Daniel S. Peña v. MacArthur Group, Inc.
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DANIEL S. PEÑA, ) ) Petitioner / Plaintiff, ) ) v. ) C.A. No. 2023-0412-MTZ ) MACARTHUR GROUP, INC., ) a Delaware corporation, ) ) Respondent, ) ) and ) ) THOMAS SAUER, COLIN MYERS, ) WINTHROP MINOT, BRIAN ) PICCIONI, MARIA MAST, and ) JUSTIN O’NEIL, ) ) Defendants. )
MEMORANDUM OPINION Date Submitted: June 24, 2025 Date Decided: October 1, 2025
Benjamin P. Chapple, John T. Miraglia, REED SMITH LLP, Wilmington, Delaware, Attorneys for Petitioner / Plaintiff Daniel S. Peña.
Melissa N. Donimirski, Stacey A. Scrivani, STEVENS & LEE, P.C., Wilmington, Delaware, Attorneys for Respondent and Defendants.
ZURN, Vice Chancellor. A corporation engaged in a stock-for-stock merger that effectively converted
the corporation into a limited liability company. One stockholder dissented and
sought appraisal. This case thus began as an appraisal proceeding. But appraisal
discovery opened up a new chapter. Discovery revealed the company’s CEO and
controller, together with the CFO, had used company funds for personal reasons and
caused the company to enter into a series of questionable transactions throughout the
company’s lifetime.
The case now involves direct claims for breach of fiduciary duty against the
corporation’s board. The plaintiff alleges the controller and the CFO, along with the
rest of the board, disloyally orchestrated the merger to obtain a material nonratable
benefit for themselves: reduced exposure to liability. The plaintiff’s claims are both
backward-looking and forward-looking. He alleges the merger insulates the board
from liability for past conduct because it extinguished the corporate stockholders’
derivative standing. He alleges the merger likewise insulates the board from liability
for future conduct because, as permitted by the Delaware Limited Liability Company
Act, the limited liability company eliminated fiduciary duties. The plaintiff also
asserts a disclosure claim, alleging the corporation’s board failed to disclose the
merger’s true purpose.
The defendants moved to dismiss. They contend that the merger did not
confer a material nonratable benefit sufficient to trigger entire fairness review. I
1 conclude the plaintiff’s forward-looking claim successfully pleads the merger
conveyed a material nonratable benefit to the controller and the CFO. Entire fairness
applies, and the plaintiff’s breach of fiduciary duty claim survives the motion to
dismiss as to those two defendants. I grant the motion as to the other defendants on
the forward-looking claim, the backward-looking claim, and the disclosure claim.
I. BACKGROUND1
MacArthur Group, Inc. (“MacArthur” or the “Company”) was a privately held
Delaware corporation that operated residential treatment centers for veterans
through its wholly owned subsidiary, Miramar Health, LLC (“Miramar”), a
Delaware limited liability company.2 Both MacArthur and Miramar were formed in
April of 2019.3
1 Unless otherwise noted, the following facts are drawn from the plaintiff’s Verified Second Amended Petition and Complaint, available at Docket Item (“D.I.”) 80 [hereinafter “Am. Compl.”], as well as the documents attached and integral to it. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). Citations in the form of “OB __” refer to Defendant’s Opening Brief in Support of Their Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 87. Citations in the form of “AB __” refer to Plaintiff’s Answering Brief in Opposition to Defendants’ Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 89. Citations in the form of “RB __” refer to Defendants’ Reply Brief in Support of Their Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 94. Citations in the form of “Hr’g Tr. at __” refer to the transcript for the oral argument on Defendants’ motion to dismiss, available at D.I. 96. 2 Am. Compl. ¶¶ 28, 29. 3 Id. ¶ 29. 2 Defendants Thomas Sauer, Colin Myers, Winthrop Minot, Brian Piccioni,
Maria Mast, and Justin O’Neil (the “Defendants”) were members of MacArthur’s
board of directors (the “Board”).4 Sauer was MacArthur’s founder and CEO, as well
as its largest stockholder, at all relevant times owning approximately 56.5% of
MacArthur’s outstanding stock.5 Myers was MacArthur’s CFO.6
A. Plaintiff Invests in MacArthur, Then Gets Diluted.
When Sauer was getting MacArthur off the ground, he enlisted the help of his
former mentor, plaintiff Daniel S. Peña (“Plaintiff”). 7 The two agreed Plaintiff
would join the Company as Chairman of the Board and offer his “extensive business
connections and acumen” in exchange for equity in MacArthur.8 That agreement
marked the beginning of the end.
When Plaintiff became a MacArthur stockholder in June of 2019, he was the
Company’s only non-director stockholder. 9 Plaintiff alleges that since the
4 Id. ¶¶ 19–24. 5 Id. ¶ 19. 6 Id. ¶ 20. 7 Id. ¶ 1. 8 Id. ¶¶ 1, 31. It appears Plaintiff did not end up joining the MacArthur Board. 9 Id. ¶ 5. As of the Merger, MacArthur had nine stockholders, including Plaintiff. Six of the stockholders sat on the MacArthur Board. Two of the three non-director stockholders were recruited by Myers in August of 2019: one was a client of his family’s wealth management firm and the other was the firm’s Vice President. Thus, Plaintiff alleges he was the “only non-director MacArthur stockholder who [was] truly an outsider.” Id. ¶ 120. 3 Company’s inception, he has been the target of a conspiracy in which Sauer, Myers,
and Minot plotted to dilute Plaintiff’s equity and voting power in the Company.10
B. MacArthur Becomes A Limited Liability Company.
In July of 2022, Sauer, Myers, and Minot began exploring the possibility of a
potential “conversion” for tax purposes. 11 At the same time, Defendants were
considering a few other proposals, including a stock split, an equity incentive plan,
and a dividend plan.12 Defendants eventually pivoted toward a merger.13
On July 23, MacArthur’s outside counsel notified the Company’s
stockholders that MacArthur would be postponing its annual stockholder meeting
“to further investigate a board recommendation from a recent meeting.” 14
Throughout the next six months, the Board sought legal advice from outside counsel
on various governance matters.15 These matters included “Delaware’s exculpation
provisions,” “Peña investment,” “stock agreements and corporate documents,”
“Mac[A]rthur corporate restructure,” and “strategy . . . concerning
10 Id. ¶¶ 32–53. 11 Id. ¶ 104. 12 Id. ¶¶ 105–06. 13 Id. ¶ 107. The Amended Complaint does not plead when Defendants began to pursue the merger. 14 D.I. 87 Ex. 3; Am. Compl. ¶ 108. 15 Am. Compl. ¶ 109. 4 MacArthur/Miramar corporate identity.”16 In August, Defendants met with outside
counsel to discuss the legal ramifications of a conversion by merger (the “Merger”),
“including with respect to the Board’s potential exposure for pre-Merger fiduciary
misconduct.”17
The Board held a special meeting to discuss the Merger on December 14.18
MacArthur’s outside counsel delivered a presentation addressing “the legal issues,
financial consequences and ramifications associated with the Merger.”19 The Board
then unanimously approved the draft terms and resolved to recommend the Merger
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
DANIEL S. PEÑA, ) ) Petitioner / Plaintiff, ) ) v. ) C.A. No. 2023-0412-MTZ ) MACARTHUR GROUP, INC., ) a Delaware corporation, ) ) Respondent, ) ) and ) ) THOMAS SAUER, COLIN MYERS, ) WINTHROP MINOT, BRIAN ) PICCIONI, MARIA MAST, and ) JUSTIN O’NEIL, ) ) Defendants. )
MEMORANDUM OPINION Date Submitted: June 24, 2025 Date Decided: October 1, 2025
Benjamin P. Chapple, John T. Miraglia, REED SMITH LLP, Wilmington, Delaware, Attorneys for Petitioner / Plaintiff Daniel S. Peña.
Melissa N. Donimirski, Stacey A. Scrivani, STEVENS & LEE, P.C., Wilmington, Delaware, Attorneys for Respondent and Defendants.
ZURN, Vice Chancellor. A corporation engaged in a stock-for-stock merger that effectively converted
the corporation into a limited liability company. One stockholder dissented and
sought appraisal. This case thus began as an appraisal proceeding. But appraisal
discovery opened up a new chapter. Discovery revealed the company’s CEO and
controller, together with the CFO, had used company funds for personal reasons and
caused the company to enter into a series of questionable transactions throughout the
company’s lifetime.
The case now involves direct claims for breach of fiduciary duty against the
corporation’s board. The plaintiff alleges the controller and the CFO, along with the
rest of the board, disloyally orchestrated the merger to obtain a material nonratable
benefit for themselves: reduced exposure to liability. The plaintiff’s claims are both
backward-looking and forward-looking. He alleges the merger insulates the board
from liability for past conduct because it extinguished the corporate stockholders’
derivative standing. He alleges the merger likewise insulates the board from liability
for future conduct because, as permitted by the Delaware Limited Liability Company
Act, the limited liability company eliminated fiduciary duties. The plaintiff also
asserts a disclosure claim, alleging the corporation’s board failed to disclose the
merger’s true purpose.
The defendants moved to dismiss. They contend that the merger did not
confer a material nonratable benefit sufficient to trigger entire fairness review. I
1 conclude the plaintiff’s forward-looking claim successfully pleads the merger
conveyed a material nonratable benefit to the controller and the CFO. Entire fairness
applies, and the plaintiff’s breach of fiduciary duty claim survives the motion to
dismiss as to those two defendants. I grant the motion as to the other defendants on
the forward-looking claim, the backward-looking claim, and the disclosure claim.
I. BACKGROUND1
MacArthur Group, Inc. (“MacArthur” or the “Company”) was a privately held
Delaware corporation that operated residential treatment centers for veterans
through its wholly owned subsidiary, Miramar Health, LLC (“Miramar”), a
Delaware limited liability company.2 Both MacArthur and Miramar were formed in
April of 2019.3
1 Unless otherwise noted, the following facts are drawn from the plaintiff’s Verified Second Amended Petition and Complaint, available at Docket Item (“D.I.”) 80 [hereinafter “Am. Compl.”], as well as the documents attached and integral to it. See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004). Citations in the form of “OB __” refer to Defendant’s Opening Brief in Support of Their Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 87. Citations in the form of “AB __” refer to Plaintiff’s Answering Brief in Opposition to Defendants’ Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 89. Citations in the form of “RB __” refer to Defendants’ Reply Brief in Support of Their Motion to Dismiss Counts II and III of the Verified Second Amended Petition and Complaint, available at D.I. 94. Citations in the form of “Hr’g Tr. at __” refer to the transcript for the oral argument on Defendants’ motion to dismiss, available at D.I. 96. 2 Am. Compl. ¶¶ 28, 29. 3 Id. ¶ 29. 2 Defendants Thomas Sauer, Colin Myers, Winthrop Minot, Brian Piccioni,
Maria Mast, and Justin O’Neil (the “Defendants”) were members of MacArthur’s
board of directors (the “Board”).4 Sauer was MacArthur’s founder and CEO, as well
as its largest stockholder, at all relevant times owning approximately 56.5% of
MacArthur’s outstanding stock.5 Myers was MacArthur’s CFO.6
A. Plaintiff Invests in MacArthur, Then Gets Diluted.
When Sauer was getting MacArthur off the ground, he enlisted the help of his
former mentor, plaintiff Daniel S. Peña (“Plaintiff”). 7 The two agreed Plaintiff
would join the Company as Chairman of the Board and offer his “extensive business
connections and acumen” in exchange for equity in MacArthur.8 That agreement
marked the beginning of the end.
When Plaintiff became a MacArthur stockholder in June of 2019, he was the
Company’s only non-director stockholder. 9 Plaintiff alleges that since the
4 Id. ¶¶ 19–24. 5 Id. ¶ 19. 6 Id. ¶ 20. 7 Id. ¶ 1. 8 Id. ¶¶ 1, 31. It appears Plaintiff did not end up joining the MacArthur Board. 9 Id. ¶ 5. As of the Merger, MacArthur had nine stockholders, including Plaintiff. Six of the stockholders sat on the MacArthur Board. Two of the three non-director stockholders were recruited by Myers in August of 2019: one was a client of his family’s wealth management firm and the other was the firm’s Vice President. Thus, Plaintiff alleges he was the “only non-director MacArthur stockholder who [was] truly an outsider.” Id. ¶ 120. 3 Company’s inception, he has been the target of a conspiracy in which Sauer, Myers,
and Minot plotted to dilute Plaintiff’s equity and voting power in the Company.10
B. MacArthur Becomes A Limited Liability Company.
In July of 2022, Sauer, Myers, and Minot began exploring the possibility of a
potential “conversion” for tax purposes. 11 At the same time, Defendants were
considering a few other proposals, including a stock split, an equity incentive plan,
and a dividend plan.12 Defendants eventually pivoted toward a merger.13
On July 23, MacArthur’s outside counsel notified the Company’s
stockholders that MacArthur would be postponing its annual stockholder meeting
“to further investigate a board recommendation from a recent meeting.” 14
Throughout the next six months, the Board sought legal advice from outside counsel
on various governance matters.15 These matters included “Delaware’s exculpation
provisions,” “Peña investment,” “stock agreements and corporate documents,”
“Mac[A]rthur corporate restructure,” and “strategy . . . concerning
10 Id. ¶¶ 32–53. 11 Id. ¶ 104. 12 Id. ¶¶ 105–06. 13 Id. ¶ 107. The Amended Complaint does not plead when Defendants began to pursue the merger. 14 D.I. 87 Ex. 3; Am. Compl. ¶ 108. 15 Am. Compl. ¶ 109. 4 MacArthur/Miramar corporate identity.”16 In August, Defendants met with outside
counsel to discuss the legal ramifications of a conversion by merger (the “Merger”),
“including with respect to the Board’s potential exposure for pre-Merger fiduciary
misconduct.”17
The Board held a special meeting to discuss the Merger on December 14.18
MacArthur’s outside counsel delivered a presentation addressing “the legal issues,
financial consequences and ramifications associated with the Merger.”19 The Board
then unanimously approved the draft terms and resolved to recommend the Merger
to MacArthur’s stockholders for their consideration.20
On or around January 6, 2023, MacArthur issued an Information Statement
Regarding Proposed Merger of MacArthur Group, Inc. with and into MacArthur
Group LLC (the “Information Statement”).21 The Information Statement described
the nature of the transaction, including the consideration that the MacArthur
stockholders would receive: each share of MacArthur would be cancelled and
converted into the right to receive one unit in MacArthur Group LLC (“Mac
16 Id. 17 Id. 18 Id. ¶ 110. 19 Id. 20 Id. 21 See D.I. 87 Ex. 2 [hereinafter “Information Statement”]; Am. Compl. ¶ 111. 5 LLC”).22 The Information Statement advised the Board had “determined that the
terms and conditions of the Merger are fair to, and in the best interests of, the
stockholders [of MacArthur][.]” 23 And it pointed to tax benefits as the primary
rationale behind the Merger.24 Specifically, it explained:
The decision of the [MacArthur] Board was based primarily on the benefits of [Mac LLC] being treated as a partnership for U.S. federal income tax purposes and generally not being subject to U.S. federal income tax; meaning generally there will no longer be a company level tax for future earnings of [Mac LLC].25
The Information Statement also summarized key provisions of the proposed
Limited Liability Company Agreement for MacArthur Group, LLC (the “LLC
Agreement”), which was attached as an exhibit. 26 Some of these provisions
materially restrict the rights MacArthur stockholders held while the Company was a
corporation.27 Plaintiff principally takes issue with Section 13.9, a fiduciary duty
waiver provision. Section 13.9 provides that “each of the Members and the
Company hereby waives any and all fiduciary duties that, absent such waiver, may
22 Information Statement at MacArthur-001020–21 (“[E]ach share of [MacArthur] Common Stock that is issued and outstanding immediately prior to the Effective time shall automatically be cancelled, extinguished, and converted into one (1) unit representing a membership interest in [Mac LLC].”). 23 Id. at MacArthur-001017. 24 Id. 25 Id. 26 Id. at MacArthur-001027–28, MacArthur-001088–1131. 27 Am. Compl. ¶¶ 118–122. 6 be implied by applicable law.”28 The Information Statement contained the following
summary of that provision:
Fiduciary Duty Waiver. The [LLC Agreement] eliminates fiduciary duties implied by applicable law that certain Covered Persons (which includes the Board of Managers, the Partnership Representative, and officers of [Mac LLC]), [Mac LLC], and the Members, may owe to each other or to any other person that is a party to or otherwise bound by the [LLC Agreement]. The [LLC Agreement] also provides that to extent not prohibited by law, no Covered Person will be liable, for damages or otherwise, to [Mac LLC] or to any Member for any loss that arises out of any act performed or omitted to be performed by it, him or her, in its, his or her capacity as a Covered Person; and [Mac LLC] will indemnify and hold harmless Covered Persons against certain legal actions brought against him or her on account of service provided to [Mac LLC].29
The LLC Agreement also limits the right to call member meetings to certain
individuals or groups: Section 6.4 provides that meetings can only be called by the
Board, by a member or group of members holding more than 50% of the membership
units, or the CEO or President.30 Finally, the LLC Agreement restricts the right to
transfer membership interests: Section 11.1 prohibits third-party transfers unless a
member obtains “the prior approval or written consent of the Board of Managers.”31
28 D.I. 87 Ex. 5 [hereinafter “LLC Agreement”] § 13.9. 29 Information Statement at MacArthur-001028. 30 LLC Agreement § 6.4. 31 Id. § 11.1. 7 In response to the Information Statement, all MacArthur stockholders except
for Plaintiff approved and executed the written consent authorizing the Merger.32
Sauer’s consent was decisive.33 All MacArthur stockholders except for Plaintiff also
executed the LLC Agreement. 34 The Merger became effective on February 9,
2023.35
C. Plaintiff Demands Appraisal; Discovery Reveals Sauer’s and Myers’s Use of Company Funds.
On January 20, 2023, Plaintiff demanded appraisal of his shares.36 Realizing
his initial demand was premature, Plaintiff sent a second demand for appraisal on
March 1.37 On April 10, Plaintiff filed his Verified Petition for Appraisal of Stock.38
Appraisal discovery revealed that throughout MacArthur’s lifetime, behind
the scenes, Sauer and Myers “repeatedly used their control over” MacArthur’s funds
and framework for personal purposes.39 Plaintiff amended his petition to add claims
32 D.I. 87 Ex. 4. 33 Id. 34 See LLC Agreement. 35 Am. Compl. ¶ 12. 36 D.I. 87 Ex. 6; Am. Compl. ¶ 156. 37 D.I. 87 Ex. 7; Am. Compl. ¶ 156. 38 D.I. 1. 39 Am. Compl. ¶¶ 54, 54–103. 8 for breach of fiduciary duty in connection with the Merger, based on the information
acquired during discovery.40 Plaintiff alleges six categories of misconduct.
1. Personal Expenditures
Since MacArthur’s inception, Sauer and Myers have used the Company’s
funds for personal expenditures.41 These expenditures include a $75,000 advance
payment on Sauer’s personal residence in Corona Del Mar; 42 payments totaling
$134,140 to Sauer’s personal stylist; 43 and Zelle transfers totaling $250,000 to
Sauer’s wife, Natalie Kratts, a quarter of which was used to cover wedding costs.44
Sauer was neither shy nor secretive about his use of the Company’s funds. He
told a renting agent that he “run[s] most of [his] expense through the company, and
make[s] frequent owner draws as needed/desired[.]” 45 He told that agent that to
40 See D.I. 47. 41 Am. Compl. ¶¶ 54–60, 69–70. 42 Id. ¶ 56. 43 Id. ¶ 70 n.4. 44 Id. ¶ 57. About $60,000 of the Zelle transfers to Kratts covered costs relating to Sauer’s and Kratts’s June 2022 wedding. Id. Kratts emailed Sauer a nonexhaustive list of expenses totaling approximately $60,000 related to the wedding. Id. Sauer responded that he would transfer the necessary funds, but that he would do so through Zelle “because he wanted to avoid ‘pay[ing] directly and hav[ing] the vendors name show up on the company statement.’” Id. Sauer told Kratts it was “[b]etter to simply have [the Company funds] go to you and categorize it as ‘Loan to Officer.’” Id. 45 Id. ¶ 56. 9 mitigate concerns about his “abysmal” credit score, Sauer could pay “at least 4 to 6
months’ worth” of rent up front from company funds.46
2. Insider Loans
Sauer and Myers caused MacArthur to reclassify the personal expenditures as
loans (the “Insider Loans”). 47 For example, a portion of Sauer’s personal
expenditures was reclassified as a single, unsecured, interest-only, ten-year loan
dated February 15, 2022, for $621,752.95, with a 1.92% interest rate.48 MacArthur
also issued two unsecured, interest-only, ten-year loans with a 1.92% interest rate to
Myers: a $100,000 loan on April 1, and a $65,800 loan on August 1. 49 In addition
to borrowing money from MacArthur, Myers loaned money to the Company at an
interest rate of approximately 74%—38 times higher than the Insider Loans’ rates.50
On May 17, 2023, Defendants as Mac LLC’s board voted to ratify the Insider
Loans.51
46 Id. 47 Id. ¶¶ 61–73. Plaintiff alleges that the “total amount of the Personal Expenditures is believed to be materially greater” than the principal amounts assigned to the Insider Loans. Id. ¶ 68. 48 Id. ¶ 62. 49 Id. 50 Id. ¶¶ 74, 75–76. 51 Id. ¶ 143. 10 3. Project Gunshot
In January of 2020, Sauer entered into an agreement to use Miramar funds to
secure himself equity and a CEO position.52 MacArthur’s creditor, John Doherty,
founded Digital Drive Solutions, LLC (“Digital Drive”), a startup aimed at “solving
and deterring gun crime.”53 Through a venture codenamed “Project Gunshot,” Sauer
would be named Digital Drive’s CEO and receive a 5% equity grant every year that
Miramar paid Digital Drive’s payroll, healthcare, and hardware-related expenses.54
Miramar funded Digital Drive’s R&D for over eighteen months through a “dummy
employment arrangement,” paying an individual at least $87,500 to do work for
Digital Drive, benefitting Sauer and Digital Drive, but not Miramar.55
4. Horse Farm
In November of 2022, MacArthur committed to pay $2,000,000 for 50 acres
of rural property near a horse farm Myers frequented.56 According to MacArthur,
the land would be used to provide additional housing and rehabilitation facilities for
52 Id. ¶ 79. 53 Id. 54 Id. 55 Id. ¶¶ 80–81. 56 Id. ¶¶ 83–85, 92. Plaintiff alleges that, at the time MacArthur was negotiating the purchase, “Myers was about to purchase (or had recently purchased) a horse of his own, named Macy Gray.” Id. ¶ 92. 11 veterans.57 Its proximity to the horse farm would also allow veterans to “obtain
equine therapy services” provided by the seller.58 But the purchase did not include
the horse farm itself, and the transaction terms did not address MacArthur’s or its
subsidiary’s ability to access the horse farm or its equine therapy services.59 In the
summer of 2023, approximately three months after the Merger, Mac LLC borrowed
$1.05 million at 11.49% under an overcollaterized Commercial Promissory Note to
close the transaction.60
5. Life Insurance Policy
In December of 2022, Sauer and Myers caused MacArthur to take out a whole-
life life insurance policy for Sauer.61 The policy has a face value of $14,072,046
and an annual premium of $1,000,000.62 The policy’s sole beneficiary is Kratts.63
On December 16, MacArthur made its first quarterly premium payment of $250,000
to fund the policy.64
57 Id. ¶ 87. 58 Id. ¶ 88. 59 Id. ¶¶ 89–91. 60 Id. ¶ 143. 61 Id. ¶ 94. 62 Id. ¶ 95. 63 Id. ¶ 96. 64 Id. ¶¶ 95, 98. 12 6. Bonuses
On or around December 28, 2022, Sauer and Myers issued themselves a one-
time bonus payment of $50,000 each.65 The bonuses were neither approved by other
members of the Board nor issued pursuant to a stockholder-approved compensation
plan.66
D. This Litigation
Defendants moved to dismiss the amended complaint on September 26,
2024.67 Plaintiff filed the operative Amended Complaint on December 24, 2024.68
The Amended Complaint asserts three counts. Count I seeks appraisal of Plaintiff’s
380 MacArthur shares. The remaining two counts assert direct claims for breach of
fiduciary duty. Count II alleges Defendants breached their fiduciary duties by
pursuing the Merger to limit potential liability for inchoate pre-Merger derivative
claims. Count III alleges Defendants breached their fiduciary duties by adopting a
fiduciary duty waiver to limit potential future liability. Count III also asserts a
disclosure claim.
65 Id. ¶ 100. 66 Id. ¶ 101. 67 D.I. 57. 68 D.I. 80. 13 Defendants moved to dismiss Counts II and III under Court of Chancery Rule
12(b)(6).69 I heard oral argument on June 24, 2025.70
II. ANALYSIS
Defendants moved to dismiss Counts II and III under Rule 12(b)(6) for failing
to state a claim on which relief can be granted. The pleading standards under
Delaware law are “minimal.” 71 On a motion to dismiss under Rule 12(b)(6) for
failure to state a claim, the Court must “accept all well-pleaded factual allegations
in the complaint as true, accept even vague allegations in the complaint as well-
pleaded if they provide the defendant notice of the claim, [and] draw all reasonable
inferences in favor of the plaintiff.”72 The Court will grant a Rule 12(b)(6) motion
if the “plaintiff could not recover under any reasonably conceivable set of
circumstances susceptible of proof.”73
Those reasonable inferences “must logically flow from particularized facts
alleged by the plaintiff.”74 The Court need not “accept as true conclusory allegations
69 D.I. 82. 70 D.I. 96. 71 Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). 72 Id. 73 Id. 74 Wood v. Baum, 953 A.2d 126, 140 (Del. 2008). 14 without specific supporting factual allegations.” 75 The Court is not “required to
accept every strained interpretation of the allegations proposed by the plaintiff.”76
Under those standards, Plaintiff pled the Merger’s waiver of prospective
fiduciary duties in the face of known litigation risk to Sauer was a conflicted
controller transaction warranting entire fairness review; that the Merger was not
entirely fair; and that Sauer and Myers, but not the rest of the MacArthur directors,
breached their fiduciary duties. Plaintiff failed to plead the Merger extinguished
standing to bring MacArthur derivative claims, so that theory does not offer a path
to entire fairness review or liability. And Plaintiff failed to plead a disclosure claim.
A. Breach of Fiduciary Duty
Plaintiff claims Defendants breached their fiduciary duties by pursuing a
Merger designed to insulate the Board from liability for both past and future conduct.
Defendants include both Sauer as controller, and the remaining MacArthur directors.
The parties do not dispute that Sauer controlled MacArthur at the time of the
Merger.77
The gating question, whether the Merger is reviewable under the business
judgment rule or entire fairness, hinges on whether the Merger conferred a material
75 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (internal quotation marks and citations omitted). 76 Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001). 77 E.g., OB 4; Hr’g Tr. at 57. 15 nonratable benefit on Sauer or a majority of the directors. “The entire fairness
standard applies only if the presumption of the business judgment rule is defeated.”78
As to directors, the presumption may be rebutted through “facts demonstrating that
a majority of the director defendants have a financial interest in the transaction or
were dominated or controlled by a materially interested director.” 79 For entire
fairness to apply, “an interest must be subjectively material to the director.”80 As to
controllers, the plaintiffs must plead that “the controller [stood] on both sides of the
transaction” or that the controller “receive[d] different consideration or derive[d]
some unique benefit from the transaction not shared with the common
stockholders.”81
In pleading a breach of fiduciary duty claim, Counts II and III concern the
same conduct: causing MacArthur to undergo the Merger. Both counts urge entire
78 Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1371 n.7 (Del. 1995) (internal quotation marks omitted). 79 Orman v. Cullman, 794 A.2d 5, 22 (Del. Ch. 2002) (internal quotation marks and citation omitted). 80 H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 150 (Del. Ch. 2003); see also Orman, 794 A.2d at 25 n.50 (“The key issue is . . . whether the possibility of gaining some benefit or the fear of losing a benefit is likely to be of such importance to that director that it is reasonable for the Court to question whether valid business judgment or selfish considerations animated that director's vote on the challenged transaction.”). 81 In re Crimson Exploration Inc. S’holder Litig., 2014 WL 5449419, at *12 (Del. Ch. Oct. 24, 2014); see also id. at *13 (noting that entire fairness review is implicated where “the controller extract[s] something uniquely valuable to the controller, even if the controller nominally receives the same consideration as all other stockholders”). 16 fairness review because the Merger conferred a material nonratable benefit on Sauer
in the form of reduced exposure to potential liability. The counts offer different
theories of that benefit. Count II asserts the Merger offered exculpation for past
conduct by extinguishing derivative standing, while Count III asserts that Mac
LLC’s fiduciary duty waiver offered a prospective, yet nonspeculative, and complete
elimination of post-Merger liability.
1. Count III
In Count III, Plaintiff contends the Merger handed Defendants a nonratable
benefit in the form of exculpation for post-Merger misconduct because Mac LLC
eliminated fiduciary duties. MacArthur stockholders could sue their directors for
breaching their duty of loyalty; Mac LLC unitholders may not.82
Limited liability companies “are creatures of contract.” 83 Indeed, it is the
policy of the Delaware Limited Liability Company Act (the “LLC Act”) “to give the
maximum effect to the principle of freedom of contract and to the enforceability of
82 MacArthur’s charter exculpated its directors from liability for breaches of the duty of care. D.I. 87 Ex. 1 ¶ 9. 83 TravelCenters of Am., LLC v. Brog, 2008 WL 1746987, at *1 (Del. Ch. Apr. 3, 2008); see also Touch of Italy Salumeria & Pasticceria, LLC v. Bascio, 2014 WL 108895, at *4 (Del. Ch. Jan. 13, 2014) (“[R]ecognizing that LLCs are creatures of contract, I must enforce LLC agreements as written.”); Henson v. Sousa, 2015 WL 4640415, at *1 (Del. Ch. Aug. 4, 2015) (“LLCs, as this Court has repeatedly pointed out, are creatures of contract.”); Kuroda v. SPJS Hldgs., L.L.C., 971 A.2d 872, 880 (Del. Ch. 2009) (“Limited liability companies are creatures of contract, and the parties have broad discretion to use an LLC agreement to define . . . the rights and obligations of its members.”). 17 limited liability company agreements.” 84 To that end, the LLC Act grants
contracting parties “wide latitude to order their relationships, including the
flexibility to limit or eliminate fiduciary duties.”85 Section 18-1101(c) of the LLC
Act provides that “fiduciary duties[] to a limited liability company or to another
member or manager or to another person that is a party to or is otherwise bound by
a limited liability company agreement . . . may be expanded or restricted or
eliminated by provisions in the limited liability company agreement.” 86 As
permitted under this provision, Mac LLC’s LLC Agreement contains a fiduciary
duty waiver. Section 13.9 states:
This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Covered Person. Furthermore, each of the Members and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by applicable law. To the fullest extent not prohibited by law, including Section 18-1101(c) of the Act, and notwithstanding any other provision of this Agreement or applicable provisions of law or equity or otherwise, the parties hereto hereby agree that no Covered Person or Member shall owe any duties (including fiduciary duties) to the Company, any Member, or any other Person that is party to other otherwise bound by this Agreement, and any duties or implied duties (including fiduciary duties) of any Covered Person or Member to the Company, any Member or to any other such Person that would otherwise apply at law or in equity are hereby
84 6 Del. C. § 18-1101(b). 85 Bay Ctr. Apartments Owner, LLC v. Emery Bay PKI, LLC, 2009 WL 1124451, at *8 (Del. Ch. Apr. 20, 2009). 86 6 Del. C. § 18-1101(c). 18 eliminated to the fullest extent not prohibited under the Act and any other applicable law.87
The waiver unambiguously eliminates any and all fiduciary duties that would
otherwise be owed88 by the former MacArthur directors, now Mac LLC’s board of
managers, and Sauer, as Mac LLC’s controlling member.89
87 LLC Agreement § 13.9. “Covered Person” is defined to include “each Manager, the Partnership Representative or its designee (including the Designated Individual) (in such Partnership Representative’s or its designee’s (including the Designated Individual’s) capacity as such), each such Person’s officers, directors, managers, partners, members, shareholders, controlling persons, representatives and employees, and the officers of the Company.” Id. § 13.1. 88 See Kelly v. Blum, 2010 WL 629850, at *11 (Del. Ch. Feb. 24, 2010) (“[U]nless the LLC agreement in a manager-managed LLC explicitly expands, restricts, or eliminates traditional fiduciary duties, managers owe those duties to the LLC and its members and controlling members owe those duties to minority members.”); Feeley v. NHAOCG, LLC, 62 A.3d 649, 662 (Del. Ch. 2012) (“Managers and managing members owe default fiduciary duties[.]”); Auriga Cap. Corp. v. Gatz Props., LLC, 40 A.3d 839, 852 (Del. Ch. 2012) (“The statute incorporates equitable principles. Those principles view the manager of an LLC as a fiduciary and subject the manager as a default principle to the core fiduciary duties of loyalty and care.”), aff’d sub nom. Gatz Props., LLC v. Auriga Cap. Corp., 59 A.3d 1206 (Del. 2012); In re Atlas Energy Res., LLC, 2010 WL 4273122, at *9 (Del. Ch. Oct. 28, 2010) (“Because the LLC Agreement does not eliminate America’s fiduciary duties, America owes Energy’s minority unitholders ‘the traditional fiduciary duties that controlling shareholders owe minority shareholders.’” (quoting Kelly, 2010 WL 629850, at *11)). 89 See Khan v. Warburg Pincus, LLC, 2025 WL 1251237, at *7 n.92 (Del. Ch. Apr. 30, 2025) (interpreting a waiver eliminating the fiduciary duties of each “Member, Manager or officer of the Company” as eliminating fiduciary duties owed by a controller); Osios LLC v. Tiptree, Inc., 2024 WL 2947854, at *7–8 (Del. Ch. June 12, 2024) (finding that a controlling member’s “status as ‘Indemnified Person’ [was] not, under the definition in [LLC Agreement], subject to capacity testing” and that accordingly, the controlling member “owe[d] no fiduciary duties”). 19 a. Standard of Review
As with any other action taken by a board of directors, Defendants as
MacArthur directors, and Sauer as MacArthur’s controller, had to comport with their
fiduciary duties when they approved the Merger and adopted Mac LLC’s waiver of
fiduciary duties. 90 Plaintiff contends Defendants did so disloyally, to insulate
themselves from future liability. 91 Plaintiff argues the Merger was a conflicted
transaction that afforded a nonratable benefit sufficient to trigger entire fairness
review.
In response, Defendants point to the Delaware Supreme Court’s recent
decision in Maffei v. Palkon.92 Under Maffei, they say, the increased protection
90 See Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011) (“A reviewing court’s role is to ensure that the corporation complied with the statute and [that its fiduciaries] acted in accordance with [their] fiduciary duties.”); Sample v. Morgan, 914 A.2d 647, 672 (Del. Ch. 2007) (“Corporate acts thus must be ‘twice-tested’—once by the law and again by equity.”); Kellner v. AIM ImmunoTech Inc., 320 A.3d 239, 259 (Del. 2024) (“The General Assembly’s ‘capacious grant of power is policed in large part by the common law of equity, in the form of fiduciary duty principles.’” (quoting Hollinger Int’l, Inc. v. Black, 844 A.2d 1022, 1078 (Del. Ch. 2004), aff’d, 872 A.2d 559 (Del. 2005))); In re Pure Res., Inc. S’holders Litig., 808 A.2d 421, 434 (Del. Ch. 2002) (noting the “fundamental rule that inequitable actions in technical conformity with statutory law can be restrained in equity”); see also In re Invs. Bancorp, Inc. S’holder Litig., 177 A.3d 1208, 1223 (Del. 2017) (“[D]irectors’ exercise of [their] authority must be done consistent with their fiduciary duties.”); Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971) (“[I]nequitable action does not become permissible simply because it is legally possible.”). 91 Am. Compl. ¶ 173. 92 339 A.3d 705 (Del. 2025); see OB 42–46. 20 against future liability Defendants enjoy under Mac LLC’s fiduciary duty waiver
does not constitute a material nonratable benefit.93
Maffei considered a breach of fiduciary claim challenging the decision of
Tripadvisor, a controlled Delaware corporation, to reincorporate in Nevada.94 The
proposal followed a series of management presentations suggesting that Nevada law
would afford greater protection to directors, officers, and controllers faced with
breach of fiduciary duty claims.95 The board approved, and, at the stockholder vote,
the controlling stockholder cast the decisive vote. 96 The plaintiffs claimed the
reincorporation was subject to entire fairness review because it was a self-interested
transaction “aimed to benefit the Companies’ directors, officers, and conflicted
controlling stockholder to the clear detriment of minority public stockholders.”97
The Delaware Supreme Court disagreed, holding that the business judgment rule
applied because the defendant fiduciaries’ reduced litigation risk did not constitute
a material nonratable benefit.98
93 OB 42–46. 94 See Maffei, 339 A.3d at 710–11. 95 See id. at 712–14. 96 See id. at 715. 97 Id. at 717. 98 Id. at 731. 21 Maffei began by determining that the benefit’s materiality should be assessed
not only for directors, but also for controllers “where the principal focus” in the case
“has been on the alleged non-ratable benefits potentially flowing to the controller.”99
In this case, as to Sauer, that is certainly the focus at this juncture, and Sauer has not
argued that the benefit need not be material.
Then, Maffei canvassed Delaware law assessing whether decreased litigation
risk or expense constitutes a material benefit, and extracted several themes. One is
temporality, i.e., whether the risk was diminished prospectively, retroactively, or
both.100 Maffei’s dialogue with the trial court focused on whether temporality was a
99 Id. at 731, 732; see also id. at 732 (noting that a materiality requirement “achieves continuity with our law in the director context where we have more explicitly stated that non-ratable benefits and financial interests must be sufficiently material in order to taint director interest”). 100 Maffei observed that “[c]ase law also demonstrates that courts draw a distinction between limitations of directors’ liability for past acts and future acts.” Id. at 735. “This distinction can be seen by comparing cases where directors adopted provisions under Section 102(b)(7)—which, by their terms, cannot limit directors’ liability for past conduct—with cases where directors acted to extinguish existing potential liability for past conduct.” Id.; see, e.g., Orloff v. Shulman, 2005 WL 3272355, at *13 (Del. Ch. Nov. 23, 2005) (applying the business judgment rule to the adoption of a prospective Section 102(b)(7) provision, and explaining, “The law of Delaware is clear on the permissibility of advancing legal fees. This is especially true when . . . plaintiffs challenge the adoption of a bylaw that requires the corporation to advance litigation costs sometime in the future rather than challenging the directors’ decision to advance particular litigation expenses.”); Underbrink v. Warrior Energy Serv. Corp., 2008 WL 2262316, at *11–13 (Del. Ch. May 30, 2008) (applying Orloff); Bamford v. Penfold, L.P., 2022 WL 2278867, at *34 (Del. Ch. June 24, 2022) (applying entire fairness to the adoption of an exculpatory provision that “not only limited liability prospectively, but also retrospectively”). 22 distinct element of materiality.101 A second theme is maturity, i.e., whether the risk
was inchoate, threatened, or actualized.102 And a third is scope, i.e., whether and to
what extent the duty of loyalty was waived.103
101 See Maffei, 339 A.3d at 733, 741. Maffei’s temporal distinction is not a binary proxy for materiality. To the contrary, the Delaware Supreme Court expressly noted that limiting liability retrospectively “may convey a non-ratable benefit on fiduciaries,” and limiting liability prospectively “does not automatically convey a non-ratable benefit.” Id. at 733, 739 (emphasis added). 102 Maffei observed that “advancement cases show that entire fairness review does not apply to director decisions to adopt provisions regarding the advancement of litigation expenses when those provisions are adopted without regard to any particular litigation or expenses.” Id. at 734. And Maffei reviewed three cases applying entire fairness in the litigation risk context where the defendant fiduciaries acted under a “cloud of litigation relating to past conduct.” Id. at 736–38. See, e.g., Bamford, 2022 WL 2278867, at *35 (noting that “[a controller] faced claims for breach of the duty of loyalty based on his past conduct” and “sought to cut off that threat and benefit himself through the adoption of the Exculpatory Provision”); Harris v. Harris, 2023 WL 115541, at *6 (Del. Ch. Jan. 6, 2023) (noting that the defendants began devising a reincorporation a week after the plaintiff “started asking questions” and consummated the plan less than two weeks after the plaintiff sent a written demand for documents); In re Riverstone Nat’l, Inc. S’holder Litig., 2016 WL 4045411, at *5 (Del. Ch. July 28, 2016) (noting that the defendants effectuated a merger to extinguish their existing potential liability after the plaintiffs notified the defendants of claims that the defendants “breached their fiduciary duty by improperly usurping [an] opportunity”). 103 Maffei echoed this Court’s explanation in Bamford that “[f]iduciaries who control an entity can adopt prospective protective provisions, including exculpatory provisions, particularly if the provisions do not implicate the duty of loyalty.” 339 A.3d at 736 (quoting 2022 WL 2278867, at *34). Maffei suggests degrees of exculpation of the duty of loyalty. The Delaware Supreme Court applied the business judgment rule to Tripadvisor’s reincorporation to Nevada, even though Nevada’s statutory scheme permits exculpation for duty of loyalty breaches, while noting “the Nevada statute does not provide complete exculpation from duty of loyalty breaches.” Id. at 711, 736 n.216 (emphasis added). “Rather, the Nevada statute does not permit exculpation for ‘intentional misconduct, fraud, or knowing violation of the law.’” Id. at 736 n.216 (citing N.R.S. 78.138(7), and the State of Nevada’s amicus brief). 23 I read Maffei’s guidance on materiality to encompass temporality, maturity,
and scope, like the precedent it relies on. It teaches that a waiver that is both
retroactive and prospective, enacted in the shadow of actual litigation, and waives
the duty of loyalty to the point of excusing intentional misconduct would be
material.104 A waiver that is prospective, enacted on a clear day, and leaves the duty
of loyalty undisturbed would not be material.105 There is much room in between.
The Delaware Supreme Court found the Maffei reincorporation exculpated liability
prospectively, was approved on a clear day, and intruded on the duty of loyalty but
not to the point of intentional misconduct, and concluded it was not a material benefit
to Tripadvisor’s fiduciaries.106
104 See, e.g., Bamford, 2022 WL 2278867, at *33–35; Riverstone, 2016 WL 4045411, at *15 (finding that the defendants “secured a valuable benefit” from a merger “which precluded prosecution of those [duty of loyalty] claims derivatively, as a matter of law, and precluded the acquirer’s pursuit of the claims as a matter of contract”). 105 See Maffei, 339 A.3d at 733 (applying the business judgment rule where “the absence of any allegations that any particular litigation claims will be impaired or that any particular transaction will be consummated post-conversion, weighs heavily against finding that the alleged reduction in liability exposure under Nevada’s corporate law regime is material”); Orloff, 2005 WL 3272355, at *13 (applying the business judgment rule to the adoption of a Section 102(b)(7) provision); Underbrink, 2008 WL 2262316, at *13 (applying the business judgment rule to the “adoption of a bylaw that requires the corporation to advance litigation costs sometime in the future rather than . . . advance particular litigation expenses” (citing Orloff, 2005 WL 3272355, at *13)). 106 Maffei, 339 A.3d at 739 (“[T]he hypothetical and contingent impact of Nevada law on unspecified corporate actions that may or may not occur in the future is too speculative to constitute a material, non-ratable benefit triggering entire fairness review.”); id. at 741 n.249 (“[T]he record here suggests the existence of a ‘clear day’ and the absence of any material non-ratable benefits flowing to the controller or directors as a result of the
24 Here, Mac LLC’s fiduciary duty waiver secured for the former MacArthur
directors a waiver that is prospective. And Mac LLC’s fiduciary duty waiver
eliminates “all future potential liability for all fiduciary duty claims, including
claims for breach of the duty of loyalty.”107 The parties join issue on the maturity
of the MacArthur directors’ litigation risk: whether fiduciary duties were waived on
a clear day. Per Maffei, in this context, the existence of a clear day turns on whether
a complaint contains “allegations that the [transaction] decisions were made to avoid
any existing threatened litigation or that they were made in contemplation of any
particular transaction[.]”108 Well-pled allegations to that effect support a pleading-
stage inference that a reduction in mature litigation risk is sufficiently material to
trigger entire fairness review. Allegations as to “unspecified corporate actions that
may or may not occur in the future” do not suffice.109
Plaintiff pleads particularized facts that give rise to a reasonable inference that
at least Sauer, as the Company’s controller, approved the Merger and adopted the
fiduciary duty waiver “in contemplation” of ongoing self-dealing.110 Sauer and
Conversions.”); id. at 736 n.216 (noting that Nevada’s statute does not exculpate fiduciaries from liability for “intentional misconduct, fraud, or knowing violation of the law” (quoting N.R.S. 78.138(7))). 107 AB 55–56 (emphasis in original). 108 Maffei, 339 A.3d at 739. 109 Id. 110 Id. 25 Myers caused MacArthur to take out a $14 million face value whole-life life
insurance policy for the sole benefit of Sauer’s wife in mid-December of 2022.111
Defendants approved the Merger on December 14. 112 Sauer and Myers then
approved a $250,000 premium payment on December 16, with the expectation that
the next premium payment would be due around March of the following year.113
These allegations support a reasonable inference that Sauer and Myers
“contemplat[ed]” post-Merger disloyal diversions of company funds when pursuing
the Merger and its waiver of liability.114 The chronology of events embedded in
those allegations make it reasonably conceivable that Sauer and Myers contemplated
continued disloyal payments for the Life Insurance Policy benefitting Sauer’s wife.
It is reasonably conceivable that each payment would breach Sauer’s and Myers’s
duty of loyalty. But, according to Plaintiff, Sauer obtained a waiver of their fiduciary
duties before the next payment came due.115 Liability for future disloyalty was thus
111 Am. Compl. ¶¶ 94–96. 112 Am. Compl. ¶ 110. 113 See id. ¶¶ 95, 98; AB 54. Plaintiff also pleads that, approximately three months after the Merger closed, Defendants voted to ratify the Insider Loans; and that less than a month after the ratification, Mac LLC borrowed $1.05 million under an overcollateralized Commercial Promissory Note with a 11.49% interest rate to close the disloyal horse farm transaction. Am. Compl. ¶ 143. Defendants tangle with whether these allegations present post-Merger liability. Because the Life Insurance Policy allegations are enough to make the liability waiver material, I do not reach these disputes today. 114 Maffei, 339 A.3d at 739. 115 See Am. Compl. ¶¶ 95, 98; AB 54. 26 neither “hypothetical” nor “speculative.” 116 Plaintiff has pled the fiduciary duty
waiver was adopted on a rainy day.
And so, Plaintiff has pled Sauer obtained a prospective, nonspeculative and
absolute waiver of the duty of loyalty that relieved him of liability for disloyal
behavior he knew he would continue, and indeed had promised to continue. On the
spectrum of waivers, I believe this one is material. The Amended Complaint
adequately alleges the fiduciary duty waiver was adopted at least “in contemplation
of [a] particular transaction”—the Life Insurance Policy.117 Under Maffei, Plaintiff
has sufficiently pled the fiduciary duty waiver conveys a material nonratable benefit
to Sauer. Given Sauer’s undisputed status as MacArthur’s controller, that tees up
entire fairness review.118
b. Entire Fairness
“Once a plaintiff rebuts the business judgment rule, the burden shifts to the
defendant[s] to establish that the merger was the product of both fair dealing and fair
price.”119 “[T]he test for fairness is not a bifurcated one as between fair dealing and
116 Maffei, 339 A.3d at 739. 117 Id. 118 See id. at 730 (“[W]here a controlling stockholder transacts with the controlled corporation and receives a non-ratable benefit, the presumptive standard of review is entire fairness.” (quoting In re Match Grp., Inc. Deriv. Litig., 315 A.3d 446, 460 (Del. 2024))). 119 Riverstone, 2016 WL 4045411, at *15 (citing Calma ex rel. Citrix Sys., Inc. v. Templeton, 114 A.3d 563, 589 (Del. Ch. 2015)). 27 price. All aspects of the issue must be examined as a whole since the question is one
of entire fairness.”120 Fair dealing “embraces questions of when the transaction was
timed, how it was initiated, structured, negotiated, disclosed to the directors, and
how the approvals of the directors and the stockholders were obtained.”121 Fair price
relates to whether the minority stockholder received “the substantial equivalent in
value of what he had before.”122 Because the entire fairness inquiry is fact intensive,
“[t]he applicability of the entire fairness standard ‘normally will preclude a dismissal
of a complaint on a Rule 12(b)(6) motion to dismiss.’”123 “The pleading standard
here is low—the Plaintiffs need only plead ‘some facts’ supporting an unfair process
or price.”124
Plaintiff clears that bar. At bottom, Plaintiff alleges a controller and his right-
hand man pursued and extracted unique benefits from an unfair merger. He pleads
Sauer and Myers looted the Company and caused it to engage in a series of self-
interested transactions for years—including in the weeks leading up to and after the
120 Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983). 121 Id. 122 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 940 (Del. 1985) (quoting Sterling v. Mayflower Hotel Corp., 93 A.2d 107, 114 (Del. 1952)). 123 Riverstone, 2016 WL 4045411, at *15 (quoting Orman, 794 A.2d at 20 n.36). 124 Manti Hldgs., LLC v. Carlyle Grp. Inc., 2022 WL 1815759, at *10 (Del. Ch. June 3, 2022) (citing Stein v. Blankfein, 2019 WL 2323790, at *8 (Del. Ch. May 31, 2019)). 28 Merger. 125 No procedural protections were used, and no one bargained for the
minority. The Merger gave Sauer and Myers a prospective and complete get-out-
of-jail-free card for post-Merger disloyalty, when they knew disloyalty would
continue at least as to the Life Insurance Policy’s premium payments. In return,
Plaintiff, the “only non-director MacArthur stockholder who is truly an outsider,”
was offered an interest in a company whose fiduciaries can no longer be sued for
breaching their fiduciary duties.126 It is reasonably conceivable that the Merger was
not entirely fair.
c. Standard Of Conduct
So far, I have concluded Plaintiff has pled the Merger is a conflicted controller
transaction subject to entire fairness review, and that Plaintiff has pled the Merger
was not entirely fair. Implicit in those latter two conclusions is the conclusion that
Plaintiff has pled Sauer breached his fiduciary duties as a MacArthur director, and
as MacArthur’s controller, in securing for himself a personal, nonratable, and
material liability waiver. Some additional explanation is necessary.
This Court “refuse[s] to presume that an independent director is not entitled
to the protection of the business judgment rule solely because the controlling
stockholder may itself be subject to liability for breach of the duty of loyalty if the
125 See Am. Compl. ¶¶ 54–103, 143. 126 Id. ¶ 120. 29 transaction was not entirely fair to the minority stockholders.”127 As such, the Court
considers each director “individually when the directors face claims for damages in
a suit challenging board action.” 128 Where “a plaintiff seeks to hold multiple
directors protected by an exculpatory provision liable for breach of fiduciary duty,
that plaintiff must well-plead a loyalty breach against each individual director[.]”129
“[S]o-called ‘group pleading’ will not suffice.”130 “The liability of the directors must
be determined on an individual basis because the nature of their breach of duty (if
any) . . . can vary for each director.”131
Because Defendants, as MacArthur directors, were protected by a Section
102(b)(7) exculpatory provision, 132 the Amended Complaint must plead facts
“supporting a rational inference that the director harbored self-interest adverse to the
stockholders’ interests, acted to advance the self-interest of an interested party from
whom they could not be presumed to act independently, or acted in bad faith.”133
The Amended Complaint meets that standard only as to Sauer and Myers.
127 In re Cornerstone Therapeutics, Inc. S’holder Litig., 115 A.3d 1173, 1183 (Del. 2015). 128 Id. at 1182. 129 In re Tangoe, Inc. S’holders Litig., 2018 WL 6074435, at *12 (Del. Ch. Nov. 20, 2018). 130 Id. (citing Cornerstone, 115 A.3d at 1179). In re Emerging Commc’ns, Inc. S’holders Litig., 2004 WL 1305745, at *38 (Del. Ch. 131
May 3, 2004). 132 D.I. 87 Ex.1 ¶ 9. 133 Cornerstone, 115 A.3d at 1179–80. 30 The Amended Complaint supports a reasonable inference that Myers
approved the Merger to shield Sauer, and himself, from future liability. Plaintiff
pleads Myers swore fealty to Sauer, not to MacArthur or its stockholders. Since
MacArthur’s inception, Sauer and Myers operated in lockstep to divert MacArthur
funds to themselves. Sauer and Myers engaged in a vast majority of the pre-Merger
misconduct hand-in-glove, for themselves and for each other.134 The Insider Loans
capture their reciprocal relationship: “Sauer agreed to approve the Myers Loan in
exchange for Myers approving the Sauer Loan.” 135 Myers enjoys Mac LLC’s
fiduciary duty waiver, and Myers approved the Life Insurance Policy payments with
the expectation they would continue after the Merger. The chronology and logic
underlying the conclusion that the waiver conferred a material nonratable benefit to
Sauer supports the inference that Myers voted for it disloyally, for Sauer and for
himself.
134 See Am. Compl. ¶ 55 (“Sauer and Myers improperly diverted Company funds for self- interested reasons throughout the life of MacArthur[.]”); id. ¶ 61 (“Sauer and Myers ultimately caused the Company to retroactively ‘reclassify’ at least a portion of the Personal Expenditures as personal loans[.]”); id. ¶ 94 (“Sauer and Myers caused MacArthur to take out a whole-life life insurance policy . . . for Sauer[.]”); Am. Compl. ¶ 95 (“Sauer and Myers caused MacArthur to take out a whole-life life insurance policy (the “Life Insurance Policy”) for Sauer[.]”); id. ¶ 100 (“Sauer and Myers caused the Company to issue themselves each a one-time bonus payment in the amount of $50,000[.]”). The one exception is Project Gunshot, which Sauer facilitated on his own. Id. ¶¶ 79–82. 135 Id. ¶ 64. 31 Plaintiff has not pled a nonexculpated claim against the remaining four
director Defendants: Minot, Piccioni, Mast, and O’Neil. Plaintiff does not allege
they received any material benefit from the Merger or the fiduciary duty waiver. He
does not allege any of the remaining directors engaged in misconduct or faced
liability. Nor does he allege those directors lack independence or are beholden to
Sauer and Myers.
Count III appears to be based on the theory that because all directors enjoy
the fiduciary duty waiver’s protection, all directors breached their fiduciary duties.
That is precisely the type of analysis Maffei rejected. Prospective liability protection
can confer a material nonratable benefit when it impairs existing liability or
facilitates a particular transaction.136 Here, Sauer and Myers are the only fiduciaries
alleged to have engaged in any misconduct. They alone face a likelihood of liability
on any potential claims. And they alone engaged in conduct that inferably made the
fiduciary duty waiver a unique benefit.137 Count III is dismissed against Minot,
Piccioni, Mast, and O’Neil.
136 See Maffei, 339 A.3d at 733. 137 See Bamford, 2022 WL 2278867, at *35 (“Superficially, the Exculpatory Provision treated all Covered Persons equally. But because [the controller] had engaged in misconduct and faced litigation risk, it was really [the controller] who benefitted.”). 32 2. Count II
In Count III, Plaintiff has pled a path to entire fairness review based on Mac
LLC’s liability waiver. Count II offers another path, styled as a separate count based
on the same conduct, that Defendants have moved to dismiss. It does not lead to
entire fairness.
Count II alleges Defendants disloyally approved the Merger to eliminate
equityholder standing to bring pre-Merger derivative claims. Plaintiff presses the
Merger handed Defendants a nonratable benefit in the form of exculpation for pre-
Merger misconduct because usually, a merger extinguishes a target stockholder’s
ability to bring a derivative suit.138 “[T]he derivative claim—originally belonging
to the acquired corporation—is transferred to and becomes an asset of the acquiring
corporation as a matter of statutory law.”139
138 Lewis v. Anderson, 477 A.2d 1040, 1049 (Del. 1984); see also Lewis v. Ward, 852 A.2d 896, 901 (Del. 2004) (“When a merger eliminates a plaintiff’s shareholder status in a company, it also eliminates her standing to pursue derivative claims on behalf of that company. Those derivative claims pass by operation of law to the surviving corporation, which then has the sole right and standing to prosecute the action.”); Schreiber v. Carney, 447 A.2d 17, 21 (Del. Ch. 1982) (“[A] merger which eliminates a complaining stockholder’s ownership of stock in a corporation also ordinarily eliminates his status to bring or maintain a derivative suit on behalf of the corporation, whether the merger takes place before or after the suit is brought[.]”). 139 Ark. Tchr. Ret. Sys. v. Countrywide Fin. Corp., 75 A.3d 888, 894 (Del. 2013) (citing Anderson, 477 A.2d at 1049–50). 33 As an initial matter, the parties sparred over whether Plaintiff has standing to
bring Count II. In a prefatory analysis, I conclude Plaintiff has direct standing to
bring his claim under Parnes v. Bally Entertainment Corp.140
But I conclude Count II does not offer a path to entire fairness, because the
Merger was a reorganization that did not actually extinguish derivative standing. So
the Merger cannot offer diminished retroactive liability exposure as a nonratable
benefit.
a. Standing
Plaintiff offers Count II under In re Primedia, Inc. Shareholders Litigation,
as a direct claim challenging a merger based on a board’s failure to secure value for
material derivative claims. 141 Primedia claims carry stringent standing
requirements142 in order to differentiate between claims that properly attack a merger
on the grounds that it deprived stockholders of value they were entitled to, and claims
140 Parnes v. Bally Ent. Corp., 722 A.2d 1243 (Del. 1999). 141 67 A.3d 455 (Del. Ch. 2013). 142 See id. at 477 (“First, the plaintiff must plead an underlying derivative claim that has survived a motion to dismiss or otherwise could state a claim on which relief could be granted. Second, the value of the derivative claim must be material in the context of the merger. Third, the complaint challenging the merger must support a pleadings-stage inference that the acquirer would not assert the underlying derivative claim and did not provide value for it.”). 34 that merely attempt to reassert pre-merger derivative claims.143 The parties engaged
heavily on whether Plaintiff satisfied those requirements.
But in my view, Plaintiff’s claim is not a Primedia claim. Plaintiff does not
contend MacArthur’s Board failed to pay MacArthur stockholders for pending or
threatened derivative claims that passed to Mac LLC in the Merger. Plaintiff instead
contends Defendants orchestrated a conversion by merger “for self-interested
reasons”—namely, to extinguish any potential existing liability and to preclude
future breach of fiduciary duty claims.144 The Merger itself is the breach.
As in In re Riverstone National, Inc. Stockholder Litigation, Plaintiff’s claim
is “a common or garden variety allegation of director interest, in direct challenge to
the merger as unfair.” 145 Riverstone involved a merger that extinguished a
“threatened but not yet pending” corporate opportunity claim. 146 The merger
143 Id.; Morris v. Spectra Energy P’rs (DE) GP, LP, 246 A.3d 121, 136 (Del. 2021) (“When the court is faced with a post-merger claim challenging the fairness of a merger based on the defendant’s failure to secure value for derivative claims, we think that the Primedia framework provides a reasonable basis to conduct a pleadings-based analysis to evaluate standing on a motion to dismiss.”); see also In re Orbit/FR, Inc. S’holders Litig., 2023 WL 128530, at *3 (Del. Ch. Jan. 9, 2023) (“Defendants view these allegations as an attempt by Plaintiff to reify, post-merger under Primedia, an inchoate breach of duty claim existing pre-merger, and that was extinguished in the merger.”). 144 Am. Compl. ¶¶ 164, 173. 145 Riverstone, 2016 WL 4045411, at *1. 146 Id. 35 agreement released all potential liability concerning the claim.147 There, as here, the
plaintiffs alleged directors disloyally facilitated a merger to extinguish the claim
forever.148 And there, as here, the parties initially treated Primedia as the controlling
framework for standing. 149 Vice Chancellor Glasscock declined to assess the
plaintiffs’ standing under Primedia, observing that “the issue here is more
fundamental: [the] matter involves a common or garden variety allegation of director
interest, in direct challenge to the merger as unfair.”150 Put simply, the plaintiffs
asserted a direct attack on the fairness of the merger price and process.
Citing Parnes, Vice Chancellor Glasscock stated the Riverstone plaintiffs
“undoubtedly have standing” to bring their direct claim.151 In Parnes, our Supreme
Court held that a plaintiff retains direct standing to challenge “the validity of [a]
merger itself,” by “charging the directors with breaches of fiduciary duty resulting
in unfair dealing and/or unfair price.”152 Subsequent cases explained a plaintiff may
147 See id. at *8 (“[T]he acquirer agreed not to pursue litigation including, implicitly, the Usurpation Claims. Thus, the chose-in-action, as an asset, was not sold, but was obliterated[.]”). 148 Id. at *1, *8. 149 Id. at *1. 150 Id. 151 Id. at *8 (citing Parnes, 722 A.2d at 1245). 152 See Parnes, 722 A.2d at 1245 (“A stockholder who directly attacks the fairness or validity of a merger alleges an injury to the stockholders, not the corporation, and may pursue such a claim even after the merger at issue has been consummated.”). 36 bring a direct claim challenging a merger’s fairness based on its treatment of
derivative claims.153 Like the Riverstone plaintiffs, Plaintiff here has standing to
bring that direct claim under Parnes.154
b. Standard of Review
Delaware law recognizes two circumstances in which a merger will not
extinguish derivative standing. One exception applies when the merger itself is the
subject of a fraud claim, “perpetrated merely to deprive shareholders of the standing
to maintain a derivative action.”155 Defendants press the other exception: a merger
does not extinguish derivative standing when it is “in reality a reorganization which
153 See, e.g., El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1251 (Del. 2016) (“Under our law, equity holders confronted by a merger in which derivative claims will pass to the buyer have the right to challenge the merger itself as a breach of the duties they are owed.” (citing Parnes, 477 A.2d at 1245)); In re Massey Energy Co., 2011 WL 2176479, at *17 (Del. Ch. May 31, 2011) (explaining Parnes permits “a plaintiff to attack a merger directly if the target board agreed to a materially inadequate, and therefore unfair, price because the price did not reflect the value of certain assets”—i.e., litigation assets). 154 722 A.2d at 1245. 155 Ward, 852 A.2d at 899; see also Ark. Tchr. Ret. Sys. v. Caiafa, 996 A.2d 321, 323 (Del. 2010) (noting that the fraud exception applies where “directors prospectively sought and approved a merger, solely to deprive stockholders of standing to bring a derivative action”); Bamford v. Penfold, L.P., 2020 WL 967942, at *29 (Del. Ch. Feb. 28, 2020) (noting that the fraud exception applies where “a principal purpose of the transaction is the elimination of standing to assert derivative claims” (internal quotation marks and citations omitted)); In re Match Grp., Inc. Deriv. Litig., 2022 WL 3970159, at *12 (Del. Ch. Sept. 1, 2022) (declining to apply the fraud exception where “[p]laintiffs stop[ped] short of pleading, as they must, that the ‘merger itself’ was fraudulent and was perpetrated to deprive stockholders of standing” (citing Kramer v. W. Pac. Indus., Inc., 546 A.2d at 348, 354 (Del. 1988))). 37 does not affect [the stockholder’s] ownership of the business enterprise.”156 While
invoked most often in the merger context, the reorganization exception “can apply
to any transaction that amounts to little more than a ‘corporate reshuffling’ of
ownership interests.”157
Then-Vice Chancellor Marvel paved the way in Helfand v. Gambee.158 There,
a stockholder of a New York corporation that reorganized into two Delaware
corporations maintained standing to sue on behalf of one of the new corporations for
acts pre-dating the reorganization. 159 The Court reasoned that the plaintiff’s
possession of “‘two pieces of paper rather than one’ as evidence of her long
investment in the corporation and its new alter ego” should not deprive her of
standing. 160 Years later in Schreiber v. Carney, this Court relied on Helfand to
preserve derivative standing in the context of a stock-for-stock merger. 161 The
transaction in Schreiber was a stock-for-stock merger with a newly formed holding
company, which retained the old company as a wholly-owned subsidiary.162 The
Schreiber Court emphasized that “the merger had no meaningful effect on the
156 Anderson, 477 A.2d at 1046 n.10. 157 Bamford, 2020 WL 967942, at *28 (quoting Ward, 852 A.2d at 904). 158 136 A.2d 558 (Del. Ch. 1957). 159 See id. at 562. 160 Schreiber, 447 A.2d at 22 (discussing Helfand). 161 Id. 162 Id. 38 plaintiff’s ownership of the business enterprise” because “[t]he structure of the old
and new companies [was] virtually identical except for a slight dilution in the overall
stock holdings.”163 In other words, the plaintiff’s “equity interest in the business
entity [was] really still the same.”164
Consistent with both Helfand and Schreiber, subsequent cases invoking the
reorganization exception have repeatedly asked a simple question: is the surviving
163 Id. 164 Id. 39 entity “merely the same corporate structure under a new name[?]”165 If the answer
is “yes,” derivative standing survives.166
Here, my answer to that question is “yes.” The Merger was “the epitome of a
corporate reshuffling.”167 As in Schreiber, the Merger was “merely a share for share
merger with a newly formed [entity] . . . with the shareholders of the old company
165 Bonime v. Biaggini, 1984 WL 19830, at *3 (Del. Ch. Dec. 7, 1984); see, e.g., Siegel v. Cantor Fitzgerald, L.P., 2025 WL 1074604, at *13–14 (Del. Ch. April 10, 2025) (applying the reorganization exception to a transaction where the “Class A stockholders’ economic interests were unchanged”); Bonime, 1984 WL 19830, at *3 (declining to apply the reorganization exception to “a merger of two distinct corporations each of which had separate boards, officers, assets and stockholders”); Match, 315 A.3d at 474 (declining to apply the reorganization exception where the surviving entity had “an expanded board with different board members, and a different capital structure with a single class of stock instead of two”). Helfand and Schreiber both discussed another reason why the reorganization exception applied, which later cases do not discuss. In Helfand, the defendants moved to dismiss for lack of standing on the basis that the plaintiff had voted in favor of the reorganization. 136 A.2d at 560–61. The defendants argued the language of 8 Del. C. § 327 requires an absence of voluntary action. Id. The Court concluded no disqualifying voluntary action had been pled, as voting for a reorganization plan designed to meet a mandatory antitrust consent decree “should not be deemed a vote to absolve corporate directors from suit.” Id. at 561. Schreiber later noted that “[t]he [Helfand] Court focused on the involuntary nature of the transaction, in that it was pursuant to consent decree.” 447 A.2d at 21. Although Schreiber did not involve a similarly “involuntary” transaction, the Court noted the Schreiber plaintiff’s “position is involuntary insofar as he voted against the merger and his equity interest in the business entity is really still the same.” Id. at 22. Later cases do not examine the involuntariness of the transaction or the plaintiff’s position when determining whether the reorganization exception applies. But to the extent that it remains an element to consider, I note that here, as in Schreiber, Plaintiff’s position is involuntary insofar as he did not vote for the Merger. 166 See Harris, 2023 WL 115541, at *10 (“When those exceptions apply, the plaintiffs can continue litigating their derivative claims as derivative claims, and the case proceeds as if the merger never happened.”). 167 Bamford, 2020 WL 967942, at *29. 40 owning all the shares of the new [entity].”168 It was not “a merger of two distinct
corporations each of which had separate boards, officers, assets and stockholders.”169
The only parties to the Merger were MacArthur and a shell limited liability company
devoid of any assets or operating business. Board composition remained the
same.170 Ownership structure remained the same.171 In short, “no one’s economic
interests changed.”172
Plaintiff attempts to complicate this straightforward analysis. He argues the
Merger “fundamentally altered” the MacArthur enterprise because it constrained his
rights to sue, sell, and vote.173 The Merger constrained his right to sue because (1)
the LLC Agreement contains a fiduciary duty waiver; (2) the LLC Agreement
contains a fee-shifting provision authorizing recovery of “all attorney’s fees and
costs actually incurred by the prevailing party”; and (3) the LLC Act does not
168 447 A.2d at 22. 169 Bonime, 1984 WL 19830, at *3. 170 Information Statement at MacArthur-001032 (“[T]he managers of the Surviving Entity shall be Thomas Sauer, Maria Mast, Winthrop Minot, Brian Piccioni, Colin Myers, and Justin O’Neil.”). 171 Id. at MacArthur-001020–21 (“[E]ach share of [MacArthur] Common Stock that is issued and outstanding immediately prior to the Effective time shall automatically be cancelled, extinguished, and converted into one (1) unit representing a membership interest in [Mac LLC].”). 172 Bamford, 2020 WL 967942, at *29. 173 See AB 30–32. 41 provide statutory appraisal rights. 174 The Merger constrained his right to sell
because the LLC Agreement contains a transfer restriction provision that subjects
third-party transfers to “the prior approval or written consent of the Board of
Managers.” 175 Because Plaintiff is a non-director stockholder, he argues,
Defendants may “weaponiz[e]” the provision against him. 176 And the Merger
constrained his right to vote because the LLC Act does not contain voting
requirements analogous to those found in Section 242(b)(2) and Section 271 of the
DGCL.177
Plaintiff’s argument is unavailing. Bamford v. Penfold, L.P. applied the
reorganization exception to a transaction that restructured a Delaware limited
liability company into a newly formed Delaware limited partnership.178 Because the
plaintiffs were not general partners, they “could not exercise any of the voting or
174 See Am. Compl. ¶¶ 117–20; see also 8 Del. C. § 262. 175 Id. ¶¶ 121–22; AB 21; see LLC Agreement § 11.1. 176 AB 21. 177 Am. Compl. ¶ 124; AB 22; see 8 Del. C. § 242(b)(2) (requiring class-based voting for certain amendments to a corporation’s charter); 8 Del. C. § 271 (requiring stockholder approval for the “sale, lease or exchange” of “all or substantially all” of a corporation’s assets). 178 Bamford, 2020 WL 967942, at *29. In Bamford, the Court confirmed that equitable exceptions to the continuous ownership rule may apply to transactions between contract- based entities. See id. at *29–30 (“[T]he continuous ownership requirement is itself a judicially created doctrine that the Delaware Supreme Court has applied to alternative entities. It seems logical that the high court would have intended to apply both the general rule and its recognized exceptions, not just the general rule.”). 42 other governance rights that they previously held” as members of the LLC. 179 But
structurally, the business remained unchanged. Before the restructuring, each party
held a 30% interest in the enterprise.180 After, they each held a one-third interest in
the newly formed limited partnership, which held a 90% interest in the original
company.181 By simple math, each party continued to hold a 30% interest in the
business.182 The loss of governance rights did not affect the Court’s calculus. And
Harris applied the exception to a merger that converted a Delaware entity into a New
Jersey entity, even though the change in domicile narrowed the plaintiff’s books and
records inspection rights.183 The Court reasoned that, other than the application of
New Jersey law to the company’s internal affairs going forward, “[t]here was no
change in the entity.” 184 I read both cases to suggest that such changes in a
stockholder’s bundle of rights do not preclude a merger from qualifying as a
reorganization.
179 Id. at *2. 180 Id. at *29. 181 Id. 182 Id. 183 See Harris, 2023 WL 115541, at *6 (“[U]nder New Jersey law, inspection rights could be limited to formal documents like financial statements, minutes, and a list of stockholders.”). 184 Id. at *11; see also id. (“[T]he surviving entity held only the assets that the Company brought to the transaction. Each share of stock in the Delaware entity was converted on a one-for-one basis into a share of stock in the New Jersey entity.”). 43 From there, Plaintiff resorts to a policy argument. Plaintiff argues that
invoking the reorganization exception defensively, to pull the rug out from under a
plaintiff’s claim, would “subvert the equitable concerns which animate the
exception.”185 His argument is misplaced. To be sure, Plaintiff is correct that the
exception is animated by equity. 186 The exception recognizes that “to deny
standing” in some cases would absolve corporate fiduciaries from suit without
serving Section 327’s stated purpose.187 But Plaintiff has not been denied standing
in this case. I have already established that Plaintiff has direct standing to attack the
Merger’s price and process. The reorganization exception does not bear on
Plaintiff’s standing to pursue fiduciary misconduct in the Merger. It instead bears
on the merits of Plaintiff’s claim that Defendants extracted a nonratable benefit
through the Merger. It would be poor policy to give a pleading-stage pass to a claim
based on a legally defective premise.
185 AB 32 (citing Ward, 852 A.2d at 904 (internal quotation marks omitted)). 186 See Rosenthal v. Burry Biscuit Corp., 60 A.2d 106, 111 (Del. Ch. 1948) (“[R]igidity is not needed where the equitable owner of stock is seeking to protect the corporate interests.”); Schreiber, 447 A.2d at 22 (“Thus, it is clear that the provisions of 8 Del. C. § 327 are not inflexible standards and this Court, as a Court of Equity, must examine carefully the particular circumstances of each case.”); cf. Magill v. North Am. Refractories Co., 128 A.2d 233, 236 (Del. 1956) (“Literal reading of language leading to results quite inconsistent with the general intent of a statute is to be avoided.”). 187 See Schreiber, 447 A.2d at 22 (“To deny standing, therefore, would not serve to advance the stated purpose of [S]ection 327 and would open the door to great abuses.”). 44 I therefore agree with Defendants that the reorganization exception applies.
The Merger amounted to a “corporate reshuffling”188 that left the former MacArthur
stockholders’ “economic interests . . . unchanged.” 189 Under settled law, such a
transaction does not extinguish derivative standing. The former stockholders, now
members and managers of Mac LLC, may assert the pre-Merger claims “as if the
merger never happened.”190 Defendants, including Sauer and Myers, did not obtain
a unique benefit for themselves in the form of diminished derivative liability for past
misconduct.
Beyond the Merger’s effects on standing, Plaintiff makes the practical
argument that the Merger offered Defendants diminished liability risk for pre-
Merger conduct because “Mac LLC would never assert the underlying derivative
claims.”191 This Court has recognized the risk that an acquirer’s board will not bring
the derivative claims against the sell-side fiduciaries whose business the acquirer
188 Bamford, 2020 WL 967942, at *29. 189 Siegel, 2025 WL 1074604, at *13–14. 190 Harris, 2023 WL 115541, at *10. 191 AB 48–51; Am. Compl. ¶¶ 138–147; 166. 45 bought. 192 “Acquirers buy businesses, not claims.” 193 That risk of inaction is
diminished when “the sufferers of the alleged breaches and the holders of the
purported claims are the same persons.”194
Plaintiff argues Mac LLC will not assert the claims because Sauer—i.e., the
individual who faces the most substantial likelihood of liability on the derivative
claims—has a controlling interest in Mac LLC.195 And Myers, who likewise faces
a substantial likelihood of liability, sits on Mac LLC’s board of managers with
Sauer.196 This presents a classic independence analysis familiar from the demand
futility context, albeit under Rule 12(b)(6)’s more lenient standard. Mac LLC’s six-
member board stayed on from MacArthur: Sauer, Myers, Minot, Piccioni, Mast, and
O’Neil. 197 To plead that Mac LLC’s board cannot be trusted to independently
consider derivative litigation against Sauer and Myers, Plaintiff must allege facts
192 New Enter. Assocs. 14, L.P. v. Rich, 292 A.3d 112, 169 (Del. Ch. 2023); see also id. (noting the “human dynamics at work that make suits against sell-side fiduciaries improbable”); Primedia, 67 A.3d at 484 (“The acquirer may agree contractually not to sue the sell-side fiduciaries for breach of fiduciary duty.”). 193 Rich, 292 A.3d at 169 (quoting Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 664 (Del. Ch. 2013)). 194 OB 41. 195 Am. Compl. ¶¶ 139–40; AB 48–51. 196 Am. Compl. ¶ 140. 197 Information Statement at MacArthur-001032 (“[T]he managers of the Surviving Entity shall be Thomas Sauer, Maria Mast, Winthrop Minot, Brian Piccioni, Colin Myers, and Justin O’Neil.”). 46 from which I can infer that at least one more member of the Board lacks
independence from Sauer or Myers. 198 Delaware law presumes directors are
independent.199 “[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.”200
Plaintiff focuses on Minot.201 He advances a single theory centered around
Minot’s role in allegedly plotting alongside Sauer and Myers to dilute Plaintiff’s
interests.202 Even on a reasonable conceivability standard, Plaintiff does not explain
how Minot’s shared desire to secure operational independence from Plaintiff
supports an inference that Minot is dominated by or beholden to either of his
colleagues. Nor does Plaintiff explain how Minot’s role in diluting Plaintiff disrupts
198 See United Food & Com. Workers Union & Participating Food Indus. Empls. Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1059–61 (Del. 2021). I cite Zuckerberg for its framing of independence, not its particularized pleading standard. The inquiry before me today is under Rule 12(b)(6) and its reasonable conceivability standard. 199 Friedman v. Dolan, 2015 WL 4040806, at *6 (Del. Ch. June 30, 2015) (citing In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013)). 200 Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (alteration in original) (internal quotation marks omitted) (quoting Sandys v. Pincus, 152 A.3d 124, 128 (Del. 2016)). 201 Plaintiff does not allege the remaining three members of the Mac LLC board—Piccioni, Mast, and O’Neil—are not independent. 202 See Am. Compl. ¶ 151 (“Minot would be incapable of disinterestedly and independently considering whether to assert any of the Derivative Claims because Minot would be unwilling to risk the revelation of his long-standing plans (with Sauer and Myers) to maximize their ability to control . . . MacArthur without any ‘push-back from Peña.’”) 47 the presumption that Minot would be able to impartially consider a derivative claim
for unrelated disloyalty. At best, Plaintiff pleads that Sauer, Myers, and Minot
shared parallel operational goals. That is not enough to find a lack of independence,
at all or in bringing derivative claims against Sauer and Myers.203 Plaintiff does not
plead that Minot has derived a material benefit from his relationship with Sauer and
Myers. And he has not pled any ties between the men other than their board service.
Plaintiff fails to plead facts making it reasonably conceivable Mac LLC would never
assert any derivative claims against Sauer or Myers.
Plaintiff has not pled the conversion effectively exculpated Sauer and Myers
from pre-Merger derivative liability. Therefore, Plaintiff has not pled any material
nonratable benefit flowing to Sauer or a majority of MacArthur’s directors. Count
III does not offer a path to entire fairness review of the Merger.
B. Disclosure Claim
Plaintiff finally alleges Defendants breached their fiduciary duties by failing
to disclose the Merger’s “true purpose” in MacArthur’s Information Statement.204
203 See Highland Legacy Ltd. v. Singer, 2006 WL 741939, at *5 (Del. Ch. Mar. 17, 2006) (“In order to establish lack of independence, the complaint must create a reasonable doubt that a director is so beholden to an interested director that his or her discretion would be sterilized.”); Sciabacucchi v. Liberty Broadband Corp., 2022 WL 1301859, at *15 (Del. Ch. May 2, 2022) (“Plaintiffs seeking to show that a director was not independent must demonstrate that the director in question had ties . . . so substantial that she could not objectively discharge . . . her fiduciary duties.” (internal quotation marks and citation omitted)). 204 Am. Compl. ¶¶ 176–77. 48 The Information Statement provided that “[t]he decision of the [MacArthur] Board
was based primarily on the benefits of [Mac LLC] being treated as a partnership for
U.S. federal income tax purposes and generally not being subject to U.S. federal
income tax[.]”205 Plaintiff contends several aspects of the Merger were not germane
to or necessary for tax purposes, so securing tax benefits could not have been the
Merger’s true purpose.206 The “true purpose,” he says, was to insulate Defendants
“from potential liability for breach of fiduciary duty claims relating to pre- and post-
Merger misconduct.” 207 At the same time, Plaintiff acknowledges Mac LLC’s
fiduciary duty waiver was itself disclosed.208
“Corporate directors owe a fiduciary duty to their stockholders to disclose all
facts material to the transaction in an atmosphere of entire candor.”209 This duty to
disclose “is not an independent duty but the application in a specific context of the
205 Information Statement at MacArthur-001017. 206 AB 59 (“Peña is alleging that these aspects of the Mac LLC Agreement inferably demonstrate the falsity of the Information Statement’s disclosure regarding the primary purpose of the Merger.”). The list includes the decision to convert into an LLC by merger, rather than by conversion under 8 Del. C. § 266; the fiduciary duty waiver; the transfer restrictions; and limitations on voting and books and records inspection rights. 207 Am. Compl. ¶ 177. 208 AB 59; see Information Statement at MacArthur-001028, MacArthur-001113; LLC Agreement § 13.9. 209 Eisenberg v. Chi. Milwaukee Corp., 537 A.2d 1051, 1057 (Del. Ch. 1987) (citing Smith v. Van Gorkom, 488 A.2d 858, 890 (Del. 1985)). 49 board’s fiduciary duties of care, good faith, and loyalty.”210 When directors solicit
stockholder action, such as the approval of a merger, they must “disclose fully and
fairly all material information within the board’s control.”211 Information is material
“if there is a substantial likelihood that a reasonable shareholder would consider it
important in deciding how to vote.” 212 In other words, a fact is material if it
“significantly alter[s] the ‘total mix’ of information made available.”213
Still, “[u]nder Delaware law, a board is not required to state a plaintiff’s
characterization of the facts.”214 Nor is it required to “engage in ‘self-flagellation’
and draw legal conclusions implicating itself in a breach of fiduciary duty from
surrounding facts and circumstances prior to a formal adjudication of the matter.”215
What is required is instead “a balanced, truthful account of all matters disclosed in
210 RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 858 (Del. 2015); see also Cygnus Opportunity Fund, LLC v. Wash. Prime Grp., LLC, 302 A.3d 430, 446 (Del. Ch. 2023) (noting that the duty of disclosure is a “contextual manifestation of the duties of care and loyalty”). 211 Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992). 212 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). 213 In re PLX Tech. Inc. S’holders Litig., 2018 WL 5018535, at *32 (Del. Ch. Oct. 16, 2018) (quoting Rosenblatt, 493 A.2d at 944). 214 Stansell v. Rosensweig, 2024 WL 2958465, at *5 (Del. Ch. June 12, 2024); see also In re John Q. Hammons Hotels Inc. S’holder Litig., 2009 WL 3165613, at *15 (Del. Ch. Oct. 2, 2009). (“Delaware law does not require that the proxy statement include plaintiffs’ characterization . . . .”); In re MONY Grp., Inc. S’holder Litig., 853 A.2d 661, 682 (Del. Ch. 2004) (“[A]s a general rule, proxy materials are not required to state . . . plaintiff’s characterization of the facts.”). 215 Stroud, 606 A.2d at 84 n.1. 50 the communications with shareholders.”216 Accordingly, this Court has repeatedly
rejected claims like Plaintiff’s: that disclosures are materially misleading because
“they fail to disclose [the] real reason” behind a challenged act.217
The Information Statement told stockholders the Merger was for tax purposes,
and told them several potentially unrelated facts about how the Merger would be
conducted and how the post-Merger entity would be set up.218 Plaintiff has failed to
plead the unrelated disclosures make the disclosure of the tax goal false. Rather,
Plaintiff pled discussions about the conversion began with an eye toward “tax
purposes.”219 Along the way, Sauer and Myers did indeed contemplate the benefits
of a fiduciary duty waiver. Defendants did indeed secure those benefits. That
Defendants considered those additional benefits when planning and approving the
Merger does not render the disclosure materially misleading. Plaintiff has not
alleged facts that contradict Defendants’ stated rationale. Our law is clear that while
216 Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998). 217 MONY, 853 A.2d at 681; see, e.g., In re Rouse Props., Inc., 2018 WL 1226015, at *24 (Del. Ch. Mar. 9, 2018) (rejecting the plaintiffs’ claim that “disclosures relating to the Retention Plan were misleading because the Proxy did not describe why the plan was necessary and how precisely it benefited Rouse”); Seibert v. Harper & Row, Publishers, Inc., 1984 WL 21874, at *6 (Del. Ch. Dec. 5, 1984) (rejecting the plaintiff’s claim that disclosures were deficient because they “fail[ed] to disclose . . . that the termination of the Retirement Plan served no proper purpose”). 218 Information Statement at MacArthur-001017–28. 219 Am. Compl. ¶ 104 (noting that Sauer, Myers, and Minor “began communicating with the Company’s outside counsel” about a potential conversion “for tax purposes”). 51 material facts must be disclosed, fiduciaries need not narrate “opinions or
possibilities, legal theories or plaintiff’s characterization of the facts.”220
The Information Statement plainly discloses the material facts underlying the
transaction, including the elimination of fiduciary duties, and Plaintiff recognizes as
much.221 The first few pages of the Information Statement contained summaries of
key provisions in the LLC Agreement, i.e., the transfer restrictions, the fiduciary
duty waiver, and voting rights.222 And it attached as an exhibit the LLC Agreement,
which lays out these provisions in full.223 The MacArthur stockholders were neither
misinformed nor uninformed about the Merger’s implications. The disclosure claim
must be dismissed.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED IN
PART and DENIED IN PART. Count II is dismissed. Count III’s claim for breach
of fiduciary duty is dismissed as against Minot, Piccioni, Mast, and O’Neil, but may
proceed against Sauer and Myers. Its disclosure claim is dismissed.
220 Seibert, 1984 WL 21874, at *6. 221 AB 59 (“To be clear, Peña is not alleging that the Individual Defendants failed to disclose these aspects of the Merger (or the relevant portions of the Mac LLC Agreement[.]”). 222 Information Statement at MacArthur-001027–28. 223 See id. at MacArthur-001088–1131. 52
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