In re Transunion Deriv. S’holder Litigation, C.A. No. 2022-1103-LWW (Del. Ch. Oct. 1, 2024) (Will, V.C.)

In this memorandum opinion, the Court of Chancery dismissed a Caremark claim asserted against the corporation’s directors.  The plaintiff stockholder claimed the defendants breached their fiduciary duties by knowingly permitting non-compliance with a Consent Order the company submitted to with the Consumer Financial Protection Bureau in 2017.  The alleged non-compliance included delays in implementing a compliance plan and interpretive differences with the CFPB over the Consent Order’s terms, including as to disclaimer font size, phrase usage, and checkbox placement. The Court held that “[i]mperfect compliance is not bad faith,” that demand was not futile, and so as a result granted the defendants’ motion to dismiss. 

The plaintiffs argued two legal theories: one akin to Massey, where directors were found responsible for knowingly breaking the law, and the second under Caremark’s second prong for disregarding non-compliance with the Consent Order.  These positions were in tension with each other because the “same conduct would reflect action [for the Massey claim] and inaction [for the second prong Caremark claim].” 

Regardless, the Court turned to analyzing Caremark and subsequent decisions, including Massey, to distill the “bottom-line principles underpinning” the different categories of claims “rooted in the fundamental rule that Delaware corporations operate lawfully.”  That included the observation that “Massey did not create a separate claim untethered from those explored in Caremark and Stone.”  After this synthesis, the Court concluded that regardless of the nomenclature, “an inadequate, delayed, or misguided response to red flags cannot support a claim for breach of the duty of loyalty.”  The Court explained that the board in this case took immediate efforts to comply with the Consent Order, and received and relied on reports and advice from both in-house and outside counsel.  Furthermore, the board was informed about and oversaw improvements to company’s business practices to comply with the Consent Order.  The Court did not see how any “imperfect attempts at compliance” could be “indicative of bad faith.”  These affirmative steps toward compliance and receipt of regular updates undercut any inference that the board acted in bad faith.

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