Brett Kandell v. .Dror Niv
CA 11812-VCG
| Del. Ch. | Sep 29, 2017Background
- FXCM, a retail-focused foreign-exchange broker, publicly promoted a "no-debit" policy (customers would "never owe a deficit") and used a high‑leverage agency model that produced most revenue from retail clients.
- In January 2015 the Swiss National Bank removed the EUR/CHF peg, causing extreme volatility; FXCM customers incurred large negative balances (~$225–$276M) that FXCM’s policy effectively left on the company’s books.
- FXCM faced imminent regulatory capital threats; the board approved a two‑year, heavily dilutive/expensive secured loan from Leucadia (and later an MOU to amend it) under urgent time pressure; one outside director abstained after expressing interest in participating on lender side.
- Plaintiff Kandell filed a derivative complaint without making pre‑suit demand, alleging breaches of fiduciary duty for: (1) approving the Leucadia loan and MOU; (2) adopting/amending a shareholder rights plan; (3) approving severance/bonus arrangements; and (4) causing/allowing violations of CFTC Regulation 5.16 (the no‑loss/guarantee prohibition).
- The Court evaluated demand futility under Delaware standards (Rales/Aronson) and also considered Rule 12(b)(6) dismissal on the merits where appropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Demand futility as to the Leucadia loan | Leucadia loan was conflicted and unfair; Brown’s conflict + insiders meant board lacked disinterested majority | Board acted under existential emergency; majority were independent outside directors | Demand excused; complaint survives as entire‑fairness review is reasonably conceivable and dismissal denied |
| Demand futility re alleged Regulation 5.16 violations (no‑debit policy) | Directors knew of Reg. 5.16 and publicly touted no‑debit policy; knowingly permitting illegality shows bad faith -> demand excused | Regulation interpretation debatable; no earlier CFTC enforcement against FXCM; no board red flags alleged | Demand excused as sufficiently pleaded scienter at pleading stage; motion to dismiss denied on this claim |
| Rights Plan adoption/amendment (entrenchment) | Rights Plan (initially 10%, later 4.9% trigger) was adopted to entrench directors after stock collapse | Plan served legitimate anti‑takeover and value‑preserving purposes amid precipitous share decline | Demand not excused; allegations of entrenchment are conclusory and plan could serve valid corporate purposes; dismissal granted as to this claim |
| Severance and bonus amendments (waste/independence) | Insiders benefited materially; outside directors were dominated/controlled; compensation is wasteful | Compensation rationally aimed to retain key executives during crisis; no particularized facts showing domination | Demand not excused and waste not adequately pleaded; dismissal granted as to these claims |
Key Cases Cited
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (test for demand futility where board composition changes)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand‑futility two‑pronged test for board decisions)
- Stone v. Ritter, 911 A.2d 362 (Del. 2006) (Caremark/oversight liability standard for directors)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (pleading particularity requirements for demand futility)
- In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013) (entire‑fairness and independence analysis for conflicted transactions)