Oakland County Employees' Retirement System v. Massaro
772 F. Supp. 2d 973
N.D. Ill.2011Background
- Shareholders of Huron Consulting Group, Inc. bring derivative claims against the company's board and three former executives.
- The court previously dismissed the federal securities claim; the second amended complaint reasserts state-law claims and drops the federal claim.
- The alleged core event is Huron's July 31, 2009 restatement for 2006–Q1 2009 due to GAAP violations related to acquisition-related payments that inflated earnings.
- Plaintiffs allege the director defendants knowingly failed to implement internal controls and monitoring, constituting a sustained oversight failure.
- Delaware law applies; the court must determine demand futility under the Rales framework for a Caremark-style claim based on inaction.
- The court grants the motions to dismiss under Rule 12(b)(6) and Rule 23.1(b); the second amended complaint is dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand futility is shown under Delaware law (Rales) for a Caremark claim. | Plaintiffs contend directors faced substantial liability and were incapable of impartially evaluating a demand. | Defendants assert no obvious red flags and no conscious disregard; Caremark requires utter failure to oversee, which is not shown. | Demand not excused; Caremark claim not established. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading requires plausible entitlement to relief)
- Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (U.S. 1991) (demand to sue on corporate claims; Rule 23.1 standards)
- In re Veeco Instruments, Inc. Securities Litigation, 434 F. Supp. 2d 267 (S.D.N.Y. 2006) (Caremark demand futility framework in derivative actions)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (test for director independence and interest in demand futility)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (delaware test for demand futility in Caremark-type claims)
- Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Raines, 534 F.3d 779 (D.C. Cir. 2008) (Caremark standard requires utter failure to oversee; concrete red flags)
- Cephalon, Inc. Derivative Litigation, 409 F. App'x 535 (3d Cir. 2010) (Caremark standards and red flags analysis in board oversight)
- Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003) (context of director liability and demand excusal standards)