# THIEFFRY v. WALDIS

> District Court, D. New Jersey · April 30, 2021

URL: https://www.frixlaw.com/law-library/cases/10270538

## Case

- **Court:** District Court, D. New Jersey
- **Decided:** April 30, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10270538

## How later opinions describe it (automated extraction)

- applying Braddock and affirming district court's dismissal for failure to plead demand futility with respect to the board of directors at the time it existed when second amended complaint was filed
- noting that both tests boil down to whether “the derivative plaintiff has shown some reason to doubt that the board will exercise its discretion impartially and in good faith”
- applying Delaware law and finding that “the actions in question occurred before Liddy, Johnson and Dammerman joined the Board and, accordingly, there are no grounds to create a reason to doubt their disinterestedness with respect to these claims.”

## Opinion text

*NOT FOR PUBLICATION*

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

IN RE SYNCHRONOSS
TECHNOLOGIES, INC. SECURITIES
LITIGATION
___________________________________ Civil Action No. 17-7173 (FLW) (LHG)

THIS DOCUMENT RELATES TO:
OPINION
ALL ACTIONS

WOLFSON, Chief Judge:
In this consolidated class action, shareholder Plaintiff Lisa LaBoeuf (“Plaintiff”) alleges,
inter alia, that when Synchronoss divested its Activation business, a component of the Company
which provides mobile handset activation and network services, the then-Synchronoss Board of
Directors breached its fiduciary duties to the Company and its shareholders by approving the sale.
Presently before the Court is a motion by Defendants Stephen G. Waldis (“Waldis), William J.
Cadogan (“Cadogan”), Thomas J. Hopkins (“Hopkins”) (collectively, “Director Defendants”),
James M. McCormick (“McCormick”), and Donnie M. Moore (“Moore”) (collectively, together
with Director Defendants, “Defendants”) and Nominal Defendant Synchronoss Technologies, Inc.
(“Synchronoss” or the “Company”), to dismiss Plaintiff’s Amended Verified Shareholder
Derivative Complaint (“Amended Complaint”) pursuant to Federal Rules of Civil Procedure
23.1 and 12(b)(6). Previously, I granted Defendants’ first motion to dismiss Plaintiff’s complaint,
granting Plaintiff leave to amend, after finding that the complaint did not adequately allege that
Plaintiff’s failure to make demand on the Board was excused. Plaintiff filed an Amended
Complaint and now, Defendants, once again, move to dismiss Plaintiff’s claims for failure to make
demand on the Board, and failure to sufficiently allege that making demand on the Board was
futile. For the reasons stated herein, Defendants’ motion is GRANTED. Plaintiff has not
adequately alleged facts demonstrating that a majority of the Board of Directors, as it existed at
the time the Amended Complaint was filed, would not have acted in a disinterested and

independent fashion in the face of demand.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Synchronoss and the Board of Directors
The following allegations are taken from the Amended Complaint (“Am. Compl.”) and
are assumed true for the purposes of this motion to dismiss. See ECF No. 79. The facts and
procedural history of this case were set forth in detail in the Prior Opinion, and the crux of the
Amended Complaint’s factual allegations, particularly with regard to the circumstances
surrounding the sale of Synchronoss’s Activation business and the relationship between the
Company’s board members at the time, are largely unchanged. Accordingly, I will not recount
them in detail, here, and only briefly summarize the most salient facts, and incorporate the new

allegations, when necessary.
Synchronoss, a Delaware corporation, is a global software and services company that
provides services for mobile transformation of business. Am. Compl. ¶31. The most consistently
profitable line of the Company’s business was the Activation business, through which the
Company provides “mobile handset activation and network services to mobile phone carriers
around the world.” Id. at ¶4. In 2017, at the time Plaintiff initiated this lawsuit, Synchronoss had
a five-member board of directors consisting of Waldis, Cadogan, Hopkins, McCormick, and
Moore (the “Prior Board”). Id. at ¶¶32-36. On November 16, 2017, Synchronoss announced that
Glenn Lurie, who had previously been CEO of AT&T’s Mobility and Consumer Operations,
would be joining the Synchronoss Board and taking over as CEO, and that Waldis would remain
Chairman of the Board. Id. at ¶222. Since that time, Synchronoss has increased its Board of
Directors to ten members. Additionally, in June 2019, McCormick and Moore both stepped down
from the Company’s Board of Directors. Id. at ¶¶33-34. Thus, at the time Plaintiff filed the

Amended Complaint in July 2020, the Company’s Board of Directors was made up of defendants
Waldis, Hopkins, and Cadogan, and nondefendants Lurie, Frank Baker, Peter Berger, Robert
Aquilina, Kristin Rinne, Laurie Harris, and Mohan Gyani (the “Current Board”). Id. at ¶¶191-93,
220.
The Activation Divestiture
On December 6, 2016, in a Form 8-K filed with the SEC, the Company announced that
it would be divesting 70% of its Activation business. Id. at ¶¶6-7. Synchronoss revealed that it
had formed a new entity, Sequential Technology International (“STI”) and transferred the bulk of
the assets comprising the Activation business to that entity. Id. at ¶42. Further, Sequential
Technology Holdings, Inc (“Sequential”) and Synchronoss had entered into a purchase agreement,

pursuant to which Sequential would purchase a 70% interest in STI for a cash payment of $146
million. Id. Synchronoss would retain 30% interest in STI. Id. The same day, Synchronoss
announced that it had bought Intralinks, a tech company, for $821 million. Id. at ¶¶53,106. In
connection with the Sequential transaction, Synchronoss and Sequential also entered into a “non-
exclusive perpetual license agreement,” under which Sequential obtained a license for certain
analytics software products owned by Synchronoss. Id. at ¶77-80. Sequential paid Synchronoss a
$9.2 million licensing fee, which the Company included as revenue in the fourth quarter of 2016,
but the Company allegedly did not disclose that fact until months later in February 2017. Id.
Initially, the public at large was purportedly unaware of who made up the buyers behind
Sequential. It would later be publicly revealed, that Sequential was previously known as
Omniglobe International LLC (“Omniglobe”), an entity affiliated with friends and family of
Synchronoss management and had been renamed prior to the Activation transaction. Id. at ¶9, 45.

According to Plaintiff, Omniglobe was referred by name in the Prior Board’s presentations leading
up the transaction, and the Prior Board was aware that it was run by friends and family of
Synchronoss insiders. Id. at ¶95. Prior to founding Synchronoss, Plaintiff claims that Waldis
owned shares of Omniglobe, through an entity called Rumson Hitters LLC. (“Rumson Hitters”)
which had been renamed prior to the Activation transaction. Id.
In February 2017, in an article published by the Southern Investigative Reporting
Foundation (“SIRF”), it was revealed that at the time of the divestiture, Rumson Hitters owned
50% of Sequential/Omniglobe, and an individual named Jaswinder Matharu owned the other half.
Id. at ¶9, 68, 70-75. Before Synchronoss sold shares to the public, a group of four Synchronoss
insiders used to own, indirectly, through their shares of Rumson Hitters, a total of 18.68% of

Omniglobe: then-officers, Waldis (then CEO), Lawrence Irving (“Irving”) (then Chief Financial
Officer), David E. Berry (“Berry”)(then Chief Innovation Officer and Executive Vice President),
and Robert Garcia (“Garcia”)(then Chief Operating Officer and President). Id. at ¶41-46.
According to Synchronoss’s SEC filings in connection with its initial public offering (“IPO”),
Waldis and the others sold their interests in Rumson Hitters, a decade earlier, in May 2006, for the
same price that they had paid, shortly after Synchronoss filed its IPO. Id. at ¶¶50. Their shares
were allegedly sold to John Methfessel, Jr., Paul Claussen, and Tom Miller, who are, according to
Plaintiff, friend and neighbors of Waldis and his family. Id. at ¶¶46, 50, 86. Thus, Plaintiff alleges
that although Waldis, Irving, Berry, and Garcia no longer owned shares in Rumson Hitters at the
time Synchronoss entered into the transaction with OmniGlobe, the transaction was problematic
because Synchronoss sold the Activation business to friends and family of corporate insiders, i.e,
Methfessel, Claussen, and Miller.
Plaintiff further alleges that one of the key motivations behind the transaction was “to

help people other than shareholders,” including Waldis’ friends and family. Id. at ¶90. At a
September 30, 2016 meeting of the Business Development Committee of the Prior Board, Waldis
stated that “one of the reasons ‘the potential purchaser’ it had been working with (Sequential), was
the ‘best choice’ was its ‘commitment to several of the company’s vice presidents to take a
leadership role at the purchaser.’” Id. (internal quotation marks omitted). The Prior Board was
also allegedly motivated by “pleasing AT&T.” Id. at ¶91. A slide from a November 30, 2016
presentation to the Prior Board provides an “Executive Summary” and lists the goal of having the
acquiring company be “favorably viewed by AT&T,” and notes that “AT&T/Lurie highly
supportive of deal/structure.” Id. Synchronoss’s current CEO, Lurie was, at the time, President
and CEO of AT&T’s Mobility and Consumer Operation. Id.

The Company’s Restated Financial Statements
In the same February 2017 Form 10-K, the Company allegedly revealed that
contemporaneous with the Activation Divestiture, it had executed “a non-exclusive perpetual
license agreement with [Sequential], in the amount of $9.2 million, which is included in net
revenues in the statement of income, for the use of the Company’s Analytics software.” Id. at ¶77.
The Company also stated that it had “reclassified revenue historically derived from Cloud
Analytics offering to the Cloud category.” Id. at ¶78. Allegedly, the $9.2 million in revenue
allowed the Company to meet its guidance for “Cloud” revenue for the fourth-quarter. Id. at ¶79.
After the filing of the Company’s February 2017 Form 10-K, and the disclosure of the $9.2 million
licensing fee, Synchronoss’s stock price dropped almost 6%. Id. at ¶ 82.
In May 2017, the Company announced via press release that it needed time “to comply
with the Company’s internal controls and procedures and to review certain aspects of the

Company’s financial statements and corresponding notes for inclusion in the Form 10-Q.” Id. at
¶111. Then, on June 8, 2017, the Company announced that it would file two years of restated
financial statements because, its Audit Committee, which consisted of Cadogan, Hopkins and
Moore, had concluded that “certain errors have been identified in the Relevant Periods concerning
revenue recognition in connection with certain licensing transactions. The Company has
determined that revenues from each of the applicable transactions should be recognized ratably
over the term of the license contract or netted as part of the consideration transferred in connection
with purchase accounting.” Id. at ¶113. Moreover, the Company also announced that “previously
issued financial statements for the fiscal years December 31, 2016 and 2015 and the respective
quarterly periods (collectively, the “Restatement Period”) should be restated and should no longer

be relied upon.” Id. In October 12, 2017, the Company announced that it was extending the
Restatement Period back to December 31, 2014. Id. at ¶114
On July 2, 2018, more than a year after announcing the need to restate its financials,
Synchronoss issued a press release announcing that it had completed the Restatement and filed its
Form 10-K for 2017. Id. at ¶119. Among other things, the Form 10-K revealed that as part of the
sale to Sequential, Synchronoss provided a guarantee to Goldman Sachs for $30 million of the $40
million in senior debt extended by Goldman to Sequential. Id. at ¶¶16, 64. The Company’s public
statements about the deal, at the time, omitted the information about the guarantee, and it was
revealed for the first time in the Form 10-K. Id. at ¶141.
The press release summarized the issues giving rise to the need to restate the Company’s
financials. Id. Among other things, the press release identified that there were issues with how
the Company recognized revenue related to hosting services, master services contracts, and
licensing fees entered into as part of acquisitions and divestitures, including the Activation

Divestiture and the $9.2 million perpetual license. Id. at ¶¶119, 131. The 2017 Form 10-K
similarly states that: “As of December 31, 2017, management has identified pervasive material
weaknesses in our internal control processes that involve the control environment, risk assessment,
control activity, information and communication and monitoring components of the COSO
framework.” Id. at ¶121 (emphasis in original). The Company acknowledged that “the board of
directors and senior management establish the tone at the top regarding the importance of internal
controls and management reinforces expectations at the various levels of the company,” and
elaborated on the material weaknesses in the Company’s internal controls. Id. (emphasis in
original)
The Restatement revealed that the Company’s revenues, net income, and earnings per share

for 2014 through 2016, were much lower than previously reported. Id. at ¶¶122-128.
Synchronoss’s cumulative revenue for 2014 through 2016 was reduced nearly $180 million from
$1.21 billion to $1.03 billion, or nearly 15%. The Company’s revenues were reduced by 16%,
9.6%, and 8.1% for 2014, 2015, and 2016, respectively. Id. at ¶123. The impact on Synchronoss’s
net income was even more profound, resulting in a loss. Id. at ¶¶124-125. Although the Company
had previously reported “net income from operations from 2014 through 2016 of $93.5 million,
Synchronoss [allegedly] incurred a loss of $40 million during that time period, a 143% decrease.”
Id. at ¶125. Plaintiffs allege that these losses were due to the failure of the Prior Board, in particular
the members of the Audit Committee, to exercise adequate oversight over the Company’s
financials. Id. at ¶¶128-132.
The Alleged Insider Trading
Plaintiff also alleges that Waldis, Moore, Cadogan, and Hopkins sold millions of dollars’

worth of Synchronoss stock and received substantial profits between 2014 and 2016, when
Synchronoss was misstating its revenues, and between September 2016, when the Board first
began discussing the potential Activation Divestiture, and February 27, 2017, when Plaintiff
alleges that Sequential’s true identity was revealed and Synchronoss’s stock price collapsed. Id.
¶145-166.
Between January 2014 and December 2016, the three-year time period during which the
Company was allegedly misstating its revenues, Defendants allegedly sold an aggregate amount
of over $70 million worth of Synchronoss stock. Id. at ¶¶159-166. According to Plaintiff, despite
each Defendant serving on the Company’s Board for more than a decade, Hopkins, Cadogan, and
Moore, did not make a single sale prior to 2014; similarly, McCormick did not make any sales

from August 30, 2011 until November 4, 2014. Moreover, none of the Defendants purchased
Synchronoss stock during this time. Id. at ¶159.
On February 4, 2016, Synchronoss announced that the Board of Directors had approved a
share repurchase program, under which the Company was permitted to purchase up to $100 million
of its outstanding common stock. Id. at ¶145. The press release, quoting Waldis, states:
“As we begin 2016, we believe that Synchronoss has a very strong
market position and financial profile, in addition to a large and
expanding addressable market opportunity. We expect to deliver an
attractive combination of solid top line growth, strong profit margins
and expanding free cash flow. . . . In addition to investing in our
strategic growth initiatives, we believe our new share repurchase
program is an excellent way to leverage our strong balance sheet and
cash flow in order to enhance long-term shareholder value.”
Id. As a result, the Company repurchased approximately 10.3 million shares, at average prices
ranging from $30.00 to $35.64 per share, resulting in aggregate repurchases of $40 million. Id. at
¶¶147-148. Moore, Cadogan, Hopkins, and Waldis, all allegedly sold shares as part of the share
repurchase program. Id. at ¶166. Plaintiff alleges that during the share repurchase program, the
true value of the Company’s common stock was $11.26, the price per share of the Company’s
common stock when the truth emerged, and thus, Defendants caused Synchronoss to overpay by
$28.5 million for repurchases of its own stock. Id. at ¶148. Moreover, in the third quarter of 2016,
following the repurchase program, the Company borrowed money to offset a decrease in liquidity

allegedly caused by the program. Id. at ¶149.
Plaintiff alleges that between 2016, following the announcement of the Activation
Divesture, and 2017, prior to the reveal that Omniglobe was behind Sequential, Waldis sold 9.6%
of his shares; Moore, sold 48.3% of his shares; Hopkins sold 43.4% of his shares and Cadogan
sold 10.5% of his shares. Id. at ¶154-157. With the exception of Waldis, none of the defendants
has made a single sale since the SIRF article was published in February 2017. Id. at ¶158.
The SIRIS Deal
Between April 27, 2017 and May 4, 2017, Siris Capital Group, LLC (“Siris”) purchased
nearly six million shares of Synchronoss common stock, constituting approximately 13% of the
Company’s outstanding shares, which positioned Siris as the Company’s largest shareholder. Id.

at ¶¶19, 169. Then, Siris Co-Founder Frank Baker met with Waldis on May 4, 2017, and expressed
Siris’ interest in acquiring Synchronoss. Id. ¶¶19, 22. Prior to engaging in negotiations, Siris
signed a non-disclosure agreement (“NDA”),which provided, among other things, that Siris was
prohibited “from taking certain actions during the time period beginning on May 19, 2017 and
ending on the earlier of (x) the termination of the Non-Disclosure Agreement, (y) the execution of
a definitive agreement relating to a Potential Transaction and (z) February 19, 2018.” Id. at ¶¶171-
172. Specifically Siris was prohibited from
directly or indirectly, (A) acquiring any voting securities of
the Company (including any derivatives, options, puts and
calls) or (B) soliciting any proxies to vote, or advising any
person with respect to the voting of, any voting securities of
the Company (excluding, for the avoidance of doubt, in the
case of clause (B), any voting securities beneficially owned
by Siris Capital Group or its affiliates).

Id. at ¶172. On June 22, 2017, Siris made an all-cash offer to purchase Synchronoss common
stock at $18.00 per share, a 69% premium at over the prior day’s closing price of $10.65. Id. at
¶173.
In September 2017, the Board of Directors rejected Siris’ offer. Id. at ¶177. In a press
release, the Board explained that
Siris Capital Partners (“Siris”) recently informed
Synchronoss that Siris would terminate its discussions
regarding a potential transaction unless Synchronoss agreed
to negotiate exclusively with Siris. Given the status of the
process and the continued interest from other parties,
Synchronoss has determined that entering into an exclusivity
agreement with Siris at this time is not in the best interest of
the Company’s shareholders. The Company remains in
active discussions with multiple parties and has received
what the Board believes to be attractive proposals compared
to the most recent proposal from Siris.

Id. at ¶177.
A few weeks later, however, on October 5, 2017, the Board of Directors announced that
“the Company and Siris determined to restart discussions regarding a potential transaction. . . . .
Following those discussions, the Board of Directors determined that it was in the best interest of
Synchronoss shareholders to enter into an agreement with Siris providing for a limited period of
exclusivity to allow for negotiation of definitive agreements.” Id. at ¶178. Following the renewed
negotiations, Synchronoss and Siris and struck a two-part deal. Id. at ¶¶23-26, 179-183.
First, Synchronoss sold the newly acquired Intralinks to Siris for approximately $1 billion
Id. at ¶24, 179. The $1 billion sale price was $200 million more than the $821 million Synchronoss

paid for Intralinks in 2016, when Synchronoss outbid Siris to purchase Intralinks. Id. at ¶¶5, 24,
179. Siris subsequently re-sold Intralinks, allegedly profiting $500 million from that transaction.
Id. at ¶227.
Second, Siris made a $185 million investment in convertible preferred equity of
Synchronoss, which was converted into almost 20% of the Company’s common stock. Id. at ¶¶25,
179. As part of the deal, Siris also secured significant rights pertaining to Synchronoss’s
governance and operations, pursuant to an Investor Rights Agreement, including the right to
appoint two members to Synchronoss’s Board, and millions in dividend payments as the
investment carried an annual interest rate of 14.5%. Id. at ¶179. The deal closed on February 15,
2018, and that same day, Synchronoss announced that Frank Baker and Peter Berger, each a Co-

Founder and Managing Partner of Siris, joined the Company’s board of directors. Id. at ¶182. In
April 2018, Robert Aquilina, an Executive Partner at Siris, also joined the Synchronoss Board
pursuant to the Investor Rights Agreement which provided, inter alia, that four independent
directors would be “agreed upon by Synchronoss and [Siris].” Id. at ¶223 n.9.
Plaintiff alleges that the Siris deal was a poor one for Synchronoss’s shareholders and was
motivated by protecting the Board from a proxy contest, rather than the Company’s best interests.
Id. at ¶¶21, 26-27. As reflected in Synchronoss’s 2017 Proxy Statement, all of the Company’s
Directors and Officers owned approximately 10.5% of Synchronoss’s shares, while three
institutional investors owned approximately 24.8% of the Company’s shares (not including Siris’
recent stake). Id. Plaintiff alleges that the Director Defendants were threatened by the institutional
investors’ stakes, and the sale of Intralinks and the $185 million deal with Siris allegedly permitted
Defendants to maintain their Board seats at the Company while providing no benefit to
shareholders. Id. at ¶183.

A. The Prior Opinion
In an opinion dated November 26, 2019 (“Prior Opinion”), I assessed whether Plaintiff’s
initial complaint adequately alleged that demand on the Prior Board was futile, and therefore
excused. First, I addressed Plaintiff’s claims that Waldis stood on both sides of the Activation
transactions, thus, he was interested in the transaction, and that McCormick and Moore were
beholden to Waldis, such that they could not act independently or disinterestedly. Prior Opinion
at 18-26. I concluded that Plaintiff had not alleged particularized facts creating reasonable doubt
that Waldis could act in a disinterested manner in face of demand, and that Plaintiff has failed to
allege facts under which it is reasonably conceivable that either Moore or McCormick lacked
independence from Waldis. Id. at 22, 26.
Next, I turned to Plaintiff’s argument that Defendants faced a substantial likelihood of
personal liability for breaches of the duty of loyalty and disclosure stemming from (1) oversight

failures in ignoring the glaring red flags relating to the Activation Divestiture and the Company’s
misleading disclosures relating to the Activation Divestiture; (2) oversight failures relating to the
accounting restatement; and (3) insider trading on the basis of material non-public information in
violation of Delaware law. I concluded that Plaintiff had failed to adequately allege demand
futility with respect to all of the claims, except the breach of the duty of disclosure claim, and
limited Plaintiff to pursuing the alleged breach fiduciary duty of loyalty premised solely on
Defendants’ failure to disclose material information regarding the financial terms of the Activation
Divestiture, the omissions regarding the $9.2 million licensing fee revenue, and their impact on
the Company’s Fourth Quarter 2016 financial results. Prior Opinion at 41-42.
Thereafter, Defendants filed a motion for reconsideration. See ECF No. 65. On
reconsideration, I concluded that a majority of the Defendants could not be held liable for the

allegedly misleading disclosures because Plaintiff had only alleged facts suggesting that Waldis
was responsible for the dissemination of the misleading information and had not alleged that any
of the other defendants had any involvement with the misinformation disseminated on the investor
calls, the press release, or the SEC filings. See ECF No. 75, June 12, 2020 Opinion
(“Reconsideration Opinion”) at 12-14. Having dismissed Plaintiff’s only remaining claim, I
dismissed Plaintiff’s Complaint, and granted Plaintiff leave to amend her allegations regarding
demand futility. Id. at 15. Plaintiff did so; now, Defendants, once again, move to dismiss based
on Plaintiff’s failure to make a pre-suit demand as required by Federal Rule of Civil Procedure
23.1.
II. LEGAL STANDARD

Demand Futility
Under Federal Rule of Civil Procedure 23.1, “a shareholder may file a derivative suit
against the board of directors to claim enforcement of a right of the corporation where the
corporation has failed to assert that right.” Kanter v. Barella, 489 F.3d 170, 176 (3d Cir. 2007).
Rule 23.1 sets forth a heightened pleading standard, requiring “a plaintiff to plead with
particularity either the efforts made to spur directors to take the action sought, and why these
efforts were unsuccessful, or the reasons why no effort was made to demand action from the
board.” Id. The purpose of the demand requirement is to “affor[d] the directors an opportunity to
exercise their reasonable business judgment and waive a legal right vested in the corporation in
the belief that its best interests will be promoted by not insisting on such right.” Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 96 (1991).
A federal court hearing a shareholder derivative suit involving state law claims must “apply
the federal procedural requirement of particularized pleading but apply state substantive law to

determine whether the facts demonstrate demand would have been futile and can be excused.” Id.
at 98-99. Here, Synchronoss is a Delaware corporation, and thus, Delaware law governs the
substantive inquiry into demand futility.
Delaware courts utilize two tests for evaluating whether making a pre-suit demand would
have been futile and is therefore excused: the Aronson test and the Rales test. Courts apply the test
set forth by the Delaware Supreme Court in Aronson v. Lewis, 473 A.2d 805, 809 (Del. 1984),
when “a decision of the board of directors is being challenged in the derivative suit.” Rales v.
Blasband, 634 A.2d 927, 933 (Del. 1993) (emphasis in original). However, when “the board that
would be considering the demand did not make a business decision which is being challenged in
the derivative suit,” such as “where directors are sued derivatively because they have failed to do

something,” the Rales test applies. Id. at 933-34, 934 n.9.
Under the Aronson test, the derivative complaint must plead particularized facts creating
a reasonable doubt that “(1) the directors are disinterested and independent or (2) the challenged
transaction was otherwise the product of a valid exercise of business judgment.” Brehm v. Eisner,
746 A.2d 244, 253 (Del. 2000) (quoting Aronson, 473 A.2d at 814). If either prong is satisfied,
then demand is excused. Id. at 257. Under the Rales test, demand is excused only where
“particularized factual allegations of a derivative stockholder complaint create a reasonable doubt
that, as of the time the complaint is filed, the board of directors could have properly exercised its
independent and disinterested business judgment in responding to a demand.” Rales, 634 A.2d at
934. Under either test, a director may be interested if he or she is exposed to a “substantial
likelihood of liability” for his or her involvement in the transaction at issue. Aronson, 473 A.2d
at 815; Kohls v. Duthie, 791 A.2d 772, 782 (Del. Ch. 2000) (explaining that under Rales “when
there is no challenge to a business judgment, as is the case here, the question becomes whether the

director faces a substantial threat of personal liability due to his alleged conduct or lack thereof.”).
Like on the prior motion to dismiss, neither party has specifically couched their arguments
within either the Aronson or Rales frameworks; rather, they agree, consistent with Delaware law,
that both tests look to whether the Board was disinterested and independent with respect to the
transactions at issue, and whether a majority of the Directors face a substantial likelihood of
personal liability for the claims alleged. See Def. Br. at 17 (“Whether applying Aronson or Rales,
a typical theory advanced by derivative plaintiffs claiming a majority of the board is not
disinterested or independent is to assert that the directors face a substantial likelihood of liability
with respect to the transactions at issue.”); Pl. Br. at 17 (“the fundamental question in evaluating
demand futility is whether the board can exercise its business judgment on the corporate behalf in

considering demand” (internal quotation marks and citations omitted)); see also In re infoUSA,
Inc. S'holders Litig., 953 A.2d 963, 986 (Del. Ch. 2007) (noting that both tests boil down to
whether “the derivative plaintiff has shown some reason to doubt that the board will exercise its
discretion impartially and in good faith”); Guttman v. Huang, 823 A.2d 492, 501 (Del. Ch. 2003)
(“At first blush, the Rales test looks somewhat different from Aronson, in that [it] involves a
singular inquiry.... Upon closer examination, however, that singular inquiry makes germane all of
the concerns relevant to both the first and second prongs of Aronson.”). Accordingly, consistent
with Delaware law, this Court assesses whether Plaintiff has alleged sufficient facts to demonstrate
that the Director Defendants face a substantial likelihood of personal liability for the claims alleged
and whether the Non-Defendant Directors are disinterested and independent.1
Motions to Dismiss 12(b)(6)
Under Fed. R. Civ. P. 12(b)(6), a complaint may be dismissed for “failure to state a claim

upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When reviewing a motion to dismiss
on the pleadings, courts “accept all factual allegations as true, construe the complaint in the light
most favorable to the plaintiff, and determine whether, under any reasonable reading of the
complaint, the plaintiff may be entitled to relief.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233
(3d Cir. 2008) (quotations omitted). Under such a standard, the factual allegations set forth in a
complaint “must be enough to raise a right to relief above the speculative level.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007). Indeed, “the tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). “[A] complaint must do more than allege the plaintiff's
entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts.” Fowler v.

UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009).

1 Plaintiff does not argue – nor is there a viable argument to be made – that the non-
Defendant directors, all of whom joined the Board after the alleged wrongdoing in the Amended
Complaint occurred face any likelihood of liability for the claims alleged. See In re Yahoo! Inc.
S'holder Derivative Litig., 153 F. Supp. 3d 1107, 1128 (N.D. Cal. 2015) (applying Delaware law
and explaining that “[a]ny further amended complaint would have to plead demand futility against
Yahoo's current board of directors . . . and demand plainly could not be excused given that . . all
of Yahoo's current directors joined the board after the events at issue in this litigation.”); In re Am.
Int'l Grp., Inc. Derivative Litig., 700 F. Supp. 2d 419, 440 (S.D.N.Y. 2010) (applying Delaware
law and finding that “the actions in question occurred before Liddy, Johnson and Dammerman
joined the Board and, accordingly, there are no grounds to create a reason to doubt their
disinterestedness with respect to these claims.”)
However, Rule 12(b)(6) only requires a “short and plain statement of the claim showing
that the pleader is entitled to relief” in order to “give the defendant fair notice of what the . . . claim
is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. The complaint must include
“enough factual matter (taken as true) to suggest the required element. This does not impose a

probability requirement at the pleading stage, but instead simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of the necessary element.” Phillips,
515 F.3d at 234 (citation and quotations omitted);Covington v. Int’l Ass’n of Approved Basketball
Officials, 710 F.3d 114, 118 (3d Cir. 2013) (“[A] claimant does not have to set out in detail the
facts upon which he bases his claim. The pleading standard is not akin to a probability requirement;
to survive a motion to dismiss, a complaint merely has to state a plausible claim for relief.” (citation
and quotations omitted)).
In sum, under the current pleading regime, when a court considers a dismissal motion, three
sequential steps must be taken: first, “it must take note of the elements the plaintiff must plead to
state a claim.” Connelly v. Lane Constr. Corp., 809 F.3d 780, 787 (3d Cir. 2016) (quotations

omitted). Next, the court “should identify allegations that, because they are no more than
conclusions, are not entitled to the assumption of truth.” Id. (quotations omitted). Lastly, “when
there are well-pleaded factual allegations, the court should assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief.” Id. (quotations and brackets
omitted).
III. DISCUSSION
Defendants move to dismiss the Complaint on two grounds: for failure to assert a pre-suit
demand as required under Section 327 of Delaware General Corporation Law and failure to
adequately plead demand futility under Federal Rule of Civil Procedure 23.1.
Whether Demand Futility Must Be Assessed with Respect to the Prior Board or the
Current Board

As an initial matter, the parties dispute whether demand futility should be examined at the
time the action was commenced or at the time an amended complaint was filed; in other words,
whether Plaintiff is required to demonstrate that demand is futile with respect to the Current Board,
or the Prior Board.
The Supreme Court of Delaware has previously addressed this question, applying
Delaware Chancery Court Rule 23.1, which imposes a demand futility requirement similar to that
required by the federal rule, in Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006). Compare Del.
Ch. Ct. R. 23.1(a) (“In a derivative action . . . [t]he complaint shall also allege with particularity
the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors
or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not
making the effort.”) with Fed. R. Civ. P. 23.1(b)(3) (derivative complaint must “state with
particularity: (A) any effort by the plaintiff to obtain the desired action from the directors or
comparable authority and, if necessary, from the shareholders or members; and (B) the reasons for
not obtaining the action or not making the effort”). In Braddock, the Delaware Supreme Court
explained that a company’s board of directors has statutory authority to manage the corporation’s
business and affairs, and that “[w]hen a derivative action is pending, a board comprised of new
directors who are under no personal conflict with respect to prosecution of a pending derivative

claim ... may cause the corporation to act in a number of ways with respect to that litigation,”
including, for example, “take control of the litigation by becoming realigned as the party plaintiff;
move to dismiss the action as not in the corporation's best interest; permit the plaintiff to carry the
litigation forward; or appoint a special litigating committee to determine what action to take.” 906
A.2d at 785-786 (internal citations and quotation marks omitted). As such, the Court concluded
that when there is a change in the composition of a company’s board of directors prior to the filing
of amended derivative complaint, “the existence of a new independent board of directors is
relevant to a Rule 23.1 demand inquiry . . . as to derivative claims in the amended complaint that
are not already validly in litigation.” Id. at 786. It further elaborated that a claim is “validly in

litigation” if (1) “the original complaint was well pleaded as a derivative action,” (2) “the original
complaint satisfied the legal test for demand excusal,” and (3) “the act or transaction complained
of in the amendment is essentially the same as the act or transaction challenged in the original
complaint.” Id. A claim is not validly in litigation unless it “can or has survived a motion to
dismiss.” Id. at 779.
Relying on Braddock, Defendants argue that “Delaware law is clear that when ‘a complaint
is amended with permission following a dismissal without prejudice, even if the act or transaction
complained of in the amendment is essentially the same conduct that was challenged in the original
dismissed complaint, the Rule 23.1 demand inquiry must be assessed by reference to the board in
place at the time when the amended complaint is filed.’” Def. Br. at 20 (quoting Braddock, 906

A.2d at 786). Defendants emphasize that this “rule is well-established and has been widely applied
in Delaware and the federal courts applying Delaware law.” Id. (citations omitted). Defendant
further argues that the nature of the prior dismissal has no bearing on whether demand is required
to be made on the Current Board, rather, “[t]he determination of which board must be referenced
in evaluating demand futility . . . is by definition central to Delaware’s substantive demand
doctrine.” ECF No. 97, Def. Reply Br. at 8.
In response, Plaintiff argues that while Defendants would be correct if this case were
proceeding in Delaware state court, “here, federal law dictates procedure.” ECF No. 92, Pl. Opp.
Br. at 38 (citing Erie R. Co. v. Tompkins, 304 U.S. 64 (1938)). Plaintiff maintains that under
Braddock, an “amended complaint must demonstrate that demand would be futile as to the board
of directors constituted at the time the amended complaint is filed, unless the original complaint’s
claims are validly in litigation.” Id. at 38-39. Plaintiff contends that “whether a claim is validly
in litigation is an inherently procedural determination,” which must be made by this Court. Id. at

39. In that regard, Plaintiff highlights Third Circuit case law that a dismissal without prejudice is
“neither final nor appealable because the deficiency may be corrected by the plaintiff without
affecting the cause of action.” Id. at 39 (citing Borelli v. City of Reading, 532 F.2d 950 (3d Cir.
1976)). Thus, in Plaintiff’s view, “[b]ecause this Court dismissed Plaintiff’s original complaint
without prejudice and with leave to amend,” the original claims are still “validly in litigation” and
“the [Prior] Board remains the operative Board for purposes of the demand futility analysis.” Id.
at 40. Alternatively, Plaintiff argues that she has adequately alleged demand futility regardless of
which board of directors is considered. Id. at 35-37.
I am not persuaded by Plaintiff’s arguments. Plaintiff is correct that in diversity cases,
such as this one, federal law governs matters of procedure, while state law governs the substantive

matters, including the demand futility analysis. See Kamen, 500 U.S. at 96 (“the function of the
demand doctrine in delimiting the respective powers of the individual shareholder and of the
directors to control corporate litigation clearly is a matter of “substance,” not “procedure.”
(citations omitted)); see also Kanter, 489 F.3d at 176 (explaining that courts “apply the federal
procedural requirement of particularized pleading, but apply state substantive law to determine
whether the facts demonstrate demand would have been futile and can be excused.” (citations
omitted)). “Although Federal Rule of Civil Procedure 23.1 provides the procedural vehicle for
addressing the adequacy of a shareholder derivative complaint, ‘[t]he substantive requirements of
demand are a matter of state law.’” Hirschfeld v. Beckerle, 405 F. Supp. 3d 601, 606 (D.N.J. 2019)
(quoting Freedman v. Redstone, 753 F.3d 416, 423 (3d Cir. 2014)). As such, here, the appropriate
inquiry is not, as suggested by Plaintiff, whether the Prior Complaint was dismissed with or
without prejudice, or whether the dismissal is a final appealable judgment, but rather, whether the
claims in the Amended Complaint are “validly in litigation” within the meaning of Braddock—

because Delaware’s substantive law governs the demand futility analysis. Indeed, contrary to
Plaintiff’s argument that the instant question is purely a procedural one, the determination as to
which Board of Directors a plaintiff is required to allege demand futility is plainly outcome
determinative in many instances, because the demand futility analysis is highly fact specific and
turns on each director’s personal involvement and relationship to the challenged transactions. See
Hanna v. Plumer, 380 U.S. 460, 473 (1965) (explaining that under Erie and its progeny, if there is
no federal rule controlling the issue, court engages in relatively unguided Erie choice, which
requires court to ask if application of state law is likely to be determinative of outcome of lawsuit).
My finding in this regard is consistent with those of other courts. While the Third Circuit has not
yet had the opportunity to address the issue presented here, the Circuit Courts and federal district

courts to directly confront this question have held that Braddock controls and the plaintiff is
required to show that demand would have been futile with respect to the board as it existed at the
time the amended complaint was filed – not at the time the original complaint was filed. See In re
BofI Holding, Inc. S'holder Litig., No. 19-55721, 2021 WL 733238, at *2 (9th Cir. Feb. 25, 2021)
(applying Braddock and affirming district court’s finding that plaintiff’s claims were not “‘validly
in litigation’ after filing [an amended complaint] because ‘validly in litigation’ means a proceeding
that can or has survived a motion to dismiss”); City of Cambridge Ret. Sys. v. Ersek, 921 F.3d 912,
922 (10th Cir. 2019) (applying Braddock and affirming district court's dismissal for failure to plead
demand futility with respect to the board of directors at the time it existed when second amended
complaint was filed); In re First Solar Derivative Litig., No. 12-00769, 2016 WL 3548758, at *5
(D. Ariz. June 30, 2016) (holding that “[b]ecause Plaintiffs have failed to show that their claims
were validly in litigation before March 2016, “demand futility must be tested against the current
board,” where plaintiff failed to demonstrate that their prior complaint, which was amended as of

right, adequately pleaded demand futility); In re Nyfix, Inc. Derivative Litig., 567 F. Supp. 2d 306,
311 (D. Conn. 2008) (holding that plaintiff was required to show that demand was excused with
respect to the board of directors at the time the second amended complaint was filed because “the
plaintiffs' First Amended Complaint failed to satisfy the requirements of Rule 23.1, the claims
contained therein are not validly in litigation within the meaning of Braddock.”). Accordingly, I
find that Braddock is applicable, here. Because I dismissed Plaintiff’s prior complaint for failure
to satisfy the requirements of Rule 23.1, the claims contained therein are not validly “in litigation”
within the meaning of Braddock.2 Plaintiff is therefore, required to plead demand futility with
respect to Synchronoss’s Board of Directors in place at the time the Amended Complaint was filed:
the Current Board. Braddock, 906 A.2d at 779 (“A claim is not validly in litigation unless it “can

or has survived a motion to dismiss.”). In other words, Plaintiff must allege sufficient facts to cast
reasonable doubt on the independence or disinterestedness of at least five of the ten directors on
the Current Board. See Beneville v. York, 769 A.2d 80, 82 (Del. Ch. 2000) (“To establish demand
futility, “a stockholder must show that a ‘majority’ of the directors could not impartially consider
a demand . . . it would be logically incoherent for Delaware courts to refuse to excuse demand

2 Moreover, the Amended Complaint adds a new theory in support of the breach of the duty
disclosure claim based on Defendants’ alleged failure to reveal that as part of the Activation
Divestiture, Synchronoss provided a guarantee to Goldman for $30 million of debt extended to
Sequential by Goldman, as well as an entirely new claim, which was raised for the first time in the
Amended Complaint, based on the Board’s response to Siris’ offer to purchase the Company.
These claims could not be “validly in litigation” prior to the filing of the Amended Complaint.
where half of the board cannot impartially consider a demand but to excuse demand where a bare
majority cannot act impartially.” ); Beam ex rel. Martha Stewart Living Omnimedia, Inc. v.
Stewart, 845 A.2d 1040, 1046 n. 8 (Del. 2004) (explaining that demand is excused where if the
board is evenly divided between interested and disinterested directors); In re SFBC Int'l, Inc. Sec.

& Derivative Litig., 495 F. Supp. 2d 477, 486 n. 3 (D.N.J. 2007) (“An evenly divided board
satisfies the requirement that a majority of the board be unable to consider a demand impartially.”)
Demand Futility
As explained, supra, the Current Board consists of ten members, and in order to satisfy Rule
23.1, Plaintiff must demonstrate, with respect to each claim alleged in the Amended Complaint,
that at least half of those members would not have been able to act impartially in the face of
demand. See Beam, 845 A.2d at 1046 n. 8 The Amended Complaint alleges one count of breach
of fiduciary duty against Defendants, stemming from 1) the alleged failure to act in a disinterested
and independent fashion with respect to the Activation Divestiture; 2) the alleged sale of
Synchronoss stock, while certain Defendants were in possession of non-public information

concerning the Activation Divestiture and the need to restate the Company’s financial statements;
and 3) the failure to exercise care in the management and administration of the Company’s affairs.
See Am. Compl. ¶¶228-233.
In support of demand futility, Plaintiff argues that demand would have been futile with
respect to seven of the ten members: Waldis, Cadogan, Hopkins, Lurie, Baker, Berger, and
Aquilina.3 Plaintiff does not argue that demand would have been futile with respect to the three
remaining Board members: Rinne, Gyani, and Harris, and presumably, Plaintiff concedes that they

3 Throughout this Opinion, I shall refer to Lurie, Baker, Berger and Aquilina as the “Non-
Defendant Directors.”
were disinterested and independent for purposes of the demand futility analysis. Plaintiff, like on
the prior motion, argues that demand is excused with respect to the Director Defendants because
they face a substantial risk of liability for (1) pervasive oversight failures relating to the accounting
restatement; (2) the Company’s misleading disclosures relating to the Activation Divestiture and

the $9.2 million in revenue recognized in the fourth quarter of 2016; and (3) insider trading on the
basis of material non-public information in violation of Delaware law.” Pl. Br. at 18. In addition
to those reasons, Plaintiff raises a new basis for finding demand futility, arguing that the Director
Defendants were motivated primarily by non-corporate considerations, such as retaining their seats
on the board of directors, and therefore, provided Siris with various benefits at the expense of the
shareholders, in order to avoid a proxy contest, in violation of Unocal Corp. v. Mesa Petroleum
Co., 493 A.2d 946 (Del. 1985).4 Id. at 29-34. With respect to the non-Defendant Directors,
Plaintiff asserts that demand is excused as to Lurie because Synchronoss’ own proxy statement
“concedes he is not independent,” and that as the former president and CEO of AT&T, he was
interested in the Activation Divestiture. id. at 36-37. As to Baker, Berger, and Aquilana, Plaintiff

argues that they are “interested” because of their dual role as fiduciaries of both Siris and
Synchronoss, and because Siris profited from the purchase of Intralinks. Id. at 35-36.
Notably, Plaintiff’s demand futility allegations against the Non-Defendant Directors only
implicate their ability to act in a disinterested fashion with respect to the Activation Divestiture
and the transactions with Siris. Plaintiff has not alleged any facts suggesting that the Non-

4 In dismissing Plaintiff’s prior complaint, I permitted her to re-allege the allegations with
respect to demand futility; this was not intended to be carte blanche for Plaintiff to incorporate
new claims; to the extent Plaintiff wished to do so the proper procedure would have been for
Plaintiff to file a motion for leave to amend before the Magistrate Judge. Nonetheless, the Court
will consider Plaintiff’s Unocal claim, and whether Plaintiff has adequately alleged demand futility
with respect to that claim.
Defendant Directors would be unable to act in a disinterested or independent fashion regarding the
other two bases for liability against the Director Defendants -- the insider trading claim or the
Caremark claim emanating from the accounting restatement. Indeed, the non-Director Defendants
were not on the Board at the time of those events, such that Plaintiff could allege that they face a

“a substantial threat of personal liability” rendering them interested in the outcome of the litigation.
Steinberg on behalf of Hortonworks, Inc. v. Bearden, No. 2017-0286, 2018 WL 2434558, at *6
(Del. Ch. May 30, 2018) (internal quotation marks omitted). Nor has Plaintiff specifically alleged
that Baker, Berger, and Aquilina are “so beholden to an interested director,” that they would be
unable to impartially consider demand with respect to any and every claim involving the Director
Defendants, who were board members during the time period contemporaneous with the
transactions in the Amended Complaint. Rales, 634 A.2d at 936.
Thus, even assuming, arguendo, that the Director Defendants face substantial risk of
liability with respect to all of the claims asserted in the Amended Complaint, that would only
render demand futile as to them, and not the Non-Defendant Directors. Put differently, Plaintiff

has not proffered any basis for this Court to find that demand would be futile as to the Non-
Defendant Directors on the insider trading claim, or Caremark claims, and absent such allegations,
Plaintiff is unable to establish demand futility on those claims, because even assuming that demand
was futile as to the Director Defendants, Plaintiff would, nonetheless, fall two directors short of
alleging that a majority of the Current Board was unable to consider a demand impartially. See In
re Ezcorp, Inc. Consulting Agmt. Deriv. Litig., 2016 WL 301245, at *34 (Del. Ch. Jan. 25, 2016)
(“To determine whether the Board could properly consider a demand, a court counts heads.”);
Tilden v. Cunningham, No. 2017-0837-, 2018 WL 5307706, at *10 (Del. Ch. Oct. 26, 2018)
(explaining that although the board of directors consisted of eight members, “[f]or purposes
of demand futility . . . the Court will focus on Aldrich, Atwell, Clendening, Gardner and Proctor,
the five Demand Board members who indisputably joined the Board after any challenged conduct
occurred.”) Accordingly, this Opinion only addresses Plaintiff’s demand futility arguments with
respect to the four Non-Defendant Directors, regarding the claims stemming from the Activation

Divestiture and the Siris transactions.
1. Whether Demand is Excused as to the Non-Defendant Directors
Under Delaware law, directors are “presumed to be independent” for purposes of
evaluating demand futility. Beam, 845 A.2d at 1055. “Independence means that a director's
decision is based on the corporate merits of the subject before the board rather than extraneous
considerations or influences.” Aronson, 473 A.2d at 816 In order to overcome the presumption
of a director’s independence, a plaintiff must plead “facts from which the director's ability to act
impartially on a matter important to the interested party can be doubted because that director may
feel either subject to the interested party's dominion or beholden to that interested party.”

Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (internal quotation omitted). A director is
considered interested in the outcome of the transaction, “where he or she will receive a personal
financial benefit from a transaction that is not equally shared by the stockholders.” Rales, 634
A.2d at 934.; see also Cumming v. Edens, 2018 WL 992877, at *12 (Del. Ch. Feb. 20, 2018) (“The
court will deem a director ‘interested’ for purposes of the [ demand futility] analysis when he stood
on both sides of the transaction at issue or stood to receive a material benefit that was not to be
received by others.”). Furthermore, a director may also be interested in a transaction where a
plaintiff alleges facts demonstrating that “a given director is dominated through a close personal
or familial relationship or through force of will, or is so beholden to an interested director that his
or her discretion would be sterilized.” In re Info USA, Inc, 953 A.2d at 98; see also Beam, 845
A.2d at 1051-52 (a director is beholden to an interested director where their relationship is so close
“the non-interested director would be more willing to risk his or her reputation than risk the
relationship with the interested director”).
i. Lurie

Plaintiff argues that demand is excused with respect to Glenn Lurie because, “[t]he
Company’s own proxy statement concedes that Lurie is not independent,” under the Nasdaq rules.5
Pl. Br. at 36; see also Am. Compl. ¶222. Moreover, Plaintiff emphasizes that at the time of the
Activation Divestiture, Lurie served as President and CEO of AT&T’s Mobility and Consumer
Operations, and one of Synchronoss’s stated goals for that transaction was to please AT&T. Id.
Plaintiff insists that according to a Board presentation from November 30, 2016, Lurie was “highly
supportive” of the transaction.” Id. As such, Plaintiff contends that Lurie has a conflict of interest,
and cannot now be expected to take action against Waldis and the other Director Defendants with
respect to a transaction that he supported in his role at AT&T. Id.

In response, Defendants aver that under Delaware law, “a board’s determination of director
independence under the [exchange] Rules is qualitatively different from” a court’s analysis of
independence under the demand futility analysis. Def. Br. at 36-37. Additionally, Defendants
reason that Lurie’s support for the Activation Divestiture, prior to joining the Synchronoss Board,

5 The Amended Complaint does not identify the specific proxy statement, at issue. However,
the Synchronoss December 31, 2017 Form 10-K provides, “Our Board also consults with our legal
counsel to ensure that its determinations are consistent with all relevant laws and regulations
regarding the definition of independence, including those set forth in pertinent listing standards of
the Nasdaq Global Market . . . as amended from time to time. Consistent with those considerations,
after review of all relevant transactions or relationships, our Board has affirmatively determined
that all of our directors are independent directors within the meaning of the applicable Nasdaq
listing standards except for Stephen G. Waldis, who serves as our Executive Chairman, and Glenn
Lurie, who serves as our CEO.” See Pl. Opp, Ex. A., at 194.
does not render him “interested” for purposes of determining demand futility. Id. at 38.
Defendants contend that even if Lurie’s purported support for the Activation Divestiture rendered
him conflicted with respect to that transaction, it would not impact his independence with respect
to the remainder of the claims alleged in the Complaint. Id. at 38. I find Plaintiff’s allegations

with respect to Lurie unavailing. The Delaware Chancery Court has explained that:
The fact that directors qualify as independent under the NYSE rules
does not mean that they are necessarily independent under our law
in particular circumstances, the NYSE rules governing director
independence were influenced by experience in Delaware and other
states and were the subject of intensive study by expert parties. They
cover many of the key factors that tend to bear on independence,
including whether things like consulting fees rise to a level where
they compromise a director's independence, and they are a useful
source for this court to consider when assessing an argument that a
director lacks independence.

In re MFW S'holders Litig., 67 A.3d 496, 510 (Del. Ch. 2013), aff'd sub nom. Kahn v. M & F
Worldwide Corp., 88 A.3d 635 (Del. 2014). “[C]ourts have determined that being deemed ‘not
independent’ for Nasdaq purposes does not bear upon independence for demand futility
purposes.”. In Sandys v. Pincus, 152 A.3d 124, 132 (Del. 2016), upon which Plaintiff relies, the
Delaware Supreme Court admittedly found a company’s determination that two directors were not
independent under the Nasdaq rules relevant to the demand futility analysis. Id. at 131-133.
However, the Court explained that independence, within the demand futility analysis, “is context
specific and does not perfectly marry with the standards of the stock exchange,” and then it
proceeded to analyze the specific circumstances presented in that matter. Id. Most relevant, while
the board in that case did not disclose precisely those two directors were interested, the Court
found that the two directors in that case were listed as non-independent because they had “a
relationship which, in the opinion of the company’s board of directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director.” Id. at 133
(quoting Nasdaq Marketplace Rule 5605(a)(2)). The Court further noted that both of those
directors had a variety of business connections to the company’s controlling shareholder, who held
61% of the company’s voting shares. Id. at 133-34. Thus, Sandys’ holding rested on both the
existence of a “mutually beneficial ongoing business relationship” between the two directors and

the controlling shareholder and the company's designation of the board members as non-
independent under the Nasdaq criteria. Id. Those facts are distinguishable from the present
matter. Id. Here, the Company’s determination that Lurie was interested under the Nasqaq rules
may be informative to the demand futility analysis, but it is not determinative. The mere fact that
Lurie is identified in a Proxy as not being independent within the meaning of the Nasdaq, is not,
alone, sufficient to find that he would not be capable of acting in a disinterested fashion in the face
of demand. Critically, Plaintiff has not precisely identified why the Board made the determination
that Lurie was not independent, such that the Court can assess how that factor impacts the demand
futility analysis, which is a context specific analysis. The Board most likely determined that Lurie
was “interested” within the meaning of the Nasqaq rules because he was then-employed as the

Company’s CEO. See Nasqaq Rule 6504 (“‘Independent Director’ means a person other than an
Executive Officer or employee of the Company or any other individual having a relationship
which, in the opinion of the Company's board of directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director .. . .“[t]he following persons
shall not be considered independent: (A) a director who is, or at any time during the past three
years was, employed by the Company”). However, “[u]nder Delaware law, merely being
employed by a corporation is not, by itself, sufficient to create a reasonable doubt as to the
independence of a director,” for demand futility purposes. In re NutriSystem, Inc. Derivative
Litig., 666 F. Supp. 2d 501, 515 (E.D. Pa. 2009). Accordingly, I do not find that the Company’s
determination that Lurie was an “interested director,” under the Nasdaq rules, sufficient to
establish that he could not impartially consider demand for claims related to the Activation
Divestiture.
Further, while Plaintiff has alleged that Lurie was “in favor” of the Activation Divestiture,

in his capacity as AT&T’s CEO nearly one year before he joined Synchronoss, that is also
insufficient to establish that Lurie would have been interested respect to claims stemming from the
Activation Divestiture. Indeed, under Delaware law, “mere directorial approval” of a transaction,
absent other allegations demonstrating that the director benefitted from the transaction, is
insufficient to establish demand futility. Aronson, 473 A.2d at 814. Here, Plaintiff has not alleged
that Lurie, or even AT&T, who employed Lurie at the time of the Activation Divestiture, stood to
receive any “material” benefit from the transaction. Rales, 634 A.2d at 934; Marchand, 212 A.3d
at 818 (a director is considered interested in the outcome of the transaction, “where he or she will
receive a personal financial benefit from a transaction that is not equally shared by the
stockholders.”). Critically, AT&T was not the purchaser in the Activation Divestiture, or remotely

affiliated with Omniglobe, such that Plaintiff could allege that Lurie would directly benefit from
the transaction. Accordingly, I find that Plaintiff has not alleged facts suggesting that demand
would have been futile with respect to Lurie.
i. Baker, Berger and Aquilina
Frank Baker and Peter Berger are each a Co-Founder and Managing Partner of Siris, and
they joined the Synchronoss Board of Directors following Siris’ 2017 investment in the Company.
Am. Compl. at ¶18. Similarly, Robert Aquilana, who joined the Board in April 2018, is an
Executive Partner at Siris, and was appointed pursuant to the Investor Rights Agreement between
Siris and Synchronoss. Id. at 223 n. 9. Based on their positions, Plaintiff argues that demand is
excused as to those individuals because they are “dual fiduciaries” and “are neither independent
nor disinterested with respect to Synchronoss and Siris.” Pl. Br. at 34-35. Plaintiff emphasizes that
Siris benefitted from, and continues to benefit by virtual of the interest from its investment, the
transactions with Synchronoss. Id.

In response, Defendants contend that demand is not excused as to Baker, Berger, or
Aquilina, because the Amended Complaint does not include any allegations “supporting the
contention that any of them lack independence from, or are allegedly beholden to, any director
Defendant.” Def. Br. at 39. Moreover, Defendant emphasizes that the mere fact that Siris and
Synchronoss engaged in a transaction before Baker, Berger, and Aquilina joined the Synchronoss
Board is not sufficient to establish demand futility on the claims stemming from the Siris
transactions. Id. at 49-40.
In order to show that demand is futile with respect to Baker, Berger and Aquilina, plaintiff
must allege particularized facts which raise a reasonable doubt that they would be incapable of
acting on demand without falling subject to extraneous considerations or influences. Aronson,

473 A.2d at 816. Here, Plaintiff alleges two disabling considerations with respect to these
directors: (1) their status as dual fiduciaries of both Synchronoss and Siris, and (2) that they were
nominated to the Board by Siris, which benefitted substantially from the transactions with
Synchronoss, i.e., 1) by securing the investor rights agreement which allowed Siris to appoint these
individuals to the Board; 2) purchasing Intralinks, which Siris later resold for a profit; and 3) the
ongoing interest from Siris investment in Synchronoss. I find these bases insufficient to establish
that Baker, Berger and Aquilina could not have impartially considered demand.
Directors who sit on the board of directors of two corporations, are “dual fiduciaries” of
the entities, who owe both entities fiduciary duties. See Weinberger v. UOP, Inc. 457 A.2d 701,
703 (Del. 1983). As such, one “[c]lassic example[] of director self-interest in a business transaction
involve[s] either a director appearing on both sides of a transaction or a director receiving a
personal benefit from a transaction not received by the shareholders generally.” Cede & Co. v.
Technicolor, Inc., 634 A.2d 345, 362 (Del. 1993). With respect to such transactions “[i]f the

interests of the beneficiaries to whom the dual fiduciary owes duties diverge, the fiduciary faces
an inherent conflict of interest.” Weinberger, 457 A.2d at 703. However, “[i]f the interests of the
beneficiaries are aligned, then there is no conflict.” Id. Moreover, a director may also be found
to lack independence, “when a director is employed by or receives compensation from other
entities, and where the interested party who would be adversely affected by purs[u]ing litigation
controls or has substantial influence over those entities, a reasonable doubt exists about that
director’s ability to impartially consider a litigation demand.” In re EZCORP Inc. Consulting
Agreement Derivative Litig., 2016 WL 301245, at *34 (quoting Beam, 845 A.2d at 1049).
As members of the Current Board, and individuals who are also affiliated with Siris, Baker,
Berger, and Aquilina are “dual fiduciaries” rendering them interested in any subsequent

transactions between Siris and Synchronoss. See e.g. Krasner v. Moffett, 826 A.2d 277, 283 (Del.
2003) (“[T]hree of the FSC directors ... were interested in the MEC transaction because they served
on the boards ... of both MOXY and FSC.”); Goldman v. Pogo.com Inc., 2002 WL 1358760, at *3
(Del. Ch. June 14, 2002) (“Because Khosla and Wu were the representatives of shareholders
which, in their institutional capacities, [were] both alleged to have had a direct financial interest in
this transaction, a reasonable doubt is raised as to Khosla and Wu's disinterestedness in having
voted to approve the ... [l]oan.”). However, Baker, Berger, and Aquilina were not members of the
Synchronoss’s board of directors at the time Synchronoss negotiated and finalized the two
transactions with Siris, and did not constitute “dual fiduciaries,” at the time that transaction was
executed. Thus, the instant matter is distinct from the typical dual fiduciary matter, where the
plaintiff challenges a self-interested transaction. In other words, contrary to Plaintiff’s assertions
Baker, Berger, and Aquilina did not stand “on both sides” of the transactions between Synchronoss
and Siris because they were not yet directors of Synchronoss when the two companies executed

the deals. C.f. Weinberger, 457 A.2d at 710 (holding that officers of parent corporation faced
conflict of interest when acting as subsidiary directors regarding transaction with parent because
officers were dual fiduciaries at the time of the transaction). An argument could be made, however,
that these individuals, by virtue of their current affiliation with Siris, would be unlikely to fairly
consider demand on any claims that involve Siris. However, Plaintiff has not alleged
particularized facts supporting that theory. Importantly, Siris is not a defendant in the instant
lawsuit, such that it could be said that Siris is an “interested party who would be adversely affected
by” the current litigation. EZCORP Inc. Consulting Agreement Derivative Litig., 2016 WL
301245, at *36; c.f. Sciabacucchi v. Liberty Broadband Corp., No. 11418-, 2018 WL 3599997, at
*12 (Del. Ch. July 26, 2018) (finding that a director was beholden to defendant, and therefore,

could not impartially consider demand for claims against defendant, who was both the chairman
of the board and 25% stockholder of the company that employed that director ). More to the point,
Siris, Baker, Berger and Aquilina are not named as defendants in this action, nor has Plaintiff
alleged that there is any possibility that this action could result in the unwinding of Siris’
transaction with Synchronoss, such that Siris faces any potential risk of harm from this lawsuit.
Rather, Plaintiff seeks to hold Defendants, members of the Prior Board who approved the
transactions with Siris, personally liable. Because Baker, Berger, Aquilina were not board
members then, they face no threat of liability. Accordingly, I do not find that Baker, Berger, and
Aquilina’s status as the co-founders or officers of Siris, respectively, creates reasonable doubt that
they could act impartially to consider demand against the Director Defendants with respect to the
Siris transactions.
Further, the fact that Baker, Berger and Aquilina obtained their seats on the Board as a
result of Siris transactions, wherein Siris obtained, inter alia, the right to approve four members

of the Synchronoss Board of Directors, is also insufficient to render them incapable of acting
disinterested in the face of demand. See Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera,
119 A.3d 44, 68 (Del. Ch. 2015) (finding that the fact that an alleged controlling stockholder,
“played some role in the nomination process should not, without additional evidence,
automatically foreclose a director's potential independence, with respect to transaction between
corporation and controlling shareholder”); Fin. Hldgs. LLC S'holder Litig., 101 A.3d 980, 996
(Del. Ch. 2014) (“It is well-settled Delaware law that a director's independence is not
compromised simply by virtue of being nominated to a board by an interested stockholder.”). A
“director's nomination or election at the behest of a controlling shareholder is not enough to show
a lack of independence because that “is the usual way a person becomes a corporate director.”

Kanter, 489 F.3d at 179 (quoting Aronson, 473 A.2d at 816.) Rather, to determine independence,
it is the “care, attention and sense of individual responsibility to the performance of one's duties,
not the method of election” that matters. Id. In Baira, the plaintiffs alleged that demand was futile
with respect to claims arising from certain transactions entered into between Orbitz Woldwide,
Inc, and its parent company and controlling shareholder, Travelport Limited (“Travelport”). 119
A.3d at 47-49. The plaintiff argued that one of Orbitz’s directors, Kenneth Esterow, could not
impartially consider demand because he had previously served as an executive at Travelport for
16 years, and was appointed to the Orbitz Board as a “loyalty appointment” three months after
leaving Travelport. Id. at 59. The court found the inference that Esterow “was nominated by or
elected at the behest of Travelport, which had the ability to control[ ] the outcome of a corporate
election by virtue of its majority interest when Esterow joined the Orbitz board, does not overcome
his presumed independence” Id. at 60 (internal quotation marks omitted). Similarly, here, I do
not find that Berger, Baker, and Aquilina’s presumption of independence is overcome by virtual

of the fact that they were Siris’s nominees to the Board of Directors.
Having found that demand is not excused with respect to the four non-Defendant Directors
on the claims involving the Activation Divestiture and the Siris transactions with Siris, I need not
addresses the parties’ arguments with respect to the Director Defendants on these claims. As
explained, supra, in order to survive a motion to dismiss based on failure to allege demand futility,
Plaintiff “stockholder must show that a ‘majority’ of the directors could not impartially consider a
demand.” Beneville, 769 A.2d at 82. Because the Current Board consists of ten members, Plaintiff
is required to allege sufficient facts demonstrating that demand would have been excused as to at
least five members, and even if I concluded that demand was excused with respect to Waldis,
Cadogan, and Hopkins, Plaintiff would be two member short of a “majority” of the Board.

Accordingly, the Amended Complaint is be dismissed for failure to plead demand futility pursuant
to Federal Rule of Procedure 23.
IV. CONCLUSION
For the foregoing reasons, Defendants’ motion is GRANTED. Plaintiff has not alleged
facts demonstrating that a majority of the Board of Directors, as it existed at the time the Amended
Complaint was filed, would not have acted in a disinterested and independent fashion in the face
of demand. Accordingly, Plaintiff has not shown that demand was excused, and the Complaint is
dismissed.
Dated: April 30, 2021 /s/ Freda L. Wolfson
Hon. Freda L. Wolfson
U.S. Chief District Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10270538. Public record. Not legal advice.