Halebian v. Berv
869 F. Supp. 2d 420
S.D.N.Y.2012Background
- Halebian v. Berv concerns CitiFunds Trust III and six mutual funds whose investment adviser shifted from Citigroup/CFM to Legg Mason in 2005.
- Plaintiff (Halebian) asserts derivative and direct claims alleging fiduciary breaches and improper proxy/echo-voting related to the New Advisory Agreements approved in 2005.
- Defendants (nine independent trustees) approved the New Agreements after the Citigroup–Legg Mason transaction and related branding issues, with one trustee (Gerken) identified as an ICA “interested person.”
- A Demand Review Committee investigated the plaintiff’s demand letter and the complaint; LeBoeuf, Lamb, Greene & MacRae LLP advised the DRC, which concluded the allegations were meritless and recommended dismissal.
- Massachusetts Chapter 156D §7.44 governs derivative suits; the Second Circuit remanded to require an express independence finding under §7.44 and to evaluate discovery and amendment requests on remand.
- The district court ultimately denied plaintiff’s motions to amend and for discovery and granted defendants’ converted motion for summary judgment under §7.44.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Independence under §7.44(b)(1) | Plaintiff argues independence was not demonstrated | Defendants contend a majority of independent directors existed | Defendants are independent under §7.44(b)(1) |
| Application of §7.44 to business trusts under ICA framework | Independence analysis should be restricted by ICA/2B | §7.44 applies to business trusts; independence aligned with ICA terms | Independence analyzed under §7.44 with ICA §2B considerations applied |
| Whether discovery is warranted before summary judgment | Discovery could uncover issues on independence and good faith | Discovery denied as unnecessary; record supports independence and good faith | Discovery denied; no genuine material facts disputed |
| Whether amendment to revive echo-voting claims is futile | Amendment would resurrect direct claims about echo voting | Amendment futile; central theory already rejected and not proper on remand | Amendment denied as futile |
| Whether the business judgment rule applies to shield the board’s decision | Independent but challenged decision should be tested for bad faith/inquiry | Independence and reasonable inquiry support business judgment presumption | Business judgment doctrine applies; derivative claim dismissed |
Key Cases Cited
- Halebian v. Berv, 631 F.Supp.2d 284 (S.D.N.Y. 2007) (derivative claims review; initial dismissal under §7.44)
- Halebian v. Berv, 590 F.3d 195 (2d Cir. 2009) (affirmed dismissal of some claims; remanded for independence finding)
- Halebian v. Berv, 457 Mass. 620 (Mass. 2010) (Mass. SJC held §7.44 applies to business trusts; independence standard)
- Halebian v. Berv, 644 F.3d 122 (2d Cir. 2011) (remand for independence finding; need for summary-judgment conversion)
- Amron v. Morgan Stanley Inv. Advisors Inc., 464 F.3d 338 (2d Cir. 2006) (compensation alone not enough to defeat independence under ICA)
- Forsythe v. Sun Life Fin., Inc., 417 F.Supp.2d 100 (D. Mass. 2006) (trustees not automatically disqualified due to compensation)
- Migdal v. Rowe Price-Fleming Int’l, Inc., 248 F.3d 321 (4th Cir. 2001) (independence on multiple funds and compensation levels)
- Krantz v. Prudential Invs. Fund Mgmt. LLC, 77 F.Supp.2d 559 (D.N.J. 1999) (noting independence despite multiple boards and compensation)
- Pinchuck v. State St. Corp., 2011 WL 477315 (Mass. Sup. Ct. 2011) (independence analysis under §7.44 with ICA considerations)
- Blake I, 2006 WL 1579596 (Mass. Super. Ct. 2006) (Mass. independence standard under §7.44)
- Blake II, 2006 WL 2714976 (Mass. Super. Ct. 2006) (reconsideration on independence issues)