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Guttman v. Jen-Hsun Huang

Court of Chancery of Delaware, New Castle

April 23, 2003, Submitted ; May 5, 2003, Decided

C.A. No. 19571-NC

Opinion

 [*493] STRINE, Vice Chancellor

In this case, the plaintiffs bring a derivative action on behalf of NVIDIA Corporation, a technology firm. They allege that the defendants -- all NVIDIA directors and/or officers -- either sold stock at a time when they knew material, non-public information about the company and/or are culpable for failing to prevent accounting irregularities that caused the company to restate its financial statements for the period [**2]  during which the stock sales took place. The plaintiffs seek relief for NVIDIA for harm relating to this supposed malfeasance and nonfeasance.

The defendants have moved for dismissal for failure to make a demand under Court of Chancery Rule 23.1. In support of that contention, they point to the conclusory allegations of the amended complaint 1 as being insufficient to cast a doubt on the impartiality of NVIDIA's majority independent board.

In this opinion, I conclude that the defendants' motion must be granted. Having failed to heed the numerous admonitions by our judiciary for derivative plaintiffs to obtain books and records before filing a complaint, the plaintiffs have unsurprisingly submitted an amended complaint that lacks particularized facts compromising the impartiality of the NVIDIA board that would have acted on a demand. When the case most cries out for the pleading of real facts -- e.g., about the board's knowledge of the accounting  [*494]  problems [**3]  at the company or the company's audit committee process -- the complaint is at its most cursory, substituting conclusory allegations for concrete assertions of fact.

I. Facts

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823 A.2d 492 *; 2003 Del. Ch. LEXIS 48 **

JOSH GUTTMAN, Plaintiff, v. JEN-HSUN HUANG, TENCH COXE, JAMES C. GAITHER, HARVEY C. JONES, WILLIAM J. MILLER, A. BROOKE SEAWELL, MARK A. STEVENS, CHRIS A. MALACHOWSKY, CHRISTINE B. HOBERG, and JEFFREY FISHER, Defendants, and NVIDIA CORPORATION, a Delaware Corporation, Nominal Defendant.

Disposition:  [**1]  Defendants' motion to dismiss GRANTED.

CORE TERMS

trading, stock, financial statement, sales, particularized, allegations, shares, impartiality, accounting, excusal, defendants', insiders, audit committee, plaintiffs', derivative, non-public, outside director, fiduciary duty, good faith, irregularities, restatements, accounting practices, misleading, loyalty, margin, suits, breach of fiduciary duty, member of the board, personal liability, insider trading

Business & Corporate Law, Shareholder Actions, Actions Against Corporations, General Overview, Civil Procedure, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Pleadings, Complaints, Requirements for Complaint, Governments, Fiduciaries, Standing, Class Actions, Derivative Actions, Compromise, Demand Requirement, Management Duties & Liabilities, Fiduciary Duties, Business Judgment Rule, Pleading & Practice, Rule Application & Interpretation, Causes of Action, Self-Dealing, Torts, Defenses, Exculpatory Clauses, Corporate Governance, Directors & Officers, Administrative Law, Governmental Information, Heightened Pleading Requirements, Criminal Law & Procedure, Criminal Offenses, Acts & Mental States, Securities Law, Securities Exchange Act of 1934 Actions, Insider Trading, Penalties, Evidence, Burdens of Proof, Remedies, Damages, Monetary Damages, Duty of Loyalty, Settlements, Releases From Liability, Intentional & Reckless Acts, Negligence, Gross Negligence