Opinion ID: 176236
Heading Depth: 4
Heading Rank: 3

Heading: Alleged reliance by the Fairness Committee

Text: The relevant allegations in the first amended complaint regarding Venture's Fairness Committee are as follows: 312. Section 4.12 of [the NBD loan indenture agreement] ... required the formation of a Fairness Committee to review related party transactions. The Indentures required at least one member of the Fairness Committee to be independent of Venture and its principals, which independent member effectively wielded veto power over related party transactions. ... 320. Not only would timely and proper disclosure of these transactions have caused NBD, the noteholders and indenture trustees to force Winget to cease the unfair related party transactions, but ... such disclosures would have caused the independent member of the Fairness Committee to act to avoid or at the very least reduce the corporate injury suffered by Venture as a result of Winget's improper related party transactions. 321. As required under certain of its indentures and loan agreements ..., Venture maintained a Fairness Committee, which had a sole and independent member, Maurice Williams, who was empowered to evaluate and approve or disapprove of any related party transactions undertaken by Winget. Because Venture was required to retain an independent member of the Fairness Committee, Mr. Williams ... could not be terminated at the whim of Winget without placing Venture in default under various agreements. In this capacity, Mr. Williams possessed greater corporate power than an officer or director of Venture, because he had the unilateral and absolute authority to prevent Winget from undertaking or continuing any unfair related party transactions. On information and belief, Mr. Williams was innocent of Winget's misconduct ..., and was able to prevent it had the misconduct been known. 322. Deloitte was fully aware of the existence and powers of the Fairness Committee. Deloitte obtained minutes of the meetings of the Fairness Committee, knew of Mr. Williams' identity and role, and was fully able to communicate with Mr. Williams about the related party transactions it was auditing. Even assuming (without deciding) that these allegations are enough to state a claim that Williams was an innocent decision-maker who could prevent Winget's knowledge from being imputed to Venture, the allegations are insufficient in a critical way: They contain no statement that Williams actually relied on Deloitte's audits in choosing not to act. Even more fundamental, there is no allegation that Williams ever saw the audits. The amended complaint does allege that properly conducted audits would have caused the independent member of the Fairness Committee to act, but this statement is, at most, a mere formulaic recitation of the causation element of a professional-negligence claim and is not sufficient to state a claim for relief. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citation omitted) (holding that the plaintiff's complaint failed to state a claim for relief because it contained conclusory allegations that were not entitled to the assumption of truth). An allegation that Williams in fact saw and relied on the audits would be the further factual enhancement that is needed to support this naked assertion. See id. (citation omitted). In sum, Gold's amended complaint can hardly contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face if it does not even allege that Williams saw the audits. See id. (citation and internal quotation marks omitted). This deficiency is especially glaring in comparison to the explicit statements regarding creditor reliance. The amended complaint, for example, alleged that Deloitte issued certain opinions directly to NBD Bank and to the noteholders, that Venture was obligated to supply audited financial statements to the noteholders, and that Deloitte directly reported to Venture's creditors. In addition, the amended complaint alleged that Deloitte specifically represented to the creditors that it was not aware of any violation of applicable covenants, including covenants prohibiting Venture from making distributions to Winget. Most importantly, the amended complaint alleged that the noteholders relied upon Deloitte's representations in determining whether Venture was in compliance with the covenants set forth in the indenture. These specific allegations of creditor reliance are in sharp contrast to the allegations regarding the Fairness Committee. Particularly striking is the fact that Gold amended his complaint to add specific examples of creditor reliance. In Gold's original complaint, there were no allegations of reliance on the audits by anyone. Deloitte subsequently filed a motion to dismiss Gold's original complaint, arguing that because the complaint did not (and could not) allege that Venture itself relied on the audits, Gold had failed to state a claim. Presumably in response to this contention, Gold amended his complaint to add allegations of reliance. These new allegations, however, related only to reliance by Venture creditors, not by Williams as the sole member of the Fairness Committee. Williams, in other words, might or might not be considered an innocent decision-maker within Venture for the purpose of overcoming the sole-actor rule. But without any allegations that Williams relied on Deloitte's audits, Gold has failed to satisfy the causation element for a professional-negligence claim even if Williams were so considered.