Victory for Equinix in shareholder derivative suit
We secured dismissal of a putative derivative action filed in the District of Delaware
On May 27, 2026, Davis Polk secured dismissal of a putative shareholder derivative action brought in the U.S. District Court for the District of Delaware by a stockholder of Equinix against Equinix as nominal defendant and against several of Equinix’s current and former directors. The case is captioned Williamson v. Meyers, et al., No. 1:25-cv-00989-GBW (D. Del.).
Equinix is a Delaware corporation that operates data centers worldwide. The allegations in the derivative complaint were copied extensively from an earlier-filed putative securities class action brought against Equinix and certain officers alleging that Equinix manipulated its accounting to boost one of its financial metrics. Those allegations were in turn lifted from a short seller report. The putative securities class action was settled without any admission of wrongdoing by the defendants and was funded entirely by Equinix’s insurers.
The plaintiff shareholder in the derivative action leveraged the allegations in the securities class action and 19,660 pages of books and records that Equinix produced in response to the plaintiff’s inspection demand, to allege violations of Section 14(a) of the Exchange Act, breaches of fiduciary duties, unjust enrichment and insider trading.
The court entered an opinion order dismissing the derivative action in full. Accepting Davis Polk’s arguments, the court held that the plaintiff failed to plead its sole federal securities claim under Section 14(a), and declined to exercise supplemental jurisdiction over the remaining Delaware state law claims. The court dismissed the Section 14(a) claim with prejudice and dismissed the remaining state law claims without prejudice.
Judge Williams found that that the plaintiff failed to plead demand futility as to his Section 14(a) claim because the plaintiff conceded that his claim was based on a theory of negligence and Equinix’ s certificate of incorporation contains a provision generally exculpating director liability under such a theory. Judge Williams further held that allegations that certain defendant directors signed certain key filings with the Securities and Exchange Commission (SEC), or were members of relevant committees on Equinix’s board, or disclosed they were not independent under SEC rules and Nasdaq listing rules due to their dual roles as a director and officer, were not sufficient to plead demand futility as a matter of law.
The court closely engaged with the plaintiff’s arguments that three of the director defendants on the Audit Committee faced a substantial likelihood of liability due to their failure to exercise adequate oversight, which is a so-called Caremark claim and one of the most challenging theories of liability to plead under Delaware law. As to that argument, Judge Williams found that the plaintiff failed to allege that any of the members of Equinix’s Audit Committee were presented with and disregarded “red flags” that would suggest wrongdoing. In doing so, the court held that strong performance metrics discussed during Audit Committee meetings were not red flags for the purposes of an oversight claim, Equinix’s decision to promptly initiate an Audit Committee investigation after the short seller report was published suggests that the Audit Committee was taking its duties of oversight seriously, and the settlement of the securities class action as well as theoretical harms from government investigations and purported insider trading were not sufficient to allege the severe corporate trauma required for a Caremark claim. The court then found that the plaintiff failed to state a Section 14(a) claim under even the most forgiving pleading standard because the plaintiff failed to allege that the proxy solicitation at issue in that claim was an essential link in the accomplishment of any specific corporate transaction requiring shareholder authorization.
The court also repeatedly called out the plaintiff’s poor or inconsistent arguments, the plaintiff’s failure to respond to our arguments and the plaintiff’s counsel’s admission that they cited to a non-existent case hallucinated by AI. On that final point, Judge Williams stated that the court is considering whether any further actions are necessary.
The Davis Polk team included partner Rory A. Leraris, counsel Vincent Barredo and associates Jaclyn A. Willner and Michael G. Mills. Members of the Davis Polk team are based in the New York and Northern California offices.