## Facts

- Toll Brothers, Inc., a Delaware public homebuilder, experienced strong growth in 2003–2004.
- By mid-2005, market concerns about a housing bubble and slowing demand increased, but company leadership publicly maintained optimistic views about the business for much of 2005.
- During summer and fall 2005, eight directors allegedly sold unusually large amounts of Toll Brothers stock in a pattern that differed from prior trading histories.
- Plaintiff alleged the selling occurred while the directors possessed material, nonpublic adverse information about declining customer traffic, slowing contract activity, and other business headwinds.
- In December 2005, Toll Brothers disclosed that customer visits had been down for about a year and that contract rates had slowed throughout 2005, and it later reduced earnings and growth projections.
- After these disclosures, the stock price fell substantially.
- A stockholder filed a derivative action seeking corporate recovery from fiduciaries who allegedly traded for personal gain on confidential corporate information under Delaware’s insider-trading fiduciary duty doctrine.

## Issues

1. Whether demand on the board was excused because the complaint adequately pleaded demand futility.
2. Whether the fiduciary-duty claims were barred by the statute of limitations or plausibly subject to equitable tolling at the pleading stage.
3. Whether the complaint stated a claim for breach of the duty of loyalty based on insider trading, including against outside directors.
4. Whether Delaware law recognized the asserted insider-trading claim and, if so, whether it required pleading corporate injury.

## Decision

- The court denied the motion to dismiss in substantial part.
- Demand was excused because the complaint pleaded facts supporting a substantial likelihood of liability for a majority of the board based on alleged insider trading.
- Dismissal on limitations grounds was denied because equitable tolling was reasonably inferable from alleged concealment and delayed market awareness of adverse trends.
- The complaint adequately stated a duty-of-loyalty claim for insider trading by alleging sales while in possession of material, nonpublic negative information, with sufficient pleading-stage inferences as to outside directors.
- The court reaffirmed the availability of a Delaware insider-trading fiduciary claim but construed it to require actual or threatened harm to the corporation.

## Legal Principles

- A stockholder may proceed derivatively without making demand if the complaint pleads particularized facts showing that a majority of the board is interested because it faces a substantial likelihood of personal liability.
- Delaware’s equitable tolling principles can prevent dismissal on a limitations defense at the pleading stage when alleged misconduct and related disclosures plausibly delayed reasonable discovery of the claim.
- Corporate fiduciaries breach the duty of loyalty when they misuse confidential corporate information for personal trading gain; sufficiently pleaded facts about access to board-level information, timing, and trading patterns can support an inference of scienter and knowledge, including for outside directors.
- Under the court’s construction in this case, the insider-trading fiduciary claim required allegations of actual or threatened corporate harm in addition to personal trading profits.

## Conclusion

The Court of Chancery allowed a derivative insider-trading fiduciary-duty action to proceed past the pleading stage, holding that demand was excused, equitable tolling plausibly applied, and the complaint adequately alleged that directors—including outside directors—sold stock while possessing material nonpublic adverse information, while also construing the claim to require corporate harm.


Pfeiffer v. Toll, 989 A.2d 683 (Del. Ch. 2010)