Court Opinion

ID: 9459524
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:23:22.45551+00
Date Added: 2024-06-11T17:36:12.433766
License: Public Domain

COFFIN, Chief Judge
(concurring).
I concur in the judgment of affirmance. While agreeing that unsupported allegations of domination of a majority by a minority are insufficient, I would, but for one defect, find such support in the allegations that the named defendants, which include the mutual funds (and necessarily their boards of directors), “acquiesced, encouraged, cooperated and assisted in the effectuation and maintenance” of the conspiracy to establish exorbitant basic fee agreements benefiting fund advisers (and thus affiliated directors) to the detriment of the funds and in violation of the antitrust laws. But I view as fatal the absence of an allegation or indication in the affidavits, to use the court’s phrasing, “that the unaffiliated directors who would have voted on plaintiff’s demand in 1968, had he made one, were the same ones (and hence, assertedly, impervious to a demand) that composed the boards when the contracts in question were approved.” We cannot assume that new unaffiliated directors would be unwilling to reconsider the wisdom or legality of their predecessors’ actions and, if appropriate, bring suit.
I would, however, not go so far as the court does in delineating “the sharp distinction”, for purposes of excusing demand under Rule 23.1, between actions which “could be thought to serve the interests of the company” and those of a fraudulent or self-dealing nature. The distinction has not been so articulated in almost a century of derivative suit jurisprudence, although concededly most of the prominent cases have involved just such factual situations. Yet the language of a number of cases traces a *268wider compass.* Moreover, these are times when corporations are exceeding in size and impact even the giantism of the past, when new layers and dimensions of corporate obligation are being recognized, and when the importance of directorate oversight of the management technocracy is greater than ever. A higher degree of professionalism, sensitivity, and scrutiny may fairly be expected on the part of directors today than in a simpler era. I am therefore reluctant, by resort to formula, to set boundaries to the action or inaction of directors, beyond which demand on them shall always be required.
Even if, however, such boundaries can be justified for corporate directors in general, on the supposition that they can reverse gears on a course previously undertaken once attention is refocused by an allegation that it constitutes a wrong to the corporation, the broad extension of “first refusals” to unaffiliated or independent directors of mutual funds would seem singularly inappropriate. For I believe, unlike the court, that the unaffiliated directors of mutual funds have a higher obligation of inquiry than directors of ordinary corporations, at least as to the type of transaction under assault here. As we said in Moses v. Burgin, 445 F.2d 369, 376 (1st Cir. 1971), Congress intended that these board members act as “independent watchdog directors”. The primary object of their surveillance is, patently, transactions between the funds and the investment advisers in which the other directors are personally interested. Their raison d’etre is acute scrutiny of the very contracts here attacked.
These contracts, additionally, are major corporate actions from any perspective. It thus seems reasonable to assume that the directors would be given advance notice of at least their final content and of the meeting at which they would be considered. Whatever the significance for excusing demand of mere knowing acquiescence in impending major corporate actions in other settings, see Liboff, supra, I believe that such, passive acceptance by unaffiliated directors of the very transactions which justify their place on the directorate would be sufficient involvement or subservience to find them unlikely to respond meaningfully to a demand. Here, there are no allegations regarding the meetings and the actual votes on the challenged fees or the relevant corporate quorum rules. But whether one assumes that action by a majority of the total membership or merely a majority of those actually present is required, clearly some unaffiliated directors either voted for the contracts or failed to vote, in person or by proxy, or appear at the appropriate meeting. Under my view, this would be *269enough to excuse demand, had it béen alleged that the unaffiliated membership was the same at both contract-making and demand time.
I also note that the management fee contracts are not attacked as simply ultra vires or as the product of mere negligence or even of “unsound” or “eroneous business judgment”. They are alleged to be illegal under federal antitrust laws. If I were to calibrate a scale to measure the impact of varying improprieties, I would rate such an allegation fairly high. I find it hard to imagine that a director, however, unaffiliated, who had participated, or under these circumstances knowingly acquiesced, in a major transaction, albeit for a corporate purpose, would authorize a suit, effectively against himself, claiming that the transaction violated the federal antitrust laws. Even independent watchdogs cannot be thought ready to sign a confession of that magnitude.

 Delaware & Hudson Co. v. Albany & Susquehanna R.R., 213 U.S. 435, 451, 29 S.Ct. 540, 545, 53 L.Ed. 862 (1909) (“good faith . . . need not be questioned”); United Copper Securities Co. v. Amalgamated Copper Co., 244 U.S. 261, 264, 37 S.Ct. 509, 510, 61 L.Ed. 1119 (1917) (“no allegation that directors . . . have been guilty of any misconduct whatsoever”); Smith v. Sperling, 354 U.S. 91, 95, 77 S.Ct. 1112, 1115, 1 L.Ed.2d 1205 (1957) (“There is antagonism whenever the management is aligned against the stockholder and defends a course of conduct which he attacks. The charge normally is cast in terms of fraud, breach of trust, or illegality”); Cathedral Estates v. Taft Realty Corp., 228 F.2d 85, 88 (2d Cir. 1955) (“where the directors . . . are . . . involved in the transaction attacked, a demand on them is presumptively futile and need not be made”) ; Ash v. International Business Machines, Inc., 353 F.2d 491, 493 (3d Cir. 1965) (“the stockholder shall allege that the directors of the corporation are personally involved ... in the alleged wrongdoing in a way calculated to impair their exercise of business judgment on behalf of the corporation”); Liboff v. Wolfson, 437 F.2d 121, 122 (5th Cir. 1971) (the complaint, held to “fully meet the requirements of the rule”, alleged “The majority of said directors, participated, approved of and acquiesced in said transaction”); Papilsky v. Berndt, 59 F.R.D. 95 (S.D.N.Y., 1973) (allegation that “the directors participated or acquiesced in the wrongs alleged” held sufficient).