UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK 

----------------------------------------------------------- x

PIRELLI ARMSTRONG TIRE 

CORPORATION RETIREE MEDICAL 

BENEFITS TRUST, Derivatively on Behalf 

of MACY’S, INC., 

Plaintiff, 

vs. 

TERRY J. LUNDGREN, KAREN M.

HOGUET, SARA LEVINSON, CRAIG E. 

WEATHERUP, JOSEPH NEUBAUER, 

JOSEPH A. PICHLER, JOYCE M. ROCHE, 

MEYER FELDBERG, MARNA C.

WHITTINGTON, KARL M. VON DER 

HEYDEN, WILLIAM P. STIRITZ, JOEL A. 

BELSKY, DENNIS J. BRODERICK, 

THOMAS G. CODY, THOMAS L. COLE, 

JANET E. GROVE and SUSAN D. 

KRONICK,

Defendants, 

- and - 

MACY’S, INC., a Delaware corporation, 

Nominal Defendant. 

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

)

) 

Case No. 1:07-cv-05862-RJH 

ECF 

----------------------------------------------------------- x

REPLY MEMORANDUM IN SUPPORT OF DEFENDANTS’ 

MOTION TO DISMISS THE SHAREHOLDER DERIVATIVE COMPLAINT

CLI-1577643 

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 1 of 17
TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ................................................................................................... 1 

ARGUMENT ................................................................................................................................. 2 

I. The Complaint Should Be Dismissed For Lack of a Pre-Suit Demand ....................... 2 

A. Plaintiff Does Not Show That the Directors Have a 

Disqualifying Interest ....................................................................................... 2 

1. There are no particulars showing a substantial 

likelihood of liability for the Directors regarding 

Macy’s disclosures ............................................................................... 2 

(a) The board in general ............................................................... 2 

(b) Membership on committees .................................................... 4 

2. There are no particulars showing that the Directors have 

a substantial likelihood of liability for personal stock 

sales ...................................................................................................... 5 

B. Plaintiff Does Not Show The Directors Lack Independence 

Due To “Personal and Business Entanglements” ............................................ 6 

C. Plaintiff Fails To Show That the Stock Repurchase Was Likely 

Not the Product of a Valid Business Judgment ............................................... 7 

D. The Totality of the Circumstances Does Not Excuse a Demand ..................... 8 

II. The Complaint Fails to State a Claim Upon Which Relief Can Be 

Granted ......................................................................................................................... 8 

A. The Complaint Fails to Satisfy Rule 9(b) and the PSLRA .............................. 8 

B. The Complaint Fails to Overcome the Business Judgment Rule ..................... 9 

C. The Claims for Waste and Unjust Enrichment Should Be 

Dismissed ....................................................................................................... 10 

III. The Complaint Should Be Dismissed With Prejudice ............................................... 10 

CONCLUSION ............................................................................................................................ 10 

-iCLI-1577643 

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 2 of 17
TABLE OF AUTHORITIES

Page(s)

FEDERAL CASES

Caviness v. Evans, 

229 F.R.D. 354 (D. Mass. 2005) ........................................................................................ 5 

Confederate Mem. Ass’n, Inc. v. Hines, 

995 F.2d 295 (D.C. Cir. 1993) ......................................................................................... 10

Ferre v. McGrath, No. 06 Civ. 1684 (CM), 

2007 WL 1180650 (S.D.N.Y. Feb. 16, 2007) ................................................................ 3, 9 

Fink v. Komansky, No. 03-CV-0388(GBD), 

2004 WL 2813166 (S.D.N.Y. Dec. 8, 2004) ..................................................................... 8 

In re Biopure Corp. Derivative Litigation, 

424 F. Supp. 2d 305 (D. Mass. 2006) ............................................................................ 3, 4 

In re Forest Laboratories, Inc. Derivative Litig., 

450 F. Supp. 2d 379 (S.D.N.Y. 2006) ................................................................................ 4

In re IAC/InterActiveCorp Sec. Litig., 

478 F. Supp. 2d 574 (S.D.N.Y. 2007) ................................................................................ 2 

In re Keyspan Corp. Sec. Litigation, 

383 F. Supp. 2d 358 (E.D.N.Y. 2003) ........................................................................... 3, 4 

In re Pfizer Inc. Derivative Sec. Litig., 

503 F. Supp. 2d 680 (S.D.N.Y. 2007) ............................................................................ 8, 9 

Loveman v. Lauder, 

484 F. Supp. 2d 259 (S.D.N.Y. 2007) ................................................................................ 7 

Martin v. Dickson, No. 03-7917, 100 Fed. Appx. 14, 

2004 WL 1205185 (2d Cir. June 2, 2004) ....................................................................... 10 

Novak v. Kasaks, 

216 F.3d 300 (2d Cir. 2000) ............................................................................................... 8 

Shields v. Citytrust Bancorp, Inc., 

25 F.3d 1124 (2d Cir. 1994) ............................................................................................... 9 

 CLI-1577643

-iiCase 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 3 of 17
TABLE OF AUTHORITIES

Page(s)

FEDERAL CASES

(Continued)

Xerion Partners, I LLC v. Resurgence Asset Management, LLC, 

474 F. Supp. 2d 505 (S.D.N.Y. 2007) ................................................................................ 9

STATE CASES 

Aronson v. Lewis, 

473 A.2d 805 (Del. 1984) .................................................................................................. 7 

Beam v. Stewart, 

845 A.2d 1040 (Del. 2004) ................................................................................................ 6 

Guttman v. Huang, 

823 A.2d 492 (Del. Ch. 2003)..................................................................................... 2, 4, 5 

Harbor Finance Partners v. Huizenga, 

751 A.2d 879 (Del. Ch. 1999) ............................................................................................ 6 

In re New Valley Corp. Derivative Litigation, No. 17649, 

2001 WL 50212 (Del. Ch. Jan. 11, 2001) .......................................................................... 6

In re Oracle Corp. Derivative Litig., 

824 A.2d 917 (Del. Ch. 2003) ............................................................................................ 6 

In re Walt Disney Co. Derivative Litig., 

731 A.2d 342 (Del.Ch. 1998), overruled on other grounds 

by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) .................................................................. 7 

International Equity Capital Growth Fund, L.P. v. Clegg, No. 

14995, 1997 WL 208955 (Del. Ch. Apr. 22, 1997) ........................................................... 6 

Malpiede v. Townson, 

780 A.2d 1075 (Del. 2001) ................................................................................................ 9

Parfi Holding AB v. Mirror Image Internet, Inc., 

794 A.2d 1211 (Del. Ch. 2001) .......................................................................................... 6 

 CLI-1577643

-iiiCase 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 4 of 17
TABLE OF AUTHORITIES

Page(s)

STATE CASES 

(Continued)

Rattner v. Bidzos, No. 19700, 

2003 WL 22284323 (Del. Ch. Oct. 7, 2003) ..................................................................... 4

STATUTES and RULES 

Fed. R. Civ. P. 9 ............................................................................................................................. 8 

Fed. R. Civ. P. 12 ........................................................................................................................... 2 

Del. Code tit. 8, § 102 ............................................................................................................ 2, 3, 9 

 

 CLI-1577643

-ivCase 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 5 of 17
PRELIMINARY STATEMENT

In our opening brief, we pointed out the complete absence of particularized factual 

allegations to support the crux of the Complaint: that Macy’s directors knew or believed that 

Macy’s first-quarter 2007 sales projections could not be realized, but nonetheless allowed those 

projections to be issued. (Def. Br. 10-14.) The Complaint, we noted, has no particulars about: 

• What, if anything, the directors had to do with the preparation of the projections; 

• What review, if any, the directors had of the projections before they were issued; or 

• Any data, information or communications provided to any of the directors that 

supposedly led them to believe the projections could not be achieved. 

So far as the Complaint shows, nobody ever commented to any director that the sales projections 

were illegitimate, or provided any of them with data calling into question those projections. 

The same lack of particularity afflicts the allegations about Macy’s early 2007 stock 

buyback. (Def. Br. 19-21.) We explained that the Complaint is mute about: 

• The process by which the board decided to authorize the buyback; 

• The data the board considered and the advice it received in making that decision; and

• The reasons for the buyback. 

Without any of these particulars, the Complaint falls far short of showing that the directors 

face a substantial likelihood of liability on these derivative claims, which means a pre-suit demand 

was required. The same factual gaps also mean the Complaint states no actionable claims. 

Plaintiff acknowledges the need to plead with particularity (Opp. 6), but then tries to dodge 

it, inartfully. Over and over, plaintiff urges the Court to “infer” wrongful intent based on the 

directors’ titles or on hindsight (id. at 8, 9, 10, 12), or to “impute” to them knowledge of unspecified 

negative information supposedly held by unidentified people (id. at 7-8, 9). And of course, plaintiff 

wants the Court not to hold it to the strict pleading standard, because it has not taken discovery. (Id.

at 6.) 

CLI-1577643

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 6 of 17
Delaware law squarely rejects those arguments, especially where, as here, a plaintiff failed 

to use available pre-suit means, such as books-and-records requests, to search for required 

particulars. This plaintiff has “failed to heed the numerous admonitions . . . for derivative plaintiffs

to obtain books and records before filing a complaint,” with predictable results: “When the case

most cries out for the pleading of real facts” – like the board’s knowledge of and participation in the 

first-quarter 2007 sales projections and the deliberative process behind the buyback authorization – 

“the complaint is at its most cursory, substituting conclusory allegations for concrete assertions of 

fact.” Guttman v. Huang, 823 A.2d 492, 493-94 (Del. Ch. 2003) (dismissing derivative complaint 

with prejudice for lack of particularized allegations to excuse demand). 

These failings, and the others identified in our first brief, require dismissal with prejudice.1

 

ARGUMENT

I. The Complaint Should Be Dismissed For Lack of a Pre-Suit Demand. 

A. Plaintiff Does Not Show That the Directors Have a Disqualifying Interest. 

1. There are no particulars showing a substantial likelihood of liability for 

the Directors regarding Macy’s disclosures. 

(a) The board in general. 

These key facts stand unrebutted: 

• There is no challenge at all to disclosures concerning Macy’s actual financial 

performance – such as, for example, the strong actual results for fourth quarter and 

full year 2006, reported in February 2007. (See Compl. ¶ 8.) All there is is a claim

that Macy’s should have been gloomier in its outlook for 2007’s first quarter. 

• Plaintiff offers no particulars at all that the directors had anything to do with the 

specifics of the 2007 first-quarter guidance. 

• Much less does plaintiff provide factual particulars suggesting that any director 

believed the guidance to be illegitimate. 

 1

 Plaintiff wrongly objects to several exhibits filed with our motion, including Macy’s 

certificate of incorporation and SEC filings. (Opp. 2 n.1.) This Court may consider certain types of 

documents outside the pleadings on a motion pursuant to Fed. R. Civ. P. 12(b)(6). (Def. Br. 2 n.3.) 

These include SEC filings, documents “integral” to the complaint, and documents of which judicial 

notice can be taken. In re IAC/InterActiveCorp Sec. Litig., 478 F. Supp. 2d 574, 585 & n.5 

(S.D.N.Y. 2007). Significantly, plaintiff does not dispute that Macy’s filed the referenced 

documents with the SEC, or that Macy’s charter indeed has a § 102(b)(7) exculpatory provision. 

 CLI-1577643

-2-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 7 of 17
• The Complaint says nothing about the assumptions behind the projections, or how 

the projections were prepared, or any facts showing directorial knowledge of 

shortcomings in either the assumptions or the process. 

• Plaintiff asserts repeatedly that the directors were trying to conceal that performance 

of the former May stores had been “lagging,” but that is precisely what Macy’s press 

releases and public filings did say. (Def. Br. 3 n.5, 22.) 

Lacking any of these particulars, plaintiff instead argues, relying on In re Keyspan Corp. 

Securities Litig., 383 F. Supp. 2d 358 (E.D.N.Y. 2003), and In re Biopure Corp. Derivative Litig., 

424 F. Supp. 2d 305 (D. Mass. 2006), that Macy’s directors should be “imputed” with knowledge 

that first-quarter projections could not be met because “successful integration of May stores and 

comparable store sales growth was a primary focus in generating revenue and determining Macy’s 

financial projections.” (Opp. 7.) That argument fails. Plaintiff never says whose knowledge should 

be imputed to the directors, or identifies anyone at Macy’s, let alone the directors, who thought the 

projections were unreasonable. Besides, a substantial likelihood of director liability could never be

based on a claim that someone else’s knowledge should be put on the directors, because only 

intentional misconduct falls outside the shield of the § 102(b)(7) provision.2

 Finally, it does not 

follow that, because the merger integration was important to Macy’s, any shortfall in quarterly sales 

projections must necessarily have been known (or even knowable) in advance. 

Neither Keyspan nor Biopure helps plaintiff. To begin with, their rationale has been rejected 

in this Court. See Ferre v. McGrath, No. 06 Civ. 1684 (CM), 2007 WL 1180650, at *6 (S.D.N.Y. 

Feb. 16, 2007) (“Allegations of knowledge explained solely by the directors’ service as directors, 

without more, are insufficient as a matter of law – even where, as here, the plaintiff alleges that the 

matters in suit relate to the corporation’s ‘core’ business.”) (emphasis added). Moreover, Keyspan

concerned inferences of scienter in a securities fraud case – not imputation as a basis for demand 

futility under Delaware law, 383 F. Supp. 2d at 381, and what’s more, it cast aside the assertion that 

 2

 Plaintiff does not address the Delaware caselaw holding that a § 102(b)(7) provision requires a plaintiff seeking to excuse demand to satisfy a scienter-based standard. (Def. Br. 8-9.) 

 CLI-1577643

-3-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 8 of 17
“defendants must be charged with knowledge of activities at [the company] by virtue of their highlevel positions.” Id. at 387. Although the court cited three cases imputing knowledge to 

defendants, it noted that those cases involved factual allegations of “circumstances far more 

suggestive of [the defendants’] direct access to such information.” Id. Biopure did treat the entire 

board as having knowledge, but only because the alleged misstatements involved the failure to 

obtain FDA approval for the company’s primary product, a catastrophic result that threatened 

Biopure’s continued viability. 424 F. Supp. 2d at 307-08; see In re Forest Labs., Inc. Deriv. Litig., 

450 F. Supp. 2d 379, 392-93 (S.D.N.Y. 2006) (distinguishing Biopure). Here, by contrast, there 

was no such catastrophic result – Macy’s missed its first-quarter 2007 sales projections by less than 

two percentage points, and actually met its projection for earnings per diluted share. (Def. Br. 4.) 

Macy’s remains a profitable, viable company even after that narrow miss in 2007’s first quarter. 

(b) Membership on committees. 

The same factual barrenness afflicts the argument that Audit Committee members face a 

significant likelihood of personal liability. All plaintiff does is cite the Committee charter, which 

says the committee should “[d]iscuss the type of information to be provided and the type of 

presentation to be made in connection with the Company’s . . . earnings guidance.” (Compl. ¶ 56; 

Opp. 12 n.11.) But it does not follow from that allegation that (a) the Committee reviewed the firstquarter same-store sales (not earnings) projection; or (b) the Committee was provided any data or 

information suggesting the projection was unachievable, but approved it anyway. 

To establish that Audit Committee members face a substantial likelihood of liability, a 

plaintiff must “allege with particularity what information the directors knew and how they acquired 

such knowledge” showing that they knew or recklessly disregarded material misstatements. Rattner 

v. Bidzos, 2003 WL 22284323, at *10 n.53 (Del. Ch. Oct. 7, 2003). The Complaint’s failure to do 

so is fatal. Guttman v. Huang, 823 A.2d 492, 503 (Del. Ch. 2003) (requiring particularized facts as 

 CLI-1577643

-4-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 9 of 17
to “why [the directors] would have perceived the accounting irregularities”).3

2. There are no particulars showing that the Directors have a substantial 

likelihood of liability for personal stock sales. 

For starters, demand cannot be excused based on allegations about directors’ stock sales, 

because only 3 of 10 directors (and only 2 of the 9 outside directors) are alleged to have sold. 

More fundamentally, though, the Complaint fails to show a substantial likelihood of liability 

for the stock sales for the same reason it fails to make that showing as to the first-quarter guidance: 

the utter absence of particulars showing the directors believed the guidance was not achievable, 

which is the supposed inside information that plaintiff says caused the stock price to be “artificially 

inflated.” While plaintiff says the Complaint “has shown what adverse, non-public information 

defendants knew when they sold their shares and how they obtained this information” (Opp. 10), 

that pleading in fact does no such thing. (See Compl. ¶¶ 40, 43, 60, 61, 96, 101.) It does not say 

what specific information each director learned about the same-store sales guidance, when, how, or 

why the information was material. Instead, plaintiff makes only generic assertions that defendants 

had “adverse, non-public information about the business of Macy’s including its finances, markets 

and present and future business prospects.” (Id. ¶ 40.) That is not enough to show the directors 

sold stock “‘on the basis of, and because of, adverse material non-public information,’” which is 

what Delaware law requires. (Def. Br. 14 (quoting Guttman, 823 A.2d at 505).) 

Plaintiff also ignores its obligation to plead particularized facts regarding the timing of the 

trades in relation to permitted trading periods, or showing whether and how the timing of those 

trades was consistent or inconsistent with the directors’ trading activity in prior years. (Def. Br. 

15.) Leaving aside for purposes of argument the only inside director (Lundgren), there is absolutely 

nothing suspicious about the two outside directors who sold, Levinson and Weatherup. The 7,000 3 See also Caviness v. Evans, 229 F.R.D. 354, 359 (D. Mass. 2005) (noting the absence of any “particularized allegations regarding the knowledge of any member of the Audit Committee” 

and rejecting plaintiff’s contention that knowledge can be inferred from a “particularized pleading of . . . Audit Committee duties”) (internal quotations omitted) (applying Delaware law). 

 CLI-1577643

-5-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 10 of 17
shares that they each sold in March-April 2007 (a small portion of their total holdings) were 

acquired through the same-day exercise of stock options that were about to expire in May 2007. 

(See Levinson 3/22/07 Form 4, attached as Ex. 1 to the Supplemental Declaration of Michael A. 

Platt (“Suppl. Platt Decl.”); Levinson 4/10/07 Form 4, Suppl. Platt Decl. Ex. 2; Weatherup 3/16/07 

Form 4, Suppl. Platt Decl. Ex. 3; 4/04/07 Form 14-A at 5, 19, Suppl. Platt Decl. Ex. 4.) There is 

nothing suspicious about exercising options that are about to expire. 

The stock-sale allegations provide no basis for excusing demand. 

B. Plaintiff Does Not Show The Directors Lack Independence Due To “Personal 

and Business Entanglements.” 

Plaintiff insists the directors lack independence because of business, personal, and 

employment relationships. (Opp. 12-13.) We explained why this is not so (Def. Br. 17-19), and the 

opposition adds nothing of substance. What plaintiff identifies are normal business and social 

connections with no bearing on the matter at hand; that does not show a disqualifying subservience. 

Beam v. Stewart, 845 A.2d 1040, 1051-52 (Del. 2004).4

 Were such relationships enough, the 

independence of nearly all directors of public companies would be undermined because directors 

typically have business and social connections. Plaintiff's cases are inapposite.5

 4

 In our opening brief, we pointed out the significant differences between the relationships alleged here and those alleged in In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 

2003). (Def. Br. 18 n.14.) Plaintiff offers nothing in response. 

5

 In In re New Valley Corp. Derivative Litigation, No. 17649, 2001 WL 50212, at *2, *7 

(Del. Ch. Jan. 11, 2001), the directors had “direct financial or employment relationships” with the 

company on the other side of the challenged transaction. Likewise, in Parfi Holding AB v. Mirror 

Image Internet, Inc., 794 A.2d 1211, 1231 (Del. Ch. 2001), the director in question was on the 

boards of two companies and the demand would have required him to determine whether one 

should sue the other. Because the director owed a duty of loyalty to each company, he could not 

“qualify as an independent director under the reasoning of our corporation law because ‘extraneous 

considerations’ cloud his mind.” Id. In Int’l Equity Capital Growth Fund, L.P. v. Clegg, No. 

14995, 1997 WL 208955, at *5 (Del. Ch. Apr. 22, 1997), the director in question had been 

appointed by the controlling shareholder, who was interested; had his compensation set by a 

committee, which included the controlling shareholder; and benefited from certain transactions that 

he approved of, while the controlling shareholder benefited from other similar approved 

transactions. Finally, in Harbor Finance Partners v. Huizenga, 751 A.2d 879, 881, 886-89 (Del. 

Ch. 1999), the director in question was a stockholder in the company acquired in the challenged 

transaction, had significant business relationships with the largest stockholder in that company (who 

was also a defendant director) for over 30 years, and was that stockholder’s brother-in-law. 

 CLI-1577643

-6-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 11 of 17
In any event, a director’s lack of independence from another director is relevant only if one 

of them faces a substantial likelihood of liability. Because plaintiff has failed to allege with 

particularity that any director faces such exposure, lack of independence is not relevant to the 

demand futility analysis. In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 355 (Del. Ch. 1998), 

overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). 

C. Plaintiff Fails To Show That the Stock Repurchase Was Likely Not the Product 

of a Valid Business Judgment. 

Plaintiff seems to concede that the board’s authorization of Macy’s stock repurchase 

program could not have constituted self-dealing because none of the directors is alleged to have 

stood on the other side of a repurchase. It nonetheless continues to insist that the authorization was 

not a valid business judgment because the board “knew or should have known” that Macy’s stock 

price was artificially inflated by the unattainable first-quarter sales guidance. (Opp. 13-14.) That 

argument falters for the same reason as the claims about the projections and the insider sales – the 

absence of particulars showing that any director (much less a majority) believed the guidance to be

unattainable but still authorized its publication. Plaintiff makes no effort to satisfy its “substantial 

burden” as to Aronson’s second prong, and does nothing to convince the Court that this is one of 

those “extreme cases” meriting an abrogation of the demand requirement. (See Def. Br. 19-21.)6

 

See Loveman v. Lauder, 484 F. Supp. 2d 259, 269-70 (S.D.N.Y. 2007) (second Aronson prong not 

satisfied by conclusory allegations that stock repurchase was “disadvantageous” to the company).7

 6

 Plaintiff asks the Court not to consider the transcript of a February 27, 2007 analyst call in which Macy’s explained the business reason for its stock repurchase program. (Opp. 2 n.1.) That business reason is set forth in any event in Macy’s SEC filings, of which the Court may take judicial notice. (See 2/27/07 8-K, Platt Decl. Ex. L (“We believe that repurchasing shares is a very productive use of excess cash and balance sheet capacity.”).) 

7

 The Complaint and opposition make several references to Macy’s sale of “May’s greatest financial hope, its Bridal Group.” (Opp. 1; Compl. ¶¶ 4, 65.) But neither the Complaint nor the brief ever says why the Bridal Group was “May’s greatest financial hope,” or offers any fact to back up that assertion. Nor does plaintiff try to link that decision to any alleged fiduciary breach. No doubt the only reason the Bridal Group is mentioned at all is that Macy’s sold it post-merger and plaintiff is looking for something to complain about. 

 CLI-1577643

-7-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 12 of 17
Moreover, as noted in our first brief, the Complaint provides zero information about the 

board’s process in deciding to approve the repurchase (Def. Br. 19-21), and the opposition offers 

nothing to overcome the deficiency. 

D. The Totality of the Circumstances Does Not Excuse a Demand. 

Sensing analytical defeat, plaintiff retreats to a musky notion that the “totality of the 

circumstances” excuses demand. (Opp. 14-16.) But the whole here is not greater than the sum of 

its parts.8

 Just as each of the individual factors fails to undermine disinterestedness or 

independence, the combination fails as well.9

 

II. The Complaint Fails to State a Claim Upon Which Relief Can Be Granted. 

Fundamentally, the Complaint fails to state an actionable claim for the same reasons demand 

is not excused: an utter absence of factual allegations on the key points underpinning the claims. 

A. The Complaint Fails to Satisfy Rule 9(b) and the PSLRA. 

Plaintiff seems to agree that the Complaint sounds in fraud and must therefore comply with 

Rule 9(b) and, as to the § 10(b)/Rule 10b-5 claim, the PSLRA too. It comes nowhere close. All the 

claims rest on the assertion that the defendants believed the first-quarter sales guidance to be 

insupportable (or, more generally, that the merger integration was “failing”), but issued the 

guidance anyway. Where, as here, “plaintiffs contend defendants had access to contrary facts, they 

must specifically identify the reports or statements containing this information.” Novak v. Kasaks, 

216 F.3d 300, 309 (2d Cir. 2000). Moreover, “to survive a motion to dismiss, plaintiff ‘needs to 

specify the internal reports, who prepared them and when, how firm the numbers were or which 

 8

 For example, plaintiff insists the board would not sue the Compensation Committee 

because to do so would jeopardize the board’s pay. (Opp. 15.) We addressed this argument in our 

opening brief. (Def. Br. 16-17.) Plaintiff has not responded. Then there is the assertion, repeatedly rejected in Delaware (id. 10 n.9) that the directors are interested because insurance would not cover 

a lawsuit they filed. Plaintiff’s sole rejoinder is inapplicable Ohio case law. (Opp. 15 n.17). 

9 In re Pfizer Inc. Deriv. Sec. Litig., 503 F. Supp. 2d 680, 686 (S.D.N.Y. 2007) (“I do not see how aggregating a number of factors, none of which excuses demand, can somehow excuse 

demand”); see also Fink v. Komansky, No. 03 CV 0388 (GBD), 2004 WL 2813166, at *5 (S.D.N.Y. 

Dec. 8, 2004) (“totality” of “these allegations amount to mere conclusions that do not rise to the 

level of particularity necessary to plead demand futility”). 

 CLI-1577643

-8-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 13 of 17
company officers reviewed them.’” Xerion Partners, I LLC v. Resurgence Asset Mgmt., LLC, 474 

F. Supp. 2d 505, 517 (S.D.N.Y. 2007). Here, the Complaint identifies no internal document that 

satisfies these requirements, i.e., that suggests that Macy’s sales projections were believed to be 

unachievable when they were issued, or that, when the projections were made, defendants believed 

the merger integration was “failing.”10 Nothing in the opposition brief counters this deficiency. 

At bottom, plaintiff’s only basis for claiming that Macy’s projections were intentionally 

misleading is that Macy’s ultimately missed some (but not all) of those projections in May 2007. 

That is classic, impermissible “fraud by hindsight.” Shields v. Citytrust Bancorp, 25 F.3d 1124, 

1129 (2d Cir. 1994) (“[Plaintiff’s] technique is sufficient to allege that the defendants were wrong; 

but misguided optimism is not a cause of action, and does not support an inference of fraud. We

have rejected the legitimacy of alleging fraud by hindsight.”) (internal quotations omitted). 

B. The Complaint Fails to Overcome the Business Judgment Rule. 

Plaintiff’s main response to our substantive reliance on the business judgment rule is to 

argue that the § 102(b)(7) provision may not be invoked on a motion to dismiss. That is wrong. 

The Delaware Supreme Court in Malpiede v. Townson, 780 A.2d 1075, 1093-94 (Del. 

2001), made clear that where, as here, a plaintiff’s loyalty claims fail, it is proper to raise a 

§ 102(b)(7) provision on a motion to dismiss the remaining duty-of-care claims. Courts often look 

to exculpation provisions to determine whether demand should be excused, and have not hesitated 

to throw out duty-of-care claims on motions to dismiss pursuant to such provisions.

11 

 10 Plaintiff concedes that Macy’s disclosed that sales at former May stores continued to lag through the fourth quarter of 2006, yet still argues that Macy’s somehow improperly failed to disclose that “May had a history of declining same store sales.” (Opp. 1, 8, 9, 14, 19.) Poppycock. Until August 2005, May was a public company issuing earnings releases. The public was aware that May’s sales had been lagging as far back as 2003. (See Compl. ¶¶ 62-64.) Moreover, Macy’s never announced that customers had “rejected” the merger or that the integration had “failed,” as plaintiff breathlessly alleges – what Macy’s actually announced was that in a single quarter, it had 

missed projected same-store sales by a matter of basis points, while still achieving overall earnings

within the projected range. (See 5/10/07 8-K, Platt Decl. Ex. I; 5/16/07 8-K, Platt Decl. Ex. J.) 

11 Pfizer Inc. Deriv. Sec. Litig., 503 F. Supp. 2d at 685 & n.11; Ferre, 2007 WL 1180650, at 

*8 (“the court may take judicial notice of the existence of this [§ 102(b)(7)] provision”). 

 CLI-1577643

-9-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 14 of 17
C. The Claims for Waste and Unjust Enrichment Should Be Dismissed. 

There was no transfer of value for no consideration, so the waste claim fails. (Def. Br. 25.) 

Plaintiff complains defendants were paid but failed in their fiduciary duties (Opp. 24-25), but does 

not allege, or argue, that defendants provided no value to Macy’s for their services. The boilerplate

unjust enrichment claim also fails. (Opp. 23-24.) Plaintiff does not explain how compensation was 

so wrongly paid to defendants that it offends equity. In addition, plaintiff concedes it must plead 

facts showing defendants were unjustly enriched “at [Macy’s] expense.” (Opp. 23.) Plaintiff bases 

its claim largely on defendants’ stock sales, but never explains how those sales harmed Macy’s. 

III. The Complaint Should Be Dismissed With Prejudice. 

Plaintiff already amended once, after our August 20, 2007 letter to the Court requesting a 

pre-motion conference. Then, via our motion, it was given notice of the new Complaint’s defects 

and decided to stand on it rather than amend again. It has not filed a motion to amend, and has not 

proffered a further amended pleading, much less one that would pass muster. The law does not 

require, or countenance, deference to plaintiff’s informal tail-end, footnote request (Opp. 25 n.21).12

CONCLUSION

The Complaint is terminally insufficient and should be dismissed with prejudice. 

Dated: January 7, 2008 Respectfully submitted, 

s/ John M. Newman, Jr. 

John M. Newman, Jr. (JN-5426) 

Geoffrey J. Ritts (GR-4270) 

Michael A. Platt (MP-7423) 

JONES DAY 

North Point 

 12 Martin v. Dickson, No. 03-7917, 100 Fed. Appx. 14, 16, 2004 WL 1205185, at *2 (2d Cir. 

June 2, 2004) (“because [plaintiff] did not formally request leave to amend, and because he has not 

indicated that he will be able to properly state a cause of action in an amended complaint, leave to 

amend is denied”); Confederate Mem’l Ass’n, Inc. v. Hines, 995 F.2d 295, 299 (D.C. Cir. 1993) (“a 

bare request in an opposition to a motion to dismiss – without any indication of the particular grounds on which amendment is sought, cf. Fed. R. Civ. P. 7(b) – does not constitute a motion 

within the contemplation of Rule 15(a)”). 

 CLI-1577643

-10-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 15 of 17
901 Lakeside Avenue 

Cleveland, Ohio 44114 

Telephone: (216) 586-3939 

Facsimile: (216) 579-0212 

jmnewman@jonesday.com

gjritts@jonesday.com

maplatt@jonesday.com 

Arthur J. Margulies (AM-7777) 

JONES DAY 

222 East 41st Street 

New York, New York 10017-6702 

Telephone: (212) 326-3939 

Facsimile: (212) 755-7306 

ajmargulies@jonesday.com

Attorneys for Terry J. Lundgren, Karen M. Hoguet, 

Sara Levinson, Craig E. Weatherup, Joseph 

Neubauer, Joseph A. Pichler, Joyce M. Roche, Meyer 

Feldberg, Marna C. Whittington, Karl M. von der 

Heyden, William P. Stiritz, Joel A. Belsky, Dennis J. 

Broderick, Thomas G. Cody, Thomas L. Cole, Janet 

E. Grove, and Susan D. Kronick

 CLI-1577643

-11-

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 16 of 17
CERTIFICATE OF SERVICE

The foregoing document was served on counsel of record on January 7, 2008 by 

electronic mail through the Court’s CM/ECF system and by U.S. Mail to the following: 

Thomas G. Amon 

Law Offices of Thomas G. Amon 

500 Fifth Avenue, Suite 1650 

New York, New York 10110 

Telephone: (212) 810-2431 

Facsimile: (212) 810-2427 

Email: tamon@amonlaw.com 

Brian J. Robbins 

Jeffrey P. Fink 

Ashely R. Palmer 

Robbins Umeda & Fink, LLP 

610 West Ash Street, Suite 1800 

San Diego, California 92101 

Telephone: (619) 525-3990 

Facsimile: (619) 525-3991 

Email: notice@ruflaw.com

George E. Barrett 

Douglas S. Johnston, Jr. 

Timothy L. Miles 

Barrett, Johnston & Parsley, LLC 

217 Second Avenue North 

Nashville, Tennessee 37201 

Telephone: (615) 244-2202 

Facsimile: (615) 252-3798 

Mitchell F. Borger 

Michael E. Kreitman 

Joann Nelson 

Macy’s, Inc.

151 West 34th Street 

13th Floor 

New York, New York 10001 

 

 s/ Arthur J. Margulies 

 Arthur J. Margulies, Esq. 

CLI-1577643

Case 1:07-cv-05862-RJH Document 38 Filed 01/07/2008 Page 17 of 17