Apple, Inc. v. Superior Court
H044133
| Cal. Ct. App. | Dec 11, 2017Background
- Shareholder derivative suits require pleading, with particularity, either presuit demand on the board or facts showing demand would be futile (Cal. Corp. Code § 800(b)(2)); California courts often follow Delaware’s Aronson and Rales tests for demand futility.
- Plaintiffs (shareholders) alleged Apple directors knowingly permitted long‑running anticompetitive no‑poach/non‑solicitation agreements and sued derivatively for breach of fiduciary duty and contribution/indemnification.
- The superior court sustained earlier demurrers to plaintiffs’ initial and amended complaints for insufficient demand‑futility allegations and granted leave to amend; plaintiffs later filed an operative complaint alleging futility as to the 2014 Board (the board when the initial suits were filed).
- Between the initial filings and the operative complaint, two directors left and two new directors joined (so a majority of the board composition changed for the operative‑complaint period); petitioners argued demand futility must be assessed as of the board in place when the operative complaint was filed.
- The superior court declined to apply Delaware’s Braddock rule and ruled plaintiffs had pleaded demand futility as to a majority of the 2014 Board, allowing the two derivative counts to proceed; petitioners sought writ relief.
- The Court of Appeal held that when derivative claims were previously held legally insufficient and plaintiffs file an amended complaint, demand futility must be reassessed as to the board in place when the amended complaint is filed; it sustained the demurrer to the operative complaint (with leave to amend).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand futility for an amended derivative complaint must be assessed as to the board at the time of the original filing or the board at the time of the amended complaint | Demand futility can be judged by reference to the original (2014) board; Braddock is distinguishable and inapplicable here | Braddock requires reassessing futility against the board in place when the amended complaint is filed | Held: Apply Braddock‑style rule — when prior derivative claims were not validly in litigation, demand futility must be assessed as of the board in place when the amended complaint is filed |
| Whether plaintiffs’ operative complaint pleaded demand futility with particularity as to a majority of the 2016 Board | Allegations about some directors’ knowledge and circumstantial evidence (e.g., Jobs’s influence, compensation committee activities) permit reasonable inferences of board‑wide knowledge | Plaintiffs failed to plead particularized, director‑by‑director facts showing lack of disinterest/independence for a majority of the current board | Held: Pleading insufficient as to at least four directors on the 2016 Board; demurrer sustained (demand not excused) |
| Whether judicial notice of SEC filings showing board membership changes could be relied on | Plaintiffs suggested the filings’ truth or timing remained disputable | Petitioners relied on judicial notice of filings to show director departures/appointments | Held: Court may take judicial notice of existence/content of filings; plaintiffs did not dispute those contents here, so composition changes are accepted for pleading analysis |
| Whether amendment should be allowed if demurrer sustained | Plaintiffs offered no firm amendment plan but argued they should get leave | Petitioners argued dismissal of the derivative counts should be permitted | Held: Leave to amend granted — complaint does not show on its face that amendment is impossible; fairness requires giving plaintiffs a chance to plead futility as of the 2016 Board |
Key Cases Cited
- Bader v. Anderson, 179 Cal.App.4th 775 (Cal. Ct. App.) (summarizes California demand‑futility standards and reliance on Aronson/Rales)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (two‑pronged test when suit challenges a board decision)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (test for demand futility where board action is not the challenged transaction)
- Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006) (where amended derivative claims were not validly in litigation, demand futility must be assessed as of the board in place when the amended complaint is filed)
- Grosset v. Wenaas, 42 Cal.4th 1100 (Cal. 2008) (explains derivative standing and purpose of demand requirement)