In re Huron Consulting Group
2012 IL App (1st) 103519
Ill. App. Ct.2012Background
- Huron is a Delaware corporation; derivative suit by Hacias on behalf of Huron against directors, executives, and PwC for accounting irregularities and restatements (2006–2009) causing stock decline.
- Huron admitted misstatements and restated results, overstating income by $57 million; SEC and USAO inquiries opened.
- Plaintiff alleged breach of fiduciary duty, unjust enrichment, gross mismanagement, waste, plus auditor claims.
- Plaintiff did not plead a demand on the board and asserted futility; circuit court dismissed for lack of standing under Delaware law.
- Defendants moved to dismiss under 2-619; circuit court relied on extrinsic Earnhardt declaration to assess futility; court eventually granted dismissal.
- Court addressability on preclusion issues (res judicata/collateral estoppel) due to related federal litigation (Massaro) and timing of judgments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether extrinsic evidence can be used to assess demand futility | Hacias argues extrinsic evidence improper for Rule 23.1 pleading | Defendants contend extrinsic materials support futility analysis | De novo review; proper to consider extrinsic materials under 2-615/23.1 standards |
| Whether the court should have denied leave to amend | Plaintiff sought leave to replead potential allegations | Defendant asserts no proper motion to amend was filed | Court properly denied leave to amend; improper motion here |
| Whether res judicata/collateral estoppel bars the derivative suit | Massaro federal decision should preclude claims | Preclusion principles apply if final judgments preclude claims | Massaro had no preclusive effect on the circuit court’s order; not barred |
| Whether the complaint adequately alleged demand futility under Rule 23.1 | Allegations show lack of independence/oversight by directors | Allegations insufficient to show director independence or valid business judgment exceptions | Demands futility not adequately plead; dismissal affirmed |
| Which legal standard governs demand futility (Aronson vs. Rales) | Aronson/Rales should apply to evaluate futility | Approach consistent with Braddock and Caremark framework | Court adopts Rales/Aronson framework to analyze futility and business judgment |
Key Cases Cited
- Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (1991) (demands on directors proceed under state law; substantive precondition to derivative suits)
- Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006) (demand futility standard and particularity requirements under Rule 23.1)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (two-step analysis for director independence and business judgment)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (Aronson standard for demand futility when business decisions are involved)
- Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996) (caremark oversight liability framework for failure to monitor)
- Stone v. Ritter, 911 A.2d 362 (Del. 2006) (Caremark oversight and duty to monitor; standard for evaluating monitoring failures)
- Grobow v. Perot, 539 A.2d 180 (Del. 1988) (business judgment rule presumption; need to rebut with facts)
- Saxe v. Brady, 184 A.2d 602 (Del. Ch. 1962) (context for evaluating director decisions and independence)
- Kamen v. Massaro, (not cited as reporter here) (—) (relevant to demand futility and derivative standing)