GLASSCOCK, Vice Chancellor

MEMORANDUM OPINION Stuart M. Grant, Michael J. Barry, Michael T. Manuel, of GRANT & EISENHOFER P.A., Wilmington, Delaware; OF COUNSEL: Clinton A. Krislov, of KRISLOV & ASSOCIATES, LTD., Chicago, Illinois, Attorneys for Plaintiff. Peter J. Walsh, Jr., Michael A. Pittenger, Andrew H. Sauder, Jacob R. Kirkham, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Sandra C. Goldstein, Antony L. Ryan, of CRAVATH, SWAINE & MOORE LLP, New York, New York, Attorneys for Defendants. GLASSCOCK, Vice Chancellor

In 2015, a pipeline company, Energy Transfer Equity, L.P. ("ETE"), saw an opportunity in the acquisition of another energy entity, The Williams Companies ("Williams"). ETE pursued Williams, obtaining a merger contract. For reasons not pertinent here, a condition precedent to the transaction failed, and what would have been a merger of two large entities came a-cropper. That failure was father to numerous legal actions, of which the instant case is one.

Before Williams and ETE agreed to merge, Williams controlled a limited partnership, Williams Partners L.P. ("WPZ"). Williams owned 60% of WPZ, and controlled its general partner. Shortly before negotiations between Williams and ETE commenced, Williams decided to acquire the independent minority interest in WPZ. After the Williams-WPZ agreement (the "WPZ Acquisition") was reached, ETE made an offer to buy Williams, at a substantial premium. ETE, as part of that bid to acquire Williams, required Williams to vitiate its agreement to acquire the balance of WPZ. Williams did so, incurring a $410 million break-up fee and other expenses. Ultimately, the Williams-ETE merger itself was rendered unenforceable by failure of a condition precedent, as limned above.

The Plaintiff, a Williams stockholder, brings this litigation, purportedly derivatively on behalf of Williams. The Plaintiff seeks to recoup from Williams' directors the losses suffered by Williams, incurred by entry and then cancellation of the WPZ Acquisition. The Defendants are the directors of Williams who approved those actions (the "Director Defendants"). Because Williams has an exculpatory clause for directors, I may ultimately award the damages the Plaintiff seeks only upon a determination that the Director Defendants breached a duty of loyalty owed to Williams. This case, unlike recent cases in this Court, is not susceptible to the so-called Corwin doctrine whereby a fully informed, non-coerced shareholder vote will invoke the business judgment rule. Here, no qualifying vote occurred: this case involves a purported defensive measure theoretically designed by the Director Defendants to prevent a transaction that they then ultimately approved, but which nonetheless failed. Because the ETE merger never took place, the cost of removing the purported defensive mechanism fell solely on Williams, on behalf of which the Plaintiff seeks monetary damages from the Director Defendants. I note that Williams itself is pursuing recovery for the same losses against ETE, the failed merger counterparty, in separate litigation.

The matter is before me on the Defendants' Motion to Dismiss. The right to recover for any fiduciary breach here is an asset belonging to Williams, and like any corporate asset the directors control its disposition. Court of Chancery Rule 23.1 exists to vindicate director control: it requires a demand that the board pursue an action, or a showing that demand is excused, before a stockholder may proceed derivatively on behalf of her corporation. The Plaintiff here has not made a demand on the Williams board of directors to pursue this matter. Under Rule 23.1, I must dismiss this action unless the complaint pleads specific facts that, if true, raise a reasonable doubt that a majority of the directors are capable of validly exercising their business judgment with respect to the matter.

Here, the suit the Plaintiff seeks to pursue is against the directors who entered the agreement to acquire WPZ. A majority of the board as of the commencement of this action is composed of those Director Defendants. The primary ground upon which the Plaintiff seeks to satisfy Rule 23.1 is that he has pled a viable claim for review under Unocal, and therefore the majority of the board cannot evaluate the demand.

The Plaintiff's theory here is that Williams, and its directors, were aware before entering the WPZ Acquisition that ETE was interested in acquiring Williams; that Armstrong, Williams' CEO, motivated by a dislike of ETE and its management, or by a desire to entrench himself, engineered the WPZ Acquisition as a defensive measure, designed to make Williams harder for ETE to swallow; and that the other directors voted in favor to entrench themselves. According to the Plaintiff, such a defensive measure cannot withstand the enhanced judicial scrutiny of the reasonableness of an anti-takeover defense, which the Plaintiff contends is the applicable standard of review here under the Unocal doctrine. It is true that, after ETE offered a substantial premium to acquire Williams conditioned on Williams' withdrawal from the WPZ Acquisition, the directors abrogated the agreement with WPZ, but by then, according to the Plaintiff, fiduciary duties had been breached and the damage was done; the break-up fee and other costs of withdrawing were incurred by Williams. The Plaintiff alleges that the Director Defendants conceived the WPZ Acquisition as a defensive measure to fend off ETE, and then further put in place needless devices to protect the WPZ deal; devices, according to the Plaintiff, that had no function other than to make Williams acquisition by ETE less palatable. He avers, in conclusory fashion, that the Defendants were collectively motivated by entrenchment.

The parties dispute whether Unocal applies in a damages action, that is, whether enhanced scrutiny applies primarily, or solely, where scrutiny can aid vindication of stockholders' right to consider a merger transaction, via injunctive relief. Because of my decision here, I need not directly address this question. It is clear, however, that Unocal enhanced scrutiny is primarily a tool for this Court to provide equitable relief where defensive measures by directors threaten the stockholders' right to approve a value-enhancing transaction. In such a case, where directors cannot show that a defensive measure is reasonable, a plaintiff has satisfied the first, merits-based prong of an injunctive relief analysis. This permits the Court (where irreparable harm and balance in favor of relief are also shown) to impose injunctive relief to remove the unreasonable impediment to a transaction. In other words, enhanced scrutiny allows preliminary injunctive relief without a showing by the plaintiff that it is probable that a defendant has breached a fiduciary duty. The standard is modified, in the Unocal framework, because of the inherent motive for entrenchment where directors take measures to fend off a suitor.

How Unocal scrutiny applies in a damages action—especially in the face of an exculpatory provision where ultimately the plaintiff must demonstrate a breach of the duty of loyalty—is less clear. I need not reach this issue, however, unless the Plaintiff can first demonstrate that demand is excused. The Plaintiff here seeks only to impose damages on the directors who created the purportedly-defensive measures (removed by them prior to this litigation). Considering the exculpatory clause here, even gross negligence on the directors' parts is insufficient to an award of damages: to recover, the Plaintiff must demonstrate disloyalty. It is in this context that I must evaluate the directors' ability to bring their business judgment to bear in considering whether demand is excused. There are no particularized allegations here that the Director Defendants (with a single exception) are not disinterested and independent, other than the conclusory allegation regarding entrenchment. If the Director Defendants also face no credible threat of the imposition of liability for a breach of loyalty, they are not disabled from considering a demand. Therefore, if the complaint does not plead specific facts that, if true, raise a substantial potential of liability for breach of loyalty, I must dismiss under Rule 23.1. Ultimately, I find the Plaintiff has failed to so plead. My reasoning follows.

I. BACKGROUND

The following factual adumbration is sufficient to the issue before me. In short, the Plaintiff is challenging the transaction between Williams and a related party, WPZ. The Plaintiff alleges that the related-party transaction was an improper defensive mechanism that supports a breach of the duty of loyalty action against the Williams Board of Directors (the "Board").

A. The Parties

The Plaintiff, Walter E. Ryan, Jr., is a shareholder of Williams common stock, and has been at all times relevant to liability.

Nominal Defendant, The Williams Companies ("Williams") is a large energy infrastructure company, with a particular focus on energy pipelines. Williams is a Delaware Corporation. Williams owns Williams Partners GP LLC ("Williams GP"), which is "the general partner and controller of" WPZ. Williams owned approximately 60% of the limited partnership units of WPZ. Further, Williams derives "some 85% of its revenues from its interests in" WPZ. WPZ was formed by Williams in 2005 "to own, operate, and acquire energy assets." WPZ is a Master Limited Partnership ("MLP").

Non-Party ETE is a similarly-situated energy company, with a focus on energy pipelines and other energy infrastructure projects.

The named Defendants (the "Director Defendants") were each members of the Williams Board at the time relevant to liability. The Director Defendants are: Alan S. Armstrong, Joseph R. Cleveland, Kathleen B. Cooper, John A. Hagg, Juanita H. Hinshaw, Ralph Izzo, Frank T. MacInnis, Eric W. Mandelblatt, Keith A. Meister, Steven W. Nance, Murray D. Smith, Janice D. Stoney, and Laura A. Sugg. The Board at the time of the Complaint included seven of the Director Defendants, "Armstrong, Cleveland, Cooper, Hagg, Hinshaw, Smith, and Stoney, along with three recently appointed directors . . ." who are not Defendants. Defendants Izzo, MacInnis, Mandelblatt, Meister, Nance, and Sugg resigned from the Board on June 30, 2016 following this Court's opinion declining to specifically enforce the ETE-Williams merger.

B. The Challenged Transaction

The challenged transaction arises in the context of a larger and more complicated merger. In short, the Plaintiff's theory is that a transaction between Williams and WPZ was a defensive mechanism to thwart or discourage an acquisition of Williams by ETE. Below, I review the actions of the parties during the time relevant to liability.

The Complaint alleges that ETE, through its Chairman Kelcy Warren, started making acquisition overtures towards Williams as early as February 2014. At this time Alan Armstrong of Williams indicated to Warren that Williams was not particularly interested but if an offer was made it would be taken to the Williams Board. By November 2014, ETE's Chief Financial Officer approached Barclays Bank with "an informal indication of interest about a potential acquisition of Williams by ETE." Barclays relayed this indication of interest to Williams' management. ETE representatives "contacted Williams representatives on a number of occasions to discuss a potential transaction between ETE and Williams" through May, 2015. Due to an alleged "contentious history" stemming from (per a Wall Street Journal article) "a 2011 bidding war" where ETE bested Williams, such an acquisition from Armstrong's perspective was allegedly "undesirable."

The Complaint alleges a transaction with WPZ was only considered by the Williams board after receiving indications of interest from ETE. By January 20, 2015, the Williams Board had received presentations from Barclays on strategic alternatives, including entity level structural changes, none of which Barclays recommended at that time. According to the Complaint, there were disadvantages to Williams in pursuing a transaction with WPZ—including tax, structural, and economic-performance drawbacks. The completeness and accuracy of the Complaint's characterization of the various Barclays presentations—incorporated into the Complaint—is in dispute. In briefing, the Plaintiff asserts that "[t]he Board repeatedly was informed that Williams would realize no present benefits at all by acquiring WPZ." This argument is weakened by the presentations upon which the Plaintiff relies in the Complaint. For example, Barclays' January 20, 2015 presentation included as the "pros" for the WPZ Acquisition that it would provide a "[s]implified organizational structure;" a "large step-up to shield future taxable income;" and that depending on valuations "exchanging MLP equity for C-Corp stock could be accretive to dividend per share." Further, later Barclays presentations relied upon in the Complaint, provide that the WPZ Acquisition would "improve Williams' access to and cost-of-capital," simplify the organizational structure leading to "streamlined governance and modest cost savings," provide a tax shield in the future, and be accretive "due to valuation differentials." While it is improper to weigh the pros and cons of the WPZ Acquisition at this stage, portions of the Barclays presentations, relied upon in the Complaint, make clear that there were at least some benefits as well as the highlighted drawbacks to the WPZ Acquisition.

Through March 2015 several presentations were made by Barclays covering the pros and cons of a potential WPZ Acquisition. In any event, by a March 31, 2015 Williams Board meeting, "the Board was intent on going forward" with a transaction with WPZ.

An initial offer was made on April 9, 2015, by Williams to WPZ's conflicts committee, proposing to acquire the independent minority of WPZ. The offer represented a 6% premium for WPZ unitholders. On May 7, 2015, WPZ countered, seeking a 24% premium. Williams returned to WPZ days later with a 16.8% premium offer, with consideration to be paid in Williams shares. On May 12, 2015, the Board entered an agreement on those terms to purchase the remaining units of WPZ that it did not already own (the "WPZ Acquisition"). The WPZ Acquisition was publicly announced on May 13, 2015. The total value of the transaction was $13 billion.

The WPZ Acquisition included a force-the-vote provision requiring Williams to submit the WPZ Acquisition to a vote by Williams shareholders. Similarly, it included a $410 million termination fee payable by a waiver of Incentive Distribution Rights ("IDRs") or in cash. The Complaint alleges the WPZ Acquisition itself, along with the deal-protection devices of the termination fee and force-the-vote provision, were improper defensive mechanisms the purpose of which was to thwart an acquisition by ETE.

A week after the WPZ Acquisition was announced, on May 19, 2015, ETE announced an offer to acquire Williams at a 32% premium. ETE's acquisition offer was conditioned on Williams canceling the WPZ Acquisition. Ultimately, on September 28, 2015, Williams accepted an offer from ETE. As discussed above, the WPZ Acquisition contained a contractual provision requiring payment in the event of a termination, as a result, Williams paid a $410 million termination fee. Additionally, Williams paid a further $18 million to cancel the force-the-vote provision contained in the WPZ Acquisition agreement. In total Williams paid $428 million to terminate the WPZ Acquisition and pursue the transaction with ETE. Thus, the alleged defensive transaction, and the deal-protection devices within that transaction, were removed in the fall of 2015 in favor of a transaction with ETE. Ultimately, the transaction with ETE itself did not close, following the failure of a condition precedent.

C. Specific Allegations Regarding the Director Defendants

The Complaint presents scant particularized allegations about the motives, background, or relationships of any of the Director Defendants other than Alan Armstrong. The only specific factual allegations regarding the Director Defendants, other than Armstrong, are that they, as a group, allegedly "ignored" ETE; that they rushed the WPZ Acquisition; that they voted in favor of the WPZ Acquisition and, initially, against the ETE Merger; and that "a majority of the Current Board was interested in the thwarting of the ETE-Williams Merger because each receives substantial salaries, bonuses, payments, benefits, and/or other emoluments by virtue of service on the Board." There are no particularized allegations regarding what this "majority" received via board service, that receipt of any compensation was material to them, or that they were in any way beholden to Armstrong. The closest the Complaint comes to a particularized allegation regarding the majority of the Director Defendants is the conclusion that they voted in favor of the WPZ Acquisition:

because they knew that in the event that Williams was acquired by any potential bidder, most or all of the directors of Williams and its senior management would, either in connection with the acquisition or shortly

thereafter, be removed from the Board of the surviving company because their services would not be necessary. They would be mere surplusage and, thus, an acquisition would bring an end to their power, prestige and profit. In so acting, Williams's directors and those in management allied with them have been aggrandizing their own personal positions and interests over those of Williams and its stockholders to whom they owe fundamental fiduciary duties not to entrench themselves in office.

With respect to Armstrong, the Complaint states that he "is a director, President and Chief Executive Officer of Williams, as well as Chairman of the Board and Chief Executive Officer of WPZ." Further, Armstrong is the Chairman and CEO of Williams GP. Additionally, Armstrong worked at Williams "for nearly three decades" and if ETE acquired Williams, "ETE would be able to terminate Armstrong" from his various positions. Also, "Armstrong received $11,604,615 in total compensation from Williams in 2014." As mentioned above, the Complaint alleges that the "prospect of a takeover of Williams by ETE was all the more undesirable to Armstrong" because according to a 2015 Wall Street Journal article there was a "contentious history" arising from ETE "beating out Williams in a 2011 bidding war . . . ."

D. This Litigation

The procedural history of this matter is winding, and raises concerns about the viability of the present action. A near-identical complaint to that before me here was first filed in a separate action by the same Plaintiff. The first action was pled as a direct claim (the "Direct Action"). A motion to dismiss was filed in the Direct Action, after which the Plaintiff amended his complaint. A renewed motion ensued. Each opening brief—both to the initial complaint in the Direct Action, and the amended complaint in the Direct Action—argued for dismissal, on, among other grounds, that the action was in fact derivative and not direct. Despite these arguments, the Plaintiff elected to stand on his amended complaint in the Direct Action and filed an answering brief in response to the motion to dismiss on August 12, 2016. I note this answering brief in the Direct Action was filed after the ETE-Williams Merger was terminated. Thus, the threat of the merger extinguishing a derivative claim was not present. The motion to dismiss the Direct Action was fully briefed on August 29, 2016. However, before argument was held on that motion, the Plaintiff filed a separate and nearly identical action—this action—on September 2, 2016, asserting the same claim derivatively (the "Derivative Action"). Ultimately, the Plaintiff moved to voluntarily dismiss the Direct Action on December 23, 2016, and via teleconference of January 12, 2017, I dismissed the Direct Action while reserving decision on any preclusive effect the dismissal of the direct litigation may have worked on this later, practically identical derivative litigation, by analogy to Rule 15(aaa).

This Derivative Action alleges the precise claim asserted, and dismissed, in the Direct Action. The gravamen of the operative Complaint here is that the Williams Board improperly entered the WPZ Acquisition, which included unnecessary deal-protection devices, purely as a defensive mechanism. The Plaintiff asserts that the Director Defendants breached the duty of loyalty by implementing an "unreasonable and disproportionate defensive measure designed to thwart a premium offer from ETE" by entering the WPZ Acquisition. The Plaintiff's theory is that the Defendants approved the WPZ Acquisition to secure continuation of their "power, prestige and profit."

The Defendants moved to dismiss this Derivative Action on various grounds, briefly discussed below. Argument was held on the Defendants' Motion to Dismiss the Derivative Action on January 31, 2017. This Memorandum Opinion grants Defendants' Motion for the reasons that follow.

II. ANALYSIS

The Defendants moved to dismiss the Complaint pursuant to Court of Chancery Rules 15(aaa), 12(b)(6), and 23.1. While the Rule 15(aaa) basis of the motion, addressing the procedure described above, is by no means frivolous, I address the pending Motion to Dismiss on a more fundamental ground, the failure to adequately plead demand futility.

The Plaintiff's theory of the case is based on the premise that the Court should evaluate the conduct of the Defendants through the "prism" of Unocal in determining whether the Complaint has stated a claim for the sole count alleged: breach of the duty of loyalty. According to the Plaintiff at oral argument, he relies on pleading a "Unocal" claim to excuse demand; he contended stoutly that such a pleading is sufficient. As discussed below, I disagree. I assume that the Complaint contains sufficient facts, drawing all inferences in the light most favorable to the Plaintiff, such that a Unocal standard of review—to the extent applicable to a damages claim—was triggered. In other words, if this case were before me on a request for preliminary injunctive relief the burden would be on the Defendants to demonstrate that the alleged defensive measure was reasonable. Nonetheless, the Plaintiff has failed to satisfy his burden under Rule 23.1. That is, I find that the Plaintiff has failed to allege particularized facts sufficient to create a reasonable doubt that the demand board could validly exercise its judgment in considering a demand.

A. Unocal's Application

The Defendants have moved to dismiss this action pursuant to Rule 12(b)(6) for failure to state a claim arguing, primarily, that the Complaint does not adequately plead the "necessary threshold facts" to trigger Unocal and that the Defendants are therefore protected by the business judgment rule. The standard of review for a 12(b)(6) motion is well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are well-pleaded if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the nonmoving party; and (iv) dismissal is inappropriate

unless the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.

Before addressing the merits of the motion, I pause to emphasize, again, that the recovery sought in this damages action arises from a long-since-removed purported defensive action and the monetary outflows associated with the removal of that alleged defensive action. That is, the recovery sought here is for a past, historic injury, based on a purported defensive device which has itself been abated. To recover damages for that injury, the Plaintiff asserts he is aided by the "prism" of enhanced scrutiny of Unocal and its progeny. Here the Board voluntarily removed the alleged defensive mechanism, signed a deal with ETE, and unsuccessfully sued ETE to specifically perform the merger. Further, the Williams Board is presently pursuing litigation seeking recovery from ETE for the costs incurred in connection with termination of the WPZ Acquisition. The Plaintiff here seeks to pursue, on behalf of Williams shareholders, litigation against the Williams Directors to seek recovery of the same costs from the Director Defendants who pursued and approved the WPZ Acquisition.

Directors exercising their judgment on behalf of their corporation are protected by the business judgment rule, which provides wide deference to director decisions. Certain recurring circumstances have arisen, however, where the Court has recognized the need to take a more direct role in overseeing the actions of the board, before application of the business judgment rule. These include, notably, the case of directors taking measures to fend off a potential acquisition of the company, which actions raise entrenchment concerns. Here, the Plaintiff alleges that the WPZ Acquisition was, by its nature, terms, and timing, a defensive act that properly triggers enhanced scrutiny. The Supreme Court has explained that "[e]nhanced judicial scrutiny under Unocal applies whenever the record reflects that a board of directors took defensive measures in response to a perceived threat to corporate policy and effectiveness which touches upon issues of control." Unocal can be triggered during an active hostile battle for corporate control, but also can be "applied to a preemptive defensive measure where the corporation was not under immediate attack." To invoke Unocal the plaintiff must plead facts that show that the "board perceive[d] a threat to control and t[ook] defensive measures in response to the threat." Stated another way, Unocal attaches when the Complaint alleges "threatened external action from which it could reasonably be inferred that the defendants acted defensively." The burden then shifts to the directors to demonstrate that the defensive mechanism was "reasonable." Because an entrenchment motive is potentially implicated by defensive measures, enhanced scrutiny is justified; therefore, to trigger Unocal it is necessary that the transaction subject to review was defensive.

The Unocal decision itself does not clearly address what constitutes a sufficient pleading that an action is "defensive," for purposes of Rule 12(b)(6). As a later decision in this Court observed "[i]n Unocal there was no question . . . that the exchange offer there at issue was a defensive measure. Thus, the [Unocal] Court did not address the preliminary question of how to evaluate whether a particular action is or is not a defense against a potential takeover." I note that many decisions look at the triggering of Unocal through the lens of a pre-close motion for injunctive relief, rather than an after-the-fact damages action. The Supreme Court has made clear, however, that "[a]bsent an actual threat to corporate control or action substantially taken for the purpose of entrenchment, the actions of the board are judged under the business judgment rule" rather than enhanced scrutiny. Similarly, this Court has recognized that "[a] corporate action with collateral effects including a tendency to preserve incumbent control is not per se subject to Unocal scrutiny."

Here the Plaintiff relies on the following characterization of his Complaint in support of attaching Unocal as the standard of review on the basis that "an entrenchment motive" is a reasonable inference:

• "Williams operated with WPZ in the 'holdco/MLP' structure since 2005, demonstrating a significant history of and continuing commitment to that business model, with no indication that the strategy was being reconsidered at all, until the contact from ETE;"

• "The Williams Board first considered the WPZ 'buy-in' with other strategic alternatives within a month of Anderson's approach by ETE's Chief Financial Officer;"

• "The Board perceived ETE's interest as a threat to their control over the Company;"

• "The Board repeatedly was informed that Williams would realize no present benefits at all by acquiring WPZ;"

• "The Board knew that an acquisition of WPZ would require payment of a substantial above-market premium (and actually agreed to pay a price even

higher than both Barclays's projection and precedent transactions) for a company that was underperforming its peers across a number of metrics; and"

• "Williams negotiated the WPZ Acquisition in less than four days, agreeing to a premium that greatly exceeded any comparable transaction and included deal protections that were completely unnecessary."

The Defendants attack this timeline and its substance, correctly pointing out that a number of allegations in the briefing are not entirely consistent with what is pled in the Complaint. This is a motion to dismiss, however; pursuant to the 12(b)(6) standard, the Plaintiff is entitled to all rational inferences which flow from his well-pled factual allegations. The question here is whether the facts pled, when viewed in the light most favorable to the Plaintiff, are sufficient to produce a proper pleading stage inference that the acts were "defensive measures" that were "employed in the context of a contest for control." Here, to the extent Unocal's application is at issue, the Plaintiff has pled facts from which one reasonably conceivable inference is that the Board, aware of ETE's interest in a transaction, perceived ETE as a threat and entered the WPZ Acquisition in response. This is not the only reasonable inference that may be drawn from the timeline present here, but the Plaintiff is entitled, at the pleading stage, to the benefit of any reasonable inference. Thus, this analysis assumes for the purposes of this motion that the WPZ Acquisition was a defensive measure in response to a threat, and so triggers Unocal enhanced scrutiny.

The parties spent significant effort to support their divergent positions on whether, and how, enhanced scrutiny as called for in the Revlon and Unocal lines of cases applies to a damages action. Cases in this jurisdiction have indicated that, once Unocal attaches, a pleading-stage dismissal is generally not appropriate. Conversely, our Supreme Court observed in 2015 that:

Unocal and Revlon are primarily designed to give stockholders and the Court of Chancery the tool of injunctive relief to address important M & A decisions in real time, before closing. They were not tools designed with post-closing money damages claims in mind, the standards they articulate do not match the gross negligence standard for director due care liability under Van Gorkom, and with the prevalence of exculpatory charter provisions, due care liability is rarely even available.

[a] plaintiff seeking only monetary damages must plead non-exculpated claims against a director who is protected by an exculpatory charter provision to survive a motion to dismiss, regardless of the underlying standard of review for the board's conduct—be it Revlon, Unocal, the entire fairness standard, or the business judgment rule.

The Plaintiff argues, however, that the quoted language supports his position, that the "underlying standard," here Unocal, persists in a post-transaction action for damages. That position, to my mind, is hard to square with Cornerstone. I need not directly address this issue, however, because for the reasons explained below, I find this action barred by failure to make demand under Rule 23.1.

B. Rule 23.1

Court of Chancery Rule 23.1 requires that a Plaintiff either make a demand on the board or allege with particularity why demand is excused. This requirement is not merely procedural; it is substantive. The demand requirement recognizes a principal tenet of corporate law: that "directors, rather than shareholders, manage the business and affairs of the corporation." In cases such as this, where the plaintiff has not made a pre-suit demand on the board, "the Complaint must be dismissed unless it alleges particularized facts showing that demand would have been futile."

The crux of the Court's inquiry is that set out by our Supreme Court in Rales v. Blasband: whether the majority of the board, as it exists at the time the complaint is filed, is capable of considering the demand in light of the circumstances. The "spirit" that "animates" the respective demand futility tests under Delaware law "is a Court's unwillingness to set aside the prerogatives of a board of directors unless the derivative plaintiff has shown some reason to doubt that the board will exercise its discretion impartially and in good faith."

The Plaintiff recognized at oral argument that he needs "Unocal to get around the demand requirement." That concession was apt; the Plaintiff has not attempted to plead via particularized facts, on a director-by-director basis, that a majority of the board is interested in the transaction, or lacks independence; he relies on the inference of entrenchment that arises under Unocal. Such a bare inference, as discussed below, falls short of demonstrating a disabling interest, which requires a substantial likelihood of liability lacking under the facts pled here. While certain case law in this area is difficult to reconcile, I find that the fact that an action implicates enhanced scrutiny under Unocal is insufficient on its own to satisfy Rule 23.1. Instead, as explained below, to excuse demand, facts must be pled in the complaint sufficient to create a reasonable doubt that a majority of directors were incapable of exercising business judgment. The Complaint does not meet this standard.

1. The Existence of an Underlying "Unocal" Claim is Not Sufficient to Excuse Demand

The overarching rationale for Rule 23.1 is clear: a cause of action is an asset of the corporation under the control of the directors. This director-control model is fundamental to the corporate form, which separates ownership and control in a way that has proved value enhancing. Under some conditions, however, the directors are disabled from exercising that control via application of their business judgment, on behalf of the corporation. In such cases, the director-control model and the good of the entity are in tension. Rule 23.1 addresses that tension. A stockholder wishing herself to deploy a corporate asset through litigation must first make a demand that the board pursue the matter; such a demand concedes that the directors' ability to deploy business judgment is not impaired. Or, she may proceed absent a demand, but only where she demonstrates through her complaint that demand should be excused as futile. The overarching test for futility is stated in Rales; the complaint must plead specific facts that if true, and together with reasonable inferences therefrom, create a reasonable doubt that a majority of the directors could exercise business judgment with respect to the demand.

In order to satisfy the demand requirement, it became clear at oral argument that the Plaintiff relies on the Complaint's pleading of a Unocal claim, discussed above. Such reliance is understandable given our case-law. Below, I examine the cases suggesting that a well-pled Unocal claim is, standing alone, sufficient to excuse demand. Such a discussion is of particular importance here given the relative weakness of the Plaintiff's Unocal claim. As discussed below, those cases, due to the specific context in which they arose, and in light of subsequent Supreme Court precedent, are not persuasive in this matter.

The most recent iteration of the "automatic Unocal excusal" language comes from a 2014 Court of Chancery decision, In re Ebix, Inc. Stockholder Litigation. The Ebix Court noted that the "potentially thorny issue" of whether a Unocal claim in that case was direct or derivative

may be largely avoided when resolving the Defendants' motion to dismiss under Rule 23.1 if the claim implicates the heightened scrutiny of Unocal Corporation v. Mesa Petroleum and its progeny: if the claim is derivative, then demand is excused, and if the claim is direct, then no demand was ever necessary under the Court of Chancery Rules.

[t]he derivative-individual claim distinction is already of no practical importance at the pre-transaction stage of corporate litigation-the stage at which Unocal claims are often most hotly contested. So long as the

plaintiff states a claim implicating the heightened scrutiny required by Unocal, demand has been excused under the Aronson v. Lewis demand excusal test.

That finding—that demand was excused—was law-of-the-case in Gaylord, following an earlier opinion in the case by a different Vice Chancellor. These two cases, Gaylord, and Ebix in reliance on Gaylord, both made the statements regarding automatic demand excusal in the context of explaining the minimal importance of addressing whether such claims were direct or derivative. I find instructive the cases upon which Gaylord relies for the proposition that a well-pled Unocal claim excuses demand. Gaylord relies in part on the Court of Chancery's decision in Moran v. Household International, Inc., concerning the relationship between a Unocal claim and demand futility. In Moran the Court of Chancery denied a motion to dismiss pursuant to Rule 23.1. The Moran Court reasoned as follows in finding demand excused:

[a]lthough we are not involved here with defensive tactics adopted by the board in response to a specific takeover threat, the 'primary purpose' standard is also applicable to prospective anti-takeover

devices. Thus, it is not surprising that plaintiffs allege that the Household directors attempted to manipulate the internal corporate machinery of Household for the sole and primary purpose of entrenching themselves in office. Of course, this allegation, standing alone, will not suffice to excuse demand. Rather, the complaint must allege specific facts which demonstrate that the primary purpose of management was to retain control. In my view, the plaintiffs' complaints, which set forth particularized facts alleging that the Rights Plan deters all hostile takeover attempts through its limitation on alienability of shares and the exercise of proxy rights, sufficiently pleads a primary purpose to retain control, and thus casts a reasonable doubt as to the disinterestedness and independence of the board at this stage of the proceedings.

Similarly, Gaylord relies on Carmody v. Toll Brothers, Inc. The Court in Toll Brothers held that the plaintiffs' claims were direct, but in the alternative if they were properly considered derivative it was of no consequence because "[t]he complaint . . . alleges in a particularized way that the Toll Brothers directors acted for entrenchment purposes. Under our case law, that is sufficient to excuse the requirement of a demand."

Further, another case relied upon in Gaylord, In re Chrysler Corporation Shareholders Litigation, explained that, in the context of entrenchment arguments surrounding a Rule 23.1 motion, the plaintiff's complaint must create "a reasonable doubt that the directors were motivated solely or primarily by entrenchment concerns." Stated another way, "the complaint must create a reasonable doubt that entrenchment was the directors' 'sole or primary purpose,' demand is not excused if from the complaint it appears that the challenged action 'could, at least as easily, serve a valid corporate purpose as an improper purpose, such as entrenchment.'"

I am satisfied, after a review of the analysis in decisions underlying the statements made in Gaylord and repeated in Ebix, that the presence of a narrowly pled Unocal claim here does not operate to excuse demand per se. The common thread in those underlying cases—requiring a specific pleading that entrenchment was the defendants' primary purpose, in order to demonstrate demand futility—I find consistent with a Rales analysis under Rule 23.1, requiring a pleading of specific facts sufficient to conclude that the directors' exercise of business judgment is disabled. Further, I find instructive other cases in this Court that have declined automatic excusal theories, in favor of individual director-by-director analysis based on the particularized allegations of the Complaint. To the extent the Gaylord line of cases holds that a pleading sufficient to invoke Unocal at the pre-closing stage is also sufficient to excuse demand under Rule 23.1, I decline to follow those cases. The recent Supreme Court holding in Cornerstone I find instructive. There, the Court found that even where entire fairness initially applies to review of a transaction, a plaintiff must plead a non-exculpated claim against each individual defendant to avoid dismissal of that defendant in an action for damages. It is in that light that I must analyze demand futility: whether the Plaintiffs here have pled facts that raise a reasonable doubt that the Director Defendants can exercise business judgment in considering a demand. I cannot square Cornerstone with a per se rule that defendant directors are incapable of evaluating a demand, solely because a well-pled Unocal claim exists, although of course specific pleadings that a majority of directors were motivated primarily by entrenchment or other non-corporate considerations will show demand futility.

I proceed, therefore, on the assumption that the Plaintiff's derivative claims here must be dismissed unless the Complaint demonstrates demand would be futile, consistent with the analyses set out in Rales and Aronson v. Lewis, regardless of whether the underlying facts state a claim under Unocal.

2. The Plaintiff Has Failed to Plead Demand Futility Under Aronson

As stated above, a plaintiff may not maintain litigation derivatively on behalf of a corporation, absent demand, unless she demonstrates via specific pleading that there is a reasonable doubt whether a majority of the directors are capable of bringing business judgment to bear on such a demand. Our Supreme Court has provided the specific test that applies where, as here, the suit involves a challenge to action of the directors who themselves would evaluate the demand, set out in Aronson. The Aronson test has two parts: first, does the particularized pleading create a reasonable doubt that the directors were not disinterested or independent in making the decision? Or, if it does not, does the pleading create a reasonable doubt that the decision was otherwise not the product of business judgment? If so, under Aronson, demand is excused.

The Aronson test must be understood in the context of the overarching test for demand futility laid out in Rales: could the directors bring business judgment to bear on the demand? The first prong of the Aronson inquiry addresses director compliance with the duty of loyalty: if the directors made the underlying decision under the influence of self-interest, or dependent on a third party, they have breached a duty of loyalty, and are liable for loss caused thereby. In such a circumstance, there is a reasonable doubt whether those directors can exercise their business judgment on a demand to sue themselves. Similarly with Aronson's second prong: actions of directors inexplicable with reference to business judgment are made in bad faith, implicating director liability. Such directors are disabled from considering a demand to sue themselves, and demand would be futile.

The Complaint here alleges entrenchment as the Defendants motive in the challenged transaction. Addressing such an allegation under Aronson is a rather awkward fit, but I examine here whether the Complaint satisfies that test, as addressed by the Plaintiff in briefing.

The Plaintiff purports to satisfy both prongs of Aronson, and his arguments are essentially the same for both. He alleges generally that the complained-of actions of the Board in acquiring WPZ, and in initially resisting the advances of ETE, were defensive in nature, and taken not for the benefit of Williams, but for motives of entrenchment. Under this theory, the directors were thus tainted by self-interest, and took actions inexplicable under business judgment, satisfying Aronson. But the Plaintiff understates the showing required under Aronson. The Plaintiff relies on the pleading of a Unocal claim to satisfy Rule 23.1, which, for reasons above, I reject. Instead, the first prong of Aronson requires the trial court to determine whether the complaint pleads particularized facts sufficient to raise a reasonable doubt as to the disinterestedness or independence of at least half of the board. The recurring situation in which the Court will consider a director interested arises when she stands to "receive a personal financial benefit from a transaction that is not equally shared by the stockholders." A director lacks independence where she is "beholden" to a controller or another interested person and that such person's influence would sterilize her exercise of discretion.

Here the Plaintiff asserts that demand is excused because "at least half of the members of the Demand Board" suffer a disabling interest under the first prong of Aronson via exposure to a "substantial likelihood of liability" for the alleged breach of the duty of loyalty "by voting in favor of the WPZ Acquisition, and subsequently voting twice against the ETE Merger." The Plaintiff thus argues generally that a majority of the Directors suffer such a "disabling interest." The Plaintiff asserts that the majority of directors participated in the defensive actions via their vote, and therefore entrenchment must have been the motive, making each director subject to liability for breach of the duty of loyalty. This is quintessential conclusive pleading of a mere threat of liability. The Complaint is bare of the type of director-specific pleading that would imply that the risk of liability is substantial. In the absence of director-specific pleadings implying that a director was under the control of Armstrong, or that the merger with ETE would have caused her to lose directorship fees material to her, there is simply a lack of specific pleadings showing a breach of loyalty. In other words, the Complaint lacks specific pleadings that, if true, create a reasonable doubt that a substantial likelihood of liability would cause a majority of directors to face liability, disabling their exercise of business judgment and excusing demand.

In support of his argument that demand is excused via a substantial likelihood of liability for a majority of the Board here, the Plaintiff relies primarily on the Court of Chancery's decision in Ryan v. Gifford. Gifford quotes In re Baxter International, Inc. Shareholders Litigation, for the proposition that directors suffer from a disabling interest in considering a pre-suit demand when "the potential for liability is not a mere threat but instead may rise to a substantial likelihood." Gifford found such a substantial likelihood of liability existed on the facts of that case, and that it constituted one of the "rare" such cases so egregious on its face that the threat of liability would excuse demand. The alleged actions in Gifford were quintessential misconduct; it involved backdating of options while "simultaneously" lying to shareholders, conduct which made it "difficult to conceive" how such acts could satisfy the duty of loyalty. Further, "three members of a board approved backdated options, and another board member accepted them."

In contrast, in In re Baxter, on which Gifford relies, the Court reached the opposite conclusion—finding that it could not "conclude from the face of the complaint that this is a rare case where the circumstances are so egregious that there is a substantial likelihood of liability." In re Baxter arose out of an alleged "scheme" by Baxter employees to "systematically overcharge" the Veterans Administration for medical supplies which was later uncovered and harmed the company. Before finding the absence of a substantial likelihood of liability by the directors, the Court explained that

"[a]lthough a short and plain statement showing that the pleader is entitled to relief is normally sufficient to state a claim, it does not satisfy the requirement of pleading more than a mere threat of liability. The court could not conclude that there is a substantial likelihood of liability from the face of a complaint unless the claim is pled with sufficient particularity to permit the court to reasonably reach the required conclusion."

Here the alleged conduct, which the Plaintiff contends demonstrates a substantial likelihood of liability, is a series of votes for or against particular transactions—one of which narrowly creates an inference sufficient to trigger Unocal's enhanced scrutiny. I find that there is a failure of particularized facts that the actions of the Director Defendants were taken for disloyal purposes, however. The Complaint singles out Armstrong ' s motive to avoid a merger with ETE, and then alleges in conclusory fashion that the rest of the Board was motivated to preserve their positions; it makes no allegations such positions were material to them, no allegations of their animus towards ETE, and no allegations that their discretion was sterilized by Armstrong.

That is, I assume the facts alleged in the Complaint are true, and draw all reasonable inferences in the Plaintiff's favor. Nonetheless, I find that this Complaint fails to allege particularized facts sufficient for me to conclude that a substantial likelihood exists that the majority of the Board has violated its duty of loyalty, and that demand is therefore futile in the face of a threat of liability. Because of the dearth of particularized allegations, I cannot find that the majority of the Board faces a disabling interest with respect to the demand eschewed by Plaintiff here, and the Plaintiff's argument under Aronson's first prong accordingly fails.

In order for demand to be excused under the second prong of Aronson where, as here, the Defendants are exculpated from liability for the duty of care, the Plaintiff must plead facts raising an inference that the action complained of was taken in bad faith. The Supreme Court has observed that a plaintiff carries a "heavy burden" in satisfying the second prong of Aronson. The second prong has been referred to as a "safety valve" to permit suit where the majority of directors are otherwise disinterested and independent but "the complaint meets a heightened pleading standard of particularity" and the "threat of liability to the directors required to act on the demand is sufficiently substantial to cast a reasonable doubt over their impartiality." In other words, the second prong excuses demand where the facts pled disclose that rare case where "a transaction may be so egregious on its face that board approval cannot meet the test of business judgment."

Where duty of care claims are exculpated, "the plaintiffs cannot rely on conclusory allegations, they must plead specific facts that support the inference that the [defendant] directors breached their fiduciary duty of loyalty." That is, "what is critical is that [the plaintiff] plead facts suggesting that the [defendant] directors breached their duty of loyalty by somehow acting in bad faith for reasons inimical to the best interests of the [company's] stockholders." Similarly, as this Court has recently explained, "[t]he second Aronson prong applies when the particularized facts are such that it is 'difficult to conceive' that a director could have satisfied his or her fiduciary duties."

The first ground upon which the Plaintiff seeks to excuse demand under the second prong of Aronson is that the Complaint demonstrates the directors' actions were "taken for entrenchment purposes" and that demand is therefore excused. For the reasons stated above, such a conclusory pleading is insufficient under Rule 23.1. That is, the Plaintiff here has fallen short of pleading particularized facts sufficient to create a reasonable doubt that the demand board's sole or primary motivation was entrenchment, or otherwise demonstrate a substantial threat of liability. The Complaint is silent as to the individual director's motivations, interests, and actions beyond its broad conclusory allegations. The Complaint lacks particularized factual allegations to permit me to infer that the majority of the Board acted solely or primarily to entrench themselves.

Beyond entrenchment, the Complaint alleges only that Armstrong disliked ETE due to antagonisms relating to an earlier "bidding war," and that the remaining Director Defendants voted in favor of the WPZ Acquisition to preserve their "power, prestige and profit." This is simply a mirror image of the contentions addressed with respect to Aronson's first prong. There are no allegations regarding the Director Defendants' compensation and financial circumstances, or anything else sufficient to suggest that the directors, other than Armstrong, would have a non-corporate motive in approving the transaction. Nor is there any basis from the pleadings to infer that Armstrong's influence was so powerful as to sterilize the other directors' discretion or that such directors were beholden to him. In short, I find that the Complaint fails to allege particularized facts to permit an inference that the majority of the Director Defendants acted with bad faith.

Finally, the Plaintiff argues that demand must be excused here because there was "no bona fide corporate purpose" for the transaction and its terms; in other words, the WPZ Acquisition can only be explained by bad faith. This is the "safety valve" theory of demand futility under Aronson's second prong explained above: An action inexplicable other than bad faith is sufficiently likely to imply liability that demand on directors taking such action is futile. Here, the Complaint involves directors, in the context of an expression of interest by a potential acquirer, themselves authorizing acquisition of the minority interest in a subsidiary, then abandoning the acquisition when the acquirer made a sufficiently attractive offer. It is reasonably conceivable—although not conclusively so—that the acquisition by Williams of WPZ was meant as defensive to a takeover by ETE. The facts pled fall short, however, of providing an inference that the actions taken by the directors, even if defensive, are inexplicable other than as bad faith. It is a truism that defensive actions may be loyal actions if reasonable. They may also be loyal—although subject to injunctive relief—if unreasonable. They may be loyal even though adopted in a grossly negligent way. Nothing in the Complaint creates a reasonable doubt that bad-faith liability on the part of these defendants is likely, and the second prong of Aronson is not satisfied.

III. CONCLUSION

The Plaintiff has pled facts raising a pleading-stage inference that actions taken by directors were a defensive reaction to a takeover threat. He has failed, however, to plead sufficient particularized facts to imply a substantial likelihood of liability for damages arising out of those actions on the part of a majority of the directors. Demand under Rule 23.1 is not excused, therefore. Since the Plaintiff forwent demand, this derivative action is dismissed. An Order is attached. ORDER

AND NOW, this 15^th day of May, 2017,

The Court having considered Defendants' Motion to Dismiss, and for the reasons set forth in the Memorandum Opinion dated May 15, 2017, IT IS HEREBY ORDERED that the Motion is GRANTED. SO ORDERED:

/s/ Sam Glasscock III

Vice Chancellor