## Facts

- Zynga completed an IPO in December 2011, issuing approximately 100 million shares.
- Pre-IPO stockholders (including directors and early investors) were subject to lockup agreements restricting sales; about 688 million shares were locked up, with scheduled expiration on May 28, 2012.
- Lockup modifications required underwriter consent (Morgan Stanley and Goldman Sachs).
- In March 2012, Zynga’s board restructured the lockup schedule by staggering expirations and enabling an April 2012 secondary public offering priced at \$12 per share.
- The restructuring permitted only certain pre-IPO stockholders to sell early; other pre-IPO stockholders, including the plaintiff’s putative class, remained locked up.
- Four of Zynga’s eight directors allegedly received the early-sale opportunity.
- After the secondary offering, Zynga’s stock price declined, and stockholders who remained locked up could sell only later at lower prices.
- A Zynga stockholder filed a putative class action asserting (i) directors breached fiduciary duties by approving a selective lockup waiver that favored insiders and (ii) underwriters aided and abetted the alleged breach.

## Issues

1. Whether the complaint stated a non-exculpated claim that directors breached the duty of loyalty by selectively waiving lockups to benefit certain insiders (including directors) while similarly situated stockholders remained restricted.
2. Whether the complaint adequately pleaded that the underwriters knowingly participated in the alleged fiduciary breach, supporting aiding-and-abetting liability.

## Decision

- The court denied the directors’ motion to dismiss the fiduciary duty claim, holding the complaint plausibly alleged disloyal, self-interested conduct and unequal treatment.
- The court granted the underwriters’ motion to dismiss the aiding-and-abetting claim for failure to plead facts supporting knowing participation.
- The action proceeded against the director defendants (with the corporation as nominal defendant) but was dismissed as to the underwriters.

## Legal Principles

- Where a corporation has a DGCL § 102(b)(7) exculpatory provision, a plaintiff must plead a non-exculpated claim (typically loyalty or bad faith) to survive dismissal.
- Allegations that directors approved a selective waiver conferring a material, non-ratable benefit on directors and a subset of stockholders, while similarly situated stockholders were excluded, can support a pleading-stage inference of disloyalty and potential entire fairness scrutiny.
- Aiding-and-abetting a fiduciary breach requires (1) a fiduciary duty, (2) a breach, (3) knowing participation by a non-fiduciary, and (4) resulting damages.
- Contractual approval rights and receipt of ordinary transactional fees, without well-pleaded facts showing scienter or coordinated misconduct, are insufficient to plead knowing participation by professional intermediaries.

## Conclusion

The court held that selective lockup waivers permitting insiders, including directors, to sell earlier at favorable prices plausibly stated a non-exculpated duty-of-loyalty claim, but dismissed claims against the underwriters because the complaint did not allege facts showing they knowingly assisted any disloyal conduct.


Lee v. Pincus, No. 8458-CB, 2014 WL 6066108 (Del. Ch. Nov. 14, 2014)