In re Capital One Derivative Shareholder Litigation
952 F. Supp. 2d 770
E.D. Va.2013Background
- Two Fairfax County derivative complaints against Capital One directors and officers allege breach of loyalty, corporate waste, and unjust enrichment tied to third-party call center sales practices.
- OCC and CFPB Consent Orders required refunds, risk controls, and civil penalties; substantial settlements followed with total damages and penalties exceeding $210 million plus fees.
- Plaintiffs allege routing of card activations and cancellations to third-party call centers where high-pressure sales allegedly violated consumer protection laws.
- Plaintiffs assert the alleged misconduct occurred during the tenure of individual directors and officers, who owed fiduciary duties to Capital One.
- Defendants move to dismiss on Rule 9(b)/(8)/(12)(b)(6), Rule 23.1, ownership continuity, and verification grounds; court analyzes each in turn.
- Court grants some claims and dismisses others, with permission to amend certain pleadings and conditions for future derivative filing.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Rule 9(b) applicability | Plaintiffs claim Rule 9(b) applies to alleged misrepresentations by call centers. | Defendants contend Rule 9(b) governs fraud claims. | Rule 9(b) does not apply; failure-to-supervise theory not fraud-based. |
| Rule 12(b)(6) corporate waste and unjust enrichment | Waste and unjust enrichment claims state plausible claims. | Defs argue no basis for waste or unjust enrichment under Delaware law. | Dismissed; claims fail to state recoverable relief. |
| Duty of loyalty—Caremark claim | Caremark claim for failure to implement controls/monitoring. | No sustained oversight failure pleaded; controls existed. | Caremark claim dismissed; no plausible failure to act. |
| Demand futility under Rule 23.1 | Demand would be futile; plaintiffs plead red flags and knowledge. | No particularized facts show substantial likelihood of liability for each director. | Derivative claims against officers dismissed; directors may replead some theories with particularized facts. |
| Continued stock ownership | Plaintiffs are or were Capital One shareholders during relevant period. | Contemporaneous ownership not adequately pled. | Contemporaneous ownership pleading insufficient; leave to amend ownership allegations. |
Key Cases Cited
- Cozzarelli v. Inspire Pharms., Inc., 549 F.3d 618 (4th Cir. 2008) (Rule 9(b) extends to fraud-like claims outside the Securities Act)
- Wood v. Baum, 953 A.2d 136 (Del. 2008) (red flags must be known to directors; knowledge not inferred from status alone)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (substantial likelihood of director liability required for demand futility)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (test for demand futility when board alleged to have failed to oversee)
- Desimone v. Barrows, 924 A.2d 908 (Del. Ch. 2007) (individual director knowledge required; group pleading insufficient)
- In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106 (Del. Ch. 2009) (red flags must provide clear internal warning to directors)