   IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BUCKLEY FAMILY TRUST,                     )
                                          )
            Plaintiff,                    )
                                          )
      v.                                  )     C.A. No. 2018-0903-AGB
                                          )
CHARLES PATRICK MCCLEARY,                 )
JAMES MCCLEARY, JOHN                      )
MCCLEARY, MARGARET                        )
MCCLEARY STURGES, and SARAH               )
MCCLEARY STOVER,                          )
                                          )
            Defendants,                   )
                                          )
      and                                 )
                                          )
MCCLEARY, INC., a Delaware                )
Corporation,                              )
                                          )
            Nominal Defendant.            )


                           MEMORANDUM OPINION

                         Date Submitted: December 2, 2019
                          Date Decided: March 31, 2020

Peter J. Walsh, Jr. and Jacqueline A. Rogers, POTTER ANDERSON & CORROON
LLP, Wilmington, Delaware; Attorneys for Plaintiff Buckley Family Trust.

Daniel A. Dreisbach, Richard P. Rollo, and Angela Lam, RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; Attorneys for Defendants Charles Patrick
McCleary, James McCleary, John McCleary, Margaret McCleary Sturges, and
Sarah McCleary Stover, and Nominal Defendant McCleary, Inc.



BOUCHARD, C.
      The Buckley Family Trust is one of seven stockholders of McCleary, Inc., a

small privately held snack food company. Five of the other stockholders are

descendants of the company’s founder who comprise its board of directors.

Frustrated with the lack of return it has received on its shares, the Trust sought books

and records from the company and then filed this action against its board members.

      The Trust’s complaint contains two claims. The first claim seeks to compel

the company to pay a dividend. The second claim asserts, in the main, that the

directors breached their fiduciary duty of care concerning various decisions they

made and various matters they allegedly failed to manage or address properly.

Unlike in most cases this court sees, McCleary, Inc. does not have a provision in its

certificate of incorporation exculpating its directors for monetary damages for

breaches of the duty of care. Defendants have moved to dismiss both claims for

failure to state a claim for relief. Defendants also have moved to dismiss the second

claim, which the Trust brings derivatively on behalf of the company, for failure to

make a demand on the company’s board before filing suit.

      For the reasons explained below, the court grants the motion to dismiss as to

both claims. As to the first claim, the Trust has failed to allege facts that would

warrant second-guessing the directors’ business judgment in declining to declare

more dividends than they have in the past. As to the second claim, the Trust has




                                           1
failed to plead with particularity facts creating a reasonable doubt about the

directors’ ability to consider a demand impartially.

I.        BACKGROUND
          The facts recited in this opinion come from the Verified Amended Complaint

(the “Complaint”) and documents incorporated therein, which include meeting

minutes, financial statements, and other internal documents of McCleary, Inc. that

were produced to plaintiff in response to a demand under 8 Del. C. § 220.1 Plaintiff

agrees that the court may consider these documents in its disposition of this motion.2

          A.    The Players

          In 1960, Eugene “Mac” McCleary founded the predecessor of McCleary, Inc.

(“McCleary” or the “Company”), a Delaware corporation with its principal place of

business in South Beloit, Illinois.3 The Company manufactures and distributes snack

food products through its wholly owned subsidiary, Axium Foods, Inc. (“Axium”).4

Jerry Stokely was President of Axium during the period relevant to the Complaint.5

In 1986, the Company was reorganized as an “S” corporation.6 At the time of the



1
    Verified Am. Compl. (“Compl.”) (Dkt. 19).
2
    Tr. 80 (Dkt. 42).
3
    Compl. ¶¶ 5, 12, 17.
4
    Id. ¶ 5.
5
    Id. Ex. B at M1392.
6
    Compl. ¶ 17.
                                            2
reorganization, Grace Knoll, who made a capital investment when the Company was

founded, received non-voting common stock in the Company. 7

          Defendants Charles Patrick McCleary (“Pat McCleary”), James McCleary,

John McCleary, Margaret McCleary Sturges, and Sarah McCleary Stover

(collectively, “Defendants” or the “McCleary Family Defendants”) are all

descendants of Mac McCleary.8 They each hold 12,829 shares of voting common

stock of the Company and serve on the Company’s board of directors (the “Board”).9

The McCleary Family Defendants hold all of the Company’s outstanding voting

common stock and approximately 83.6% of the Company’s 76,534 shares of

outstanding voting and non-voting common stock.10 Pat McCleary is the Company’s

Chief Executive Officer.11

          Plaintiff Buckley Family Trust (“Plaintiff” or the “Trust”) has held 6,291

shares of non-voting common stock of the Company since 2006.12 The Company

has one other stockholder, the John S. Haine Trust, which holds a similar number of

shares of non-voting common stock.13 Knoll, who died in 2001, originally held the


7
    Id. ¶¶ 16-17.
8
    Id. ¶¶ 6-10.
9
    Id.
10
     Id. ¶ 60; see also Tr. 5, 44.
11
     Compl. ¶ 62.
12
     Id. ¶ 4.
13
     Id. ¶¶ 24-26; Tr. 5, 43-44.
                                           3
shares now held by the Trust and the Haine Trust, which together hold approximately

16.4% of the Company’s outstanding common stock.

         B.     The Common Stock Purchase and Restriction Agreement

         In 1993, Knoll and the other McCleary stockholders executed a Common

Stock Purchase and Restriction Agreement (the “Purchase and Restriction

Agreement”), a copy of which is attached to the Complaint.14 The Purchase and

Restriction Agreement recites that the Company “elected to be treated as an S

Corporation and the Shareholders desire to continue the election and to impose

certain restrictions to insure that neither the Corporation nor any Shareholder shall

take any action to jeopardize the election.”15 More specifically, the Purchase and

Restriction Agreement restricts stockholders of the Company from selling or

transferring any of their shares “for any reason” without first offering to sell them to

the Company and, if the Company does not elect to purchase the shares, to the other

stockholders of the Company.16




14
  Compl. ¶ 18; see also id. Ex. A (“Purchase and Restriction Agreement”) at 1 (reciting
that the Restriction Agreement is “made and entered into . . . by and between all of the
Shareholders of McCLEARY, Inc.”).
15
     Purchase and Restriction Agreement at 1.
16
     Compl. ¶ 18; Purchase and Restriction Agreement §§ 1, 3.
                                                4
         Under the Purchase and Restriction Agreement, the purchase price for the

non-voting shares is set at the greater of the book value of the shares or their

appraised value, less a 30% discount for “lack of marketability and control”:

                In the event any Shareholder desires to sell or transfer for any
         reason his or her shares of the Corporation, that person shall deliver
         written notice to the Corporation specifying that he or she desires to sell
         or transfer his or her shares, to whom the transfer will be made and all
         of the terms of the sale or transfer.

                On receipt of such notice, the Corporation shall have the
         exclusive option for a period of ninety (90) days after receipt of such
         notice in which to purchase the shares desired to be sold or transferred.
         The purchase price for said shares shall be the book value of the shares
         as computed by a certified public accountant designated by the
         Corporation using the most recent corporate year end income tax return
         or the most recent appraised value of the Corporation, divided by the
         number of shares outstanding (both voting and non-voting), whichever
         is greater, less the discount described hereafter. Any appraisal shall be
         an appraisal commissioned for examination by any Shareholder, less a
         discount of thirty (30%) percent applicable to all non-voting shares for
         lack of marketability and control.

                 In the event the Corporation does not exercise its option to
         purchase, Shareholders shall have the exclusive option for a period of
         thirty (30) days next succeeding the expiration of the first option period,
         to purchase the shares so proposed to be sold or transferred at the price
         available to the Corporation.17

If the Company and the remaining stockholders do not elect to exercise their options

under the provision quoted above, the selling stockholder may sell its shares to a

third party subject to that person (i) “qualify[ing] as a Sub[chapter] S stockholder”



17
     Purchase and Restriction Agreement § 3.
                                               5
and (ii) “execut[ing] . . .              a stock restriction agreement approved by the

Corporation.”18

           C.    Challenged Actions Approved by the Board

           In December 2015, the Board authorized the Company to spend

approximately $100,000 to improve its production facilities in order to do business

with a competitor, Shearer’s, for an expected “nine month commitment.”19 At the

time, Shearer’s was unable to meet its production needs.20 Under the arrangement,

the Company would use some of its production facility to package products for

Shearer’s.21 Shearer’s withdrew from the arrangement in early 2016, which was

“sooner than the Board expected.”22

           In early 2016, the Company authorized the construction of a new warehouse

in South Beloit, Illinois, where the Company is headquartered.23 The purpose of the

warehouse was to store Axium products and allow the Company to move away from

relying on expensive offsite storage facilities.24 In approving the project, the Board

hoped to obtain local government assistance, and subsequently engaged in


18
     Id.
19
     Compl. ¶ 48; id. Ex. D at M1404, 1407.
20
     Compl. ¶ 48.
21
     Id.
22
     Id.
23
     Id. ¶ 49; see id. Ex. I at M0043.
24
     Compl. ¶ 49.
                                                6
negotiations to receive a tax abatement.25 In May 2016, after the city council

requested that the Company provide lifetime maintenance of the roads in the

industrial park in which the warehouse would be located, the Board abandoned the

project, at a loss of approximately $131,000.26

         In April 2016, the Board decided to transition away from one of its customers,

Aldi, which accounted for the largest component of the Company’s sales, and to

focus on a new customer, Truco.27 When the Board made this decision, Axium’s

President advised the Board that “the Company would be placed in a ‘downward

spiral’ if it matched the lower prices of competitors as needed to retain Aldi.”28

         The relationship with Truco “quickly soured.”29 The contract with Truco was

“dropped” because Truco was “micro-managing” and “very painful and instructive

to deal with.”30 Less than one year after transitioning away from Aldi, the Company

lowered its prices to reclaim Aldi as a customer.31 The decision to transition away




25
     See id. Ex. B at M1394; id. Ex. C at M1398.
26
     Compl. ¶ 49; see id. Ex. E at M1418.
27
     Compl. ¶ 46; see id. Ex. C at M1397.
28
     Compl. ¶ 46; see id. Ex. D at M1405.
29
     Compl. ¶ 47.
30
     Id.; see id. Ex. E at M1417-18.
31
     Compl. ¶ 47.
                                             7
from, and eventually back to, Aldi resulted in approximately $10 million in lost sales

as of January 2017.32

          D.     Challenged Actions Not Approved by the Board
          In addition to challenging the three actions discussed above that the Board

approved, the Trust challenges three alleged failures of the Board concerning

(i) needed improvements to the Company’s production facilities, (ii) managing the

Company’s tax obligations, and (iii) observing corporate formalities. The facts

relevant to these three subjects are discussed below in Part III.B.

II.       PROCEDURAL HISTORY

          On March 22, 2019, the Trust filed its Complaint, which contains two claims.

Count I asserts that Defendants committed an “oppressive abuse of discretion” by

failing to declare a dividend.33 Count II asserts, in the main, that Defendants

“breached their fiduciary duties by failing to manage the Company’s affairs with due

care and in an informed manner” in various respects discussed below.34

          On April 5, 2019, Defendants moved to dismiss both claims under Court of

Chancery Rule 12(b)(6) for failure to state a claim for relief, and to dismiss Count II

under Rule 23.1 for failing to make a demand on the Board before initiating



32
     Id.; see id. Ex. E at M1419.
33
     Compl. at 26.
34
     Id. ¶ 75.
                                            8
derivative litigation.35 The matter was fully submitted on December 2, 2019, after

oral argument and the receipt of supplemental submissions.

III.     ANALYSIS

         The standards governing a motion to dismiss under Court of Chancery Rule

12(b)(6) for failure to state a claim for relief are well settled:

         (i) all well-pleaded factual allegations are accepted as true; (ii) even
         vague allegations are “well-pleaded” if they give the opposing party
         notice of the claim; (iii) the Court must draw all reasonable inferences
         in favor of the non-moving party; and ([iv]) dismissal is inappropriate
         unless the “plaintiff would not be entitled to recover under any
         reasonably conceivable set of circumstances susceptible to proof.”36

         Under Court of Chancery Rule 23.1, the court will grant a motion to dismiss

if the putative derivative plaintiff has failed to make a pre-suit demand on a

company’s board or failed to plead facts showing that demand upon the board would

have been futile.37

         A.     Count I: Oppressive Abuse of Discretion

         Count I of the Complaint is styled as a claim for “oppressive abuse of

discretion.”38       It asserts that Defendants’ “refusal to declare dividends for no

legitimate business reason and despite substantial cash reserves constitutes


35
     Defs.’ Opening Br. 15 (Dkt. 24); see Dkt. 21.
36
     Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal citations omitted).
37
   MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *4 (Del. Ch. May 5, 2010)
(applying Ch. Ct. R. 23.1(a)).
38
     Compl. at 26.
                                               9
oppressive misconduct and an abuse of discretion, designed to deny Plaintiff a return

on its long-term investment in the Company and thereby coerce Plaintiff into selling

its shares of stock to the McCleary Family Defendants for a substantial discount.”39

          With respect to the Company’s finances, the Trust alleges that the Company

had a surplus from which it could pay dividends of approximately $18.2 million as

of October 2018,40 and that the Company has retained unnecessarily high amounts

of “surplus income” since the Trust became a stockholder in 2006.41 The Complaint

further alleges that the Board has not considered whether to declare a meaningful

dividend since 2012 and has refused to do so “to coerce Plaintiff into selling its

stock” to the McCleary Family Defendants “for a “substantial (30%) discount” under

the terms of the Purchase and Restriction Agreement.42

          Defendants counter that the decision whether or not to pay a dividend is

subject to the business judgment rule and that the Complaint is devoid of facts

establishing an oppressive or fraudulent abuse of discretion in failing to pay more

dividends than it has in the past. Defendants further contend that Plaintiff’s focus

on the Company’s “surplus” paints a misleading picture of its ability to issue


39
     Id. ¶ 70.
40
  See 8 Del. C. § 170(a)(1) (“every corporation, subject to any restrictions contained in its
certificate of incorporation, may declare and pay dividends upon the shares of its capital
stock . . . [o]ut of its surplus . . . .”).
41
     Compl. ¶¶ 59-60.
42
     Id. ¶¶ 62-63.
                                             10
dividends.        Defendants point out, for example, that the Company’s financial

statements as of December 26, 2015 show that it had approximately $19.4 million

in cumulative retained earnings but only approximately $7.3 million in liquid

assets—consisting of approximately $2.3 million in cash and cash equivalents and

approximately $5 million of investments in trading securities.43 Put differently,

according to Defendants, the Company’s “surplus” on which the Trust focuses its

attention “largely took the form of buildings, machinery, inventory, and equipment”

that do not provide a liquid source of funds from which dividends could be paid.44

         Section 170 of the Delaware General Corporation Law authorizes directors of

a Delaware corporation to pay dividends, subject to certain limitations, out of the

corporation’s surplus or net profits:

         The directors of every corporation, subject to any restrictions contained
         in its certificate of incorporation, may declare and pay dividends upon
         the shares of its capital stock either:

               (1) Out of its surplus, as defined in and computed in accordance with
               §§ 154 and 244 of this title; or

               (2) In case there shall be no such surplus, out of its net profits for
               the fiscal year in which the dividend is declared and/or the preceding
               fiscal year.45


43
   See id. Ex. I at M0029-30. The Company’s audited 2015 financial statements, which are
attached to the Complaint, are the most recent ones in the record.
44
     Tr. 17.
45
     8 Del. C. § 170(a).
                                               11
         In 1937, in a seminal decision, Chancellor Wolcott explained in Eshleman v.

Keenan that although courts have the power to compel the declaration of a dividend,

courts will do so only when the withholding of a dividend “is explicable only on

theory of an oppressive or fraudulent abuse of discretion:”

         That courts have the power in proper cases to compel the directors to
         declare a dividend, is sustained by respectable authorities. But that they
         should do so on a mere showing that an asset exists from which a
         dividend may be declared, has never, I dare say, been asserted
         anywhere. In such a case the court acts only after a demonstration that
         the corporation’s affairs are in a condition justifying the declaration of
         the dividend as a matter of prudent business management and that the
         withholding of it is explicable only on the theory of an oppressive or
         fraudulent abuse of discretion.46

Our Supreme Court has endorsed this statement of the law,47 including in Gabelli &

Co., Inc. v. Liggett Group, Inc., where the high court summarized Delaware law

concerning the payment of dividends as follows:

         It is settled law in this State that the declaration and payment of a
         dividend rests in the discretion of the corporation’s board of directors
         in the exercise of its business judgment; that, before the courts will
         interfere with the judgment of the board of directors in such matter,
         fraud or gross abuse of discretion must be shown. Moskowitz v.
         Bantrell, Del. Supr., 190 A.2d 749 (1963). There, this Court quoted
         with approval the time-honored statement of Chancellor Wolcott . . .
         that courts act to compel the declaration of a dividend only upon a
         demonstration “that the withholding of it is explicable only on the
         theory of an oppressive or fraudulent abuse of discretion.”48

46
     194 A. 40, 43 (Del. Ch. 1937) (emphasis added), aff’d, 2 A.2d 904, (Del. 1938).
47
     See Moskowitz v. Bantrell, 190 A.2d 749, 750 (Del. 1963).
48
  479 A.2d 276, 280 (Del. 1984) (quoting Eshleman 194 A. at 43); see also Baron v. Allied
Artists Pictures Corp., 337 A.2d 653, 659 (Del. Ch. 1975) (“Before a court will interfere
                                             12
         In support of its contention that the Company’s refusal to issue additional

dividends “is explained only by an oppressive abuse of discretion,”49 the Trust relies

on Rubin v. Great Western United Corporation50 and Litle v. Waters,51 where this

court declined to dismiss claims challenging a board’s failure to pay dividends. Both

of these decisions, however, involved allegations of director self-interest that are

readily distinguishable from the facts plead here.52

         In Rubin, a holder of preferred stock alleged that the corporation’s directors

willfully refused “to make timely payment of dividends on such preferred stock”

even though the corporation had “a surplus fund far in excess of the needs for this

purpose, . . . by denominating the existing surplus and all future additions to it as a

‘Special Purpose Reserve.’”53 The Special Purpose Reserve allegedly was used to

retain funds in the corporation in order “to improve the value and earnings of the




with the judgment of a board of directors in refusing to declare dividends, fraud or gross
abuse of discretion must be shown.”).
49
     Pl.’s Opp’n Br. 26 (Dkt. 27).
50
     1975 WL 1261 (Del. Ch. Apr. 29, 1975).
51
     1992 WL 25758 (Del. Ch. Feb. 11, 1992).
52
   In a footnote, the Trust also cites Garza v. TV Answer, Inc., 1993 WL 77186 (Del. Ch.
Mar. 15, 1993). That case did not concern the failure to pay dividends. The essence of the
complaint in Garza was “that the individual defendants intentionally issued water-down
stock to themselves for the purpose of enriching themselves at the expense of the
corporation” and the plaintiffs. Id. at *5.
53
     1975 WL 1261, at *1.
                                              13
common stock of which the defendant-directors owned 32 per cent.”54 In other

words, the director defendants allegedly were motivated to divert value from the

preferred stockholders to benefit themselves as common stockholders. The court

found that these allegations, “[w]hile perhaps weak,” were sufficient to withstand a

motion to dismiss.55

          Unlike in Rubin, the Trust is not a preferred stockholder with a contractual

entitlement to receive dividends.56 Rather, the Trust holds common stock and would

share equally with the McCleary Family Defendants on a pro rata basis in any

dividend that the Company issues since they each own only common stock of the

Company.

          In Litle, a holder of approximately 32% of the common stock of DMGT Corp.

(Thomas Litle) asserted claims for breach of fiduciary and “gross and oppressive

abuse of discretion” against the corporation’s two directors, one of which (James

Waters) held approximately 65% of DMGT’s common stock.57 According to Litle,




54
     Id. (internal quotations omitted).
55
     Id. at *2.
56
   See In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *7 (Del. Ch. July 24, 2009)
(“the rights and preferences of preferred stock are contractual in nature”); see also
Rothschild Int’l Corp. v. Liggett Gp., Inc., 474 A.2d 133, 136 (Del. 1984) (“[P]referential
rights are contractual in nature and therefore are governed by the express provisions of a
company’s certificate of incorporation.”).
57
     1992 WL 25758 at *1, 6 (internal quotations omitted).
                                             14
DMGT, an S corporation,58 had achieved significant earnings for several years but

the directors refused to issue any dividends in order to pressure Litle to sell “on the

cheap” while using the corporation’s profits to pay down debt it owed to Waters.59

          In denying defendants’ motion to dismiss, the Litle court explained that

“Waters served his own personal financial interests in making his decision to have

DMGT not declare dividends” in two ways, i.e., (i) “to ensure that he would receive

a greater share of the cash available for corporate distributions via loan repayments”

and (ii) “to put pressure on Litle to sell his shares to him at a discount since the

shares are and were only a liability on Litle.”60 As to the latter point, the court

elaborated that Litle’s allegations “set forth a classic squeeze out situation” where

the “failure to pay dividends” was “especially devastating . . . since the corporation

passes its income through to its shareholders,” creating a tax liability for the plaintiff,

“even though the corporation has not made any distributions to the shareholders.”61

          In contrast to Litle, the Complaint here acknowledges that, “in years when the

Company was profitable, the Company issued a dividend equal to the amount


58
   Electing “to qualify as a Subchapter S corporation under the Internal Revenue Code . . .
meant that the federal government would not tax the income of the entity on the entity
level, rather, [the entity] would pass the income to its shareholders in a fashion similar to
that of a partnership, notwithstanding whether or not the entity made cash distributions to
its shareholders.” Id. at *1.
59
     Id. at *1-2 (internal quotations omitted).
60
     Id. at *4.
61
     Id. at *8.
                                                  15
necessary for stockholders to pay their related tax obligations” and, beyond that, the

Company declared a special dividend to all common stockholders totaling $3 million

in 2012.62 Thus, this case does not have the coercive dynamic of the “squeeze out

situation” in Litle, where the plaintiff had to go out-of-pocket to pay taxes just to

hold his shares.

         Recognizing as much, the Trust argues that “the combined pressures of the

lack of any meaningful dividends and no liquidity under the Purchase and Restriction

Agreement” amounts to coercion, “forcing Plaintiff” to sell its shares at a “steep

[30%] discount.”63 The problem with this argument is that contractually agreed upon

restrictions on the sale or transfer of stock are permissible under Delaware law.64

And in this case, the Trust obtained its McCleary shares subject to the terms and

conditions of the Purchase and Restriction Agreement to which the donor of those

shares (Grace Knoll) specifically agreed, including a “discount of thirty (30%)

percent applicable to all non-voting shares for lack of marketability and control.”65

In my view, it is not coercion for the Trust—which has been under no compulsion




62
     Compl. ¶ 61.
63
     Pl.’s Opp’n Br. 30.
64
  8 Del. C. § 202(b) (“A restriction on the transfer . . . of securities of a corporation, . . .
may be imposed by . . . an agreement among any number of security holders or among such
holders and the corporation.”).
65
     Purchase and Restriction Agreement § 3.
                                               16
to pay a tax liability in order to keep its shares—to honor this contractual obligation

if it wishes to sell any of its shares of the Company.

         Apart from the failure of the Complaint to state a cognizable theory of

coercion, the Complaint fails—unlike in Rubin and Litle—to allege facts

demonstrating that the McCleary Family Defendants’ failure to authorize dividends

was motivated by self-interest. The closest the Trust comes on this score is its

assertion that the “McCleary Defendants presumably receive annual compensation

from the Company for their roles as directors and/or officers while they hold off on

declaring dividends.”66 The implication of this statement is that, instead of issuing

dividends, the McCleary Family Defendants improperly diverted profits to

themselves through excess compensation. But the Complaint does not provide any

compensation figures or other facts to support this contention.

         After this issue arose at oral argument, Defendants submitted compensation

information to the court that had been produced to the Trust in response to its Section

220 demand before it filed suit but which was omitted from its Complaint. That

information shows that (i) the Company’s directors—which currently consist of five

members—collectively received between $76,000 and $84,000 in fees annually from

2013 to 2017 and (ii) Pat McCleary received between $145,718 and $167,328 of




66
     Pl.’s Opp’n Br. 28.
                                          17
compensation as CEO of the Company from 2013 to 2016.67 These figures hardly

seem excessive for a Company with revenues ranging between $45 million and $50

million during this period.68 Indeed, in its response to Defendants’ supplemental

submission, the Trust did not take issue with the level of these payments or otherwise

contend that Defendants received excessive compensation as directors and/or

officers of the Company.69

         As noted above, Count I of the Complaint is styled as a claim for “oppressive

abuse of discretion.”70 One decision of this court has remarked that such a claim is

not an “independent cause of action . . . distinct from a cause of action based on a

breach of fiduciary duty.”71 This comment makes evident sense, although phrases

like “fraud or gross abuse of discretion” and “oppressive or fraudulent abuse of

discretion” persist in our case law governing the failure to declare a dividend.72 To

my mind, these phrases describe in a situationally specific way the test to overcome

business judgment review when a stockholder seeks to compel the declaration of a



67
     Dkt. 40 at 1-5.
68
   See Compl. Ex. H at M0009 (net sales figures for 2013-14); id. Ex. I at M0031 (net sales
figures for 2014-15).
69
     See Dkt. 41.
70
     Compl. at 26.
71
     Garza, 1993 WL 77186, at *7.
72
  See, e.g., Gabelli, 479 A.2d at 280; Moskowitz, 190 A.2d at 750; Eshleman, 194 A. at
43.
                                            18
dividend.      Most famously, as discussed above, Chancellor Wolcott long ago

articulated the key inquiry to determine when the court will compel the declaration

of a dividend: when “the withholding of it is explicable only on the theory of an

oppressive or fraudulent abuse of discretion.”73

         In my opinion, it is not reasonably conceivable that the Trust can demonstrate

that the Board’s failure to declare an additional dividend during the period in

question is explicable only as an oppressive abuse of discretion given the Trust’s

failure to allege facts to support any cognizable theory of coercion or any disabling

self-interest in making those decisions. What is left is a debate between the parties

about whether the directors have allowed the Company to accumulate too large a

surplus or excess cash reserves: the Trust asserts that the Company has ample

resources to declare more dividends; the Defendants, who are charged with

managing the Company’s business and affairs, have a more conservative view. This

is a quintessential matter of business judgment for which the Complaint offers no

reasonably conceivable set of facts to warrant second-guessing the directors’

decision-making under the operative legal standard. Accordingly, Count I fails to

state a claim for relief.




73
     Eshleman, 194 A. at 43 (emphasis added).
                                            19
         B.    Count II: Breach of Fiduciary Duties

         The gravamen of Count II of the Complaint is that the McCleary Family

Defendants, “as directors and/or officers of the Company, . . . breached their

fiduciary duties by failing to manage the Company’s affairs with due care and in an

informed manner.”74 The Trust challenges Defendants’ due care concerning six

subjects: (i) the decision to transition away from a key customer, Aldi; (ii) the failure

to improve the Company’s food production facilities; (iii) the decision to authorize

building a new warehouse; (iv) the decision to improve the Company’s packaging

capabilities to accommodate another customer, Shearer’s; (v) the failure to manage

the Company’s tax obligations; and (vi) the failure to observe corporate

formalities.75

         Count II also asserts a loyalty claim on the theory that the “McCleary Family

Defendants refuse[d] to declare warranted dividends in order to coerce Plaintiff into

selling it shares of stock to the McCleary Family Defendants for a substantial




74
     Compl. ¶¶ 74-75.
75
   Count II also questions Defendants’ due care for allegedly failing “to even consider on
an informed basis why the Company should maintain a large cash stockpile rather than
declaring dividends.” Id. ¶ 75. This issue is waived because the Trust did not challenge in
its brief Defendants’ failure to issue dividends as a breach of the duty of care. See Emerald
P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (issues not briefed are deemed waived).
Rather, as discussed above, the Trust’s brief attacked Defendants’ failure to declare
additional dividends as an oppressive abuse of discretion and breach of the duty of loyalty.
                                             20
discount.”76 As the Trust acknowledges, this aspect of Count II is a reiteration of

Count I,77 which fails to state a claim for relief for the reasons explained in Part III.A.

           The due care aspects of Count II are asserted derivatively on behalf of the

Company but the Trust did not make a demand on the Board before filing this action.

The court thus turns first to analyze whether it would have been futile for the Trust

to make such a demand.

                 1.     Demand Futility Standards

           “A basic principle of the General Corporation Law of the State of Delaware

is that directors, rather than shareholders, manage the business and affairs of the

corporation.”78 For this reason, the decision to bring or refrain from bringing a

derivative claim on behalf of the corporation is the responsibility of the board of

directors in the first instance.79 This approach “is designed to give a corporation, on

whose behalf a derivative suit is brought, the opportunity to rectify the alleged wrong

without suit or to control any litigation brought for its benefit.”80




76
     Compl. ¶ 76.
77
  See Pl.’s Opp’n Br. 47 n.18 (“Plaintiff views claims related [to] the Board’s failure to
declare dividends out of the Company’s ample surplus to be direct in nature, as pled in
Count I, but pled a parallel derivative claim in Count II in the alternative.”).
78
     Spiegel v. Buntrock, 571 A.2d 767, 772-73 (Del. 1990).
79
     Id.
80
  Lewis v. Aronson, 466 A.2d 375, 380 (Del. Ch. 1983), rev’d on other grounds, 473 A.2d
805 (Del. 1984).
                                             21
         Under Court of Chancery Rule 23.1, a stockholder who wishes to assert a

derivative claim on behalf of a corporation 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.”81             Under the heightened pleading

requirements of Rule 23.1, conclusory “allegations of fact or law not supported by

the allegations of specific fact may not be taken as true.”82

         There are two tests under Delaware law for determining whether making a

demand on the corporation’s board of directors to pursue a claim may be excused as

futile: the Aronson test and the Rales test. The court applies the first test, from

Aronson v. Lewis, when “a decision of the board of directors is being challenged in

the derivative suit.”83 The second test, from Rales v. Blasband, governs when “the

board that would be considering the demand did not make a business decision which

is being challenged in the derivative suit,” such as “where directors are sued

derivatively because they have failed to do something.”84




81
     Ch. Ct. R. 23.1.
82
   Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm
v. Eisner, 746 A.2d 244 (Del. 2000).
83
  Feuer ex rel. CBS Corp. v. Redstone, 2018 WL 1870074, at *8 (Del. Ch. Apr. 19, 2018)
(citations and internal quotations omitted).
84
     Id. (citations and internal quotations omitted).
                                                22
         Under Aronson, demand is futile if, “under the particularized facts alleged, a

reasonable doubt is created that: (1) the directors are disinterested and independent

[or] (2) the challenged transaction was otherwise the product of a valid exercise of

business judgment.”85 Under Rales, demand is futile if the “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 demand.”86

         Both Plaintiff and Defendants used the Aronson test to analyze each of the six

issues listed above underlying the due care aspect of Count II. This is curious since

three of these six issues involve alleged inactions of the Board (i.e., alleged failures

concerning food production facilities, managing tax obligations, and observing

corporate formalities) to which the Rales test logically would apply.

         This court has commented on many occasions that the Aronson and Rales tests

look different but they essentially cover the same ground.87 Their common ground




85
     Aronson, 473 A.2d at 814.
86
     Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).
87
  See, e.g., Guttman v. Huang, 823 A.2d 492, 501 (Del. Ch. 2003) (Strine, V.C.) (“At first
blush, the Rales test looks somewhat different from Aronson, in that [it] involves a singular
inquiry[.] . . . Upon closer examination, however, that singular inquiry makes germane all
of the concerns relevant to both the first and second prongs of Aronson.”); David B. Shaev
Profit Sharing Account v. Armstrong, 2006 WL 391931, at *4 (Del. Ch. Feb. 13, 2006)
(Lamb, V.C.) (“[T]he Rales test, in reality, folds the two-pronged Aronson test into one
broader examination.”), aff’d, 911 A.2d 802 (Del. 2006) (TABLE).
                                             23
includes evaluating whether there is reason to doubt the impartiality of a majority of

the directors to decide whether the corporation should pursue litigation because they

(i) have a personal interest in the challenged transaction(s), (ii) lack independence

from one who has such a personal interest, and/or (iii) are interested because they

are exposed to a substantial likelihood of liability with respect to the underlying

claim(s). Here, the Trust does not contend that any member of the Board has a

personal financial interest in an underlying transaction, does not challenge the

independence of any Board member, and focuses instead only on the third inquiry.88

Thus, the sole inquiry relevant to this case is whether the Trust has pled with

particularity that the McCleary Family Defendants face a substantial likelihood of

liability with respect to any of the six issues identified above.89 The court undertakes

that inquiry next.




88
   Tr. 73; see also Pl.’s Opp’n Br. 35 (“Here, the Complaint alleges facts that all six
directors . . . face substantial likelihood of personal liability in connection with the acts
challenged in the Complaint.”).
89
    Deciding whether Defendants face a substantial likelihood of liability resolves both
prongs of the Aronson test in my view. Plaintiff acknowledges as much. With respect to
the three issues involving Board decisions for which the Aronson test would apply (i.e., the
decisions to (i) transition away from Aldi, (ii) authorize building a new warehouse, and
(iii) improve the Company’s packaging capabilities), the Trust’s discussion of the second
prong of Aronson refers back to its analysis under the first prong concerning whether
Defendants face a substantial likelihood of liability. See Pl.’s Opp’n Br. 49-50.
                                             24
               2.    Do Defendants Face a Substantial Likelihood of Liability?

         As noted above, the gravamen of Court II is that the McCleary Family

Defendants should be held personally liable to the Company for various breaches of

their duty of care. Insofar as Count II focuses on Defendants’ actions as directors,

this is the unusual case where such a theory is viable because the Company’s

certificate of incorporation does not include a provision under 8 Del. C. § 102(b)(7)

exculpating its directors for monetary damages for breaches of the duty of care.90

         Under Delaware law, the standard of care applicable to the fiduciary duty of

care of a director or officer is gross negligence.91 This court has defined gross

negligence as “conduct that constitutes reckless indifference or actions that are

without the bounds of reason.”92 “While the inquiry of whether the claims amount

to gross negligence is necessarily fact-specific, the burden to plead gross negligence

is a difficult one.”93 With these standards in mind, the court turns next to consider


90
     Compl. ¶ 39.
91
   Aronson, 473 A.2d at 812; Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985). The
“fiduciary duties of officers are the same as those of directors.” Gantler v. Stephens, 965
A.2d 695, 708-09 (Del. 2009).
92
  McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008); see also In re Walt Disney
Co. Deriv. Litig., 907 A.2d 693, 750 (Del. Ch. 2005) (“In the duty of care context with
respect to corporate fiduciaries, gross negligence has been defined as a ‘reckless
indifference to or a deliberate disregard of the whole body of stockholders' or actions which
are ‘without the bounds of reason.’”), aff’d, 906 A.2d 27 (Del. 2006); In re TIBCO Software
Inc. S’holders Litig., 2015 WL 6155894, at *23 (Del. Ch. Oct. 20, 2015).
93
  Zucker v. Hassell, 2016 WL 7011351, at *7 (Del. Ch. Nov. 30, 2016) (internal quotations
and alterations omitted).
                                             25
the Trust’s six due care theories, beginning with the three that the Trust contends are

its strongest.94 The consistent theme of this analysis is that when the allegations of

the Complaint and the documents incorporated therein are viewed in their totality,95

the Trust has failed to demonstrate that the Board’s actions or inactions were

recklessly indifferent or without the bounds of reason such that the directors would

face a substantial likelihood of liability.

                       a.     Aldi

         In April 2016, the Company decided to transition away from its largest

customer, Aldi, and to focus instead on a new customer, Truco.96 The Trust contends

that Defendants “decided to move away from . . . Aldi . . . without considering any

analysis or information about the financial impact of the decision on the Company”

and that the “Board instead relied only on the ‘strong belief’ of management that

moving away from Aldi was the right move.”97

         Defendants counter that “the Board had been discussing and receiving reports

from management regarding the Aldi relationship for at least [one] year.”98 The



94
     See Tr. 75-77.
95
  As noted at the outset of this decision, the Trust does not dispute that the court may
consider on this motion the documents attached to the Complaint that the Trust received
under 8 Del. C. § 220 and references throughout its pleading.
96
     Compl. ¶ 46.
97
     Pl.’s Opp’n Br. 37-38.
98
     Defs.’ Reply Br. 25 (Dkt. 30).
                                              26
Company’s internal documents confirm this. The January 2015 Board minutes show

that Stokely, Axium’s then-President, expressed concern about “the percentage of

company business with Aldi” and “needing to get other business” during a

discussion about Axium having to reduce prices to keep Aldi’s business.99 Stokely

also prepared an eleven page executive summary for the Board’s 2015 year end

meeting (the “2015 Year End Report”).100 In it, Stokely provided margin and sales

data for Aldi and explained his reasoning for “remain[ing] firm on . . . pricing” and

the implications if “Aldi moves the business to our competitors.”101 Stokely also

expressed his opinion “that the company cannot continue to sell high volume – low

margin private label business and remain viable in the long term” and that “[i]f the

company were to acquiesce to Aldi’s demands for lower price, it would place the

company in a downward spiral.”102

         Insofar as the directors’ reliance on Stokely is concerned, the amount and type

of information a board considers is itself a matter of business judgment that is



99
  Compl. Ex. B. at M1394 (“Aldi had done a review of pricing available to them and the
Axium pricing was higher than they could obtain. So Axium re-calculated and adjusted
pricing. This allowed Axium to retain 9 distribution centers where they previously
supplied 12.”).
100
      Id. Ex. D.
101
      Id. at M1403-4.
102
   Id. at M1405; see also id. Ex. F at M1415 (“We do still make product for Aldi in lesser
volume. But one positive from January 2016 was that we needed to eventually replace
Aldi anyway due to the single customer liability issue.”) (August 27, 2016 Board minutes).
                                           27
generally left to the directors’ discretion.103 Indeed, Delaware law protects directors

who rely “in good faith . . . upon such information, opinions, reports or statements

presented to the corporation by any of the corporation’s officers or employees.”104

         In sum, the Trust has failed to allege facts suggesting that the directors relied

on management’s opinions or reports in bad faith and the internal documents

attached to the Complaint, viewed in their totality, do not demonstrate that the

directors failed to be informed about moving away from Aldi such that they could

be said to have acted with reckless indifference or without the bounds of reason in

making the decision. Accordingly, Defendants do not face a substantial risk of

personal liability with respect to this issue.

                       b.    Food Production Facilities

         The Trust asserts that Defendants “face a substantial likelihood of financial

liability related to their failure to take sufficient steps to remedy known problems

with the Company’s food production facilities.”105 For support, the Trust quotes, in

part, from the following paragraph of the Board’s minutes for its June 26, 2015

meeting:



103
   See In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *19 (Del. Ch. Jan. 31,
1989) (Allen, C.) (“[T]he amount of information that it is prudent to have before a decision
is made is itself a business judgment . . . .”).
104
      8 Del. C. § 141(e).
105
      Pl.’s Opp’n Br. 42.
                                            28
         Our building is outdated – everything. There are new rules and
         regulations for food plants since the building was originally built. Food
         buildings have to be “clean”, and it takes a great deal of effort to keep
         our building certified for food production. We lose business because
         our plant is not up to date.106

         Significantly, the same Board minutes quoted above also state that the Board

agreed to move “forward with a list to renovate . . . [and] what needs to be done,”

and directed Stokely to “give us [budget] numbers by the end of August.”107 In his

2015 Year End Report, Stokely states, in a section covering “near term improvement

plans,” that the Company “needs to embark on a systematic face lift” that “needs to

focus on reconditioning ceilings, walls, floors and lighting” at an estimated cost of

$500,000, and opines that the initiative is not optional “[g]iven the current industry

situation.”108 The Board’s August 2016 minutes report that this expenditure was

incurred.109 These documents reflect that Defendants reacted in a meaningful way

to a problem that management identified and plainly did not act with reckless




106
      Compl. Ex. G at M1396; see Compl. ¶ 52.
107
      Compl. Ex. G at M1396.
108
   Id. Ex. D at M1407. The Trust disparages the proposed initiative based on the use of
term “face lift” in the 2015 Year End Report. What is more important than this label is the
description of the work involved and the amount contemplated to pay for the
improvements, which does not seem inconsequential for a company of this size.
109
   Id. Ex. F at M1415 (“It should be added that the Board had previously authorized a
$500,000 plant improvement initiative and those funds were spent but it is not clear if they
are fully reflected in the finances YTD.”).
                                            29
indifference or without the bounds of reason such that they would face a substantial

risk of personal liability.

                       c.     New Warehouse

         The Trust argues that the Board “acted without consideration of all material

information in connection with its decision to develop a new warehouse to store

product” in South Beloit, Illinois, the Company’s principal place of business.110 The

Complaint asserts that the warehouse was “premised on the unfounded assumption

that the local city council would support this initiative and provide favorable

incentives.”111 The project was canceled, at a cost of approximately $131,000,112

after the city council requested that the Company provide “lifetime maintenance of

the roads” in the industrial park “where the warehouse would be located.”113

         Citing the Trust’s own allegations, Defendants counter that the “Board

determined to develop a new warehouse to store product because the Company

incurred high costs to rent other offsite storage facilities”114 and not based on a

mistaken assumption about obtaining government assistance. Board minutes of a



110
      Pl.’s Opp’n Br. 40.
111
      Compl. ¶ 49.
112
   Id. Ex. E at M1418 (noting $161,000 of “development and engineering costs for the
warehouse project . . . that was canceled,” of which $30,000 “was for steel supports that
can be re-used elsewhere”) (January 21, 2017 Board minutes).
113
      Id. Ex. F at M1415.
114
      Compl. ¶ 49.
                                           30
January 2015 meeting also reflect that the Board consulted with an outside advisor

(Rockford Consulting), which had “done a detailed study of the Axium options” and

“summarized all possible options that could be taken by the company.”115 The

consultant specifically discussed “benefits coming from Government sources to

keep the company where it is.”116 To that end, Board minutes of an April 2016

meeting reflect that “tax abatement” discussions were far along before discussions

with the city council fell apart.117

            In my view, the Trust has failed to plead with particularity that Defendants

face a substantial likelihood of personal liability with respect to the aborted

warehouse project. The Complaint itself recognizes that there was a compelling

business reason to construct a new warehouse (to reduce the cost of renting offsite

storage), the Board received outside advice before beginning the project, and it was

hardly uninformed for the Board to believe it might receive government incentives

from the community where it is headquartered—indeed the minutes reflect that

significant tax abatement discussions occurred. Viewing these facts in their totality,

the Board cannot be said to have acted with reckless indifference or without the

bounds of reason in authorizing the development of a new warehouse.


115
      Id. Ex. B at M1394.
116
      Id.
117
   Id. Ex. C at M1398 (“A tax abatement is 2/3 of the way in process for the warehouse
project.”) (April 8, 2016 Board minutes).
                                             31
                       d.   Shearer’s

         In 2015, the Board authorized the Company to renovate its production

facilities to package products for Shearer’s, an Axium competitor.118 The 2015 Year

End Report states that “[t]he company will need to invest approximately $100,000

to implement this process.”119

         The Trust contends that the Board’s approval of this project was “uninformed

and a breach of the McCleary Defendants’ duty of care.”120 More specifically, the

Trust alleges that “the Board’s only discussion on the subject was speculation about

what Shearer’s inability to pack its own product meant about [Shearer’s] business,”

citing to the 2015 Year End Report.121 That report states that “[Shearer’s] decision

to outsource these products [indicates] that the Shearer’s sales team sold products to

customers that their production group is either unwilling or unable to make” and

“signals that [Shearer’s does] not have the productive capacity to manufacture the

product.”122




118
      Compl. ¶ 48.
119
      Id. Ex. D at M1407.
120
      Pl.’s Opp’n Br. 39.
121
  Id. (citing Compl. ¶ 48). The relevant part of paragraph 48 in turn cites to the 2015 Year
End Report. See Compl. ¶ 48 (citing Compl. Ex. D at M1404).
122
      Compl. Ex. D at M1404.
                                            32
         Citing to the same report, Defendants respond that developing a relationship

with Shearer’s had the benefit “of being an audition for a potential sale partner.”123

To that end, the 2015 Year End Report states that Shearer’s “is currently capacity

constrained and has acquired several competitors in their quest to own the private

label snack food manufacturing business,” and that if “Axium Foods successfully

meets Shearer’s needs, then a logical conclusion would be to offer the company to

Shearer’s at a price that meets both party’s needs.”124 The 2015 Year End Report

further states that the short-term engagement with Shearer’s had “strategic

importance” for placing Axium into Shearer’s supply chain.125

         Having carefully reviewed the 2015 Year End Report on which both sides

primarily rely, it is apparent that the Board was made aware of the estimated cost of

renovating its production facilities to package products for Shearer’s and that the

Board authorized this proposal, at least in part, to develop a relationship with

Shearer’s to potentially sell Axium to it.126 Given this, even though Shearer’s ended

the arrangement with Axium sooner than the Company had expected,127 the Trust




123
      Defs.’ Opening Br. 41.
124
      Compl. Ex. D at M1409.
125
      Id. at M1404.
126
   According to the minutes of the Board’s January 2017 meeting, the door was “still open”
with Shearer’s at that time. Id. Ex. E at M1417.
127
      Id. Ex. F at M1414.
                                           33
has failed to demonstrate that the Board acted with reckless indifference or without

the bounds of reason in deciding to undertake the packaging venture with Shearer’s.

Accordingly, Defendants do not face a substantial risk of personal liability with

respect to this issue.

                        e.        Tax Issues

         The Trust argues that Defendants “have acted without the requisite level of

care by consistently failing to appropriately manage the Company’s tax obligations,”

citing two incidents.128 First, the Trust alleges that, “[i]n 2016, the Company’s

certified public accountant advised management that the Company had been

improperly calculating the distribution of profits to stockholders,” which allegedly

“threatened the Company’s status as an S-corporation.”129 Second, the Trust alleges

that “the Board failed to take adequate steps to address the impact of the 2017 Tax

Cuts and Jobs Act on the Company’s tax obligations.”130

         The cited paragraphs of the Complaint negate the notion that Defendants

would face a substantial likelihood of personal liability with respect to either

incident. As to the first incident, which concerned a technical issue about treating

“Illinois residents and non-residents differently,” the Complaint acknowledges that



128
      Pl.’s Opp’n Br. 43.
129
      Id. (citing Compl. ¶ 51).
130
      Id. (citing Compl. ¶ 50).
                                               34
the Company’s certified public accountant caught the error—demonstrating that

systems were in place to oversee the Company’s tax reporting functions—and it is

not alleged that the Company suffered any harm as a result of the error.131 As to the

second incident, the Complaint acknowledges that McCleary sought an extension to

file its tax return to address the issue.132 As such, Defendants cannot be said to have

acted with reckless indifference or without the bounds of reason.133

                       f.   Corporate Formalities

          The Trust argues that Defendants face a substantial likelihood of personal

liability for breaching their duty of care on the theory that they “have consistently

failed to manage the Company so as to observe certain corporate formalities.”134 The

Trust’s brief focuses specifically on the Company’s alleged “failure to properly

notice stockholder meetings,” which it contends “calls into question the validity of

all actions taken at those meetings.”135 Although the Trust sought documents under


131
      Compl. ¶ 51.
132
      Id. ¶ 50.
133
   Defendants argue that “the duty to manage the Company's tax obligations falls within
the auspices of the Company's CFO and accounting department, not the Board.” Defs.’
Opening Br. 35 n.15. This seems perfectly logical, but the court need not address the issue.
134
      Pl.’s Opp’n Br. 35.
135
   Id. The Complaint challenges the Company’s compliance with corporate formalities in
three other respects, i.e., (i) “lack of proper notice for Board meetings,” (ii) that “Board
and stockholder meetings are often held simultaneously and without any clear delineation
between actions taken by the Board and actions taken by the stockholders,” and (iii) that
“the minutes for . . . Board and stockholder meetings are poorly drafted.” Compl. ¶¶ 41-
44, 53, 55. The Trust did not present any argument in its brief that Defendants faced a
                                            35
8 Del. C. § 220, it does not challenge the validity of any specific action taken at a

stockholder meeting where notice was not provided as required under Delaware

law.136

       Our Supreme Court has delineated the “requirements for standing to sue in

Delaware courts,” as follows:

       (1) the plaintiff must have suffered an injury in fact—an invasion of a
       legally protected interest which is (a) concrete and particularized and
       (b) actual or imminent, not conjectural or hypothetical; (2) there must
       be a causal connection between the injury and the conduct complained
       of—the injury has to be fairly traceable to the challenged action of the
       defendant and not the result of the independent action of some third
       party not before the court; and (3) it must be likely, as opposed to
       merely speculative, that the injury will be redressed by a favorable
       decision.137

Given its failure to identify any specific action taken at a stockholder meeting of the

Company where notice was not provided, any harm to the Company is purely


substantial likelihood of personal liability with respect to these alleged deficiencies and
thus waived those issues. See Emerald P’rs, 726 A.2d at 1224 (issues not briefed are
deemed waived). That said, although McCleary is a small company and may have limited
resources, it would behoove the Company to prepare minutes that are clearer and more
precise than the ones attached to the Complaint.
136
    The general notice requirement for stockholder meetings applies only to “each
stockholder entitled to vote at such meeting.” 8 Del. C. § 222(b). Other provisions of the
Delaware General Corporation Law provide that notice must be provided to both “voting
or nonvoting” stockholders in advance of stockholder meetings for certain specific
purposes. See 8 Del C. §§ 204(d) (ratification of defective corporate acts), 251(c) (approval
of merger or consolidation agreements). See also R. Franklin Balotti & Jesse A.
Finkelstein, Meeting of Stockholders § 8.3 (3d ed. Supp. 2020) (“[O]nly those who have
the right to vote at the meeting have an enforceable right to attend the meeting.”).
137
   In re Celera Corp. S’holders Litig., 59 A.3d 418, 423 (Del. 2012) (citing Dover
Historical Soc’y v. City of Dover Planning Comm’n, 838 A.2d 1103, 1110 (Del. 2003)).
                                             36
conjectural and speculative.       The Trust thus lacks standing with respect to

McCleary’s alleged lack of compliance with corporate formalities and, even if it did

not, the alleged harm is so conjectural and hypothetical that the Defendants would

not face a substantial risk of liability with respect to this issue in any event.

                                        *****

      For the reasons explained above, the Trust has failed to demonstrate that

making a demand on the Board before filing suit would have been futile.

Accordingly, the court will dismiss Count II under Rule 23.1 and does not need to

address Defendants’ motion to dismiss Count II under Rule 12(b)(6).

IV.   CONCLUSION

      For the foregoing reasons, Defendants’ motion to dismiss the Complaint in its

entirety is GRANTED.

      IT IS SO ORDERED.




                                           37
