## Facts

- i2 Technologies, Inc., a Delaware corporation, owned a wholly owned subsidiary, Trade Services Corporation (TSC).
- i2’s board approved selling TSC in June 2005 to a management-led buyout group headed by TSC vice president Anthony Dubreville for $3 million.
- The board delegated primary responsibility for conducting the sale process to Dubreville despite knowledge that he was interested in buying TSC.
- The board provided minimal oversight of the sale process and relied on a fairness opinion based on management-prepared projections developed under Dubreville’s direction.
- Dubreville allegedly failed to seek bids from certain logical bidders, including competitors that had previously indicated interest at higher valuations.
- Roughly two years after the management buyout, Dubreville resold TSC for more than $25 million, after previously rejecting an $18.5 million offer as too low within months of the initial purchase.
- i2’s charter contained a DGCL § 102(b)(7) exculpatory provision limiting director monetary liability to the maximum extent permitted by Delaware law.
- A stockholder filed a derivative action after using DGCL § 220 to obtain books and records, asserting fiduciary duty claims against directors and Dubreville and an unjust enrichment claim against Dubreville.

## Issues

1. Whether the complaint pleaded particularized facts excusing demand under Court of Chancery Rule 23.1 by rebutting the business judgment presumption under the second prong of Aronson.
2. Whether, in light of DGCL § 102(b)(7), the allegations stated a non-exculpated fiduciary duty claim against directors (e.g., bad faith or loyalty-based misconduct), rather than only an exculpated duty-of-care claim.
3. Whether the allegations stated claims against Dubreville for breach of fiduciary duty and unjust enrichment notwithstanding director-focused exculpation.

## Decision

- Demand was excused because the pleaded facts supported an inference of gross negligence in the sale process sufficient to rebut the business judgment presumption for demand-futility purposes.
- Claims against the director defendants were dismissed because, although the alleged conduct supported a duty-of-care violation, it did not plead bad faith or other non-exculpated misconduct, and monetary liability was barred by § 102(b)(7).
- Claims against Dubreville for breach of fiduciary duty and unjust enrichment survived; as an officer and self-interested transaction participant, he was not protected by § 102(b)(7), and the complaint adequately alleged conflicted conduct and unfair benefit.

## Legal Principles

- Under Aronson’s second prong, demand may be excused when particularized facts support a reasonable doubt that the challenged transaction resulted from a valid exercise of business judgment.
- Gross negligence in process can rebut the business judgment presumption for demand-futility purposes, but gross negligence alone does not constitute bad faith.
- A DGCL § 102(b)(7) charter provision can exculpate directors from monetary liability for duty-of-care breaches, including gross negligence, but does not exculpate loyalty breaches, acts not in good faith, or self-interested misconduct.
- Even where demand is excused based on a flawed process, claims against directors may still be dismissed if the pleaded wrongdoing is fully exculpated under § 102(b)(7).
- Section 102(b)(7) exculpation applies to directors, not officers; officers may remain subject to monetary liability for fiduciary duty breaches, and unjust enrichment may be available where a fiduciary allegedly obtained an inequitable benefit through conflicted conduct.

## Conclusion

The court held that a board’s grossly negligent delegation and oversight of a conflicted sale process can excuse demand, yet still fail to support non-exculpated director liability under § 102(b)(7), while allowing fiduciary duty and unjust enrichment claims to proceed against a conflicted officer who engineered and benefited from the transaction.


McPadden v. Sidhu, 964 A.2d 1262 (Del. Ch. 2008)