## Facts

- Stockholders filed consolidated derivative actions on behalf of eBay Inc., a Delaware corporation, against certain directors and officers and against The Goldman Sachs Group, Inc.
- eBay retained Goldman Sachs as lead underwriter for its 1998 IPO and later for a secondary offering.
- Plaintiffs alleged Goldman engaged in “spinning,” allocating shares in lucrative IPOs to favored clients.
- Plaintiffs alleged Goldman allocated profitable IPO shares to eBay insiders because of their corporate positions and eBay’s investment-banking relationship, and insiders sold those shares for substantial personal profits.
- Plaintiffs claimed the IPO allocations constituted corporate opportunities that should have been offered to eBay, which allegedly was financially able to buy the shares and did not receive the chance to accept or reject the opportunities.
- Plaintiffs alleged the insiders breached the fiduciary duty of loyalty by usurping those opportunities, and that Goldman knowingly participated to obtain or maintain eBay business.
- Defendants moved to dismiss for failure to make pre-suit demand under Court of Chancery Rule 23.1 and for failure to state a claim under Rule 12(b)(6).

## Issues

1. Whether demand on the board was excused as futile under Rule 23.1 because a majority of directors were interested, lacked independence, or faced a substantial likelihood of liability.
2. Whether the complaint stated a reasonably conceivable claim that insiders usurped corporate opportunities in breach of the duty of loyalty by accepting IPO allocations.
3. Whether the complaint stated a claim that the underwriter aided and abetted the insiders’ alleged fiduciary breach by knowingly participating in the spinning scheme.

## Decision

- The court denied all motions to dismiss.
- Demand was excused as futile under Rule 23.1 at the pleading stage.
- The complaint stated a claim for breach of fiduciary duty (duty of loyalty) based on corporate opportunity usurpation.
- The complaint stated a claim for aiding and abetting against Goldman Sachs based on alleged knowing participation.

## Legal Principles

- Demand is excused where the complaint pleads particularized facts creating reasonable doubt that a majority of the board can consider a demand because directors are interested, not independent, or face a substantial likelihood of liability for non-exculpated misconduct.
- Under Delaware corporate opportunity doctrine, a fiduciary may not take for personal benefit an opportunity belonging to the corporation where the corporation is financially able to exploit it, the opportunity is within the corporation’s line of business or expectancy, and the fiduciary’s taking creates a conflict with the corporation.
- At the motion-to-dismiss stage, well-pleaded allegations that an investment opportunity was offered due to the fiduciary’s corporate position and should have been presented to the corporation can support a duty-of-loyalty claim.
- Aiding-and-abetting liability requires a fiduciary relationship, breach, knowing participation by the non-fiduciary, and resulting damages; allegations that a banker used IPO allocations to induce fiduciaries to act disloyally can satisfy knowing participation at the pleading stage.

## Conclusion

The Court of Chancery allowed derivative claims to proceed where stockholders plausibly alleged that IPO “spinning” diverted investment opportunities to directors and officers in breach of the duty of loyalty, that demand was futile because directors faced loyalty-based exposure or lacked independence, and that the underwriter knowingly facilitated the alleged misconduct.


In re eBay, Inc. S’holders Litig., 2004 WL 253521 (Del. Ch. Feb. 11, 2004)