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Busch v. Richardson

Court of Chancery of Delaware

November 14, 2018

STEVEN H. BUSCH, Derivatively and On Behalf of RICHARDSON ELECTRONICS, LTD., Plaintiff,
v.
EDWARD J. RICHARDSON, PAUL PLANTE, JACQUES BELIN, JAMES BENHAM, KENNETH HALVERSON, Defendants, and RICHARDSON ELECTRONICS, LTD., Nominal Defendant.

          Submitted Date: September 21, 2018

          Peter B. Andrews, Craig J. Springer, and David M. Sborz, ANDREWS & SPRINGER LLC, Wilmington, Delaware; Jeffrey Norton and Roger A. Sachar, NEWMAN FERRARA LLP, New York, New York; Peter Safirstein and Elizabeth S. Metcalf, SAFIRSTEIN METCALF LLP, New York, New York, Attorneys for Plaintiff Steven H. Busch.

          Blake Rohrbacher, Kevin M. Gallagher, and John M. O'Toole, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware, Attorneys for Defendants Paul Plante, James Benham, and Kenneth Halverson.

          P. Clarkson Collins, Jr., MORRIS JAMES LLP, Wilmington, Delaware, Attorney for Defendant Edward J. Richardson.

          Garrett B. Moritz and Roger S. Stronach, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware, Attorneys for Defendant Jacques Belin and Nominal Defendant Richardson Electronics, Ltd.

          MEMORANDUM OPINION

          BOUCHARD, C.

         This case arises out of three transactions in which Richardson Electronics, Ltd. repurchased shares of its stock in 2013 and 2014 from its Chairman and Chief Executive Officer and a charity he controlled. The transactions were not disclosed as related-party transactions in the company's public filings until August 2015. About one year later, after obtaining books and records from the company concerning the repurchases, a stockholder of the company (Steven H. Busch) demanded that the company take action to unwind the transactions and, if necessary, initiate litigation to rescind them.

         In response to Busch's demand, the company's board of directors formed a special committee of outside directors to investigate the transactions. The special committee retained independent counsel, which requested and received access to documents, conducted interviews, met with the special committee on a regular basis, and prepared a 30-page report summarizing the committee's findings. The special committee concluded in its report that it did not believe that a factual basis existed on which to initiate action against any director or officer, but expressed concerns about the accuracy of certain of the company's disclosures to stockholders.

         On May 9, 2017, about two months after the special committee completed its report, the company's board informed Busch that it was declining to take any action in response to his demand. On December 5, 2017, Busch filed this action, asserting a single claim for breach of fiduciary duty against the five current members of the company's board for failing "to properly disclose [the transactions] to stockholders or take action to recover damages as a result of [the CEO's] breaches of fiduciary duty" after the directors had determined that the transactions were the result of a flawed process.[1] All defendants have moved to dismiss the Complaint under Court of Chancery Rules 23.1 and 12(b)(6).

         For the reasons explained below, the court concludes that the Complaint fails to plead particularized facts that raise a reasonable doubt about the board's good faith or due care in rejecting the demand based on the special committee's investigation. Under well-established precedent, therefore, the Complaint fails to meet the test for demonstrating that the board's refusal of Busch's demand was wrongful. But there is an additional wrinkle in this case.

         Busch contends that he should not be deemed to have conceded that a majority of the board was independent and disinterested by virtue of making his demand, as our demand refusal case law instructs. Busch argues it would be unfair to imply such a concession in this case on the theory that the company misled him before he made his demand to believe that the transactions were effectuated by a third-party broker under a repurchase plan and that the board had no involvement in dictating the timing or pricing of the transactions when, according to the special committee's report, that turned out not to be true. Given these circumstances, Busch argues that the court should apply the two-part test our Supreme Court articulated in Zapata Corp. v. Maldonado[2] to decide defendants' motions to dismiss under Rule 23.1.

         The record reflects that the company did make inaccurate factual representations to Busch before he made his demand, but it is unclear whether he actually relied on those representations in deciding to make his demand. It is not necessary to attempt to resolve this factual dispute, however, because even if defendants' Rule 23.1 motion were evaluated as if Busch never made his demand, the Complaint fails to plead particularized facts raising a reasonable doubt about the independence or disinterestedness of a majority of the directors on the board.

         As discussed below, the court performs this analysis by applying the test for determining demand futility. The court declines Busch's request to apply the Zapata test, which is designed to address a specific scenario not present here, i.e., where a committee of directors seeks to dismiss a derivative claim when a board is conflicted and making a demand would be excused.

         For these reasons, as further explained below, the court grants defendants' motions and dismisses the Complaint with prejudice.

         I. BACKGROUND

         Unless otherwise noted, the facts recited in this opinion are based on the allegations of the Complaint and documents incorporated therein.[3] Any additional facts are either not subject to reasonable dispute or are subject to judicial notice.

         Among the documents incorporated into the Complaint is the March 9, 2017 Report of the Special Committee of the Board of Directors of Richardson Electronics, Ltd. Prepared with the Assistance of Richards, Layton & Finger, P.A. (the "Report"), which is quoted extensively in and attached to the Complaint. The Complaint also refers to two separate requests to inspect books and records that Busch made under 8 Del. C. § 220. The first was made on October 13, 2015 (the "First Section 220 Request"), before Busch made a litigation demand, and the second was made on May 17, 2017, after the Report was issued (the "Second Section 220 Request").[4]

         A. The Parties

         Richardson Electronics, Ltd. ("Richardson Electronics" or the "Company") is a Delaware corporation with its principal place of business in La Fox, Illinois. The Company is a global provider of engineered solutions, power grid and microwave tubes, and related consumables. Its stock is divided into two classes: Class B shares have 10 votes per share, and Class A shares have 1 vote per share. Plaintiff Steven H. Busch attests that he has been a stockholder of the Company since at least June 3, 2014.[5]

         The defendants consist of five individuals who were members of the Company's board of directors (the "Board") on August 10, 2016, when Busch made a demand that the Board unwind the three stock repurchase transactions at issue in this case (the "Transactions") and, if necessary, commence legal proceedings to rescind them (the "Demand").[6] They also were on the Board on December 5, 2017, when this action was filed.[7]

         Defendant Edward J. Richardson ("Richardson") is the Chairman, President, and CEO of Richardson Electronics, which was founded by his father.[8] He owns roughly 99% of the Company's Class B stock, which entitles him to approximately 65% of the voting power of the Company's outstanding common stock.[9] Richardson also is the President of the Richardson Wildlife Foundation, a charity he allegedly controls (the "Wildlife Foundation").[10]

         Defendant Paul Plante joined the Board in October 2011 and was on the Board when all of the challenged Transactions occurred.[11] He became Chairman of the Compensation and Governance Committee at some point after October 2013.[12] The remaining three defendants-Jacques Belin, James Benham, and Kenneth "Chip" Halverson-joined the Board in October 2013.[13] Belin and Benham did not serve on any of the four standing committees of the Board.[14] Halverson has served on the Board's Audit Committee, Compensation and Governance Committee, and Nominating Committee.[15] Plante, Benham, and Halverson were the three members of a special committee that was formed to investigate the matters in the Demand (the "Special Committee"), with Plante serving as its Chairman.[16]

         B. The Company's 10b5-1 Plan

         "Following the sale of a division in early 2011, the Company was left with a cash position of approximately $238 million" and "faced demands to return some of that cash to its stockholders."[17] The Company chose to authorize repurchases of the Company's common stock.[18]

         At various times, the Company entered into agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated, including one dated November 15, 2012, [19] as part of a 10b5-1 repurchase plan (the "10b5-1 Plan").[20] Between November 15, 2012 and May 9, 2013, Merrill Lynch was authorized under the 10b5-1 Plan to purchase shares of Company stock on the open market on behalf of the Company if the price fell below $9.00 per share, but the Company's stock did not fall below $9.00 per share during this period.[21]

         Effective as of May 13, 2013, Richardson amended the 10b5-1 Plan to direct Merrill Lynch to purchase stock if the market price fell below $12.00 per share.[22]According to the Report, the Board had given Richardson the ability to unilaterally adjust the price under the 10b5-1 Plan "within a given range," although the Company did not produce any documents in response to Busch's First Section 220 Request demonstrating that Richardson had been given this authority.[23]

         C. The May 2013 Transactions

         On May 16, 2013, the Company repurchased 200, 000 shares of stock from Richardson and 48, 925 shares from the Wildlife Foundation for approximately $2.34 million and $572, 422, respectively, or approximately $2.9 million in total.[24] Both of these transactions "were accomplished outside the 10b5 stock repurchase plans and without a third-party broker."[25] More specifically, both of these transactions were "privately negotiated" and priced at $11.70 per share, "the previous day's closing price for the Company's shares."[26]

         With respect to the repurchase of Richardson's shares, the Report states that Richardson expressed to the Company his interest in selling 200, 000 shares and that the Company offered him $11.70 per share, which price was set by the members of the Compensation and Governance Committee.[27] No documents produced in response to Busch's First Section 220 Request, however, reflect that the Board or the Compensation and Governance Committee approved this transaction.[28] Nor did Richardson execute a written certification that he was not in possession of "inside information" before the transaction occurred, as allegedly was required under the Company's Insider Trading Policy.[29]

         With respect to the repurchase of the Wildlife Foundation's shares, [30] the Report states that Richardson had no involvement in the decision to sell those shares, that the repurchase was negotiated and approved by Terry Moyer, the Vice President and Manager of the Wildlife Foundation, and that the transaction was determined to be fair by the Compensation and Governance Committee.[31] The Report also notes that it was a historical practice for Richardson to gift shares to the Wildlife Foundation each year, which the Wildlife Foundation would sell to cover its expenses.[32] Busch alleges that the Report's conclusion that Richardson was not involved in the May 2013 repurchase of the Wildlife Foundation's shares lacks credibility, given that it occurred on the same day and at the exact same price that Richardson sold some of his own shares.[33] Once again, no documents were produced in response to Busch's First Section 220 Request reflecting Board approval of this transaction.[34]

         D. The October 2014 Transaction

         On October 16, 2014, the Company repurchased 50, 000 shares of stock from the Wildlife Foundation for approximately $495, 000, at a price of $9.91 per share, which was three cents less than the previous day's closing price of $9.94 per share.[35]The Report states that Richardson did not negotiate the timing or the price of the transaction, but that "he was generally aware of it."[36] The Report further states that Plante, the Chairman of the Compensation and Governance Committee, "spoke with the Company's outside counsel before the transaction was completed, and the Company received legal advice regarding the transaction."[37]

         As was the case with the May 2013 transactions, no materials were produced to Busch in response to his First Section 220 Request reflecting Board or any Board committee review or approval of the repurchase of shares from the Wildlife Foundation in October 2014.[38] Nor did Richardson provide a written certification under the Company's Insider Trading Policy in connection with this transaction, as allegedly was required.[39]

         E. Public Disclosure of the Transactions

         The May 2013 and October 2014 transactions (collectively, as defined above, the "Transactions") were not disclosed as related-party transactions in the Company's public filings until August 2015-more than two years after the May 2013 transactions and about ten months after the October 2014 transaction.[40]According to the Report, the Company's auditor at the time, Ernst & Young, "had previously determined that the Company should not disclose the repurchases as related-party transactions based on" Form 4 filings that Richardson had made on May 16, 2013 and August 18, 2014.[41] Those filings reflected changes in Richardson's share ownership but did not reflect that the transactions were related- party transactions. [42]

         In 2015, the Company switched auditors from Ernst & Young to BDO USA, LLP. According to the Report, "BDO, relying on the same financial records that [Ernst & Young] had, concluded that the May 2013 Repurchases [and] October 2014 Repurchase should be disclosed as related-party transactions" and, in fact, "suggested that the Company go back and restate prior statements, but E&Y refused."[43] Based on BDO's recommendation, the Board decided to disclose the Transactions as related-party transactions in a proxy statement the Company issued in August 2015, as follows:

On October 16, 2014, the Company purchased 50, 000 Class B shares from Richardson Wildlife Foundation, an Illinois not-for-profit corporation, at a negotiated price of $9.91 per share. Edward Richardson, Chairman and CEO of the Company, also serves as President of the Richardson Wildlife Foundation. These shares were repurchased pursuant to the Company's share repurchase authorization approved by its Board of Directors. Mr. Richardson filed a Form 4 to record the gifting of his Class B shares.
On August 9, 2013, the Board authorized the repurchase of 300, 000 Class B shares from Mr. Richardson at a negotiated price of $11.50 per share.[44] On May 15, 2013, the Company repurchased 48, 925 Class B shares from the Richardson Wildlife Foundation and an additional 200, 000 Class B shares from Mr. Richardson at a negotiated price of $11.70 per share. These shares were repurchased pursuant to the Company's share repurchase authorization approved by its Board of Directors. Mr. Richardson filed a Form 4 to record the gifting of his Class B shares.[45]

         F. Busch's First Section 220 Request

         On October 13, 2015, Busch sent his First Section 220 Request to the Company seeking to inspect books and records related to the Transactions.[46] As noted above, the Company did not produce any documents in response to this request showing that the Board or any committee of the Board had reviewed or approved any of the Transactions.[47]

         On March 21, 2016 and again on June 13, 2016, Busch's counsel sent letters to the Company's counsel requesting that "the Company either produce documentary evidence demonstrating that the Board reviewed and approved the related party transaction[s], or state affirmatively that such review and approval did not occur."[48] On March 31, 2016 and June 20, 2016, respectively, the Company's counsel responded, stating each time that "[w]ith regard to the May 15, 2013 and October 16, 2014 transactions, both were pursuant to a later stock repurchase plan approved by the Board of Directors on terms that were generally available to the Company's stockholders, and which was administered by a third-party broker."[49]Separately, on an April 7, 2016 conference call with investors, Richardson stated that any repurchase of stock from him "was done in the open market . . . by Bof A who is our agent and was regulated within the shares being sold that day."[50]

         Busch alleges that by comparing the documents produced in response to his First Section 220 Request to "the statements of Richardson and the Company's counsel, and the fact that the Company had failed to disclose the transactions as required," he "concluded that the members of the Board (other than Richardson himself) had not known that the transactions had taken place."[51]

         G. The Demand and the Special Committee Investigation

         On August 10, 2016, Busch made his Demand in which he requested that the Transactions be unwound and, if necessary, that the Company commence legal proceedings to rescind them.[52] In response to the Demand, the Board formed the Special Committee, which consisted of three directors: Plante (the Chairman), Benham, and Halverson.[53] The Board delegated to the Special Committee the "authority to investigate with the assistance of counsel the matters set forth in the Demand and to provide its conclusions and recommendations to the Board."[54] "The Board retained full authority to act on the matters addressed in the Demand, subject to its consideration of the conclusions and recommendations of the Committee."[55]

         The Special Committee retained Richards, Layton & Finger, P.A. as its counsel to investigate the Demand. Richards Layton collected and reviewed documents, interviewed six individuals, met with the Special Committee, and drafted the Report that the Special Committee issued on March 9, 2017.[56]

         On May 9, 2017, the Board responded to Busch's Demand, informing him that it was "declining to take any action including a refusal to rescind" the Transactions.[57] On May 17, 2017, Busch sent his Second Section 220 Request, in response to which the Company produced a copy of the Report to him.[58]

         According to the Complaint, the Report revealed that:

• Richardson's claim that the May 2013 Transactions and October 2014 Transaction had been made pursuant to the 10b5-1 Plan was false; to the contrary, the transactions had been privately negotiated in an ad hoc manner;
• The Company had no meeting minutes, resolutions, or for that matter any written documentation at all regarding the May 2013 Transactions and October 2014 Transaction;
• The May 2013 Transactions and October 2014 Transaction were not allowed by the Company's Insider Trading Policy, but Richardson had made them anyway;
• The May 2013 Transactions and October 2014 Transaction had purportedly been approved by the Company's Board and Compensation and Corporate Governance Committee, although no records were kept demonstrating any review or approval.[59]

         The Report contains a section titled "Concerns Regarding Disclosures To Stockholders," which includes a recommendation "that the Board, in conjunction with its securities counsel, consider what actions, if any, would be appropriate" as a result of the various disclosure issues.[60] In that section, the Report refers, albeit in a qualified way, to the inaccuracy of the representation Company counsel made to Busch before he made the Demand:

[I]n a June 20, 2016 letter to the Stockholder's counsel, the Company's counsel stated that, regarding the May 2013 Repurchases and the October 2014 Repurchase, "both were pursuant to a larger stock repurchase plan approved by the Board of Directors on terms that were generally available to the Company's stockholders, and which were administered by a third party broker." Based on the Committee's investigation, which confirmed that the May 2013 Repurchases and the October 2014 Repurchase were accomplished outside the 10b5 stock repurchase plans and without a third-party broker, this statement appears to be inaccurate.[61]

         The Special Committee decided in the Report "not to recommend that the Company pursue litigation in response to the Demand" and unanimously recommended "that the Board reject the Demand."[62] In support of this conclusion, the Report commented that "it is unclear that the Company was harmed as a result" of the Transactions, noted the Board's reliance on advice from Ernst & Young and its legal advisors (Bryan Cave) in connection with the Transactions, and considered other potential litigation defenses, including "an exculpatory provision in the Company's Charter."[63]

         The Report also considered the costs of bringing a lawsuit, taking into account the Company's obligations to indemnify any officer or director defendant, and concluded that "the potential costs of bringing any lawsuit outweigh the potential benefits of such a lawsuit."[64] In performing this cost-benefit analysis, the Report intimated that the Special Committee estimated any potential recovery to be worth less than $150, 000 based on the fact that Busch did not object to a repurchase of shares from Richardson in August 2013 that was effectuated at a $0.50 per share discount to the market price.[65]

         H. Procedural History

         On December 5, 2017, Busch filed the Complaint asserting a single derivative claim for breach of fiduciary duty against the five current members of the Board for, among other things, failing to take action to recover damages as a result of the Transactions.[66] On March 9, 2018, defendants moved to dismiss the Complaint under Court of Chancery Rule 23.1 or, alternatively, Rule 12(b)(6).

         II. ANALYSIS

         Court of Chancery Rule 23.1 requires a stockholder who wishes to bring a derivative claim on behalf of a corporation to "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort."[67] The rule embodies a "basic principle of the Delaware General Corporation Law . . . that directors, and not the stockholders, manage the business and affairs of the corporation" and that the "decision to bring or to refrain from bringing suit on behalf of the corporation is the responsibility of the board of directors."[68] The rule "is designed to give a corporation, on whose behalf a derivative suit is brought, the opportunity to rectify the alleged wrong without suit or to control any litigation brought for its benefit."[69]

         Where a plaintiff chooses not to make a demand on the board, the court asks whether the "threshold presumptions of director independence and disinterestedness are rebutted by well-pleaded, particularized facts and whether the complaint presents particularized facts that otherwise create a reasonable doubt that the challenged conduct was a valid exercise of business judgment."[70] Where, by contrast, a stockholder elects to make a demand on the corporation to take action, the stockholder "tacitly concedes the independence of a majority of the board to respond."[71] In that situation, as our Supreme Court held in Spiegel v. Buntrock, [72] if the board refuses the stockholder's demand, "the only issues to be examined are the good faith and reasonableness of its investigation."[73]

         In this case, where Busch decided to make the Demand and asked the Board to unwind the Transactions and pursue litigation if necessary, he advances essentially two lines of argument in opposition to defendants' motions to dismiss under Rule 23.1. First, Busch argues that the court should not apply the Spiegel framework and he should not be deemed to have conceded the independence of a majority of the Board by making his Demand on the theory that he was "actively misled" by the Company into believing that "the Board played no role" in approving the Transactions.[74] Busch asserts that the court instead should apply the two-part test our Supreme Court established in Zapata v. Maldonado for deciding a special litigation committee's motion to dismiss a derivative action where making a demand was excusable. Second, Busch contends that there are several reasons why this action may not be dismissed under the Spiegel demand refusal framework.

         The court analyzes these arguments in reverse order. Because defendants' Rule 23.1 arguments are dispositive, the court does not address their Rule 12(b)(6) arguments, which fall into three categories: (1) laches, (2) lack of standing for the May 2013 transactions because Busch did not acquire his shares until June 2014, and (3) application of the exculpatory provision in the Company's certificate of incorporation.

         A. The Complaint Is Subject to Dismissal Under the Spiegel Demand Refusal Framework

         In applying the Spiegel framework, this court has explained that because a stockholder plaintiff who makes a demand "concedes that the board had the requisite independence and disinterest to evaluate the demand objectively," the "decision to refuse a plaintiff's demand is afforded the protection of the business judgment rule unless the plaintiff alleges particularized facts that raise a reasonable doubt as to whether the board's decision to refuse the demand was the product of valid business judgment."[75] Accordingly, in order to successfully challenge the Board's decision to refuse the Demand in this case, Busch "must allege particularized facts that raise a reasonable doubt that (1) the board's decision to deny the demand was consistent with its duty of care to act on an informed basis, that is, was not grossly negligent; or (2) the board acted in good faith, consistent with its duty of loyalty."[76] Busch has done neither in my view.

         A board acts with gross negligence by failing to "properly inform itself of material information reasonably available to it before refusing the demand."[77] To show bad faith, Busch must plead with particularity that the Board "intentionally act[ed] in disregard of the Company's best interest in deciding not to pursue the litigation the Plaintiff demanded."[78] "Demonstrating that directors have breached their duty of loyalty by acting in bad faith goes far beyond showing a questionable or debatable decision on their part."[79] When directors decide to reject a demand, this court "takes into account not only the defendants' countervailing legal arguments, but also the other relevant factors considered by the board-e.g., whether the costs of pursing the claims outweigh the expected recovery."[80]

         Busch puts forward four reasons why he believes the Special Committee's investigation was flawed, although he does not explain whether any particular one or some combination of them is supposed to show that the Special Committee was grossly negligent, acted in bad faith, or both. As discussed below, none of the reasons Busch has identified is supported by particularized facts sufficient to create a reasonable doubt about the Special Committee's good faith or due care.

         First, Busch argues "there is no evidence that the [Special Committee] sought any information regarding the pertinent Delaware law regarding related party transactions."[81] This contention, which ostensibly is directed to the Special Committee's diligence, does not identify any particularized facts indicative of gross negligence but instead relies on an alleged lack of evidence. The alleged lack of evidence, however, is belied by several important facts, namely that: (1) the Special Committee was represented by a prominent Delaware corporate law firm, (2) the Report expressly states that the Special Committee "considered the fiduciary duties owed by directors and officers of a Delaware corporation and the legal standards that would apply in any action brought by the Company against them," and (3) the Report contains a ten-page discussion of the legal framework for its investigation, including a two-page summary of the duty of loyalty under Delaware law and other sections describing disclosure obligations relevant to related-party transactions under both Delaware and federal law.[82] Given these facts of record, and Busch's lack of any particularized factual allegation actually suggestive of gross negligence, the Complaint fails to raise a reasonable doubt concerning the Special Committee's due care in rejecting the Demand.

         Second, Busch suggests there is "no indication that the [Special Committee] sought tolling agreements" despite Busch's repeated requests that it do so.[83] This argument challenges a conclusion of the Special Committee concerning a matter that was considered during its investigation.[84] Busch may strongly disagree with the decision the Special Committee made not to seek tolling agreements, but such a disagreement does not equate to particularized facts creating a reasonable doubt about what is relevant here: the good faith and level of care of the Special Committee in deciding to refuse the Demand based on its investigation.[85] As this court has held, in the demand refusal context, "the pertinent 'reason to doubt' is not doubt about the propriety of the underlying conduct, nor is it doubt about whether the Board, in rejecting the demand, made a wise decision; it is doubt whether the Board's action, wise or foolish, was taken in good faith and absent gross negligence."[86] The same is true about the subsidiary decision of the Special Committee not to seek tolling agreements as it is for the ultimate decision to refuse the Demand.

         Third, Busch asserts that instead of investigating "Richardson's unilateral amendment to the 10b5-1 Plan in May 2013," the members of the Special Committee "simply assured themselves that they had given latitude to Richardson to adjust the repurchase price."[87] This grievance fails for two reasons. First, as discussed above, all of the challenged Transactions were privately negotiated and were not made under the 10b5-1 Plan.[88] Thus, Richardson's decision to amend the price feature of the 10b5-1 Plan is irrelevant to the claims under investigation concerning the Transactions as they were effectuated. Second, the Special Committee did consider the amendment to the 10b5-1 Plan, as evidenced by the acknowledged fact that it made a finding on the issue, i.e., that "the Board gave Richardson latitude to adjust the target price within a given range."[89] Given that the Special Committee did in fact look into the amendment to the 10b5-1 Plan and that the amendment was not directly relevant to the Transactions complained about in the Demand, Busch's grievance concerning this matter fails to provide a reasonable basis to doubt the good faith or level of care of the Special Committee.[90]

         Finally, Busch asserts that the Special Committee "purported to improperly rely on EY and Bryan Cave," the Company's former auditor and outside counsel.[91]As stated, the factual premise of this criticism is plainly incorrect. The Report states that "the Board relied on the advice of its auditor, E&Y, which did not believe that additional disclosure [of the Transactions] was necessary beyond the Form 4 filings already completed" and that, at least for the October 2014 transaction, "the Company's outside counsel was contacted before the repurchase" and provided "legal advice regarding the transaction."[92] In other words, the Report discusses advice that directors of the Company received from Ernst & Young and Bryan Cave at the time of the Transactions but it provides no indication that the Special Committee itself ever sought or relied on any such advice.

         Although not phrased as such, Busch's criticism presumably was intended to question the Special Committee's consideration of "the directors' reliance on advice from the Company's officers, auditors, and outside counsel" as a defense to any potential claims that may be asserted against them.[93] But it is hardly an indication of bad faith or gross negligence for a special committee to take into consideration defenses that may be asserted by a target of a claim when weighing the costs and benefits of pursuing such claim. Just the opposite. Had the Special Committee not considered these factors, it legitimately would have been open to criticism. And importantly, no particularized facts have been pled suggesting that the Special Committee was grossly negligent or acted in bad faith by simply considering the directors' reliance on advisors as a potential defense.

         The Complaint asserts "it is implausible" that Ernst & Young advised the Company not to disclose the Transactions as related-party transactions, but this assertion is conclusory and speculative.[94] As for Bryan Cave, the Complaint goes on at length explaining the relationship between Richardson and a Bryan Cave attorney (Scott Hodes) who served as a director of the Company for a period of time, but provides no particularized facts suggesting that it would have been unreasonable for the Board to rely on whatever advice Bryan Cave provided-the substance of which is not disclosed in the Report-in connection with the Company's repurchase of shares from the Wildlife Foundation in October 2014.[95] Given that the Complaint fails to plead with particularity any facts suggesting that the directors' assertion of a defense based on advice received from Ernst & Young or Bryan Cave would be frivolous, [96] it certainly cannot be ...


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