18 Cal. App. 5th 222
Cal. Ct. App. 5th2017Background
- Shareholder derivative suits were filed against Apple alleging directors knew of or enabled long‑running no‑solicit/antitrust arrangements that suppressed employee mobility and compensation.
- The original consolidated derivative complaints (2014) alleged demand futility as to Apple’s 2014 Board (8 directors); the trial court sustained demurrers to those pleadings with leave to amend for inadequate particularized allegations of demand futility.
- Plaintiffs filed an operative (second amended) complaint in April 2016 after two directors (Campbell and Drexler) left and two (Wagner and Bell) joined, altering board composition (the 2016 Board).
- Petitioners (Apple and certain directors) argued demand futility must be pleaded as to the board composition when the amended complaint was filed (2016 Board), relying on Delaware Supreme Court reasoning in Braddock v. Zimmerman.
- The superior court instead assessed demand futility as of the 2014 Board and found the operative complaint adequate to excuse demand as to a sufficient number of directors; petitioners sought writ relief.
- The Court of Appeal concluded Braddock’s reasoning is consistent with California law where prior derivative claims were held legally insufficient, and therefore demand futility must be reassessed as to the board in place when the amended complaint is filed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand futility for an amended derivative complaint must be pleaded as to the board in place when the amended complaint is filed or as of the original filing | Demand futility pleaded as to the 2014 Board suffices; Braddock is distinguishable because only limited turnover occurred | Braddock requires assessing demand futility against the current board (when amended complaint filed) because board control and managerial authority changed | Held: Where prior derivative claims were found legally insufficient and leave to amend was granted, demand futility must be reassessed as of the board in place when the amended complaint is filed (adopting Braddock’s relevant rule) |
| Whether the operative complaint pleads demand futility with particularity as to a majority of the 2016 Board | The complaint’s circumstantial allegations (Jobs’s conduct, certain directors’ roles, compensation committee activity) permit reasonable inference that most directors knew and condoned the agreements | Defendants argued plaintiffs failed to plead director‑by‑director particularized facts showing lack of disinterest/independence for enough 2016 directors | Held: The allegations were insufficient as to several 2016 directors (Gore, Jung, Sugar, Wagner, Bell), so plaintiffs failed to plead demand futility as to a majority of the 2016 Board; demurrer sustained (with leave to amend) |
| Whether Braddock’s rule encourages serial demurrers or unfair burden on plaintiffs | Plaintiffs warned it would enable defendants to repeatedly force reassessment | Defendants argued Braddock narrowly preserves board authority and only applies when earlier claims were not validly in litigation | Held: Braddock’s rule is narrow and avoids serial relitigation; it applies only when the original/earlier complaint was not validly in litigation for demand purposes |
| Whether writ relief was appropriate to review the demurrer order overruling | Plaintiffs argued appeal was adequate and writ improper | Petitioners argued irreparable loss of board control over litigation warranted writ review | Held: Writ relief appropriate given significant legal issue affecting derivative‑suit standing and governance; appellate review alone not adequate |
Key Cases Cited
- Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006) (when amended derivative claims are not already validly in litigation, demand futility must be assessed as of the board in place when the amended complaint is filed)
- Bader v. Anderson, 179 Cal.App.4th 775 (Cal. Ct. App. 2009) (California adopts Aronson/Rales framework and requires particularized, director‑by‑director pleading of demand futility)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (test for demand futility when challenged transaction is a board decision)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (test for demand futility when the board that would consider the demand did not make the challenged decision)
- Grosset v. Wenaas, 42 Cal.4th 1100 (Cal. 2008) (standing and derivative‑suit principles emphasize that authority to prosecute corporate claims rests with the board)