   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LENZA H. MCELRATH, III,                   )
derivatively on behalf of UBER            )
TECHNOLOGIES, INC.,                       )
                                          )
                   Plaintiff,             )
                                          )
      v.                                  ) C.A. No. 2017-0888-SG
                                          )
TRAVIS KALANICK, GARRETT                  )
CAMP, RYAN GRAVES, ARIANNA                )
HUFFINGTON, YASIR AL-                     )
RUMAYYAN, WILLIAM GURLEY,                 )
DAVID BONDERMAN, and SALLE                )
YOO,                                      )
                                          )
                   Defendants,            )
      -and-                               )
                                          )
UBER TECHNOLOGIES, INC.,                  )
                                          )
                   Nominal Defendant.     )

                         MEMORANDUM OPINION

                       Date Submitted: December 4, 2018
                          Date Decided: April 1, 2019

Michael J. Barry, Jeff A. Almeida, and Rebecca A. Musarra, of GRANT &
EISENHOFER P.A., Wilmington, Delaware, Attorneys for Plaintiff.

R. Judson Scaggs, Jr., Susan W. Waesco, and Sabrina M. Hendershot, of MORRIS,
NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL:
Susan S. Muck, Kevin P. Muck, and Marie C. Bafus, of FENWICK & WEST LLP,
San Francisco, California, Attorneys for Defendants Garrett Camp, Ryan Graves,
Arianna Huffington, Yasir Al-Rumayyan, William Gurley, and David Bonderman.

Donald J. Wolfe, Jr., T. Brad Davey, J. Matthew Belger, and Jacob R. Kirkham, of
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF
COUNSEL: Joseph G. Petrosinelli and Kenneth J. Brown, of WILLIAMS &
CONNOLLY LLP, Washington, District of Columbia, Attorneys for Defendant
Travis Kalanick.

Jody C. Barillare, of MORGAN, LEWIS & BOCKIUS LLP, Wilmington, Delaware;
OF COUNSEL: Susan D. Resley, of MORGAN, LEWIS & BOCKIUS LLP, San
Francisco, California; Marc J. Sonnenfeld, of MORGAN, LEWIS & BOCKIUS LLP,
Philadelphia, Pennsylvania, Attorneys for Defendant Salle Yoo.

A. Thompson Bayliss and Michael A. Barlow, of ABRAMS & BAYLISS LLP,
Wilmington, Delaware; OF COUNSEL: Mark P. Gimbel and C. William Phillips, of
COVINGTON & BURLING LLP, New York, New York; Bryant Pulsipher, of
COVINGTON & BURLING LLP, San Francisco, California, Attorneys for Nominal
Defendant Uber Technologies, Inc.




GLASSCOCK, Vice Chancellor
          In the popular fable often attributed to Aesop,1 a scorpion stings a frog that is

ferrying it across a river, dooming both scorpion and frog. “Why would you do

that?” asks the frog, dying. “It is my nature,” replies the drowning scorpion, “as you

knew yourself when you let me on your back.” The Plaintiff in this unusual

derivative action blames the Defendant directors of Uber Technologies, Inc.

(“Uber”) on similar grounds, with then-CEO Travis Kalanick cast as the scorpion.

          According to the Plaintiff, Kalanick wanted to boost Uber’s development of a

self-driving car by hiring former Google employees, one of whom, Anthony

Levandowski, had recently been employed at Google working on that firm’s self-

driving car project. Levandowski had formed his own firm in the same field,

Ottomotto, LLC (“Otto”). Uber management began to investigate acquisition of

Otto. Despite the fact that, per the Plaintiff, Kalanick knew that Levandowski had

purloined intellectual property and trade secrets from Google, Uber management

hired an outside firm, Stroz Friedberg (“Stroz”), to investigate whether such a taking

of IP had occurred. Eventually, management recommended acquisition of Otto to

the directors, at an April 11, 2016 meeting of Uber’s Board of Directors (the

“Board”). By that time, Stroz had already conducted some diligence review and

reached preliminary conclusions as to whether Levandowski and his associates at

Otto had retained Google IP when they left that company. Some report of Stroz’


1
    In fact, per Wikipedia, the fable is of Russian origin.
diligence was made by management to the Board, apparently satisfying the Board.

The Board also discussed the Merger Agreement, which indemnified Otto

employees for prior bad acts to the extent those had been truthfully disclosed to Stroz

and did not require Otto to indemnify Uber for any liability Uber acquired. The

Amended Complaint is silent as to the nature or contents of management’s

presentation to the Board on the Stroz investigation, but the complaint does allege

that the directors failed to ask to see the materials Stroz produced or otherwise gather

information, independent of management, regarding the diligence. At the April 11,

2016 meeting, the Board approved the transaction. After Uber acquired Otto, a

Google employee noticed that Otto was using what appeared to be Google

technology.     Google sued Otto and Uber for intellectual property (“IP”)

infringement, and Uber ultimately settled for $245 million.

      The Plaintiff brings this suit, purportedly on behalf of Uber, against Kalanick,

the directors who approved the transaction, and others, and seeks damages arising

from the Otto acquisition. He argues that Kalanick’s promotion of the Otto merger,

in light of what he asserts is Kalanick’s essentially bad character, should have been

a red flag to the directors. The Plaintiff points to Kalanick’s alleged history as a

copyright infringer and the fact that, under his control, Uber had acquired a

reputation for breaching local taxi regulations in its ride-share business. As a result,

the Plaintiff argues, the Board must have been well aware that Kalanick was a

                                           2
scofflaw. The Plaintiff posits, therefore, that the Board must have known that

whatever the management representations regarding Stroz’ findings, those

representations were unreliable. As a consequence, by not insisting to read Stroz’

preliminary findings before entering the merger agreement, and in not reading the

final Stroz report before the closing of the merger, the directors breached fiduciary

duties. Further, noting that breaches of the duty of care are exculpated by Uber’s

charter, the Plaintiff alleges that the directors’ failure to insist on reading the reports

was an omission in bad faith, and that the directors who approved the merger

agreement (or failed to stop the merger from closing) are accordingly liable for

breach of the duty of loyalty.

       The Defendants have moved to dismiss. Under our well-known model, it is

the province of the directors to deploy corporate assets, including choses-in-action

like the one the Plaintiff attempts to plead derivatively here. The Plaintiff did not

make a demand on the Board to pursue this litigation; therefore, under Court of

Chancery Rule 23.1, his derivative complaint must be dismissed unless he

demonstrates that demand would have been futile on account of the directors’

inability to exercise business judgment in regard to the matter. According to the

Plaintiff, addressing a demand to those directors who approved or failed to stop the

transaction, and who remain on the Board, would be futile because of the likelihood

of their liability. While the majority of the directors who would evaluate a demand

                                            3
joined the Board after the Otto acquisition, the Plaintiff alleges that a majority lacks

independence from Kalanick, and therefore could not bring their business judgment

to bear, excusing demand. The Defendants disagree.

        I find that a majority of the Board who would evaluate a demand is

disinterested and independent, and thus the action must be dismissed under Rule

23.1.

        My reasoning follows a recitation of the background facts, below.

                                     I. BACKGROUND

        The Defendants moved to dismiss the Plaintiff’s Verified Amended

Stockholder Derivative Complaint (the “Amended Complaint”) under Court of

Chancery Rule 12(b)(6), failure to state a claim, and Rule 23.1, failure to make a

pre-suit demand. As a result, the background facts below are drawn from the

Amended Complaint and documents incorporated therein. 2




2
  The parties disagree on what documents are incorporated by reference into the Amended
Complaint. See Docket Item [hereinafter, “D.I.”] 96–100. The Plaintiff agrees that the following
documents are incorporated by reference: Uber’s charter for the purpose of taking judicial notice
of Uber’s exculpatory provision; the Stroz Friedberg final report; a redacted version of the Merger
Agreement between Uber Technologies, Inc. (“Uber”) and Ottomotto, LLC (“Otto”); a redacted
version of the indemnification agreement between Uber and Otto that accompanied the Merger
Agreement; and a redacted version of a slide deck used in Uber management’s presentation to the
Board on the Otto acquisition. See D.I. 96. The Plaintiff contests the incorporation of the
testimony of Uber director William Gurley in another litigation. See D.I. 96, at 3. The Plaintiff
himself quotes (and references) parts of Gurley’s testimony in the Amended Complaint. Gurley’s
entire testimony is not incorporated; however, I find it appropriate to consider the full questions
and answers from which the Plaintiff quotes.
                                                4
       A. Parties

       Plaintiff Lenza A. McElrath, III is a California resident and a stockholder of

Uber.3

       Nominal Defendant Uber is a privately held company incorporated in the State

of Delaware.4 Defendants Garrett Camp and Travis Kalanick co-founded Uber in

2009.5 Both Camp and Kalanick have served as Uber directors since Uber was

founded.6 Kalanick also served as Uber’s CEO from December 2010 until June

2017.7 Kalanick previously founded a company called “Scour,” which facilitated

the sharing of music and theatrical film releases in violation of copyright, and which

eventually declared bankruptcy. 8

       Defendant Ryan Graves has served as an Uber director since 2010. 9 Graves

briefly served as Uber’s first CEO, but at all times relevant to this litigation, Graves

was Uber’s head of global operations.10




3
  Am. Compl. ¶ 16. McElrath “has been a stockholder of Uber at all material times alleged in this
Complaint.” Id.
4
  Id. ¶ 17. Uber’s corporate headquarters are located in San Francisco, California. Id.
5
  Id.
6
  Id. ¶¶ 18–19.
7
  Id. ¶ 18.
8
  Id. ¶¶ 27, 28.
9
  Id. ¶ 20.
10
   Id.
                                               5
       Defendant William Gurley served as an Uber director from 2011 until June

21, 2017.11 Gurley is a partner of Benchmark Capital Partners VII, L.P.

(“Benchmark”). 12 Benchmark is an Uber stockholder. 13

       Defendant David Bonderman served as an Uber director from 2011 through

June 13, 2017.14 Bonderman is a partner of TPG Capital L.P. (“TPG”). 15 TPG is an

Uber stockholder. 16

       Defendant Arianna Huffington has served as an Uber director since April 27,

2016.17 Kalanick unilaterally appointed Huffington to Uber’s Board. 18

       Defendant Yasir Al-Rumayyan has served as an Uber director since June 1,

2016.19 Al-Rumayyan is the managing partner of Saudi Arabia’s Public Investment

Fund, which is an Uber stockholder.20

       Defendant Salle Yoo served as Uber’s General Counsel until May 2017,21 and

was Uber’s General Counsel during the events that led to this litigation.




11
   Id. ¶ 23.
12
   Id.
13
   Id.
14
   Id. ¶ 24.
15
   Id.
16
   Id.
17
   Id. ¶ 21.
18
   Id. ¶ 110.
19
   Id. ¶ 22.
20
   Id.
21
   Id. ¶ 26. Yoo also served as Uber’s Chief Legal Officer until November 2017. Id.
                                               6
       B. Uber Acquires Otto

       Uber “operates the world’s dominant ride-sharing mobile app.”22 It generated

$7.5 billion in revenue in 2017.23 Per the Amended Complaint, Uber’s business

practices have come under scrutiny since its founding for ignoring or thwarting local

regulations that conflicted with Uber’s business, specifically local taxi or car-for-

hire service laws.24

       Otto was founded by Anthony Levandowski, a former employee of

“Waymo.”25 Waymo is a subsidiary of Google, 26 and is engaged in developing self-

driving technology.27 Uber sought to jumpstart its own efforts to develop self-

driving vehicles by acquiring Otto. 28 Uber executives began efforts to recruit

Levandowski in June 2015, when he still worked for Google.29 In one meeting with

Uber executives, Levandowski purportedly asked “what Uber would be willing to

pay for the entire Google self-driving staff.”30 During the “recruitment period,”

Kalanick personally exchanged text messages with Levandowski. 31




22
   Id. ¶ 17.
23
   Id. ¶ 1.
24
   Id. ¶¶ 29–33.
25
   Id. ¶ 2.
26
   For simplicity, I use “Google” to collectively refer to Google (now known as Alphabet) and
Waymo (which has had different names in the past). See id. ¶ 38 n.3.
27
   Id. ¶ 2.
28
   Id. ¶ 1.
29
   Id. ¶ 39.
30
   Id.
31
   Id. ¶ 40.
                                             7
       Levandowski founded the precursor to Otto on January 14, 2016, while still

employed at Google. 32 Levandowski then left Google on January 27, 2016. 33 At the

time Levandowski resigned, he possessed tens of thousands of files containing

Google trade secrets and confidential information, and he retained those files after

he resigned.34 Following his resignation from Google, Levandowski continued to

exchange text messages with Kalanick, in which they discussed Otto’s status and

poaching other Google employees to join Otto.35 Levandowski and Kalanick also

met personally on multiple occasions to discuss the acquisition of Otto by Uber,

purportedly during a series of long nighttime walks.36

       On February 22, 2016, less than a month after Levandowski left Google, Otto

and Uber signed a Term Sheet for Uber to acquire Otto. 37 The acquisition valued

Otto at $680 million. 38 In the less than one month between Levandowski leaving

Google and Otto signing the Term Sheet, Otto also hired dozens of other former

Google employees.39           At the time it was acquired, Otto operated out of




32
   Id. ¶ 44.
33
   Id.
34
   Id. ¶ 42. These files included technical drawings and diagrams, texts and notes, e-mails, source
code files, and pictures and videos. Id.
35
   Id. ¶ 45.
36
   Id. ¶ 40.
37
   Id. ¶ 46.
38
   Id. ¶ 57.
39
   Id. ¶ 4.
                                                8
Levandowski’s house and had no real operations. 40 Kalanick testified in a different

litigation that “[Uber] basically [was] hiring [Levandowski] and his team.” 41

       C. Uber Hires Stroz Friedberg to Investigate Otto

       In March 2016, as part of its due diligence on Otto, Uber hired Stroz, a

forensic firm, to conduct an independent investigation under the supervision of

Uber’s outside counsel, Morrison & Foerster.42 Stroz was primarily tasked with

determining whether Levandowski and other former Google employees at Otto

“took with them or retained confidential and/or proprietary information from their

former employer, Google.”43

       Uber executives, including Kalanick, knew that Levandowski had retained

confidential information from his time at Google. 44 At a March 11, 2016 meeting,

Levandowski told Kalanick and other Uber executives that he possessed proprietary

and confidential information on Google’s self-driving vehicle technology on his

personal storage device or disks.45 An Uber executive told Levandowski not to




40
   Id. ¶ 47.
41
   Id.
42
   Id. ¶ 49.
43
   Id. ¶¶ 5, 49; see also Transmittal Aff. of Andrew J. Peach, Esq. in Support of Opening Br. in
Support of Nom. Def. Uber’s Mot. to Dismiss [hereinafter, “Peach Aff.”] Ex. 5, at 3, “Scope of
Engagement.”
44
   Am. Compl. ¶ 50.
45
   Id.
                                               9
destroy his storage device, and Kalanick told Levandowski that “he wanted nothing

to do with the disks” and to “do what [Levandowski] needed to do.”46

        In April 2016, Stroz delivered its preliminary findings to Morrison & Foerster,

Salle Yoo (then Uber’s General Counsel), and Otto.47 Yoo received the preliminary

findings no later than April 10, 2016.48 After receiving the preliminary findings,

Yoo expressed “serious reservations” to Kalanick regarding the acquisition of Otto. 49

Yoo did not inform or otherwise speak to Uber’s other directors about Stroz’

preliminary findings. 50 Stroz’ preliminary findings included that Levandowski and

others at Otto possessed confidential and proprietary Google information. 51 Stroz

continued its investigation and, as discussed below, later delivered a final report on

August 5, 2016.52

        D. Uber’s Board of Directors Approves the Otto Acquisition on April 11,
        2016

        Uber’s Board of Directors met on April 11, 2016.53 Kalanick, who was both

a director and CEO of Uber at the time, presented the transaction to acquire Otto to




46
   Id.
47
   Id. ¶ 52.
48
   Id. ¶ 53.
49
   Id.
50
   Id.
51
   Id. ¶ 55.
52
   Id.
53
   Id.
                                          10
the Board on the same day.54 Although he was aware of them, 55 Kalanick did not

specifically present Stroz’ preliminary findings. 56 A slide deck shown to the Board

detailed Uber’s agreement, as part of the merger, to indemnify Otto from certain IP

and employment liability; indemnification was conditional, and varied by

circumstance.57 After Kalanick’s presentation, the Uber Board approved Uber

entering into a merger agreement with Otto (the “Merger Agreement”).58 The

Merger Agreement valued the Otto acquisition at $680 million. 59

       Uber’s directors were aware that Stroz, a forensic investigative firm, had been

hired to conduct diligence on Otto. 60             However, none of the directors asked

specifically about the results of the Stroz investigation before approving the merger

with Otto.61 The risk of litigation brought by Google regarding IP or the solicitation

of Google employees was discussed, as was the importance of due diligence. 62 The

Amended Complaint makes no allegation regarding a discussion of due diligence at



54
   Id. ¶¶ 54, 78.
55
   Id. ¶ 10.
56
   Id. ¶ 54.
57
   Id. ¶ 78; see also Peach Aff. Ex. 8. Again, the Plaintiff acknowledges that the slide deck used
by management, in its redacted form, is integrated into the Amended Complaint. D.I. 96.
58
   Am. Compl. ¶ 57.
59
   Id.
60
   Id. ¶ 5
61
   Id. ¶¶ 53, 54.
62
   Id. ¶ 75. The Plaintiff makes no other allegations regarding management’s presentation or the
Board’s approval process. As a result, there are no allegations from which to infer that the Board’s
approval of the Otto merger was lacking in any regard other than that Kalanick did not specifically
share Stroz’ preliminary findings or that the Board did not specifically ask about Stroz’ preliminary
findings.
                                                11
the April 11 meeting. 63 However, one director later testified in a different litigation:

“There was a discussion about the indemnity. There was a discussion about it being

atypical. That led to questions about why we were okay with that. That led to a

discussion about the due diligence that had been done. And we as a group made a

decision that we’re going to move forward because the due diligence was okay.” 64

As a result, the record at this pleading stage shows that there was, at least, a cursory

discussion of diligence in general, and a representation by management that due

diligence was “okay.”65 Inferences that that diligence was discussed (however

briefly), that management represented diligence to be okay, and that the directors


63
   The Amended Complaint does not allege that the Board was told nothing about diligence, nor
does it allege what the Board was told.
64
   Am. Compl. ¶ 63; Peach Aff. Ex. 6, at 953:17–954:6. The Amended Complaint quotes Gurley
as saying that the indemnification terms were “atypical.” While the full transcript of Gurley’s
testimony is not incorporated into the Amended Complaint, the question and answer from which
the Plaintiff quotes Gurley must be. Gurley says the word “atypical” on three occasions in his
testimony. Peach Aff. Ex. 6, at 949:7, 951:19, 954:1. On the third occasion, the question was:
“And, Mr. Gurley, as to the assertion that the diligence effort had been positive, you are not
completely sure if Mr. Kalanick made that statement or if that statement had been made by one of
the deal team members, possibly Mr. Percher; isn't that right?” Peach Aff. Ex. 6, at 953:17–21.
Gurley’s full response was:
        In an effort to be as helpful as possible, I’ll state generically what happened, and
        then we can get into esoteric details if we want to. There was a discussion about the
        indemnity. There was a discussion about it being atypical. That led to questions
        about why we were okay with that. That led to a discussion about the due diligence
        that had been done. And we as a group made a decision that we're going to move
        forward because the due diligence was okay.
Peach Aff. Ex. 6, at 953:22–954:5.
Gurley was then cut off. Peach Aff. Ex. 6, at 954:7.
65
   In addition to Gurley’s testimony, management’s slide deck, even in its shortened and redacted
form, references “Pre-Signing Due Diligence,” and notes, either summarizing historical events or
detailing planned events, that a forensic expert was hired, that Uber received a report from the
forensic expert, and that based on Uber’s review of facts, Uber decided to move forward. Peach
Aff. Ex. 8.
                                               12
failed to ask further questions about Stroz’ findings or demand the primary

documents from Stroz, are, under the circumstances, the most favorable that can be

drawn for the Plaintiff. 66

       The Merger Agreement excluded post-closing indemnification to Uber for

breaches of representations and warranties by the seller, Otto. 67 Relatedly, the

Merger Agreement contained no post-closing indemnification remedy for Uber, the

buyer, for Otto’s liabilities.68 The Directors were specifically made aware that a

post-closing indemnification remedy for Uber was omitted. 69 According to the

Amended Complaint, the Merger Agreement also included representations by Otto

regarding its ownership of IP; however, the Amended Complaint lacks specifics.70

       According to side agreements to the Merger Agreement, Levandowski (and

other Otto employees) received indemnification from Uber for “bad acts” committed

pre-signing that “reasonably [arose] or result[ed] from any facts, circumstances,

activities or events contained or disclosed on the face of” the final report by Stroz. 71




66
   At Oral Argument, the Plaintiff argued that the directors did not ask specifically about the Stroz
investigation but were told by Kalanick that due diligence was “clean,” but because this
representation came from Kalanick, who was known to be of bad character, the Board could not
rely on Kalanick’s representations; to fulfill their fiduciary duties, the directors needed to inquire
specifically about Stroz’ findings. Oral Argument Tr. 63:11–67:9, 72:11–76:12, 92:1–3.
67
   Am. Compl. ¶ 59.
68
   Id. ¶ 62.
69
   Id. ¶ 63.
70
    Id. ¶ 81; see also id. ¶ 62 (“[T]he Merger Agreement contains customary representations
regarding Otto’s ownership of IP . . . .”).
71
   Id. ¶ 65.
                                                 13
Post-signing bad acts, and undisclosed pre-signing bad acts, were not indemnified. 72

These side indemnification agreements were discussed at the April 11, 2016 Board

meeting. 73 The Merger Agreement itself provides that “any Pre-Signing Bad Acts

. . . shall be disregarded in determining whether any of the conditions set forth in this

Section 6 have been satisfied.”74 Section 6 contained the closing conditions of the

merger.75 Pre-signing “Bad Acts” was defined in the Merger Agreement to include

fraud and intentional conduct that constituted IP infringement, among other things. 76

As a result, bad acts committed by Levandowski and other Otto employees before

the Merger Agreement was signed would be indemnified by Uber if disclosed to

Stroz, and, furthermore, those bad acts could not be used to find that a closing

condition in the Merger Agreement had not been met.

       At the time the Board approved the Merger Agreement, the Board was

comprised of Camp, Kalanick, Graves, Gurley, and Bonderman.

       E. The Stroz Final Report on August 5, 2016

       Stroz’ final report was “delivered” on August 5, 2016.77 The passive voice is

intentional; the Amended Complaint does not state who at Uber reviewed the final


72
   See Peach Aff. Ex. 7 § 2.1(b)(iii). The Plaintiff has agrees that the Indemnification Agreement
can be considered in its redacted form. D.I. 96.
73
   Am. Compl. ¶ 78.
74
   Id. ¶ 79; see also Peach Aff. Ex. 9 § 6. The Plaintiff agrees that the Merger Agreement can be
considered in its redacted form. D.I. 96.
75
   Am. Compl. ¶ 79.
76
   Id.
77
   Id. ¶ 69.
                                               14
report.    The final report revealed that Levandowski and other former Google

employees at Otto, at the time Stroz had conducted its investigation, retained

hundreds of thousands of files, documents, and e-mails from their time at Google.78

According to Stroz’ final report, Levandowski had dramatically understated the

amount of Google e-mails on his laptop and had recently accessed several of the e-

mails; Stroz found it “difficult to believe that Levandowski was not . . . fully aware

of the extent of the data that he had retained [from Google].”79 Stroz also found that

Levandowski had researched how to securely wipe files from his computer and had

attempted to empty the trash folder on his computer during an interview with Stroz. 80

       F. The Otto Transaction Closes, Google Files Suit, and Changes to the Uber
       Board of Directors

       As mentioned, Uber’s Board of Directors approved the merger with Otto on

April 11, 2016. Following approval of the merger, but prior to closing, Uber added

two director seats to its Board of Directors—expanding the number of directors from

five to seven. On April 27, 2016, Huffington was added as a director. 81 Following

which, on June 1, 2016, Al-Rumayyan was added as a director. 82

       Therefore, Uber’s Board of Directors after June 1, 2016, and before closing

of the merger on August 18, 2016, consisted of Camp, Kalanick, Graves, Gurley,


78
   Id. ¶¶ 70–72.
79
   Id. ¶ 72.
80
   Id. ¶ 73.
81
   Id. ¶ 21.
82
   Id. ¶ 22.
                                         15
Bonderman, Huffington, and Al-Rumayyan. Stroz’ final report was delivered on

August 5, 2016, prior to closing. The Uber directors did not read Stroz’ final report

or otherwise learn of its findings,83 and the Amended Complaint makes no allegation

as to who at Uber may have read the final report or whether anyone made the

directors aware that the final report was available.84 The findings in Stroz’ final

report indicated that Otto’s employees possessed Google IP; according to the

Plaintiff, this IP retention may have been in breach of Otto’s representations in the

Merger Agreement regarding IP ownership.85 Again per the Plaintiff, if Otto had

breached its IP ownership representations, Uber had the right not to close the

transaction with Otto (based on an interpretation of the Merger Agreement that the

Defendants contest).86 None of the Uber directors attempted to prevent closing of

the acquisition of Otto.87 I infer that none of the directors inquired whether the final




83
   Id. ¶¶ 56, 111, 112. The Amended Complaint only alleges with particularity that Gurley did not
read Stroz’ final report (or learn of its findings), and that Huffington and Al-Rumayyan allowed
the merger to close without reference to the final report (or without insisting on an explanation of
its findings). Id. However, it is reasonable to infer (and is central to the Plaintiff’s argument) that
none of the directors read (or learned the findings) of the final report, and the Defendants do not
argue that they did. See generally Oral Argument Tr.
84
   The Amended Complaint simply alleges that the final report was available to the directors. Am.
Compl. ¶ 68. However, with no allegations of who at Uber actually received the final report, it is
not reasonable to infer that the directors were made aware that the report was available to them. It
is a fair inference that the Defendant directors failed to inquire if the final report was available.
85
   Id. ¶ 81.
86
   Id. ¶ 82.
87
   Id. ¶ 83.
                                                 16
report was available. The transaction subsequently closed on August 18, 2016; Uber

and Otto announced the merger only after the deal closed.88

        On December 13, 2016, a Google employee was inadvertently copied on an

e-mail from one of Google’s vendors that also served Otto and Uber.89 Attached to

the e-mail was a drawing of an Otto circuit board, which Google believed resembled

a Google circuit board, the design of which Levandowski had downloaded before

resigning from Google. 90 Google then brought suit against Uber and Otto on

February 23, 2017 in the U.S. District Court for the Northern District of California.91

Uber disclosed Stroz’ final report in connection with that action. 92 Uber had

terminated Levandowski’s employment by that point, having discharged him on

May 30, 2017.93 The presiding judge referred the case to the U.S. Attorney’s Office

in May 2017, “for investigation of possible theft of trade secrets.”94 Uber later

settled the case with Google and paid Google $245 million. 95 The Plaintiff’s theory

of damages derives, in part, from this settlement; according to the Plaintiff, the

Defendants breached their fiduciary duties, which led to the acquisition of Otto, the




88
   Id. ¶ 84.
89
   Id. ¶ 86.
90
   Id. ¶ 87.
91
   Id. ¶ 88.
92
   Id. ¶ 92.
93
   Id. ¶ 94.
94
   Id. ¶ 90.
95
   Id. ¶ 95.
                                          17
purported use of stolen technology, and the ultimate settlement with Google for $245

million.96

       In June 2017, Defendants Gurley and Bonderman both resigned from the Uber

Board of Directors. 97 Gurley was replaced as director by non-party Matt Cohler;

Cohler, like Gurley, is a partner at Benchmark.98 Bonderman was replaced as

director by non-party David Trujillo; Trujillo, like Bonderman, is a partner at TPG.99

Kalanick was ousted by the Board as CEO in June 2017. 100

       On September 29, 2017, two additional members were appointed by Kalanick

to the Uber Board of Directors; they are non-parties Ursula Burns and John Thain. 101

Kalanick appointed Burns and Thain after Kalanick was ousted as CEO of Uber in

2017.102 The Amended Complaint does not state from where Kalanick derived the

ability to appoint directors; presumably, Kalanick appointed Burns and Thain (and

previously Huffington) consistent with Uber’s Certificate of Incorporation.103




96
    Id. The Plaintiff’s theory of damages also includes money “paid and wasted” to acquire Otto
and the “massive amounts of attorneys’ fees” Uber paid to defend itself in the Google litigation.
Id.
97
   Id. ¶¶ 23–24.
98
   Id. ¶ 115.
99
   Id. ¶ 116.
100
     Id. ¶¶ 18, 117.
101
     Id. ¶¶ 117–118.
102
     Id. ¶ 117.
103
     Id.; see also Oral Argument Tr. 86:9–87:9.
                                               18
      The Plaintiff brought this action shortly thereafter, on December 13, 2017. I

note, in light of certain lacunae in the pleadings, that the Plaintiff did not bring a

Section 220 books and record demand before filing this derivative suit.

      G. Procedural History

      On December 13, 2017, Plaintiff Lenza H. McElrath, III, filed this derivative

action on Uber’s behalf. The Plaintiff amended his complaint on April 3, 2018. On

April 17, 2018, Nominal Defendant Uber, Defendants Camp, Graves, Huffington,

Al-Rumayyan, Gurley, and Bonderman, and Defendant Kalanick separately filed

Motions to Dismiss. Defendant Yoo also filed a Motion to Dismiss on May 7, 2018.

On November 13, 2018, I heard Oral Argument on the outstanding Motions to

Dismiss. After Oral Argument, I received supplemental letters on November 21 and

December 4, 2018, and thereafter considered the matter submitted for decision.

                                  II. ANALYSIS

      The Plaintiff’s initial Complaint detailed a derivative claim for breach of

fiduciary duty against Defendants Kalanick, Camp, Graves, Huffington, Al-

Rumayyan, Gurley, and Bonderman (collectively the “Director Defendants”), who

were Uber directors either at the time the Otto merger was approved and/or served

as directors between the transaction’s approval and closing.          The Plaintiff’s

Amended Complaint added a derivative claim for breach of fiduciary duties against

Kalanick and Yoo (the “Officer Defendants”) as officers of Uber, and a claim for


                                         19
corporate waste against all the Defendants. The Defendants moved to dismiss all the

claims brought against them under both Court of Chancery Rule 23.1, failure to

make a demand, and Rule 12(b)(6), failure to state a claim. I turn first to the Motions

to Dismiss under Rule 23.1, which I find are dispositive.

       A. Rule 23.1

       According to Court of Chancery Rule 23.1, a derivative plaintiff must “allege

with particularity the efforts, if any, made by the plaintiff to obtain the action the

plaintiff desires from the directors or comparable authority and the reasons for the

plaintiff’s failure to obtain the action or for not making the effort.” 104 The Plaintiff

here has alleged that such demand would be futile. 105 Nominal Defendant Uber

disagrees, and has moved to dismiss the Amended Complaint under Court of

Chancery Rule 23.1 for failure to make a demand.                 The Director Defendants

(excluding Kalanick), Defendant Kalanick, and Defendant Yoo have joined Uber in

its Motion. Yoo also proposes that regardless of whether demand is excused as to

claims against the other Defendants, demand should not be excused as to the claims

brought against her.106 I start with the legal standard underlying Rule 23.1, before

applying it.




104
    Ct. Ch. R. 23.1(a).
105
    Am. Compl. ¶¶ 99–119.
106
    Def. Yoo’s Opening Br. in Support of Her Mot. to Dismiss, at 8–9.
                                              20
               1. The Rule 23.1 Legal Standard

       The demand requirement in Rule 23.1 is an extension of the fundamental

principle that “directors, rather than shareholders, manage the business and affairs

of the corporation.” 107 As a result, “the demand requirement serves to ‘insure that a

stockholder exhausts his intracorporate remedies,’ ‘provide a safeguard against

strike suits,’ and ‘assure that the stockholder affords the corporation the opportunity

to address an alleged wrong without litigation and to control any litigation which

does occur.’”108 Where, as here, a derivative plaintiff did not make a pre-suit

demand on the board, 109 the Court must dismiss the complaint “unless it alleges

particularized facts showing that demand would have been futile.” 110 Under the

heightened pleading requirements of Rule 23.1,111 conclusory “allegations of fact or

law not supported by allegations of specific fact may not be taken as true.”112 In

other words, “Rule 23.1 is not satisfied by conclusory statements or mere notice




107
    Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (citing 8 Del. C. § 141(a)), overruled on other
grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
108
    Inter-Mktg. Grp. USA, Inc. v. Armstrong, 2019 WL 417849, at *3 (Del. Ch. Jan. 31, 2019) (first
quoting Aronson, 473 A.2d at 811; then quoting Aronson, 473 A.2d at 812; and then quoting
Kaplan v. Peat, Marwick, Mitchell & Co., 540 A.2d 726, 730 (Del. 1988)).
109
    Am. Compl. ¶ 100.
110
    Ryan v. Gursahaney, 2015 WL 1915911, at *5 (Del. Ch. Apr. 28, 2015), aff’d, 128 A.3d 991
(Del. 2015) (TABLE).
111
     Brehm, 746 A.2d at 254 (“[P]leadings must comply with stringent requirements of factual
particularity that differ substantially from the permissive notice pleadings governed solely by
Chancery Rule 8(a).”).
112
    Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm, 746
A.2d 244.
                                               21
pleading.”113    Furthermore, I am limited to “the well-pled allegations of the

complaint, documents incorporated into the complaint by reference, and judicially

noticed facts.”114

       Our Supreme Court laid out the test for determining demand futility in Rales

v. Blasband: a court must “examine whether the board that would be addressing the

demand can impartially consider its merits without being influenced by improper

considerations.”115 The application of Rales depends on context. For example, our

Supreme Court’s guidance in Aronson v. Lewis116 is applicable where “a decision of

the board of directors is being challenged in the derivative suit”117—in other words,

when the business decision at issue is “an action taken by the board that would

consider the demand.”118 Rales itself applies, by contrast, where “the board that

would be considering the demand did not make a business decision which is being

challenged in the derivative suit.”119 That includes the situation “where a business

decision was made by the board of a company, but a majority of the directors making

the decision have been replaced . . . .”120 It also includes, as here, the comparable



113
    Brehm, 746 A.2d at 254.
114
    Breedy-Fryson v. Towne Ests. Condo. Owners Ass’n, Inc., 2010 WL 718619, at *9 (Del. Ch.
Feb. 25, 2010).
115
    634 A.2d 927, 934 (Del. 1993).
116
    473 A.2d 805 (Del. 1984), overruled by Brehm, 746 A.2d 244.
117
    Rales v. Blasband, 634 A.2d 927, 933 (Del. 1993) (discussing Aronson).
118
    Inter-Mktg. Grp. USA, Inc. v. Armstrong, 2019 WL 417849, at *4 (Del. Ch. Jan. 31, 2019).
119
    Rales, 634 A.2d at 933–34.
120
    Id. at 934 (Del. 1993) (internal citations omitted).
                                            22
situation where members of the board who made the business decision in question

remain on the board but are now in the minority.121 The central question of a Rales

inquiry, no matter the context, is the same: “whether the board can exercise its

business judgment on the corporate behalf in considering demand.” 122

       The business decision at issue here, made by Uber’s Board, is the acquisition

of Otto. At the time the Plaintiff filed his Complaint on December 13, 2017,123

Uber’s Board of Directors had been expanded to eleven members (the “Demand

Board”).124 Only three members of the current Demand Board were directors when




121
    Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 56–57 (Del. Ch. 2015)
(“[T]he Rales test applies where a derivative plaintiff challenges a decision approved by a board
committee consisting of less than half of the directors who would have considered demand, had
one been made.”).
122
    Inter-Mktg. Grp. USA, Inc., 2019 WL 417849, at *4 (quoting In re Duke Energy Corp. Deriv.
Litig., 2016 WL 4543788, at *14 (Del. Ch. Aug. 31, 2016)).
123
    There is no allegation that the composition of the Demand Board changed between December
13, 2017, when the original Complaint was filed, and April 3, 2018, when the Amended Complaint
was filed. Neither do the Defendants contend that the Amended Complaint necessitated a “new”
demand. See Braddock v. Zimmerman, 906 A.2d 776, 786 (Del. 2006); In re Fitbit, Inc.
Stockholder Derivative Litigation, 2018 WL 6587159, at *11 (Del. Ch. Dec. 14, 2018).
124
    Am. Compl. ¶ 104.
                                               23
Uber’s Board voted to approve the merger with Otto.125 As a result—with the

agreement of the parties 126—I apply Rales.

       According to Rales, “a court must determine whether or not the particularized

factual allegations of a derivative stockholder complaint create a reasonable doubt

that, as of the time the complaint is filed, the board of directors could have properly

exercised its independent and disinterested business judgment in responding to a

demand.”127 A director is considered interested—as the Plaintiff alleges here—

where she would “face a substantial likelihood of personal liability for the conduct

described in the complaint,”128 among other circumstances.129                      A director is




125
    Even if I were to accept, as I do not, the Plaintiff’s framing that allowing the Otto acquisition
to close was an affirmative action by Uber’s Board of Directors, only two additional members of
the current Demand Board would be implicated, which is still short of a majority. See, e.g., id. ¶
111 (“the Board . . . agreed to close and consummate the Uber-Otto transaction”) (emphasis
added). The distinction between affirmative action by a board and inaction by the board is
important when considering how to apply Rales and whether to apply Aronson. See, e.g., Wood v.
Baum, 953 A.2d 136, 140 (Del. 2008) (distinguishing between a business decision and a violation
of oversight duties).
126
    See Opening Br. in Support of Nom. Def. Uber’s Mot. to Dismiss, at 17; Pl.’s Omnibus
Answering Br. in Opp’n to Defs.’ Mots. to Dismiss [hereinafter, “Pl.’s Omnibus Answering Br.”],
at 30.
127
    Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).
128
    In re Oracle Corp. Deriv. Litig., 2018 WL 1381331, at *10 (Del. Ch. Mar. 19, 2018) (citing
Park Emps.’ & Ret. Bd. Emps.’ Annuity & Benefit Fund of Chi. v. Smith, 2017 WL 1382597, at *6
(Del. Ch. Apr. 18, 2017)).
129
    A director is also considered interested where, for example, “he or she will receive a personal
financial benefit from a transaction that is not equally shared by the stockholders.” Rales, 634
A.2d at 936 (citing Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984) overruled on other grounds
by Brehm v. Eisner, 746 A.2d 244 (Del. 2000)). “Directorial interest also exists where a corporate
decision will have a materially detrimental impact on a director, but not on the corporation and the
stockholders.” Rales, 634 A.2d at 936.
                                                24
independent when “a director’s decision is based on the corporate merits of the

subject before the board rather than extraneous considerations or influences.” 130

       The Plaintiff claims that nine of the eleven directors on the Demand Board

“are incapable of impartially considering demand”131 and that therefore, demand is

futile. The Plaintiff does not allege that two of the directors on the Demand Board,

Ling Martello and Dara Khosrowshahi, are not impartial or otherwise

unconflicted.132 According to the Plaintiff, five of the nine challenged members of

the Demand Board face a substantial likelihood of liability for the conduct described

in the Amended Complaint, and seven133 of the nine challenged members lack

independence.134 I first examine whether the five directors identified by the Plaintiff

face a substantial likelihood of liability. I then turn to the Plaintiff’s arguments on

director independence.

              2. No Member of the Demand Board (Other Than Kalanick) Faces a
              Substantial Likelihood of Liability

       Uber’s Certificate of Incorporation exculpates its directors from monetary

liability for breach of fiduciary duty “[t]o the fullest extent permitted by the



130
    Aronson, 473 A.2d at 816, overruled on other grounds by Brehm, 746 A.2d 244.
131
    Am. Compl. ¶ 104.
132
    Id.
133
    The Plaintiff alleges that five of the seven Demand Board directors lack independence from
Kalanick. The remaining two are alleged to lack independence from Gurley and Bonderman. I
have not included Kalanick when counting which directors lack independence.
134
    Am. Compl. ¶¶ 106–110. Per the Plaintiff, three directors—Camp, Graves, and Huffington—
are both interested and lack independence.
                                             25
Delaware General Corporation Law.” 135 Therefore, to adequately allege that an

Uber director faces a substantial likelihood of liability, the Plaintiff must plead “a

non-exculpated claim against the directors based on particularized facts.”136 The

Plaintiff argues that five members of the Demand Board failed to act in good faith137

and committed corporate waste138 by approving the Otto merger or by allowing the

merger to close. The Plaintiff also pled a claim against Kalanick in his capacity as

an officer of Uber. I examine first the Plaintiff’s arguments against Kalanick (as

both an officer and a director), before turning to the Plaintiff’s arguments against the

other directors for bad faith and waste.

                       a. Kalanick Faces a Substantial Likelihood of Liability as a
                       Director and Officer of Uber

       At the time Uber acquired Otto, Kalanick was both a director and the CEO of

Uber. In his Amended Complaint, the Plaintiff alleges that Kalanick personally

helped to poach Levandowski from Google and that Kalanick was present in

meetings where Levandowski admitted to retaining confidential information from

Google. The Plaintiff also alleges that, prior to the Board’s approval of the Otto



135
    Peach Aff. Ex. 4, at 42.
136
    See Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 62–63 (Del. Ch.
2015) (quoting Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)).
137
    According to 8 Del. C. § 102(b)(7)(ii), an exculpatory provision limiting the personal liability
of a director for breach of fiduciary duty cannot eliminate liability for “acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law.” 8 Del. C. §
102(b)(7)(ii).
138
    See Pl.’s Omnibus Answering Br., at 33.
                                                26
acquisition and based upon a forensic investigation of Levandowski’s retention of

Google IP, Uber’s General Counsel told Kalanick that she had serious reservations

about the acquisition. From these allegations, a reasonable inference can be drawn

that Kalanick was aware of Stroz’ preliminary and final findings, or, at least, that he

had knowledge of their substance (i.e., that Levandowski and others at Otto

knowingly retained Google IP).              The Plaintiff alleges that Kalanick did not

specifically share the results of Stroz’ preliminary findings with Uber’s Board when

Kalanick presented the acquisition. According to the Plaintiff, this was a breach of

Kalanick’s fiduciary duties of loyalty and care as an officer of Uber, and it was also

a breach of his non-exculpated fiduciary duties as a director.

       At this pleading stage, I must accept the Plaintiff’s assertion that Kalanick was

aware that the Otto transaction would result in misappropriation of IP from Google,

but that he did not inform the Board in either his capacity as an officer of Uber or as

a director.    Withholding such information would be a violation of Kalanick’s

fiduciary duty of loyalty as an officer of Uber. The fiduciary duties of officers

generally mirror those of directors; 139 however, shareholders cannot indemnify

officers for breaches of fiduciary duties under Section 102(b)(7).140 Kalanick was


139
    Gantler v. Stephens, 965 A.2d 695, 708–09 (Del. 2009) (“In the past, we have implied that
officers of Delaware corporations, like directors, owe fiduciary duties of care and loyalty, and that
the fiduciary duties of officers are the same as those of directors. We now explicitly so hold.”)
(internal citations omitted).
140
    In re Rural Metro Corp., 88 A.3d 54, 86–87 (Del. Ch. 2014) (“[T]he Delaware Supreme Court
has noted that Section 102(b)(7) does not protect officers.”) (internal citations omitted); see also
                                                 27
also a director, and even if he is indemnified to the full extent of Section 102(b)(7),

personal liability cannot be eliminated for “intentional misconduct or a knowing

violation of law.” 141        The Plaintiff here alleges that, with knowledge that

Levandowski had retained Google IP, Kalanick plotted to steal that IP through the

acquisition of Otto. Therefore, it is reasonable to infer from the allegations that

Kalanick breached his fiduciary duty of loyalty as a director, as well. As a result,

at least one member on the Demand Board, Kalanick, faces a substantial likelihood

of liability and cannot consider demand impartially.142

                       b. The Plaintiff Has Failed to Plead Bad Faith by the Other
                       Directors

       The Plaintiff’s argument, as I understand it, 143 is that the directors (other than

Kalanick) at the time the Otto acquisition was approved 144 acted in bad faith because

they had a “duty to act” to inform themselves of Stroz’ preliminary findings.145 A




Gantler, 965 A.2d at 709 n.37 (“Although legislatively possible, there currently is no statutory
provision authorizing comparable exculpation of corporate officers.”).
141
    8 Del. C. § 102(b)(7)(ii).
142
    This determination is based upon allegations pled in the Amended Complaint. Of course, these
remain allegations and I hold no opinion, at this point, about any actual breaches of duty by
Kalanick.
143
    The Plaintiff implies that the directors took an action (approving the merger with Otto), the
consequence of which was a violation of law (stealing Google’s IP). Pl.’s Omnibus Answering
Br., at 34–36, 55. However, the Plaintiff does not explicitly base his argument for director bad
faith on a knowing violation of law by the Defendant Directors (save Kalanick); to the extent such
an argument is implied, I find that it is only supported by conclusory allegations in the Plaintiff’s
Amended Complaint. I note that in the Merger Agreement, Otto made representations that it
owned its IP.
144
    The directors at the time were Kalanick, Camp, Graves, Gurley, and Bonderman.
145
    Pl.’s Omnibus Answering Br., at 34–50.
                                                28
director’s failure to inform herself, where the failure is sufficient to implicate gross

negligence—that is, reckless indifference to duty—is a breach of her fiduciary duty

of care. Absent bad faith, however, a director’s failure to inform herself is only a

breach of duty of care, which can be, and here was, exculpated.146 Bad faith would

implicate a non-exculpated breach of the duty of loyalty. A sufficient allegation of

bad faith, however, requires pleading “either [1] an extreme set of facts to establish

that disinterested directors were intentionally disregarding their duties or [2] that the

decision under attack is so far beyond the bounds of reasonable judgment that it

seems essentially inexplicable on any ground other than bad faith.” 147 Bad faith

requires an intentional dereliction; “there is a vast difference between an inadequate

or flawed effort to carry out fiduciary duties and a conscious disregard for those

duties.”148

       According to the Plaintiff, the directors had a duty to inform themselves of

Stroz’ preliminary findings, breach of which amounts to bad faith. This is because

the directors were aware of several key facts: that Uber with Kalanick as a CEO had

a history of violating the law and engaging in unethical conduct, that the terms of

the Merger Agreement indemnified Otto for disclosed bad acts including IP


146
    Breaches of the duty of care can be exculpated under Section 102(b)(7). In re Cornerstone
Therapeutics Inc, S’holder Litig., 115 A.3d 1173, 1180 n.27 (Del. 2015) (explaining prior Supreme
Court precedent). The purpose of allowing exculpation is to “free[ ] . . . directors to take business
risks without worrying about negligence lawsuits.” Id. at 1185.
147
    In re MeadWestvaco S’holders Litig., 168 A.3d 675, 684 (Del. Ch. 2017) (citations omitted).
148
    Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009).
                                                29
misappropriation, and that a third-party investigator had been hired to conduct due

diligence on Otto. In other words, according to the Plaintiff, the directors knew that

they had a duty to act to inform themselves of the investigator’s preliminary findings,

independent       of    management’s         representations,       which     they     consciously

disregarded149 when they approved the acquisition.150 According to the Plaintiff, the

directors’ failure to investigate primary sources, in light of these facts, goes beyond

gross negligence to bad faith. A director’s failure to inform herself, sufficient to

amount to gross negligence, still states only an exculpated claim for breach of duty

of care;151 again, to demonstrate a substantial likelihood of liability here requires a

sufficient pleading of breach of the duty of loyalty (in this instance, the Plaintiff

pleads bad faith or waste).

         The Plaintiff also argues that the directors at the time of closing152 acted in

bad faith—again, given their knowledge of Uber’s corporate culture of lawbreaking,



149
    I note that “[c]onscious disregard for fiduciary duties is not the only form bad faith can take; a
lack of good faith may also be shown where a director intentionally pursues goals other than the
best interests of the stockholders.” In re Oracle Corp. Deriv. Litig., 2018 WL 1381331, at *11
(Del. Ch. Mar. 19, 2018) (citing In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)).
However, the Plaintiff does not plead that directors pursued such goals in approving the Otto
acquisition.
150
    Pleading bad faith via a showing of conscious disregard of duties does not require a pleading
of motive, such as personal interest. See, e.g., Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del.
Ch. 2003).
151
    McMullin v. Beran, 765 A.2d 910, 921 (Del. 2000) (“Director liability for breaching the duty
of care ‘is predicated upon concepts of gross negligence.’”) (internal citations and quotations
omitted).
152
     The directors at the time of closing were Kalanick, Camp, Graves, Gurley, Bonderman,
Huffington, and Al-Rumayyan.
                                                 30
the merger’s indemnification terms, and the presence of an independent

investigator—by allowing the transaction to close without reviewing Stroz’ final

report. I consider the Plaintiff’s arguments on approval of the merger before turning

to closing.

                          i. Approving the Transaction

      At the time the transaction was approved, only three members of the Demand

Board were serving as directors; they are Kalanick, Camp, and Graves. The Plaintiff

does not allege that any director other than Kalanick saw or otherwise had

knowledge of Stroz’ preliminary findings. The Plaintiff’s Amended Complaint

acknowledges that Kalanick, who was CEO at the time, made a presentation to the

Board regarding the Otto transaction. The Plaintiff alleges that the Board was not

shown, and did not specifically request, Stroz’ preliminary findings before

approving the transaction.      From the few other allegations made about the

management presentation and the Board’s decision-making process, it appears that

the Board discussed the indemnification terms of the Merger Agreement and the

potential for litigation with Google.

      The Plaintiff does not allege that Kalanick’s presentation or the Board’s

decision-making process were lacking in any way except in terms of knowledge of

Stroz’ preliminary findings. The Plaintiff did not bring a Section 220 action to

explore the details of the Board’s deliberation on the Otto acquisition. At Oral


                                         31
Argument and in subsequent supplemental letters, the parties contested the extent to

which other documents that illuminate the presentation and the Board’s decision are

incorporated into the Amended Complaint.153 The Plaintiff’s Amended Complaint,

even with the incorporated documents, alleges very little about these topics except

that diligence was, at least minimally, discussed and represented to be “okay.” I

draw no further inferences. To the extent that the parties now argue about the

sufficiency of management’s presentation and the Board’s decision-making process,

for example in the context of 8 Del. C. § 141(e),154 such arguments are misplaced.

The Plaintiff has only challenged the Defendant Directors’ failure to personally

review Stroz’ findings (both preliminary and final), and the failure of Officer

Defendants to specifically share Stroz’ findings (or similar knowledge of IP

misappropriation) with the Board.

       The Plaintiff argues that the directors could not rely on Kalanick because of

his and Uber’s past history of unlawful conduct. Instead, per the Plaintiff, the

directors had a duty to personally review Stroz’ preliminary findings, no matter what


153
    For example, in the Amended Complaint, the Plaintiff cites to sections of Gurley’s testimony
in another litigation. The Defendants seek to introduce more testimony from the same litigation,
which would illuminate the Board’s discussions during their meeting and the Board’s reliance on
management’s presentation. The Plaintiff contests that this additional testimony was incorporated
in the Amended Complaint, and I have not considered it beyond Gurley’s full answer, which is
only partially referenced in the Amended Complaint, as discussed supra.
154
    Opening Br. of Defs. Camp, Graves, Huffington, Al-Rumayyan, Gurley and Bonderman in
Support of Mot. to Dismiss, at 20; Reply Br. of Defs. Camp, Graves, Huffington, Al-Rumayyan,
Gurley and Bonderman in Support of Mot. to Dismiss, at 13; Oral Argument Tr. 14:24–15:5,
65:14–16, 76:13–17; D.I. 96.
                                               32
management told them. Additionally, the Plaintiff argues that the indemnification

provisions of the Merger Agreement and accompanying side agreements should

have triggered the same directorial duty to act to inform themselves of Stroz’

preliminary findings.        However, the Plaintiff ultimately fails to plead that the

directors did more than violate a duty of care, which here is an exculpated claim. 155

       The Plaintiff suggests that his allegations are sufficient to plead bad faith in

line with this Court’s ruling in In re Massey Energy Company.156 In Massey, this

Court, on a motion for a preliminary injunction to enjoin a merger, sought to review

whether a company’s derivative claims had value, in particular a Caremark claim.157

The underpinning of a Caremark claim, as our Supreme Court in Stone v. Ritter

explained, is where directors “fail to act in the face of a known duty to act, thereby

demonstrating a conscious disregard for their responsibilities.”158 In a Caremark

claim, the “imposition of liability [therefore] requires a showing that the directors

knew that they were not discharging their fiduciary obligations.”159



155
    See, e.g., City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47, 55 (Del. 2017) (“When,
like here, the directors are protected from liability for due care violations under § 102(b)(7) of the
Delaware General Corporation Law, the plaintiff must allege with particularity that the directors
acted with scienter . . . .”).
156
    2011 WL 2176479 (Del. Ch. May 31, 2011).
157
    Id. at *17–18. A Caremark claim is so named for the Court of Chancery case In re Caremark
International Inc. Derivative Litigation. 698 A.2d 959 (Del. Ch. 1996); see also Stone v. Ritter,
911 A.2d 362, 364 (Del. 2006) (“[C]haracterized . . . as a ‘classic Caremark claim,’ a claim that
derives its name from In re Caremark International Inc. Derivative Litigation.”) (internal
quotations and citations omitted).
158
    911 A.2d at 370 (citing In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)).
159
    Id. (citing Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003).
                                                 33
       The Plaintiff argues that Camp and Graves (and the other Board members at

the time) knew that Kalanick’s decisions and representations could not be relied

upon, given Uber’s history of violating local regulations governing car-for-hire

services and given Kalanick’s previous failed venture, Scour.                     The Plaintiff

compares his allegations to those in Massey, where this Court found the plaintiff’s

pleadings were likely160 sufficient to meet the Caremark standard on a Rule 23.1

motion to dismiss.161 The plaintiffs in Massey pled that Massey Energy Company,

a mining company, “had pled guilty to criminal charges [for violating mine safety

laws], had suffered other serious judgments and settlements as a result of violations

of law, had been caught trying to hide violations of law and suppress material

evidence, and had miners suffer death and serious injuries at its facilities,” leading

up to a serious mining disaster. 162 Those pleadings were sufficient to “create a

pleading-stage inference that the top management of Massey” had breached its duty

of loyalty “by knowingly causing [Massey] to seek profit by violating the law.” 163

The Massey board was aware of the issues and purported to be “involved in




160
    This Court said “likely” because Massey was not before the Court on a Rule 23.1 motion to
dismiss, rather it was before the Court on a preliminary injunction motion to enjoin a merger on
the basis that the directors had failed “to secure the purported value of the Derivative Claims for
[the company’s] stockholders[;]” this Court then examined whether such claims were frivolous.
Massey, 2011 WL 2176479 at *17–18.
161
    Id. at *21.
162
    Id. at *20.
163
    Id.
                                                34
considering safety issues in the period leading up to [the serious mining disaster] and

had taken steps to improve the company’s safety record.” 164 The Court wrote that:

       [Massey’s] directors and officers cannot take comfort in the appearance
       of compliance motion at the pleading stage, when the plaintiffs are able
       to plead particularized facts creating an inference that the Board and
       management were aware of a troubling continuing pattern of non-
       compliance in fact and of a managerial attitude suggestive of a desire
       to fight with and hide evidence from the company’s regulators.165

Massey and similar progeny of Caremark are distinguishable here.                       Unlike in

Massey, where the inaction under consideration and the manifest and pervasive

lawbreaking involved a single topic (mine safety), here the challenged decision of

Uber’s directors is not related to Uber’s purported scofflaw history.166

       The Plaintiff alleges, and at the pleading stage I accept as true, that Uber had

a history of flouting local regulations and laws governing car-for-hire services. As

an initial matter, the Plaintiffs have not sufficiently pled that specific Uber directors

(outside Kalanick, who was also CEO) were aware or should have been aware of

any lawbreaking regarding car-for-hire regulations.167 I assume for purposes of


164
    Id. at *20.
165
    Id. at *21.
166
    See, e.g., Melbourne Mun. Firefighters’ Pension Trust Fund v. Jacobs, 2016 WL 4076369, at
*8 (Del. Ch. Aug. 1, 2016) (“The subsequent complained-of ‘corporate trauma,’ however, must be
sufficiently similar to the misconduct implied by the ‘red flags’ such that the board’s bad faith,
‘conscious inaction’ proximately caused that trauma.”) (internal citations and quotations omitted),
aff’d, 158 A.3d 449 (Del. 2017) (TABLE).
167
    See South v. Baker, 62 A.3d 1, 17–18 (Del. Ch. 2012) (“Although the complaint asserts that the
directors knew of and ignored the 2011 safety incidents, the complaint nowhere alleges anything
that the directors were told about the incidents, what the Board’s response was, or even that the
incidents were connected in any way. . . . Plaintiffs’ counsel could not cite a single decision in
which a court had inferred knowledge of wrong-doing or conscious indifference to alleged red
                                                35
analysis that they were so aware. Regardless, the Plaintiff’s claim against the

directors is not that the directors did not stop Uber from breaking taxicab laws, but

that they did not stop Uber from incurring liability for IP purloined by Levandowski

in the Otto transaction. Assuming the directors were aware of the culture of taxicab

violations, I cannot infer from that knowledge that the directors were also aware or

should have been aware of Kalanick’s alleged participation in Levandowski’s IP

theft.168   The Plaintiff points to no previous acts—known or unknown to the

directors—committed by Uber to misappropriate IP or other property. The Plaintiff

attempts to rely on a pre-Uber failed venture, Scour, which, per the Plaintiff,

implicated Kalanick in copyright infringement. The Plaintiff does not plead that the

Board had knowledge of this, nor would that be a reasonable inference. Instead, the

Plaintiff argues that the Board was well aware of what he characterizes as Kalanick’s

essential “bad character.” This is not a sufficient red flag, in my mind, to convert a




flags under circumstances paralleling the plaintiffs’ complaint, where the complaint’s allegations
did not attempt to set forth facts suggesting conscious indifference.”) (internal citations omitted).
Here, the Plaintiff, in support of his allegation that the Board “specifically approved” of “illicit
culture” at Uber, cites only the allegation in the Amended Complaint that whistleblowers revealed
that Kalanick and the Board did not scrutinize certain executives who were close to Kalanick. Pl.’s
Omnibus Answering Br., at 37; Am. Compl. ¶ 30.
168
    For example, in In re Dow Chemical Co. Derivative Litigation, the plaintiffs “argue[d] because
bribery may have occurred in the past ([the defendant] paid a fine to the SEC in January 2007), by
different members of management, in a different country (India), and for a different transact ion
(pesticide registrations), the board should have suspected similar conduct by different members of
management, in a different country, in an unrelated transaction.” 2010 WL 66769, at *13 (Del.
Ch. Jan. 11, 2010). This Court found the plaintiffs’ argument in In re Dow Chemical Co. “simply
too attenuated to support a Caremark claim.” Id.
                                                36
plain vanilla duty of care allegation into a persuasive pleading of bad faith on the

part of the directors.

          Neither is this situation akin to In re The Walt Disney Company Derivative

Litigation, where this Court found “the facts alleged . . . suggest that the defendant

directors consciously and intentionally disregarded their responsibilities . . .” and

met the pleading-stage requirements for bad faith in a Rule 23.1 motion to dismiss. 169

The facts pled in Disney, which this Court found showed bad faith, are both more

specific—the amended complaint in Disney followed a Section 220 request—and

more egregious than those here. In Disney, the board approved a substantial hiring

decision before the details, including compensation and termination, were even

negotiated. The board then tasked the CEO with negotiating a contract—including

those material terms—with the new hire, his friend of many years. This Court wrote

in Disney:

          Less than one and one-half pages of the fifteen pages of Old Board
          minutes were devoted to discussions of Ovitz’s hiring as Disney’s new
          president. . . . No presentations were made to the Old Board regarding
          the terms of the draft agreement. No questions were raised, at least so
          far as the minutes reflect. At the end of the meeting, the Old Board
          authorized Ovitz’s hiring as Disney’s president. No further review or
          approval of the employment agreement occurred. Throughout both
          meetings, no expert consultant was present to advise the compensation
          committee or the Old Board. Notably, the Old Board approved Ovitz’s
          hiring even though the employment agreement was still a “work in



169
      825 A.2d 275, 289 (Del. Ch. 2003).
                                            37
       progress.” The Old Board simply passed off the details to Ovitz and
       his good friend, Eisner. 170

Again, in Disney, board approval occurred without any review of material terms

because those terms had not yet been proposed; the board simply gave the CEO carte

blanche. Nothing similar is alleged here.

       Here, the Plaintiff acknowledges that the directors held a meeting to approve

the Otto acquisition, where Kalanick gave a presentation, and at which the Board

discussed the indemnification terms of the Merger Agreement and the potential for

litigation with Google. All that is pled with respect to the Uber Board is that it

accepted management’s representations without examining directly the diligence

report produced by Stroz. In the interstices between what the Plaintiff here pled and

what was pled in Disney resides, to my mind, the line between a lack of care and a

lack of good faith. Similarly, Amalgamated Bank v. Yahoo! Inc. involves issues not

present here;171 issues of executive compensation necessarily alert a board to the

dangers of deference solely to the judgment of those same executives. 172 Here, such

a conflict was absent, and the Plaintiff does not contend that Uber’s management


170
    Id. at 287.
171
    Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 783 (Del. Ch. 2016); see also Pl.’s Omnibus
Answering Br., at 43 (first citing Disney, 825 A.2d 289; and then citing Yahoo!, 132 A.3d at 783).
172
    Yahoo!, 132 A.3d at 783 (“A board cannot mindlessly swallow information, particularly in the
area of executive compensation: ‘While there may be instances in which a board may act with
deference to corporate officers’ judgments, executive compensation is not one of those instances.
The board must exercise its own business judgment in approving an executive compensation
transaction.’”) (quoting Haywood v. Ambase Corp., 2005 WL 2130614, at *6 (Del. Ch. Aug. 22,
2005)).
                                               38
was otherwise improperly interested or conflicted in the Otto transaction.

Furthermore, the Plaintiff does not allege that Uber’s directors did nothing; rather,

the Plaintiff acknowledges that Uber’s directors met, received a presentation, asked

certain questions, and made a decision. The Plaintiff chose not to bring a Section

220 demand in connection with his allegations that the directors did not review

Stroz’ preliminary findings or ask about them. I do not find that the directors’ failure

to ask for those findings is akin to the conscious abdication of responsibility in

Disney or Yahoo!. To the extent the Plaintiff makes a broader “rubberstamping”

argument about the Board’s decision, the Plaintiff has not pled facts from which such

an inference can be drawn.

       The Plaintiff also contends that it was an act of bad faith for the directors to

rely on representations by Kalanick, and by extension by management. I have

already explained above why Uber’s purported taxicab law violations (under

Kalanick’s guidance) did not give rise to a non-exculpated duty to further question

the acquisition here. The Plaintiff’s allegation that Kalanick, in particular, could not

be relied upon (per the Plaintiff, necessitating personal directorial review of Stroz’

preliminary findings) focuses largely on the same purported lawbreaking activity. 173


173
    Not only is such lawbreaking activity, again, unrelated to the acquisition of Otto, but it also
speaks only to the manner in which Uber and Kalanick dealt with third parties. The Plaintiff,
however, does not allege that Kalanick had a history of deception when it came to Uber’s own
Board. The Plaintiff’s pleadings do not raise a reasonable inference that Kalanick had lied
previously to his own Board, much less that the Board knew or consciously disregarded the fact
that he would.
                                                39
I find that the Plaintiff has not sufficiently pled that the directors consciously

disregarded their known responsibilities in the Otto acquisition, and thereby

breached their duty of loyalty.

       Additionally, the Plaintiff argues that, despite Kalanick’s representations, the

specifics of the Otto transaction should have caused the Board to investigate further

before approving the deal, and are in fact so unusual as to imply scienter. The

Plaintiff specifically points to the indemnification terms of the Merger Agreement.174

Those fail, in my mind, to give rise to a reasonable inference that the “decision under

attack is so far beyond the bounds of reasonable judgment that it seems essentially

inexplicable on any ground other than bad faith.” 175 It was no secret that Uber was

buying Otto not for its operations, but for its personnel. Uber was highly interested


174
    To the extent that the Plaintiff argues that the Board must have known of a plan to illegally
appropriate Google technology via the Otto merger, given the sales price, I find that argument
unpersuasive. The Plaintiff suggests that Uber would not have paid $680 million for a legitimate
start-up in Otto’s condition; therefore, it must have been apparent to the directors at the time that
Otto was a vehicle for theft. The Defendants aver (and the Plaintiff acknowledges), however, that
the up-front cash payment by Uber to acquire Otto was a modest $100,000. The additional value
was conditional on milestones being met by 2030. See Pl.’s Omnibus Answering Br., at 21–22.
The Plaintiff argues vehemently that the earn-outs are scams, presumably meant to make it appear
that the terms of the Otto acquisition are reasonable. Per the Plaintiff, the earn-outs are structured
such that they are “virtually asur[ed to] vest,” thus ultimately compensating Levandowski and his
cohorts for the stolen Google technology. Id. The Plaintiff also points out, correctly, that the true
nature of the earn-outs in any event is not in the record, and must not be considered on a motion
to dismiss. I agree that, to the extent the Defendants argue that the transaction should be valued at
under $680 million, such argument is unavailing on this record. But assuming it is true that, as the
Plaintiff argues, the conditional nature of the payments above $100,000 is illusory, that fact is
irrelevant unless the Defendant Directors knew such to be the case, which is neither pled in, nor a
reasonable inference to be drawn from, the complaint. In other words, it is not reasonable to infer
that the purchase price and structure of the transaction alone are sufficient to imply the Defendant
Directors’ scienter.
175
    In re MeadWestvaco S’holders Litig., 168 A.3d 675, 684 (Del. Ch. 2017) (citations omitted).
                                                 40
in developing a self-driving car, Google was a leader in that emerging field, Uber

wanted to attract Google’s engineering talent to design its self-driving auto, and the

Board entered a transaction to accomplish that goal. Indemnification of those

engineers was a part of this transaction; the Plaintiff himself alleges that the Board

specifically discussed the indemnification. The Plaintiff points to a number of

unusual features and risks in the transaction, known to, and approved, by the Board.

I consider those in examining the Director Defendants’ good faith. However, I

cannot infer from those features of the merger that the Director Defendants must

have known the transaction was illicit. Absent knowledge of an intent to steal IP, the

fact that the directors agree to indemnification terms that create corporate risk does

not imply a breach of a duty of loyalty.

       If the Plaintiff’s allegations are true, the directors who approved the Otto

acquisition approved a questionable transaction without fully informing themselves.

Their decision ultimately damaged Uber. Nonetheless, a failure to follow best

practices is not necessarily a breach of fiduciary duty. Negligent oversight by

directors, although certainly not commendable, is not a breach of fiduciary duty.

Even grossly negligent board action does not imply a non-exculpated breach. A

breach of the duty of loyalty via bad faith, as alleged here, requires disregard so

profound that it raises an inference of scienter. I do not find that the directors’ failure




                                            41
to inform themselves about the specifics of Stroz’ preliminary findings is so

profound as to raise that inference.

                              ii. Allowing the transaction to close

       The Plaintiff also alleges that the Uber Board “breached its duties” by

allowing the Otto transaction to close.176 According to the Plaintiff, Stroz’ final

report, which was available prior to closing, contained information that, if read in

conjunction with the Merger Agreement, showed that Otto had breached its

representations in the Merger Agreement regarding IP ownership. 177 Uber, per the

Plaintiffs, was therefore entitled to walk away from the deal. The directors, which

by closing included Huffington and Al-Rumayyan, did not read the final Stroz report

and did not attempt to stop closing.             After closing, Google sued Uber for IP

infringement, and Uber paid a settlement to Google. The Plaintiff contends that the

Uber directors, in not reviewing the final report, breached non-exculpated fiduciary

duties. The Plaintiff’s argument is that the Uber directors acted in bad faith because

they had a duty to inform themselves of the final Stroz report prior to the closing of

the transaction, but did not do so.178


176
    Id. at 50
177
    The Plaintiffs do not allege that Stroz’ final report made any explicit determinations regarding
representations in the Merger Agreement. Instead, the Plaintiff’s argument, as I understand it, is
that Stroz’ final report found that Otto employees had retained IP from Google, which could have
been used by Uber as a basis to argue that Otto had breached representations in the Merger
Agreement, and thus avoid the Agreement.
178
    The Defendants argue that the directors could have reviewed Stroz’ final report, and, with
knowledge of its contents, nonetheless made a business decision to close the transaction. See, e.g.,
                                                42
         The Plaintiff’s argument for a non-exculpated breach of duty related to the

directors’ actions at closing is that the directors were aware (or should have been

aware) of the possibility that Otto had misappropriated IP, and that Uber had taken

on the risk of that misappropriation. The directors, per the Plaintiff, could have

further informed themselves via Stroz’ final report, but consciously disregarded the

risk to Uber by not personally reviewing that report. For the same reasons addressed

above, I do not find failure to review the report to be a conscious breach of duty

amounting to bad faith.

         To the extent the Plaintiff bases his argument on Uber’s past bad acts under

Kalanick’s leadership, I have already rejected the notion that such violations—

regarding taxicab regulations—raised red flags and created a duty to act when it

came to an acquisition that might involve IP infringement. In considering entry of

the Merger Agreement, I similarly found that the indemnification terms of that

Agreement did not reflect director knowledge of or conscious disregard that Otto

had misappropriated IP. The same logic follows for allowing the transaction to

close.     The Plaintiffs have not sufficiently pled that the directors knew IP

misappropriation was not a simply a risk, but was actually Kalanick’s goal, and that,



Opening Br. in Support of Nom. Def. Uber’s Mot. to Dismiss, at 33–34. At Oral Argument, the
Plaintiff argued that this is irrelevant to whether the Defendant Directors acted in bad faith; I need
not resolve this issue here. See Oral Argument Tr. 82:13–17. It is also unnecessary to resolve the
parties’ related dispute concerning whether Otto breached certain representations and whether,
therefore, Uber had the ability to terminate the Merger Agreement prior to closing.
                                                 43
in light of that knowledge, the directors closed their eyes to evidence of IP

misappropriation by refusing to look at Stroz’ final report. The Amended Complaint

does not allege that the Board knew that the report was available, nor that

management made the Board aware of the existence of any new information learned

after approval of the Merger Agreement regarding IP theft by Otto. Therefore, any

breach by the directors sounds in care, not loyalty. As in Stone v. Ritter, “[t]he

lacuna in the plaintiff[’s] argument is a failure to recognize that the directors’ good

faith exercise of oversight responsibility may not invariably prevent employees from

violating . . . laws, or from causing the corporation to incur significant financial

liability, or both.”179

                     c. Corporate Waste

       The Plaintiff also brings a claim for waste against the Director Defendants,

five of whom are members of the Demand Board. “To state a claim for waste, a

stockholder must allege, with particularity, that the board authorized action that no

reasonable person would consider fair.”180 The Plaintiff argues that the Director

Defendants consciously made a choice to avoid learning that the Otto transaction

was an illegal attempt to steal Google’s IP.181 Therefore, per the Plaintiff, the




179
    Stone v. Ritter, 911 A.2d 362, 373 (Del. 2006).
180
    Freedman v. Adams, 58 A.3d 414, 417 (Del. 2013).
181
    Pl.’s Omnibus Answering Br., at 65.
                                            44
transaction lacked a legitimate and legal purpose.182 But this is simply the bad faith

claim I have rejected above. Stripped of bad faith, all the Plaintiff alleges is that the

Defendants caused Uber to enter a risky transaction without adequately informing

themselves. This is not waste.

              3. A Majority of the Uber Board Is Independent

       The Plaintiff claims that five members of the Demand Board have a

substantial likelihood of liability. I have found that only one, Kalanick, faces a

substantial likelihood of liability. As a result, the Plaintiff must demonstrate that at

least five additional members of the Demand Board lack independence in order to

demonstrate demand futility. In “the demand-excusal context, . . . the board is

presumed to be independent.”183 “Independence is a fact-specific determination

made in the context of a particular case. The court must make that determination by

answering the inquiries: independent from whom and independent for what

purpose?”184 Under this framework, the Plaintiff here must plead that the directors

of the Demand Board lacked independence from Kalanick, who faces a substantial

likelihood of liability, or that they lacked independence from another individual or

entity that was interested in the transaction.




182
    Id. at 66; see also Am. Compl. ¶ 133.
183
    See Beam v. Stewart, 845 A.2d 1040, 1055 (Del. 2004).
184
    Id. at 1050.
                                             45
       In order to demonstrate lack of independence, a plaintiff must demonstrate

“ties [that] are material, in the sense that the alleged ties could have affected the

impartiality of the director.”185 The materiality inquiry must focus on the financial

circumstances or personal affinities of the particular director in question. 186

       The Plaintiff does not contend that Al-Rumayyan lacks independence. 187 The

Plaintiff does submit that Camp, Graves, Thain, Burns, and Huffington are not

independent of Kalanick. The Plaintiff also argues that Cohler is not independent of

Gurley, and that Trujillo is not independent of Bonderman. 188 I address each

allegation below and find that the Plaintiff has, at most, pled that three directors on

the Demand Board, together with Kalanick, lack independence. Upon review, based

on the allegations here, I find that there is no reasonable doubt that at least seven out

of the eleven members of the Demand Board are disinterested and independent.

Accordingly, the Plaintiff has failed to plead demand futility consistent with Rales.

                       a. Cohler and Trujillo Are Independent

                               i. Matt Cohler



185
    In re MFW S’holders Litig., 67 A.3d 496, 509–510 (Del. Ch. May 29, 2013) (citing Cede &
Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993)).
186
    See, e.g., id. at 510 (“[I]t is necessary to look to the financial circumstances of the director in
question to determine materiality.”).
187
    See Am. Compl. ¶ 112; see also, generally, Am. Compl.; Pl.’s Omnibus Answering Br., at 59–
64.
188
    I note that the Plaintiff brings a claim against Yoo, an officer of Uber; however, the Plaintiff
makes no argument that any of the members of the Demand Board lack independence from Yoo.
See generally Am. Compl. I do not consider the claim against her at this juncture.
                                                 46
         Gurley, who served on Uber’s Board at the time the merger with Otto was

approved and closed, left the Board in 2017. Gurley and Cohler are both partners at

Benchmark, and Cohler replaced Gurley on Uber’s Board. The Plaintiff alleges that

Cohler is not independent from Gurley because they are both partners at the same

investment fund, and because Gurley was Cohler’s mentor at that fund. 189 However,

independence is only relevant here if Gurley stands a substantial likelihood of

liability. The Plaintiff alleges that Gurley faces a substantial likelihood of liability

because he was on Uber’s board when it approved the Otto merger. But, I found

above that the directors who approved the merger with Otto (and then allowed the

merger to close) do not face a substantial likelihood of liability. As a result, I need

not reach the question of independence between Cohler and Gurley, because their

relationship is unlikely to be implicated. Therefore, the Plaintiff has not shown a

reasonable doubt that Cohler cannot be impartial when considering demand.

                              ii. David Trujillo

         The allegations against Trujillo mirror those against Cohler. Bonderman

served on Uber’s Board at the time the merger with Otto was approved and closed;

he left the Board in 2017. Bonderman and Trujillo are both partners at TPG. When

Bonderman left the Board, Trujillo replaced him. The Plaintiff alleges that Trujillo

is not independent from Bonderman because they are both partners at TPG. As with


189
      Pl.’s Omnibus Answering Br., at 60–62; Am. Compl. ¶¶ 114–115.
                                              47
Gurley and Cohler, however, Trujillo’s independence from Bonderman is only

implicated if Bonderman has a substantial likelihood of liability. Again, I found

above that the directors of Uber who served when the Board approved the Otto

merger do not face a substantial likelihood of liability. I need not inquire into the

relationship between Bonderman and Trujillo. As the Plaintiff does not allege that

Trujillo would otherwise be conflicted, the Plaintiff has not shown that Trujillo

cannot impartially consider demand here.

                       b. Graves and Thain Are Independent from Kalanick

                               i. Ryan Graves

       Kalanick hired Graves as Uber’s first employee. 190 Graves served as Uber’s

CEO in 2010, before amicably stepping down to become general manager. 191 The

Plaintiff argues that, as Kalanick’s friend, Graves lacks independence. As our

Supreme Court has made clear, directors, like all human actors, can have personal

loyalties that cloud their ability to comply with fiduciary duties. Thus, long and

close personal friendships may, in specific circumstances, raise a reasonable doubt

of a director’s ability to exercise business judgment. 192 However, such relationships

must be pled with particularity to overcome the presumption of independence. The


190
    Am. Compl. ¶ 107.
191
    Id.
192
    In Delaware County Employees Retirement Fund v. Sanchez, our Supreme Court found that a
“half century” close friendship was likely considered “precious” and when “a close relationship
endures for that long, a pleading stage inference arises that it is important to the parties.” 124 A.3d
1017, 1022 (Del. 2015).
                                                 48
only allegation here, in addition to a long-term employee relationship, is the

conclusory assertion that Kalanick and Graves are “close,” and that Graves is

described—by parties unknown—as Kalanick’s “confidant” and “ally.” 193 Such

allegations are of insufficient specificity to support a claim that the two have such a

close personal relationship that Graves lacks independence.

       The Plaintiff also implies that Graves is not independent of Kalanick because

Graves has derived substantial wealth from Uber. 194 I note that Kalanick, while still

a director, is no longer CEO of Uber, nor does he hold another management position;

likewise, it seems that Graves, while still a director, no longer holds a management

position at Uber.195 The Plaintiff has not pled any facts to suggest—nor has he even

made conclusory allegations—that Kalanick has any means to deprive Graves of the

wealth Graves has accumulated, or that Kalanick has the ability to deprive Graves

of wealth—let alone wealth that is material to Graves196—going forward. The fact



193
    Am. Compl. ¶ 108.
194
    Id. ¶ 107. The Plaintiff alleges that Graves, as a result of being hired by Kalanick, has “reaped
millions of dollars in compensation over the years at Uber.” Id.
195
    Graves resigned from his position as head of global operations on August 10, 2017. Id. ¶ 20.
196
    As then-Chancellor Chandler deftly explained in Orman v. Cullman:
         A director may be considered beholden to (and thus controlled by) another when
         the allegedly controlling entity has the unilateral power (whether direct or indirect
         through control over other decision makers), to decide whether the challenged
         director continues to receive a benefit, financial or otherwise, upon which the
         challenged director is so dependent or is of such subjective material importance to
         him that the threatened loss of that benefit might create a reason to question whether
         the controlled director is able to consider the corporate merits of the challenged
         transaction objectively.
794 A.2d 5, 25 n.50 (Del. Ch. 2002).
                                                 49
that Kalanick hired Graves as an employee, standing alone, is insufficient to raise a

reasonable likelihood that Graves lacks independence.

                            ii. John Thain

       The Plaintiff alleges that Thain is not independent from Kalanick because

Kalanick unilaterally appointed Thain to the Board “during a power struggle within

Uber.”197 The Amended Complaint does not explain how Kalanick appointed Thain

or whether Kalanick has the power to remove Thain; 198 however, the Plaintiff

contended for the first time at Oral Argument that Kalanick has the power to remove

Thain.199 The Plaintiff does not allege that Thain has a personal or financial

connection to Kalanick, nor does the Plaintiff allege that the directorship—including

its monetary compensation—is of substantial material importance to Thain (that is,

even assuming that Kalanick has the power to unilaterally remove Thain from the

Board). Thus, I must decide whether Thain is independent based solely on the fact

that Kalanick appointed him during a power struggle. This allegation alone is not

sufficient to undermine Thain’s independence; once appointed to the Board, a

director is entitled to a presumption of independence.

       As a result, I have no reasonable doubt that at least a seven-member majority

of the Demand Board—Al-Rumayyan, Martello, Khosrowshahi, Cohler, Trujillo,


197
    Am. Compl. ¶ 117.
198
    See generally Am. Compl.
199
    See Oral Argument Tr. 85:18–87:13.
                                             50
Graves, and Thain—are independent under Rales. I note that the Board, for all the

Plaintiff’s claims of dominance by Kalanick, was able to oust Kalanick from

management in 2017.

         For the sake of completeness, I address the allegations regarding the

remaining directors below.

                           iii. Ursula Burns

         The Plaintiff alleges that Burns is not independent from Kalanick for two

reasons: first, that Kalanick appointed Burns under the same circumstances as Thain,

discussed above, and second, that Kalanick is a client of Burns’s employer. 200 As

an initial matter, the first contention fails for the same reasons discussed with respect

to Thain. Regarding the second contention, the Plaintiff alleges that Burns works

for the same public relations firm that Kalanick has retained to manage his image,

and that because of this, Burns is not independent of Kalanick. Having already found

that a majority of the Board is independent of Kalanick, I need not determine whether

the Plaintiff has met its burden to raise reasonable doubt that Burns could consider

a demand while her firm represents Kalanick. I do note, however, that the Plaintiff’s

pleading is conclusory or silent as to the materiality of the relationship between

Kalanick and Burns’s PR Firm, and with Burns herself.




200
      Am. Compl. ¶ 117.
                                           51
                               iv. Garrett Camp

       The Plaintiff claims that Camp also lacks independence from Kalanick. In

support of this allegation, the Plaintiff notes that Camp co-founded Uber with

Kalanick, and that Kalanick is a “close personal friend” of Camp. 201 Again, this

allegation would be troubling, if it were not merely conclusory. This is particularly

the case in light of the fact that Camp and Kalanick are co-founders of Uber. While

that fact alone does not by itself raise a reasonable doubt of Camp’s independence, 202

a more robust pleading of Camp and Kalanick’s relationship is easily conceivable.

Again, I need not find Camp independent in order to find a majority of the Demand

Board is composed of independent directors.

                               v. Arianna Huffington

       The Plaintiff alleges that Huffington was unilaterally appointed to the Board

by Kalanick.203 Purportedly, the two have a close personal relationship that preceded

her appointment as director, as evidenced by their collaboration “on projects to

promote Huffington’s book.” 204 Once appointed, Huffington defended Kalanick,

both publicly and at Board meetings, at times when his leadership of Uber was


201
    Id. ¶ 109.
202
    See, e.g., Apple Computer, Inc. v. Exponential Tech., Inc., 1999 WL 39547, at *12 (Del. Ch.
Jan. 21, 1999) (“The factual predicate, that [the defendant and a director] are cofounders, falls far
short of raising a reasonable doubt as to [the director’s] disinterestedness.”).
203
    Am. Compl. ¶ 110.
204
    Id.
                                                 52
embroiled in controversy. 205 That Huffington, as a director of Uber, defended

Kalanick is not noteworthy unless the Plaintiff can raise a reasonable doubt via a

showing that she did so because of their close personal relationship.

       The Plaintiff alleges that the relationship between Kalanick and Huffington is

“so close that Huffington visited Kalanick’s family members in the hospital and

made him omelettes.”206 Such personal interaction is “suggestive of the type of very

close personal relationship that, like family ties, one would expect to heavily

influence a human’s ability to exercise impartial judgment.” 207 While one instance

is not indicative of Kalanick’s and Huffington’s entire relationship, the “standard

does not require a plaintiff to plead a detailed calendar of social interaction to prove

that directors have a very substantial personal relationship rendering them unable to

act independently of each other.”208 Because, notwithstanding Huffington, I find

that the majority of the Board is independent, I need not determine whether

allegations of hospital visits and omelet-making evince such a close personal

relationship as to question Huffington’s independence. I note, however, that the

pleadings here approach, if not cross, a line of director independence.




205
    Id.
206
    Id.
207
    Sandys v. Pincus, 152 A.3d 124, 130 (Del. 2016).
208
    Id. at 130.
                                              53
                 4. Rule 23.1 Determination

          The Plaintiff has failed to raise a reasonable doubt as to the independence of

at least seven of the eleven members of the Demand Board. Those directors are

capable of considering demand here. If it had been made, demand would not have

been futile.

                                      III. CONCLUSION

          The Plaintiff did not make a demand on Uber’s Board. Such demand is

necessary unless futile; here the Plaintiff has not sufficiently pled that at least seven

of the eleven members of the Demand Board are either interested or lack

independence. Therefore, there is no reasonable doubt that a majority of the Demand

Board can be impartial, and the Plaintiff has fallen short of pleading demand futility.

The action is dismissed under Rule 23.1.209 An appropriate order is attached.




209
      Therefore, I need not reach the Defendants’ Motions to Dismiss under Rule 12(b)(6).
                                                 54
   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LENZA H. MCELRATH, III,                   )
derivatively on behalf of UBER            )
TECHNOLOGIES, INC.,                       )
                                          )
                  Plaintiff,              )
                                          )
      v.                                  ) C.A. No. 2017-0888-SG
                                          )
TRAVIS KALANICK, GARRETT                  )
CAMP, RYAN GRAVES, ARIANNA                )
HUFFINGTON, YASIR AL-                     )
RUMAYYAN, WILLIAM GURLEY,                 )
DAVID BONDERMAN, and SALLE                )
YOO,                                      )
                                          )
                  Defendants,             )
      -and-                               )
                                          )
UBER TECHNOLOGIES, INC.,                  )
                                          )
                  Nominal Defendant.      )

                                  ORDER

     AND NOW, this 1st day of April, 2019,

     The Court having considered the Defendants’ Motions to Dismiss, and for the

reasons set forth in the Memorandum Opinion dated April 1, 2019. IT IS HEREBY

ORDERED that the Motion to Dismiss is GRANTED.

SO ORDERED.

                                          /s/ Sam Glasscock III

                                          Vice Chancellor
