## Facts

- A Block, Inc. stockholder brought a derivative action challenging Block’s $306 million acquisition of TIDAL, a music-streaming company associated with Shawn Carter.
- Before the transaction, Block had not operated in the music-streaming industry and had no stated plans to enter it.
- Jack Dorsey (Block’s founder, CEO, and board chair) was friends with Carter and proposed the acquisition to the board after conceiving the idea while spending time with Carter.
- The board formed a four-director transaction committee to evaluate and negotiate the deal.
- During diligence, the committee learned TIDAL was financially distressed, losing major contracts, and subject to an ongoing criminal investigation.
- The committee also learned Carter had loaned TIDAL $50 million and that Dorsey was the only Block management member supporting the acquisition.
- The transaction was largely structured as stock-for-stock, making Carter and other sellers significant Block stockholders.
- After the deal was announced and Block’s stock price declined, the plaintiff alleged the acquisition was value-destructive and driven by Dorsey’s personal relationship with Carter.
- The complaint asserted fiduciary-duty breaches and sought to excuse pre-suit demand under Court of Chancery Rule 23.1.

## Issues

1. Whether the complaint pled particularized facts creating reasonable doubt that a majority of Block’s directors could impartially consider a demand to cause Block to sue over the TIDAL acquisition.
2. Whether the allegations supported a substantial likelihood of non-exculpated director liability (e.g., bad faith or disloyalty), or lack of independence, sufficient to excuse demand.

## Decision

- The Court of Chancery granted defendants’ motion to dismiss under Rule 23.1 for failure to plead demand futility.
- The court held the complaint did not plead particularized facts that a majority of the board was interested, lacked independence, or faced a substantial likelihood of non-exculpated liability arising from the transaction.
- The court treated alleged “red flags” and a potentially poor economic outcome as insufficient, without more, to plead bad faith or disloyalty.
- The Delaware Supreme Court affirmed the dismissal on the reasons stated in the Court of Chancery’s opinion.

## Legal Principles

- In a derivative action, Rule 23.1 requires particularized pleading that demand was made or demand is excused as futile.
- Demand is not excused unless the complaint pleads particularized facts supporting a reasonable inference that a board majority is interested, lacks independence, or faces a substantial likelihood of liability.
- Where a corporation has a charter provision under 8 Del. C. § 102(b)(7), a plaintiff must plead a non-exculpated claim (such as bad faith or disloyalty) to show a substantial likelihood of liability for directors.
- Allegations of an unwise deal, adverse optics, or a founder’s personal friendship motivating a proposal do not, standing alone, establish disabling conflicts or bad faith when independent directors evaluate the transaction through a committee process and can rationally articulate a corporate purpose.

## Conclusion

The courts dismissed the derivative challenge to Block’s acquisition of TIDAL because the complaint did not plead particularized facts excusing pre-suit demand, including facts showing that a majority of the board lacked independence or faced a substantial likelihood of non-exculpated liability for approving the transaction.


City of Coral Springs Police Officers’ Pension Plan v. Dorsey, 2023 WL 3316246 (Del. Ch. 2023)