Case 5:18-cv BLF Document 30 Filed 06/08/18 Page 1 of 32. Deadline UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

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1 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 KEITH E. EGGLETON, State Bar No. keggleton@wsgr.com RODNEY G. STRICKLAND, State Bar No. rstrickland@wsgr.com RYAN S. WOLF, State Bar No. rwolf@wsgr.com WILSON SONSINI GOODRICH & ROSATI Professional Corporation 0 Page Mill Road Palo Alto, CA 0-00 Telephone: (0-00 Facsimile: (0-00 LORI W. WILL, Admitted Pro Hac Vice lwill@wsgr.com WILSON SONSINI GOODRICH & ROSATI Delaware Avenue, Suite 00 Wilmington, DE 0- Attorneys for Defendants Reed Hastings, David Wells, Richard Barton, A. George (Skip Battle, Timothy Haley, Jay Hoag, Leslie Kilgore, Ann Mather, Brad Smith, Anne Sweeney, Neil Hunt, Ted Sarandos, Greg Peters, David Hyman and Nominal Defendant Netflix, Inc. CITY OF BIRMINGHAM RELIEF AND RETIREMENT SYSTEM, v. Plaintiff, UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION REED HASTINGS, DAVID WELLS, RICHARD BARTON, A. GEORGE (SKIP BATTLE, TIMOTHY HALEY, JAY HOAG, LESLIE KILGORE, ANN MATHER, BRAD SMITH, ANNE SWEENEY, NEIL HUNT, TED SARANDOS, GREG PETERS, and DAVID HYMAN, Defendants, and NETFLIX INC., Nominal Defendant. CASE NO.: :-cv-00-blf DERIVATIVE ACTION DEFENDANTS AND NOMINAL DEFENDANT S NOTICE OF MOTIONS AND MOTIONS TO DISMISS VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT DATE: December, 0 TIME: :00 a.m. JUDGE: Hon. Beth Labson Freeman DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF

2 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 TABLE OF CONTENTS NOTICE OF MOTIONS AND MOTIONS... ISSUES TO BE DECIDED... MEMORANDUM OF POINTS AND AUTHORITIES... INTRODUCTION... FACTUAL BACKGROUND... I. THE PARTIES... II. SECTION (M AND THE PERFORMANCE BONUS PLAN... III. PERFORMANCE BONUSES AWARDED TO OFFICER DEFENDANTS UNDER THE PLAN... IV. THE PROXY STATEMENTS AT ISSUE... ARGUMENT... I. THE COMPLAINT SHOULD BE DISMISSED UNDER RULE. BECAUSE PLAINTIFF FAILED TO PLEAD THAT DEMAND ON THE BOARD WOULD BE FUTILE.... II. A. Plaintiff Fails to Create a Reasonable Doubt that a Majority of the Board Lacks Independence or is Interested in the Plan B. Plaintiff Fails to Create a Reasonable Doubt as to Whether a Majority of the Board Faces a Substantial Likelihood of Liability..... No substantial likelihood of liability for violating federal tax law.... No substantial likelihood of liability for knowing dissemination of false information to stockholders.... Committee membership alone does not establish knowledge.... No substantial likelihood of liability for allegedly violating internal governance policies or failure to implement internal controls... THE COMPLAINT SHOULD BE DISMISSED UNDER RULE (B( FOR FAILURE TO STATE A CLAIM... A. Plaintiff Fails to State a Claim Under Section (a of the Exchange Act No misstatements in the Proxies No injury-causing transaction.... No culpable conduct... DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -i-

3 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 B. Plaintiff Fails to State a Breach of Fiduciary Duty Claim Under Delaware Law..... No duty of loyalty claim pleaded against the Director Defendants.... No gross negligence pleaded against the Officer Defendants or Mr. Wells... C. Plaintiff Fails to State a Corporate Waste Claim under Delaware Law.... CONCLUSION... DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -ii-

4 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 TABLE OF AUTHORITIES CASES Abrams v. Wainscott, 0 WL (D. Del. Aug., 0... Aronson v. Lewis, A.d 0 (Del.,..., Ashcroft v. Iqbal, U.S. ( Bell Atl. Corp. v. Twombly, 0 U.S. ( Braddock v. Zimmerman, 0 A.d (Del Brehm v. Eisner, A.d (Del , 0,, Brown v. Moll, 00 WL (N.D. Cal. July, Bush v. Vaco Tech. Serv., LLC, 0 WL 00 (N.D. Cal. May, Conrad v. Blank, 0 A.d (Del. Ch Desaigoudar v. Meyercord, F.d 00 (th Cir , Desimone v. Barrows, A.d 0 (Del. Ch Dreiling v. Am. Express Co., F.d (th Cir Dura Pharms., Inc. v. Broudo, U.S. ( Freedman v. Adams, 0 WL (Del. Ch. Mar. 0, 0, aff d, A.d (Del. 0..., Freedman v. Mulva, 0 WL 0 (D. Del. Mar., 0... Freedman v. Redstone, 0 WL (D. Del. 0, aff d, F.d (d Cir. 0..., Guttman v. Huang, A.d (Del. Ch ,, DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -iii-

5 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 Haber v. Bell, A.d (Del. Ch.... Horman v. Abney, 0 WL (Del. Ch. Jan., 0... In re Com Corp. S holders Litig., WL 000 (Del. Ch. Oct.,... In re Accuray, Inc. S holder Derivative Litig., F. Supp. d (N.D. Cal ,,,, In re Asyst Techs., Inc. Derivative Litig., 00 WL 0 (N.D. Cal. May, In re Baxter Int l, Inc. S holders Litig., A.d (Del. Ch.... In re Caterpillar Inc. Derivative Litig., 0 WL (D. Del. June 0, 0..., In re China Auto. Sys. Inc. Derivative Litig., 0 WL 0 (Del. Ch. Aug. 0, 0... In re Citigroup Inc. S holder Derivative Litig., A.d 0 (Del. Ch ,, In re Dow Chem. Co. Derivative Litig., 00 WL (Del. Ch. Jan., 00...,, In re Gen. Motors Co. Derivative Litig., 0 WL (Del. Ch. June, 0... In re Google, Inc. S holder Derivative Litig., 0 WL 0 (N.D. Cal. May, 0...,, In re HP Derivative Litig., 0 WL (N.D. Cal. Sept., 0... In re Linear Tech. Corp. Derivative Litig., 00 WL 0 (N.D. Cal. Dec., In re Lear Corp. S holder Litig., A.d 0 (Del. Ch In re Maxwell Techs., Inc. Derivative Litig., 0 WL (S.D. Cal. May, 0... In re Sagent Tech., Inc., Derivative Litig., F. Supp. d 0 (N.D. Cal ,, In re Silicon Graphics Inc. Sec. Litig., F.d 0 (th Cir....,,, In re Verisign, Inc. Derivative Litig., F. Supp. d (N.D. Cal ,,, DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -iv-

6 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 In re Walt Disney Co. Derivative Litig., 0 A.d (Del. Ch. 00, aff d, 0 A.d (Del In re Yahoo! Inc. S holder Derivative Litig., F. Supp. d 0 (N.D. Cal Ind. Elec. Workers Pension Trust Fund, IBEW v. Dunn, 00 WL (N.D. Cal. Mar., 00, aff d, F. App x (th Cir Iron Workers Local No. Pension Fund v. Bogart, 0 WL 0 (N.D. Cal. June, 0... Kamen v. Kemper Fin. Servs., Inc., 00 U.S. 0 (... Krieger v. Atheros Commc ns, Inc., 0 WL (N.D. Cal. May, 0... Lewis v. Vogelstein, A.d (Del. Ch.... N.J. Bldg. Laborers Pension Fund v. Ball, 0 WL 00 (D. Del. Mar., 0... N.Y. City Emps. Ret. Sys. v. Jobs, F.d 0 (th Cir , Northstar Fin. Advisors Inc. v. Schwab Invs., F.d 0 (th Cir Pogostin v. Rice, 0 A.d (Del....0 Potter v. Hughes, F.d 0 (th Cir Rales v. Blasband, A.d (Del...., 0 Rosenbloom v. Pyott, F.d (th Cir. 0..., 0 Seinfeld v. O Connor, F. Supp. d 0 (D. Del. 0...,,, Shaev v. Saper, 0 F.d (d Cir South v. Baker, A.d (Del. Ch Stone v. Ritter, A.d (Del DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -v-

7 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 Towers v. Iger, 0 WL 00 (N.D. Cal. Mar. 0, 0...,,, Weiss v. Swanson, A.d (Del. Ch Wilkin v. Narachi, 0 WL 00 (Del. Ch. Feb., 0..., STATUTES Del. C. 0(b(..., U.S.C. n(a... passim U.S.C. (m (0... passim RULES AND REGULATIONS C.F.R..-...,,,, Fed. R. Civ. P. (b(... passim Fed. R. Civ. P..... passim Fed. R. Evid. 0(b... MISCELLANEOUS IRS Priv. Ltr. Rul. 00, WL 0 (Dec.,... DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS CASE NO.: :-CV-00-BLF -vi-

8 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 NOTICE OF MOTIONS AND MOTIONS PLEASE TAKE NOTICE that on December, 0, at :00 a.m., before the Honorable Beth Labson Freeman of the United States District Court for the Northern District of California, Courtroom, th Floor, 0 South st Street, San Jose, California, Netflix, Inc. ( Netflix or the Company and defendants Reed Hastings, David Wells, Richard Barton, A. George (Skip Battle, Timothy Haley, Jay Hoag, Leslie Kilgore, Ann Mather, Brad Smith, Anne Sweeney, Neil Hunt, Ted Sarandos, Greg Peters, and David Hyman (the Individual Defendants will and hereby do move to dismiss the Verified Shareholder Derivative Complaint (ECF No. ; the Complaint under Federal Rule of Civil Procedure. on the grounds that Plaintiff lacks standing to pursue this action because it did not make a pre-filing demand on Netflix s Board of Directors and has not pleaded particularized facts demonstrating that such a demand would have been futile. PLEASE TAKE FURTHER NOTICE that at the same date, time and location referenced above the Individual Defendants will and hereby do move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure (b( because Plaintiff s claims under Section (a of the Securities Exchange Act of, U.S.C. n(a (the Exchange Act, for breach of fiduciary duty, and waste, do not state plausible claims. These Motions are based on this Notice of Motions and Motions; the accompanying Memorandum of Points and Authorities supporting the Motions, the Declaration of Rodney G. Strickland and exhibits thereto; all papers filed herein; oral argument of counsel; and the record in this action. ISSUES TO BE DECIDED. Should the Complaint be dismissed because Plaintiff failed to make a pre-filing demand on Netflix s Board of Directors and failed to allege particularized facts demonstrating that a demand would have been futile?. Should the Complaint be dismissed because Plaintiff failed to state a cause of action against any of the Individual Defendants? DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

9 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION In 0, Netflix s stockholders approved an incentive compensation plan for certain executives. Federal tax statutes and regulations, described below, addressed the tax treatment of such plans and provided that certain performance-based bonuses might be tax deductible. This lawsuit, which Plaintiff purports to bring on behalf of Netflix against certain of its directors and officers, does not challenge the validity of that compensation plan. Rather, Plaintiff alleges that disclosures in the Company s annual proxy statements about the potential deductibility of performance bonuses awarded under the plan were misleading because according to an interpretation of tax law that Plaintiff concocted the bonuses were not actually deductible. The compensation plan was created so that Netflix could take advantage of available tax deductions for bonuses paid to three of its senior officers, as permitted by the applicable tax laws. The deductions claimed by Netflix reduced its tax burden, and therefore were beneficial to Netflix and its stockholders. Neither the Internal Revenue Service (the IRS nor any other government entity has challenged Netflix s tax deductions. Plaintiff s lawsuit therefore challenges something that benefited the Company the opposite of the type of corporate harm derivative lawsuits typically seek to remedy. The Complaint should be dismissed under Rule. because Plaintiff has failed to establish standing to pursue a derivative claim. Netflix s current -member Board of Directors (the Board includes 0 outside and independent directors, two of whom are not defendants. None of Netflix s directors benefitted from the compensation plan. Nevertheless, Plaintiff chose not to make a demand on the Board before filing this lawsuit. To have standing in the absence of a demand, Plaintiff must make particularized allegations demonstrating that a majority of the Board members that is, at least six could not have impartially considered a demand because they face a substantial likelihood of liability. Plaintiff s burden is even higher because Netflix has an exculpatory charter provision, and so Plaintiff must show at least six directors breached their duty of loyalty or acted in bad faith. It has not done so. Putting aside that Plaintiff s views on deductibility are entirely novel, the Complaint contains no particularized allegations DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

10 Case :-cv-00-blf Document 0 Filed 0/0/ Page 0 of suggesting that at least six directors knowingly violated the law or even had a role in the challenged disclosures about the potential deductibility of the bonuses. The Individual Defendants further contend that the Complaint should be dismissed under Rule (b(. Plaintiff has failed to establish the elements of a Section (a claim under the Exchange Act. The Complaint also lacks a well-pleaded, non-exculpated claim for breach of the duty of loyalty against the director defendants, and fails to allege any facts supporting a claim of gross negligence against the officer defendants under Delaware law. Finally, Plaintiff s 0 0 allegations quibbling with the performance bonuses come nowhere close to satisfying the high standard for pleading a waste claim. For these reasons, the Complaint must be dismissed. FACTUAL BACKGROUND I. THE PARTIES Plaintiff brings this stockholder derivative action on behalf of Netflix, a Delaware corporation with its principal executive offices in Los Gatos, California. Compl.,. Nine of Netflix s directors Messrs. Hastings, Barton, Battle, Haley, Hoag, and Smith, and Mss. Kilgore, Mather and Sweeney (collectively, the Director Defendants are named as defendants. Compl., -. Only one of the Director Defendants Mr. Hastings, the Chief Executive Officer of Netflix is alleged not to be an outside, independent director. Compl.. At the time the Complaint was filed, Netflix s Board consisted of directors the nine Director Defendants, plus non-defendants Rodolphe Belmer (the Chief Executive Officer of Eutelsat, one of the world s leading satellite operators and Amb. Susan Rice (former Ambassador to the United Nations and National Security Advisor to President Obama. See Decl. of Rodney G. Strickland in Supp. of Netflix, Inc. s and the Individual Defs. Mots. to Dismiss Verified S holder Derivative Compl. ( Strickland Decl. Exs. B & C. Plaintiff also names as defendants Defendants request that the Court take judicial notice of the following documents, which are attached to the Strickland Declaration: (A Netflix s Restated Certificate of Incorporation, filed with the SEC as an exhibit to Netflix s Form 0-Q on July, 0; (B Netflix s Form - K, filed with the SEC on January, 0; (C Netflix s Form -K, filed with the SEC on March, 0; and (D Netflix s Form -K, filed with the SEC on December, 0. These documents are appropriate for judicial notice because they were publicly filed with the SEC. See Northstar Fin. Advisors Inc. v. Schwab Invs., F.d 0, 0- (th Cir. 0 (explaining [i]t is appropriate to take judicial notice of this information, as it was made publicly available by [the SEC] (citation omitted; Dreiling v. Am. Express Co., F.d, n. (th Cir. 00 (stating that a court may consider documents referred to in the complaint or any matter DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

11 Case :-cv-00-blf Document 0 Filed 0/0/ Page of five current and former non-director officers of Netflix. Compl., 0-. Mr. Wells is the Company s Chief Financial Officer. Compl.. The other four officers Messrs. Hunt, Sarandos, Peters, and Hyman (the Officer Defendants are or were covered employees whose compensation is subject to the deductibility limits of Section (m( of the Internal Revenue Code. Compl. 0-. II. SECTION (M AND THE PERFORMANCE BONUS PLAN According to the Complaint, this action was initiated because Netflix took a tax 0 0 deduction on performance-based bonuses awarded to the Officer Defendants, which Plaintiff believes were not deductible under Section (m of the Internal Revenue Code and the relevant Treasury regulations. E.g., Compl.. Section (m placed a $ million limit on the deductibility for income tax purposes of annual compensation paid to a covered employee a company s CEO and its other three highest-paid officers (other than the CFO. U.S.C. (m(, (; Compl. 0. Until it was amended (as explained below, Section (m also contained an exception to that limitation for qualified performance-based compensation, defined as compensation payable solely on account of the attainment of one or more performance goals. U.S.C. (m((c (0 (current version at U.S.C. (m; see also C.F.R..-(b, (e; Compl. -. Therefore, Section (m provided a mechanism by which a company could claim a tax deduction for bonuses awarded to senior executives. Because of the potential tax benefit, many companies implemented Section (m compensation plans. Importantly, Section (m addressed only the tax deductibility of performance-based compensation paid to covered subject to judicial notice, such as SEC filings. [C]ourts routinely take judicial notice of certificates of incorporation when ruling on motions to dismiss in derivative actions. In re Yahoo! Inc. S holder Derivative Litig., F. Supp. d 0, - (N.D. Cal. 0. Defendants do not seek judicial notice of the truth of all matters in these documents. Exhibit A is offered for the fact that Netflix s Restated Certificate of Incorporation includes an exculpatory provision, which mirrors the language of Section 0(b( of the Delaware General Corporation Law. Exhibits B and C are offered solely to show the composition of Netflix s Board at the time the lawsuit was filed. Exhibit D is offered to demonstrate that bonuses are no longer being awarded under the Plan. The existence of the exculpatory charter provision, composition of Netflix s Board, and discontinuation of the Plan are not subject to reasonable dispute and can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned. See Fed. R. Evid. 0(b. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

12 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 employees not the amount of compensation that could be awarded. Neither Section (m nor any other statute or regulation prohibited granting compensation that was not tax-deductible. This provision of Section (m on deductibility is no longer in place. Pursuant to the Tax Cuts and Jobs Act, dated December, 0 and effective January, 0, the Section was amended to expand the scope of the $ million deduction limitation and to eliminate the exception for performance-based compensation. U.S.C. (m. Because that amendment went into effect and eliminated any tax benefit from performance-based bonuses, Netflix began paying all cash compensation to senior executives as salary in 0. See Strickland Decl. Ex. D. The Treasury regulations that implemented Section (m s former exception for performance-based compensation describe what constitutes a performance goal under the statute. C.F.R..-. Treasury Regulation Section.-(e((i explains that a performance goal must be established not later than 0 days after the commencement of the period of service to which the performance goal relates, and in no event will a performance goal be considered to be preestablished if it is established after percent of the period of service... has elapsed. Id..-(e((i. That Treasury Regulation also requires that the outcome of the performance goal must be substantially uncertain at the time the compensation committee actually establishes the goal. Id.; Compl.. The Treasury regulations do not define the meaning of substantially uncertain. On April, 0, Netflix filed a definitive proxy statement (the 0 Proxy, seeking stockholder approval of the Performance Bonus Plan (the Plan, which Plaintiff accurately alleges was developed to enable the Company to claim a tax deduction under Section (m for certain performance-based compensation. Compl.. Before the 0 Proxy was filed, the Compensation Committee approved the Plan on March, 0 following a review of Section (m. Compl. (citing minutes. In the 0 Proxy, stockholders were informed that, pursuant to the Plan, eligible officers might receive compensation based upon the Company achieving certain performance goals. Compl.. The 0 Proxy also explained that the Plan could permit [Netflix] to receive a full federal income tax deduction for compensation (if any paid under the Plan. Id. The 0 Proxy described the potential DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

13 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 performance goals that the Compensation Committee could set in connection with the Plan, which included revenue, among other metrics. Compl.. The 0 Proxy also disclosed that a participant s target award would be based on achievement of one or more performance goal(s. Compl.. On June 0, 0, Netflix announced that stockholders approved the adoption of the Plan, and provided a summary of the principal features of the Plan and its operation. Compl.. Plaintiff does not challenge the 0 Proxy or the validity of the Plan. III. PERFORMANCE BONUSES AWARDED TO OFFICER DEFENDANTS UNDER THE PLAN In the first quarter of 0, the Compensation Committee acknowledged it had determined that the Plan should be implemented so that the Company could take advantage of available tax deductions. Compl. 0 (quoting minutes. Before each quarter in 0, 0, and 0, the Compensation Committee set a performance period and a goal of global streaming revenue. Compl. 0,,,, 0,,,, 0, 0, 0-0. The [Compensation Committee] chose this goal because global streaming revenue is an important metric demonstrating the growth of the Company. Compl.,. Although the Compensation Committee members received forward-looking projections during quarterly Board meetings (e.g., Compl., they set the global streaming revenue performance targets as reflected in [Netflix s] publicly-available financial statements. Compl., (emphasis added. Put differently, the internal performance goals mirrored Netflix s public guidance. At the conclusion of each quarter, the Compensation Committee compared the Company s actual global streaming revenue to the performance target, and determined whether the relevant Officer Defendants were eligible for a bonus payout under the Plan. The Complaint demonstrates that the global streaming revenue goals increased each quarter, such that significant growth was required for the bonuses to be awarded. The performance target for the final quarter the Plan was in use was more than double (or increased by over $. billion that of the first performance period in 0. Compare Compl., with id. 0. The Officer Defendants who were awarded bonuses under the Plan were Messrs. Sarandos, Hunt, and Peters, until the third quarter of 0 when Mr. Hyman replaced Mr. Hunt. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

14 Case :-cv-00-blf Document 0 Filed 0/0/ Page of Compl. 0. Netflix s CEO, Mr. Hastings, was not awarded bonuses under the Plan. Mr. Wells was also not awarded bonuses under the Plan because, as CFO, his compensation was not subject to the limitations of Section (m and therefore fully deductible. See supra at. IV. THE PROXY STATEMENTS AT ISSUE While the performance-based bonuses were being awarded under the Plan, Netflix issued 0 0 three proxy statements before each of three annual stockholder meetings that included a description of the bonuses, in connection with Netflix s say-on-pay stockholder vote. Compl. 0. The first was issued on April, 0 (the 0 Proxy, the second on April, 0 (the 0 Proxy and the third on April, 0 (the 0 Proxy and, with the 0 Proxy and 0 Proxy, the Proxies. Compl.,,. The 0 Proxy explained that the Plan had been created [i]n order to comply with Section (m, and described that the Compensation Committee had chos[en] to implement the [Plan] that was approved by stockholders in 0, such that certain [of the Officer Defendants] w[ould] be eligible to receive bonuses based on targets set by the Compensation Committee. Compl. -. The 0 Proxy and 0 Proxy both explained that the Plan [wa]s intended to permit the Company to seek a full federal tax deduction for compensation paid under the Plan and that bonuses earned and paid under the [Plan] [we]re intended to qualify as performance-based. Compl.,,,. The 0 Proxy and 0 Proxy also described the Compensation Committee s approval of four performance periods, each one comprised of one of [the Company s] fiscal quarters, and described its selection of global streaming revenue targets based on Netflix s publicly-available financial statements. Compl.,. Each quarterly global streaming revenue performance target and each corresponding global streaming revenue result was also disclosed. Compl. 0,. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

15 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 ARGUMENT I. THE COMPLAINT SHOULD BE DISMISSED UNDER RULE. BECAUSE PLAINTIFF FAILED TO PLEAD THAT DEMAND ON THE BOARD WOULD BE FUTILE. Federal law determines the procedural rules that apply to stockholder derivative complaints filed in federal court. See In re Verisign, Inc. Derivative Litig., F. Supp. d, (N.D. Cal. 00. A stockholder seeking to pursue derivative claims on behalf of a corporation must make a demand on the corporation s directors to act, or must state with particularity the reasons why such demand would have been futile. Fed. R. Civ. P..(b(; see In re Silicon Graphics Inc. Sec. Litig., F.d 0, -0 (th Cir.. This demand requirement implements the basic principle of corporate governance that the decisions of a corporation including the decision to initiate litigation should be made by the board of directors. Kamen v. Kemper Fin. Servs., Inc., 00 U.S. 0, 0 ( (citation omitted. As the Ninth Circuit has held, strict compliance with Rule. and the applicable substantive law is necessary before a derivative suit can wrest control of an issue from the board of directors. Potter v. Hughes, F.d 0, 0 (th Cir. 00. Derivative plaintiffs must overcome the presumption that directors fulfilled their fiduciary duties with particularized factual allegations, meaning that the plaintiff s pleading burden in the demand [futility] context is more onerous than that required to withstand a Rule (b( motion. Towers v. Iger, 0 WL 00, at * (N.D. Cal. Mar. 0, 0 (quoting Weiss v. Swanson, A.d, (Del. Ch. 00. Because Netflix is a Delaware corporation, Delaware law supplies the substantive standard for determining whether demand is excused. See Kamen, 00 U.S. at 0-0; Silicon Graphics, F.d at 0. Under Delaware law, demand will be excused only if a complaint contains particularized factual allegations... creat[ing] a reasonable doubt that... the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand. Rales v. Blasband, A.d, (Del.. Delaware law provides two tests for assessing demand futility the Aronson test and the Rales test. The Aronson test is applied if the lawsuit challenges a specific decision or transaction of the corporation s board, requiring the plaintiff to plead particularized facts creating a reasonable DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

16 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 doubt either that ( the directors were disinterested and independent, or ( the challenged transaction was the product of a valid business judgment. Aronson v. Lewis, A.d 0, (Del., overruled on other grounds by Brehm v. Eisner, A.d (Del The Rales test is applied if the subject of the lawsuit is not a particular business decision of the board, or is a decision made by less than a majority of a board. See Braddock v. Zimmerman, 0 A.d, - (Del. 00. The Ninth Circuit has held that the difference between the Aronson and Rales tests is blurred in cases where a derivative claim alleges wrongdoing by a majority of the board but does not challenge a specific board decision. Towers, 0 WL 00, at *. Here, the decision to set performance targets and award bonuses under the Plan was an act of the Compensation Committee (Messrs. Battle, Haley, and Hoag who constitute just three of the Board members. See Conrad v. Blank, 0 A.d, (Del. Ch. 00 (applying Rales test where challenged option grants were authorized by compensation committee constituting less than half of the board; see also In re HP Derivative Litig., 0 WL, at * (N.D. Cal. Sept., 0 (explaining that when the challenged act does not constitute a business decision by the board, a court should employ the Rales test. Nor is a board decision implicated by the Proxies there are no facts alleged regarding a majority of the Board s involvement with the alleged misstatements. See In re Google, Inc. S holder Derivative Litig., 0 WL 0, at * (N.D. Cal. May, 0 (applying Rales where directors allegedly caused the company to accept and promote illegal advertisements; concluding plaintiffs allegations of defendants conscious knowledge and inaction vis-a-vis the purportedly unlawful advertising scheme should be analyzed under the Rales test ; see also Verisign, F. Supp. d at (dismissing claims; applying Rales to allegations of filing misleading proxies about option grants where facts as pled show[ed] a board majority was not involved in any decision to backdate the option grants. In such cases, courts excuse demand if Plaintiffs particularized allegations create a reasonable doubt as to whether a majority of the board... faces a substantial likelihood of personal liability. Towers, 0 WL 00, at * (quoting Rosenbloom v. Pyott, F.d, 0 (th Cir. 0. Because Plaintiff cannot establish that any of the directors DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

17 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 much less at least six of the Board members is not disinterested and independent or faces a substantial likelihood of liability, demand is not excused. A. Plaintiff Fails to Create a Reasonable Doubt that a Majority of the Board Lacks Independence or is Interested in the Plan. To show that a director is interested, Plaintiff must plead with particularity allegations demonstrating that divided loyalties are present, or [that] a director either has received, or is entitled to receive, a personal financial benefit from the challenged transaction which is not equally shared by the stockholders. Pogostin v. Rice, 0 A.d, (Del., overruled on other grounds by Brehm, A.d at -. Rather than showing that a majority of the Board or at least six directors is interested, Plaintiff effectively concedes that no member of the Board received a personal benefit from the Plan. Compl. 0-. Plaintiff attempts to single out the Compensation Committee members as lacking the requisite level of disinterested and independence required to consider a demand, but focuses on their purported misconduct (addressed below rather than allege any personal interest in the Plan. Compl.. Absent from the Complaint is an allegation that any of the Director Defendants including the Compensation Committee members would have been compensated differently with or without the Plan. Even if the Compensation Committee members interests were somehow separate, they constitute just three of the Board members. Nor does Plaintiff allege that the Director Defendants are dominated by or beholden to the executives who received bonuses under the Plan such that the directors discretion [has been] sterilized. Rales, A.d at ; accord In re Sagent Tech., Inc., Derivative Litig., F. Supp. d 0, 0 (N.D. Cal. 00 (discussing independence standard. In addition, of the Board members serving at the time the Complaint was filed, only Mr. Hastings is also an officer and he received no bonus under the Plan. Compl., -; see also Rosenbloom, F.d at (explaining demand [f]utility is gauged by the circumstances existing at the commencement of a derivative suit and concerns the board of directors sitting at the time the complaint is filed (citation omitted. Accordingly, a majority of the Board is independent and DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -0- CASE NO.: :-CV-00-BLF

18 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 disinterested with regard to the Plan, and would have been qualified to consider a demand, had Plaintiff made one. B. Plaintiff Fails to Create a Reasonable Doubt as to Whether a Majority of the Board Faces a Substantial Likelihood of Liability. Plaintiff s attempt to argue demand futility consists of conclusory allegations that the Director Defendants ( of the Board members face a substantial likelihood of liability for violating federal securities and tax laws, as well as their fiduciary duty of candor. Compl. -. Courts routinely find allegations that directors could be personally liable legally insufficient to excuse demand. See Silicon Graphics, F.d at 0 (explaining that [t]he mere threat of personal liability... standing alone, is insufficient to challenge either the independence or disinterestedness of directors (citation omitted; Iron Workers Local No. Pension Fund v. Bogart, 0 WL 0, at * (N.D. Cal. June, 0 (accord; Ind. Elec. Workers Pension Trust Fund, IBEW v. Dunn, 00 WL, at * (N.D. Cal. Mar., 00 ( [I]t is no answer to say that demand is necessarily futile because (a the directors would have to sue themselves, thereby placing the conduct of litigation in hostile hands, or (b that they approved the underlying transaction. (quoting Brehm, A.d at n., aff d, F. App x (th Cir. 00. Rather, [d]emand will be excused only if the plaintiff s allegations show the defendants actions were so egregious that a substantial likelihood of director liability exists. Silicon Graphics, F.d at 0 (citation omitted; In re Baxter Int l, Inc. S holders Litig., A.d, (Del. Ch. (stating it is a rare case where the circumstances are so egregious that there is a substantial likelihood of liability. Here, Plaintiff s burden is even more difficult because Netflix has an exculpatory charter provision that shields its directors from personal liability for breach of fiduciary duty, absent a showing of intentional misconduct, self-dealing, or bad faith. See Strickland Decl. Ex. A, art. VIII. As a result, Plaintiff can establish the substantial likelihood of liability necessary to excuse demand only by pleading bad faith by alleging with particularity that a director knowingly violated a fiduciary duty or failed to act in violation of a known duty to act, demonstrating a conscious disregard for her duties. Towers, 0 WL 00, at * (quoting DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

19 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 In re Gen. Motors Co. Derivative Litig., 0 WL, at * (Del. Ch. June, 0; Sagent, F. Supp. d at 0 n. (finding exculpatory charter provision precluded claim for negligent breach of fiduciary duty. Plaintiff does not meet this burden, and demand is not excused. See Stone v. Ritter, A.d, 0 (Del. 00 (explaining that actual knowledge of unlawful conduct is required to show substantial likelihood of liability: imposition of liability requires a showing that the directors knew they were not discharging their fiduciary obligations.. No substantial likelihood of liability for violating federal tax law Plaintiff primarily attempts to establish demand futility by arguing that the Board faces a substantial likelihood of liability for violating federal tax law. Compl. -. However, the Complaint lacks particularized allegations demonstrating that a majority of the Board, despite having no motive to do so, breached its fiduciary duties by intentionally causing the corporation to violate the tax laws. See Stone, A.d at -0 (explaining that bad faith requires a fiduciary to have acted ( intentionally with a purpose other than that of advancing the best interests of the company, ( with the intent to violate applicable positive law, or ( with a conscious disregard for his or her duties. Plaintiff asks the Court to infer without making a single particularized allegation on a director-by-director basis that the Director Defendants somehow knew that the bonuses were not tax deductible under Section (m. See Google, 0 WL 0, at * (finding plaintiff did not demonstrate demand futility where allegations stated against all defendants in a collective and general fashion without any particularized allegations stating which particular director or directors had knowledge of unlawful practices. That is not a reasonable inference to draw for several reasons. First, Plaintiff does not demonstrate a violation of Section (m or the relevant Treasury regulations that could support a finding of substantial likelihood of liability against a majority of the Board. This is not a case where the government has taken action to investigate or prosecute a corporate trauma, and a stockholder derivative action is filed concerning the same conduct. Here, there has been no enforcement action or investigation against Netflix that could bolster Plaintiff s conclusory allegations. See Wilkin v. Narachi, 0 WL 00, at *0- DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

20 Case :-cv-00-blf Document 0 Filed 0/0/ Page 0 of 0 0 (Del. Ch. Feb., 0 (finding no substantial likelihood of liability for knowing violation of positive law where plaintiff alleged board violated FDA regulations but it was unclear... exactly what law was violated and plaintiff did not allege with particularity any facts to suggest that the FDA ever determined that [the company] violated anything or issued any fines whatsoever ; see also Freedman v. Redstone, 0 WL, at * (D. Del. 0 (finding no clear and undisputed violation, let alone a violation that, standing alone, would create a reasonable doubt that the [b]oard acted without knowledge or intent in exceeding limit of a stockholder-approved Section (m plan, aff d, F.d (d Cir. 0. The Complaint rests entirely on Plaintiff s theory that if a company (allegedly has reason to believe it may reach a certain performance target, bonuses awarded based on the achievement of that target are not performance-based and, thus, not deductible for purposes of Section (m. Cf. Freedman v. Adams, 0 WL, * (Del. Ch. Mar. 0, 0 (rejecting plaintiff s attempt to have a disclosure claim... turn on an interpretation of tax law where plaintiff contended she had concocted a superior tax strategy to that employed by the board, aff d, A.d (Del. 0. However, to satisfy IRS requirements, targets need only be substantially uncertain. C.F.R..-(e((i. In Seinfeld v. O Connor, the United States District Court for the District of Delaware recognized that where a company confidently and consistently predict[s] that it will meet its goals even where the company has a history of repeatedly meeting those goals it does not follow that the company is not substantially uncertain to meet those goals. F. Supp. d 0, (D. Del. 0. Here, the Officer Defendants would still be required to work diligently throughout the performance period to accomplish the global streaming revenue targets. Id. In fact, Treasury regulations provide that a bonus contingent on profits is substantially uncertain even if a company has a long history of profitability, id. (citing C.F.R..-(e((vii, and that a performance goal may be substantially uncertain where it amounts to maintaining the status quo. C.F.R..- (e((i. Thus, Netflix s history of accurately predicting growth in quarterly global streaming revenue which more than doubled while the Plan was in use does not render its performance targets substantially certain. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

21 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 To the extent Plaintiff challenges the quarterly performance period set by the Compensation Committee, Plaintiff also does not demonstrate that the Plan contravenes Treasury regulations. Treasury Regulation Section.-(e((i provides that a performance goal will not be deemed preestablished if it is set after percent of the period of service... has elapsed (emphasis added. There is no allegation that the Compensation Committee set the goal after % of the performance period had elapsed; rather, the Complaint and documents incorporated into it show otherwise. Moreover, a private letter ruling from the IRS confirms that the regulation cited by Plaintiff was not violated. See IRS Priv. Ltr. Rul. 00, WL 0 (Dec., ( The performance period and related service period established by the Y Compensation Committee for performance awards under the Plans may be as short as a single calendar quarter, or the period between the IPO and the spinoff, so long as the performance goals are established prior to or during the first percent of the period of service to which the performance goal relates. ; cf. Seinfeld, F. Supp. d at (recognizing private letter rulings are not precedential, but may be informative where they shed[ ] light on whether the IRS would view the [Plan] to be tax deductible. Nor is this case akin to the Third Circuit Court of Appeals decision in Shaev v. Saper, where the court found that a performance bonus paid to the company s CEO and majority stockholder, who allegedly dominated the board, ran afoul of Section (m. 0 F.d, 0- (d Cir. 00. Although the nine-month performance period was described as too short to meet the Treasury Regulations requirements, the court in Shaev was concerned that the board manipulated an amendment of the plan to increase the CEO s compensation more than a million dollars beyond the maximum with just six weeks remaining in the performance period. Id. at 0. No such particularized allegations of intentional manipulation to benefit a controlling stockholder are present here. Second, even if Plaintiff s theory that the bonuses were not deductible is correct, the Complaint does not contain even a single particularized allegation demonstrating that any of the nine Director Defendants knew the bonuses were not deductible under federal tax law, but decided to characterize them as performance-based anyway. There are no facts pled detailing the precise roles that the[ ] directors played at the company, the information that would have DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

22 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 come to their attention in these roles, and any indication as to why they would have perceived the [wrongdoing]. Google, 0 WL 0, at * (quoting Guttman v. Huang, A.d, 0 (Del. Ch. 00; see also Silicon Graphics, F.d at 0 (citing Aronson, A.d at ; In re Dow Chem. Co. Derivative Litig., 00 WL, at *0 (Del. Ch. Jan., 00 (dismissing claims; finding no bad faith or knowledge where the complaint did not make specific factual allegations to enable an analysis of the state of mind of the individual defendants (citation omitted. Instead, the Complaint simply argues that ( the Board received quarterly financial updates predicting global streaming revenue, and ( that the Compensation Committee set quarterly global streaming revenue performance targets under the Plan that were similar to the Board projections. Nothing in the Complaint, or the documents referenced therein, shows that any director at any point knew or was advised that the bonuses might not be deductible under Section (m. Third, even if the Court infers from the Complaint that the Director Defendants were aware of Treasury Regulation Section.-(e( regarding substantial uncertainty of performance targets from the allegation that the Compensation Committee review[ed] Section (m, that is not equivalent to knowingly violating the regulation. Compl. ; see Freedman v. Mulva, 0 WL 0, at * (D. Del. Mar., 0 (finding plaintiff failed to allege a knowing and intentional decision to violate the terms of an executive compensation plan; see also In re Maxwell Techs., Inc. Derivative Litig., 0 WL, at * (S.D. Cal. May, 0 (holding demand not excused; allegations that the director defendants reviewed [financial] statements pursuant to their responsibilities not sufficient to show liability given no specific allegations demonstrating how the directors knew that the financial statements were incorrect. In any event, the three-member Compensation Committee s review of Section (m cannot be imputed to the other seven Director Defendants who were not a part of that Committee not to mention the two new Board members who are not defendants. See Desimone Nor is demand excused for Plaintiff s waste claim. As discussed below, infra at -, boards have broad discretion in awarding executive compensation, and Plaintiff fails to plead any facts showing the bonuses and the Director Defendants attempt to gain a tax deduction for the Company were devoid of a legitimate corporate purpose. See In re Accuray, Inc. S holder Derivative Litig., F. Supp. d, (N.D. Cal. 00. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

23 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 v. Barrows, A.d 0, (Del. Ch. 00 ( Delaware law does not permit the wholesale imputation of one director s knowledge to every other for demand excusal purposes. Rather, a derivative complaint must plead facts specific to each director.... ; see also Towers, 0 WL 00, at *. As a result, Plaintiff fails to establish that at least six of Netflix s directors face a substantial likelihood of liability for violating federal tax laws such that demand is futile.. No substantial likelihood of liability for knowing dissemination of false information to stockholders The Complaint also pleads no facts demonstrating that a majority of the Board faces a substantial likelihood of liability for violating securities laws or its state law fiduciary duty of disclosure. Plaintiff repeatedly makes the conclusory allegation that the Proxies were false and misleading because they stated that the bonuses paid pursuant to the Plan were performancebased under Section (m while the Individual Defendants... knew the Company was substantially certain to achieve the performance goals. E.g., Compl.,. However, the Proxies at issue do not state that the Plan was guaranteed to comply with Section (m. Rather, the Proxies explain that the Plan was created [i]n order to comply with [Section] (m (Compl. (quoting 0 Proxy, [wa]s intended to permit the Company to seek a full federal tax deduction for compensation paid under the Plan (Compl. (quoting 0 Proxy; id. (quoting 0 Proxy, and that the bonuses paid under the Plan [we]re intended to qualify as performance-based under Section (m (Compl. (quoting 0 Proxy; id. (quoting 0 Proxy (emphases added. Courts have held that similar language of a compensation plan s objectives is not a representation that a plan complies with the applicable tax laws. See In re Caterpillar Inc. Derivative Litig., 0 WL, at * (D. Del. June 0, 0 (finding no demand futility where plaintiff alleged a proxy statement represented that a plan complied with Section (m when the proxy statement merely stated awards were intended to comply with Section (m, or that it was the Company s objective that such awards would be tax deductible, or that substantially all such compensation was expected to be tax-deductible ; Seinfeld, F. Supp. d at - (holding that a proxy statement did not say what [plaintiff] allege[d] and did not contain false or misleading DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

24 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 statements where the proxy statement explained the plan was intended to be deductible under Section (m but did not represent that the [plan] was guaranteed to be tax deductible. The Complaint also lacks particularized allegations showing that any individual director had knowledge that disclosures about the performance bonuses were (allegedly false. E.g., Dow Chem. Co., 00 WL, at *0 (explaining that determining whether directors had knowledge of statement s falsity or acted in bad faith requires an analysis of the state of mind of the individual director defendants (citation omitted. Even if the Complaint adequately alleged a misstatement or omission, demand is not excused because Plaintiffs have not pled any disclosure violations were made knowingly or in bad faith. E.g., In re Citigroup Inc. S holder Derivative Litig., A.d 0, - (Del. Ch. 00 (explaining that to excuse demand on a disclosure violation, plaintiff must show directors deliberately misinform[ed] shareholders about the business of the corporation by alleging particularized facts that the violation was made knowingly or in bad faith (some emphasis added (citation omitted. As explained above, the Complaint contains no particularized allegations showing that the Director Defendants knew the bonuses awarded under the Plan were not tax deductible under Section (m. Thus, there can be no reasonable inference drawn from the Complaint that the Director Defendants knew the Proxies contained false or misleading statements regarding the tax deductibility of those bonuses at the time the Proxies were filed, or that they deliberately misinformed stockholders. The bare allegation that the Director Defendants caused or ordered the challenged disclosures to be made is also insufficient. E.g., Compl.,,,,. Instead, Plaintiff must allege each director s involvement in making the challenged disclosures which it fails to do for any director, much less a six-member majority of the Board. See Citigroup, A.d at n., (finding allegation that directors caused or allowed the Company to issue certain statements fails to show the directors prepared statements or were directly responsible for the misstatements; Guttman, A.d at (accord; see also Silicon Graphics, F.d at 0 (holding demand not excused where there were no particularized facts alleged that board approved fraudulent statements; a general allegation that the Board participated is insufficient to allege substantial risk of personal liability ; Accuray, F. Supp. d at - (accord. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF

25 Case :-cv-00-blf Document 0 Filed 0/0/ Page of 0 0 Plaintiff therefore comes nowhere close to meeting its burden under Rule. with regard to the Proxies. See N.J. Bldg. Laborers Pension Fund v. Ball, 0 WL 00, at * (D. Del. Mar., 0 (holding disclosure claims failed to satisfy demand requirement where [n]othing in [the] complaint suggest[ed] that the Director Defendants were aware of the alleged misstatements or omissions, intended to cause harm to [the company] by incurring unnecessary tax liabilities, or acted in bad faith by not adequately informing themselves.. Committee membership alone does not establish knowledge In lieu of particularized facts showing that any of the Director Defendants acted in bad faith, Plaintiff cites to Messrs. Battle, Haley and Hoag s membership on the Compensation Committee as evidence of having caused Netflix to misrepresent the[ ] bonuses as performance based under Section (m. Compl.. If that allegation was sufficient to excuse demand for the Compensation Committee members, it would implicate just three out of Board members, leaving eight other directors who could consider a demand. But it is not sufficient. The fact that the Compensation Committee was charged with setting performance goals and awarding bonuses under the Plan does not create a substantial likelihood of liability for those directors without supporting allegations of particularized facts showing bad faith. In re China Auto. Sys. Inc. Derivative Litig., 0 WL 0, at * (Del. Ch. Aug. 0, 0 (finding that conclusory allegations based on committee membership d[id] not give rise to a substantial threat of personal liability ; see South v. Baker, A.d, (Del. Ch. 0 ( [T]hat the underlying cause of a corporate trauma falls within the delegated authority of a board committee does not support an inference that the directors on that committee knew of and consciously disregarded the problem for purposes of Rule... Once again, there are no facts alleged from which one can reasonably infer that the individual Compensation Committee members knew the bonuses were not tax deductible (as Plaintiff alone alleges such that they acted in bad faith by awarding them. See Abrams v. Wainscott, 0 WL, at * (D. Del. Aug., 0 (rejecting argument that compensation committee members faced a substantial likelihood of liability for allegedly misleading disclosures that compensation was deductible under Section (m because no facts pled that violation was knowing and intentional; In re Linear Tech. DEFS. AND NOMINAL DEF. S MOTS. TO DISMISS -- CASE NO.: :-CV-00-BLF