Opinion ID: 515708
Heading Depth: 2
Heading Rank: 3

Heading: The Requirement of Particularity in Pleading

Text: 35 Having determined that the demand requirement applies to this cause of action, and that Gaubert is required to show something more than acquiescence in order to excuse demand on the ground of futility, we now address the procedural question of how particularized the plaintiff's pleadings must be in alleging that demand would have been futile. This inquiry invokes federal law, and Rule 23.1 requires substantially more than Rule 8(a) notice pleading. Most other courts that have confronted the question have held that mere allegations or conclusory statements regarding directors' dual allegiances, self-interest, or control by others is insufficient. See, e.g., In re Kauffman Mutual Fund Actions, 479 F.2d at 264 (holding that a plaintiff must allege specific facts demonstrating the unmistakable link between the unaffiliated majority and the affiliated and allegedly wrong-doing minority); see also Greenspun, 634 F.2d at 1209; Lewis v. Graves, 701 F.2d at 248. Rather, they have required particularized allegations and specific facts, Grossman, 674 F.2d at 124, and [a]s for mere 'participation' or 'acquiescence' by the directors in the [challenged behavior], that generality, too, is an insufficient excuse.... Id. But see Liboff v. Wolfson, 437 F.2d 121, 122 (5th Cir.1971) (holding that the bare allegation that a majority of the directors participated, approved of and acquiesced in [the] transaction and are liable therefor satisfied the requirement of particularity). Mere allegations of improper motives are especially inadequate when the challenged action is not facially suspect: if there are conceivably valid corporate reasons to explain the board's position, the plaintiff must clearly show the contrary. See Heit v. Baird, 567 F.2d at 1161-62. 36 In the instant case, we conclude that the district court was well within its discretion when it found that Gaubert's allegations of demand futility lacked the requisite particularity. 10 First, it is clear that the final board's crucial actions--acquiescence in and failure to challenge the appointment of a receiver for IASA--were not so facially improper that they compel the inference that the board was behaving improperly. By Gaubert's own account, IASA faced an enormous financial predicament in the spring of 1987, and the final board's actions were on the surface well within the realm of reasonable responses. 37 To overcome that impression of reasonableness, Gaubert offered nothing more than bare conclusions, unsupported by detailed factual allegations, that the final board was a captive, that it served at the sufferance of[ ] government regulators, that it was beholden to the state savings and loan commissioner, and that it was subject to relentless pressure to act as it did. Gaubert's complaint does not mention the size of the final board, much less name the directors or explain their individual relationships to the various regulators; nor does it specify the source of their bias or make specific allegations of self-dealing. And although the complaint asserts that the final board was a mere puppet of the FHLBB and others, it never suggests any reason to infer that the board members, once in place, lacked the independence to fulfill their fiduciary duties to the association. 11 Thus, although it is true that as a general matter courts should allow a shareholder derivative action to go forward even against the wishes of the board when the directors stand in a dual relation which prevents an unprejudiced exercise of judgment, United Copper Securities Co. v. Amalgamated Copper Co., 244 U.S. 261, 264, 37 S.Ct. 509, 510, 61 L.Ed. 1119 (1917), Gaubert has not satisfactorily shown that this was the situation with IASA's final board of directors. 38 Gaubert argues that if indeed the district court's decision to dismiss his complaint was based on a deficiency in pleading, then the court abused its discretion by not granting leave to file a second amended complaint. Leave to amend should ordinarily be freely granted to afford a plaintiff an opportunity to test his claim on the merits, and a refusal to allow an amendment must be based on a valid ground. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). However, the Supreme Court has noted that when the amendments would not serve any purpose, the court is on solid ground in denying a motion for leave to amend. Id. The amended complaint proffered by Gaubert, see App. at 48-71, was declined by the district court on the ground that the second amended complaint is not materially different from the first amended complaint which had earlier been dismissed. Gaubert v. General Home Loan Bank Board, Civil Action No. 87-01682, Order at 2 (D.D.C. Feb. 12, 1988). We recognize that many commentators advocate a policy of liberally permitting repleading in circumstances such as these, see Principles of Corporate Governance Sec. 7.03 (ALI Tent. Draft No. 6, 1986), but the decision in a particular case is left to the discretion of the district court. We have reviewed this amended complaint, and although we note that it does contain some additional facts (e.g., the names of the members of the final board) and arguments (e.g., asserting that the 30-day period for challenging the appointment of a receiver leaves insufficient time to make a demand), we conclude that the district court did not abuse its discretion by finding that the amended complaint failed to illuminate further the bases for the conclusory allegations of dominance and bias made in the first two complaints.