Fitbit Inc. Interlocutory Appeal Denied

The Court of Chancery (“Court”) first recited thr standard for granting an interlocutory appeal.  Interlocutory appeals are the exception, not the norm because they disrupt the normal procession of litigation.  The Court should first identify whether the decision being appealed decided a substantial issue of material importance.  Next, the Court must decide whether any likely benefits outweigh the probable costs.  If the balance is uncertain, the trial court should refuse to certify the appeal.

After its Motion to Dismiss was denied (“Opinion”), Fitbit filed an application for certification of an interlocutory appeal.  In its application, Fitbit claimed that (1) the Opinion conflicts with decisions of the trial courts upon a question of law – citing Supreme Ct. R. 42(b)(iii)(B); the Opinion involves an issue of first impression – citing Supreme Ct. R. 42(b)(iii)(A); and review of the Opinion denying the Motion to Dismiss may terminate the litigation – citing Supreme Ct. R. 42(b)(iii)(G).

The Court, while considering these factors, declined to certify the appeal.

First, no merits related decision was reached.  This is generally a necessary component to the certification of any interlocutory appeal.  The Court did acknowledge that no merits related decision will ever be reached on a Rule 23.1 motion to dismiss and although review of the appeal could terminate the litigation, that factor alone did not warrant certification.

Second, the Opinion does not conflict with existing trial court decisions. The appeal argued that the Court erroneously inferred the outside directors’ scienter “based solely upon” the “core operations doctrine[.]”  The Court noted that the Plaintiffs alleged well-pled facts that PurePulse accounted for 80% of Fitbit’s revenue and the curious timing surrounding waive of lock-up agreements supported the reasonable inference that the Fitbit Board knew of the serious problems surrounding PurePulse when they began to emerge.

Lastly, the Opinion did not address a novel question of law. The Court stated that is was satisfied that “it is not particularly novel or controversial as a matter of Delaware law to declare that a fiduciary may not share inside information with a fund he controls so that the fund, in turn, can trade on that inside information as a means to avoid Brophy liability.”

At this stage, the Court could not conclude that the Opinion decided a substantial issue of material importance or that any likely benefits outweigh the probable costs.  The Defendants will have a chance to demonstrate that the directors did not benefit from the trades in a motion for summary judgment.

Read the opinion here.

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