[38] It is alleged he earned $1.7 million in director fees between 2012 and 2015 from Fortress-managed companies.[39]

         Defendant, Van der Hoof Holstein, was added to the Transaction Committee by written consent after its inception.[40] In addition to her service on the New Senior Board, she also serves on the board of directors of A&K together with Edens.[41]Van der Hoof Holstein's full-time employment is with Partners in Health ("PIH"), a nonprofit medical organization, where she has served as Chief Partnership Integration Officer since 2010.[42] It is alleged that Edens' wife serves on the board of directors of PIH and that the Edens family is a "trusted partner" of the organization, donating money and otherwise providing significant support for PIH's worldwide relief efforts.[43]

         Van der Hoof Holstein has also served as Associate Director of the Global Health Delivery Partnership ("GHDP") for the Department of Global Health and Social Medicine at Harvard Medical School since 2011.[44] According to the Complaint, GHDP has received continued substantial support from Edens over many years.[45]

         Defendant, Colbert, was also a member of the Transaction Committee.[46]In addition to his service on the New Senior Board, Colbert "has served in a variety of key leadership positions with Miller Brewing Company since 1979, " and "continues to serve as Senior Advisor to MillerCoors LLC."[47] He previously served on the boards of directors for several other companies.[48] It is alleged that around the time Colbert became a member of the Board, Edens (as controlling owner) invited Colbert to join him as a co-owner of the Milwaukee Bucks (the NBA team), through Partners for Community Impact, LLC, and that Colbert accepted the invitation. Colbert now enjoys the unique opportunity of being a co-owner of an NBA franchise, along with approximately 24 others in the Bucks' ownership group.[49]

         Defendant, McFarland, was the final member of the Transaction Committee.[50]McFarland also serves as a Fortress-designated director of Drive Shack, which, as mentioned, is managed by Fortress and was New Senior's parent prior to the spin-off in November 2014.[51] McFarland receives 60% of his publicly declared income from his various board fees.[52] He lists his address with the SEC for investment purposes (for non-Fortress investments) as "C/O Fortress Investment Group."[53]

         B. New Senior's Spin-Off

         New Senior was spun off from Drive Shack in 2014 (the "Spin-Off').[54] Prior to the Spin-Off, "Drive Shack was dominated by Fortress, as most of Drive Shack's board and management were affiliated with Fortress."[55] Edens served as the chairman of Drive Shack's board from 2002 until May 2016 and as its CEO from 2002 until 2007.[56] As part of the Spin-Off, Fortress "appointed all of New Senior's directors, classified the Board with staggered terms, and severely curtailed the filling of director vacancies and the removal of directors."[57] It also "installed Fortress-affiliated personnel as the senior management of New Senior."[58]

         C. The FIG-New Senior Management Agreement

         "In conjunction with the Spin-Off, New Senior entered into a management agreement [] with Fortress' subsidiary FIG[], pursuant to which FIG[] manages New Senior's day-to-day operations."[59] Thus, all of New Senior's management is employed by FIG. Under the management agreement, FIG receives compensation in the form of an annual management fee of 1.5% of New Senior's gross equity as well as incentive compensation of 25% on New Senior's returns above a certain threshold.[60] The management agreement further provides that FIG is to receive 10% of the number of shares sold in any stock offering at the offering's exercise price.[61]

         According to New Senior's public disclosures, New Senior is "completely reliant on [FIG]."[62] Thus, New Senior is "subject to the risk that [FIG] will terminate the Management Agreement and that [New Senior] will not be able to find a suitable replacement for [its] [m]anager in a timely manner, at a reasonable cost or at all."[63]The public disclosures confirm that the management agreement was "not negotiated at arm's length, and its terms, including fee payable, may not be as favorable to [New Senior] as if it had been negotiated with an unaffiliated party."[64]

         D. The Challenged Transaction

         The transaction at issue here is more accurately described as three separate (but inextricably intertwined) transactions, each of which Plaintiff alleges was detrimental to New Senior. First, the overarching transaction was New Senior's acquisition of a portfolio of properties (the "Holiday Portfolio") from Defendant Holiday (the "Acquisition") at an allegedly unfair price. Second, New Senior financed the Acquisition (in part) through an equity offering that allegedly favored Fortress to the detriment of New Senior. And third, New Senior entered into a property management agreement with Holiday to manage the Holiday Portfolio at allegedly higher-than-market rates (collectively the "Challenged Transactions").[65]

         1. The Acquisition

         The Board was first made aware of the possibility of acquiring the Holiday Portfolio at a meeting on May 5, 2015.[66] At that meeting, "Givens informed three members of the Board that Holiday had solicited bids for the sale of the Holiday Portfolio" and that she "expected to submit a bid" on New Senior's behalf.[67]She also "indicated the expected price range for the portfolio."[68] In her presentation, Givens advised the Board that the Acquisition would be part of New Senior's "key initiative" to "build pipeline and close on new acquisitions."[69] In response to Givens' announced intentions, the Board discussed its plan to form a transaction committee "if [New Senior] were invited to proceed to the second round of bidding."[70]

         When the Board next met to discuss the possible acquisition, on May 15, 2015, Givens reported that she had already made an opening non-binding bid of $660 million for the Holiday Portfolio.[71] She then outlined the specifics of the bid, including that "Fortress and its affiliates would manage the Holiday Portfolio post-acquisition, "[72] that "management had begun speaking to lenders about potential financing" and that, "in the event the Company won the auction, she would recommend conducting an equity offering in order to fund a portion of the purchase price."[73] Givens explained that Holiday was motivated to sell "because the funds that own a majority of Holiday [were] seeking to monetize their investments in order to return capital to [their] investors in the near term."[74] She closed by emphasizing that she expected the sales process to be "very competitive."[75]

         Following Givens' presentation and the Board's discussion of the proposed acquisition, Cameron MacDougall, the Board's Secretary and a managing director and general counsel of Fortress, outlined the process by which the Board should evaluate the proposed acquisition and answered Board member questions regarding applicable legal standards.[76] The Board did not seek out or receive independent legal or financial advice at this time.[77] Based on the information provided, the Board agreed to form the Transaction Committee at this meeting but did not actually do so until later.[78] Edens recused himself from this May 15 meeting and declared that he would continue to recuse himself from meetings where the Board intended to discuss a potential acquisition of the Holiday Portfolio due to his affiliation with Fortress.[79]

         The Board met again on May 18, 2015, and again Givens requested that MacDougall advise the Board on its actions in evaluating the potential acquisition.[80]The Board decided that the Transaction Committee would comprise Malone, Colbert and McFarland. It was determined that Van der Hoof Holstein could not join the Transaction Committee at that time given her other commitments.[81] While its members were selected, the Board, again, elected not to form the Transaction Committee at this meeting. The Board did, however, interview candidates to serve as independent counsel for the Transaction Committee, and ultimately decided to retain Davis, Polk & Wardwell ("Davis Polk").[82]

         The next day, the Board finally resolved to form the Transaction Committee (comprising Malone, Colbert and McFarland, with Malone as Chairman) and delegated to this committee the full authority to consider and accept or reject the potential acquisition.[83] During this meeting, the Board was informed, for the first time, of Givens' interest in the transaction due to her indirect ownership interest in Holiday.[84] Notwithstanding this revelation, it does not appear that the Board pressed for specifics regarding the extent of Givens' interest in Holiday or the extent to which she would or should remain involved in the negotiations.[85] While Givens recused herself from the meeting, she continued thereafter to function as New Senior's lead negotiator.[86]

         On May 29, 2015, Givens learned that the two other bidders for the Holiday Portfolio had dropped out of the bidding process.[87] Without input from (or knowledge of) the Transaction Committee or the Board, Givens reduced New Senior's bid by $20 million (to $640 million).[88] The Transaction Committee was not informed of the revised bid until its first meeting on June 1, 2015, when Givens (who was in attendance along with three other Fortress-affiliated individuals) advised that the remaining bidders had dropped out, announced that she had unilaterally lowered the bid and declared that final bids were due on June 5, 2015, only four days later.[89] Davis Polk was not in attendance at this meeting.[90]

         Givens explained that her reduced $640 million bid was "derived by applying the capitalization rate implied by the purchase price for the last portfolio marketed by Holiday and sold to Northstar Realty Finance Corporation [], which was 6.1%."[91]In presenting this justification for the revised bid, Givens failed to "disclose whether Northstar was the only bidder for its asset purchase from Holiday" and wrongfully compared the Northstar deal occupancy rate, which was 90%, to the 87.6% rate purportedly implicated by the Holiday Portfolio.[92] These flaws, according to Plaintiff, rendered the Northstar deal inapposite. Moreover, none of the values used by Givens to support her lowered bid were or could be independently verified.[93]

         As of this first meeting of the Transaction Committee, even though only New Senior remained in the process, Citigroup, the broker for the proposed acquisition, still had not declared New Senior as the winning bidder. Nevertheless, Givens advised the Transaction Committee that she expected that announcement to occur soon.[94] With the end of the process in sight, Givens suggested that the Transaction Committee select a financial advisor to assess the fairness of the proposed price and assured the Committee that, in the meantime, she would negotiate further favorable price adjustments.[95] Givens ultimately negotiated an additional $5 million in capital expenditure adjustments.[96]

         At its June 2 meeting, the Transaction Committee retained Greenhill & Co. ("Greenhill") as its financial advisor.[97] The following day, Givens made a presentation to Greenhill in which she outlined the specific terms of the Acquisition and explained that the draft agreement did not contain a financing contingency because "New Senior had determined that agency financing was preferable."[98]

         On June 16, 2015, the entire Board met to consider the Acquisition and to hear from Givens and Edens regarding their views in support of the transaction.[99] Immediately following this Board meeting, the Transaction Committee met and, after a briefing by Givens, management left the meeting.[100] With management out of the room, Malone requested that Greenhill provide an overview of the transactional structure including an analysis of the conflicts of interest.[101] Greenhill complied and then reviewed its preliminary analysis of the "fairness, from a financial point of view, to [New Senior] of the [c]onsideration to be paid."[102] This analysis included comparable transactions (although Greenhill noted that the senior living market made this "analysis relatively less meaningful"), a discounted cash flow analysis and the view of certain Wall Street research analysts.[103] The meeting lasted about two hours.[104]

         On June 21, 2015, the meeting of the Transaction Committee once again began with a presentation from lead negotiator Givens, this time focused on the proposed financing plan and other more granular aspects of the Acquisition.[105] After management left the meeting, the Committee received Greenhill's final fairness presentation and unanimously determined to recommend that the Board authorize the Acquisition.[106] Immediately thereafter, the Board convened a meeting and approved the Acquisition with both Edens and Givens recusing.[107] No stockholder vote was requested.[108]

         2. The Secondary Offering

         The Acquisition was financed in part by a secondary public offering of New Senior common stock (the "Secondary Offering").[109] The Board delegated the task of determining the terms of the Secondary Offering to Edens and Givens by resolution dated June 21, 2015, appointing them as the sole members of the Pricing Committee.[110] On June 23, 2015, the Pricing Committee met for the first time and resolved to offer $266, 973, 360[111] in equity at a price of $13.75 per share.[112] Only a portion of the money raised through the equity offering was used to finance the Acquisition[113]

         Edens and Givens received shares in the Secondary Offering totaling 72, 727[114] and FIG was granted a ten-year option to acquire 2, 011, 409 New Senior shares for the $ 13.75 offering price pursuant to its management agreement with New Senior.[115] Greenhill did not assess the Secondary Offering as part of its fairness opinion and the Board was not apprised of either the number of shares to be offered or the offering price prior to approving the Acquisition.[116] New Senior announced the Secondary Offering on June 25, 2015.[117] The market reacted poorly; New Senior stock closed at $14.14 on June 23 and dropped to $13.65 on June 26.[118]

         3. The Holiday Management Agreement

         As part of the Acquisition, Holiday and New Senior entered into a no-bid management agreement (the "Holiday Management Agreement") under which Holiday would continue to manage the Holiday Portfolio.[119] The Holiday Management Agreement provided that Holiday would be compensated with 5% of New Senior's revenues as well as an incentive fee of 20% above a designated threshold.[120] These fees were significantly above market.[121]

         A Greenhill presentation made to the Transaction Committee indicates that the terms of the Holiday Management Agreement were first disclosed to the Committee during a June 2015 meeting.[122] As with the Secondary Offering, Greenhill did not opine on the fairness of the Holiday Management Agreement.[123]Nor is there any indication that the Transaction Committee looked into or interviewed other managers for the Holiday Portfolio or even attempted to negotiate more favorable terms.[124]

         E. Fortress' Alleged Interest in the Transactions

         Plaintiff alleges that Edens and Givens caused New Senior to enter into the Challenged Transactions to advance certain of Fortress' own interests, including: (1) Fortress' planned shift of assets to publicly-traded companies; (2) the approaching maturity date of FHIF (through which Fortress held its interests in Holiday); (3) the increase in FIG's management fees resulting from the Secondary Offering; and (4) the increase in fees received through the Holiday Management Agreement as outlined previously. I discuss each briefly below.

         1. The Planned Shift of Assets

         At the time of the Acquisition, Fortress was in the midst of a plan to shift its assets under management from private equity funds, like the funds that own Holiday, to its Permanent Capital Vehicles ("PCVs"), like New Senior.[125] This shift would yield a greater return to Fortress because Fortress could "charge higher fees on the gross equity and operating results [of PCVs] . . . over a longer time period."[126]Fortress disclosed this plan in a 2013 presentation where it outlined the "economic benefits of its 'New Model.'"[127] Presentations in 2014 and 2015 evidence Fortress' execution of the plan.[128]

         The sale of the Holiday Portfolio to New Senior was executed in furtherance of the New Model, as revealed in a statement made by Givens in an interview with Seniors Housing Business published in September 2015:

New Senior has been, and we expect it will continue to be, Fortress' dedicated vehicle for investing in the seniors housing industry. While the private equity funds have a finite life to them, New Senior is one of the permanent capital vehicles at Fortress, given it is a public company with no time period upon which the equity has to be returned to investors.[129]

         2. The Looming Maturity of FHIF

         Prior to the close of the Acquisition, Fortress was in need of liquidity because its fund, FHIF, through which it held its majority interest in Holiday, had a maturity date of January 2017, at which time FHIF was to return capital to its investors.[130]By selling the Holiday Portfolio to New Senior at an inflated price, Holiday seized an opportunity to facilitate the delivery of promised returns.[131]

         3. Increase of New Senior's Gross Equity

         Plaintiff alleges that Fortress, Edens and Givens received unfair benefits from the $266 million Secondary Offering (of which only $175.3 million was used for the Acquisition) at the expense of New Senior in two ways: (1) the stock was offered at a "deep discount to the market price" and the offering included an award of options to Fortress, Edens and Givens at that discounted price; and (2) the Secondary Offering increased New Senior's gross equity resulting in higher management fees to FIG (under pre-existing agreements) and a depressed New Senior share price, all compounded by the fact that Edens and Givens saw to it that more equity was issued than was needed to fund the Acquisition.[132] Indeed, the increase of gross equity from the Secondary Offering led to an increase in FIG's management fees from $8.5 million in 2014 to $14.3 million in 2015.[133] Because the acquisition agreement did not contain a financing contingency, New Senior was locked into the Secondary Offering even if the market responded poorly to news of the Acquisition (which it did).[134]

         4. Holiday Benefits

         As noted, Givens arranged for Holiday to earn substantial fees through the Holiday Management Agreement. These fees benefited FHIF and ultimately Fortress.

         F. Procedural Posture

         Plaintiff filed his Verified Derivative Complaint on December 27, 2016. Defendants filed their first motion to dismiss on March 16, 2017. Plaintiff responded by filing his Verified Amended Derivative Complaint on June 8, 2017.[135]The Complaint has three counts: Count I asserts a breach of fiduciary duty claim against all of the directors of New Senior (excluding Robert Savage); Count II asserts a breach of fiduciary duty claim against Givens as an officer of New Senior; and Count III asserts an aiding and abetting breaches of fiduciary duty claim against Fortress, Holiday, FIG, FOE I and FIG Corp.

         Defendants now move to dismiss the Complaint for failure adequately to plead demand futility under Court of Chancery Rule 23.1 and failure to state a viable claim under Rule 12(b)(6). According to Defendants, Plaintiff cannot plead demand futility because a majority of the Board was disinterested and independent and the Challenged Transactions were products of valid exercises of the Board's business judgment.[136]

         In riposte, Plaintiff argues that demand is excused as futile because there is reason to doubt (1) the disinterestedness and independence of a majority of the Board at the time of the filing of this action and (2) that the Challenged Transactions were otherwise the proper exercise of business judgment.[137] Thus, Plaintiff argues he has satisfied both prongs of Aronson[138] As for the Rule 12(b)(6) motion, Plaintiff argues that he has pled sufficient facts to state claims for both breach of the duty of care and breach of the duty of loyalty. He also argues that entire fairness is the standard of review and that the pled facts support a reasonable inference of an unfair price and unfair process with respect to the Challenged Transactions.[139] These same pled facts, according to Plaintiff, overcome Defendants' Section 102(b)(7) defense.

         II. ANALYSIS

         There is no question that Cumming's claims challenging the Board's determination to acquire assets are derivative claims that ultimately belong to New Senior. It is appropriate, therefore, first to take up the threshold question of whether Cumming may bring these claims on behalf of New Senior. Because I find that Cumming has pled particularized facts that support a finding of demand futility such that he may bring this action derivatively, I must also consider whether he has stated viable claims to survive Defendants' motion under Rule 12(b)(6). For the reasons that follow, I conclude that he has.

         A. Plaintiff Has Adequately Pled Demand Futility

         "[A] cardinal precept of the General Corporation Law of the State of Delaware is that directors, rather than shareholders, manage the business and affairs of the corporation."[140] As noted, Plaintiffs claims here allege harm suffered by New Senior. The claims, therefore, belong to the Company and the decision whether or not to pursue them typically would rest with the Board.[141] A board of directors does not stand alone, however, in its authority to initiate litigation on behalf of the corporation. In 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 refused to assert a claim belonging to it."[142]

         Because the derivative plaintiff who elects not to make a demand "seeks to displace the board's authority, " it is appropriate to require that he plead particularized facts that "create a reasonable doubt" as to whether the board is fit to consider the demand.[143] When the complaint challenges a business decision of the board, Aronson instructs that the derivative plaintiff meets his burden to plead demand futility by pleading particularized facts that create either (1) a reasonable doubt that the board of directors that would respond to the demand was disinterested and independent or (2) a reasonable doubt that "the challenged transaction was otherwise the product of a valid exercise of business judgment."[144] The "reasonable doubt" standard articulated in Aronson is not the same as the burden of proof imposed upon the prosecution in a criminal case.[145] It is, instead, a more literal distillation of the phrase meaning simply "that there is reason to doubt."[146]

         Rule 23.1 places a heightened pleading burden on the plaintiff to meet "stringent requirements of factual particularity that differ substantially from the permissive notice pleadings" embodied in Court of Chancery Rule 8 and that animate Court of Chancery Rule 12(b)(6).[147] Even so, the court is still "bound to draw all reasonable inferences from those particularized facts in favor of the plaintiff, not the defendant, when dismissal of a derivative complaint is sought."[148]

         Plaintiff did not make a demand on the Board. Therefore, as he must, he has endeavored to plead demand futility. While he need only do so under either of Aronson's prongs, Plaintiff contends that he has pled demand futility under both. Because I find that the Complaint pleads futility under the first prong, I need not and decline to reach Plaintiffs arguments that he has satisfied the second prong as well.

         In order to plead futility under Aronson's first prong, the complaint must raise a reasonable doubt that a majority of the directors could have evaluated a demand independently and without self-interest.[149] When determining whether the complaint pleads director interest or lack of independence, the court does not consider the pled facts in isolation but instead considers them in totality.[150]

         The court will deem a director "interested" for purposes of this analysis when he stood on both sides of the transaction at issue or stood to receive a material benefit that was not to be received by others.[151] A material benefit is one that is "significant enough in the context of the director's economic circumstances, as to have made it improbable that the director could perform her fiduciary duties."[152] A pleading of materiality, however, is only required "in the absence of self-dealing."[153]

         The inquiry for director independence is contextual and asks whether a director's decision was "based on the merits of the subject before the board rather than on extraneous considerations or influences."[154] "To show lack of independence, the plaintiff must allege that a director is so beholden to an interested director that his or her discretion would be sterilized."[155] Specifically, the relationship between the challenged director and the interested director must be "so close that one could infer that the non-interested director would be more willing to risk his or her reputation than risk the relationship with the interested director."[156]

         The parties agree that the members of the New Senior Board that would have considered Plaintiffs demand (if he had made one) comprised directors Savage, Edens, Givens, Malone, Van der Hoof Holstein, Colbert and McFarland. The Court's function now is to "count heads."[157] By requesting books and records from New Senior prior to filing his Complaint, Cumming has done what our courts have long counseled plaintiffs to do: he has utilized the tools provided by our law to gain access to documents that allowed him to plead specific facts that support his allegations of interest and lack of independence.[158]

         1. Savage

         Plaintiff does not challenge the independence or disinterestedness of Savage who joined the Board after the Challenged Transactions. In this regard, Savage stands alone.

         2. Edens

         Plaintiff contends that Edens is interested in the Challenged Transactions and lacks independence from Fortress. Defendants do not seriously dispute Edens' conflicts, nor could they. Edens is Fortress' founder, one of its principals and the co-chairman of its board of directors.[159] He is Fortress' largest stockholder and is responsible for Fortress' private equity and publicly traded alternative investment businesses (including Holiday and New Senior).[160] Additionally, while it appears that Edens recused himself from voting on the Acquisition, he was one of two members on the Pricing Committee that set the terms and pricing for the Secondary Offering used to finance the Acquisition and under which both FIG and Edens himself received share options. Thus, Plaintiff has adequately pled facts raising a reasonable doubt that Edens could have independently considered a demand challenging these transactions.

         3. Givens

         Here again, Defendants do not earnestly dispute Givens' lack of independence and disinterest for purposes of the Rule 23.1 analysis.[161] Givens was the second member of the Pricing Committee setting the terms for the Secondary Offering and she also received options under the Secondary Offering. Moreover, she was employed by Fortress and yet was New Senior's lead negotiator for the Acquisition.[162] Because she stood on both sides of the Challenged Transactions, it is reasonable to infer on that basis alone that she was interested in the Challenged Transactions. Accordingly, Plaintiff has satisfied his burden to raise a reasonable doubt regarding Givens' ability objectively to consider a demand.

         4. Malone

         Plaintiff challenges Malone's fitness to consider a demand on both interest and independence grounds. Malone is alleged to be interested in the Challenged Transactions because, as a director of both Walker & Dunlop, which stood to lend $464.7 million to New Senior to help fund the Acquisition, and the borrower, New Senior, Malone also stood on both sides of the transaction.[163] The Complaint alleges that Walker & Dunlop has provided financing to New Senior in the past and that New Senior's loans "constituted approximately 17.4% of [Walker & Dunlop's] Freddie Mac loan origination volume in 2015."[164] It goes on to allege that, in April 2015, Walker & Dunlop "closed on the largest deal in its 77 year history- originating $670 million in loans to New Senior."[165] Finally, the Complaint alleges that Walker & Dunlop expected to enjoy a continuing relationship with New Senior that would lead to further lucrative investments.[166] Viewing these pled facts together, it is reasonably conceivable that Walker & Dunlop had a material interest in providing the $464.7 million loan to finance the Acquisition.[167] Thus, Plaintiff has raised a reasonable doubt as to whether Malone, as a director of Walker & Dunlop, was disinterested in the Challenged Transactions. Malone was a dual fiduciary here and the interests of the beneficiaries he served (lender vs. borrower) were not aligned.[168] Accordingly, Plaintiff has adequately pled that Malone was "interested" for demand futility purposes.[169]

         5. Van der Hoof Holstein

         Plaintiff challenges Van der Hoof Holstein's fitness to consider a demand based on her especially close ties to Edens. Van der Hoof Holstein is employed in a leadership position at PIH, a non-profit organization where Edens' wife has for many years served on the board of directors and to which the Edens family makes substantial financial and other contributions.[170] To illustrate the close connection, Plaintiff points to the fact that Edens' daughter wore her self-described "lucky" PIH pin while appearing on national television at the NBA draft as a representative of her father (and the NBA team he owns). He also highlights Edens' hands-on support of PIH's relief efforts in Haiti; support that was praised by Van der Hoof Holstein's immediate supervisor in several publications.[171] These close ties are further revealed in the fact that Van der Hoof Holstein serves alongside Edens on several boards, including A&K (an organization founded by Fortress).[172] The compensation for her board service, as facilitated by Edens, amounts to at least half of her annual income.[173]

         This court has considered on several occasions the extent to which charitable donations to a cause associated with a director made by an interested individual or entity might serve as a basis to reasonably doubt whether the director was beholden to the interested donor. Defendants rely primarily on this court's analysis of the issue in In re Goldman Sachs[174] and In re J.P. Morgan Chase[175] to support their argument that Edens' charitable contributions to PIH do not raise a reasonable doubt regarding Van der Hoof Holstein's independence. In Goldman Sachs, a member of the company's board was also the chair of a $100 million renovation campaign for a charitable organization and a trustee of the University of Chicago where part of his responsibilities also included raising money.[176] The plaintiffs alleged that the company made contributions to the renovation campaign as well as to the university.[177] The court determined that the allegations failed to raise a reasonable doubt regarding the director's independence when

nothing more can be inferred from the complaint than the facts that the Goldman Foundation made donations to a charity that Bryan served as trustee, that part of Bryan's role as a trustee was to raise money, and that Goldman made donations to another charity where Bryan chaired a renovation campaign. The Plaintiffs do not allege that Bryan received a salary for either of his philanthropic roles, that the donations made by the Goldman Foundation or Goldman were the result of active solicitation by Bryan, or that Bryan had other substantial dealings with Goldman or the Goldman Foundation. The Plaintiffs do not provide the ratios of the amounts donated by Goldman, or the Goldman Foundation, to overall donations, or any other information demonstrating that the amount would be material to the charity. Crucially, the Plaintiffs fail to provide any information on how the amounts given influenced Bryan's decision-making process.[178]

         In J.P. Morgan, the court found the allegations of conflict similarly lacking. The plaintiff there challenged several directors' independence based on the defendant company's donations to two organizations (the American Natural History Museum and the United Negro College Fund) at which the directors held various positions, including president, trustee and CEO.[179] The court found that the complaint lacked any indication that the contributions to the respective non-profits were of import to the directors or how the donations would affect the directors' decision making.[180]

         For his part, Plaintiff cites to In re Oracle[181]and Delaware County Employees Retirement Fund'v. Sanchez[182] In Oracle, then-Vice Chancellor Strine analyzed the independence of a two-person special litigation committee that had moved to dismiss a derivative action.[183] The committee members were both tenured professors at Stanford who were tasked with investigating claims of insider trading against other directors on the company's board. The court found the following ties to exist between the targets of the committee's investigation and Stanford: one director was also a professor at Stanford who had taught one of the committee members; another was a Stanford alumnus who had directed millions of dollars of donations over the years to Stanford; and the third was the company's CEO who donated millions of dollars to Stanford through a personal foundation.[184] The court concluded that "the ties among the [committee], the Trading Defendants, and Stanford are so substantial that they cause reasonable doubt about the [committee]'s ability to impartially consider whether the Trading Defendants should face suit."[185] The court reached this conclusion by applying a "contextual approach, " explaining:

Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement. Homo sapiens is not merely homo economicus. We may be thankful that an array of other motivations exist that influence human behavior; not all are any better than greed or avarice, think of envy, to name just one. But also think of motives like love, friendship, and collegiality, think of those among us who direct their behavior as best they can on a guiding creed or set of moral values.
Nor should our law ignore the social nature of humans. To be direct, corporate directors are generally the sort of people deeply enmeshed in social institutions. Such institutions have norms, expectations that, explicitly and implicitly, influence and channel the behavior of those who participate in their operation.[186]

         In my view, Oracle is the more fitting and persuasive authority here. Plaintiff has pled that Van der Hoof Holstein is employed by, and has a leadership role in, a relief organization that clearly derives substantial support, both financial and devotional, from the Edens family through considerable donations, aide in relief efforts and service on its board. Plaintiffs failure to quantify precisely the contributions made by the Edens family, as argued by Defendants, does not undercut the particularized pleading that their support is significant to PIH, Van der Hoof Holstein's main employer, and to Van der Hoof Holstein.[187] The fact that Plaintiff does not allege that Van der Hoof Holstein actually solicited the donations or the other support provided by the Edens family to PIH does not dilute their relevance to the "independence" analysis.[188] When the Edens family's ties to PIH are coupled with the substantial and clearly material director fees Van der Hoof Holstein receives from service on boards at the behest of Edens, I am satisfied that these allegations raise reasons to doubt Van der Hoof Holstein's independence from Edens.

         With that conclusion, I have determined that a majority of the seven directors that would have considered a demand from Plaintiff are in some way conflicted. Thus, I could stop the Aronson analysis here. For the sake of completeness, however, I will address the independence of both Colbert and McFarland as well.

         6. Colbert

         The thrust of Plaintiffs allegations with respect to Colbert is that there is reason to doubt his independence from Edens after Edens invited Colbert to join the Milwaukee Bucks ownership group, a unique, prestigious and lucrative opportunity available, by NBA rule, to no more than 750 people in the world.[189] In return for this invitation, Colbert, through Partners for Community Impact, LLC, assisted Edens and the City of Milwaukee in their efforts to build a new arena in downtown Milwaukee.[190] This connection, according to Plaintiff, creates such "a special and highly unusual financial and social relationship because of the prestige associated with an ownership stake" that Colbert could not be expected to act against Edens' interests, especially given that Colbert joined Edens' Bucks ownership group around the same time he joined the New Senior Board.[191]

         Plaintiff likens the Bucks ownership connection between Edens and Colbert to the unique relationship at issue in Sandys v. Pincus[192] In Pincus, our Supreme Court found that a derivative plaintiff had raised a reasonable doubt regarding a director's independence by pleading that the interested director's family and the family of the challenged director owned a private plane together.[193] The Court based its finding on the fact that "[c]o-ownership of a private plane involves a partnership in a personal asset that is not only expensive, but also requires close cooperation in use, which is suggestive of detailed planning indicative of a continuing, close personal friendship."[194] Such close relationships, the Court explained, would be expected "to heavily influence a human's ability to exercise impartial judgment."[195]

         Defendants argue that the relationship Plaintiff has proffered here is nothing like the one presented in Pincus. Colbert is a co-owner of a sports team with Edens, along with several others. According to Defendants, this business relationship does not evidence the kind of close friendship or personal relationship that can reasonably be inferred when individuals own a private plane together.

         I agree with Defendants that the relationship dynamics are different. There is likely little or no planning required between Edens and Colbert to ensure that the Bucks continue to operate successfully as an NBA franchise.[196] But that does not mean the dynamics of joining together to own a professional sports team are any less revealing of a unique, close personal relationship. Edens invited Colbert to join him in a relatively small group of investors who would own a highly unique and personally rewarding asset. In return, Colbert assisted Edens in the effort to build a new arena for the team they now co-owned. I am satisfied that this relationship creates a reason to believe that Colbert "may feel. . . beholden to [Edens]."[197]

         7. McFarland

         As for the final director, McFarland, the Complaint alleges that he serves on the board of Drive Shack, where he was placed as a Fortress designee alongside Edens, and that he receives 60% of his publicly reported income from his service on Fortress-affiliated boards.[198] The Complaint further characterizes as "telling" the fact that McFarland lists his address for purposes of investment activities as "C/O Fortress Investment Group."[199]

         Plaintiffs allegations concerning McFarland's lack of independence are more scant than those pled regarding the other directors. As I review these allegations, I am reminded that, in Sanchez, our Supreme Court observed that "[determining whether a plaintiff has pled facts supporting an inference that a director cannot act independently of an interested director for purposes of demand excusal . . . can be difficult."[200] While a close call, I am satisfied that there is reason to doubt McFarland's independence. In so finding, I acknowledge that our law is settled that service on another board alongside the interested director, alone, is insufficient to raise a reasonable doubt as to a director's independence, [201] especially when the interested director does not control either company.[202] But there is more pled here.

         McFarland is a director of New Senior and Drive Shack, both of which are managed by Fortress. He was placed on these boards by Fortress and serves on both of them alongside Edens. Based on public filings, McFarland receives 60% of his publicly reported income from Fortress-managed companies.[203] And he lists his address on SEC Form 4s (for investments unrelated to Fortress) as "C/O Fortress." Weighing the totality of these facts, there is reason to doubt whether McFarland's material ties with Fortress and Edens would affect his ability independently to evaluate a demand to bring claims against them.[204]

         Plaintiff has pled sufficient facts to raise a reasonable doubt regarding the disinterestedness and independence of the majority of the New Senior Board such that demand would have been futile under the first prong of Aronson. I need not and decline to address Aronson's second prong.[205] The motion to dismiss under Court of Chancery Rule 23.1 is denied.

         B. Plaintiff Has Stated Viable Claims Against the Board and Givens as Officer

         Rule 12(b)(6) imposes a "less stringent" pleading standard than Rule 23.1.[206] "Thus, a complaint that survives a motion to dismiss pursuant to Rule 23.1 also will survive a 12(b)(6) motion to dismiss, 'assuming that it otherwise contains sufficient facts to state a cognizable claim.'"[207] "The standards governing a motion to dismiss for failure to state a claim 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 of proof."[208]

         Plaintiffs claims sound in breach of fiduciary duties. As this court explained in Frederick Hsu:

when determining whether directors breached their fiduciary duties, Delaware corporate law distinguishes between the standard of conduct and the standard of review. The standard of conduct describes what directors are expected to do and is defined by the content of the duties of loyalty and care. The standard of review is the test that a court applies when evaluating whether directors have met the standard of conduct.[209]

         With this distinction in mind, a logical approach to analyzing the breach of fiduciary duty claims is to "work[] through the standard of conduct, apply[] a standard of review, and then determin[e] whether the defendants have properly invoked any immunities or defenses, such as exculpation."[210] I follow that approach here.

         1. The Standard of Conduct

         "In performing their duties the directors [of Delaware corporations] owe fundamental fiduciary duties of care and loyalty."[211] "[T]he duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally."[212] Thus, "Delaware law is clear that the board of directors of a for-profit corporation . . . must, within the limits of its legal discretion, treat stockholder welfare as the only end, considering other interests only to the extent that doing so is rationally related to stockholder welfare."[213]

         Plaintiff has alleged that the Board defendants caused New Senior to pay more than was reasonable for the Holiday Portfolio to advance the interests of Fortress and Edens at the expense of New Senior and its stockholders.[214] Accepted as true, these allegations describe the kind of self-dealing transaction that gives rise to a classic breach of the duty of loyalty claim.[215]

         2. The Standard of Review

         As is often the case at the pleadings stage, much ink has been spilled by the parties to express their competing views regarding the applicable standard of review.[216] Plaintiff argues that his claims implicate entire fairness review because the Challenged Transactions were interested transactions. Accordingly, given the heightened scrutiny with which the Court must review his claims, he maintains that the Court cannot adjudicate them on a motion to dismiss under Rule 12(b)(6).[217]

         Not surprisingly, Defendants argue that the Court should review Plaintiffs claims under the business judgment rule. They maintain that the Complaint, at best, pleads facts that would allow a reasonable inference that only Edens, Givens and perhaps Malone were interested in the Challenged Transactions. Thus, because a majority of the Transaction Committee was disinterested, the Challenged Transactions fit within the safe harbor codified in 8 Del. C. § 144(a)(1) and, therefore, the business judgment rule applies. Moreover, they maintain that, even without the safe harbor, "[t]o invoke entire fairness [at the pleading stage], in the absence of a controlling shareholder, Plaintiff would need to allege that a majority of the board was interested in the [Challenged Transactions] or beholden to an interested party."[218] Since the Complaint pleads neither factual predicate (majority interest or lack of independence) for entire fairness review, the business judgment presumption must apply. I disagree on both counts.

         a. Section 144

         Defendants' Section 144(a)(1) argument catenates along the following analytical tree: (i) under Supreme Court precedent, approval by a majority of disinterested directors under Section 144(a)(1) triggers review under the business judgment rule; (ii) for purposes of applying the safe harbor of Section 144(a)(1), the Court should consider only whether directors are interested in the transaction, and should not be concerned with whether the majority of the board is also independent; and (iii) since Plaintiff has only challenged three directors on grounds they were interested in the Challenged Transactions, the majority of the Board met the requirements of Section 144(a)(1) and their decisions must, therefore, be protected as valid business judgments.[219] In support of this argument, Defendants rely principally upon Benihana of Tokyo, Inc. v. Benihana, Inc., decided by our Supreme Court in 2006.[220] There, applying Section 144(a)(1), the Court stated "[a]fter approval by disinterested directors, courts review the interested transaction under the business judgment rule . . ., "[221]

         Our case law interpreting Section 144(a)(1) is murky at best. A search of one's favorite legal research site would yield cases that appear to support the view that Section 144(a)(1)'s safe harbor works as Defendants suggest.[222] That same search, however, would yield several cases, even post-Benihana II, where our courts have viewed Section 144(a)(1) much more narrowly.[223]

         To put Benihana II in context, it is useful to review the decision of this court in Benihana I that was affirmed. In clarifying the interaction between Section 144(a)(1) and the common law business judgment rule, this court explained:

Satisfying the requirements of § 144 only means that the BFC Transaction is not void or voidable solely because of the conflict of interest.
While non-compliance with §§ 144(a)(1), (2)'s disclosure requirement by definition triggers fairness review rather than business judgment rule review, the satisfaction of §§ 144(a)(1) or (a)(2) alone does not always have the opposite effect of invoking business judgment rule review. Rather, satisfaction of §§ 144(a)(1) or (a)(2) simply protects against invalidation of the transaction "solely" because it is an interested one. As such, § 144 is best seen as establishing a floor for board conduct but not a ceiling. Thus, equitable common law rules requiring the application of the entire fairness standard on grounds other than a director's interest still apply.

         After determining that the defendant board members had guided the interested transaction into Section 144(a)(1)'s safe harbor, and that the transaction, therefore, would not be voided, Vice Chancellor Parsons proceeded to address the plaintiffs allegations that the directors breached their fiduciary duties by applying common law standards. He ultimately concluded that none of the directors had breached their duty of loyalty because the majority of the directors that approved the transaction were disinterested and independent and the Board did not enter into the transaction for an improper purpose.[224]

         Several commentators and judges, post-Benihana II, have similarly articulated the difference between the oft-confused Section 144(a) safe harbors and the common law our courts apply to determine the appropriate standard of review by which to adjudicate a challenge to an interested transaction. A particularly cogent expression of the distinction (and the confusion) can be found in Finding Safe Harbor: Clarifying the Limited Application of Section 144, where the authors explain:

section 144(a)(1) provides that a covered transaction will not be void or voidable solely as a result of the offending interest if it is approved by an informed majority of the disinterested directors, even though the disinterested directors be less than a quorum. Under the section 144 statutory analysis, so long as there is one informed, disinterested director on the board, and so long as he or she approves the transaction in good faith, the transaction will not be presumptively voidable due to the offending interest. In other words, a nine-member board with a single disinterested director may approve a covered transaction and reap the benefits of the section 144 safe harbor.
Under the common law, however, the factor is somewhat different; approval must be by a disinterested majority of the entire board. That is, a plaintiff may rebut the presumption of the business judgment rule by showing that a majority of the individual directors were interested or beholden. In the common-law analysis, therefore, a transaction approved by the nine-member board discussed above (with the single disinterested director) will be subject to the entire-fairness standard. The standards are phrased similarly for the statutory and common-law analyses, but they are in fact quite different.[225]

         Based on the plain language of the statute, [226] and my reading of the persuasive authority on the subject, I am satisfied that compliance with Section 144(a)(1) does not necessarily invoke business judgment review of an interested transaction. The Court must still adhere to settled common law principles when fixing the appropriate standard of review by which fiduciary conduct should be measured.[227]

         b. The Majority of the Board Was Interested In the Challenged Transactions or Not Independent

         In Orman v. Cullman, Chancellor Chandler succinctly laid out the pathway to overcoming the business judgment presumption at the pleading stage by alleging that the Board acted out of self-interest or with allegiance to interests other than the stockholders':

As a general matter, the business judgment rule presumption that a board acted loyally can be rebutted by alleging facts which, if accepted as true, establish that the board was either interested in the outcome of the transaction or lacked the independence to consider objectively whether the transaction was in the best interest of its company and all of its shareholders. To establish that a board was interested or lacked independence, a plaintiff must allege facts as to the interest and lack of independence of the individual members of that board. To rebut successfully business judgment presumptions in this manner, thereby leading to the application of the entire fairness standard, a plaintiff must normally plead facts demonstrating that a majority of the director defendants have a financial interest in the transaction or were dominated or controlled by a materially interested director.[228]

         "If a director-by-director analysis leaves insufficient [independent] directors to make up a board majority, then the court will review the board's decision for entire fairness."[229]

         As noted, the Complaint alleges that a majority of the New Senior directors approved the self-dealing Acquisition at an excessive price, allowed New Senior to issue stock to finance the Acquisition at an unreasonable discount, declined to exercise their independent judgment when making those decisions and let Givens (and Edens), who stood on both sides of the deal, control the negotiation and sale process.[230] According to Plaintiff, these pled facts make "[t]his [an] entire fairness case."[231] I agree.

         Following Edens' and Givens' abstention from the vote, the Acquisition was approved by the Board members who served on the Transaction Committee- Malone, Van der Hoof Holstein, Colbert and McFarland. Since the test for director interest and independence is generally the same for purposes of this analysis as the test under the first prong of Aronson,[232] for the same reasons I determined those directors were interested or not independent under Aronson, I find that ...

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