Chancery Rejects SLC’s Request to End Coinbase Derivative Lawsuit Due to …

On January 30, 2026, Chancellor Kathaleen St. Jude McCormick of the Delaware Court of Chancery made a significant ruling in Grabski ex rel. Coinbase Global v. Andreessen, C.A. No. 2023-0464-KSJM. In this case, the court denied a motion by a special litigation committee (SLC) to dismiss a stockholder derivative suit due to concerns surrounding an SLC member’s independence. This decision underscored the critical importance of the independence inquiry as outlined in Zapata v. Maldonado.

The court found that there were material disputes about the alleged independence of one SLC member based on the individual’s extensive personal and professional connections with a principal defendant and the defendant’s affiliated venture capital firm. This ruling serves as a vital reminder for companies navigating challenges under Zapata because it highlights how closely courts will scrutinize the independence of SLC members. It shows that challengers do not necessarily need concrete evidence of bias to contest a motion to dismiss but can instead demonstrate that the collective effect of an SLC member’s relationships with the parties under investigation could introduce an unreasonable risk of bias.

The court’s decision emphasized that an SLC cannot rely on the subjective belief of its members regarding their independence, even if they testify under oath. Even if SLC members act in good faith, disputes over their objective independence can lead to the denial of a motion to dismiss, especially in cases where there are doubts about the independence of a majority of the SLC’s members.

The Background of the Case

Coinbase’s Direct Listing

Coinbase, a cryptocurrency exchange platform, went public on April 14, 2021, through a direct listing. This process allowed directors and officers to sell shares immediately without the typical lock-up restrictions associated with initial public offerings. Shortly after the direct listing, Coinbase’s stock price plummeted following disappointing earnings and a capital raise. Despite this, officers and directors who participated in the sale of approximately $2.9 billion in stock during the direct listing managed to avoid losses of about $1.09 billion.

The Derivative Action

In response to these events, a stockholder who purchased Coinbase stock on the first day of the direct listing filed a derivative action on April 26, 2023. The plaintiff brought claims of breach of fiduciary duty and unjust enrichment against the officers and directors who made the challenged trades. The Court of Chancery denied the defendants’ motion to dismiss the case on February 1, 2024, ruling that there was a plausible case for demand futility given the defendants’ control of more than half of the board and the possibility of possession of material nonpublic information.

The SLC’s Formation and Investigation

Following the denial of the motion to dismiss, the board established an SLC consisting of two independent directors, Kelly Kramer and Gokul Rajaram. The SLC, with legal counsel from Wilson Sonsini Goodrich & Rosati, conducted a thorough investigation lasting 10 months, which involved reviewing thousands of documents and conducting interviews with multiple witnesses. The SLC’s 332-page report concluded that the derivative action lacked merit because there was no evidence to suggest that the defendants pursued personal gain through the direct listing.

The Court’s Opinion

The Court of Chancery applied the Zapata standard in evaluating the SLC’s motion to terminate the derivative action. The two-step test required the court first to assess the independence of SLC members and the adequacy of their investigation before deciding on the dismissal of the case. The court stressed the critical nature of the independence inquiry concerning SLC members, highlighting that there is no presumption of impartiality or objectivity for SLC members seeking to terminate a suit. The court also emphasized the need to examine the personal and professional relationships between SLC members and the subjects of the investigation to determine any potential bias that could compromise the SLC’s objectivity.

In conclusion, Chancellor McCormick’s ruling in Grabski ex rel. Coinbase Global v. Andreessen serves as a pivotal reminder of the meticulous scrutiny that courts will apply to SLC-member independence in the face of future challenges under Zapata. This case underscores the necessity for SLCs to conduct rigorous and impartial investigations to withstand judicial evaluation and avoid conflicts of interest that could jeopardize the integrity of the committee’s decisions.