246 F. Supp. 3d 1044
D. Del.2017Background
- Shareholder-plaintiff Saul Bresalier sent a March 24, 2015 pre-suit demand to Duke’s board alleging (1) mismanagement of coal ash culminating in the 2014 Dan River spill and related regulatory/criminal exposure, (2) wrongdoing surrounding Duke’s 2012 merger with Progress Energy and the replacement of Progress’s CEO, and (3) improper political spending by DUKEPAC and lack of transparency.
- The Board referred the demand to a four-member review Committee (DeLoach, Forsgren, Gray, Kennard) with Gibson Dunn as counsel; after an investigation the Committee recommended refusal and the Board rejected the demand in a September 4, 2015 Rejection Letter citing low likelihood of success, costs, remedial actions taken, and statute of limitations for merger claims.
- Bresalier filed a derivative complaint asserting breach of fiduciary duty, duty of candor, waste, and unjust enrichment; defendants moved to dismiss under Fed. R. Civ. P. 23.1 and 12(b)(6).
- The central procedural/legal question was whether Bresalier had pleaded particularized facts raising reasonable doubt about the Committee/Board’s good faith and the reasonableness of its investigation (i.e., whether refusal was wrongful), under Delaware law applicable to derivative demand refusals.
- The Court considered (and accepted) the Rejection Letter in ruling, denied plaintiff leave to convert to summary judgment, and evaluated whether plaintiff met the heavy pleading burden for challenging a demand refusal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Board’s refusal of the demand re: coal ash (Dan River) was wrongful because the Committee’s investigation was a sham | Bresalier: Committee was biased, Gibson Dunn preselected, committee members faced personal liability, investigation opaque and perfunctory, reliance on government record; pleaded particularized facts showing lack of good faith | Defendants: Board and Committee acted within business judgment; Rejection Letter gave plausible reasons; no particularized facts showing gross negligence or bad faith | Held: Dismissed. Plaintiff failed to plead particularized facts raising reasonable doubt as to good faith or reasonableness of investigation; demand refusal upheld |
| Whether merger-related claims survive dismissal | Bresalier: statute of limitations had not run; merger claims merited review | Defendants: Rejection Letter cited statute of limitations; also overlapping settlement in Chancery | Held: Court declined to decide merits; denied dismissal without prejudice because merger claims are pending settlement in Delaware Chancery and may be resolved there |
| Whether the Demand’s political-contribution allegations constituted a formal demand under Delaware law | Bresalier: alleged lack of transparency and potential improper contributions; demanded disclosure and policy changes | Defendants: Demand was vague, speculative, and did not identify specific wrongdoing or injury; not a formal demand | Held: Dismissed. Court: Demand did not identify particular wrongdoers, concrete injury, or a specific remedial action, so not a formal demand under Delaware law |
| Sufficiency of claims for duty of candor, waste, unjust enrichment (and related derivative claims not raised in Demand) | Bresalier: alleged materially false proxy statements, sham committee, waste and enrichment | Defendants: Many of these claims were not pleaded in the Demand and fail Rule 23.1; also some withdrawn | Held: Moot/withdrawn. Plaintiff withdrew these claims; dismissal motion denied as moot for those claims |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (framework for excusing pre-suit demand by showing reasonable doubt about directors’ independence or business-judgment exercise)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (clarifies demand-futility and director liability standards)
- Scattered Corp. v. Chicago Stock Exch., Inc., 701 A.2d 70 (Del. 1997) (by making a demand plaintiff concedes board capable of evaluating demand; but independence can be challenged with particularized facts)
- Grimes v. Donald, 673 A.2d 1207 (Del. 1996) (shareholder with a refused demand may use corporate records under Section 220 to test adequacy of investigation)
- Levine v. Smith, 591 A.2d 194 (Del. 1991) (boards are not required to appoint a special litigation committee; committee composition is subject to business judgment)
- Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990) (demand concedes board’s ability to act independently and the refusal is reviewed for good faith and adequacy of investigation)
- Kamen v. Kemper Fin. Servs., 500 U.S. 90 (1991) (federal courts apply state law substantively to derivative demand/futility issues)
- King v. VeriFone Holdings, Inc., 12 A.3d 1140 (Del. 2011) (Delaware guidance on pleading particularized facts and leave to amend in derivative contexts)
- Ironworkers Dist. Council of Philadelphia v. Andreotti, 132 A.3d 748 (Del. 2016) (review of board/committee refusal is limited to good faith and reasonableness of investigation)