GLEAN TECH FUND II LP, and GLEAN TECH II LLC - SERIES A-CL, Plaintiffs, v. GREG MCINTOSH, KIMMY SCOTTI, RAHUL GANDHI, IRON MOUNTAIN INFORMATION MANAGEMENT LLC, IRON MOUNTAIN INC., EASTWARD FUND MANAGEMENT LLC, JAVIER VILLAMIZAR, and CARTER ADAMSON, Defendants, and CLUTTER HOLDINGS, INC., Nominal Defendant.
C.A. No. 2024-0032-PAF
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
September 2, 2025
Date Submitted: April 15, 2025
David J. Margules, Elizabeth A. Sloan, Alan C. Cardenas-Moreno, BALLARD SPAHR LLP, Wilmington, Delaware; Velvel Freedman, FREEDMAN NORMAND FRIEDLAND LLP, Miami, Florida; Stephen Lagos, FREEDMAN NORMAND FRIEDLAND LLP, New York, New York; Terence M. Grugan, BALLARD SPAHR LLP, Philadelphia, Pennsylvania; Attorneys for Plaintiffs Glean Tech Fund II LP and Glean Tech II LLC - Series A-CL.
John M. Seaman, Eliezer Y. Feinstein, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Stephen E. Hudson, Jeffrey H. Fisher, KILPATRICK TOWNSEND & STOCKTON LLP, Atlanta, Georgia; Joseph B. Gadberry, KILPATRICK
Timothy S. Martin, Daryll Hawthorne-Bernardo, WHITE & WILLIAMS LLP, Wilmington, Delaware; Patrick M. Kennell, Matthew H. Lee, KAUFMAN DOLOWICH, LLP, New York, New York; Attorneys for Defendants Kimmy Scotti, Rahul Gandhi, Javier Villamizar, Carter Adamson, and Nominal Defendant Clutter Holdings, Inc.
Douglas D. Herrmann, Emily L. Wheatley, TROUTMAN PEPPER LOCKE LLP, Wilmington, Delaware; Attorneys for Defendant Eastward Fund Management LLC.
FIORAVANTI, Vice Chancellor
Two minority stockholders of the debtor, who were not offered the chance to participate in the post-foreclosure equity sale, claim that the foreclosure sale was a sale of all assets of the debtor, requiring stockholder approval under
The defendants have moved to dismiss, arguing that the foreclosure sale did not trigger a stockholder vote under the Delaware General Corporation Law and that
With the exception of the statutory claim, the court concludes the plaintiffs’ claims are derivative, and the plaintiffs neither made a pre-suit demand nor pleaded with particularity that making a pre-suit demand would have been futile. In addition, the court concludes the plaintiffs have failed to state a statutory claim under Section 271. Accordingly, the complaint must be dismissed in its entirety.
I. BACKGROUND
The facts are drawn from the allegations of the verified amended complaint (the “Amended Complaint“), and the documents integral thereto.1
A. Parties
Clutter Holdings, Inc. (“Clutter” or the “Company“) was formed in 2015 as a Delaware corporation and was focused on leveraging advancements in technology in the moving and storage business.2
Iron Mountain Inc. and Iron Mountain Information Management LLC (collectively, “Iron Mountain“) were, collectively, Clutter‘s largest stockholder, owning approximately 27% of the Company‘s equity.4 Iron Mountain was also one of the Company‘s junior creditors.5 Iron Mountain had the right to designate one director to the Company‘s board of directors (the “Board“).6 At all relevant times, Iron Mountain‘s designee was Greg McIntosh.7 McIntosh is a senior executive at Iron Mountain.8
Eastward Fund Management LLC (“Eastward“) was the Company‘s senior secured creditor.9 Eastward‘s $20 million loan to Clutter was secured by all of Clutter‘s assets.10
B. The MakeSpace Merger
In February 2022, Clutter merged with its largest competitor, MakeSpace, LLC (“MakeSpace“).12 At the time of the merger, MakeSpace‘s lead investor was Iron Mountain, which owned 49.99% of its equity before the merger.13 After the merger, Iron Mountain owned 27% of the equity in the merged company, which retained the Clutter name.14 Iron Mountain also had a contractual relationship with MakeSpace and, by virtue of the merger, the post-merger Clutter. According to the Amended Complaint, approximately 80% of Clutter‘s commercial storage facilities leases were with Iron Mountain.15 The lease agreements are not in the record, and their terms are not described in the Amended Complaint.
The post-merger board was a combination of directors from each of the two merged companies.16 From the MakeSpace side of the transaction, Gandhi,
Of Clutter‘s pre-merger board, three members continued on as directors of the post-merger Clutter.20 Ari Mir, Clutter‘s co-founder and CEO, held the positions of CEO and director in the post-merger Clutter until he resigned in late 2022.21 His vacant board seat was not filled.22 Villamizar was a board designee of Clutter investor Softbank Vision Fund (AIV M2) LP (“Softbank“).23 Adamson served as the designee of Clutter investor Atomico IV, LP (“Atomico“).24
Around the time of the merger, Gandhi predicted Clutter would experience $200 million of annual revenue in the next full year following the merger and further
C. Eastward Sends a Default Notice and Forecloses on the Company‘s Assets; Iron Mountain Purchases the Assets at Auction.
In early 2023, Clutter experienced short-term liquidity issues and defaulted on its $20 million loan with Eastward.27 Clutter also failed to make payments to Iron Mountain, which gave Iron Mountain the “right to terminate its critical partnership with Clutter.”28 On June 14, 2023, Eastward sent Clutter a notice of default and demanded immediate payment of its $20 million loan.29 One week after Eastward declared default, Eastward “announced it would foreclose on the debt” within ten days.30 The Board considered proposals to pursue a voluntary bankruptcy and to seek a temporary restraining order, but decided not to pursue either proposal.31 Gandhi later told Plaintiffs that “the Board did not retain an investment bank or other
Eastward proceeded to foreclose on all of Clutter‘s operating assets and sell them at a public auction.33 Eastward advertised the auction in the Los Angeles Times and the New York Times.34 The auction was held on June 27, 2023, at the New York offices of Eastward‘s counsel, Troutman Pepper Hamilton Sanders LLP.35 Iron Mountain was the only bidder and “acquired all of the Clutter assets for $15 million, plus the assumption of $15 million in Clutter debt.”36 Plaintiffs allege Eastward and Iron Mountain had reached an agreement prior to the auction that Iron Mountain would purchase the assets, and the Board “was well aware of Iron Mountain and Eastward‘s plan before it was executed.”37
At the auction, Iron Mountain purchased 100% of the outstanding shares of Clutter Intermediate Inc., a Clutter subsidiary which held all of Clutter‘s assets and
D. Iron Mountain Sells a Portion of its Clutter Equity.
In October 2023, Iron Mountain sold 15% of its Clutter equity interests to unidentified former Clutter “stakeholders.”41 Plaintiffs were not offered the opportunity to participate in Iron Mountain‘s equity sale.42 The Amended Complaint does not allege which “stakeholders” were afforded the opportunity to participate in the offering. Rather, it alleges, inferentially, that Iron Mountain only offered Eastward, the Director Defendants, and their affiliated entities an opportunity to participate in the equity sale. As support for this allegation, Plaintiffs point to the Eastward and Atomico websites, post-foreclosure, which carry over the pre-foreclosure references to their investments in Clutter.43
On June 29, 2023, . . . we acquired 100% of the outstanding shares of Clutter Intermediate, Inc. and control of all assets of the Clutter JV (collectively, “Clutter“) for total consideration of $60.6 million (the “Clutter Acquisition“). The financial results of the Clutter JV are now consolidated within our Global RIM Business segment. In October 2023, we sold 15% of the equity interests in Clutter to certain former stakeholders of the Clutter JV for total consideration of $7.5 million, which represents the fair value attributable to these interests . . . .45
Plaintiffs allege that “it is reasonably and readily inferable from the disclosure that Eastward and the Director Defendants (or their affiliated entities, i.e., 8VC, Atomico, and SoftBank) were recipients of the co-investment opportunity,” and “Iron Mountain made clear to both Eastward and to the Board that, in exchange for their agreement and acquiescence to the [challenged transaction], Iron Mountain would subsequently give them the opportunity to invest in a less-indebted Clutter at a discounted price.”46
Plaintiffs filed their initial complaint on January 12, 2024, against Eastward, Iron Mountain, Gandhi, McIntosh, and Scotti.47 Plaintiffs filed the Amended Complaint on June 6, 2024, adding Atomico, Adamson, and Villamizar as defendants.48 The Amended Complaint asserts three counts. Count I asserts a statutory claim under Section 271 of the Delaware General Corporation Law (“DGCL“).49 Count II asserts a claim for breach of fiduciary duty against Iron Mountain, as an alleged controlling stockholder, and the Director Defendants.50 Count III asserts a claim for aiding and abetting against Atomico, Eastward, and, alternatively, against Iron Mountain.51
The defendants each filed a motion to dismiss the Amended Complaint.52 Thereafter, Plaintiffs voluntarily dismissed their aiding and abetting claim against
II. ANALYSIS
Defendants have moved to dismiss the Amended Complaint under Rule 23.1 for failure to plead demand futility and under Rule 12(b)(6) for failure to state a claim. On a motion to dismiss for failure to state a claim under 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 of proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citation modified); see also Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011). The plaintiff is “entitled to all reasonable factual inferences that logically flow from the particularized facts alleged, but conclusory allegations are not considered as expressly pleaded facts or factual inferences.” White v. Panic, 783 A.2d 543, 549 (Del. 2001) (citation modified). “[A] claim may be dismissed if
A. Did Iron Mountain Control Clutter?
Plaintiffs allege that Iron Mountain was Clutter‘s controlling stockholder and, therefore, owed fiduciary duties to the Plaintiffs. Plaintiffs allege that Iron Mountain‘s control derived from its ownership of 27% of Clutter‘s voting stock and contractual arrangements with the Company. Defendants argue that Iron Mountain was not a controller and did not owe fiduciary duties to Plaintiffs or the Company.
“As a general rule, stockholders do not owe fiduciary duties to the corporation or its stockholders and are free to act in their self-interest.” In re Oracle Corp. Deriv. Litig., 339 A.3d 1, 19 (Del. 2025). An exception to the general rule exists when the stockholder is deemed to be a controller. “A stockholder could be found a controller under Delaware law: where the stockholder (1) owns more than 50% of the voting power of a corporation or (2) owns less than 50% of the voting power of the corporation but exercises control over the business affairs of the corporation.” Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251 (Del. 2019) (citation modified).
“The test for actual control by a minority stockholder is not an easy one to satisfy.” Oracle, 339 A.3d at 20 (citation modified); see Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *16 (Del. Ch. May 31, 2017)
“To plead that the requisite degree of control exists generally, a plaintiff may allege facts supporting a reasonable inference that a defendant or group of defendants exercised sufficient influence ‘that they, as a practical matter, are no differently situated than if they had majority voting control.‘” Voigt, 2020 WL 614999, at *11 (quoting In re PNB Hldg. Co. S‘holders Litig., 2006 WL 2403999, at *9 (Del. Ch. Aug. 18, 2006)). To make such a showing, the plaintiff may “plead that the defendant, as a practical matter, possesses a combination of stock voting power and managerial authority that enables him to control the corporation, if he so wishes.” Voigt, 2020 WL 614999, at *11 (citation modified).
“Examples [of actual control,] include, but are not limited to, (i) relationships with particular directors, (ii) relationships with key managers or advisors, (iii) the exercise of contractual rights to channel the corporation into a particular outcome, and (iv) the existence of commercial relationships that provide the defendant with leverage over the corporation, such as status as a key customer or supplier.” Id. at
To establish transaction-specific control, an allegation of “pervasive control over the corporation‘s actions is not required.” Superior Vision Servs., Inc. v. ReliaStar Life Ins. Co., 2006 WL 2521426, at *4 (Del. Ch. Aug. 25, 2006). Rather, a plaintiff “must plead facts supporting a reasonable inference that the defendant in fact exercised actual control with regard to the particular transaction that is being challenged.” Voigt, 2020 WL 614999, at *12 (citation modified). Supporting facts could include, for example, that “the defendant engaged in pressure tactics that went beyond ordinary advocacy to encompass aggressive, threatening, disruptive, or punitive behavior.” Id. at *13.
At the pleadings stage, a reasonable inference of actual control rests on the totality of the facts and circumstances considered in the aggregate. See In re Vaxart, Inc. S‘holder Litig., 2021 WL 5858696, at *15 (Del. Ch. Nov. 30, 2021) (“Because the controller analysis is fact-intensive, the court is unlikely to find control unless
1. Iron Mountain did not exercise general or transaction-specific control over Clutter.
In support of Plaintiffs’ position that Iron Mountain exercised control over Clutter, Plaintiffs point to a combination of the following facts: (1) Iron Mountain‘s equity stake in the Company; (2) Iron Mountain‘s appointment of one director on Clutter‘s Board; (3) a tie-breaking provision in the Clutter Certificate of Incorporation (the “Certificate“); and (4) Iron Mountain‘s contracts with Clutter.
a. Equity stake
Possession of a large voting block can contribute to an inference of control. See Tornetta v. Musk, 310 A.3d 430, 502–03 (Del. Ch. 2024) (observing that equity positions of 25% or less have contributed to both pleading-stage inferences and post-trial findings that a minority stockholder owed fiduciary duties as a controller); id. at 498 n.556 (collecting cases) (appeal docketed, Case No. 534, 2024C (Del. Dec. 30, 2024). There are also instances where stockholders owning in excess of 25% of the outstanding voting power were not controllers. See, e.g., Sciannella v. AstraZeneca UK Ltd., 2024 WL 3327765, at *17 n.180 (Del. Ch. July 8, 2024) (collecting cases), aff‘d, 2025 WL 946148 (Del. Mar. 26, 2025) (TABLE).
Plaintiffs allege that 80% of Clutter‘s commercial leases were through contracts with Iron Mountain. The terms of those contracts are not alleged. There
The Amended Complaint lacks well-pleaded allegations that Iron Mountain controlled a majority of the Board. Iron Mountain had the right to designate one member of the Clutter board. The rights of Iron Mountain‘s designee did not exceed those of any other director. To the contrary, the Clutter Certificate provided that, in the event of an evenly divided six-member board, the 8VC designee would effectively cast the tie-breaking vote by increasing the power of 8VC‘s vote and
reducing the voting power of the Iron Mountain designee. Plaintiffs do not attempt to explain how this arrangement gives Iron Mountain control over Clutter‘s Board, particularly considering that at all relevant times, there were only five directors on the Clutter Board, so the tie-breaking provision was not in play.The Amended Complaint contains no well-pleaded allegations that Iron Mountain controlled a majority of the Board. Even accepting for purposes of this motion that McIntosh and Gandhi are not independent of Iron Mountain, the Amended Complaint does not support a reasonable inference of control over Adamson, Villamizar, or Scotti. Plaintiffs do not attempt to offer any well-pleaded facts to suggest that Iron Mountain controlled Adamson or Villamizar. Instead, they focus on Scotti. But the allegations as to her do not support a reasonable inference of Iron Mountain‘s control over her.
Plaintiffs allege generally that 8VC “has a long history of co-investing with Iron Mountain.”55 But there are no well-pleaded allegations about this investment history—none. This bare allegation is not enough to support an inference that Iron Mountain controlled Scotti. See Kahn v. M&F Worldwide Corp., 88 A.3d 635, 649 (Del. 2014) (“Bare allegations that directors are friendly with, travel in the same social circles as, or have past business relationships with the proponent of a
Having considered holistically all of the allegations of control, the court concludes that the Amended Complaint lacks well-pleaded allegations to support an inference that Iron Mountain exercised general control over Clutter or specific control in connection with Eastward‘s foreclosure sale. Therefore, Iron Mountain owed no fiduciary duties to Plaintiffs or the Company and, as a result, Count II must be dismissed as to Iron Mountain for failure to state a claim under
B. The Plaintiffs’ Claims Are Derivative.
Count II alleges the Director Defendants and Iron Mountain breached their fiduciary duties to Plaintiffs. Count III alleges that Eastward and Iron Mountain aided and abetted the Director Defendants’ breaches of fiduciary duty. The Defendants have moved to dismiss both counts under
In determining whether claims are direct or derivative, the court must “look beyond the labels used to describe the claim, evaluating instead the nature of the wrong alleged.” Vejseli v. Duffy, 2025 WL 1189867, at *5 (Del. Ch. Apr. 24, 2025) (quoting Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *7 (Del. Ch. July 26, 2018)). To do so, the court applies the test in Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004). Under Tooley, the question of whether a claim is direct or derivative “turn[s] solely on the following questions: (1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?” Id. at 1033.
“To plead a direct claim under Tooley, a ‘stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.‘” Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251, 1266 (Del. 2021) (quoting Tooley, 845 A.2d at 1039).
1. Count I is a direct claim.
Count I alleges that the foreclosure sale constituted a sale of all or substantially all of Clutter‘s assets, thus requiring board and stockholder approval
2. Counts II and III are derivative claims.
Under Tooley, Counts II and III are derivative claims. “A claim is considered ‘derivative in nature,’ under the first element of the Tooley test, ‘[w]here all of a corporation‘s stockholders are harmed and would recover pro rata in proportion
Plaintiffs’ injury from the foreclosure sale is not independent of any harm suffered by Clutter. The harm is derivative. See Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1188 n.10 (Del. 1988) (“Generally speaking, a wrong to the incorporated group as a whole that depletes or destroys corporate assets and reduces the value of the corporation‘s stock gives rise to a derivative [claim].“); see, e.g., GB-SP Hldgs., LLC v. Walker, 2024 WL 4799490, at *27–28 (Del. Ch. Nov. 14, 2024) (adjudicating breach of fiduciary duty claims challenging board action in response to insolvency as derivative claims). Plaintiffs would not be able to prevail on their claims without showing an injury to the Company. See Brookfield, 261 A.3d at 1266 (“We do not think Plaintiffs can prevail without showing an injury to the
Plaintiffs’ attempt to shoehorn this case into the category of direct claims lacks merit. Plaintiffs rely on Parnes v. Bailey Entertainment Corp., 722 A.2d 1243 (Del. 1999), for the proposition that a complaint “challenging the fairness or validity of a merger” states a direct claim.60 In Parnes, the Delaware Supreme Court observed that stockholder actions attacking the fairness or validity of a merger can be maintained directly. Id. at 1245. There, the CEO of a target company is alleged to have demanded that “any potential acquiror pay [him] for his approval of the merger,” despite having no authority to demand such payments, and received “substantial sums of money” and “valuable [target company] assets” during the negotiations of the merger. Id. at 1246–47. The Supreme Court allowed the plaintiff, a former stockholder of the target, to pursue a direct claim, reasoning that “[a] stockholder who directly attacks the fairness or validity of a merger alleges an
Plaintiffs’ reliance on Parnes is misplaced. Unlike in Parnes, the foreclosure sale, and the Board‘s alleged inaction to prevent such foreclosure sale, is not a merger. Plaintiffs are not “target” stockholders. Plaintiffs argue this distinction is “immaterial.”62 The court disagrees. “Delaware Courts have interpreted the Parnes exception very narrowly.” In re NYMEX S‘holder Litig., 2009 WL 3206051, at *10 (Del. Ch. Sept. 30, 2009); accord Siegel v. Cantor Fitzgerald, L.P., 2025 WL 1074604, at *10 (Del. Ch. Apr. 10, 2025). The court declines Plaintiffs’ invitation to extend it here. See Siegel, 2025 WL 1074604, at *10 (rejecting argument that claims were direct under Parnes where “[t]here was no sale of the company, change of control, or diversion of consideration from the minority“).63
Another flaw in Plaintiffs’ theory of direct harm is that it is predicated on the discarded concept of a “special injury.” Plaintiffs argue they suffered an injury from the challenged transaction—i.e., the complete destruction of their equity—not shared by Iron Mountain, the Company‘s alleged controller who “now own[s] the Clutter assets.”64 In Tooley, the Supreme Court expressly rejected the concept of a “special injury.” Id. at 1035 (“We now disapprove the use of the concept of ‘special injury’ as a tool in th[e] [direct versus derivative] analysis.“). The Court recently reaffirmed that holding in Brookfield. 261 A.3d at 1264 (observing that Tooley “unequivocally abandoned the ‘special injury’ concept“); id. at 1272 (“[T]his Court in Tooley sought to bring clarity to this confusing area of the law by discarding the ‘special injury’ test and announcing a simple test that would be easier to apply.“). The primary authorities discussed by Plaintiffs in their briefing all pre-date Tooley and rely on the “special injury” concept.65 See Fischer v. Fischer, 1999 WL 1032768, at *3 (Del. Ch. Nov. 4, 1999); Boyer v. Wilm. Mat‘ls, Inc., 754 A.2d 881, 902–03 (Del. Ch. 1999); Odyssey P‘rs v. Fleming Co., 1998 WL 155543, at *3 (Del. Ch. Mar. 27, 1998). These cases do not aid Plaintiffs here.66
Counts II and III of the Amended Complaint are derivative claims under Tooley.
C. The Amended Complaint Lacks Particularized Allegations that Demand on the Board Would Have Been Futile.
Having concluded that Counts II and III assert derivative claims, the court now considers whether those claims must be dismissed under
1. The demand futility standard of review
“‘In order for a stockholder to divest the directors of their authority to control [a] litigation asset and bring a derivative action on behalf of the corporation,’ the stockholder must either make a demand on the company‘s board of directors or show that demand would be futile.” Ritchie ex rel. Corcept Therapeutics, Inc. v. Baker, 2025 WL 2048014, at *7 (Del. Ch. July 22, 2025) (quoting Lenois v. Lawal, 2017 WL 5289611, at *9 (Del. Ch. Nov. 7, 2017)) (alteration in original). “To plead demand futility, a complaint must allege ‘particularized factual statements that are essential to the claim.‘” Ritchie, 2025 WL 2048017, at *7 (quoting Brehm v. Eisner, 746 A.2d 244, 254 (Del. 2000)).
The Board comprised five directors—Adamson, Gandhi, McIntosh, Scotti, and Villamizar. Demand is futile if at least three of the directors on the Board are unable to consider a demand for one of the three reasons outlined in Zuckerberg:
- [T]he director received a material personal benefit from the alleged misconduct that is the subject of the litigation demand;
[T]he director faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; [or] - [T]he director lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.
Zuckerberg, 262 A.3d at 1059. “To comply with
The burden at this stage is on Plaintiffs to overcome a defendant-friendly presumption. “It is a presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.” Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984), overruled on other grounds by Brehm, 746 A.2d; Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048 (Del. 2004) (“The key principle upon which this area of our jurisprudence is based is that the directors are entitled to a presumption that they were faithful to their
2. The demand futility analysis
To establish demand futility, Plaintiffs must allege particularized facts creating a reasonable inference that three of the five Clutter directors could not consider a demand. Plaintiffs argue in broad-brush fashion that demand is futile under each of the three prongs of the Zuckerberg test for all five members of the Board.69 Even assuming that Gandhi and McIntosh could not consider a demand, the Amended Complaint must allege particularized facts that one of either Adamson, Scotti, or Villamizar could not consider a demand. The Amended Complaint fails to do so.
a. Material benefit
“A director is disabled for demand futility purposes if they received a material personal benefit from the wrongdoing that was not shared equally with the stockholders.” Grabski ex rel. Coinbase Glob., Inc. v. Andreessen, 2024 WL 390890, at *7 (Del. Ch. Feb. 1, 2024) (citing Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993), and Zuckerberg, 262 A.3d at 1058).
Plaintiffs allege that each Director Defendant received a material personal benefit because Iron Mountain gave each director the opportunity to purchase Clutter equity at a discounted rate.70 This allegation lacks particularity. Plaintiffs point to Iron Mountain‘s public disclosure that it had sold 15% of its equity interests to “certain former stakeholders” of Clutter in October 2023 and that Eastward and Atomico continued to indicate on their respective websites after the foreclosure that they remained investors in Clutter.71 From this, Plaintiffs allege it is reasonably inferable that Iron Mountain “made clear” to the Director Defendants that they would be given the opportunity to invest in exchange for their agreement not to stop the foreclosure sale and that the Director Defendants, or their respective affiliates, were the recipients of the investment opportunity.72
These conclusory allegations are insufficient to satisfy the particularized pleading requirements of
Accordingly, Plaintiffs have failed to plead that demand is futile under the first Zuckerberg prong.
b. Lack of independence
“In the demand futility context, directors are ‘presumed to be independent.‘” Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 59 (Del. Ch. 2015) (quoting Beam, 845 A.2d at 1055). “A lack of independence turns on whether the plaintiffs have pled facts from which the director‘s ability to act impartially on a matter important to the interested party can be doubted because that director may feel either subject to the interested party‘s dominion or beholden to that interested party.” Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (citation modified). “When assessing director independence, our courts do not ‘anthropologize’ directors as simply homo economicus; instead, other factors, including personal and business relationships, can influence and, at times, compromise independence. . . . Delaware‘s independence analysis is context-specific and fact-intensive.” In re CBS Corp. S‘holder Class Action & Deriv. Litig., 2021 WL 268779, at *29 (Del. Ch. Jan. 27, 2021). Director independence may be compromised by a single conflict or a
Plaintiffs do not challenge the independence of Adamson and Villamizar. Plaintiffs do, however, argue that Gandhi, McIntosh, and Scotti lack independence from Iron Mountain.76 The Plaintiffs’ failure to allege particularized facts challenging Scotti‘s independence leaves them short of satisfying their burden.
Scotti is the founding co-partner of 8VC.77 8VC participated in three MakeSpace financing rounds between 2017 and 2020, and Scotti served as a director on MakeSpace‘s board beginning in 2017.78 8VC acquired its Clutter equity through the merger, and Scotti joined the Board as 8VC‘s designee thereafter.79
Plaintiffs allege Scotti lacks independence from Iron Mountain because 8VC and Iron Mountain were long-time co-investors in MakeSpace.80 Plaintiffs further
These allegations do not raise a reasonable doubt that Scotti is “so beholden to [Iron Mountain] that [her] discretion would be sterilized.” Simons v. Brookfield Asset Mgmt. Inc., 2022 WL 223464, at *14 (Del. Ch. Jan. 21, 2022). 8VC‘s participation in MakeSpace financing rounds led by Iron Mountain in 2019 and 2020 does not support a reasonable inference that Scotti felt “subject to [Iron Mountain]‘s dominion or beholden to [Iron Mountain] based on those investments.” In re Kraft Heinz Co. Deriv. Litig., 2021 WL 6012632, at *9 (Del. Ch. Dec. 15, 2021), aff‘d, 282 A.2d 1054 (Del. 2022) (TABLE). There are no well-pleaded allegations in the Amended Complaint that 8VC and Iron Mountain coordinated their investment strategy in MakeSpace or that 8VC relied on Iron Mountain to “gain access” to its investment in MakeSpace. Id.82
Similarly, Plaintiffs offer no particularized factual allegations to support the assertion that Scotti and McIntosh voted together as a block aside from Gandhi‘s off-hand comment. This makes this case distinguishable from Haseotes v. Bentes, 2002 WL 31058540 (Del. Ch. Sep. 3, 2002). There, this court concluded, for demand futility purposes, that a director lacked independence where the “complaint allege[d] that the Board was equally divided on virtually all issues that came before it” and the director “consistently voted together” with the defendant and “share[d] a common vision for the Company‘s future.” Id. at *6. The court concluded “[t]hose factual allegations create a reason to doubt whether [the director] could consider a proposal to sue an ally.” Id. The Amended Complaint here contains no such allegations.
As noted above, Plaintiffs’ allegations regarding the tie-breaking certificate provision similarly fail to raise a reasonable doubt as to Scotti‘s independence. As Plaintiffs acknowledge, the certificate provision is only triggered when there are six directors on the Board and there is a tie-breaking vote.83 There were five directors
c. Substantial likelihood of liability
Demand is excused as to any director who “faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand.” Zuckerberg, 262 A.3d at 1059. “To establish a substantial likelihood of liability at the pleading stage, a plaintiff must make a threshold showing, through the allegation of particularized facts, that their claims have some merit.” In re Camping World Hldgs., Inc. S‘holder Deriv. Litig., 2022 WL 288152, at *7 (Del. Ch. Jan. 31, 2022) (citation modified), aff‘d, 285 A.3d 1204 (Del. 2022) (TABLE). Because Clutter‘s
Plaintiffs do not allege specific conduct, on a director-by-director basis, giving rise to an inference of bad faith conduct. Rather, Plaintiffs allege the Director Defendants, collectively, acted in bad faith by acquiescing to the foreclosure sale without considering any alternatives or promoting a competitive auction process for the Company‘s assets.86 “Pleading bad faith is a difficult task and requires that a
“To establish demand futility through allegations of bad faith, a plaintiff must plead particularized facts that can support a reasonable inference about the directors’ state of mind.” City of Hialeah Empls.’ Ret. Sys. ex rel. nCino, Inc. v. Insight Venture P‘rs, LLC, 2023 WL 8948218, at *6 (Del. Ch. Dec. 28, 2023) (citation modified), aff‘d sub nom. City of Hialeah Empls.’ Ret. Sys. v. Insight Venture P‘rs, LLC, 326 A.3d 1201 (Del. 2024) (TABLE); see Trade Desk, 2025 WL 503015, at *22 (observing that plaintiffs must plead facts giving rise to a reasonable inference that the director defendants acted with scienter). “At the pleading stage, the test is
Plaintiffs, relying on Winborne, argue that the “extreme disparity” between the Company‘s valuation and the price paid by Iron Mountain for the Company‘s assets alone supports an inference of bad faith.87 According to Plaintiffs, “the fact that Iron Mountain acquired a company worth over $1 billion for no more than $60 million speaks for itself.”88 In Winborne, this court concluded, at the pleadings stage, that the defendants faced a substantial likelihood of liability for acting in bad faith. The court considered a “constellation of factors,” including the “stark contrast” between a $175 million liability on the company‘s financial statements and the $850 million payment approved by the board to settle that liability. Id. at 626. The court observed “[t]he contrast between those figures is so glaring as to support a claim of waste and hence an inference of bad faith on that basis alone.” Id.
Plaintiffs take issue with the fact that the Board did not hire an investment bank to advise the Company on alternatives to the foreclosure or to solicit other potential buyers.95 But that alone is insufficient to support an allegation of bad faith. See Zimmerman v. Crothall, 2012 WL 707238, at *9 (Del. Ch. Mar. 5, 2012) (“The Board was under no obligation to hire financial advisors, and the Company‘s limited cash position likely would have made it reluctant to incur such an expense.“).
The Plaintiffs have failed to plead particularized factual allegations to give rise to a reasonable inference that a majority of the Director Defendants face a substantial likelihood of liability from this litigation. Accordingly, Counts II and III are dismissed for failure to plead demand futility under Rule 23.1.96
Finally, the court considers whether Count I states a claim under Section 271 of the DGCL. Plaintiffs allege the “transfer of assets to Eastward constituted a sale of all or substantially all of Clutter‘s assets,” requiring a stockholder vote under Section 271(a).97 Because there was no stockholder vote, Plaintiffs allege that the transaction is void.98 The Director Defendants argue that a stockholder vote under Section 271 was not required to facilitate the foreclosure sale. The Director Defendants offer two arguments: (1) Section 271 approval was not required under the statutory regime as it existed at the time of the foreclosure sale and (2) even if a vote were required under the statutory framework that was in effect at the time of the foreclosure sale, a subsequent amendment to Section 272 makes clear that no such vote is required.99 The court agrees with the first argument and does not reach
Every corporation may at any meeting of its board of directors or governing body sell, lease or exchange all or substantially all of its property and assets, including its goodwill and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or other property, including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors or governing body deems expedient and for the best interests of the corporation, when and as authorized by a resolution adopted by the holders of a majority of the outstanding stock of the corporation entitled to vote thereon . . . at a meeting duly called upon at least 20 days’ notice. The notice of the meeting shall state that such a resolution will be considered.
The Director Defendants argue that “Section 271(a) does not apply to foreclosure sales.”100 The Director Defendants rely on Section 272 of the DGCL as it existed at the time of the foreclosure sale and Chief Justice Strine‘s transcript ruling in Gunnerman v. Talisman Cap. Talon Fund, Ltd., C.A. No. 1894-VCS (Del. Ch. July 12, 2006) (TRANSCRIPT), while serving as a Vice Chancellor on this court.101 In Gunnerman, a stockholder plaintiff brought a derivative suit against a
I am going to dismiss the case. . . . I think the only claim that would possibly be a direct claim fails to state a claim, which is the 271 claim. . . . [T]he Delaware General Corporation Law clearly makes a distinction between financing transactions, mortgage transactions, collateral transactions, and sales of assets. And I don‘t think you can have a situation where there‘s the original financing transaction that pledges the collateral is outside 271‘s reach and then say when the creditor exercises rights under that that are within the four corners or arguably a lesser lesser-included option, that that somehow then triggers a stockholder vote. I think that would be bad for -- frankly, for equity investors in general, because I think it would raise the cost of capital, because it would -- it would create sort of a highjack situation that you sometimes see in new bankruptcies where it appears that everybody has to get something simply because they‘re present.
Plaintiffs argue that the Delaware Supreme Court “rejected” the Gunnerman by holding in Stream TV Networks, Inc. v. SeeCubic, 279 A.3d 323 (Del. 2022) (”Stream TV II“).102 Plaintiffs argue the Supreme Court in Stream TV II “explicitly held § 271 ‘contains no exceptions and is not ambiguous.‘”103 Plaintiffs also argue that the Supreme Court, in discussing Gunnerman, “described a narrow exception for ‘foreclosure proceedings in Superior Court’ because ‘judicial foreclosure proceedings [do not] implicate Section 271.‘”104
In Stream TV II, the Supreme Court addressed whether approval of a corporation‘s Class B common stockholders was required to effectuate an agreement to transfer the company‘s pledged assets to a newly created holding company controlled by its secured creditors (the “Omnibus Agreement“). 279 A.3d at 328. The Omnibus Agreement provided that the debtor company‘s secured creditors would accept delivery of the company‘s assets in satisfaction of the creditors’ debts in lieu of continuing to pursue a foreclosure action that they had earlier filed in the Superior Court. Id. Pursuant to the Omnibus Agreement, the debtor company
At the trial court level, this court, at the preliminary injunction stage, held that a stockholder vote was not required under Section 271 to effectuate the Omnibus Agreement. Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1033 (Del. Ch. 2020) (”Stream TV I“), rev‘d, 279 A.3d 323 (Del. 2022). This court concluded “the language of Section 271 is ambiguous as to whether it applies to transactions like the Omnibus Agreement,” and engaged in a detailed history of the common law governing asset sales along with the historical development of the statutory regime. Id. at 1041. The court concluded that the development of the statute and the common law that preceded it “demonstrate[s] that Section 271 does not apply to a transaction like the one contemplated by the Omnibus Agreement, in which an insolvent and
In addition to finding that enactment of the statutory regime did not eliminate the insolvency exception at common law, this court drew further support from Gunnerman, which was the only case cited by the parties “involving a claim that Section 271 applied to a transfer of assets to a secured creditor.” Stream TV I, 250 A.3d at 1043. The court amplified the public policy concerns that would result from requiring compliance with Section 271 whenever a creditor sought to foreclose on its security:
As Gunnerman suggests, a regime of this sort would have detrimental effects for everyone. Creditors would suffer the first-order effects when they tried to foreclose on collateral. Corporations and stockholders would suffer the second-order effects as creditors adjusted to the new reality, insisted on additional protections, and raised the cost of capital. Section 271 should not be interpreted to produce such a mischievous and harmful result.
Id.
The court also held that a stockholder vote was not required under the company‘s certificate of incorporation, which required approval by the Class B stockholder in order to consummate an “Asset Transfer.” Id. at 1043. The certificate
The Supreme Court in Stream TV II disagreed, drawing a distinction between the statute and the language in the certificate. The Court held that “the Omnibus Agreement effects an ‘Asset Transfer’ that unambiguously triggers a majority vote of the Class B stockholders” under the company‘s certificate. Stream TV II, 279 A.3d at 337. The Court held the language of Section 271 was “materially different” from the certificate and declined to consider Section 271 as an interpretative guide in construing the certificate. Id. Because the Court concluded that a stockholder vote was required under the certificate, the Court did “not resolve whether such a vote is also required under the plain language of Section 271, i.e., whether the Omnibus Agreement effects a ‘sale, lease or exchange’ within the meaning of Section 271.” Id.
The Court went on to write that “although [it] need not further consider Section 271, [it] clarif[ied] that a common law insolvency exception, if one existed in Delaware, did not survive the enactment of Section 271 and its predecessor.” Id.;
Although the Supreme Court declined to embrace a common law insolvency exception to Section 271, I do not read the Court‘s decision in Stream TV II to reject the holding in Gunnerman. The Supreme Court cites the Gunnerman transcript ruling once in a footnote at the end of its decision. That footnote reads in its entirety:
As we noted earlier, the Court of Chancery identified a single public policy concern, namely, “interpreting Section 271 as applying to a creditor‘s efforts to levy on its security would undercut the value of the security interest.” Stream TV, 250 A.3d at 1042. The court cited to then Vice-Chancellor Strine‘s transcript ruling in Gunnerman v. Talisman Capital Talon Fund, Ltd. where he observed that the DGCL distinguishes between financing transactions, mortgage transaction[s], collateral transactions, and sales of assets. Id. at 1043 (citing Gunnerman v. Talisman Cap. Talon Fund, Ltd., C.A. No. 1894-VCS (Del. Ch. July 12, 2006) (TRANSCRIPT)). Following this reasoning, the court, in its P.I. Opinion [i.e., Stream TV I], reasoned that interpreting Section 271 to require a stockholder vote before an insolvent or failing corporation can transfer its assets to secured creditors would conflict with Section 272 of the DGCL. Id. at 1021. We note that Section 271 presents no barrier to the parties’ foreclosure proceedings in Superior Court (which are presently stayed pending this appeal), and no party has argued that judicial foreclosure proceedings implicate Section 271. Moreover, Section 272 is a default rule that corporations can alter in their charters, which Stream has done here.
279 A.3d at 355 n.180.
The court does not interpret the Supreme Court‘s discussion in Stream TV II to reject the holding or reasoning in Gunnerman. The Supreme Court cited Gunnerman in its explanation of the public policy concern raised by this court in its
In considering Stream TV II and Gunnerman, the court concludes that it is not reasonably conceivable that a stockholder vote was required under Section 271 to effectuate the foreclosure sale in this case. The Supreme Court did not state that a judicial foreclosure proceeding was the only avenue available to a secured creditor seeking to exercise its contractual right to foreclose on the collateral without triggering Section 271. The facts of this case are far removed from the Omnibus Agreement that was at issue in Stream TV II. The Amended Complaint alleges
Accordingly, Count I of the Amended Complaint is dismissed for failure to state a claim under Rule 12(b)(6).
III. CONCLUSION
For the foregoing reasons, Count I is dismissed under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Counts II and III are dismissed under Rule 23.1 for failure to plead demand futility. Count II is also dismissed as to Iron Mountain under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Accordingly, the Amended Complaint is dismissed in its entirety.
Notes
Id. ¶ 31.In May 2022, Clutter‘s counsel . . . informed Plaintiffs that the value of their investment had “gone up” since 2019. Clutter had been valued at $600 million in 2019. Given that the exchange ratio [in the merger] resulted in Iron Mountain‘s equity share giving from about 50% of MakeSpace to about 25% of the combined entity, the transaction clearly valued the two component companies equally. As a result, before the incorporation of synergies, the combined entity was worth about $1.2 billion.
(b) Without limiting the rights of a secured party under applicable law, no resolution by stockholders shall be required by § 271(a) of this title for a sale, lease or exchange of property or assets if such property or assets are collateral that secures a mortgage or are pledged to a secured party and either:
(1) The secured party exercises its rights under the law governing such mortgage or pledge or other applicable law, whether under Article 9 of a Uniform Commercial Code, a real property law or other law, to effect such sale, lease or exchange without the consent of the corporation. . . .