                                      COURT OF CHANCERY
                                             OF THE
                                      STATE OF DELAWARE

TAMIKA R. MONTGOMERY-REEVES                                         Leonard Williams Justice Center
      VICE CHANCELLOR                                               500 N. King Street, Suite 11400
                                                                   Wilmington, Delaware 19801-3734

                               Date Decided: February 22, 2017


       Seth D. Rigrodsky, Esquire              Peter B. Andrews, Esquire
       Brian D. Long, Esquire                  Craig J. Springer, Esquire
       Gina M. Serra, Esquire                  David M. Sborz, Esquire
       Jeremy J. Riley, Esquire                Andrews & Springer LLC
       Rigrodsky & Long, P.A.                  3801 Kennett Pike
       2 Righter Parkway, Suite 120            Building C, Suite 305
       Wilmington, DE 19803                    Wilmington, DE 19807


            RE:   In re CytRx Corporation Stockholder Derivative Litigation II,
                  Civil Action No. 11800-VCMR

      Dear Counsel:

            This letter resolves plaintiffs’ motions for appointment of a lead plaintiff and

      lead counsel. For the reasons described herein, plaintiffs Gordon Niedermayer and

      Brent Reed (collectively, the “Niedermayer Plaintiffs”) are appointed as lead

      plaintiffs and Andrews & Springer LLC and Gainey McKenna & Egleston are

      appointed as lead co-counsel. The motion filed by plaintiff Jack Taylor is denied.

      I.    BACKGROUND

            A.    Facts

            The facts underlying this case are well known. On March 13, 2014, Richard

      Pearson, a contributor on the website Seeking Alpha, published an article titled,
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 2 of 15

“Behind the Scenes with Dream Team, CytRx and Galena,” in which he detailed

how he went undercover after The Dream Team (“Dream Team”) solicited him to

write favorable articles on behalf of CytRx Corporation (“CytRx” or the

“Company”) without disclosing payment, how Dream Team’s articles coincided

with the company’s disclosures and stock offerings, and how CytRx’s stock price

responded.    Pearson stated that his goal was “to determine how involved

management from these two companies were [sic] in this undisclosed paid

promotion scheme.”1 With respect to CytRx, Pearson concluded that members of

management at CytRx, including President and Chief Executive Officer Steven A.

Kriegsman and Vice President for Business Development David J. Haen, were

“intimately involved in reviewing and editing the paid articles”2 on CytRx stock.

      Before any litigation stemming from the Pearson report began, CytRx adopted

a forum selection bylaw. The bylaw states as follows:

             Unless the corporation consents in writing to the selection
             of an alternative forum, the Court of Chancery of the State
             of Delaware shall be the sole and exclusive forum for (i)
             any derivative action or proceeding brought on behalf of
             the corporation, (ii) any action asserting a claim for breach

1
      Richard Pearson, Behind the Scenes with Dream Team, CytRx and Galena, SEEKING
      ALPHA (Mar. 13, 2014), http://seekingalpha.com/article/2086173-behind-the-
      scenes-with-dream-team-cytrx-and-galena.
2
      Id.
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 3 of 15

             of fiduciary duty owed by any director, officer, employee,
             or agent of the corporation to the corporation or the
             corporation’s stockholders . . . .3

      B.     Procedural History

      Following publication of Pearson’s article, multiple lawsuits were filed in

Delaware and California alleging Caremark4 claims, federal securities law claims,

and challenges to certain spring-loaded options. Vice Chancellor Laster approved a

final settlement of the spring-loaded options claims in this Court on November 10,

2015 (the “First Delaware Action”). That settlement excluded claims related to the

Dream Team allegations. The United States District Court for the Central District

of California approved a final settlement of the federal securities law claims on May

18, 2016 (the “Federal Securities Action”). The Caremark claims related to the

Dream Team allegations remain unresolved and are the focus of this case.

      On June 24, 2014, Niedermayer submitted a Section 220 demand to CytRx.

On July 1, 2014, the Company responded, requesting proof of Niedermayer’s stock

holdings in CytRx during the time period in question.              On July 29, 2014,

Niedermayer sent CytRx unsworn internet printouts purporting to show his stock



3
      Taylor’s Opening Br. 12 (quoting Restated Bylaws of CytRx art. VIII).
4
      In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 971 (Del. Ch. 1996).
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 4 of 15

holdings. The Company replied that such printouts were deficient on August 5,

2014.

        On August 14, 2014, the first Caremark claim arising from the Dream Team

allegations was filed in the Central District of California. Taylor filed his complaint

in the Central District of California the next day on August 15, 2014. Those actions

were consolidated on October 8, 2014 (the “California Derivative Action”).

        On December 16, 2014, Niedermayer, in another attempt to prove his stock

holdings, sent CytRx an unsworn printout of a brokerage statement. Three days

later, on December 19, 2014, CytRx acknowledged receipt of the brokerage

statement, sent Niedermayer a proposed confidentiality agreement, and requested

that Niedermayer make the required Section 220 representations under oath.

        On December 20, 2014, the defendants moved to dismiss the California

Derivative Action. In February 2015, the parties to the Federal Securities Action,

the First Delaware Action, and the California Derivative Action began settlement

discussions and agreed to a mediator. On April 6, 2015, Taylor sent the California

Derivative Action defendants a settlement statement, and on April 15, 2015, the

California Derivative Action parties submitted mediation statements to the mediator.

Mediation occurred in the First Delaware Action, the Federal Securities Action, and

the California Derivative Action on April 23 and 24, 2015.
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 5 of 15

        On June 24, 2015, the judge in the California Derivative Action, among other

things, denied defendants’ rule 12(b)(3) motion to dismiss for improper venue, but

granted leave to file a motion to dismiss for forum non conveniens based on the

CytRx forum selection bylaw. Defendants filed such a motion on July 24, 2015.

        On September 14, 2015, Reed sent a Section 220 demand to CytRx. Four

days later, on September 18, 2015, Niedermayer returned the signed confidentiality

agreement and sworn representation that CytRx had requested nine months earlier.

On September 23, 2015, the Company acknowledged receipt of Niedermayer and

Reed’s letters and indicated that it was preparing the Section 220 documents. CytRx

delivered the documents to the Niedermayer Plaintiffs between October 16 and 23,

2015.

        On October 30, 2015, the judge in the California Derivative Action granted

the defendants’ motion to dismiss for forum non conveniens based on the CytRx

forum selection bylaw. Taylor filed a notice of appeal of that decision in the United

States Circuit Court of Appeals for the Ninth Circuit on November 17, 2015.

        On December 14, 2015, the Niedermayer Plaintiffs commenced this case by

filing a verified stockholder derivative complaint in this Court.

        On December 23, 2015, the parties to the California Derivative Action entered

a memorandum of understanding (“MOU”) documenting an agreement in principal
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 6 of 15

that had been reached in late November. CytRx consented in writing in the MOU to

the Central District of California as an alternative forum to the Court of Chancery

for purposes of settlement. The parties stipulated to dismissal of the Ninth Circuit

appeal without prejudice to reinstate the appeal, which the Ninth Circuit granted on

February 19, 2016.

      On February 25, 2016, the individual defendants in this case filed a motion to

dismiss the Niedermayer Plaintiffs’ complaint in this Court. In the alternative, they

moved to stay pending approval of the settlement of the California Derivative

Action.

      On March 22, 2016, the Niedermayer Plaintiffs filed an amended complaint

in this Court, but on May 2, 2016, this Court granted defendants’ motion to stay this

case in favor of the California Derivative Action. The Niedermayer Plaintiffs then

moved to intervene in the California Derivative Action on May 6, 2016. On May

31, 2016, the judge in the California Derivative Action declined to preliminarily

approve the proposed settlement and denied the Niedermayer Plaintiffs’ motion to

intervene, reminding the parties that the California Derivative Action had been

dismissed for forum non conveniens. The parties to the California Derivative Action,

including Taylor, filed motions to set aside the judgment dismissing that case, which

the California court denied on August 17, 2016. Thereafter, Taylor filed a verified
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 7 of 15

stockholder derivative complaint in this Court.

      On September 2, 2016, this Court granted the Niedermayer Plaintiffs’ fully

briefed motion to lift the stay in this case, and the Niedermayer Plaintiffs filed a

second amended complaint on October 12, 2016. The second amended complaint

adds new allegations based on the Section 220 documents and an additional claim

for waste arising from the board’s decision to pursue a futile settlement costing

thousands of dollars in California.

      On November 4, 2016, this Court consolidated the Niedermayer Plaintiffs’

case with the Taylor case, and on November 9, 2016, Taylor and the Niedermayer

Plaintiffs both moved to be appointed as the lead plaintiff. Both plaintiffs filed

opposition briefs on November 23, 2016. This opinion resolves those motions.

II.   ANALYSIS

      Taylor argues that the Niedermayer Plaintiffs lack standing to bring this case.

Thus, this letter first addresses the issue of standing and then conducts a lead plaintiff

analysis under Hirt v. U.S. Timberland Service Co.5

      A.     Taylor’s Standing Arguments Do Not Foreclose the Niedermayer
             Plaintiffs’ Ability to Serve as Lead Plaintiffs
      Taylor argues that because Niedermayer purchased CytRx shares after CytRx


5
      2002 WL 1558342 (Del. Ch. July 3, 2002).
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 8 of 15

engaged Dream Team and after six of the thirteen Dream Team articles had been

published, and because Reed purchased CytRx shares after nine of the Dream Team

articles had been published, they lack standing to bring this case.6 The Niedermayer

Plaintiffs respond that they have standing under the continuing wrong doctrine, and

even if the Court were to consider the Dream Team articles individually, the

Niedermayer Plaintiffs have standing to challenge the majority of the wrongs

alleged.

      “Section 327 of the [Delaware General Corporation Law] requires a

stockholder filing a derivative suit to allege that she held stock at the time of the

transaction in question or that her shares thereafter devolved upon her by operation

of law.”7 Thus, generally, a derivative plaintiff has standing to challenge a series of

actions only if the plaintiff has held stock in the nominal defendant corporation

throughout the alleged period of wrongdoing. This Court has been more flexible,

however, in cases challenging a wrongful transaction that “continue[d] over a period

of time.”8 In “unusual situations, such as where a plaintiff acquires his stock after a



6
      Taylor’s Opening Br. 18-20.
7
      Conrad v. Black, 940 A.2d 28, 41 (Del. Ch. 2007).
8
      Id.
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 9 of 15

particular transaction has begun but before it is completed,” the plaintiff may have

standing under the continuing wrong doctrine.9

        The Niedermayer Plaintiffs potentially may have standing under the

continuing wrong doctrine. But I need not and do not decide whether the continuing

wrong doctrine applies because even if the Dream Team articles should be

considered separately, Niedermayer purchased stock before seven of the thirteen

Dream Team articles and has standing to challenge those seven. Taylor does not

explain how the Niedermayer Plaintiffs would be entitled to recover fewer damages

than Taylor on behalf of the corporation—even if they have standing to challenge

only seven of the Dream Team articles. Thus, standing should not foreclose the

Niedermayer Plaintiffs’ ability to serve as lead plaintiffs under the facts of this case.

        B.    The Niedermayer Plaintiffs Are Appointed as Lead Plaintiffs

        The Court’s analysis is guided by the multi-factor balancing test established

in Hirt v. U.S. Timberlands Service Co.10 The factors are:

      the “quality of the pleading that appears best able to represent the interests of
       the shareholder class and derivative plaintiffs;”

      the relative economic stakes of the competing litigants in the outcome of the


9
        Desimone v. Barrows, 924 A.2d 908, 925 (Del. Ch. 2007).
10
        2002 WL 1558342, at *2 (Del. Ch. July 3, 2002).
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 10 of 15

        lawsuit (to be accorded “great weight”);

      the willingness and ability of all the contestants to litigate vigorously on behalf
       of an entire class of shareholders;

      the absence of any conflict between larger, often institutional, stockholders
       and smaller stockholders;

      the enthusiasm or vigor with which the various contestants have prosecuted
       the lawsuit; and

      [the] competence of counsel and their access to the resources necessary to
       prosecute the claims at issue.11

This Court has recognized that a “nuanced and case-specific” analysis of the Hirt

factors is necessary to reach the ultimate goal of “a leadership structure that will

provide effective representation.”12 I address only the Hirt factors that tilt in one

plaintiff’s or the other’s favor.13



11
        Hirt, 2002 WL 1558342, at *2 (citing TCW Tech. Ltd. P’ship v. Intermedia
        Commc’ns, Inc., 2000 WL 1654504 (Del. Ch. Oct. 17, 2000)).
12
        In re Inv’rs Bancorp, Inc. S’holder Litig., 2016 WL 4257503, at *2 (Del. Ch. Aug.
        12, 2016) (quoting In re Del Monte Foods Co. S’holders Litig., 2010 WL 5550677,
        at *6 (Del. Ch. Dec. 31, 2010)) (internal quotation marks omitted).
13
        The competence of counsel, the absence of any conflict between larger and smaller
        stockholders, and the relative economic stakes of the plaintiffs do not weigh in favor
        of either party. All counsel are known to this Court as competent counsel in the
        area of stockholder derivative litigation. Niedermayer, Reed, and Taylor are all
        individual stockholders in CytRx. In its briefing, the Niedermayer Plaintiffs do not
        address either potential conflicts between larger and smaller stockholders or their
        relative economic stake in CytRx. And Taylor’s brief uses these factors to rehash
        its standing argument.
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 11 of 15

             1.    Quality of the pleadings

      In analyzing the quality of the pleadings, Delaware courts recognize a “public

policy interest favoring the submission of thoughtful, well-researched complaints—

rather than ones regurgitating the morning’s financial press.”14 While I need not and

do not decide whether either or both of Taylor and the Niedermayer Plaintiffs’

complaints would survive a motion to dismiss, the Niedermayer Plaintiffs’ second

amended complaint is superior to Taylor’s Delaware complaint. The Niedermayer

Plaintiffs’ complaint alleges facts obtained from its Section 220 demand that tie the

illegal conduct described in the Pearson article to the entire board of directors. The

Niedermayer Plaintiffs obtained board minutes that purportedly indicate that the

board directed management to employ a new public relations strategy after a

presentation from Kriegsman indicating that the campaign could help with future

financing.15 Further, the Niedermayer Plaintiffs obtained records that supposedly

show that the audit committee was responsible for ensuring compliance with

CytRx’s disclosure policy but that there were gaps in the board’s internal controls.16


14
      Inv’rs Bancorp, 2016 WL 4257503, at *4 (quoting Biondi v. Scrushy, 820 A.2d
      1148, 1162 (Del. Ch. 2003)).
15
      Niedermayer Pls.’ Opening Br. 21.
16
      Id. at 22.
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 12 of 15

Finally, the Niedermayer Plaintiffs allegedly discovered through the Section 220

documents that Haen and Kriegsman attempted to conceal their involvement in the

stock promotion scheme by communicating edits to the Dream Team articles

through their assistants.17 The Niedermayer Plaintiffs’ complaint details all those

facts.18

       On the other hand, in Taylor’s 42-page complaint filed in California, nearly

three pages were copied and pasted from the CytRx website, and sixteen pages were

copied and pasted from the Pearson report.19 Any connection between the Dream

Team scheme and CytRx management alleged in the California complaint came

directly from the Pearson report. Although Taylor’s Delaware complaint is better

than his California complaint, it still extensively quotes the Pearson report.20

Moreover, any improvements are attributable to Taylor’s use of the Section 220

documents the Niedermayer Plaintiffs obtained. But “[t]o incent investment [in

Section 220 proceedings], there generally needs to be some advantage gained by



17
       Id. at 22-23.
18
       Niedermayer Second Am. Compl. ¶¶ 44-81.
19
       Peter B. Andrews Aff. in Supp. of Niedermayer Pls.’ Opening Br. Ex. C.
20
       E.g., Compl. ¶ 26, Taylor v. Kriegsman, C.A. No. 12720-VCMR (Del. Ch. Sept. 6,
       2016).
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 13 of 15

making the investment. In my view, Delaware law should take steps to favor

stockholders who use Section 220 over those who do not.”21 Regardless, even with

the benefit of the Section 220 documents, Taylor’s complaint is inferior to the

Niedermayer Plaintiffs’ complaint.

             2.     Enthusiasm of litigation and willingness and ability to litigate
                    vigorously on behalf of the entire class
      These two factors weigh in favor of Andrews & Springer and the Niedermayer

Plaintiffs. Niedermayer and Reed separately made Section 220 demands in order to

obtain documents to establish a connection between the misconduct in this case and

the CytRx board. Further, after this Court stayed this case in favor of the California

Derivative Action, the Niedermayer Plaintiffs filed five briefs in the California court

advocating for their right to litigate the merits of these claims in Delaware pursuant

to the CytRx forum selection bylaw.22

      Taylor asserts that he also litigated vigorously in California as evidenced by

the 109 docket entries in that litigation.23 But the efforts Taylor exerted in California


21
      Denial of Stipulation and Proposed Order Staying Action, Galustyan v. Sather, C.A.
      No. 11676-VCL (Del. Ch. June 27, 2016).
22
      Niedermayer Pls.’ Opening Br. 30.
23
      Taylor’s Opening Br. 5. Regarding the Niedermayer Plaintiffs’ willingness and
      ability to litigate on behalf of the entire class, Taylor primarily argues that the
      Niedermayer Plaintiffs do not have standing to bring derivative claims challenging
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 14 of 15

largely focused on avoiding a forum selection bylaw that chose Delaware as the

exclusive jurisdiction for resolution of these claims, and involved no litigation on

the merits.24 Taylor argues that the Niedermayer Plaintiffs were dilatory in pursuing

their Section 220 demand.        While Niedermayer did delay in executing the

confidentiality agreement and providing proof of stock ownership, Taylor made no

Section 220 demand at all and attempted to settle the claims without the benefit of

any discovery in the California Derivative Action.            Taylor may have been

enthusiastic, but his efforts in California did not vigorously pursue claims on the

merits.25

                             *             *             *

      After balancing the Hirt factors, I find that the vigor of prosecution that

Andrews & Springer and Gainey McKenna & Egleston have demonstrated thus far


      the Dream Team articles from before Niedermayer purchased CytRx stock. For the
      reasons discussed above, that argument is not sufficient to disqualify the
      Niedermayer Plaintiffs as lead plaintiffs.
24
      Order re: Plaintiffs’ Motion to Set Aside Judgment 7, In re CytRx Corp. S’holder
      Deriv. Litig., No. 2:14-cv-06414-GHK (C.D. Cal. Aug. 17, 2016) (“The Parties
      overstate our familiarity with this case. Although we resolved a motion to dismiss
      in the CytRx securities action, which involves the same general factual allegations,
      we have not resolved a single motion on the merits in this case, which also concerns
      distinct claims that were not litigated in the securities action.”).
25
      See id. (“If anything, we are skeptical of the Parties’ motivation for attempting to
      settle here.”).
In re CytRx Corp. S’holder Deriv. Litig. II
C.A. No. 11800-VCMR
February 22, 2017
Page 15 of 15

and the resulting superior complaint they have filed qualify the Niedermayer

Plaintiffs to serve as lead plaintiffs and Andrews & Springer and Gainey McKenna

& Egleston to serve as co-lead counsel in this case.

III.   CONCLUSION

       For the reasons stated herein, the Niedermayer Plaintiffs’ motion for

appointment of lead plaintiff and lead co-counsel is granted, and Taylor’s motion is

denied.

       IT IS SO ORDERED.

                                              Sincerely,

                                              /s/Tamika Montgomery-Reeves
                                              Vice Chancellor
TMR/jp
