IN THE SUPREME COURT OF THE STATE OF DELAWARE
VLADIMIR GUSINSKY § REVOCABLE TRUST, § No. 347, 2024 Derivatively on behalf of Nominal § Defendant RTX CORPORATION, § Court Below: Court of Chancery § of the State of Delaware Plaintiff Below, § Appellant, § C.A. No. 2022-1124 § v. § § GREGORY J. HAYES, TRACY § A. ATKINSON, LLOYD J. § AUSTIN III, MARSHALL O. § LARSEN, THOMAS A. § KENNEDY, GEORGE R. § OLIVER, ROBERT (KELLY) § ORTBERG, MARGARET L. § O’SULLIVAN, DINESH C. § PALIWAL, ELLEN M. § PAWLIKOWSKI, DENISE L. § RAMOS, FREDERIC G. § REYNOLDS, BRIAN C. § ROGERS, JAMES A. § WINNEFELD, JR., and ROBERT § O. WORK, § § Defendants Below, § Appellees, § § and § § RTX CORPORATION, § § Nominal Defendant Below, § Appellee. §
Submitted: March 26, 2025 Decided: May 28, 2025 Before SEITZ, Chief Justice; VALIHURA and GRIFFITHS, Justices.
ORDER
After consideration of the parties’ briefs, the record on appeal, and following
oral argument, it appears to the Court that:
(1) In 2018, United Technologies Corporation (“UTC”) determined that it
would spin off two of its operating subsidiaries, Otis Worldwide Corporation
(“Otis”) and Carrier Global Corporation (“Carrier”), into independent companies.1
In 2019, UTC announced a merger of its remaining aerospace businesses with
Raytheon Company, forming Raytheon Technologies Corporation, or “RTX.”
(2) In preparation for the spinoff and merger, UTC’s compensation
committee addressed how it would convert existing UTC employee equity awards
into awards for the three post-transaction companies. The committee used a formula
to adjust the number of awards and exercise prices by comparing UTC’s pre-
transaction stock price to the post-transaction stock prices of Carrier, Otis, and RTX.
The new prices would be measured using a volume-weighted average price
(“VWAP”) over the fourth and fifth trading days after the transactions closed. Under
UTC’s two Long Term Equity Incentive Plans (“LTIPs”), certain equity award
1 We take the facts from the underlying decision. Vladimir Gusinsky Revocable Tr. v. Hayes, 2024 WL 3508530, at *2 (Del. Ch. July 23, 2024) [hereinafter Letter Opinion].
2 modifications required UTC stockholder approval, but not in the case of a spinoff.2
The formula was memorialized in an Employee Matters Agreement (“EMA”).
(3) The transactions closed on April 3, 2020. In the weeks leading up to
the closing, UTC’s stock price decreased about 43%.3 However, in the days
immediately following the transactions, the prices of RTX, Carrier and Otis rose
significantly.4 By using a VWAP on the fourth and fifth trading days post-closing,
the aggregate stock prices of the new companies were significantly higher than
UTC’s pre-closing price, thereby decreasing the number of post-closing awards and
increasing the exercise price of those awards.5 In response to this unanticipated price
volatility, RTX’s board consulted outside advisors—PricewaterhouseCoopers LLP,
Goldman Sachs, and Wachtell, Lipton, Rosen & Katz—and considered adjusting the
conversion formula.
(4) The RTX board considered the advisors’ recommendations and formed
a three-member special committee to address potential amendments to the EMA
conversion formula (“Special Committee”). The board empowered the Special
2 App. to Answering Br. at B14–15 [hereinafter B__] (2014 UTC LTIP § 5(c)); B17–19 (2014 UTC LTIP § 10); B5–6 (2018 UTC LTIP § 5(c)); B4–5 (2018 UTC LTIP § 3(e))). 3 B92 (Goldman Sachs Analysis at 1). 4 Id. RTX’s stock price opened at $51.00 on April 3, but by the fourth and fifth trading days, it closed at $62.62 and $64.71, respectively. Letter Opinion at *2. 5 B77–78 (UTC Equity Award Conversion Board Discussion at 6–7).
3 Committee to evaluate and “provid[e] final approval” for an amendment in the best
interests of RTX and its stockholders.6
(5) After meeting three times and hearing from outside advisors and
determining that the proposed EMA amendment would further RTX’s interest in
retaining and motivating employees, the Special Committee approved resolutions
amending the EMA to replace the multi-day VWAP with a formula tied to the RTX,
Carrier, and Otis opening stock prices the day the transactions closed
(“Amendment”).7
(6) On December 6, 2022, the plaintiff, allegedly an RTX stockholder, filed
a derivative action asserting claims of breaches of fiduciary duty, unjust enrichment,
and waste against board members involved in the Amendment. Plaintiff also
asserted that demand was excused as futile under Court of Chancery Rule 23.1. In
support, Plaintiff argued that the RTX board of directors in place when the suit was
filed (“Demand Board”) faced a substantial likelihood of liability because it
modified employee equity awards without obtaining stockholder approval as
required by the LTIPs.
6 B198–99 (Special Committee Resolutions at 1 and 2). 7 B311 (Form 8-K at 2); B248–54 (Special Committee Minutes at 1–7). See also Letter Opinion at *4.
4 (7) The Court of Chancery disagreed and dismissed the complaint for
failure to plead demand futility. The court held that the complaint did not contain
particularized allegations raising a reasonable inference that a majority of the
Demand Board faced a substantial likelihood of liability. According to the court,
because RTX’s certificate of incorporation exculpates Demand Board members
from monetary liability for duty of care breaches, and Plaintiff’s theory of recovery
is based on claims that directors knowingly exceeded their authority, Plaintiff must
allege bad faith conduct.8 The complaint fell short because, according to the court,
the board resolutions delegated to the Special Committee what approvals were
required.9 If the board did not make the decision, the court ruled, it could not have
acted in bad faith.10
(8) On appeal, Plaintiff contends that the Court of Chancery erred by
declining to infer that (1) the RTX board exceeded its authority when it delegated
final approval of the Amendment to the Special Committee and (2) that the Demand
Board knew it was violating the LTIPs’ stockholder approval requirement. We
review decisions of the Court of Chancery applying Rule 23.1 de novo.11
8 Letter Opinion at *5. 9 Id. at *6. 10 Id. at *7. 11 Brehm v. Eisner, 746 A.2d 244, 253 (Del. 2000).
5 (9) Because Plaintiff made no pre-suit demand, we must determine whether
Plaintiff has plead with particularity that demand is excused as futile. Demand is
futile if at least half of the Demand Board either:
(i) received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;
(ii) faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; or
(iii) lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.12
(10) Plaintiff argues first that demand is excused because the Demand Board
exceeded its authority when it granted the Special Committee final approval power
over the Amendment.13 We disagree. The Special Committee resolutions
(“Resolutions”) stated that one purpose of the Special Committee was “providing
final approval for the Potential Amendment.”14 The Resolutions also state that the
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IN THE SUPREME COURT OF THE STATE OF DELAWARE
VLADIMIR GUSINSKY § REVOCABLE TRUST, § No. 347, 2024 Derivatively on behalf of Nominal § Defendant RTX CORPORATION, § Court Below: Court of Chancery § of the State of Delaware Plaintiff Below, § Appellant, § C.A. No. 2022-1124 § v. § § GREGORY J. HAYES, TRACY § A. ATKINSON, LLOYD J. § AUSTIN III, MARSHALL O. § LARSEN, THOMAS A. § KENNEDY, GEORGE R. § OLIVER, ROBERT (KELLY) § ORTBERG, MARGARET L. § O’SULLIVAN, DINESH C. § PALIWAL, ELLEN M. § PAWLIKOWSKI, DENISE L. § RAMOS, FREDERIC G. § REYNOLDS, BRIAN C. § ROGERS, JAMES A. § WINNEFELD, JR., and ROBERT § O. WORK, § § Defendants Below, § Appellees, § § and § § RTX CORPORATION, § § Nominal Defendant Below, § Appellee. §
Submitted: March 26, 2025 Decided: May 28, 2025 Before SEITZ, Chief Justice; VALIHURA and GRIFFITHS, Justices.
ORDER
After consideration of the parties’ briefs, the record on appeal, and following
oral argument, it appears to the Court that:
(1) In 2018, United Technologies Corporation (“UTC”) determined that it
would spin off two of its operating subsidiaries, Otis Worldwide Corporation
(“Otis”) and Carrier Global Corporation (“Carrier”), into independent companies.1
In 2019, UTC announced a merger of its remaining aerospace businesses with
Raytheon Company, forming Raytheon Technologies Corporation, or “RTX.”
(2) In preparation for the spinoff and merger, UTC’s compensation
committee addressed how it would convert existing UTC employee equity awards
into awards for the three post-transaction companies. The committee used a formula
to adjust the number of awards and exercise prices by comparing UTC’s pre-
transaction stock price to the post-transaction stock prices of Carrier, Otis, and RTX.
The new prices would be measured using a volume-weighted average price
(“VWAP”) over the fourth and fifth trading days after the transactions closed. Under
UTC’s two Long Term Equity Incentive Plans (“LTIPs”), certain equity award
1 We take the facts from the underlying decision. Vladimir Gusinsky Revocable Tr. v. Hayes, 2024 WL 3508530, at *2 (Del. Ch. July 23, 2024) [hereinafter Letter Opinion].
2 modifications required UTC stockholder approval, but not in the case of a spinoff.2
The formula was memorialized in an Employee Matters Agreement (“EMA”).
(3) The transactions closed on April 3, 2020. In the weeks leading up to
the closing, UTC’s stock price decreased about 43%.3 However, in the days
immediately following the transactions, the prices of RTX, Carrier and Otis rose
significantly.4 By using a VWAP on the fourth and fifth trading days post-closing,
the aggregate stock prices of the new companies were significantly higher than
UTC’s pre-closing price, thereby decreasing the number of post-closing awards and
increasing the exercise price of those awards.5 In response to this unanticipated price
volatility, RTX’s board consulted outside advisors—PricewaterhouseCoopers LLP,
Goldman Sachs, and Wachtell, Lipton, Rosen & Katz—and considered adjusting the
conversion formula.
(4) The RTX board considered the advisors’ recommendations and formed
a three-member special committee to address potential amendments to the EMA
conversion formula (“Special Committee”). The board empowered the Special
2 App. to Answering Br. at B14–15 [hereinafter B__] (2014 UTC LTIP § 5(c)); B17–19 (2014 UTC LTIP § 10); B5–6 (2018 UTC LTIP § 5(c)); B4–5 (2018 UTC LTIP § 3(e))). 3 B92 (Goldman Sachs Analysis at 1). 4 Id. RTX’s stock price opened at $51.00 on April 3, but by the fourth and fifth trading days, it closed at $62.62 and $64.71, respectively. Letter Opinion at *2. 5 B77–78 (UTC Equity Award Conversion Board Discussion at 6–7).
3 Committee to evaluate and “provid[e] final approval” for an amendment in the best
interests of RTX and its stockholders.6
(5) After meeting three times and hearing from outside advisors and
determining that the proposed EMA amendment would further RTX’s interest in
retaining and motivating employees, the Special Committee approved resolutions
amending the EMA to replace the multi-day VWAP with a formula tied to the RTX,
Carrier, and Otis opening stock prices the day the transactions closed
(“Amendment”).7
(6) On December 6, 2022, the plaintiff, allegedly an RTX stockholder, filed
a derivative action asserting claims of breaches of fiduciary duty, unjust enrichment,
and waste against board members involved in the Amendment. Plaintiff also
asserted that demand was excused as futile under Court of Chancery Rule 23.1. In
support, Plaintiff argued that the RTX board of directors in place when the suit was
filed (“Demand Board”) faced a substantial likelihood of liability because it
modified employee equity awards without obtaining stockholder approval as
required by the LTIPs.
6 B198–99 (Special Committee Resolutions at 1 and 2). 7 B311 (Form 8-K at 2); B248–54 (Special Committee Minutes at 1–7). See also Letter Opinion at *4.
4 (7) The Court of Chancery disagreed and dismissed the complaint for
failure to plead demand futility. The court held that the complaint did not contain
particularized allegations raising a reasonable inference that a majority of the
Demand Board faced a substantial likelihood of liability. According to the court,
because RTX’s certificate of incorporation exculpates Demand Board members
from monetary liability for duty of care breaches, and Plaintiff’s theory of recovery
is based on claims that directors knowingly exceeded their authority, Plaintiff must
allege bad faith conduct.8 The complaint fell short because, according to the court,
the board resolutions delegated to the Special Committee what approvals were
required.9 If the board did not make the decision, the court ruled, it could not have
acted in bad faith.10
(8) On appeal, Plaintiff contends that the Court of Chancery erred by
declining to infer that (1) the RTX board exceeded its authority when it delegated
final approval of the Amendment to the Special Committee and (2) that the Demand
Board knew it was violating the LTIPs’ stockholder approval requirement. We
review decisions of the Court of Chancery applying Rule 23.1 de novo.11
8 Letter Opinion at *5. 9 Id. at *6. 10 Id. at *7. 11 Brehm v. Eisner, 746 A.2d 244, 253 (Del. 2000).
5 (9) Because Plaintiff made no pre-suit demand, we must determine whether
Plaintiff has plead with particularity that demand is excused as futile. Demand is
futile if at least half of the Demand Board either:
(i) received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;
(ii) faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; or
(iii) lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.12
(10) Plaintiff argues first that demand is excused because the Demand Board
exceeded its authority when it granted the Special Committee final approval power
over the Amendment.13 We disagree. The Special Committee resolutions
(“Resolutions”) stated that one purpose of the Special Committee was “providing
final approval for the Potential Amendment.”14 The Resolutions also state that the
Special Committee may “undertake all actions that, in the determination of the
12 United Food & Com. Workers Union v. Zuckerberg, 262 A3d 1034, 1058 (Del. 2021). 13 Opening Br. at 27–28. 14 B198–99 (Special Committee Resolutions at 1 and 2).
6 Committee, are required to fulfill the Committee Mandate.”15 Further, the
Resolutions empower the Special Committee “[t]o take such other actions, as the
Committee determines necessary, appropriate or advisable in connection with any
and all aspects of the Potential Amendment.”16 Read together, the Resolutions did
not prevent the Special Committee from procuring any other approval necessary for
the Amendment, including stockholder approval. Plaintiff’s improper delegation
argument fails.
(11) Next, Plaintiff argues that demand was excused because at least half of
the Demand Board faces a substantial likelihood of liability for consciously
disregarding their responsibility under the LTIPs to obtain stockholder approval for
the Amendment. This argument rests on Plaintiff’s belief that, under the LTIPs,
stockholder approval was “plain[ly] and unambiguous[ly]” required for the
Amendment.17
(12) We do not share that belief. Delaware directors are presumed to act in
good faith.18 To rebut this presumption, Plaintiff must show that the directors acted
improperly with scienter, such as an intentional dereliction of duty or a conscious
15 B198 (Special Committee Resolution at 1). 16 B199 (Special Committee Resolution at 2). 17 See Opening Br. at 40–46 (citing Garfield v. Allen, 277 A.3d 296, 322 (Del. Ch. 2022); Pfeiffer v. Leedle, 2013 WL 5988416, at *6 (Del. Ch. Nov. 8, 2013)). 18 In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 52 (Del. 2006).
7 disregard of responsibilities.19 Although Section 5(c) of the LTIPs required
stockholder approval for amendments, it expressly carved out stockholder approval
for spinoffs.20 Although the parties disagree whether the Amendment should be
treated separately from the spinoff transaction, we conclude that it was reasonable
for the Demand Board to believe that the Amendment was undertaken in connection
with the spinoff and therefore no stockholder vote was required. The Amendment
19 McElrath v. Kalanick, 224 A.3d 982, 991–92 (Del. 2020). See also Zuckerberg, 262 A.3d at 1053 (discussing an “intentional dereliction of duty” or a “conscious disregard” of board responsibilities as amounting to bad faith). 20 The LTIPs are substantively identical. Section 5(c) of the UTC 2018 LTIP provides that, in general, amendments require stockholder approval:
In no event may any Stock Appreciation Right or Stock Option granted under this Plan be amended, other than pursuant to Section 3(e), to decrease the exercise price thereof, be cancelled in exchange for cash or other Awards or in conjunction with the grant of any new Stock Appreciation Right or Stock Option with a lower exercise price, or otherwise be subject to any action that would be treated, under the Applicable Exchange listing standards or for accounting purposes, as a “repricing” of such Stock Appreciation Right or Stock Option, unless such amendment, cancellation or action is approved by the Corporation’s shareholders.
B5 (2018 UTC LTIP § 5(c)) (emphasis added). But Section 5(c) provides an express carveout to the stockholder approval requirement for actions taken pursuant to Section 3(e). Section 3(e)(ii) provides:
In the event of a . . . spinoff . . . the Committee or the Board shall make such substitutions or adjustments as it deems appropriate and equitable to: (A) the aggregate number and kind of Shares or other securities reserved for issuance and delivery under this Plan; (B) the various maximum limitations set forth in Section 3(c) applicable to the grants to individuals of certain types of Awards; (C) the number and kind of Shares or other securities subject to outstanding Awards; (D) financial goals or measured results to preserve the validity of the original goals set by the Committee; and (E) the exercise price of outstanding Awards.
B4 (2018 UTC LTIP § 3(e)(ii)).
8 was approved in connection with the spinoff after stock market volatility resulted in
an “unexpected” conversion.21 Further, it was the product of an extensive process
involving outside advisors and a special committee to evaluate the need for an
adjustment to the original conversion formula—again, all in connection with the
spinoff. Given the LTIPs’ express exemption for spinoffs from the stockholder
approval requirement and our review of the record below, we disagree that the
Demand Board violated a “plain and unambiguous” provision in the LTIPs. Because
this claim wholly rests on a violation of the LTIPs, the complaint fails to contain
particularized and well-pleaded allegations of bad faith conduct by the Demand
Board. Accordingly, demand is not excused.
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of
Chancery is AFFIRMED.
BY THE COURT:
/s/ N. Christopher Griffiths Justice
21 Letter Opinion at *3.