Delaware Business Litigation Report

Chancery Holds Plaintiff Fails to Meet Rule 23.1 Pleading Standard, Dismisses Action Arising From T-Mobile Data Hack

Harper v. Sievert, C.A. No. 2022-0819-SG (Del. Ch. May 31, 2024).
A stockholder plaintiff brought derivative claims alleging that current and former directors of T-Mobile US, Inc. were liable for aggregating customers’ data in a manner that made it more vulnerable to hacking. The plaintiff alleged that the company’s parent, a German telecommunications company, coerced the board to aggregate customers’ data to facilitate the parent’s own machine learning and artificial intelligence projects. The plaintiff alleged this put the data at greater risk for hacking, which subsequently occurred, resulting in significant liabilities for T-Mobile. The Defendants argued that the plaintiffs failed to allege with particularity under Rule 23.1 that the demand was futile. The defendants did not dispute for purposes of the motion that a majority of the board lacked independence from the parent. The Court accordingly focused on whether the Plaintiffs sufficiently alleged that the Defendants caused the parent to receive a non-ratable benefit from the alleged misconduct. The Court held that the plaintiff had failed to do so, because the complaint did not state with particularity how the parent benefited from the alleged plan or any steps the parent took to implement the plan. The complaint also did not allege any particular board action or decision about aggregating customers’ data at T-Mobile. Notably, the plaintiff did not make a books and records demand prior to bringing suit, and instead relied upon public information. The Court dismissed the action for failure to plead with particularity why a demand would be futile.

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