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In re Cendant Corp. Derivative Action Litigation

August 11, 1999


The opinion of the court was delivered by: William H. Walls, U.S.D.J.



Walls, District Judge

I. Introduction

This matter is before the Court on the motions of Cendant Corporation ("Cendant"), the HFS defendants, the CUC defendants, Bear Stearns, and the individual defendants E. Kirk Shelton, Amy Lipton, and Cosmo Corigliano to dismiss the verified amended derivative complaint ("complaint") against them. The motion of defendants Shelton and Corigliano to dismiss Count I of the complaint is granted. The motion of defendant Bear Stearns to dismiss the complaint is granted. Defendant Lipton's motion to dismiss the complaint against her for lack of personal jurisdiction is granted. The CUC defendants' motion to dismiss Counts II and III against defendant Forbes is granted. All other motions are denied.

II. Background

At all relevant times, plaintiff Martin Deutch is and was a shareholder of nominal defendant Cendant. He brings this shareholder's derivative action, on behalf and for the benefit of Cendant "to remedy the gross abuse of trust and loyalty committed by the defendants named [in the complaint], who include, inter alia, a majority of Cendant's Board of Directors." (Am. Compl. ¶ 1.) This suit arises out of the merger (the "Merger") of CUC International, Inc. ("CUC") with HFS Incorporated ("HFS") to form Cendant on December 17, 1997. During the next four months, Cendant's stock price increased by 25%. (Id. at ¶ 4.) On April 15, 1998, after the close of the stock market, Cendant announced that due to "accounting irregularities" in certain former CUC business units, it expected to restate its annual and quarterly financial statements for 1997 and possibly for earlier periods as well. (Id. at ¶ 5.) Cendant estimated that it would reduce its 1997 income by $100-115 million and earnings per share by 11 to 13 cents. (Id. at ¶¶ 5, 88-89.) Cendant also announced that it had hired the law firm of Willkie Farr & Gallagher as special legal counsel which, in turn, hired Arthur Andersen LLP (the "independent investigators") to perform an independent investigation. The next day, Cendant's stock fell by $16.56 per share or nearly 50%, and Cendant lost over $15 billion in market capitalization. (Id. at ¶¶ 5, 91.) Shareholders filed suits under the securities laws in this and other districts against Cendant, its officers, directors, and other parties. On April 27, 1998, plaintiff Deutch brought this derivative action against nominal defendant Cendant, its officers, directors, and Bear Stearns, the financial advisor to HFS about the Merger.

On July 14, 1998, Cendant announced that CUC's income for the 1995, 1996, and 1997 fiscal years had been overstated by more than $500 million. (Id. at ¶ 6.) Following this announcement, on July 28, 1998, Cendant's board of directors met with the independent investigators. (Id. at ¶ 7.) On that day, Walter Forbes and nine former CUC directors agreed to resign. (Id. at ¶¶ 7-8.) Finally, on August 28, 1998, Cendant filed with the SEC a report ("Report") prepared by the independent investigators which disclosed that CUC and Cendant's income for 1995, 1996, and 1997 had been overstated by approximately $500 million. (Id. at ¶ 117.) The Report concluded that these overstatements were achieved through improper topside adjustments to quarterly income, manipulation of merger reserves, accelerated revenue recognition, and the understatement of membership cancellation reserves. (Id.) On December 8, 1998, plaintiff filed this amended verified derivative complaint which defendants now move to dismiss.

Plaintiff alleges that Cendant's twenty-eight directors (fourteen from CUC and fourteen from HFS) "improperly granted themselves and Cendant's senior officers enormous financial incentives to complete the Merger and created enormous incentives for its investment banker, Bear Stearns to opine in favor of the Merger." (Pl.'s Mem. at 2.) Plaintiff complains that "to ensure the Merger's completion, Defendants issued numerous materially false and misleading statements regarding [Cendant's] income and finances, and the Defendants' due diligence in the Merger." (Id.) Plaintiff Deutch did not demand that the directors of Cendant sue themselves because, he maintains, such demand would have been futile.

Plaintiff has sued Cendant as a nominal defendant, together with the Bear Stearns Companies, Inc. and its subsidiary, Bear Stearns and Co., Inc., engaged by HFS as its advisor on the Merger (collectively the "Bear Stearns defendants"), and individual defendants who were officers and/or directors of Cendant. The individual defendants are Henry R. Silverman, Walter A. Forbes, T. Barnes Donnelley, Martin L. Edelman, Stanley Rumbough, Jr., John D. Snodgrass, Stephen P. Holmes, James E. Buckman, Bartlett Burnap, Burton C. Perfit, Michael P. Monaco, Christopher K. McLeod, Robert D. Kunisch, E. Kirk Shelton, Robert T. Tucker, E. John Rosenwald, Jr., Cosmo Corigliano, and Amy N. Lipton. (Am. Compl. ¶ 18.) With the exception of defendants Lipton and Corigliano, the individual defendants comprised a majority of Cendant's board of directors at the time this suit was filed and are referred to in the complaint as the "Director Defendants." (Id.)

The complaint alleges that the individual defendants, "through their positions as senior officers and/or directors of [Cendant] and their receipt of reports, attendance at meetings and access to all of [Cendant's] books, records and other proprietary information, had responsibility for, and therefore, material non-public information regarding, inter alia, (a) the accuracy and reliability of [Cendant's] financial statements and/or accounting practices; and (b) [Cendant's] true earnings." (Am. Compl. ¶ 20.) Plaintiff asserts that with all this information, the individual defendants knew, or should have known, that Cendant's publicly issued financial statements for 1997 were false because they did not conform to generally accepted accounting principles ("GAAP"). (Id. at ¶ 21.) According to the complaint, the individual defendants issued materially false and misleading statements regarding Cendant's financial condition and the results of its operations. (Id. at ¶ 22.) Plaintiff alleges that the individual defendants breached their fiduciary duty of loyalty because they, acting on material insider information, sold over four million shares of Cendant stock at artificially inflated prices to realize approximately $180 million for their own personal gain. (Id.)

The complaint charges that the individual defendants consummated the Merger for their own benefit. According to it, defendants Forbes and Silverman first discussed a possible merger in April, 1997. (Am. Compl. ¶ 33.) On May 2, 1997, HFS engaged Bear Stearns, with which it had a long-standing relationship, as its financial advisor on the Merger. (Id. at ¶ 35.) Defendant Silverman and the other HFS directors agreed to pay Bear Stearns a $4 million fee for a "fairness opinion" with regard to the Merger, and an additional $26 million if the Merger was consummated. (Id. at. ¶¶ 17, 36.) Plaintiff asserts that Bear Stearns and the HFS directors with access to CUC's internal reports and documents failed to disclose that CUC had overstated its earnings by one-third. (Id. at ¶ 39.) Plaintiff contends that both the HFS and CUC individual defendants consummated the Merger "to enhance their personal power and wealth." (Id. at ¶ 41.) As part of the Merger, defendants Silverman, Forbes, Shelton, McLeod, Monaco, Holmes, Buckman, Lipton, and Corigliano each received special compensation packages. (Id.) In 1997, defendant Silverman was granted stock options valued at approximately $280 million. (Id. at ¶ 18(a).) Defendant Forbes received stock options valued at approximately $65 million. (Id. at ¶ 18(b).) In addition to the grants of stock options and shares of restricted stock that were made to defendants Silverman, Monaco, Holmes, Buckman, Forbes, and McLeod, other officers and key employees of Cendant were granted an aggregate of 8.625 million stock options and shares of restricted stock, with a fair market value of $26.4 million. (Id. at ¶ 41.)

The complaint alleges that the CUC defendants inflated their earnings through wrongful accounting practices "to keep CUC's market value as high as possible and provide themselves the benefits of inflated CUC earnings." (Id. at ¶ 44.) CUC's management had done so in the past as well: in 1989, CUC was forced to restate its earnings and take a $51 million charge; in 1994, CUC's accounting practices were criticized by the Center for Financial Research & Analysis, a Baltimore based provider of reports to institutional investors, which estimated that CUC's income was $31.5 million lower than reported in fiscal 1994 and $6.2 million lower for the first nine months of fiscal 1995. (Id. at ¶¶ 45-47.) Before the Merger, CUC's debt rating was "BBB", but as a result of the Merger, its debt rating improved to "A-". (Id. at ¶ 53.)

Plaintiff asserts further that the individual defendants misleadingly promoted Cendant as a growth company on multiple occasions from at least August 28, 1997, when they caused CUC and HFS to issue the Registration Statement. (Id. at ¶ 48.) Although they repeatedly touted Cendant as a "growth company," the individual defendants sold almost 4 million shares of their own stock in Cendant for $180 million after the Merger while in the possession of materially adverse, inside information. (Id. at ¶¶ 18, 48-58.) On December 18, 1997, defendant McLeod sold 62,620 shares for $1.97 million. (Id. at ¶ 18(m).) Defendant Forbes sold 75,146 shares for $2.36 million on December 28, 1997, and defendant Burnap sold 75,000 shares for $2.63 million on January 22, 1998. (Id. at ¶ 18(b), (g).) On February 3, 1998, Ernst & Young, CUC's auditor, told Cendant's Audit Committee that CUC's income for the month of January, 1997 was overstated by $23 million. (Id. at ¶ 63.) On February 4, Cendant announced its materially false and misleading financial earnings for 1997 which included this $23 million overstatement. (Id. at ¶¶ 63-64.) On February 5-6, 1998, defendant Silverman sold a total of 1.7 million shares, every share of stock that he owned in Cendant, for $61,420,239. (Id. at ¶ 68.) On February 6, 1998, defendant Buckman sold 300,000 shares for $10.8 million. (Id. at ¶¶ 18(h), 68.) Defendant Perfit sold 3,938 shares for $140,000 on February 10, 1998, and defendant Rumbough sold 50,000 shares for $1.78 million. (Id. at ¶¶ 18(i), (e), 68.) Between February 25, 1998 and March 17, 1998, defendant Snodgrass sold 811,423 shares for over $31 million, defendant Burnap sold 625,000 shares for nearly $24 million, defendant Forbes sold 300,000 shares for over $11 million, defendant Rumbough sold 25,938 shares for nearly $1 million, defendant Edelman sold 60,000 shares for nearly $2.5 million, and defendant Donnelley sold 100,000 shares for over $4 million. (Id. at ¶ 18, 77.) On April 6-7, 1998, defendant Snodgrass sold 793,026 shares for almost $32 million. (Id. at ¶ 81.)

The complaint alleges that on January 27, 1998, defendants Silverman and Forbes jointly announced Cendant's $2.7 billion bid for American Banker Insurance Group, Inc. ("ABI") and stated that the deal was "not subject to any due diligence or financing conditions." (Id. at ¶¶ 59-60.) Plaintiff asserts that "Silverman and the other Individual Defendants had become so self-consumed by their desire to effectuate ever larger deals, that they had dispensed with conditioning of mergers on the undertaking of the due diligence process to investigate the integrity of the target Company." (Id. at ¶ 60.) "The Individual Defendants, bowing to the desires of Defendants Silverman and Forbes, abdicated their fiduciary duties of loyalty and care to the Company by writing Defendants Forbes and Silverman a blank check to acquire [ABI], regardless of the terms of the transaction and regardless of whether or not a proper (or any) due diligence was performed." (Id. at ¶ 61.)

The complaint charges that the individual defendants caused Cendant to issue several false and misleading financial statements and reports even after the Merger. On February 4, 1997, Cendant issued a false financial report for the fourth quarter ended December 31, 1997 and for the fiscal year ended December 31, 1997. (Id. at ¶ 64.) On February 20, 1998, Cendant filed with the SEC a Form S-4 Registration Statement in connection with its offer to purchase ABI which set forth the false financial results that Cendant had announced on February 4, 1997. (Id. at ¶ 69.) On March 31, 1998, Cendant filed a false Annual Report on Form 10-K with the SEC for the year ended December 31, 1997. (Id. at ¶ 79.)

The complaint claims that the individual defendants' "knowledge, or reckless disregard of the truth regarding [Cendant's] earnings is demonstrated by the fact that the `accounting irregularities' were so basic that they were discovered within one day after the Defendants purportedly began to investigate." (Id. at ¶ 148.) The knowledge of these defendants is "demonstrated by their alleged `due diligence' during the Merger at which time they had access to and conducted a review of relevant documents regarding CUC earnings." (Id. at ¶ 132.) Defendants' knowledge is also evidenced by the May 27, 1997 Bear Stearns Opinion Letter, in which Bear Stearns wrote that in its determination of the fairness of the Merger, it had relied upon certain material non- public information provided by the individual defendants which would have required it to review CUC's and HFS's accounting policies and practices. (Id. at ¶ 133.) Plaintiff alleges that defendants either knew of, or recklessly disregarded the existence of accounting irregularities before the Merger based on the following factors:

(a) the existence of numerous red-flags regarding CUC's prior accounting machinations in 1989, 1991, and 1994; (b) that the type of investigation that HFS typically engaged in was designed to catch the exact type of wrongdoing involved here - namely an antiquated accounting system that allowed for manual entries and adjustments; (c) that Defendants represented in the Registration Statement that they were provided full access to necessary books and records; (d) that Silverman demanded and received daily cash flow figures and detailed financial reports as part of his management style; and/or (e) the conclusion reached by the Audit Committee's investigation that HFS was denied access to the usual level of detail with which it conducts its due diligence investigations, raising a red- flag that CUC had something to hide. (Am. Compl. ¶ 129.)

Plaintiff claims that after the Merger, the individual defendants knew of or recklessly disregarded the accounting irregularities based on the following facts:

(a) [Cendant], in a highly unusual and undisclosed arrangement, continued to maintain separate accounting functions after the Merger; (b) prior to the February 4, 1998 release of Cendant's 1997 financial results, the Audit Committee was specifically informed that CUC's income for the month of January, 1997 was overstated by in excess of $23 million and could not be reconciled; (c) in January 1998, Cendant's Corporate Controller, a former HFS employee, independently reached the same conclusion regarding the overstatement of CUC's January 1997 income; (d) Silverman and Monaco were involved in renegotiating a contract with CNA from which [Cendant] improperly recorded $30 million as current income in 1997; and (e) by no later than March 9, 1998, Silverman and other former top HFS officers and directors had been told that in excess of $100 million of 1997 income was non-recurring and that more than $200 million in adjustments were necessary in order for CUC to meet its budget for 1998. (Am. Compl. ¶ 130.)

Plaintiff argues that after Cendant announced the accounting irregularities, the individual defendants sought to protect themselves from personal responsibility and conferred additional financial benefits upon themselves. (Pl.'s Mem. at 13.) After the announcement, a power struggle ensued between the former HFS and CUC directors. (Id. at 14.) Silverman led the HFS faction and blamed Forbes and CUC for the scandal. (Id.; Am. Compl. ¶¶ 100, 152.) Forbes and the CUC faction denied any wrongdoing. During this struggle, on July 14, 1998, Cendant disclosed that its income was overstated by over $500 million, not the $100 million it had estimated. (Pl.'s Mem. at 14; Am. Compl. ¶¶ 6, 96). On July 28, 1998, "[i]n exchange for $47.5 million and an agreement that they would walk away without the threat of personal liability, Forbes and nine CUC directors resigned and ceded control of [Cendant] to Silverman and HFS." (Pl.'s Mem. at 15; Am. Compl. ¶¶ 104-116). As part of the deal, the board agreed to delegate to a Litigation Committee, composed of an equal number of CUC and HFS members (no more than four in total), "complete and utter control and discretion over this action and any other direct or derivative actions." (Pl.'s Mem. at 15; Am. Compl. ¶¶ 104-116.) They also agreed to pay Forbes a $47.5 million severance package and to heighten the indemnification rights of Forbes and other CUC directors in exchange for their agreement to resign. (Pl.'s Mem. at 15; Am. Compl. ¶¶ 7-8, 105-106.) According to plaintiff, the "By-Law creating the Litigation Committee was enacted to ensure that the HFS faction, which was taking control of [Cendant], would be blocked from initiating a lawsuit or permitting a derivative action to proceed against the CUC directors unless the CUC representatives on the Committee approved. The Litigation Committee was created for the obvious purpose of insulating Forbes and the CUC Directors from liability once they resigned from office." (Pl.'s Mem. at 15.) Plaintiff claims that this Litigation Committee "was required to contain an equal number of CUC and HFS directors, with a vote along party lines blocking pursuit of any claim." (Pl.'s Mem. at 6.) In addition, on September 23, 1998, "Defendant Silverman's handpicked Compensation Committee" repriced the stock options granted to defendants Silverman, Buckman, Holmes, Monaco, and Kunisch which had been rendered worthless by the decline in Cendant's stock price. (Am. Compl. ¶¶ 121-126, 169.) Plaintiff alleges that this repricing provided these defendants with a benefit in excess of $100 million and caused Cendant to be severely criticized by Wall Street. (Id. at ¶¶ 122-126.)

Plaintiff asserts that the individual defendants "have harmed [Cendant] through their continuing scheme of issuing material false and misleading financial statements, implementing improper accounting practices and personally profiting through insider sales of stock based on their misappropriation of proprietary internal (and adverse) corporate information." (Am. Compl. ¶ 156.) According to the complaint, the misdeeds of the individual defendants "ha[ve] exposed and will continue to expose [Cendant] to enormous legal liability and costs." (Id.) Defendants' wrongdoing has caused Cendant to incur "well over $500 million in out-of-pocket costs" and has damaged Cendant's credit ratings, reputation and credibility." (Id.) The cost of the Audit Committee's accounting investigation and of the severance package for Forbes was over $100 million. (Id. at ¶ 158.) The financial fraud has rendered Cendant's financial statements unreliable. (Id. at ¶ 160.) The accounting irregularities have also damaged Cendant's ability to use stock to acquire additional prospects and called the internal controls and stability of Cendant's operations into question. (Id. at ¶¶ 163- 166.)

Count I of the complaint is a derivative action for breach of fiduciary duty for insider trading and misappropriation of corporate information against all of the individual defendants. (Am. Compl. Count I, ¶¶ 175-190.) The complaint also charges the individual defendants with waste of corporate assets, mismanagement, gross negligence, and breach of their fiduciary duties of loyalty, good faith, and exercise of due care. (Am. Compl. Count II, ¶¶ 191-196.) In Count III of the complaint, the individual defendants and the Bear Stearns defendants are charged with gross negligence. (Am. Compl. Count III, ¶¶ 197-200.)

The defendants now move to dismiss the complaint. Nominal defendant Cendant, the CUC defendants (Burnap, Donnelley, Forbes, McLeod, Perfit, Rumbough, and Tucker), the HFS defendants (Silverman, Edelman, Snodgrass, Buckman, Monaco, Holmes, Kunisch, and Rosenwald), and Bear Stearns argue that the complaint should be dismissed because plaintiff failed to demand that the directors bring this action and has failed to adequately plead demand futility. Nominal defendant Cendant contends that the insider trading, breach of fiduciary duty, and gross negligence claims are not supported by allegations of particularized fact that would excuse demand. The CUC defendants insist that plaintiff's claims are barred by Cendant's certificate of incorporation, that Cendant has already released defendant Forbes from liability for certain claims, and that a number of the CUC defendants were outside directors and were never employed by Cendant. The CUC defendants also move for a stay of this action pending resolution of an action by other Cendant shareholders in Delaware Chancery Court, Corwin, et al. v. Silverman, et al., No. Civ. A. 16347 (Del. Ch.). The HFS directors argue that the insider trading claim lacks specificity and fails to state a claim under New Jersey law and that plaintiff's claims are barred by the certificate of incorporation. Defendant Shelton contends that plaintiff has failed to state a claim for insider trading, breach of fiduciary duty, and gross negligence, and has failed to set forth a cognizable theory of damages. Defendant Lipton insists that this Court lacks personal jurisdiction over her and that plaintiff has failed to plead fraud with particularity. Defendant Bear Stearns argues that Deutch has no standing to sue on behalf of HFS and that it owed no duty of care to Cendant. Defendant Corigliano adopts the arguments of the other defendants.

III. Discussion

A. Motion to Dismiss Standard

On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court is required to accept as true all allegations in the complaint, and all reasonable inferences that can be drawn therefrom, and to view them in the light most favorable to the non-moving party. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). The question is whether the claimant can prove any set of facts consistent with his/her allegations that will entitle him/her to relief, not whether that person will ultimately prevail. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). While a court will accept well-pleaded allegations as true for the purposes of the motion, it will not accept unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See Miree v. DeKalb County, Ga., 433 U.S. 25, 27 n. 2, 97 S.Ct. 2490, 2492 n. 2, 53 L.Ed.2d 557 (1977). Moreover, the claimant must set forth sufficient information to outline the elements of his claims or to permit inferences to be drawn that these elements exist. See Fed. R. Civ. P. 8(a)(2); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). The Court may consider the allegations of the complaint, as well as documents attached to or specifically referenced in the complaint, and matters of public record. See Pittsburgh v. West Penn Power Co., 147 F.3d 256, 259 (3d Cir. 1998); see also 5A Charles A. Wright & Arther R. Miller, Federal Practice & Procedure § 1357 at 299 (2d ed. 1990).

B. Whether Demand is Excused

Plaintiff claims that his failure to ask the directors of Cendant to bring this suit is excused because such demand would have been futile. Plaintiff contends that the directors are self-interested and lack independence and that "their illegal, self-dealing acts are not protected by the business judgment rule." (Pl.'s Mem. at 4.) The HFS defendants, the CUC defendants, Bear Stearns, and the nominal defendant Cendant argue that plaintiff has failed to adequately plead demand futility.

A derivative suit allows an individual shareholder to bring a suit to "enforce a corporate cause of action against officers, directors, and third parties." Ross v. Bernhard, 396 U.S. 531, 534, 90 S.Ct. 733, 736, 24 L.Ed.2d 729 (1970). The purpose of such an action is "to place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of `faithless directors and managers.'" Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 95, 111 S.Ct. 1711, 1716, 114 L.Ed.2d 152 (1991) (quoting Cohen v. Beneficial Loan Corp., 337 U.S. 541, 548, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528 (1949)). "To prevent abuse of this remedy, however, equity courts established as a precondition `for the suit' that the shareholder demonstrate `that the corporation itself had refused to proceed after suitable demand, unless excused by extraordinary conditions.'" Kamen, 500 U.S. at 96, 111 S.Ct. at 1716 (citing Ross 396 U.S. at 534, 90 S.Ct. at 736).

Federal Rule of Civil Procedure 23.1 requires that a derivative complaint "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reason for the plaintiff's failure to obtain the action or for not making the effort." Fed. R. Civ. P. 23.1. The Supreme Court in Kamen wrote that Rule 23.1 "does not create a demand requirement of any particular dimension." 500 U.S. at 96, 111 S.Ct. at 1716. Rather, "the substantive requirements of demand are a matter of state law." Blasband v. Rales, 971 F.2d 1034, 1046 (3d Cir. 1993) (citing Kamen, 500 U.S. at 96, 111 S.Ct. at 1716). Because Cendant is a Delaware corporation, Delaware law governs the substantive requirements of Deutch's claims, including the demand requirement.

Under Delaware law, "the decision to bring a lawsuit or to refrain from litigating a claim on behalf of the corporation is a decision concerning the management of the corporation and consequently is the responsibility of the directors." Blasband, 971 F.2d at 1047 (citing Levine v. Smith, 591 A.2d 194, 200 (Del. 1991); Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 1990)). Because "the derivative action impinges on the managerial freedom of directors," the demand requirement "exists at the threshold, first to insure that a stockholder exhausts his intracorporate remedies, and then to provide a safeguard against strike suits." Aronson v. Lewis, 473 A.2d 805, 811-812 (Del. 1984); Blasband, 971 F.2d at 1048. Demand may be excused if it would be futile. In Aronson, the Delaware Supreme Court defined a two-part test to evaluate a claim of demand futility. Aronson, 473 A.2d at 814. As restated by the Delaware Supreme Court in Levine,

[i]n determining the sufficiency of a complaint to withstand demand futility . . . [t]he trial court is confronted with two related but distinct questions: (1) whether threshold presumptions of director disinterest or independence are rebutted by well-pleaded facts; and, if not, (2) whether the complaint pleads particularized facts sufficient to create a reasonable doubt that the challenged transaction was the product of a valid ...

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