{"attribution":{"source":"legal.exploreworldai.com","canonical":"https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:del-374-2024-2025-06-09","cite_as":"NovaCopilot, legal.exploreworldai.com (https://legal.exploreworldai.com/api/public/v1/judgment-text?id=us:del-374-2024-2025-06-09)","license":"https://legal.exploreworldai.com/revision","version":"legal-2026-10-18","fingerprint":"ewai:us:efda2f","proof":"sha256:97ef65f6386ba810736a8a36055dc09e100c45f981ab2f0897274aab92568b71","jurisdiction":"us","lang":"en","publisher":"NovaCopilot by ExploreWorld Legal","terms":"https://legal.exploreworldai.com/om"},"brand_source":"Source: NovaCopilot","item":{"schema_version":"1.0.0","id":"us:del-374-2024-2025-06-09","jurisdiction":"us","lang":"en","brand_source":"Source: NovaCopilot","brand":{"product":"NovaCopilot","platform":"ExploreWorldAI","infrastructure":"ExploreWorld Legal","infrastructure_url":"legal.exploreworldai.com","legal_entity":"Valkiv Ventures 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THE SUPREME COURT OF THE STATE OF DELAWARE","paragraph_id":"para_1"},{"text":"ERSTE ASSET MANAGEMENT §","paragraph_id":"para_2"},{"text":"GMBH, §","paragraph_id":"para_3"},{"text":"§","paragraph_id":"para_4"},{"text":"Plaintiff Below, § No. 374, 2024","paragraph_id":"para_5"},{"text":"Appellant, §","paragraph_id":"para_6"},{"text":"§ Court Below: Court of Chancery","paragraph_id":"para_7"},{"text":"v. § of the State of Delaware","paragraph_id":"para_8"},{"text":"§","paragraph_id":"para_9"},{"text":"BERNARDO HEES, ALEXANDRE § C.A. No. 2023-1191","paragraph_id":"para_10"},{"text":"BEHRING, JORGE PAULO §","paragraph_id":"para_11"},{"text":"LEMANN, MARCEL HERRMANN §","paragraph_id":"para_12"},{"text":"TELLES, PAULO BASILIO, DAVID §","paragraph_id":"para_13"},{"text":"KNOPF, EDUARDO PELLEISSONE, §","paragraph_id":"para_14"},{"text":"3G CAPITAL, INC., 3G CAPITAL §","paragraph_id":"para_15"},{"text":"LTD., 3G GLOBAL FOOD §","paragraph_id":"para_16"},{"text":"HOLDINGS, L.P., 3G GLOBAL §","paragraph_id":"para_17"},{"text":"FOOD HOLDINGS GP LP, 3G §","paragraph_id":"para_18"},{"text":"CAPITAL PARTNERS II L.P., 3G §","paragraph_id":"para_19"},{"text":"CAPITAL PARTNERS LTD, HK3 18 §","paragraph_id":"para_20"},{"text":"LP, JOHN CAHILL, GEORGE §","paragraph_id":"para_21"},{"text":"ZOGHBI, RASHIDA LA LANDE, and §","paragraph_id":"para_22"},{"text":"JOAO M. CASTRO-NEVES, §","paragraph_id":"para_23"},{"text":"§","paragraph_id":"para_24"},{"text":"Defendants Below, §","paragraph_id":"para_25"},{"text":"Appellees, §","paragraph_id":"para_26"},{"text":"§","paragraph_id":"para_27"},{"text":"-and- §","paragraph_id":"para_28"},{"text":"§","paragraph_id":"para_29"},{"text":"THE KRAFT HEINZ COMPANY, §","paragraph_id":"para_30"},{"text":"a Delaware Corporation, §","paragraph_id":"para_31"},{"text":"§","paragraph_id":"para_32"},{"text":"Nominal Defendant, §","paragraph_id":"para_33"},{"text":"Appellee. §","paragraph_id":"para_34"},{"text":"Submitted: March 12, 2025","paragraph_id":"para_35"},{"text":"Decided: June 9, 2025","paragraph_id":"para_36"},{"text":"Before SEITZ, Chief Justice; VALIHURA, TRAYNOR, LEGROW, and","paragraph_id":"para_37"},{"text":"GRIFFITHS, Justices.","paragraph_id":"para_38"},{"text":"Upon appeal from the Court of Chancery, REVERSED and REMANDED.","paragraph_id":"para_39"},{"text":"Joel Friedlander, Esquire, Jeffrey M. Gorris, Esquire, Christopher M. Foulds,","paragraph_id":"para_40"},{"text":"Esquire, Matthew D. Venuti, Esquire, FRIEDLANDER & GORRIS P.A.,","paragraph_id":"para_41"},{"text":"Wilmington, Delaware, Lawrence P. Eagel, Esquire, Melissa Fortunato, Esquire,","paragraph_id":"para_42"},{"text":"Brandon Walker, Esquire, BRAGAR EAGEL & SQUIRE, P.C., New York, New","paragraph_id":"para_43"},{"text":"York, Attorneys for Appellant/Plaintiff-Below, Erste Asset Management GmbH.","paragraph_id":"para_44"},{"text":"Matthew D. Stachel, Esquire, PAUL, WEISS, RIFKIND, WHARTON &","paragraph_id":"para_45"},{"text":"GARRISON LLP, Wilmington, Delaware, Daniel J. Kramer, Esquire, Andrew J.","paragraph_id":"para_46"},{"text":"Ehrlich, Esquire, Robert N. Kravitz, Esquire, PAUL, WEISS, RIFKIND,","paragraph_id":"para_47"},{"text":"WHARTON & GARRISON LLP, New York, New York, Attorneys for","paragraph_id":"para_48"},{"text":"Appellees/Defendants-Below, The Kraft Heinz Company, Bernardo Hees, Alexandre","paragraph_id":"para_49"},{"text":"Behring, Jorge Paulo Lemann, Marcel Herrmann Telles, Paulo Basilio, David","paragraph_id":"para_50"},{"text":"Knopf, Eduardo Pelleissone, John Cahill, George Zoghbi, Rashida La Lande, and","paragraph_id":"para_51"},{"text":"Joao M. Castro-Neves.","paragraph_id":"para_52"},{"text":"Michael A. Pittenger, Esquire, Jacqueline A. Rogers, Esquire, Camilia R. Katkocin,","paragraph_id":"para_53"},{"text":"Esquire, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware,","paragraph_id":"para_54"},{"text":"Sandra C. Goldstein, Esquire, Stefan Atkinson, Esquire, Kevin M. Neylan, Jr.,","paragraph_id":"para_55"},{"text":"Esquire, KIRKLAND & ELLIS LLP, New York, New York, Attorneys for","paragraph_id":"para_56"},{"text":"Appellees/Defendants-Below, 3G Capital, Inc., 3G Capital Partners Ltd., 3G","paragraph_id":"para_57"},{"text":"Capital Partners II LP, 3G Global Food Holdings GP LP, 3G Global Food Holdings","paragraph_id":"para_58"},{"text":"LP, and HK3 18 LP.","paragraph_id":"para_59"},{"text":"LEGROW, Justice:","paragraph_id":"para_60"},{"text":"In early 2020, Erste Asset Management GmbH filed an action asserting","paragraph_id":"para_61"},{"text":"derivative claims against Kraft Heinz Company’s fiduciaries. Erste’s claims arose","paragraph_id":"para_62"},{"text":"from an August 2018 sale of Kraft Heinz’s stock by 3G Capital, Inc., a significant","paragraph_id":"para_63"},{"text":"Kraft Heinz minority stockholder. The Court of Chancery dismissed that complaint","paragraph_id":"para_64"},{"text":"under Rule 23.1, concluding that the derivative plaintiffs failed to plead","paragraph_id":"para_65"},{"text":"particularized facts creating a reasonable doubt that six of Kraft Heinz’s eleven","paragraph_id":"para_66"},{"text":"directors were disinterested or lacked independence. One of those six directors was","paragraph_id":"para_67"},{"text":"John Cahill.","paragraph_id":"para_68"},{"text":"Cahill had previously served as a consultant to Kraft Heinz and received","paragraph_id":"para_69"},{"text":"substantial compensation in that role. In his consultancy work, Cahill reported to","paragraph_id":"para_70"},{"text":"Kraft Heinz’s CEO and its board chair, both of whom were 3G partners, and Kraft","paragraph_id":"para_71"},{"text":"Heinz’s 3G-controlled compensation committee established Cahill’s compensation.","paragraph_id":"para_72"},{"text":"In August 2019, Kraft Heinz disclosed that Cahill’s consultancy had ended on July","paragraph_id":"para_73"},{"text":"1, 2019—before the date for assessing demand futility. The representation that","paragraph_id":"para_74"},{"text":"Cahill’s consulting relationship had terminated was repeated several times in Kraft","paragraph_id":"para_75"},{"text":"Heinz’s public disclosures and in the briefs that the derivative defendants filed in the","paragraph_id":"para_76"},{"text":"Court of Chancery. In concluding that the derivative plaintiffs’ allegations did not","paragraph_id":"para_77"},{"text":"impugn Cahill’s ability to impartially consider a demand, the Court of Chancery","paragraph_id":"para_78"},{"text":"expressly referred to the fact that his consulting agreement terminated before the","paragraph_id":"para_79"},{"text":"2","paragraph_id":"para_80"},{"text":"derivative action was filed and that there were no facts alleged indicating that Cahill","paragraph_id":"para_81","court_paragraph":2},{"text":"expected the consulting arrangement to resume.","paragraph_id":"para_82"},{"text":"But Kraft Heinz now concedes that those disclosures, on which the derivative","paragraph_id":"para_83"},{"text":"plaintiffs and the Court of Chancery relied, were false. It is undisputed that Cahill","paragraph_id":"para_84"},{"text":"continued to serve as a consultant to Kraft Heinz after July 2019. The only thing","paragraph_id":"para_85"},{"text":"that changed at that time was his compensation structure: in return for Cahill’s","paragraph_id":"para_86"},{"text":"continuing work, he received 500,000 options, with one-third of that award vesting","paragraph_id":"para_87"},{"text":"on each anniversary of the initial grant. The fact of Cahill’s ongoing consultancy—","paragraph_id":"para_88"},{"text":"undisclosed in and contrary to Kraft Heinz’s public disclosures—was not known to","paragraph_id":"para_89"},{"text":"Erste until October 2023, more than a year after the derivative action was dismissed","paragraph_id":"para_90"},{"text":"and closed.","paragraph_id":"para_91"},{"text":"Upon learning this new information, Erste filed a complaint seeking relief","paragraph_id":"para_92"},{"text":"from the judgment in the prior action on the basis of fraud and newly discovered","paragraph_id":"para_93"},{"text":"evidence under Rule 60(b). The Court of Chancery dismissed Erste’s bid to reopen","paragraph_id":"para_94"},{"text":"the prior action, holding that (i) fraud under Rule 60(b)(3) applies only in the rare","paragraph_id":"para_95"},{"text":"circumstance that a party commits a fraud on the court; and (ii) the new information","paragraph_id":"para_96"},{"text":"regarding Cahill’s consultancy was not newly discovered evidence under the rule","paragraph_id":"para_97"},{"text":"because Erste could have learned the information with reasonable diligence.","paragraph_id":"para_98"},{"text":"We reverse. The Court of Chancery erred in its conclusion that a party may","paragraph_id":"para_99"},{"text":"obtain relief from final judgment on the basis of fraud only if there has been a “fraud","paragraph_id":"para_100"},{"text":"3","paragraph_id":"para_101"},{"text":"on the court.” Although Rule 60(b)(3) applies only in rare circumstances, the rule’s","paragraph_id":"para_102","court_paragraph":3},{"text":"plain language and Delaware precedent establish that it extends beyond a fraud on","paragraph_id":"para_103"},{"text":"the court and applies when fraud between the parties prevents the defrauded party","paragraph_id":"para_104"},{"text":"from fairly and adequately presenting its case. Erste has pleaded such a claim, and","paragraph_id":"para_105"},{"text":"the court therefore erred in dismissing the action.","paragraph_id":"para_106"},{"text":"I. FACTUAL AND PROCEDURAL BACKGROUND","paragraph_id":"para_107"},{"text":"A. The Parties","paragraph_id":"para_108"},{"text":"Erste Asset Management GmbH is a minority stockholder of the Kraft Heinz","paragraph_id":"para_109"},{"text":"Company, a Delaware corporation and one of the largest global food and beverage","paragraph_id":"para_110"},{"text":"companies.1 Kraft Heinz was established as a standalone public company in 2015","paragraph_id":"para_111"},{"text":"after the merger of Kraft Food Groups, Inc. and H.J. Heinz Holding Corporation.","paragraph_id":"para_112"},{"text":"3G Capital, Inc. is a global investment firm and significant minority","paragraph_id":"para_113"},{"text":"stockholder in Kraft Heinz. As of June 2019, three 3G principals—Jorge Paulo","paragraph_id":"para_114"},{"text":"Lemann, Alexandre Behring, and Joao Castro-Neves—served on Kraft Heinz’s","paragraph_id":"para_115"},{"text":"board of directors (the “Board”). Another director, Alexandre Van Damme, was a","paragraph_id":"para_116"},{"text":"longtime business partner of 3G. Board members John Cahill and George Zoghbi","paragraph_id":"para_117"},{"text":"worked as consultants to Kraft Heinz.","paragraph_id":"para_118"},{"text":"1 Unless otherwise noted, the facts are taken from Erste Asset Mgmt. GmbH v. Hees, 2024 WL","paragraph_id":"para_119"},{"text":"3722620 (Del. Ch. Aug. 8, 2024) [hereinafter the “Opinion”].","paragraph_id":"para_120"},{"text":"4","paragraph_id":"para_121"},{"text":"B. Cahill’s Consultancy","paragraph_id":"para_122","court_paragraph":4},{"text":"Before the Kraft Heinz merger, Cahill was Chairman and Chief Executive","paragraph_id":"para_123"},{"text":"Officer of Kraft Food Groups, Inc. In July 2015, he became a Kraft Heinz director","paragraph_id":"para_124"},{"text":"and vice chairman of the Board. Later that month, Cahill entered into a two-year","paragraph_id":"para_125"},{"text":"consulting agreement with Kraft Heinz. He was paid $4 million per year to consult","paragraph_id":"para_126"},{"text":"with Kraft Heinz CEO Bernardo Hees and Chairman Behring, who were also 3G","paragraph_id":"para_127"},{"text":"partners.2 After the initial consulting agreement expired, Kraft Heinz and Cahill","paragraph_id":"para_128"},{"text":"entered into a new consulting agreement on November 1, 2017. Cahill undertook","paragraph_id":"para_129"},{"text":"fewer responsibilities, and his compensation was lowered to $500,000 per year. This","paragraph_id":"para_130"},{"text":"payment was in addition to approximately $255,000 in compensation that Cahill","paragraph_id":"para_131"},{"text":"received as a director. Cahill’s Kraft Heinz-related compensation constituted more","paragraph_id":"para_132"},{"text":"than half his annual income.","paragraph_id":"para_133"},{"text":"In June 2019, Cahill emailed Chairman Behring and director Gregory Abel.","paragraph_id":"para_134"},{"text":"He raised potential independence issues associated with the current consulting","paragraph_id":"para_135"},{"text":"agreement and suggested a “change to [his] financial arrangement with Kraft","paragraph_id":"para_136"},{"text":"Heinz.”3 Cahill wrote:","paragraph_id":"para_137"},{"text":". . . I ask you to consider a change to my financial arrangement with","paragraph_id":"para_138"},{"text":"Kraft Heinz.","paragraph_id":"para_139"},{"text":"2 Hees was a 3G partner from July 2010 until June 2019. App. to Appellant’s Opening Br.","paragraph_id":"para_140"},{"text":"[hereinafter A__] at A254.","paragraph_id":"para_141"},{"text":"3 Opinion at *2; A14.","paragraph_id":"para_142"},{"text":"5","paragraph_id":"para_143"},{"text":"The bulk of my financial tie[s] to the Company is in the form of options,","paragraph_id":"para_144","court_paragraph":5},{"text":"and all my options are underwater. This is completely appropriate given","paragraph_id":"para_145"},{"text":"our results and the losses shareholders have endured. At the same time,","paragraph_id":"para_146"},{"text":"I am mindful that I am deemed to be a non-independent Director","paragraph_id":"para_147"},{"text":"because of recurring annual consulting payments of $500,000. This is","paragraph_id":"para_148"},{"text":"probably not hea[l]thy for the long term.","paragraph_id":"para_149"},{"text":"To address both issues, I recommend the Company suspend consulting","paragraph_id":"para_150"},{"text":"payments to me (benefitting the ongoing P&L). In lieu, the Company","paragraph_id":"para_151"},{"text":"would provide me a one-time grant of 500,000 options vesting ratably","paragraph_id":"para_152"},{"text":"over three years. This would get me on the road to independent status.","paragraph_id":"para_153"},{"text":"If you think this is not sensible, no worries. Know that my commitment","paragraph_id":"para_154"},{"text":"to working with the new team to turn around Kraft Heinz is solid . . . .4","paragraph_id":"para_155"},{"text":"In a June 20, 2019 meeting, the Kraft Heinz Compensation Committee","paragraph_id":"para_156"},{"text":"reviewed Cahill’s consulting arrangement. Minutes of the meeting reflect that the","paragraph_id":"para_157"},{"text":"Compensation Committee “discussed proposed changes to Mr. Cahill’s","paragraph_id":"para_158"},{"text":"compensation arrangement.”5 The Committee reviewed a slide deck that stated:","paragraph_id":"para_159"},{"text":"• “Cahill . . . [c]urrently receives an annual gross compensation of USD $500k","paragraph_id":"para_160"},{"text":"as an advisor.”","paragraph_id":"para_161"},{"text":"• “We are proposing no cash compensation effective July 2019 and [a] one time","paragraph_id":"para_162"},{"text":"grant of #500,000 stock options[].”","paragraph_id":"para_163"},{"text":"• “This creates a path for Cahill becoming an independent board member in","paragraph_id":"para_164"},{"text":"three years.”6","paragraph_id":"para_165"},{"text":"4 Opinion at *2; A14.","paragraph_id":"para_166"},{"text":"5 Opinion at *3; A18.","paragraph_id":"para_167"},{"text":"6 Opinion at *3; A16.","paragraph_id":"para_168"},{"text":"6","paragraph_id":"para_169"},{"text":"The presentation noted that Cahill’s “stock options [were] expected to be issued the","paragraph_id":"para_170","court_paragraph":6},{"text":"later of the end of the blackout period or August 15 based on the closing price for","paragraph_id":"para_171"},{"text":"[Kraft Heinz] stock on that date.”7 The Compensation Committee approved the","paragraph_id":"para_172"},{"text":"proposed changes to Cahill’s compensation arrangement.8","paragraph_id":"para_173"},{"text":"On August 2, 2019, Kraft Heinz filed a proxy statement (the “2019 Proxy”)","paragraph_id":"para_174"},{"text":"that referred to Cahill as “a former consultant to Kraft Heinz” and stated that “Mr.","paragraph_id":"para_175"},{"text":"Cahill’s advisory and consulting arrangement terminated on July 1, 2019.”9 In","paragraph_id":"para_176"},{"text":"accordance with Item 402(k) of Regulation S-K, Kraft Heinz disclosed Cahill’s","paragraph_id":"para_177"},{"text":"compensation in the Director Compensation Table. The table listed Cahill’s","paragraph_id":"para_178"},{"text":"standard Board retainer fee of $110,000, deferred stock awards of $125,050, and","paragraph_id":"para_179"},{"text":"payments of $500,000 for his consulting duties under the column “All Other","paragraph_id":"para_180"},{"text":"Compensation.”10 A footnote to the Cahill-related disclosure explained:","paragraph_id":"para_181"},{"text":"Mr. Cahill provided advisory and consulting services to Kraft Heinz","paragraph_id":"para_182"},{"text":"related to then-current and historical finances, relationships with","paragraph_id":"para_183"},{"text":"licensors, customers, and vendors, employee matters, product","paragraph_id":"para_184"},{"text":"development, marketing and distribution, government affairs, and","paragraph_id":"para_185"},{"text":"strategic opportunities. Such services were provided pursuant to a","paragraph_id":"para_186"},{"text":"consulting agreement entered into between Mr. Cahill and the","paragraph_id":"para_187"},{"text":"Company in November 2017. Mr. Cahill","paragraph_id":"para_188"},{"text":"’s advisory and consulting","paragraph_id":"para_189"},{"text":"arrangement terminated on July 1, 2019. Previously, these services","paragraph_id":"para_190"},{"text":"were provided pursuant to an arrangement entered into following the","paragraph_id":"para_191"},{"text":"7 Opinion at *3; A16.","paragraph_id":"para_192"},{"text":"8 Opinion at *3; A18.","paragraph_id":"para_193"},{"text":"9 Opinion at *; Kraft Heinz Company, Proxy Statement (Form 14a) (Aug. 2, 2019) [hereinafter the","paragraph_id":"para_194"},{"text":"“2019 Proxy”]; A19–36 (2019 Proxy).","paragraph_id":"para_195"},{"text":"10 2019 Proxy at A35.","paragraph_id":"para_196"},{"text":"7","paragraph_id":"para_197"},{"text":"2015 Merger. Mr. Cahill’s services under the consulting agreement","paragraph_id":"para_198","court_paragraph":7},{"text":"were distinct and separate from his duties as a director. Payments to Mr.","paragraph_id":"para_199"},{"text":"Cahill under the consulting agreement are disclosed in the “All Other","paragraph_id":"para_200"},{"text":"Compensation” column. For a discussion of the advisory and consulting","paragraph_id":"para_201"},{"text":"services provided by Mr. Cahill to Kraft Heinz, please see “Corporate","paragraph_id":"para_202"},{"text":"Governance and Board Matters — Independence and Related Person","paragraph_id":"para_203"},{"text":"Transactions — Consulting Agreement.”11","paragraph_id":"para_204"},{"text":"The section titled “Consultant Agreement” disclosed:","paragraph_id":"para_205"},{"text":"On November 2, 2017, we entered into a consulting agreement with Mr.","paragraph_id":"para_206"},{"text":"Cahill pursuant to which he provided advisory and consulting services","paragraph_id":"para_207"},{"text":"to us related to then-current and historical finances, relationships with","paragraph_id":"para_208"},{"text":"licensors, customers and vendors, employee matters, product","paragraph_id":"para_209"},{"text":"development, marketing and distribution, government affairs and","paragraph_id":"para_210"},{"text":"strategic opportunities. Mr. Cahill","paragraph_id":"para_211"},{"text":"’s advisory and consulting","paragraph_id":"para_212"},{"text":"arrangement terminated on July 1, 2019. Payments to Mr. Cahill","paragraph_id":"para_213"},{"text":"under the consulting agreement are disclosed in the “All Other","paragraph_id":"para_214"},{"text":"Compensation” column of 2018 Non-Employee Director","paragraph_id":"para_215"},{"text":"Compensation Table below. Previously, Mr. Cahill had provided","paragraph_id":"para_216"},{"text":"similar services under a consulting agreement entered into following","paragraph_id":"para_217"},{"text":"the 2015 Merger, which had expired in July 2017.12","paragraph_id":"para_218"},{"text":"On August 16, 2019, Cahill received the stock options approved by the","paragraph_id":"para_219"},{"text":"Compensation Committee in a Non-Qualified Stock Option Award Agreement","paragraph_id":"para_220"},{"text":"under the Kraft Heinz Company Omnibus Incentive Plan.13 Cahill was awarded","paragraph_id":"para_221"},{"text":"500,000 shares at $25.41 per share, vesting over a three-year period.14 The options","paragraph_id":"para_222"},{"text":"11 2019 Proxy at A35 n.4 (emphasis added).","paragraph_id":"para_223"},{"text":"12 Id. at A26 (emphasis added); Opinion at *3.","paragraph_id":"para_224"},{"text":"13 Exhibit D to the Transmittal Affidavit of Joel Friedlander, Esquire, in Support of Plaintiff Erste","paragraph_id":"para_225"},{"text":"Asset Management GmbH’s Answering Brief in Opposition to Defendants’ Motions to Dismiss","paragraph_id":"para_226"},{"text":"the Verified Stockholder Complaint at 5, Erste Asset Management GmbH v. Bernardo Hees, et al.,","paragraph_id":"para_227"},{"text":"No. 2023-1191 (Del. Ch. Aug. 8, 2023) (Ch. Dkt. 17).","paragraph_id":"para_228"},{"text":"14 Id. at 5.","paragraph_id":"para_229"},{"text":"8","paragraph_id":"para_230"},{"text":"“vest and become exercisable . . . subject to [Cahill’s] continued Service (including,","paragraph_id":"para_231","court_paragraph":8},{"text":"for the avoidance of doubt, service as a board of director member, consultant or","paragraph_id":"para_232"},{"text":"advisor) with the Company or one of its Subsidiaries or Affiliates.”15 Kraft Heinz","paragraph_id":"para_233"},{"text":"disclosed the grant in a Form 4 filing four days later, stating that the stock options","paragraph_id":"para_234"},{"text":"“cliff-vest on August 16, 2022, subject to the terms and conditions of the stock","paragraph_id":"para_235"},{"text":"option award agreement.”16","paragraph_id":"para_236"},{"text":"The Form 4 did not provide any further information about the options’","paragraph_id":"para_237"},{"text":"connection with Cahill’s ongoing consultancy. 17 To the contrary, Kraft Heinz","paragraph_id":"para_238"},{"text":"continued to publicly represent that the consultancy had ended.18 On March 27,","paragraph_id":"para_239"},{"text":"2020, Kraft Heinz filed its 2020 proxy statement with the SEC (the “2020 Proxy).19","paragraph_id":"para_240"},{"text":"The 2020 Proxy disclosed that Cahill received $250,000 in 2019 under a 2017","paragraph_id":"para_241"},{"text":"“advisory and consulting arrangement terminated on July 1, 2019.”20 His consulting","paragraph_id":"para_242"},{"text":"services were described as being “distinct and separate from his duties as a","paragraph_id":"para_243"},{"text":"15 Id. at 6.","paragraph_id":"para_244"},{"text":"16 Opinion at *4; Kraft Heinz Company, Statement of Changes in Beneficial Ownership of","paragraph_id":"para_245"},{"text":"Securities (Form 4) (Aug. 20, 2019) [hereinafter “Form 4”]; A37–38.","paragraph_id":"para_246"},{"text":"17 See Form 4; A37–38.","paragraph_id":"para_247"},{"text":"18 See Kraft Heinz Company, Proxy Statement (Form 14a) (March 27, 2020) [hereinafter the “2020","paragraph_id":"para_248"},{"text":"Proxy”]; A53–87; Kraft Heinz Company, Proxy Statement (Form 14a) (March 24, 2023) at A33.","paragraph_id":"para_249"},{"text":"19 Opinion at *4; 2020 Proxy.","paragraph_id":"para_250"},{"text":"20 Opinion at *4; 2020 Proxy at A58, A65, A73, A84.","paragraph_id":"para_251"},{"text":"9","paragraph_id":"para_252"},{"text":"director.”21 It also stated that he received a “one-time grant of 500,000 stock","paragraph_id":"para_253","court_paragraph":9},{"text":"options” “[i]n connection with the termination of his consulting agreement.”22","paragraph_id":"para_254"},{"text":"Kraft Heinz’s proxy statements for 2021–2023 continued to incorrectly","paragraph_id":"para_255"},{"text":"describe Cahill as a “former consultant.”23 The 2023 proxy statement stated that","paragraph_id":"para_256"},{"text":"Cahill “last provided consulting services to Kraft Heinz in June 2019,” “received a","paragraph_id":"para_257"},{"text":"grant of stock options in 2019 in connection with the termination of his consulting","paragraph_id":"para_258"},{"text":"agreement,” and was “determined to be independent effective August 17, 2022.”24","paragraph_id":"para_259"},{"text":"Kraft Heinz now concedes for purposes of this appeal that its public","paragraph_id":"para_260"},{"text":"statements that Cahill was a former consultant were false.25","paragraph_id":"para_261"},{"text":"C. The Prior Action","paragraph_id":"para_262"},{"text":"On December 2, 2019, Erste served a books and record demand under 8 Del.","paragraph_id":"para_263"},{"text":"C. § 220 on Kraft Heinz “[t]o investigate potential wrongdoing, mismanagement,","paragraph_id":"para_264"},{"text":"and breaches of fiduciary duties by the Company’s management and its Board of","paragraph_id":"para_265"},{"text":"21 Opinion at *4; 2020 Proxy at A64, A85.","paragraph_id":"para_266"},{"text":"22 Opinion at *4; 2020 Proxy at A58, A73.","paragraph_id":"para_267"},{"text":"23 Kraft Heinz Company, Proxy Statement (Form 14a) (March 26, 2021); Kraft Heinz Company,","paragraph_id":"para_268"},{"text":"Proxy Statement (Form 14a) (March 25, 2022); Kraft Heinz Company, Proxy Statement (Form","paragraph_id":"para_269"},{"text":"14a) (March 24, 2023) [hereinafter the “2023 Proxy”].","paragraph_id":"para_270"},{"text":"24 Opinion at *4; 2023 Proxy at A333.","paragraph_id":"para_271"},{"text":"25 Oral Argument at 28:26 (Mar. 12, 2025) (accessible at https://courts.delaware.gov/supreme/","paragraph_id":"para_272"},{"text":"oralarguments/) (Supr. Dkt. 29) [hereinafter “Appellate Oral Argument”] (The Court: “The","paragraph_id":"para_273"},{"text":"defendants’ brief seems to avoid addressing whether the company’s disclosures were in fact false","paragraph_id":"para_274"},{"text":"[and] misleading . . . are the defendants conceding for the purpose of this argument that they were","paragraph_id":"para_275"},{"text":"false and misleading?” Kraft Heinz: “We will concede for the purpose of this argument that the","paragraph_id":"para_276"},{"text":"statement was untrue”).","paragraph_id":"para_277"},{"text":"10","paragraph_id":"para_278"},{"text":"Directors.”26 It sought, among other things, “[d]ocuments reflecting any and all","paragraph_id":"para_279","court_paragraph":10},{"text":"personal, familial, financial, or business relationships, other than their service as","paragraph_id":"para_280"},{"text":"directors of Kraft Heinz, between or among any members of the Board.”27 Kraft","paragraph_id":"para_281"},{"text":"Heinz produced documents in response.28","paragraph_id":"para_282"},{"text":"After receiving the books and records produced by Kraft Heinz, Erste filed a","paragraph_id":"para_283"},{"text":"derivative complaint in the Court of Chancery on January 21, 2020. The complaint","paragraph_id":"para_284"},{"text":"alleged breach of fiduciary duty claims concerning an August 2018 sale of part of","paragraph_id":"para_285"},{"text":"3G’s Kraft Heinz stock, which took place six months before Kraft Heinz’s disclosure","paragraph_id":"para_286"},{"text":"of disappointing financial results and impairment charges that resulted in a","paragraph_id":"para_287"},{"text":"significant drop in its stock price.29","paragraph_id":"para_288"},{"text":"Various derivative actions filed by Kraft Heinz stockholders between July 30,","paragraph_id":"para_289"},{"text":"2019 and early 2020 were consolidated (the “Prior Action”), and Erste was","paragraph_id":"para_290"},{"text":"appointed co-lead plaintiff.30 A consolidated amended complaint was filed in the","paragraph_id":"para_291"},{"text":"Prior Action on April 27, 2020 (the “Amended Complaint”). The derivative","paragraph_id":"para_292"},{"text":"plaintiffs alleged that demand on the board was excused as futile because a majority","paragraph_id":"para_293"},{"text":"26 Opinion at *5; App. to Appellee’s Answering Br. [hereinafter B__] B20 (books and records","paragraph_id":"para_294"},{"text":"demand).","paragraph_id":"para_295"},{"text":"27 Opinion at *5; B20 (books and records demand).","paragraph_id":"para_296"},{"text":"28 Opinion at *5.","paragraph_id":"para_297"},{"text":"29 See B55–62.","paragraph_id":"para_298"},{"text":"30 In re Kraft Heinz Co. Derivative Litig., 2021 WL 6012632 at *3 (Del. Ch. Dec. 15, 2021), aff'd,","paragraph_id":"para_299"},{"text":"282 A.3d 1054 (Del. 2022) (TABLE); A39–52.","paragraph_id":"para_300"},{"text":"11","paragraph_id":"para_301"},{"text":"of the directors were interested or lacked independence. The relevant date for","paragraph_id":"para_302","court_paragraph":11},{"text":"demand-futility purposes was July 30, 2019. The Amended Complaint alleged that","paragraph_id":"para_303"},{"text":"Cahill served as a consultant of Kraft Heinz “until July 1, 2019.”31 That allegation","paragraph_id":"para_304"},{"text":"was based on Kraft Heinz’s representations in the 2019 and 2020 Proxies.32 Kraft","paragraph_id":"para_305"},{"text":"Heinz conceded at oral argument in this appeal that the proxy statements were","paragraph_id":"para_306"},{"text":"incorporated by reference into the amended complaint.33","paragraph_id":"para_307"},{"text":"In June 2020, Kraft Heinz moved to dismiss the Amended Complaint for","paragraph_id":"para_308"},{"text":"failure to plead demand futility under Court of Chancery Rule 23.1 and for failure","paragraph_id":"para_309"},{"text":"to state a claim under Rule 12(b)(6). During briefing and oral argument on their","paragraph_id":"para_310"},{"text":"motion to dismiss, Kraft Heinz repeated previous statements that Cahill no longer","paragraph_id":"para_311"},{"text":"was a consultant as of the date for assessing demand futility.34","paragraph_id":"para_312"},{"text":"On December 15, 2021, the Court of Chancery dismissed the Prior Action","paragraph_id":"para_313"},{"text":"with prejudice under Rule 23.1.35 The court held that the plaintiffs had failed to","paragraph_id":"para_314"},{"text":"plead particularized facts creating a reasonable doubt that a majority of Kraft Heinz’s","paragraph_id":"para_315"},{"text":"31 A332; A336 (Verified Complaint for Relief from Judgment).","paragraph_id":"para_316"},{"text":"32 Id.","paragraph_id":"para_317"},{"text":"33 Appellate Oral Argument at 30:20.","paragraph_id":"para_318"},{"text":"34 A336–37 at ¶¶ 267, 269–70 (Verified Complaint for Relief from Judgment); see Reply Br. in","paragraph_id":"para_319"},{"text":"Prior Action at 8–9 (“Defendants demonstrated that the Complaint lacks particularized allegations","paragraph_id":"para_320"},{"text":"suggesting that Mr. Cahill’s prior consulting arrangement with Kraft Heinz and receipt of ordinary","paragraph_id":"para_321"},{"text":"director compensation plead a lack of independence.”) (emphasis in original).","paragraph_id":"para_322"},{"text":"35 In re Kraft Heinz Co. Derivative Litig., 2021 WL 6012632 at *13 (Del. Ch. Dec. 15, 2021),","paragraph_id":"para_323"},{"text":"aff‘d, 282 A.3d 1054 (Del. 2022) (TABLE).","paragraph_id":"para_324"},{"text":"12","paragraph_id":"para_325"},{"text":"Board was disinterested or lacked independence from 3G or its defendant partners","paragraph_id":"para_326","court_paragraph":12},{"text":"as of July 30, 2019.","paragraph_id":"para_327"},{"text":"In its opinion dismissing the Amended Complaint in the Prior Action, the","paragraph_id":"para_328"},{"text":"court reasoned that six of Kraft Heinz’s eleven directors were independent: Jeanne","paragraph_id":"para_329"},{"text":"Jackson, John Pope, Feroz Dewan, Tracy Britt Cool, Abel, and Cahill. The court","paragraph_id":"para_330"},{"text":"held that “plaintiff’s allegations about Cahill . . . do not, in totality, impugn [his]","paragraph_id":"para_331"},{"text":"independence from 3G.”36","paragraph_id":"para_332"},{"text":"In reaching that conclusion, the Court of Chancery relied on the Amended","paragraph_id":"para_333"},{"text":"Complaint’s allegation that Cahill’s consulting agreement had ended before the first","paragraph_id":"para_334"},{"text":"derivative complaint was filed. That allegation was based on Kraft Heinz’s public","paragraph_id":"para_335"},{"text":"disclosures. The court stated:","paragraph_id":"para_336"},{"text":"Cahill’s consulting agreement with Kraft Heinz terminated on July 1,","paragraph_id":"para_337"},{"text":"2019—before this action was filed. There are no facts alleged","paragraph_id":"para_338"},{"text":"indicating that Cahill expected his consulting arrangement to resume.37","paragraph_id":"para_339"},{"text":"Because those six directors constituted a majority of the Board, the court declined to","paragraph_id":"para_340"},{"text":"address whether the other directors, including Zoghbi or Van Damme, were","paragraph_id":"para_341"},{"text":"disinterested and independent of 3G.","paragraph_id":"para_342"},{"text":"The derivative plaintiffs appealed to this Court, still unaware that Cahill’s","paragraph_id":"para_343"},{"text":"consultancy had not ended. On appeal, the derivative plaintiffs referred to the 2019","paragraph_id":"para_344"},{"text":"36 Id.","paragraph_id":"para_345"},{"text":"37 Opinion at *5 (citing and quoting In re Kraft Heinz, 2021 WL 6012632, at *11).","paragraph_id":"para_346"},{"text":"13","paragraph_id":"para_347"},{"text":"stock option award to Cahill, but—believing the consultancy had ended—argued","paragraph_id":"para_348","court_paragraph":13},{"text":"that the changes to Cahill’s compensation arrangement were made tactically to","paragraph_id":"para_349"},{"text":"defend against possible future derivative litigation. Based on public disclosures","paragraph_id":"para_350"},{"text":"(including the August 2019 Form 4 filings), the plaintiffs asserted that the stock","paragraph_id":"para_351"},{"text":"grants “were disclosed in August 2019 . . . suggesting that the economic","paragraph_id":"para_352"},{"text":"arrangements for [Cahill] were being restructured in anticipation of the filing of","paragraph_id":"para_353"},{"text":"derivative actions.”38 Erste hypothesized that the options disclosed in the Form 4","paragraph_id":"para_354"},{"text":"were a surreptitious way to pay Cahill differently without requiring further work:","paragraph_id":"para_355"},{"text":"[Kraft Heinz’s] 2020 proxy statement describes the grant of stock","paragraph_id":"para_356"},{"text":"options to Cahill ‘[i]n connection with the termination of his consulting","paragraph_id":"para_357"},{"text":"agreement’[ ], but the Form 4 respecting the options was filed on","paragraph_id":"para_358"},{"text":"August 20, 2019, and states that the ‘transaction date’ was August 16,","paragraph_id":"para_359"},{"text":"2019—after the termination of the consulting agreement and after the","paragraph_id":"para_360"},{"text":"filing of the first derivative complaint . . . In other words, KHC sought","paragraph_id":"para_361"},{"text":"to challenge demand futility based on Cahill’s status as former","paragraph_id":"para_362"},{"text":"consultant, when in reality they were conniving to pay him differently","paragraph_id":"para_363"},{"text":"without requiring any further consulting work.","paragraph_id":"para_364"},{"text":". . . If Cahill cannot act objectively respecting KHC, there is no reason","paragraph_id":"para_365"},{"text":"to believe he can act objectively as to 3G, which wields managerial","paragraph_id":"para_366"},{"text":"authority at KHC.39","paragraph_id":"para_367"},{"text":"On appeal, Kraft Heinz again argued that Cahill was independent because his","paragraph_id":"para_368"},{"text":"consultancy had ended. The Company described his consultancy with the following","paragraph_id":"para_369"},{"text":"terminology: “former consultant”; “prior consulting arrangement”; “former","paragraph_id":"para_370"},{"text":"38 B159 (Reply Br. in Appeal of the Prior Action).","paragraph_id":"para_371"},{"text":"39 B171–72 (Reply Br. in Appeal of the Prior Action).","paragraph_id":"para_372"},{"text":"14","paragraph_id":"para_373"},{"text":"consulting arrangement”; “prior consulting”; “waning prior consulting relationship”;","paragraph_id":"para_374","court_paragraph":14},{"text":"“former status as a consultant.”40 The defendants distinguished Cahill’s consultancy","paragraph_id":"para_375"},{"text":"from cases that involve “indefinite or lengthy consulting arrangements [that] courts","paragraph_id":"para_376"},{"text":"have found indicative of bias-producing relationships.”41 At oral argument on","paragraph_id":"para_377"},{"text":"appeal, the defendants argued that Cahill was “free of the consulting relationship”","paragraph_id":"para_378"},{"text":"as of the date for assessing demand futility.42","paragraph_id":"para_379"},{"text":"On August 1, 2022, this Court affirmed the Court of Chancery’s decision on","paragraph_id":"para_380"},{"text":"the basis of its December 15, 2021 opinion. The Amended Complaint was dismissed","paragraph_id":"para_381"},{"text":"with prejudice and the Prior Action was closed.","paragraph_id":"para_382"},{"text":"D. The Demand and the Board’s Response","paragraph_id":"para_383"},{"text":"On November 29, 2022, Erste served a litigation demand on the Kraft Heinz","paragraph_id":"para_384"},{"text":"Board. The demand raised the same claims alleged in the Prior Action. The demand","paragraph_id":"para_385"},{"text":"also raised a new claim: certain defendants were liable to the Company for waste.","paragraph_id":"para_386"},{"text":"This waste claim was based on Erste’s contention that the 3G-affiliated defendants","paragraph_id":"para_387"},{"text":"caused Kraft Heinz to “gift” Cahill “500,000 options after his consulting agreement","paragraph_id":"para_388"},{"text":"was terminated.”43","paragraph_id":"para_389"},{"text":"40 A337 ¶ 271; A130; A152–53; A157–58.","paragraph_id":"para_390"},{"text":"41 A157.","paragraph_id":"para_391"},{"text":"42 A338 ¶ 272 (internal quotation marks omitted) (citation omitted).","paragraph_id":"para_392"},{"text":"43 Opinion at *6.","paragraph_id":"para_393"},{"text":"15","paragraph_id":"para_394"},{"text":"The Board assembled a “Working Group” of two independent directors who","paragraph_id":"para_395","court_paragraph":15},{"text":"investigated and eventually rejected the demand.44 During the investigation, the","paragraph_id":"para_396"},{"text":"Working Group interviewed Cahill about the purpose of the stock options granted to","paragraph_id":"para_397"},{"text":"him in 2019. The Working Group concluded that the options were to compensate","paragraph_id":"para_398"},{"text":"Cahill for “ongoing work for the Company that exceeded the role and scope of his","paragraph_id":"para_399"},{"text":"service as a director.”45 On May 20, 2023, the Working Group issued its report and","paragraph_id":"para_400"},{"text":"recommended that the Board reject the demands. 46 The Board accepted that","paragraph_id":"para_401"},{"text":"recommendation and decided not to pursue further litigation on the matter. Erste","paragraph_id":"para_402"},{"text":"was made aware of the decision by a letter to his counsel dated May 30, 2023.47","paragraph_id":"para_403"},{"text":"On August 21, 2023, Erste served a new books and records demand to","paragraph_id":"para_404"},{"text":"investigate the Board’s rejection, theorizing that the stock options awarded to Cahill","paragraph_id":"para_405"},{"text":"were a wasteful transaction since his consultancy had purportedly ended before the","paragraph_id":"para_406"},{"text":"options were granted. Kraft Heinz produced documents on October 11, 2023,","paragraph_id":"para_407"},{"text":"including (i) Cahill’s email to Behring and Abel on June 1, 2019; (ii) the minutes","paragraph_id":"para_408"},{"text":"and presentation from the June 20, 2019 Compensation Committee meeting; and (iii)","paragraph_id":"para_409"},{"text":"44 Answering Br. at 17; A339.","paragraph_id":"para_410"},{"text":"45 Opinion at *6; Supplemental Report of the Working Group of the Board of Directors of The","paragraph_id":"para_411"},{"text":"Kraft Heinz Company, dated May 20, 2023, Erste Asset Management GmbH v. Bernardo Hees, et","paragraph_id":"para_412"},{"text":"al., at 34 (Aug. 8, 2024) (Exhibit 1 to the Stachel Affidavit) [hereinafter the “Working Group","paragraph_id":"para_413"},{"text":"Report”].","paragraph_id":"para_414"},{"text":"46 A339.","paragraph_id":"para_415"},{"text":"47 B191–92.","paragraph_id":"para_416"},{"text":"16","paragraph_id":"para_417"},{"text":"the May 20, 2023 Working Group Report.48 For the first time, Erste became aware","paragraph_id":"para_418","court_paragraph":16},{"text":"that Cahill’s consultancy had not ended on July 1, 2019, as Kraft Heinz had","paragraph_id":"para_419"},{"text":"represented in its proxy statements and in the Prior Action.","paragraph_id":"para_420"},{"text":"E. The New Action","paragraph_id":"para_421"},{"text":"Other plaintiffs filed wrongful refusal actions in the Court of Chancery,49 but","paragraph_id":"para_422"},{"text":"Erste took another tack. On October 30, 2023, Erste attempted to file a motion in","paragraph_id":"para_423"},{"text":"the Prior Action seeking relief from the judgment under Court of Chancery Rule","paragraph_id":"para_424"},{"text":"60(b). Since the Prior Action had been closed for more than a year, however, the","paragraph_id":"para_425"},{"text":"motion was time barred. Erste then filed a new action to set aside the judgment in","paragraph_id":"para_426"},{"text":"the Prior Action under Rule 60(b).","paragraph_id":"para_427"},{"text":"Erste advanced five claims in this new action. Count I sought relief under","paragraph_id":"para_428"},{"text":"Rule 60(b).50 Count II claimed that certain director defendants breached their","paragraph_id":"para_429"},{"text":"fiduciary duties by allegedly making false disclosures in Kraft Heinz’s proxy","paragraph_id":"para_430"},{"text":"statements. 51 Counts III, IV, and V mirrored Erste’s claims in the Amended","paragraph_id":"para_431"},{"text":"Complaint in the Prior Action, alleging Brophy and aiding-and-abetting claims based","paragraph_id":"para_432"},{"text":"48 See Opinion at *6; A14–18.","paragraph_id":"para_433"},{"text":"49 See In re Kraft Heinz Demand Refused Deriv. S’holder Litig., 2024 WL 3493957 (Del. Ch. July","paragraph_id":"para_434"},{"text":"19, 2024) (dismissing the demand-refused suits).","paragraph_id":"para_435"},{"text":"50 See A342–43 (Count I (Relief from Judgment)).","paragraph_id":"para_436"},{"text":"51 See A343–44 (Count II (False Disclosures)).","paragraph_id":"para_437"},{"text":"17","paragraph_id":"para_438"},{"text":"on 3G’s August 2018 stock sale.52 The parties agreed to brief Counts I and II first,","paragraph_id":"para_439","court_paragraph":17},{"text":"as a dismissal of those claims would be dispositive of the others.","paragraph_id":"para_440"},{"text":"Count I sought relief under two subsections of Rule 60(b). First, Erste argued","paragraph_id":"para_441"},{"text":"that it was entitled to relief under Rule 60(b)(2) for newly discovered evidence.","paragraph_id":"para_442"},{"text":"According to Erste, Cahill and another Kraft Heinz director, Zoghbi, had received","paragraph_id":"para_443"},{"text":"stock options for undisclosed and ongoing consulting services. Second, Erste","paragraph_id":"para_444"},{"text":"asserted that Kraft Heinz’s public filings improperly disclosed Cahill’s consultancy","paragraph_id":"para_445"},{"text":"status and compensation, which constituted fraud under Rule 60(b)(3).","paragraph_id":"para_446"},{"text":"In Count II Erste claimed that the director defendants breached their fiduciary","paragraph_id":"para_447"},{"text":"duties by failing to correct the false compensation-related disclosures in Kraft","paragraph_id":"para_448"},{"text":"Heinz’s proxy statements. Erste alleged that it was harmed because it incurred","paragraph_id":"para_449"},{"text":"litigation costs in the Prior Action.53","paragraph_id":"para_450"},{"text":"The director defendants, 3G entities, and Kraft Heinz moved to dismiss the","paragraph_id":"para_451"},{"text":"complaint on March 4, 2024. After briefing and oral argument, the Court of","paragraph_id":"para_452"},{"text":"Chancery dismissed Count I. The court held that the information regarding Cahill’s","paragraph_id":"para_453"},{"text":"ongoing consultancy was not “newly discovered evidence” because “reasonable","paragraph_id":"para_454"},{"text":"diligence on Erste’s part—either through its books and records demand or a thorough","paragraph_id":"para_455"},{"text":"review of Kraft Heinz’s public filings—would have uncovered this information","paragraph_id":"para_456"},{"text":"52 See A344–45 (Count III (Brophy)); A345-49 (Count IV (Contribution and Indemnification));","paragraph_id":"para_457"},{"text":"A349–50 (Count V (Aiding and Abetting)); See also Opinion at *7 n.80–82.","paragraph_id":"para_458"},{"text":"53 See A343 (Count II (False Disclosures)).","paragraph_id":"para_459"},{"text":"18","paragraph_id":"para_460"},{"text":"during the prior lawsuit.”54 The court reasoned that Erste “raised the director’s","paragraph_id":"para_461","court_paragraph":18},{"text":"options in its appeal of the Prior Action to the Supreme Court.”55 Based on its","paragraph_id":"para_462"},{"text":"conclusion that Erste could have obtained the information about Cahill and Zoghbi","paragraph_id":"para_463"},{"text":"before the Prior Action was dismissed, the court rejected Erste’s claim under Rule","paragraph_id":"para_464"},{"text":"60(b)(2).","paragraph_id":"para_465"},{"text":"The court then considered whether the Prior Action was a product of fraud on","paragraph_id":"para_466"},{"text":"the court under Rule 60(b)(3). It found that the alleged fraud fell outside the judicial","paragraph_id":"para_467"},{"text":"process, “fall[ing] well short of what Rule 60(b)(3) requires.” The court held that","paragraph_id":"para_468"},{"text":"Rule 60(b)(3) is “confined to the more serious, but fortunately rare, cases involving","paragraph_id":"para_469"},{"text":"a corruption of the judicial process itself.”56 The court reasoned that “[t]o justify","paragraph_id":"para_470"},{"text":"relief under Rule 60(b)(3), the ‘fraud must be extrinsic’” and “‘directly affect[]’ the","paragraph_id":"para_471"},{"text":"‘integrity of the court and its ability to function impartially.’”57 The court concluded","paragraph_id":"para_472"},{"text":"that “if this were fraud, it is ‘intrinsic,’” explaining that any misrepresentation in the","paragraph_id":"para_473"},{"text":"disclosures was “outside the judicial process,” and the alleged fraud therefore was","paragraph_id":"para_474"},{"text":"not covered by Rule 60(b)(3).58 Having so concluded, the court dismissed Count I,","paragraph_id":"para_475"},{"text":"54 Opinion at *9.","paragraph_id":"para_476"},{"text":"55 Id. at *1.","paragraph_id":"para_477"},{"text":"56 Id. at *10.","paragraph_id":"para_478"},{"text":"57 Id. (quoting Smith v. Williams, 2007 WL 2193748, at *4-5 (Del. Super. July 27, 2007)).","paragraph_id":"para_479"},{"text":"58 Id. at *10.","paragraph_id":"para_480"},{"text":"19","paragraph_id":"para_481"},{"text":"stating “Erste makes no well-pleaded allegation supporting a reasonable inference","paragraph_id":"para_482","court_paragraph":19},{"text":"that counsel gave false information to this court.”59","paragraph_id":"para_483"},{"text":"The court also dismissed Count II, holding that it “cannot reasonably infer that","paragraph_id":"para_484"},{"text":"the director defendants ‘knew’ false statements were being used to ‘create a false","paragraph_id":"para_485"},{"text":"[litigation] record.’”60 It also rejected Erste’s damages claim, calling it a “creative","paragraph_id":"para_486"},{"text":"attempt to recover attorneys’ fees [that] falls short of pleading the elements of Erste’s","paragraph_id":"para_487"},{"text":"claim.”61","paragraph_id":"para_488"},{"text":"Because dismissal of the first two claims was dispositive of the others, the","paragraph_id":"para_489"},{"text":"court did not reach Counts III–IV. The Court of Chancery concluded that Erste was","paragraph_id":"para_490"},{"text":"not entitled to the relief it sought, stating that “the sort of rare circumstances that","paragraph_id":"para_491"},{"text":"might merit revisiting” the Prior Action were absent in this case.62","paragraph_id":"para_492"},{"text":"Erste now appeals the Court of Chancery’s ruling on its Rule 60(b) arguments","paragraph_id":"para_493"},{"text":"in Count I and the dismissal of Count II under Rule 12(b)(6).63","paragraph_id":"para_494"},{"text":"59 Id.","paragraph_id":"para_495"},{"text":"60 Id. at *12.","paragraph_id":"para_496"},{"text":"61 Id. at *1.","paragraph_id":"para_497"},{"text":"62 Id.","paragraph_id":"para_498"},{"text":"63 Id. at *1, *8, *12.","paragraph_id":"para_499"},{"text":"20","paragraph_id":"para_500"},{"text":"II. STANDARD OF REVIEW","paragraph_id":"para_501","court_paragraph":20},{"text":"This court reviews a trial court’s decision to grant or deny a Rule 60(b) motion","paragraph_id":"para_502"},{"text":"on an abuse of discretion standard.64 “An abuse of discretion occurs when ‘a court","paragraph_id":"para_503"},{"text":"has . . . exceeded the bounds of reason in view of the circumstances, [or] . . . so","paragraph_id":"para_504"},{"text":"ignored recognized rules of law or practice so as to produce injustice.’”65 Whether","paragraph_id":"para_505"},{"text":"the court employed the correct legal standard in resolving a Rule 60(b) application","paragraph_id":"para_506"},{"text":"is a matter of law that we review de novo.66 The dismissal of a claim under Rule","paragraph_id":"para_507"},{"text":"12(b)(6) for failure to state a claim also is subject to de novo review.67","paragraph_id":"para_508"},{"text":"III. ANALYSIS","paragraph_id":"para_509"},{"text":"On appeal Erste argues that the court erred by (i) applying the incorrect legal","paragraph_id":"para_510"},{"text":"standard to the application for relief under Rule 60(b)(3); (ii) holding that","paragraph_id":"para_511"},{"text":"“reasonable diligence” for the purposes of Rule 60(b)(2) requires a books and","paragraph_id":"para_512"},{"text":"64 MCA, Inc. v. Matsushita Elec. Indus. Co., 785 A.2d 625, 633 (Del. 2001) (“A motion to reopen","paragraph_id":"para_513"},{"text":"a judgment under Court of Chancery Rule 60(b) is addressed to the sound discretion of the trial","paragraph_id":"para_514"},{"text":"court. This Court’s review of the grant or denial of such a motion is for an abuse of discretion.”)","paragraph_id":"para_515"},{"text":"(citing Battaglia v. Wilmington Sav. Fund Soc., 379 A.2d 1132, 1135 (Del. 1977)); see also Wife","paragraph_id":"para_516"},{"text":"B. v. Husband B., 395 A.2d 358 (Del. 1978)).","paragraph_id":"para_517"},{"text":"65 MCA, 785 A.2d at 634 (quoting Lilly v. State, 649 A.2d 1055, 1059 (Del. 1994)).","paragraph_id":"para_518"},{"text":"66 RBC Cap. Mkts., LLC v. Educ. Loan Tr. IV, 87 A.3d 632, 639 (Del. 2014); MCA, 785 A.2d at","paragraph_id":"para_519"},{"text":"638 (reiterating that whether a trial court employed an incorrect legal standard in denying a Rule","paragraph_id":"para_520"},{"text":"60(b) application is reviewed de novo).","paragraph_id":"para_521"},{"text":"67 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 167–68 (Del. 2006) (the dismissal","paragraph_id":"para_522"},{"text":"of a complaint under Rule 12(b)(6) for failure to state a claim for relief is reviewed de novo);","paragraph_id":"para_523"},{"text":"Franklin v. Glenhill Advisors LLC, 2023 WL 569192, at *5 (Del. Ch. Jan. 27, 2023), aff’d, 304","paragraph_id":"para_524"},{"text":"A.3d 950 (Del. 2023) (TABLE) (acknowledging that a Rule 12(b)(6) motion addressed to an","paragraph_id":"para_525"},{"text":"independent action under Rule 60 requires the court’s evaluation of standards and policies of Rule","paragraph_id":"para_526"},{"text":"60 to determine whether the Complaint has stated a claim for relief).","paragraph_id":"para_527"},{"text":"21","paragraph_id":"para_528"},{"text":"records demand to confirm the accuracy of a proxy statement; and (iii) concluding","paragraph_id":"para_529","court_paragraph":21},{"text":"that Count II failed to plead the necessary elements of a disclosure claim. Erste does","paragraph_id":"para_530"},{"text":"not challenge the Court of Chancery’s dismissal of the claims concerning Zoghbi in","paragraph_id":"para_531"},{"text":"Count I.68 Because we find the 60(b)(3) issue dispositive, we do not reach the Rule","paragraph_id":"para_532"},{"text":"60(b)(2) issue and make no conclusions regarding the correctness of the court’s","paragraph_id":"para_533"},{"text":"dismissal of that aspect of the claim. We also remand Count II for further","paragraph_id":"para_534"},{"text":"consideration and briefing in light of our decision as to Count I.","paragraph_id":"para_535"},{"text":"A. The Court of Chancery applied the incorrect legal standard under Rule","paragraph_id":"para_536"},{"text":"60(b)(3).69","paragraph_id":"para_537"},{"text":"The Court of Chancery’s dismissal of Erste’s claim based on Rule 60(b)(3)","paragraph_id":"para_538"},{"text":"was founded on the court’s legal conclusion that Rule 60(b)(3)’s application is","paragraph_id":"para_539"},{"text":"limited to instances of “fraud on the court.” Erste argues that this conclusion was in","paragraph_id":"para_540"},{"text":"error. In Count I, Erste claimed that Kraft Heinz’s misrepresentations regarding","paragraph_id":"para_541"},{"text":"Cahill’s consultancy amounted to both a fraud on the court and broader “intrinsic”","paragraph_id":"para_542"},{"text":"fraud that misled Erste about Cahill’s independence and prevented Erste from","paragraph_id":"para_543"},{"text":"68 See generally Opening Br. at 18–37; Reply Br. at 5–16; see also Murphy v. State, 632 A.2d","paragraph_id":"para_544"},{"text":"1150, 1152 (Del. 1993) (“The failure to raise a legal issue in the text of the opening brief generally","paragraph_id":"para_545"},{"text":"constitutes a waiver of that claim on appeal.”) (footnote omitted).","paragraph_id":"para_546"},{"text":"69 The parties did not argue, and the Court of Chancery did not decide, whether Rule 60(b)(3)","paragraph_id":"para_547"},{"text":"establishes the correct standard for an independent action seeking relief from a final judgment on","paragraph_id":"para_548"},{"text":"the basis of fraud. We therefore express no view on that issue and instead analyze Erste’s claim","paragraph_id":"para_549"},{"text":"under Rule 60(b)(3), as the parties and the court did. See Charles Alan Wright et al., Federal","paragraph_id":"para_550"},{"text":"Practice and Procedure at § 2868 (1995) [hereinafter Wright & Miller] (Independent Action for","paragraph_id":"para_551"},{"text":"Relief) (noting that there may be different elements for fraud as an independent action seeking","paragraph_id":"para_552"},{"text":"relief from judgment as opposed to a motion filed in a previous action to reopen a judgment under","paragraph_id":"para_553"},{"text":"Rule 60(b)(3)).","paragraph_id":"para_554"},{"text":"22","paragraph_id":"para_555"},{"text":"establishing demand futility in the Prior Action.70 In rejecting Erste’s claim for relief","paragraph_id":"para_556","court_paragraph":22},{"text":"grounded in Rule 60(b)(3), the Court of Chancery held that the rule is “narrow” and","paragraph_id":"para_557"},{"text":"“confined to the more serious, but fortunately rare, cases involving a corruption of","paragraph_id":"para_558"},{"text":"the judicial process itself.”71 The court held that the fraud “must be extrinsic” to","paragraph_id":"para_559"},{"text":"satisfy Rule 60(b)(3), and that since any misrepresentation in the proxies was at most","paragraph_id":"para_560"},{"text":"“intrinsic,” Erste failed to make “well-pleaded allegation[s] supporting a reasonable","paragraph_id":"para_561"},{"text":"72","paragraph_id":"para_562"},{"text":"inference that counsel gave false information to this court.”","paragraph_id":"para_563","court_paragraph":72},{"text":"On appeal, Erste has abandoned its fraud-on-the-court claim but argues that","paragraph_id":"para_564"},{"text":"the court contradicted the plain language of the rule and applicable case law by","paragraph_id":"para_565"},{"text":"failing to consider Count I under the broader definition of “fraud” within Rule","paragraph_id":"para_566"},{"text":"60(b)(3).73 Erste contends that fraud “between parties” is an appropriate ground for","paragraph_id":"para_567"},{"text":"relief from judgment under Rule 60(b)(3) under certain circumstances, and Kraft","paragraph_id":"para_568"},{"text":"Heinz’s failure to accurately disclose Cahill’s consulting arrangement in the 2019","paragraph_id":"para_569"},{"text":"and 2020 Proxies are circumstances warranting relief under this standard.74","paragraph_id":"para_570"},{"text":"70 A342–43 (Verified Stockholder Complaint).","paragraph_id":"para_571"},{"text":"71 Opinion at *10.","paragraph_id":"para_572"},{"text":"72 Id.","paragraph_id":"para_573"},{"text":"73 Opening Br. at 19 (arguing that “the Court of Chancery erred by applying the case law","paragraph_id":"para_574"},{"text":"interpreting ‘fraud on the court’ without regard for the case law interpreting Rule 60(b)(3). The","paragraph_id":"para_575"},{"text":"Court of Chancery also erred by classifying Erste’s claim as “intrinsic” fraud and denying it on","paragraph_id":"para_576"},{"text":"that basis, in contradiction with the plain language of Rule 60(b)(3).”).","paragraph_id":"para_577"},{"text":"74 See Opening Br. at 24–25 (“[T]he Court of Chancery did not analyze whether Erste satisfied the","paragraph_id":"para_578"},{"text":"Rule 60(b)(3) standard for fraud between the parties (i.e., that Kraft Heinz’s fraud prevented Erste","paragraph_id":"para_579"},{"text":"from fairly and adequately presenting its case respecting Cahill’s lack of independence).”).","paragraph_id":"para_580"},{"text":"23","paragraph_id":"para_581"},{"text":"Kraft Heinz responds that the Court of Chancery correctly dismissed Erste’s","paragraph_id":"para_582","court_paragraph":23},{"text":"claim.75 Kraft Heinz argues that despite Erste’s argument that the Vice Chancellor","paragraph_id":"para_583"},{"text":"“‘improperly collapsed’ the tests for fraud under Rule 60(3) and for fraud upon the","paragraph_id":"para_584"},{"text":"court,” the standard for “both tests required Plaintiff to allege fraud, amounting to","paragraph_id":"para_585"},{"text":"unfair litigation tactics, during the course of the Prior Action.”76 Kraft Heinz does","paragraph_id":"para_586"},{"text":"not expressly argue that Rule 60(b)(3) is confined to fraud on the court, instead","paragraph_id":"para_587"},{"text":"positing that “the Vice Chancellor’s analysis was not confined to the historical,","paragraph_id":"para_588"},{"text":"narrow distinction of intrinsic and extrinsic fraud.”77 Kraft Heinz contends that Erste","paragraph_id":"para_589"},{"text":"“could not plead relief under Rule 60(b)(3) because [Erste] only challenged extra-","paragraph_id":"para_590"},{"text":"litigation disclosures in proxy statements made before [Erste] filed the amended","paragraph_id":"para_591"},{"text":"complaint in the Prior Action.”78","paragraph_id":"para_592"},{"text":"Notwithstanding Kraft Heinz’s efforts to elide what occurred in the Prior","paragraph_id":"para_593"},{"text":"Action and ignore the basis for the Court of Chancery’s holding in this case, Rule","paragraph_id":"para_594"},{"text":"60(b)(3) plainly offers Erste relief under these circumstances. That is not to say that","paragraph_id":"para_595"},{"text":"Rule 60(b)(3) applies broadly; the rule’s application remains cabined to instances of","paragraph_id":"para_596"},{"text":"fraud that impair a party’s ability to present its case in litigation. The Court of","paragraph_id":"para_597"},{"text":"Chancery was correct in stating that Rule 60(b)(3) applies only in rare","paragraph_id":"para_598"},{"text":"75 Answering Br. at 21–27.","paragraph_id":"para_599"},{"text":"76 Id. at 24.","paragraph_id":"para_600"},{"text":"77 Id. at 27.","paragraph_id":"para_601"},{"text":"78 Id.","paragraph_id":"para_602"},{"text":"24","paragraph_id":"para_603"},{"text":"circumstances. But, as explained below, the court erred in limiting those","paragraph_id":"para_604","court_paragraph":24},{"text":"circumstances to instances of fraud on the court.","paragraph_id":"para_605"},{"text":"1. The scope of Rule 60(b)(3) relief","paragraph_id":"para_606"},{"text":"Rule 60(b) requires a court to balance two significant, but competing, values:","paragraph_id":"para_607"},{"text":"“[t]he first is ensuring the integrity of the judicial process and the second,","paragraph_id":"para_608"},{"text":"countervailing, consideration is the finality of judgments.”79 Given the substantial","paragraph_id":"para_609"},{"text":"interest in preserving the finality of judgments, Rule 60(b) motions are not taken","paragraph_id":"para_610"},{"text":"lightly or granted easily.80 A court confronting a request for relief under the rule","paragraph_id":"para_611"},{"text":"must strike a balance between the need to bring litigation to a conclusive end and","paragraph_id":"para_612"},{"text":"the “countervailing concern that justice is carried out.”81 “A Rule 60(b) motion is","paragraph_id":"para_613"},{"text":"not an opportunity for a do-over or an appeal.”82","paragraph_id":"para_614"},{"text":"Rule 60(b)(3) permits a court to relieve a party from a final judgment in the","paragraph_id":"para_615"},{"text":"event of intrinsic or extrinsic fraud, misrepresentation or other misconduct of an","paragraph_id":"para_616"},{"text":"adverse party. The Rule provides:","paragraph_id":"para_617"},{"text":"On motion and upon such terms as are just, the Court may relieve a","paragraph_id":"para_618"},{"text":"party or a party’s legal representative from a final judgment, order, or","paragraph_id":"para_619"},{"text":"proceeding for the following reasons . . . (3) fraud (whether heretofore","paragraph_id":"para_620"},{"text":"79 MCA, 785 A.2d at 634–35 (citations omitted) (citing Credit Lyonnais Bank Nederland, N.V. v.","paragraph_id":"para_621"},{"text":"Pathe Communications Corp., 1996 WL 757274, at *1 (Del. Ch. Dec. 20, 1996)); see also Wright","paragraph_id":"para_622"},{"text":"& Miller § 2857 (Discretion of the Court).","paragraph_id":"para_623"},{"text":"80 MCA, 785 A.2d at 634–35.","paragraph_id":"para_624"},{"text":"81 Id. at 635.","paragraph_id":"para_625"},{"text":"82 Carlyle Inv. Mgmt. LLC. v. Nat’l Indus. Grp. (Hldg.), 2012 WL 4847089, at *5 (Del. Ch. Oct.","paragraph_id":"para_626"},{"text":"11, 2012), aff’d, 67 A.3d 373 (Del. 2013).","paragraph_id":"para_627"},{"text":"25","paragraph_id":"para_628"},{"text":"denominated intrinsic or extrinsic), misrepresentation or other","paragraph_id":"para_629","court_paragraph":25},{"text":"misconduct of an adverse party . . . .83","paragraph_id":"para_630"},{"text":"Delaware courts interpret unambiguous language according to its plain text to","paragraph_id":"para_631"},{"text":"give effect to the drafters’ intent.84 By its plain terms, Rule 60(b)(3) covers both","paragraph_id":"para_632"},{"text":"intrinsic and extrinsic fraud and obviates the muddied distinction between the two","paragraph_id":"para_633"},{"text":"concepts.85 In explaining the federal counterpart to Rule 60, commentators have","paragraph_id":"para_634"},{"text":"clarified that “[t]he old law had permitted relief for ‘extrinsic’ fraud, fraud collateral","paragraph_id":"para_635"},{"text":"to the matter or question that was tried and determined by the judgment in question,","paragraph_id":"para_636"},{"text":"but had denied relief for ‘intrinsic’ fraud, fraud relating to the subject matter of the","paragraph_id":"para_637"},{"text":"action.”86 Like its federal analog, Rule 60(b)(3) now applies more broadly; the rule’s","paragraph_id":"para_638"},{"text":"plain language includes fraud arising from a “misrepresentation . . . of an adverse","paragraph_id":"para_639"},{"text":"party . . .” and expressly captures intrinsic and extrinsic fraud.","paragraph_id":"para_640"},{"text":"Our precedent has recognized Rule 60(b)(3)’s broader scope. In MCA, Inc. v.","paragraph_id":"para_641"},{"text":"Matsushita Elec. Indus. Co.,87 this Court observed that “[a] Rule 60(b)(3) motion is","paragraph_id":"para_642"},{"text":"83 Del. Ch. Ct. R. 60(b)(3).","paragraph_id":"para_643"},{"text":"84 Stream TV Networks, Inc. v. SeeCubic, Inc., 250 A.3d 1016, 1040 (Del. Ch. 2020) (quoting","paragraph_id":"para_644"},{"text":"Rubick v. Sec. Instrument Corp., 766 A.2d 15, 18 (Del. 2000)).","paragraph_id":"para_645"},{"text":"85 See Wright & Miller § 2870.","paragraph_id":"para_646"},{"text":"86 Wright & Miller § 2861 (“Distinction Between Intrinsic and Extrinsic Fraud”); see also Appriva","paragraph_id":"para_647"},{"text":"S’holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275, 1286 (Del. 2007) (“Where, as here, the","paragraph_id":"para_648"},{"text":"Superior Court's Rules of Civil Procedure closely track the Federal Rules of Civil Procedure, cases","paragraph_id":"para_649"},{"text":"interpreting the federal rules are persuasive authority for our construction purposes.”); Cede & Co.","paragraph_id":"para_650"},{"text":"v. Technicolor, Inc., 542 A.2d 1182, 1191 (Del. 1988) (“Decisions interpreting the Federal Rules","paragraph_id":"para_651"},{"text":"of Civil Procedure are usually of great persuasive weight in the construction of parallel Delaware","paragraph_id":"para_652"},{"text":"rules.”).","paragraph_id":"para_653"},{"text":"87 785 A.2d 625, 639 (Del. 2001).","paragraph_id":"para_654"},{"text":"26","paragraph_id":"para_655"},{"text":"reserved for situations where a party has engaged in fraud or misrepresentation that","paragraph_id":"para_656","court_paragraph":26},{"text":"prevents the moving party from fairly and adequately presenting his or her case.”88","paragraph_id":"para_657"},{"text":"Further, MCA recognized that Rule 60(b)(3) is “generally employed in situations","paragraph_id":"para_658"},{"text":"where fraud or misrepresentation between the parties has occurred.”89","paragraph_id":"para_659"},{"text":"Similarly, in Franklin v. Glenhill Advisors LLC,90 the Court of Chancery","paragraph_id":"para_660"},{"text":"distinguished the narrow “fraud on the court” standard from Rule 60(b)(3) fraud,","paragraph_id":"para_661"},{"text":"stating that: “[a] Rule 60(b)(3) motion is reserved for situations where a party has","paragraph_id":"para_662"},{"text":"engaged in fraud or misrepresentation that prevents the moving party from fairly and","paragraph_id":"para_663"},{"text":"adequately presenting his or her case.”91 “Fraud on the court, by contrast, is a","paragraph_id":"para_664"},{"text":"different, more serious, species, generally limited to fraudulent conduct that","paragraph_id":"para_665"},{"text":"seriously affects the integrity of the normal process of adjudication.”92","paragraph_id":"para_666"},{"text":"In Smith v. Williams, the Superior Court likewise distinguished fraud on the","paragraph_id":"para_667"},{"text":"court from fraud between the parties, stating:","paragraph_id":"para_668"},{"text":"Even though Defendants have identified a number of inconsistencies,","paragraph_id":"para_669"},{"text":"some of which appear material to the issues in this case, and even","paragraph_id":"para_670"},{"text":"88 MCA, 785 A.2d at 639 (citing Wright & Miller § 2860).","paragraph_id":"para_671"},{"text":"89 Id. at 639 n.15; see also Wright & Miller, § 2870. In MCA, the plaintiffs’ claim was “more","paragraph_id":"para_672"},{"text":"properly characterized as a motion pursuant to Rule 60(b) . . . because there was a fraud upon the","paragraph_id":"para_673"},{"text":"court, rather than a motion under Rule 60(b)(3).” MCA, 785 A.2d at 639. Because the plaintiffs","paragraph_id":"para_674"},{"text":"only advanced a fraud on the court claim in MCA, the stricter fraud on the court standard was","paragraph_id":"para_675"},{"text":"appropriate, and this Court held that the trial court “applied the appropriate standard in ruling on","paragraph_id":"para_676"},{"text":"the [] plaintiffs’ motion.” Id.","paragraph_id":"para_677"},{"text":"90 2023 WL 569192, at *5 (Del. Ch. Jan. 27, 2023), aff’d, 304 A.3d 950 (Del. 2023).","paragraph_id":"para_678"},{"text":"91 Id.","paragraph_id":"para_679"},{"text":"92 Id. (internal quotes omitted) (citing Johnson v. Preferred Pro. Ins. Co., 91 A.3d 994, 1005 (Del.","paragraph_id":"para_680"},{"text":"Super. 2014)).","paragraph_id":"para_681"},{"text":"27","paragraph_id":"para_682"},{"text":"though the possibility of perjury or false testimony potentially overlaps","paragraph_id":"para_683","court_paragraph":27},{"text":"into other litigation filed by Smith in this Court, I am still not persuaded","paragraph_id":"para_684"},{"text":"that such conduct is so manifestly unconscionable as to constitute fraud","paragraph_id":"para_685"},{"text":"on the Court as distinguished from fraud between the parties.93","paragraph_id":"para_686"},{"text":"2. The rule’s application to Erste’s claim for relief","paragraph_id":"para_687"},{"text":"In denying Erste’s claim, the Court of Chancery erred in limiting its analysis","paragraph_id":"para_688"},{"text":"to whether Erste met the “fraud on the court” standard instead of considering the","paragraph_id":"para_689"},{"text":"broader scope of Rule 60(b)(3) fraud recognized in our precedent and in persuasive","paragraph_id":"para_690"},{"text":"federal authorities. The cases cited by the Court of Chancery discuss the burden of","paragraph_id":"para_691"},{"text":"proving fraud on the court but do not limit the rule to only those cases that meet that","paragraph_id":"para_692"},{"text":"standard.94 Erste’s fraud claim was based on the proxy disclosures that “ma[de] it","paragraph_id":"para_693"},{"text":"appear that [Cahill] [was] independent, so that a derivative action against 3G [was]","paragraph_id":"para_694"},{"text":"dismissed for failure to plead demand futility.”95","paragraph_id":"para_695"},{"text":"93 Smith, 2007 WL 2193748, at *5 (emphasis added).","paragraph_id":"para_696"},{"text":"94 See, e.g., Chang v. Child’s Advoc. Ctr. of Del., Inc., 2016 WL 3636539, at *1 (Del. Ch. June 29,","paragraph_id":"para_697"},{"text":"2016) (citing the discussion of “fraud on the court” in MCA, that “[a] party seeking to vacate an","paragraph_id":"para_698"},{"text":"order on the ground that his or her opponent effectuated a fraud on the court bears a heavy burden,”","paragraph_id":"para_699"},{"text":"and stating that “[s]inister suspicions and dark imaginings of duplicitous conduct are not enough”","paragraph_id":"para_700"},{"text":"to establish fraud on the court) (emphasis added); Postorivo v. AG Paintball Hldgs, Inc., 2008 WL","paragraph_id":"para_701"},{"text":"3876199, at *21 (Del. Ch. Aug. 20, 2008) (discussing the difference between extrinsic and intrinsic","paragraph_id":"para_702"},{"text":"fraud as described in Smith for purposes of its fraud on the court analysis. The case only analyzes","paragraph_id":"para_703"},{"text":"fraud on the court and does not cite Rule 60(b). It considers whether a court may dismiss a case","paragraph_id":"para_704"},{"text":"based on the conduct of counsel or the parties if such misconduct amounts to fraud on the court.);","paragraph_id":"para_705"},{"text":"Paron Cap. Mgmt., LLC v. Crombie, 2012 WL 214777 (Del. Ch. Jan. 24, 2012) (“This Court has","paragraph_id":"para_706"},{"text":"held that ‘only extrinsic fraud will justify dismissal to remedy a fraud on the court, and only where","paragraph_id":"para_707"},{"text":"established by clear and convincing evidence.’”) (emphasis added) (citation omitted).","paragraph_id":"para_708"},{"text":"95 A471 (Plaintiff Erste Answering Brief in Opposition to Defendants’ Motion to Dismiss the","paragraph_id":"para_709"},{"text":"Verified Stockholder Complaint).","paragraph_id":"para_710"},{"text":"28","paragraph_id":"para_711"},{"text":"The Court of Chancery was correct in concluding that not any fraudulent","paragraph_id":"para_712","court_paragraph":28},{"text":"statement or representation will warrant relief under Rule 60(b)(3). The rule remains","paragraph_id":"para_713"},{"text":"difficult to satisfy and establishes an exacting standard: (1) the burden of proving","paragraph_id":"para_714"},{"text":"fraud is on the moving party; (2) the fraud must be established by clear and","paragraph_id":"para_715"},{"text":"convincing evidence; and (3) the fraud must have prevented the moving party from","paragraph_id":"para_716"},{"text":"fairly and adequately pleading its case.96 The appropriate question now is whether","paragraph_id":"para_717"},{"text":"the false disclosures that Kraft Heinz used to conceal Cahill’s ongoing consultancy","paragraph_id":"para_718"},{"text":"met this standard.","paragraph_id":"para_719"},{"text":"Kraft Heinz concedes for purposes of these proceedings that it made a false","paragraph_id":"para_720"},{"text":"public disclosure regarding Cahill’s ongoing consultancy and that the derivative","paragraph_id":"para_721"},{"text":"plaintiffs incorporated those public disclosures in their Amended Complaint. 97","paragraph_id":"para_722"},{"text":"Those concessions and the undisputed facts satisfy the first two elements of the Rule","paragraph_id":"para_723"},{"text":"60(b)(3) standard. Those false disclosures caused Erste to incorrectly believe and","paragraph_id":"para_724"},{"text":"allege in the Prior Action that Cahill’s consultancy had ended before the date for","paragraph_id":"para_725"},{"text":"assessing demand futility. The mistaken impression that Cahill had no ongoing","paragraph_id":"para_726"},{"text":"consulting position with Kraft Heinz contributed to the Court of Chancery’s","paragraph_id":"para_727"},{"text":"conclusion that Cahill—and thereby a majority of the Kraft Heinz Board—was","paragraph_id":"para_728"},{"text":"96 Wright & Miller § 2860; see, e.g., Floorgraphics Inc. v. News Am. Mktg. In-Store Servs., Inc.,","paragraph_id":"para_729"},{"text":"434 F. App’x 109, 111 (3d Cir. 2011) (discussing the federal Rule 60(b)(3) standard).","paragraph_id":"para_730"},{"text":"97 Appellate Oral Argument at 28:46.","paragraph_id":"para_731"},{"text":"29","paragraph_id":"para_732"},{"text":"disinterested and independent. The Court of Chancery therefore dismissed the","paragraph_id":"para_733","court_paragraph":29},{"text":"Amended Complaint in the Prior Action under Rule 23.1.","paragraph_id":"para_734"},{"text":"Kraft Heinz challenges the third element of this standard, urging us to affirm","paragraph_id":"para_735"},{"text":"the Court of Chancery’s reasoning that Erste “merely challenge[d] statements made","paragraph_id":"para_736"},{"text":"in SEC filings—outside the judicial process” and thereby outside the scope of Rule","paragraph_id":"para_737"},{"text":"60(b)(3).98 Kraft Heinz argues that the false statements in the proxies were “extra-","paragraph_id":"para_738"},{"text":"litigation disclosures” made outside of the litigation and “before Plaintiff filed the","paragraph_id":"para_739"},{"text":"amended complaint in the Prior Action.”99 Kraft Heinz relies on the Court of","paragraph_id":"para_740"},{"text":"Chancery’s reasoning that to the extent those false statements were “arguably linked","paragraph_id":"para_741"},{"text":"to the judicial process,” they were limited to “defense counsel’s statements in the","paragraph_id":"para_742"},{"text":"Prior Action” that were “addressing allegations in the Prior Action Complaint about","paragraph_id":"para_743"},{"text":"Cahill’s consultancy.”100","paragraph_id":"para_744"},{"text":"Kraft Heinz’s argument contravenes the record and is circular. First, the false","paragraph_id":"para_745"},{"text":"statements in the proxy statements were incorporated by reference in the amended","paragraph_id":"para_746"},{"text":"complaint and were repeated by defense counsel during argument in the Prior","paragraph_id":"para_747"},{"text":"Action. The incorporation and reliance on those statements in the litigation brought","paragraph_id":"para_748"},{"text":"them squarely within the judicial process. Second, Kraft Heinz cannot avoid the","paragraph_id":"para_749"},{"text":"98 Answering Br. at 23.","paragraph_id":"para_750"},{"text":"99 Id. at 27.","paragraph_id":"para_751"},{"text":"100 Id. at 23; Opinion at *10.","paragraph_id":"para_752"},{"text":"30","paragraph_id":"para_753"},{"text":"misleading nature of the misrepresentations it made in litigation by arguing that it","paragraph_id":"para_754","court_paragraph":30},{"text":"was parroting the Amended Complaint when the allegations in the complaint were","paragraph_id":"para_755"},{"text":"wrong because Kraft Heinz’s own proxy statements were false. The derivative","paragraph_id":"para_756"},{"text":"plaintiffs were entitled to rely on the proxies; the falsity of the proxy statements was","paragraph_id":"para_757"},{"text":"information solely in Kraft Heinz’s possession.","paragraph_id":"para_758"},{"text":"A party cannot make a false public disclosure outside litigation that the other","paragraph_id":"para_759"},{"text":"side relies on in its allegations in the complaint, repeat those false representations in","paragraph_id":"para_760"},{"text":"court, obtain a final ruling based on those false representations, and then argue that","paragraph_id":"para_761"},{"text":"those false representations were entirely outside the judicial process and that the","paragraph_id":"para_762"},{"text":"defrauded party is to blame for relying on them. But even if we could agree with","paragraph_id":"para_763"},{"text":"Kraft Heinz’s argument that the representations remained outside the litigation, that","paragraph_id":"para_764"},{"text":"argument reverts to the outdated distinction between intrinsic and extrinsic fraud,","paragraph_id":"para_765"},{"text":"when Rule 60(b)(3) encompasses both. Properly understood, our inquiry must focus","paragraph_id":"para_766"},{"text":"on whether Kraft Heinz’s misrepresentations, within litigation or otherwise,","paragraph_id":"para_767"},{"text":"prevented Erste from fairly presenting its case.","paragraph_id":"para_768"},{"text":"Erste contends that the false disclosures created a misimpression that Cahill’s","paragraph_id":"para_769"},{"text":"consulting relationship had concluded, which was integral to the Court of","paragraph_id":"para_770"},{"text":"Chancery’s conclusion that the plaintiffs in the Prior Action failed to plead","paragraph_id":"para_771"},{"text":"particularized facts creating a reasonable doubt that Cahill lacked independence.","paragraph_id":"para_772"},{"text":"According to Erste, on July 30, 2019 (the date for assessing demand futility), Cahill","paragraph_id":"para_773"},{"text":"31","paragraph_id":"para_774"},{"text":"had not been issued the 500,000 stock options. Therefore, Erste argues,","paragraph_id":"para_775","court_paragraph":31},{"text":"“[a]nticipation of those options would weigh on a hypothetical decision by Cahill to","paragraph_id":"para_776"},{"text":"sue 3G.”101 In addition, even after the options were granted, the 3G-affiliated Board","paragraph_id":"para_777"},{"text":"members who comprised a majority of the Compensation Committee could decide","paragraph_id":"para_778"},{"text":"that Cahill’s consulting services no longer were needed and could terminate the stock","paragraph_id":"para_779"},{"text":"option agreement before all Cahill’s stock options vested. At the motion to dismiss","paragraph_id":"para_780"},{"text":"stage—where “all well-pleaded factual allegations are accepted as true”102—Kraft","paragraph_id":"para_781"},{"text":"Heinz’s misrepresentations prevented Erste from adequately presenting the","paragraph_id":"para_782"},{"text":"argument that Cahill was not independent from 3G on the basis of his ongoing","paragraph_id":"para_783"},{"text":"consulting relationship with Kraft Heinz and its 3G-controlled management and","paragraph_id":"para_784"},{"text":"Compensation Committee.","paragraph_id":"para_785"},{"text":"Accordingly, Count I was well-pleaded as to Rule 60(b)(3), and dismissal was","paragraph_id":"para_786"},{"text":"not appropriate. The parties agreed at oral argument that if this Court reversed the","paragraph_id":"para_787"},{"text":"Court of Chancery’s Opinion as to Count I, the next logical step would be to remand","paragraph_id":"para_788"},{"text":"the matter to the trial court for Rule 23.1 motion practice in the Prior Action in light","paragraph_id":"para_789"},{"text":"of the new evidence.103","paragraph_id":"para_790"},{"text":"101 Opening Br. at 24.","paragraph_id":"para_791"},{"text":"102 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002).","paragraph_id":"para_792"},{"text":"103 Appellate Oral Argument at 18:00–19:20 (Erste) (“What makes sense under this circumstance","paragraph_id":"para_793"},{"text":". . . if we present[] facts on a pleading, you know, sufficient to state a claim, that it justifies re-","paragraph_id":"para_794"},{"text":"opening the judgment . . . to warrant 60(b) relief it would be essentially to go back and re-do the","paragraph_id":"para_795"},{"text":"23.1 analysis . . . the Court has the ability actually to make the 23.1 determination as to Cahill right","paragraph_id":"para_796"},{"text":"32","paragraph_id":"para_797"},{"text":"B. Erste’s breach of fiduciary duty claim requires further proceedings","paragraph_id":"para_798","court_paragraph":32},{"text":"consistent with our ruling regarding Erste’s fraud claim.","paragraph_id":"para_799"},{"text":"The final point on appeal concerns the sufficiency of Erste’s claim in Count","paragraph_id":"para_800"},{"text":"II of the Complaint. Erste alleged in Count II that five Kraft Heinz directors “knew","paragraph_id":"para_801"},{"text":"that the 2019 Proxy falsely and misleadingly described the changes to the","paragraph_id":"para_802"},{"text":"compensation arrangements of Cahill and Zoghbi, and that subsequent proxy","paragraph_id":"para_803"},{"text":"statements falsely described Cahill's ongoing consultant status.”104 Erste alleged","paragraph_id":"para_804"},{"text":"that these directors breached their duty of loyalty by “never correcting the 2019","paragraph_id":"para_805"},{"text":"Proxy or the 2020 Proxy, which they knew [were] being used by the 3G Defendants","paragraph_id":"para_806"},{"text":"to create a false record for the Court of Chancery and the Delaware Supreme Court","paragraph_id":"para_807"},{"text":"to adjudicate the independence of Cahill [ ] in the Prior Action.”105 As to damages,","paragraph_id":"para_808"},{"text":"Erste sought payment of litigation costs it incurred “to escape the effect of the","paragraph_id":"para_809"},{"text":"wrongful dismissal of the Prior Action based on fraudulent public disclosures.”106","paragraph_id":"para_810"},{"text":"The Court of Chancery held that “Count II fail[ed] to state a claim on which relief","paragraph_id":"para_811"},{"text":"now for pleading purposes or it could be remanded back to the Vice Chancellor to just do a 23.1","paragraph_id":"para_812"},{"text":"analysis to leave open the Cahill question.”); id. at 37:32–38:04 (Kraft Heinz) (“On this [appellant]","paragraph_id":"para_813"},{"text":"and me may agree a little bit in the sense that I think we agree a remand would be appropriate I","paragraph_id":"para_814"},{"text":"think we agree that a trial on a Rule 60 would make very little sense our view would be that there","paragraph_id":"para_815"},{"text":"should then be a Rule 23.1 motion practice in the court below with whatever additional facts Erste","paragraph_id":"para_816"},{"text":"would want to bring to bear.”).","paragraph_id":"para_817"},{"text":"104 Opinion at *11; see A344 (Complaint at ¶ 291).","paragraph_id":"para_818"},{"text":"105 A344 (Complaint at ¶ 292).","paragraph_id":"para_819"},{"text":"106 Id. (Complaint at ¶ 293).","paragraph_id":"para_820"},{"text":"33","paragraph_id":"para_821"},{"text":"can be granted.”107 It dismissed the claim “in its entirety with prejudice under Rule","paragraph_id":"para_822","court_paragraph":33},{"text":"12(b)(6).”108","paragraph_id":"para_823"},{"text":"The standards governing a motion to dismiss for failure to state a claim are","paragraph_id":"para_824"},{"text":"well settled:","paragraph_id":"para_825"},{"text":"(i) all well-pleaded factual allegations are accepted as true; (ii) even","paragraph_id":"para_826"},{"text":"vague allegations are “well-pleaded” if they give the opposing party","paragraph_id":"para_827"},{"text":"notice of the claim; (iii) the Court must draw all reasonable inferences","paragraph_id":"para_828"},{"text":"in favor of the non-moving party; and (iv) dismissal is inappropriate","paragraph_id":"para_829"},{"text":"unless the “plaintiff would not be entitled to recover under any","paragraph_id":"para_830"},{"text":"reasonably conceivable set of circumstances susceptible of proof.”109","paragraph_id":"para_831"},{"text":"The Court of Chancery held that the Complaint failed to allege any facts","paragraph_id":"para_832"},{"text":"creating a reasonable inference that the director defendants “‘knew’ false statements","paragraph_id":"para_833"},{"text":"were being used to ‘create a false [litigation] record.’”110 The court held that (i) Erste","paragraph_id":"para_834"},{"text":"could not rely on a presumption of reliance, causation, and damages because it did","paragraph_id":"para_835"},{"text":"not assert that “stockholders’ economic or voting rights were impaired by","paragraph_id":"para_836"},{"text":"disclosures”; and (ii) Erste failed to plead those elements, waiving any argument that","paragraph_id":"para_837"},{"text":"its complaint satisfied these elements.111","paragraph_id":"para_838"},{"text":"In our view, the Court of Chancery’s conclusions as to Count II may have","paragraph_id":"para_839"},{"text":"been colored by its view that Rule 60(b)(3) relief is limited to extrinsic fraud.","paragraph_id":"para_840"},{"text":"107 Opinion at *12.","paragraph_id":"para_841"},{"text":"108 Id.","paragraph_id":"para_842"},{"text":"109 Savor, Inc., 812 A.2d 894, 896–97 (footnotes and internal quotation marks omitted).","paragraph_id":"para_843"},{"text":"110 Opinion at *12; see A344 (Complaint at ¶ 292).","paragraph_id":"para_844"},{"text":"111 Opinion at *11.","paragraph_id":"para_845"},{"text":"34","paragraph_id":"para_846"},{"text":"Additionally, Rule 23.1 motion practice may inform the analysis of whether Count","paragraph_id":"para_847","court_paragraph":34},{"text":"II is well-pleaded or may obviate the need for the claim altogether. At a minimum,","paragraph_id":"para_848"},{"text":"the motion practice is likely to clarify issues regarding causation and damages.","paragraph_id":"para_849"},{"text":"Accordingly, we remand Count II for further proceedings consistent with our","paragraph_id":"para_850"},{"text":"decision and based on the further development of the record regarding the underlying","paragraph_id":"para_851"},{"text":"derivative litigation.","paragraph_id":"para_852"},{"text":"IV. 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