Delaware Business Litigation Report

Chancery Rejects Second Plaintiff’s Attempt to Correct Pleading Deficiencies Following Dismissal of Aiding and Abetting Claim

In re Xura, Inc. Stockholder Litigation, C.A. No. 12698-VCS (Del. Ch. Jul. 12, 2019).

Under Delaware law, stating a claim for aiding and abetting a breach of fiduciary duty requires sufficiently alleging knowing participation by the non-fiduciary.  That is not an insignificant pleading standard, as this letter opinion illustrates in rejecting a second bite at the apple by a different plaintiff.

This decision arose out of a merger involving Siris Capital Group and Xura, Inc.  The Court of Chancery previously upheld breach of fiduciary duty claims against Xura’s CEO brought by a certain Xura stockholder (Obsidian Management), but dismissed aiding and abetting claims against Siris and members of its management.  Subsequently, another Xura stockholder (Szoke) initiated this action, purportedly on behalf of a class of Xura stockholders.  Szoke’s complaint was “nearly identical” to Obsidian’s complaint but attempted to cure the pleading deficiencies in the aiding and abetting claim.   

In response, the Siris defendants raised defenses of res judicata and stare decisis, while renewing their arguments aimed at the pleadings.  Although Obsidian’s and Szoke’s apparent coordination raised “legitimate concerns” in the Court’s mind about claim preclusion, the Court did not reach those procedural issues.  Instead, the Court addressed the substance of Szoke’s complaint, holding it too failed to sufficiently plead an aiding and abetting claim.  In that regard, the Court found deficient Szoke’s attempt to fill Obsidian’s pleading gaps with allegations based “on information and belief” despite having access to a “fully developed” discovery record from appraisal litigation.  As the Court explained, “[p]leading serial facts ‘on information and belief’ is no substitute for well-pled facts that will support a reasonable inference of wrongdoing.”

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