In Re infoUSA, Inc. Shareholders Litigation

MEMORANDUM OPINION

Before me is a complaint that tests the boundaries of the business judgment rule, the protection offered to defendant directors by Court of Chancery Rule 23.1, and the procedural rules by which a plaintiff brings a derivative complaint. After an activist shareholder petitioned this Court for access to books and records under 8 Del C. § 220, two plaintiffs brought separate lawsuits on behalf of in-foUSA against its directors. Both complaints alleged that the board either collaborated in or stood by idly in the face of a garish collection of self-interested transactions, principally engineered by the CEO, and largest shareholder, Vinod Gupta. Such extravagances included the lease of aircraft and office space for personal use, the provision of a yacht, and a collection of luxury and collectible cars that would leave James Bond green with envy.

Plaintiffs Dolphin Limited Partnership I, LP, Dolphin Financial Partners, LLC and Robert Bartow (hereafter, “Dolphin”) sought to recover derivatively the benefits expropriated from the company by the CEO and the defendant directors through claims for breach of fiduciary duty and waste. Plaintiff Cardinal Value Equity Partners LP (hereafter, “Cardinal Value”), on the other hand, pursued a more novel form of redress. In response to an offer from Vinod Gupta to take the company private, infoUSA formed a Special Committee that considered, and eventually rejected, his proposal. After the rejection, the board of directors dissolved the committee before it could canvas the market for other offers. Cardinal Value asked this Court to order the reinstatement of the Special Committee so that it could “complete” its mission. While Dolphin’s litany of related party transactions formed the basis of its complaint, Cardinal Value relied upon many of the same facts to suggest the impotency of the infoUSA board of directors in the face of the demand required of derivative plaintiffs under Court of Chancery Rule 23.1.

These early complaints, however, suffered from significant flaws, especially with regard to the requirement to demonstrate that any demand upon the board of directors would be futile. At times, plaintiffs’ strategy appeared to challenge the presumption of the business judgment rule by hurling allegation after allegation at the company as a whole, instead of focusing with precision upon a given director’s conflicts of interest. Although the standard test for demand futility under Aronson *972 does allow for the possibility that a given transaction is so egregious that it could not be an exercise of business judgment, 1 the Court must take great care that this exception does not turn the presumption of business judgment on its head. Like most derivative plaintiffs, Dolphin and Cardinal Value alleged that these transactions were not in fact an exercise of business judgment. For demand to be excused under Aronson, however, a plaintiff must plead specific facts to “overcome the powerful presumptions of the business judgment rule before they will be permitted to pursue the derivative claim.” 2 This presumption protects decisions unless they cannot be “attributed to any rational business purpose.” 3 A plaintiff who seeks to excuse demand through the second prong of Aronson thus faces a task closely akin to proving that the underlying transaction could not have been a good faith exercise of business judgment.

Plaintiffs’ individual allegations generally fail to meet this requirement. To take only one example: plaintiffs’ assert that payments being made to former President William Clinton, and provision of private jet travel for Senator Hillary Rodham Clinton, represent waste of corporate assets. 4 Plaintiffs might be able to prove, at trial, that these expenditures were wholly unrelated to the business of the company or in some other way wasteful and in violation of the director’s fiduciary duties. It would be difficult to conclude, however, that a public company might never legitimately purchase the services of a former president. Nor do plaintiffs allege any facts suggesting that these transactions must be presumptively illegitimate. Indeed, the company has estimated that the relationship with former President Clinton might be responsible for up to $40 million in sales. 5

Plaintiffs attempt to compensate for the weakness of each particular allegation through an appeal to their collective unwholesomeness. The complaint and the accompanying briefs several times suggest that demand would be futile with respect to the defendant directors simply because no board, in the exercise of its business judgment, could ever have doled out so much largess to Vinod Gupta and his family and friends. The argument, while of a kind common to shareholder suits alleging excessive compensation, has been roundly rejected by this Court as circular reasoning that would eviscerate the business judgment rule of any purpose. 6

On October 17, 2006, this Court dismissed without prejudice Cardinal Value’s initial lawsuit, determining that Cardinal Value had failed to demonstrate *973 through allegations of particularized facts that a majority of the then-current board of directors lacked the disinterestedness or independence to consider demand. Shortly thereafter, Cardinal Value filed a new complaint, and defendants moved to consolidate the case with the still-pending lawsuit brought by Dolphin. Over plaintiffs’ objections, the Court consolidated the actions, finding that the interests of justice would be better served if the actions of the defendant directors — and their potential conflicts of interest — were considered as an integrated whole, rather than scattered semi-randomly as part of two separate lawsuits. Two more complaints followed. 7

At long last, all relevant allegations brought by all plaintiffs find themselves in the same complaint. Through this amalgamation of allegations, plaintiffs have finally demonstrated that a majority of in-foUSA’s board of directors are neither sufficiently disinterested nor independent to consider objectively a demand upon the board and, thus, that demand is excused. Similarly, I conclude that plaintiffs have alleged facts sufficient to state a claim on which relief may be granted. Defendants’ motion to dismiss is therefore denied.

I. FACTUAL BACKGROUND

Plaintiffs have followed this Court’s oft-issued advice and brought their action based upon documents received as part of a request for books and records under 8 Del. C. § 220. As a result, the amended consolidated complaint overflows with detail It is important to remember, however, that in considering a motion to dismiss, this Court is required to consider all well-pleaded facts in the complaint as true. 8 Defendants have not had the opportunity to rebut the majority of the factual contentions described below, and the Court makes no findings of fact at this stage.

A Background and the parties

A Delaware corporation with its principle place of business in Omaha, Nebraska, infoUSA provides sales and marketing, database marketing, and data processing solutions. Founded in 1972, the company maintains a proprietary database of over 210 million consumers and fourteen million businesses, and it sells this information on to over three million customers. The company also provides direct marketing, email marketing, and telemarketing services to clients.

Cardinal Value, lead plaintiff with regard to Count I below, is record owner of 100 shares of the company, and as of March 31, 2007, beneficially owned or had sole investment authority with respect to approximately 5.6% of infoUSA’s common stock. Cardinal Value has been a shareholder since March 31, 2004. Dolphin, one of the lead plaintiffs with respect to Counts II through V below, owns approximately 3.6% of info USA common stock, and has been a shareholder since June *974 2005. Joining Dolphin is plaintiff Robert Bartow, owner of 2,000 shares of common stock. He has been a shareholder much longer than Dolphin, continuously holding shares since January 19, 2000.

Defendant Vinod Gupta has been a director and CEO of infoUSA since its founding in 1972, with the exception of a brief period between September 1997 and August 1998. According to a Schedule 13G filed on July 28, 2006, Vinod Gupta owns over 41% of the company’s outstanding shares. This includes 4.4% of the company’s shares held in irrevocable trust for his three sons and his charitable foundation.

Defendant George F. Haddix has served as a director since 1995. He chairs the Nominating and Governance Committee and is currently a member of the Compensation Committee. He runs PKWare, a software company, and is co-founder and former CEO and director of CSG Systems, and a member of the board of directors of Creighton University.

Defendant Vasant H. Raval, a director since 2002, chairs the Audit Committee and is a member of the Finance Committee. Since 2004, he has also held a seat on the Finance Committee, and was one of the three members of the Compensation Committee in 2004. A professor and chair of the Department of Accounting at Creighton University in Omaha, Nebraska, he also sits on Creighton University’s board of directors.

Defendant Bill L. Fairfield was appointed to the board of directors on November 10, 2005, replacing defendant Harold Andersen. He serves on the Nominating and Governance Committee and Audit Committee, and chairs the Compensation Committee. He is also chairman of Dreamfield Capital Ventures LLC, a venture firm in Omaha, Nebraska, and is the former chairman of a wholly-owned subsidiary of infoUSA. On July 21, 2006, he was appointed the company’s “lead independent director.” He serves, along with Vinod Gupta, as a trustee of the University of Nebraska foundation.

Defendant Anshoo S. Gupta, a director since 2005, is not related to Vinod Gupta. He serves on the Audit Committee.

Defendant Elliot S. Kaplan, a senior partner in the law firm of Robins, Kaplan, Miller & Ciresi LLP, has served on infoU-SA’s board since 1988. Robins, Kaplan, Miller & Ciresi provided $1.1 million worth of legal services to infoUSA in 2006.

Defendant Martin F. Kahn, who began his service on the board in 2004, was a member of the Nominating and Governance Committee, and Chair of the Finance Committee after 2004. He resigned on February 2, 2007. He is the former Chairman and CEO of One Source Information Services, which was acquired by infoUSA in 2004.

Defendant Bernard W. Reznicek joined the infoUSA board in March 2006, replacing former director Charles Stryker. He serves on the Governance and Nominating Committee and the Audit Committee. The former president and CEO of Omaha Public Power in Omaha, Nebraska, and a former director of CSG Systems, he is presently the president and CEO of Premier Enterprises. He also served as dean of the Creighton University College of Business Administration.

Defendant Dennis P. Walker, a director of infoUSA since 2003, is a member of the Nominating and Governance Committee and the Compensation Committee. He is the president and CEO of Jet Linx Aviation, which sells fractional interests in private jets, and was a founder, board member and executive vice president of Member Works, Inc., a telemarketing company based in Stanford, Connecticut.

Defendant Harold W. Andersen, a former director of infoUSA, served from Sep *975 tember 1998 until November 2005. An alumnus of the University of Nebraska, he is the former President, CEO, Chairman and publisher of the Omaha World Herald company. He served on the Audit Committee between 1997 and July 2005, chairing it between 2001 and 2003. He also served on the Nominating and Governance Committee and the Audit Committee. He has also served as a director of two mutual funds in the Everest Mutual Fund Family. Vinod Gupta is a director and owns 100% of Everest Asset Management and Everest Investment Management.

Defendant Charles W. Stryker, a former director of infoUSA, served from May 2005 until January 2006.

B. The entanglement of infoUSA with the personal interests of Vinod Gupta

At the heart of the complaint lies the accusation that Vinod Gupta and, to a much lesser extent, the other individual defendants have long used infoUSA to enrich themselves at the expense of shareholders. Indeed, the bulk of the complaint presents a vast, gaudy panoply of gilded excess, expressed either through frequent and allegedly unquestioned related-party transactions or through payments made directly for the benefit of Vinod Gupta and his family.

1. Related-party payments for “business” expenses: planes, yachts, automobiles, and more

The fist of related-party transactions relating to transportation alone makes for lengthy reading. Between 2001 and 2005, infoUSA paid approximately $8.2 million to Annapurna Corporation, an entity 100% owned by V. Gupta. These expenditures covered the use of private jets, the use of the American Princess yacht, 9 and the use of a personal residence in California, as well as unidentified travel *976 expenses. 10 Vinod Gnpta himself incurred much of the travel expenses, and Dolphin alleges that none of the documents provided in response to its § 220 request identified a business purpose for a substantial number of these payments. The log books of the American Princess yacht reveal little regarding the justification for these “business” expenses. Nor did defendants produce minutes or consents reflecting board approval of these substantial transactions as part of their response to Dolphin’s § 220 request. Plaintiffs allege that many of these travel expenditures were either personal in nature or provided as gifts by Vinod Gupta to personal or political friends.

In its annual reports for 2004 and 2005, the company disclosed approximately $1.5 million in payments to Annapurna, supposedly made for “usage of aircraft and related services.” 11 Defendant Raval, however, prepared a report to the board in February 2005 that revealed that about 40% of these payments had no relationship whatever to aircraft, and were instead payments for the American Princess yacht, use of personal residences, and other undefined travel services. According to the amended consolidated complaint, the company’s 2004 and 2005 10-Ks, filed with the SEG no earlier than March 16, 2005, were signed by defendants Raval, Kaplan, Kahn, Haddix, and Walker, although each of these defendants had access to the internal report before issuing their SEC filings.

At least as alleged, these arrangements resulted in a very sweet deal for Vinod Gupta: using infoUSA’s money, he was able to purchase services from his own leasing company, pocket the profit on those services and then provide them to his personal friends and political associates. 12 Defendants insist, however, that the company has eliminated the conflict of interest through the expedient of purchasing Annapurna’s interest in the private jets in two transactions totaling approximately $5.3 million. Dolphin’s § 220 action, however, did not uncover board minutes, consents, or any evidence of board approval of these transactions. Similarly, the company now directly leases the American Princess yacht, rather than pay *977 ing a Vinod Gupta-controlled entity for its use. Yet another Gupta firm, Aspen Leasing Services, received almost $100,000 from infoUSA over two years to provide the Gupta family with an H2 Hummer, a Honda Odyssey, a Mini-Cooper, a Lexus 880, a Mercedes SL500, and (presumably for the times when travel by land or air simply were not enough) a Glacier Bay catamaran. In 2005, the company directly purchased four of these luxury automobiles, again “eliminating” the conflict of interest. This strategy was also employed to internalize the costs of a skybox at the University of Nebraska football stadium previously leased from Annapurna.

Even after a thorough request for books and records, plaintiffs allege that they have received documentation reflecting board approval of only two of these related-party transactions: the acquisition of the skybox and the assumption of a mortgage on a building owned by Everest (another Gupta entity). On the other hand, the plaintiffs discovered the aforementioned report written by defendant Raval, which covered only a narrow sliver of the related party transactions alleged in the amended consolidated complaint. Raval restricted himself to payments made by the company in 2004, and did not address approximately $14 million of payments extending as far back as 1998. Even this report, however, conceded that the company had made $631,899 worth of payments for personal perquisites of Vinod Gupta, and commented that the company’s practice of paying fixed monthly amounts to Annapurna for use of personal residences was “difficult to support under any circumstances.” 13

2. Direct compensation of Vinod Gupta and his family

Apart from the related-party transactions, the amended consolidated complaint alleges that Vinod Gupta plunders corporate assets for himself and his family, particularly through the receipt of shares and stock options. Since 1998, infoUSA has awarded Vinod Gupta options on 3.2 million shares, often allowing him to grant himself the lion’s share of options allocated under the company’s option plan. As a result, Vinod Gupta now controls over 41% of the company, and would control more if he exercised his other stock options.

This control has not always been exercised in a forthright manner. In 2005, the company asked for shareholder approval of an amendment to the 1997 Stock Option Plan in order to increase the number of shares available from five million to eight million. The amendment passed narrowly, by a vote of 28.2 million votes in favor to twenty million against, with the yeav-otes bolstered significantly by Vinod Gupta’s twenty-three million shares. Plaintiffs allege, however, that the proxy vote soliciting shareholder approval of the plan represented that Vinod Gupta owned only 20,135,006 shares and neglected to mention a further 2.4 million shares held by his sons’ trusts and his charitable foundation.

The amended consolidated complaint also alleges that Vinod Gupta has misappropriated corporate information for personal gain through trades made by the V. Gupta Revocable Trust. On August 4, 2006, infoUSA announced that it had entered into a merger agreement to acquire Opinion Research Corporation (“ORC”) for $12.00 per share in cash. After the merger, infoUSA filed a Schedule 13D disclosing the company’s ownership of 4.7% of ORC acquired in open market purchases between April and August 2005, at prices *978 ranging between $6.50 and $8.50 per share. The filing also revealed, however, that the V. Gupta Revocable Trust had sold 22,000 shares of ORC over the week following the merger announcement at a price of approximately $11.50 per share. Given that ORC never traded above $9.13 per share in the months approaching the merger, the trust seems to have made a tidy profit off the announcement. The trust still allegedly owns 33,000 shares of ORC. Yet plaintiffs assert that Vinod Gupta never informed the board of his interest in the shares when he sought approval of the merger; nor did the board take action when it learned of the relationship after the filing of the Schedule 13D. The V. Gupta Revocable Trust did, in fact, sell its remaining shares to the company at cost, and disgorged $94,869 to the company. Plaintiffs contend that although the director defendants obviously knew of the impropriety of the earlier transaction, having disclosed it in a 13D, the trust returned the money only after it had been revealed in Dolphin’s October 19, 2006 complaint. 14

Finally, the amended consolidated complaint includes a few allegations of improper payments made directly to Vinod Gupta or his family from infoUSA. For instance, the Raval Report revealed that Vinod Gupta’s wife Laurel received payroll payments and consulting fees from the company in 2004, as well as a total of $31,200 in fixed monthly reimbursements to cover expenses associated with a New York City apartment. The company has paid upwards of $266,000 over a period of five years for a number of vacation condos, one of which is owned by a son of Vinod Gupta. In two years, infoUSA paid the insurance premiums on a personal insurance policy held by the Gupta Family 1999 Irrevocable Trust, as well as various expenses incurred by Everest entities.

C. Related-party transactions and conflicts of interest involving other directors

The amended consolidated complaint loses its level of detail and particularity, however, when it begins to address related-party transactions with directors other than Vinod Gupta. Although most of the directors are the subject of a few allegations of interested conduct, the allegations frequently lack detail and substance.

1. Director fees

Each of the directors received compensation for their board membership. Of particular import, plaintiff alleges that defendant Raval, who holds a professorship at Creighton University, received approximately $450,000 in compensation from Creighton University between 2002 and 2006. 15 During the same period, he received $399,000 in director and committee *979 fees from infoUSA, excluding the value of stock options.

2. Legal fees

Plaintiffs allege that infoUSA paid an average of $500,000 per year to Robbins, Kaplan, Miller & Ciresi L.L.P. for legal services between 2002 and 2005, an amount that rose to $1.1 million in 2006. The firm continues as counsel for the company. According to the complaint, the average income per partner at Robbins, Kap-lan, Miller & Ciresi in 2004 was $672,000. Kaplan is a named partner in this firm.

3. Use of free office space

Plaintiffs allege that defendants Anderson, Walker and Haddix benefited from the use of free office space for their own businesses in buildings owned indirectly by V. Gupta and later owned by infoUSA itself. The complaint does not specify the size or value of this office space to defendants, but does provide the intriguing details that in 2001 infoUSA paid for an interior designer to assist with the decorating of these offices.

4. Co-directorships

Plaintiffs allege that Anderson served both as a co-director of Everest Investments and a director of two mutual funds in the Everest Mutual Fund Family, a privately-held mutual fund group. V. Gupta is President and owns 100% of the voting stock in Everest Funds Management, LLC, a Delaware corporation, and 100% of Everest Asset Management. According to the complaint, infoUSA paid $415,000 to Everest Asset Management for acquisition related expenses and $1 million to a fund in Everest Funds Management, LLC. 16 The complaint states that despite these business relationships, defendants represented to stockholders that Anderson was an independent overseer of V. Gupta’s compensation. Further, Anderson chaired the Audit Committee meeting at which the company approved infoUSA’s earlier acquisition of an office building from Everest Investment Management.

The amended consolidated complaint alludes to several other business relationships between infoUSA, Vinod Gupta, and his director co-defendants. Fairfield is the former chairman of businessCreditU-SA.com, a wholly-owned subsidiary of the company. Haddix, co-founder and former CEO of CSG Systems, participated as a member of an investor group that executed a leveraged buyout of CSG. As part of this effort, infoUSA invested $500,000 in a CSG acquisition fund organized by Trident Capital. Reznicek currently serves as the non-executive chairman of CSG Systems. One Source Information Services, acquired by infoUSA in 2004, succumbed to acquisition by infoUSA in 2004. Stryker formerly served as chairman and CEO of Navi-ant, Inc, a firm with which infoUSA signed a $12 million licensing agreement in 2001.

5.Contributions to Creighton University

Raval works as a professor at Creighton University and Reznicek is a former dean of the Creighton University College of Business Administration. V. Gupta allegedly provided a $50,000 grant to Raval through the V. Gupta School of Business Administration, and he continues to be a substantial economic contributor to the school. Further, Haddix sits on the board of Creighton University and on the advisory counsel to the school of business administration.

*980 6. Travel

The amended consolidated complaint alleges that several directors have followed Vinod Gupta’s example in using corporate transportation for personal use, Kaplan is alleged to have flown on the corporate aircraft to resort locations. Haddix accompanied Vinod Gupta on at least one personal trip with Vinod Gupta and his wife, using the company jet. Plaintiff also alleges that Anderson accompanied V. Gupta on holiday trips to the Bahamas, Las Vegas and the Masters Tournament.

7. Form 10-K for 2005

Finally, plaintiffs allege that defendants Raval, Kaplan, Haddix, Kahn, and Walker (as well as Vinod Gupta) all face a fundamental conflict of interest in this litigation due to their approval of the company’s 2004 and 2005 Form 10-K. The company filed the 2004 10-K six weeks after the Raval Report provided considerable detail as to the company’s related-party transactions. Nevertheless, the disclosure statements described these transactions simply as “usage of the aircraft and related services.”

D. The shareholder rights plan, Vinod Gupta’s “creeping takeover,” and the Special Committee

Plaintiffs highlight an inconsistency in the company’s shareholder rights plan. Vinod Gupta (as well as his family members and entities controlled by him) have been exempt from the company’s poison pill since its inception on July 21, 1997. Although ostensibly created to protect shareholders from an unsolicited takeover of the company and to retain for shareholders the right to a control premium, plaintiffs protest that the rights plan has actually provided cover for Vinod Gupta to acquire an ever-greater percentage of the company through open-market purchases and extensive grants of executive stock options. The 3.2 million shares of stock granted to Vinod Gupta by the company since 1997 (often at the direction of Vinod Gupta himself) boosted his ownership interest from approximately 35% of outstanding stock to over 41%.

Plaintiffs assert that the rights plan provides protection against every possible raider except the barbarian already inside the gates. In February of 2005, V Gupta informed the second-largest shareholder of infoUSA that he was committed to increasing the company’s value to $20 per share and beyond over the course of the year. In March, in conjunction with a personal purchase of 61,000 shares, Gupta further stated that he believed that infoUSA stock was worth over $18 per share. Notwithstanding his apparent confidence, on June 8, 2005, the company warned that its expected earnings had experienced a 5% decline. The share price then slipped below the $10 mark.

On June 13, 2005, just five days after the company disclosed its earnings report, V. Gupta offered to acquire all outstanding shares of infoUSA at $11.75 per share. In response, the company formed a Special Committee on June 24 to “review Mr. Vi-nod Gupta’s proposal and potential alternatives.” 17 Kahn, Stryker, Raval and A. Gupta joined the Special Committee and thereafter engaged Fried Frank Harris Shriver and Jacobsen LLP as legal advis-ors and Lazard Freres & Co. for financial advice. While the Committee was deliberating, the company announced that as of July 18, 2005, V. Gupta had agreed to refrain from taking certain actions related to acquisition of infoUSA securities, but that such restrictions would be lifted if the *981 company announced that it had entered into an agreement with a third party contemplating a merger, consolidation, sale of assets or other similar transaction.

During the Special Committee’s deliberations, the board of directors displayed no lack of enthusiasm for going private. On July 22, 2005, the company restated its position that:

[T]he Special Committee was formed to take all actions on behalf of the InfoUSA [sic] Board of Directors with respect to V. Gupta’s proposal, including any actions that the Committee deems proper for the discharge of its fiduciary duties. The Board of Directors authorized the Committee to determine whether the Company should become a party to a transaction pursuant to V. Gupta’s proposal or otherwise; negotiate, accept or reject the proposal in its sole discretion; solicit, consider or negotiate alternative proposals; engage independent advis-ors; and take any other actions that the Committee deems to be appropriate or necessary. 18

Not only did the board of directors provide the Special Committee with a mandate allowing it to enter into negotiations with third parties, but on June 23 the board concluded that the offer to take the company private “potentially” served the best interest of all stockholders. 19 The complaint further alleges that while the V. Gupta offer remained open, the board was determined to seek a transaction eliminating the public stockholders’ equity interests.

Nevertheless, on August 24, 2005, the Special Committee informed V. Gupta that his offer was inadequate, advising him that it had made no decision about other alternatives and would continue to explore strategic options for the company. Further, the Committee offered V. Gupta a choice as to how negotiations should proceed. In the first scenario, the Committee would negotiate exclusively with V. Gupta on the understanding that (a) any agreement would be subject to a post-signing market check and (b) V. Gupta would be required to support a sale of the company if a higher offer were ultimately obtained. In the event of a higher offer, V. Gupta would be allowed an opportunity to match. As a second possibility, V. Gupta could decline to agree to support alternative and potentially superior transactions. In this circumstance, the Special Committee informed him that they would continue to discuss his proposals but that he would not be given any exclusivity in negotiations.

On August 25, 2005, Kahn presented the Special Committee’s report to the entire board, stating that the Special Committee unanimously agreed on the insufficiency of V. Gupta’s offer. Further, it was the Committee’s opinion that any future transaction should be subject to a market check. Kahn described how the Committee had communicated these conclusions to V. Gupta on August 24, and that V. Gupta had subsequently withdrawn his offer. The company announced this rejection on August 25, 2005. V. Gupta advised the Special Committee that he would not sell his shares or vote in favor of any other transaction.

On August 26, the board discussed the desirability of proactively seeking alternative proposals. Plaintiffs allege that the *982 tenor of this board meeting differed markedly from that of July 23. The board focused its attention on the potential disruption to company operations, the potential adverse effects on key employees, the uncertainty and possible adverse effect on employees in general and the consequential adverse impact on the interests of the stockholders. All five of the board members not on the Special Committee then voted to abolish the Special Committee. Three of the four Special Committee members opposed the motion. One member, defendant Raval, abstained.

Plaintiffs argue that the Special Committee was dissolved in order to prevent it from considering alternatives to the V. Gupta offer. Neither plaintiffs nor defendants, however, suggest that any such alternative had presented itself at the time that the board eliminated the Special Committee. 20

Vinod Gupta remains exempt from in-foUSA’s rights plan, but since July 18, 2005, a series of letter agreements have prevented Vinod Gupta from acquiring, directly or indirectly, any further interest in infoUSA, excluding the exercise of options already granted to him. The standstill agreement ceases, however, in the event that infoUSA announces that it has entered into an agreement in contemplation of a merger, sale, consolidation, or another change of control.

II. CONTENTIONS

Plaintiffs charge defendants with liability on five separate counts. Count I asserts that the going-private transaction proposed by Vinod Gupta, and the subsequent formation of the Special Committee, amounted to nothing more than a sham, and that defendants should reimburse the company for expenses incurred in connection with the offer. 21 Count II asks the Court to void the various self-dealing transactions between infoUSA and Vinod Gupta under 8 Del. C. § 144 because they were not approved by disinterested directors or a vote of disinterested shareholders and were not fair to the company. Further, Count II seeks to have certain grants of stock options declared void under 8 Del. C. § 157. In Count III, plaintiffs seek a declaratory judgment holding that the standstill letter agreement is invalid, having been adopted in contradiction to the terms of the Rights Plan and in any event impermissibly restricting the directors’ statutory and fiduciary obligations to manage the company’s business and affairs. Count IV alleges that all defendants have engaged in activities that violated their fiduciary duties to shareholders, particularly in approving (or condoning) the widespread use of corporate funds for personal expenditures. Finally, Count V alleges that these transactions constitute waste of corporate assets.

*983 Defendants move to dismiss the complaint on two principle grounds. First, defendants assert that the amended consolidated complaint lacks allegations sufficient to conclude that infoUSA’s board of directors were incapable of considering demand as required by Court of Chancery Rule 23.1. Second, defendants argue that, despite the litany of self-interested transactions detailed at great length, plaintiffs have failed to state any claim for which this Court may grant relief.

This Court follows well-settled standards governing motions to dismiss for failure to state a claim. All well-pleaded factual allegations made in the complaint are to be accepted as true. 22 Such facts must be set forth in the complaint and not merely in subsequent briefs. 23 Finally, this Court must draw all reasonable inferences in favor of the non-moving party, and dismissal is inappropriate unless the “plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.” 24

III. ANALYSIS

On October 17, 2006, I dismissed Cardinal Value’s first amended derivative complaint for failure to show that demand upon infoUSA’s board of directors was excused. The earlier complaint, like this one, regaled the Court at length with stories of fancy cars and favored perks for Vinod Gupta and his family. Much of Cardinal Value’s argument boiled down to an argument by excess, the proposition that no board of directors exercising their business judgment in good faith could ever have approved—or stood by idly while Vi-nod Gupta allocated to himself—the extensive array of perquisites that he has enjoyed over the years.

Mere recitations of elephantine compensation packages and executive perquisites, however amusingly described, will rarely be enough to excuse a derivative plaintiff from the obligation to make demand upon a defendant board of directors. Sensational allegations may be grist for the mill of business journalists, but a Court cannot declare a grant of executive compensation to be excessive without immediately inviting the subsequent question; “How much is too much?” The answer to that question depends greatly upon context. The acumen of the business executive, the competitive environment in the industry, and the recruitment and retention challenges faced by the hiring corporation all bear heavily on an appropriate level of compensation. “How much is too much?” is a question far better suited to the boardroom than the courtroom.

That is not to say that a Court should blindly defer to board decisions as to compensation. A court of equity must stand ready to oversee breaches of fiduciary duty in this domain as vigorously as in any other. Successful derivative plaintiffs, however, must focus intensely upon individual director’s conflicts of interest or particular transactions that are beyond the bounds of business judgment. The appropriate analysis focuses upon each particular action, or failure to act, challenged by a plaintiff. Accumulating hundreds of allegations that individually would never with *984 stand challenge under the test set forth by Aronson, in the hopes that collectively they will survive, is a strategy that succeeds in only the most uncommon and egregious of cases.

This process recognizes a simple, fundamental truth of institutional competency long understood in Delaware law. The value of assets bought and sold in the marketplace, including the personal services of executives and directors, is a matter best determined by the good faith judgments of disinterested and independent directors, men and women with business acumen appointed by shareholders precisely for their skill at making such evaluations. 25 The Court of Chancery does not safeguard shareholders by substituting the opinion of a judge for that of a business person merely because a plaintiff shows up at the courthouse asking for relief. Rather, a judge does his duty by ensuring that business decisions, whatever their merit, were undertaken by a director without consideration of his self-interest or for the sake of some third-party. Therefore, a skilled litigant, and particularly a derivative plaintiff, recognizing the institutional advantages and competency of the judiciary reflected in our law, places before the Court allegations that question not the merit’s of a director’s decision, a matter about which a judge may have little to say, but allegations that call into doubt the motivations or the good faith of those charged with making the decision.

Cardinal Value’s original complaint put little emphasis on allegations that might lead the Court to conclude that directors other than Vinod Gupta lacked independence or were incapable of considering demand. Challenges to directors Haddix and Walker, among others, remained largely bereft of detail. Dolphin’s action, filed only a few days later, similarly lacked elements that appeared in Cardinal Value’s action. Indeed, after dismissing the first amended derivative complaint, I ordered the consolidation of the Dolphin and Cardinal Value proceedings largely to prevent “the strange prospect of the Court being forced to dismiss both complaints under Rule 12(b)(6) or Rule 23.1, even though the allegations ... taken as a whole, would survive a motion to dismiss.” 26

The amended consolidated complaint, however, finally incorporates all of plaintiffs’ myriad allegations. Based on this final pleading, I conclude that plaintiffs raise issues sufficient for this Court to conclude that any demand upon the board of infoUSA would have been futile. Similarly, I conclude that the amended consolidated complaint states claims for which relief may be granted.

A. Requirement of demand under Rule 23.1

The business and affairs of a Delaware corporation, absent exceptional circumstances, are to be managed by its board of directors. 27 To preserve the board’s authority over ordinary business decisions, a plaintiff who initiates a derivative action must before the commencement of the action either demand that the corpo *985 rate board take up the litigation itself or, in the alternative, demonstrate in a complaint why such a demand would be futile 28 Rule 23.1 requires that a plaintiff who asserts demand futility must “comply with stringent requirements of factual particularity that differ substantially from the permissive notice pleadings governed solely by Chancery Rule 8(a).” 29 Vague or conclusory allegations do not suffice to challenge the presumption of a director’s capacity to consider demand. 30

There are two ways that a plaintiff can show that a director is unable to act objectively with respect to a pre-suit demand. Most obviously, a plaintiff can show that a given director is personally interested in the outcome of the litigation, in that the director will personally benefit or suffer as a result of the lawsuit. 31 A plaintiff may also challenge a director’s independence by putting forward allegations that raise a reasonable inference that a given director is dominated through a “close personal or familial relationship or through force of will,” 32 or is so beholden to an interested director that his or her “discretion would be sterilized.” 33 To demonstrate that a given director is beholden to a dominant director, plaintiffs must show that the beholden director receives a benefit “upon which the director is so dependent or is of such subjective material importance that its threatened loss might create a reason to question whether the director is able to consider the corporate merit’s of the challenged transaction objectively.” 34 In short, plaintiff is required to show that a majority of the board of directors is either interested or lacking in independence. 35

This kind of detailed, fact-intensive, director-by-director analysis is almost wholly lacking in plaintiffs’ submissions to the Court. Instead, plaintiffs raise a host of issues that are either irrelevant to the issue of demand or supported by piecemeal references to barely-relevant legal authority. I address these arguments first in order to ensure that there is no misunderstanding as this case goes forward as to the grounds upon which the Court allows the case to continue. Having eliminated the red herrings, I then move on to consider the disinterestedness and independence of the board of directors of infoUSA.

1. Analysis of demand under Rule 23.1

First and foremost, it is important to remember that demand is made against the board of directors at the time of filing of the complaint 36 It is that board, and no other, that has the right and responsibility to consider a demand by a *986 shareholder to initiate a lawsuit to redress his grievances. The amended consolidated complaint contains allegations stretching back several years, and many of the directors who approved board decisions are no longer board members. Rarely, however, does the amended consolidated complaint specify or distinguish the directors implicated in a given action, or even seemingly recognize this important distinction. The fact that a former board authorized an outrageous action does not prevent a different board from considering a demand now.

A board may in good faith refuse a shareholder demand to begin litigation even if there is substantial basis to conclude that the lawsuit would eventually be successful on the merits. It is within the bounds of business judgment to conclude that a lawsuit, even if legitimate, would be excessively costly to the corporation or harm its long-term strategic interests. It is not enough for a shareholder merely to plead facts sufficient to raise an inference that the board of directors would refuse a demand. A court should not intervene unless that shareholder raises the more troubling inference that the refusal itself would not be a good faith exercise of business judgment.

It is from this concept that the Aronson and Rales tests for demand futility spring. Where a decision of the board is challenged, a plaintiff may demonstrate that demand was excused if it can be shown that there is reason to doubt ei