Sandys v. Pincus

Supreme Court of the State of Delaware · 2016 · Corporations

152 A.3d 124 (Del. 2016)

Updated August 22, 2026

CorporationsDerivative suitsDemand futilityDirector independenceRule 23.1demand excusalRales v. Blasbandcontrolling stockholder

Facts

The complaint challenged a secondary offering in which certain Zynga insiders, including former CEO, chairman, and controlling stockholder Mark Pincus, were allegedly exempted from the company's normal rule barring insider sales until three days after an earnings announcement. At the time the complaint was filed, Zynga had a nine-member board; the Court of Chancery treated Pincus and Reid Hoffman as interested, and Pincus's replacement as CEO, Don Mattrick, was not independent of Pincus. The plaintiff alleged that director Ellen Siminoff and her husband co-owned a private airplane with Pincus, and that directors William Gordon and John Doerr were partners at Kleiner Perkins, which owned about 9.2% of Zynga and had other business ties involving Pincus's wife and Hoffman. Zynga's own board had determined that Gordon and Doerr were not independent under NASDAQ rules.

Issue

Did the complaint plead particularized facts creating a reasonable doubt that a majority of Zynga's board could independently and impartially consider a demand, thereby excusing demand under Rule 23.1? More specifically, did the allegations concerning Siminoff, Gordon, and Doerr sufficiently call their independence into question under Rales?

Rule

Under Rales, demand is excused if the plaintiff pleads particularized facts creating a reasonable doubt that, when the complaint was filed, the board could have properly exercised independent and disinterested business judgment in responding to a demand. At the pleading stage, independence turns on whether the pled facts, considered in full context and with inferences drawn in the plaintiff's favor, support a reasonable doubt that a director can act impartially on a matter important to an interested party because the director may feel subject to that party's dominion or beholden to that party. Stock-exchange independence standards do not control Delaware law, but a board's own determination that directors are not independent under NASDAQ rules is relevant to the Delaware analysis.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

A stockholder of Redwood Mobility, Inc., a Delaware corporation based in San Jose, files a derivative suit in Delaware challenging a stock sale by the company's founder-controller, Nolan Price. The complaint was filed when the board had nine directors: Price; his handpicked CEO, Lena Ortiz; one other director who sold in the challenged sale; one director who jointly owns a vacation yacht with Price and coordinates its use with him; and five outside directors with no alleged ties.

Under the governing demand-futility standard, is demand most likely excused?

Explanation. Under Rales, the question is whether particularized facts create a reasonable doubt that, when the complaint was filed, the board could have exercised independent and disinterested business judgment on a demand. Here, Price is interested, the other selling director is interested, the current CEO chosen by an interested controller is not considered independent of that controller, and the yacht co-ownership supports an inference of an unusually close personal relationship impairing impartiality. That makes four compromised directors; with Price, Ortiz, the selling director, and the yacht co-owner, plus if the controller himself is counted, a majority of the nine-member board is compromised. The rule does not require only transaction participants to be counted, nor does it require a detailed social calendar to infer a very close relationship.