For companies facing future challenges under Zapata, the decision is a useful reminder of the close scrutiny with which courts will evaluate SLC-member independence.

On Jan. 30, 2026, Chancellor Kathaleen St. Jude McCormick of the Delaware Court of Chancery issued an opinion in Grabski ex rel. Coinbase Global v. Andreessen, C.A. No. 2023-0464-KSJM, denying a special litigation committee’s (SLC) motion to terminate a stockholder derivative suit, based on disputed evidence regarding an SLC member’s lack of independence. Emphasizing the “paramount” importance of the independence inquiry under Zapata v. Maldonado, 430 A.2d 779 (Del. 1981), the court found material disputes concerning the purported independence of one of the SLC’s two members based on that member’s extensive personal and professional ties to a principal defendant and the defendant’s affiliated venture capital firm.

For companies facing future challenges under Zapata, the decision is a useful reminder of the close scrutiny with which courts will evaluate SLC-member independence. Challengers do not need to provide a “smoking gun” to overcome a motion to terminate, but rather may demonstrate that the cumulative effect of an SLC member’s personal and professional ties with the subjects of the SLC’s investigation could create an unreasonable risk of bias. As the court’s decision also makes clear, an SLC will be unable to defeat challenges to its members’ independence by relying on those members’ subjective belief of independence, even if expressed under oath. Even where an SLC member acts in good faith, material disputes as to the objective independence of that member (or a majority of members in an SLC composed of more than two members) can defeat the SLC’s motion to terminate.

Background

Coinbase’s Direct Listing

On April 14, 2021, Coinbase went public through a direct listing, a process allowing directors and officers to sell shares immediately without the need for certain lock-up restrictions that typically accompany initial public offerings. During the direct listing, certain Coinbase officers and directors sold approximately $2.9 billion of stock (the challenged trades). A month after the direct listing, Coinbase announced disappointing earnings and a capital raise, which resulted in a plummeting stock price. The officers and directors who participated in the sale, however, avoided losses of approximately $1.09 billion as a result of their challenged trades made during the direct listing.

The Derivative Action

On April 26, 2023, a plaintiff stockholder who purchased Coinbase stock on the first day of the direct listing (plaintiff), commenced a derivative action against the officers and directors who made the challenged trades (defendants), asserting claims for breach of fiduciary duty and unjust enrichment. On Feb. 1, 2024, the Court of Chancery denied the defendants’ motion to dismiss, holding that the plaintiff had adequately pleaded that demand was futile because the director defendants compromised more than half of the board, it was reasonably conceivable that the defendants’ possessed material nonpublic information, and the plaintiff adequately pleaded scienter based on the timing of the challenged trades, the absence of a lock-up and the resulting cash payout.

The SLC’s Formation, Investigation and Conclusion

Eight days after the denial of the motion to dismiss, the board formed an SLC, which was comprised of two members: Kelly Kramer and Gokul Rajaram. Both Kramer and Rajaram were independent directors on Coinbase’s board, and neither participated in the challenged trades or sold shares during the direct listing. The SLC also retained Wilson Sonsini Goodrich & Rosati (Wilson Sonsini) as legal counsel.

The SLC conducted a 10-month investigation that included a review of roughly 60,000 documents collected from 31 custodians, and 21 witness interviews, culminating in a 332-page report. Following its investigation, the SLC concluded that the derivative action lacked merit because the “SLC found no evidence to suggest that the defendants pursued the direct listing for their personal benefit or because it would involve reduced oversight.”

In February 2025, the SLC filed a motion to terminate the derivative action based on its report. The plaintiff opposed the motion, arguing that there were factual disputes concerning the independence of one of the two SLC members (Rajaram) as well as the SLC’s counsel. Specifically, the plaintiff argued that Rajaram’s ties to defendant Marc Andreessen and Andreessen Horowitz, Andreessen’s prominent Silicon Valley venture capital firm, were sufficient to create an unreasonable risk of bias on the part of Rajaram. Andreessen was a board member of Coinbase since 2020, and Andreessen Horowitz was an investor in Coinbase, selling over $118 million worth of Coinbase stock during the direct listing. The plaintiff also challenged the independence of the SLC’s counsel, pointing to Wilson Sonsini’s prior representation of multiple defendants in various matters over the past 30 years, as well as the firm’s representation of Andreessen Horowitz in connection with separate financing rounds during the SLC’s investigation.

The Court of Chancery’s Opinion

Standard for Motions to Terminate

The Court of Chancery applied the two-step test announced in Zapata, which governs an SLC’s motion to terminate following its investigation. Step one requires the court to review the independence of SLC members and consider whether the SLC conducted a good faith investigation of reasonable scope that yielded reasonable bases supporting its conclusions. If the SLC satisfies step one, then the court moves to step two, applying its own business judgment to determine whether the suit should be dismissed. In applying this test, the court subjects the SLC’s motion to what is “in essence a summary judgment standard,” considering whether the SLC has demonstrated the absence of any material issue of fact.

In its step-one analysis, the court focused on the SLC’s independence, emphasizing that “the independence inquiry [related to SLC members] is critically important” and that the SLC is not entitled to any favorable presumption with respect to its independence because, in connection with a motion to terminate, “SLC members are not given the benefit of the doubt as to their impartiality and objectivity.” The court also stressed that, when assessing the SLC’s independence, a court must “confront the personal and professional relationships between” the SLC members and the subjects of the SLC’s investigation so that it can answer the critical question of whether there exists “an unacceptable risk of bias” such that an SLC member is, for any substantial reason, “incapable of making a decision with only the best interests of the corporation in mind.”

The Court’s Analysis of the SLC’s Independence Under 'Zapata'

The court began its analysis of Coinbase’s two-member SLC by stating that, when an SLC has only two members, nonindependence of one of the members “is sufficient alone to require denial” of the

SLC’s motion to terminate. The court then turned its attention to Plaintiff’s challenge to the independence of Rajaram, noting that the plaintiff did not also challenge Rajaram’s good faith.

The court explained that Rajaram’s testimony under oath that he was independent and would sue the defendants without hesitation, if the SLC’s investigation so required, was irrelevant to the Zapata’s step-one independence inquiry. Rather, the relevant question was whether Rajaram’s relationships with one defendant (Marc Andreessen) and his venture capital firm (Andreessen Horowitz) created “material disputed facts giving rise to an unacceptable risk of bias in a process where independence is paramount.” The court also clarified that, to defeat an SLC’s motion to terminate, a plaintiff need not demonstrate an actual conflict caused by an SLC member’s financial dealings or that the member’s business dealings actually caused him to alter the course of the investigation. Rather, a material dispute regarding the SLC member’s independence—which can be established through evidence illustrating the magnitude of such business dealings and an SLC member’s “thick ties” between the member and the subject of the investigation—is sufficient for a court to find a substantial reason to suspect an unreasonable risk of bias. Ultimately, the court concluded that Rajaram’s extensive professional and financial ties to Andreessen and Andreessen Horowitz were “thick,” giving rise to such unacceptable risk of bias. Therefore, per the court, the SLC had failed to satisfy its burden under Zapata step one.

Rajaram’s 'Thick Ties' With Defendants

In reaching its conclusion, the court relied heavily on its prior landmark decision evaluating an SLC’s independence under Zapata—In re Oracle Derivative Litigation, 824 A.2d 917 (Del. Ch. 2003). In the court’s view, “Oracle appropriately warned against a reductionist view of human nature, commended a nuanced and contextualized analysis of human relationships, and emphasized the paramount role that the independence inquiry plays in a Zapata analysis.”

Relying on Oracle’s framework, the Court of Chancery focused on Andreessen’s presence and involvement in several of Rajaram’s career milestones, including:

• Andreessen’s investment in Rajaram’s startup in 2007;
• Andreessen’s service on the three-person advisory board of that same startup;
• Rajaram’s use of Andreessen’s name and reputation to attract talent and investors for that startup as well as another venture capital firm affiliated with Rajaram;
• Andreesen’s presence on the board of another company when that company acquired Rajaram’s startup, thereby doubling Rajaram’s net worth at the time; and
• Andreessen’s investment of $850,000 in another of Rajaram’s venture capital firms.

The court also emphasized Rajaram’s “thick ties” with Andreessen’s venture capital firm, Andreessen Horowitz, the entity that made $118.7 million from the challenged trades. The court cited to evidence that Rajaram’s venture capital firm invested alongside Andreessen Horowitz at least 50 times over the past six years, Rajaram’s venture capital firm referred deal-flow work to Andreessen Horowitz, and Rajaram and members of the Andreessen Horowitz team “exchanged hundreds of emails” during the SLC’s investigation, including “dozens” of cross-referrals.

Conclusion

Ultimately, the court determined that the “cumulative effect” of Rajaram’s multiple financial and personal connections with Andreessen (and his firm) were sufficient to raise material disputes regarding Rajaram’s independence. In so doing, the court rejected the SLC’s counterargument that Rajaram’s aforementioned ties were insufficient because Rajaram had testified that he felt confident of his independence, his financial dealings with the defendants did not create bias because those dealings had not yet had any impact on Rajaram’s worth, and he was “indifferent” as to Andreessen Horowitz’s position in the lawsuit and would “sue the defendants, without hesitation, if the SLC’s investigation so required.”

Because the court determined that the SLC failed to carry its burden under Zapata step one, its opinion did not reach Zapata step two. Nor did the court opine on the independence of SLC counsel, except to say that it was “suboptimal” that Wilson Sonsini had advised Andreessen Horowitz “on multiple transactions while advising the SLC on its investigation into” Andreessen Horowitz’s challenged trades. The court concluded by noting that, although it was denying the SLC’s motion to terminate, the SLC’s report may eventually “lay a path” to summary judgment, as was the case in Oracle.

Takeaways

The Court of Chancery’s decision provides helpful reminders for companies forming SLCs to investigate allegations in stockholder derivative suits.

The decision illustrates that the framework for evaluating SLC independence under Zapata, as expounded on in Oracle, remains alive and well. Under Zapata, SLC independence remains paramount, and SLC members will not be given any benefit of the doubt regarding their own impartiality or independence. Nor will courts credit SLC’s members’ own subjective belief regarding their independence, even if expressed under oath.

When evaluating an SLC’s independence going forward, courts will continue to avoid a “reductionist view of human nature” and instead focus on the “nuanced and contextualized analysis of human relationships.” This focus need not be limited solely to economic consequences that may befall an SLC member, but rather will also consider the SLC member’s personal and professional relationships with the subjects of the SLC’s investigation.

The Court of Chancery’s decision also makes clear that discovery of a “smoking gun” is not necessary for an independence inquiry under step one of Zapata. Rather, the court may determine that the “cumulative effect” of an SLC member’s multiple, longstanding professional and investment relationships constitute “thick ties” with the subject(s) of the SLC investigation sufficient to create an unacceptable risk of bias.

Finally, companies appointing members to an SLC should continue to be mindful of the court’s admonition that, when there is a two-member SLC, a material dispute regarding one member’s independence is dispositive, requiring denial of an SLC’s motion to terminate. These companies should carefully consider that a small SLC comprised of only two members is particularly susceptible to Zapata challenges because a plaintiff would only need to demonstrate a material dispute as to a single member to defeat a motion to terminate.

Michael A. Cabin is a partner in Duane Morris’ New York office and a member of the securities litigation and appellate divisions of the firm’s trial practice group. His practice focuses on complex securities, fiduciary-duty and deal litigation, as well as other complex commercial matters, in forums throughout the United States, and his experience spans a wide range of industries.

Brad D. Feldman is a partner in the firm’s southern New Jersey office, practicing in the area of complex commercial litigation. His experience spans a wide range of industries and matters, including, among others, securities litigation, merger litigation, real estate disputes, contract disputes, joint venture and partnership disputes, environmental litigation , and government and internal investigations.

Gregory D. Herrold is a senior associate in the firm’s southern New Jersey office, practicing in the area of litigation. He has represented a range of clients, from individuals to companies, in all stages of complex civil disputes.

Reprinted with permission of Delaware Business Court Insider.