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The Cirillo Family Trust v. Moezinia

Court of Chancery of Delaware

July 11, 2018


          Date Submitted: April 3, 2018

          David A. Jenkins, Neal C. Belgam, and Clarissa R. Chenoweth of SMITH, KATZENSTEIN & JENKINS LLP, Wilmington, Delaware; Attorneys for Plaintiff.

          A. Thompson Bayliss, Adam K. Schulman, and E. Wade Houston of ABRAMS & BAYLISS, LLP, Wilmington, Delaware; Richard W. Reinthaler of WINSTON & STRAWN, LLP, New York, New York; Attorneys for Defendants.


          BOUCHARD, C.

         This action arises out of the acquisition of defendant DAVA Pharmaceuticals, Inc. by an affiliate of Endo Pharmaceuticals, Inc. in August 2014. Before the merger, DAVA was a closely-held corporation with thirty-one stockholders.

         To expedite consummation of the merger, DAVA's longtime outside legal counsel suggested that it obtain stockholder approval of the merger by written consent under Section 228 of the Delaware General Corporation Law. DAVA pursued this route. It quickly obtained written consents from its nine largest stockholders that collectively held over 95% of the Company's common shares, each of whom also signed the merger agreement. Shortly thereafter, DAVA obtained written consents from all of its other stockholders except the plaintiff in this case, The Cirillo Family Trust, which held approximately 0.27% of DAVA's shares as of the date of the merger.

         When it became apparent that the Trust would not provide a written consent approving the merger, DAVA sent the Trust a notice stating that the merger had been approved by a majority of DAVA's stockholders and providing information about how to seek appraisal of its shares. The notice contained two undisputed legal deficiencies. First, the statement in the notice that DAVA had obtained stockholder approval of the merger technically was inaccurate because the written consents of the nine largest stockholders were not dated properly, rendering them invalid under Section 228 as it was written at the time. Second, the notice did not contain legally required information that would allow a stockholder to make an informed decision whether to pursue appraisal.

         In September 2014, one month after the merger closed, the Trust filed suit. As amended, the Trust's complaint asserts two claims. Count I seeks rescissory damages against DAVA and its directors because of defects concerning the dating of certain written consents. Count II asserts that DAVA's directors breached their fiduciary duties because the notice failed to include information material to a stockholder's determination whether to accept the merger consideration or to seek appraisal of its shares. DAVA asserts a counterclaim asking the court to validate and declare effective certain written consents, under Section 205 of the Delaware General Corporation Law, to remove any question that the merger obtained the requisite stockholder approval.

         Before the court are two motions: defendants' motion for summary judgment dismissing the amended complaint in its entirety and granting judgment in DAVA's favor on its counterclaim, and the Trust's motion to amend its complaint for a second time. For the reasons explained below, defendants' motion for summary judgment will be granted because (i) stockholder approval of the merger will be validated under 8 Del. C. § 205, and (ii) the undisputed factual record shows that DAVA's directors reasonably relied, in good faith, on the advice of outside legal counsel with respect to the preparation of the notice even though, unbeknownst to the directors, that advice was seriously flawed. For essentially the same reasons warranting entry of summary judgment in defendants' favor, the Trust's motion to amend will be denied except in one limited respect.

         I. BACKGROUND

         The facts recited herein are based on facts pled in the Verified Amended Class Action Complaint (the "Amended Complaint")[1] that are not in dispute, as well as documents, deposition testimony, and affidavits submitted by the parties in connection with defendants' motion for summary judgment.

         A. Parties and Relevant Non-Parties

         DAVA Pharmaceuticals, Inc. ("DAVA" or the "Company") was a generic pharmaceutical manufacturer headquartered in New Jersey and incorporated in Delaware.[2] In August 2014, DAVA merged with an affiliate of Endo Pharmaceuticals, Inc. ("Endo"), which resulted in the Endo affiliate acquiring all of the outstanding shares of DAVA's stock (the "Merger").[3] Before the Merger, DAVA was a closely-held corporation with thirty-one stockholders.[4] Since the Merger, DAVA has been operated as a wholly-owned, indirect subsidiary of Endo called DAVA Pharmaceuticals LLC.[5]

         Plaintiff The Cirillo Family Trust (the "Trust") is a former stockholder of DAVA that allegedly held 1, 626 shares, or 0.27%, of the Company's common stock as of the Merger.[6] Non-party Anthony Cirillo is the trustee of the Trust.

         Defendants Aram Moezinia, Lewis Tepper, and Mark Walter (the "Director Defendants") were the three members of DAVA's board of directors at the time of the Merger.[7] Moezinia was one of the founders of DAVA, served as an officer and director of the Company from its inception until the Merger, and was the Company's President at the time of the Merger.[8] Tepper served as the Company's General Counsel from its inception until the Merger and became a director in 2013.[9] Walter is the Chief Executive Officer of Guggenheim Capital Company, LLC, which was an original investor in DAVA.[10] Walter did not attend all of the Company's board meetings when he was a director and allowed a fellow Guggenheim executive, John Griffin, to act as his proxy at certain board meetings.[11]

         B. Events Preceding DAVA's Exploration of Strategic Options in 2013

         DAVA was founded in 2004.[12] On February 3, 2006, DAVA obtained a loan from Wachovia Bank, National Association.[13] DAVA defaulted on the Wachovia loan when it came due in 2007 or 2008, [14] but Wachovia worked with DAVA for a period of time to continue to carry the loan.[15]

         In early 2012, when Wachovia began to get "antsy" about carrying its loan to DAVA further, DAVA's-then directors approached some of their contacts about taking it over.[16] In late December 2012, an entity called HLAM5 Pharma Investors LLC purchased the Wachovia loan for $22.5 million, a discount to its outstanding balance of approximately $49.3 million (the "Debt Purchase").[17] Soon after the Debt Purchase, a number of other entities were assigned interests in the Wachovia loan (together with HLAM5 Pharma Investors LLC, the "New Lenders").[18]

         As part of the Debt Purchase, DAVA was required to negotiate with the New Lenders concerning the restructuring of the Wachovia loan.[19] As a result of these negotiations: (i) the Wachovia loan was restructured so that it was no longer in default, although the principal was not reduced;[20] (ii) the New Lenders were issued warrants, effective January 17, 2013, to purchase 50% of DAVA, on a fully diluted basis (the "Warrants");[21] and (iii) the New Lenders received a $1 million payment up front.[22]

         The Trust contends that some of the Warrants were issued to DAVA's directors at the time and/or entities affiliated with them. On November 8, 2013, in response to a request from Cirillo, Tepper sent Cirillo the Company's financial statements for 2011 and 2012, which disclosed the issuance of the Warrants but did not disclose the details of who received them.[23]

         Sometime later in 2013, to protect certain DAVA employee-stockholders from dilution from the Warrants, the DAVA board of directors granted them a number of stock options (the "Stock Options").[24] Most (58, 425.41) of the 77, 069 Stock Options granted in 2013 went to Tepper.[25]

         C. DAVA Merges with an Endo Affiliate

         In the fall of 2013, DAVA began considering various strategic options.[26] This process concluded on June 24, 2014, when DAVA's board of directors unanimously approved, and DAVA entered into, an Agreement and Plan of Merger between DAVA and an Endo affiliate (the "Merger Agreement"). Under the Merger Agreement, DAVA's stockholders were entitled to receive in the aggregate up to $600 million in consideration, comprised of $575 million in cash at the closing and contingent payments of up to $25 million.[27]

         Dechert LLP ("Dechert"), DAVA's longtime legal advisor, represented DAVA in negotiating the Merger.[28] Dechert had represented DAVA in multiple previous transactions, including the Company's incorporation in Delaware.[29] Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") was Endo's legal counsel in connection with the Merger.[30]

         Consummation of the Merger required stockholder approval. Given that DAVA had a relatively small number of stockholders and Endo wanted to close the Merger as quickly as possible, Dechert recommended that the Company obtain stockholder approval via written consents (the "Written Consents").[31] DAVA proceeded with this course of action, and Dechert was responsible for preparing copies of the Written Consents for the stockholders to sign.[32]

         At the time of the Merger, DAVA had a total of 600, 826.58 shares of common stock outstanding.[33] Because approval of the Merger did not require unanimous stockholder consent, DAVA decided to seek Written Consents initially from its nine largest stockholders, which held in the aggregate over 95% of the total shares outstanding.[34] These nine stockholders each signed Written Consents purporting to approve the Merger and each executed the Merger Agreement, which is dated as of June 24, 2014.[35] Important to this action, as discussed further below, these Written Consents did not comply with certain requirements of Delaware law at that time because they were not properly dated.[36]

         D. DAVA's Efforts to Obtain a Written Consent from the Trust

         After June 24, 2014, the date by which the Company believed it had obtained sufficient Written Consents for approval of the Merger, DAVA worked with Dechert to have the remaining stockholders execute Written Consents.[37] More specifically, Dechert prepared Written Consents for the remaining stockholders to sign and sent them to Tepper, who forwarded them to the stockholders along with copies of the Merger Agreement.[38] Ultimately, all of DAVA's stockholders other than the Trust-holding in the aggregate approximately 99.73% of DAVA's outstanding shares-signed Written Consents.[39]

         On June 25, 2014, Dechert advised Tepper that, to the extent DAVA was unable to obtain Written Consents from any of the "small" stockholders, DAVA would be required under Sections 228 and 262 of the Delaware General Corporation Law to mail a notice promptly informing them of the execution of the Merger Agreement and their associated appraisal rights (the "Notice").[40]

         On June 26, 2014, Tepper sent Cirillo a copy of the Merger Agreement and a Written Consent for the Trust to sign and return to him.[41] On July 1, 2014, having not heard back from Cirillo, Tepper followed up with him, to which Cirillo replied the next morning: "Hi sorry been tending to a family issue. I will go over everything tonite when back[.] [C]an u send me info on how my 1.5pc of dava got diluted to .27 of 1 pct[?] [T]hanks."[42] About two hours later, Tepper responded to Cirillo's request, providing "a chronology of the dilutive events that took place at the company."[43]

         Also on July 2, Tepper exchanged emails with Michael Rosenberg, an associate at Dechert. In one email, Rosenberg expressed concern that sending the Notice to Cirillo could be "putting the gun in his hands" and suggested that Tepper call him directly to see if that could be avoided:

I was thinking, and will defer to your judgment on this, that maybe it makes sense to place a call to Cirillo directly. I don't know him as well as you, but I worry that if we send him a notice of appraisal rights etc, that it might be "putting the gun in his hands." Where a simple call asking him to get on Board [sic] with the Merger and sign the Consent, may have the desired outcome. I don't know how knowledgeable he is or how adverse to us he may be at this point but it's just a thought. At worst a call can do no worse than sending him the notice, which we'd have to do anyhow without the call.
What do you think?[44]

         Dechert had been working internally to draft the Notice. On July 2 as well, Rosenberg sent an email to Richard Goldberg, the Dechert partner in charge of the deal, enclosing a draft of the Notice for Goldberg's review and comment. The email stated:

We are still in the hopes that we don't need these, but here are drafts of the Form of Notice and Appraisal Rights and the Letter of Transmittal for you to look over. Hopefully Lewis [Tepper] resolves everything with Cirillo and he signs the consent.[45]

         On July 3, Goldberg provided his comments on the draft, raising the following points: "This says nothing about the merger agreement terms-price, escrow 20 m holdback. Closing conditions. Check other precedents. Do they?"[46] In response, Rosenberg said: "Of the six precedents I looked at only one goes through in any detail the specific merger terms, the rest all just attach the Merger Agreement as an Annex, which I think works a bit cleaner."[47] To this, Goldberg simply replied "[s]o they don't mention the price."[48]

         On July 3, 2014, having not received a Written Consent from the Trust, Tepper instructed Dechert to "get those notices ready to go."[49] The Notice that ultimately was sent to Cirillo stated that the holders of a majority of DAVA's stock had approved the Merger by Written Consent on June 24, 2014.[50] The Notice also informed the Trust of its right to seek appraisal of its shares within twenty days and included a Letter of Transmittal in the event it wanted to accept the Merger consideration.[51] Apparently mimicking Dechert's precedents, the Notice failed to include, among other things, any financial information relating to DAVA, any description of DAVA's business and its future prospects, and any information about how the Merger price was determined or whether the price was fair to stockholders.[52]

         The three Director Defendants never discussed the contents of the Notice among themselves.[53] Moezinia and Walter entirely deferred to Tepper, as General Counsel, and to Dechert, as DAVA's corporate counsel, with respect to the drafting and mailing of the Notice.[54] Tepper, in turn, took an almost entirely passive role with the preparation of the Notice. Other than reviewing (but not commenting on) the disclosures prepared by Dechert and asking a few administrative questions regarding mailing, timing, and whether certain disclosures needed to be sent along with the Notice, he played no role.[55] As Tepper put it, he and his "fellow directors relied entirely on Dechert with respect to the form and content of the Notice."[56]

         On July 8, 2014, Tepper received an email from Cirillo indicating that he had received the Notice from Dechert and suggesting that he would provide a signed Written Consent for the Trust the following day.[57] On July 10, 2014, Cirillo emailed Tepper again, requesting that Tepper change the signatory to "Cirillo Family Trust," which Tepper did the same day.[58] The Trust ultimately did not sign the Written Consent or the Letter of Transmittal, [59] nor did it exercise its right to seek appraisal.

         The Merger closed on August 6, 2014.[60] Over three years later, on September 20, 2017, after the Trust moved to amend its pleading to add a claim for failure to pay the Merger consideration, DAVA SR LLC (the Stockholders' Representative) paid the Trust the Merger consideration plus interest (totaling $1, 336, 282.41) for the 1, 626 shares it purported to hold at the time of the Merger.[61]


         The Trust filed this action on September 11, 2014, asserting one claim for breach of fiduciary duty against the Director Defendants for failing to include adequate financial information in the Notice.[62] As a remedy, the Trust sought quasi-appraisal and damages to the extent that the court determined DAVA's fair value was greater than the Merger consideration.[63]

         On February 23, 2015, after defendants had moved to dismiss the original complaint, the Trust filed the Amended Complaint, asserting two claims.[64] Count I seeks rescissory damages against DAVA and the Director Defendants because of defects concerning the dating of the Written Consents. Count II asserts that the Director Defendants breached their fiduciary duty because the Notice failed to include "any information that would enable [DAVA's] stockholders to determine whether to accept the Merger consideration or seek appraisal of their stock."[65]

         The Director Defendants moved to dismiss Count II of the Amended Complaint, which the court denied on July 29, 2015.[66] The court explained that it was skeptical that the Trust would be able to prove that the Director Defendants had acted in bad faith with respect to the Notice since they likely relied on their advisors, but that the claim was reasonably conceivable at the pleading stage because of the complete lack of information that should have been disclosed in the Notice.[67]

         On August 21, 2015, defendants filed an Answer and DAVA filed a Counterclaim, which were amended on January 19, 2016.[68] The Counterclaim asks the court to validate and declare effective certain Written Consents under 8 Del. C. § 205.[69]

         On April 25, 2016, while fact discovery was still open, defendants filed a motion for summary judgment.[70] The court held this motion in abeyance pending the completion of fact discovery.[71] During the subsequent discovery, all three of the Director Defendants and Goldberg, the Dechert partner in charge of the transaction, were deposed.[72] On December 23, 2016, after fact discovery was substantially completed, defendants renewed their motion for summary judgment.[73] On January 13, 2017, the Trust filed another motion for leave to amend its complaint to assert four claims.[74]

         On September 7, 2017, the court heard argument on defendants' motion for summary judgment and the Trust's motion to amend.[75] At the hearing, the court requested supplemental briefing on whether, in the absence of a viable claim for breach of fiduciary duty, a stockholder can pursue a "quasi-appraisal" claim against the surviving entity. That supplemental briefing prompted a further round of submissions, [76] which was completed on April 3, 2018.[77]


         I first address defendants' motion for summary judgment, which seeks dismissal with prejudice of Counts I and II of the Amended Complaint and the relief sought in DAVA's Counterclaim. For the reasons explained below, that motion will be granted in its entirety.

         A. Legal Standard

         In order to prevail on a motion for summary judgment, the moving party must show that no material facts are in dispute and that it is entitled to judgment as a matter of law.[78] Once the moving party has satisfied its initial burden of demonstrating the absence of a material factual dispute, "the burden shifts to the nonmovant to present some specific, admissible evidence that there is a genuine issue of fact for a trial."[79] Although "the facts of record, including any reasonable inferences to be drawn therefrom, must be viewed in the light most favorable to the nonmoving party, "[80] the nonmoving party must affirmatively present evidence- "not guesses, innuendo or unreasonable inferences"-demonstrating the existence of a genuine issue of fact.[81] Mere conclusory allegations are insufficient to defeat a motion for summary judgment.[82]

         B. Defendants are Entitled to Summary Judgment on Count I of the Amended Complaint and the Counterclaim Because Technical Defects Involving the Dating of Certain Written Consents will be Judicially Validated Under 8 Del. C. § 205

         In Count I of the Amended Complaint, the Trust seeks rescissory damages against DAVA and the Director Defendants based on the failure of a majority of the Written Consents to "comply with the date requirement of 8 Del. C. § 228(c)."[83] At the time of the Merger, Section 228(c) provided, in relevant part, that "[e]very written consent shall bear the date of signature of each stockholder or member who signs the consent."[84] The statute was amended in 2017 to eliminate this requirement.[85]

         Defendants admit "that most of the Written Consents were not dated by signatories on the dates they were signed" and that "[t]hey were either undated or the dates were inserted later by Dechert."[86] They argue that non-compliance with the dating requirement in the previous version of Section 228(c) was a mere technical deficiency, emphasizing that it is undisputed that the vast majority of DAVA's stockholders wanted to approve the Merger. In its Counterclaim, DAVA specifically asks the court to validate under 8 Del. C. § 205 the Written Consents of the Company's seven largest stockholders at the time of the Merger, who collectively held 556, 822.41 shares of DAVA common stock, or approximately 92.7% of the outstanding shares.[87]

         As this court has previously explained, the requirements of Section 228 are not to be taken lightly because the statute bestows stockholders with the power to take swift and wide-ranging action.[88] "But with great power comes great responsibility."[89] "Because Section 228 permits immediate action without prior notice to minority stockholders, the statute involves great potential for mischief and its requirements must be strictly complied with if any semblance of corporate order is to be maintained."[90] Thus, the Delaware Supreme Court has held that the statute must be "given its plain meaning," which requires adherence to the condition that "any corporate action taken under [Section] 228 is effective only upon the delivery of the proper number of valid and unrevoked consents to the corporation."[91] This mandatory adherence has been extended even to the ministerial requirements of Section 228, such as the dating of consents by each consenting stockholder when the statute contained such a requirement.[92]

         Since it became effective on April 1, 2014, however, Section 205 of the Delaware General Corporation Law has provided a mechanism for corporations to seek relief from this court to validate defective corporate acts that would otherwise be considered incurable.[93] Specifically, Section 205 authorizes the court to "[d]etermine the validity of any corporate act or transaction," "[v]alidate and declare effective any defective corporate act," and to "[d]eclare that a defective corporate act validated by the court shall be effective as of the time of the defective corporate act."[94] As this court has explained, the underlying purpose of the statute "fundamentally concerns a company having taken an act with the intent and belief that it is valid and later petitioning the Court to correct a technical defect and thereby remedy incidental harm."[95] Here, no one has questioned the authenticity of the signatures on the Written Consents or the intent and desire of all stockholders other than the Trust-holding 99.7% of DAVA's stock-to approve the Merger.

         Section 205(d) sets forth a number of factors the court may consider in reaching its determination whether to validate the defective corporate act in question:

(1) Whether the defective corporate act was originally approved or effectuated with the belief that the approval or effectuation was in compliance with the provisions of this title, the certificate of incorporation or bylaws of the corporation;
(2) Whether the corporation and board of directors has treated the defective corporate act as a valid act or transaction and whether any person has acted in reliance on the public record that such defective corporate act was valid;
(3) Whether any person will be or was harmed by the ratification or validation of the defective corporate act, excluding any harm that would have resulted if the defective corporate act had been valid when approved or effectuated;
(4) Whether any person will be harmed by the failure to ratify or validate the defective corporate act; and
(5) Any other factors or considerations the Court deems just and equitable.[96]

         In my view, all five of the Section 205(d) factors weigh in favor of judicial validation.

         First, the record demonstrates that DAVA's board effectuated the Merger with the belief, relying on Dechert's advice, that the holders of more than 95% of DAVA's common stock-a clearly sufficient amount to approve the Merger-had validly executed and delivered the Written Consents.[97]

         Second, the evidence shows that DAVA's board and holders of 99.7% of DAVA's stock have always treated the Written Consents as if they were valid and effective.[98] The Trust itself did not question the validity of the Merger until it amended its complaint over six months after the transaction closed.

         Third, no one will, or could, be harmed by the validation of the Written Consents given the evidence that all stockholders, other than the Trust, intended to vote in favor of the Merger.[99] The Trust argues that it would be harmed by validation because if Count II does not survive, "then the relief under Count I may be plaintiff's only alternative to obtain redress for the wrongs it has suffered."[100] This argument ignores the portion of Section 205(d)(3) that excludes from the factors that the statute identifies for consideration "any harm that would have resulted if the defective corporate act had been valid when approved or effectuated."[101] Had the Written Consents been valid, the Trust never would have been able to use an attack on their validity to seek damages in connection with the Merger. The short answer to the Trust's argument is that Count II should rise and fall on its own merits.

         Fourth, DAVA and all of its former stockholders who signed the Merger Agreement stand to be harmed if DAVA is forced to continue litigating the validity of the Written Consents.[102] The Merger closed nearly three years ago, and DAVA has been operating as a subsidiary of Endo ever since. Thus, "the metaphorical merger eggs have been scrambled."[103]

         Fifth, validating the Written Consents is consistent with the underlying purpose of the statute. The failure to properly date the Written Consents is the epitome of a technical shortcoming that the Delaware General Assembly sought to address when it promulgated Section 205.[104] Indeed, as noted above, Section 228(c) was amended in 2017 to eliminate the requirement that written consents bear the date of signature of the consenting stockholder, which suggests that this requirement was technical in nature and a superfluous condition to the use of written consents.

         For the reasons stated above, defendants' motion for summary judgment (i) affording DAVA the relief sought in its Counterclaim under 8 Del. C. § 205 and (ii) dismissing Count I of the Amended Complaint with prejudice will be granted.

          C. Defendants are Entitled to Summary Judgment on Count II Because the Trust Cannot Establish a Non-Exculpated Claim for Breach of Fiduciary Duty

         In Count II of the Amended Complaint, the Trust asserts that the Director Defendants breached their fiduciary duty in two respects: (i) by incorrectly informing DAVA's stockholders that the Merger had been approved by the Written Consents of the holders of a majority of the Company's stock; and (ii) by failing to include "any information that would enable those stockholders to determine whether to accept the Merger consideration or seek appraisal of their stock."[105]

         The first aspect of this claim is moot given the disposition of the Counterclaim, as discussed above, validating the Merger as approved by holders of a majority of the Company's stock.

         With respect to the second aspect of Count II, the Delaware Supreme Court has articulated the overarching standard for directors' communications with stockholders as follows:

Whenever directors communicate publicly or directly with shareholders about the corporation's affairs, with or without a request for shareholder action, directors have a fiduciary duty to shareholders to exercise due care, good faith and loyalty. It follows a fortiori that when directors communicate publicly or directly with shareholders about corporate matters the sine qua non of directors' fiduciary duty to shareholders is honesty.[106]

         A disclosure-based claim for breach of fiduciary duty thus may implicate both the duty of care and the duty of loyalty.[107]

         At the times relevant to this action, DAVA's certificate of incorporation contained a provision, authorized under 8 Del. C. § 102(b)(7), exculpating DAVA's directors from monetary liability resulting from a breach of fiduciary duty to the fullest extent permissible under Delaware law.[108] Thus, the Director Defendants are exculpated for any breach of their duty of care, and the Trust's breach of fiduciary duty claim can survive only if a genuine issue of fact exists in support of a claim that the Director Defendants breached their duty of loyalty.[109] In that vein, the Trust advances two arguments in support of a loyalty claim against the Director Defendants concerning the Merger: that they (i) were self-interested and lacked independence, and (ii) acted in bad faith. I address the arguments in that order.

         1. The Director Defendants Were Not Self-Interested and Did Not Lack Independence with Respect to the Merger

         The Trust contends that the Director Defendants either were self-interested or lacked independence with respect to the Warrants issued in January 2013 and that it was a breach of their duty of loyalty not to provide information about these conflicts in the Notice.[110]

         "Classic examples of director self-interest in a business transaction involve either a director appearing on both sides of a transaction or a director receiving a personal benefit not received by the shareholders generally."[111] "Independence means that a director's decision is based on the corporate merits of the subject before the board rather than extraneous considerations or influences."[112] To establish that directors lack independence, a plaintiff must show "that the directors are 'beholden' to the [interested party] or so under [its] influence that their discretion would be sterilized."[113]

         Assuming for the sake of argument that some or all of the Director Defendants were self-interested and/or lacked independence with respect to the issuance of the Warrants, an issue on which I express no opinion, the Trust's argument fails because it focuses on a transaction unrelated to the Merger. The Warrants in question were issued in January 2013 as part of the Debt Purchase. The Merger was the culmination of a review of strategic options that began in the fall of 2013 and ended when the Merger closed in August 2014. Plaintiff concedes that the issuance of the Warrants and the Merger were not part of a unitary transaction, and nothing in the record suggests otherwise.[114] Thus, whether any of the DAVA directors who approved the Warrants were self-interested or lacked independence with respect to that transaction may be relevant to an "improper dilution" claim, [115] but that issue has no bearing on the separate matter of whether the Director Defendants who approved the Merger approximately nineteen months later were self-interested or lacked independence with respect to the Merger.

         Putting the Warrants aside, the undisputed facts of record are that the Merger was an arm's-length transaction between unaffiliated parties, each represented by separate counsel: Dechert for DAVA and Skadden for Endo.[116] The Merger was not a self-interested transaction implicating the duty of loyalty. The Director Defendants did not stand on both sides of the transaction, nor did they derive any personal benefit different from that bestowed on other stockholders. To the contrary, they had the same financial incentive to maximize the consideration received in the Merger because their shares of DAVA were cashed out at the same price that the Trust and every other stockholder of the Company received. The Trust also has presented no facts suggesting that the Director Defendants were beholden to Endo or otherwise lacked independence with respect to the Merger.

         In sum, no genuine issue of fact exists calling into question the Director Defendants' alignment of interests and independence with respect to the Merger. Thus, given the Section 102(b)(7) exculpatory provision in DAVA's certificate of incorporation, the only potential way for Count II to survive defendants' motion for summary judgment is for there to be a genuine issue of fact that the Director Defendants acted in bad faith in connection with the preparation of the Notice. I address this argument next.

         2. The Director Defendants' Actions with Respect to the Contents of the Notice Do Not Amount to Bad Faith

         The Trust contends that, "[e]ven if the directors were neither interested in nor lacked independence in connection with the Notice, their actions were in bad faith, and thus they cannot be exculpated for their breaches under a Section 102(b)(7) provision."[117] More specifically, the Trust argues that the Director Defendants engaged in bad faith conduct by intentionally failing to disclose, or recklessly not disclosing, material information about the Company in the Notice.[118]

         "A showing of bad faith requires an 'extreme set of facts to establish that disinterested directors were intentionally disregarding their duties or that the decision . . . [was] so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any other ground other than bad faith.'"[119] The undisputed factual record shows that this is not one of those "extreme" cases.

         As the court expressed at an earlier hearing, the Notice was totally bereft of information required under Delaware law to permit a stockholder to decide whether to seek appraisal in lieu of accepting the Merger consideration.[120] The relevant inquiry here, though, is not whether the Notice was legally deficient (it clearly was), [121] but whether the Director Defendants acted in bad faith with respect to the preparation of the Notice and the disclosures it contained. Because the unrebutted record shows that the Director Defendants reasonably relied upon DAVA's longtime outside corporate counsel to prepare the Notice, their actions do not rise to the threshold required for bad faith as a matter of law.

         Justifiable reliance on outside counsel evinces good faith, not an improper dereliction of duty.[122] Indeed, reliance by corporate directors on outside experts for specialized, technical, or esoteric matters should be encouraged and not condemned.[123] In that vein, Delaware law statutorily encourages directors to rely on experts, including legal counsel, to inform themselves and properly discharge their fiduciary duties.[124]

         Moezinia is not a lawyer.[125] Although Tepper and Walter both were trained as lawyers, neither has expertise in Delaware mergers and acquisitions law.[126]Dechert had served as DAVA's primary outside counsel for corporate transactional matters since DAVA was founded as a Delaware corporation in 2004.[127] Based on their prior dealings with Dechert and its professional reputation, it was reasonable for the Director Defendants to believe that the law firm was competent to provide legal advice in connection with the Merger.[128] More specifically, it was reasonable for them to rely on Dechert-as they testified they did-to ensure compliance with the legal requirements for obtaining stockholder approval by written consent, including the provision of a notice of appraisal rights to any non-consenting stockholder, in accordance with the recommendation Dechert made to pursue this course for obtaining stockholder approval of the Merger.[129]

         The Trust criticizes Walter and Moezinia for relying on Tepper to handle the Notice properly, and it takes issue with Tepper deferring almost entirely to Dechert with respect to the dissemination and content of the Notice. To the limited extent that Tepper was involved, the Trust faults him because "Tepper and Dechert discussed that they did not want to send the Cirillo Trust a notice of appraisal rights because, by doing so, they would be 'putting the gun in his hands.'"[130]

         To my mind, it is logical that Walter and Moezinia would look to Tepper as the Company's General Counsel to oversee the legalities of providing notice of a transaction to stockholders. It also makes eminent sense that Tepper would assign responsibility for ensuring that the Notice complied with the requirements of Delaware law to the counsel specifically retained to advise the Company on the Merger.

         As for the "gun in his hands" email, Rosenberg, not Tepper, made this comment. The plain language of Rosenberg's message, although inflammatory, indicates that the email was intended as a suggestion that a phone call could facilitate the Trust's approval of the Merger and avoid the need to send the Notice. Nothing in that email suggests that Dechert did not know how to prepare a legally compliant notice, that Tepper should have questioned Dechert's competence on that matter, or that DAVA would not provide the Trust with the Notice when required to do so. Indeed, the record bears this out-within twenty-four hours of receiving Rosenberg's email, Tepper instructed him to get the Notice "ready to go."[131]

         The Trust also contends that the Director Defendants acted in bad faith in a number of contexts apart from the Notice. For example, the Trust argues that (i) Walter acted in bad faith because he allowed his fellow Guggenheim executive Griffin to "act as his proxy" at board meetings, and he failed to read a pleading filed on his behalf in this action, (ii) Moezinia acted in bad faith because he ducked questions at his deposition and repeated a "rehearsed response," and (iii) Tepper acted in bad faith because he tried to get the Trust to sign the Written Consent, which would cause it to waive its appraisal rights.[132] These arguments miss the mark. The issue here is whether the Director Defendants acted in bad faith with respect to the failure to include material information in ...

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