You are on page 1of 27

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK


------------------------------------------------------------------- X
:
R2 INVESTMENTS, LDC, :
:
Plaintiff, :
:
v. :
:
CARL C. ICAHN, CARL J. GRIVNER, VINCENT : Index No. 601296/09
INTRIERI, ADAM DELL, KEITH MEISTER, :
FREDRIK GRADIN, ROBERT KNAUSS, PETER : Hon. Charles E. Ramos, J.S.C.
SHEA, ARNOS CORPORATION, HIGH RIVER :
LIMITED PARTNERSHIP, ACF INDUSTRIES : Motion Sequence No.: 004
HOLDING CORPORATION, STARFIRE :
HOLDING CORPORATION, and :
:
XO HOLDINGS, INC. :
:
Defendants and :
Nominal Defendant. :
:
------------------------------------------------------------------- X

MEMORANDUM OF LAW OF DEFENDANTS CARL C. ICAHN,


CARL J. GRIVNER, VINCENT INTRIERI, KEITH MEISTER, PETER SHEA,
ARNOS CORPORATION, HIGH RIVER LIMITED PARTNERSHIP, ACF
INDUSTRIES HOLDING CORPORATION, STARFIRE HOLDING CORPORATION,
and XO HOLDNGS, INC. IN SUPPORT OF THEIR MOTION TO DISMISS

STORCH AMINI & MUNVES PC HERBERT BEIGEL & ASSOCIATES


Bijan Amini, Esq. Herbert Beigel, Esq. (admitted pro hac vice)
Two Grand Central Tower 63561 East Vacation Drive
140 East 45th Street, 25th Floor Saddlebrooke, AZ 85739
New York, New York 10017 (520) 797-9188
(212) 490-4100
TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .......................................................................................................... ii

I. PRELIMINARY STATEMENT .............................................................................................1

II. STATEMENT OF MATERIAL FACTS ...............................................................................3

A. INTRODUCTION .........................................................................................................3

B. THE 2008 TRANSACTION..........................................................................................4

III. ARGUMENT ..........................................................................................................................6

A. APPLICABLE LEGAL STANDARDS ON A MOTION TO DISMISS......................6

B. COUNTS ONE AND TWO MUST BE DISMISSED BECAUSE


THEY FAIL TO STATE A CAUSE OF ACTION .......................................................6

1. Plaintiff has not, and indeed cannot, allege a lack of independence by the
Special Committee, which approved the Transaction...........................................9

a. Robert Knauss ...............................................................................................11

b. Adam Dell .....................................................................................................12

c. Fredrik Gradin ...............................................................................................13

2. The Special Committee’s actions approving the Transaction are immune to


challenge under the business judgment rule .......................................................14

3. The exculpatory clause of the Certificate of Incorporation insulates the


Defendants from liability ....................................................................................18

C. COUNT THREE DOES NOT STATE A CAUSE OF ACTION FOR WASTE OF


CORPORATE ASSETS ..............................................................................................19

D. COUNT FOUR DOES NOT STATE A DIRECT CAUSE OF ACTION BY


PLAINTIFF AGAINST DEFENDANT CARL ICAHN AND HIS AFFILIATES ....20

E. COUNT FIVE DOES NOT STATE A CAUSE OF ACTION FOR VIOLATION OF


8 DEL. C. §122 AS AN ILLEGAL CORPORATE GIFT ...........................................22

CONCLUSION ..............................................................................................................................23

i
TABLE OF AUTHORITIES

Cases Page:

Aronson v. Lewis,
473 A.2d 805 (Del. 1984) ..........................................................................................8, 9, 12, 14

Beam v. Stewart,
845 A.2d 1040 (Del. 2004) ................................................................................................10, 12

Benefore v. Jung Woong Cha,


C.A. No. 14614, 1998 Del. Ch. Lexis 28 (Del.Ch. Feb. 20, 1998) ..........................................10

Bishop v. Maurer,
33 A.D.3d 497, 498; 823 N.Y.S.2d 36 (1st Dept. 2006),
aff’d 9 N.Y.3d 910, 875 N.E.2d 883, 844 N.Y.S.2d 165 (2007) ...............................................6

Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.),


906 A.2d 27 (2006) ......................................................................................................14, 15, 20

Cal. Pub. Emples Ret. Sys. v. Coulter,


C.A.No. 19191, 002 Del Ch. Lexis 144 (Del Ch. Dec. 18, 2002) ...........................................10

Cincinnati Bell v. Ameritech,


1996 Del. Ch. LEXIS 116 (Del. Ch. Sept. 3, 1996).................................................................18

Gabelli v. Liggett, Group,


1983 Del. Ch. Lexis 418 (Del Ch. 1983) ........................................................................21 n. 22

Gantler v. Stephens,
965 A.2d 695 (Del. 2009) ...................................................................................14, 17, 17 n. 19

Gilbert v. El Paso Corp.,


1988 Del. Ch. LEXIS 150 (Del. Ch. Nov. 21, 1988) ...............................................................22

In Whose Interest: An Examination of the Duties of Directors and Officers in Control Contests,
26 Ariz. St. L.J. 91 (1994) .......................................................................................................11

IT Litig. Trust Inc. v. D'Aniello (IT Group Inc.),


2005 U.S. Dist. LEXIS 27869 (D. Del. Nov. 15, 2005) ..........................................................18

Lewis v. Vogelstein,
699 A.2d 327 (Del. Ch. 1997)..................................................................................................20

Kohls v. Duthie,
765 A.2d 1274 (Del. Ch. 2000)................................................................................................10

ii
Michelson v. Duncan,
407 A.2d 211 (Del. 1979) ........................................................................................................22

Official Comm. of Unsecured Creditors of Integrated Health Servs. v. Elkins,


2004 Del. Ch. LEXIS 122 (Del. Ch. Aug. 24, 2004) .........................................................18, 19

Oliver v. Boston Univ.,


No. 16570, 2000 WL 1091480 (Del. Ch. July 18, 2000)...........................................................7

Potter v. Arrington,
11 Misc. 3d 962, 810 N.Y.S.2d 312 (NY Sup. 2006) .....................................................6 n. 9, 7

Puma v. Marriott,
283 A.2d 693 (Del. Ch. 1971)..................................................................................................20

Rales v. Blasband,
634n A.2d 727 (Del. 1993) ........................................................................................................9

The Defining Tension in Corporate Governance in America,


52 Bus. Law 393 (1997)...........................................................................................................10

Unimarts v. Nirenberg,
1996 Del. Ch. LEXIS 95 (Del. Ch. Aug. 9, 1996) ...................................................................19

Unocal Corp. v. Mesa Petroleum Co.,


493 A.2d 946 (1985) ................................................................................................................17

Winer v. Queen,
503F.3d 319 (3d Cir. 2007).................................................................................................6 n. 9

Statutes:

New York C.P.L.R. § 3014 ..............................................................................................................1

New York C.P.L.R. § 3211(a)(1) and (7) ........................................................................................1

8 Del. C. § 122 ...............................................................................................................................22

10 Del. C. § 102(b)(7) ....................................................................................................................18

iii
Defendants, CARL C. ICAHN, CARL J. GRIVNER, VINCENT INTRIERI, KEITH

MEISTER, PETER SHEA, ARNOS CORPORATION, HIGH RIVER LIMITED

PARTNERSHIP, ACF INDUSTRIES HOLDING CORPORATION, STARFIRE HOLDING

CORPORATION, and XO HOLDNGS, INC. (“Defendants”), by their attorneys, submit this

Motion to Dismiss Plaintiff’s Complaint, pursuant to NY CPLR §§ 3211 (a)(1) and (7) for failure

to state a cause of action on its face and based on documentary evidence. In support of this

Motion, Defendants submit this Memorandum of Law and the Affirmation of Herbert Beigel,

Esq., sworn to on the 7th day of July, 2009 (“Beigel Aff.”), attesting to Exhibits A through K.

I. PRELIMINARY STATEMENT

In a rambling complaint of fifty-six pages that is the antithesis of the requirement that a

complaint consist of “plain and concise statements” in paragraphs, each with a “single

allegation” (NY CPLR §3014), Plaintiff challenges a transaction (“Transaction”), whereby on

July 25, 2008, XO Holdings, Inc. (“XO”), a publicly held national telecommunications company,

(a) issued and offered new preferred stock to shareholders (the “SPA”, also referred to from time

to time as the “Offering,” annexed to the Beigel Aff. as Exhibit D), and (b) entered into an

Amended Tax Allocation Agreement (“ATAA,” annexed to the Beigel Aff. as Exhibit B)1 with

defendant Starfire Holding Corporation (“Starfire”), an affiliate of defendant Carl C. Icahn

(“Icahn”). (The SPA and the ATAA also are collectively referred to as the “Transaction.”)

Plaintiff claims that Defendants breached their fiduciary obligations to XO and to

Plaintiff by entering into the Transaction, because (a) the ATAA, which amended the pre-

existing Tax Allocation Agreement (“TAA,” annexed to the Beigel Aff. as Exhibit C) that

governed the allocation of XO’s net operating loss (“NOL”) for tax purposes, constituted the
1
A tax allocation agreement is commonly used to allocate income tax liabilities, including benefits from the use
of NOLs, between a parent corporation and a subsidiary, where the subsidiary and the parent are consolidated for
income tax purposes.
waste of a corporate asset, and (b) the Offering improperly diluted minority shareholders.

Further, Plaintiff alleges that the independent Special Committee of XO’s Board of Directors

wrongfully failed to pursue potential acquisitions of XO by third parties. See the Complaint

annexed to the Beigel Aff. as Exhibit A, ¶ 2.2 However, as shown below, the Complaint fails to

adequately allege any breach of fiduciary obligation or waste of a corporate asset because even if

the facts alleged in the Complaint are treated as true, the independent Special Committee

diligently negotiated and evaluated the Transaction with the assistance and advice of an

independent financial advisor and independent counsel before recommending and voting to

approve the Transaction. Moreover, the Special Committee obtained an increased financial

benefit for XO in the ATAA.

Plaintiff’s Complaint consists of five counts, the first three of which are denominated as

derivative claims on behalf of XO for breach of fiduciary duty, aiding and abetting breach of

fiduciary duty, and waste of corporate assets. The fourth claim is brought by Plaintiff as a direct

claim, alleging that Mr. Icahn and certain of his affiliates owed Plaintiff a direct fiduciary

obligation which they breached by entering into the Transaction. The fifth claim, not

denominated as a direct or derivative claim – although clearly derivative in nature – alleges that

the “Individual Defendants” caused XO to make an unlawful gift of the NOLs by entering into

the ATAA.

As shown below, each of the five counts fails to state a cause of action upon which any

relief can be granted.3

2
Plaintiff incorrectly and overbroadly refers to Mr. Icahn as identical to Defendant Starfire. Plaintiff has no basis
in fact to support this allegation, and the law does not excuse this sleight of hand.
3
Prior to this motion to dismiss, Defendants Adam Dell, Fredrik Gradin, and Robert Knauss (the “Special Committee
Defendants”), served their Answer. However, they have filed a joinder to this Motion to Dismiss.

2
II. STATEMENT OF RELEVANT FACTS4

A. INTRODUCTION

XO was reorganized in a bankruptcy court approved Plan of Reorganization in early

2003. Since that time, Mr. Icahn has been the majority shareholder. XO has continuously

operated, aided throughout by infusions of capital by Mr. Icahn and others. Yet, since 2005,

Plaintiff and its affiliates, apparently disappointed in their investment in XO, have sought to

obstruct XO’s efforts to improve its financial condition.5 Indeed, although Plaintiff was afforded

the opportunity to purchase shares in the Offering, it elected not to do so, choosing almost a year

later to instead file this spurious action, challenging the Transaction, despite the fact that it

resulted in a substantial infusion of cash and capital for XO and eliminated XO’s substantial

debt.6

Notwithstanding the excessive length of the Complaint, Plaintiff’s core allegations

clearly lack merit. Moreover, the Complaint, under the guise of providing the Court allegedly

relevant background, inappropriately and contrary to a stipulation entered into by Plaintiff in a

previous Delaware Chancery action, uses the proceedings and settlement of that action to

improperly allege a scheme by Defendants to damage XO and its minority shareholders.

Plaintiff knows well that the Stipulation forever prohibits it from using the settlement, its terms,

or any of the proceedings leading to the settlement “in any manner whatsoever.”7 Yet, not only

4
The recited facts are undisputed or conceded in Plaintiff’s Complaint, or otherwise supported and confirmed by
documentary evidence.
5
Although the Complaint does not reflect how much plaintiff paid for its XO shares, in January 2003, when
Plaintiff first invested in XO (see Beigel Aff., Ex. A at ¶ 19), XO stock traded at approximately $3.50-$5.00 per
share. Currently, the stock trades at approximately $ .30 per share.
6
Indeed, even before filing this suit, before the Transaction was entered into, an affiliate of plaintiff transmitted to
the Board of Directors of XO three malicious letters falsely claiming XO was insolvent and threatening
litigation. See Beigel Aff., Exhibit F. We discuss these letters below at pages 18-19, demonstrating the lack of
merit of the Complaint and Plaintiff’s bad faith.
7
See the Stipulation of Compromise, Agreement, and Release, annexed to the Beigel Aff. as Exhibit K at ¶ 10.

3
does Plaintiff continually refer to that case to support its core allegations that Mr. Icahn and the

other Defendants have engaged in a long-running scheme to breach their fiduciary obligations to

XO, Plaintiff also treats the settlement as a supposed admission of wrongdoing, which it is not.

Simply put, this Court should not consider or countenance such allegations, and the Complaint

could and should be dismissed on this basis alone.

B. THE 2008 TRANSACTION

On July 25, 2008, XO entered into the Transaction. The Transaction included the SPA

and ATAA. The terms of the SPA and the ATAA had been negotiated by the Special Committee

of independent directors (Defendants Gradin, Knauss, and Dell) and its independent counsel,

Dechert LLP. The Special Committee also had retained Cowen and Company (“Cowen”) as its

independent financial advisor. The SPA and ATAA were approved by the Special Committee;

indeed, the only members of the Board who voted on and approved the Transaction were the

members of the Special Committee and Carl Grivner, XO’s Chief Executive Officer. See

Minutes of the Board of Directors of July 17 and July 24, 2008 and the Minutes of the Special

Committee of July 24, 2008, annexed collectively to the Beigel Aff. as Exhibit I.8

Pursuant to the SPA, Mr. Icahn’s affiliated corporations (including Defendants ACF

Industries Holding Corporation, Arnos Corporation, and High River Limited Partnership)

obtained the right to purchase an aggregate of 555,000 shares of XO’s 7% Class B Convertible

Preferred Stock and an aggregate of 225,000 shares of the XO’s 9% Class C Perpetual Preferred

Stock (collectively, the “Offering”). The Offering’s $780 million purchase price was paid

through the retirement of approximately $450.758 million of XO’s senior indebtedness held by

the Icahn affiliates, and the balance of $329.242 million was paid in cash. In connection with the

8
The other defendants on the Board, Messrs. Icahn, Intrieri, Meister, and Shea did not vote.

4
Offering, XO and Starfire also entered into the ATAA, which governed how the Icahn affiliates

could use XO’s NOLs and the benefit accruing to XO in such circumstances. See Beigel Aff.,

Ex. B at ¶ 4(d).

While the NOLs certainly had significant value to Mr. Icahn, they are currently valueless

to XO (since it generates losses). Yet, Starfire agreed to pay XO 30% of his tax savings

immediately upon using $900 million of the NOLs (or any part thereof). This was a more

favorable allocation than previously provided for in the original Tax Allocation Agreement,

which did not require any payment at all from Starfire unless and until XO earned a profit. Thus,

the ATAA provided XO with an increased benefit over the original Tax Allocation Agreement,

which had been formally approved by the Bankruptcy court on January 15, 2003. See Beigel

Aff., Ex. J.

Following the execution of the SPA, XO offered certain of its large minority

shareholders, including Plaintiff, the opportunity to participate in the Offering. On August 5,

2008, XO sent to Plaintiff and other minority shareholders an information statement for the

offering of additional shares of Convertible Preferred Stock and Perpetual Preferred Stock. See

the “Information Statement” annexed to the Beigel Aff. as Exhibit E. The Information Statement

outlined the terms of the Offering and provided instructions on how to participate. In addition,

the Information Statement invited minority shareholders to attend an informational meeting on

August 14, 2008, with representatives of XO management. The Offering expired at 5:00 P.M.

EST on August 18, 2008. Id. at p. 3. Plaintiff elected not to purchase a single share.

5
III. ARGUMENT

A. APPLICABLE LEGAL STANDARDS ON A MOTION TO DISMISS

Although, as shown below, Plaintiff’s claims are insufficient on their face, and as a

matter of law, this Court may consider documentary evidence, where such evidence plainly

contradicts the factual allegations of the Complaint. In Bishop v. Maurer, 33 A.D.3d 497, 498,

823 N.Y.S.2d 36 (1st Dep’t 2006), aff’d, 9 N.Y.3d 910, 875 N.E.2d 883, 844 N.Y.S.2d 165

(2007), the Court stated:

Generally, on a motion to dismiss brought pursuant to CPLR 3211, the court must
‘accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of
every possible favorable inference, and determine only whether the facts as
alleged fit into any cognizable legal theory' " (Morgenthow & Latham v Bank of
N.Y. Co., 305 AD2d 74, 78, 760 NYS2d 438 [2003], lv denied 100 NY2d 512,
798 NE2d 350, 766 NYS2d 166 [2003], quoting Leon v Martinez, 84 NY2d 83,
87-88, 638 NE2d 511, 614 NYS2d 972 [1994]). The court, however, is not
required to accept factual allegations, or accord favorable inferences, where the
factual assertions are plainly contradicted by documentary evidence (Robinson v
Robinson, 303 AD2d 234, 235, 757 NYS2d 13 [2003]; Biondi v Beekman Hill
House Apt. Corp., 257 AD2d 76, 81, 692 NYS2d 304 [1999], affd 94 NY2d 659,
731 NE2d 577, 709 NYS2d 861 [2000]).

We demonstrate below that based solely on the Complaint and accepting the facts as

alleged as true, the Complaint fails to state any cognizable cause of action. We also submit

documentary evidence where appropriate to confirm factual arguments.

B. COUNTS ONE AND TWO MUST BE DISMISSED BECAUSE


THEY FAIL TO STATE A CAUSE OF ACTION9

As an initial matter, we note that Counts One and Two treat the Amended Tax Allocation

Agreement and the Offering as a single transaction, which Plaintiff pleads as a derivative claim.

As such, the counts suffer from two defects, which alone require dismissal: (a) the challenge to

9
As to the application of substantive law to the allegations of the Complaint, which exclusively deal with the
duties of directors of corporations, because XO is a Delaware corporation, Delaware law applies. See e.g., Winer
v. Queen, 503 F.3d 319, 338 (3d Cir. 2007); Potter v. Arrington, 11 Misc. 3d 962, 965-66, 810 N.Y.S.2d 312
(NY Sup. 2006).

6
the Offering may not be brought as a derivative claim; and (b) Plaintiff improperly failed to

make a pre-suit demand on XO’s Board of Directors.

The law is clear that Plaintiff cannot derivatively challenge that part of the Transaction

whereby XO issued and offered preferred shares to its shareholders. As a New York court,

interpreting Delaware law, stated:

The Delaware Supreme Court recently held that whether a claim is direct or
derivative turns solely on the following questions: who suffered the alleged harm,
the corporation or the plaintiff stockholders individually; and who would receive
the benefit of any recovery, the corporation or the stockholders individually.
(Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 [Del 2004].)
Further, in order to establish that the injury was a direct injury rather than a
derivative one, a stockholder must demonstrate that the duty breached was owed
to him or her and that he or she can prevail without showing an injury to the
corporation. (Tooley v Donaldson, Lufkin & Jenrette, Inc., 845 A.2d at 1039; In re
J.P. Morgan Chase & Co., 906 A.2d 808, 2005 WL 1076069, 2005 Del Ch LEXIS
51 [2005].)

Potter v. Arrington, 11 Misc. 3d 962, 810 N.Y.S.2d 312, 317 (NY Sup. 2006).

Plaintiff complains that the Offering diluted its shares – in other words, reducing its

already preexisting minority position in XO. See Beigel Aff., Ex. A at ¶ 2. However, a claim of

dilution emphasizing the diminishment of voting power has been consistently categorized as a

direct claim. See, e.g., Oliver v. Boston Univ., No. 16570, 2000 WL 1091480 at *6 (Del. Ch.

July 18, 2000). Here, a successful challenge of the Offering, where Plaintiff seeks its rescission,

would not only exclusively benefit the minority shareholders by restoring some measure of

minority voting power, but it would, in fact, harm XO by depriving it of the substantial cash

infusion and elimination of its debt that the Offering provided. In other words, the Complaint

does not allege, nor can it allege, that the Offering harmed XO or that a recovery under Counts

One and Two would benefit XO.

7
Consequently, Plaintiff’s derivative challenge to the Offering must fail. Moreover,

because Counts One and Two derivatively attack the Offering and the ATAA as a single

transaction, the Counts must be dismissed in their entirety.10

Even assuming that Plaintiff’s claims in Counts One and Two properly state derivative

claims, they must be dismissed because Plaintiff did not make a pre-lawsuit demand and has no

legal excuse for failing to do so.11 Thus, the case law makes perfectly clear that pre-suit demand

is only to be excused in cases where “facts are alleged with particularity which create a

reasonable doubt that the directors’ action was entitled to the protections of the business

judgment rule.” Aronson v. Lewis, 473 A.2d 805, 808 (Del. 1984).12

For the reasons set forth below, Plaintiff has not, and cannot, allege with particularity any

facts that create a reasonable doubt that the business judgment rule does not apply. See infra, at

p. 13. This requirement is far from a mere “technicality.” Rather, it goes to the very heart of

corporate governance. The “demand requirement embraces the policy that directors, rather than

stockholders, manage the affairs of the corporation.” Aronson, 473A.2d at 810. The Aronson

court then goes on to stress the importance of the demand requirement:

By its very nature the derivative action impinges on the managerial freedom of
directors. Hence, the demand requirement…exists at the threshold, first to insure
that a stockholder exhausts his intracorporate remedies, and then to provide a
safeguard against strike suits. Thus, by promoting this form of alternate dispute
resolution, rather than by immediate recourse to litigation, the demand
requirement is a recognition of the fundamental precept that directors manage the
business and affairs of corporations.

Id. at 811-12.

10
Plaintiff appears to recognize this defect, because it separately and derivatively challenges the ATAA in Count
Three.
11
This argument also applies to Counts Three and Five, which are styled as derivative claims.
12
As discussed below (at pages 13 et. seq. ), the business judgment rule provides the Special Committee with a
favorable presumption that precludes liability for alleged breaches of fiduciary obligation where the Special
Committee, as here, is comprised of independent members.

8
1. Plaintiff has not, and indeed cannot, allege a lack of independence by the
Special Committee, which approved the Transaction.

A threshold issue in determining whether Plaintiff’s Complaint can survive a motion to

dismiss – and, indeed, as referenced above, whether pre-suit demand is excused – is whether

Plaintiff has adequately pled that the members of the Special Committee lacked independence.

Here, Plaintiff has not pled, or cannot plead, facts sufficient to call into question the

independence of the Special Committee.

Under Delaware law, a plaintiff bears a heavy burden, and must allege a great deal in

order to overcome the presumption of independence. Thus:

A director is considered interested where he or she will receive a personal


financial benefit from a transaction that is not equally shared by the stockholders.
. . Directorial interest also exists where a corporate decision will have a materially
detrimental impact on a director, but not on the corporation and the stockholders.
In such circumstances, a director cannot be expected to exercise his or her
independent business judgment without being influenced by the adverse personal
consequences resulting from the decision.

Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993).

Here, Plaintiff alleges that a relationship existed between the Special Committee directors

and Mr. Icahn, the controlling shareholder. However, such allegations are insufficient to

establish a lack of independence, where the only fact allegations are that the Special Committee

directors owed their positions on the Board to the controlling shareholder. Thus, in Aronson, the

court held that the fact that a 47% stockholder personally selected each member of the board was

insufficient to find lack of independence. 473 A.2d at 805. The Aronson court succinctly noted

that “it is not enough to charge that a director was nominated or elected at the behest of those

controlling the outcome of a corporate election. That is the usual way a person becomes a

corporate director.” Id. at 816. Moreover, the court noted that “proof of majority ownership of a

company does not strip directors of the presumptions of independence, and that their acts have

9
been taken in good faith and in the best interests of the corporation.” Id. at 815. Simply put, it is

not the law that a director lacks independence simply because the corporation is controlled by a

majority shareholder.

Similarly, personal friendship, without more, does not cast sufficient doubt on a

directors’ independence:

[F]riendship must be accompanied by substantially more in the nature of


serious allegations that would lead to a reasonable doubt as to a director’s
independence. That a much stronger relationship is necessary to overcome the
presumption of independence at the demand futility stage becomes especially
compelling when one considers the risks that directors would take by protecting
their social acquaintances in the face of allegations that those friends engaged in
misconduct. To create a reasonable doubt about an outside director’s
independence, a plaintiff must plead facts that would support the inference that
because of the nature of a relationship or additional circumstances other than the
interested director’s stock ownership or voting power, the non-interested director
would be more willing to risk his or her reputation than risk the relationship with
the interested director.

Beam v. Stewart, 845 A.2d 1040, 1052 (Del. 2004); Cal. Pub. Emples Ret. Sys. v. Coulter, C.A.

No. 19191, 2002 Del. Ch. LEXIS 144, at *28-29 (Del. Ch. Dec. 18, 2002) (observing that an

allegation of a lifelong friendship with an interested party alone is not sufficient to raise a

reasonable doubt of a director's disinterest or independence); Kohls v. Duthie, 765 A.2d 1274,

1284 (Del. Ch. 2000) (holding that a personal friendship between a member of a special

committee of the board and an interested party to the challenged transaction, as well as the fact

that the interested party had once given the director a summer job, were insufficient to challenge

the director's ability to exercise his independent judgment with respect to the transaction);

Benefore v. Jung Woong Cha, C.A. No. 14614, 1998 Del. Ch. LEXIS 28, at *9 (Del. Ch. Feb. 20,

1998) (stating that an allegation of a longtime friendship was not sufficient to raise a reasonable

doubt about a director's ability to exercise his judgment independently of his friend); The

Defining Tension in Corporate Governance in America, 52 Bus. Law. 393, 406 (1997)

10
(“Friendship, golf companionship, and social relationships are not factors that necessarily negate

independence. . .There is nothing to suggest that, on an issue of questioning the loyalty of the

CEO, the bridge partner of the CEO cannot act independently as a director. To make a blanket

argument otherwise would create a dubious presumption that the director would sell his or her

soul for friendship.”); In Whose Interest: An Examination of the Duties of Directors and Officers

in Control Contests, 26 Ariz. St. L.J. 91, 127 (1994) (recognizing that many factors – including

personal integrity, honesty, concern about their business reputations, and the threat of liability to

shareholders – may motivate directors to exercise their judgment independently of corporate

executives).

Here, Plaintiff’s Complaint alleges nothing other than the conclusory statement that the

Special Committee Defendants owed their positions as directors to Mr. Icahn. See Beigel Aff.,

Ex. A at ¶¶ 25-31. Furthermore, while Plaintiff has sued each and every board member, it is

beyond dispute that it was only the three members of the Special Committee who recommended

approval of the Transaction and then voted to approve the Transaction along with XO’s Chief

Executive Officer, Carl Grivner.13 Thus, even assuming the truth of the allegation that the

Special Committee members owed their seats to Mr. Icahn, XO’s majority stockholder, this

allegation falls far short of what is necessary in order to create a reasonable doubt as to the

independence of these directors, as do allegations of personal and other professional

relationships that the Special Committee members had with Mr. Icahn.

a. Robert Knauss

The allegations regarding Mr. Knauss are found in ¶ 29 of the Complaint. See Beigel

Aff., Ex. A. Plaintiff alleges Mr. Knauss has a “long history with Defendant Icahn and considers
13
The Complaint contains no material allegations whatsoever against Defendant board members Intrieri, Meister,
and Shea, as well as Mr. Grivner, and therefore, the Complaint must be dismissed against these Defendants on
this basis alone.

11
Icahn to be a ‘friend,’” has been “involved with Icahn in connection with WestPoint

International, Inc., Phillip Services Corporation and VISX Technologies;” and summarily states

that because of Mr. Knauss’ “long -standing relationship with Icahn, and because Icahn controls

the majority of XO’s outstanding commons stock, Defendant Knauss is beholden to Icahn and

owes his position as a director of XO to Icahn.” Id. The Complaint does not, and indeed cannot,

allege any other facts in support of its claim that Knauss is somehow tainted. These allegations,

as the courts consistently have held, are insufficient as a matter of law to establish a lack of

independence.14

Noticeably absent is any allegation that Mr. Knauss would financially benefit from the

challenged transaction. Similarly, there is no allegation that Knauss’ “relationship” with Icahn is

such that it would lead to a reasonable doubt as to Knauss’ independence. In fact, there is no

allegation about anything, other than the fact that Knauss has served on the boards of three

companies associated with Mr. Icahn (XO, WestPoint and PSC) and was on a slate of proposed

directors for a fourth (VISX). The case law resoundingly concludes that these facts are

insufficient to cast doubt on the independence of directors. “The shorthand shibboleth of

‘dominated and controlled directors’ is insufficient.” Aronson, 473 A.2d at 816; see Beam v.

Stewart, 845 A.2d at 1050 (“Allegations of mere personal friendship or a mere outside business

relationship, standing alone, are insufficient to raise a reasonable doubt about a director’s

independence.”) Thus, Mr. Knauss is entitled to the presumption of independence.

b. Adam Dell

Plaintiff’s allegations as to Mr. Dell are equally ineffective to defeat the presumption of

independence. Plaintiff merely states that Mr. Dell has been a member of XO’s Board of

14
See pp. 8-10, supra.

12
Directors since May 2003 and notes that “Icahn included Dell in [his] slate of proposed directors

of Yahoo! Inc.” See Beigel Aff., Ex. A at ¶ 26. It also repeats the same legally useless

incantation that “because Icahn controls the majority of XO’s outstanding common stock, Mr.

Dell owes his position as a director of XO to Defendant Icahn.” Id.

As with Mr. Knauss, the allegations against Mr. Dell are wholly insufficient to raise a

reasonable doubt about his independence. They amount to nothing more than the innocuous fact

that Mr. Dell is on the XO board, of which Icahn is the controlling shareholder, and that

Mr. Icahn included Mr. Dell on a slate of directors for Yahoo!. These thinly pled facts fall short

of the necessary showing, as the case law repeatedly and unequivocally establishes.

c. Fredrik Gradin

Plaintiff’s allegations against defendant Gradin are similarly insufficient. Plaintiff

alleges unremarkably that Mr. Gradin has been a member of the XO board since August 2004

and notes that he was a member of the Wireline Special Committee.15 See Beigel Aff., Ex. A at

¶ 27. The only additional allegation is, once more, the all too familiar and legally insufficient

claim that “because Icahn controls the majority of XO’s outstanding common stock, Defendant

Gradin owes his position as a director of XO to Defendant Icahn.” Id.

Because of the clear insufficiency of the Complaint’s allegations against the Special

Committee, it is entitled to the benefit of the business judgment rule, which, as shown below,

provides the Special Committee with the presumption that entering into the Transaction did not

breach any fiduciary duty owed to XO. Thus, with the business judgment rule in place, Plaintiff’s

Complaint must be dismissed.

15
The Wireline Special Committee was the committee of Board members established in connection with the
proposed sale of a part of XO’s assets in 2005, which was never consummated. This withdrawn sale was the
focus of plaintiff’s previous Delaware derivative suit, which, as we previously noted is wholly irrelevant to this
action.

13
2. The Special Committee’s actions approving the Transaction are immune to
challenge under the business judgment rule.

The business judgment rule is an acknowledgement of the managerial prerogatives of

Delaware directors. Aronson, 473 A. 2d at 812. Moreover, the rule is a “presumption that in

making a business decision the directors of a corporation acted on an informed basis, in good

faith and in the honest belief that the action taken was in the best interests of the company.” Id.

“Absent an abuse of discretion, that judgment will be respected by the courts. The burden is on

the party challenging the decision to establish facts rebutting the presumption.” Id. Therefore,

because the Special Committee, which recommended and voted for the Transaction, was

comprised of independent directors, the business judgment rule applies. See also, generally,

Gantler v. Stephens, 2008 Del. Ch. LEXIS 20, *25 (Del. Ch. Nov. 5, 2008), rev’d on other

grounds, 965 A.2d 695 (Del. 2009).

Here, Plaintiff’s Complaint fails to allege facts, which, even if proved, would rebut the

business judgment’s rule favorable presumption. As Delaware courts have repeatedly held, a

court will not substitute its own judgment for that of the board’s, where the approval process was

controlled by a Special Committee of independent directors. See generally, Brehm v. Eisner (In

re Walt Disney Co. Derivative Litig.), 906 A.2d 27 (2006).

The approval by XO’s Special Committee of the Transaction is beyond reproach. Yet,

Plaintiff, demonstrating its bad faith even before the Transaction was entered into, put XO on

notice of its intent to sue. Thus, on January 24, 2008, an R2 affiliate sent a letter to the members

of the Special Committee threatening to sue if they agreed to any deal that Plaintiff considered

unfair. That letter stated, “[R2] will challenge any proposed transaction that it perceives to be

unfair to XO’s minority shareholders or is otherwise disadvantageous to XO.” See Beigel Aff.,

Ex. F. The letter also made it very clear that any litigation would be scorched earth and

14
threatened to inflict on the Special Committee members personal financial harm: “It is R2’s

intent to act immediately, and with every resource available, to challenge the offending

transaction and to seek recovery from the company, from Icahn and his associates, and if

appropriate from you personally – to the fullest extent possible under Delaware law. Given that

you do not have Mr. Icahn’s deep pocketbook to fall back on if the company’s D&O insurance

policy does not fully protect you, you should carefully consider your fiduciary duties and legal

obligations.” Id.

In the exercise of prudence, the Special Committee, as would be expected, sought counsel

from its attorneys, the highly regarded law firm of Dechert LLP. Dechert promptly responded to

Plaintiff’s threats:

The purpose of this communication is to assure you that the members of the
Special Committee are well aware of, and take with the utmost seriousness, their
fiduciary obligations as independent directors of the company and members of the
Special Committee. Since the events that prompted your lawsuit in the Delaware
Court of Chancery, the Special Committee has engaged this firm [Dechert] as its
independent counsel and Cowen and Company as its independent financial
advisor to, among other things, assist the Special Committee in evaluating any
refinancing, obtaining of new Capital or other transaction that may involve Icahn
or his affiliates.16

See Beigel Aff., Ex. G.

Besides what can only be characterized as Plaintiff’s bad faith in its conduct, not the

least of which is the frivolousness of its current Complaint, the law is squarely on the side of

Defendants as to any allegation that XO’s Board of Directors acted in bad faith. In Brehm v.

Eisner, the Delaware Supreme Court evaluated three types of behavior that might warrant the

“bad faith” label, and found that two of them did and one did not. First, the Court found that

“subjective bad faith,” that is, fiduciary conduct motivated by an actual intent to do harm,”

16
Plaintiff followed up with two additional threatening, malicious letters,. repeating similar false and threatening
statements with additional scurrilous flourishes. See Beigel Aff., Ex. F.

15
would constitute bad faith. 906 A.2d at 64.17 The Complaint here does not contain any

allegation that the Board was motivated by an actual intent to harm XO or its shareholders.

Second, the Court addressed whether gross negligence, without more, can constitute bad faith

and held “[t]he answer is clearly no.” Id. at 65. Likewise, the third basis, which may support a

finding of bad faith, namely, intentional dereliction of duty and a conscious disregard for one's

responsibilities is nowhere alleged in the Complaint. Id. at 64-66.

It is thus apparent that Plaintiff’s Complaint fails to adequately allege a breach of

fiduciary obligation based on lack of good faith (or any other basis), because, first, it fails to

allege a lack of independence of the Special Committee Defendants, as a matter of law, and,

second, it does not allege that the Board intended to harm XO.

Not only is Plaintiff’s Complaint woefully insufficient, as a matter of law, for all the

reasons previously discussed, it cannot be reasonably disputed that XO received substantial

benefits from the Transaction. XO stood to receive a prompt payment of additional cash

pursuant to the ATAA as soon as Starfire received any benefit from the NOLs, without having to

wait until XO earned a profit and could use the NOLs, as it would have had to do under the

original TAA. Compare Beigel Aff., Ex. B at ¶ 4, with Beigel Aff., Ex. C at ¶ 4. Indeed,

Plaintiff effectively concedes this point, having alleged that the original Tax Allocation

Agreement “did not require Icahn or Starfire to compensate XO for the use of the net operating

losses consumed by them unless XO could have used those losses in future tax years.” See

Beigel Aff., Ex. A at ¶ 36. Consequently, it cannot be disputed that XO stands to receive a

financial benefit otherwise unavailable in the original TAA.

17
An allegation of bad faith is a legal conclusion, not entitled to a presumption of truth on a motion to dismiss.
Disney, 906 A.2d at 68.

16
Therefore, the documentary evidence clearly contradicts Plaintiff’s claim that the ATAA

was of no benefit to XO. Because the original TAA conferred a benefit on XO and was

approved by the bankruptcy court, it can hardly claim now that XO received no benefit from the

ATAA, which conferred on XO the opportunity for an increased financial benefit over the

original bankruptcy court-approved agreement.18

The final salvo of the first two counts of Plaintiff’s Complaint is the allegation that the

Defendants acted improperly by breaching a claimed duty to pursue to consummation alleged

solicitations by third parties to purchase all or some of the assets of XO. Quite apart from the

fact that this claim also fails because Plaintiff does not sufficiently allege lack of independence

and therefore the Board is entitled to the benefit of the business judgment rule, Delaware law is

clear that Board members do not have a duty to sell the corporation or its assets, except in

extremely limited circumstances, not alleged or present here. Unless the Board’s refusal to sell

to a third party is a “defensive action,” no breach of fiduciary obligation may be sustained.

Thus, in the absence of any allegation that the Board was faced with a hostile takeover attempt,

the refusal to pursue a sale to a third party is not a defensive action and a breach of the Board’s

duty. See generally, Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 958 (1985); e.g.,

Gantler v. Stephens, 2008 Del. Ch. LEXIS 20, *25.19 As one Delaware Court has summarized

the applicable law:

A majority stockholder in a Delaware corporation owes no duty to sell its


holdings in the corporation just because the sale would profit the minority.
Bershad v. Curtiss-Wright Corp., Del. Supr., 535 A.2d 840, 844-845 (1987)
18
Plaintiff also concedes that XO received a substantial infusion of cash pursuant to the Offering, although it
disingenuously tries to downplay this benefit, claiming XO did not need the cash and thus the cash would be
“idle.” See Beigel Aff., Ex. A at ¶ 104. Plaintiff, however, fails to allege or explain how a Board approving a
transaction that infuses the corporation with capital is acting disloyally or in bad faith, let alone explain how
surplus capital harms a corporation.
19
In reversing the lower court’s dismissal of the complaint, the Delaware Supreme Court, while agreeing that the
lower correct was correct in rejecting the “defensive” action basis for the claims, found that there was a
sufficient basis for the allegation of disloyalty on facts not present in this case, viz., a majority of directors were
not independent and disinterested because they had a conflict of interest and personal financial interests. Gantler
v. Stephens, 2008 Del. Ch. LEXIS 20, *707-08.

17
(holding that a shareholder is under no duty to sell its holdings in corporation
even if it is a majority shareholder, merely because the sale would profit the
minority). Similarly, directors of the corporation have no obligation to approve a
sale of the company's assets, even if such a sale would be advantageous, where
the directors rightfully hold a veto of such a sale as shareholders. Thorpe v.
CERBCO, Inc., Del. Supr., 676 A.2d 436, 437 (1996) (discussing Thorpe v.
CERBCO, Inc., Del. Ch., C.A. No. 11713, Allen, C. (Oct. 29, 1993), Mem. Op. at
10-11, where Chancellor Allen held that a majority stockholder's ownership of its
stock includes the property right to cast the controlling vote and to veto a sale of
the business, even if a sale would be in the best interests of minority
stockholders).

Cincinnati Bell v. Ameritech, 1996 Del. Ch. LEXIS 116, *36 (Del. Ch. Sept. 3, 1996).

Plainly, Plaintiff’s attack on the Special Committee’s alleged failure to pursue third party

bids fails as a matter of law.

3. The exculpatory clause of the Certificate of Incorporation


insulates the Defendants from liability.

Title 10 of the Delaware Code, Section 102(b)(7), empowers Delaware corporations to

limit the liability of their directors as provided in the Certificate. In fact, XO’s Certificate of

Incorporation insulates XO’s directors from liability except for any breach of the director's duty

of loyalty to the corporation or its stockholders or for any act or omission not in good faith or

which involves intentional misconduct or a knowing violation of law. See Beigel Aff., Ex. H at ¶

9.

As a consequence, “[a] defense under § 102(b) (7) may be considered in the context of a

motion to dismiss.” Official Comm. of Unsecured Creditors of Integrated Health Servs. v.

Elkins, 2004 Del. Ch. LEXIS 122, *37 (Del. Ch. Aug. 24, 2004). Thus, for example, the court in

IT Litig. Trust Inc. v. D'Aniello (IT Group Inc.), 2005 U.S. Dist. LEXIS 27869, *41 (D. Del.

Nov. 15, 2005), held that the duty of care claims must be dismissed because the corporate

defendant’s Certificate of Incorporation contained an exculpation provision. Even allegations of

gross negligence are barred by the exculpatory provision. “Actions taken that are even grossly

18
negligent. . .will be shielded by a § 102 (b)(7) provision.” Official Comm. of Unsecured

Creditors of Integrated Health Servs., 2004 Del. Ch. LEXIS 122, *37.20 Therefore, because

XO’s Certificate of Incorporation contains an exculpatory provision, Counts One and Two must

be dismissed.

C. COUNT THREE DOES NOT STATE A CAUSE OF


ACTION FOR WASTE OF CORPORATE ASSETS

In Count Three, Plaintiff has extracted the ATAA from the Transaction and attacked its

legal propriety as a waste of corporate assets. However, since it is beyond question that XO

received a benefit from the ATAA, to wit, the opportunity for immediate payment upon

Starfire’s use of NOLs,21 it is absurd, to say the least, to claim that XO’s Board was guilty of

wasting a corporate asset, especially where the terms of the ATAA were an improvement over

the terms of the original TAA, approved by the XO bankruptcy court.

Therefore, it comes as no surprise that the hurdles a plaintiff must negotiate to challenge

such a transaction are even higher than conventional attacks on the performance of duties by

corporate directors. In a leading Delaware case dealing with what a plaintiff must establish to

state a claim for corporate waste, the court stated:

The most quoted formulation [of the standard applicable to a claim of corporate
waste] is “Where waste of corporate assets is alleged, the court, notwithstanding
independent stockholder ratification, must examine the facts of the situation. Its
examination, however, is limited solely to discovering whether what the
corporation has received is so inadequate in value that no person of ordinary,
sound business judgment would deem it worth what the corporation has paid. If it
can be said that ordinary businessmen might differ on the sufficiency of the terms,
then the court must validate the transaction.”

Unimarts v. Nirenberg, 1996 Del. Ch. LEXIS 95, *17-18 (Del. Ch. Aug. 9, 1996) (quoting Saxe

v. Brady, 40 Del. Ch. 474, 184 A.2d 602, 610 (Del.Ch. 1962). “A claim of waste will arise only
20
Obviously, if Count One fails, then so does Count Two for aiding and abetting.
21
The proceeds from the Offering also allowed XO to satisfy its debt.

19
in the rare, ‘unconscionable case where directors irrationally squander or give away corporate

assets.’ This onerous standard for waste is a corollary of the proposition that where business

judgment presumptions are applicable, the board's decision will be upheld unless it cannot be

‘attributed to any rational business purpose’.” Brehm v. Eisner, 906 A.2d at 74 (citations

omitted). Further, in Lewis v. Vogelstein, the court stated:

[A] waste entails an exchange of corporate assets for consideration so


disproportionately small as to lie beyond the range at which any reasonable
person might be willing to trade. Most often the claim is associated with a transfer
of corporate assets that serves no corporate purpose; or for which no consideration
at all is received. Such a transfer is in effect a gift. If, however, there is any
substantial consideration received by the corporation, and if there is a good faith
judgment that in the circumstances the transaction is worthwhile, there should be
no finding of waste, even if the fact finder would conclude ex post that the
transaction was unreasonably risky. Any other rule would deter corporate boards
from the optimal rational acceptance of risk, for reasons explained elsewhere.
Courts are ill-fitted to attempt to weigh the "adequacy" of consideration under the
waste standard or, ex post, to judge appropriate degrees of business risk.

699 A.2d 327 (Del. Ch. 1997).

In sum, as we have already noted in the context of Counts One and Two, where Plaintiff

challenges the Transaction as a whole, the allegations that the XO Board wasted a corporate asset

in entering into the ATAA represent nothing more than quibbling with the amount of

consideration, which clearly was substantial. Thus, Count Three must be dismissed.

D. COUNT FOUR DOES NOT STATE A DIRECT CAUSE OF


ACTION BY PLAINTIFF AGAINST DEFENDANT
CARL ICAHN AND HIS AFFILIATES

Aside from the obvious, that Count Four redundantly attempts to create a separate duty

owed by Mr. Icahn as majority shareholder to minority shareholders including Plaintiff, distinct

from his fiduciary obligations as a member of the XO’s Board of Directors, Delaware law simply

does not sanction such a claim, where the transaction at issue is approved by independent Board

members, as was the case here with the Special Committee. See, e.g., Puma v. Marriott, 283

20
A.2d 693, 694 (Del. Ch. 1971) (“I conclude that since the transaction complained of was

accomplished as a result of the exercise of independent business judgment of the outside,

independent directors whose sole interest was the furtherance of the corporate enterprise, the

court is precluded from substituting its uninformed opinion for that of the experienced,

independent board members of [the company].”)

Moreover, under any circumstances, a plaintiff, in challenging a transaction, must not

only overcome the presumption of the business judgment rule but also allege facts sufficient to

establish both unfair dealing and unfair price. Here, in the absence of alleging sufficient facts to

show a lack of independence by the Special Committee Defendants, Plaintiff cannot overcome

the presumption of the business judgment rule with respect to the Special Committee’s approval

of the Transaction. As to unfair price, Plaintiff has relied entirely on its allegations of corporate

waste, which, as has already been discussed, are insufficient as a matter of law. Moreover, once

Plaintiff’s claim of lack of independence fails against the Special Committee Defendants, its

direct claim against Mr. Icahn also fails. In short, Plaintiff’s attempt at a direct claim in Count

Four does nothing more than reconstitute in a different form the inadequate allegations made in

Counts One through Three.22

Finally, Plaintiff has failed to allege that the terms of the Transaction were non-

negotiable. In fact, Plaintiff’s Complaint recounts in detail the intensive negotiations engaged in

by the Special Committee, with the assistance of independent advisors. Therefore, the mere fact

that Mr. Icahn was a majority shareholder does not, by itself, demonstrate that he dictated the

terms of the Transaction. Moreover, there are simply no allegations, other than the generalized

flawed allegation that the Special Committee Defendants owed their Board seats to Mr. Icahn,
22
Even in the context of a merger, not present here, a plaintiff must demonstrate “unfair price.” See, e.g., Gabelli
v. Liggett, Group, 1983 Del. Ch. Lexis 418 (Del Ch. 1983). In this case, however, there was no merger and no
price, but simply, a reasonable method of allocating XO’s losses for tax purposes, to the benefit of XO.

21
which defeat the business judgment rule or justify imposing on Mr. Icahn separate liability

because of his majority shareholder status. See, e.g., Gilbert v. El Paso Corp., 1988 Del. Ch.

LEXIS 150, *30 (Del. Ch. Nov. 21, 1988) (“the directors may take whatever action that, in their

proper exercise of business judgment, will best serve the interests of the corporation or the entire

body of shareholders. That such action may adversely affect the interests of a particular

shareholder subgroup, will, in certain instances, be unavoidable. Nonetheless, no wrongdoing

will have occurred if the directors are able to justify the result as furthering a paramount or

overriding corporate or shareholder interest.”)

In other words, in the absence of allegations that Mr. Icahn or his affiliates disabled the

independence of the Special Committee or forced a result on XO and its minority shareholders,

no claim is stated. Plaintiff, already a minority shareholder before the Transaction, has not

alleged any loss in equity because of the Offering, in which it could have participated, but did

not. In short, Count Four adds nothing of value to the previous defective counts.

E. COUNT FIVE DOES NOT STATE A CAUSE OF ACTION FOR


VIOLATION OF 8 DEL. C. §122 AS AN ILLEGAL CORPORATE GIFT

Once it becomes clear, as we believe it has, that Plaintiff has no claim for waste of

corporate assets, its tag-along claim for an illegal corporate gift may be summarily disposed of.

Clearly, there was consideration for the ATAA, to wit, the adjustment to the original TAA,

favorable to XO. Nowhere in the factual allegations is there any basis whatsoever in calling the

ATAA a “gift.”

The Delaware courts have made it abundantly clear that an unlawful gift is a transfer for

no consideration. See, e.g., Michelson v. Duncan, 407 A.2d 211, 216 (Del. 1979) (“The essence

of a claim of gift is lack of consideration.”) Thus, having first challenged the ATAA as waste

because of inadequate consideration, it claims in Count Five that there was no consideration at

22

You might also like