In Re CytRx Corporation Stockholder Derivative Litigation II
11800-VCMR
| Del. Ch. | Feb 22, 2017Background
- Seeking Alpha article (Pearson) alleged CytRx management coordinated undisclosed paid promotions by the Dream Team, implicating CEO Kriegsman and VP Haen.
- CytRx adopted a forum-selection bylaw designating the Delaware Court of Chancery as exclusive forum for derivative and fiduciary-duty claims.
- Multiple related suits followed (Delaware, federal securities, and California derivative actions); spring‑loaded option and securities claims settled; Caremark-style claims over the Dream Team allegations remained unresolved.
- Niedermayer and Reed (the Niedermayer Plaintiffs) served Section 220 demands, obtained board materials, and filed a derivative suit in Delaware; Taylor separately pursued litigation in California and later filed in Delaware.
- The Court stayed the Delaware action in favor of the California action for a period; after the California proceedings and attempted settlements, Delaware litigation resumed and the Court consolidated the Niedermayer and Taylor matters.
- The Court addressed competing motions to be appointed lead plaintiff and lead counsel, evaluating standing and the Hirt multi-factor test for leadership selection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to bring derivative claims (continuing‑wrong doctrine) | Niedermayer/ Reed: continuing wrong covers later purchasers; they also purchased before several Dream Team articles. | Taylor: Niedermayer/Reed bought after much of the alleged misconduct and thus lack standing. | Court: Standing challenge insufficient to disqualify Niedermayer Plaintiffs; Niedermayer bought before seven of thirteen articles and any narrower standing wouldn’t reduce recoverable corporate relief. |
| Lead‑plaintiff appointment under Hirt factors | Niedermayer: used Section 220, obtained non‑public board documents, filed a superior complaint, and demonstrated willingness to litigate. | Taylor: litigated extensively in California (many docket entries) and pursued the case earlier there. | Court: Appoints Niedermayer Plaintiffs as lead plaintiffs and Andrews & Springer and Gainey McKenna & Egleston as co‑lead counsel; Hirt factors favor Niedermayer Plaintiffs. |
| Quality of pleadings / value of Section 220 discovery | Niedermayer: Second amended complaint ties Dream Team scheme to board via Section 220 documents (minutes, audit committee gaps, communications showing concealment). | Taylor: Relies largely on Pearson report; his complaints copy significant portions of public materials and lack the Section 220‑derived allegations. | Court: Niedermayer complaint is superior; court prefers plaintiffs who invest in Section 220 discovery. |
| Vigorous prosecution and willingness to litigate merits | Niedermayer: pursued Section 220, litigated to lift stay, filed multiple briefs in California defending Delaware forum and merits pursuit. | Taylor: Activity in California focused on avoiding Delaware forum selection; limited merits litigation and no Section 220 demand. | Court: Niedermayer Plaintiffs demonstrated greater vigor and willingness to litigate merits; favors appointment. |
Key Cases Cited
- In re Caremark Int’l Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch.) (establishes director oversight/Caremark duty framework)
- Conrad v. Black, 940 A.2d 28 (Del. Ch.) (standing requirements for derivative plaintiffs under DGCL § 327)
- Desimone v. Barrows, 924 A.2d 908 (Del. Ch.) (recognizes continuing‑wrong doctrine may confer standing for post‑acquisition plaintiffs in limited circumstances)
- Biondi v. Scrushy, 820 A.2d 1148 (Del. Ch.) (emphasizes preference for well‑researched complaints and incentives to use Section 220)