99 F. Supp. 3d 776
S.D. Ohio2015Background
- Plaintiff Alan Brosz, a Big Lots shareholder, filed a verified shareholder derivative complaint alleging directors/officers inflated Big Lots stock by concealing poor financial performance in early 2012 while selling large amounts of personal stock.
- Key events: Feb 2, 2012 positive guidance (stock rose); Mar 2, 2012 positive FY results/projection; between Mar 6–Mar 28, 2012 insiders sold 817,874 shares for ~$37 million; Big Lots repurchased ~$99 million of its own stock in Q1 2012.
- On Apr 23, 2012 Big Lots revised guidance downward; Apr 24 stock fell ~24%.
- Brosz sent a demand letter (Jan 28, 2013) asking the Board to investigate and sue; the Board (via a special committee) investigated and, by letter (Sept 9, 2013), declined to pursue litigation.
- Brosz sued derivatively raising fiduciary breach, failure of internal controls, insider-selling scheme, unjust enrichment, abuse of control/gross mismanagement/corporate waste, breach of company policies, and trade-secret claims.
- The district court granted defendants’ Rule 12(b)(6) motion: all counts dismissed with prejudice except corporate-waste claim (Count VII) dismissed without prejudice and subject to possible amendment limited to demand refusal and Count VII timing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand refusal was wrongful so demand excused | Brosz: Board’s Sept 9 letter was conclusory and failed to disclose substance of the special committee’s investigation, showing bad faith | Big Lots: Board formed a special committee, investigated, and rejected the demand; presumption that board acted in good faith under Ohio law | Demand refusal not pleaded as wrongful; presumption not overcome; dismissal appropriate (leave to amend limited) |
| Whether insider-trading/fiduciary-duty derivative claims sufficiently allege corporate injury | Brosz: Insiders’ sales and concealment inflated price and harmed Big Lots and its shareholders; damages pleaded | Defs: Insider trading harms counterparties, not the corporation; plaintiff fails to allege direct injury to Big Lots | Dismissed for failure to plead damages to Big Lots; insider trading alone insufficient to plead corporate injury |
| Whether unjust enrichment claim can recover insiders’ trading profits for the corporation | Brosz: Insiders should disgorge profits to Big Lots | Defs: Profits came from market buyers, not from Big Lots; Big Lots did not confer a benefit | Dismissed—no plausible benefit conferred by Big Lots to defendants; unjust enrichment fails |
| Whether corporate-waste claim based on $99M repurchases pleads plausibly | Brosz: Repurchases at inflated prices wasted corporate assets | Defs: Timing and specifics of repurchases not alleged; repurchases may have occurred after disclosure | Court: Theory could state corporate injury, but complaint lacks timing details tying repurchases to inflated price; Count VII dismissed without prejudice to amend |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; plausibility required)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard; factual plausibility)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (demand requirement and derivative suit principles)
- Brown v. Ferro Corp., 763 F.2d 798 (6th Cir.) (Ohio law requires proof of corporate damages for derivative suits)
- Drage v. Procter & Gamble, 119 Ohio App.3d 19 (Ohio appellate court presumption that board actions are in good faith)