IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE BGC PARTNERS, INC. ) CONSOLIDATED DERIVATIVE LITIGATION ) C.A. No. 2018-0722-LWW
MEMORANDUM OPINION Date Submitted: June 22, 2021 Date Decided: September 20, 2021
Christine M. Mackintosh, Kimberly A. Evans, Michael D. Bell, and Vivek Upadhya, GRANT & EISENHOFER P.A., Wilmington, Delaware; Jeroen van Kwawegen, Christopher J. Orrico, and Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Counsel for Plaintiffs Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds Raymond J. DiCamillo and Kevin M. Gallagher, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joseph De Simone, Michelle J. Annunziata, and Michael Rayfield, MAYER BROWN LLP, New York, New York; Matthew E. Fenn, MAYER BROWN LLP, Chicago, Illinois; Counsel for Defendants Linda Bell, Stephen Curwood, and William Moran
C. Barr Flinn, Paul Loughman, and Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Eric Leon and Nathan Taylor, LATHAM & WATKINS LLP, New York, New York; Counsel for Defendants Howard Lutnick, CF Group Management, Inc., and Cantor Fitzgerald, L.P.
WILL, Vice Chancellor This derivative action arises from the 2017 acquisition of Berkeley Point
Financial LLC by BGC Partners, Inc. BGC paid $875 million to purchase Berkeley
Point from Cantor Commercial Real Estate Company, L.P. (“CCRE”) and
simultaneously invested $100 million into CCRE’s commercial mortgage-backed
securities business. Defendant Howard Lutnick, BGC’s Chairman and CEO, was
the controlling stockholder of both BGC and CCRE through his control of defendant
Cantor Fitzgerald, L.P.
The plaintiffs claim that Lutnick, standing on both sides of the transaction,
caused BGC to overpay for Berkeley Point because his economic interest in
Berkeley Point far exceeded his interest in BGC. They estimate that Lutnick
received 42% (or $125 million) of BGC’s overpayment. The plaintiffs assert breach
of fiduciary duty claims against Lutnick as a director, controlling stockholder, and
officer of BGC; against two Cantor entities that sat above BGC and Berkeley Point;
and against four outside BGC directors (one of whom was dropped from the case)
who approved the Berkley Point acquisition.
The court previously denied the defendants’ motions to dismiss for failure to
plead demand futility and failure to state a claim against the outside directors. Now,
after discovery, the defendants have filed separate motions for summary judgment.
Lutnick and the two Cantor entities argue that there is no genuine issue of material
fact as to the independence of the outside director defendants, requiring dismissal on
1 demand futility grounds. If their motion is denied on that basis, they seek to shift
the burden of persuasion at trial to the plaintiffs. The director defendants—members
of the Special Committee who negotiated on BGC’s behalf—argue that they must
be dismissed under Cornerstone because there is no evidence that they acted to
advance the self-interests of Lutnick or acted in bad faith.
After a review of the record before me, I conclude that the Cantor defendants’
motion must be denied and the director defendants’ motion must be granted, in part.
There is a genuine dispute about whether two of the three director defendants were
independent of Lutnick. For one of those directors, there are genuine issues of
material fact remaining as to whether he faces a non-exculpated claim. The evidence
is not overwhelming. But that is not the standard. The plaintiffs are entitled to
inferences favoring their position and have pointed to questions of fact that are best
left for trial. For the two remaining director defendants, I conclude that no rational
trier of fact could find both that they lack independence from Lutnick and that they
acted to advance Lutnick’s interests. I also conclude that the burden of proving
entire fairness at trial remains with the defendants.
2 I. FACTUAL BACKGROUND
The following summary is drawn from the Complaint for uncontested
background facts and from the factual record as appropriate.1 The defendants’ briefs
each style their fact sections as a “Statement of Undisputed Material Facts.”2 The
plaintiffs refute that title, calling the defendants’ descriptions of the facts
“distorted.”3 The plaintiffs submitted a “Disputed Fact Chart,”4 to which the
defendants responded on reply.5 I therefore approach the notion of undisputed facts
with caution. In considering the record, my focus is on information that bears on the
director defendants’ relationships to Lutnick and their negotiation efforts as Special
Committee members.
1 Citations in the form “Dir. Defs.’ Opening Br. Ex. __” refer to exhibits to the Transmittal Declaration of Kevin M. Gallagher in Support of the Independent Director Defendants’ Opening Brief in Support of Their Motion for Summary Judgment (Dkt. 164). Citations in the form “Pls.’ Answering Br. Ex. __” refer to exhibits to the Unsworn Transmittal Affidavit of Christine M. Mackintosh in Support of Plaintiffs’ Omnibus Answering Brief (Dkt. 180). Citations in the form “Dir. Defs.’ Reply Br. Ex. __” refer to exhibits to the Transmittal Declaration of Kevin M. Gallagher in Support of the Independent Director Defendants’ Reply Brief in Support of Their Motion for Summary Judgment (Dkt. 195). Page numbers to exhibits are designated by the last four digits of a Bates number, where appropriate. 2 Dir. Defs.’ Opening Br. 7 (Dkt. 163); Cantor Defs.’ Opening Br. 4 (Dkt. 172). 3 Pls.’ Answering Br. 8 (Dkt. 180). 4 Id.; Pls.’ Answering Br. Ex. 2. 5 Dir. Defs.’ Reply Br. Ex. 1.
3 A. BGC and the Cantor Defendants
Nominal defendant BGC Partners, Inc. is a public Delaware corporation
headquartered in New York that provides brokerage and financial services.6
Defendant Cantor Fitzgerald, L.P., a Delaware limited partnership, is BGC’s parent
company and controlling stockholder.7 Defendant CF Group Management, Inc.
(“CFGM”), a New York corporation, is Cantor’s managing general partner.8
Defendant Howard Lutnick is the Chairman and CEO of BGC.9 Lutnick is
also the sole stockholder of CFGM, through which he has sole voting control of
Cantor.10 Cantor, CFGM, and Lutnick controlled BGC at the time of the challenged
transaction through their beneficial ownership of 100% of BGC’s Class B super-
voting common stock.11 For purposes of this decision, Cantor, CFGM, and Lutnick
are referred to as the “Cantor Defendants.” Together, the Cantor Defendants hold
approximately 60% of BGC’s total voting power.12
6 Am. Verified S’holder Deriv. Compl. ¶ 12 (Dkt. 25) (hereinafter “Am. Compl.”). 7 Id. ¶ 13. 8 Id. ¶ 14. 9 Id. ¶ 18. 10 Id. ¶ 14. 11 Id. ¶ 15. 12 Id.
4 Berkeley Point, LLC is a designated underwriting and servicing lender for
multi-family and commercial mortgages.13 Before the transaction, Berkeley Point
was a wholly owned subsidiary of Cantor Commercial Real Estate Company, L.P.,
another Cantor affiliate.14 Cantor had a controlling interest in CCRE, meaning that
Lutnick effectively controlled both BGC and Berkeley Point at the time of the
transaction. His personal economic interests in BGC and Berkeley Point at that time
were 12.2% and 54.5%, respectively.15
B. The Special Committee
In February 2017, Lutnick informed BGC’s Audit Committee that BGC was
considering acquiring Berkeley Point.16 The Audit Committee consisted of
defendant Dr. Linda Bell, defendant Stephen Curwood, defendant William Moran,
and Secretary John Dalton. Because both BGC and CCRE are affiliates of Cantor,
the Audit Committee authorized its members to act as a Special Committee to
evaluate and negotiate the transaction on BGC’s behalf.17
13 Id. ¶ 17. 14 Id. 15 Pls.’ Answering Br. 13 nn.26-27. 16 See Dir. Defs.’ Opening Br. Ex. 29, at 1263. 17 Id. at 1265.
5 On March 14, 2017 the Board formally established a fully empowered Special
Committee of Bell, Curwood, Dalton, and Moran.18 Moran and Bell co-chaired the
Special Committee.19 Lutnick supported (at a minimum) the selection of Moran as
co-chair of the Special Committee.20 Lutnick had also “proposed that . . . Dr. Bell
be named as the co-chair.”21
Each of the four Special Committee members is an outside director who had
been on BGC’s Board for at least four years at the time the Special Committee was
formed. Each member is highly accomplished and respected in his or her respective
field.22 For the directors central to this motion—Bell, Moran, and Curwood
(together, the “Director Defendants”)—I will briefly describe their background and
ties to Lutnick.
1. Dr. Linda Bell
Bell is a professor of economics and has held senior roles at several
prestigious universities. She joined BGC as a director in 2013.23 She had previously
served on the board of ELX Futures L.P., another Cantor–controlled entity, from
18 Dir. Defs.’ Opening Br. Ex. 30, at 1268. 19 Pls.’ Answering Br. 3. 20 Pls.’ Answering Br. Ex. 1, at 171-73. 21 Pls.’ Answering Br. Ex. 70, at 4. 22 See Dir. Defs.’ Opening Br. 1-2. 23 Id. at 18.
6 2009 to 2013.24 Bell earned an average of $118,823 per year from her ELX and
BGC board positions between 2010 to 2017.25 That compensation accounted for
7.6% of her total household income over that same period.26
Bell and Lutnick first met—briefly—when she was a junior faculty member
at Haverford College, Lutnick’s alma mater.27 Lutnick is a long-time member of
Haverford’s Board of Managers and has donated tens of millions of dollars to the
college.28 Bell and Lutnick became better acquainted after Bell was appointed
Provost of Haverford in 2007.29 Lutnick did not play a direct role in Bell’s
appointment as Provost beyond voting to approve the promotion.30 In her position
as Provost, Bell attended meetings of and presented to the Board of Managers
(including Lutnick) three or four times per year.31 The Provost position at Haverford
did not entail significant fundraising responsibilities.32 In 2012, Bell left Haverford
24 Id. 25 Dir. Defs.’ Opening Br. Ex. 16, at 3. 26 See id. 27 Dir. Defs.’ Opening Br. Ex. 19, at 33-34. Bell volunteered to host a dinner for members of Haverford’s Board of Managers and Lutnick was randomly assigned as her guest. Id. 28 Pls.’ Answering Br. Ex 19, at 47-48. 29 Dir. Defs.’ Opening Br. Ex. 19, at 18, 38-39. 30 Pls.’ Answering Br. Ex. 19, at 71-72. 31 Dir. Defs.’ Opening Br. Ex. 19, at 38-39. 32 Id. at 29-33.
7 to become the Provost, Dean of Faculty, and a professor of economics at Barnard
College.33 That is her current position.
After leaving Haverford in 2012, Bell and Lutnick have had limited
interactions outside of BGC. Lutnick introduced Bell to a wealthy family whose
child was interested in attending Barnard.34 On occasion, Bell has recommended
students to Lutnick for interviews at Cantor.35 Bell also mentored Lutnick’s son on
occasion, advising him on academic growth and finding him an appropriate tutor at
Lutnick’s request.36
2. Stephen Curwood
Curwood is a journalist, environmentalist, and businessperson. He is
President of the World Media Foundation, Inc. and has hosted its public radio
program “Living on Earth” for many years.37 Curwood joined BGC as a director in
2009.38 He has not served on any other Cantor-affiliated board.39
33 Id. at 18-19. 34 Pls.’ Answering Br. Ex. 19, at 92-94; see also Pls.’ Answering Br. Exs. 43-45. 35 Dir. Defs.’ Opening Br. Ex. 19, 56-58. 36 Id. at 134-35, 144-148, 155-60. 37 Dir. Defs.’ Opening Br. Ex. 17, at 16. 38 Dir. Defs.’ Opening Br. Ex. 7, at 5. 39 Id.
8 Curwood’s BGC directorship earned him an average of $164,500 per year
between 2010 and 2017.40 His BGC compensation amounted to roughly 52.4% of
his total household over that same time horizon.41
Curwood first met Lutnick when Curwood joined the Haverford Board of
Managers in 2000.42 The two served together on the Board of Managers and on
various committees of the board for twelve years.43 Their service on the institutional
advancement committee pertained to “[m]oney-raising.”44 Curwood’s positions at
Haverford were unpaid.45
3. William Moran
Moran was previously employed by JPMorgan Chase (from 1975-2005)
where he served as its General Auditor and Executive Vice President.46 Moran
joined BGC as a director in 2013.47 He has served on the boards of three other
Cantor-affiliated companies: eSpeed Inc. (BGC’s predecessor, from 1999-2005),
40 Dir. Defs.’ Opening Br. Ex. 16, at 4. 41 Id. 42 Dir. Defs.’ Opening Br. Ex. 7, 4-5. 43 Dir. Defs.’ Opening Br. Ex. 17, at 26-40. 44 Id. at 39. 45 Id. at 35-36. 46 Dir. Defs.’ Opening Br. Ex. 7, at 2. 47 Dir. Defs.’ Opening Br. 21.
9 ELX (from 2009-2013), and GFI Group, Inc. (which merged into BGC, from 2015-
2016).48
Moran earned an average of $135,655 per year between 2013 and 2017 from
his service on Cantor-affiliated boards.49 That income represented 11.5% of his total
household income over the same time frame.50
Moran and Lutnick’s almost 20-year relationship has been largely
professional.51 They have, over that time, attended a handful of social, charitable,
or political events together.52
C. The Transaction
The Special Committee met 19 times after its formation and engaged in
months of negotiations with the Cantor Defendants.53 Several offers and
counteroffers were exchanged.54 On July 13, 2017, the Special Committee voted to
recommend that the Board authorize the acquisition of Berkeley Point and an
48 Dir. Defs.’ Opening Br. Ex. 7, at 2-3, 13. 49 Dir. Defs.’ Opening Br. Ex. 16, at 6. 50 See id. 51 Dir. Defs.’ Opening Br. Ex. 10, at 11-15. 52 Id. 53 Dir. Defs.’ Opening Br. 2-3. 54 Id. at 2-3, 38-39.
10 investment in CCRE’s commercial mortgage-backed securities business.55 On July
16, 2017, the Board adopted the Special Committee’s recommendation.56
On September 8, 2017, BGC purchased Berkeley Point from CCRE for $875
million.57 BGC simultaneously invested $100 million in CCRE’s commercial
mortgage-backed securities business in return for a 27% interest in CCRE.58 BGC’s
Berkeley Point acquisition and CCRE investment are referred to as the
“Transaction” in this decision.
D. Procedural History
Following BGC’s document production pursuant to a books and records
demand, the plaintiffs filed derivative actions in this court challenging the
Transaction in October and November 2018.59 The plaintiffs’ First Amended
Stockholder Derivative Complaint (the operative Complaint) was filed in February
2019, naming the Cantor Defendants, Bell, Curwood, Dalton, and Moran as
defendants.60 The plaintiffs brought a claim against the directors for breaching their
fiduciary duties by improperly approving a related-party transaction.61 The plaintiffs
55 Dir. Defs.’ Opening Br. Ex. 99, at 0007. 56 Dir. Defs.’ Opening Br. Ex. 103, at 1432. 57 Dir. Defs.’ Opening Br. 39. 58 Id. 59 Dkt. 1; see Dkt. 6. 60 Dkt. 25. 61 Id. ¶¶ 135-38.
11 also asserted a breach of fiduciary duty claim against the Cantor Defendants as
controlling stockholders of BGC and separately against Lutnick for breaching his
fiduciary duties with respect to the Transaction as an officer of BGC.62
The defendants filed motions to dismiss pursuant to Court of Chancery Rules
23.1 and 12(b)(6) that were denied by then-Chancellor Bouchard in September
2019.63 In denying the Rule 23.1 motion, the court found that the plaintiffs had
sufficiently pleaded facts creating a reasonable doubt regarding the impartiality of a
majority of the demand board. In denying the Rule 12(b)(6) motion, the court held
that the plaintiffs had pleaded facts sufficient to state non-exculpated claims against
Bell, Curwood, Dalton, and Moran.
After discovery, the defendants filed the motions for summary judgment at
issue in this decision.64 The plaintiffs dropped their claims against Dalton in their
answering brief, leaving Bell, Curwood, and Moran as the individual Director
Defendants.65 Oral argument on the motions for summary judgment was presented
on June 22, 2021. The case is scheduled for trial beginning on October 11, 2021.
62 Am. Compl. ¶¶ 139-48. 63 See In re BGC P’rs, Inc., Deriv. Litig., 2019 WL 4745121 (Del. Ch. Sept. 30, 2019). 64 Dkt. 162; Dkt. 171. 65 Pls.’ Answering Br. 2 & n.2.
12 II. LEGAL ANALYSIS
The Cantor Defendants move for summary judgment on the ground that the
plaintiffs cannot established demand futility. In the alternative, they contend that
the plaintiffs should bear the burden of proving at trial that the Transaction is not
entirely fair.
The Director Defendants move for summary judgment on the ground that
plaintiffs cannot show that they face non-exculpated claims. In particular, the
Director Defendants argue that the plaintiffs have adduced no evidence that they
acted in bad faith or advanced Lutnick’s self-interest.
In this decision, I first decide the threshold issue of whether demand was
excused. I find that genuine disputes of material fact exist regarding a majority of
the BGC Board’s ability to impartially consider a demand to sue Lutnick. I then
analyze whether a dispute of fact remains preventing a finding that the Director
Defendants do not face a claim for breaching their duty of loyalty. I find that the
plaintiffs cannot establish non-exculpated claims against Bell and Curwood but that
factual issues remain regarding Moran that are best left for trial.
A. Standard for Summary Judgment
Under Court of Chancery Rule 56, summary judgment is granted only if “there
is no genuine issue as to any material fact and . . . the moving party is entitled to
13 judgment as a matter of law.”66 As the moving parties, the defendants have the initial
burden of “demonstrating the absence of a material factual dispute.”67 The court
must view evidence “in the light most favorable to the nonmoving party.”68 At this
stage in the case, the court will not weigh evidence.69
If the defendants meet their burden, then the plaintiffs as the non-moving party
must “adduce some evidence of a dispute of material fact” to avoid summary
judgment.70 Summary judgment is “inappropriate” if a rational trier of fact could
find any determinative fact in favor of the non-moving party.71 The “existence of a
scintilla of evidence in support of the [non-moving party’s] position,” however, “is
not sufficient.”72
66 Ct. Ch. R. 56(c). 67 In re Transkaryotic Therapies, Inc., 954 A.2d 346, 356 (Del. Ch. 2008) (quoting Levy v. HLI Operating Co., 924 A.2d 210, 219 (Del. Ch. 2007)). 68 Telxon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002). 69 See Cerberus Int’l, Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1150 (Del. 2002). 70 Metcap Secs. LLC v. Pearl Senior Care, Inc., 2009 WL 513756, at *3 (Del. Ch. Feb. 27, 2009), aff’d, 977 A.2d 899 (Del. 2009) (TABLE). 71 Cerberus Int'l, 794 A.2d at 1150; see also Cont'l Oil Co. v. Pauley Petroleum, Inc., 251 A.2d 824, 826 (Del. 1969) (“When an ultimate fact to be determined is one of motive, intention or other subjective matter, summary judgment is ordinarily inappropriate.”). 72 Haft v. Haft, 671 A.2d 413, 419 (Del. Ch. 1995) (quoting Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986)).
14 B. Genuine Issues of Material Fact Prevent Summary Judgment on Demand Futility.
“The decision whether to initiate or pursue a lawsuit on behalf of the
corporation is generally within the power and responsibility of the board of
directors.”73 A stockholder can only pursue claims belonging to a corporation if (1)
the corporation’s directors wrongfully refuse a demand to authorize the corporation
to bring suit; or (2) demand would have been futile because the directors were
incapable of impartially considering the demand.74
The plaintiffs did not make a pre-suit demand on the Board and this court
determined at the pleadings stage that a demand would have been futile. But the
demand requirement’s “ultimate consideration does not end when the complaint is
found to be sufficient.”75 The demand requirement, and doctrines of demand refusal
and demand excusal that may satisfy it, exist beyond the procedural requirements of
Court of Chancery Rule 23.1.76 Now, after discovery, the defendants remain “free
73 In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 120 (Del. Ch. 2009); see 8 Del. C. § 141(a). 74 See Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993); see also Stone v. Ritter, 911 A.2d 362, 366-67 (Del. 2006). 75 Good v. Getty Oil Co., 518 A.2d 973, 974-75 (Del. Ch. 1986) (“Such resolution requires application of standards applicable to summary judgment as provided in Chancery Court Rule 56 or trial of the separate issue of demand futility under Chancery Court Rule 42(b).”). 76 See, e.g., Rales, 634 A.2d at 932 (noting that Rule 23.1 “constitutes the procedural embodiment” of a “substantive principle of corporation law”).
15 to show on summary judgment by uncontradicted facts that the allegations made are
untrue and there is therefore no proper standing.”77
Regardless of the stage of the case, the court “counts heads” of the members
of a board—as composed at the time the derivative suit was filed—to determine
whether a majority of its members could have impartially considered a demand.78
The Board consisted of five directors when the Complaint was filed: Lutnick, Bell,
Curwood, Moran, and non-party David Richards.79 The defendants (unsurprisingly)
do not contest Lutnick’s partiality,80 and the plaintiffs concede Richards’
independence.81 The three directors who constituted the Special Committee—Bell,
Curwood, and Moran—remain at issue for the demand futility analysis.
None of Bell, Curwood, or Moran is alleged to have received a benefit from
the Transaction. A personal interest is not necessary, however, to show demand
futility. “A director also is disqualified from exercising judgment regarding a
litigation demand if another person was interested in the alleged wrongdoing, and
77 Kahn v. Tremont Corp., 1992 WL 205637, at *2 n.2 (Del. Ch. Aug. 21, 1992); see also Heineman v. Datapoint Corp., 1990 WL 154149, at *3 (Del. Ch. Oct. 9, 1990) (explaining that “[i]f a review of the actual facts would show that” the elements of demand futility were not satisfied, “then that may be shown in an application for summary judgment”). 78 In re Zimmer Biomet Holdings, Inc. Deriv. Litig., 2021 WL 3779155, at *10 (Del. Ch. Aug. 25, 2021). 79 Cantor Defs.’ Opening Br. 6. 80 Id. at 13. 81 Pls.’ Answering Br. 72 n.319.
16 the director lacks independence from that person.”82 A director “subject to the
interested party’s dominion or beholden to that interested party” lacks
independence.83 The plaintiffs allege that demand would have been futile because
Bell, Curwood, and Moran are not independent of Lutnick, who stood on both sides
of the Transaction.
To prevail, the defendants must show that, for at least two directors, there is
no genuine dispute of material fact regarding their ability to make an impartial
judgment about a litigation demand. This court in analyzing demand futility will
consider factors that may affect a director’s disinterestedness and independence in
their totality.84 Lutnick’s role as a controlling stockholder is relevant. As then-
Chancellor Bouchard noted in his denial of the defendants’ motions to dismiss, “our
law is not blind to the practical realities of serving as a director of a corporation with
a controlling stockholder.”85
82 United Food and Com. Workers Union v. Zuckerberg, 250 A.3d 862, 887 (Del. Ch. 2020) (citing Rales, 634 A.2d at 936). 83 Del. Cty. Emps. Ret. Fund v. Sanchez, 124 A.3d 1017, 1023 n.25 (Del. 2015). 84 See, e.g., In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 937 (Del. Ch. 2003); Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (noting that “things other than money, such as ‘love, friendship, and collegiality’” are to be considered); Sanchez, 124 A.3d at 1019 (Del. 2015) (explaining that a demand futility analysis considers alleged facts “in their totality and not in isolation from each other”). 85 BGC P’rs, 2019 WL 4745121, at *7; see also Leo E. Strine, Jr., The Delaware Way: How We Do Corporate Law and Some of the New Challenges We (and Europe) Face, 30 Del. J. Corp. L. 673, 678 (2005) (discussing that Delaware courts are “most suspicious when the fiduciary who is interested is a controlling stockholder”).
17 I conclude that the defendants have not met their burden. I find that Bell could
have independently considered a demand. But disputes of fact remain regarding
Curwood and Moran’s independence that prevent summary judgment on that issue.
Because Lutnick, Curwood, and Moran constitute a majority of the Board, the
Cantor Defendants’ motion for summary judgment is denied.
1. Linda Bell As described above, Bell’s primary interactions with Lutnick are through her
board service at BGC (and Cantor-affiliate ELX) and earlier role at Haverford
College.86 The ties between Bell and Lutnick that are raised, taken together, do not
raise concerns of her partiality.
Bell’s BGC-related compensation amounted to 7.6% of her household income
from 2010 to 2017.87 Her annual income from BGC, and ELX before that, averaged
in the low six figures. Discovery has not revealed evidence that would lead a
reasonable trier of fact to conclude that Bell would risk her reputation to protect a
relatively small percentage of her household income.88
86 See supra at Section I.B.1. 87 Dir. Defs.’ Opening Br. Ex. 16, at 3. 88 Beam v. Stewart, 845 A.2d 1040, 1052 (Del. 2004) (explaining that plaintiffs must plead facts supporting the inference that “the non-interested director would be more willing to risk his or her reputation than risk the relationship with the interested director” to survive a motion to dismiss).
18 Bell’s Haverford associations also do not create a genuine dispute calling into
question her impartiality from Lutnick. She has not been directly associated with
Haverford since 2012. Lutnick’s role as a major Haverford donor has had no effect
on Bell’s professional standing (if it ever did) in years. This case is therefore
different from precedent in this court where directors with university ties were found
to lack independence from significant donors.
In Oracle, for example, members of a special litigation committee were
current, tenured professors at Stanford University who “share[d] in the benefits that
come from serving at a university with a rich endowment.”89 In denying the SLC’s
motion to terminate a suit against defendants including a major Stanford donor, then-
Vice Chancellor Strine reasoned that “[a] reasonable professor giving any thought
to the matter would obviously consider the effect his decision might have” on the
university’s fundraising prospects.90 Bell’s circumstances are different. She was
five years removed from Haverford when a demand would have been made on the
BGC Board. There is no evidence from which the court can plausibly find that
Lutnick’s importance to Haverford would have continued to influence her
discretion.91
89 Oracle, 824 A.2d at 943. 90 Id. 91 See also In re MFW S’holders Litig., 67 A.3d 496, 512-13 (Del. Ch. 2013) (finding connection between current tenured professor and member of Board of Visitors insufficient to create genuine issue of fact regarding professor’s independence); In re KKR Financial 19 It is true that “past benefits conferred . . . may establish an obligation or debt
(a sense of ‘owingness’) upon which a reasonable doubt as to a director’s loyalty to
a corporation may be premised.”92 But the record does not support a finding that
Bell felt indebted to Lutnick. No facts suggest that she benefitted personally from
Lutnick’s donations to Haverford while she served as Provost. And, beyond her
appointment to Cantor-affiliated boards, no evidence indicates that Bell received
benefits from Lutnick. An appointment to a controlled board cannot, by itself, lead
to a finding of partiality for demand excusal purposes. Were that the law, demand
futility would be a certainty in the controlling stockholder context.93
The record also lacks evidence that Bell and Lutnick socialized meaningfully
beyond their professional relationship. The additional facts offered to suggest a
potentially deeper bond between Lutnick and Bell center around Lutnick’s son. But
they are hardly indicative of the sort of “emotional depth” necessary to show a lack
of independence.94 Advising a colleague’s family member—or facilitating a
Hldg. LLC S’holder Litig., 101 A.3d 980, 997-98 (Del. Ch. 2014) (dismissing the relevance of (business) relationships that ended 12 and four years prior to the derivative suit when assessing independence). 92 In re Ply Gem Indus., Inc. S’holders Litig., 2001 WL 1192206, at *1 (Del. Ch. Oct. 3, 2001). 93 See Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984) (emphasizing that the mere fact that a director serves on the board of a controlled company does not make that director not independent). 94 MFW, 67 A.3d at 511.
20 mutually beneficial meeting—are not uncommon actions for the cordial among us.
Even if the evidence showed that Bell went out of her way to assist Lutnick’s son, it
would support an inference that Lutnick may feel a sense of gratitude to her rather
than the other way around.
Viewing these interactions and the other evidence in the light most favorable
to the plaintiffs, I find that there are no disputes of fact sufficient to raise a genuine
dispute about Bell’s ability to impartially consider a demand.
I do not reach the same conclusion about Curwood. His BGC Board
compensation alone creates a genuine issue of material fact as to his independence
from Lutnick. Curwood’s service alongside Lutnick on the Board supplied him with
more than half of his household income from 2010 to 2017.95 The portion of his
annual income attributable to BGC steadily increased from 46.9% to 64.3% between
2014 to 2017.96
The Cantor Defendants rely on MFW to argue that Curwood’s BGC income
alone cannot evidence a lack of independence.97 Generally, “the existence of some
95 Dir. Defs.’ Opening Br. Ex. 16, at 4. 96 Id. 97 Cantor Defs.’ Opening Br. 15 (citing Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014), overruled on other grounds by Flood v. Synutra Int'l, Inc., 195 A.3d 754 (Del. 2018)).
21 financial ties between the interested party and the director, without more, is not
disqualifying.”98 This court is also mindful of the public policy concerns at play
when wealth is used as a factor in analyzing independence.99 But more than “some
financial ties” exist between Curwood and Lutnick. “The inquiry must be whether,
applying a subjective standard, those [financial] ties were material, in the sense that
the alleged ties could have affected the impartiality of the individual director.”100
Viewing the evidence in the light most favorable to the plaintiffs, there is a plausible
inference that Curwood’s director compensation was material to him.
In MFW, no “real evidence of [the director’s] economic circumstances” was
proffered and the appellants did “nothing . . . to compare the actual circumstances of
the [challenged directors] to the ties [they] contend[ed] affect[ed] their
impartiality.”101 Here, by contrast, it is obvious that the relevant compensation
amounts to a majority of Curwood’s income. Curwood described the income as
“important” and “[not] a trivial amount of money.”102
98 Kahn, 88 A.3d at 649. 99 See, e.g., Chester Cty. Emps.’ Ret. Fund v. New Residential Inv. Corp., 2017 WL 4461131, at *8 (Del. Ch. Oct. 6, 2017) (explaining how factoring wealth into an independence analysis could “discourage the membership on corporate boards of people of less-than extraordinary means” (quoting In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 360 (Del. Ch. 1998) (internal quotation marks omitted))). 100 Kahn, 88 A.3d at 649. 101 Id. 102 Dir. Defs.’ Opening Br. Ex. 17, at 125.
22 More critically, Curwood’s board-related income has allowed him to pursue
his passions while supporting his family. Curwood testified that he “was grateful
that [the director position] would allow [him] to both feed [his] family and [continue
his career in] public radio.”103 It is difficult to imagine more personally motivating
factors. Lutnick unilaterally possessed the power to remove Curwood’s directorship
and, thus, a crucial source of income—a reality that Curwood understood.104
The Director Defendants contend that Curwood was not dependent on his
board-related income because he has “plenty of other options.”105 That may well be
so and Curwood’s subjective belief as such may prove determinative. But that is a
matter best addressed at trial. At the summary judgment stage, a reasonable
inference can be drawn that Curwood’s judgment would have been clouded had he
been confronted with a demand to sue Lutnick.
3. William Moran Moran’s almost 20-year professional relationship with Lutnick leads to the
most unique analysis of the three Director Defendants. His BGC Board
compensation is hardly material to him given his net worth of nearly $20 million and
pension of “something short of a million dollars a year” from JPMorgan Chase.106
103 Id. at 124. 104 Id. at 119-21. 105 Id. at 124. 106 Dir. Defs.’ Opening Br. Ex. 24, at 22; Dir. Defs.’ Opening Br. Ex. 25, at 3.
23 There are no apparent close social or familiar ties between Moran and Lutnick. Yet
a factual dispute about his ability to impartially consider a demand to sue Lutnick
exists that prevents summary judgment on that issue.
Moran’s respect for Lutnick is considerable. He described Lutnick as an
“inspiration,” worried that he might get “teary-eyed” speaking about how Lutnick is
a “wonderful . . . good human being,” and noted how he is “proud to be associated
with a man [like Lutnick]” in his deposition.107 This court has explained that a
director’s “exceptionally glowing” admiration for a controller combined with a
lengthy relationship can cast “substantial doubt” on her ability to impartially
consider a litigation demand against the controller.108
Tragically, Cantor lost hundreds of employees on 9/11. Lutnick’s work
supporting the families of those Cantor lost in the attacks is one source of Moran’s
deep respect for Lutnick.109 The Director Defendants argue that Moran’s testimony
about Lutnick cannot call into question Moran’s independence because it must be
considered in the emotionally charged context of the 9/11 attacks.110
It is without question that Moran’s respect for Lutnick is well placed in that
regard. And it may be reasonable to infer that Moran’s admiration for Lutnick did
107 Dir. Defs.’ Opening Br. Ex. 24, at 86, 99. 108 In re NantHealth, Inc. S’holder Litig., 2020 WL 211065, at *7 (Del. Ch. Jan. 14, 2020). 109 See Dir. Defs.’ Opening Br. Ex. 24, at 85-88. 110 Dir. Defs.’ Reply Br. 15-16.
24 nothing to sterilize his discretion. But it is also reasonable to infer that Moran’s
reverence for Lutnick could have colored his judgment had he been asked to press
derivative claims against Lutnick. Laudable behavior in the wake of a national
tragedy may well strengthen ties of loyalty. At present, the plaintiffs are entitled to
the inference that favors their position.
* * *
Although Bell could have impartially considered a demand, I cannot conclude
that no factual disputes remain regarding Curwood and Moran’s independence from
Lutnick. Because Curwood, Moran, and Lutnick made up a majority of the demand
board, I conclude that the Cantor Defendants’ motion for summary judgment on the
basis of demand futility must be denied.
C. Summary Judgment Is Granted as to Bell and Curwood but Not Moran.
The Director Defendants also ask the court to grant summary judgment
because the plaintiffs cannot establish non-exculpated claims against Bell, Curwood,
or Moran given the Section 102(b)(7) provision in BGC’s charter. 111 Section
102(b)(7) was adopted to “free[ ] up directors to take business risks without worrying
about negligence lawsuits.”112 Accordingly, as the Delaware Supreme Court
111 Defs.’ Mot. to Dismiss Opening Br. Ex. 1, Article VII (Dkt. 39). 112 Malpiede v. Townson, 780 A.2d 1075, 1095 (Del. 2001) (discussing that Section 102(b)(7) was adopted following Smith v. Van Gorkom to “free directors of personal 25 explained in Cornerstone, “[w]hen the independent directors are protected by an
exculpatory charter provision and the plaintiffs are unable to plead a non-exculpated
claim against them, those directors are entitled to have the claims against them
dismissed.”113 A plaintiff may establish a non-exculpated claim by pleading that the
directors: (1) “harbored self-interest adverse to the stockholders’ interests”; (2)
“acted to advance the self-interest of an interested party from whom they could not
be presumed to act independently”; or (3) “acted in bad faith.”114
The parties agree that the first Cornerstone prong is not relevant here. None
of Bell, Moran, or Curwood is accused of acting out of self-interest. As to the
remaining Cornerstone prongs, the parties have differing views about their meaning,
whether they overlap, and if they are at issue.
The plaintiffs contend that they are relying exclusively on the second prong
of Cornerstone and disclaim any arguments that the Director Defendants acted in
bad faith.115 They argue that the Director Defendants have not met their burden of
showing an absence of a factual dispute “that they were independent of, and acted
liability in damages for due care violations, but not duty of loyalty violations, bad faith claims and certain other conduct”). 113 In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1176 (Del. 2015). 114 Id. at 1179-80; see also id. at 1187 n.54 (“By parity of reasoning, if after discovery, there is evidence from which a fact-finder could conclude that the independent directors breached their duty of loyalty, a trial is necessary to determine the directors’ liability.”). 115 Pls.’ Answering Br. 71 n.318.
26 independently from, Lutnick.”116 The Director Defendants, for their part, assert that
the plaintiffs have improperly collapsed the second and third prongs by “rely[ing]
on the Transaction process to support an independence claim.”117 They describe the
“second—independence—prong” as focused on considerations such as personal and
financial ties between directors and a controller.118 The Director Defendants view
the second prong as entirely distinct from the third, “bad-faith prong,” which they
say is intended to address the deal process.119
The second Cornerstone prong, however, takes into consideration both
independence and process by its very terms. A director must have “acted to advance
the self-interest of an interested party” and the interested party must be one “from
whom [the director] could not be presumed to act independently” for the director to
face a non-exculpated claim for breach of the duty of loyalty.120 Thus, if the director
is either (1) shown to be independent or (2) shown not to have actively furthered the
116 Id. at 96. 117 Dir. Defs.’ Reply Br. 24. 118 Id. 119 Id. at 24-25. 120 Cornerstone, 115 A.3d at 1180; see also In re Oracle Corp. Deriv. Litig., 2021 WL 2530961, at *7, *9 (Del. Ch. June 21, 2021) (describing the second prong of Cornerstone as itself a “two-prong test”).
27 conflicted party’s interests, dismissal is appropriate under the second prong of
Cornerstone.121
The analysis of the Director Defendants’ independence on the question of
demand futility is therefore not determinative of whether they are entitled to
dismissal from the action under Cornerstone. It only answers part of the question.
Even if a director is found to lack independence for purposes of evaluating a demand
to sue an interested party, the court must also consider whether she acted to advance
the self-interest of the same interested party. A plaintiff claiming that a
“control[led]” director breached her duty of loyalty must demonstrate that the
director’s conduct “comport[ed] with the wishes or interests of the corporation (or
persons) doing the controlling.”122
The different contexts in which Delaware courts analyze demand futility and
director liability validate this distinction. A demand futility analysis is an exercise
in the hypothetical. If a conflicted party—like a controller—benefits from a
transaction, the court asks whether a director could theoretically have exercised
121 This court has previously referred to the second prong of Cornerstone—in passing— as the “independence” prong. See, e.g., Morrison v. Berry, 2019 WL 7369431, at *12 (Del. Ch. Dec. 31, 2019) (“[T]o survive the Motion to Dismiss . . . the Plaintiff must plead a non-exculpated claim, which requires sufficiently alleging the Director Defendants were either self-interested, lacked independence, or acted in bad faith.” (citing Cornerstone, 115 A.3d at 1175-76)). But the use of “independence” as a shorthand descriptor of the second Cornerstone prong should not be read to nullify the two-step nature of the inquiry. 122 Orman v. Cullman, 794 A.2d 5, 24 (Del. Ch. 2002) (quoting Aronson, 473 A.2d at 816).
28 impartial judgment if confronted with a demand to sue the conflicted party. The
considerations are highly personal given the obvious reality that suing a colleague is
no small matter. As the court explained in Oracle, a director faces greater difficulty
in deciding “there is reason to believe that [a] fellow director has committed serious
wrongdoing and that a derivative suit should proceed against him” than in “denying
[the] fellow director the ability to proceed on a matter important to him.” 123 A
director’s objectivity concerning a hypothetical demand could be compromised even
if her actions in evaluating a transaction were beyond reproach.
The analysis of whether a director faces a claim for breaching her duty of
loyalty, by contrast, requires the court to assess the director’s real-world actions (or
inactions) in the context of her lack of independence. If, for example, a director was
the lifelong friend of a controller but acted only to advance the interests of the
company and its minority stockholders (rather than the controller’s self-interests)
during negotiations, the director could hardly be accused of breaching her duty of
loyalty. There must also be evidence (or, at the pleadings stage, well-pleaded
allegations) that the director took steps in furtherance of the controller’s interests to
support a non-exculpated claim.
123 Oracle, 824 A.2d at 940; see also Marchand, 212 A.3d at 819 (explaining that “the decision whether to sue someone is materially different and more important than the decision whether to part company with that person on a vote about corporate governance”).
29 The third prong of Cornerstone asks a different question: Did the director
exercise “subjective bad faith” out of a malevolent motivation to cause harm or
“consciously and intentionally disregard[]” her duties?124 There exist scenarios
where a director knowingly violates the law or undertakes intentional misconduct
unrelated to a desire to advance the interests of a conflicted party. In such cases,
prong three applies.
Here, the plaintiffs’ contentions concern aspects of the Special Committee’s
negotiation process that arguably furthered Lutnick’s interests in a conflicted
acquisition. They are focused on the second prong of Cornerstone. Accordingly, I
must analyze whether the Director Defendants lacked independence from Lutnick
and “acted to advance” Lutnick’s self-interest.125 In conducting this analysis, I must
consider each of Bell, Curwood, and Moran individually.126 “‘Group pleading’ will
not suffice.”127 If there is evidence from which a rational fact finder could conclude
124 See In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 62-64, 65 n.104 (Del. 2006) (describing a hypothetical director as acting in bad faith when “because of subjective hostility to the corporation on whose board he serves, [he] fails to inform himself of, or to devote sufficient attention to, the matters on which he is making decisions as a fiduciary”); Lyondell Chemical Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009) (noting that “bad faith encompasses not only an intent to harm but also intentional dereliction of duty”); Chen v. Howard-Anderson, 87 A.3d 648, 683-85 (Del. Ch. 2014) (discussing Delaware courts’ approach to finding “bad faith”). 125 Cornerstone, 115 A.3d at 1180. 126 Id. at 1182 (“[E]ach director has a right to be considered individually when the directors face claims for damages in a suit challenging board action.”). 127 In re Tangoe, Inc. S’holders Litig., 2018 WL 6074435, at *12 (Del. Ch. Nov. 20, 2018); see also In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *39 (Del. Ch. 30 that a Director Defendant breached their duty of loyalty, the matter must be resolved
at trial.
1. Linda Bell As explained above, there is no genuine dispute that Bell is independent of
Lutnick for purposes of a litigation demand.128 She is likewise independent for
Cornerstone purposes. The further question of whether Bell acted to advanced
Lutnick’s interests is moot.129 In any event, no genuine factual dispute about Bell’s
actions in negotiating or approving the Transaction is raised that could give rise to a
non-exculpated claim. The Director Defendants’ motion for summary judgment is
granted as to Bell.
Unlike Bell, there is a genuine dispute of material fact regarding Curwood’s
independence from Lutnick in the demand futility context.130 These concerns remain
relevant under Cornerstone.131 But the Director Defendants have demonstrated that
Aug. 27, 2015) (noting that “[t]he liability of the directors must be determined on an individual basis because the nature of their breach of duty (if any), and whether they are exculpated from liability for that breach, can vary for each director” (citation omitted)). 128 See supra Section II.B.1. 129 That is, the plaintiffs necessarily cannot show that Bell both lacks independence and advanced Lutnick’s interests as they must to maintain a non-exculpated claim against her. See supra note 120 and accompanying text (discussing the second prong of Cornerstone). 130 See supra Section II.B.2. 131 To be clear, one could be independent for purposes of Cornerstone but not demand futility, where the more difficult question of bringing claims against a colleague is present. 31 there is no genuine dispute that Curwood did not undertake actions to advance
Lutnick’s self-interest in the Transaction.
After a review of the record, I conclude that the plaintiffs have not identified
evidence to the contrary that a rational trier of fact would find determinative. A
plaintiff’s ability to state a duty of loyalty claim against interested fiduciaries
supporting entire fairness review does not relieve the plaintiff of her “responsibility
to plead a non-exculpated claim against each director” who seeks dismissal.132
Under Delaware law, “that individualized consideration does not start with the
assumption that each director was disloyal; rather, ‘independent directors are
presumed to be motivated to do their duty with fidelity.’”133
The evidence the plaintiffs rely on either concerns the Special Committee as
a whole or (as discussed below) Moran.134 There is nothing implicating Curwood
individually. Curwood was not the Chair of the Special Committee, is not alleged
to have engaged in separate discussions with Lutnick, and did not take a particularly
active role in negotiations.135 In short, there are no specific facts demonstrating the
But the facts presented in Section II.B.2 evidence a genuine dispute of material fact that bars a finding of independence under Cornerstone. 132 Cornerstone, 115 A.3d at 1180 (emphasis added). 133 Id. at 1182 (quoting MFW, 67 A.3d at 528). 134 See infra Section II.C.3. 135 Compare Oracle, 2021 WL 2530961, at *9 (finding at the pleadings stage that a director acted to advance a controller’s interests where he was “the chairperson of the committee,” 32 existence of genuine issues for trial. The Director Defendants’ motion for summary
judgment is granted as to Curwood.
3. William Moran Viewing the record in the light most favorable to the plaintiffs, I necessarily
reach a different conclusion regarding Moran. As explained above, there is a
genuine dispute of material fact regarding Moran’s independence in the demand
futility context.136 There is also a genuine factual dispute about whether Moran may
have acted to advance Lutnick’s interests during negotiations.
Moran’s understanding of Lutnick’s role in the Transaction was that
“[Lutnick] could negotiate for BGC with himself as Cantor.”137 Moran testified that
he was mindful of Lutnick’s opinion regarding the Special Committee’s selection of
its legal advisor.138 Moran also ran potential financial advisors past Lutnick before
one was retained by the Special Committee.139 Certain evidence suggests that he
may have viewed BGC’s timetable for the transaction as at least partially driven by
“attended a meeting with [the counterparty] without the other two directors of the Special Committee,” and “took an active role in negotiations”). 136 See supra Section II.B.3. 137 Dir. Defs.’ Opening Br. Ex. 24, at 160-161. 138 Id. at 181-82. 139 Id. at 187-193.
33 Lutnick.140 And he communicated directly with Lutnick about the deal process on
several occasions.141
It may ultimately be that Moran engaged in hard-fought, arms-length
negotiations to benefit BGC and its stockholders. Moran’s characterizations of
himself as a director that stands up to Lutnick could bear out as to the negotiation of
the Transaction.142 At this stage, however, a factual dispute remains that is best
resolved at trial.
D. Defendants Cannot Shift the Burden of Persuasion.
Finally, the Cantor Defendants ask that the court shift the burden of persuasion
under the entire fairness standard to the plaintiffs. “When the standard of review is
entire fairness, ab initio, director defendants can move for summary judgment on
either the issue of entire fairness or the issue of burden shifting.”143 “[I]f the record
does not permit a pretrial determination that the defendants are entitled to a burden
shift, the burden of persuasion will remain with the defendants throughout the trial
to demonstrate entire fairness of the interested transaction.”144
140 See Pls.’ Answering Br. Ex. 87. 141 See, e.g., Pls.’ Answering Br. Ex. 84; Pls.’ Answering Br. Ex. 86; Pls.’ Answering Br. Ex. 123. 142 See Dir. Defs.’ Opening Br. Ex. 24, at 55-56. 143 Emerald P’rs v. Berlin (Emerald II), 787 A.2d 85, 98-99 (Del. 2001). 144 Am.’s Mining Corp. v. Theriault, 51 A.3d 1213, 1243 (Del. 2012).
34 The burden of persuasion can be shifted from the defendants to the plaintiffs
by “an approval of the transaction by an independent committee of directors or an
informed majority of minority shareholders.”145 Here, BGC minority stockholders
did not vote on the Transaction. For the burden to shift, I must therefore find that
the Special Committee was independent, meaning that it “function[ed] in a manner
which indicates that the controlling stockholder did not dictate the terms of the
transaction and that the committee exercised real bargaining power ‘at an arms-
length.’”146 “At a minimum . . . the members of the committee must be disinterested
and independent.”147 Because I have found genuine issues of material fact regarding
both Curwood and Moran’s independence and Moran’s actions in view of Lutnick’s
interests during negotiations, the defendants are not entitled to a pre-trial
determination on burden shifting.
145 Kahn v. Lynch Commc’n Sys., 638 A.2d 1110, 1117 (Del. 1994). 146 Kahn, 88 A.3d at 646 (quoting Kahn, 694 A2d at 429). Burden shifting at the summary judgment stage is uncommon. Id. (“[D]eciding whether an independent committee was effective in negotiating a price is a process so fact-intensive . . . that a pretrial determination of burden shifting is often impossible.”). 147 In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 25 (Del. Ch. 2014) (citing MFW, 67 A.3d at 509).
35 III. CONCLUSION
The Cantor Defendants’ motion for summary judgment is denied. The
Director Defendant’s motion for summary judgment is granted with respect to Bell
and Curwood and denied with respect to Moran.