The Honorable Edw ard R. Korman, of the United Sta tes Dis trict Court for the Ea stern * Di s tr ict of New Yor k, s it ti ng b y de s ign ati on

. 1 09- 0309- cv B a d e r v . B la n k fe in

UN ITED STA TES CO URT OF AP P EALS F OR TH E S ECO N D CI RCU IT


## SUMMA RY ORDER

Rulings by summ ary ord er do no t have precedent ial effect. Citatio n to sum mary or ders filed after January 1, 2007, is perm itted an d is governed b y this court ’s Loca l Rule 32.1 and F ed er al Ru le of App ella te P r oc ed ur e 32 .1. In abrie f o r ot he r pape r inwh ic h ali ti ga ntci te s a

su m m ar y o r de r , i n e achpa r ag r ap h i n whi cha ci ta ti onap pe ar s, a t l eas t o ne ci ta ti onm us t e it he r be to th e Federal Append ix or be accompanied by t he notat ion: “(sum mary or der) .” A party citing a sum mary or der m ust serve a copy of thatsummar y order togeth er with t he paper in which the sum mary or der is cited onany party n ot rep resented by coun sel unless the summary

or de r is a vai la bl e i n a n e le ct r on ic da ta ba se whi chis p ub li cl y ac ces sib le wi th ou t p aym en t o f f ee (such as the datab ase available at http:// www.ca2.uscourts.gov/). If no cop y is served by reason of th e availability of th e order on such a database, the cit ation m ust include r eference to that d atabase and the docketnumb er of t he case in which the or der was entered.

At a stated term

of the Un ited Stat es Court of Appeals for t he Second Circuit , held at th e Daniel Pat rick Moynihan Un ited Stat es Courthouse, 500 Pearl St reet, in t he City of New York,

onth e fo ur te en thda

y o f D ece m be r , t

wo th ou san d a nd

ni ne
.

PR E SE NT:

J OS É A. C AB R ANES , D EBRA A NN L I V I NGS T ON ,

Circuit Jud ges , E DWA R D R. K O RMAN ,

District Judge. *

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x J EF F R EY W. B ADER ,
Pl aint iff -A ppe lla nt ,

-v .- No . 09 -0 309 -c v

L L OYD C. B L A N K F E IN , G AR Y C OHN , J ON W I NKEL R I ED , J OHN B R OWNE , J OHN H. B RYAN , C LA E S D AHLB ACK , S T EP HE N F RI ED M AN , W I L L I A M W. G EOR GE , R AJAT K. G UPTA ,2

J AM E S A. J OHN S ON , L O I S D. J UL I B ER , E DWA R D M. L I DDY , RUT H J. S I MMONS , J OHN S. W EI NBERG , C HRI S TOPHER A. C O LE , J. M I CHAEL E V A NS , E DWA R D C. F O RST , R I C HA R D A. F RI ED M AN , R I C HA R D J. G NODD E , K EV I N W. K

EN NE DY , P ETER S. K R AU S , M A SA N O R I M OC HI DA , T H O M AS K. M O NTAG , J OHN F. W. R O GE RS , E RI C S. S CH W ARTZ , M I CHAEL S. S HE R WOOD , D A V I D M. S OL OMON , D A V I D A. V I NI AR , G R EGORY K. P ALM , E S TA E. S T ECHE R , A L A N M. C OHEN ,

Defenda nts-App ellees

,
T HE G OL DMA N S AC H S G R OUP , I NC .,

Nominal -Defenda nt-App ellee.

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F OR P LAIN TIF F

- AP P ELLAN T: A LEXAND ER A R NOL D G ER S HON , B ar r ack, Rod os & B acin e, N ew Yor k, N Y (Re gin a M . Cal cat er r a, Gl or ia K uiM elwa ni , B ar r ack, Rod os & B acin e, N ew Yo r k, N Y, on the brief , D ani el E. B acin e, B ar r ack, Rod os & B acin e, Phila del ph ia, PA
, of counsel

).

FOR DEF ENDANTS-APP ELL EES: D A V I D H. B RAFF (G and ol fo V. Di B las i, D avi d M .J . Rei n, o n th e brief ) Sullivan & C romwell LLP, New Yor k, N Y. App eal f r om a De cem ber

18, 200 8 o r der

of th e Di s tr ict Cou r t f or th e Eas te r n D is tr

ict of New Yor k ( San dr a L . T own es , Judge ).

UPON DUE CONSIDERAT ION, IT IS HEREB Y ORDERED, A DJUDGED, AND DE CRE ED th at the j ud gm ent of th e Di s tr ict Cou r t b e AF F IRME D

.

Pl ain ti ff -a pp ell ant J ef fr ey W. B ader

app eals fr om an o r der

di s mi s s in g hi s s to ckh ol der ’s der iva ti ve action, on be half of nominal-defendant the Goldma n Sachs Group, Inc. (“Goldman Sac hs”), a Delaw are corporation, aga inst defendants- appell ees, the directors of G oldman Sa chs, based on a proxy statement that alle gedly

omitted disclosur es that the SEC required and contai ned material ly false statements and

om is s io ns . P lai nt

if f’ s act io n ar is es un der s ect io n 1 4( a) o f the S ecu r

it ies Exch ang e Act

of 193 4 ( “19 34 Act ”) , 15 U.S .C. § 78n(a), and the reg ulations of the United States Securities and Ex chang e Commission (“SEC ”). The Distr

ict Court dismiss ed plai ntiff’s derivative a ction for failure to make pre-suit demand on the board of directors . Plaintiff timely appe aled. We a ss ume the parties’ familiarity with the

un der lyi ng f act s , the p r oce du r al h is to ry, an d the i s s ues onapp eal.

As a th r es ho ld mat te r , d ef end ant s argue th at thi s app eal is mo ot . P lai nt if f r es po nd s th at thi s cla im fa ll s un der

an ex cep ti onto th e mo ot nes s do ct r in e be caus e it

s eeks r eli ef

fo r a wr on g t hat

is3

“cap abl e of

r epe ti ti on , ye t ev a ding r evi ew.” Heldma n on Behalf of T.H. v. Sobol , 96 2 F .2d148 , 15 7 n .9 (

2d Cir . 19 92) ; see also Ho nig v. Doe , 4 84 U. S. 30 5, 32 2-2 3 ( 19 88 ) (re co gn iz in g a n e x c e p ti o n to the mo otn ess doctrine upon finding a “sufficient like lihood tha t [plaintiff] will ag ain be w ronged in a similar wa y, and that any resulting cla im [plaintiff] may have fo r relie f will surely eva de . . . revie w” (internal quotation

mar ks and cit ati onom it te d) ); Seibe rt v

. Spe rr y Rand Co rp. , 58 6 F .2d949 , 95 1 ( 2d Cir . 19 78) (r eco gni zin g an

exce pt io n t o the m oo tn es s do ct r ine for a wr on g capa bl e of r ecu r r enc e yet

evadin g r evi ew) . Wh ile we recognize that the particular SE C regula tion at issue in plaintiff’s clai ms is no longer in effect, the

un der lyi ng a lle ged wr on gf

ul con du ct —p r ov id in g m is leadin g cal cul ati on s in pr ox y s tat eme nt s un der

s ect io n 14— is a wr on g th at is “cap abl e of r epe ti ti on , yet evadin g re vi ew.” Heldman , 96 2 F .2dat 1 57 n .9. Pl ain ti ff ’s app eal i s , ther ef

or e, n ot mo ot

.

On a pp ea l plain ti ff

argue s th at ( 1) th er e is no pr e- s ui t d ema nd r equ ir eme nt fo r s har eho ld er derivati v e su i ts under section 14 of the 1934 A ct beca use proxy miss tatements are not a product of bu s in es s ju dgm ent , an d ( 2) acco r di ngl

y, d ema nd was excu s ed in the i ns tan t c as e be caus e t hi s pr ox y mi s s tat eme nt

was no t a p r od uct of the validexer cis e of bu s in es s ju dgm ent , an d ( 3) inth e alt er nat ive
, demand w as excused in this p a rt i c u l a r a c tion as futile because the direc tors were ei ther interest ed or not independe nt. Defendants respond that section 14 suits are not generally e x e mpt fr om a dema nd requirement, and that pla intiff was not excused on either ground for failing to mee t that requirement before bringing his derivative suit so the Dis trict Court pr operl y d i smis sed plaintiff’s s uit. For the

reasons s tated below , we a ffir m the Distr ict Court’s dismis sal of plaintiff’s s uit.

Plaintiff ba se s b o th g rounds for excusing demand on Ar o ns o n v. Lewi

s, a D elaw ar e cas e wh ich provides that demand should be excused w hen a re a so n a b l e doubt is created that (1) the directors are di s in te r es te d an d i nd epe nd ent or (2) the c hallen ged tr ans act io n was other

wis e t he p r od uct

of a val id

exer cis e of

bu s in es s ju dgm ent . 473 A. 2d 805, 8 12 ( Del . 19 84)
, ove rruled on other gr ounds by Brehn v. Eisner

, 746 A.2 d 2 44 (

Del . 20 00)

.

No clea r rule has emerged fr om the distr ict cour ts that have address ed this iss ue, a n d w e d o n ot find the need to set forth a bright-line rule at present, as demand unde r Aronso n is an i nqui ry spe ci

fic t o the challen ged transaction . We therefore dec l i n e plaintiff’s invitation to create a bl anket rule unde r the second prong of Aronso n

de c l a ri n g that demand is gene rally not required in a shareholde r derivative suit alleg ing violations of section 14 of the 1934 Act.

Pl ain ti ff fu r th er con te nd s th at b ecau s e t he S EC r egulat io n at is s ue h er e r equ

ir ed “ full disclosu re , ” th e proxy statement disclosure was not a matter of bus iness judgment so that demand sho ul d b e e x c u sed . W e d isa gre e. The pa rti cu la r di scl osu re a t i ssue on thi s a pp ea l w a s a bu sin ess ju dg me nt . T he dir ect or s hada leg al o bl igat io n t o d is clo s e either t h e p o t e n t i a l r e a li z a b l e v a l u e o f s to ck op ti on s gra nte d to off

ic er s or th e pr es ent

val ue o f the s to ck o pt

io ns g ra nte d. T he r egulat io ns fu r th er provided that if the proxy statement disclosed the pres ent value , it could be c alcul ated under “ any option pr ici ng m od el. ” 17 C.F .R § 229 .40 2( c) (2)( vi) (A pr . 1, 200 6) (e mp has is add ed) . T he i nf or mat io n r equ ir ed

to be dis clo s ed c ould no t h ave b een do ne au to mat ically o r witho ut th ou ght . Rather , d et er mi ni ng whi ch fig ure to d isc lo se a nd wh ic h p ric in g m od el to a pp ly re qu ire d d isc re ti on a nd a n e x e r c i s e o f bu sin ess ju dgm ent

.4

Wher e, as her e, dir ect or s mu s t u s e val id bu s in es s ju dgm ent

to mee t the ir ob ligat

io ns un der section 14, the dema nd requirement for a derivativ e sh a re holder suit cannot be exc used. The demand requirement “affords the directors an opportunity to ex e rc i se their reasonable business judgment” by upholding the fundamenta l conce pt that directors manag e the business and affairs of a corporation. D aily Income Fund, Inc. v. Fox
, 4 6 4 U

. S

. 5 2 3
, 5 3 3 ( 1 9 8 4

)

. A l t h o u gh w e c a n a n t

i c i p a t e a s i t uat

io n i n wh ich demand w ould be futile, a nd thus excused under the second prong of Aronso n , in a sec ti on 14 d er iva ti ve

s ui t, th at i s no t the c as e he r e. We a gr ee with th e Di s tr ict Cou r t that

dem and was nec es s ary he r e andwas th er ef or e no t e xcu s ed.

Plaintiff also argues that he was excused from t h e d e m a n d requirement under the firs t prong of Aronso n bec aus e a m ajo r

it y of th e direc tor s we re either

in te r es te d o r

no t i nd epe nd ent . As J ud ge T own es stated in her thoughtful and comprehensive opinion, pla intiff’s “compla int[,] [ e v e n if amended, w ould]

not create a reasonable doubt that the maj ority of the directors are d i si n te re sted and independe nt, and therefore fails to es tablish th a t i t would have been futile to make demand upon Goldma n’s B oard of Di r ect or s pr

io r to com men cin g t hi s act

io n. ” SP A 17 (O r der

of Dec . 18 , 20 08)

.

We ha ve considered pla intiff’s other arguments and find them to be without merit.

CONCLUSI ON

I n s um , w e h o l d t h a t d e m a n d w a s n o t e x c u s e d f o r p l a i n t i f f ’ s s ui t u n d e r s e c t

i o n 1 4 o f th e 19 34 Act, an d b ec au s e p l ai n t

i f f f ai l ed t o m ak e a d em an d p r i o r t o co m m en ci n g t h i s ac t i o n , h i s claim must be di s mi s s ed.

Acco r di ngl

y, we AF FI RMth e ju dgm ent of th e Di s tr ict Cou r t.

FOR THE C OU R

T,

Ca therine O’Haga n Wolfe, C lerk of Court

By _______________________________