In 2011, the Delaware Supreme Court in Central Mortgage v. Morgan Stanley Mortgage Capital Holdings, 27 A.3d 531, 537 (Del. 2011), unequivocally stated that the “pleading standard in Delaware to survive a motion to dismiss is reasonable ‘conceivability.’” That standard remains the benchmark plaintiffs must meet when asserting claims subject to a motion to dismiss in Delaware. For stockholder plaintiffs, however, what is “reasonable” is often measured by what pre-suit investigation the plaintiff’s counsel undertakes in support of the plaintiff’s claims. Stated simply, if a stockholder plaintiff fails to utilize its Section 220 rights for books and records prior to filing a lawsuit, the plaintiff’s claims better include all necessary facts that could have been discovered through a Section 220 demand.
In Thermopylae Capital Partners v. Simbol, C.A. No. 10619-VCG (Del. Ch. Jan. 29, 2016), the Court of Chancery dismissed a complaint for failing to assert sufficient facts to satisfy the aforementioned “reasonable conceivability” standard. The plaintiffs in Thermopylae were stockholders of Simbol Inc., a Delaware corporation that specializes in sustainable materials technology. The plaintiffs alleged that Simbol was controlled by Mohr Davidow Ventures (MDV) and, through MDV’s control, the plaintiffs’ equity interests in Simbol were wrongfully diluted. The complaint alleged that plaintiff M. Scott Conley was a founder of Simbol, which was created to profit on the increasing need for lithium in the production of electronic vehicles. According to the complaint, Conley and his founding partner, Luka Erceg, developed a business model for extracting lithium from geothermal brine employing an environmentally friendly production process. Simbol’s concept began garnering attention in 2008. That same year, Conley and Erceg agreed to accept an investment from MDV and others, in exchange for Simbol preferred stock, to support Simbol’s growth. Over the course of the next few years, Simbol received substantial investments from MDV, and others, to foster its growth.