Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-08-07101/USCOURTS-caDC-08-07101-0/pdf.json

Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 24, 2009 Decided December 29, 2009

No. 08-7101

CITY OF HARPER WOODS EMPLOYEES’ RETIREMENT SYSTEM,

DERIVATIVELY ON BEHALF OF BAE SYSTEMS PLC.,

APPELLANT

v.

RICHARD (DICK) L. OLVER, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:07-cv-01646)

Eric Alan Isaacson argued the cause for appellant. With

him on the briefs were Patrick J. Coughlin, Mark Solomon, and

Roger M. Adelman. Jonathan W. Cuneo entered an appearance.

Lawrence Byrne argued the cause for appellees BAE

Systems, PLC and the Individual BAE Systems PLC appellees.

With him on the brief were Mary K. Warren and Sterling P.A.

Darling, Jr.

Christopher T. Lutz, Eric M. Roth, Adir G. Waldman, and

Richard L. Brusca were on the brief for appellees the PNC

Financial Services Group, Inc. and the Allbrittons.

Before: GINSBURG and HENDERSON, Circuit Judges, and

EDWARDS, Senior Circuit Judge.

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Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: City of Harper Woods

Employees’ Retirement System (“Harper Woods”), a pension

fund, brought a shareholder derivative suit on behalf of BAE

Systems PLC (“BAE”) alleging intentional, reckless, and

negligent breaches of fiduciary duties and waste of corporate

assets by current and former directors and executives of BAE.

Harper Woods also sued PNC Financial Services Group, the

legal successor to Riggs Bank, as well as Joseph, Barbara, and

Robert Allbritton, Riggs’ former controlling shareholders and

operating executives, for aiding and abetting the alleged

breaches of fiduciary duties. The District Court dismissed the

suit, holding that English law controls and that Harper Woods

has no standing under English law to pursue the instant action.

See City of Harper Woods Employees’ Ret. Sys. v. Olver, 577 F.

Supp. 2d 124, 137 (D.D.C. 2008). Harper Woods appeals the

dismissal of its complaint, contending that the District Court

erred in applying English law. Harper Woods also asserts that,

if English law in fact bars this derivative suit, a public policy

exception to the applicable choice of law rule applies, and that

District of Columbia law should thus govern its suit.

We affirm the judgment of the District Court. First, we find

that, pursuant to the District of Columbia’s internal affairs

doctrine, English law applies to this case. Second, we hold that

Harper Woods has not shown that its complaint falls outside the

rule of Foss v. Harbottle, (1843) 2 Hare 461, 67 E.R. 189, which

establishes that the company, not a shareholder, is the proper

plaintiff in a suit seeking redress for wrongs allegedly

committed against the company. Moreover, we find that Harper

Woods has failed to demonstrate that an exception to the rule of

Foss v. Harbottle applies in this case. Finally, we hold that

Harper Woods forfeited its claim that the District Court erred in

dismissing its complaint with prejudice. 

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I. BACKGROUND

BAE is a publicly owned corporation, incorporated in

England and Wales, that operates in the United States through

its subsidiary BAE Systems, Inc. Harper Woods is a pension

fund that owns approximately 3500 American Depository

Receipts (“ADR”) representing shares of BAE. An ADR

“represents ownership in a security issued by a foreign company

in foreign markets.” City of Monroe Employees Ret. Sys. v.

Bridgestone Corp., 399 F.3d 651, 656 n.2 (6th Cir. 2005).

On September 19, 2007, Harper Woods filed a shareholder

derivative suit on behalf of BAE against BAE’s board of

directors, some of whom are also officers of the company, and

12 former officers and directors (“BAE defendants”). Harper

Woods named BAE as a nominal defendant in the suit, as is

typical with shareholder derivative suits. BAE Systems, Inc.,

the American subsidiary, was not named as a defendant.

Harper Woods alleged that the BAE defendants engaged in

“intentional, reckless, and/or negligent breaches of their

fiduciary duties of care, control and candor, involving illegal,

improper, and/or ultra vires conduct, including causing BAE to

violate the laws of the United States and international business

codes and conventions . . . by making, or permitting to be made,

improper and/or illegal bribes, kickbacks and other payments.”

Complaint ¶ 1, reprinted in 1 Joint Appendix (“J.A.”) 27.

According to Harper Woods, the BAE defendants “caused BAE

to engage in a pattern and practice of making illegal and

improper payments to secure contracts and false and misleading

statements to conceal and cover them up,” in violation of U.S.

and United Kingdom law. Id. ¶ 5, 1 J.A. 29-30. Specifically,

Harper Woods alleged that the BAE defendants “undertook

illegal and improper conduct . . . in breach of their fiduciary

duties to BAE,” including paying more than $2 billion in bribes

and kickbacks to Prince Bandar Bin Sultan of Saudi Arabia in

order to obtain a large contract (known as the Al-Yamamah

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contract) from the Saudi Arabian Ministry of Defense. Id. ¶¶ 6-

8, 1 J.A. 30-32. Harper Woods further alleged that the “illegal

or improper payments were secretly bargained for at the outset

of the Al-Yamamah contract,” and that Bandar received most of

this money in Washington, D.C., via an account at Riggs Bank.

Id. ¶¶ 8-9, 1 J.A. 31-32. Harper Woods sought damages

(including punitive damages), an accounting by defendants, and

an order directing BAE to undertake certain corporate

governance reforms. Id. at 88-89, 1 J.A. 114-15. 

The BAE defendants moved to dismiss on three grounds:

lack of standing, forum non conveniens, and lack of personal

jurisdiction. They submitted with their motion to dismiss a

declaration from Martin Moore QC, a barrister in private

practice in London appointed Queen’s Counsel in 2002. Decl.

of Martin Moore QC, ¶ 1 (Feb. 1, 2008), reprinted in 3 J.A. 755;

see also BLACK’S LAW DICTIONARY (9th ed. 2009) (defining

Queen’s Counsel as “an elite, senior-level barrister or

advocate”). Mr. Moore was “asked to give [his] view as to the

circumstances in which, as a matter of English law, a

shareholder in an English incorporated company, such as BAE

PLC, can bring proceedings derivatively on behalf of that

company to remedy alleged harm caused to the company

concerned.” Moore Decl. ¶ 6, 3 J.A. 756. BAE also asked Mr.

Moore “to consider from an English law standpoint whether the

Plaintiff’s allegations in this action are sufficient to establish its

right to bring the claims asserted in the Complaint derivatively

on behalf of BAE PLC against the named defendants.” Id.

Mr. Moore concluded that Harper Woods could not bring its

derivative action against the BAE defendants on behalf of BAE.

Id. ¶ 80, 3 J.A. 775. He stated that the conduct of the BAE

defendant directors came within the English rule of Foss v.

Harbottle, which provides that the company is the proper

plaintiff when a wrong is done to the company, whether by a

director or by others. Id. ¶ 30, 3 J.A. 763. Though the wrongs

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allegedly committed by the BAE defendants constituted

breaches of regulatory, civil, or criminal law, the rule of Foss v.

Harbottle concerns itself with alleged wrongs done to the

company. Id. ¶¶ 37, 39, 3 J.A. 765. The “essence” of the

alleged wrongs done to the company by the director-defendants

consisted of “mismanagement and failure of oversight,”

according to Mr. Moore. Id. ¶ 17, 3 J.A. 759; see also id. ¶ 39,

3 J.A. 765-66. Since the directors’ conduct could be ratified by

a majority of shareholders, Mr. Moore stated that the company

was the proper plaintiff in an action against the directors unless

one of the exceptions to the Foss rule applied. Id. ¶¶ 39-40, 3

J.A. 766. Mr. Moore then declared that none of the exceptions

applied. See id. ¶¶ 33, 49, 52, 57, 3 J.A. 764, 768-70. Finally,

Mr. Moore described remedies for director misconduct, other

than derivative suits. Id. ¶¶ 75-79, 3 J.A. 774-75. Under

English law, these remedies include statutory rights to demand

a shareholder meeting, to submit resolutions at the meeting, and

to remove directors by ordinary resolution; to petition the High

Court in England for relief on the grounds that the company’s

affairs have been or are conducted in a way that is unfairly

prejudicial to shareholder interests; and in some circumstances

to bring a claim directly against the directors accused of

misconduct. Id. ¶¶ 76-78, 3 J.A. 774-75.

Opposing BAE’s motion to dismiss, Harper Woods

submitted a declaration from Paul Girolami QC, a barrister

appointed Queen’s Counsel in 2002 and appointed in 2006 to sit

as a deputy High Court Judge in the Chancery Division of the

High Court. Decl. of Paul Girolami QC, ¶¶ 1-2 (Apr. 23, 2008),

reprinted in 5 J.A. 1282-83. Mr. Girolami declared, “I have

been asked to give my views on, and in response to, the

declaration of Mr. Moore. Like him I have made this

declaration on the same basis as I would have done were this

expert evidence given in English proceedings.” Id. ¶ 4, 5 J.A.

1283. Additionally, Mr. Girolami stated, “It is not . . . for me to

express views on what the Complaint should properly be

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understood as alleging, nor on whether Mr. Moore’s

understanding is correct. But it does seem to me possible that

his characterisation of the Complaint is too limited . . . .” Id.

¶ 5, 5 J.A. 1283-84. Expressing his views on English company

law, Mr. Girolami agreed with Mr. Moore that, as a general

matter, a complaint for mismanagement and failure of

supervision falls within the rule barring shareholder derivative

suits; he stated, however, that shareholders could bring a

derivative suit for other breaches beyond failure of oversight if

those breaches were incapable of ratification by a majority of

shareholders. Id. ¶ 6(3)-(4), 5 J.A. 1284-85. In particular, Mr.

Girolami asserted that, under English law, directors may commit

breaches of duty, in addition to ultra vires acts, that are

incapable of being ratified by shareholders. Id. ¶ 22, 5 J.A.

1293-94. Admitting that “there is a dearth of decided English

cases in support of the point,” Mr. Girolami explained that the

leading treatises on English law state that illegal acts cannot be

ratified by shareholders. See id. ¶¶ 22-23, 5 J.A. 1293-97.

The BAE defendants submitted a second declaration from

Martin Moore with their reply to Harper Woods’ opposition to

the motion to dismiss. In this declaration, Mr. Moore

convincingly showed “that the authoritative statements of the

rule in Foss v. Harbottle, both old and new, do not suggest that

there is an exception to the rule where conduct is illegal.”

Second Decl. of Martin Moore QC, ¶ 25 (May 23, 2008),

reprinted in 5 J.A. 1458; see also id. ¶¶ 25-37, 5 J.A. 1458-63

(citing and discussing significant English authorities indicating

that general illegality does not constitute an exception to Foss v.

Harbottle). 

The District Court conducted a hearing on the motion to

dismiss on June 20, 2008. At the end of the hearing, the District

Court invited supplemental submissions on the question of

whether it is possible under U.K. law to ratify an illegal act. Tr.

of Hearing (June 20, 2008) at 88, reprinted in 5 J.A. 1633. In

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response, the BAE defendants filed a third declaration from

Martin Moore stating that, under English law, an illegal act by

a company director is ratifiable by shareholders. Supplemental

Decl. of Martin Moore QC, ¶¶ 1-2 (June 27, 2008), reprinted in

5 J.A. 1469. Harper Woods filed a second declaration from Paul

Girolami, reaching the opposite conclusion, declaring that

shareholders cannot ratify breaches of duty by directors that

consist of “applying the company’s money in making illegal or

improper payments” in violation of criminal law. Second Decl.

of Paul Girolami QC ¶ 2 (July 7, 2008), reprinted in 5 J.A. 1474.

In its complaint, Harper Woods also named as defendants

Prince Bandar Bin Sultan; PNC Financial Services Group, the

legal successor to Riggs Bank following a merger; and Joseph,

Robert, and Barbara Allbritton, three former executives and

controlling shareholders of Riggs. PNC and the Allbrittons

(“PNC defendants”) jointly moved to dismiss the complaint,

arguing that the BAE defendants’ motion to dismiss should be

granted based on lack of standing and therefore the aiding and

abetting claims against the PNC defendants should be dismissed

as well. PNC’s and the Allbrittons’ Joint Motion to Dismiss at

2 (Jan. 31, 2008), reprinted in 1 J.A. 131; Memorandum of

Points and Authorities in Support of PNC’s and the Allbrittons’

Joint Motion to Dismiss at 9 & n.9 (Jan. 31, 2008), reprinted in

1 J.A. 145. PNC and the Albrittons additionally moved to

dismiss on two alternate grounds: (1) failure to state a claim for

aiding and abetting and (2) application of the in pari delicto

defense to bar the claims against the PNC defendants. See

PNC’s and the Allbrittons’ Joint Motion to Dismiss at 2, 1 J.A.

131.

The District Court, applying English law, granted the

motion to dismiss, holding that Harper Woods lacked standing

to bring the shareholder derivative suit. Harper Woods, 577 F.

Supp. 2d at 137. The District Court applied the common law

rule of Foss v. Harbottle, which governed shareholder derivative

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suits until it was superseded by the U.K. Companies Act 2006.

See id. at 131, 137. Harper Woods does not contest on appeal

the District Court’s finding that the 2006 Act does not apply

retroactively to its complaint. See id. at 137.

Applying the rule of Foss v. Harbottle, the District Court

found that shareholders may not bring derivative actions under

English law except in limited circumstances, none of which is

applicable in this case. See Harper Woods, 577 F. Supp. 2d at

131-36. The District Court dismissed the claims against the

PNC defendants on the basis that plaintiffs who lack standing to

bring a derivative claim for breach of fiduciary duty cannot

pursue counts for aiding and abetting those breaches. Id. (citing

Mann v. GTCR Golder Rauner, L.L.C., 483 F. Supp. 2d 884, 899

(D. Ariz. 2007)). The District Court thus did not address the

defendants’ motions to dismiss on grounds of forum non

conveniens, lack of personal jurisdiction, failure to state a claim

for aiding and abetting, and in pari delicto.

Appellant filed a timely appeal with this court challenging

the District Court’s dismissal of its complaint.

II. ANALYSIS

A. Standard of Review

This court reviews choice of law issues de novo. Williams

v. First Gov’t Mortgage & Investors Corp., 176 F.3d 497, 499

(D.C. Cir. 1999).

As a general matter, it is well understood that “the party

invoking federal jurisdiction bears the burden of establishing”

its standing. Steel Co. v. Citizens for a Better Env’t, 523 U.S.

83, 104 (1998). Moreover, plaintiffs bear the burden of

establishing standing to bring a derivative suit under English

law, which applies to this case. See Prudential Assurance Co.

Ltd. v. Newman Indus. Ltd. (No. 2), [1982] Ch. 204, 221-22

(C.A.) (stating that plaintiff, before proceeding with a derivative

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suit, must “establish a prima facie case . . . that the action falls

within the proper boundaries of the exception to the rule in Foss

v. Harbottle”); see also Tr. of Oral Argument at 11 (Plaintiff’s

counsel acknowledged, “I think that I’ve got the burden of

indicating that we come within an exception to the rule of Foss

v. Harbottle.”).

The District Court’s determination of an issue of foreign

law is treated as a ruling on a question of law and our review is

therefore de novo. FED. R. CIV. P. 44.1; see also Ry. Labor

Executives’ Ass’n v. U.S. R.R. Ret. Bd., 749 F.2d 856, 860 & n.7

(D.C. Cir. 1984). Reviewing a motion to dismiss, this court

accepts as true all of the factual allegations contained in the

complaint and draws all inferences in favor of the nonmoving

party. See Ctr. for Law & Educ. v. Dep’t of Educ., 396 F.3d

1152, 1156 (D.C. Cir. 2005). Though the court construes the

complaint liberally in the plaintiff’s favor, it need not accept

inferences unsupported by facts or legal conclusions cast in the

form of factual allegations. SeeKowal v. MCI Commc’ns Corp.,

16 F.3d 1271, 1276 (D.C. Cir. 1994).

B. The Applicable Law

As the District Court correctly determined, English law

applies to this case. A federal court sitting in diversity applies

the conflict of law rules of the forum in which it sits. See

Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).

When a claim addresses matters of corporate governance or

other internal affairs of a company, D.C. courts apply the law of

the state of incorporation. See Cowin v. Bresler, 741 F.2d 410,

414 n.4 (D.C. Cir. 1984); see also Labovitz v. Wash. Times

Corp., 900 F. Supp. 500, 503 (D.D.C. 1995). As the District

Court recognized, this internal affairs doctrine applies to

corporations incorporated outside of the United States. See

Harper Woods, 577 F. Supp. 2d at 129 (citing cases). BAE is

incorporated in England and Wales, so English law applies to

this shareholder derivative suit.

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In an attempt to avoid an application of English law, Harper

Woods argues that the District Court erred in failing to apply a

public policy exception to the District of Columbia’s internal

affairs doctrine. See Harper Woods, 577 F. Supp. 2d. at 129;

RESTATEMENT (SECOND) CONFLICT OF LAWS § 309 (1971).

However, this exception is normally applied only where the laws

of the jurisdiction of incorporation are immoral or unjust, see,

e.g., Hausman v. Buckley, 299 F.2d 696, 705 (2d Cir. 1962); In

re BP, PLC Derivative Litig., 507 F. Supp. 2d 302, 308-09 &

n.19 (S.D.N.Y. 2007), or another state has a “more significant

relationship” to the parties and transaction or overriding interest

in the issue to be decided. See RESTATEMENT (SECOND)

CONFLICT OF LAWS § 309 (1971); In re BP, 507 F. Supp. 2d at

308-09 & n.20. The District Court concluded that neither

rationale applies here. See Harper Woods, 577 F. Supp. 2d at

129-30. Harper Woods cites to nothing in local law that

impugns this judgment, and we affirm it. 

C. Plaintiff’s Standing

Harper Woods contends that the District Court erred in

holding that it lacked standing under English law to pursue the

shareholder derivative claim. Harper Woods advances two

principal arguments: First, it contends that the complaint does

not fall within the rule of Foss v. Harbottle and is therefore not

barred by the rule; and, second, it asserts that even if the

complaint is within the compass of Foss, the suit still may

proceed because the complaint is covered by one of three

exceptions to the Foss rule. We disagree on both counts. 

We affirm the District Court’s judgments that the complaint

comes within the rule of Foss v. Harbottle and that none of the

exceptions to the rule apply. We hold further that, even

assuming Harper Woods’ complaint can be characterized as

alleging that the directors committed illegal acts rather than

mere breaches of fiduciary duty, it still falls within the rule of

Foss v. Harbottle. Harper Woods has not shown that

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shareholders cannot ratify illegal acts of directors that are not

ultra vires, so the conduct at issue does not fall outside the scope

of the rule. The District Court did not reach this point because

it characterized Harper Woods’ complaint as alleging failure of

supervision and oversight, which both parties’ experts agreed

could be ratified under English law. See Harper Woods, 577 F.

Supp. 2d at 132-33 & n.11; see also Moore Decl. ¶ 38, 3 J.A.

765; Girolami Decl. ¶ 6(3), 5 J.A. 1284-85.

1. The Rule of Foss v. Harbottle

Prior to the passage of the U.K. Companies Act 2006,

English law did not permit shareholder derivative suits except in

the very limited circumstances outlined in Foss v. Harbottle.

See (1843) 2 Hare 461, 67 E.R. 189. English courts describe the

rule of Foss v. Harbottle as having five components. First, the

Foss rule provides that the proper plaintiff in an action regarding

a wrong allegedly done to a company is prima facie the

company itself. See Prudential, [1982] Ch. at 210; Edwards v.

Halliwell, [1950] 2 All E.R. 1064, 1066 (C.A.). Second, no

individual shareholder can maintain an action if the alleged

wrong is capable of ratification by a simple majority of

shareholders. Prudential, [1982] Ch. at 210; Edwards, [1950]

2 All E.R. at 1066. Third, where the alleged wrong is ultra

vires, the rule has no application because a majority of

shareholders cannot ratify the transaction (the ultra vires

exception). Prudential, [1982] Ch. at 210; Edwards, [1950] 2

All E.R. at 1067; see also Moore Decl. ¶ 33.1, 3 J.A. 765.

Fourth, where the wrongdoers themselves are in control of the

company and the alleged action amounts to fraud, the rule is

relaxed to allow the minority to sue (the wrongdoer control or

“fraud on the minority” exception). Prudential, [1982] Ch. at

211; Edwards, [1950] 2 All E.R. at 1067; see also Moore Decl.

¶ 33.3, 3 J.A. 765; Girolami Decl. ¶ 29, 5 J.A. 1301. Fifth, the

Foss rule does not prevent a shareholder from suing if the

alleged wrong could be validly sanctioned only by a special

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majority (the super majority exception). Prudential, [1982] Ch.

at 210-11; Edwards, [1950] 2 All E.R. at 1067; see also Moore

Decl. ¶ 33.2, 3 J.A. 765; Girolami Decl. ¶ 13, 5 J.A. 1289.

As the District Court recognized, a court applying the Foss

rule must first determine whether the alleged wrongdoing is

capable of ratification by a simple majority of shareholders.

Harper Woods, 577 F. Supp. 2d at 132 (citing Moore Decl. ¶ 36,

3 J.A. 765). The District Court was correct to conclude that

while “full and frank” disclosure of the matters to be ratified

may be necessary for an actual shareholder ratification to be

valid, such disclosure is irrelevant to the operative question

under Foss v. Harbottle, viz., whether conduct is in principle

capable of ratification. See id. at 133 (citing Moore Second

Decl. ¶¶ 48-49, 5 J.A. 1465-66); see also Edwards, [1950] 2 All

E.R. at 1066 (explaining that “where the alleged wrong is a

transaction which might be made binding on the company . . . by

a simple majority of the members, no individual member of the

company is allowed to maintain an action” because no wrong

has been done to the company if a majority approves the

transaction and the company itself can bring suit if a majority of

shareholders do not approve) (emphasis added). If the actions

alleged in the complaint are capable of ratification, a shareholder

may not pursue a derivative action on behalf of the corporation

unless one of the exceptions to the rule of Foss v. Harbottle

applies. Harper Woods, 577 F. Supp. 2d at 132 (citing Moore

Decl. ¶ 36, 3 J.A. 765). 

2. Ratification of Illegal Acts

The District Court found that “the essence of Plaintiff’s

Complaint” is “[f]ailure of supervision and oversight.” Harper

Woods, 577 F. Supp. 2d at 132 n.11. The District Court

explained that the wrongs allegedly done to the company that

gave rise to the derivative suit were breaches of fiduciary duty,

not breaches of regulatory, civil, or criminal law. Id. at 132.

The parties’ experts agree that breaches of fiduciary duty for

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mismanagement and failure of supervision are capable of

ratification by shareholders. See Moore Decl. ¶ 39, 3 J.A. 765-

66; Girolami Decl. ¶ 6(3), 5 J.A. 1284-85. Ratification would

render the wrongful act – the failure of supervision and

oversight – no longer a breach of duty to the company. Harper

Woods, 577 F. Supp. 2d at 133 (citing Moore Supp. Decl. ¶ 4, 5

J.A. 1469-70).

Harper Woods seemingly disputes this characterization of

its complaint, noting that the District Court “accepted Mr.

Moore’s narrow characterization” of the complaint instead of

accepting as true all material allegations and construing the

complaint in the light most favorable to Harper Woods. See

Appellant’s Br. at 16-17 (citing Warth v. Seldin, 422 U.S. 490,

501 (1975)). It is at best questionable whether the complaint

alleges anything more than breaches of fiduciary duty. The

complaint asserts, in conclusory terms, that the directors “caused

BAE to engage in a pattern and practice of making illegal and

improper payments” and made “false and misleading statements

to conceal and cover up [the payments].” Complaint ¶ 5, 1 J.A.

29-30; see also id. ¶ 8, 1 J.A. 30-31 (alleging that BAE

defendants “undertook illegal and improper conduct . . .

including paying bribes or kickbacks” to Prince Bandar); id.

¶ 113, 1 J.A. 97 (same). These unsupported assertions are

insufficient to charge the defendant directors with illegal acts.

Although we must construe the complaint liberally in Harper

Woods’ favor, we need not accept legal conclusions cast in the

form of factual allegations. See Kowal, 16 F.3d at 1276. Our

skepticism regarding the frailties of the complaint was fueled

during oral argument when counsel for Harper Woods

acknowledged that the complaint focuses on “a breach of

fiduciary duty, a failure to supervise, and in all likelihood, a

deliberate turning of a blind eye.” Tr. of Oral Argument at 7.

In the end analysis, however, Harper Woods’ arguments

regarding the breadth of the complaint are much ado about

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nothing. Even if Harper Woods’ complaint can be construed as

an action against the directors for committing illegal acts,

Harper Woods has not convincingly demonstrated that English

law finds illegal acts incapable of ratification by shareholders.

At oral argument, Harper Woods relied primarily on a 1915 Irish

case, Cockburn v. Newbridge Sanitary Steam Laundry Co. Ltd.,

[1915] 1 I.R. 237 (C.A.). Although the Cockburn case

recognized that “[i]llegality and ultra vires are not

interchangeable terms,” the court in fact conflated the two,

noting that “it is difficult, if not impossible, to conceive a case

in which a company can do an illegal act . . . and act within its

powers.” Id. at 254. The court then discussed a case involving

an ultra vires act “unaffected by criminality,” id., and concluded

that the ultra vires argument is stronger “when the whole matter

is tainted with criminality.” Id. at 255. The court held that,

because the agreement entered into by the director-defendant in

Cockburn was likely to be illegal, “[i]t would, accordingly, have

been quite beyond the powers of the company to have entered

into it.” Id. The Cockburn decision is perplexing, to say the

least, in part because it can be read as nothing more than an

application of the ultra vires exception to the Foss rule. In other

words, whether or not “illegal,” the court found that the alleged

wrongdoing in Cockburn undoubtedly involved an ultra vires

action.

In his second declaration, Mr. Moore dismisses Cockburn

as “an Irish case” that “is not binding on the English courts.”

Moore Second Decl. ¶ 27(c), 5 J.A. 1459. Mr. Moore makes a

more compelling argument, however, when he points out that

“the reasoning underlying the decision [in Cockburn] is

fundamentally incompatible with important and binding English

authority, in particular Rolled Steel Prods. (Holdings) Ltd. v.

British Steel Corp., [1986] Ch. 246[, 297 (C.A.)] and Arab

Monetary Fund v. Hashim, [1993] 1 Lloyd’s L. Rep. 543[, 569

(Q.B.)].” Id. In Rolled Steel, the court stated that “the phrase

‘ultra vires’ in the context of company law should for the future

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be rigidly confined to describing acts which are beyond the

corporate capacity of a company.” Rolled Steel, [1986] Ch. at

297 (Slade, L.J.). In other words, the court made it clear that “a

company has capacity to carry out a transaction which falls

within its objects even though carried out by wrongful exercise

of its powers.” Id. at 303 (Browne-Wilkinson, L.J.).

The Law Commission’s Consultation Paper on Shareholder

Remedies, cited by Mr. Moore, confirms this conclusion, stating

that “where an act which a company commits is illegal it is not

also ultra vires unless it is also beyond the capacity it is given by

the Companies Acts.” See Moore Second Decl. ¶ 25(c), 5 J.A.

1458; see also THE LAW COMMISSION, SHAREHOLDER

REMEDIES: A CONSULTATION PAPER ¶ 4.21 (The Stationery

Office 1996) [hereinafter LAW COMMISSION CONSULTATION

PAPER]. The Law Commission Consultation Paper continues,

“The description of the rule in Foss v[.] Harbottle [previously

described in the consultation paper] applies to illegal acts which

are ultra vires in this sense. Where the company proposes to do

some other illegal act, a member may bring proceedings to

restrain the company from so acting, but it is doubtful whether

he can bring proceedings to recover damages for any loss which

the company may suffer as a result without showing a fraud on

the minority.” LAW COMMISSION CONSULTATION PAPER at

¶ 4.21. Harper Woods’ expert, Mr. Girolami, cites this language

to show that the point is not free from doubt and that “the Law

Commission report does not espouse Mr. Moore’s apparently

doubt-free view that all illegal acts can be ratified by a simple

majority.” Girolami Second Decl. ¶ 6, 5 J.A. 1476-77. But

Plaintiff has the burden of demonstrating standing to bring the

derivative suit, see Prudential, [1982] Ch. at 221-22, and Harper

Woods has not demonstrated that illegal acts cannot be ratified.

Harper Woods also relies on treatises to support its claim

that illegal acts cannot be ratified. However, only two treatises

cite English cases in support of the proposition that the Foss rule

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does not apply if the alleged wrong is illegal or criminal. See

Girolami Decl. ¶ 23(c), (f), 5 J.A. 1295, 1296-97. Only one of

the cases cited – Powell v. Kempton Park Racecourse, [1987] 2

Q.B. 242 (C.A.) – concerns a criminally illegal action of the

type alleged by Harper Woods. The other three cases do not

concern criminally illegal conduct. See Drown v. GaumontBritish Picture Corp., Ltd., [1937] Ch. 402, 402 (shareholder

sued to restrain company and its directors from paying a

dividend out of capital); Baillie v. Oriental Tel. and Elec. Co.

Ltd., [1915] 1 Ch. 503, 504, 515 (C.A.) (shareholder brought suit

to have declared invalid certain special resolutions that he

alleged were not validly enacted and thus not binding on the

company); Const v. Harris, (1824) 37 E.R. 1191, 1191, 1196

(Ch.) (member of a partnership brought suit to compel other

partners to act according to a covenant previously entered into

by the partnership). 

As for Kempton Park, the plaintiffs in that case sought an

injunction to restrain the company from knowingly permitting

illegal activities in an enclosure at the racetrack in violation of

the Betting Act, 1853. See Powell v. Kempton Park Racecourse,

[1987] 2 Q.B. 242, 253 (C.A.). The case concerned whether the

alleged activity was in fact illegal, and the defendants did not

argue that the court lacked jurisdiction to enjoin the defendants

from committing a criminal act. Id. at 260 (Lindley, L.J.); id. at

268 (Lopes, L.J.). The Law Commission acknowledges that a

shareholder may bring suit to restrain the company from acting

in a certain way, LAW COMMISSION CONSULTATION PAPER at

¶¶ 2.29, 4.22, a type of suit that differs from a shareholder

derivative suit and does not fall within the rule of Foss v.

Harbottle. See Smith v. Croft (No. 2), [1988] Ch. 114, 167, 177;

see also LAW COMMISSION CONSULTATION PAPER at ¶ 4.22.

The aforecited Drown case is also a suit seeking to restrain a

company and its directors from taking a certain action, although

it involves the payment of a dividend rather than criminally

illegal conduct. See Drown, [1937] Ch. at 402.

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Harper Woods has cited no case in which an English court

has authoritatively held that a criminally illegal, but not ultra

vires, act is outside the rule of Foss v. Harbottle and therefore

a shareholder derivative suit may proceed. Mr. Girolami cites

an Australian case, Australian Agric. Co. v. Oatmont Pty Ltd.,

(1992) 8 A.C.S.R. 255, in support of his claim that shareholder

derivative actions may be permissible in cases involving nothing

more than alleged criminal illegalities. But the decision simply

cannot carry the weight of authority that Harper Woods would

like. In his second declaration, Mr. Moore aptly disposes of the

Australian case:

Australian Agricultural Co. v. Oatmont Pty [1992] is an

Australian case, again not binding on the English courts,

and should be treated with caution in the light of the

Australian courts’ less restrictive approach to the rule in

Foss v. Harbottle. Further, it is not clear that the comments

quoted by Mr. Girolami at his paragraph 25 refer to an

exception to the rule at all. It is clear that the court

considers that causing the company to act illegally would be

a breach of the directors’ duties, but all that is said is that

this “could well give rise” to a derivative action. It is not

suggested that such an action could necessarily be pursued

in the absence of one or more of the established exceptions

to the rule in Foss v. Harbottle (in particular, fraud on the

minority).

Moore Second Decl. ¶ 27(d), 5 J.A. 1459-60.

Because Harper Woods has failed to demonstrate that,

under authoritative English law, the alleged activities of the

defendants – whether construed as breach of fiduciary duties or

illegal acts – are incapable of ratification, the complaint falls

within the rule of Foss v. Harbottle and the company itself is the

proper plaintiff unless an exception to the rule applies.

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3. Exceptions to the Rule of Foss v. Harbottle

Harper Woods contends that three exceptions to the Foss

rule bring its complaint outside the purview of the rule: the

ultra vires exception, the wrongdoer control exception, and the

interests of justice exception. The District Court correctly

explained why these exceptions do not apply, see Harper

Woods, 577 F. Supp. 2d at 133-36 & n.13, and we affirm. 

The ultra vires exception does not apply because Harper

Woods did not allege ultra vires conduct. In English law, an

ultra vires act is an act “beyond the corporate capacity of a

company.” Rolled Steel, [1986] Ch. at 297. Whether conduct

is ultra vires thus depends upon whether a company is capable

of performing the act, as set forth in the company’s

memorandum of association. Id. at 295. Harper Woods did not

allege that BAE lacked the corporate capacity to make payments

to Bandar. Furthermore, at least one English court has held that

payment of a bribe is not an ultra vires act where the company’s

memorandum authorizes it to provide compensation in return for

services rendered in the conduct of its business. See Arab

Monetary Fund, [1993] 1 Lloyd’s Rep. at 569.

The wrongdoer control exception also does not apply. This

exception may be applicable when director-defendants have

allegedly committed “fraud” by using their powers or positions

at the company to benefit themselves at the company’s expense.

Moore Decl. ¶ 53, 3 J.A. 769; Girolami Decl. ¶ 29, 5 J.A. 1301.

However, shareholder-plaintiffs may invoke this exception only

when the director-defendants have been in “control” of the

company. See Moore Decl. ¶¶ 54-55, 3 J.A. 769-70; Girolami

Decl. ¶ 31, 5 J.A. 1302. Harper Woods did not allege that the

BAE defendants benefitted personally from any fraud, as both

parties’ experts agree must occur for this exception to apply.

Moore Decl. ¶ 53, 3 J.A. 769; Girolami Decl. ¶ 29, 5 J.A. 1301.

Harper Woods alleged only that BAE’s directors and top

managers held onto their “prestigious and lucrative BAE

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positions” by representing that BAE was a “highly ethical law

abiding corporation . . . achieving very substantial profits due to

the skills of its top managers,” while in reality increasing profits

through illegal activities. Complaint ¶¶ 3-4, 1 J.A. 28-29. As

the District Court explained, these allegations do not constitute

the necessary self-dealing by a director sufficient to invoke the

wrongdoer control exception. See Harper Woods, 577 F. Supp.

2d at 135. Because Harper Woods did not allege fraud, this

court need not reach the “control prong” of the wrongdoer

control exception. See id. at 136.

Finally, Harper Woods has not proven the existence of an

“interests of justice” exception to the Foss rule. Even if Foss v.

Harbottle itself recognizes such an exception, Harper Woods

has not demonstrated that it has no other remedy to rectify its

injury. See Foss, 2 Hare at 492, 67 E.R. at 203 (“claims of

justice” allow a suit to go forward where “no adequate remedy”

exists to rectify injury). BAE’s expert, Mr. Moore, set forth a

number of remedies for director misconduct apart from a

shareholder derivative suit. See Moore Decl. ¶¶ 75-79, 3 J.A.

774-75. That Harper Woods prefers a derivative suit to other

available remedies does not mean that “no adequate remedy”

exists.

D. Dismissal With Prejudice

Finally, we hold that Harper Woods may not pursue its

claim that the District Court erred in dismissing the complaint

with prejudice, because this claim has been forfeited. When a

plaintiff fails to seek leave from the District Court to amend its

complaint, either before or after its complaint is dismissed, it

forfeits the right to seek leave to amend on appeal. See Gov’t of

Guam v. Am. President Lines, 28 F.3d 142, 150-51 (D.C. Cir.

1994); see also Drake v. FAA, 291 F.3d 59, 72 (D.C. Cir. 2002).

This rule applies where, as here, the court of appeals affirms

dismissal of the complaint. Drake, 291 F.3d at 72 (citing United

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20

States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 552-53

(D.C. Cir. 2002)).

Harper Woods relies primarily on two cases that are

inapposite, Belizan v. Hershon, 434 F.3d 579 (D.C. Cir. 2006),

and Firestone v. Firestone, 76 F.3d 1205 (D.C. Cir. 1996) (per

curiam). See Appellant Br. at 27-28, 51. In those cases, the

plaintiffs sought leave from the District Court to amend their

complaints by filing Rule 59(e) motions after their complaints

were dismissed. See Belizan, 434 F.3d at 581; Firestone, 76

F.3d at 1208. Harper Woods never moved to amend its

complaint in the District Court. At most, in its opposition to the

PNC defendants’ motion to dismiss, Harper Woods made a brief

request for leave to amend if the District Court were to dismiss

any of its claims and briefly mentioned amendment with respect

to its claims against the BAE defendants. See Plaintiff’s

Consolidated Opposition to Defendants’ Motions to Dismiss at

7, 82, reprinted in 3 J.A. 842, 917 (request to amend to add

allegations against PNC defendants); id. at 60, 3 J.A. 895

(briefly mentioning facts alleged “or pled through amendment”

with respect to the BAE defendants). “‘[A] bare request in an

opposition to a motion to dismiss – without any indication of the

particular grounds on which amendment is sought – does not

constitute’” a motion to amend. United States ex rel. Williams

v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1259 (D.C.

Cir. 2004) (quoting Kowal, 16 F.3d at 1280). We therefore find

that Harper Woods did not move for leave to amend in the

District Court and hold that it cannot now belatedly seek a

remand from this court to amend its complaint. 

E. Dismissal of Aiding and Abetting Claims

The District Court dismissed the claims against the PNC

defendants on the ground that plaintiffs who lack standing to

bring a derivative claim for breach of fiduciary duty cannot

pursue counts for aiding and abetting those breaches. See Mann,

483 F. Supp. 2d at 899. We affirm this judgment for it is

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eminently sound and Harper Woods cites no good authority to

refute it. Indeed, Harper Woods did not challenge the District

Court’s judgment in its opening brief to this court. Nor did

Harper Woods challenge this specific point in its reply brief.

Even if it had raised the matter in its reply brief, that would have

been too late to preserve the issue for appellate review. Am.

Wildlands v. Kempthorne, 530 F.3d 991, 1001 (D.C. Cir. 2008)

(citing Rollins Envtl. Servs. v. EPA, 937 F.2d 649, 652 n.2 (D.C.

Cir. 1991)). It is clear here that the judgment of the District

Court admits of no viable challenge.

III. CONCLUSION

For the foregoing reasons, we affirm the judgment of the

District Court.

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