Directors of a corporation owe fiduciary duties to the shareholders of the company. This means that when directors communicate with shareholders about the company, they have a fiduciary duty to exercise due care, good faith and loyalty. Directors can be held personally liable if they intentionally or recklessly mislead shareholders about the business or condition of the corporation. A Delaware Chancery Court recently dismissed a suit filed against the directors of GoPro, Inc. by a group of disgruntled shareholders who alleged that the directors misled them by issuing overly optimistic revenue guidance that the company was unable to live up to.

In 2016, GoPro, the camera manufacturer, had plans to roll out several new products to the market including a premium drone equipped with the latest GoPro cameras and a new wearable camera that has become ubiquitous among outdoor enthusiasts and influencers around the globe. GoPro’s board of directors issued revenue guidance for 2016 based on projected sales of both products. The revenue forecasts were generally positive.

Unfortunately, the projections turned out to be wrong. The road to market, especially for the drone, was bumpier than expected. The drone’s launch was delayed. Despite this, the board’s revenue guidance remained unchanged. Once both products were unveiled in the fall of 2016, revenues were hindered by production ramp-up issues, inventory shortages, higher than expected product returns and ultimately a product recall of the drone. GoPro’s board of directors eventually adjusted the revenue guidance to account for these problems. Despite the adjusted revenue expectations, GoPro’s revenue for 2016 came in more than sixty-five million dollars short of the $1.25–1.3 billion forecasted. Following this revenue miss, GoPro’s stock price suffered a 12% decline.

In the wake of this decline in share price, several shareholders filed a shareholder derivative lawsuit alleging that GoPro’s directors breached their fiduciary duties to the shareholders by keeping the company’s revenue problems a secret and allowing or encouraging materially false statements by various company officers. The defendants moved to dismiss the complaint.

The central argument made by the defendants was that the case should be dismissed because the plaintiffs failed to make a pre-suit demand on the board to pursue their derivative claims. As the court noted, the plaintiffs conceded that they made no such demand but instead alleged in their complaint that they were excused from making a pre-suit litigation demand on the board due to “demand futility” (i.e. the board would have ignored such a demand so making it would have been futile). Ultimately, the court found that the plaintiffs’ allegations of demand futility were conclusory and did not excuse their failure to make a pre-suit demand on the board.

The plaintiffs argued that demanding that the board of directors pursue the claims would have been futile because many of the directors would face personal liability and thus would not have agreed to pursue the claims. The court found that the complaint lacked factual allegations to support such a conclusion. The court noted that the complaint only alleged that one member of the relevant board personally made a false or misleading public statement: GoPro’s founder, Nicholas Woodman. The plaintiffs attempted to implicate a majority of the relevant board by alleging five of its members contributed to and approved the revenue guidance while knowing it was impossible to achieve the projected results. The plaintiffs failed, however, to identify any particularized facts to support such an inference.

The court’s full opinion is available online here.

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