Opinion ID: 2197726
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: MME, a Delaware limited liability company with its principal place of business in Baltimore, Maryland, provides debt and equity financing to various parties, invests in tax-exempt bonds and other housing-related debt and equity investments, and is a tax credit syndicator that acquires and transfers low-income housing tax credits. MME has a ten-member Board of directors, of which two are inside directors. MME's Amended and Restated Certificate of Formation and Operating Agreement (the Operating Agreement) exempts directors from any liability except in the case of fraudulent or illegal conduct of such person. [1] Plaintiff's complaint, filed on September 7, 2006, named as defendants the ten then-current members of MME's Board and one former director. Five of the defendants were also members of MME's Audit Committee. On October 20, 2006, the defendants moved under Court of Chancery Rule 23.1 [2] to dismiss the initial complaint, for failure to make a pre-suit demand on the Board. Plaintiff subsequently filed an amended complaint (the Complaint) under Court of Chancery Rule 15(aaa). [3] The Complaint set forth a myriad of allegations that are fairly summarized as follows: (a) The defendants breached their fiduciary duties by causing MME to improperly value certain non-performing assets in violation of MME's internal policies, GAAP and SEC standards, in particular Financial Accounting Standard 115 (FAS 115). As a result, MME issued false financial statements concerning the value and performance of those assets. (b) The defendants breached their fiduciary duties by causing MME to make improper charitable contributions, some of which were related-party transactions. The beneficiaries used those contributions to service debt held by MME, thereby concealing the deterioration of MME's tax-exempt bond portfolio. (c) The defendants breached their fiduciary duties by causing MME to execute a series of related party transactions involv[ing] transfers of the securitized property via deeds in lieu of foreclosures from affiliated companies followed by near simultaneous resales of the same property at enormous profits. The effect was significantly to inflate MME's financial performance. (d) The defendants breached their Caremark duties [4] by fail[ing] properly to institute, administer and maintain adequate accounting and reporting controls, practices and procedures, which resulted in a massive restatement process, an SEC investigation, and loss of substantial access to financial markets. On March 21, 2007 and April 10, 2007, the defendants renewed their motion to dismiss the Complaint. After oral argument, the Court of Chancery, ruling from the bench, dismissed the Complaint for failure to allege particularized facts sufficient to establish that demand on the Board would have been futile. The Court of Chancery noted that though the complaint is 80-some pages long and is a model of prolixity, it fails to state any basis on which the Court could reasonably conclude that the demand futility standard is met. This appeal followed.