Strong ex rel. Tidewater, Inc. v. Taylor
877 F. Supp. 2d 433
E.D. La.2012Background
- Tidewater is a Delaware corporation with its headquarters in New Orleans; TMII is a wholly‑owned Tidewater subsidiary and operates in Nigeria and Azerbaijan.
- Plaintiff Strong, Tidewater shareholder since 1999, filed a derivative suit on Feb. 16, 2011 alleging FCPA and Exchange Act violations.
- Plaintiffs allege Tidewater via TMII paid bribes to Azerbaijani and Nigerian officials to secure favorable treatment, disguising them as legitimate expenses.
- Tidewater settled with the SEC in Nov. 2010 for $8,104,362 and entered a DOJ Deferred Prosecution Agreement; TMII paid a $7.35 million penalty under the DPA.
- Plaintiff seeks damages for breaches of fiduciary duties and injunctive relief to improve internal controls and accounting under the FCPA and Exchange Act.
- The court granted Tidewater’s and individuals’ motions to dismiss, dismissing the derivative action without prejudice and allowing a 20‑day window to seek leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff adequately pled demand futility | Strong pleaded facts excusing demand | Defendants contend demand futility not pled with particularity | No adequate pleading of demand futility; demand not excused |
| Applicable standard for demand futility (Aronson v. Lewis vs. Rales v. Blasband) | Aronson/Rales applicable to whether board could act independently | Rales vs Aronson should govern based on whether board acted on business decisions | Court analyzes under both tests, finding demand not excused under either |
| Independence and disinterestedness of majority of directors | Plaintiff alleges relationships and knowledge of FCPA violations show non‑independence | Allegations are too general; no director’s conflict shown to affect majority | No reasonable doubt that majority were independent and disinterested |
| Caremark/inaction theory of liability for internal controls | Board knew of internal control failures and consciously disregarded duties | No particularized facts showing knowledge or conscious disregard | Caremark claim not sufficiently pled; no substantial likelihood of liability shown |
Key Cases Cited
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (U.S. 1991) (demand futility defined by state law in derivative suits)
- Aronson v. Lewis, 473 A.2d 805 (Del.1984) (demand futility standard; independence and disinterestedness focus)
- Rales v. Blasband, 634 A.2d 927 (Del.1993) (Rales governs when no board decision or during inaction scenarios)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del.2004) (presumption of informed business judgment; need to rebut with independence)
- In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del.Ch.1996) ( Caremark standard for failure to oversee and knowledge/red flags)
- In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 808 (Del.Ch.2005) (business judgment/independence in derivative suits)
- In re infoUSA, Inc. S’holders Litig., 953 A.2d 963 (Del.Ch.2007) (requires particularized facts; director independence concerns)