ORDER ON DEFENDANTS' MOTION TO DISMISS

SARAH EVANS BARKER, District Judge.

This cause is before the Court on Defendants' motion to dismiss Plaintiff Chad R. Taylor's Amended Complaint [Docket No. 113], filed on March 31, 2014 pursuant to Federal Rule of Civil Procedure 12(b)(6). Since the filing of Defendants' motion, the Court has consolidated the cases of Taylor v. Biglari et al. (1:13-cv-00891-SEB-MJD) and Donahue v. Biglari et al. (1:14-cv-00025-SEB-DML), both shareholder derivative suits brought against the six board members of Biglari Holdings, Inc., into a single action. Docket No. 124. The Amended Complaint in Taylor v. Biglari [Docket No. 107] serves as the operative complaint in the consolidated action. For the reasons set forth below, Defendants' motion to dismiss must be and therefore is GRANTED.

Factual and Procedural Background

Biglari Holdings, Inc. ("BH") is an Indiana holding company whose assets include two restaurant chains, Western Sizzlin and Steak n Shake. ¶ 27.1 Plaintiffs Chad R. Taylor and Edward Donahue are BH shareholders. ¶ 26.2

This suit is primarily concerned with the actions of BH's namesake, Defendant Sardar Biglari ("Biglari"), who has served as the chairman of the company's board of directors since June 2008 and as its CEO since August 2008. ¶ 29. In 2000, Biglari founded Biglari Capital Corporation (BCC), which in turn was the sole general partner in the Lion Fund, an investment venture and hedge fund. Id. Among the other investments Biglari has made in the last decade through these vehicles, he has sought and acquired a controlling interest in the two restaurant chains referenced above. By August 2005, Biglari had acquired a sufficient stake in the 40-yearold, financially struggling Western Sizzlin chain to have himself appointed to the company's board. ¶ 53. Within another year, Biglari had increased his share of the company's stock to 43%, and had been named the company's CEO. ¶ 54. He then turned his investment attention to Steak n Shake, where by August 2007 he had obtained a 5.8% ownership stake. Shortly thereafter, in March 2008, he prevailed in a proxy fight, and the company's shareholders voted him, and co-Defendant Philip Cooley, onto the board. Biglari was subsequently named CEO in August 2008 — a position he continues to hold. ¶¶ 58-59.

In August 2009, the two companies consolidated under Biglari's leadership as Steak n Shake acquired Western Sizzlin for a premium of 7% above market value; the board of the combined companies later passed a 20-for-1 "reverse stock split," increasing the entity's share price from $13 to $360 a share. ¶¶ 65-68. On April 8, 2010, the consolidated company changed its name to Biglari Holdings, Inc. ("BH"). ¶ 70. In a deal announced the same month, BH acquired BCC, the general partner of Biglari's investment vehicle, the Lion Fund. BH bought BCC for the nominal price of $1 plus an amount equal to BCC's capital base, estimated at the time to be $4.75 million; the buyout was also contingent upon shareholder approval of a new compensation package for Biglari consisting of a $900,000 annual salary as well as annual incentive payments based on the company's book value growth. ¶ 72. This package, in modified form, did receive shareholder approval in November 2010. ¶ 74.

The current members of the BH board are Sardar Biglari, Phillip L. Cooley, Kenneth R. Cooper, Dr. Ruth J. Person, William L. Johnson, and James P. Mastrian. ¶¶ 29-36. The latter four directors also constitute the board's Governance, Compensation, and Nominating Committee. Clark Decl., Ex. 8 at 33. All five members of the board other than Biglari have professional ties to him that extend outside their joint service on the BH board; these contacts include involvement with Biglari's Lion Fund, service on the predecessor Western Sizzlin board, joint service on out-side boards, and — in the case of Philip Cooley — a previous professor-student relationship. Id. Plaintiff alleges that the members of the board and GCN Committee approved three transactions in 2013 — what he calls the "Entrenchment Transactions" — that improperly benefitted Biglari personally rather than the broader corporate interest their fiduciary duties bound them to safeguard. Pl.'s Mot. 3-4. These three transactions give rise to the derivative claims.

The company announced the first of these disputed deals, the Licensing Agreement, in January 2013. Under its terms, Biglari granted to BH an "exclusive license to use the name and mark Biglari" in connection with the company's businesses; the license extends for 20 years, and it is royalty-free unless a "triggering event" — such as a change in corporate control or Biglari's termination as CEO without cause — occurs. ¶ 75. In the event that the royalties provision is triggered, BH will owe Biglari for five years a sum equal to 2.5% of the company's revenue for that year. Based on 2012 numbers, BH's annual obligation would be $17.5 million out of a net operating income of $38.82 million. ¶ 76. In an SEC filing, the company acknowledged that the Licensing Agreement, together with other parts of Biglari's incentive package, could deter a change of corporate control: "The combination of these provisions along with others referenced (e.g., contracts cancellable if Mr. Biglari is no longer Chairman and CEO) altogether could have the effect of preventing a transaction involving a change of control of the Company or deterrence of a potential proxy contest." ¶ 82.

In the second challenged transaction, BH sold BCC — which it had bought from Biglari three years prior — back to Biglari in July 2013. In doing so for a price of $1.7 million, Plaintiff contends that the GCN Committee ignored the recommendations of an outside valuation firm that had pegged the fund's value at the significantly higher sum of $8.8-10.2 million. Pl.'s Resp. 6-7 (citing Am. Compl. ¶ 87). Before the sale took place, however, BCC had already "distributed to the company substantially all of BCC's partnership interests in the Lion Fund [totaling approximately $5.8 million]" and retained solely a $100,000 general partner interest in the Lion Fund at the time of the deal. According to Defendants, this earlier transaction — coupled with the committee's efforts to take into account the effect the sale of BCC would have on its financial obligations to Biglari himself — explains the discrepancy between the sale price and the outside firm's appraisal of BCC's value, which did not take into account these considerations. Defs.' Br. 16-18. Additionally, in connection with the deal, the company stated publicly that it would continue to employ the funds associated with BCC as its primary investment vehicle; in the agreements attendant to this sale and the creation of the Lion Fund II (a new fund in which BCC is the general partner), the company committed approximately $326 million in securities, which are subject to a five-year "lock up" period. ¶¶ 84-85.

The final "entrenchment transaction" at issue is the 2013 Rights Offering, first disclosed by BH in a Form S-3 Registration Statement on February 5, 2013. ¶ 90. A rights offering is a corporate stock device for raising capital, whereby a corporation issues a number of "rights" to existing shareholders, entitling them — if they choose to invest the additional capital required for their exercise — to convert these rights into additional shares of stock. If the rights offering is not fully subscribed by the existing shareholders, other shareholders who have exercised these rights may then "oversubscribe," meaning they can acquire the shares not taken. The "rights" are distributed evenly in proportion to existing ownership shares (at 5 rights per share), and may be traded on the open market. As originally announced, the Offering aimed to raise approximately $50 Million for the company. On August 6, 2013, the board made a final announcement of the details of the Rights Offering, in which prices were set and the capital target was raised to approximately $75 Million. The Rights Offering commenced on August 27, 2013, and it raised in excess of $75 million in new capital for BH; Plaintiff contends that Biglari "and his affiliates" increased their ownership share of the company from 15.4% to 16.1% as a result of the oversubscription option. Def.'s Br. 19; Am. Compl. ¶ 95.3

On June 3, 2013, Plaintiff Chad R. Taylor filed a shareholder derivative complaint against BH as a nominal defendant and the six board members as individual defendants, alleging that the "entrenchment transactions" and other board actions have violated the members' duty to the corporate interest. Docket No. 1. In August 2013, Plaintiff moved to enjoin the Rights Offering, which was then not yet complete; the Court denied that motion on September 12, 2013. Docket No. 69. Plaintiff's Amended Complaint, filed on March 10, 2014, charges the individual defendants with breach of their fiduciary duty, gross mismanagement, abuse of control, and waste of corporate assets; it seeks rescission of some of the disputed transactions, disgorgement of "illicit shares and profits," recovery of damages to the company, and certain changes to the company's governance and articles of incorporation. Docket No. 107.

Legal Analysis

Standard of Review

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of claims for "failure to state a claim upon which relief may be granted." Fed.R.Civ.P. 12(b)(6). In determining the sufficiency of a claim, the court considers all allegations in the complaint to be true and draws such reasonable inferences as required in the plaintiff's favor. Jacobs v. City of Chi., 215 F.3d 758, 765 (7th Cir.2000). Federal Rule of Civil Procedure 8(a) applies, with several enumerated exceptions, to all civil claims, and it establishes a liberal pleading regime in which a plaintiff must provide only a "short and plain statement of the claim showing that [he] is entitled to relief," Fed. R. Civ. Pro. 8(a)(2); this reflects the modern policy judgment that claims should be "determined on their merits rather than through missteps in pleading." E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 779 (7th Cir.2007) (citing 2 James W. Moore, et al., Moore's Federal Practice § 8.04 (3d ed.2006)). A pleading satisfies the core requirement of fairness to the defendant so long as it provides "enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests." Tamayo v. Blagojevich, 526 F.3d 1074, 1083 (7th Cir.2008).

In its decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the United States Supreme Court introduced a more stringent formulation of the pleading requirements under Rule 8. In addition to providing fair notice to a defendant, the Court clarified that a complaint must "contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). Plausibility requires more than labels and conclusions, and a "formulaic recitation of the elements of a cause of action will not do." Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir.2007) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Instead, the factual allegations in the complaint "must be enough to raise a right to relief above the speculative level." Id. The plausibility of a complaint depends upon the context in which the allegations are situated, and turns on more than the pleadings' level of factual specificity; the same factually sparse pleading could be fantastical and unrealistic in one setting and entirely plausible in another. See In re Pressure Sensitive Labelstock Antitrust Litig., 566 F.Supp.2d 363, 370 (M.D.Pa.2008).

Although Twombly and Iqbal represent a new gloss on the standards governing the sufficiency of pleadings, they do not overturn the fundamental principle of liberality embodied in Rule 8. As this Court has noted, "notice pleading is still all that is required, and `a plaintiff still must provide only enough detail to give the defendant fair notice of what the claim is and the grounds upon which it rests, and, through his allegations, show that it is plausible, rather than merely speculative, that he is entitled to relief.'" United States v. City of Evansville, 2011 WL 52467, at *1 (S.D.Ind. Jan. 8, 2011) (quoting Tamayo, 526 F.3d at 1083). On a motion to dismiss, "the plaintiff receives the benefit of imagination, so long as the hypotheses are consistent with the complaint." Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir.1994).

Discussion

The sole ground upon which Defendants seek dismissal is Plaintiff's failure to "plead particularized facts excusing Plaintiff's failure to make a pre-suit demand on BH's Board of Directors." Docket No. 113. We address, in turn, the standard governing a "demand futility" claim and the applicability of the standard to Plaintiff's allegations here.

I. The Aronson standard

Under Indiana law, a plaintiff in a shareholder derivative suit must satisfy certain threshold requirements in order for her claim to be considered. A plaintiff must show (1) that she was a shareholder at the time of the transaction of which she complains, (2) that she made efforts to obtain the requested action from the board of directors — or why she did not make demand on the board, and (3) that she fairly and adequately represents the interests of the shareholders as a whole. Ind.Code § 23-1-32-1; Ind. Trial Rule 23.1. The second criterion, the "demand" requirement, reflects the law's general attitude of deference towards the decisions made by a corporation's directors, as embodied in the "business judgment rule" — a presumption that in making a business decision, "the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company." G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 238 (Ind.2001) (citing Aronson v. Lewis, 473 A.2d 805, 812 (Del.1984)). Indiana has adopted a "strongly pro-management" version of the Business Judgment Rule, see G & N Aircraft, 743 N.E.2d at 238, expressing its policy that "the decision whether and to what extent to investigate and prosecute claims ... should in most instances be subject to the judgment and control of the board." Ind.Code § 23-1-32-4(b).

The demand requirement is thus a "substantive right of the shareholder and the directors" in addition to a procedural standard; federal courts considering shareholder derivative suits therefore apply the law of the company's state of incorporation to determine "what excuses are adequate for failure to make demand." In re Abbott Labs. Derivative S'holders Litig., 325 F.3d 795, 804 (7th Cir.2003) (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98-99, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991)). Because Indiana's guidelines for "demand futility" are neither enumerated by statute nor explained in commentary, In re Guidant S'holders Derivative Litig., 841 N.E.2d 571, 573 (Ind.2006), Indiana courts rely on the well-developed body of Delaware law on the subject. In re ITT Derivative Litig., 932 N.E.2d 664, 668 (Ind.2010); G & N Aircraft, 743 N.E.2d at 238.

When a plaintiff challenges the actions taken by a board of directors, as here, Delaware law measures demand futility according to the two-part test derived from Aronson v. Lewis, 473 A.2d 805 (Del.1984), overruled on different grounds by Brehm v. Eisner, 746 A.2d 244 (Del.2000). A later Delaware decision summarizes the standard as follows:

Brehm, 746 A.2d at 256. See also Westmoreland Cnty. Emp. Ret. Sys. v. Parkinson, 727 F.3d 719, 725 (7th Cir.2013) (applying Delaware law). The test is in the disjunctive: "if either prong is satisfied, demand is excused." Westmoreland, 727 F.3d at 725 (quoting Brehm, 746 A.2d at 256).

Noting that "demand is excused whenever the business judgment rule does not apply to the board decision at issue," Plaintiff contends that, given the nature of the allegations here, the Board's conduct should receive the heightened scrutiny of "entire fairness" review. Pl.'s Resp. 17 (citing Aronson, 473 A.2d at 808). Accordingly, urges Plaintiff, the Defendants bear the burden of demonstrating that "the transactions at issue are entirely fair to the Company's shareholders." Id.

Plaintiff's argument misunderstands the dual role of the business judgment rule as applied to the demand requirement. Just as the rule creates a rebuttable presumption that the actions of a company's board of directors are taken in the company's interests, so does the demand requirement embody a similar presumption that a board will act in the company's best interests in weighing whether to pursue a derivative suit. While the rule itself is a substantive legal standard, however, the demand requirement doubles as a procedural screen. See In re Abbott, 325 F.3d at 804. Plaintiff's mistake here is to attempt to graft the concept of "entire fairness" scrutiny — which applies when a board's conflict of interests has removed its entitlement to business judgment rule deference — onto the antecedent question of demand futility. See generally Wood v. Baum, 953 A.2d 136, 142 (Del.2008). The landmark Delaware Supreme Court decision in Weinberger v. UOP, Inc., 457 A.2d 701 (Del.1983), established that "where one stands on both sides of a transaction, he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts." 457 A.2d at 710. But that precedent, like all the other decisions cited by Plaintiff on this point, is inapposite to the posture of this case. Cf., e.g., In re Guidant Corp. S'holders Deriv. Litig., 2006 WL 290524 (S.D.Ind. Feb. 6, 2006) (addressing a motion for injunctive relief rather than demand futility); Orman v. Cullman, 794 A.2d 5, 20 (Del.Ch.2002) (discussing the business judgment rule outside the context of a shareholder derivative suit and the demand requirement).4 Regardless of what standards may govern judicial review of the substance of a challenged transaction, we must dismiss Plaintiff's suit unless he can establish that his failure to make demand on the BH board was excused. See Mitchell ex rel. Broadwind Energy, Inc. v. Reiland, 2012 WL 1755677, at *4 (N.D.Ill. May 15, 2012) (noting that "[t]he [entire fairness] standard is not used ... to evaluate whether a board... wrongfully refused a shareholder demand the corporation bring suit"); In re Chrysler Corp. S'holders Litig., 1992 WL 181024, at *4-5 & n. 3 (Del.Ch. July 27, 1992) (rejecting a plaintiff's effort to confuse the evidentiary burden that might be borne by the defendants on the merits with the pleading burden borne by plaintiffs).

The Aronson demand futility test, moreover, is designed to account for those circumstances in which deference to a board's business judgment is inappropriate. As we have noted in a previous opinion, the outcome of the two-pronged test almost invariably prefigures the court's resolution of the underlying claim: if on the first prong a majority of the board is compromised by conflicts of interest or lacks independence, then its decisions will likely be invalidated under the stringent "entire fairness" standard governing interested transactions. See, e.g., Weinberger, 457 A.2d at 710. Similarly, if a court decides the second Aronson prong in favor of a plaintiff, then it has thereby concluded that the transactions challenged are so arbitrary or deficient that they fail to meet even the deferential scrutiny of the substantive business judgment rule. Docket No. 69 at 15; Starrels v. First Nat'l Bank of Chicago, 870 F.2d 1168, 1172-1174 (7th Cir.1989) (Easterbrook, J., concurring).

We now apply the Aronson test to the allegations contained in Plaintiff's Amended Complaint.

II. Aronson Prong One — Board's Interest or Lack of Independence

Demand may be excused under the first prong of the Aronson test if a plaintiff can show that a majority of a board's directors are either compromised by interest in the board's challenged conduct or lack sufficient independence to consider a demand on its merits. In re Abbott, 325 F.3d at 807.5

A. Improper Interest

A director has impermissible self-interest "whenever divided loyalties are present, or a director has received, or is entitled to receive, a personal financial benefit from the challenged transaction which is not equally shared by the stockholders." Rales v. Blasband, 634 A.2d 927, 932 (Del.1993). In order to establish director "interest" sufficient to excuse demand, a plaintiff must generally allege particularized facts showing that a majority of the board or decision-making body had either (1) a financial interest not equally shared by the stockholders, or (2) an entrenchment purpose. Grobow v. Perot, 539 A.2d 180, 188 (Del.1988), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del.2000); Feldman v. Cutaia, 2006 WL 920420, at *6 (Del.Ch. Apr. 5, 2006).6

Neither party disputes that Sardar Biglari himself was "interested" in at least two of the three principal transactions at issue; with respect to the Licensing Agreement and the BCC sale, he "receive[d] a personal financial benefit from a transaction that [was] not equally shared by the stockholders." See Rales, 634 A.2d at 936; Conrad v. Blank, 940 A.2d 28, 38 (Del.Ch.2007) (noting that "two directors who allegedly received backdated option... are clearly not disinterested"). Plaintiff has not alleged, however, that any of the five other directors stood on both sides of the challenged transactions or stood to realize personal gain from them. Because he alleges that only one director's vote was tainted by financial self-interest, he cannot show that demand is excused on this ground. See In re Abbott, 325 F.3d at 807 (citing In re Gen. Instr. Corp. Sec. Litig., 23 F.Supp.2d 867, 874 (N.D.Ill.1998)) ("Nor... have plaintiffs presented allegations that any of the other directors profited in any way by their actions, or lack thereof.").

Plaintiff argues instead that the other board members were improperly interested not in direct financial gain, but in entrenching Biglari and themselves on the board. "To plead entrenchment, the complaint must allege facts sufficient to demonstrate that the `sole or primary purpose' of the challenged board action was to perpetuate the directors in control of the corporation.'" Green v. Phillips, 1996 WL 342093, at *4 (Del.Ch. June 19, 1996) (citing Kahn v. Roberts, 1994 WL 70118, at *6 (Del.Ch. Feb. 28, 1994)); Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401, 408 (Del. 1985). According to Plaintiff, the Licensing Agreement is an "entrenching device that is not designed to compensate S. Biglari for use of his mark but rather to ensure that his position at the Company will not be disturbed." Pl.'s Resp. 23 (citing In re Gaylord Container Corp. S'holders Litig., 747 A.2d 71, 84 (Del.Ch.1999)). Plaintiff also alleges that the Rights Offering, which enabled Biglari to increase incrementally his BH ownership share, Am. Compl. ¶ 7, was aimed at consolidating his position on the board. "Each of the 2013 Entrenchment Transactions which Defendants taken must not be viewed in a vacuum," contends Plaintiff; all the transactions "represent[] S. Biglari and the Board's decisions to entrench their positions within BH and ensure that it is unreasonably difficult for any shareholder who disagrees with their self-serving policies to challenge them." Am. Compl. ¶ 19.

It is more than plausible that the 2013 transactions had the effect of strengthening the incumbent BH board's position. The company itself admitted in an SEC disclosure that the Licensing Agreement, in particular, "could have the effect of preventing a transaction involving a change of control of the Company or deterrence of a potential proxy contest." Am. Compl. ¶ 82. Allegations of an entrenchment motive have been found insufficient to excuse demand, however, where a plaintiff has not pleaded any facts showing that the directors' positions were actually threatened at the time they took the challenged actions. See Grobow, 539 A.2d at 188, overruled on other grounds by Brehm, 746 A.2d 244; Spillyards v. Abboud, 278 Ill.App.3d 663, 215 Ill.Dec. 218, 662 N.E.2d 1358, 1367 (1996) (applying Delaware law and Grobow). Cf. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955-957 (Del.1985) (applying heightened scrutiny to board actions taken in the shadow of threatened takeover). While the three 2013 transactions might all have strengthened Biglari's individual position, it would be too great a leap to read them as aimed predominantly at the board's entrenchment. In the absence of any particularized facts tending to show that the primary or sole purpose of the majority of board members was to entrench themselves, we cannot conclude that the demand requirement is excused on this basis. See Green, 1996 WL 342093, at *4 ("[T]he complaint pleads no facts demonstrating an actual threat to the directors' positions.... The complaint also fails to allege facts that would show that the directors' sole or primary motivation ... was to perpetuate themselves in control.").

B. Lack of Independence

A director lacks independence when his decisions are based on "extraneous considerations or influences" rather than the "corporate merits of the subject." In re Abbott, 325 F.3d at 807. One such impermissible extraneous influence arises where a director is "beholden" to another interested director or corporate officer through a personal relationship or otherwise excessive influence. See Rales, 634 A.2d at 936.

Plaintiff alleges broadly that Sardar Biglari so dominates the board that its decisions are mere rubber stamps for his wishes. In support of this theory, Plaintiff cites Biglari's dual position as CEO and chairman, his "authority to make all investment and capital allocation decisions on behalf of the Company," and his alleged ability to "handpick" and remove directors at will. Am. Compl. ¶¶ 29, 61, 97-100. Plaintiff also claims that each of the five other board members has sufficiently close personal or professional ties to Biglari to subvert his or her independence.

These allegations are insufficient to raise a reasonable doubt that a majority of the board lacks independence. As an initial matter, the fact that Biglari is CEO of the company — or that he controls nearly 17% of the corporation's stock — is not itself proof that board members are subservient to him. See Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1051 (Del.2004) (noting that Martha Stewart's 94% voting power in her eponymous company, even when coupled with her other social ties to board members, was "insufficient, without more, to rebut the presumption of [the board's] independence"). Similarly, the allegation that Biglari "handpicked" the five other board members — even if proven — would not meet Plaintiff's burden. "Of course, the law is well-settled that [the CEO]'s involvement in selecting each of the directors is insufficient to create a reasonable doubt about their independence." White v. Panic, 793 A.2d 356, 366 (Del.Ch. 2000) (citing Aronson, 473 A.2d at 816). See also In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 359-360 (Del.Ch. 1998), overruled on other grounds by Brehm, 746 A.2d 244; Kaufman v. Belmont, 479 A.2d 282, 287-288 (Del.Ch.1984).

As for the individual directors' ties to Biglari, Plaintiff's allegations fail to create doubt regarding the independence of majority of the board. As Defendants implicitly concede, Defendant Philip Cooley has extensive personal ties with Biglari, dating back more than a decade to his time as Cooley's professor at Trinity University. Am. Compl. ¶ 32. Delaware courts have found that a director lacks independence where he or she has a "close personal or familial relationship" with an interested director. See Orman, 794 A.2d at 25 n. 50; Chesapeake Corp. v. Shore, 771 A.2d 293, 299 (Del.Ch.2000). While Plaintiff has therefore created a reasonable doubt as to Cooley's independence, he is unable to do so with respect to the remaining four of the six BH directors.

As for Defendants Kenneth Cooper and James Mastrian, Plaintiff alleges that each had previously served on a different corporate board with Biglari before their joint service on the BH board7; Plaintiff also alleges that Cooper has been an investor in the Lion Fund.8 Am. Compl. ¶¶ 111, 113. Allegations that "an interested director and other directors move in the same business circles" are not enough to rebut the presumption of directors' independence. See In re Verisign, Inc. Derivative Litig., 531 F.Supp.2d 1173, 1198 (N.D.Cal.2007) (applying Delaware law) (citing Beam, 845 A.2d at 1051-1052). Nor does the fact that two directors served with Biglari on other boards, by itself, support an inference that they are subject to Biglari's domination. As the D.C. Circuit has explained in rejecting allegations of director subservience based on similar allegations:

Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust ex rel. Fed. Nat'l Mortg. Ass'n v. Raines, 534 F.3d 779, 793-794 (D.C.Cir.2008). See also Caviness v. Evans, 229 F.R.D. 354, 361 (D.Mass.2005) (applying Delaware law); In re IAC/Inter-ActiveCorp Securities Litig., 478 F.Supp.2d 574, 601-603 (S.D.N.Y.2007) (applying Delaware law).

With respect to Defendant director Ruth Person, Plaintiff alleges that she lacks independence because she will shortly step down from her position as chancellor of the University of Michigan-Flint, and she will therefore be financially dependent on her salary as a director — and thus, Plaintiff assumes, on Sardar Biglari's goodwill. Am. Compl. ¶ 112. Where a plaintiff alleges that a director lacks independence because of a disabling financial entanglement, he or she must show that the interest "was of a sufficiently material importance, in the context of the director's economic circumstances, as to have made it improbable that the director could perform her fiduciary duties to the [shareholders] without being influenced by her overriding personal interest." See In re Gen. Motors Class H S'holders Litig., 734 A.2d 611, 617 (Del.Ch.1999). Courts have consistently resisted suggestions, of course, that a director's receipt of payment for service on a board renders her unable to discharge her fiduciary duties independently. See White, 793 A.2d at 366 (Del.Ch.2000). Mere speculation about Person's personal finances in the wake of her resignation from another position is wholly insufficient to create an exception to this common-sense rule. Cf. In re Infousa, Inc., 2007 WL 3325920, at *8 (Del.Ch. Aug. 13, 2007) (finding demand excused where a university professor who served on a board received a personal grant from the CEO).9

Because Plaintiff has not pleaded particularized facts giving rise to a reasonable doubt about the disinterestedness or independence of four of the six directors — Person, Johnson, Mastrian, and Cooper — he has failed to show that demand was futile under prong one of the Aronson test.

III. Aronson Prong Two — Transactions Entitled to Business Judgment Rule Deference

Under the second prong of the Aronson test, a plaintiff can show that demand is excused if the underlying transaction in question is not entitled to the protections of the business judgment rule. As the Seventh Circuit has explained, this entails an inquiry into "both the substantive due care (substance of the transaction) as well as the procedural due care (an informed decision) used by the directors." In re Abbott, 325 F.3d at 808 (citing Starrels, 870 F.2d at 1171).10 A plaintiff seeking to excuse demand via the second prong of the Aronson test faces a steep uphill climb: "Approval of a transaction by a majority of independent, disinterested directors almost always bolsters a presumption that the business judgment rule attaches to transactions approved by a board of directors that are later attacked on grounds of lack of due care. In such cases, a heavy burden falls on a plaintiff to avoid pre-suit demand." Grobow, 539 A.2d at 190. The test functions as an "escape hatch" — a vehicle to allow a finding of demand futility in those rare cases when a board's decision-making process, or the challenged transaction itself, is so "egregious on its face" that it cannot have resulted from the proper exercise of a board's fiduciary duties. See Aronson, 473 A.2d at 815. To meet this test, the decision approving the challenged transaction must be "so far beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground other than bad faith." In re J.P. Stevens & Co. S'holders Litig., 542 A.2d 770, 780-781 (Del.Ch.1988). It is according to this exacting standard that we consider Plaintiff's allegations regarding the three challenged 2013 transactions.11

A. The Licensing Agreement12

Plaintiff argues that in approving the Licensing Agreement with Sardar Biglari, the BH board violated both its procedural duty of due care and its substantive responsibility to refrain from corporate waste.

1. Due Care

Corporate directors owe their corporation a fiduciary duty to make informed decisions — a duty which imposes upon them an affirmative responsibility to "protect [the shareholders'] interests and to proceed with a critical eye." Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.1985) (citations omitted), overruled on different grounds by Gantler v. Stephens, 965 A.2d 695 (Del.2009). See also W & W Equip. Co. v. Mink, 568 N.E.2d 564, 575 (Ind.Ct. App.1991) ("A director cannot blindly take action and later avoid the consequences by saying he was not aware of the effect of the action he took.") Under Delaware law, a plaintiff may establish demand futility on grounds of a violation of this procedural duty of due care only by "plead[ing] facts which would support a reasonable belief that the [board] act with gross negligence, i.e., that it was uninformed in critical respects." Grobow, 539 A.2d at 190 (citing Van Gorkom, 488 A.2d at 873). Indiana law imposes a still heavier burden on plaintiffs: to overcome the business judgment rule, a plaintiff must show that the directors of an Indiana corporation engaged in "recklessness or willful misconduct." In re ITT, 932 N.E.2d at 670.

Here, Plaintiff alleges that the "board made no effort to assess the financial impact of the Licensing Agreement to the Company." Am. Compl. ¶ 78. Further, it alleges that the intellectual property attorney the board retained to consult on the matter improperly "shared her work" with Biglari himself — and that Biglari also unilaterally added the Agreement's gross revenue payment provision without any Board deliberation Id. at ¶¶ 5, 78. Plaintiff lastly quotes a corporate filing to the effect that, other than a peer group study employed by the board's Governance, Nominating, and Compensation (GCN) Committee in 2010, "no attempts were made to compare the fairness of S. Biglari's compensation — Licensing Agreement included — to competitors before adopting the Licensing Agreement." Id. at ¶ 79.

Plaintiff's allegations fall considerably short of rebutting Indiana's strong version of the business judgment rule presumption. First, Defendants have shown that the Amended Complaint's accusations or intimations of malfeasance are significantly overstated. With respect to the email Biglari allegedly received from a non-board member sharing the outside IP attorney's analysis of the Agreement with him, the message was sent after the GCN Committee had approved the Agreement. See Am. Compl. Ex. 3. See also Docket No. 64-6. While another email received by Biglari states that a draft of the gross revenue provisions of the Agreement "reflects" Biglari's discussion with board member Kenneth Cooper, this statement hardly supports an inference that Biglari himself dictated the Agreement's terms — or more importantly, that there was any portion of the Agreement that was not discussed and voted upon by the full GCN. See Am. Compl., Ex. 2 at BH-TAYLOR-00002954; Defs.' Br. 14-15. Second, Plaintiff has not pleaded any facts consistent with the notion that the board abdicated its duties in the manner in which it approved the Agreement. According to documents Plaintiff has attached to his Amended Complaint, the GCN Committee's deliberation on the Agreement was informed by a memorandum prepared by an outside firm; the memorandum summarized licensing royalty rates in different fields and briefly discussed the nature of the Agreement. See Am. Compl., Ex. 3 at BH-TAYLOR-00002930-2931.

As Defendants note, we have little knowledge of the details of the deliberative process engaged in by the GCN Committee or the board; at the same time, however, Plaintiff's Amended Complaint provides no basis for casting aside our deference to business judgment. There is no indication here, for instance, that "material and reasonably available information was not considered by the board." Cf. McPadden v. Sidhu, 964 A.2d 1262, 1271 (Del.Ch.2008) (holding demand futile under second Aronson prong where board tasked an outside entity to handle the sale of a corporate unit when it should have known that the outside entity was actually interested in purchasing the corporate unit and would accordingly undermine the process). Nor has Plaintiff alleged that the committee's consideration of the proposal was perfunctory, or otherwise procedurally deficient. Cf. Sample v. Morgan, 914 A.2d 647, 650-653 (Del.Ch.2007) (finding the protections of the business judgment rule inapplicable where a newly-formed committee approved a compensation package for a CEO and others — that had been formulated by the CEO himself in consultation with corporate counsel — in a meeting that lasted only 20 minutes). "Mere allegations that directors made a poor decision ... [do] not state a cause of action, much less meet the standard for excusing demand under the second prong of Aronson." Ash v. McCall, 2000 WL 1370341, at *10 (Del.Ch. Sept. 15, 2000). Plaintiff's allegations measure up to neither Delaware's high standards nor Indiana's still-higher ones with respect to the directors' due care in approving the Licensing Agreement.

2. Corporate Waste

Plaintiff also contends that, as a substantive matter, the Licensing Agreement was so harmful to the company as to constitute indefensible corporate waste. "The brand value in BH's assets lies in the Western Sizzlin and Steak n' Shake names[,] not S. Biglari. Even if there was value in the Biglari name, surely S. Biglari's compensation for use of the value should not be so significant that it decimates the company." Pl.'s Resp. 26.

A transaction is corporate waste — and thus a violation of a board's duty of "substantive" due care — if it constitutes a "transfer of assets for no consideration." Emerald Partners v. Berlin, 1993 WL 545409, at *6 (Del.Ch. Dec. 23, 1993) (citing Michelson v. Duncan, 407 A.2d 211, 217 (Del.1979)). Delaware courts excuse demand on the basis of waste only if the board has acted "on terms that no person of ordinary, sound business judgment could conclude represent[] a fair exchange." Green, 1996 WL 342093, at *5.

Regardless of our appraisal of the Agreement's wisdom, the facts alleged by Plaintiff are inconsistent with the theory that it "effectively constituted a gift." See Ash, 2000 WL 1370341, at *7. If we take the Agreement at face value, the royalty provisions were given in consideration of the company receiving a license to use and market the Biglari name. See Am. Compl. ¶¶ 75-76. Plaintiff protests that the license cannot possibly be worth the cost, reasoning that Sardar Biglari's name lacks the cachet attached to a more widely-recognized corporate figure like Martha Stewart.13 Am. Compl. ¶ 80. But we do not second guess a board's cost-benefit analysis:

White v. Panic, 783 A.2d 543, 554 (Del. 2001) (quoting Brehm, 746 A.2d at 263). See also Ash, 2000 WL 1370341, at *8; Khanna v. McMinn, 2006 WL 1388744, at *26 n. 203 (Del.Ch. May 9, 2006). Contrary to Plaintiff's assertion, there is no pleaded evidence here, other than Plaintiff's conclusion that a royalty of 2.5% is excessive, intimating "that the directors deliberately chose that course of action knowing that [BH] was not financially strong enough to meet its obligations" — and thus acted in bad faith. Cf. Marwil v. Grubbs, 2004 WL 2278751, at *9 (S.D.Ind. Sept. 30, 2004).

Even if we read the Agreement as a thinly-disguised compensation package for Sardar Biglari rather than a license, as Plaintiff invites us to do, the conclusion is the same. Our "deference to directors' business judgment is particularly broad in matters of executive compensation." White, 793 A.2d at 369 (Del.Ch.2000) (citing In re Walt Disney Co., 731 A.2d at 362). "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." In re Infousa, 2007 WL 3325920, at *12. Without pointing to evidence indicating that the amount potentially provided to Biglari under the Agreement is "unjust, oppressive, or fraudulent," cf. G & N Aircraft, 743 N.E.2d at 239, it is not appropriate for us to question the board's implicit statement of the value that Biglari's services as CEO provide to the company. See In re Walt Disney, 731 A.2d at 362-363.

"Risk is inherent in almost every business decision, and the ability to weigh that risk against the potential for reward sans the apprehension of hindsight bias is central to the protection that the business judgment rule affords corporate decisionmakers." Protas v. Cavanagh, 2012 WL 1580969, at *44, *46 (Del.Ch. May 4, 2012). The Licensing Agreement lies well outside the narrow zone in which we disturb that protection.

B. The BCC sale

Plaintiff contends that by selling BCC back to Biglari for $1.7 million, despite having previously purchased BCC from him for about $4.2 Million, BH's board did not achieve the "best possible result for the company." In particular, Plaintiff leans on an outside valuation analysis concluding that BCC's fair value was between $8.8 and $10.2 Million. Am. Compl. ¶¶ 83, 87. Defendants retort that the variation between the outside estimate and the final sale price can be explained by two considerations not taken into account by the outside valuation analysis. First, BCC had distributed to the company, prior to being sold back to Biglari, "substantially all of BCC's partnership interests in the Lion Fund (including, without limitation, BCC's adjusted capital balance in its capacity as general partner of the Lion Fund, which totaled approximately $5.8 million)" and "retained solely a $100,000 general partner interest in the Lion Fund" at the time of its sale. Defs.' Br. 17 (citing Clark Decl., Ex. 8 (BH Form 8-K, July 2, 2013)).14 Second, the valuation did not take into account the effect of the sale on "any obligation that BH [had] to pay an incentive bonus to [Biglari] based on the increase in value attributable to BCC and/or [The Lion Fund]." Am. Compl., Ex. 9. According to Defendants, the GCN properly took these two considerations into account in setting the price of the sale of BCC to Biglari — and in fact, BH netted a $1.6 million profit from the transaction, relative to its original purchase of BCC three years earlier. Defs.' Br. 17.15

Regardless of whether we agree with Defendants that the sale of BCC was a good bargain for the company, Plaintiff has raised no challenges to the transaction's procedural or substantive fairness that rebut the presumption of acceptable business judgment. With regard to the GCN's procedural duty of care, Plaintiff's only objection is to the committee's purported disregard of the outside valuation firm's appraisal of BCC's value. It is certainly true that evidence of reliance on outside experts is an indicium of a board's procedural due care, see In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813, 831 (Del.Ch.2011) ("In evaluating the adequacy of the directors' decision-making and the information they had available, a reviewing court necessarily will consider the extent to which a board has relied on expert advisors."). However, the evidence cited by Plaintiff (a letter from GCN Committee member Cooper explaining the committee's rationale) tends to show that the GCN Committee did, in fact, take the outside valuation into account-using it as a starting point for the adjustments described above. See Am. Compl., Ex. 9. In the absence of any additional allegations that the committee or board ignored relevant data or that their stated reasons for adjusting the outside evaluation amount were irrational, we conclude that this allegation is insufficient to create reasonable doubt as to due care. See Ash, 2000 WL 1370341, at *10.16

Plaintiff also contends that the BCC sale, or what it characterizes more broadly as the "BCC round trip," was actionably defective as a matter of substance — that it was "so fatally flawed that it can only be explained by bad faith." Pl.' Resp. 29 (citing Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 64 (Del. 1989)). But Plaintiff makes no other factual allegations to substantiate this conclusory assertion. BH's SEC filing in connection with the sale offered the following rationales for the transaction: to "(a) reduce regulatory burdens related to investments, (b) improve cash management, (c) foster an enhanced understanding of BH and mitigate conflicts of interest through the separation and clear demarcation of BH from the Lion Fund, and (d) simplify the Incentive Bonus Agreement." Clark Decl., Ex. 13 (July 19, 2013 Form S-3/A) at 21. Plaintiff never rebuts these stated justifications, to which we therefore defer. As we have noted, a transaction is not corporate waste where a company receives any substantial consideration: "If Company A exchanges $100 for an asset from Company B that Company A believes is worth $100, it is not `waste' if it later turns out that Company B's asset was worth only $10." Ash, 2000 WL 1370341, at *8. Here, BH concededly received money in exchange for the sale, in addition to the other benefits it claims to have derived from the transaction. That is enough to defeat a demand futility claim for waste. See White, 783 A.2d at 554 (Del.2001). Cf. Green, 1996 WL 342093, at *8 (denying motion to dismiss where transaction did not identify any consideration at all received by the company).

C. Rights Offering

Plaintiff challenges the Rights Offering primarily on procedural grounds: "Although Defendants argue that they engaged in a deliberate process, the evidence demonstrates that they acted in a reckless and wholly uninformed manner." Pl.'s Resp. 31. The only evidence Plaintiff cites in support of this contention is the fact that BH "did not employ a financial advisor in connection with the Rights Offering, even though it raised more than $75 million and industry custom is to hire a financial adviser for offerings that are even a fraction of this size." Pl.'s Resp. 9 (citing Am. Compl. ¶ 93).17 As we have previously noted, a board's use of an outside advisor — though it may help inoculate their decision-making against criticism — is not a prerequisite for an informed business judgment. See Van Gorkom, 488 A.2d at 876 ("We do not imply that an outside valuation study is essential to support an informed business judgment, nor do we state that fairness opinions by independent investment bankers are required as a matter of law."). Without any particularized allegation that the directors ignored relevant considerations or reached their decision based on inadequate deliberation18, the business judgment rule leaves us to presume that the board members agreed to the Rights Offering on other bases than the advice of an outside financial advisor. See Lewis v. Honeywell, Inc., 1987 WL 14747, at *13 (Del.Ch. July 28, 1987) (affirming that the lack of an outside advisor "by itself is legally insufficient" to rebut presumption of due care, and noting that the defendant board members may have "relied on their knowledge gathered from other reliable sources").19 Cf. Sample, 914 A.2d at 651 (denying motion to dismiss where reliance on company's outside counsel was one of several procedural "red flags").

Consistent with his allegations throughout the Amended Complaint, Plaintiff also asserts that the Rights Offering was initiated for an improper entrenchment purpose. Am. Compl. ¶¶ 16, 100. As we have already concluded, Plaintiff's allegations are insufficient to create reasonable doubt that the board members violated their fiduciary duty of loyalty and engaged in self-interested actions for the purpose of perpetuating themselves in office. See supra, § II(A). First, the heightened scrutiny warranted by entrenchment transactions is typically triggered only if evidence indicates the existence of a threat to directors' control against which the challenged transactions were directed. See Grobow, 539 A.2d at 188. Otherwise, a plaintiff faces the same formidable pleading threshold we have already described in establishing such an improper purpose. For instance, Plaintiff cites Strassburger v. Earley, 752 A.2d 557 (Del.Ch.2000), for the proposition that "it is improper to cause the corporation to repurchase its stock for the sole or primary purpose of maintaining the board or management in control. In such a case the purchase is deemed unlawful even if the purchase price is fair." 752 A.2d at 572-573. While this is true enough, Plaintiff skips a step: his burden of establishing that the transaction here was taken for the "sole or primary" purpose of entrenchment. Apart from an email in which Sardar Biglari arguably expressed interest in implementing a dual-class stock structure20 and the fact that the Rights Offering marginally increased Biglari's ownership share from 15.4% to 16.1%, Am. Compl. ¶ 95, Plaintiff has advanced no allegations casting into doubt the board's stated goal of raising capital — a goal which the Rights Offering apparently met by drawing $75 million in new funds. See Defs.' Br. 19. Plaintiff's argument for demand futility with regard to the Rights Offering is therefore groundless as well. See Green, 1996 WL 342093, at *4.

Conclusion

Plaintiff's failure to make demand on the BH board means that his derivative claims must be dismissed unless he can satisfy the Aronson test for demand futility as borrowed from Delaware by Indiana law. Because none of Plaintiff's claims pass the Aronson test, Defendants' motion to dismiss on the basis of failure to make demand is accordingly GRANTED.21 Judgment in this consolidated action shall enter in favor of Defendants.

IT IS SO ORDERED.