Court Opinion

ID: 8045865
Source: CourtListenerOpinion
Date Created: 2022-09-09 03:57:22.467837+00
Date Added: 2024-06-11T16:37:24.284138
License: Public Domain

Pickering, J.,
concurring in part and dissenting in part:
In Shoen v. SAC Holding Corp., 122 Nev. 621, 137 P.3d 1171 (2006) (Shoen I), this court reversed an order dismissing this case for not adequately pleading demand futility and remanded with *230specific instructions: (1) to the plaintiffs to file an amended complaint; and (2) to the district court to decide whether, under Shoen I, the amended complaint adequately pleaded demand futility. Now the case returns, this time on an order dismissing the claims in the amended complaint as precluded by the Goldwasser settlement and the in pari delicto doctrine. I agree with the majority that neither the Goldwasser settlement nor the in pari delicto doctrine precludes this suit at the pleading stage as a matter of law. I also agree with its NRCP 12(b)(5) dismissal of certain claims for relief and with its direction to the district court to conduct further proceedings with respect to demand futility. However, I write separately to address the claims remaining in the case and the scope of the proceedings on remand with respect to demand futility and related issues.
1. Dismissal of the wrongful interference claims
The majority dismisses under NRCP 9(b) and NRCP 12(b)(5) all of the claims asserted against the individual directors except the wrongful interference with prospective economic advantage claim. I would go further and dismiss the wrongful interference claim as well. “It is hornbook law that the actions complained of in a claim for intentional interference with prospective advantage must be wrongful.” Panter v. Marshall Fields & Co., 646 F.2d 271, 298 (7th Cir. 1981). Indeed, the very name of the tort is “wrongful interference with prospective economic advantage.” Leavitt v. Leisure Sports, Inc., 103 Nev. 81, 88, 734 P.2d 1221, 1225-26 (1987). The “wrongfulness” alleged in the amended complaint to sustain this claim against the individual directors derives entirely from their alleged breaches of fiduciary duty in connection with the SAC transactions. If, as the majority concludes, the amended complaint fails to plead sufficient facts to overcome the presumption of the business judgment rule as to the breach of fiduciary duty claims — appropriately, given the broadly exculpatory provisions in AMERCO’s organizational documents, see Wood v. Baum, 953 A.2d 136, 140-41 (Del. 2008); see also NRS 78.138(7) — the wrongful interference claims also fail. Cf. Panter, 646 F.2d at 299 (“In the absence of sufficient evidence that the directors acted improperly to overcome the presumption of the business judgment rule, a case cannot proceed to the jury on an interference with prospective economic opportunity theory”).
2. Proceedings on remand
I cannot agree with the majority that the amended complaint adequately alleges demand futility and would instead remand with instructions to the district court to conduct the analysis ordered in *231Shoen I.1 In my opinion, it is imprudent for this court to conduct that analysis in the first instance under the unique circumstances presented here.
“Demand futility analysis is conducted on a claim-by-claim basis.” Beam ex rel. M. Stewart Living v. Stewart, 833 A.2d 961, 977 n.48 (Del. Ch. 2003). The dismissal of most, if not all, of the claims against the individual directors has a large potential impact on the demand futility analysis. The briefing that was done on demand futility was filed in die district court in 2006 and 2007 and in this court in 2009. Although not addressed by the parties, it is not even clear whether, given the dismissal and subsequent amendment in 2006 of the complaint, demand futility should be assessed as of 2002, when the original complaint was filed, or 2006, when the amended complaint was filed. See Braddock v. Zimmerman, 906 A.2d 776, 786 (Del. 2006) (“Where a complaint is amended with permission following a dismissal without prejudice, even if the act or transaction complained of in the amendment is essentially the same conduct that was challenged in the original dismissed complaint, the Rule 23.1 demand inquiry must be assessed by reference to the board in place at the time when the amended complaint is filed”).
It appears from the amended complaint that this is a type of double-derivative suit,2 where, to excuse demand, the complaint must allege facts that create “a reasonable doubt that a majority of the Board would be disinterested or independent in making a decision on a demand.” Rales v. Blasband, 634 A.2d 927, 930 (Del. 1993) (emphasis added). The focus in this type of case is not on “the challenged transaction or the directors’ interest in that transaction, but rather on the directors’ interest in the decision about whether to sue.” Waber v. Dorman, 2011 WL 814992, at *4 (N.D. Ill. Feb. 23, 2011) (applying Delaware law and discussing Rales).
*232“[I]t is a fundamental principle of corporate governance that the directors of a corporation and not its shareholders manage the business and affairs of the corporation.” 13 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 5963, at 60 (West 2004). Among the matters entrusted to a corporation’s directors is the decision to litigate — or not to litigate — a claim by the corporation against third parties. Id.; In re Citigroup, Inc. Shareholder Derivative Litigation, 964 A.2d 106, 120 (Del. Ch. 2009). Allowing a derivative suit to proceed without demand reallocates the authority to decide whether to sue from the board to the individual shareholder or shareholders who sue derivatively. To justify this reallocation of decision-making authority, a derivative action complaint must comply with NRCP 23.1 and “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 the plaintiff’s failure to obtain the action or for not making the effort.” While “[p]laintiffs are entitled to all reasonable factual inferences that logically flow from the particularized facts alleged, . . . conclusory allegations are not considered as expressly pleaded facts or factual inferences.” Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000).
Although Shoen I obviously did not address the yet-to-be-filed amended complaint, its suggestion that demand futility be determined under the test articulated in Rales remains appropriate. Shoen I, 122 Nev. at 641-42, 137 P.3d at 1185. “Rales requires that a majority of the board be able to consider and appropriately to respond to a demand ‘free of personal financial interest and improper extraneous influences.’ Demand is excused as futile [only] if the Court finds that there is ‘a reasonable doubt that a majority of the Board would be disinterested or independent in making a decision on demand.’ ” Beam, 833 A.2d at 977 (quoting Rales, 634 A.2d at 930, 935). A director is not “disinterested” if “he or she will receive a personal financial benefit from a transaction that is not equally shared by the shareholders” or “a corporate decision will have a materially detrimental impact on a director, but not on the corporation and the stockholders.” Rales, 634 A.2d at 936. Lack of independence can be shown by alleging particular facts that support a reasonable inference that a director is so beholden to an interested party that his “discretion would be sterilized.” Id. While a close family relationship can disqualify a director — here, Joe Shoen and James Shoen, as to the derivative claims against their brother, Mark Shoen, 122 Nev. at 642 n.65, 137 P.3d at 1185 n.65 — business, social, and more remote family relationships are not disqualifying, without more. See Beam, 833 A.2d at 981; 1 Principles of Corp. Governance § 1.26 (1994) (an uncle/nephew relationship does not establish the parties as members of one an*233other’s immediate families, as child/parent or sibling relationships do).
The main claims that survive dismissal are those against Mark Shoen and the SAC entities. As to those claims, none of the directors except Joe Shoen and James Shoen appear disqualified by personal interest from fairly judging the suit demand. The issue that I would remand to the district court, therefore, is whether, as to those claims, the amended complaint pleads particularized facts sufficient to overcome the presumption that, in assessing that suit demand, the directors charged with doing so can be faithful to their fiduciary duties to AMERCO. Beam, 845 A.2d at 1048-49; see In re Bear Stearns Companies, Inc., 763 F. Supp. 2d 423, 541 (S.D.N.Y. 2011) (applying Delaware law).
The surviving claims in the amended complaint, at their core, challenge the structural relationship between AMERCO, its subsidiaries, and the SAC special purpose entities. This structure and these relationships have been examined repeatedly, first by the United States District Court for the District of Arizona in Gold-wasser, and more recently and much more comprehensively by the United States Bankruptcy Court for the District of Nevada in In re: AMERCO, No. BR-03-52103-GWZ (Bankr. D. Nev. 2004).3 They have also, according to the briefs presented on appeal, been presented to and ratified by the company’s shareholders.4 The principal named plaintiff, Paul Shoen, served on the AMERCO board when some of the transactions he complains about in this derivative action occurred and, more importantly, when the business model the amended complaint challenges was set. While these facts do not establish claim or issue preclusion, they are significant, because they make it fair to expect considerably more particularity than the rote conclusory language from the demand futility caselaw that the amended complaint provides.
Given the unique and incontestable record facts, I would set the pleading bar higher than my colleagues do before subjecting this entity and its shareholders to derivative litigation. I am unconvinced that the conclusory, though prolix, allegations in the *234amended complaint clear that bar. There have been enough changes to the playing field, with the majority’s dismissal of many claims in the amended complaint, AMERCO’s reorganization, and the 2008 shareholder ratification, that I would remand for further briefing and argument on demand futility on the issues, among others, outlined above.

 The district court’s determination that being named defendants in this suit makes the directors sufficiently “interested” as to excuse demand is clearly erroneous and contrary to the law of this case. Shoen I, 122 Nev. at 640, 137 P.3d at 1184 (“interestedness because of potential liability can be shown only in those rare cases . . . where defendants’ actions were so egregious that a substantial likelihood of director liability exists” (quotations omitted)). Particularly is this so given the dismissal of most, if not all, of the claims asserted in the amended complaint against the individual directors.

 The amended complaint alleges indirect injury to the parent, AMERCO, in which the plaintiffs have an interest, as a result of alleged direct injuries to its subsidiaries, AREC and U-Haul. Recent Delaware cases, on whose demand futility law we relied in Shoen I, holds that “in a double derivative action involving a wholly owned subsidiary, a stockholder plaintiff only must plead demand futility (or otherwise satisfy Rule 23.1) at the parent level.” Hamilton Partners, L.P. v. England, 11 A.3d 1180, 1207 (Del. Ch. 2010) (discussing Lambrecht v. O’Neal, 3 A.3d 277 (Del. 2010)).

 After plaintiffs filed the original complaint but before the amended complaint was filed, the United States Bankruptcy Court for the District of Nevada entered its 11 U.S.C. § 1129(a)(5) order in In re AMERCO, No. BR-03-52103-GWZ (Bankr. D. Nev. 2004), approving AMERCO’s plan of reorganization. In this order, the Bankruptcy Court specifically found that the AMERCO board’s composition “is consistent with the interests of creditors and equity security holders and with public policy,” including, presumably, the requirements of applicable state and federal corporate law, to include the independence requirements under the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7213, and the entity’s listing stock exchange rules. Id.

 As the majority recognizes, this issue is potentially dispositive in this case but cannot be resolved by this court because it depends on the adequacy of disclosures not included in the record on appeal.