970 N.E.2d 735
Ind. Ct. App.2012Background
- Carter brings a shareholder derivative action on behalf of CNO Financial Group against ten directors and officers alleging breaches of fiduciary duties and related harms.
- The case centers on whether pre-suit demand on the Delaware-incorporated board was excused as futile under Delaware law.
- Indiana courts apply Indiana procedure but Delaware substantive law governs the demand futility analysis; the derivative rule mirrors Rule 23.1.
- The Amended Complaint emphasizes LTC business problems, restatements (2007-2008), and governance failures to support demand futility.
- The trial court granted dismissal for failure to plead demand futility; the Indiana Court of Appeals affirms the ruling.
- Key legal framework involves Rales v. Blasband and, when applicable, the §102(b)(7) exculpatory provision of the charter, with Caremark considerations discussed but not essential to the outcome.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Demand futility under Delaware law | Carter alleges majority directors are either interested or not capable of impartial consideration due to LTC red flags. | Defendants contend alleged facts are too conclusory to show futility; directors could exercise disinterested judgment. | No particularized facts showing futility; demand not excused under Rales. |
| Effect of exculpatory provision on demand pleading | Section 102(b)(7) may permit a higher burden to plead bad faith for exculpation; oversights could surpass exemption. | Exculpation requires showing bad faith or disqualifying conduct; plaintiff bears burden to plead non-exculpated claims with particularized facts. | Even with exculpation, Carter failed to plead particularized facts of bad faith; demand still not excused. |
Key Cases Cited
- G & N Aircraft, Inc. v. Boehm, 743 N.E.2d 227 (Ind. 2001) (derivative actions governed by Rule 23.1; demand principles apply)
- Piven v. ITT Corp. (In re ITT Derivative Litig.), 932 N.E.2d 664 (Ind. 2010) (Delaware law governs substantive demand futility; pleading standard guidance)
- Aronson v. Lewis, 473 A.2d 694 (Del. 1984) (setting the dual-prong demand futility test)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (focuses on whether board could impartially consider demand when no discrete transaction exists)
- In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del.Ch. 1996) (oversight liability standards for board negligence in absence of a specific decision)
- In re Citigroup Inc. S'holder Derivative Litig., 964 A.2d 106 (Del.Ch. 2009) (exculpatory §102(b)(7) and non-exculpated claims interplay)
- King v. Baldino, 648 F. Supp. 2d 609 (S.D.N.Y. 2009) (treats pleading burden under exculpatory provisions)
- Stone v. Ritter, 911 A.2d 362 (Del. 2006) (caremark-type oversight and director liability principles)
- Welch, n/a (n/a) (treatise discussion of pleading standards (used in analysis))