In re Duke Energy Corp. Derivative Litigation
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE DUKE ENERGY ) CORPORATION DERIVATIVE ) C.A. No. 7705-VCG LITIGATION )
MEMORANDUM OPINION
Date Submitted: May 9, 2016 Date Decided: August 31, 2016
Ronald A. Brown, Jr. and Marcus E. Montejo, of PRICKETT JONES & ELLIOTT, P.A., Wilmington, Delaware; OF COUNSEL: John W. Haley and Bruce J. McKee, of HARE WYNN NEWELL & NEWTON LLP, Birmingham, Alabama; Frank P. DiPrima of THE LAW OFFICE OF FRANK DiPRIMA, P.A., Morristown, New Jersey, Attorneys for Plaintiff Richard A. Bernstein.
Kenneth J. Nachbar, Susan W. Waesco, and Alexandra M. Cummings, of MORRIS, NICOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Jack B. Jacobs, of SIDLEY AUSTIN LLP, Wilmington, DE, Attorneys for Defendants James E. Rogers, William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning, Daniel R. DiMicco, John H. Forsgren, Ann Maynard Gray, James H. Hance, Jr., E. James Reinsch, James T. Rhodes, and Philip R. Sharp, and Nominal Defendant Duke Energy Corporation.
GLASSCOCK, Vice Chancellor In 2011, Duke Energy Corp. (“Duke” and prior to July 2, 2012, “Old Duke”)
entered a merger agreement with another electric utility company, Progress Energy,
Inc. (“Progress”). Old Duke and Progress were both large regional utilities, with
significant operations in North Carolina, among other states. Under the agreement,
the successor company would also be known as Duke Energy Corp. (in context,
“New Duke”). The initial board of directors of New Duke would be composed of
eleven legacy Old Duke directors, and six legacy Progress directors. Important to
this case is another negotiated provision of the agreement: the CEO of Progress,
William Johnson, would serve as CEO of New Duke, and the CEO of Old Duke,
James Rogers, would be appointed “executive chairman” of New Duke. This
information was conveyed to stockholders of both entities in SEC filings. It was
also communicated by Old Duke to the regulatory body overseeing Duke in North
Carolina, the North Carolina Utilities Commission (the “NCUC”), in seeking
NCUC’s approval of the merger. The merger was conditioned on this approval.
Consideration of the merger by the NCUC was stayed after a hearing, pending
another required approval, that of the Federal Energy Regulatory Commission (the
“FERC”). Pursuit of the regulatory approvals on which the merger was conditioned
caused a substantial delay in its consummation, a period of eighteen months.
According to the complaint, during this eighteen-month period, the Old Duke
board of directors had second thoughts about the agreement to name Johnson CEO
2 of New Duke. This put the Old Duke directors in a bind. They could renounce the
merger agreement, or attempt to renegotiate it, both courses that could lead to breach
of the agreement and loss of the merger, together with liability for a substantial
break-up fee. They could simply comply contractually with the requirement to
employ Johnson as CEO, but they had already decided that he was unfit for that
position. Or they could technically comply with the agreement, appoint Johnson as
CEO, then immediately use their numerical superiority on the New Duke board to
fire and replace him. The complaint alleges that the Old Duke directors (the
“Director Defendants”) chose the latter path. They elected to make it appear that
they were going to comply with the merger agreement, when in fact they had decided
to fire Johnson immediately post-merger and replace him with Old Duke CEO
Rogers. The “walk-away” date by which the merger must close was July 8, 2012.
Shortly before that deadline, on June 27, 2012, the Defendants signed Johnson to a
Duke CEO agreement, with a lucrative severance fee. Once the FERC agreed to the
merger, Old Duke sought expedited approval from the NCUC, representing that
nothing had changed from the initial hearing that would require further hearings
before that body—thereby concealing from the NCUC (as well as Progress and the
public) the decision to fire Johnson and replace him with Rogers. The NCUC
approved the transaction, and the merger closed July 2, 2012.
Shortly thereafter, on the same day, the New Duke board met telephonically
3 and appointed Johnson CEO pursuant to the merger agreement and the June 27 CEO
agreement. Then, at the request of Director Defendant Ann Gray, the board went
into executive session. Johnson was requested to stay available to the board pending
the outcome of the session. Gray, in the executive session, then told the legacy
Progress directors of the New Duke board that she believed Johnson was “not a good
fit” to serve as CEO, and should be fired. The legacy Progress directors were
“shocked,” and attempted to dissuade the Director Defendants from their decision to
fire Johnson, to no avail. After a rather lengthy and one-sided discussion (except for
Gray’s statement that Johnson was a poor “fit,” none of the Director Defendants
spoke), the board voted to discharge Johnson and replace him with Old Duke CEO
Rogers. The vote broke down entirely by legacy; all Director Defendants (legacy
Old Duke) present voted to discharge Johnson, and all legacy Progress directors
present voted against discharge. The executive session was then concluded. Gray
immediately thereafter met with Johnson at Duke headquarters and notified him of
the board’s decision, a result entirely unexpected by him.1 Rogers was installed as
New Duke CEO.
According to the complaint, several bad results followed from the decision to
fire Johnson and its concealment until after the merger. Among a number cited in
1 As the complaint memorably puts it, “[e]ven Julius Caesar had more notice” before the shiv was slipped in. Pl’s Am. Compl. (the “Complaint” or “Compl.”) ¶ 10.
4 the complaint2, two are particularly relevant: Johnson was entitled to a large
severance package although he served as New Duke CEO only for a matter of
minutes, and the NCUC, believing itself to have been misled by false representations
by Old Duke concerning who would serve as New Duke CEO, took action against
the company, resulting in damages.
Lawsuits by Old Duke stockholders followed, notably a North Carolina
action, styled Krieger v. Johnson.3 That matter involved a derivative claim: that the
actions of the Director Defendants, in firing Johnson and incurring contractual
liability thereby, constituted breaches of the duty of loyalty and waste. The Krieger
court dismissed the action, finding that under controlling Delaware law, demand on
the board was not excused. The Plaintiffs here also seek to sue derivatively, on
behalf of Duke.
The matter is before me on a motion to dismiss. The Defendants allege the
matter is barred by collateral estoppel. I find that the Krieger decision collaterally
estops these plaintiffs, but only to the extent they seek to proceed on a claim for
breach of fiduciary duty in connection with the damages and contractual obligations
flowing from the firing of Johnson itself; under the Krieger decision, that is a matter
2 The Plaintiffs allege that the NCUC commissioners stated that they had been misled and called public hearings. Securities fraud class actions have been filed against Duke. Standard & Poors Bond Rating Service (“S&P”) put its rating for Duke on negative watch because of the “sudden shift in management,” and subsequently, on July 25, 2012, downgraded Duke’s debt.
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE DUKE ENERGY ) CORPORATION DERIVATIVE ) C.A. No. 7705-VCG LITIGATION )
MEMORANDUM OPINION
Date Submitted: May 9, 2016 Date Decided: August 31, 2016
Ronald A. Brown, Jr. and Marcus E. Montejo, of PRICKETT JONES & ELLIOTT, P.A., Wilmington, Delaware; OF COUNSEL: John W. Haley and Bruce J. McKee, of HARE WYNN NEWELL & NEWTON LLP, Birmingham, Alabama; Frank P. DiPrima of THE LAW OFFICE OF FRANK DiPRIMA, P.A., Morristown, New Jersey, Attorneys for Plaintiff Richard A. Bernstein.
Kenneth J. Nachbar, Susan W. Waesco, and Alexandra M. Cummings, of MORRIS, NICOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Jack B. Jacobs, of SIDLEY AUSTIN LLP, Wilmington, DE, Attorneys for Defendants James E. Rogers, William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning, Daniel R. DiMicco, John H. Forsgren, Ann Maynard Gray, James H. Hance, Jr., E. James Reinsch, James T. Rhodes, and Philip R. Sharp, and Nominal Defendant Duke Energy Corporation.
GLASSCOCK, Vice Chancellor In 2011, Duke Energy Corp. (“Duke” and prior to July 2, 2012, “Old Duke”)
entered a merger agreement with another electric utility company, Progress Energy,
Inc. (“Progress”). Old Duke and Progress were both large regional utilities, with
significant operations in North Carolina, among other states. Under the agreement,
the successor company would also be known as Duke Energy Corp. (in context,
“New Duke”). The initial board of directors of New Duke would be composed of
eleven legacy Old Duke directors, and six legacy Progress directors. Important to
this case is another negotiated provision of the agreement: the CEO of Progress,
William Johnson, would serve as CEO of New Duke, and the CEO of Old Duke,
James Rogers, would be appointed “executive chairman” of New Duke. This
information was conveyed to stockholders of both entities in SEC filings. It was
also communicated by Old Duke to the regulatory body overseeing Duke in North
Carolina, the North Carolina Utilities Commission (the “NCUC”), in seeking
NCUC’s approval of the merger. The merger was conditioned on this approval.
Consideration of the merger by the NCUC was stayed after a hearing, pending
another required approval, that of the Federal Energy Regulatory Commission (the
“FERC”). Pursuit of the regulatory approvals on which the merger was conditioned
caused a substantial delay in its consummation, a period of eighteen months.
According to the complaint, during this eighteen-month period, the Old Duke
board of directors had second thoughts about the agreement to name Johnson CEO
2 of New Duke. This put the Old Duke directors in a bind. They could renounce the
merger agreement, or attempt to renegotiate it, both courses that could lead to breach
of the agreement and loss of the merger, together with liability for a substantial
break-up fee. They could simply comply contractually with the requirement to
employ Johnson as CEO, but they had already decided that he was unfit for that
position. Or they could technically comply with the agreement, appoint Johnson as
CEO, then immediately use their numerical superiority on the New Duke board to
fire and replace him. The complaint alleges that the Old Duke directors (the
“Director Defendants”) chose the latter path. They elected to make it appear that
they were going to comply with the merger agreement, when in fact they had decided
to fire Johnson immediately post-merger and replace him with Old Duke CEO
Rogers. The “walk-away” date by which the merger must close was July 8, 2012.
Shortly before that deadline, on June 27, 2012, the Defendants signed Johnson to a
Duke CEO agreement, with a lucrative severance fee. Once the FERC agreed to the
merger, Old Duke sought expedited approval from the NCUC, representing that
nothing had changed from the initial hearing that would require further hearings
before that body—thereby concealing from the NCUC (as well as Progress and the
public) the decision to fire Johnson and replace him with Rogers. The NCUC
approved the transaction, and the merger closed July 2, 2012.
Shortly thereafter, on the same day, the New Duke board met telephonically
3 and appointed Johnson CEO pursuant to the merger agreement and the June 27 CEO
agreement. Then, at the request of Director Defendant Ann Gray, the board went
into executive session. Johnson was requested to stay available to the board pending
the outcome of the session. Gray, in the executive session, then told the legacy
Progress directors of the New Duke board that she believed Johnson was “not a good
fit” to serve as CEO, and should be fired. The legacy Progress directors were
“shocked,” and attempted to dissuade the Director Defendants from their decision to
fire Johnson, to no avail. After a rather lengthy and one-sided discussion (except for
Gray’s statement that Johnson was a poor “fit,” none of the Director Defendants
spoke), the board voted to discharge Johnson and replace him with Old Duke CEO
Rogers. The vote broke down entirely by legacy; all Director Defendants (legacy
Old Duke) present voted to discharge Johnson, and all legacy Progress directors
present voted against discharge. The executive session was then concluded. Gray
immediately thereafter met with Johnson at Duke headquarters and notified him of
the board’s decision, a result entirely unexpected by him.1 Rogers was installed as
New Duke CEO.
According to the complaint, several bad results followed from the decision to
fire Johnson and its concealment until after the merger. Among a number cited in
1 As the complaint memorably puts it, “[e]ven Julius Caesar had more notice” before the shiv was slipped in. Pl’s Am. Compl. (the “Complaint” or “Compl.”) ¶ 10.
4 the complaint2, two are particularly relevant: Johnson was entitled to a large
severance package although he served as New Duke CEO only for a matter of
minutes, and the NCUC, believing itself to have been misled by false representations
by Old Duke concerning who would serve as New Duke CEO, took action against
the company, resulting in damages.
Lawsuits by Old Duke stockholders followed, notably a North Carolina
action, styled Krieger v. Johnson.3 That matter involved a derivative claim: that the
actions of the Director Defendants, in firing Johnson and incurring contractual
liability thereby, constituted breaches of the duty of loyalty and waste. The Krieger
court dismissed the action, finding that under controlling Delaware law, demand on
the board was not excused. The Plaintiffs here also seek to sue derivatively, on
behalf of Duke.
The matter is before me on a motion to dismiss. The Defendants allege the
matter is barred by collateral estoppel. I find that the Krieger decision collaterally
estops these plaintiffs, but only to the extent they seek to proceed on a claim for
breach of fiduciary duty in connection with the damages and contractual obligations
flowing from the firing of Johnson itself; under the Krieger decision, that is a matter
2 The Plaintiffs allege that the NCUC commissioners stated that they had been misled and called public hearings. Securities fraud class actions have been filed against Duke. Standard & Poors Bond Rating Service (“S&P”) put its rating for Duke on negative watch because of the “sudden shift in management,” and subsequently, on July 25, 2012, downgraded Duke’s debt. The Attorney General of North Carolina and the Florida Public Service Commission began investigations. 3 2014 WL 1759054 (N.C. Super. Ct. Apr. 30, 2014).
5 to which the board may apply its independent business judgement. Krieger does not
address the primary cause of action that the Plaintiffs advance here, however: that
the Old Duke board made up its mind to install Rogers rather than Johnson as CEO
prior to the merger, but neglected to inform the public and, importantly, the NCUC
of this determination, in violation of positive law. This action and inaction,
according to the Plaintiffs, was undertaken in bad faith. I find that the Plaintiffs have
pled specific facts that, if true, and together with the reasonable inferences
therefrom, indicate that the Old Duke board’s failure to correct its representations to
the NCUC was intentional and in bad faith, sufficient to withstand a motion to
dismiss under Rule 23.1, and that these allegations are not barred by collateral
estoppel.
To decide who will serve as chief executive of a corporation is a quintessential
board function. Once the Old Duke board realized that they had improvidently
bound the company contractually to employ a CEO they found unfit, there were
surely several courses—each no doubt problematic—available to them, within their
business judgement, to remedy the situation. They could choose among them. What
they could not do, consistent with their duty of loyalty to Duke, was what the
complaint alleges they did here: choose a path that caused Duke to violate positive
law.
This Complaint raises other arguments that may be subsumed under my
6 analysis here. Rather than apply my findings below to the many allegations of the
Complaint, I find it most efficient to have the parties notify me as to which causes
of action and requests for relief remain in light of my decision here, and to what
extent further review under Rules 12(b)(6) and 23.1 is warranted.
I. BACKGROUND4
A. The Parties
Plaintiffs Lesley C. Rupp and Richard A. Bernstein are representative
stockholders of Duke Energy Corporation.5 They both have held shares
continuously at all times relevant to liability.6
Nominal Defendant Duke is a large utility company, incorporated in Delaware
and headquartered in North Carolina.7 Common shares of Duke trade on the New
York Stock Exchange (“NYSE”) under the symbol “DUK.”8 Duke is in the business
of “generating, transmitting, distributing and selling electrical power, both through
nuclear and coal-fired plants, and selling the power primarily for commercial and
residential consumption in [Duke’s] regulated service areas.”9 Pre-merger, Old
Duke’s primary service areas included central and western North Carolina, western
4 The facts are drawn from the well-pled allegations of Plaintiff’s Complaint and documents incorporated by reference therein, and are presumed true for purposes of evaluating Defendants’ motion to dismiss. 5 Compl. ¶¶ 1, 14. 6 Id. at ¶ 14. 7 Id. at ¶¶ 2, 13. 8 Id. at ¶ 13. 9 Id.
7 South Carolina, central and southern Indiana, and northern Kentucky. 10 Old Duke
served over four million customers, and 12 million people, covering 50,000 square
miles.11 In 2011, it achieved operating revenues of $14.6 billion and net income of
$1.7 billion across its three reporting business segments.12
Pre-merger, Progress was another large utility company, incorporated and
headquartered in North Carolina, and primarily serving customers in North Carolina,
South Carolina, and Florida.13 In 2011, Progress achieved operating revenues of
$8.9 billion and net income of $582 million.14 Following the merger, Progress is
now a wholly owned subsidiary of Duke, and Duke is the nation’s largest utilities
company in terms of both revenues and power-generation capacity, with 45% of its
rate-regulated revenues coming from customers in North Carolina.15
Defendants James E. Rogers, William Barnet, III, G. Alex Bernhardt, Sr.,
Michael G. Browning, Daniel R. DiMicco, John H. Forsgren, Ann Maynard Gray,
James H. Hance, Jr., E. James Reinsch, James T. Rhodes, and Philip R. Sharp
collectively are referred to as the “Director Defendants.” Rogers is a director of
Duke, which position he has held continuously since Duke’s merger with Cinergy
10 Id. 11 Id. 12 Id. 13 Id. at ¶¶ 2, 13. 14 Id. at ¶ 13. 15 Id.
8 Corporation in 2006, and has served as Chairman of the Duke board since 2007.16
Rogers also served as CEO of Duke from 2006 through the filing of this action,
except for the evening of July 2, 2012, as discussed further below.17 Barnet is
President and CEO of Barnet Development Corporation, a real estate development
firm, and has served as a director of Duke since 2005.18 Bernhardt is Chairman and
past CEO of Bernhardt Furniture Company, and has served as a director of Duke
since 1991.19 Browning is Chairman and President of Browning Investments, a real
estate development company, and has served as a director of Duke since 1990. 20
DiMicco is Chairman and CEO of Nucor Corporation, a manufacturer of steel and
steel products, and has served as a director Duke since 2007.21 Forsgren is the former
Executive Vice President and Chief Financial Officer (“CFO”) of Northeast
Utilities, and has served as a director of Duke since 2009.22 Gray is the former
President of Diversified Publishing Group, and has served as a director of Duke since
1997, and the “Lead Director” since 2004.23 Hance is the former CFO of Bank of
America Corp., and has served as a director of Duke since 2006.24 Reinsch is the
16 Id. at ¶ 15. 17 Id. 18 Id. at ¶ 16. 19 Id. 20 Id. 21 Id. 22 Id. 23 Id. 24 Id.
9 former Senior Vice President and Partner of Bechtel Group and past President of
Bechtel Nuclear, and has served as a director of Duke since 2009.25 Rhodes is the
former Chairman and CEO of the Institute for Nuclear Power and CEO of Virginia
Electric and Power Company, and has served as a director of Duke since 2001. 26
Finally, Sharp is the President of Resources for the Future, a non-profit organization
that conducts research into energy, environmental issues, and resource economics; a
former Indiana Congressman; and has served as a director of Duke since 2007.27 In
other words, the Director Defendants were each directors at all times pertinent to
liability, and remained so through the filing of the complaint.
B. Significant Non-Parties
William D. Johnson served as President of Progress from 2005 until his
promotion to Chairman and CEO in 2007.28 Prior to holding these roles, he served
in a variety of top management positions at Progress, including roles as General
Counsel, Executive Vice President, Corporate Secretary, and president of Progress’s
core business units.29 Pursuant to the merger, Johnson was appointed CEO and a
member of the Duke board, which positions he held for only a few hours on July 2,
25 Id. 26 Id. 27 Id. 28 Id. at ¶ 18. 29 Id.
10 2012.30
John H. Mullin III was a pre-merger member of the Progress board of
directors, who served from 1999 until July 2, 2012.31 He acted as Progress’s lead
director at all times, pre-merger, relevant to liability.32
John D. Baker II, Harris E. DeLoach, Jr., James B. Hayler, E. Marie McKee,
Carlos A. Saladrigas, and Theresa M. Stone collectively are the legacy Progress
directors. Baker and Stone served on the Progress board beginning in 2009 and
2005, respectively, and both joined the New Duke board pursuant to the merger and
subsequently resigned on July 27, 2012, in protest of the events complained of in
this action.33 DeLoach, Hyler, McKee, and Saladrigas were pre-merger members of
the Progress board—who began serving in 2006, 2008, 1999, and 2001,
respectively—who now serve on the New Duke board.34
The New Duke board, as of the date this action commenced, consisted of 15
members: the 11 Director Defendants and the four of six legacy Progress directors
who did not resign in July 2012.35
30 Id. at ¶¶ 3, 18. As discussed infra, on July 2, 2012, Johnson resigned from his position as CEO and a Duke director. Id. at ¶ 20. 31 Id. at ¶ 19. 32 Id. 33 Id. at ¶ 20. 34 Id. I take judicial notice of the publicly available press release announcing the appointment of Saladrigas as a Progress director in 2001, available at https://www.progress-energy.com/company /media-room/news-archive/press-release.page?title=Carlos+Saladrigas+elected+to+Progress +Energy+Board+of+Directors&pubdate=08-20-2001. 35 Id. at ¶ 22.
11 C. Factual Overview
1. Events Leading Up to the Merger
In June 2010, the Old Duke board authorized management to explore a
possible merger with Progress.36 Rogers, CEO of Old Duke, and Johnson, CEO of
Progress, met to discuss strategic aspects of the proposed merger on July 18, 2010.37
At that initial meeting, Rogers told Johnson that Old Duke was receptive, post-
merger, to a greater emphasis on the regulated-utilities business and to Johnson
becoming CEO.38 Mullin, Progress’s lead director, authorized Johnson to meet with
the Old Duke board to advance discussions on the merger.39 On July 19, 2010,
Johnson ceased negotiations on behalf of Progress with a third party concerning an
alternative deal.40 Progress and Old Duke signed a non-disclosure agreement with
an 18-month standstill provision on July 29, 2010.41
Johnson met separately with groups of Old Duke directors on July 29 and
August 2, 2010, as “an opportunity for the directors to get to know Mr. Johnson.”42
Around the same time, the two companies began exchanging financial information.43
36 Id. at ¶ 26. 37 Id. at ¶ 30. 38 Id. 39 Id. 40 Id. at ¶ 31. 41 Id. at ¶ 32. 42 Id. at ¶ 33 (quoting Duke Energy Co., Registration Statement (Form S–4), Am. No. 5 (July 7, 2011)) (emphasis omitted). 43 Id. at ¶ 34.
12 Negotiations, diligence, and meetings between the CEOs continued through
December 2010.44 On October 2, 2010, Rogers and Johnson met to discuss proposed
terms of the deal, including that Johnson would serve as CEO of the post-merger
company.45 They met again on November 15, 2010, along with the two lead
directors of the companies, to discuss strategy and management design of the new
company.46 On December 18, 2010, Rogers and Johnson met to discuss a revised
term sheet, including the roles of Rogers and Johnson post-merger and the
composition of the New Duke board, which was to include 11 Old Duke designees
(including Rogers) and seven Progress designees (including Johnson).47
2. Certain Material Provisions of the Merger Agreement
The boards of both companies unanimously approved the merger on January
8, 2011.48 The companies executed the merger agreement and announced the merger
on January 10, 2011.49
Pursuant to the merger agreement, each share of Progress stock was to be
converted into a right to receive 2.615 shares of Duke common stock, before giving
44 Id. at ¶¶ 36–40. 45 Id. at ¶ 37. 46 Id. at ¶ 38. 47 Id. at ¶ 40. 48 Id. at ¶ 41. 49 Id.
13 effect to a Duke one-for-three reverse stock split.50 The merger was subject to
approval by the stockholders of both companies and certain regulatory authorities,
including, among others, the Federal Energy Regulatory Commission (“FERC”), the
North Carolina Utilities Commission (“NCUC”), and the South Carolina Public
Service Commission (“SCPSC”).51 Johnson was to become the New Duke CEO and
Rogers its Executive Chairman, and headquarters were to be located in Charlotte,
North Carolina, while maintaining a significant presence in Raleigh.52
The merger agreement included a condition precedent to close that none of
the regulatory approvals would require either party to conduct its business in a way
that, or to agree to an order or condition that, would have a material adverse effect
on that party’s expected benefits from the merger.53 The merger agreement also
included a walk-away date of January 8, 2012, with a possible six-month extension
to accommodate pending regulatory approvals,54 and a termination fee.55
3. Events Following Execution of the Merger Agreement
Following execution of the merger agreement, Duke and Progress formed an
“Integration Team,” headed by Johnson and Rogers, to facilitate the combination of
50 Id. at ¶ 42. This represented a premium of approximately 7.1% over the closing price of Progress common stock on January 5, 2011, and total consideration for Progress stockholders of approximately $13.7 billion. Id. 51 Id. at ¶¶ 43, 46. 52 Id. at ¶¶ 44–45. 53 Id. at ¶ 47. 54 Id. at ¶ 48. 55 Id. at ¶ 49.
14 the two companies.56 Progress’s Chief Integration and Innovation Officer, Paula
Sims, played a large role on this team.57
The companies filed an application with the NCUC to approve the merger on
April 4, 2011, later filing in support thereof written testimony of Johnson and
Rogers.58 On September 20, 2011, Johnson and Rogers appeared before an NCUC
panel to testify.59 In all three of these interactions with the NCUC, the companies
represented that Johnson would be CEO of post-merger Duke; they testified on
September 20, 2011, for example, that “Johnson would lead the New Duke Energy,”
and “would set the tone for the direction . . . that the new company is going to
take.”60 The NCUC hearings closed on September 22, 2011, and the NCUC
withheld final approval pending FERC approval.61 Stockholders of both companies
approved the merger at separate meetings on August 23, 2011.62
On September 30, 2011 FERC conditionally approved the merger, subject to
both companies filing a mitigation plan that would reduce the new company’s
combined market power and include the formation of a regional transmission
organization to help coordinate the transmission of electricity, the sale of Duke
56 Id. at ¶ 52. 57 Id. 58 Id. at ¶¶ 53–54. 59 Id. at ¶ 54. 60 Id. 61 Id. 62 Id. at ¶ 56 (citing Duke Energy Co., Registration Statement (Form S–4), Am. No. 5 (July 7, 2011)).
15 power plants, the transfer of rights to generated electricity, and the construction of
new transmission lines.63 FERC’s approval of the merger was subject to its approval
of this mitigation plan.64 The companies filed a mitigation plan with FERC on
October 17, 2011 (the “First Mitigation Plan”).65 FERC rejected the First Mitigation
Plan on December 14, 2011, but gave the companies the opportunity to file a new
plan.66 The Defendants, according to the Plaintiffs, thereafter soured on the merger
and tried to get out of it without paying a termination fee.67 Progress retained
litigation counsel to enforce the merger agreement, if needed.68 Johnson,
meanwhile, kept soliciting regulatory approvals in anticipation of the fast-
approaching July 8, 2012 walk-away date.69 The Defendants knew the status of each
required regulatory approval, as they were widely reported in the trade press, the
daily press, on the Internet, and in an SEC Form 8-K filed on the day of each
approval, conditional approval, or rejection of each regulatory body.70
The companies filed a second mitigation plan on March 26, 2012 (the “Second
Mitigation Plan”) and, expecting favorable FERC action, filed with the NCUC on
May 8, 2012 a supplemental stipulation to reopen hearings on an emergency basis,
63 Id. at ¶ 57. 64 Id. 65 Id. at ¶ 58. 66 Id. at ¶¶ 59–60. 67 Id. at ¶ 60. 68 Id. at ¶ 62. 69 Id. at ¶¶ 61–62. 70 Id. at ¶ 66.
16 advising NCUC that the two companies wanted to close the merger by July 1, 2012.71
FERC approved the Second Mitigation Plan on June 8, 2012, subject to certain
conditions that required no further FERC action, and the parties informed NCUC of
this progress.72 On June 13, 2012, the NCUC Public Staff (the consumer-advocate
arm of the NCUC) agreed not to oppose the companies’ stipulation on how they
planned to comply with the FERC order;73 however, another advocacy group, “NC-
WARN,” opposed final NCUC approval and demanded the opportunity to cross-
examine Duke, Progress, and NCUC Public Staff witnesses.74
On June 25, 2012, the companies again represented to the NCUC that its
approval was an emergency because of the impending walk-away date; based upon
this representation, the NCUC reopened the hearings that same day.75 Duke
represented to the Commission that “there were no changes justifying reopening the
hearings.”76 The NCUC proceeded with the hearings to give NC-WARN an
opportunity to object.77 On June 29, 2012, the NCUC issued its final order,
approving the merger.78 The SCPSC, which had withheld approval awaiting NCUC
71 Id. at ¶¶ 63–64. 72 Id. at ¶ 65. 73 Id. at ¶ 68. 74 Id. at ¶ 69. 75 Id. at ¶ 70. 76 Id. 77 Id. at ¶ 71. 78 Id. at ¶ 72.
17 final action, gave its approval of the merger at noon on July 2, 2012.79 The merger
closed at 4:02 pm that day (the “Closing”), right after the close of financial markets.80
4. Johnson to Become CEO of Duke
Declarations of both companies—including press releases, petitions to the
NCUC and other regulators to approve the merger, testimony to the NCUC,
Securities & Exchange Commission (“SEC”) filings, proxies soliciting stockholder
approval, and the merger agreement—all stated that, following consummation of the
merger, Johnson, CEO of Progress, would become CEO of New Duke, and Rogers,
CEO of Old Duke, would become its Executive Chairman.81 This arrangement,
according to Plaintiffs, aligned with the companies’ stated strategy to “concentrate
on the regulated delivery of power to consumers, where [Progress] was strongest,
rather than energy trading, a [Duke] specialty.”82 The merger agreement explicitly
stated that Johnson was to lead implementation of that strategy. 83 An SEC Form S-
4, filed July 7, 2011, stated that the companies “viewed having Mr. Johnson as the
chief executive officer of the combined company as an important element in
ensuring implementation of [the] strategy” of the combined company: to place
79 Id. at ¶¶ 73–74. 80 Id. at ¶ 74. 81 Id. at ¶ 3. 82 Id. 83 Id.
18 “strategic emphasis on the regulated utility business.”84 The Plaintiffs contend that
this evinces that Director Defendants “plainly knew that to [Progress], Johnson
becoming CEO was a material term of the Merger Agreement.”85
5. The Night of the Closing
At the time of the Closing, Rogers and Johnson were together in Charlotte at
Duke’s headquarters.86 Just before 4:20 pm, Rogers informed Johnson that they
needed to call into a telephonic board meeting, and at 4:30 pm the newly constituted
New Duke board convened its first meeting, by telephone.87 Over the next 20
minutes, the board passed various resolutions, including the election of Johnson as
CEO and of Rogers as Executive Chairman.88 At 4:50, Gray announced that the
board was going into executive session, and Rogers and Johnson left the call.89
Three minutes later, Johnson received an email from Gray asking that he wait for
her before returning to his home in Raleigh.90
Reading from a prepared script, Gray introduced a motion to remove Johnson
and to re-install Rogers as CEO.91 No written notice, information packets, or board
84 Id. at ¶ 35 (citing Duke Energy Co., Registration Statement (Form S–4), Am. No. 5 (July 7, 2011)). 85 Pls’ Answering Br. 24 (citing Compl. ¶ 35). 86 Compl. ¶ 92. 87 Id. at ¶¶ 93–94. 88 Id. at ¶ 95. 89 Id. 90 Id. at ¶¶ 95–96. 91 Id. at ¶ 97.
19 books were distributed in advance of or at the meeting to advise of the proposed
CEO switch.92 Gray asked for discussion.93 In the discussion that ensued, none of
the Director Defendants spoke at all, until each eventually voted.94 The legacy
Progress directors, stunned by the proposal, tried to persuade the legacy Old Duke
directors from voting out Johnson.95 Gray, when asked by them to explain her
reasons, only cited Johnson’s “style” and kept repeating that Johnson was not a good
fit to lead the combined company.96 After roughly an hour, one of the legacy
Progress directors called for a vote; the ten legacy Duke directors voted in favor of
Gray’s motion, and each of the five legacy Progress directors in attendance voted
against.97
Within the hour, Gray went to Duke headquarters with a lawyer and notified
Johnson of the decision.98 She asked for his resignation, advising him that he was
still entitled to his severance package, and requested a decision by 7:00 am the
following morning.99 Johnson flew back to Raleigh, then resigned as CEO and
director of Duke effective 12:01 am on July 3, 2012.100 At 7:00 am, Duke announced
92 Id. 93 Id. 94 Id. at ¶¶ 98, 122. 95 Id. at ¶ 99. 96 Id. at ¶¶ 99, 122. 97 Id. at ¶¶ 99, 101. One legacy Progress director, Baker, was out of the country and unable to dial in for the board meeting. Id. at ¶ 95. 98 Id. at ¶ 102. 99 Id. 100 Id.
20 in a press release and Form 8-K that Duke had completed the merger and that Rogers
had been re-installed as CEO.101
6. Duke Directors Decision to Terminate Johnson
Prior to Closing, none of the Director Defendants had ever expressed concern
to anyone at Progress about Johnson’s management style, Progress’s financial
results, or whether Johnson was the right person to lead post-merger Duke.102 The
Plaintiffs allege that, starting in May 2012, the Defendants planned to fire Johnson
upon completion of the merger, without allowing the input of the legacy Progress
directors.103 They also allege that the Defendants knew that they had represented to
regulators, including the NCUC, that Johnson would be CEO.104 The Plaintiffs
allege that by failing to inform the regulators that they had changed their mind about
the CEO position, a term the merger agreement deemed material, they were
“materially misleading” those bodies.105
In support of the allegations that the decision to terminate Johnson was
reached in May 2012, the Plaintiffs point to a series of actions taken by the
Defendants.106 On May 3, 2012, the Old Duke board went into executive session to
discuss the possibility of removing Johnson as CEO of the post-merger New
101 Id. 102 Id. at ¶ 76. 103 Id. at ¶ 77. 104 Id. at ¶ 78. 105 Id. at ¶¶ 79–80. 106 Id. at ¶¶ 81–85.
21 Duke.107 Between May 3 and May 17, 2012, Gray discussed the possibility of
Johnson’s removal with each Defendant.108 Between May 3, and May 21, 2012,
Gray engaged outside counsel and a communications firm, and chaired a Board
Governance Committee meeting, for the purpose of orchestrating the CEO switch.109
On May 30, 2012, the Defendants, again in executive session, further discussed a
CEO switch, deciding not to discuss the matter with the Progress board and to defer
Johnson’s removal.110 Gray had further discussions with each of the Defendants in
mid-June regarding Johnson’s removal as CEO.111 Rogers was advised by Gray on
June 23, 2012, and Browning on June 24, 2012, that the Old Duke board had
concluded Johnson was not the best person to lead post-merger New Duke, and they
asked Rogers if he would accept the position of CEO if asked; Rogers said “yes.”112
The Plaintiffs contend that Defendants’ failure to notify the regulatory
agencies of the planned CEO switch constituted a violation of North Carolina law,
which prohibits giving false information or “willfully withhold[ing] clearly specified
and reasonably obtainable information” from the NCUC.113 In support of this
accusation, the Plaintiffs point to Rogers’s admission that the issue of what would
107 Id. at ¶ 81. 108 Id. 109 Id. 110 Id. 111 Id. 112 Id. at ¶ 84. 113 Id. at ¶ 86 (citing N.C.G.S.A. § 62-326).
22 be the regulators reaction a CEO switch came up in the Old Duke board’s discussion
of Johnson’s removal.114 The Defendants, according to the Plaintiffs, also concealed
their intentions from the investing public by releasing on June 29, 2012 a press
statement and filing an 8-K with the SEC, omitting the planned CEO switch.115
7. Regulators’ Reactions to the Change in CEO
Following the CEO change, three top legacy Progress executives resigned in
protest, including Paula Sims, who was to have played a key role on the Integration
Team.116 Standard & Poors Bond Rating Service (“S&P”) placed Duke’s debt on
“watch for a possible downgrade” because of the “abrupt change in executive
leadership,” and negatively changed its outlook on a possible upgrade of Progress
debt based on the “sudden shift in management.”117 On July 25, 2012, S&P lowered
Duke’s credit rating from A- to BBB+ with a negative outlook, based on heightened
regulatory risk.118
The NCUC began a highly publicized investigation into Duke on July 6, 2012,
requiring testimony from several key players, including Rogers, Gray, Johnson,
McKee, and Hyler.119 The North Carolina Attorney General also commenced an
114 Id. at ¶ 88. 115 Id. at ¶ 87. 116 Id. at ¶ 111. 117 Id. at ¶ 113. 118 Id. at ¶ 120. 119 Id. at ¶ 114.
23 investigation.120 In his testimony before the NCUC, Rogers revealed that the
question of what would be the reaction of regulators to the CEO switch had come up
in discussion among the Old Duke board members prior to the Closing.121
Gray, in her testimony before the NCUC, gave additional reasons for her
motion to remove Johnson as CEO, beyond the sole reason recited before the July 2,
2012 vote, that is, that Johnson was not a “good fit” to run the combined company.122
The first additional reason for removing Johnson was his handling of repairs and an
insurance claim related to Progress’s Crystal River 3 nuclear facility in Florida.123
The Plaintiffs point to differing testimony from Gray and Rogers regarding the
problem Duke had with Crystal River 3.124 Rogers testified that Johnson was
spending Progress funds on repairing the plant, which compromised Duke’s ability
to make a “repair versus retire” decision.125 Gray testified that the problem was that
the repair itself was behind schedule in getting back to power production, and that
Johnson was slow to act regarding an insurance claim for the facility.126 Gray’s
second stated reason for moving to remove Johnson as New Duke CEO was the
condition of the rest of Progress’s nuclear fleet, other than the Crystal River 3
120 Id. 121 Id. at ¶ 116. 122 Id. at ¶¶ 99, 122. 123 Id. at ¶ 105. 124 Id. 125 Id. 126 Id.
24 facility.127 The final reason was Progress’s financial results, which were slightly
below the projections they had previously provided to Duke.128 The Plaintiffs
contend that these additional reasons are merely “pretexts” that are “made up now
as self-justification for [the Defendants’] wrongdoing.”129 On July 27, 2012, legacy
Progress directors Baker and Stone resigned in protest over the actions of the
Director Defendants on the evening of the Closing.130 Stone, in her resignation letter,
expressed her view that the decision by the Director Defendants to remove Johnson
as CEO was premeditated.131
D. Procedural History of this Action
The Plaintiffs filed their initial complaint on July 17, 2012 and an amended
complaint (the “Complaint”) on July 30, 2012. In Count One of their Complaint,
the Plaintiffs allege that the Director Defendants breached their fiduciary duties of
loyalty and care through a series of acts: conspiring to breach the merger agreement,
and concealing that planned breach, until consummation of the merger; knowingly
permitting the Company to conceal its planned switch in CEO from Progress and the
NCUC and other governmental and regulatory bodies; knowingly violating the laws
of North Carolina and other laws; and “failing, through fear, sloth, cronyism,
127 Id. at ¶ 106. 128 Id. at ¶ 107. 129 Id. at ¶ 104. 130 Id. at ¶ 121 131 Id. at ¶ 122.
25 misplaced collegiality, or other insupportable motives, to resolve at an earlier date,
any issues or misgivings that they had with Johnson’s prospective leadership.”132
In Count Two, the Plaintiffs allege that the Director Defendants breached their
fiduciary duties of loyalty and care through the following acts: knowingly
disregarding those fiduciary duties by shutting off input from the legacy Progress
directors regarding Johnson; knowingly breaching the merger agreement in
furtherance of the conspiracy pled in Count One; knowingly violating
representations made to Duke stockholders and the NCUC and other regulatory
bodies; knowingly and recklessly jeopardizing Duke’s standing and reputation with
credit agencies, the NCUC, and other regulatory bodies; knowingly incurring
liability for severance pay; and “recklessly incurring public opprobrium, injuring the
public reputation of [Duke] and subjecting it to public ridicule.”133
As of the date the Complaint was filed, the New Duke board consisted of 17
members, 11 of which are named as defendants in this action. Accordingly, the
Plaintiffs allege that a pre-suit demand on the board would have been futile.
On August 13, 2012, Defendants filed a motion to dismiss the Complaint.
Before briefing commenced, the Plaintiffs engaged in a leadership contest with the
plaintiffs of several other derivative suits filed in Delaware based on the same core
132 Id. at ¶ 133. 133 Id. at ¶ 136.
26 set of facts. Ultimately, the Court appointed Bernstein as sole lead plaintiff by order
entered August 12, 2013.
On December 23, 2013, the Court stayed this action pending resolution of a
factually related consolidated federal securities suit (the “Nieman Action”)134 before
the United States District Court for the Western District of North Carolina. On
November 6, 2015, following resolution of the Nieman Action,135 the Court entered
an order lifting the stay and governing briefing on Defendants’ motion to dismiss.
The case was reassigned to me on March 9, 2016, due to Vice Chancellor Noble’s
retirement, and I heard oral argument on May 9, 2016. This Memorandum Opinion
addresses Defendants’ motion.
E. Actions in Other Courts
Derivative suits concerning the same core set of facts were also filed in other
jurisdictions: (1) the Neiman Action, described above; (2) two suits in U.S. District
Court, Delaware District, consolidated as Tansey v. Rogers, C.A. No. 12-1049-RGA
(the “Tansey Action”);136 and (3) one suit in North Carolina state court (the “Krieger
Action”).
Joel Krieger, a Duke stockholder, filed the Krieger Action in the Superior
134 Nieman v. Duke Energy Corp., Civ. Docket No. 312-cv-00456-MOC-DSC (W.D.N.C.) 135 The Nieman Action settled and was resolved by order entered on November 2, 2015. Duke paid $146 to the stockholder class pursuant to the settlement agreement. 136 The proceedings in the Tansey Action were also stayed pending resolution of the Nieman Action.
27 Court of North Carolina on July 20, 2012. The case was designated to the North
Carolina Business Court, a specialized forum for complex commercial and corporate
litigation. In that action, Krieger alleged breaches of the fiduciary duties of loyalty
and good faith and corporate waste by the ten Director Defendants, unjust
enrichment by Johnson, and aiding and abetting breaches of fiduciary duty by
Rogers.137 As in this action, Krieger did not make a demand on the board. Instead
he alleged that a majority of the board was incapable of “disinterestedly and
independently considering a demand” because the director defendants faced a
substantial likelihood of personal liability “for breaching their fiduciary duties and
wasting corporate assets by terminating Johnson and paying him a $44 million
severance package,” and because the facts raised a “reasonable doubt” as to whether
the decision was a valid exercise of business judgment.138
The Krieger defendants moved to dismiss the complaint for failure to make a
demand and failure to state a claim.139 The Krieger court issued an opinion in April
2014, applying Delaware law, granting the defendants’ motion to dismiss, holding
that “[p]laintiff’s failure to make a presuit demand relative to any derivative claims
in [Krieger] was not excused.”140
137 Krieger, 2014 WL 1759054, at *1. 138 Defs’ Opening Br., Transmittal Aff. of Susan Waesco, Esq., Ex. D (Krieger complaint) ¶ 62. 139 Krieger, 2014 WL 1759054, at *3. 140 Id. at *8
28 The court closely analyzed Krieger’s demand futility arguments under
Delaware law. The basis for Krieger’s argument that the director defendants were
interested or lacked independence due to a substantial likelihood of personal
liability, was the amount and timing of the severance payment made to Johnson.141
The court found that it could not “conclude that the amount of Johnson's severance
and its timing give rise to a substantial likelihood of director liability.”142 The basis
for the argument that the director defendants’ actions were not a valid exercise of
business judgment was “that the decision by the Director Defendants to approve the
severance payments to Johnson could not have been the product of a valid exercise
of business judgment because those payments amount to corporate waste.”143 After
discussing Delaware’s standard for waste, the court found that conclusory
allegations that Duke received nothing of value from Johnson were insufficient,
especially in light of the fact that the severance provided for “(a) a release of claims
against Duke; (b) an agreement to cooperate with Duke in respect to transition
matters and (c) non-competition, non-solicitation, non-disparagement and
confidentiality covenants.”144 The court found it could not conclude “that what Duke
received in consideration for the severance payments to Johnson was so inadequate
141 See id. at *5. 142 Id. 143 Id. at *7. “Thus, according to Plaintiff, reasonable doubt as to whether the severance payments to Johnson were the product of a valid exercise of business judgment may be raised by its allegations that those payments amounted to waste.” Id. 144 Id. at *7–8.
29 that no person of ordinary, sound business judgment would deem it worth the amount
paid.”145 Finally, the court found that “in the context of the [Krieger] action,
Plaintiff's allegations of waste do not provide sufficient basis to doubt that the action
was taken honestly and in good faith.”146
II. ANALYSIS
The Defendants move to dismiss the Complaint pursuant to Court of Chancery
Rules 23.1 and 12(b)(6). The Defendants first argue that the Plaintiffs are
collaterally estopped from relitigating the demand-futility issue, as it was previously
determined against the plaintiff in the Krieger Action, who stands in privity with the
Plaintiffs here. As a result, according to the Defendants, I must find that the
Plaintiffs lack standing here and dismiss. Because it is potentially dispositive, I
consider this collateral estoppel argument first.
A. Collateral Estoppel and the Krieger Action
The preclusive effect of an earlier judgment is determined by the law of the
forum in which the judgment was entered.147 Accordingly, because the Krieger
Action was adjudicated in North Carolina, the Court must apply that state’s law to
determine the preclusive effect of the dismissal order in that case.
145 Id. at *8. 146 Id. (emphasis added). 147 Pyott v. La. Mun. Police Emps.’ Ret. Sys., 74 A.3d 612, 617 (Del. 2013).
30 Under North Carolina law, “the determination of an issue in a prior judicial or
administrative proceeding precludes the relitigation of that issue in a later action,
provided the party against whom the estoppel is asserted enjoyed a full and fair
opportunity to litigate that issue in the earlier proceeding.”148 “Like res judicata,
collateral estoppel only applies if the prior action involved the same parties or those
in privity with the parties and the same issues.”149
Here, the Plaintiffs, like the plaintiff in the Krieger Action, seek to sue
derivatively on behalf of Duke, a right adjunct to their status as common
stockholders of Duke. They purport to act for the corporation of which they are part
owners, and their interests in recovery on behalf of that corporation, which would
indirectly inure to their benefit as stockholders, are identical. The Defendants
concede that the issue of privity among common stockholders bringing separate
derivative claims has not been decided in North Carolina,150 but point out that the
courts of that state find that “[p]rivity exists where one party is so identified in
interest with another that [it] represents the same legal right [as the other].”151 The
Defendants argue, and I agree, that application of such a policy necessarily would
lead to a finding of privity between the Plaintiffs here and the plaintiff in the Krieger
148 Whitacre P’ship v. Biosignia, Inc., 591 S.E.2d 870, 880 (N.C. Ct. App. 2004). 149 Cline v. McCullen, 557 S.E.2d 588, 590 (N.C. Ct. App. 2001). 150 Defs’ Opening Br. 19. 151 Id. at 20. (citing Brower v. Killens, 472 S.E.2d 33, 35 (N.C. Ct. App. 1996) (internal quotation marks omitted); see generally State v. Summers, 528 S.E.2d 17 (N.C. 2000) (discussing theory of privity in context of issue preclusion).
31 Action. Such a finding would be consistent with the case law from numerous
jurisdictions that have addressed the issue.152 Having found privity, I apply the
North Carolina analysis of collateral estoppel.
Under North Carolina law, issue preclusion only obtains where the issues
presented are common in both actions. This “identity of issues” requires that:
(1) [t]he issues to be concluded [are] the same as those involved in the prior action; (2) in the prior action, the issues [were] raised and actually litigated; (3) the issues must have been material and relevant to the disposition of the prior action; and (4) the determination made of those issues in the prior action [was] necessary and essential to the resulting judgment.153
If any of the four prongs are not satisfied, collateral estoppel does not apply. Here,
the Defendants argue that the issue of whether demand was futile with respect to the
allegations of wrongdoing in the instant complaint was presented to the Krieger
court and was actually litigated, and that the court found that demand was not
excused, which is both material to, and necessary and essential to, the resulting
judgment. I find the Defendants correct in part.
The Krieger complaint sought to recover for waste or breach of duty in
connection with the entry of an employment agreement with Johnson shortly before
the merger, and the discharge of Johnson immediately thereafter, resulting in
152 See Pyott, 74 A.3d at 617 n.18 (aggregating cases). 153 King v. Grindstaff, 200 S.E.2d 799, 806 (N.C. 1973); see Summers, 528 S.E.2d at 20 (stating test).
32 millions of dollars of contractual obligation to Johnson. Any cause of action relating
to those facts was an asset of Duke, which the Krieger plaintiff sought to bring
derivatively. The discretion to pursue choses in action, however, resides with the
board of directors, and Court of Chancery Rule 23.1 provides that demand must be
made on the board before a stockholder has standing to proceed derivatively. 154
Where—as in the Krieger Action and the instant case—the stockholder–plaintiff
forgoes demand and seeks to proceed with derivative litigation nonetheless, the
action will be dismissed unless the plaintiff can demonstrate that demand is futile.155
The Krieger court, addressing Duke’s motion to dismiss, considered demand futility
under Delaware law. The court noted that under the applicable rule announced in
Aronson v. Lewis,156 demand will be excused where particular facts pled raise a
reasonable doubt of director independence or disinterestedness, or reasonable doubt
that the directors exercised proper business judgement in making the decision
challenged.157 With respect to the first prong, the Krieger plaintiff argued that the
director defendants were substantially likely to be held liable for breach of duty or
waste for “terminating Johnson and paying him a $44 million severance package.”158
154 Park Emps.' & Ret. Bd. Emps.' Annuity & Benefit Fund of Chicago v. Smith, 2016 WL 3223395, at *8 (Del. Ch. May 31, 2016). 155 Id. 156 473 A.2d 805 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). 157 Krieger, 2014 WL 1759054, at *5. 158 Id. (quoting the Krieger complaint).
33 The court found, however, that it could not conclude that “a substantial likelihood
of director liability” arose under those facts.159 Turning to the “business judgement”
prong of Aronson, the court addressed the plaintiff’s argument that the decision to
approve a severance payment for Johnson, then fire him, was waste, and by
definition outside of business judgement. The court found that plaintiff’s waste
allegations—arising from the firing of Johnson, resulting in the obligation to pay
him millions of dollars severance—“do not provide sufficient basis to doubt that the
action [by the defendants] was taken honestly and in good faith.”160 The Krieger
court accordingly dismissed the complaint under Rule 23.1. To the extent the instant
complaint seeks to recover for waste or breach of duty arising from the decisions by
the Director Defendants to enter a contract with Johnson, under which discharge
would obligate Duke to the payment of millions of dollars in severance—and,
shortly thereafter, to fire him161—the Plaintiffs’ argument that demand is excused
with respect to such claims is estopped by the court’s decision in Krieger. I find that
all factors of the North Carolina collateral-estoppel test are satisfied, and that such
claims must be dismissed here, for lack of standing under Rule 23.1.
159 Id. The Krieger court also rejected an argument that failure to follow aspirational employment goals stated in a Duke proxy posed a reasonable likelihood of direct liability. Id. at *6. 160 Id. at *8. 161 See Compl. ¶¶ 131, 136.
34 Substantial allegations of the instant complaint do not involve that issue,
however. The Plaintiffs here allege that, before the merger, the Director Defendants
had reached a conclusion that—despite the contractual obligations of the merger
agreement, and despite contrary representations, including to the NCUC—Rogers,
and not Johnson, was to be CEO of New Duke. Nonetheless, the Director
Defendants concealed this fact, did not correct the now-misleading disclosure to the
NCUC, and represented to that body that no facts had changed requiring a further
hearing. According to the Complaint, the NCUC approved the merger, presumably
in reliance on these misrepresentations, with damages resulting once the facts came
out shortly after. According to the Complaint, at least with respect to the failure to
correct the misrepresentation to the NCUC, the Director Defendants violated
positive law. Thus, argue the Plaintiffs, the actions and inaction of the Director
Defendants in this regard were in bad faith, and demand on these Defendants is
accordingly excused.
I find that the Plaintiffs here are not collaterally estopped from litigating that
issue under the decision in the Krieger Action. The issue of demand excusal arising
from violation of positive law was not decided by that court. The parties argue
whether this bad-faith ground to avoid demand was raised and litigated in Krieger.162
162 The Defendants argue that directorial bad faith was raised, at least obliquely, in the Complaint. The Plaintiffs assert that, in any event, the defendants argued in the Krieger Action that the court should focus only on the allegations of that complaint alleging waste/breach of duty with respect
35 I need not resolve that issue, because, under North Carolina law, issues are not
precluded in subsequent litigation unless “the determination made of those issues in
the prior action was necessary and essential to the resulting judgment.”163 As I have
described above, the Krieger court did not address this ground in dismissing the
action under Rule 23.1.
Contrasting the claims in the Krieger Action and here makes that clear. The
waste/breach-of-duty claim in the Krieger Action occurred when Johnson was
terminated, and New Duke incurred loss or liability thereby. No positive law was
implicated by that board action, but common-law duties, allegedly, were violated.
In that context, the Krieger court evaluated whether the Director Defendants could
exercise business judgment in determining whether to pursue that claim. The
Krieger claim accrued at the time of the firing, on July 2, 2012. 164 With respect to
the claim here that the Director Defendants violated positive law, the scenario is
different. The gravamen of this portion of Plaintiff’s Complaint is that the Director
Defendants came to a decision to fire Johnson, but failed to inform the NCUC that
prior facts represented to that body were now, accordingly, false; further, they
to damages resulting from Johnson’s discharge, and that the Krieger court’s opinion did just that; as a result, the Plaintiffs argue, the defendants should be judicially estopped from arguing that other issues were considered in the Krieger Action for purposes of issue preclusion. In light of my decision that collateral estoppel does not apply to the claim of violation of positive law, I need not reach this contention. 163 King, 200 S.E.2d at 806 (emphasis added). 164 As stated above, to the extent this Complaint seeks to vindicate a similar claim, no matter how much better or persuasive the pleadings, the Plaintiffs are collaterally estopped.
36 caused Duke to represent positively to the NCUC that no facts had changed.
Presumably, that claim accrued when the latter false representation was made, or at
least when the NCUC approved the merger in reliance on the false representation.
The issue of whether demand is excused in connection with this scenario turns on
director bad faith (as discussed below), not on potential liability for waste or breach
of duty as formed the decision of the Kreiger court. The cases are not “grounded on
the same gravamen of the wrong,” and the issues presented are not identical.165
I note that this is a different situation from recent cases where this Court has
found prior dismissals under Rule 23.1 preclusive.166 Those cases involved
complaints with much more persuasive or factually dense pleadings regarding
potential underlying liability than in the similar actions previously dismissed. The
resulting decisions hold that where an issue was presented, and rejected, by a first
court, the issue is precluded before a second tribunal, regardless of the fact that the
second complaint may plead facts that make the proposition advanced more likely
165 Laborers’ District Council Constr. Indus. Pension Fund and Hallandale Beach Police Officers and Firefighters’ Personnel Ret. Fund v. Bensoussan, 2016 WL 3407708, at *9 (Del. Ch. June 14, 2016) (quoting Robert L. Haig, Commercial Litigation in New York State Courts § 93:3 (4th ed. 4C West’s N.Y. Prac. Series 2015). 166 See e.g., Bensoussan, 2016 WL 3407708, at *9; In re Wal-Mart Stores, Inc. Delaware Derivative Litig., 2016 WL 2908344, at *10–11 (Del. Ch. May 13, 2016) (rejecting plaintiffs’ attempt to relitigate demand futility on the theory that the “allegations in the Delaware Complaint are more detailed, specific, and extensive than those in the Arkansas Complaint”); Asbestos Workers Local 42 Pension Fund v. Bammann, 2015 WL 2455469, at *15–20 (Del. Ch. May 21, 2015) (finding that adding additional or more compelling facts to the same underlying claim does not allow a plaintiff to relitigate demand futility).
37 or persuasive. While state laws vary on application of issue preclusion, the
overarching theory is that efficiency and fairness preclude serial litigation of a single
issue. Here, by contrast, although the causes of action arise, in the instant case and
in the Krieger Action, from facts related to the Duke–Progress merger and the
discharge of Johnson, the cause of injury alleged here is discrete from that in the
Krieger Action, and argument that demand is excused proceeds on unique grounds.
In this particular scenario, under North Carolina law, the issues decided there are not
identical to those here, and collateral estoppel does not apply to this subset of the
Plaintiffs’ claims.
The Chancellor’s recent decision in In re Wal-Mart Stores, Inc.167 is
illustrative by contrast. That case involved Arkansas law, which imposed a test for
collateral estoppel similar to the North Carolina test. The issue in the dismissed
Arkansas action, considered in Wal-Mart, was whether demand would be futile with
respect to litigation concerning oversight of the so-called “WalMex bribery,” based
on allegations of director liability due to knowledge of the bribery cover-up and
related actions. “Although certain factual details surface in one complaint and not
the other, the core demand futility issue . . . is the same. [Both actions] focus on
167 2016 WL 2908344 (Del. Ch. May 13, 2016).
38 whether the Demand Board is disabled from deciding whether to initiate litigation .
. . in the WalMex bribery scheme and cover-up . . . .”168
Similarly, in Asbestos Workers v. Bammann,169 this Court addressed another
oversight claim, there asserted against directors who had failed to curb risky trading
by a unit of J.P. Morgan Chase & Co. A prior New York action had dismissed a
similar action for failure to demonstrate demand futility. The court identified the
issue decided in New York thus: “whether a majority of the [c]ompany’s directors
face a substantial likelihood of personal liability for failure to oversee risk
undertaken by the [unit].”170 The court found the same issue in the Delaware matter
precluded, notwithstanding an expanded and more persuasive factual pleading in the
Delaware complaint.
By contrast, the allegations in the instant case involve whether the Director
Defendants made a conscious decision to mislead regulators in violation of positive
law, and are able to evaluate whether to authorize their corporation to pursue
damages therefrom. The Krieger Action, however, involved whether the defendants
could independently consider a waste claim. To my mind, although the replacement
of Johnson as CEO underlies both, and unlike the issues in the cases discussed above,
168 Id. at *10. 169 2015 WL 2455469 (Del. Ch. May 21, 2015). 170 Id. at *17.
39 these are fundamentally different issues. There is insufficient identity to invoke the
doctrine of collateral estoppel.
I note that this decision should not open the door to artful crafting by plaintiffs
of new causes of action based on a single factual scenario in an attempt to avoid
collateral estoppel. The interests of efficiency and finality (and, with respect to
litigation in different jurisdictions, comity) require a practical view of the issues
presented, to preclude such gamesmanship.171 This unusual case pushes the limits
of such an analysis.
Based on the findings above, I must now evaluate the Defendants’ motion to
dismiss for failure to make a demand.
B. The Demand Requirement Under Rule 23.1.
I have already alluded above to the purposes and requisites of establishing
standing in compliance with Rule 23.1. Briefly, under Delaware law, a corporation’s
“directors, rather than [its] stockholders, manage the business and affairs of the
corporation.”172 This control extends to a corporation’s assets, including its choses
in action. Accordingly, an “individual stockholder intending to bring a suit
derivatively on behalf of his corporation [must] first make a demand that the board
of directors pursue the cause of action, or demonstrate that the board, as then
171 See Bensoussan, 2016 WL 3407708, at *6–9 (discussing limits of issue preclusion). 172 Aronson, 473 A.2d at 811.
40 constituted, would be incapable of acting in the corporate interest, thus excusing
demand.”173
The Plaintiffs here have alleged that making a demand on the New Duke board
was futile, and the Company opposes their efforts to pursue this litigation.
Therefore, to avoid dismissal under to Rule 23.1, the Plaintiffs’ Complaint must
“allege with particularity . . . the reasons . . . for not making the effort [to make the
litigation demand],”174 and the Court, in turn, must determine based on those
allegations whether the board is able to exercise its business judgment in determining
if it is in the corporate interest to pursue the litigation.175
The Delaware Supreme Court has established two tests for assessing demand
futility, applicable depending on the facts of the case, as set out in Rales v.
Blasband176 and Aronson v. Lewis; fundamentally, however, both tests address the
same question of whether the board can exercise its business judgment on the
corporate behalf.177 The parties agree in briefing that the test articulated in Aronson,
which applies “when a derivative plaintiff challenges an earlier board decision
173 Park Emps., 2016 WL 3223395, at *1. 174 Ct. Ch. R. 23.1. 175 See In re China Agritech, Inc. S’holder Derivative Litig., 2013 WL 2181514, at *14 (Del. Ch. May 21, 2013) (following Stone v. Ritter, 911 A.2d 362, 367 (Del. 2006)). 176 634 A.2d 927 (Del. 1993). 177 Park Emps., 2016 WL 3223395, at *8 n.73 (citing Sandys v. Pincus, 2016 WL 769999, at *6 (Del. Ch. Feb. 29, 2016)); China Agritech, 2013 WL 2181514, at *16 (“The Aronson and Rales [tests] have been described as complementary versions of the same inquiry.”).
41 made by the same directors who remain in office at the time the suit is filed,” 178 is
the proper test to apply under the facts of this case. It is unclear how I can apply
Aronson here, however. The allegations of the Complaint (to the extent not
collaterally estopped) state that the Director Defendants caused Duke to make
representations, including to NCUC, that Johnson would be CEO of New Duke.
This “decision,” if it can be characterized as such, is not alleged to have been
wrongful when made. At some point prior to the merger, according to the
Complaint, the Director Defendants decided—without a formal meeting—that
Johnson was unfit to serve, and that they would install Rogers instead. Again, this
is not in itself wrongful. It is failing to correct the now inaccurate former disclosures
and representations, and informing the NCUC that "there were no changes justifying
reopening the hearings"179—knowing nonetheless that Johnson would be removed—
that the Plaintiffs allege amounted to bad faith.
Our case law indicates that where Aronson is inapplicable, the test in Rales
applies to the demand-excusal analysis.180 Because, as a fortuity, Aronson was
decided before Rales, and because Aronson was applicable to only a subset of
demand-excusal situations, our Supreme Court filled the void—where Aronson by
its terms was not rationally applicable—with the test in Rales. As a matter of
178 China Agritech, 2013 WL 2181514, at *15 (emphasis added). 179 Compl. ¶ 70. 180 Rales, 634 A.2d at 933–35.
42 doctrine, Rales is better thought of as the general test, with Aronson indicative of its
application in a specific context.181 The struggle to categorize the board actions and
inactions alleged here—as better considered under Aronson or under Rales—shows,
to my mind, the folly of regarding those two analysis as the components of a binary
choice.182 Demand is excused where the particularized facts pled raise a reasonable
doubt that the board on which demand would be made could exercise its business
judgment on behalf of the company in evaluating the demand. That is the test set
out in Rales: “whether there is a reason to doubt the impartial[ity] of the directors,
who hold the authority under 8 Del. C. section 141(a) to decide [for the corporation]
whether to initiate, or refrain from initiating, litigation.”183 I employ that test here,
although the outcome would be no different if I employed the second prong of
Aronson.
Under the business judgment rule, directors may act on behalf of the
corporation, free of judicial second-guessing and resulting liability, so long as they
act within the constraints of their fiduciary duties. Actions of disinterested directors
are presumed under the rule to have been taken in the corporate interest and in good
faith, unless that presumption of business judgment is rebutted. This is true with
respect to the decision that would have faced the Director Defendants had demand
181 See Sandys, 2016 WL 769999, at *11–13 (discussing utility of Aronson and Rales). 182 See id. 183 Id. at *13 (internal quotations omitted) (alterations in original).
43 been made, as well as their underlying decisions184 involved in the demand. A
director cannot exercise business judgment, however, where she is asked to
authorize litigation in which her prior actions will be scrutinized for liability, and
where those actions were not entitled to the protection of the business judgment rule.
Actions taken in bad faith are not entitled to such protection. As a result, “it is
generally accepted that a derivative suit may be asserted by an innocent stockholder
on behalf of a corporation against corporate fiduciaries who knowingly caused the
corporation to commit illegal acts” causing corporate harm. 185 Here, the Plaintiffs
argue, with respect at least to the representations by Duke to the NCUC, that the
Director Defendants are without business-judgement protection. I agree that, as
pled, a reasonable doubt exists that the business-judgment presumption applies, and
thus that demand would be futile here.
It is a rare case where directors who are disinterested and independent have
acted in a way which deprives them of business-judgement protection; nonetheless,
such a case is pled here. The pertinent facts as alleged, supported by reasonable
inferences therefrom, are as follows. The Director Defendants caused Old Duke to
enter a merger agreement with Progress, a material and negotiated term of which
was that the CEO of Progress, Johnson, would serve as CEO of New Duke. The
184 There is no allegation that the independent Director Defendants had any pecuniary interest in the decision to discharge Johnson. 185 In re Am. Intl’l Grp., Inc. Consol. Derivative Litig., 976 A.2d 872, 889 (Del. Ch. 2009).
44 Director Defendants allowed Duke to disseminate this fact, including via a
representation to the NCUC that Johnson would serve as CEO. Permission for the
merger from the NCUC, as well as other regulatory bodies, was a condition of the
merger. The Director Defendants were aware that, via testimony at a hearing before
the NCUC or otherwise, the representation concerning Johnson as CEO was
communicated to the NCUC.
During the eighteen-month period in which regulatory approval, and thus the
merger itself, was pending, the Director Defendants had second thoughts regarding
Johnson. They concluded he was unfit to serve as New Duke CEO. This
undoubtedly put the Old Duke board in a bind. At stake was a $13.7 billion merger,
of which CEO designation was a material and negotiated term. According to the
Director Defendants, they took their responsibilities seriously, hiring counsel to
represent them as they considered their alternatives.186 Those alternatives, I assume,
included an attempt to renegotiate or avoid the merger—risking loss of merger
benefits and liability for a break-up fee—and accepting the unfit Johnson as CEO,
among perhaps other unpalatable paths available. Ultimately, the Complaint alleges
that the Director Defendants made a decision to replace Johnson with their own
186 The Director Defendants cite to a matter outside the Complaint, an affidavit filed by Ann Gray with the NCUC as part of the hearings investigating the alleged misrepresentations to that body. The parties hotly dispute whether and to what extent evidence presented in that proceeding can be relied on here, but I do not find it necessary to my decision in any event.
45 CEO, Rogers. To minimize the risk of that decision on the merger itself, the Director
Defendants did not announce their decision to Progress or to the public. They did
not amend their proxy statements,187 nor did they inform the regulatory bodies whose
approval was a requisite to the merger. They met with Johnson and negotiated an
employment agreement, presumably to conceal the fact that he would not be
employed post-closing, while at the same time ensuring that Rogers was willing to
serve as CEO. Once the merger was consummated, the New Duke board, controlled
by the Director Defendants, met and officially appointed Johnson as CEO, as
required by the letter of the merger agreement. Immediately thereafter, Gray called
the meeting into executive session, and Johnson was instructed to remain available.
For the first time, the legacy Progress directors, who composed a minority of the
New Duke board, were told that Johnson was unacceptable to the Director
Defendants. They reacted with shock. An hour or more of discussion ensued, during
which the legacy Progress directors attempted to make the case for Johnson as CEO.
The Director Defendants, according to the Complaint, did not participate, and the
only reason given for Johnson’s discharge was that he was not a “good fit.”
Ultimately, the New Duke board voted, strictly along legacy lines, to discharge
187 It is an oddity of this case, involving a merger of two utilities, that the stockholders of both companies approved the merger on August 23, 2011, but that closing, reliant as it was on regulatory approval, did not take place until July 2, 2012. In other words, the decision by the Director Defendants to employ Rogers and not Johnson as CEO was made after the stockholders vote, and the proxies were not misleading as of that time.
46 Johnson. Within an hour of the meeting, Gray met Johnson at Duke headquarters to
advise Johnson of the board’s decision and demand his resignation. Johnson’s
resulting resignation took effect at one minute past midnight.
The merger could not proceed without permission from, among others, the
FERC and the NCUC. The NCUC deferred action until the FERC agreed to the
merger. By the time that permission was forthcoming, the “walk-away” date—after
which the merger could terminate—was fast approaching. After the FERC agreed
to the merger, in light of the exigencies of time, Duke requested expedited action
from the NCUC. On the eve of the merger, it represented that "there [had been] no
changes justifying reopening the hearings" following the initial public hearings,
which closed on September 22, 2011; the company did not otherwise disclose the
Director Defendants’ decision to replace Johnson with Rogers as CEO.188 The
NCUC gave permission for the merger, which then closed.
By North Carolina statute, entitled “Furnishing false information to the [North
Carolina Utility] Commission; withholding information from the Commission”:
(a) Every person, firm or corporation operating under the jurisdiction of the Utilities Commission or who is required by law to file reports with the Commission who shall knowingly or willfully file or give false information to the Utilities Commission in any report, reply, response, or other statement or document furnished to the Commission shall be guilty of a Class 1 misdemeanor.
188 Compl. ¶¶ 69–70.
47 (b) Every person, firm, or corporation operating under the jurisdiction of the Utilities Commission or who is required by law to file reports with the Commission who shall willfully withhold clearly specified and reasonably obtainable information from the Commission in any report, response, reply or statement filed with the Commission in the performance of the duties of the Commission or who shall fail or refuse to file any report, response, reply or statement required by the Commission in the performance of the duties of the Commission shall be guilty of a Class 1 misdemeanor.189
After the substitution of Rogers for Johnson was made public, shortly after
the merger, the NCUC, believing itself traduced, commenced hearings into the
representations at issue here. The North Carolina Attorney General also began an
investigation. Damages, reputational and financial, allegedly resulted.
Directors in Delaware corporations are presumed to act in good faith, for the
benefit of their corporation. It is never good faith, however, to knowingly cause a
Delaware corporation to violate positive law.190 “Although directors have wide
authority to take lawful action on behalf of the corporation . . . . Delaware corporate
law has long been clear on this rather obvious notion; . . . it is utterly inconsistent
with one’s duty of fidelity to the corporation to consciously cause the corporation to
act unlawfully.”191 The particularized allegations here, together with the reasonable
inferences therefrom, if true, raise a reasonable probability that Duke violated the
law, and thus demonstrate bad faith. Energy utilities are heavily regulated concerns,
189 N.C. Gen. Stat. Ann. § 62-326 (emphasis added). 190 In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 66–67 (Del. 2006). 191 Desimone v. Barrows, 924 A.2d 908, 934 (Del. Ch. 2007).
48 as illustrated by the fact that this merger required approval of both federal (FERC)
and state (among others, NCUC) regulatory bodies. It is a reasonable inference that
the Director Defendants knew that the NCUC would consider the identity of the
initial chief executive of the combined entity material to its decision, as its
subsequent reaction to being misled demonstrates. The Director Defendants knew
that Duke had represented that that person would be Johnson.
The Complaint alleges that, before the merger, the Director Defendants had
decided to discharge Johnson, and thus knew that the uncorrected representation
concerning the CEO (and the representation that “there were no changes justifying
reopening the hearings")192 to the NCUC were false, and in violation of positive law,
including Section 62-326 quoted above. The Director Defendants argue that this
pleading is merely conclusory, and suggest that they had not decided to strong-arm
the New Duke board into firing Johnson. Instead, they genuinely desired the input
of their fellow directors—the Progress legacy directors—before making this
decision. Of course, if that is true, it would have been wise to give those directors
some indication that this subject would be broached, rather than blind-siding them
as actually occurred.193 At any rate, this is a motion to dismiss. It is entirely possible
192 Compl. ¶ 70. 193 To the extent that the Plaintiffs attempt to argue that the Director Defendants acted with bad faith based on lack of notice to the legacy Progress directors that the CEO issue would be raised at the first New Duke board meeting, that cause of action is not sufficiently alleged in the Complaint, and I do not consider it here.
49 that, upon a developed record, the true actions of the Defendants will be vindicated.
The pleadings are sufficient, at this stage, however, to support the inference that the
Director Defendants’ decision had been made well before the merger closed.
Members of the Old Duke board had contacted Rogers to ensure that he was willing
to serve as CEO. As mentioned, the legacy Progress directors were given no
opportunity to prepare information supportive of Johnson. Tellingly, the Director
Defendants offered no explanation—beyond expressing that Johnson was a “bad
fit”—and offered no persuasion during the executive session, then voted
unanimously to discharge Johnson.
Finding at this pleading stage, based on facts pled and reasonable inferences,
that the Director Defendants knew a material representation to the NCUC was false
at the time that body approved the merger, it is reasonably conceivable that the
Director Defendants each caused Duke to violate Section 62-326.194 If so, and
corporate damages resulted, the Director Defendants would be liable: “In short, by
consciously causing the corporation to violate the law, a director would be disloyal
to the corporation and could be forced to answer for the harm he has caused.”195
Such bad-faith acts, if they took place, strip each Director Defendant of the
presumption that he acted with proper business judgement. If so, the burden will
194 N.C. Gen. Stat. Ann. § 62-326. 195 Desimone, 924 A.2d at 934.
50 fall on the Director Defendants to justify their actions; in such a situation, there is
reason to doubt the impartiality of the Defendants in evaluating any demand seeking
to impose liability for those actions, and demand is excused under Rales.196
B. The Defendants Motion to Dismiss Under Rule 12(b)(6).
Given my decision above, and in light of the broad allegations of the
Complaint, I find it efficient to defer action on this motion, pending conference of
counsel regarding what causes of action remain, and whether further consideration
under Rules 12(b)(6) and 23.1 is required.
III. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss for lack of standing
is GRANTED in part and DENIED in part. A decision on the Defendants’ motion
to dismiss for failure to state a claim is deferred pending further consultation with
counsel. An omnibus final order on these outstanding motions will await further
proceedings.
196 Alternatively, under Aronson, I find the Plaintiffs have pled particularized facts sufficient to create a reasonable doubt that the underlying transaction was the product of a valid exercise of business judgment.
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In re Duke Energy Corp. Derivative Litigation, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-duke-energy-corp-derivative-litigation-delch-2016.