A Delaware judge is mulling a request that would fast-track state Supreme Court consideration of whether directors can be held liable in derivative litigation for trades that were executed by funds under their control.

The question has arisen in litigation over claims for insider trading during the initial public offering of Fitbit stock in 2015.

If a petition for interlocutory appeal is granted, the justices would consider Vice Chancellor Joseph R. Slights' denial last month of a bid by Fitbit's directors to dismiss the claims.

Central to Slights' ruling was the determination that Fitbit directors Jonathan Callaghan and Steven Murray could potentially be held liable for stock sales that their venture capital firms made when the board allegedly knew about major problems with Fitbit's leading products, which accounted for about 80 percent of the company's revenue.

Slights observed that “no Delaware court” has considered whether to impose liability under the 1949 case Brophy v. Cities Service on directors for trades they didn't personally make, and he declined to craft a “hard and fast” rule. However, he found reason to impute the actions of True Ventures's Callaghan and Softbank Capital's Murray, who both served as outside directors on the Fitbit board at the time.

“Here, the selling defendants seek a ruling that would permit a director to trade on inside material information without consequence just because the director did not trade personally but rather passed the information to an entity with which he is affiliated (and over which he exercised control) to do the trading,” Slights wrote in the Dec. 14 opinion. “That is not and cannot be our law.”

That finding paved the way for Slights' ruling that a majority of the board likely stood to personally benefit from the allegedly improper stock sales ahead of the IPO and helped the plaintiffs clear an early hurdle in derivative cases.

On Dec. 24, the directors' Morrison & Foerster and Young Conaway Stargatt & Taylor attorneys applied for interlocutory appeal, arguing that the opinion departed from a consistent line of Delaware cases and raised a novel issue of law.

The move aims to tee up the issue for the state's five justices, without having to litigate the rest of the case. But first it will be up to Slights to decide whether it should go that far. Under Supreme Court rules, he has until Jan. 17 to decide whether to grant the request.

In their filing, attorneys for the directors argued that Brophy claims must be premised on breaches by a fiduciary that worked “to his own profit.” But the trades in question, the lawyers said, were carried out by investment funds that were merely affiliated with Callaghan and Murray—and not the directors themselves. Nowhere in the complaint, they said, had the plaintiffs alleged that Callaghan and Murray had received any personal benefits.

“Holding that two directors who did not personally execute any trades are exposed to Brophy liability unsettles the bedrock corporate law principle that a corporation and its owners and directors are separate actors,” attorneys said in the brief.

“The opinion disregards this bedrock principle of legal separation, subjecting Callaghan and Murray to potential liability for sales of stock they did not own.”

Attorneys for the plaintiffs responded Monday, saying they were entitled at the pleading stage to an inference that Callaghan and Murray had profited from trades made by funds under their control.

In the filing, Andrews & Springer partner Peter B. Andrews pointed to multiple factual allegations in the complaint that he said supported Slights' finding that the two directors had acted with the key element of scienter, or knowledge of their supposed wrongdoing, including board documents related to Fitbit's flawed products, as well and the size and timing of the sales.

Andrews denied that the ruling raised a novel issue of law, and said the defendants' maneuver boiled down to a factual dispute that is not appropriate for interlocutory appeal.

“Here, Fitbit, displeased with the court's order, seeks nothing more than a do-over,” Andrews wrote. “At bottom, Fitbit simply disagrees with the court's application of the law to the detailed, particularized facts set forth in the SAC and the proper inferences drawn from those facts.”

Andrews, reached by phone Monday, declined to comment on the case. An attorney for the directors' did not immediately respond to a call requesting comment.

The case is not the first to stem from Fitbit's handling of defects in its PurePulse technology, which was featured in its main product lines ahead of its IPO.

A federal judge in California denied Fitbit's motion to dismiss a consumer class action over the tech, and the company settled a separate federal securities lawsuit in April, after U.S. District Judge Susan Illston of the Northern District of California found that a steep drop in Fitbit's stock price supported allegations that Fitbit intentionally hid the issues from the market.

Plaintiffs in the Delaware case are represented by attorneys from Andrews & Springer in Wilmington, Kahn Swick & Foti in New Orleans, Schubert Jonckheer & Kolbe in San Francisco and Shapiro Haber & Urmy in Boston. The Wilmington firm Rosenthal, Monhait and Goddess is acting as Delaware counsel in the case.

The Fitbit directors are represented by Morrison & Foerster in San Francisco and Young Conaway in Wilmington.

The case is captioned In re Fitbit Stockholder Derivative Litigation.