            IN THE SUPREME COURT OF THE STATE OF DELAWARE

JEFFERY J. SHELDON and ANDRAS §
KONYA, M.D., PH.D.,              §
                                 §
       Plaintiffs-Below,         §             No. 81, 2019
       Appellants,               §
                                 §
       v.                        §             Court Below: Court of Chancery
                                 §             of the State of Delaware
PINTO TECHNOLOGY VENTURES, §
L.P., PINTO TV ANNEX FUND, L.P., §
PTV SCIENCES II, L.P., RIVERVEST §             C.A. No. 2017-0838-MTZ
VENTURE FUND I, L.P., RIVERVEST §
VENTURE FUND II, L.P.,           §
RIVERVEST VENTURE FUND II        §
(OHIO), L.P., BAY CITY CAPTIAL   §
FUND IV, L.P., BAY CITY CAPITAL §
FUND IV CO-INVESTMENT FUND, §
L.P., REESE TERRY and CRAIG      §
WALKER, M.D.,                    §
                                 §
       Defendants-Below,         §
       Appellees.                §

                           Submitted:    September 11, 2019
                            Decided:      October 4, 2019

Before VALIHURA, SEITZ, and TRAYNOR, Justices.

Upon appeal from the Court of Chancery of the State of Delaware: AFFIRMED

Thad J. Bracegirdle, Esquire (argued), Scott B. Czerwonka, Esquire, Wilks, Lukoff &
Bracegirdle, LLC, Wilmington, Delaware, for Appellants Jeffery J. Sheldon and Andras
Konya, M.D., Ph.D.

Bruce E. Jameson, Esquire (argued), Samuel L. Closic, Esquire, Prickett, Jones & Elliott,
P.A., Wilmington, Delaware. Of Counsel: B. Russell Horton, Esquire, Gary L. Lewis,
Esquire, George Brothers Kincaid & Horton LLP, Austin, Texas, for Appellees Pinto
Technology Ventures, L.P., Pinto TV Annex Fund, L.P., PTV Sciences II, L.P., Rivervest
Venture Fund I, L.P., Rivervest Venture Fund II, L.P., Rivervest Venture Fund II (Ohio),
L.P., Bay City Capital Fund IV, L.P., and Bay City Capital Fund IV Co-Investment Fund,
L.P.
Brian C. Ralston, Esquire, Jacqueline A. Rogers, Esquire, Potter Anderson Corroon LLP,
Wilmington, Delaware. Of Counsel: Danny David, Esquire (argued), Rebeca Huddle,
Esquire, Baker Botts L.L.P., Houston, Texas, for Appellees Resse Terry and Craig Walker,
M.D.

VALIHURA, Justice:




                                           2
         Appellants Jeffrey J. Sheldon and Andras Konya, M.D., Ph.D., alleged in the Court

of Chancery that several venture capital firms and certain directors of IDEV Technologies,

Inc. (“IDEV”) violated their fiduciary duties by diluting the Appellants’ economic and

voting interests in IDEV. The Appellants argued that their dilution claims are both

derivative and direct under Gentile v. Rosette1 because the venture capital firms constituted

a “control group.” The Court of Chancery rejected that argument and held that the

Appellants’ dilution claims were solely derivative.2 Because the Appellants did not make

a demand on the IDEV board or plead demand futility, and because the Appellants lost

standing to pursue a derivative suit after Abbott Laboratories purchased IDEV and acquired

the Appellants’ shares, the court dismissed their complaint. On appeal, the Appellants raise

a single issue: They contend only that, contrary to the Court of Chancery’s holding, they

adequately pleaded that a control group existed, rendering their claims partially “direct”

under Gentile. Therefore, according to the Appellants, their complaint should not have

been dismissed. We agree with the Court of Chancery’s determination that the Appellants

failed to adequately allege that the venture capital firms functioned as a control group.

Accordingly, we affirm the dismissal of the complaint with prejudice.

                                      I.     Background

         IDEV, a Delaware corporation based in Texas, develops and manufactures devices

used in interventional radiology, vascular surgery, and interventional cardiology. Sheldon


1
    906 A.2d 91 (Del. 2006).
2
  See Sheldon v. Pinto Tech. Ventures, L.P., 2019 WL 336985, at *1 (Del. Ch. Jan. 25, 2019)
[hereinafter Opinion].

                                             3
founded IDEV in 1999 and served as its Chief Executive Officer from its founding until

2008. Konya invented certain devices licensed by IDEV and served as a consultant to

IDEV between 2000 and late 2012.

       Between 2004 and 2008, IDEV completed three rounds of financing through which

three venture capital firms (the “Venture Capital Firms”)3 acquired a substantial proportion

of IDEV’s outstanding shares. In 2009, IDEV went through a management change,

restructured its sales force, and implemented a new strategic plan focused on leveraging

and developing its core technologies. It also determined that to support its future growth,

IDEV needed to raise additional equity capital.

       By early 2010, Sheldon owned 1,250,000 shares of common stock and 45,998

shares of Series B Preferred Stock—comprising 2.5% of IDEV’s total outstanding shares—

and Konya owned 650,000 shares of common stock, a 1.25% ownership stake in IDEV.

The Venture Capital Firms held over sixty percent of IDEV’s outstanding shares. Sheldon,

Konya, the Venture Capital Firms, and the other Shareholders4 were bound by the Fourth

Amended and Restated Shareholders Agreement (the “Shareholders Agreement”), which,

in relevant part, governed the election of several IDEV directors and provided certain



3
  The Venture Capital Firms consisted of eight Delaware entities that can be divided into three
groups—the “Pinto” entities (Pinto Technology Ventures, L.P. and subsidiary partnerships Pinto
TV Annex Fund, L.P. and PTV Sciences II, L.P.); the “RiverVest” entities (RiverVest Venture
Fund I, L.P., RiverVest Venture Fund II, L.P., and RiverVest Venture Fund II (Ohio), L.P.); and
the “Bay City” entities (Bay City Capital Fund IV, L.P. and Bay City Capital Fund IV Co-
Investment Fund, L.P.).
4
  The Shareholders Agreement defines “Shareholders” as “the Key Shareholders and the
Significant Shareholders, and their respective heirs, legal representatives, administrators and
successors.” App. to Opening Br. at A257. We use the term as defined therein.

                                              4
Shareholders, including Sheldon, with preemptive rights.5 Listed in the Shareholders

Agreement were twenty “Key Shareholders” and seventy “Significant Shareholders.”

Sheldon was both a Key and Significant Shareholder, and Konya was a Key Shareholder

only.

          Section 7 of the Shareholders Agreement was titled “Voting Agreement.” Section

7(a), the director election provision, provided that: “each Shareholder will vote all of the

Shareholder’s Restricted Shares and take all other necessary or desirable actions” to cause

the election of “[o]ne individual designated by Pinto TV Annex Fund, L.P.,” “[o]ne

individual designated by RiverVest Venture Fund II, L.P.,” and “[o]ne individual

designated by Bay City Capital Fund IV, L.P.”6 The Shareholders also agreed to elect to

the board IDEV’s Chief Executive Officer, as well as “[t]wo individuals designated by a

majority of the PTV Designee, the RiverVest Designee and the Bay City Designee, which

individuals shall initially be Reese S. Terry and Craig Walker, M.D.” (together with the

Venture Capital Firms, the “Defendants”).7              Aside from the director election and

corresponding removal obligations, and as otherwise limited by IDEV’s governing

documents, each Shareholder “retain[ed] at all times the right to vote the Shareholder’s



5
  See id. at A263–64 (Shareholders Agreement § 6 (governing preemptive rights)), A264–65
(Shareholders Agreement § 7(a) (director election provision)).
6
    Id. at A265 (Shareholders Agreement § 7(a)(i)–(iii)).
7
  Id. at A265 (Shareholders Agreement § 7(a)(iv)–(v)). The complaint alleged there were six
directors on the IDEV board. The Court of Chancery observed, however, that a subsequent brief
indicated that there were seven directors. The court assumed that there were seven directors,
noting that the Defendants seemed to agree that there were seven. Opinion, 2019 WL 336985, at
*12 n.143. Because the parties do not contest this on appeal, we likewise assume the IDEV board
consisted of seven directors.

                                                  5
Restricted Shares in its sole discretion on all matters presented to the Corporation’s

Shareholders for a vote . . . .”8

         In July 2010, IDEV implemented a new financing effort to bring in over $40 million

of new capital (the “Financing”). The Financing consisted of two steps. Step one was to

set the stage for raising the capital. The Venture Capital Firms first voted to convert

IDEV’s preferred stock to common stock. The Venture Capital Firms then, by written

consent, amended IDEV’s Certificate of Incorporation with the objective of (1) effecting a

reverse stock split of common stock, converting every one-hundred shares into a single

share, and (2) authorizing and issuing a new class of Series B-1 Preferred Stock. Finally,

the Shareholders Agreement, which could be amended by a sixty percent vote, was

amended by IDEV and the Venture Capital Firms to eliminate certain preemptive rights of

the Significant Shareholders, including Sheldon.

         After implementing these changes, the Venture Capital Firms began the second step

in the Financing. In an initial closing, IDEV raised $27 million by selling the newly

authorized Series B-1 shares to new and existing investors. The company also instituted

an exchange and purchase offering, which allowed previous holders of preferred stock to

convert their common shares into Series A-2 Preferred Stock, so long as they also

purchased Series B-1 Preferred Stock. The circulated Confidential Information Statement

warned that the Financing would “result in substantial dilution to Common Stockholders,




8
    Id. at A266 (Shareholders Agreement § 7(c)).

                                                   6
and the dilution will be significantly increased as to Common Stockholders that do not

participate . . . .”9 Nevertheless, neither Sheldon nor Konya participated in the Financing.10

         The Financing had an ancillary effect on certain promissory notes held by IDEV.

The company held about $1.7 million of full-recourse promissory notes issued by certain

of its employees to finance their purchases of IDEV common stock. The notes, which were

secured by the purchased shares, became “substantially undersecured” as a result of the

decrease in common stock value caused by the Financing. In November 2011, IDEV

cancelled the notes, took back the purchased shares, and issued special bonuses to those

employees.

         In 2013, roughly three years after the Financing, IDEV was acquired by Abbott

Laboratories for approximately $310 million. Appellants collectively owned 0.012% of

the outstanding IDEV shares at the time of sale, compared to the 3.75% they held pre-

Financing. Sheldon and Konya claim that instead of the respective $15,000 and $7,500

they were actually entitled to from the Abbott acquisition, they would have received $7.75

million and $3.875 million, respectively, had their shares not been diluted in the 2010

Financing.




9
    App. to Opening Br. at A1592 (Confidential Information Statement).
10
   The Appellants argue in their Reply Brief on appeal that Konya was “prohibited from
participating because he did not qualify under certain applicable securities laws” and that the “vast
majority” of Sheldon’s stock was ineligible to participate in the exchange and purchase offering.
Reply Br. at 2 n.2. While this issue appears to have been disputed in the proceedings below, it
was not addressed in the Court of Chancery’s opinion. Nor was it properly raised as an issue in
this appeal, and, thus, it does not have any impact on our decision.

                                                 7
          The Appellants first sued the Defendants in a Texas trial court, which dismissed

their complaint. The Texas Supreme Court eventually agreed with the trial court’s decision

(at least as to the defendants sued here) based on a forum selection clause in the

Shareholders Agreement requiring any action arising from that agreement to be brought in

Delaware.11 Appellants promptly re-filed their suit in the Delaware Court of Chancery.

After the Defendants moved to dismiss, Appellants amended the complaint and the

Defendants renewed their motion to dismiss.

          The Court of Chancery granted the Defendants’ motion to dismiss on January 25,

2019.      It noted that dilution claims are “classically derivative,” and held that the

Defendants’ actions were not also “direct” claims under Gentile because the facts pleaded

failed to show with reasonable conceivability that the Venture Capital Firms were a control

group.12 In addressing the control group issue, the court focused on two cases on opposite

ends of the spectrum: In re Hansen Medical, Inc. Stockholders Litigation,13 where the

court held on a motion to dismiss that the plaintiffs had sufficiently pled the possible

existence of a control group, and van der Fluit v. Yates,14 where the plaintiff had failed to

adequately plead a control group.

          The Court of Chancery determined that the control group alleged in this case is more

like that in van der Fluit, noting that while the investors in Hansen had a long, well-



11
     See Pinto Tech. Ventures, L.P. v. Sheldon, 526 S.W.3d 428, 433 (Tex. 2017).
12
     Opinion, 2019 WL 336985, at *8, *10.
13
     2018 WL 3025525 (Del. Ch. June 18, 2018).
14
     2017 WL 5953514 (Del. Ch. Nov. 30, 2017).

                                                 8
documented history of coordinated investments, the Venture Capital Firms here were more

loosely connected. The court found that the Venture Capital Firms’ prior connections were

likely coincidental in that they invested in the same industry, not because they operated in

tandem. In light of this, employing the reasonable conceivability standard of Court of

Chancery Rule 12(b)(6), the court held that the Appellants’ dilution claims were solely

derivative. Because the Appellants had not made a demand on the board or pled demand

futility, and because the Appellants lost standing to bring a derivative suit following the

Abbott acquisition, the court dismissed the Appellants’ claims for failure to comply with

the requirements of Court of Chancery Rule 23.1. The Appellants filed their notice of

appeal on February 25, 2019.

                                         II.     Analysis

       The Appellants raise only one issue on appeal: whether the Court of Chancery erred

in dismissing their complaint by holding that the Venture Capital Firms were not a “control

group,” as alleged by the Appellants in their effort to plead a “dual-natured” claim under

Gentile. As such, we address this sole issue.15 We review de novo the question of whether

it is reasonably conceivable, based on the allegations in the operative complaint, that the



15
   This Court raised in Oral Argument the threshold question of whether a “classically derivative”
dilution claim arising from an overpayment was actually pled and whether the facts should be
viewed through the Gentile prism. Oral Argument Video at 1:44–2:06, 21:00–22:45,
https://livestream.com/accounts/5969852/events/8806638/videos/196132813. However, because
those issues (including what, if any, effect the absence of an overpayment claim should have on
the direct versus derivative analysis under Tooley) were not appealed or briefed, we decline to
review them. See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004).
Instead, we take the appeal as framed by the parties and consider the sole issue of whether a control
group was adequately alleged.

                                                 9
Venture Capital Firms constituted a control group.16            We must accept all well-pled

allegations as true and draw reasonable inferences in favor of the Appellants.17 We need

not accept conclusory allegations as true, nor should inferences be drawn unless they are

truly reasonable.18

           The traditional rule is that dilution claims are “classically derivative.”19 But in

Gentile, we recognized that dilution claims can be both derivative and direct in character

when:

           (1) a stockholder having majority or effective control causes the corporation
           to issue “excessive” shares of its stock in exchange for assets of the
           controlling stockholder that have a lesser value; and (2) the exchange causes
           an increase in the percentage of the outstanding shares owned by the
           controlling stockholder, and a corresponding decrease in the share
           percentage owned by the public (minority) shareholders.20

           “[A] stockholder could be found a controller under Delaware law: where the

stockholder (1) owns more than 50% of the voting power of a corporation or (2) owns less


16
   See Feldman v. Cutaia, 951 A.2d 727, 730 (Del. 2008) (reviewing de novo the Court of
Chancery’s decision to grant the motion to dismiss under Court of Chancery Rule 12(b)(6)); Savor,
Inc. v. FMR Corp., 812 A.2d 894, 897 (Del. 2002) (“[D]ismissal is inappropriate unless the
‘plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances
susceptible of proof.’” (quoting Kofron v. Amoco Chems. Corp., 441 A.2d 226, 227 (Del.1982))).
17
     Feldman, 951 A.2d at 731.
18
     Id.
19
     El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1251 (Del. 2016).
20
  Gentile, 906 A.2d at 99–100. As this Court more recently recognized in El Paso, “some recent
case law can be read as undercutting the traditional rule that dilution claims are classically
derivative.” 152 A.3d at 1251. We cited Gentile as the principal focus of that comment. Gentile
concerned a controlling shareholder and transactions that resulted in an improper transfer of both
economic value and voting power from the minority stockholders to the controlling stockholders.
In El Paso, we “decline[d] the invitation to further expand the universe of claims that can be
asserted ‘dually’ to hold here that the extraction of solely economic value from the minority by a
controlling stockholder constitutes direct injury.” Id. at 1264.

                                                10
than 50% of the voting power of the corporation but ‘exercises control over the business

affairs of the corporation.’”21 Relevant here, our law recognizes that multiple stockholders

together can constitute a control group exercising majority or effective control, with each

member subject to the fiduciary duties of a controller.22 To demonstrate that a group of

stockholders exercises “control” collectively, the Appellants must establish that they are

“‘connected in some legally significant way’—such as ‘by contract, common ownership,

agreement, or other arrangement—to work together toward a shared goal.’”23 To show a

“legally significant” connection, the Appellants must allege that there was more than a

“mere concurrence of self-interest among certain stockholders.”24 Rather, “there must be

some indication of an actual agreement,” although it need not be formal or written. 25 We




21
  In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 991 (Del. Ch. 2014) (citing Kahn v.
Lynch Commc’ns Sys., Inc., 638 A.2d 1110, 1113–14 (Del. 1994)), aff’d sub. nom., Corwin v. KKR
Fin. Hldgs. LLC 125 A.3d 304 (Del. 2015).
22
  See In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *15 (Del. Ch. Oct. 24, 2014)
(“Under Delaware law, in appropriate circumstances, multiple stockholders together can constitute
a control group, with each of its members being subject to the fiduciary duties of a controller.”);
Frank v. Elgamal, 2012 WL 1096090, at *8 (Del. Ch. Mar. 30, 2012) (“If such a control group
exists, it is accorded controlling shareholder status, and its members owe fiduciary duties to the
minority shareholders of the corporation.”).
23
  In re Crimson, 2014 WL 5449419, at *15 (citing Dubroff v. Wren Hldgs., LLC, 2009 WL
1478697, at *3 (Del. Ch. May 22, 2009)).
24
   Carr v. New Enter. Assocs. Inc., 2018 WL 1472336, at *10 (Del. Ch. Mar. 26, 2018) (citations
omitted); see also In re PNB Hldg. Co. S’holders Litig., 2006 WL 2403999, at *10 (Del. Ch. Aug.
18, 2006) (rejecting claim that “some twenty people (directors, officers, spouses, children, and
parents)” comprised a control group and noting that “there are no voting agreements between
directors or family member[s]. Rather, it appears that each had the right to, and every incentive
to, act in his or her own self-interest as a stockholder.”); Emerson Radio Corp. v. Int’l Jensen Inc.,
1996 WL 483086, at *17 (Del. Ch. Aug. 20, 1996) (noting that “even a majority stockholder is
entitled to vote its shares as it chooses, including to further its own financial interest”).
25
     In re Crimson, 2014 WL 5449419, at *15.

                                                 11
agree with the Court of Chancery that the allegations in the complaint fall short of this

standard.

           On appeal, the Appellants contend that the facts here are analogous to those in

Hansen. In that case, the plaintiffs alleged that two individuals and their affiliated entities

(the “Controller Defendants”) had a twenty-one year history of coordinating investment

strategies in at least seven different companies.26 The relationship began when the pair

entered into a voting agreement and declared themselves to the U.S. Securities and

Exchange Commission (the “SEC”) to be a “group of stockholders.”27 When they invested

in the company at issue, they were “the only participants in a private placement that made

them the largest stockholders of Hansen.”28           During the early stage of the merger

negotiations in Hansen, the purchasing entity identified the controllers as “key

stockholders,” which granted them exclusive permission to negotiate with the purchaser.29

Additional agreements required all shareholders to vote in favor of the merger and granted

the Controller Defendants the option to acquire stock from the purchasing company (i.e.,

“rollover” their stock), a benefit not shared with the minority stockholders.30 The Court of

Chancery opined that:

           Although each of these factors alone, or perhaps even less than all of these
           factors together, would be insufficient to allege a control group existed, all
           of these factors, when viewed together in light of the Controller Defendants’

26
     Hansen, 2018 WL 3025525, at *7.
27
     Id.
28
     Id.
29
     Id.
30
     Id.

                                                12
           twenty-one year coordinated investing history, make it reasonably
           conceivable that the Controller Defendants functioned as a control group
           during the Merger.31

           In van der Fluit, by contrast, the plaintiff alleged “a group of tech-entrepreneurs and

venture capitalists that included the Company’s co-founders . . . and two [venture capital

firms]” comprised a control group that controlled certain board members.32 In attempting

to link the purported control group constituents in a “legally significant” way, the plaintiff

pointed to an Investor Rights Agreement and a Tender and Support Agreement. In holding

that the plaintiff failed to plead the existence of a control group, the Court of Chancery

could not find that the agreements “evidence the presence of a control group rather than a

‘concurrence of self-interest among certain stockholders.’”33 Specifically, it observed that

only certain signatories to the agreements were alleged to be control group members, and

stated that venture capital entities “simply appear[ed] to be early venture capital investors

selected by Plaintiff as an attempt to increase the stock ownership of the purported

group.”34 The court also reasoned that the Investor Rights Agreement, to which the two

venture capital firms were parties, did not relate to the challenged transaction.35

           Here, the Court of Chancery held that the allegations in the complaint are more

similar to the allegations in van der Fluit than in Hansen. In their operative complaint, the




31
     Id.
32
     van der Fluit, 2017 WL 5953514, at *6 (internal quotation marks omitted).
33
     Id.
34
     Id.
35
     Id.

                                                 13
Appellants alleged that the Venture Capital Firms: acquired and collectively controlled

over sixty percent of IDEV’s issued and outstanding shares; were parties to a voting

agreement that gave them the right to appoint three directors, with those directors choosing

two additional directors, and to “hand-pick[ ]” the Chief Executive Officer “giving them

total effective control of the IDEV Board;” had a “long and close relationship of investing

together for their mutual benefit;” and, by converting the Venture Capital Firms’ preferred

stock holdings to common stock, acquired sufficient ownership to amend the Certificate of

Incorporation for the purpose of “unjustly diluting the economic and voting interests” of

the Appellants.36      These allegations, taken together, fail to allege with reasonable

conceivability that the Venture Capital Firms were connected in a “legally significant”

way, either before or during the allegedly dilutive actions.

         The Voting Agreement, which bound all of IDEV’s Shareholders,37 was unrelated

to the 2010 Financing and Abbott acquisition, and only governs the election of certain

directors to the IDEV board. The Voting Agreement provided that PTV, RiverVest and

Bay City could each appoint one director to the IDEV board. But the Venture Capital

Firms’ appointment of directors “does not, without more, establish actual domination or

control,” and “[t]o hold otherwise would have a chilling effect on transactions that depend

on a particular shareholder being able to appoint representatives to an investee’s board of


36
     App. to Opening Br. at A29–30 (Am. Compl.).
37
    The Appellants contend that the trial court erroneously concluded that the Shareholders
Agreement binds all IDEV shareholders because not all shareholders were signatories to the
agreement. Opening Br. at 18. The trial court did not find that all shareholders were signatories
to the Shareholders Agreement—only that all Shareholders were bound by it. Opinion, 2019 WL
336985, at *10. We, therefore, reject this claim of error.

                                               14
directors.”38 Here, Appellants do not even identify by name in their complaint four of the

directors. The only directors they mention by name are Terry, Walker, and non-party

Christopher Owens. As the trial court observed, the complaint fails to allege “whether or

how the Venture Capital [Firms] control those unnamed individuals.”39 In their Opening

Brief on appeal, Appellants provide the names of the remaining non-party directors, Rick

Anderson, Matt Crawford, Jay Schmelter and Jeanne Cunicelli, adding only that they are

“affiliated” with PTV, PTV, RiverVest, and Bay City respectively. 40 Even if these

additional facts are considered, the allegation is conclusory in nature and fails to add

sufficient detail to effectively plead director control.


38
   Williamson v. Cox Commc’ns, Inc., 2006 WL 1586375, at *4 (Del. Ch. June 25, 2006); see also
In re KKR, 101 A.3d at 996 (“It is well-settled Delaware law that a director’s independence is not
compromised simply by virtue of being nominated to a board by an interested stockholder.”);
Frank v. Elgamal, 2014 WL 957550, at *22 (Del. Ch. Mar. 10, 2014) (“Merely because a director
is nominated and elected by a large or controlling stockholder does not mean that he is necessarily
beholden to his initial sponsor.”); Blaustein v. Lord Baltimore Capital Corp., 2013 WL 1810956,
at *18 n.114 (Del. Ch. Apr. 30, 2013) (stating that allegations that a director was appointed to the
board by and has consistently voted with the alleged controller are insufficient to challenge the
director’s independence), aff’d, 84 A.3d 954 (Del. 2014); Emerson, 1996 WL 483086, at *20 n.18
(“If plaintiffs’ argument were the law, then whenever a director is affiliated with a significant
stockholder, that stockholder automatically would acquire the fiduciary obligations of the director
by reason of that affiliation alone. The notion that a stockholder could become a fiduciary by
attribution (analogous to the result under the tort law doctrine of respondeat superior) would work
an unprecedented, revolutionary change in our law, and would give investors in a corporation
reason for second thoughts about seeking representation on the corporation’s board of directors.”);
In re Sea-Land Corp. S’holders Litig., 1987 WL 11283, at *5 (Del. Ch. May 22, 1987) (“Even if
[the alleged controlling stockholder] had caused its nominees to be elected to the Sea-Land board,
. . . that fact, without more, does not establish actual domination and control.” (citing Kaplan v.
Centex Corp., 284 A.2d 119, 123 (Del. Ch. 1971))); Aronson v. Lewis, 473 A.2d 805, 816 (Del.
1984) (“[I]t is not enough to charge that a director was nominated by or elected at the behest of
those controlling the outcome of a corporate election. That is the usual way a person becomes a
corporate director. It is the care, attention and sense of individual responsibility to the performance
of one’s duties, not the method of election, that generally touches on independence.”).
39
     Opinion, 2019 WL 336985, at *12.
40
     See Opening Br. at 8.

                                                  15
          Moreover, although the Appellants contend on appeal that the Voting Agreement

“contractually bound the [Venture Capital Firms] (and not the other Shareholders) to vote

together and designate additional directors,”41 it does not require them to vote “together”

on any transaction and was not implicated in the approval of any of the transactions in

connection with the Financing. In addition to allowing each Venture Capital Firm to

appoint one director, the Voting Agreement provides that the IDEV Shareholders must

elect to the board IDEV’s Chief Executive Officer and “[t]wo individuals designated by a

majority of the PTV Designee, the RiverVest Designee and the Bay City Designee . . . .”42

It is a majority of the Venture Capital Firms’ director-designees—not the firms

themselves—who select two of the directors. Importantly, the Shareholders otherwise

“retain[ed] at all times the right to vote [their] Restricted Shares in [their] sole discretion

on all matters presented to the Corporation’s Shareholders for a vote . . . .”43 Thus, we

agree with the trial court that the Voting Agreement did not bear on the Financing or bind

the Venture Capital Firms beyond selecting directors.44

          The Appellants’ allegations concerning the Venture Capital Firms’ prior

interactions are likewise unavailing. The complaint names only four companies other than

IDEV in which “two or more” of the Venture Capital Firms have invested in the same

financings. In particular, Appellants allege in paragraph 25 of their Amended Complaint:



41
     Opening Br. at 19.
42
     App. to Opening Br. at A265 (Shareholders Agreement § 7(a)(v)).
43
     App. to Opening Br. at A266 (Shareholders Agreement § 7(c)).
44
     Opinion, 2019 WL 336985, at *10.

                                               16
         Third, the Venture Capital Defendants have had a long and close relationship
         of investing together for their mutual benefit. In addition to IDEV, two or
         more of the Venture Capital Defendants count Cameron Health among their
         portfolio companies and have participated in a $14 million financing with
         Tryon [sic] Medical, Inc., a $28.8 million financing with Accumetrics, Inc.,
         and a $50 million financing of Calypso Medical Technologies, Inc.45

Appellants do not specify whether the Venture Capital Firms invested through exclusive

private placements, how many or which of them participated, what rights they obtained,

when they occurred, or whether they agreed to vote together on any matters. Appellants

also do not identify any instance in which all three Venture Capital Firms participated in

any investment. The complaint does not allege that they held themselves out as a group of

investors or that they reported as such to the SEC, nor does it explain how they coordinated

their allegedly “long and close relationship of investing together for their mutual benefit.”

Rather, as the Court of Chancery concluded, “Plaintiffs’ allegations merely indicate that

venture capital firms in the same sector crossed paths in a few investments.”46 Moreover,




45
  App. to Opening Br. at A30 (Am. Compl. ¶ 25). In support of their position that the Venture
Capital Firms coordinated investments in other companies, the Appellants add in their Opening
Brief an additional investment in each of two prior-named companies, and argue that
representatives of two venture capital defendants occupied board seats on Tryton Medical at the
same time both held director seats at IDEV. These allegations were not pled in the operative
complaint. See Opening Br. at 20. In reviewing a motion to dismiss, a court is limited to the facts
pled in or appropriately incorporated into the operative complaint; new facts or facts expanding
those contained in the complaint are not considered. See Orman v. Cullman, 794 A.2d 5, 28 n. 59
(Del. Ch. 2002) (“Briefs relating to a motion to dismiss are not part of the record and any attempt
contained within such documents to plead new facts or expand those contained in the complaint
will not be considered.”). We note, however, that even if we consider these additional assertions,
they do not alter our ultimate holding.
46
     Opinion, 2019 WL 336985, at *9.

                                                17
it found that, “[o]ther investors participated in [the Financing and prior financing rounds]

and received the same securities, but are not alleged to be part of the control group.”47

           Based on the allegations in the operative complaint and the documents incorporated

therein, the Voting Agreement bound all Shareholders and provided only for the election

of certain directors. Those directors and the Shareholders were free to vote in their

discretion on all other matters. Further, the complaint fails to allege facts or create a

reasonable inference showing that the Venture Capital Firms had anything but a “mere

concurrence of self-interest.”48 Viewing the allegations in the complaint in the aggregate,

we agree with the Court of Chancery that it is not reasonably conceivable that the Venture

Capital Firms functioned as a control group.49 And because the Appellants’ theory that

their claims are partially direct hinges upon the existence of a control group, we cannot

conclude on the record before us that the Court of Chancery’s conclusion was erroneous.

It follows that the Appellants’ standing was extinguished in the merger.

                                       III.    Conclusion

           For the foregoing reasons, we AFFIRM the Court of Chancery’s dismissal of the

complaint with prejudice.



47
     Id.
48
     Carr, 2018 WL 1472336, at *10.
49
  Because we agree with the Court of Chancery on this point, we decline to reach the other possible
justifications for dismissal raised in the Defendants’ briefing. See Director Defendants’ Answering
Br. at 17–23 (arguing that the directors are covered by the exculpation provision in IDEV’s
Certificate of Incorporation); Venture Capital Firms’ Answering Br. at 32 (arguing that the
Venture Capital Firms, in absence of a control group, do not owe fiduciary duties to the
Appellants). We note that no separate arguments were raised in Appellants’ Opening Brief as to
defendants Terry and Walker.

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