Stansell v. Rosensweig, C.A. No. 2023-0180-PAF (Del. Ch. June 12, 2024)
The plaintiff was a stockholder of a company that provided online education resources. Some of the company's customers used its products to cheat on academic assignments and exams. In 2022, the company disseminated a notice of annual meeting and proxy statement. The meeting included elections of unopposed directors and ratification of the appointment of the company's independent auditor. Months later, the plaintiff brought a claim for breach of fiduciary duty against members of the board of directors for the alleged failure to disclose the true nature of the company's business in the proxy statement as primarily a business model that helps students to cheat, and a claim for aiding and abetting against the company's auditor. The plaintiff sought an order compelling a new stockholder meeting to revote on the election of directors and the appointment of the auditor.
The Court of Chancery granted the defendants' motion to dismiss the complaint for failure to state a claim. Noting that the plaintiff had abandoned his own argument that directors were required to use the term "cheating” in the proxy, the Court explained that when making disclosures, a board is not required to engage in self-flagellation. The Court further noted the lack of factual support to infer the company's primary business model was to facilitate cheating. Even after a books and records examination, the plaintiff failed to include in his complaint reference to a single document or statement by a defendant to support his assertions. Nor did the plaintiff allege facts supporting a reasonable inference that a majority of the company's customers used its products to cheat. The Court also found that the 2022 proxy accurately described the company’s products and business. On these bases, the Court dismissed the plaintiff's claims against the directors and the auditor.
