COURT OF CHANCERY OF THE STATE OF DELAWARE KATHALEEN ST. JUDE MCCORMICK LEONARD L. WILLIAMS JUSTICE CENTER CHANCELLOR 500 N. KING STREET, SUITE 11400 WILMINGTON, DELAWARE 19801-3734
Date Submitted: October 13, 2025 Date Decided: January 30, 2026
Joseph R. Slights III Gregory V. Varallo Brad D. Sorrels Mae Oberste Daniyal M. Iqbal BERNSTEIN LITOWITZ BERGER Nora M. Crawford & GROSSMANN LLP Jordan L. Cramer 500 Delaware Avenue, Suite 901 Ashleigh L. Herrin Wilmington, DE 19801 WILSON, SONSINI, GOODRICH & ROSATI, P.C. Elena C. Norman 222 Delaware Avenue, Suite 800 Paul J. Loughman Wilmington, DE 19801 Alex B. Haims YOUNG CONAWAY STARGATT & TAYLOR, LLP Rodney Square 1000 North King St. Wilmington, DE 19801
Re: Adam Grabski ex rel. Coinbase Global, Inc., v. Marc Andreessen, et al., C.A. No. 2023-0464-KSJM
Dear Counsel:
This letter resolves the motion to strike and the motion to terminate and filed
by Coinbase Global, Inc.’s Special Litigation Committee (the “SLC”).1 The motion to
strike is granted. The motion to terminate is denied.
1 Terms not defined in this decision have the same meaning as in Grabski ex rel.
Coinbase Glob., Inc. v. Andreessen, 2024 WL 390890 (Del. Ch. Feb. 1, 2024). I. FACTUAL BACKGROUND
The court assumes the reader’s familiarity with the factual and procedural
history of this case. This decision recounts the facts germane to the pending motions.2
A. The Board Forms The SLC.
To recap, Coinbase went public through a direct listing on April 14, 2021 (the
“Direct Listing”). In the Direct Listing, Defendants sold Coinbase stock worth
approximately $2.9 billion unrestrained by a lock-up period (the “Challenged
Trades”). A month later, the Company announced disappointing quarterly earnings
and that it was raising capital through a notes offering. After this announcement,
the Company’s stock price plummeted. By selling their shares before the
announcement, Defendants avoided losses of approximately $1.09 billion.
Plaintiff bought Coinbase stock on the first day of the Direct Listing. He filed
this action on April 26, 2023, asserting claims for breach of fiduciary duty and unjust
enrichment against the Director Defendants and Officer Defendants who sold stock
in the Direct Listing. When Plaintiff filed this action, the Coinbase Board comprised
Brian Armstrong, Marc Andreessen, Frederick Ernest Ehrsam III, Kathryn Haun,
2 The SLC redacted portions of the publicly filed versions of the SLC Report (defined
below) and the exhibits to the SLC Report, including deposition transcripts. C.A. No. 2023-0464-KSJM, Dockets (“Dkts.”) 107, 108. This decision cites to portions of the redacted material that are “material to [the public’s] understanding [of] the nature of the dispute.” In re Oxbow Carbon LLC, 2016 WL 7323443, at *2 (Del. Ch. Dec. 15, 2016) (internal quotation marks omitted) (quoting Al Jazeera Am., LLC v. AT & T Servs., 2013 WL 5614284, at *7 (Del. Ch. Oct. 14, 2013)). The court’s decision to cite to portions of the redacted material is without prejudice to the SLC’s ability to argue that other aspects of the redacted material should remain confidential.
2 Fred Wilson, Kelly Kramer, Gokul Rajaram, and Tobias Lutke. All but Lutke were
members of the Board at the time of the Direct Listing.
Relevant to the SLC motions, Andreessen held his Coinbase interests through
Andreessen Horowitz, a venture capital firm.3 Andreessen is a co-founder and has
been a general partner of Andreessen Horowitz since July 2009. Andreessen
Horowitz is one of the largest venture capital firms in Silicon Valley.4
Andreessen Horowitz first invested in Coinbase in 2013, leading a $25 million
Series B round. Thereafter, Andreessen Horowitz invested in each of Coinbase’s
significant funding rounds. Andreessen Horowitz’s exit of its investment in Coinbase
in connection with the Direct Listing was the firm’s largest exit in its history.
Through it, Andreessen Horowitz sold over $118.7 million of Coinbase stock.5
Defendants moved to dismiss the Complaint under Court of Chancery Rules
23.1 and 12(b)(6).6 On February 1, 2024, the court denied the motion.7 The court
held that Plaintiff had pled with particularity that demand was futile against the
Director Defendants, who made up more than half of the Board.8 The court also held
that it was reasonably conceivable that Defendants possessed material, non-public
information, including a Section 409A report determining Coinbase’s fair value (the
3 Dkt. 53, Ex. A (“SLC Report”) at 39.
4 See SLC Report, Ex. B at 172:20–24; id., Ex. C (“Rajaram Dep. Tr.”) at 184:7–18.
5 See generally Compl. ¶ 21.
6 Dkt. 15.
7 Dkt. 37.
8 Grabski, 2024 WL 390890, at *12.
3 “Andersen Report”) and other information about Coinbase’s future financial
performance.9 The court further held that Plaintiff adequately pled scienter based
on the timing of the Challenged Trades, the absence of a lock-up, and the resulting
cash payout.10
Eight days after the court issued the dismissal decision, the Board formed the
SLC. The court granted the SLC’s motion to stay the litigation to allow it to
investigate the claims set forth in the Complaint.11 The SLC conducted a ten-month
investigation resulting in a 332-page report (the “SLC Report”).12 The SLC Report
concluded that this litigation lacks merit. On February 3, 2025, the SLC moved to
terminate the litigation.
B. The SLC Members
The SLC comprises two members: Kelly Kramer and Gokul Rajaram.13
Neither sold shares in the Direct Listing.14
Kramer has worked in the health and tech industries and has served on two
other public company boards.15 She has served as an independent director on
Coinbase’s Board since 2020.16 She chairs the audit and compliance committee and
9 Id. at *9–11.
10 Id. at *10–11.
11 Dkt. 42.
12 SLC Report at 30.
13 Id. at 23–25.
14 Id. at 25, 27.
15 Id. at 24.
16 Id.
4 serves on the compensation committee.17 Previously, Kramer was the Chief Financial
Officer of Cisco Systems, Inc. and Chief Financial Officer of GE Healthcare Systems
under General Electric. Kramer has no prior relationship with any member of
Coinbase’s Board or management team.18 Plaintiff does not challenge her
independence.
Rajaram has served in executive capacities across the tech industry, including
at Facebook and Google.19 He started Chai Labs, Inc., which Meta acquired. Rajaram
joined Coinbase as an independent director in 2020. He serves on the compensation
committee.20
Plaintiff challenges Rajaram’s independence based on his economic and
professional ties to Andreessen and Andreessen Horowitz.
In 2007, Andreessen invested approximately $200,000 in Rajaram’s startup,
Chai Labs. That investment was reported to be approximately 16% of the capital
raised then.21 The Chai Labs website listed Andreessen as a member of its three-
person advisory board.22 Rajaram testified that Chai Labs used Andreessen’s name
and reputation to attract talent and investors.23
17 Id.
18 Id. at 24–25.
19 Id. at 25–26.
20 Id. at 26.
21 SLC Report at 25–26; Rajaram Dep. Tr. at 62:11–15, 96:5–10; Dkt. 62 (“Pl.’s Mot.
to Compel”), Ex. A at 4–5. 22 Dkt. 77 (“Pl.’s Opp. Br.”), Ex. 2.
23 Rajaram Dep. Tr. at 99:4–6, 101:21–102:4.
5 In 2010, Rajaram invested in a fund affiliated with Andreessen. 24 That same
year, Facebook acquired Chai Labs for approximately $10 million in an “acqui-hire”—
that is, a deal to acquire talent.25 As of the acquisition, Andreessen was a member of
both the Facebook board of directors and Chai Labs’ board of advisors.26 Rajaram
testified that his proceeds from the Chai Labs sale represented nearly half of his net
worth at the time.27 After the acquisition, Rajaram worked in senior advertising
engineering roles at Facebook for years while Andreessen was on the Facebook
board.28
Rajaram’s primary investment vehicle during the years leading up to the SLC
investigation was Firebolt Ventures.29 Rajaram was a member of its leadership team
and was actively involved in investment decisions.30 Rajaram, either personally or
through Firebolt, invested in financing rounds alongside Andreessen Horowitz at
least 50 times since 2019.31 Between 2020 and 2023, Andreessen invested $850,000
in Firebolt.32 While the SLC was conducting its investigation, Firebolt’s website
listed Andreessen and another partner at Andreessen Horowitz as two of eleven
24 SLC Report at 26–27.
25 Rajaram Dep. Tr. at 106:25–108:16.
26 Pl.’s Mot. to Compel, Ex. D at 7; Pl.’s Opp. Br., Ex. 2.
27 Rajaram Dep. Tr. at 110:13–20.
28 Id. at 104:3–8, 298:17–20.
29 Rajaram Dep. Tr. at 125:9–19.
30 Id. at 250:21–251:11, 378:20–379:25, 391:16–23; Pl.’s Opp. Br., Ex. 26.
31 See, e.g., Pl.’s Opp. Br., Exs. 3–7; Rajaram Dep. Tr. at 127:20–129:3.
32 SLC Report at 26.
6 “Strategic LPs for Deal Flow, Diligence, Follow-ons, Exits.”33 Rajaram testified that
large leader-type funds like Andreessen Horowitz often “solicit people, smaller funds,
angels, et cetera, to fill [funding] round[s].”34 According to PitchBook, Rajaram is in
the top 1% of most frequent investors in funding rounds led by Andreessen
Horowitz.35 Rajaram avoided placing a hard value on those investments during his
deposition, but he testified that they could be worth $2 to $4 million.36 Rajaram also
testified that Andreessen “didn’t do anything to help [Firebolt] in any way,” and was
only listed on the website for marketing purposes, but agreed that Firebolt was
representing to others that Andreessen “can help provide dealflow.”37
The deal flow went both ways. During the SLC’s investigation, Rajaram
exchanged hundreds of emails with the Andreessen Horowitz team.38 The SLC
described many as “cut-and-paste emails Rajaram would quickly send to numerous
venture capital firms”39 to make introductions between Andreessen Horowitz and
founders looking for investment or collaboration.40 But Rajaram is a familiar name
33 Pl.’s Opp. Br., Ex. 26.
34 Rajaram Dep. Tr. at 266:4–15.
35 Pl.’s Mot. to Compel, Ex. F. The court acknowledges that the PitchBook data might
not be totally accurate or complete, but it is still a relevant source of information. 36 Rajaram Dep. Tr. at 111:21–24; 385:10–12.
37 Id. at 268:14–269:23.
38 SLC Opening Br., Ex. J at 3.
39 Id. at 54–55.
40 See, e.g., id., Ex. R; Pl.’s Opp. Br., Exs. 28–31, 34, 37–39, 41–45, 47.
7 to members of Andreessen Horowitz’s investment team. After one referral from
Rajaram, they praised him as “our MVP!!!!”41
Rajaram testified that these referrals were for his own “satisfaction,” but he
also hoped for the relationship to have some positive impact on his own investment
activity.42 In one email sent during the SLC’s investigation, Rajaram asked an
Andreessen Horowitz team member: “Please do keep me in mind for value-added
angel investors in your investments :)”43
Rajaram felt confident that he was independent.44 He viewed his financial
dealings with Defendants as de minimis. In his mind, the investments he had made
alongside Andreessen Horowitz “didn’t really matter,” because they were “negative
financially,” meaning they had yet to generate profit and had no impact on his net
worth.45 He testified: “[M]y dealings with the defendants occupy no space in mind.
It’s not something that I even think about. . . . [I]t’s not something that affects my life
or my personal situation[.]”46 Rajaram concluded that from a financial, personal, or
professional perspective, he had no material ties to Andreessen.47 He would sue
Defendants, without hesitation, if the SLC’s investigation so required.48 “If
41 Pl.’s Opp. Br., Ex. 44.
42 Rajaram Dep. Tr. at 144:1–145:8; 180:20–182:8.
43 Id., Ex. 28.
44 Rajaram Dep. Tr. at 39:1–7; 48:13–18.
45 Id. at 384:9–16.
46 Id. at 49:25–50:4; see also id. at 49:21–25.
47 Id. at 384:21–23.
48 Id. at 48:20–22; 385:25–386:11.
8 [Andreessen Horowitz] disappeared, that’s okay. If they stayed around that’s okay.
. . . [He] was indifferent.”49
C. The SLC Counsel
After interviewing seven law firms, the SLC retained Wilson Sonsini Goodrich
& Rosati, P.C. as legal counsel.50 Plaintiff challenges Wilson Sonsini’s independence.
Wilson Sonsini ran a conflict check in connection with their potential
representation of the SLC.51 The report focused on Defendants, including
Andreessen. Wilson Sonsini’s conflict report reflected no open matters for any of the
named Defendants, including Andreessen.
Wilson Sonsini has represented Andreessen in the past. The firm “represented
Netscape in its [1995] IPO—widely considered [as] the dawn of the internet era” and
a seminal moment for Netscape’s co-founder Andreessen.52 In the 2000s, Wilson
Sonsini represented Andreessen personally in securities litigation involving
Loudcloud, as well as in shareholder derivative actions involving Blue Coat
Systems.53 During the 2022 litigation between Twitter, Inc. and Elon Musk, Wilson
Sonsini retained conflicts counsel to serve a subpoena on Andreessen.54
49 Id. at 384:23–25.
50 Dkt. 42 at 2.
51 SLC Opening Br., Ex. G (“Slights Dep. Tr.”) at 189:3–6.
52 Pl.’s Opp. Br., Ex. 53; id., Ex. 54 at 3–4.
53 Slights Dep. Tr. at 187:22–188:4; see Pl.’s Opp. Br., Exs. 55, 65.
54 See Pl.’s Opp. Br., Exs. 57, 58.
9 Wilson Sonsini also searched for active matters involving Defendants’
affiliates, including Andreessen Horowitz.55 Wilson Sonsini had the following “open
client matters involving entities affiliated with” Defendants, which it disclosed to the
SLC:56 providing general fund advice for Andreessen Horowitz; advising a
confidential startup founded by Surojit Chatterjee; providing trademark advice for a
venture capital firm affiliated with Kathryn Haun; and providing general commercial
work for a firm affiliated with Fred Ehrsam.57 Wilson Sonsini estimated that those
representations would produce approximately $800,000 in fees and disclosed that the
firm did not believe that those representations were “material or would impact [its]
independence.”58
It is unclear whether the conflict report distinguished between Defendants’
affiliates generally and affiliates involved in the Challenged Trades. Wilson Sonsini
did not view the open representations of Defendants’ affiliates—even those affiliates
involved in the Challenged Trades—as conflicts barring representation of the SLC.59
Wilson Sonsini represented Andreessen Horowitz while representing the SLC.
During the SLC investigation, Wilson Sonsini represented Andreessen Horowitz in
at least ten financing rounds raising over $700 million.60 The team advising the SLC
55 Slights Dep. Tr. at 189:3–6.
56 Id. at 189:8–25, 239:25–240:6; SLC Opening Br., Ex. H.
57 SLC Opening Br., Ex. H.
58 Id.
59 Slights Dep. Tr. at 189:18–191:18.
60 Pl.’s Opp. Br. Exs. 59–66.
10 did not overlap with the team advising Andreessen Horowitz.61 The team advising
the SLC did not receive incremental updates on the new financing transactions on
which the firm advised Andreessen Horowitz as part of its “general fund advice.”
Plaintiff argues that Wilson Sonsini harbored ideological conflicts impeding its
representation of the SLC, but that argument is conjectural. It is true that Wilson
Sonsini has built a reputation as the go-to law firm for Silicon Valley. But former
Vice Chancellor Joseph R. Slights III, who decided cases against prominent Silicon
Valley figures during his tenure on the bench,62 led the Wilson Sonsini team that
advised the SLC.63 And Wilson Sonsini cleared the conflict check knowing that it was
possible that the SLC might recommend pursuing Plaintiff’s claims.64 Slights
testified during his deposition that he would have had no compunction recommending
that the SLC pursue claims against Defendants.65 Plaintiff does not challenge
Slights’s testimony or independence.
D. The SLC Findings
The SLC reviewed roughly 60,000 documents, collecting materials from 31
document custodians and interviewing 21 witnesses.66 Houlihan Lokey served as the
61 Slights Dep. Tr. at 190:20–191:2.
62 See Id. at 220:5–23 (discussing cases)
63 See SLC Opening Br. at 17.
64 See Slights Dep. Tr at 216:20–217:3.
65 Id. at 214:21–216:15.
66 SLC Report at 3, 34.
11 SLC’s independent financial advisor.67 After completing its investigation, the SLC
concluded that the Complaint’s allegations lack merit.68
The SLC found no evidence to suggest that Defendants pursued the Direct
Listing for their personal benefit or because it would involve reduced oversight.
According to the SLC, Coinbase concluded that its strong financials and its
institutional interest in financial transparency militated in favor of the Direct
Listing.69
The Board and management decided on a direct listing by initiating a “RAPID,”
Coinbase’s internal decision-making tool. According to the SLC, CEO Armstrong and
the Board preferred a direct listing, while officers Haas, Chatterjee, Aggarwal, and
Choi supported a modified IPO.70 Ultimately, Armstrong decided that Coinbase
would pursue the Direct Listing for these reasons:
(i) “We don’t need to raise money right now”; (ii) “I don’t trust the modified IPO process” (noting recent examples he deemed “wildly underpriced”); (iii) “I want to have the market tell us the fair price, not have to guess (or ask someone else to guess) the fair price”; and (iv) a direct listing is “more in line with the ethos of crypto to have a fair open market for all participants.”71
The SLC found no evidence that any Defendant was interested in selling large
blocks of shares. According to the SLC, many Defendants did not want to sell their
67 Id. at 3.
68 Id. at 329.
69 Id. at 95–99.
70 Id. at 88, 98–99.
71 Id. at 100–01.
12 shares at all and only did so to create a liquid market for the stock.72 It was Coinbase
that rejected a lock-up because a lock-up period risked constraining supply for the
Direct Listing.73
The SLC found no evidence that any Defendant possessed MNPI in connection
with the Direct Listing. Coinbase identified MNPI concerns early and structured
both the Secondary Trading Program and the Direct Listing to avoid MNPI exposure
for directors and officers. No Defendant believed that he or she held MNPI at the
time of the Challenged Trades, and Coinbase had disclosed all material information
concerning its financial condition before the Direct Listing.74
The SLC concluded that the Andersen Report did not constitute MNPI because
it would not be material to a rational investor.75 The SLC noted that Coinbase had
received multiple, widely varying valuations before the Direct Listing and explained
that investors and executives often view 409A valuations with skepticism due to their
regulatory limits and narrow purpose.76 According to the SLC, companies have a bias
toward keeping 409A valuations as low as possible to minimize the risk of under-
withholding taxes associated with employee stock options.77 And the SLC found no
72 Id. at 76–77.
73 Id. at 126–27.
74 Id. at 225–26, 229.
75 Id. at 236.
76 Id. at 236–37.
77 Id. at 237–38.
13 evidence that Defendants considered the Andersen Report when making the
Challenged Trades.78
The SLC also considered the allegations that management pursued a direct
listing based on non-public information about fee compression. The SLC
acknowledged that management “worried about” fee compression79 but stated that
witnesses did not recall focusing on fee compression during Board meetings before
the Challenged Trades.80 Management viewed fee compression as a long-term
concern, and analysts had cautioned Coinbase about fee compression risks in the
brokerage industry.81 But the SLC concluded that fee compression did not drive the
decision to opt for a direct listing and that Coinbase had disclosed the related risks
in its public disclosures.82 The SLC also found no evidence that Coinbase was
experiencing any fee compression before the Direct Listing.83
E. The SLC Moves To Terminate This Litigation.
In February 2025, The SLC filed a motion to terminate the litigation, attaching
the SLC Report.84 The court entered a scheduling order for Plaintiff’s Zapata
discovery.85 The order stipulated that Zapata discovery, including any depositions,
78 Id. at 239–40.
79 Id. at 190.
80 Id. at 186, 268.
81 Id. at 193.
82 Id. at 263.
83 Id. at 265, 268.
84 Dkt. 53.
85 Dkt. 56.
14 would be completed by June 6, 2025.86 On May 15, Plaintiff moved to compel
responses related to the independence of Wilson Sonsini and Rajaram.87 A day later,
the parties came to an agreement to allow certain depositions to take place in mid-
June.88 The court entered a revised scheduling order on July 7.89
After the SLC filed its opening brief on July 8, Plaintiff asked for an extension
for the answering brief and revealed that he sought to introduce expert opinions.90
Plaintiff’s answering brief, filed on August 19, referenced three expert opinions
contained in reports filed with the brief.91 The SLC filed a motion to strike those
opinions, arguing that they were introduced after the close of discovery and left the
SLC with no opportunity to cross-examine the experts or submit rebuttal opinions.92
The parties completed briefing on the motion to strike on September 4,93 and briefing
on the motion to terminate on September 23.94 The court heard oral argument on
both motions on October 13.95
86 Id.
87 Dkt. 62
88 Dkt. 63.
89 Dkt. 71.
90 Dkts. 72, 76; Dkt. 82 (“SLC Mot. to Strike”) ¶ 10.
91 Dkts. 80, 81.
92 SLC Mot. to Strike at ¶¶ 2,3.
93 Dkt. 91.
94 Dkt. 101.
95 Dkt. 106.
15 II. LEGAL ANALYSIS
The SLC has moved to strike the expert opinions submitted by Plaintiff and
moved to terminate this litigation based on the SLC Report.
A. Motion To Strike
The motion to strike the expert opinions is granted, solely because Plaintiff
submitted expert opinions after the close of discovery. Plaintiff admitted to as much
when he offered to modify the existing schedule to allow the SLC to depose his
proffered experts.96 The timing of the production created unfair surprise for the
SLC.97 The below analysis does not consider the experts’ opinions.
B. Motion To Terminate
Delaware law allows a corporation to shut down a derivative lawsuit after a
stockholder plaintiff defeats a motion to dismiss by establishing an SLC. This is
because “derivative claim[s] belong[] to the corporation, not to the shareholder
plaintiff who brings the action.”98 Delaware courts thus permit the corporation a “last
chance . . . to control a derivative claim” through an SLC process, even in cases where
“a majority of its directors cannot impartially consider a demand.”99
96 See Dkt. 86 at 13.
97 See Levy v. Stern, 1996 WL 742818, at *2 (Del. 1996) (TABLE); IQ Hldgs., Inc. v.
Am. Com. Lines Inc, 2012 WL 3877790, at *1–2 (Del. Ch. Aug. 30, 2012); In re ExamWorks Gp., Inc. S’holder Appraisal Litig, 2018 WL 1008439, at *9 (Del. Ch. Feb. 21, 2018). 98 In re M & F Worldwide Corp. S’holders Litig., 799 A.2d 1164, 1174 n.31 (Del. Ch.
2002) (quoting MAXXAM, Inc./Federated Dev. S’holders Litig., 698 A.2d 949, 956 (Del. Ch. 1996)). 99 In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 939–40 (Del. Ch. 2003).
16 An SLC has the power to recommend any manner of outcome for a derivative
suit—that it proceed in full or part, that it settles, or that the court terminate it.
Zapata sets the standard applied when evaluating a motion to terminate.100
Zapata calls for a two-step analysis. As the first step, the court must “review[] the
independence of SLC members and consider[] whether the SLC conducted a good
faith investigation of reasonable scope that yielded reasonable bases supporting its
conclusions.”101 If the SLC meets that burden, then the court “determines, in its own
business judgment, whether the suit should be dismissed.”102 This second step is
“wholly within the discretion of the court.”103
Under Zapata, the court reviews an SLC’s motion to terminate subject to what
is in essence a summary judgment standard.104 “[T]he movant has the burden of
demonstrating the absence of any material issue of fact, and any doubt as to the
existence of such an issue will be resolved against him.”105 For the purposes of a
motion subject to Zapata, the SLC is not entitled to any favorable presumptions.106
100 See Zapata Corp. v. Maldonado, 430 A.2d 779, 788–89 (Del. 1981).
101 London v. Tyrrell, 2010 WL 877528, at *11 (Del. Ch. Mar. 11, 2010).
102 Diep ex rel. El Pollo Loco Hldgs., Inc. v. Trimaran Pollo P’rs, L.L.C., 280 A.3d 133,
158 (Del. 2022). 103 Id. (cleaned up).
104 Id. at 149.
105 Lewis v. Fuqua, 502 A.2d 962, 966 (Del. Ch. 1985).
106 Kaplan v. Wyatt, 484 A.2d 501, 507 (Del. Ch. 1984), aff’d 499 A.2d 1184 (Del. 1985).
17 Rather, the SLC bears the “burden to show the absence of a material issue of fact” as
to its independence, good faith, and a reasonable investigation.107
1. First Step
To prevail on the first step of Zapata, the SLC must persuade the court that
there is no material question of fact as to whether: “(1) its members were
independent; (2) . . . they acted in good faith; and (3) . . . they had reasonable bases
for their recommendations.”108 “If the Court determines that a material fact is in
dispute on any of these issues it must deny the SLC’s motion.”109 Of these three
factors, Plaintiff advances arguments concerning the SLC’s independence and the
reasonableness of the SLC’s investigation.110 This analysis focuses on Plaintiff’s
challenges to the SLC’s independence.
“In examining whether the SLC has met its burden to demonstrate that there
is no material dispute of fact regarding its independence, the court must bear in mind
the function of special litigation committees under our jurisprudence.” 111 As then-
Vice Chancellor Strine explained in Oracle, “the independence inquiry is critically
important if the special committee process is to retain its integrity, a quality that is,
in turn, essential to the utility of that process.”112
107 El Pollo Loco, 280 A.3d at 154; see Zapata, 430 A.2d at 788–89.
108 Oracle, 824 A.2d at 928 (citing Zapata, 430 A.2d at 788–89); London, 2010 WL
877528, at *13 (stating the nature of the SLC’s burden). 109 London, 2010 WL 877528, at *12 (emphasis added).
110 See Pl.’s Opp. Br. at 36–52.
111 Oracle, 824 A.2d at 939.
112 Id.; see also El Pollo Loco, 280 A.3d at 152.
18 “The composition and conduct of a special litigation committee therefore must
be such as to instill confidence in the judiciary and, as important, the stockholders of
the company that the committee can act with integrity and objectivity.”113
Nonindependence of one SLC member of a two-member SLC is sufficient alone to
require denial of the SLC’s motion.114
Whether an SLC member is independent is necessarily a “fact-specific
determination made in the context of a particular case.”115 “Unlike the demand-
excusal context, where the board is presumed to be independent, the SLC has the
burden of establishing its own independence.”116 “SLC members are not given the
benefit of the doubt as to their impartiality and objectivity.”117
When assessing an SLC’s independence, “the court must confront the personal
and professional relationships between those who judge and those being judged.”118
The court examines whether the SLC members’ connections to defendants “generate
a reasonable doubt about the SLC’s impartiality because they suggest that material
113 Oracle, 824 A.2d at 940; see also London, 2010 WL 877528, at *16 (“SLC members
should be selected with the utmost care to ensure that they can, in both fact and appearance, carry out the extraordinary responsibility placed on them to determine the merits of the suit and the best interests of the corporation, acting as proxy for a disabled board.”). 114 See Oracle, 824 A.2d at 944.
115 El Pollo Loco, 280 A.3d at 152 (quoting Beam v. Stewart, 845 A.2d 1040, 1049 (Del.
2004)); see also Oracle, 824 A.2d at 941 (same). 116 Beam, 845 A.2d at 1055.
117 In re Baker Hughes, a GE Co., Deriv. Litig., 2023 WL 2967780, at *11 (Del. Ch.
Apr. 17, 2023) (quoting London, 2010 WL 877528, at *11). 118 El Pollo Loco, 280 A.3d at 151.
19 considerations other than the best interests of [the Company] could have influenced
the SLC’s inquiry and judgments.”119 This court looks “beyond determining whether
SLC members are under the ‘domination and control’ of an interested director,” and
asks instead whether any “lesser affiliations . . . are substantial enough to present a
material question of fact as to whether the SLC member can make a totally unbiased
decision.”120 The court must be persuaded that each SLC member “is in a position to
base his decision on the merits of the issue rather than being governed by extraneous
consideration or influences.”121
“At bottom, the question of independence turns on whether a director is, for
any substantial reason, incapable of making a decision with only the best interests of
the corporation in mind,” and the analysis therefore focuses on “impartiality and
objectivity.”122 The analysis is contextually “tailored”—because the court may
presume that “special litigation committee members are persons of typical
professional sensibilities,” the key inquiry is whether “an unacceptable risk of bias”
is present.123
To show its independence, an SLC generally must establish that it retained
independent advisors. Delaware law recognizes that counsel for an SLC often leads
119 Oracle, 824 A.2d at 947; see also London, 2010 WL 877528, at *14.
120 London, 2010 WL 877528, at *12 (quoting Oracle, 824 A.2d at 937).
121 El Pollo Loco, 280 A.3d at 152 (quoting Kaplan, 499 A.2d at 1189).
122 Oracle, 824 A.2d at 938 (emphasis in original) (quoting Parfi Hldg. AB v. Mirror
Image Internet, Inc., 794 A.2d 1211, 1232 (Del. Ch. 2001) rev’d in part on other grounds, 817 A.2d 149 (Del. 2002)). 123 Oracle, 824 A.2d at 941–42, 947.
20 the investigation.124 And encouraging the involvement of experienced and
knowledgeable advisors in this way bolsters the integrity of the SLC process where
the SLC members remain actively engaged in the investigation.125 But it means that
the advisors, too, must adhere to the rigorous standard of independence imposed on
their clients.
Plaintiff argues that there are factual disputes concerning both Rajaram’s and
Wilson Sonsini’s independence from Andreessen and Andreessen Horowitz.
Aspects of the record support Plaintiff’s argument as to Rajaram. Andreessen
has been instrumental or present in most of Rajaram’s major career milestones.
Andreessen first invested in Rajaram’s startup, Chai Labs, in 2007. He served on its
three-person advisory board after. Rajaram testified that Chai Labs used
Andreessen’s name and reputation to attract talent and other investors.126
Andreessen was on the board of Facebook when Facebook acquired Chai Labs. The
sale of Chai Labs approximately doubled Rajaram’s net worth at the time. And after
124 Baker Hughes, 2023 WL 2967780, *18 (noting that reliance on counsel is “is not
only allowed but is ‘evidence [of] good faith and the overall fairness of the process.” (quoting In re W. Nat’l Corp. S’holders Litig., 2000 WL 710192, at *23 n.67 (Del. Ch. May 22, 2000)); In re Carvana Co. S’holders Litig., 2024 WL 1300199, *11 (Del. Ch. Mar. 27, 2024) (noting that the level of delegation to counsel was “in line with precedent”); Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc., 1997 WL 305829, at *12 (Del. Ch. May 30, 1997) (“[G]ood faith reliance by the SLC on independent, competent counsel to assist the SLC in investigating claims is legally acceptable, practical, and often necessary.”). 125See, e.g., Carlton, 1997 WL 305829, at *12 (“Where there is no evidence of overreaching by counsel or neglect by the SLC, the court ought not second guess the SLC’s decisions regarding the role which counsel played in assisting them in their task.”). 126 Rajaram Dep. Tr. at 99:4–6, 101:21–102:4.
21 the acquisition, Andreessen served on the boards of Chai Labs and Facebook, boards
to which Rajaram reported.
Rajaram also has thick ties with Andreessen Horowitz, the entity that made
$118.7 million off the Challenged Trades. To recap, Rajaram’s venture capital firm,
Firebolt, lists Andreessen and another Andreessen Horowitz executive as two of
eleven “Strategic LPs For Deal Flow.”127 As described by Rajaram, large leader-type
funds like Andreessen Horowitz often “solicit people, smaller funds, angels, et cetera,
to fill [funding] round[s].”128 And Firebolt invested alongside Andreessen Horowitz
at least 50 times in the last six years.129 Andreessen Horowitz was the lead investor
of the funding round in all but one of Firebolt’s 50 co-investments.130 Rajaram
exchanged hundreds of emails with the Andreessen Horowitz team over the course of
the SLC investigation. Those emails included dozens of cross-referrals.131 In one of
the emails, the Andreessen Horowitz team described Rajaram as their “MVP.”132
Still, aspects of the record support Rajaram’s independence. In his deposition,
Rajaram denied that he lacked independence. Rajaram testified that his financial
dealings with Andreessen Horowitz “didn’t really matter,” because the investments
he made alongside Andreessen Horowitz had yet to generate profit and had no impact
127 Pl.’s Opp. Br., Ex. 26.
128 Rajaram Dep. Tr. at 266:4–15.
129 Pl.’s Opp. Br., Exs. 3–7; see Rajaram Dep. Tr. at 127:20–129:3.
130 Pl.’s Opp. Br., Exs. 3–7.
131 See id., Exs. 28–31, 34, 37–39, 41–45, 47.
132 Id., Ex. 44.
22 on his net worth.133 He went further to say that: “[M]y dealings with the defendants
occupy no space in mind. It’s not something that I even think about. . . . [I]t’s not
something that affects my life or my personal situation[.]”134 Rajaram stated that he
would sue Defendants, without hesitation, if the SLC’s investigation so required.135
In briefing, the SLC argued that Rajaram’s relationships with Andreessen and
Andreessen Horowitz are immaterial to Rajaram.136 According to the SLC, Rajaram
is a highly successful investor with a net worth of approximately $400 million,
making it “unreasonable” to suggest that cross-referrals are material to Rajaram or
that he would forsake his reputation for such an “immaterial” relationship.137 The
SLC also sought to distance Rajaram from his investments made through Firebolt.138
And the SLC argued that Rajaram’s profits from investing alongside Andreessen
Horowitz in its funding rounds should be ignored because Andreessen (the person),
and not Andreessen Horowitz (the fund), was the target of the investigation.139
Each of the SLC’s arguments misses the mark. Just as “it would be naïve to
say, as a matter of law, that $3.3 million is immaterial,” it would be hard to conclude
133 Rajaram Dep. Tr. at 384:9–16.
134 Id. at 49:25–50:4; see also id., at 49:21–25.
135 Id. at 48:20–22, 385:25–386:11.
136 SLC Opening Br. at 53–54.
137 Id. at 53–54, 56.
138 Id. at 52–53.
139 Id. at 53.
23 that $2 to $4 million in investments were immaterial to Rajaram.140 Rajaram
testified that Firebolt was his primary investment vehicle during the relevant period;
there is no factual basis to distance Rajaram from his entity.141 Similarly, it was
Andreessen Horowitz that made and benefited from the Challenged Trades, allegedly
based on Andreessen’s MNPI. The SLC provides no legal basis for ignoring that fact;
logic demands that the court consider it.
In the end, the question is not whether Rajaram believes that he is
independent or even whether he stated so under oath. The question is whether
Rajaram’s relationships with Andreessen and Andreessen Horowitz create material
disputed facts giving rise to an unacceptable risk of bias in a process where
independence is paramount. They do.
Oracle is instructive.142 There, members of the Oracle board sold between 2%
and 17% of their stock shortly before the company announced that it missed growth
projections by a substantial margin. The company’s stock price plummeted, and
market analysts ridiculed the board for its positive outlook just weeks before.
Stockholder plaintiffs asserted Brophy claims in this court. The defendants did not
move to dismiss the action. Instead, they formed a special litigation committee to
140 Orman v. Cullman, 794 A.2d 5, 31 (Del. Ch. 2002); see also, e.g., In re MultiPlan
Corp. S’holders Litig., 268 A.3d 784, 813 (Del. Ch. 2022) (“A greater than half-million- dollar payout is presumptively material at the motion to dismiss stage,” even if “the defendants may ‘ultimately be correct . . . that it was not material[.]’” (quoting Frank v. Elgamal, 2012 WL 1096090, at *11 (Del. Ch. Mar. 30, 2012)). 141 Rajaram Dep. Tr. at 125:9–19 (“From 2018 to 2024, almost all my investments
happened through Firebolt, not personally.”). 142 824 A.2d 917 (Del. Ch. 2003).
24 investigate the claims. The committee concluded that the defendants did not possess
MNPI at the time of the trades and that there was no evidence of scienter. The
committee moved to terminate the litigation.
The stockholder plaintiffs challenged the independence of the two committee
members, both of whom were professors at Stanford University. The committee’s
report disclosed that one of the Brophy defendants was a Stanford professor. And
another Brophy defendant had donated $50,000 worth of stock to Stanford Law
School to thank one of the committee members for delivering a speech at his son’s
venture capital firm.143 Zapata discovery revealed the following additional
relationships, which suggested the existence of thicker ties between the committee
members and defendants than disclosed in the report:
• One of the Brophy defendants, then-CEO of Oracle Larry Ellison, was “a major figure” in the Silicon Valley “community” and in “the nation’s increasingly important information technology industry.”144 While Ellison was CEO, Oracle had donated over $300,000 to Stanford and had established an education non-profit where Stanford had substantial governance authority. He had been in talks with Stanford and its Institute for Economic Policy Research to establish a $170 million scholarship program in his name; one of the committee members was asked to be involved in the initiative. Ellison had also made public statements expressing his intent to leave his $100 million home to Stanford upon his death.145
• Another of the Brophy defendants (the “Professor”) taught a committee member during a critical milestone in the committee member’s career— when the committee member was a Ph.D. candidate. The two maintained continued affiliations, as both were involved in the Stanford
143 Id. at 929.
144 Id. at 932.
145 Id. at 932–35.
25 Institute for Economic Policy Research, which helped facilitate and publicize their research.146
• Yet another of the Brophy defendants (the “Donor”) caused his charitable foundation to donate $11.7 million and had personally donated $4.1 million to Stanford, including $424,000 to the Stanford Institute for Economic Policy Research and $149,000 to Stanford Law School. He was also the chair of the Stanford Institute for Economic Policy Research’s advisory board.147
The SLC argued that none of these relationships impugned the committee
members’ independence, largely because the committee members—both tenured
professors—faced zero threat of any negative consequences from Stanford for
deciding to pursue claims against the defendants. The court credited the factual
bases for the defendants’ arguments, finding that:
I am satisfied that neither of the SLC members is compromised by a fear that support for the procession of this suit would endanger his ability to make a nice living. Both of the SLC members are distinguished in their fields and highly respected. Both have tenure, which could not have been stripped from them for making a determination that this lawsuit should proceed.
Nor have the plaintiffs developed evidence that either [of the SLC members] have fundraising responsibilities at Stanford. . . . [T]he SLC members occupy positions within the Stanford community different from that of the University’s President, deans, and development professionals, all of whom, it can be reasonably assumed, are required to engage heavily in the pursuit of contributions to the University.148
The court emphasized these conclusions elsewhere in the opinion:
146 Id. at 931.
147 Id. at 931–32.
148 Id. at 930.
26 [N]one of the [defendants] have the practical ability to deprive [the committee members] of their current positions at Stanford. Nor, given their tenure, does Stanford itself have any practical ability to punish them for taking action adverse to [a defendant]—each of whom . . . has contributed (in one way or another) great value to Stanford as an institution. As important, neither [committee member is] part of the official fundraising apparatus at Stanford[.]149
Although the court credited the SLC’s arguments that the committee members
faced no economic consequences that would impugn their independence, the court
denied the motion to terminate based on concerns about the committee members’
independence. In reaching this conclusion, the court criticized the defendants’
arguments as inviting an overly “reductionist view of human nature that simplifies
human motivations on the lines of the least sophisticated notions of the law and
economics movement. Homo sapiens is not merely homo economicus.”150 Delaware
law, according to the court, recognizes that considerations beyond economic
consequences are just as capable of influencing human behavior.151
149 Id. at 935–36.
150 Id. at 938.
151 Id. (“Nor should our law ignore the social nature of humans. To be direct, corporate
directors are generally the sort of people deeply enmeshed in social institutions. Such institutions have norms, expectations that, explicitly and implicitly, influence and channel the behavior of those who participate in their operation. Some things are ‘just not done,’ or only at a cost, which might not be so severe as a loss of position, but may involve a loss of standing in the institution. In being appropriately sensitive to this factor, our law also cannot assume—absent some proof of the point—that corporate directors are, as a general matter, persons of unusual social bravery, who operate heedless to the inhibitions that social norms generate for ordinary folk.” (citation omitted)).
27 The court further concluded that the committee members’ ties to the Professor
and Donor, standing alone, were enough to defeat the SLC’s independence. The court
questioned the committee members’ ability to impartially consider whether to “press
insider trading claims against a fellow professor at their university.”152 The court
was particularly skeptical of one of the committee members who had “mutual
affiliations” and historical connections with the Professor.153 The Professor was
present during a critical milestone in the committee member’s career and the two
maintained professional affiliations. The court also questioned the committee
members’ willingness to press insider trading claims against the Donor, an
“extremely generous and . . . influential Stanford alumnus,” given their positions at
Stanford.154 The court reached these conclusions even though the committee
members had no material financial ties to either the Professor or the Donor, were not
dominated or controlled by the Professor or the Donor, stated their indifference to
pressing claims against the Professor and the Donor,155 and no one questioned the
committee members’ good faith.156
152 Id. at 942; cf. id. at 945 (“The idea that faculty members would not be concerned
that action of that kind might offend a large contributor who a university administrator or fellow faculty colleague . . . had taken the time to cultivate strikes me as implausible and as resting on a narrow-minded understanding of the way that collegiality works in institutional settings.”). 153 Id. at 943.
154 Id.
155 Id. at 930, 937.
156 Id. at 947.
28 The committee members’ relationship with the third relevant Brophy
defendant—Ellison—“reinforce[d]” the court’s conclusion.157 But the Oracle court’s
discussion on this point warrants pause and clarification, given the obvious
comparisons between Ellison and Andreessen. The Oracle court wrote that “[t]he
notion that anyone in Palo Alto can accuse Ellison of insider trading without
harboring some fear of social awkwardness seems a stretch.”158 And that is a fair
statement. But it is also dicta, and more a social observation than a statement of
law. Delaware law does not treat the “fear of social awkwardness” as a bias-producing
quality sufficient to disqualify a special committee member.159 Not even Oracle
proclaims it so. As the Oracle court also clarified, being “the key force behind a very
important social institution in Silicon Valley” does not “disqualif[y] all persons who
live there from being independent of” Ellison.160
Still, Oracle offers several lessons for SLC motions to terminate. At a high
level, Oracle appropriately warns against a reductionist view of human nature,
commends a nuanced and contextualized analysis of human relationships, and
emphasizes the paramount role that the independence inquiry plays in a Zapata
analysis. It likewise demonstrates that the independence inquiry is not always as
simple as searching for one “smoking gun” of financial reliance or the opposite.
157 Id. at 945.
158 Id.
159 Id.
160 Id.
29 Multiple financial and personal connections can accumulate to a significant concern
about independence.
Those lessons resonate here. It is not necessarily Andreessen’s status within
Silicon Valley that gives rise to a material dispute concerning Rajaram’s
independence. It is the fact of Andreessen’s influential presence during multiple
milestones of Rajaram’s career, including a critical wealth-building moment. It is
that Rajaram has invested alongside Andreessen Horowitz approximately 50 times
over the six years before the SLC investigation. It is the hundreds of emails between
Rajaram and the Andreessen Horowitz team exchanged during the SLC process,
including dozens of cross-referrals. It is the cumulative effect of all these things. No
one—not Plaintiff and thus not the court—questions Rajaram’s good faith. But the
thick ties between him and the subject of the SLC’s investigation are sufficient to
raise material disputes regarding his independence.
For this reason, the SLC has failed to meet its burden under the first step of
Zapata. This decision does not reach Plaintiff’s arguments as to Wilson Sonsini,
except to say what is undoubtedly uncontroversial—advising Andreessen Horowitz
on multiple transactions while advising the SLC on its investigation into Andreessen
Horowitz’s sizeable trades was suboptimal.
2. Second Step
Because the SLC failed to carry its burden under the first step of the Zapata
analysis, this analysis does not reach the second step.
30 III. CONCLUSION
Oracle offers one final lesson for purposes of this decision. After the court
denied the SLC’s motion to terminate in Oracle, the remaining defendants moved for
summary judgment on the Brophy claims, and the court granted the motion.161 The
court’s reasoning largely tracked the special litigation committee’s earlier report. 162
Here, the SLC Report paints a compelling narrative that favors Defendants and
appears to lay a path to summary judgment if the undisputed facts are as the report
suggests. As in Oracle, the work of the committee and the reasoning of its report
might ultimately carry the day. But for today’s purposes, the SLC has not carried its
burden.
The SLC’s motion to strike is granted. The SLC’s motion to terminate is
denied. IT IS SO ORDERED.
Sincerely,
/s/ Kathaleen St. J. McCormick
Chancellor
cc: All counsel of record (by File & ServeXpress)
161 In re Oracle Corp., 867 A.2d 904, 906 (Del. Ch. 2004), aff’d sub nom. In re Oracle
Corp. Deriv. Litig., 872 A.2d 960 (Del. 2005). 162 Compare id. at 906–07, 934–54, with Oracle, 824 A.2d 926–28.