C.A. No. 2023-0521-KSJM
Del. Ch.Jun 3, 2025Background
- Amazon acquired Zoox, Inc. in 2020 for $1.3 billion, with most proceeds going to noteholders and preferred stockholders; common stockholders received little.
- Plaintiffs, former Zoox common shareholders, alleged the Zoox board was conflicted during deal negotiations, favoring their own interests and Amazon facilitated these breaches.
- Plaintiffs also alleged the company’s merger disclosure was insufficient and sought attorneys’ fees for alleged bad-faith litigation conduct in related litigation.
- The Zoox board included directors connected to preferred stockholders, management with post-merger continuing roles, and an independent committee, which plaintiffs argued did not neutralize conflicts.
- Defendants (Zoox, its directors/officers, and Amazon) moved to dismiss under Rule 12(b)(6), arguing plaintiffs failed to plead non-exculpated claims as required by Delaware law.
- The court delivered a mixed result: allowing claims against most conflicted directors and officers to proceed, but dismissing claims against Amazon, two directors, and on attorneys’ fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Conflicted Board in Sale Process | Board majority was conflicted by incentives favoring preferred stock and management retention, invoking the entire fairness standard | No non-exculpated claim; Board's process was sufficient, conflicts did not taint the process | Sufficient conflict pled as to over half the board; claims proceed under entire fairness against those directors/officers |
| Standard of Review (Business Judgment, Revlon, or Entire Fairness) | Entire fairness because at least half Board was conflicted | Did not contest enhanced scrutiny if conflicts shown; otherwise, business judgment applies | Entire fairness reasonably conceivable for conflicted Board members; business judgment for unconflicted members |
| Aiding and Abetting by Amazon | Amazon knowingly participated in fiduciary breaches, exploiting Board conflicts | Amazon gave concessions favoring all shareholders; no active exploitation or knowing participation | No knowing participation by Amazon in breach; claim dismissed |
| Attorneys’ Fees for Bad Faith Litigation | Defendants delayed and concealed key documents, justifying fee-shifting | Conduct was typical adversarial litigation, not extraordinary misconduct | No extraordinary bad faith found; claim for fees dismissed |
Key Cases Cited
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (standard for entire fairness review in conflicted transactions)
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (enhanced scrutiny in change-of-control transactions)
- Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173 (Del. 2015) (need to plead non-exculpated claims against directors under exculpation provision)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (disinterestedness and independence in director conflicts)
- Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (pleading standards and inference requirements on motion to dismiss)