912 F.3d 523
9th Cir.2018Background
- Plaintiff Towers, a Disney shareholder, brought a derivative suit alleging Disney directors and officers participated in a multi-company, long-running no‑poach conspiracy to suppress technician wages.
- Allegations rested on internal emails (notably between Edwin Catmull and Richard Cook), DOJ investigations and consent judgments against Pixar and other tech firms, and minutes from Disney board meetings around Disney’s 2006 acquisition of Pixar.
- Plaintiff did not make a pre-suit demand on Disney’s board and amended his complaint to allege demand futility under Fed. R. Civ. P. 23.1.
- The district court dismissed the amended complaint for failure to plead particularized facts showing demand futility (i.e., that a majority of directors faced a substantial likelihood of liability).
- On appeal, the Ninth Circuit affirmed, holding the complaint alleged at most officer knowledge and board discussions about employment generally, but no particularized facts showing board knowledge of or participation in the alleged illegal scheme.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff pleaded demand futility under Rule 23.1 (Delaware law) | Towers argued demand was excused because a majority of the board knew of or participated in the conspiracy based on officer emails, board meeting minutes, and continuity of long‑serving directors | Defendants argued plaintiff failed to plead particularized facts connecting board members to knowledge or bad‑faith conduct; proximity and officer knowledge are insufficient | Held: Dismissal affirmed — complaint lacked particularized facts to show a majority of directors knew of or consciously ignored illegal activity, so demand was not excused |
| Whether officer-level misconduct imputes knowledge to directors for demand futility | Towers relied on emails and officer conduct (Cook, Catmull) to infer board knowledge | Defendants asserted Delaware law forbids wholesale imputation absent allegations the officers reported illegal conduct to specific directors | Held: Court refused to impute officer knowledge to directors absent particularized allegations of transmission or reporting to directors |
| Whether board meeting minutes about talent/retention permit inference of conspiracy knowledge | Towers argued discussion of employment and Pixar acquisition supports inference that Jobs and others disclosed the agreements to the board | Defendants said meeting topics were ordinary merger/retention discussions and do not show disclosure of unlawful agreements | Held: Ordinary merger/employment discussions insufficient; no reasonable inference of board knowledge of illegal agreements |
| Whether a "smoking gun" is required to plead demand futility | Towers contended no single document required; circumstantial facts can suffice | Defendants asserted plaintiff’s allegations were speculative and conclusory | Held: No smoking gun needed, but allegations here were speculative and lacked the particularity required under Rule 23.1 and Delaware law |
Key Cases Cited
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991) (Rule 23.1 demand requirement implements board/majority shareholder decisionmaking)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand requirement and deference to directors’ business judgment)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (standards for demand futility when no pre-suit demand is made)
- Rosenbloom v. Pyott, 765 F.3d 1137 (9th Cir. 2014) (demand‑futility pleading requires particularized allegations showing board knew of and did nothing about illegal activity)