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Delaware Court Of Chancery Denies Special Litigation Committee’s Motion To Terminate Due To Questions About Independence
02/10/2026On January 30, 2026, Chancellor Kathaleen St. J. McCormick of the Delaware Court of Chancery granted defendants’ motion to strike but denied a motion to terminate a derivative action asserting fiduciary breach claims against certain directors following a Special Litigation Committee (“SLC”) investigation. Grabski ex rel. Coinbase Global, Inc., v. Andreessen, et al., C.A. No. 2023-0464-KSJM (Del. Ch. Jan. 30, 2026). The Court found that plaintiff adequately alleged that one of the two SLC members had sufficient connections to one of the director defendants to raise a material question about his independence to be raised and thus declined to terminate the litigation based on the SLC’s recommendation.
Plaintiff survived a motion to dismiss its suit alleging that certain director defendants breached their fiduciary duties and were unjustly enriched after selling their stock in a direct listing shortly before the company experienced a significant stock price drop. After an investigation, the SLC concluded that the suit lacked merit and moved to terminate the litigation. Plaintiff challenged the motion to terminate by pointing to facts that, according to plaintiff, suggested that one of the two SLC members was not independent and neither was the law firm advising the SLC. Specifically, plaintiff alleged that one of the defendant directors had invested in the first startup founded by the SLC member and sat on the board of directors of the company that acquired that startup. Plaintiff also alleged that the venture capital firms in which each of the SLC member and director defendant invested had themselves invested together on at least 50 occasions and that the SLC member and the director defendant’s firm had exchanged hundreds of emails—including multiple cross-referrals—during the investigation. Plaintiff alleged the SLC’s counsel was also not independent because it was representing the director defendant’s venture capital firm at the same time it was advising the SLC on its investigation. The SLC countered that the SLC member’s relationship with the director defendant was immaterial because the SLC member was a successful investor even without this relationship and argued that his investments with the director defendant’s venture capital firm were not relevant. SLC’s counsel stated that it had run conflict checks and did not believe its representations were conflict-barred. SLC’s counsel also represented that the team advising the SLC did not overlap with the team advising the director defendant’s firm.
According to the Court, on a motion to terminate, “the SLC bears the ‘burden to show the absence of a material issue of fact’ as to its independence, good faith, and a reasonable investigation” and focused its analysis on independence, noting that “the question of independence turns on whether a director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind” (emphasis in the original). The Court reasoned that it would be hard to conclude as a matter of law that investments worth millions of dollars were immaterial to the SLC member. The Court concluded that the SLC member’s relationship with the director defendant’s venture capital firm was relevant because the defendant’s firm benefited from the challenged trades. The Court held that, even though there were aspects of the record that supported the SLC member’s independence (e.g., his subjective belief), the SLC member’s relationship with the director defendant and his firm created material disputed facts that gave rise “to an unacceptable risk of bias in a process where independence is paramount.” The Court did not reach the issue of the consulting law firm’s independence to deny the motion to terminate.
