City Pension Fund for Firefighters and Police Officers in the City of Miami Beach v. The Trade Desk, Inc. ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CITY PENSION FUND FOR )
FIREFIGHTERS AND POLICE )
OFFICERS IN THE CITY OF MIAMI, )
on behalf of itself and all others )
similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 2021-0560-PAF
)
THE TRADE DESK, INC., LISE J. )
BUYER, KATHRYN E. FALBERG, )
THOMAS FALK, JEFF GREEN, ERIC )
B. PALEY, DAVID R. PICKLES, )
BLAKE GRAYSON, GOKUL )
RAJARAM, BRIAN J. STEMPECK, )
and DAVID B. WELLS, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: April 11, 2022
Date Decided: July 29, 2022
Gregory V. Varallo, Andrew E. Blumberg, Daniel E. Meyer, BERNSTEIN
LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Mark
Lebovitch, Reuben Gottlieb, Jeroen van Kwawegen, BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP, New York, New York; Jeremy Friedman, David
Tejtel, Julie Palley, FRIEDMAN OSTER & TEJTEL PLLC, Bedford Hills, New
York; Attorneys for Plaintiff City Pension Fund for Firefighters and Police Officers
in the City of Miami.
William M. Lafferty, Ryan D. Stottmann, Sabrina Hendershot, MORRIS,
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Attorneys for
Defendants Lise J. Buyer, Gokul Rajaram, and David B. Wells.
Peter J. Walsh, Jr., Jacqueline A. Rogers, Abraham C. Schneider, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; Matthew Rawlinson,
LATHAM & WATKINS LLP, Menlo Park, California; Colleen Smith, LATHAM
& WATKINS LLP, San Diego, California; Kristin Murphy, LATHAM &
WATKINS LLP, Costa Mesa, California; Attorneys for Defendants The Trade
Desk, Inc., Kathryn E. Falberg, Thomas Falk, Blake Grayson, Eric B. Paley, David
R. Pickles, and Brian J. Stempeck.
Brad D. Sorrels, Shannon E. German, Benjamin M. Potts, WILSON SONSINI
GOODRICH & ROSATI, P.C., Wilmington, Delaware; David J. Berger, Steven M.
Guggenheim, WILSON SONSINI GOODRICH & ROSATI, P.C., Palo Alto,
California; S. Toni Wormald, WILSON SONSINI GOODRICH & ROSATI, P.C.,
San Francisco, California; Attorneys for Defendant Jeff Green.
FIORAVANTI, Vice Chancellor
This case involves a stockholder challenge to an amendment to the certificate
of incorporation of The Trade Desk, Inc. (“TTD” or the “Company”) that extended
the duration of its dual-class stock structure. In effect, the amendment prolonged
voting control held by TTD’s co-founder and Chief Executive Officer, Jeffrey
Green, who owns 98% of the Company’s high-vote Class B common stock. The
plaintiff alleges that Green, the Company’s board of directors, and certain officers
breached their fiduciary duties in approving and obtaining stockholder votes for the
amendment.
The defendants have moved to dismiss the complaint under Court of Chancery
Rule 12(b)(6) for failure to state a claim upon which relief can be granted. There is
no dispute that the amendment was an interested transaction involving a controlling
stockholder, which is presumptively subject to review under the exacting entire
fairness standard. The defendants’ primary argument in support of their motions is
that the transaction complied with the framework set forth in Kahn v. M & F
Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”), thus subjecting the transaction
to business judgment review rather than the entire fairness standard. Plaintiff argues
that the defendants have not satisfied two of the six elements of the MFW framework.
For the reasons explained below, the court concludes that the defendants have
satisfied MFW. Thus, the transaction is subject to review under the business
judgment standard, and the Complaint must be dismissed.
I. BACKGROUND
The facts recited in this Memorandum Opinion are drawn from the Verified
Class Action Complaint (the “Complaint”) and documents integral thereto or
otherwise subject to judicial notice.
A. The Parties
Plaintiff City Pension Fund for Firefighters and Police Officers in The City of
Miami (“City Pension Fund” or “Plaintiff”) alleges that it has held Class A stock of
TTD at all relevant times.1
Defendant TTD is a Delaware Corporation headquartered in Ventura,
California.2 TTD is a technology company that markets “a software platform to
provide data-driven digital advertising campaigns.”3 Defendant Jeff Green co-
founded the Company and has served as its President, Chief Executive Officer
(“CEO”), and as a director of the Company since 2009. 4 Green has also been
chairman of the Company’s board of directors (the “Board”) at all relevant times.5
1
Dkt. 1 (“Compl.”) ¶ 23.
2
Id. ¶ 24.
3
Id. ¶ 38.
4
Id. ¶ 25.
5
Id.; The Trade Desk, Inc., Schedule 14A (Apr. 13, 2021) (the “2021 Proxy”) at 9.
Documents filed with the United States Securities and Exchange Commission (“SEC”) that
are cited in this Memorandum Opinion are properly within the court’s view as: (i)
documents incorporated by reference to Plaintiff’s Complaint; and (ii) public filings, to the
2
Defendant David R. Pickles is the other co-founder of TTD.6 Pickles serves as
TTD’s Chief Technology Officer.7 Defendant Blake Grayson has served as the
Company’s Chief Financial Officer (“CFO”) since 2019.8 Together, Green, Pickles,
and Grayson constitute the “Officer Defendants.”
When it approved the challenged certificate amendment, the TTD board of
directors consisted of Green and seven outside directors: Lise J. Buyer, Gokul
Rajaram, Kathryn E. Falberg, David B. Wells, Thomas Falk, Eric B. Paley, and
Brian J. Stempeck (collectively the “Director Defendants”).9 Buyer, Rajaram, and
Wells served on a special committee of the TTD board that negotiated the certificate
amendment with Green and recommended that the Board approve it. 10
The named defendants are collectively referred to as the “Defendants.”
B. The Company’s Stock Structure
TTD has two classes of common stock. The Company’s Class A common
stock trades publicly on the NASDAQ Global Market under the ticker symbol
extent they address publicly available facts not subject to reasonable dispute. In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d 162, 169–70 (Del. 2006).
6
Compl. ¶ 10.
7
Id. ¶ 26. Pickles joined the Company’s Board in February 2021. Id.
8
Id. ¶¶ 8, 27.
9
Id. ¶¶ 25–26, 28–34.
10
Id. ¶ 67; The Trade Desk, Inc., Schedule 14A (Oct. 27, 2020) (the “2020 Special Proxy”)
at “LETTER FROM THE SPECIAL COMMITTEE.”
3
“TTD” and entitles its holder to one vote per share.11 The Company’s Class B
common stock, which is not publicly traded, is entitled to ten votes per share.12 This
dual-class common stock structure was created in conjunction with the Company’s
initial public offering in 2016 (the “IPO”). 13 The original Class B stockholders
included Green, members of management, and certain venture capital investors that
had supported the Company’s growth as a private entity.14 Of the 33.4 million Class
B shares originally issued, Green received approximately 8.9 million. 15 Since the
IPO, the Class B stockholders have controlled the Company:
Because of the ten-to-one voting ratio between our Class B and Class
A common stock, the holders of our Class B common stock collectively
continue to control a majority of the combined voting power of our
common stock and therefore are able to control all matters submitted to
our stockholders for approval . . . . 16
By March 2020, the number of Class B shares outstanding had declined to
approximately 5.2 million, with Green owning 97.6% of them.17 When added to the
Class A shares that he beneficially owned, Green at that time controlled
11
Id. ¶ 39; The Trade Desk, Inc., Form 10-K (Feb. 28, 2020) at 31.
12
Compl. ¶ 39.
13
2020 Special Proxy at 12–13.
14
Id.
15
Id.
16
The Trade Desk, Inc., Form 10-K (Feb. 28, 2020) at 31.
17
The Trade Desk, Inc., Schedule 14A (Apr. 14, 2020) (the “2020 Annual Proxy”) at 49
(reflecting Green’s ownership of 5,071,141 Class B shares).
4
approximately 55% of the combined voting power of the outstanding Class A and
Class B common stock. 18
The Company’s amended and restated certificate of incorporation (the
“Certificate”) restricts the ownership of Class B common stock to its original owners
and “Permitted Transferee[s]” as defined in the Certificate.19 If a Class B share is
transferred to someone other than a Permitted Transferee, it is automatically
converted into Class A common stock on a 1-for-1 basis.20
The Certificate also provides for the elimination of the Class B Stock once
“the number of outstanding shares of Class B Common Stock represent less than ten
percent (10%) of the aggregate number of shares of the then outstanding Class A
Common Stock and Class B Common Stock” (the “Dilution Trigger”). 21 Once the
Dilution Trigger is tripped, each share of Class B common stock is automatically
converted into Class A common stock on a 1-for-1 basis, and the Class B stock is
canceled.22
18
Id.
19
Dkt. 63, Ex. 3 (the “TTD Certificate”), Art. IV(C)(3)(b) (the “Transfer Restriction
Provision”).
20
Id.
21
TTD Certificate Art. V.
22
TTD Certificate Art. IV(C)(3)(c).
5
C. Green Learns of the Approaching Dilution Trigger in May 2020
As of March 31, 2020, the Class B common stock constituted 11.2% of the
Company’s total outstanding Class A and Class B common stock. 23 The number of
Class B common shares was continuing to decline, as Green sold shares pursuant to
a Rule 10b5-1 trading plan.24 In late May 2020, Green learned that the Dilution
Trigger was looming large. 25 To avoid this control-stripping event, Green contacted
Company officers, his personal financial professionals, and the other holders of
Class B stock for help. 26 On May 23, 2020, Green discussed the possible elimination
of the Dilution Trigger with the Company’s Vice President, Investor Relations, Chris
Toth. 27 In a follow up email, Toth noted that: “We may have more leverage than
we think. Externally no one knows you want to sell shares. Currently our
[Certificate] state[s] there is NO timeframe to sunset shares. Therefore it is
23
2020 Annual Proxy at 2 (“On the [March 31, 2020] record date, there were 40,864,997
shares of our Class A common stock outstanding and 5,169,630 shares of our Class B
common stock outstanding.”).
24
Rule 10b5-1 of the Securities Exchange Act of 1934 “permits insiders to implement
written, pre-arranged stock trading plans when they are not in possession of material non-
public information. Generally speaking, 10b5-1 plans offer a safe harbor for corporate
insiders to sell stock by ceding trading authority to third parties with exclusive discretion
to execute trades under certain pre-determined parameters.” Laborers Dist. Council
Constr. Indus. Pension Fund v. Bensoussan, 2016 WL 3407708, at *2 (Del. Ch. June 14,
2016) (footnote omitted), aff’d, 155 A.3d 1283 (Del. 2017).
25
Compl. ¶¶ 46, 56–58.
26
Id. ¶¶ 47–59, 65.
27
Id. ¶ 47.
6
indefinite.”28 Toth outlined steps to propose a Certificate amendment and
highlighted the importance of procuring support of proxy advisory firms ISS and
Glass Lewis.29
The next day, on May 24, 2020, Green sent an email to his personal banker
and the Company’s CFO, Grayson, directing them to cancel his ongoing 10b5-1
stock sale plan “as soon as possible.”30 Green also had Julie Carolan, the Company’s
Financial Reporting Specialist, ask Green’s bankers if there was any way to settle a
portion of a conversion and sale of Class B stock placed the prior week with Class
A stock instead. 31
On May 26, 2020, Grayson updated Green as to the expected timeline of the
Dilution Trigger: “[I]f you AND Dave P[ickles] don’t sell any more Class B shares,
you very likely are in the clear until at least 9/30 of this year before Class B crosses
below 10% of total shares.”32 Grayson further suggested that Green encourage
Pickles not to convert Class B stock “over the next couple months until any structure
28
Compl. ¶ 49 (emphasis omitted); see also Dkt. 64, Ex. 20 (document incorporated by
reference into the Complaint).
29
Compl. ¶¶ 48, 51; Dkt. 64, Ex. 20.
30
Compl. ¶ 54.
31
Id. ¶ 55.
32
Id. ¶ 56. The court notes that the operative complaint purports to quote documents that
Plaintiff has not attached as exhibits for the court’s review. Such quotations to documents
not within the court’s purview will be accepted as true for purposes of resolving these
motions only.
7
adjustments are discussed with the board.”33 That same day, Carolan asked Green
to confirm that he was willing to settle a portion of the prior week’s trade with Class
A stock.34 As outlined in her email to Green, settling the trade with Class A common
stock instead of Class B common stock would have tax implications, but would
create a “larger cushion” to maintain the dual-class structure without tripping the
Dilution Trigger.35 Green responded: “I hate to forego 39,000,000 of long term
capital gains, but I will if the [high] vote [share structure] lasts less than 6 months
with current run rates.” 36
On May 27, 2020, Green emailed Wells asking for time to talk: “Can we get
30 mins tomorrow? Something has come up that is quite urgent and important and
I’d love to get 30 mins to share and get your feedback.” 37 Based on this email,
Plaintiff finds it “reasonably inferable” that this meeting occurred and “that they
33
Id. ¶ 56–57.
34
Id. ¶ 59.
35
Id.
36
Id. ¶ 60. Plaintiff insinuates that Green was willing to pay $39 million in capital gains
tax. Id. ¶¶ 11, 61. Based on the trading price of TTD Class A stock at that time, it is
apparent that Green was willing to forgo long term capital gains treatment as to the
approximate $39 million in sale proceeds realized from his settling the trade with 129,119
shares of Class A stock not that he would be liable for $39 million in capital gains tax. Id.
¶ 59.
37
Dkt. 64, Ex. 21; Compl. ¶ 62.
8
discussed Green’s competing desires for liquidity and continued control over Trade
Desk.”38
On May 29, 2020, Green sent an email to the Board calling a special meeting
to discuss the Dilution Trigger.39 Green’s email stated, “[s]ince we recently learned
that the dual class sunset provision will take effect much sooner than we thought, we
need to have a board meeting to discuss what to do next.” 40 Green’s email proposed
agenda items to discuss the impact of the dual-class structure to date, the threat to
the business without this structure, identifying available options for changing the
Dilution Trigger, and the applicable legal process for doing so. 41 In response to a
private email from Paley, Green stated that he believed the Dilution Trigger would
not be triggered until March 2021.42
On June 2, 2020, Green sent an email to Pickles asking him to refrain from
selling Class B stock: “I think we discussed this, but please don’t sell any b shares
before we chat. We’ve got a limited runway to preserve our dual-class status.”43
38
Compl. ¶ 63.
39
Id. ¶¶ 62–63.
40
Id. ¶ 63.
41
Id.
42
Id. ¶ 64.
43
Id. ¶¶ 64–65.
9
D. The Special Committee Process
On June 3, 2020, the Board met to discuss the Company’s dual-class structure
and, specifically, the Dilution Trigger.44 At that meeting, the Board formed a special
committee comprising Buyer, Rajaram, and Wells (the “Special Committee”) and
empowered them to evaluate a potential Certificate amendment to extend the
Company’s dual-class capitalization structure.45
After its formation, the Special Committee selected Buyer as its chair and
retained Morris Nichols Arsht & Tunnell LLP (“MNAT”) as its counsel.46 MNAT
then reviewed the independence of the Special Committee members. 47 In late June
2020, the Special Committee interviewed three potential financial advisors, Perella
Weinberg Partners (“PWP”), Moelis, and Centerview Partners (“Centerview”). 48 In
44
Id. ¶ 66.
45
Id. ¶ 67; 2020 Special Proxy at 14 (“At the June 3, 2020 meeting, our board of directors
. . . delegated to the Committee the full power and authority of our board of directors to,
among other things, (i) review and evaluate the advisability of the Potential Action, (ii)
identify, review and evaluate alternatives to the Potential Action, (iii) recommend, reject
or seek to modify the terms of the Potential Action, (iv) if the Committee considered it
advisable or appropriate, negotiate the structure, form, terms and conditions of the Potential
Action and the form, terms and conditions of any definitive agreements or any amendments
to the Company’s governing documents, (v) obtain any necessary or desirable advice,
assistance and opinions from financial advisors or other advisors, consultants and agents
selected by the Committee, (vi) recommend to the full board of directors what action, if
any, should be taken by the Company with respect to the Potential Action, and (vii) appoint
one of its members as Chair of the Committee.”).
46
Compl. ¶ 82; 2020 Special Proxy at 15.
47
2020 Special Proxy at 15.
48
Compl. ¶ 68.
10
its presentation to the Special Committee, PWP expressed concerns over the
feasibility and governance implications of a full recapitalization, instead favoring an
amendment to the Dilution Trigger in return for governance concessions.49
Centerview’s presentation highlighted the current market trend away from dual-class
stock structures and summarized the “lessons learned” from precedent “Founder-
led” recapitalizations. 50 The Special Committee then formally retained Centerview
as its financial advisor.51
On July 2, 2020, the Special Committee held a meeting with four MNAT
attorneys and five Centerview representatives in attendance. 52 The Special
Committee discussed its process and the potential timing of a stockholder meeting
with respect to any negotiated proposal and “expressed an initial preference for a
special meeting to be held in the fourth quarter of 2020.” 53 Additionally,
“Centerview expressed a desire to . . . gather information concerning the Company’s
stockholder base and the Company’s estimates of when the number of outstanding
shares of Class B Common Stock will fall below 10% of the aggregate number of
49
Id. ¶ 69.
50
Id. ¶¶ 73–75.
51
Id. ¶ 77.
52
Id. ¶ 80; Dkt. 64, Ex. 31.
53
Compl. ¶ 80; Dkt. 64, Ex. 31.
11
outstanding shares of . . . Common Stock.” 54 The Special Committee suggested that
Centerview contact Toth and Carolan regarding these inquiries.55
Centerview’s discussion materials for the July 2, 2020 meeting included
alternatives available as consideration for a certificate amendment, including each
alternative’s relative value to stockholders. 56 Centerview reported that control-
extension proposals typically place a higher emphasis on economic considerations
and that governance measures alone may be insufficient consideration for minority
stockholders.57
At a July 23, 2020 Special Committee meeting, Centerview discussed the
Company’s estimation that the Dilution Trigger could be tripped “as early as the
second quarter of 2021” and the “assumptions underlying such estimate.”58 The
Special Committee then authorized MNAT to inform Green’s counsel, Wilson
Sonsini Goodrich & Rosati, P.C. (“Wilson Sonsini”), that the Special Committee
was now willing “to consider a proposal from Mr. Green regarding a potential
extension of the Company’s dual-class capitalization structure.”59
54
Compl. ¶ 80.
55
Id.; Dkt. 64, Ex. 33.
56
Compl. ¶ 78. The slide did not place a dollar value on any of the alternatives.
57
Id.
58
Id. ¶ 81.
59
Id. ¶ 82.
12
On July 24, 2020, Wilson Sonsini confirmed Green’s interest in presenting an
MFW-compliant offer to the Special Committee.60 MNAT summarized this
response in an email to the committee, which stated, in part:
[Green’s Counsel] did say that he and his client recognize the need for
there to be a “business rationale” for the extension (and Jeff has one
that he will offer up as part of the proposal) and the potential need to
address other “governance issues” as part of a proposal. He said his
client is very willing to work with the Committee and will be “flexible”.
He said the proposal will [be] made under the MFW structure.61
On July 30, 2020, Wilson Sonsini informed MNAT that Green would deliver a
formal proposal, featuring a “rationale for the business case,” by the end of the
following week. 62 Plaintiff interprets these two responses as admissions that there
was no business rationale for pursuing the transaction and the entire Special
Committee process was therefore “just a ruse.”63
On August 3, 2020, Green transmitted his proposal to the Special Committee
(the “Initial Green Proposal”). 64 It contained three key provisions. 65 First, in
exchange for removing the Dilution Trigger, Green proposed that outstanding shares
of Class B Common would automatically convert into Class A Common Stock upon
60
Id. ¶ 83.
61
Dkt. 64, Ex. 34; Compl. ¶ 83.
62
Compl. ¶ 84.
63
Id. ¶ 83.
64
Id. ¶ 85.
65
Id.
13
the occurrence of one of the following conditions: (i) the seven-year anniversary of
the adoption of the Certificate amendment (the “Sunset Provision”); (ii) the
discretion of the Company’s Board, if Green was removed for cause from his
positions as CEO, President, or director of the Company; or (iii) a date specified by
the holders of at least 66-2/3% of the outstanding Class B common stock. 66 Second,
stockholders would be provided with a right to act by written consent at duly-called
annual or special meetings, so long as Green and/or his affiliates hold more than
50% of the Company’s voting power. 67 Third, stockholders holding at least 10% of
the Company’s voting power during the immediately preceding one-year period
would be provided with a right to call special meetings.68
The Initial Green Proposal included a letter explaining the value to the
Company of Green retaining control through the extension of the dual-class common
stock structure:
[Green] believes that the continuation of the Company’s governance
structure—which will allow the Company to continue to be guided by
the same vision and long-term perspective that have made the Company
so successful, without distraction—is firmly in the best interests of the
Company and all of its stockholders. Indeed, Mr. Green believes that
the same principles that caused the Company to adopt its current
governance structure in connection with its recent initial public offering
apply with equal, if not greater, force and importance now. This is
66
Id. at 33; see also 2020 Special Proxy at 17.
67
Compl. at 33; see also 2020 Special Proxy at 17.
68
Compl. at 33; see also 2020 Special Proxy at 17.
14
particularly true given that the Company, while very strong, faces new
and unexpected challenges, as all companies do at this time. These
challenges, as you know, include navigating unprecedented market
uncertainty and volatility that are completely untethered to the
Company’s performance. In addition, management and the Board are
faced with the task of steering the Company and its employees through
a global pandemic, all while managing a complex but extremely
valuable business.69
On August 4, 2020, the Special Committee met to discuss the Initial Green
Proposal. 70 The substantive portion of the meeting minutes consist of three
sentences and lack any detail as to the Special Committee’s discussion with its
advisors.71 The minutes conclude:
The Committee expressed its belief that a structure under which Mr.
Green maintained voting control for at least seven to ten years post
initial public offering is in the best interests of all of the Company's
stockholders based on a number of different considerations, including
the value associated with Mr. Green’s leadership and vision for the
Company.72
Centerview’s materials for this meeting estimated that outstanding Class B shares
would equal less than 10% of the Company’s aggregate outstanding shares by the
second quarter of 2021, thereby tripping the Dilution Trigger.73
69
Compl. ¶ 86; 2020 Special Proxy at Appendix D-1.
70
Compl. ¶ 88.
71
Dkt. 64, Ex. 36 at TTD0000261.
72
Compl. ¶ 89; Dkt. 64, Ex. 36 at TTD0000261.
73
Compl. ¶ 89; Dkt. 64, Ex. 37 at TTD0000376.
15
The Special Committee met again with its advisors on August 7 and 11 to
discuss the Initial Green Proposal and a potential counterproposal.74 At the August
11 meeting the committee also considered a potential timeline for a special meeting
of stockholders to vote on a possible transaction. 75
On August 14, 2020, the Special Committee approved a counterproposal (the
“Counterproposal”) to the Initial Green Proposal with seven substantive
modifications to Green’s terms.76 First, the Counterproposal shortened the Class B
Sunset Provision date by two years, so all outstanding shares of Class B common
stock would automatically convert to Class A common stock five years (instead of
seven years) after the adoption of the Sunset Provision. Second, the Counterproposal
removed the “for cause” limitation and the references to Green’s directorship so that
Green’s removal as CEO or President, either with or without cause, would
automatically convert the Class B stock into Class A stock. Third, similar to the
original Dilution Trigger, the Counterproposal provided that the outstanding Class
B common stock would automatically convert once it equaled a specific percentage
(to be negotiated) of the Company’s aggregate outstanding stock. Fourth, the
Counterproposal clarified that for shares to be counted towards the majority
74
Compl. ¶¶ 90–91.
75
Id. ¶ 91.
76
Id. ¶ 92.
16
ownership requirement within the written consent clause those shares must be owned
by Green or his controlled affiliates. Fifth, the Counterproposal modified the special
meeting call right to be vested in stockholders holding 20% of the Company’s
outstanding common stock (instead of a specific percentage of “voting power”).
Sixth, the Counterproposal gave holders of Class A common stock the right to elect
directors (with the number to be negotiated). Seventh, the Counterproposal provided
that the Company’s independent directors would elect a lead independent director.
Green ultimately accepted the majority of the terms set in the Special
Committee’s Counterproposal. In his August 20, 2020 response, Green pushed back
on two of them. 77 Green rejected the adoption of a new dilution trigger based on the
ratio of Class B stock to the total number of outstanding shares of common stock. 78
Additionally, Green specified that the holders of Class A common stock be permitted
to elect 1 director if the board consists of nine or fewer directors, and 2 directors if
the board consists of ten or more directors. 79 The Special Committee continued to
negotiate with Green over the following few days.80 The Special Committee
relented on its proposal for a new dilution trigger based on share percentage, and
77
Id. ¶ 95; Dkt. 65, Ex. 45 at TTD0000516.
78
Compl. ¶ 95.
79
Id.
80
Id.
17
Green conceded to providing the Class A stockholders with the right to elect 1
director if the board is eight or fewer directors, and 2 directors if the board is nine or
more directors. 81 On August 27, 2020, Green and the Special Committee
memorialized their agreement-in-principle in a term sheet (the “Term Sheet”). 82 The
following chart illustrates the evolution from initial proposal to Term Sheet: 83
81
Id.
82
Compl. ¶ 94; 2020 Special Proxy at 18.
83
Compl. at 41; Dkt. 65, Ex. 45 at TTD0000516.
18
The full Board, including Green, met on September 3, 2020, with MNAT and
Centerview in attendance, to discuss the Special Committee’s negotiations, the
proposed Term Sheet, and next steps. 84 The advisors warned that the deal “may be
viewed as novel” and “attract attention and scrutiny from stockholders and the
broader market.”85 During this meeting, the Board was shown Company projections
indicating that the Dilution Trigger was expected to trip in the second quarter of
2021. 86
On October 16, 2020, the Board voted to approve the amendment to the
Certificate and the related terms (together, the “Dilution Trigger Amendment”).87
Green, Stempeck, and Falberg abstained from the Board vote, due to their ownership
of Class B stock.88 Following the vote, the Board began its campaign in support of
the Dilution Trigger Amendment.89 As one of the first steps of the campaign, the
board distributed a letter to stockholders stating that the “proposals enable the board
to end the dual-class structure at an earlier date (in certain circumstances).” 90
84
Compl. ¶ 97.
85
Id.
86
Id. ¶ 99.
87
Id. ¶ 100.
88
Id.
89
Id. ¶ 102.
90
Id.
19
E. The Stockholder Vote
On October 27, 2020, the Company filed with the SEC a notice of special
meeting of stockholders for December 7, 2020 (the “Special Meeting”) and a
Definitive Proxy Statement (the “2020 Special Proxy”) to solicit stockholder votes
in favor of the proposed transaction. 91
When the date of the Special Meeting arrived on December 7, 2020 there was
insufficient stockholder support to approve the Dilution Trigger Amendment.92 As
a result, the Company adjourned the Special Meeting to enable proponents additional
time to garner more votes in favor of the transaction.93 On December 22, 2020, the
Company reconvened the Special Meeting, where the Dilution Trigger Amendment
was approved, with 52% of the unaffiliated shares voting in favor. 94
Once the Dilution Trigger Amendment had been approved, Green resumed
disposing of Class B shares. Between December 24, 2020, and April 19, 2021, he
converted 544,139 Class B shares into Class A shares and sold them for aggregate
proceeds of $435,481,252. 95
91
Id. ¶ 104.
92
Id. ¶ 115.
93
Id.
94
Id. ¶ 117.
95
Id. ¶ 119.
20
F. The Proposed Equity Award
On December 3, 2020, a few days before the Special Meeting, TTD’s
Compensation Committee, which includes Wells and Rajaram, considered a stock
option grant to Green in his capacity as TTD’s CEO.96 A presentation from the
committee’s compensation advisor, Compensia, outlined potential grant options
including an award amounting to 5% of the Company’s equity.97 Plaintiff complains
that stockholders were not aware at this time of these discussions regarding this
possible award. 98 Almost a year later, on October 8, 2021, the Compensation
Committee recommended and the Board approved a stock option grant to Green (the
“2021 Grant”).99 Under the 2021 Grant terms, Green may receive options allowing
him to purchase up to 19.2 million shares of Class A common stock, at an exercise
price of $68.29 per share, if specified target goals are achieved and other vesting
96
Id. ¶ 113; Dkt. 55 (the “Supp. to Compl.”) ¶ 160.
97
Compl. ¶ 114.
98
Supp. to Compl. ¶ 161.
99
Id. ¶ 166. Plaintiff does not assert any claims challenging the 2021 Grant itself. Instead,
Plaintiff treats the 2021 Grant as evidence that the TTD Board operates with a “controlled
mindset” and that the stockholder vote on the Dilution Trigger Amendment was
uninformed. Id. ¶¶ 161, 171, 197. The 2021 Grant is currently the subject of separate
litigation in this court. Huizenga v. Green, et al., C.A. No. 2022-0461-PAF; Int’l Union of
Operating Eng’rs Local 137, 137A, 137B & 137R Pension & Annuity Funds, et al. v.
Green, et al., C.A. No. 2022-0560-PAF. This opinion does not consider the claims asserted
in those actions.
21
conditions are satisfied. 100 This option grant only becomes exercisable and vested
in eight tranches over a ten-year term if certain stock price achievements are met.101
G. Procedural History
On June 28, 2021, Plaintiff filed its Complaint asserting breach of fiduciary
duty claims against Green in his capacity as a controlling stockholder (Count I), the
Officer Defendants (Count II), and the Director Defendants (Count III).102 Each
claim is based on the respective defendants’ actions “imposing the unfair Trigger
Amendment on Trade Desk and the Company’s public stockholders” and “failing to
disclose to stockholders Green’s desire to sell Trade Desk shares and the date of the
anticipated sunset of the dual class capitalization structure.”103
On August 27, 2021, Defendants moved to dismiss the Complaint pursuant to
Court of Chancery Rule 12(b)(6). 104 After the parties filed opening and answering
briefs, Plaintiff sought leave to supplement the Complaint, which the court granted
as unopposed.105 Plaintiff filed its Verified Supplement to the Complaint (the
100
Supp. to Compl. ¶ 167.
101
Id. ¶ 168.
102
Dkt. 1.
103
Compl. ¶¶ 143, 148, 154.
104
Dkt. 17; Dkt. 28; Dkt. 38.
105
Dkt. 53 & 54.
22
“Supplement”) on November 29, 2021. 106 On February 1, 2022, Defendants moved
to dismiss the Complaint, as supplemented. 107 Following full briefing, the court held
oral argument on these motions on April 11, 2021.108
II. ANALYSIS
On a motion to dismiss under Court of Chancery Rule 12(b)(6):
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and
quotation marks omitted). At this stage, the pleading standards are “minimal,”
Central Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536
(Del. 2011), but the court need not “simply accept conclusory allegations
unsupported by specific facts, nor do we draw unreasonable inferences in the
plaintiff's favor.” Clinton v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009).
106
Dkt. 55.
107
Dkt. 61; Dkt. 62; Dkt. 63; Dkt. 68.
108
Dkt. 91; Dkt. 95.
23
A. The Defendants’ Exhibits
In preparing the Complaint, Plaintiff utilized documents that the Company
produced in response to Plaintiff’s demand to inspect books and records pursuant to
8 Del. C. § 220. 109 In resolving the books and records demand, the parties entered
into a Confidentiality and Non-Disclosure Agreement whereby the documents
would “be deemed incorporated by reference in any complaint relating to the subject
matter referenced in the Demands.”110 Plaintiff cited, but did not attach as exhibits
to its Complaint and Supplement, 38 documents provided in the 220 production.
Defendants responded by attaching 71 documents as exhibits to their motions to
dismiss, only 13 of which are cited in the Complaint.
Notwithstanding their arrangement, the parties may not rely on private
agreement to change the pleading standard at the motion to dismiss stage:
[O]ur courts must regulate how far down the road of incorporation by
reference a defendant may go when plaintiff has well-pled something
as fact . . . even if another document might suggest the facts are
otherwise. Section 220 documents may or may not comprise the
entirety of the evidence on a particular point. Until that is tested,
Defendants cannot ask the court to accept their Section 220 documents
as definitive fact and thereby turn pleading stage inferences on their
head. That is not, and should not be, the state of our law.
109
Compl. at 3; Supp. to Compl. at 3.
110
Dkt. 66, Ex. 63.
24
In re Clovis Oncology, Inc. Deriv. Litig., 2019 WL 4850188, at *14 n.216 (Del. Ch.
Oct. 1, 2019).
“The incorporation-by-reference doctrine does not enable a court to weigh
evidence on a motion to dismiss. It permits a court to review the actual documents
to ensure that the plaintiff has not misrepresented their contents and that any
inference the plaintiff seeks to have drawn is a reasonable one.” Voigt v. Metcalf,
2020 WL 614999, at *9 (Del. Ch. Feb. 10, 2020). This doctrine therefore permits
the court to consider extrinsic documents only for a limited purpose.
“Where a defendant improperly and extensively uses Section 220 Documents
in support of a Chancery Rule 12(b)(6) motion to support factual inferences that run
counter to those supported in the complaint, the court may either exclude the
extraneous matter from its consideration or convert the Chancery Rule 12(b)(6)
motion into a motion for summary judgment.” In re CBS Corp. S’holder Class
Action & Deriv. Litig., 2021 WL 268779, at *18 (Del. Ch. Jan. 27, 2021), as
corrected (Feb. 4, 2021). Therefore, instead of converting the present motions to
dismiss into motions for summary judgment, the court declines to consider any
extraneous documents submitted by Defendants that are not referenced in or integral
to Plaintiff’s pleadings or otherwise subject to judicial notice.
25
B. The Presumptive Standard of Review
Under Delaware law, a controlling stockholder owes fiduciary duties to the
Company and its minority stockholders. eBay Domestic Hldgs, Inc. v. Newmark, 16
A.3d 1, 26 (Del. Ch. 2010). A stockholder owning “more than 50% of the voting
power of a corporation” will be deemed a “controller” under Delaware law. In re
KKR Fin. Hldgs. LLC S'holder Litig., 101 A.3d 980, 991 (Del. Ch. 2014), aff'd sub
nom. Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015). At all relevant
times, Green controlled more than 50% of the voting power of TTD’s outstanding
voting stock.111 Defendants do not dispute Green’s status as a controlling
stockholder.
“When a transaction involving self-dealing by a controlling shareholder is
challenged, the applicable standard of judicial review is entire fairness, with the
defendants having the burden of persuasion.” Americas Mining Corp. v. Theriault,
51 A.3d 1213, 1239 (Del. 2012). The entire fairness standard applies to “any
transaction between a controller and the controlled corporation in which the
controller receives a non-ratable benefit.” In re EZCORP Inc. Consulting Agreement
Deriv. Litig., 2016 WL 301245, at *11 (Del. Ch. Jan. 25, 2016). This is because
Delaware courts are aware that a controller enjoys a “uniquely advantageous
111
Compl. 3; see also Dkt. 63 (“Green Opening Br.”) at 9 (“Green has held more than 50%
of the Company’s voting power since at least early 2018 . . .”).
26
position for extracting differential benefits from the corporation at the expense of
minority stockholders.” Id. “The risk is thus created that those who pass upon the
propriety of the transaction might perceive that disapproval may result in retaliation
by the controlling shareholder.” Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del.
1997). Therefore, the entire fairness standard applies to “ensure that all parties to
the transaction have fulfilled their fiduciary duties to the corporation and all its
shareholders.” Id.The Dilution Trigger Amendment eliminated the Dilution Trigger, extended
the duration of the dual-class structure, and enabled Green to maintain voting
control. Defendants do not dispute that the Dilution Trigger Amendment is a
transaction that is presumptively subject to review under the entire fairness standard.
See IRA Tr. FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *9 (Del. Ch. Dec.
11, 2017) (concluding that a reclassification under which the controlling stockholder
ensured that it would retain voting control “well into the future” was presumptively
subject to entire fairness review). Therefore, the court’s analysis of the motions to
dismiss begins with that presumption.112
112
In its brief, Plaintiff argued that the Dilution Trigger Amendment implicated the voting
rights of TTD stockholders and, therefore, was subject to “heightened scrutiny.” Dkt. 76
(“Pl.’s Ans. Br.”) at 36–37 (citing Coster v. UIP Cos., Inc., 255 A.3d 952 (Del. 2021)). In
Coster, the Delaware Supreme Court held that even though a stock sale which diluted one
of two equal stockholders below 50% satisfied the entire fairness standard, it was otherwise
also subject to further review to assess whether it was otherwise inequitable or taken for
27
C. MFW Analysis
In the seminal case of MFW, the Delaware Supreme Court endorsed a
framework that would alter the standard of review in a conflicted controlling
stockholder transaction from entire fairness to the more lenient business judgment
standard. To avoid entire fairness scrutiny through this doctrinal escape hatch, the
following conditions must be met:
(i) the controller conditions the procession of the transaction on the
approval of both a Special Committee and a majority of the minority
stockholders;
(ii) the Special Committee is independent;
(iii) the Special Committee is empowered to freely select its own
advisors and to say no definitively;
(iv) the Special Committee meets its duty of care in negotiating a fair
price;
(v) the vote of the minority is informed; and
(vi) there is no coercion of the minority.
MFW, 88 A.3d at 645 (formatting altered).
the primary purpose of thwarting the plaintiff’s vote to elect directors. Id. at 953, 963 n.66.
In so holding, the Court invoked the well-settled doctrines of Schnell v. Chris-Craft
Industries., Inc., 285 A.2d 437, 439 (Del. 1971) (“inequitable action does not become
permissible simply because it is legally possible”), and Blasius Industries., Inc. v. Atlas
Corp., 564 A.2d 651, 661 (Del. Ch. 1988) (recognizing that if the board acts for the primary
purpose of impeding stockholders’ franchise rights, the board must prove a “compelling
justification” for its actions). At oral argument, however, Plaintiff here acknowledged that
it was not contending that the court must apply a Schnell analysis to the Dilution Trigger
Amendment if Defendants have satisfied MFW. Dkt. 95 (“Hrg. Tr.”) at 103–04.
28
If Defendants satisfy MFW, then the transaction will be subject to business
judgment review. But if Plaintiff can plead a reasonably conceivable set of facts
showing that any one of the enumerated conditions is not satisfied, then, the entire
fairness standard governs. Id.Although MFW was decided at the summary judgment stage and involved a
freeze-out merger, the MFW framework is not limited to those scenarios. The court
has applied MFW at the motion to dismiss stage and in transactions other than freeze-
out mergers. See, e.g., Crane, 2017 WL 7053964, at *12–21 (applying MFW to a
stock reclassification on a motion to dismiss); see also Tornetta v. Musk, 250 A.3d
793, 800 (Del. Ch. 2019) (reasoning that the MFW framework could apply to review
a challenge to executive compensation paid to a controlling stockholder); In re
Martha Stewart Living Omnimedia, Inc. S’holder Litig., 2017 WL 3568089, at *18–
19 (Del. Ch. Aug. 18, 2017) (holding MFW framework applicable to claims alleging
controlling stockholder obtained a non-ratable benefit in a sale to an unaffiliated
third party); In re Books-A-Million, Inc. S’holders Litig., 2016 WL 5874974, at *8
(Del. Ch. Oct. 10, 2016) (applying MFW at motion to dismiss stage), aff'd, 164 A.3d
56 (Del. 2017); Swomley v. Schlecht, C.A. No. 9355-VCL at 64–79 (Del. Ch. Aug.
27, 2014) (TRANSCRIPT) (same), aff'd, 128 A.3d 992 (Del. 2015) (TABLE).
Plaintiff here contends that Defendants have not satisfied the elements of
MFW; it does not contend it is otherwise inapplicable. Plaintiff alleges that
29
Defendants have failed to satisfy elements (ii) and (v) of the MFW framework. It
argues that the Special Committee was not independent and that the stockholder vote
was uninformed. If it is reasonably conceivable under the well-pleaded facts of the
Complaint and Supplement that either element is not satisfied, then Defendants will
be unable to benefit from the deferential business judgment standard of review.
Martha Stewart, 2017 WL 3568089, at *1. The court next considers Plaintiff’s
arguments.
1. Special Committee’s Independence
Plaintiff’s challenge to the independence of the Special Committee is two-
fold. First, Plaintiff impugns the independence of the Special Committee’s chair and
argues she undermined the independence of the committee as a whole. Second,
Plaintiff insists the Special Committee lacked independence because it labored under
a “controlled mindset,” bending to Green’s wishes.
The MFW framework contemplates that the Special Committee will act as an
“independent negotiating agent whose work is subject to stockholder approval.”
Flood v. Synutra Int'l, Inc., 195 A.3d 754, 767 (Del. 2018). To plead that a director
is not independent “in a manner sufficient to challenge the [MFW] framework, a
plaintiff must allege facts supporting a reasonable inference that a director is
sufficiently loyal to, beholden to, or otherwise influenced by an interested party so
as to undermine the director’s ability to judge the matter on its merits.” Books-A-
30
Million, 2016 WL 5874974, at *9; accord In re Dell Techs. Inc. Class V S’holders
Litig., 2020 WL 3096748, at *35 (Del. Ch. June 11, 2020).
“The pleading standard that governs under Rule 12(b)(6) is less stringent and
more plaintiff friendly than the standard that governs under Rule 23.1.” Dell, 2020
WL 3096748, at *35. The Plaintiff need not plead facts supporting its allegations of
conflict with particularity; instead the question is whether the pleaded facts make it
“reasonably conceivable” that the Special Committee members were not
independent. Id.The Special Committee consisted of three members: Buyer, Rajaram, and
Wells, 113 with Buyer serving as its chairperson.114 “Directors are presumed to be
independent.” Friedman v. Dolan, 2015 WL 4040806, at *6 (Del. Ch. June 30,
2015). Plaintiff does not meaningfully challenge the independence of either Rajaram
or Wells. The Complaint notes that both Rajaram and Wells served on the
Company’s Compensation Committee and that, in December 2020, the
Compensation Committee was considering a stock option grant to Green.115 Plaintiff
views this as “demonstrating both their controlled mindset and their entrenchment
113
Compl. ¶ 67.
114
Pl.’s Ans. Br. 43.
115
Compl. ¶ 113.
31
motive.”116 A large option award, contingent on various stock achievements and
vesting conditions over a ten-year period, was eventually approved by the
Compensation Committee in October 2021.117 As noted earlier, this grant is not
being challenged in this litigation and there are no allegations that Rajaram or Wells
made any fiduciary decision concerning the option grant prior to October 2021. The
Complaint lacks well-pleaded allegations creating a reasonable inference
undermining their independence while serving on the Special Committee. 118
116
Id. ¶ 17.
117
Supp. to Compl. ¶ 166.
118
Beyond his role on the committees, the only other allegation specific to Wells is the
May 27, 2020 email he received from Green requesting a thirty-minute conversation
regarding “[s]omething . . . quite urgent and important.” Compl. ¶ 62. This allegation
leads to a reasonable inference that the conversation occurred and that it concerned the
Dilution Trigger. When the conversation occurred is unclear, but two days after sending
this email, Green contacted the entire board to schedule a meeting about the Dilution
Trigger. Id. ¶ 63. That meeting occurred on June 3, 2020. Id. ¶ 66. Without more, the
allegation that Green had a conversation about the Dilution Trigger with Wells does not
create a reasonable inference that Wells was conflicted or lacked independence from
Green. See In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013) (“[A] plaintiff
seeking to show that a director was not independent must meet a materiality standard, under
which the court must conclude that the director in question's material ties to the person
whose proposal or actions she is evaluating are sufficiently substantial that she cannot
objectively fulfill her fiduciary duties”), aff'd sub nom. Kahn v. M & F Worldwide Corp.,
88 A.3d 635 (Del. 2014). In In re Rouse Properties, Inc., 2018 WL 1226015, at *14 (Del.
Ch. Mar. 9, 2018), this court acknowledged that conversations between a controller and
director regarding the director’s employment post-merger may raise a reasonable doubt as
to the director’s independence from the controller for that transaction. Plaintiff has not
pleaded any allegations in this case making it reasonable to infer that the substance of the
conversation between Wells and Green involved such innately conflicting topics.
32
Plaintiff’s challenge to the independence of the Special Committee focuses
solely on the chair—Buyer. Defendants argue that the allegations as to Buyer are
meritless, but even if they had merit, the Complaint does not allege facts supporting
a reasonable inference that a majority of the committee was not disinterested and
independent. Therefore, according to Defendants, Plaintiff has not alleged facts to
call into question the independence of the Special Committee.
a. Compensation
Plaintiff’s challenge to Buyer’s independence is limited to the compensation
that she derived from TTD as a consultant in 2016, when she was not a director of
the Company, and her director compensation in 2019 and 2020.119 The main area of
dispute is whether Buyer’s director compensation is material to her.
In 2016, Green hired Buyer as a consultant for TTD’s IPO.120 In return for
her work on this project, Buyer received $175,000 and 2,500 options to acquire Class
A stock.121 As a director of the Company, she has received compensation of
$535,558 in 2019 and $408,492 in 2020.122 Plaintiff implies that this compensation
119
Supp. to Compl. ¶ 196.
120
Id. ¶ 195.
121
Id.
Id. ¶ 196. Plaintiff’s brief notes that, in 2019, “Buyer’s compensation was $535,558 in
122
2019 and $408,492 in 2020, making her the Company’s highest-paid director by a wide
margin.” Pl.’s Ans. Br. 41 (emphasis added). In 2019, Buyer received the highest total
compensation for a non-employee director due to “an initial director equity award [granted
33
is material to Buyer, alleging that Buyer’s TTD director compensation is her only
source of income besides what she earns from her consulting company, whose
annual revenue is allegedly $244,223. 123 The sole factual basis for this allegation is
an online-reference to Dun & Bradstreet.124 Defendants argue that the speculation
of marketing companies such as Dun & Bradstreet regarding the revenue of private
companies cannot satisfy Plaintiff’s pleading burden. Buyer’s director
questionnaire, cited by both parties, notes that “[s]ince August 2006, Ms. Buyer has
served as principal of Class V Group, LLC, a consulting firm that advises companies
on initial public offerings and other market strategies.”125 Prior to Class V Group,
LLC, Buyer served in a variety of hefty roles, including as Director of Business
Optimization at Google, General Partner of a venture capital firm, and Director of
Internet/New Media Research at Credit Suisse First Boston.126 Buyer also served as
director of a publicly traded online survey company from 2004 until it was acquired
by Microsoft.127
to new director’s] upon initial election to our board.” 2020 Annual Proxy at 44–45. As
shown in Plaintiff’s pleadings, Buyer was the only new director join the Board that year.
Compl. ¶ 28. The following year, Buyer’s compensation was in line with that received by
the other directors. 2021 Proxy at 46.
123
Supp. to Compl. ¶ 196.
124
Id.
125
Dkt. 64, Ex. 13 at TTD0000185.
126
Id.; Supp. to Compl. ¶ 196 (noting that Buyer retired from Google in 2005).
127
Dkt. 64, Ex. 13 at TTD0000185.
34
This court is hesitant to infer materiality of compensation absent well-pleaded
facts. The determination of whether a director’s compensation from the Company
is sufficient to raise a reason to doubt her independence is a fact intensive inquiry.
See In re MFW S’holders Litig., 67 A.3d at 510–13 (observing that a plaintiff must
allege facts “showing that a specific director’s independence is compromised by
factors material to her” and that fees paid to a director are material to the director);
see also McElrath on behalf of Uber Techs., Inc. v. Kalanick, 2019 WL 1430210, at
*17 (Del. Ch. Apr. 1, 2019) (“The materiality inquiry must focus on the financial
circumstances or personal affinities of the particular director in question.”), aff'd,
224 A.3d 982 (Del. 2020); Freedman v. Adams, 2012 WL 1345638, at *7 (Del. Ch.
Mar. 30, 2012) (applying a materiality inquiry in the Rule 23.1 context and finding
“with the facts as they are, the Plaintiff simply leaves the Court to speculate as to
whether the Outside Directors’ compensation so far exceeded what was customary
that it was disabling. This argument fails.”); Chester Cnty. Empls.’ Ret. Fund v. New
Residential Inv. Corp., 2017 WL 4461131, at *8 (Del. Ch. Oct. 6, 2017) (declining
to infer, under a Rule 23.1 analysis, that compensation was material to certain
directors when plaintiff pleaded that the one was retired and the other’s
“employment background indicate[d] he ha[d] not accumulated great wealth.”).
35
Even under the more plaintiff-friendly standard of the MFW framework, the
plaintiff must still allege well-pleaded facts supporting a reasonable conceivability
of compensation materiality to the specific director. As this court recently observed:
Generally, serving as a director on the board of a Delaware corporation
is not a pro bono gig; Delaware law recognizes that directors will be
paid a fair and reasonable amount. For that reason, when director fees
are not excessive, mere allegations of payment of director fees are
insufficient to create a reasonable doubt as to the director's
independence.
Simons v. Brookfield Asset Mgmt. Inc., 2022 WL 223464, at *15 (Del. Ch. Jan. 21,
2022).
Each side has cited cases supporting their respective position. 128 The court
need not wade into the issue here. Even assuming that Buyer’s TTD compensation
128
In addition to taking issue with the Dun & Bradstreet estimate, the Special Committee
argues that merely pointing to one’s director fees alone is not sufficient to create a
reasonable inference that a director lacks independence or that it is the sole source of her
income. Dkt. 62 (“SC Opening Br.”) at 17 (citing In re Kraft Heinz Co. Deriv. Litig., 2021
WL 6012632, at *12 n.124 (Del. Ch. Dec. 15, 2021) (noting that a director’s publicly
reported income does not always contextualize a director’s wealth), and Simons, 2022 WL
223464, at *15 (noting that the fact that a director was retired and his directorship “is his
sole source of current employment does not give rise to a reasonable inference that his
[director] fees are material to him.”)). On the other hand, Plaintiff cites cases for the
proposition that the court has inferred reason to doubt the independence of directors
drawing fees that were much lower than what Buyer received in the last two years. Pl.’s
Ans. Br. 43 (citing Del. Cnty. Empls. Ret. Fund v. Sanchez, 124 A.3d 1017, 1020–21 (Del.
2015) (inferring at the pleading stage that director fees of $165,000 were material when
they constituted 30% to 40% of the defendants’ total annual income); In re Oracle Corp.
Deriv. Litig., 2018 WL 1381331, at *177 (Del. Ch. Mar. 19, 2018) (inferring at the pleading
stage that director fees of $468,645 were material)); see also Voigt, 2020 WL 614999, at
*15 & n.14 (citing cases where director fees in amounts lower than what Buyer received
were inferred as material at the pleading stage, and observing that “[s]pecific information
36
creates a reasonable inference that her director compensation was material to her and
that she was, therefore, not independent, the Plaintiff has not alleged facts that create
a reason to doubt that a majority of the committee lacked independence or that Buyer
so dominated the committee process that it undermined its integrity as a whole.
b. Buyer’s Effect on the Committee
As a general rule, outside the MFW framework, a plaintiff must plead facts
supporting a reason to doubt the independence or disinterestedness of a majority of
the board or a special committee. See, e.g., Beam ex rel. Martha Stewart Living
Omnimedia, Inc., 845 A.2d 1040, 1046 n.8 (Del. 2004) (observing that in
considering whether demand is excused in a derivative action, demand is futile
unless there is a majority of independent directors); Beneville v. York, 769 A.3d 80,
85–87 (Del. Ch. 2000) (holding that demand is excused where a board is evenly
divided between interested and disinterested directors). “Where . . . a plaintiff
alleges only a minority of special committee members are incapable of
disinterestedly and independently considering a transaction, a plaintiff must proffer
at the pleading stage some factual predicate from which the court can infer the
compromised director(s) somehow infected the special committee’s process.” In re
GGP, Inc. S’holder Litig., 2021 WL 2102326, at *15 (Del. Ch. May 25, 2021), aff'd
about the wealth of particular individuals is not generally available and is also not
something that can usually be obtained using Section 220.”).
37
in part, rev'd in part and remanded, 2022 WL 2815820 (Del. July 19, 2022).129
Although GGP did not involve the application of the MFW framework, the Plaintiff
here acknowledges that it must meet this burden.130
Plaintiff argues that the court should infer that Buyer’s lack of independence
“somehow infected the special committee’s process.”131 Plaintiff relies on In re
MAXXAM, Inc./Federated Development Shareholders Litigation, 1997 WL 187317,
129
For this proposition, the GGP opinion from this court relied on numerous cases from
this court and the Delaware Supreme Court. GGP, 2021 WL 2102326 at *15 n.179 (citing
Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993) (“This Court has never
held that one director's colorable interest in a challenged transaction is sufficient, without
more, to deprive a board of the protection of the business judgment rule presumption of
loyalty.”); In re Alloy, Inc., 2011 WL 4863716, at *8–9 (Del. Ch. Oct. 13, 2011) (holding
that the allegation that an allegedly conflicted corporate fiduciary “was in a position” to
influence other members of a special committee was inadequate to support an inference
that the special committee's process was tainted by undue influence); Telxon Corp. v.
Meyerson, 802 A.2d 257, 264 (Del. 2002) (“Where only one director has an interest in a
transaction, however, a plaintiff seeking to rebut the presumption of the business judgment
rule under the duty of loyalty must show that the interested director controls or dominates
the board as a whole” (quotations omitted)).
130
Pl.’s Ans. Br. 43 (citing and partially quoting the foregoing sentence from GGP). In
AmTrust Financial Services, Inc. Stockholder Litigation, 2020 WL 914563 (Del. Ch. Feb.
26, 2020), the plaintiffs contended that for MFW to apply all members of the special
committee must have been disinterested and independent. Id. at *10 n.105. The AmTrust
court did not need to reach that issue because the court concluded that a majority of the
special committee had a material self-interest in the transaction. Id. This court’s opinion
in GGP acknowledged this seemingly open question of Delaware law, but did not need to
reach it because GGP did not involve application of the MFW framework. The court does
not need to reach that issue here, either, because the Plaintiff did not address in its
complaint or brief whether MFW can apply only if every member of the special committee
is independent and disinterested. Accordingly, that argument was waived. See Emerald
P'rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”).
131
Pl.’s Opening Br. 43 (quoting GGP, 2021 WL 2102326, at *15).
38
at *1 (Del. Ch. Apr. 4, 1997), for the proposition that a non-independent chair’s
“dominant role” in the special committee process “accentuates the Court’s concerns”
regarding the independence of the committee as a whole. True enough, but
MAXXAM does not move the needle for Plaintiff in this case. In MAXXAM, the chair
of the special committee dominated negotiations of the challenged transaction, bore
significant financial ties to the controller, and undermined the special committee
process by selecting and hiring advisors before obtaining the approval of the
committee. Id. at *6, *20. Plaintiff does not plead anything close to those allegations
here.
The only well-pleaded fact concerning Buyer’s individual conduct concerns
the selection of Centerview as one of the Special Committee’s two advisors.
Plaintiff contends that “Buyer pressed the Special Committee to hire Centerview as
its advisor.”132 This characterization is based on a single email with the subject line
“For what it’s worth,” wherein Buyer informed the Special Committee: “I just
received a strong recommendation on Centerview Partners (as a third option to PW
and Moelis).”133 In a follow up email, Buyer wrote, “Right on the web page, they
talk about special committee advisory on this very topic.” 134 None of this is
132
Pl.’s Ans. Br. 43 n.14.
133
Dkt. 64, Ex. 29.
134
Id.
39
contained in the pleadings. The single footnote in a brief dedicated to this email
does not create a reasonable inference that Buyer dominated the Special Committee
or lacked independence. There is no allegation that Buyer unilaterally selected
Centerview. Indeed, the only reasonable inference from the email is that she
suggested Centerview as a third potential candidate to consider as a financial advisor
and that the full Special Committee chose Centerview, a firm with relevant
experience to the Special Committee’s mission. That is what the meeting minutes
reflect, and Plaintiff does not suggest otherwise. Buyer’s email to her fellow
committee members does not support an inference that she dominated the
Committee or steered it in a direction under circumstances that undermined its
independence. 135
Plaintiff has not pleaded sufficient facts alleging that Buyer’s conduct
dominated or subverted the Special Committee process so as render the entire
committee defective, even if she was determined to be lacking in independence.
135
The MAXXAM case is further distinguishable from this action because, in MAXXAM,
the court found that “the members of the Special Committee all had significant financial
and/or business ties with [the controller].” Id. at *20 (emphasis added). Therefore, in
MAXXAM, the court had several reasons for ultimately finding the special committee’s
process “infected.”
40
c. Controlled Mindset
In its final effort to undermine the Special Committee, Plaintiff argues that the
committee “labored under a controlled mindset and knew that securing Green’s
control would ingratiate themselves with Green and ensure their continued
directorships at the Green-controlled Company.” 136 Defendants have framed this
issue as a further challenge to the committee’s independence.137 Plaintiff insists that
its challenge goes beyond the independence of the Special Committee. 138 Regardless
of how the argument is framed, it is without merit.
The “controlled mindset” principle has been applied where, “from inception,
the Special Committee fell victim to a controlled mindset and allowed [the
controller] to dictate the terms and structure of the [transaction].” In re S. Peru
Copper Corp. S'holder Deriv. Litig., 52 A.3d 761, 798 (Del. Ch. 2011), aff'd sub
nom. Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012). “When
analyzing director independence in the presence of a controlling stockholder, ‘the
focus . . . is on domination of the board with regard to the transaction at issue.’” In
re Viacom Inc. S’holders Litig., 2020 WL 7711128, at *23 (Del. Ch. Dec. 29, 2020),
as corrected (Dec. 30, 2020) (citation omitted).
136
Compl. ¶ 112.
137
See Green’s Opening Br. 51; SC Opening Br. 12–22.
138
See Hrg. Tr. at 68.
41
Plaintiff’s “controlled mindset” assertion is not supported by any well-pleaded
allegations that the Special Committee members were beholden to Green or that they
suffered from any disabling personal interest in the Dilution Trigger Amendment.
Rather, Plaintiff insists the Special Committee’s lack of independence is self-evident
because it decided to maintain the dual-class structure: “[N]o independent
fiduciaries acting in good faith would take affirmative action to perpetuate a dual
class structure when the company and minority investors have an imminent
opportunity to eliminate a super-voting class of stock.” 139 This ipse dixit does not
carry the day. Merely because the committee recommended that the Board and
stockholders vote to maintain the dual-class structure, albeit in modified fashion,
does not render them lacking in independence. As this court has emphasized:
A director could believe in good faith that it is generally optimal for
companies to be controlled by their founders and that this governance
structure is value-maximizing for the corporation and its stockholders
over the long-term. Others might differ. As long as an otherwise
independent and disinterested director has a rational basis for her belief,
that director is entitled (indeed obligated) to make decisions in good
faith based on what she subjectively believes will maximize the long-
term value of the corporation for the ultimate benefit of its residual
claimants.
139
Compl. ¶ 2.
42
United Food & Commercial Workers Union & Participating Food Indus. Empls.
Tri-State Pension Fund v. Zuckerberg, 250 A.3d 862, 895 (Del. Ch. 2020), aff'd,
2021 WL 4344361 (Del. Sept. 23, 2021).
Plaintiff’s controlled mindset theory relies on two cases that did not involve
an MFW analysis. Neither case is remotely applicable to the facts of this case. In
Berteau v. Glazek, 2021 WL 2711678, at *12 (Del. Ch. June 30, 2021), this court
held that a merger between a controlling stockholder and a subsidiary was subject to
entire fairness review. In holding that the complaint stated non-exculpated claims
against the two special committee members of the subsidiary, the court focused on
the unique facts of that case, including: (1) the committee allowed management to
select its legal advisor, which had also advised the full board; (2) the committee
inexplicably did not push back on the controlling stockholder after it had first agreed
to a majority-of-the-minority vote, but then reneged; and (3) the special committee
provided the full board, including conflicted dual-fiduciaries, an “update” on its
negotiations, at a meeting that appears to have been a pressure tactic, after which
price negotiations abruptly ended. Id. at *22–24. Viacom also involved a controlling
stockholder interfering with a special committee’s process. 2020 WL 7711128, at
*2. In that case, the court concluded that the Viacom special committee members
were conflicted because they had close personal relationships with the principals of
the controller, the controller was known to be retributive and to remove directors
43
that disagreed with its approach, and the committee members acted with a
“controlled mindset” where the committee members were hand-picked by the
controller after “disloyal” members were removed. Id. at *21–23. In addition, the
committee refused to push back on CBS’s refusal to condition the deal on a majority
of the minority vote, the committee members refused to obtain any minority
protections, and the controller dominated the committee’s negotiation strategy. Id.at *22–23; see also CBS, 2021 WL 268779, at *40 (finding it “inexplicable” that a
special committee did not attempt to secure a majority-of-the-minority vote after the
controller indicated it would not agree to such a condition).
Plaintiff here offers no comparable allegations impugning the TTD Special
Committee members or their process. There are no allegations that Green sought to
interfere with or pressure the committee. At bottom, Plaintiff’s challenge to the
Special Committee is grounded in Plaintiff’s belief that maintaining the dual-class
structure through the Dilution Trigger Amendment was a bad deal for TTD
stockholders. Maybe it was. But the Delaware Supreme Court has clarified that this
court’s role in applying the MFW framework is limited to a process analysis, not
second guessing the ultimate “give” and “get”: “To lard on to the due care review a
substantive review of the economic fairness of the deal approved by a Special
Committee, as the plaintiff advocates, is to import improperly into a due care
44
analysis the type of scrutiny used in entire fairness review and in appraisal cases.”
Synutra, 195 A.3d at 756.
At their core, Plaintiff’s allegations do not substantively challenge the Special
Committee’s independence. Instead, they infer wrongdoing from business judgment
decisions. As our Supreme Court confirmed in Synutra, “Disagreeing with the
special committee’s strategy is not a duty of care violation.” Synutra, 195 A.3d at
768 (citing Swomley v. Schlecht, 2014 WL 4470947, at *21, aff'd, 128 A.3d 992(Del. 2015)) (quotation marks and brackets omitted). To state a claim against the
Special Committee for a duty of care violation in negotiating the Dilution Trigger
Amendment, they must plead facts showing that the Special Committee acted with
“gross negligence.” Id. They have failed to do so here. Accordingly, it is not
reasonably conceivable under the well-pleaded allegations in the Complaint or
Supplement that the Special Committee lacked independence or failed to satisfy its
duty of care.
2. The Stockholder Vote
Plaintiff also alleges that the stockholder vote on the Dilution Trigger
Amendment was uninformed, thus rendering MFW inapplicable.140 Plaintiff insists
there were six material disclosure deficiencies in the 2020 Special Proxy. They can
140
Compl. ¶ 121.
45
be summarized as the failure to disclose: (i) Green’s desire to sell Class B stock; (ii)
the Company’s expectations as to when the Dilution Trigger would likely be tripped;
(iii) advice that Centerview provided to the Special Committee; (iv) Green’s
counsel’s acknowledgement that a business rationale would be needed to justify any
amendment to the Dilution Trigger; (v) the Special Committee’s efforts to obtain
stockholder support for the Dilution Trigger Amendment; and (vi) the Compensation
Committee’s consideration of an equity grant to Green in December 2020.141
According to Plaintiff, each of these material omissions rendered the stockholders
uninformed, depriving them of the ability adequately to assess the transaction’s
fairness.
The analysis here turns on the “well-recognized proposition that directors of
Delaware corporations are under a fiduciary duty to disclose fully and fairly all
material information within the board’s control when it seeks shareholder action.”
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
An omitted fact is material if there is a substantial likelihood that a
reasonable shareholder would consider it important in deciding how to
vote . . . Put another way, there must be a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the “total mix” of
information made available.
141
Id. ¶¶ 122–27; Supp. to Compl. ¶ 161.
46
Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc.
v. Northway, Inc., 426 U.S. 438, 449 (1976)); accord Arnold v. Soc'y for Sav.
Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994).
The question of materiality is a “context-specific inquiry.” Dell, 2020 WL
3096748, at *39 (citation omitted). “So long as the proxy statement, viewed in its
entirety, sufficiently discloses and explains the matter to be voted on, the omission
or inclusion of a particular fact is generally left to management’s business
judgment.” In re 3Com S’holders Litig., 2009 WL 5173804, at *1 (Del. Ch. Dec.
18, 2009).
For the reasons stated below, the six alleged omissions, individually and
collectively, did not result in an uninformed stockholder vote on the Dilution Trigger
Amendment.
a. Green’s Desire to Sell Class B Shares
Plaintiff argues the stockholder vote was uninformed because the proxy did
not disclose “Green’s weak bargaining position.” 142 According to Plaintiff, “during
the spring of 2020 Green was desperate to sell a significant portion of this Trade
Desk equity,” but could not do so without tripping the Dilution Trigger and thus
losing majority control over the Company.143 Plaintiff contends that this information
142
Pl.’s Ans. Br. 52.
143
Compl. ¶ 122.
47
was material because “it reveals that the Special Committee should have had
substantial negotiating leverage against Green and could have negotiated for a
dramatically more stockholder-friendly Dilution Trigger Amendment and/or other
concessions from Green.”144
Plaintiff anchors this allegation to an email from Toth to Green on May 23,
2020, which was around the time that Green learned the Dilution Trigger could be
tripped in a matter of months if he continued to sell Class B shares. Toth’s email
stated, in pertinent part: “We may have more leverage that we think. Externally no
one knows you want to sell shares.” 145 Plaintiff points to this email, Green’s recent
sale of approximately 283,000 shares the prior week, and his subsequent sale of
shares after approval of the Dilution Trigger Amendment as evidence of Green’s
dire need for liquidity, which, if known to the Special Committee, could have led to
a better deal for stockholders. 146
Defendants contend that this allegation is conclusory and immaterial. Plaintiff
alleges no facts supporting a reasonable inference that Green had a desperate need
for liquidity. There are no allegations that he required cash for any immediate
144
Id. ¶ 123.
145
Id. ¶¶ 7, 49.
146
Notably, the Plaintiff does not allege that the stockholder vote was uninformed due to
the failure to disclose Green’s initiation of the process to amend the TTD Certificate to
remove the Dilution Trigger.
48
investment or looming debt. The week before Toth’s email, Green had sold TTD
stock for proceeds of around $80 million.147 The stockholder vote on the Dilution
Trigger Amendment was not held until six months later, and there is no allegation
of Green’s having pressured the Special Committee to accelerate the process or that
he was in dire need for liquidity.
Green’s email to Wells, seeking to discuss a “quite urgent and important”
issue does not support a reasonable inference that Green had a desperate need for
liquidity. Instead, it demonstrates that Green feared that he could lose control in the
relatively near future due to the tripping of the Dilution Trigger, either as a result of
his own continued disposition of Class B stock—which he had just ceased—the
147
The Complaint alleges Green initially sought to convert and sell 282,906 Class B shares,
but then settled the trade by converting and selling approximately 125,764 Class B shares,
with the remainder consisting of preexisting Class A shares. See Compl. ¶¶ 55, 59.
According to a Form 4 filed with the SEC on May 20, 2020, Green converted 282,906
Class B shares into Class A shares between May 18 and 20, 2020 and sold them during that
period at prices between $301 and $311 per share. The Trade Desk, Inc., Statement of
Changes in Beneficial Ownership (Form 4) (May 20, 2020). In an amended Form 4, Green
reported that instead of converting 254,883 Class B shares on May 18, 2020, he converted
only 125,764 Class B shares. The Trade Desk, Inc., Statement of Changes in Beneficial
Ownership (Form 4/A) (June 12, 2020). The court takes judicial notice of these Form 4s
and these stock sales. See Hughes, 897 A.2d at 170 (“This Court has recognized that, in
acting on a Rule 12(b)(6) motion to dismiss, trial courts may consider hearsay in SEC
filings to ascertain facts appropriate for judicial notice under [Delaware Rule of Evidence]
201.” (internal quotations omitted)); Parseghian v. Frequency Therapeutics, Inc., 2022
WL 2208899, n.45 (Del. Ch. June 21, 2022) (taking judicial notice of SEC Form 4
reflecting a director’s stock holdings); In re Primedia, Inc. S’holders Litig., 2013 WL
6797114, at *11 (Del. Ch. Dec. 20, 2013) (taking judicial notice of SEC Form 4s for
purposes of establishing the dates of stock purchases).
49
Company’s issuance of additional Class A stock, or the exercise of Class A options
by others.
Green’s desire to sell TTD stock would not have significantly altered the total
mix of information available to stockholders when deciding how to vote on the
Dilution Trigger Amendment. Arnold, 650 A.2d at 1277. The purpose of the
Dilution Trigger Amendment was to maintain the existence of the high-vote Class
B stock (98% owned by Green) without an automatic conversion to Class A upon
the Class B falling below the 10% threshold. The obvious effect of the amendment
was that Green could dispose of Class B shares without risk of causing the automatic
conversion of his remaining Class B shares. 148
The 2020 Special Proxy disclosed that the Class B stock represented only
10.7% of the total stock outstanding, i.e., 0.07% above the Dilution Trigger.149 It
also disclosed that the Dilution Trigger could be reached as early as March 2021.150
Plaintiff does not dispute that the 2020 Special Proxy disclosed that Green proposed
the Dilution Trigger Amendment. The amendment would have been unnecessary if
it was not likely to be triggered in the near term, either due to the conversion and
148
Green also beneficially owned 138,289 shares of Class A stock. 2020 Special Proxy at
34.
149
2020 Special Proxy at 2 (“On the record date, there were 41,947,749 shares of our Class
A common stock outstanding and 5,015,339 shares of our Class B common stock
outstanding.”).
150
Id. at 13.
50
sale of Class B stock by Green and other holders of Class B, the Company’s issuance
of Class A stock, or the exercise of options for Class A stock held by employees and
other option holders.
Plaintiff likens the failure to disclose Green’s supposed desperate need for
liquidity to the non-disclosure of the infamous Arledge and Chitiea report
in Weinberger v. UOP, Inc., 457 A.2d 701, 703 (Del. 1985). The analogy fails.
Weinberger involved a controlling stockholder (Signal Companies, Inc.)
acquiring the remaining shares of UOP that it did not already own in a long-form
cash-out merger. Signal had placed seven of the 13 directors on the UOP board. Id.
at 704. Two of them, Charles Arledge and Andrew Chitiea, also served on the Signal
board. Id. at 705. Arledge and Chitiea performed a study using information obtained
from UOP that determined it would be in Signal’s interest to acquire the remaining
UOP stock for anything under $24 per share. Id. The Signal board decided to offer
between $20–$21 per share and never disclosed the Arledge-Chitiea report. Id. at
707. The Delaware Supreme Court concluded that Signal’s withholding of the
Arledge-Chitiea report from the UOP board and its stockholders indicated a lack of
fair dealing. Id. at 711.
Even crediting the Complaint’s allegation of Green’s dire liquidity need as
more than speculative, it is not comparable to the Arledge-Chitiea report. The
Arledge-Chitiea report was prepared by two conflicted directors using UOP
51
information obtained solely in their capacities as UOP directors. Id. at 705. Here,
Green’s purported need for liquidity was not based on Company information that
was secretly withheld from the other directors. Instead, it was, at best, Green’s
subjective motivation for proposing the Dilution Trigger Amendment. See Rabkin
v. Olin Corp., 1990 WL 47648, at *10 (Del. Ch. Apr. 17, 1990) (rejecting analogy
to Weinberger where the complaint failed to allege that undisclosed information
contained sensitive company data as did the Arledge-Chitiea document), aff’d, 586
A.2d 1202 (Del. 1990) (TABLE); see also, e.g., Herd v. Major Realty Corp., 1990
WL 212307, at *10 (Del. Ch. Dec. 21, 1990) (“the general rule is that alleged
motives need not be disclosed”); In re MONY Grp., Inc. S’holder Litig., 853 A.2d
661, 682 (Del. Ch. 2004) (directors’ “subjective motivation or opinions are not per
se material, as long as the Board fully and accurately discloses the facts material to
the transaction”).
As Defendants aptly put it, “anyone reading the Proxy would understand both
that Green desired to retain control through the Trigger Amendment and that the
amendment would enable him to continue his (disclosed) historical practice of
selling shares without losing that control.”151 The omission of Green’s desire to sell
151
Green’s Opening Br. 38. Green’s disposition of TTD stock is reflected in Form 4s filed
with the SEC, of which the court can take judicial notice. See Hughes, 897 A.2d at 170.
52
TTD stock did not render the stockholder vote on the Dilution Trigger Amendment
uninformed.
b. The Estimated Dilution Trigger Date
Plaintiff contends that the 2020 Special Proxy “misleadingly disclosed that
‘the Dilution Trigger could occur as early as March 2021’ and suggested that any
crossing of the threshold was uncertain and could be delayed far longer (even by
years).”152 The 2020 Special Proxy’s disclosures on this topic were neither
misleading nor false. “[A]s a general rule, proxy materials are not required to state
‘opinions or possibilities, legal theories or plaintiff’s characterization of the facts.’”
MONY, 853 A.2d at 682 (quoting Seibert v. Harper & Row, Publ’rs, Inc., 1984 WL
21874, at *6 (Del. Ch. Dec. 5, 1984)). The 2020 Special Proxy identified the current
number of shares outstanding as of the record date.153 It also disclosed, in
conjunction with an illustrative stock ownership chart, that “there ha[d] been a
significant change in the ownership of [the Company’s] Class B common stock in a
relatively short time since [the Company’s] initial public offering.” 154 It stated that
the Dilution Trigger could be tripped “as early as March 2021.”155 Most important,
152
Compl. ¶ 124.
153
2020 Special Proxy at 2.
154
Id. at 13.
155
Id.
53
the 2020 Special Proxy explained that the Company could not definitively predict or
control when the Dilution Trigger would be tripped:
Under our current governance structure, our board of directors does not
control the occurrence of the Triggering Events (as defined in Proposal
One) that will result in the elimination of our dual class capital
structure. The timing of the Dilution Trigger, for example, will vary
widely depending on various factors. Our board of directors can
influence the Dilution Trigger through issuances of Class A common
stock, but the occurrence of the Triggering Events is largely outside of
our board of directors’ control because conversion of the Class B
common stock has the most significant effect on the Dilution
Trigger.156
The Plaintiff does not allege any inaccuracies in this disclosure.
The Dilution Trigger date was not knowable due to the factors identified in
the 2020 Special Proxy. The Plaintiff does not allege material information that was
withheld from the Proxy. See Weiss v. Rockwell Int’l Corp., 1989 WL 80345, at *7
(Del. Ch. July 19, 1989), aff'd, 574 A.2d 264 (Del. 1990) (finding that defendants
“were not required to add their subjective opinion as to whether that particular [stock
sale] scenario (over which they had no control) would or would not occur,”
especially when “the possible scenario and its likely effect were in fact disclosed”);
see also Shaev v. Adkerson, 2015 WL 5882942, at *10 (Del. Ch. Oct. 5, 2015)
(“[N]ot only is Plaintiffs desired disclosure immaterial, but it might have been
inappropriate to include in the proxy materials such a speculative conclusion.”). The
156
Id. at 20.
54
Board was not obligated to provide additional possibilities, opinions, or
characterizations as to a Dilution Trigger date that it did not have. MONY, 853 A.2d
at 682. Therefore, the Complaint does not contain any well-pleaded allegations
rendering the Proxy’s disclosure on the estimated Dilution Trigger date materially
misleading or incomplete.
c. The Centerview Slide
Plaintiff asserts that the 2020 Special Proxy “fail[ed] to disclose a fair
summary of Centerview’s advice and recommendations to the Special
Committee.” 157 This argument is focused on one slide of a presentation. On July 2,
2020, shortly after being retained as financial advisor to the Special Committee,
Centerview provided a “Preliminary and Confidential” presentation regarding a
potential amendment to the Dilution Trigger. 158 The presentation contained a slide
identifying “Potential Levers,” including “Goodwill,” “Economic Considerations,”
and “Governance Incentives.” 159 Economic Considerations reflected in the slide
included “‘Sunset Provisions’” which provided the “Least Value” and “Financial
Incentive” which provided the “Most Value,” “based upon precedent control
157
Compl. ¶ 125.
158
Dkt. 64, Ex. 32.
159
Id. at TTD0000381.
55
extension.”160 Plaintiff claims that “[t]his information is particularly material”
because the Dilution Trigger Amendment failed to provide the Company’s
stockholders with economic consideration. 161
Defendants argue that they were not required to disclose all preliminary
guidance that the Special Committee received from its advisors and Plaintiff cites
no authority to support such an obligation. Defendants also note that this case does
not involve a merger where the committee obtained and relied on a financial
advisor’s fairness opinion and underlying valuation analysis. See In re Pure Res.,
Inc., S’holders Litig., 808 A.2d 421, 449 (Del. Ch. 2002) (holding that “stockholders
are entitled to a fair summary of the substantive work performed by the investment
bankers upon whose advice the recommendations of their board as to how to vote
on a merger or tender rely”). That distinction, which the Plaintiff does not address,
is a meaningful one. But the court need not decide the pending motions on that basis.
The court is not persuaded under the facts of this case that a single Centerview slide,
containing generalized information regarding what stockholders might find more
appealing in considering a proposal to extend a dual-class structure was material
information.
160
Id.161
Compl. ¶ 125.
56
The 2020 Special Proxy described the terms of the proposals and
counterproposals between Green and the Special Committee. None of the proposals
or counterproposals contained economic terms, such as Green surrendering stock or
the Company making a payment to unaffiliated stockholders. Stockholders were
able to assess for themselves whether the deal struck by the Special Committee was
in the best interests of the stockholders and the Company. The additional disclosure
that the Special Committee could have demanded economic consideration, but did
not do so, would have been obvious to any reasonable stockholder reading the 2020
Special Proxy. The omission of information contained in one slide of Centerview’s
preliminary presentation mentioning that financial incentives provide the most value
does not render the stockholder vote on the Dilution Trigger Amendment
uninformed.
d. The Business Rationale
Plaintiff next argues the 2020 Special Proxy should have disclosed that
Green’s counsel told the Special Committee “on multiple occasions” that Green
would be providing a “business rationale” for the Dilution Trigger Amendment.162
A rational business purpose serves as the foundation to the business judgment rule.
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985). Green’s
162
Compl. ¶ 126.
57
acknowledgement of the need for a business rationale to justify eliminating the
Dilution Trigger is not a material fact, but an ordinary course of proper fiduciary
conduct.
Plaintiff argues that Green’s acknowledgement that a business rationale was
needed shows that there was none and that stockholders should have been so
informed.163 That is not a reasonable inference from the facts alleged in the
Complaint. As the Plaintiff alleges, proxy advisory services such as ISS generally
do not support dual-class structures. 164 The communication from Green’s counsel
to the Special Committee’s counsel merely confirmed that Green needed to make
his case to the Special Committee that repealing the Dilution Trigger was justified
and that the rationale for the amendment was sufficient to persuade a majority of the
unaffiliated stockholders to vote for it.
The 2020 Special Proxy included Green’s August 3, 2020 letter to the Special
Committee explaining his rationale for the Initial Green Proposal to eliminate the
Dilution Trigger. 165 The 2020 Special Proxy also disclosed the Special Committee’s
reasons for approving the amendment.166 Although Plaintiff challenges the
163
Compl. ¶ 126.
164
Id. ¶ 73.
165
2020 Special Proxy at D-1.
166
Id. at “LETTER FROM THE SPECIAL COMMITTEE.”
58
legitimacy of the Special Committee’s support for extending Green’s ability to
control the Company, Delaware law does not render the committee’s position per se
illegitimate. See Zuckerberg, 250 A.3d at 895 (“As long as an otherwise independent
and disinterested director has a rational basis for her belief [that it is optimal for the
company to be controlled by its founder], that director is entitled (indeed obligated)
to make decisions in good faith based on what she subjectively believes will
maximize the long-term value of the corporation for the ultimate benefit of its
residual claimants.”).
The TTD stockholders were fully capable of assessing the bona fides of
Green’s and the Special Committee’s fully disclosed rationales and assessing
whether the terms of the transaction were worthy of the stockholders’ support.
Green’s counsel’s recognition that a proposal to eliminate the Dilution Trigger
needed a business rationale was not material in light of the disclosures taken as a
whole. See Crane, 2017 WL 7053964, at *13 (“[D]irectors are ‘not required to
disclose all available information,’ but only that information necessary to make the
disclosure of their recommendation materially accurate and complete.”).
e. The Special Committee’s Marshalling of Stockholder
Support
Plaintiff contends that the 2020 Special Proxy wrongfully failed to disclose
that the Special Committee “actively worked to get significant Trade Desk
59
stockholders” to vote “yes” on the Dilution Trigger Amendment. 167 Plaintiff infers
that this marshaling of support “reveals” the Special Committee’s intent to “override
the will of the Company’s public stockholders.”168
This allegation lacks merit. Notably, this argument focuses on events
occurring after the issuance of the 2020 Special Proxy. Thus, if the Special
Committee’s efforts to obtain sufficient votes needed to be disclosed, it would
necessarily have required a proxy supplement.169 To that end, the Company filed
supplemental proxy materials with the SEC on December 7, 2020 explaining: “The
special meeting was adjourned to allow the Company additional time to solicit votes
in favor of the proposals to be acted on by stockholders at the meeting.”170 Plaintiff
does not allege that the supplemental proxy materials were false or misleading. Nor
does Plaintiff attempt to argue that further disclosure specifically identifying the
Special Committee as among those garnering votes for the proposal would have
167
Compl. ¶ 127.
168
Id.169
The Delaware Supreme Court has summarized a fiduciary’s duty to supplement its
disclosure as follows: “[S]ubsequent events may have significance, and thus require
disclosure, only as they relate to information originally disclosed. If subsequent events
impart a new and significant slant on information already discussed, their disclosure is
mandated. If the subsequent event is tentative, ill defined or adds little to material already
disclosed, the duty of fresh disclosure is limited.” Kahn v. Household Acq. Corp., 591
A.2d 166, 171 (Del. 1991). Plaintiff does not address this standard or attempt to meet it.
170
The Trade Desk, Inc., Schedule 14A (Dec. 7, 2020).
60
“significantly altered the ‘total mix’ of information made available” to TTD’s
stockholders. Arnold, 650 A.2d at 1277.
Plaintiff also ignores that the Board was fully within its authority to adjourn
the meeting to obtain the requisite votes to approve the Dilution Trigger
Amendment. The 2020 Special Proxy included a proposal for stockholder
“[a]pproval of one or more adjournments of the Special Meeting, if necessary, to
solicit additional proxies if there are insufficient votes at the time of the Special
Meeting to approve any of the proposals to be considered at the meeting.”171 At the
December 7, 2020 meeting, a majority of the stockholder votes cast approved this
adjournment proposal. 172 Therefore, the Board possessed the legal authority to do
so.
Delaware law does not require that directors remain neutral regarding the
matters they propose for stockholder action. Mercier v. Inter-Tel (Del.), Inc., 929
A.2d 786, 808–09 (Del. Ch. 2007) (“As a matter of fiduciary duty, directors should
not be advising stockholders to vote for transactions . . . unless the directors believe
those measures are in the stockholders' best interests. And when directors believe
that measures are in the stockholders' best interests, they have a fiduciary duty to
171
2020 Special Proxy at 6.
172
See The Trade Desk, Inc., Form 8-K Amendment No. 1 (Dec. 10, 2020) at Item 5.07
(69,932,843 cast “for” the proposal, 7,373,591 votes cast “against,” and 88,030 votes
abstained).
61
pursue the implementation of those measures in an efficient fashion.”). In fact, the
law provides directors with broad authority to expend company resources garnering
support for proposals that they have deemed to be in the best interests of the
company. MONY, 853 A.2d at 675 (“Directors can spend the corporation's money
on printing and distributing a proxy statement explaining their judgment as to the
benefits of the merger proposal. The[y] can retain experts to solicit proxies and
publicize their views. They can hire lawyers and other advisors to defend their
actions in court or in front of administrative or legislative bodies.”). The Special
Committee’s efforts to obtain sufficient votes to approve the Dilution Trigger
Amendment was not a fact that required supplemental disclosure.
f. The Compensation Committee’s Consideration of an
Equity Grant to Green in December 2020
Finally, Plaintiff complains that the Company’s stockholders were not
informed that the Company’s Compensation Committee met on December 3, 2020
to consider issuing Green a “mega [stock option] grant” (the “Contemplated Green
Award”). 173 At this meeting, the Compensation Committee “considered . . . granting
options to Green amounting to 5% of the Company’s equity.” 174 There is no
allegation that the Compensation Committee took any action at this meeting or at
173
Supp. to Compl. ¶ 161.
174
Id. ¶ 160.
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any time prior to October 2021 concerning this potential option grant. Plaintiff
admits that, at the time of filing its Complaint, the Board had not yet approved any
such grant.175 Indeed, an options grant was not awarded to Green until October 6,
2021, a full 10 months after the Compensation Committee meeting that forms the
basis for this disclosure claim.176
Plaintiff nonetheless argues that knowledge of the contents of the
Compensation Committee’s December 3, 2020 meeting would have materially
altered the total mix of information provided to stockholders deciding how to vote
on the Dilution Trigger Amendment: “Had Trade Desk stockholders known that the
Board and Compensation Committee were strongly considering the near-term
bestowal of a windfall on Green, stockholders may have decided to vote against the
perpetuation of control.”177
The 2021 Special Proxy was filed with the SEC on October 27, 2021, over a
month before the Compensation Committee’s December 3 meeting wherein they
discussed the Contemplated Green Award. Given this timing, any disclosure
regarding the meeting would have necessarily been a supplement to the 2021 Special
Proxy. As explained by the Delaware Supreme Court, the Board bears a duty to
175
Compl. ¶ 19.
176
Supp. to Compl. ¶ 166.
177
Id. ¶ 161.
63
supplement its disclosure only when “subsequent events impart a new and
significant slant on information already discussed.” Household, 591 A.2d at 171.
In December 2020, the TTD stockholders were being asked to vote on the
continuation of its existing governance structure, i.e. the dual-class stock structure,
which enabled its founder to retain voting control of the Company.178 The
Contemplated Green Award was not one of the proposals presented to the
stockholders for their vote in December 2020. In fact, the Contemplated Green
Award was entirely speculative at the time the adjourned and reconvened
stockholder meetings were held.179 “Delaware law does not require disclosure of
inherently unreliable or speculative information which would tend to confuse
stockholders.” Arnold, 650 A.2d at 1280; accord Crane, 2017 WL 7053964, at *13;
see also In re Columbia Pipeline Gp., Inc., 2017 WL 898382, at *5 (Del. Ch. Mar.
7, 2017) (“As a matter of Delaware law, a board does not have a fiduciary obligation
to disclose preliminary discussions, much less an analysis of preliminary
discussions.”). Plaintiff’s argument that disclosure of a potential large equity grant
was required because it was being considered as an “alternative to the then-uncertain
178
Compl. ¶ 86; 2020 Special Proxy at Appendix D-1.
179
Supp. to Compl. ¶ 160 (“The Compensation Committee considered, as of its December
3, 2020 meeting, granting options to Green”) (emphasis added); Id. ¶ 161 (“the Board and
Compensation Committee were strongly considering the near-term bestowal of a windfall
on Green”) (emphasis added).
64
Trigger Amendment” 180 is equally unpersuasive. See In re 3Com, 2009 WL
5173804, at *6 (“Delaware law does not require management to discuss the panoply
of possible alternatives to the course of action it is proposing.” (internal quotations
omitted)); accord Crane, 2017 WL 7053964, at *13.
Plaintiff has failed to explain how a reasonable shareholder would have
considered the Compensation Committee’s preliminary consideration of an option
grant to its CEO on December 3, 2020 “important in deciding how to vote” on the
Dilution Trigger Amendment. Rosenblatt, 493 A.2d at 944; see Household, 591
A.2d at 171 (holding supplemental disclosure not required about an agreement that
was not definitive); In re Vaxart, Inc. S’holder Litig., 2022 WL 1837452, at *15–19
(Del. Ch. June 3, 2022) (holding that the company’s selection to participate in a
government-funded research program that was subject to further negotiation was not
material information requiring supplemental disclosure).
Therefore, Plaintiff has failed to allege facts to support a reasonable inference
that the failure to disclose preliminary discussions regarding the Contemplated
Green Award rendered the stockholders’ vote on the Dilution Trigger Amendment
uninformed.
* * *
180
Pl.’s Ans. Br. 66 (emphasis omitted).
65
Plaintiff has failed to plead facts sufficient to challenge the application of the
MFW framework. “Thus, the [Dilution Trigger Amendment] is subject to the
business judgment rule.” Crane, 2017 WL 7053964, at *21. Under the version of
the business judgment rule earned by proper implementation of the MFW
framework, only a well-pleaded claim for waste may survive. Dell, 2020 WL
3096748, at *14. Plaintiff has not pleaded a claim for waste and has made no effort
to overcome the business judgment rule.
III. CONCLUSION
For the foregoing reasons, the Defendants’ Motions to Dismiss are
GRANTED, and the Complaint is dismissed with prejudice.
IT IS SO ORDERED.
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