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In re BGC Partners, Inc. Derivative Litigation

Court of Chancery of Delaware

September 30, 2019

IN RE BGC PARTNERS, INC. DERIVATIVE LITIGATION

          Date Submitted: June 6, 2019

          Nathan A. Cook and Kimberly A. Evans, GRANT & EISENHOFER P.A., Wilmington, Delaware; Mark Lebovitch, Jeroen van Kwawegen, Christopher J. Orrico, and Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Attorneys for Plaintiffs Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds.

          C. Barr Flinn and Paul Loughman, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Eric Leon, Nathan Taylor, and Amanda Meinhold, LATHAM & WATKINS LLP, New York, New York; Attorneys for Defendants Howard Lutnick, CF Group Management, Inc., Cantor Fitzgerald, L.P., and Nominal Defendant BGC Partners, Inc.

          Raymond J. DiCamillo, Kevin M. Gallagher, and Kevin M. Regan, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joseph De Simone and Matthew E. Fenn, MAYER BROWN LLP, New York, New York; Michele L. Odorizzi, MAYER BROWN LLP, Chicago, Illinois, Attorneys for Defendants Linda Bell, Stephen Curwood, William Moran, and John Dalton.

          MEMORANDUM OPINION

          BOUCHARD, C.

         This case concerns a transaction in which BGC Partners, Inc.-a public company controlled by Howard Lutnick-paid $875 million to acquire Berkeley Point Financial LLC, a private company also controlled by Lutnick. Plaintiffs are two stockholders of BGC. They allege that Lutnick, who stood on both sides of the transaction, was highly motivated to-and did-have BGC overpay for Berkeley Point because his economic interest in Berkeley Point (60%) far exceeded his economic interest in BGC (13.8%), and that the outside directors of BGC acted in bad faith in allowing this to happen.

         The complaint asserts three derivative claims for breach of fiduciary duty against Lutnick as a director, controlling stockholder, and officer of BGC; two entities through which Lutnick controls BGC and Berkeley Point; and BGC's four outside directors. Defendants have filed motions to dismiss that raise two issues. First, defendants assert that the complaint should be dismissed in its entirety because plaintiffs have failed to establish that it would have been futile for them to make a demand on BGC's board to decide whether or not BGC should pursue the claims itself. Second, the outside directors assert that the claim brought against them should be dismissed for failure to state a claim for relief.

         For the reasons explained below, the court concludes that both of the grounds for dismissal that defendants have advanced fail. Accordingly, defendants' motions to dismiss will be denied.

         I. BACKGROUND

         Unless otherwise noted, the facts recited in this opinion are based on the allegations of the Verified First Amended Stockholder Derivative Complaint ("Complaint") and documents incorporated therein, [1] including documents produced in response to a demand to inspect books and records under 8 Del. C. § 220.[2] Any additional facts are subject to judicial notice.

         A. The Players

         On September 8, 2017, BGC Partners, Inc. ("BGC" or the "Company") purchased Berkeley Point Financial LLC ("Berkeley Point") from Cantor Commercial Real Estate Company, L.P. ("CCRE") for $875 million. BGC simultaneously invested $100 million for a 27% interest in CCRE's remaining commercial mortgage-backed securities business (the "CMBS Business"). These two transactions are referred together in this decision as the "Transaction".

         Nominal defendant BGC is a Delaware corporation headquartered in New York that provides brokerage and financial services. Its predecessor entity, BGC Partners, L.P., was formed in 2004 when it was spun off by Cantor Fitzgerald, L.P. ("Cantor"). In 2008, BGC Partners, L.P. merged with eSpeed, Inc, another former Cantor subsidiary, to form the public company BGC Partners, Inc.

         The plaintiffs in this case are Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds (together, "Plaintiffs"). They allege they were stockholders of BGC at the time of the Transaction and have been stockholders continuously since then.[3]

         The defendants in this case consist of Howard Lutnick, the Chairman and CEO of BGC; four other individuals on BGC's board at the time of the Transaction; and two entities that-along with Lutnick-sit on top of a complicated web of affiliated entities and appear on both sides of the Transaction: Cantor and CF Group Management, Inc. ("CF Group").

         Cantor is a privately owned financial services and brokerage firm based in New York. CF Group is a New York corporation that serves as Cantor's managing general partner. Lutnick is the sole stockholder of CF Group. He also owns approximately 60% of Cantor, and has sole voting control of Cantor.[4]

         At all relevant times, Cantor, CF Group, and Lutnick controlled BGC through their beneficial ownership of 100% of BGC's Class B super-voting common stock, giving them 60% of the Company's total voting power.[5] In 2017, Cantor and Lutnick owned 17.3% and 2.8%, respectively, of BGC's common stock equivalents.

         Before the Transaction, Berkeley Point was a wholly-owned subsidiary of CCRE, which, in turn, was an affiliate of Cantor. The Transaction provided that Cantor would receive BGC's $875 million payment to acquire Berkeley Point. Lutnick allegedly had "much larger ownership interests" in Cantor (60%) than BGC (approximately 13.2%), which "motivated him to cause BGC to overpay for Berkeley Point."[6] Thus, according to the Complaint, "Lutnick's ownership interests in Cantor and BGC guaranteed that he would personally receive approximately 46.8% of every dollar that BGC overpaid" in the Transaction.[7]

         Lutnick has been the Chairman of the Board and CEO of BGC and its predecessors (including eSpeed) since June 1999.[8] Lutnick also serves or has served on the boards of multiple other Cantor-affiliated entities, including (i) eSpeed; (ii) ELX Futures; (iii) GFI; (iv) Newmark; and (v) Cantor Exchange.[9] Lutnick allegedly has a "reputation as a Wall Street bruiser" and is "famously sharp-elbowed."[10]Lutnick also has strong ties to Haverford College, his alma mater. He has served on the Haverford Board of Managers for twenty-one years and donated at least $65 million to the college over the past twenty-five years, including a record-setting $25 million donation in 2014.[11] Lutnick has described the motivation for his generous giving as "Love" and the belief that Haverford people "make [his] life special."[12]

         The other four individual defendants are Linda Bell, Stephen Curwood, William Moran, and John Dalton. At all relevant times, they each were members of the BGC board, its Audit Committee, and the Special Committee that evaluated the Transaction.[13] They are referred to hereafter, at times, collectively as the "Special Committee Defendants." In February 2015, Lutnick placed all of the Special Committee Defendants on a publicly-filed list of potential appointees to the board of GFI, an entity that BGC acquired in 2016.[14] Other relationships between Lutnick and each of the four members of the Special Committee are discussed in detail later in Sections III.C-D of this opinion.

         B. Lutnick and Cantor Set the Stage for the Transaction

         On February 11, 2017, Lutnick informed BGC's Audit Committee (consisting of Bell, Curwood, Dalton, and Moran) that BGC's management was considering acquiring Berkeley Point.[15] Berkeley Point is a designated underwriting and servicing lender for multi-family homes from government-sponsored entities such as the Department of Housing and Urban Development, Freddie Mac, and Fannie Mae.[16] BGC and Newmark-a subsidiary of BGC-had been originating business for Berkeley Point since late 2011.[17]

         Lutnick told the Audit Committee on February 11 that a potential purchase price for Berkeley Point would be in the "low $700 million range" and that Cantor already had reached agreements in principle with outside investors in CCRE-a Cantor affiliate that wholly-owned Berkeley Point-to buy their interests, setting the stage for a sale of Berkeley Point to BGC.[18] Lutnick also informed the Audit Committee that BGC management was considering a potential $150 million investment by BGC in CCRE that would be "riskier and more volatile than Berkeley Point's business" but would allow BGC to access data about properties that would be beneficial to BGC's brokerage business.[19] These were the first steps in a multi-step plan called "Project Referee, " which would culminate in a spin-off and an initial public offering of a combined Newmark and Berkeley Point entity by the end of 2017.[20]

         On March 14, 2017, Bell, Curwood, Dalton, and Moran, were appointed to a Special Committee to evaluate the merits of the proposed Transaction.[21] Debevoise & Plimpton acted as the Special Committee's legal advisor and Sandler O'Neill acted as its financial advisor in connection with the Transaction.[22]

         The Special Committee resolutions recognized that Lutnick had a potential conflict of interest and was not disinterested or independent with respect to the Transaction.[23] The Special Committee nevertheless "immediately authorized management-i.e., Lutnick-to proceed with negotiating" the Transaction.[24] The Special Committee resolutions also provided that officers of the Company, including Lutnick, had to furnish information to the Special Committee members but that obligation did not extend to "any items in the possession of or available to officers of [BGC] which is held in their capacity as officers of Cantor or its affiliates" other than BGC, which was not otherwise provided to BGC.[25] The resolutions "placed no corresponding restriction on Lutnick's ability to share BGC information with Cantor."[26]

         C. The Negotiation Process

         Plaintiffs allege that Lutnick "controlled the negotiations and coopted the Special Committee, " citing as evidence the fact that "the Special Committee's Co-Chair, Moran, emailed Lutnick on April 6, 2017 and asked whether Lutnick had 'changed our timetable for execution???'" of the Transaction.[27] Lutnick attended multiple BGC board and Special Committee meetings, and directed certain changes to the modeling used to determine the valuation of Berkeley Point.[28] Neither the Special Committee nor BGC considered any alternative transactions.[29]

         Plaintiffs further allege that the Special Committee's failure to look out for BGC's interests in negotiating the price of the Transaction can be seen in the upward trajectory of the amounts Cantor proposed BGC pay for Berkeley Point, which moved from an initial indication in the low $700 million range in February 2017 to $875 million about five months later, in July 2017. The first upward movement occurred on March 2, 2017, when Cantor increased the proposed purchase price from the low $700 million range that Lutnick floated on February 11, to $750 million for a 95% stake in Berkeley Point.[30]

         The amount increased again on April 21, 2017, when Cantor submitted a term sheet to BGC proposing that BGC would invest $1 billion to obtain a limited partnership interest in CCRE, which implied a price of $850 million for a 95% interest in Berkeley Point and contemplated that the remaining 5% would be retained by Cantor and/or its affiliates.[31] The other $150 million "accounted for the proposed investment in CCRE's remaining Cantor CMBS Business."[32] The term sheet contemplated granting a put option to BGC that would allow BGC, no earlier than five years after closing, to put to CCRE its interest in all of CCRE in exchange for 100% of Berkeley Point's equity and a return of its deemed capital account in the Cantor CMBS Business, less $30 million.[33] The term sheet indicated that this $30 million was the "amount . . . attributable to the 5% of [Berkeley Point] owned by [Cantor and/or its affiliates]."[34] Plaintiffs extrapolate from this valuation of a 5% interest in Berkeley Point that the 95% interest proposed to be sold to BGC "should have been valued at approximately $570 million, a far cry from Cantor's egregiously inflated asking price of $850 million."[35]

         On May 11, 2017, the Special Committee received a presentation from Cantor and Lutnick, indicating that the purchase price of Berkeley Point would be approximately $850 million. The minutes do not indicate that the Special Committee pushed back on the increase in the purchase price from $750 million proposed about two months earlier, on March 2, to approximately $850 million.[36]The presentation also acknowledged that BGC had caused its subsidiary, Newmark, to confer substantial value on Berkeley Point, and thus Cantor, yet the value BGC had contributed was not used as leverage in negotiations.[37]

         On May 23, 2017, Cantor provided to the Special Committee a term sheet that was substantially similar to the April 21, 2017 term sheet.[38] On May 25, 2017, at a meeting of the Special Committee, Sandler O'Neill presented its preliminary perspective as to a proper valuation of the Transaction. During the meeting, Sandler O'Neill acknowledged that it needed to better understand "the economic terms of CCRE's initial investment in Berkeley Point in 2014 and the prices at which CCRE's outside investors invested and would exit."[39]

         D. Sandler O'Neill's Analysis of the Transaction

         On June 4 and 5, 2017, Sandler O'Neill presented the Special Committee with an analysis of the proposed Transaction.[40] The presentation contained eight reasons why Cantor's $880 million total valuation of Berkeley Point overvalued the company.[41]

         One reason was that the multiples implied by Cantor's valuation were 50-100% higher in six different metrics than those Cantor paid when it acquired Berkeley Point in April 2014 for $259.3 million.[42]

         Several other reasons concerned the only purportedly comparable company that had been identified for Berkeley Point: Walker & Dunlop. To start, the $880 million valuation was based on a multiples comparison to Walker & Dunlop, but Berkeley Point had not experienced the same consistency or growth as Walker & Dunlop.[43] Sandler O'Neill also pointed out that BGC's ownership of Berkeley Point would be illiquid and thus justify a discount relative to Walker & Dunlop, which was a publicly traded company.[44] Sandler O'Neill further pointed out that Walker & Dunlop's price had increased significantly between February 2017, when Cantor and Lutnick first floated the idea of the acquisition, and the May 2017 term sheet, which Cantor allegedly used as leverage to increase the price of Berkeley Point.[45]Finally, after explaining that Berkeley Point's growth rate would have lagged behind Walker & Dunlop's if originations from Newmark-BGC's own subsidiary-were excluded, Sandler O'Neill presentation stated bluntly that BGC "should not be paying for the value it already brings to Berkeley Point."[46]

         Sandler O'Neill's presentation also expressed concern that (i) the Transaction structure was designed to maximize Cantor's tax benefits, but limited BGC's ability to exercise control over Berkeley Point, (ii) BGC was being asked to bear the risk of Berkeley Point's questionable value proposition for Newmark, and (iii) mortgage related government sponsored entities may change their procedures and protocols in a way that could adversely impact Berkeley Point.[47]

         In light of these concerns, Sandler O'Neill recommended that the valuation should be reduced to $720 million, which it contended would be an "appropriate" valuation, although it recognized there were reasons why BGC should pay even less.[48] Sandler O'Neill also recommended that BGC seek other concessions, including "requiring Cantor to bear losses to the full extent of its investment, a change of the preferred return rate to be earned by BGC from 5% to 6%, and an increase in BGC's share of gross returns from 60% to 90%."[49]

         E. Terms of the Transaction

         At a June 6, 2017 meeting, the Special Committee proposed to Cantor the $720 million valuation that Sandler O'Neill had endorsed.[50] Cantor offered a counter proposal, the terms of which are not disclosed in the Special Committee's meeting minutes, and which the Special Committee discussed for no more than 75 minutes.[51] After the negotiations resumed, the parties reached an agreement that BGC would acquire 100% of the equity interest in Berkeley Point for $875 million and would invest $100 million in the CMBS Business for a period of five years, with a preferred return of 5% and a prohibition on distributions until BGC received said return.[52]

         BGC did not receive other protections that Sandler O'Neill had urged it to seek.[53] The written agreement granted Cantor 100% voting control over the general partner of the Cantor CMBS Business in which BGC had invested, allegedly disadvantaging BGC.[54] Sandler O'Neill did not issue a fairness opinion with respect to BGC's investment in the CMBS Business, but did issue an opinion that the "terms of the investment were 'reasonable' to BGC and its investors."[55]

         On July 13, 2017, the Special Committee approved the Transaction, which was not subject to approval by BGC's stockholders. On September 8, 2017, the Transaction closed.[56]

         F. The Newmark IPO

         By October 23, 2017, Berkeley Point had been integrated into Newmark, which completed an initial public offering about two months later on December 19, 2017.[57] Based on the IPO price, the value of Newmark, after Berkeley Point had been integrated into it, was approximately $1.84 billion. From this, and the fact that Newmark allegedly derived 30.6% of its EBITDA from Berkeley Point, Plaintiffs contend that the Newmark IPO implied a value for Berkeley Point of only $563 million (i.e., 30.6% of approximately $1.84 billion), just three months after BGC had paid $875 million to acquire Berkeley Point in the Transaction.[58]

         II. PROCEDURAL HISTORY

         In October and November 2018, Plaintiffs each filed derivative actions in this court challenging the Transaction. On December 4, 2018, those actions were consolidated. On February 12, 2019, Plaintiffs filed their Verified First Amended Stockholder Derivative Complaint (as defined above, the "Complaint").

         The Complaint contains three derivative claims. Count I asserts that BGC's directors breached their fiduciary duties by approving a related-party transaction "on unfair terms and pursuant to an unfair process."[59] Count II asserts that Lutnick, CF Group, and Cantor, as controlling stockholders of BGC, "breached their fiduciary duties by using their control over BGC and the Special Committee Defendants to cause the Company to enter into the [Transaction] on unfair terms and pursuant to an unfair process."[60] Count III asserts that Lutnick breached his fiduciary duties "as an officer of BGC by dominating, directing, and otherwise interfering with the process through which the Company entered into the [Transaction], including by taking control of the Company's interactions with rating agencies and financing sources."[61]

         In March 2019, defendants filed two motions to dismiss. In one motion, Lutnick, CF Group, and Cantor moved to dismiss the Complaint in its entirety under Court of Chancery Rule 23.1 based on Plaintiffs' failure to make a demand on BGC's board before initiating derivative litigation. In the second motion, the Special Committee Defendants also moved to dismiss under Rule 23.1 and separately moved to dismiss Count I of the Complaint as to them under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief. No motion was filed seeking dismissal of Counts II and III under Rule 12(b)(6). After the completion of briefing, the court heard argument on the motions on June 6, 2019.[62]

         III. ANALYSIS

         Defendants' motions raise two issues. First, have Plaintiffs pled sufficient particularized facts to show that making a demand on the BGC board before filing their derivative claims would have been futile? This issue is discussed in Sections A-C below. Second, if the answer to the first question is yes, does the Complaint state a claim for relief against each of the Special Committee Defendants under the test set out in In re Cornerstone Therapeutics Inc., Shareholder Litigation?[63] This issue is discussed in Section D below.

         A. Demand Futility Standards

         Under Court of Chancery Rule 23.1, a stockholder who wishes to bring a derivative claim on behalf of a corporation must "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."[64] This requirement stems from a "basic principle of the Delaware General Corporation Law . . . that the directors, and not the stockholders, manage the business and affairs of the corporation."[65]

         "The decision to bring or to refrain from bringing suit on behalf of the corporation is the responsibility of the board of directors."[66] This allows "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."[67]Under the heightened pleading requirements of Rule 23.1, "conclusionary allegations of fact or law not supported by the allegations of specific fact may not be taken as true."[68]

         Under Delaware law, courts employ two different tests for determining whether demand may be excused: the Aronson test and the Rales test. The court applies the test from Aronson v. Lewis[69] when "a decision of the board of directors is being challenged in the derivative suit."[70] On the other hand, the test from Rales v. Blasband[71] governs when "the board that would be considering the demand did not make a business decision which is being challenged in the derivative suit, " such as "where directors are sued derivatively because they have failed to do something."[72] The Aronson and Rales tests both ultimately focus on the same inquiry, i.e., whether "the derivative plaintiff has shown some reason to doubt that the board will exercise its discretion impartially and in good faith."[73]

         Here, both parties agree that the Aronson test applies because Plaintiffs are challenging the Board's decision to enter into the Transaction.[74] Under that test, the court asks "whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent [or] (2) the challenged transaction was otherwise the product of a valid exercise of business judgment."[75] Plaintiffs have advanced arguments under both prongs of Aronson. Those arguments are considered next, in reverse order.

         B. Plaintiffs' Argument Under the Second Prong of Aronson Fails

         Focusing on the second prong of Aronson, Plaintiffs argue that "demand is excused as a matter of law" simply because the Transaction is subject to entire fairness review since "BGC's controlling stockholder stood on both sides."[76] The court rejected this same argument four years ago in Teamsters Union 25 Health Services & Insurance Plan v. Baiera.[77] There, I explained that "[a]lthough this argument has some superficial appeal, it is inconsistent with controlling authority, "[78] in particular our Supreme Court's decisions in Aronson and Beam v. Stewart:[79]

As Aronson, Beam, and Rule 23.1 make plain, the demand futility test under Delaware law focuses exclusively on whether there is a reasonable doubt that the directors could impartially respond to a demand. . . . Under these authorities, neither the presence of a controlling stockholder nor allegations of self-dealing by a controlling stockholder changes the director-based focus of the demand futility inquiry.[80]

         In reaching this conclusion, the court did not hold that the presence of a controller is irrelevant to the director-based focus of the demand futility inquiry. Rather, Teamsters simply holds, based on well-established precedent, that the second prong of Aronson is not automatically satisfied when the challenged transaction would be subject to entire fairness review because it involves a controlling stockholder.

         That said, our law is not blind to the practical realities of serving as a director of a corporation with a controlling stockholder. As this court explained in Ezcorp:

Delaware Supreme Court decisions have recognized the risk that directors laboring in the shadow of a controlling stockholder face a threat of implicit coercion because of the controller's ability to not support the director's re-nomination or re-election, or take the more aggressive step of removing the directors.[81]

         Or, as stated more colorfully by then-Vice Chancellor Strine:

In colloquial terms, the Supreme Court saw the controlling stockholder as the 800–pound gorilla whose urgent hunger for the rest of the bananas is likely to frighten less powerful primates like putatively independent directors who might well have been hand-picked by the gorilla (and who at the very least owed their seats on the board to his support).[82]

         Because of the dynamics involved where a controlling stockholder stands on both sides of a corporate transaction, there is "an obvious fear that even putatively independent directors may owe or feel a more-than-wholesome allegiance to the interests of the controller, rather than to the corporation and its public stockholders."[83] Put simply, "Delaware is more suspicious when the fiduciary who is interested is a controlling stockholder."[84]

         The implications of taking action in the controlling stockholder context is that directors may "preserve their positions and align themselves with the controller by not doing something, viz. by not initiating litigation."[85] Given these practical realities, although application of the entire fairness standard to a transaction involving a controller does not automatically satisfy the second prong of Aronson, the presence and influence of a controller is an important factor that should be considered in the director-based focus of the demand futility inquiry under the first prong of Aronson, particularly on the issue of independence.

         Former Chancellor Chandler thoughtfully explained the considerations implicated in considering the question of independence, including where a stockholder has the unilateral power to determine whether a director may continue to receive a benefit, as follows:

"Independence" does not involve a question of whether the challenged director derives a benefit from the transaction that is not generally shared with the other shareholders. Rather, it involves an inquiry into whether the director's decision resulted from that director being controlled by another. A director can be controlled by another if in fact he is dominated by that other party, whether through close personal or familial relationship or through force of will. A director can also be controlled by another if the challenged director is beholden to the allegedly controlling entity. A director may be considered beholden to (and thus controlled by) another when the allegedly controlling entity has the unilateral power (whether direct or indirect through control over other decision makers), to decide whether the challenged director continues to receive a benefit, financial or otherwise, upon which the challenged director is so dependent or is of such subjective material importance to him that the threatened loss of that benefit might create a reason to question whether the controlled director is able to consider the corporate merits of the challenged transaction objectively.[86]

         Here, the Complaint specifically alleges that Lutnick, through his control of Cantor, had the unilateral power to remove any of BGC's directors at any time:

Specifically, BGC's public filings provide that BGC is "controlled by Cantor, which has potential conflicts of interest with [BGC] and may exercise its control in a way that favors its interests to [BGC's] detriment." According to the 10-K, this control includes the ability, "without the consent of public holders of [BGC's] Class A common stock, to elect all of the members of [BGC's] board of directors and to control [BGC's] management and affairs." Pursuant to the Company's bylaws and certificate of incorporation, Cantor could use its control of the Company's voting power to call a special meeting at any time for the purpose of "remov[ing], with or without cause, any Director." Accordingly, Lutnick and Cantor had the power to remove any of the BGC directors at will.[87]

         With this well-pled fact and the foregoing discussion in mind, the court turns next to the director-based analysis required under the first prong of Aronson.

         C. The Complaint's Factual Allegations Create a Reasonable Doubt About the Impartiality of a Majority of the Demand Board

         When the Complaint was filed, BGC's board consisted of five directors: Lutnick, three members of the Special Committee that approved the Transaction (Bell, Curwood, and Moran), and a new director (David Richards) who did not consider the Transaction (collectively, the "Demand Board").[88] Therefore, to demonstrate that the Demand Board is unable to consider a pre-suit demand impartially, the Complaint must plead facts that create a reason to doubt that at least three of these five individuals are disinterested or independent.

         Defendants concede that Lutnick is interested for purposes of this motion.[89]They could not credibly do otherwise. As previously discussed, Lutnick stood on both sides of the Transaction through his control of Cantor and personally stood to receive almost 47% of every dollar that BGC allegedly overpaid for Berkeley Point because Lutnick's economic interest in Cantor far exceeded his economic interest in BGC. For their part, Plaintiffs do not challenge Richards' impartiality.

         Thus, whether or not demand would be futile in this case turns on whether Plaintiffs have plead particularized facts sufficient to create a reasonable doubt that two of the three remaining members of the Demand Board are disinterested or independent. For the reasons explained below, the court concludes that the particularized allegations of the Compliant create a reason to doubt the independence of each of these three individuals. Before analyzing those factual allegations, the court turns to review the recent teachings of our Supreme Court on the issue of director independence in the demand futility context.

         "A lack of independence turns on whether the plaintiffs have pled facts from which the director's ability to act impartially on a matter important to the interested party can be doubted because that director may feel either subject to the interested party's dominion or beholden to that interested party."[90] When assessing independence, "our law cannot ignore the social nature of humans or that they are motivated by things other than money, such as love, friendship, and collegiality."[91]At the pleadings stage, a "plaintiff cannot just assert that a close relationship exists, but when the plaintiff pleads specific facts about the relationship-such as the length of the relationship or details about the closeness of the relationship-then this Court is charged with making all reasonable inferences from those facts in the plaintiff's favor."[92] Relatedly, the court must consider plaintiff's allegations "in their totality and not in ...


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