throbber
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`CONSOLIDATED
`C.A. No. 2020-0767-PAF
`(cid:51)(cid:56)(cid:37)(cid:47)(cid:44)(cid:38)(cid:3)(cid:57)(cid:40)(cid:53)(cid:54)(cid:44)(cid:50)(cid:49)
`(cid:41)(cid:76)(cid:79)(cid:72)(cid:71)(cid:29)(cid:3)(cid:41)(cid:72)(cid:69)(cid:85)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:20)1(cid:15)(cid:3)(cid:21)(cid:19)(cid:21)(cid:21)
`
`)))
`
`IN RE VAXART, INC.
`STOCKHOLDER LITIGATION
`
`SUPPLEMENTAL REPLY BRIEF IN FURTHER SUPPORT
`OF THE VAXART DEFENDANTS’ MOTION TO DISMISS
`
`OF COUNSEL:
`
`Riccardo DeBari
`Renee Zaytsev
`THOMPSON HINE
`335 Madison Avenue, 12th Floor
`New York, New York 10017
`(212) 344-5680
`
`Dated: February 4, 2022
`
`Brock E. Czeschin (#3938)
`Andrew L. Milam (#6564)
`RICHARDS, LAYTON & FINGER, P.A.
`One Rodney Square
`920 North King Street
`Wilmington, Delaware 19801
`(302) 651-7700
`
`Attorneys for Defendants Andrei Floroiu,
`Wouter W. Latour, Todd Davis, Michael
`J. Finney, Robert A. Yedid, Anne M.
`VanLent and Nominal Defendant Vaxart,
`Inc.
`
`EFiled: Feb 11 2022 12:14PM EST
`Transaction ID 67309261
`Case No. 2020-0767-PAF
`
`

`

`TABLE OF CONTENTS
`
`B.
`
`Page
`TABLE OF AUTHORITIES.....................................................................................ii
`PRELIMINARY STATEMENT ...............................................................................1
`ARGUMENT.............................................................................................................2
`I.
`PLAINTIFFS’ DISCLOSURE CLAIM (COUNT II) SHOULD
`BE DISMISSED AGAINST ALL DIRECTOR DEFENDANTS........2
`A.
`Plaintiffs Have Not Pled that Latour Was Conflicted or
`Acted in Bad Faith, as Required to State a Non-Exculpated
`Disclosure Claim. .......................................................................2
`Latour Did Not Withhold Material Information from the
`Board...........................................................................................9
`The Disclosure Claim is Moot..................................................13
`C.
`PLAINTIFFS’ DERIVATIVE UNJUST ENRICHMENT
`CLAIM (COUNT III) SHOULD ALSO BE DISMISSED. ...............17
`A.
`Plaintiffs Lack Standing to Challenge the March and April
`Awards, Including the Sole Award to Latour...........................17
`Plaintiffs Have Not Pled Demand Futility or Stated a
`Claim.........................................................................................19
`1.
`Plaintiffs Do Not Adequately Plead a Conflict. .............19
`2.
`Plaintiffs Have Not Otherwise Rebutted the
`Business Judgment Rule.................................................20
`CONCLUSION .......................................................................................................25
`
`II.
`
`B.
`
`i
`
`

`

`TABLE OF AUTHORITIES
`
`Page
`
`CASES
`In re 3COM Corp. S’holders Litig.,
`1999 WL 1009210 (Del. Ch. Oct. 25, 1999)..................................................9, 24
`Abrams v. Wainscott,
`2012 WL 3614638 (D. Del. Aug. 21, 2012).......................................................21
`Arnold v. Soc’y for Sav. Bancorp, Inc.,
`1995 WL 376919 (Del. Ch. June 15, 1995), aff’d, 678 A.2d 533
`(Del. 1996)..........................................................................................................17
`Desimone v. Barrows,
`924 A.2d 908 (Del. Ch. 2007) ......................................................................18, 22
`In re Essendant, Inc. S’holder Litig.,
`2019 WL 7290944 (Del. Ch. Dec. 30, 2019) ...................................................2, 3
`Firefighters’ Pension Sys. v. Presidio, Inc.,
`251 A.3d 212 (Del. Ch. 2021) ......................................................................11, 13
`Frank v. Elgamal,
`2014 WL 957550 (Del. Ch. Mar. 10, 2014) .......................................................23
`Galindo v. Stover,
`2022 WL 226848 (Del. Ch. Jan. 26, 2022) ..........................................................9
`Globis P’rs, L.P. v. Plumtree Software, Inc.,
`2007 WL 4292024 (Del. Ch. Nov. 30, 2007).....................................................11
`HMG/Courtland Props., Inc. v. Gray,
`749 A.2d 94 (Del. Ch. 1999) ..............................................................................16
`In re INFOUSA, Inc. S’holders Litig.,
`953 A.2d 963 (Del. Ch. 2007) ............................................................................24
`
`ii
`
`

`

`In re Investors Bancorp, Inc. Stockholder Litigation,
`177 A.3d 1208 (Del. 2017).................................................................................20
`Kahn v. Household Acquisition Corp.,
`591 A.2d 166 (Del. 1991).....................................................................................8
`Klein v. H.I.G. Capital, L.L.C.,
`2018 WL 6719717 (Del. Ch. Dec. 19, 2018) .....................................................13
`Lenois v. Lawal,
`2017 WL 5289611 (Del. Ch. Nov. 7, 2017).......................................................13
`London v. Tyrrell,
`2010 WL 877528 (Del. Ch. Mar. 11, 2010) .......................................................19
`Loudon v. Archer-Daniels-Midland Co.,
`700 A.2d 135 (Del. 1997)...................................................................................14
`Mills Acquisition Co. v. Macmillan, Inc.,
`559 A.2d 1261 (Del. 1989).................................................................................12
`Morrison v. Berry,
`191 A.3d 268 (Del. 2018).............................................................................10, 12
`Morrison v. Berry,
`2019 WL 7369431 (Del. Ch. Dec. 31, 2019) .............................................2, 3, 12
`Oliver v. Bos. Univ.,
`2006 WL 1064169 (Del. Ch. Apr. 14, 2006)......................................................14
`Omnicare, Inc. v. NCS Healthcare, Inc.,
`809 A.2d 1163 (Del. Ch. 2002) ..........................................................................18
`In re Oracle Corp., Deriv. Litig.,
`867 A.2d 904 (Del. Ch. 2004), aff’d, 824 A.2d 917 (Del. 2005) .......................24
`In re Pattern Energy Grp. Inc. S’holders Litig.,
`2021 WL 1812674 (Del. Ch. May 6, 2021) ...........................................10, 11, 12
`
`iii
`
`

`

`City of Fort Myers Gen. Ems.’ Pension Fund v. Haley,
`235 A.3d 702 (Del. 2020).....................................................................................9
`Pfeiffer v. Leedle,
`2013 WL 5988416 (Del. Ch. Nov. 8, 2013).................................................21, 22
`City of Warren Gen. Emps.’ Ret. Sys. v. Roche,
`2020 WL 7023896 (Del. Ch. Nov. 30, 2020).....................................................12
`Ryan v. Gifford,
`918 A.2d 341 (Del. Ch. 2007) ............................................................................21
`Sanders v. Wang,
`1999 WL 1044880 (Del. Ch. Nov. 8, 1999).................................................21, 22
`Shaev v. Adkerson,
`2015 WL 5882942 (Del. Ch. Oct. 5, 2015)........................................................15
`Spiegel v. Buntrock,
`571 A.2d 767 (Del. 1990)...................................................................................18
`Steinhardt v. Howard-Anderson,
`2012 WL 29340 (Del. Ch. Jan. 6, 2012) ............................................................17
`In re Synthes, Inc. S’holder Litig.,
`50 A.3d 1022 (Del. Ch. 2012) ............................................................................11
`In re Transkaryotic Therapies, Inc.,
`954 A.2d 346 (Del. Ch. 2008) ............................................................................14
`In re Triarc Cos. Class & Deriv. Litig.,
`791 A.2d 872 (Del. Ch. 2001) ............................................................................13
`In re TrueCar, Inc. S’holder Deriv. Litig.,
`2020 WL 5816761 (Del. Ch. Sept. 30, 2020)...................................................6, 8
`In re Tyson Foods, Inc. Consol. S’holder Litig.,
`919 A.2d 563 (Del. Ch. 2007) ............................................................................16
`
`iv
`
`

`

`United Food & Commercial Workers Union & Participating Food Industry
`Employers Tri-State Pension Fund v. Zuckerberg,
`262 A.3d 1034 (Del. 2021)...........................................................................19, 20
`Weiss v. Swanson,
`948 A.2d 433 (Del. Ch. 2008) ................................................................21, 22, 23
`Yan v. ReWalk Robotics Ltd.,
`973 F.3d 22 (1st Cir. 2020) ..................................................................................8
`STATUTES & RULES
`26 C.F.R.§1.409A-1(b)(5)(vi)(B)(1) .........................................................................6
`8 Del. C. § 102(b)(7) .........................................................................................23, 24
`8 Del. C. § 327.........................................................................................................18
`
`v
`
`

`

`The Vaxart Defendants respectfully submit this supplemental reply brief in
`
`response to the Court’s December 6, 2021 letter and in further support of their
`
`motion to dismiss the Verified Derivative and Class Action Complaint.1
`
`PRELIMINARY STATEMENT
`Plaintiffs’ opposition concedes that, under the Assumptions, the disclosure
`
`claim should be dismissed against all of the Director Defendants other than Latour.
`
`But even as to Latour, Plaintiffs’ claim fails because it does not identify any reason
`
`for Latour to intentionally conceal positive information about Vaxart’s participation
`
`in a non-human primate study.
`
`Further, Plaintiffs’ entire case rests on the illogical and unsupported
`
`assumption that this positive news would have caused stockholders to vote down the
`
`Plan Amendment. Stockholders, however, approved the Plan Amendment with full
`
`knowledge that the March and April Awards were already in the money and they
`
`then subsequently voted to approve Amendment No. 2 even after they learned about
`
`the non-human primate study. Plaintiffs do not explain how the Court can order a
`
`new vote on a Plan Amendment that no longer exists or how rescission—which they
`
`cannot even seek other than in a derivative capacity—would redress the supposed
`
`1 Unless otherwise defined, all capitalized terms have the meanings set forth in the
`Vaxart Defendants’ supplemental opening brief. “Ex.” refers to documents attached
`to the Vaxart Defendants’ transmittal declarations. (See Opening Brief at 1 n.1).
`1
`
`

`

`“harm” when, if anything, disclosure of the non-human primate study would only
`
`have made it more likely that the Plan Amendment would be approved.
`
`In sum, Plaintiffs’ claims are not only defective, they are also futile. The
`
`remainder of the Complaint should be dismissed.
`
`I.
`
`ARGUMENT
`PLAINTIFFS’ DISCLOSURE CLAIM (COUNT II) SHOULD BE
`DISMISSED AGAINST ALL DIRECTOR DEFENDANTS.
`A.
`Plaintiffs Have Not Pled that Latour Was Conflicted or Acted in
`Bad Faith, as Required to State a Non-Exculpated Disclosure
`Claim.
`Plaintiffs concede that, under the Assumptions, they have no viable disclosure
`
`claim against the seven Vaxart directors who did not know that Vaxart had been
`
`invited to participate in a non-human primate study at the time of the 2020 Annual
`
`Meeting. Instead, their opposition focuses entirely on one director: Latour. But even
`
`as to Latour, Plaintiffs cannot plead a viable disclosure violation because the
`
`Complaint fails to plead an essential element of a non-exculpated claim: bad faith.
`
`See, e.g., Morrison v. Berry, 2019 WL 7369431, at *18 (Del. Ch. Dec. 31, 2019); In
`
`re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *11-12 (Del. Ch. Dec. 30,
`
`2019).
`
`Seeking to deflect from this obvious pleading deficiency, Plaintiffs contend
`
`that bad faith is not required where a director is conflicted. (Suppl. Opp’n Br. at 10).
`
`2
`
`

`

`Plaintiffs, however, do not challenge Latour’s independence with respect to the Plan
`
`Amendment. Moreover, Plaintiffs’ sole interestedness argument—that Latour
`
`benefited from the March Award—ignores that the Court has already held that the
`
`Complaint fails to plead that this benefit was material, as required for a disabling
`
`conflict. (Mem. Op. at 54 n.206) (“Plaintiffs . . . fail to plead that the stock options
`
`were a material benefit to each of the Stock Option Recipients.”).
`
`Absent a disabling conflict, there is no dispute that Plaintiffs are required to
`
`plead bad faith, which requires an “intentional” omission, as opposed to one
`
`resulting from a mere “error of judgment or gross negligence.” Morrison, 2019 WL
`
`7369431, at *18. Any such claim, however, would not be reasonably conceivable
`
`because the Complaint identifies no reason for Latour to mislead stockholders with
`
`respect to the Plan Amendment.
`
`In Essendant, the court dismissed a disclosure claim where, as here, the
`
`plaintiffs relied only on a “conclusory suggestion that the Essendant Board was
`
`intentionally misleading stockholders” but failed to plead “any factual narrative that
`
`would allow any inferential explanation of why these fiduciaries would so abandon
`
`their duties as to engage in bad faith.” 2019 WL 7290944, at *12. Here, too, Plaintiffs
`
`plead no facts to explain why Latour would abandon his duties and conceal any
`
`information from stockholders—much less positive information that, if anything,
`
`3
`
`

`

`would have made adoption of the Plan Amendment more likely. (See § I.C, infra).
`
`Indeed, such an inference is even less plausible given Vaxart’s history of regularly
`
`announcing positive developments in its COVID-19 vaccine program.2
`
`Recognizing that their Complaint omits this critical piece of the puzzle,
`
`Plaintiffs contend—for the first time—that “Latour intentionally withheld [Vaxart’s
`
`invitation to participate in the Operation Warp Speed study] from Vaxart’s
`
`stockholders” so that he could “keep” the March Award. (Suppl. Opp’n Br. at 10).
`
`This argument, however, runs counter to the express allegations of the Complaint,
`
`which pleads a materiality theory based exclusively on the June Awards. Indeed, the
`
`Complaint is crystal clear: it alleges that the Proxy omitted that the Company had
`
`been selected to participate in a non-human primate study and—under a heading
`
`titled “The Uninformed Stockholder Vote”—asserts that this information was
`
`material because “the options to be awarded under the [Plan Amendment] . . . were
`
`significantly more valuable than stockholders could have understood based on the
`
`information available.” (Compl. ¶ 96) (emphasis added). In that same section, the
`
`Complaint goes on to complain that the June 8 Award was granted the “same day”
`
`2 Vaxart’s 2020 press releases are available at: investors.vaxart.com/press-releases.
`4
`
`

`

`as the Annual Meeting (id. ¶ 99) and alleges that the “options awarded under the
`
`[Plan Amendment]” should be “rescinded.” (Id. ¶ 100).3
`
`The only options “to be awarded” under the Plan Amendment were the June
`
`Awards—awards that Latour undisputedly did not receive. (Id. ¶ 96). The March
`
`Award, by contrast, was approved on March 24, 2020—months before the Plan
`
`Amendment was approved (and long before Operation Warp Speed even existed).
`
`(Ex. 4 at 32; see also Mem. Op. at 21-22 (“On March 24, 2020, the Board approved
`
`a grant of time-based stock options covering a total of 2,610,000 shares—including
`
`900,000 shares to Latour. . . .”)). Moreover, at the Annual Meeting, all stockholders
`
`voted on was a Plan Amendment to increase the number of shares available under
`
`the 2019 Plan. They did not vote to approve or grant the March Award. Rather, as
`
`set forth in the Proxy, the March Award had already been “approved” by the Board
`
`in March but would “only be exercisable if stockholders approve[d] the Plan
`
`Amendment.” (Ex. 4 at 22, 32).4
`
`3 Plaintiffs do not address these allegations and instead cite to five different
`paragraphs of the Complaint, none of which articulates a theory based on the March
`Award. Paragraphs 56 and 57 are conclusory allegations that the Board knew about
`the non-human primate study; paragraph 89 is a chart listing the various options
`awards; and paragraphs 175-76 re-allege that the Director Defendants failed to
`supplement the Proxy and seek to rescind the “options awarded under [the 2019]
`plan.”
`4 The Plan confirms that the grant date is the date of Board approval—March 24,
`2020. Section 8(b) of the Plan states that “[c]orporate action constituting a grant by
`5
`
`

`

`Even if the Complaint had pled a materiality theory based on the March
`
`Award, it still would fail to adequately plead bad faith. To start, as noted above, the
`
`Court has already held that “Plaintiffs . . . fail to plead that the stock options were a
`
`material benefit to each of the Stock Option Recipients.” (Mem. Op. at 54 n.206).
`
`Thus, Plaintiffs ask this Court to reach the nonsensical conclusion that Latour
`
`deliberately misled stockholders in order to receive an immaterial benefit.
`
`In addition, any inference of scienter is further undermined because, even
`
`though 25% of Latour’s options had vested and were exercisable by June 2020
`
`(Compl. ¶ 89), Plaintiffs do not allege that Latour sold any of his shares after news
`
`of the non-human primate study was released on June 26, 2020—and in fact he did
`
`not.5 See In re TrueCar, Inc. S’holder Deriv. Litig., 2020 WL 5816761, at *16 (Del.
`
`Ch. Sept. 30, 2020) (holding that allegations did not support scienter because, inter
`
`the Company of an Award to any Participant will be deemed completed as of the
`date of such corporation action, . . . regardless of when the . . . Award is . . . actually
`received or accepted by, the Participant.” (Ex. 4 § 8(b)). Applicable tax laws are in
`accord. See 26 C.F.R.§1.409A-1(b)(5)(vi)(B)(1) (“The language the date of grant of
`the option, and similar phrases, refer to the date when the granting corporation
`completes the corporate action necessary to create the legally binding right
`constituting the option.”); Id. §1.409A-1(b)(5)(vi)(B)(2) (“[I]f the grant of an option
`is subject to approval by stockholders, the date of grant of the option will be
`determined as if the option had not been subject to such approval.”).
`5 The Court can take judicial notice of the absence of any Form 4 filings filed with
`the SEC.
`
`6
`
`

`

`alia, directors were not “alleged to have sold shares” prior to the revelation of the
`
`allegedly material negative information).
`
`Latour, moreover, informed the Board about the non-human primate study at
`
`the first available opportunity: a Board meeting that occurred immediately after the
`
`Annual Meeting. It simply is not reasonably conceivable to infer that Latour
`
`intentionally concealed material information for one morning, only to reveal it later
`
`that day and then do nothing to profit from these supposed machinations.
`
`Latour also had no reason to conceal positive news because, by the time of the
`
`Annual Meeting, the March Award—exercisable at $1.70/share—was already in the
`
`money, as Vaxart’s stock price had risen to approximately $2.50/share. Thus, even
`
`if Latour knew that news of the non-human primate study selection was material, he
`
`had no reason to believe that disclosure of this positive news would jeopardize
`
`approval of the Plan Amendment. Indeed, if anything, the news would have made
`
`the Plan Amendment more likely to be approved. (See § I.C, infra).
`
`Finally, Plaintiffs ignore the multitude of other facts that undercut a finding
`
`of scienter—facts that are equally, if not more, applicable to the March Award:
`
`(cid:3)
`
`Plaintiffs ignore the terms of the 2019 Plan, which, because it expressly
`
`permits below-market options, eliminated any reason for Latour to
`
`deliberately withhold information about the value of any options grant. (Ex. 2
`
`7
`
`

`

`§ 6(d)). Indeed, the question of value was even less relevant to the March
`
`Award, which—contrary
`
`to Plaintiffs’ mischaracterization—was by
`
`definition not spring loaded because they were approved months before
`
`Operation Warp Speed and the non-human primate study even existed.
`
`(cid:3)
`
`Plaintiffs do not dispute that, as of the date of the Annual Meeting, there
`
`was nothing concrete to disclose because Vaxart was merely “negotiating the
`
`relevant documentation” for the non-human primate study. (Compl. ¶ 53). See
`
`Kahn v. Household Acquisition Corp., 591 A.2d 166, 171 (Del. 1991) (no duty
`
`to disclose events that are “tentative” or “ill defined”). “[A] failure to divulge
`
`the details of interim regulatory back-and-forth with the FDA . . . does not
`
`generate a strong inference of scienter.” Yan v. ReWalk Robotics Ltd., 973
`
`F.3d 22, 40 (1st Cir. 2020) (cleaned up).
`
`(cid:3)
`
`Plaintiffs do not and cannot dispute that news of an animal study was a
`
`preliminary development that Latour had no reason to expect would
`
`materially impact Vaxart’s stock price, especially against the backdrop of the
`
`stock’s prior tepid reaction to news of an upcoming human study. (Exs. 11,
`
`35). See TrueCar, 2020 WL 5816761, at *14 (no scienter unless director
`
`“understood . . . significance [of omitted information] to [the company’s]
`
`financial performance”).
`
`8
`
`

`

`(cid:3)
`
` Plaintiffs do not dispute that Latour had no reason to know that news
`
`of an animal study would be material in the context of a plan amendment
`
`because Delaware courts have never squarely considered this issue and, in
`
`fact, the case law that exists suggests that such information is not material in
`
`this context. See, e.g., In re 3COM Corp. S’holders Litig., 1999 WL 1009210,
`
`at *1 (Del. Ch. Oct. 25, 1999). Thus, Latour had no reason to know that
`
`disclosure of options values was required for a fully informed vote on the Plan
`
`Amendment.
`
`Absent a disabling conflict or bad faith, Plaintiffs cannot plead a non-
`
`exculpated disclosure claim against Latour. Thus, Count II should be dismissed.
`
`Latour Did Not Withhold Material Information from the Board.
`B.
`The Court should decline to consider Plaintiffs’ unpled fraud-on-the-board
`
`theory. See Galindo v. Stover, 2022 WL 226848, at *4 n.59 (Del. Ch. Jan. 26, 2022)
`
`(“Plaintiffs’ counsel also suggested that there may have been fraud on the board.
`
`This was not alleged in the Complaint, so I do not consider it an appropriate cause
`
`of action to be addressed here.”) (citation omitted).6 Even if Plaintiffs could belatedly
`
`assert this claim, they have not satisfied any of its elements.
`
`6 Moreover, it is unclear whether the fraud-on-the-board doctrine has any application
`outside the context of a challenge to a company’s sale process. Indeed, each of the
`cases cited by Plaintiffs involved claims that a conflicted fiduciary deceived an
`9
`
`

`

`First, Plaintiffs have not pled that Latour was “materially interested” in the
`
`outcome of the vote on the Plan Amendment. In re Pattern Energy Grp. Inc.
`
`S’holders Litig., 2021 WL 1812674, at *33 (Del. Ch. May 6, 2021) (To succeed on
`
`a fraud-on-the-board theory, “the rogue fiduciary must be materially interested, as
`
`by seeking control or benefit from the company post-merger.”). As discussed above,
`
`Latour did not receive the June Awards and the Court has already held that Plaintiffs
`
`failed to plead that the March Award was “a material benefit.” (Mem. Op. at 54
`
`n.206).
`
`Second, Plaintiffs cannot plead that Latour failed to disclose his interest in the
`
`March Award to his fellow directors. The Board knew about the March Award
`
`because it approved this grant on March 24, 2020. (Ex. 4 at 32). Moreover, the Proxy
`
`expressly disclosed the March Award and the fact that Latour received 900,000
`
`options. (Ex. 4 at 32). The Board likewise was aware of Vaxart’s various positive
`
`announcements regarding its COVID-19 vaccine program, as well as the fact that
`
`independent board into favoring a particular bidder. See City of Fort Myers Gen.
`Ems.’ Pension Fund v. Haley, 235 A.3d 702, 704-05 (Del. 2020) (alleging that CEO
`who spearheaded merger negotiations failed to tell the board about a material
`compensation agreement with the successful bidder); Morrison v. Berry, 191 A.3d
`268, 273-74 (Del. 2018) (alleging that fiduciary tainted sale process by withholding
`material facts about his commitment to the winning buyer).
`10
`
`

`

`Vaxart’s stock price had gone up—and that Latour’s options were thus in the
`
`money—since the March Award was granted. (See Ex. 11).
`
`Third, contrary to Plaintiffs’ contention, Latour did not receive any unique
`
`benefit from the news of Vaxart’s selection to participate in a non-human primate
`
`study. Rather, the news benefitted all stockholders equally in the form of an
`
`increased share price. See In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1035
`
`(Del. Ch. 2012) (“[A] fiduciary’s financial interest in a transaction as a stockholder
`
`(such as receiving liquidity value for her shares) does not establish a disabling
`
`conflict of interest when the transaction treats all stockholders equally . . . .”); Globis
`
`P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *8 (Del. Ch. Nov. 30,
`
`2007) (holding that the acceleration or cashing out of options “is not a personal
`
`financial benefit not equally shared by the stockholders”). Indeed, as the
`
`stockholders’ reaction later confirmed, disclosure of Vaxart’s participation in the
`
`study was welcome news that, if anything, would have made them more likely to
`
`approve the Plan Amendment.
`
`Fourth, as its name suggests, a successful fraud-on-the-board claim requires
`
`actual fraud, as opposed to mere negligence: the fiduciary “must be more than
`
`overweening; he must be fraudulent or outright manipulative.” Pattern, 2021 WL
`
`1812674, at *34; see also Firefighters’ Pension Sys. v. Presidio, Inc., 251 A.3d 212,
`
`11
`
`

`

`273 n.15 (Del. Ch. 2021) (“[T]o plead a claim for the equitable tort of fraud on the
`
`board, a stockholder plaintiff must plead elements resembling a claim for common
`
`law fraud,” including “the deliberate concealment of a material fact.”). For example,
`
`in Morrison, a director not only failed to disclose his material agreement with a
`
`potential purchaser but also “denied” having any such agreement when “specifically
`
`asked” by the special committee. 191 A.3d at 276. Here, by contrast, Plaintiffs plead
`
`no facts to support intentional concealment. (See § I.A, supra).
`
`Fifth, Plaintiffs have not pled that the rest of the Board “permit[ted]” itself to
`
`be deceived by failing in its duty of oversight. Pattern, 2021 WL 1812674, at *34;
`
`see also City of Warren Gen. Emps.’ Ret. Sys. v. Roche, 2020 WL 7023896, at *15
`
`(Del. Ch. Nov. 30, 2020) (dismissing claim that two fiduciaries misled the Board
`
`where complaint did not plead that fiduciaries “took advantage of an inattentive or
`
`ineffective Board”); cf. Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261,
`
`1280 (Del. 1989) (sustaining fraud on the board claim where “[t]he board was torpid,
`
`if not supine, in its efforts to establish a truly independent auction” and improperly
`
`“plac[ed] the entire process in the hands of [a conflicted fiduciary], with little or no
`
`board oversight”).
`
`Finally, Plaintiffs’ fraud-on-the-board claim is derivative, not direct, and thus
`
`fails for failure to plead demand futility. “Just as claims for fiduciary duty (including
`
`12
`
`

`

`claims for breach of the duty of disclosure) can be derivative, direct, or both, so too
`
`it seems likely that depending on the Tooley test, a claim for fraud on the board could
`
`be derivative, direct, or both.” Presidio, Inc., 251 A.3d at 292 n.15. Here, Plaintiffs’
`
`“core grievance” is that the recipients of the March Award “paid the Company too
`
`little” for their stock options. Klein v. H.I.G. Capital, L.L.C., 2018 WL 6719717, at
`
`*7 (Del. Ch. Dec. 19, 2018). Accordingly, “[t]he benefit of any recovery to remedy
`
`this alleged harm logically would go to the Company rather than any specific
`
`stockholder(s) and thus the underlying legal theory is plainly derivative in nature.”
`
`Id.; see also, e.g., In re Triarc Cos. Class & Deriv. Litig., 791 A.2d 872, 874, 878
`
`(Del. Ch. 2001) (finding complaint that “sought equitable relief in the form of
`
`rescission of the options awards and disgorgement to the corporation of the cash
`
`bonuses” was derivative in nature); Lenois v. Lawal, 2017 WL 5289611, at *20 (Del.
`
`Ch. Nov. 7, 2017) (holding that the remedy of rescission “seems quite obviously to
`
`belong to the Company”).
`
`The Disclosure Claim is Moot.
`C.
`Plaintiffs do not dispute that, at the 2021 Annual Meeting in June 2021,
`
`stockholders voted to adopt Amendment No. 2 to the 2019 Plan, which further
`
`increased the shares available for issuance under the Plan. Seeking to avoid a finding
`
`of mootness, Plaintiffs contend that the 2021 vote was not fully informed. (Suppl.
`
`13
`
`

`

`Opp’n Br. at 13). But the 2021 Annual Meeting occurred nine months after Plaintiffs
`
`commenced this action. If Plaintiffs believed that the vote would be uninformed, it
`
`was incumbent upon them to seek corrective disclosures before the vote mooted their
`
`claim. “[A] breach of the disclosure duty leads to irreparable harm. . . . [O]nce this
`
`irreparable harm has occurred—i.e., when shareholders have voted without complete
`
`and accurate information—it is, by definition, too late to remedy the harm.” In re
`
`Transkaryotic Therapies, Inc., 954 A.2d 346, 360-61 (Del. Ch. 2008) (emphasis in
`
`original).
`
`Plaintiffs’ claim, moreover, fails as a matter of law because they do not
`
`identify any cognizable omission. It is undisputed that, by the time of the 2021
`
`Annual Meeting, stockholders were well aware of Vaxart’s participation in a non-
`
`human primate study. Plaintiffs’ sole contention is that the 2021 Proxy omitted that
`
`“Latour withheld material information . . . before the 2020 Annual Meeting” and
`
`that “stock options awarded the previous year under the 2019 Plan were ultra vires
`
`and spring-loaded.” (Suppl. Opp’n Br. at 13). Delaware law, however, does not
`
`require “corporate fiduciaries . . . to confess wrongdoing or engage in self-
`
`flagellation in proxy materials.” Oliver v. Bos. Univ., 2006 WL 1064169, at *31
`
`(Del. Ch. Apr. 14, 2006) (quoting Citron v. E.I. du Pont de Nemours & Co., 584
`
`A.2d 490, 503 (Del. Ch. 1990)); see also Loudon v. Archer-Daniels-Midland Co.,
`
`14
`
`

`

`700 A.2d 135, 143 (Del. 1997) (“The directors’ duty of disclosure does not oblige
`
`them to characterize their conduct in such a way as to admit wrongdoing.”).
`
`Plaintiffs next contend that the stockholders’ approval of Amendment No. 2
`
`has not mooted their claim because the Court has broad equitable powers. (Suppl.
`
`Opp’n Br. at 10). However, Plaintiffs do not explain how the Court can use those
`
`powers here to undo a Plan Amendment that is no longer in effect. See Shaev v.
`
`Adkerson, 2015 WL 5882942, at *12 (Del. Ch. Oct. 5, 2015) (rejecting disclosure
`
`claim as moot where remedy was “no longer practical”). Nor do Plaintiffs explain
`
`why it would be equitable to rescind the stock options awarded pursuant to the Plan
`
`Amendment—all of which went either to directors who acted in good faith or
`
`employees who have nothing to do with the present dispute.
`
`Unable to justify this relief, Plaintiffs abandon it altogether and instead argue
`
`that the Court should rescind the March Award. (Suppl. Opp’n Br. at 10). This
`
`request, however, is not pled in the Complaint, which seeks only rescission of the
`
`“options awarded under [the Plan Amendment]”—not options that were awarded
`
`three months earlier. (Compl. ¶ 176). Indeed, it is undisputed that the March Award
`
`was granted on March 24, 2020—long before the Plan Amendment was approved.
`
`(Ex. 4 at 32; see also Mem. Op. at 21-22). Further, as discussed above, the request
`
`15
`
`

`

`for rescission is derivative and thus fails for failure to plead demand futility. (See §
`
`I.B, supra).
`
`Even if Plaintiffs had requested this relief, it bears no causal relationship to
`
`the alleged harm. Rescission of the March Award illogically assumes that
`
`stockholders would have voted down the Plan Amendment if they had learned
`
`positive news about the non-human primate study. There is no support for this
`
`assumption. By the time of the Annual Meeting, stockholders already knew that both
`
`the March Award (exercisable at $1.70/share) and April Award (exercisable at
`
`$1.71/share) were in the money, as Vaxart’s stock price had risen to approximately
`
`$2.50. (Ex. 11). They nevertheless approved the Plan Amendment. Moreover,
`
`stockholders subsequently went on to approve Amendment No. 2 even after they
`
`learned about Vaxart’s selection for
`
`the non-human primate study. See
`
`HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94, 122 (Del. Ch. 1999) (“craft[ing]
`
`a remedy tailored to the specific facts” in order to “approximate[]” what “would
`
`have [been] approved absent a breach of duty”); In re Tyson Foods, Inc. Con

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