1

NOT FOR PUBLICATION FILED UNDER SEAL 

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

CITY OF ROSEVILLE EMPLOYEES’ 

RETIREMENT SYSTEM, derivatively on 

behalf of Kid Brands, Inc.,

 Plaintiff,

v.

BRUCE G. CRAIN, et al.,

 Defendants,

and

KID BRANDS, INC., 

 Nominal Defendant. 

Civil Action No. 11-2919 (JLL)

OPINION

LINARES, District Judge.

Shareholders bring this derivative suit on behalf of Kid Brands., Inc. (“Kid Brands”), 

alleging, inter alia, that the Defendant officers and directors breached their fiduciary duties by: 

(a) allowing Kid Brands to engage in improper customs and payment practices, and (b) allowing 

Kid Brands to make improper statements in their public filings concerning its customs and 

payments practices. Nominal Defendant Kid Brands, Inc. has filed a motion to dismiss 

Plaintiff’s Amended Complaint pursuant to Federal Rules of Civil Procedure 23.1 and 12(b)(6) 

for failure to state a claim upon which relief can be granted [Docket Entry No. 92]. Defendants 

Raphael Benaroya, Mario Ciampi, Bruce G. Crain, Marc S. Goldfarb, Frederick J. Horowitz, 

Guy A. Paglinco, Hugh R. Rovit, Salvatore M. Salibello, John Schaefer and Michael 

Zimmerman (“Individual Defendants”) join in Kid Brands= motion to dismiss and raise their own 

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separate arguments in support of dismissal [Docket Entry No. 94]. The Court has considered 

Defendants’ submissions and Plaintiff’s opposition thereto, and rules on the papers pursuant to 

Fed. R. Civ. P. 78. For reasons set forth below, the Court grants Defendants’ motions and 

dismisses the Amended Complaint with prejudice.

I. Factual and Procedural Background

Kid Brands is a wholesaler of children=s furniture, and is a New Jersey corporation with 

its principal place of business in New Jersey. (Am. Compl., & 13). Defendants are current and 

former executive officers: Raphael Benaroya, Bruce G. Crain, Marc S. Goldfarb and Guy A. 

Paglinco; and current and former directors: Mario Ciampi, Frederick J. Horowitz, Hugh R. Rovit, 

Salvatore M. Salibello, Michael Zimmerman and John Schaefer. (Am. Compl. at 1-2). 

Defendant Raphael Benaroya is the Chairman of the Board and has been a director of Kid Brands 

since 1993. (Compl., ¶ 14). Defendant Mario Ciampi has been a director of Kid Brands since 

2007. (Id., ¶ 16). Defendant Frederick J. Horowitz has been a director of Kid Brands since 2006. 

(Id., ¶ 18). Defendant Hugh R. Rovit has been a director of Kid Brands since 2010. (Id., ¶ 20). 

Defendant Salvatore M. Salibello has been a director of Kid Brands since 2006. (Id., ¶ 22). 

Defendant Michael Zimmerman has been a director of Kid Brands since 2006. (Id., ¶ 24). 

Defendant John Schaefer was a director of Kid Brands from 2008 until his resignation from the 

Board in July 2010. (Id., ¶ 26). Defendant Marc S. Goldfarb has been Senior Vice President,

General Counsel and Corporate Secretary of Kid Brands since 2005. (Id., ¶ 28). Defendant Guy 

A. Paglinco has been Vice President – Corporate Controller of Kid Brands since 2006 and was 

promoted to Vice President and Chief Accounting Officer of Kid Brands as of November 2007, 

Interim Chief Financial Officer as of January 2009, and Chief Financial Officer as of August 

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2009. (Id., ¶ 30). Defendant Bruce Crain was the President, CEO and director of Kid Brands 

from 2007 until September 2011. (Id., ¶ 32). LaJobi, Inc. (“LaJobi”) is a subsidiary of Kid 

Brands, and sells cribs, mattresses and nursery furniture imported from China, Hong Kong, 

Vietnam and Thailand. (Id. at && 1, 58). 

Plaintiff’s Amended Complaint centers on alleged wrongdoing on the part of Kid Brands’

subsidiary LaJobi in violating federal anti-dumping laws by underpaying custom duties due on 

products imported into the United States from China. (Id. at & 2). While Plaintiff does not 

allege that the Individual Defendants were involved in the overseas wrongdoing of LaJobi, 

Plaintiff claims that parent Kid Brands breached its fiduciary duties when it: (a) failed to

monitor LaJobi’s compliance with relevant laws and regulations governing its domestic and 

overseas operations, and (b) made false and misleading statements to the SEC regarding the 

underlying facts of LaJobi=s overseas operations. Plaintiff’s three other claims—gross 

mismanagement, corporate waste, and unjust enrichment—are incorporated into the alleged 

breaches of fiduciary duty resulting from the Boards= failure to monitor and properly disclose 

information. The following is a detailed description of the actions of Kid Brands and the 

Individual Defendants as stated in the Amended Complaint. The Court assumes their truth for 

the purpose of this motion.

According to the Amended Complaint, from its acquisition in 2008 until 2010, LaJobi 

engaged in a routine practice of avoiding payment of anti-dumping custom duties on products 

imported from China in order to reduce costs. (Id., ¶ 60). This routine practice was openly 

discussed by executives and other employees at LaJobi. (Id., ¶¶ 60-72). The Amended 

Complaint alleges, generally, that the Individual Defendants and the Board of Directors 

(“Board”) breached their fiduciary duties by “knowing about Kid Brands’ failure to pay customs 

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duties and failing to rectify the misconduct and/or by failing to implement internal controls that 

would reveal Kid Brands’ failure to pay customs duties.” (Id., ¶ 93). For example, the Amended 

Complaint alleges that, at the Board meeting on May 17, 2010, Defendants Benaroya, Ciampi, 

Crain, Horowitz, Salibello, Schaefer, Zimmerman, Goldfarb and Paglinco met with executives at 

LaJobi and that LaJobi made a presentation on its business and practices. Although the Board 

purportedly asked various questions, the minutes for this meeting do not reflect any discussion of 

customs practices at any of Kid Brands’ subsidiaries, including but not limited to LaJobi. (Id., ¶ 

94). Similarly, at another Board meeting on July 15, 2010, Defendants Benaroya, Ciampi, Crain, 

Horowitz, Rovit, Salibello, Zimmerman, Goldfarb and Paglinco met with executives at LaJobi. 

Although LaJobi provided an update on its business during this meeting, there was no mention in 

the minutes of this meeting of LaJobi’s customs practices. (Id., ¶ 95). A similar meeting 

between the same individuals was held on December 16, 2010; despite an extensive presentation 

by LaJobi’s then-President, there is no mention in the minutes for this meeting of any discussion 

regarding customs practices at LaJobi. (Id., ¶ 96). 

In late December 2010, U.S. Customs selected LaJobi for a “Focused Assessment” of its 

import practices and procedures to begin on January 19, 2011. (Id., ¶ 73). The Executive 

Committee of Kid Brands met on January 26, 2011 to discuss the scheduled assessment. The 

entire Board of Directors, in turn, met in mid-February 2011 to discuss same. (Id., ¶ 74). 

According to the February 14, 2011 Board meeting minutes, Defendants Benaroya and Crain 

informed the Board of a “potential customs duty issue at LaJobi and then provided a brief 

overview of the status of management’s investigation of the potential LaJobi customs duty 

matter.” (Id., ¶ 76). 

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After receiving notice that U.S. Customs was investigating the Company, the Board 

launched internal investigations into Kid Brands’ customs and payment practices, one of which 

focused on internal controls at Kid Brands. (Id., ¶ 7). In doing so, the Board retained the services 

of Ernst & Young LLP (“E&Y”) and KPMG LLP (“KPMG”). Their respective audits revealed 

that Kid Brands’ internal controls were generally deficient. (Id.). 

On March 1, 2011, the Board initiated a separate investigation into the employees and 

practices at LaJobi, supervised by a special committee of three non-management members of the 

Board (Defendants Benaroya, Ciampi and Salibello, hereinafter the “Special Committee”). (Id., 

¶ 78). The Special Committee hired outside counsel—Skadden, Arps, Slate, Meagher & Flom, 

LLP—to conduct that investigation. (Id.). 

According to Kid Brands’ annual report for the fiscal year 2010, the Special Committee 

investigation “found instances at LaJobi in which incorrect import duties were applied on certain 

wood furniture imported from vendors in the [People’s Republic of China], resulting in a 

violation of anti-dumping regulations.” (Id., ¶ 79). According to the same annual report, from 

this investigation, “the Board concluded that there was misconduct involved on the part of 

certain LaJobi employees in connection with the incorrect payment of duties, including 

misidentifying the manufacturer and shipper of products.” (Id.). As a result, Kid Brands 

terminated the employment of LaJobi’s then-President, Lawrence Bivona, and its then-Managing 

Director of operations, John Sandiford. (Id.). 

The Complaint further alleges that Defendants disseminated false and misleading 

information to Kid Brands= shareholders about Kid Brands= related-party transactions with the 

former owners of LaJobi and concealed the fact that they did not cause Kid Brands to implement 

internal controls for compliance with U.S. Customs laws and local foreign laws in the 

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jurisdictions where Kid Brands operates. In particular, the Amended Complaint alleges that 

Defendants breached their fiduciary duty of loyalty (and candor) owed to Kid Brands by making 

false and misleading statements to Kid Brands shareholders in the Company’s quarterly and 

annual reports on 2010 SEC Forms 10-K and 10-Q. According to Plaintiff, these shareholder 

reports contained incorrect information related to Kid Brands customs and payment practices as 

well as its financial statements. (Id., ¶ 111). In this regard, on March 15, 2011, Kid Brands filed 

a Form 8-K with the SEC stating that a Board investigation had revealed “instances at LaJobi in 

which incorrect import duties were applied on certain wooden furniture imported from vendors 

in China, resulting in a violation of anti-dumping regulations.” (Id., ¶¶ 2, 106). Kid Brands also 

admitted in its annual report on Form 10-K for the year ending on December 31, 2011 that 

internal controls over financing reporting (and, as a result, its disclosure controls and procedures) 

were not effective as of December 31, 2010. (Id., ¶ 113).

Thus, according to the Plaintiff, the officers’ and directors’ failure to adequately monitor 

LaJobi’s compliance with relevant laws and regulations governing its domestic and overseas 

operations constituted a breach of their fiduciary duties to Kid Brands and resulted in substantial

losses and potential future losses to Kid Brands, including but not limited to $7 million in past 

customs duties and a penalty of up to 100% of that amount. (Id., ¶ 3). 

Plaintiff’s original complaint was filed in May 2011. On October 24, 2011, this Court 

granted Defendants’ motion to dismiss and dismissed Plaintiff’s complaint without prejudice, 

finding that Plaintiff had failed to satisfy the pleading requirements of Fed. R. Civ. P. 23.1 as 

required to bring a derivative action in the absence of pre-suit demand. 

On November 23, 2011, Plaintiff made an inspection demand upon the Board of 

Directors of Kid Brands pursuant to N.J.S.A. § 14A:5-28. After inspecting Kid Brands’ books 

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and records for over a year and a half, Plaintiff filed an Amended Complaint on June 28, 2013. 

Defendants now seek dismissal of the Amended Complaint.

II. Legal Standard

Kid Brands is a corporation incorporated in the state of New Jersey, so the substantive 

law to be applied in this matter governing internal corporate affairs is the law of New Jersey. 

Fagin v. Gilmartin, 432 F.3d 276, 282 (3d Cir. 2005). New Jersey has adopted Delaware’s 

demand futility standard and New Jersey courts “generally follow Delaware’s pronouncements 

on corporate law, and therefore ‘an appropriate source of reference is the case law of 

Delaware.’” In re Merck & Co. Sec., Derivative & ERISA Litig., 493 F.3d 393, 399 (3d Cir. 

2007); Seidman v. Clifton Sav. Bank, 2009 N.J. Super. Unpub. LEXIS 2267, at *9 n. 5 (N.J. 

Super. Ct. App. Div. Aug. 19, 2009) (citation omitted).

Defendants first seek dismissal of Plaintiff’s Amended Complaint pursuant to Rule 23.1, 

which establishes pleading requirements for shareholder derivative complaints. Fed. R. Civ. P. 

23.1. In order to commence a claim on behalf of a corporation, a shareholder must first demand 

that the board of directors cause the corporation to pursue the claim. King v. Baldino, 409 Fed. 

Appx. 535, 537 (3d Cir. 2010). Pleading requirements for a shareholder derivative action 

implicate a heightened pleading standard:

The complaint shall . . . allege with particularity the efforts, if any, made by the plaintiff 

to obtain the action the plaintiff desires from the directors or comparable authority, and if 

necessary, from the shareholders or members, and the reasons for plaintiff=s failure to 

obtain the action or for not making the effort. 

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Fed. R. Civ. P. 23.1(b)(3); see N.J. R. 4:32-3. Thus, a shareholder derivative complaint must 

either plead that such a pre-suit demand has been made or that such demand is excused because 

it would be “futile.” In re PSE&G Shareholder Litig., 173 N.J. 258, 278-79 (2002). 

Under New Jersey law, whether a plaintiff has adequately pled demand futility depends 

on whether a plaintiff has adequately plead with particularity:

facts creating a reasonable doubt that: (1) the directors are 

disinterested and independent, or (2) the challenged transaction 

was otherwise the product of a valid exercise of business 

judgment. 

PSE&G, 173 N.J. at 282; see also King, 409 Fed. Appx. at 537 (quoting Rales v. Blasband, 634 

A.2d 927, 934 (Del. 1993)). Demand futility may be met under the first prong if incumbent 

directors “face a substantial likelihood of liability” that renders them “personally interested in the 

outcome of the decision on whether to pursue the claims asserted in the complaint.” Stone ex rel. 

AmSouth Bancorporation v. Ritter, 911 A.2d 362, 367 (Del. 2006). Plaintiff bears the burden of 

establishing that demand was futile. PSE&G, 173 N.J. at 287. 

Defendants assert, in the alternative, that Plaintiff’s Amended Complaint should be 

dismissed under Fed. R. Civ. P. 12(b)(6). For a complaint to survive dismissal pursuant to Rule 

12(b)(6), it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that 

is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 570 (2007)). “Threadbare recitals of the elements of a cause of action, 

supported by mere conclusory statements, do not suffice.” Id. In determining the sufficiency of 

a complaint, the Court must accept all well-pleaded factual allegations in the complaint as true 

and draw all reasonable inferences in favor of the non-moving party. But, “the tenet that a court 

must accept as true all of the allegations contained in a complaint is inapplicable to legal 

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conclusions.” Iqbal, 556 U.S. at 678. Thus, legal conclusions draped in the guise of factual 

allegations may not benefit from the presumption of truthfulness. Id. Additionally, in evaluating 

a plaintiff’s claims, generally “a court looks only to the facts alleged in the complaint and its 

attachments without reference to other parts of the record.” Jordan v. Fox, Rothschild, O'Brien & 

Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). 

III. Discussion

Rule 23.1(b)(3)

The Court begins by reiterating the overarching principle that “the right of a stockholder 

to prosecute a derivative suit is limited to situations where the stockholder has demanded that the 

directors pursue the corporate claim and they have wrongfully refused to do so or where demand 

is excused because the directors are incapable of making an impartial decision regarding such 

litigation.” Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993). Plaintiff concedes that no demand 

on the Kid Brands Board was made regarding this matter. (Am. Compl., ¶ 123). However, 

Plaintiff once again argues that failure to make a pre-suit demand on the Board should be 

excused as futile on two grounds: 1) the Board was not disinterested or independent inasmuch as 

each member faces a “substantial likelihood of liability” because they failed to implement 

internal controls designed to ensure compliance with U.S. Customs laws and regulations on 

foreign payment practices, despite knowing that they each had a duty to do so; and 2) 

Defendants’ alleged dissemination of false and misleading information violated their duty of 

candor and resulted in a breach of their respective fiduciary duties, making it impossible for them 

to consider a demand objectively. (Pl. Opp’n Br. at 10, 26). 

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Defendants again contend that Plaintiff’s amended pleading does not contain sufficiently 

particularized facts under Rule 23.1 for determining that demand would have been futile since: 

(1) Plaintiff fails to allege any new particularized facts that any Board member—much less a 

majority—knew that they were not discharging their fiduciary obligations in good faith, and (2) 

Plaintiff fails to allege any new facts that show that Defendants knew of misconduct at LaJobi 

but failed to disclose it. 

The Court begins its Rule 23.1(b)(3) analysis by clarifying that Plaintiff’s Amended 

Complaint alleges that each of the Defendants breached their respective fiduciary duties by: (1) 

allowing Kid Brands to engage in improper customs and payment practices, and (2) allowing Kid 

Brands to make improper statements in their public filings concerning its customs and payments 

practices. 

A. Failure of Oversight Claim

1. Applicable Law

Plaintiff’s failure to monitor claim does not challenge a specific affirmative action or 

decision by the Kid Brands Board, so the Court must apply the demand futility test established 

by the Delaware Supreme Court in Rales v. Blasband regarding failure to act claims. 634 A.2d 

927, 933-34 (Del. 1993). In Rales, the court held that demand is excused in matters involving a 

failure to act where the complaint raises a reasonable doubt that a majority of the directors are 

disinterested or independent. Id. at 930; see also In re PSE&G, 173 N.J. at 281-82 (“[T]he 

absence of board action . . . makes it impossible to perform the essential inquiry contemplated by 

Aronson, whether the directors have acted in conformity with the business judgment rule in 

approving the challenged transactions” (quoting In re Prudential Ins. co. Derivative Litig., 659 

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A.2d 961, 975 (N.J. Super. Ct. Ch. Div. 1995)). The Rales failure to act test involves a twoprong inquiry requiring courts to examine whether a complaint pleads particularized facts 

sufficient to demonstrate either:

(1) the underlying conduct being challenged renders any of the 

directors >interested= and, if so, whether any of the other directors 

are compromised in their ability to act independently of the 

interested directors; or (2) at least half of the directors face a 

sufficiently substantial threat of personal liability as to the conduct 

alleged in the complaint to compromise their ability to act 

impartially on a demand. 

Desimone v. Barrows, 924 A.2d 908, 940 (Del. Ch. 2007) (citing Guttman v. Huang, 823 A.2d 

492, 501-3 (Del. Ch. 2003)). Interest exists where a director will receive a personal financial 

benefit from a transaction or where a corporate decision will have a materially detrimental 

impact on a director, but not on the corporation or the stockholders, such as a substantial 

likelihood of liability if a demand is granted. Rales, 634 A.2d at 936; see Kanter v. Barella, 489 

F.3d 170, 178 (3d Cir. 2007). The relevant test to establish significant likelihood of liability was 

clarified in Guttman v. Huang, which stated that a court must determine “whether the plaintiffs

have plead facts that show [the] directors face a sufficiently substantial threat of personal liability 

to compromise their ability to act impartially on a demand.” 823 A.2d 492, 503 (Del. Ch. 2003). 

A director is independent where his decisionmaking is “based on the corporate merits of the 

subject before the board rather than extraneous considerations or influences” such as the control 

or influence of an interested director. Rales, 634 A.2d at 936-37; Aronson, 473 A.2d at 816. 

Under PSE&G, Plaintiff bears the burden of demonstrating demand futility. PSE&G, 173 N.J. at 

287. 

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The case which most fully elucidates lack of oversight or failure to act pleading 

requirements in shareholder derivative actions is In re Caremark Int=l, Inc. Derivative Litig. 698 

A.2d 959 (Del. Ch. 1996). In Caremark, the Delaware Chancery Court stated that a lack of 

oversight claim “is possibly the most difficult theory in corporation law which a plaintiff might 

hope to win a judgment.” 698 A.2d at 967. Caremark clearly delineated a narrow range of 

actionable failure of oversight claims, finding that lack of good faith is a necessary condition to 

director liability, and, as stated above, “only a sustained or systematic failure of oversight . . . 

will establish the lack of good faith that is a necessary condition to liability.” Caremark, 698 

A.2d at 971. More specifically, to state a viable Caremark claim and predicate a substantial 

likelihood of director liability on it, “a plaintiff must plead the existence of facts suggesting that 

the board knew that internal controls were inadequate, that the inadequacies could leave room for 

illegal or materially harmful behavior, and that the board chose to do nothing about the control 

deficiencies that it knew existed.” Desimone v. Barrows, 924 A.2d 908, 940 (Del. Ch. 2007)

(citing Stone, 911 A.2d at 373). The scienter requirement in Caremark was also confirmed in 

Stone ex rel. AmSouth Bancorporation v. Ritter, which required a “showing that the directors 

knew that they were not discharging their fiduciary obligations,” i.e., “a conscious disregard for 

their responsibilities.” 911 A.2d 362, 370 (Del. 2006) (citing Guttman, 823 A.2d at 506). 

Moreover, as clearly stated in this Court’s October 24, 2011 Opinion, a plaintiff’s 

pleadings based on a board’s failure to act and in the absence of pre-suit demand must 

“differentiate among the directors and the other defendants” and “plead . . . facts showing that 

past directors had actual knowledge of the alleged wrongdoings at the time they were 

committed.” Prudential, 282 N.J. Super. at 277. With regard to scienter, “Delaware courts 

routinely reject the conclusory allegation that because illegal behavior occurred, internal controls 

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must have been deficient, and the board must have known so.” Desimone, 924 A.2d at 940. 

Finally, plaintiffs “may not bootstrap allegations of futility merely by alleging that the directors 

participated in the challenged transaction or that they would be reluctant to sue themselves.”

Prudential, 282 N.J. Super. at 276. 

2. Analysis 

The Court begins by reiterating its October 24, 2011 holding with respect to this claim, 

inasmuch as such holding is now law of the case:

The Court will first consider whether Plaintiff has met its burden 

of establishing a reasonable doubt as to the Defendants=

disinterestedness, focusing on Plaintiff=s claim that Defendants=

substantial likelihood of liability would have made demand on the 

Board futile. There is no doubt that the conduct of employees at 

Kid Brands= subsidiary, LaJobi, is under scrutiny for legal 

violations under U.S. Customs law and potentially under foreign 

laws in its jurisdictions of operation. Accepting Plaintiff=s factual 

allegations as true, and relying on Defendants= voluntary 

disclosures in SEC filings, the Kid Brands Board must have been 

made aware of irregularities in customs duties payments on the 

part of LaJobi since at least December 2010 when the Company 

was notified that it was selected for a Focused Assessment by U.S. 

Customs. In its failure of oversight claim, the Complaint focuses 

exclusively on the months between December 2010 and March 

2011 in documenting alleged breaches and misconduct on the part 

of the Board. The Complaint concedes that the Board did take 

actions to address the misconduct: it hired an outside law firm to 

set up an independent investigation, it established a Special 

Committee to conduct internal investigations, it took disciplinary 

actions by terminating the employment of top LaJobi officers, and 

publicly disclosed to shareholders and the public the nature of the 

misconduct and the extent of losses it suffered as a result of that 

misconduct. These actions are almost identical to those taken by 

the MedQuist, Inc. Board in Kanter v. Barella, responses which in 

that case the Third Circuit held to be appropriate and “appear to be 

precisely the types of actions an independent board exercising 

valid business judgment should take when made aware of a serious 

problem. By themselves they do not create reasonable doubt as to 

the validity of its judgment.” 489 F.3d at 181.

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To rebut the presumption that these actions by the Board are 

sufficient, however, Plaintiff=s Complaint fails to plead with 

particularity any specific facts about deficiencies in internal 

monitoring mechanisms at Kid Brands and LaJobi, making only 

conclusory statements that, because violations of law occurred, 

ADefendants . . . did not have [Kid Brands] implement an internal 

controls system for compliance with U.S. Customs laws and the 

local foreign laws in the jurisdictions where [Kid Brands] 

operates,@ and that ADefendants= failures to implement internal 

controls at [Kid Brands=] overseas operations were conscious, and 

contrary to their duty.@ (Compl., at & 52). 

Further, Plaintiff fails to provide any facts beyond the occurrence 

of customs duties= violations that indicate a Asustained or 

systematic@ failure of oversight. In evaluating such sustained or 

systematic failures under the Caremark standard, courts in this 

Circuit have looked to a series of indicators that point to an utter 

collapse of monitoring mechanisms. In CCWIPP v. Alden, the 

Delaware Chancery Court found that, since Plaintiff pled facts 

detailing only one concrete incident where it was possible to find 

that a company=s policies were not followed, a sustained or 

systematic failure to monitor could not be shown, particularly since 

the complaint did not Adescribe how Defendants, as directors, 

interacted with [company] personnel, how much time they spent, 

or did not spend, overseeing the activities of [company] personnel, 

etc.@ 2006 Del. Ch. LEXIS 42, at $30-31 (Del. Ch., February 22, 

2006). In In re SFBC Int=l, Inc. Sec. & Deriv. Litig., a shareholder 

derivative suit arising from alleged mismanagement by a clinical 

testing, development and consulting company servicing 

pharmaceutical and medical device companies, the District of New 

Jersey found that demand was futile where the primary business of 

the company was Aroutinely conducted in an egregiously unethical 

manner,@ where violations were the company=s Aoperating 

procedure@ rather than Aisolated or rare occurrences,@ and where 

Aendemic mismanagement@ was evidenced by the raising of Aplenty 

of red flags concerning the improper and even possibly illegal 

practices in which the company was engaged.@ 495 F. Supp. 2d 

477, 485 (D.N.J. 2007). The Court also found the misconduct was 

Arelated to the core of [the company=s] business. . . . This was not 

merely decentralized activity by employees of a far-flung 

enterprise of the company, as was the case in Caremark.@ Id. at 

485-86. The District of New Jersey also recently considered 

demand excuse in the context of subsidiaries= misconduct in a 

shareholder derivative claim based on an alleged substantial 

likelihood of liability of the Board. In re Johnson & Johnson 

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Derivative Litigation. 2011 U.S. Dist. LEXIS 112292 (D.N.J., 

Sept. 29, 2011). In that case, plaintiffs based their Caremark claim 

on defendant directors’= alleged failure to prevent various illegal 

activities from occurring at several of the company=s subsidiaries. 

Id., at *1-2. The red flags cited in that case were FDA warning 

letters, an FDA report, qui tam actions, a criminal plea, a 

settlement agreement with the U.S. Department of Justice (ADOJ@), 

and a DOJ subpoena, all alleged to point to corporate misconduct 

with respect to product recalls, off-label drug marketing and illegal 

kick-backs. Id. at *7. Despite the multitude of red flags, the court 

found that the plaintiffs= complaint could not link the reported 

information regarding subsidiaries= misconduct to the board of 

directors as required by the heightened pleading standard, namely, 

that particularized facts showed specifically the board=s bad faith in 

consciously failing to prevent violations. Id. at *28. 

In this case, Plaintiff only alleges a single red flag alerting the 

Board of possible misconduct by LaJobi: the U.S. Customs 

decision to do a Focused Assessment of its subsidiary. The 

Complaint itself concedes that the Board took a series of actions in 

response, deemed by law in this Circuit to demonstrate appropriate 

exercises of business judgment. Unlike SFBC, the alleged 

violations of U.S. and foreign law are not asserted to be standard 

operating procedure or endemic to the larger operations of Kid 

Brands, nor are they pled to be at the core of Kid Brands= business 

rather than decentralized activity of employees in a distant 

subsidiary. Even where many red flags are raised regarding 

subsidiary misconduct, a demand futility claim must fail where no 

relationship or link can be inferred from facts pled indicating that 

the board itself knew of the misconduct or inadequacies in internal 

control mechanisms, knew that illegal or harmful behavior could 

result from the inadequacies and consciously did nothing to control 

the deficiencies.

This brings the Court to a second fundamental point: Plaintiff does 

not present particularized facts regarding Defendants= actual 

knowledge of wrongdoing. Specifically, the Complaint is devoid 

of factual allegations regarding who approved the incorrect 

payment of customs duties and whether any of the directors knew 

that the appropriate customs duties under federal anti-dumping law 

were not being paid. Further, no facts are pled regarding any 

meetings that occurred between members of the Board and 

employees of LaJobi or those who knew of the misconduct of 

LaJobi employees where any misconduct was reviewed or 

discussed. The Complaint also fails to plead facts that suggest an 

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inference that the directors or officers knew of the unpaid customs 

duties, and intended them to be a form of hidden bonus to be 

concealed from regulatory authorities and from Kid Brands=

stockholders. This Court thus cannot make a rational inference 

based on the facts pled that any members of the Kid Brands board, 

much less a majority, had actual knowledge about the violative 

activity of LaJobi=s employees, and Plaintiff has failed to create a 

reasonable doubt as to the Kid Brands Board=s ability to 

impartially consider a demand as to this claim.

Beyond Plaintiff=s failure to sufficiently plead the Board=s likely 

subjection to suit based on systematic failure to monitor and actual 

knowledge of misconduct, Plaintiff has also not set forth facts or 

circumstances demonstrating that a majority of the Board, or the 

sway of Ainterested@ directors makes it such that the Board should 

be construed as personally interested in the outcome of the 

decision on whether to pursue the claims asserted in the 

Complaint. Demand futility has been found in this Circuit 

regarding Ainterested@ directors where: 1) directors benefitted 

through special compensation packages and grants of significant 

fees resulting from a merger with a company that had significantly 

overstated its income, In re Cendant Corp. Deriv. Action Litig., 

189 F.R.D. 117, 129 (D.N.J. 1999); and 2) half of the members of 

the Board of Directors were on a compensation committee which 

approved backdating options that benefitted those directors and an

additional member accepted those options, Ryan v. Gifford, 918 

A.2d 341 (Del. Ch. 2007). These cases indicate that interest can be 

found where directors have made decisions which directly mandate 

or approve wrongdoing, and where directors financially benefit 

from participation or approval in the challenged decision. This is 

not the case here, and this Court thus has no basis to conclude that 

the majority of the Board were so invested in activities from which 

they benefitted that they could not exercise independent judgment 

regarding a shareholder=s demand. 

Plaintiff=s Complaint fails to particularly plead: a) how the 

directors Ainterest@ would prevent objective assessment of a 

demand request; and b) how each director, as differentiated from 

the others, has such an interest. With regard to the first issue, the 

nature of the directors= interest, Plaintiff makes two arguments. 

One argument, discussed above, is that at least half of the directors 

face a substantial likelihood of liability. The other argument 

involves alleged financial benefits received from the alleged 

wrongdoing not shared by the shareholders. Plaintiff=s Complaint 

however only alleges that one member of the Board, Defendant 

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Crain, was so interested, receiving A$2.25 million in compensation, 

including stock options, while [Kid Brands] lacked internal 

controls for compliance with the U.S. Customs laws and the local 

foreign laws in the jurisdictions where [it] operations.@ (Compl., at 

& 48). Plaintiff neither alleges how this compensation relates to 

the alleged misconduct of LaJobi=s employees, nor addresses the 

influence of Defendant Crain on the rest of the Board with respect 

to how this financial interest would affect a decision on whether to 

grant a shareholder=s demand. 

The Complaint is deeply deficient with regard to the second issue 

requiring differentiation between Defendants under Prudential. 

The only descriptions of alleged activities by any individual 

member of the Board or Kid Brands officer is made in the AParties@

section of the Complaint, and the exclusive difference between 

Defendants listed is their job title and years of service. (See

Compl., at && 10-20). The rest of the alleged fact pertaining to 

each Defendant in their respective numbered paragraphs is 

identical regarding conclusory allegations of their knowledge Aat 

all relevant times,@ that Kid Brands was subject to governing law, 

rules and regulations, that they failed to implement internal 

controls, and that they owed duties to the corporation which they 

breached in failing to oversee the company and making false 

statements to the SEC and Kid Brands= shareholders. The rest of 

the Complaint invariably refers to AKBI@ (Kid Brands) and Athe 

board of directors,@ providing no facts as to the degree of 

individual involvement, approval, participation, acquiescence or 

benefit from the alleged wrongdoing.

The central issue for the purposes of Plaintiff=s motion is whether 

the Kid Brands Board Ashould be divested of its authority to 

address th[e alleged] misconduct@ based on Plaintiff having 

overcome its burden of demonstrating reasonable doubt that the 

Board could exercise an independent and disinterested business 

judgment in responding to a demand of its claims. Desimone, 924 

A.2d at 914. Since the factual allegations as pled do not show that 

a majority of the Board faces a substantial likelihood of liability 

under Caremark and subsequent binding law, fails to sufficiently 

allege actual knowledge of the directors or to differentiate between 

them regarding their participation in the wrongdoing, Plaintiff=s 

Complaint falls short of the heightened pleading standard required 

to excuse demand. 

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Having carefully reviewed Plaintiff’s Amended Complaint, the Court finds—for the 

reasons already set forth in its October 24, 2011 Opinion—that Plaintiff has again failed to plead 

that a pre-suit demand on the Board vis-à-vis its failure to monitor claim would have been futile. 

In particular, the Court finds as follows:

First, the Amended Complaint fails to allege that a majority of the Kid Brands’ directors 

lacked independence such that demand should be excused. See generally Rales, 634 A.2d at 936 

(“A director is considered interested where he or she will receive a personal financial benefit 

from a transaction that is not equally shared by the stockholders. . . . In such circumstances, a 

director cannot be expected to exercise his or her independent business judgment without being 

influenced by the adverse personal consequences resulting from the decision.”). At most, the 

Amended Complaint alleges that two out of the seven Board members were employed by Kid 

Brands. See Am. Compl., ¶¶ 141 (alleging that Benaroya received $1.5 million in total 

compensation as CEO for Kid Brands); ¶ 142 (alleging that Crain received more than $2.25 

million in compensation, including stock options, as CEO for Kid Brands). Putting aside the 

issue of whether these two defendants were, in fact, members of the relevant board and/or 

whether their alleged employment occurred during the relevant time period, at most, the 

Amended Complaint alleges facts suggesting that two out of the seven members of the Board 

had a financial stake in Kid Brands. Such allegations do not raise a reasonable doubt regarding 

the ability of a majority of the Board to properly exercise its business judgment in a decision on a 

demand had one been made. See Rales, 634 A.2d at 937 (“[T]he appropriate inquiry is whether 

Blasband’s amended complaint raises a reasonable doubt regarding the ability of a majority of 

the Board to exercise properly its business judgment in a decision on a demand had one been 

made at the time the action was filed.”) (emphasis added). Certainly, the facts alleged in the 

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Amended Complaint do not allow the Court to draw the reasonable inference that the majority of 

the Board were so invested in activities from which they benefitted that they could not exercise 

independent judgment regarding a shareholder’s demand. 

Second, the Amended Complaint fails to contain particularized facts as to each individual 

Defendant and fails to identify which individual Defendant breached his fiduciary duties and 

when those fiduciary duties were breached. See King, 409 Fed. Appx. at 538 (finding that 

plaintiff had failed to establish that the defendants faced a “substantial likelihood” of personal 

liability on his oversight claim where the complaint failed to contain “particularized facts” and 

did not “identify which individual director defendants breached his or her fiduciary duties, and 

when those duties were breached.”); Desimone, 924 A.2d at 943 (holding that, in order to excuse 

demand based on an oversight theory of liability, “a derivative complaint must plead facts 

specific to each director, demonstrating that at least half of them could not have exercised 

disinterested business judgment in responding to a demand.”). Again, the only real descriptions 

of alleged activities by any individual member of the Board or Kid Brands officer is made in the 

“Parties” section of the Complaint, and the exclusive difference between Defendants listed is 

their job title and years of service. See Am. Compl., ¶¶ 14-33. The rest of the alleged facts

pertaining to each Defendant is nearly identical—namely, that, “at all relevant times,” each: (a)

knew that Kid Brands: was subject to U.S. Customs rules and regulations and anti-dumping laws, 

needed to pay customs duties on goods imported from China and elsewhere, and needed to 

implement an internal controls system to ensure that Kid Brands met its payment obligations; (b) 

failed to implement such internal controls, despite having the duty to do so; and (c) as a result, 

Kid Brands substantially underpaid customs duties on goods imported into the United States by 

LaJobi. The rest of the Amended Complaint, again, makes reference to “Kid Brands” and 

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“director defendants” without providing facts as to the degree of individual involvement, 

approval, participation, acquiescence or benefit from the alleged wrongdoing.

Third, the Amended Complaint fails to present particularized facts regarding Defendants’

actual knowledge of wrongdoing. In particular, the Amended Complaint continues to allege only 

one “red flag”—namely, the late December 2010 notification that LaJobi had been selected for a 

“Focused Assessment” by U.S. Customs. There is no dispute that this “red flag” triggered 

immediate action by the Board. The only question remaining was whether the Board had 

received any red flags concerning LaJobi’s customs violations prior to December 2010 and 

consciously failed to take action. See, e.g., King, 409 Fed. Appx. at 538-39 (“Without 

particularized facts that the directors knew or should have known about the misconduct and 

consciously failed to act, King cannot establish that the defendants face a ‘substantial likelihood’ 

of personal liability on his claims.”). Although the Amended Complaint now contains factual 

allegations concerning misconduct by LaJobi employees, the Amended Complaint contains no 

facts showing that any members of the Board were ever aware of such actions by LaJobi 

employees and consciously took no action. For example, although the Amended Complaint 

contains new facts surrounding discussions about customs violations between LaJobi employees 

dating as far back as 2007 (Am. Compl., ¶¶ 60-72), Plaintiff has failed to allege any facts linking

the reported information regarding LaJobi’s misconduct to any particular member of the Board. 

To be clear, although the Amended Complaint now contains specific facts to substantiate the 

allegation that LaJobi employees were aware of and intentionally engaged in customs violations 

“to avoid anti-dumping tarrif [sic],” (Am. Compl., ¶ 63), Plaintiff still fails to allege any facts 

linking said information to the Board itself, as required by the heightened pleading standard. 

Certainly, the Amended Complaint fails to contain particularized facts suggesting that the Board 

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had any reason to suspect (prior to December 2010) that the customs violations at LaJobi were 

occurring and/or that they consciously failed to take action in response. Plaintiff’s conclusory 

allegations that each of the defendants had knowledge that Kid Brands had a fiduciary duty to 

implement an internal controls system does not, without more, rise to the level of establishing 

that they knew they were not discharging this fiduciary obligation in good faith. See Desimone, 

924 A.2d at 940 (“[I]n order to state a viable Caremark claim, and to predicate a substantial 

likelihood of director liability on it, a plaintiff must plead the existence of facts suggesting that 

the board knew that internal controls were inadequate, that the inadequacies could leave room for 

illegal or materially harmful behavior, and that the board chose to do nothing about the control 

deficiencies that it knew existed.”). 

Fourth, although Plaintiff argues that demand upon the Board is not required because a 

majority of the current Board faces a substantial likelihood of liability for “utterly failing to 

implement any internal controls for compliance with U.S. Customs laws and foreign 

regulations,” the allegations in the Amended Complaint do not support this. See Stone, 911 A.2d 

at 370. Rather, the allegations now pled confirm that certain internal customs-related controls 

were, in fact, in place. See Am. Compl, ¶ 7 (“That investigation, as well as audits performed by 

Ernst & Young LLP (“E&Y”) and KPMG LLP (“KPMG”), revealed that Kid Brands’ internal 

controls during the time these customs and payment practices were deficient.”); ¶ 38 (referring to

the existence of an Audit Committee of the Board); ¶ 108 (“KPMG’s report focused on financial 

aspects of those controls and determined that Kid Brands’ internal controls were, at the very 

least, deficient. For example, the KPMG report issued to the Board and/or Audit Committee on, 

or around, March 31, 2011 stated that ‘[t]he controls associated with appropriate vendor set-up 

and the accounts payable 3-way match were not operating effectively’ and that ‘neither the 

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Company’s entity-level controls, nor the preventive and detective process-level controls over 

inventory purchasing were sufficient to prevent or detect (and correct) this matter.’ ”); ¶ 109 

(“the Board approved the retention of accounting firm E&Y, to ‘help [Kid Brands] in assessing 

customs risks and controls and enhancing the effectiveness of processes that may have customs 

implications.’ ”); ¶¶ 110, 131 (“E&Y did note that, ‘[w]hile standard operating procedures exist 

for purchasing, importing foreign product and receiving, they do not sufficiently cover the 

relationship with customs brokers.’ ”); ¶ 132 (“KPMG reported on or around March 31, 2011, 

that ‘[t]he controls associated with appropriate vendor set-up and the accounts payable 3-way 

match were not operating effectively’ ”); see Ash v. McCall, 2000 WL 1370341, at *15 (Del. 

Ch. 2000) (“[T]he existence of an audit committee, together with HBOC’s retention of Arthur 

Anderson as its outside auditor to conduct annual audits of the company’s financial reporting, is 

some evidence that a monitoring and compliance system was in place at HBOC premerger.”).

The fact that the foregoing internal oversight controls were—in hindsight—found to be 

deficient, is insufficient to establish likelihood of liability in a failure of oversight claim, 

particularly where the Amended Complaint fails to allege facts establishing that such 

deficiencies were the product of a conscious disregard by the board. See King v. Baldino, 648 F.

Supp. 2d 609, 623 (D. Del. 2009) (“It is not enough ‘with the benefit of hindsight’ that it is 

revealed that internal controls were inadequate and resulted in a large fine.”), aff’d, 409 Fed. 

Appx. 535 (3d Cir. 2010); Johnson v. Glassman, 401 N.J. Super. 222, 233-45 (App. Div. 2008)

(finding that “material weakness” in the company’s internal controls, without more, did not 

establish likelihood of liability on failure of oversight claim where the complaint contained 

allegations that the board “had a functioning audit committee that responded appropriately when 

advised by the SEC that accounting and reporting violations might exist.”); see, e.g., Morefield v. 

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Bailey, 2013 WL 4010295, at *14 (E.D. Va. 2013) (“The existence of deficiencies in the internal 

audit practice does not equate to the Board members being conscious of a failure to do their 

jobs.”). Moreover, Plaintiff bears the burden of establishing that demand was futile; thus, 

Plaintiff’s attempt to use Kid Brands’ alleged failure to produce documents confirming the 

existence of such internal controls to meet its own burden of affirmatively establishing 

Defendants’ substantial likelihood of liability does not carry the day. See PSE&G, 173 N.J. at 

287. 

Fifth, given the foregoing allegations confirming the existence of certain internal 

customs-related controls at Kid Brands, the Court also finds that Plaintiff has failed to allege “a 

sustained or systematic failure of the board to exercise oversight.” Caremark, 698 A.2d at 971 

(“[A] sustained or systematic failure of the board to exercise oversight-such as an utter failure to 

attempt to assure a reasonable information and reporting system exists-will establish the lack of 

good faith that is a necessary condition to liability.”). To the extent Plaintiff argues that the 

customs violations at issue were not an isolated occurrence, but rather an ongoing and repeated 

problem throughout the Company’s operations, again, the Amended Complaint contains no facts 

to suggest that any of the defendants were aware of such ongoing or systematic problems. 

Similarly, to the extent Plaintiff attempts to rely on allegations that the Board initiated similar 

investigations into Kid Brands’ other subsidiaries – Kids Line, CoCaLo and Sassy—in 2012 

(Am. Compl., ¶¶ 81-83) for the proposition that knowledge of illegal conduct can be inferred 

when the alleged wrongdoing is of substantial magnitude and duration, the Amended Complaint 

fails to allege any substantial overarching “scheme” that went undiscovered by the Board. See, 

e.g., Black’s Law Dictionary 1462 (9th ed. 2009) (defining “scheme” as a “connected or orderly 

arrangement, esp. of related concepts”). Rather, at most, the Amended Complaint alleges that 

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the Board ultimately discovered customs-related problems at LaJobi and the other subsidiaries 

(Kids Line, CoCaLo and Sassy), but that both were caused by different, unrelated factors. 

Compare Am. Compl., ¶ 83 (concluding that customs-related problems at Kids Line, CoCaLo 

and/or Sassy did not result from intentional misconduct of the subsidiaries’ personnel) with Am. 

Compl., ¶ 79 (explaining that “the Board concluded that there was misconduct involved on the 

part of certain LaJobi employees in connection with the incorrect payment of duties, including 

misidentifying the manufacturer and shipper of products”). Moreover, as previously stated, the 

Amended Complaint fails to allege any particular red flags from which it may be reasonably 

inferred that any particular member of the Board knew of any systematic customs-related 

problems and chose to disregard it. See, e.g., In re Abbott Labs. Derivative S’holders Litig., 325 

F.3d 795, 809 (7th Cir. 2003) (finding that plaintiff had properly alleged demand futility, despite 

the lack of evidence that any of the directors knew of the violations of law, given the “extensive 

paper trail” concerning the violations); In re Pfizer Inc. S’holder Derivative Litig., 722 F. Supp. 

2d 453, 460 (S.D.N.Y. 2010) (finding that plaintiff had properly alleged demand futility where 

“the Complaint details at great length a large number of reports made to members of the board 

from which it may reasonably be inferred that they all knew of Pfizer's continued misconduct 

and chose to disregard it.”). Absent any such red flags and/or any particular facts linking the 

internal customs-related oversight problems at LaJobi with those found at the other subsidiaries, 

the Court concludes that Plaintiff has failed to meet its burden of pleading demand futility based 

on a theory that the failure involves a scheme of significant magnitude and duration. See, e.g., 

Abbott, 325 F.3d at 809 (“We find that six years of noncompliance, inspections, 483s, Warning 

Letters, and notice in the press, all of which then resulted in the largest civil fine ever imposed by 

the FDA and the destruction and suspension of products which accounted for approximately 

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$250 million in corporate assets, indicate that the directors’ decision to not act was not made in 

good faith and was contrary to the best interests of the company.”). 

Simply put, “[w]ithout particularized facts that the directors knew or should have known 

about the misconduct and consciously failed to act,” Plaintiff cannot establish that the 

Defendants face a “substantial likelihood” of personal liability as to the breach of fiduciary duty 

claims asserted. King, 409 Fed. Appx. at 539; Stone, 911 A.2d at 370 (“[I]mposition of liability 

requires a showing that the directors knew that they were not discharging their fiduciary 

obligations. Where directors fail to act in the face of a known duty to act, thereby demonstrating 

a conscious disregard for their responsibilities, they breach their duty of loyalty by failing to 

discharge that fiduciary obligation in good faith.”). Thus, once again, the Court cannot make the 

rational inference based on the facts pled that any members of the Kid Brands Board, much less a 

majority: (a) had actual knowledge about the violative activity of LaJobi’s employees and 

consciously chose to do nothing about it, or (b) lacked good faith in the exercise of their 

monitoring responsibilities. See Caremark, 698 A.2d at 972. Plaintiff’s Amended Complaint 

thus falls short of the heightened pleading standard required to excuse demand as to its failure to 

monitor claim. 

B. Disclosure Claim: Alleged False and Misleading Statements

The second aspect of Plaintiff’s breach of fiduciary duty claim alleges that the Board 

issued false and misleading statements about LaJobi in various corporate disclosures.1 

 

1

Plaintiff does not allege a request for shareholder action in this case; thus, Plaintiff’s disclosure 

claim must be assessed as a duty of loyalty claim. See Steinman v. Levine, 2002 WL 31761252, 

at *13 (Del.Ch. Nov. 27, 2002) (“The Delaware Supreme Court has held that claims for a breach 

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Defendants again argue that Plaintiff does not plead with particularity substantial likelihood of 

liability with respect to the misstatement claim so as to excuse Plaintiff’s failure to make pre-suit 

demand. Unlike Plaintiff’s lack of monitoring claim, the alleged misstatements to the SEC 

constituted an affirmative action by the Board rather than a failure to act, so Plaintiff may satisfy 

demand futility by pleading facts creating a reasonable doubt that either (1) the directors are 

disinterested and independent or (2) the challenged transaction was otherwise the product of a 

valid exercise of business judgment. PSE& G, 173 N.J. at 282. 

Establishing demand futility under the second prong involves a “heavy burden” on the 

part of a plaintiff since that prong is “directed to extreme cases in which despite the appearance 

of independence and disinterest a decision is so extreme or curious as to itself raise a legitimate 

ground to justify further inquiry and judicial review.” Highland Legacy Ltd. v. Singer, No. Civ. 

A. 1566-N, 2006 Del. Ch. LEXIS 55, at *29-30 (Del. Ch. Mar. 17, 2006). The business 

judgment rule is a “presumption that in making a business decision the directors of a corporation 

acted on an informed basis, in good faith and in the honest belief that the action taken was in the 

best interests of the company.” In re Smurfit-Stone Container Corp. S=holder Litig., 2011 Del. 

Ch. LEXIS 79, at *41 (Del. Ch. May 20, 2011). Where a majority of the directors are 

independent or outside directors, the business judgment rule’s presumption of good faith is 

heightened. Hokanson v. Petty, 2008 Del. Ch. LEXIS 182, at *25 n. 34 (Del. Ch. Dec. 10, 2008). 

In dismissing this claim without prejudice, the Court held:

 

of fiduciary duty of disclosure can only arise when the defendant has made statements to the 

corporation’s stockholders in connection with a request for stockholder action.”), aff’d, 822 A.2d 

397; Jackson Nat’l Life Ins. Co., 741 A.2d at 389 (noting that “in the absence of a request for 

stockholder action, a duty of loyalty claim requires well pleaded allegations that directors 

“deliberately misinform[ed] stockholders through the dissemination of false information”).

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This Court agrees that Plaintiff has failed to create reasonable 

doubt as to the Board’s disinterestedness, independence, and valid 

business judgment for the purposes of excusing demand on its 

disclosure claims. Plaintiff’s Complaint does not allege any facts 

at all regarding the Board’s knowledge of any wrongdoing by 

LaJobi until December 2010, when the company’s subsidiary was 

targeted for a Focused Assessment. The only facts alleged in the 

Complaint even dealing with the period surrounding the relevant 

SEC disclosures by Kid Brands, all prior to December 2010, are 

the filing of the disclosures themselves. Thus, Plaintiff allegations 

that Defendants knew of misconduct but failed to disclose it is 

entirely conclusory, and Plaintiff has not met the required 

heightened pleading standard that either Defendants face a 

substantial likelihood of liability to make demand futile or that 

they failed to exercise valid business judgment in making the 

disclosures that they made.

(October 24, 2011 Op. at 19-20). 

Based on the reasons already stated in the Court’s October 24, 2013 Opinion, and those 

set forth below, the Court finds that the Amended Complaint fails to cure the pleading 

deficiencies discussed above. In particular, the Amended Complaint takes issue with four

disclosures: (1) the March 15, 2011 SEC Form 8-K (which disclosed that there were “instances 

at LaJobi in which incorrect import duties were applied on certain wooden furniture imported 

from vendors in China, resulting in a violation of anti-dumping regulations.”) (Am. Compl., ¶ 2); 

(2) the March 31, 2011 SEC Form 10-K (which revealed that Kid Brands owes approximately $7 

million in customs duty to U.S. Customs and could face a penalty of up to 100% of that customs 

duty) (Am. Compl., ¶ 3); (3) Kid Brands’ Annual Report for fiscal year 2009 (stating that “The 

Borrowers [defined to include Kid Brands] were in compliance with all applicable financial 

covenants in the Credit Agreement as of December 31, 2009.”) (Am. Compl., ¶ 119); and (4) Kid 

Brands’ November 3, 2010 Quarterly Report on SEC Form 10-Q (which stated that the purpose 

of L&J was to provide quality control services to LaJobi for goods being shipped from Asian 

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ports and that L&J pays for the actual cost of such services and is subsequently reimbursed by 

Kid Brands) (Am. Compl., ¶ 117).

Starting with the November 3, 2010 Quarterly Report on SEC Form 10-Q, Plaintiff 

alleges that “the statements described above regarding Kid Brands’ payment practices for quality 

control services were false and misleading because those payments were not made to L&J 

Industries and were not made to L&J Industries for actual, direct costs incurred by that entity. In 

reality, Kid Brands made these payments directly to the individuals providing quality control 

services, in likely violation of laws in the foreign jurisdictions in which those individuals reside.” 

(Am. Compl., ¶ 118). Such allegations do not establish a substantial likelihood of liability for 

improper disclosure because the Amended Complaint once again contains no allegations that 

would allow the Court to draw the rational inference that any members of the Board knew such 

statements were false when made. See Pfeffer v. Redstone, 965 A.2d 676, 686 (Del. 2009)

(finding that, if the directors did not know or have reason to know the allegedly missing facts, 

then they could not be in a position to disclose them); Kanter, 489 F.3d at 180 (finding that 

plaintiff failed to create a reasonable doubt as to the directors’s disinterestedness where the 

complaint did not “allege specific actions by any of the defendants, nor does it assert knowledge 

of alleged wrongdoings. The District Court found these conclusory allegations insufficient to 

satisfy the heightened pleading requirements of Rule 23.1.”); Jackson, 741 A.2d at 389 (“[I]n the 

absence of a request for stockholder action,” a duty of loyalty claim requires well pleaded 

allegations that directors “deliberately misinform[ed] stockholders through the dissemination of 

false information”).

Similarly, Plaintiff argues that the statement contained in Kid Brands’ annual report for 

fiscal year 2009 stating that Kid Brands was in compliance with all applicable financial 

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covenants in the Credit Agreement as of December 31, 2009 was false and misleading when 

made given the Director Defendants’ subsequent admission that Kid Brands’ customs and 

payments practices breached warranties and covenants in the Credit Agreement. But such 

allegations do not establish a substantial likelihood of liability for failure to disclose because the 

Amended Complaint contains no allegations that would allow the Court to draw the reasonable 

inference that any members of the Board knew such statement was false when it was made. See 

Pfeffer, 965 A.2d at 686; Kanter, 489 F.3d at 180; Jackson, 741 A.2d at 389.

As to the last two disclosures at issue—the March 15, 2011 SEC Form 8-K and the 

March 31, 2011 SEC Form 10-K—Plaintiff attempts to use the fact that the Director Defendants 

waited three months after receiving the December 2010 U.S. Customs notification regarding the 

Focused Assessment of LaJobi before disclosing same (in mid-March 2011) as establishing a 

viable Caremark claim. Even assuming, arguendo, that the Board had an obligation to disclose 

to its shareholders the Focused Assessment or the preliminary findings of its internal 

investigation concerning customs-related misconduct at LaJobi,2Plaintiff has failed to plead that 

the Director Defendants took no action during said three month period. See Desimone, 924 A.2d 

at 940 (holding that to state a viable Caremark claim and predicate a substantial likelihood of 

director liability on it, “a plaintiff must plead the existence of facts suggesting that the board 

knew that internal controls were inadequate, that the inadequacies could leave room for illegal or 

materially harmful behavior, and that the board chose to do nothing about the control 

deficiencies that it knew existed.”). To the contrary, allegations in the Amended Complaint 

 

2

See, e.g., Malone v. Brincat, 722 A.2d 5, 11 (Del. 1998) (“In the absence of a request for 

stockholder action, the Delaware General Corporation Law does not require directors to provide 

shareholders with information concerning the finances or affairs of the corporation.”). 

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show that once the Board received notification of the Focused Assessment, they took prompt 

steps to conduct their own due diligence. For instance, the Amended Complaint—like the 

original complaint—concedes that the Board did take actions to address the alleged misconduct

at LaJobi: it hired an outside law firm to set up an independent investigation, it established a 

Special Committee to conduct internal investigations, it retained the services of Ernst & Young 

and KPMG to conduct audits of Kid Brands’ internal controls, it took disciplinary actions by 

terminating the employment of top LaJobi officers, and publicly disclosed to shareholders and 

the public the nature of the misconduct and the extent of losses it suffered as a result of that 

misconduct. See, e.g., Am. Compl., ¶¶ 2, 3, 7, 8, 78, 79. This Court has already held that such 

actions are almost identical to those taken by the MedQuist, Inc. Board in Kanter v. Barella, 

responses which in that case the Third Circuit held to be appropriate and “appear to be precisely 

the types of actions an independent board exercising valid business judgment should take when 

made aware of a serious problem. By themselves they do not create reasonable doubt as to the 

validity of its judgment.” 489 F.3d at 181. 

Thus, Plaintiff has once again failed to meet the heightened pleading standard for 

establishing demand futility on its disclosure claim by creating a reasonable doubt that the Board 

either lacked independence or exercised valid business judgment in making the disclosures that 

they made. To the extent Plaintiff has attempted to paint its disclosure claim as fitting under 

Caremark, Plaintiff has failed to establish likelihood of liability on any such claim inasmuch as 

the Amended Complaint contains no particular facts showing the existence of red flags that 

should have alerted the Board to the problems at LaJobi prior to December 2010, or facts 

suggesting that Defendants consciously chose to do nothing between the one and only red flag 

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referenced in the Amended Complaint (the mid-December 2010 Focused Assessment 

notification) and the Board’s first disclosure concerning same (in mid-March 2011). 

C. Remaining Claims

Because all remaining claims—gross mismanagement, corporate waste and unjust 

enrichment—indisputably flow from Defendants’ alleged breach of their fiduciary duties,3the 

Court concludes that such claims must also be dismissed pursuant to Rule 23.1 for failure to 

adequately plead particularized facts regarding Defendants’ alleged breach of their fiduciary 

duties; demand is thus not excused as to these claims. See, e.g., In re Bank of America Corp. 

Securities, Derivative, and Employee Retirement Income Sec. Act (ERISA) Litig., 757 F. Supp. 2d 

260, 342 (S.D.N.Y. 2010) (“Plaintiffs have not pled particular facts creating a reasonable doubt 

that the majority of the board (even excluding Lewis) who were not members of that committee 

could have exercised their disinterested and independent business judgment in considering a 

demand to file suit. Demand for the unjust enrichment claim, therefore, is not excused.”). 

Rule 12(b)(6)

Even assuming, arguendo, that Plaintiff had met the heightened pleading standard for 

establishing demand futility pursuant to Rule 23.1(b)(3), based on the reasons that follow, the 

 

3

See Am. Compl., ¶ 162 (alleging claim of gross mismanagement based on Defendants having 

“abandoned and abdicated their responsibilities and fiduciary duties with regard to prudently 

managing the assets and business of Kid Brands”); ¶ 166 (alleging claim of corporate waste 

based on “misconduct described above” in connection with breach of fiduciary duty claim); ¶ 

170 (alleging claim of unjust enrichment based on “misconduct particularized” in the context of 

breach of fiduciary duty claim). 

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Court finds that dismissal of all claims asserted in the Amended Complaint would nevertheless 

be warranted pursuant to Rule 12(b)(6).

A. Breach of Fiduciary Duty

Count One of the Amended Complaint alleges that Defendants breached their fiduciary 

duties by: (1) “causing or allowing the Company to engage in improper customs and payment 

practices,” and (2) by “making, or allowing the Company to make, improper statements in their 

public filings concerning its customs and payments practices.” (Am. Compl., ¶¶ 157). Thus, 

Plaintiff’s breach of fiduciary claim has two components: (1) lack of oversight, and (2) improper 

disclosure (or failure to disclose). 

As previously stated, Plaintiff’s lack of oversight claim is governed by Caremark. 698 

A.2d at 971. To state a viable Caremark claim, “a plaintiff must plead the existence of facts 

suggesting that the board knew that internal controls were inadequate, that the inadequacies 

could leave room for illegal or materially harmful behavior, and that the board chose to do 

nothing about the control deficiencies that it knew existed.” Desimone, 924 A.2d at 940. The 

scienter requirement in Caremark was also confirmed in Stone ex rel. AmSouth Bancorporation 

v. Ritter, which required a “showing that the directors knew that they were not discharging their 

fiduciary duties” and “suggesting a conscious decision to take no action in response to red flags” 

of wrongdoing within the company. 911 A.2d at 370 (citation omitted). Thus, it is clear that in 

order to state a lack of oversight claim that is plausible on its face, Plaintiff must allege, at a 

minimum, facts “showing that the directors were conscious of the fact that they were not doing 

their jobs.” Guttman, 823 A.2d at 506. Plaintiff’s Amended Complaint fails to do this. 

In particular, as previously stated, the Amended Complaint continues to allege only one 

red flag—namely, the late December 2010 notification that LaJobi had been selected for a 

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“Focused Assessment” by U.S. Customs. There is no dispute that this red flag triggered 

immediate action by the Board. Although the Amended Complaint now contains factual 

allegations concerning misconduct by LaJobi employees, the Amended Complaint contains no 

facts showing that any members of the Board were ever aware of such actions by LaJobi 

employees—prior to December 2010—and consciously took no action. For example, although 

the Amended Complaint contains new facts surrounding discussions about customs violations 

between LaJobi employees dating as far back as 2007 (Am. Compl., ¶¶ 60-72), Plaintiff has 

failed to allege any facts linking the reported information regarding LaJobi’s misconduct to any 

particular member of the Board. Nor has Plaintiff alleged facts showing a “sustained of 

systematic failure of the board to exercise oversight.” Caremark, 698 A.2d at 971. Rather, the 

allegations now pled in the Amended Complaint confirm that certain internal customs-related 

controls were, in fact, in place. See Am. Compl, ¶¶ 7, 38, 108, 109, 110, 131, 132. The fact that 

the foregoing internal oversight controls were—in hindsight—found to be deficient, is 

insufficient to allege a viable failure of oversight claim, particularly where the Amended 

Complaint fails to allege facts establishing that such deficiencies were the product of a conscious 

disregard by the board. See Guttman, 823 A.2d at 506 (“[T]he [Caremark] decision premises 

liability on a showing that the directors were conscious of the fact that they were not doing their 

jobs.”).

The disclosure aspect of Plaintiff’s breach of fiduciary duty claim is equally deficient. 

“[D]irectors who knowingly disseminate false information that results in corporate injury or 

damage to an individual stockholder violate their fiduciary duty, and may be held accountable in 

a manner appropriate to the circumstances.” Malone, 722 A.2d at 9; see also Jackson, 741 A.2d 

at 389 (“[I]n the absence of a request for stockholder action,” a duty of loyalty claim requires 

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well pleaded allegations that directors “deliberately misinform[ed] stockholders through the 

dissemination of false information.”). As previously held, the Amended Complaint contains no 

allegations that would allow the Court to draw the rational inference that any members of the 

Board knew statements they made (concerning Kid Brands’ payment practices and/or compliance 

with all applicable financial covenants in the Credit Agreement) in the November 3, 2010 

Quarterly Report on SEC Form 10-Q or the Kid Brands’ annual report for fiscal year 2009 were 

false when made. Absent such factual content, Plaintiff has failed to plead an improper 

disclosure claim that is plausible on its face. See Pfeffer, 965 A.2d at 686 (finding that, if the 

directors did not know or have reason to know the allegedly missing facts, then they could not be 

in a position to disclose them); Wood v. Baum, 953 A.2d 136, 142 (Del. 2008) (“The Board’s 

execution of MME’s financial reports, without more, is insufficient to create an inference that 

the directors had actual or constructive notice of any illegality.”); Guttman, 823 A.2d at 498

(dismissing complaint that was “devoid of any pleading regarding the full board’s involvement 

in the preparation and approval of the company’s financial statements” and of “particularized 

allegations of fact demonstrating that the outside directors had actual or constructive notice of 

the accounting improprieties.”)

Finally, to the extent Plaintiff attempts to use the fact that the Director Defendants waited 

three months after receiving the December 2010 U.S. Customs notification regarding the 

Focused Assessment of LaJobi before disclosing same in Kid Brands’ March 15, 2011 SEC 

Form 8-K and the March 31, 2011 SEC Form 10-K as establishing a viable Caremark claim, 

such claim is deficient as a matter of law inasmuch as Plaintiff has failed to plead that the 

Director Defendants took no action during said three month period. See Desimone, 924 A.2d at 

940 (holding that to state a viable Caremark claim, “a plaintiff must plead the existence of facts 

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suggesting that the board knew that internal controls were inadequate, that the inadequacies 

could leave room for illegal or materially harmful behavior, and that the board chose to do 

nothing about the control deficiencies that it knew existed.”). To the contrary, allegations in the 

Amended Complaint show that once the Board received notification of the Focused Assessment, 

they took prompt steps to conduct their own due diligence. See, e.g., Am. Compl., ¶¶ 2, 3, 7, 8, 

78, 79.

Plaintiff has thus failed to plead a facially plausible claim of breach of fiduciary duty 

premised on either failure to monitor or improper disclosure. Having previously dismissed this 

claim and having given Plaintiff ample opportunity to cure the pleading deficiencies therein, 

Count One is now dismissed with prejudice. 

B. Gross Mismanagement

Count Two of the Amended Complaint alleges a claim of gross mismanagement based on 

Kid Brands’ alleged failure to operate without necessary internal controls. As this Court noted in 

its October 2011 Opinion, “Delaware law does not recognize an independent cause of action 

against corporate directors and officers for reckless and gross mismanagement; such claims are 

treated as claims for breach of fiduciary duty.” In re Citigroup Inc. S’holder Derivative Litig., 

964 A.2d 106, 115 n. 6 (Del. Ch. 2009). Plaintiff does not expressly dispute this.4 Thus, the 

Amended Complaint fails to state a viable claim of gross mismanagement against the Director 

Defendants. This claim is now dismissed with prejudice. 

C. Corporate Waste

Count Three of the Amended Complaint alleges a claim of corporate waste based on 

 

4 All cases cited to by the Plaintiff in opposition to dismissal of this claim pre-date the Citigroup

decision.

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Defendants causing millions of dollars’ worth of damages to Kid Brands by underpaying 

customs duties and failing to cause Kid Brands to implement internal controls. In particular, 

Plaintiff argues that it has stated a viable claim of corporate waste based upon Kid Brands’ 

receipt of “insufficient consideration for harm done to the Company (i.e., the costs associated 

with fines and investigations) resulting from Defendants’ fiduciary failure.” (Pl. Opp’n Br. at 

39). 

“[A] waste entails an exchange of corporate assets for consideration so disproportionately 

small as to lie beyond the range at which any reasonable person might be willing to trade.” 

Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. 1997). “Most often the claim is associated 

with a transfer of corporate assets that serves no corporate purpose; or for which no 

consideration at all is received. Such a transfer is in effect a gift.” Id. Thus, “‘[d]irectors are 

guilty of corporate waste, only when they authorize an exchange that is so one-sided that no 

business person of ordinary, sound judgment could conclude that the corporation has received 

adequate consideration.’” Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 167 (2011)

(quoting Glazer v. Zapata Corp., 658 A.2d 176, 183 (Del. Ch. 1993)); see generally Highland 

Legacy Ltd. v. Singer, C.A. No. 1566–N, 2006 WL 741939, at *7 (Del. Ch. Mar. 17, 2006) (“To 

excuse demand on the grounds of waste, the complaint must allege particularized facts sufficient 

to create a reasonable doubt that the board authorized action on the corporation’s behalf on terms 

that no person of ordinary, sound business judgment could conclude represents a fair 

exchange.”). 

The Court concludes that Plaintiff has failed to state a facially plausible claim of 

corporate waste for two reasons. First, it is premised entirely on Defendants’ alleged breach of 

their fiduciary duties. Having determined that Plaintiff has failed to allege sufficient facts which 

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would allow the Court to draw the reasonable inference that Defendants face a substantial 

likelihood of liability on the breach of fiduciary duty claims, the Court finds that Plaintiff 

similarly fails to allege a plausible claim of waste. See, e.g., Sample v. Morgan, 914 A.2d 647, 

669 -670 (Del. Ch. 2007) (“Claims of waste are sometimes misunderstood as being founded on 

something other than a breach of fiduciary duty. Conceived more realistically, the doctrine of 

waste is a residual protection for stockholders that polices the outer boundaries of the broad field 

of discretion afforded directors by the business judgment rule.”).

The Amended Complaint also fails to allege a facially plausible claim of waste inasmuch 

as the crux of this claim—in Plaintiff’s own words—is that Kid Brands received insufficient 

consideration for the amount of money it was required to spend in connection with the customsrelated fines and investigations. See Pl. Opp’n Br. at 39. According to the Amended Complaint,

this substantial expense was caused by the Board’s inaction—namely, the Board’s failure to 

adequately monitor LaJobi’s compliance with relevant laws and regulations governing its 

domestic and overseas operations. See Am. Compl., ¶¶ 45, 90, 124, 159. But a claim of waste 

requires some type of “board authorized action on the corporation’s behalf on terms that no 

person of ordinary, sound business judgment could conclude represents a fair exchange.” 

Citigroup, 964 A.2d at 135 n. 96 (emphasis in original) (quoting Highland, 2006 WL 741939, at 

*7). Because Plaintiff’s claim of waste is indisputably based upon the Board’s alleged inaction 

rather than any particular “board authorized action,” the Court finds that Plaintiff has failed to 

state a claim of corporate waste that is plausible on its face. Having already dismissed this claim 

in October 2011, and having already afforded Plaintiff with an opportunity to engage in limited 

discovery and to cure the pleading deficiencies in this claim, the Court’s dismissal in this regard 

is with prejudice.

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D. Unjust Enrichment

Count Four of Plaintiff’s Amended Complaint alleges a claim of unjust enrichment. In 

particular, Count Four alleges that “as a result of the misconduct particularized herein, 

defendants have been unjustly enriched at the expense of and to the detriment of Kid Brands, in 

the form of unjustified salaries, benefits, bonuses and other emoluments of office.” 

Under Delaware law, unjust enrichment is the “unjust retention of a benefit to the loss of 

another, or the retention of money or property of another against the fundamental principles of 

justice or equity and good conscience.” Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 

1060, 1062 (Del. 1988).

The Court finds that Plaintiff has failed to state a facially plausible claim of unjust 

enrichment because the Amended Complaint is devoid of any allegations that any—much less 

all—of the Defendants benefitted from the unlawful conduct alleged. For instance, Plaintiff does 

not allege that the salaries, benefits, bonuses or “other emoluments of office” the Director 

Defendants received were tied to their alleged breaches of fiduciary duties—namely, their 

alleged failure to monitor LaJobi’s compliance with relevant laws and regulations governing its 

domestic and overseas operations and/or their alleged improper disclosures (or failure to 

disclose). See, e.g., Schock v. Nash, 732 A.2d 217, 231-232 (Del. 1999) (“The trial court 

correctly found that all the Schocks were unjustly enriched and ordered them to return any assets 

in their possession that were traceable to Irma Schock’s breaches of fiduciary duty.”) (emphasis 

added). Because Plaintiff has failed to allege facts showing why it would be unfair or 

inequitable to allow the Director Defendants to retain their “salaries, benefits, bonuses or ‘other 

emoluments of office,’” Plaintiff’s claim for unjust enrichment is dismissed for failure to state a 

claim. 

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The Court notes that Plaintiff’s brief in opposition to Defendants’ motions to dismiss 

argues that “these benefits [salaries, benefits, bonuses] . . . were unwarranted in light of the fact 

that had Defendants disclosed their failure to implement internal controls at Kid Brands’ 

subsidiaries, they most likely would not have retained their positions and continued to receive 

those benefits.” (Pl. Opp’n Br. at 40). Although a complaint cannot be amended by way of a 

brief filed in opposition to a motion to dismiss,

5

even if the Court were to consider this 

statement, it is based on pure speculation and is entirely conclusory; thus, it would not benefit 

from the presumption of truth on a motion to dismiss. Moreover, the Court has already 

concluded—twice—that the actions taken by the Board after receiving the one and only red flag 

alleged in the Amended Complaint were precisely the types of actions an independent board 

exercising valid business judgment should take when made aware of a serious problem.6 

Having already dismissed this claim on this basis in October 2011, and having afforded 

Plaintiff with over eighteen months in which to inspect Defendants’ books and records so as to 

buttress its insufficient allegations, the Court finds that any future amendment of this claim—as 

with all claims asserted in the Amended Complaint—would be futile. Count Four of Plaintiff’s 

Amended Complaint is hereby dismissed with prejudice. See, e.g., In re Bank of Am., 757 F. 

 

5

See Com. of Pa. ex rel v. Zimmerman v. Pepsico, 836 F.2d 173, 181 (3d Cir. 1988) (“It is 

axiomatic that the complaint may not be amended by the briefs in opposition to a motion to 

dismiss.”).

6

Such actions include: hiring an outside law firm to set up an independent investigation, 

establishing a Special Committee to conduct internal investigations, retaining the services of 

Ernst & Young and KPMG to conduct audits of Kid Brands’ internal controls, taking 

disciplinary actions by terminating the employment of top LaJobi officers, and publicly 

disclosing to shareholders and the public the nature of the misconduct and the extent of losses it 

suffered as a result of that misconduct once it had engaged in three months’ worth of its own due 

diligence. See, e.g., Am. Compl., ¶¶ 2, 3, 7, 8, 78, 79. 

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Supp. 2d at 342 (dismissing a claim for unjust enrichment where plaintiffs did not allege director 

benefit from unlawful conduct in their derivative complaint).

V. Conclusion

For these reasons, this Court finds that Plaintiff has once again failed to satisfy the 

pleading requirements of Fed. R. Civ. P. 23.1 as required to bring a derivative action in the 

absence of a pre-suit demand.7 On this basis, Defendants’ Motions to Dismiss is granted.

8

Having previously dismissed all claims asserted in the Amended Complaint, and having afforded 

Plaintiff with over eighteen months in which to inspect Defendants’ books and records so as to 

buttress its insufficient allegations, the Court finds that any future amendment of the claims 

asserted in the Amended Complaint would be futile. Plaintiff’s Amended Complaint is thus 

dismissed in its entirety with prejudice. This case is hereby closed. 

An appropriate Order accompanies this Opinion. 

s/ Jose L. Linares 

Jose L. Linares

Date: September 25, 2013 United States District Judge

 

7

Since the Court finds that Plaintiff has failed to meet the pleading standard required to bring a 

shareholder derivative claim—namely, that Defendants face a substantial likelihood of liability 

on the breach of fiduciary duty claims—the Court need not consider whether the exculpatory 

provision of Kid Brands’ certificate of incorporation exonerates the Director Defendants from 

liability as to this claim.

8

In the alternative, the Court has concluded that dismissal of all claims asserted in the Amended 

Complaint would also be warranted pursuant to Rule 12(b)(6).

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