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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Filed June 20, 2003

No. 01-7167

& No. 01–7175

CARRAMERICA REALTY CORPORATION, ET AL.,

APPELLANTS

v.

JOSEPH KAIDANOW AND ROBERT A. ARCORO,

APPELLEES

Appeals from the United States District Court

for the District of Columbia

(No. 99cv00260)

Supplemental Opinion on

Petition for Rehearing

–————

Before: EDWARDS and SENTELLE, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the court filed PER CURIAM.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.
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PER CURIAM: This supplemental opinion addresses an issue

raised by the plaintiffs’ petition for rehearing of our decision

in CarrAmerica v. Kaidanow, 321 F.3d 165 (D.C. Cir. 2003).

There we held that a technical error made by the board of

directors in issuing conversion shares rendered the resulting

shares voidable rather than void and the defendants’ claims

were barred by the equitable doctrine of estoppel. Additionally, we found that the board had properly ratified the shares

after they were issued. See id. at 166. Therefore, we

reversed the district court and ordered the grant of summary

judgment to the defendant CarrAmerica. Id. The plaintiffs,

Kaidanow and Arcoro, petition only on our grant of summary

judgment as to their claims of the directors’ breach of fiduciary duties. Because the underlying facts of the case have

been articulated at length in our prior opinion, we will repeat

only those facts relevant to the specific issue here.

The Delaware General Corporation Law requires that the

plaintiff in a shareholder’s derivative suit be a shareholder of

the corporation he sues when the transaction of which he

complains occurs. Del. Code Ann. Tit. 8 § 327 (2001). The

defendants argue that Kaidanow and Arcoro lacked the proper standing to bring their fiduciary duties claim because they

were not yet shareholders when the transaction which forms

the basis of their complaint took place. The critical question

to this inquiry is which transaction constitutes the plaintiffs’

claims. There are two possibilities. On May 7, 1998, the

board of directors met and authorized a resolution which

included the following paragraph:

NOW, THEREFORE, IT IS RESOLVED, that the

conversion of the CarrAmerica Loan into a loan,

some or all of which may be converted into equity of

the Corporation, hereby is approved; provided, that

the equity value used for conversion purposes shall

not be less than $20 per share; TTTT

On September 30, 1998, the officers executed the agreement

allowing CarrAmerica to convert its loan at the $20 per share

price. Kaidanow and Arcoro did not become shareholders

until August, therefore, if the complaint is based on the May
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7 action, they lack the requisite standing. However, if the

actual exercise of the agreement forms the basis of their

complaint, they were then shareholders, and do have standing

to bring these claims.

Delaware caselaw indicates that the time of the transaction

is when the wrongful acts occurred which the plaintiff is

seeking to remedy. In 7547 Partners v. Beck, 682 A.2d 160

(Del. 1996), the Delaware Supreme Court held that a breach

of fiduciary duty occurred when directors set the price term

of shares in a private placement IPO, not when the sale was

actually consummated. Id. at 162–63. The court reasoned

that ‘‘the timing of the allegedly wrongful transaction must be

determined by identifying the ‘wrongful acts which [Partners]

want[s] remedied and which are susceptible of being remedied in a legal tribunal.’ ’’ Id. at 162. (quoting Newkirk v.

W.J. Rainey, Inc., 76 A.2d 121, 123 (Del. Ch. 1950)). The

court found that because the complaint was based on the

board’s ‘‘gross[ ] negligen[ce]’’ in setting the price at an

‘‘absurdly low amount’’ the transaction for which the plaintiffs

sought a remedy took place at the time of agreement on the

price, rather than the execution of the sale. Id. at 161–63.

The court has also stated that in order to properly challenge

a proposed merger, a plaintiff must have been a stockholder

at the time its terms are agreed upon, because it is those

terms which are challenged, not the technicalities of the

merger’s consummation. In re Beatrice Cos., Litigation, 522

A.2d 865, 1987 Del. LEXIS 1036, at *7–8 (Del. 1987). Finally,

in a recent case, a Chancery Court found that, ‘‘[a] stockholder-plaintiff is barred from bringing claims when she purchases stock after the board of directors has approved a

transaction and the transaction has been publicly disclosed.’’

Omnicare, Inc v. NCS Healthcare, Inc., 809 A.2d 1163, 1169

n.11 (Ct. Ch. Del. 2002).

This case presents circumstances similar to those in 7547

Partners. The claimed wrongful act in regard to the directors’ fiduciary duties, is that the $20 per share conversion

price set by the board was too low. The only action taken by

the directors in setting this price took place at the May 7

meeting, before Kaidanow and Arcoro were stockholders. If
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a breach of fiduciary duty had occurred in the price-setting it

would have happened on that date. In addition, although it is

unclear whether the board’s action was disclosed to the

general public at that time, the record is plain that both

plaintiffs were well aware of the action. In fact, the plaintiffs

claimed in their initial brief in this appeal that the May 7

resolution was a motivating factor for their subsequent stock

purchase.

The Delaware cases which might indicate an alternative

analysis have been essentially limited to their specific facts by

the precedent cited above. For example, in 7547 Partners,

the Delaware Supreme Court affirmed a Chancery Court’s

refusal to follow Maclary v. Pleasant Hills, Inc., 109 A.2d 830

(Ct. Ch. Del. 1954), and distinguished that case on its facts.

7547 Partners, 682 A.2d at 162. In Maclary, the court held

that the breach of a board’s fiduciary duties had occurred, not

when a resolution authorizing the issuance of stock was

authorized, but rather at the time the stock certificates were

actually issued, three years later. See 109 A.2d at 833–34.

In 7547 Partners, the court noted the unusual delay in

Maclary between the board’s action and the actual issuance

of the certificates and reasoned that those specific circumstances might require such a rule because that delay would

make it very difficult to discover and challenge a board’s

wrongdoing. See 682 A.2d at 162. The court determined

that no such ‘inexcusable inaction’ was extant in the case

before it, and therefore, Maclary did not control the outcome.

Id.

The facts of the present case fit the standard set by 7547

Partners, because here the action being challenged by the

plaintiffs was the action of the directors and there was no

unreasonable delay in carrying it out. Additionally, because

the plaintiffs were clearly aware of the board’s actions as they

were taking place, there is no reason to be concerned about

these plaintiffs’ ability to discover and challenge the alleged

breaches of fiduciary duties. Therefore, the action which

underlies the plaintiffs’ complaint occurred at the May 7

meeting, at which time neither plaintiff was a shareholder,
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and thus neither has the requisite standing to challenge the

propriety of that action.

As a result, we grant summary judgment to the defendants

on the claim of a breach of their fiduciary duties.