504 F. App'x 23
2d Cir.2012Background
- Sollins and Lambrecht, derivatively on behalf of Bank of America Corporation and Merrill Lynch & Co., brought double derivative actions following the 2009 merger.
- The district court dismissed the complaints for failure to show demand futility (Sollins) and for failure to show a disinterested, independent board would pursue claims (Lambrecht).
- Post-merger, the acquiring corporation holds the claims and a double derivative suit generally cannot proceed unless the parent board is unable to exercise independent judgment (Delaware law).
- The court held that demand futility must be evaluated on a claim-by-claim basis, with each derivative claim analyzed independently.
- Most remaining claims (Counts I–XI) relate to Merrill’s pre-merger activities; Count XII concerns corporate waste from Merrill’s 2008 bonus distribution.
- Sollins and Lambrecht cannot bootstrap Merrill pre-merger claims into BofA’s merger-related context to avoid the demand requirement, and BofA’s exculpatory provision immunizes its directors from personal liability for those pre-merger acts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand futility was shown for Counts I–XI | Sollins argues the Board was unable to exercise independent judgment. | Defendants contend the Board acted independently and with due inquiry. | Affirmed district court; demand futility not shown. |
| Whether Count XII (corporate waste) excused by demand futility | Sollins contends the Merrill pre-merger bonus scheme was wasteful and Board biased. | Defendants argue no substantial likelihood of director liability and Board could consider such claims without compromising other duties. | Affirmed district court; insufficient need to excuse demand. |
| Whether post-merger standing lies with the acquiring corporation | Sollins asserts claims should proceed on behalf of the original corporations. | Post-merger, the acquiring corporation holds the claims; derivative suits require demand on the parent Board if viable. | Holding that the post-merger entity has standing; the district court was correct. |
| Whether the Board could be found incapable of impartially deciding to enforce the claim | Sollins argues potential conflicts or inadequacies in independence. | Board independence is presumed; an audit committee investigation supported ongoing independence. | No substantial show of bad faith or unreasonable investigation. |
Key Cases Cited
- Velez v. Levy, 401 F.3d 75 (2d Cir. 2005) (review standard for Rule 12(b)(6) and related holdings)
- Halebian v. Berv, 590 F.3d 195 (2d Cir. 2009) (abuse of discretion vs. de novo in Rule 23.1 context)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (demand futility and independence standards in Delaware law)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (presumption of valid business judgment and need to show bad faith)
- RC M Sec. Fund, Inc. v. Stanton, 928 F.2d 1318 (2d Cir. 1991) (burden to show bad faith or unreasonable inquiry to overcome presumption)
- Beam v. Stewart, 833 A.2d 961 (Del. Ch. 2003) (claim-by-claim analysis for demand futility in derivatives)
- Kaplan v. Centex Corp., 284 A.2d 119 (Del. Ch. 1971) (business judgment rule principles and fiduciary duties)