Petitioners Apple Inc. (Apple), Timothy Cook, Millard Drexler, and Arthur Levinson (together "petitioners") argue that fundamental principles of corporate law require the court to assess demand futility as to the board in place when the amended complaint is filed, consistent with the rule enunciated by the Delaware Supreme Court in Braddock v . Zimmerman (2006)
We conclude that Braddock is consistent in relevant respects with California law and that, under the circumstances of this case, the respondent superior court should have assessed the pleading of demand futility with respect to the board of directors in place at the time the amended complaint was filed.
I. OVERVIEW OF APPLICABLE LEGAL PRINCIPLES
The issues presented herein may be better understood in view of certain principles of corporate law and shareholder derivative suits. We begin with the summary of these principles set forth in Bader v . Anderson (2009)
As a general rule, "[m]anagement of a corporation, including decisions concerning the prosecution of actions, is vested in its board of directors.
Because the role of managing the business of the corporation is vested in its board of directors, not its shareholders ( Grosset v . Wenaas (2008)
In accordance with this purpose, California law requires the plaintiff who files a shareholder derivative suit to "allege[ ] in the complaint with particularity plaintiff's efforts to secure from the board such action as plaintiff desires, or the reasons for not making such effort, and allege further that plaintiff has either informed the corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the corporation or the board a true copy of the complaint which plaintiff proposes to file." ( § 800(b)(2).) Demand futility under
Bader explained that few California cases have delineated the circumstances constituting demand futility, but "given the requirement under section 800(b)(2) that allegations be made 'with particularity,' it is clear that general averments that the directors were involved in a conspiracy or aided and abetted the wrongful acts complained of will not suffice .... [Citation.] Likewise, a general claim that there is nationwide structural bias common to corporate boards will not excuse the making of a demand before bringing a derivative suit. [Citation.] Rather, 'the court must be apprised of facts specific to each director from which it can conclude that that particular director could or could not be expected to fairly evaluate the claims of the shareholder plaintiff.' " ( Bader , supra ,
California courts commonly look to two tests enunciated by the Delaware Supreme Court for determining the adequacy of the pleading of demand futility. Where a decision of the board of directors is challenged in the derivative suit, the Aronson test asks "whether, under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are
These principles are not in debate here. But neither do they answer whether California law requires the plaintiff to reassert demand futility upon the filing of an amended derivative complaint when the composition of the board of directors has changed. In the absence of California authority, the parties dispute the applicability of Delaware case law addressing that scenario, as set forth in Braddock .
We consider Braddock 's application under California law after reviewing the pertinent facts and detailed procedural history of this case.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. COMPLAINT ALLEGATIONS
Plaintiffs, who are Apple shareholders, bring this consolidated derivative action on behalf of nominal defendant Apple. The heart of plaintiffs' case is Apple's alleged pursuit and enforcement of anticompetitive agreements with other Silicon Valley companies to prohibit the recruitment or "cold calling" of each other's employees. Plaintiffs allege that certain current and former members of Apple's board of directors were aware of or tacitly approved of Apple's practices and breached their fiduciary
The action at bar consolidates three individual shareholder derivative lawsuits filed in March, April, and July 2014. It follows the settlement of an action filed by the Department of Justice in 2010 against Apple, Adobe, Google, Intel, Intuit, and Pixar based on " 'violations of the federal antitrust laws,' " which plaintiffs allege the Apple board never disclosed to shareholders in any proxy statement or regulatory filings, and several federal class action lawsuits brought by employees of Apple and other technology companies, which were consolidated under the caption In re High-Tech Employee Antitrust Litigation , No. 11-CV-2509-LHK (N.D. Cal.) and settled in March 2015.
According to the operative complaint, top executives and directors at Apple beginning in approximately 2005 entered non-solicitation agreements with executives at companies such as Adobe, Google, and Intel, which had the effect of regulating competition for talent and suppressing salaries and job mobility. Apple co-founder and former CEO Steve Jobs was passionate and outspoken about preventing companies who worked with Apple from poaching Apple's technical team members. Jobs "was vocal that companies working together should not hire each other's employees and that there should not be cross-fertilization of technical knowledge." Pressure tactics implemented by Jobs and reinforced at high levels eventually resulted in "similar anticompetitive agreements, policies, or practices" with "approximately twenty-five other companies," including several outside the technology sector.
Plaintiffs allege that Apple was particularly effective at driving these collusive agreements because it shared common directors and senior advisors with other companies. For example, plaintiffs cite a "Hands Off (Do Not Call List)" circulated among Apple employees in July 2009, which specified companies that were off-limits to recruitment, including several denoted as sharing a common board member, as well as deposition testimony allegedly confirming that certain defendants' respective positions at those companies brought the companies within Apple's "Do Not Call" policy. Plaintiffs allege that based on overlapping board memberships, close relationships between the companies, and Jobs'S "vocal disapproval of employees changing companies, there can be no doubt that the entire [Apple] Board knew about the agreements and facilitated the unlawful conspiracy." Plaintiffs further impute
B. PLEADING OF DEMAND FUTILITY ON APPLE'S 2014 BOARD OF DIRECTORS
Plaintiffs' initial complaint named nominal defendant Apple and the same individual defendants (Cook, Campbell, Drexler, Schmidt, and Levinson) as the later, operative complaint. It alleged that when the original shareholder derivative suits were filed, Apple's board of directors had eight members: defendants Cook, Campbell, Drexler, and Levinson, and non-defendants Robert Iger, Albert Gore, Jr., Andrea Jung, and Ronald Sugar (hereafter the "2014 Board").
Plaintiffs generally alleged that any demand before filing the initial complaint would have been futile because the 2014 Board had proceeded "with eyes closed shut," abdicating its responsibility to ensure that business decisions complied with applicable laws and ignoring the significant liability exposure for the company and adverse effect that Apple's anticompetitive agreements had on attracting highly skilled employees. Plaintiffs specifically alleged demand futility as to defendants Campbell, Drexler, Levinson, Cook, and non-defendant Iger based on each directors' entrenchment in the company and personal and professional relationships with other members of the board, as well as their roles at several key companies that purportedly had entered into restrictive hiring agreements with Apple.
Petitioners
Plaintiffs then filed the amended complaint with causes of action for (1) breach of fiduciary duty and (2) indemnification and contribution. They alleged demand futility with respect to Apple's 2014 Board, in place when the original derivative actions were filed.
Petitioners demurred to the amended complaint. Although the notice of demurrer set forth two grounds for demurrer-failure to state facts sufficient
The superior court declined to apply Braddock , noting that Apple was a California corporation and petitioners had failed to cite "any California authority supporting" their argument that the relevant board was that in place as of the filing of the amended complaint. The court also sought to distinguish Braddock , noting that its order sustaining petitioners' prior demurrer to the initial complaint did not " 'dismiss' " the action, but simply sustained the demurrer with express leave to amend.
The superior court nonetheless found that the amended complaint failed to state sufficient, particularized facts to excuse demand as to a majority of the 2014 Board. The court emphasized that general allegations of involvement in a conspiracy, based on the inference that a majority of the board expressly or tacitly approved the anticompetitive agreements and practices, are not sufficient to establish demand futility under California law. The court sustained the demurrer with leave to amend on that ground but overruled the demurrer on the alternative ground of failure to state facts sufficient to constitute a cause of action, noting it was "entirely unsupported" by any argument in petitioners' papers.
Plaintiffs filed the operative complaint in April 2016, again alleging demand futility with respect to the 2014 Board. Petitioners' demurrer to the operative complaint argued that plaintiffs had failed to allege demand futility with sufficient particularity and, based on the reasoning of Braddock , should have alleged demand futility with respect to the current board. Specifically, since the filing of the original actions and the amended complaint, Susan Wagner had replaced defendant Campbell, and James Bell had replaced defendant Drexler. Petitioners contended that the operative complaint failed to allege demand futility as to non-defendant directors Wagner, Bell, and Sugar, and alleged only conclusory facts regarding non-defendant directors Jung, Gore, and Iger. Petitioners maintained that the "lack of material allegations against six of Apple's eight" board members was "alone sufficient
C. ORDER ON THE OPERATIVE COMPLAINT
In a detailed written order, the superior court overruled the demurrer to the first and fifth causes of action for breach of fiduciary duty and indemnification on the ground of demand futility and standing, but rejected the demurrer to those causes of action for failure to state a claim, noting it had overruled petitioners' prior demurrer on that ground for having failed to offer any argument in support. The court sustained without leave to amend the demurrer to the other three causes of action, finding the asserted claims were beyond the scope of the prior order granting leave to amend.
On the issue of demand futility, the court adhered to its earlier conclusion that demand futility is assessed as of the time a derivative action is filed, noting that petitioners "still cite no authority" applying Braddock under California law. The court found that plaintiffs had specifically alleged demand futility as to defendants Campbell, Cook, and Levinson. In a footnote, the court further found that particularized
Petitioners sought writ relief from this court directing the respondent superior court to vacate its order overruling the demurrer and to enter a new order sustaining the demurrer as to the first and fifth causes of action. We issued an order to show cause and stayed the superior court proceedings, and requested briefing from the parties.
III. DISCUSSION
A. PROPRIETY OF WRIT RELIEF
"An order overruling a demurrer is not directly appealable, but may be reviewed on appeal from the final judgment. [Citation.] Appeal is presumed to be an adequate remedy and writ review is rarely granted unless a
Writ review is appropriate here to help ensure the pleading of demand futility in derivative suits involving California corporations is consistent in relevant respects with California corporate law-including with case authority that looks to Delaware law on related issues in derivative litigation. Plaintiffs argue, unconvincingly, that writ relief is inappropriate because an appeal would be available following a judgment in this case, and any claimed harm due to petitioners' purported loss of the right to control the company's litigation is not irreparable and could be addressed by appointment of " 'a special litigation committee of independent directors to investigate the challenged transaction.' " ( Patrick v . Alacer Corp . (2008)
The standing requirements for a derivative action, including the demand requirement, "reflect the limited adverse relationship between the shareholder plaintiff and the corporation." ( Patrick , supra ,
B. STANDARD OF REVIEW
We review an order overruling a demurrer de novo, accepting as true all facts properly pleaded in the complaint in order to determine whether the demurrer should be overruled. ( Casterson v . Superior Court , supra , 101 Cal.App.4th at pp. 182-183,
Accordingly, we review de novo the allegations of the operative complaint against the particularized demand futility pleading requirement applicable to shareholder derivative litigation and with respect to the relevant board of directors at Apple.
C. ANALYSIS
Petitioners contend that the superior court erred in two ways: first, by declining to adopt the reasoning of Braddock and instead assessing demand futility with respect to the board of directors in place when the derivative litigation commenced; and second, by inferring that demand would have been futile as to an unspecified majority of the Apple board even though plaintiffs alleged particularized facts as to only three directors.
Plaintiffs respond that this court need not reach the issue of whether Braddock applies under California law, because (1) they have adequately alleged demand futility regardless of which board of directors is considered, and (2) the reasoning and factual circumstances of Braddock are distinguishable since that case involved "the existence of a new independent board of directors" ( Braddock , supra ,
1. Composition of the Apple Board of Directors
As a preliminary matter, we reject the argument that the writ petition may be denied because petitioners failed to establish the changes to Apple's board. Plaintiffs acknowledge that the superior court granted judicial notice of certain regulatory filings submitted in support of the demurrer.
The superior court's ruling is consistent with the general rule that judicial notice of a document does not extend to the truthfulness of its contents or the interpretation of statements contained therein, if those matters are reasonably disputable. ( C.R. v. Tenet Healthcare Corp . (2009)
While the truthfulness or proper interpretation of a judicially-noticed document is disputable, we are not persuaded that such a dispute exists here.
The taking of judicial notice of Apple's SEC filings establishes only their existence and reported contents, and more closely resembles cases in which there is no factual dispute concerning the matter to be noticed. (See, e.g., StorMedia , supra ,
Since the superior court determined that plaintiffs sufficiently alleged demand futility as to five of the eight Apple directors (Campbell, Cook, Levinson, Drexler, and Iger) based on the composition of 2014 Board, but only three of these five directors remained on the board as of the filing of the operative complaint-constituting less than a majority-it is critical to identify which board is relevant for assessing demand futility.
The superior court founded its demand futility analysis on the principle that "under California law, demand futility is assessed as of the time a derivative action is initially filed." The court drew its conclusion in part from this court's decision in Bader . As we shall explain, the superior court's conclusion was not incorrect but was incomplete under the circumstances. The principles governing derivative litigation under California law lead us to conclude, consistent with Braddock , that when a trial court declares derivative claims to be legally insufficient and grants leave to amend, the demand requirement must be reassessed against the disinterest and independence of the board of directors in place when the amended derivative claims are filed.
a. The Reasoning in Braddock Is Consistent with California Law
As discussed in section I, Bader adopted the Delaware Supreme Court's tests for the pleading of demand futility, set forth in Aronson and Rales . Bader explained that where the derivative claims challenge an affirmative decision or act of the board, the adequacy of the pleading is determined by the two-pronged test from Aronson . ( Bader , supra , 179 Cal.App.4th at pp. 790-791,
But as Bader recognized, Delaware courts do not apply the Aronson test mechanically. Thus, where the challenged conduct did not arise from board action, the court applies the alternate test from Rales , which "inquires 'whether the board that would be addressing the demand can impartially consider its merits without being influenced by improper considerations.' " ( Bader , supra ,
Braddock was a shareholder derivative action in which the plaintiff's first amended complaint was dismissed in its entirety, without prejudice, for failing to comply with the demand requirement of Delaware's Court of Chancery rule 23.1.
The Delaware Supreme Court reversed. It held that "the Court of Chancery should have assessed demand futility ... with regard to the board that was in place at the time" the second amended complaint was filed. ( Braddock , supra ,
The court specified three conditions that "must exist to excuse a plaintiff from making demand ... when a complaint is amended after a new board of directors is in place: first, the original complaint was well pleaded as a derivative action; second, the original complaint satisfied the legal test for demand excusal; and third, the act or transaction complained of in the amendment is essentially the same as the act or transaction challenged in the original complaint." ( Braddock , supra ,
Petitioners urge this court to adopt the rule set forth in Braddock as a matter of California law. They maintain that Braddock simply extended the general rule, followed in Delaware and in California, that a plaintiff bringing a derivative suit must make demand on the company's board to take legal action or show that it would have been futile to do so at the time the case was initiated. They argue that Braddock reinforces the policy behind the demand requirement, imposes no improper burden on plaintiffs, and ensures consistency with courts applying Delaware law and the laws of other states.
In response, plaintiffs dispute the relevance of Braddock -suggesting that Delaware cases do not reveal a clear doctrine as to the demand requirement
We find that Braddock expresses a narrow extension of the general rule and
The narrow application of Braddock belies plaintiffs' claim that implementing its rule will allow corporate defendants to file seriatim demurrers with each amended complaint and require the court to revisit the threshold demand futility issue. To begin, a derivative plaintiff under California law already must make a demand on the company's board to take legal action or show that it would have been futile to do so at the time the case is initiated. ( § 800(b)(2).) If the suit is properly initiated and the derivative claims are validly in issue, the presuit demand requirement has been met; hence, the filing of an amended complaint arising from those same claims will not trigger reassessment of the demand requirement.
Braddock reiterated this point by citing an earlier Court of Chancery ruling: " 'When claims have been properly laid before the court and are in litigation, neither [the demand requirement] nor the policy it implements requires that a court decline to permit further litigation of those claims upon the replacement of the interested board with a disinterested one .... [¶] ... [A]n amendment or supplement to a complaint that elaborates upon facts relating to acts or transactions alleged in the original pleading, or asserts new legal theories of recovery based upon the acts or transactions that formed the substance of the original pleading, would not ... require a derivative plaintiff to bring any part of an amended or supplemental complaint to the board prior to filing.' " ( Braddock ,
Only if the trial court has deemed the complaint inadequate-either for failure to state a claim or failure to meet the demand requirement, and the plaintiff reasserts the derivative claims in an amended complaint to avoid dismissal-will the rule apply. Braddock preserves this distinction by identifying the circumstances in which a plaintiff filing an amended derivative complaint need not make demand-or plead its futility-with respect to a new board. Under this rubric, a plaintiff who demonstrates that the original
We believe this conclusion harmonizes with the California Supreme Court's consideration of standing in a somewhat related context involving continuous stock ownership in a derivative action. The high court considered whether the plaintiff in a derivative suit had standing to continue litigating the action after involuntarily losing his stock in the nominal defendant corporation due to a merger. ( Grosset , supra ,
We similarly find that although the pleading requirement imposed by section 800(b)(2) does not address the precise circumstances arising here, it constrains the derivative mechanism to those occasions in which the board,
b. The Demand Requirement Must Be Reassessed if (1 ) the Derivative Claims Were Not Validly in Litigation , and (2 ) Changes to the Board Affect the Alleged Futility of Demand as to Those Claims
We need look no further than the circumstances of this case for a suitable example of how Braddock 's reasoning applies under California law.
As discussed earlier, the superior court sustained petitioners' demurrers to the initial complaint and amended complaint, finding as to each that plaintiffs had failed to adequately allege demand futility, and granted leave to amend. The court further noted that it was overruling the demurrer to the amended complaint on the ground of failure to state a cause of action. Plaintiffs contend based on this latter ruling that their derivative claims were validly in litigation when they filed the operative complaint. They argue that procedural differences between a sustained demurrer with leave to amend under California law, and the grant of a motion to dismiss under Delaware law, negate any application of Braddock here, and that Braddock applies only where there is a new and independent board in place that can consider a demand. These arguments are unavailing.
Contrary to plaintiffs' assertion that the superior court found plaintiffs' amended complaint had adequately pled causes of action for breach of fiduciary duty and unjust enrichment, the court stated only that it was overruling the demurrer on
Plaintiffs also seek to limit Braddock factually, based on the degree of board turnover between filings of the initial and amended complaints. They contend that Braddock only applies when there is the equivalent of "a new independent board of directors" to consider a demand. ( Braddock , supra ,
We do not interpret Braddock so narrowly. Although changes to the board of directors in Braddock rendered a "seven-member majority of new directors" at the time the plaintiff filed the amended complaint (
Plaintiffs cite several cases in support of the proposition that Braddock applies only when a majority of the board has changed. Two of these cases predate Braddock but are nonetheless consistent with its holding; in both, the
As this case demonstrates, a lesser change in board composition can alter the analysis.
In sum, we conclude that the reasoning of Braddock is consistent with the governing and limiting principles of California law on derivative actions. Where, as here, an amended complaint alleges derivative claims that were previously deemed legally insufficient, the demand requirement must be assessed in relation to the board of directors in place when the amended complaint is filed.
3. The Superior Court Erred in Assessing Demand Futility with Respect to the 2014 Board
Our conclusion that the reasoning in Braddock applies here, where an amended complaint alleges derivative claims that were not already validly in litigation, compels us to find that the superior court erred in overruling the demurrer to the operative complaint. The court should have analyzed plaintiffs' demand futility allegations with respect to the board of directors in
As the superior court noted in its order, plaintiffs' direct allegations of demand futility extend to defendants Campbell, Cook, and Levinson, based on evidence that they knew of and consented to or acted upon the non-recruitment policies. Assuming without deciding that the allegations are adequate to establish demand futility as to these three individuals,
Petitioners maintain that plaintiffs cannot allege demand excusal with respect to these directors and instead resort to generalized allegations that are insufficient as a matter of law. They contend that the superior court improperly relied on generalized allegations to infer futility as to a majority of the Apple board, flouting the requirement that a plaintiff establish demand futility through particularized allegations on a director-by-director basis. Petitioners also challenge the notion that general knowledge of Apple's non-solicitation practices-if such knowledge could be attributed to Iger, Gore, and/or Jung-renders the director incapable of fairly evaluating claims related to those practices. They argue that while non-solicitation agreements between companies may implicate antitrust issues, knowledge of a unilateral policy by Apple to refrain from cold-calling (e.g., Apple's "Hands Off (Do Not Call)" list) invokes no antitrust concerns.
Plaintiffs respond that the allegations of the operative complaint are sufficient to establish demand futility as to a majority of the 2016 Board, including Iger, Gore, and Jung. They argue that since knowledge can be
Plaintiffs are correct that knowledge may be established by circumstantial evidence (see
Where, as here, the derivative claim stems from conduct that did not involve a decision of the board, the Rales test applies. Plaintiffs were "required to allege facts 'with particularity' ( § 800(b)(2) ) sufficient to 'create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand.' " ( Bader , supra ,
We independently review the sufficiency of the demand futility pleading. ( Bader , supra ,
Plaintiffs further rely on allegations of the directors' close personal and business ties with Jobs, particularly as to Cook, Levinson, and Iger, who became Disney's CEO in 2005 and formed a relationship with Jobs around that time, when he approached Jobs (who was then Pixar's CEO) about a Disney/Pixar acquisition. Plaintiffs allege that Iger and Jobs maintained a close personal relationship thereafter, evidenced by Iger's willingness to keep secret Jobs' recurrence of cancer in 2006 despite his fiduciary duty to Disney to disclose matters material to Disney's Pixar acquisition. Plaintiffs contend that these allegations support the inference that the board knew about the anticompetitive policies and suggest the directors "could not be impartial in deciding to bring a lawsuit which would tarnish" Jobs's legacy.
We find these allegations, viewed in their context and in light of the complaint as a whole ( Bader , supra ,
For example, the allegations that plaintiffs claim support an inference that Gore "knew or was reckless in not knowing about the anticompetitive agreements and practices at Apple" include Gore's attendance at meetings in which recruiting and retention issues were discussed, e-mail correspondence in which Apple's vice-president for human resources informed the committee about the competitiveness of Apple's compensation and benefits programs and requested consent " 'to increase our annual grant pool ...,' " and Gore's presence at the May 2006 board meeting when Jobs informed the board of what the complaint calls the "Apple/Pixar (Disney) Agreement."
We also are not persuaded that knowledge of Apple's non-solicitation practices and allegedly anticompetitive agreements with other companies can be imputed to Gore and Jung, for purposes of establishing demand futility, merely because they served on the board or the compensation committee alongside directors who are the subject of more direct allegations. Plaintiffs' reliance on a footnote in an unpublished Court of Chancery case for this proposition is unavailing. (See Saito , supra , 2004 Del. Ch. Lexis 205, at *33, fn. 68 [inferring that several directors' awareness of accounting irregularities "was communicated to other" board members in connection with a merger].) Whereas here, the allegations pertaining to the compensation committee suggest standard activities to oversee and adjust Apple's compensation practices in a highly competitive industry, the allegations in Saito indicated that accounting practices amounting to "at least a $40 to $55 million problem" were discussed by the audit committee in the midst of merger negotiations and were conveyed to the board of the merger partner, which nonetheless failed to react. (Id . at *34.) In the absence of any facts to suggest the compensation committee was informed of Apple's non-solicitation practices affecting recruitment and hiring, there is no basis to infer knowledge on the part of Gore or Jung.
To be clear, our conclusion regarding Gore and Jung is based on the absence of any particularized factual allegations to support an inference of even general knowledge about the purportedly anticompetitive agreements with other companies, let alone knowledge or involvement sufficient to disable them from fairly considering plaintiffs' claims. This is particularly true where Gore and Jung held no "overlapping"
Thus, particularized allegations of pervasive and continued corporate misconduct can support an inference of board knowledge and intentional disregard for purposes of assessing demand futility, particularly where the conduct relates to a product or policy "critical to a company's success" or "of special importance to it." ( Rosenbloom v . Pyott (9th Cir. 2014)
Since the operative complaint does not allege that demand would have been futile as to directors Sugar, Wagner, and Bell, and we have found the allegations insufficient to disqualify directors Gore and Jung from fairly exercising " 'independent and disinterested business judgment in responding to a demand' " ( Bader , supra ,
4. Leave to Amend
In considering whether the demurrer should be sustained without leave to amend, we observe on the one hand that plaintiffs have not proposed how they would amend the operative complaint if the pleading is deemed inadequate with respect to the 2016 Board. It is generally the plaintiff's burden to " 'show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.' " ( Goodman v . Kennedy (1976)
We cannot conclude on the record before us, however, that there is no reasonable possibility that plaintiffs can allege demand futility as to the required number of Apple board members. ( Quelimane Co. v. Stewart Title Guaranty Co . (1998)
We take guidance on this point from our Supreme Court, which has explained that while "[d]enial of leave to amend is not unusual following writ review of an overruled demurrer, ... [citations] ..., leave to amend is properly granted where resolution of the legal issues does not foreclose the possibility that the plaintiff may supply necessary factual allegations. [Citation.] If the plaintiff has not had an opportunity to amend the complaint in response to the demurrer, leave to amend is liberally allowed as a matter of fairness, unless the complaint shows on its face that it is incapable of amendment." (
IV. DISPOSITION
Let a peremptory writ of mandate issue directing respondent superior court to vacate its order of October 5, 2016, overruling petitioners' demurrer to the first and fifth causes of action of the second amended consolidated shareholder derivative complaint, and to enter a new order sustaining the demurrer as to those causes of action, with leave to amend. The temporary stay order is vacated. Costs in this original proceeding are awarded to petitioners.
WE CONCUR:
Grover, J.
Notes
Unspecified statutory references are to the Corporations Code.
The Delaware Supreme Court overruled Aronson on another point not relevant to our discussion here. (See Brehm v . Eisner (Del. 2000)
Only defendants Cook, Drexler, Levinson, and Apple are petitioners herein.
The superior court sustained without leave to amend petitioners' demurrer to the operative complaint as to the three other causes of action.
Petitioners were joined by defendant Schmidt in the filing of each successive demurrer mentioned herein.
The superior court granted petitioners' request for judicial notice of certain forms filed by Apple with the SEC, including copies of the following: (1) form 8-K, dated July 15, 2014, announcing the retirement of William Campbell from the board, and the appointment of Susan Wagner to the board "concurrently with" Campbell's retirement; (2) excerpt of Apple's definitive proxy statement (schedule 14A), dated January 22, 2015, announcing that Millard Drexler would retire from Apple's board as of the annual meeting on March 10, 2015, leaving one vacancy; and (3) form 8-K, dated October 1, 2015, announcing the appointment of James Bell to the board.
This chart compares the board as of the filing of the original derivative actions (2014 Board) and the operative complaint. The named defendants are in boldface type.
Composition of Apple's Board of Directors
Composition of Apple's Board of Directors As of the original Sugar Jung Gore Iger Campbell Drexler Levinson Cook derivative actions: As of the operative Sugar Jung Gore Iger Wagner Bell Levinson Cook complaint:
Like here, the shareholder derivative action in Bader was brought nominatively on behalf of Apple, a California corporation. (Bader , supra ,
This court has previously noted, when assessing demand futility, that courts can "properly rely on corporate law developed in the State of Delaware given that it is identical to California corporate law for all practical purposes." (Oakland Raiders , supra ,
So too, when parties dispute whether California or Delaware law governs a derivative action, courts may find it unnecessary to resolve the choice of law dilemma because the outcome under both is the same. (See, e.g., Schuster v . Gardner (2005)
Delaware's Court of Chancery rule 23.1(a) states in relevant part that in a derivative action brought by shareholders of a corporation, the complaint shall "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort."
Certain authority cited herein is unpublished. We note that although an unpublished California case opinion may not be cited or relied upon (Cal. Rules of Court, rule 8.1115 ), citing unpublished opinions from other jurisdictions for their persuasive value does not violate this rule. (See In re Farm Raised Salmon Cases (2008)
Examples include La. Mun. Police Emples. Ret. Sys. v. Wynn (9th Cir. 2016)
The superior court on this issue explained that "[a] party may not demur to an amended complaint on grounds that could have been raised by demurrer to an earlier version of the complaint. (Code Civ. Proc., § 430.41, subd. (b).)" The court noted that it had overruled the prior demurrer to plaintiffs' claims for breach of fiduciary duty and indemnification because it was " 'entirely unsupported by any argument in [petitioners'] papers.' "
Plaintiffs incorrectly assert that Braddock was premised upon a dismissal of the complaint without leave to amend. In fact, the Court of Chancery dismissed the first amended complaint without prejudice for failure to comply with the demand requirement. (Braddock , supra , 906 A.2d at pp. 779, 782.) The Braddock court addressed some confusion about the finality of the dismissal order, due in part to a then-recent change to the Delaware Court of Chancery procedural rules, and noted that while the dismissal without prejudice failed to expressly authorize an amended filing by a certain date, the order "must be construed as if it had expressly granted" the plaintiff leave to file an amended complaint. (Id . at p. 783.)
We also note that various courts have applied Braddock irrespective of the extent of change in the board's composition. (See, e.g., Zoumboulakis v. McGinn (N.D.Cal. 2015)
Petitioners argue vigorously that the superior court did not properly analyze plaintiffs' allegations regarding directors Levinson and Cook. We recognize that petitioners do not concede demand futility as to these or any of the board members serving in April 2016.
Quoting from the meeting minutes, the operative complaint states that Jobs informed the entire board, including director Gore, " 'on the status of the acquisition of Pixar by Disney and any potential impact on [Apple]'s relationship with Disney. Mr. Jobs indicated that the acquisition had closed effective as of May 5, 2006 and that he had joined Disney's board of directors.' " The allegations that follow include that Pixar "appeared" on Apple's "Hands Off (Do Not Call List)" in July 2009, and suggest that an Apple/Pixar non-solicitation agreement was in effect several years prior.
We note that despite the superior court's order stating generally that direct allegations of knowledge on the part of certain board members supported an inference as to "the entire board," the court's order did not specifically reference Gore (in contrast with its footnote conclusions as to Drexler and Iger). Further, the court indicated at the demurrer hearing that it was "really not persuaded" of the adequacy of the demand futility allegations with respect to Gore.