Plaintiffs in this derivative action were stockholders in General United Group, Incorporated (GUG), an Iowa insurance holding company. They alleged defendant Wheelabrator-Frye, Inc. secured control of GUG by purchasing the stock of defendants, GUG president Chapman and chairman Schroeder, for $1.3 million over its fair market value, which constituted a commercial bribe. The twice-substituted petition ultimately alleged GUG was merged in 1973 into defendant All American Delaware Corporation, a Delaware corporation, and the latter corporation in turn merged into defendant All American Life and Casualty Company, conceded by the parties to be an Illinois corporation. Numerous other individual defendants were alleged to have constituted the GUG board of directors (old board) just before the transaction complained of was launched; other named defendants were alleged to have been directors thereafter (new board).
*633 The petition asserted that in July, 1967, Wheelabrator agreed to sell to GUG its subsidiary, United Security Life Company, in return for 10,623,150 shares of a new class of GUG stock. Wheelabrator thus acquired approximately 80% of all GUG voting shares. As an integral part of this transaction, conditional upon Wheelabrator gaining 80% voting control in GUG, defendants Schroeder and Chapman received a “stock option”: a right to sell their stock for $10 per share although its market value was only $3.25 per share, the price differential being approximately $1,315,000. Wheelabrator then installed its own board of directors of GUG. In February, 1972, defendants Schroeder and Chapman exercised their “stock option” and were paid approximately $1,948,640.
Plaintiffs further alleged the “premium bribe,” the issuance of the stock, and the “sale of the offices of the board of directors” were effected by “the intentional, malicious and conscious acts of all of the defendants to deprive GUG of a corporate asset.” This, plaintiffs alleged, was in violation of § 741.1, The Code, 1975:
“It shall be unlawful for * * * any * * * officer * * * of a private corporation * * * acting in behalf of a principal in any business transaction, to receive, for his own use, directly or indirectly, any gift, commission, discount, bonus, or gratuity connected with, relating to, or growing out of such business transaction * *
Division I prayed for $1,315,000 actual and $2,000,000 punitive damages. Division II alleged a breach of fiduciary duty and was grounded on a constructive trust theory. It prayed for restitution and damages in the same amounts. Division III sounded in tort and prayed for $1,000,000 actual damages and $2,000,000 punitive damages.
Each division contained the allegation:
“Plaintiffs have not made a demand on the directors of GUG that the company bring this suit against the other twenty-one substantive defendants because such a demand would be futile because the directors would never authorize suit against themselves.”
Wheelabrator filed a motion to dismiss. As amended, it asserted plaintiffs’ petition should be dismissed for failure to comply with rule 44, Rules of Civil Procedure, which required plaintiffs to make demand on GUG to bring the action, and because under § 496A.74(2)(c) and applicable Delaware law the cause of action passed to the Delaware corporation and could not be asserted by stockholders of the corporation extinguished by merger.
Trial court sustained the motion to dismiss on both grounds and plaintiffs appeal. We affirm.
I. Motion to dismiss and scope of review.
The manner this controversy was litigated below and presented here presents a perplexing threshold question.
Trial court had before it a motion to dismiss. See R.C.P. 104(b). (“ * * * (b) Failure to state a claim on which any relief can be granted, may be raised by motion to dismiss such claim, filed before answer.”) In this jurisdiction certain rules relating to such motions are well established:
“Overruling or sustaining a motion to dismiss does not depend upon trial court’s discretion. It must rest on legal grounds and is subject to review by this court, (citation)
“A motion to dismiss is a waiver of any ambiguity or uncertainty in the pleadings. (citation) Such a motion grounded on failure to state a cause of action is sustainable only when it appears to a certainty the pleader has failed to state a claim upon which any relief may be granted under any state of facts which could be proved in support of the claim asserted. In making this determination the pleading should be construed in the light most favorable to the pleader with doubts resolved in his favor and the challenged allegations accepted as true, (citations)”
— Weber v. Madison,251 N.W.2d 523 , 525 (Iowa 1977)
See
Iowa Truck Center, Inc. v. Davis,
*634
Our review of a ruling on a motion to dismiss is limited. We cannot sustain such motion on grounds not asserted in trial court.
Symmonds v. Chicago, M., St. P. & P. R. Co.,
Like the old demurrer, a motion to dismiss admits the well-pleaded facts in the pleading assailed for the purpose of testing their legal sufficiency. The motion may not sustain itself by its own allegations of fact not appearing in the challenged pleading.
State ex rel. Krupke v. Witkowski,
Apparently in this case all parties forgot they were not in federal court. There, matters outside the challenged pleading, submitted upon a motion to dismiss, may be considered when certain safeguards are being followed and the motion is treated as a motion for summary judgment. See rules 12(b) and 56, Federal Rules of Civil Procedure;
Basel v. Knebel,
Thus, Wheelabrator’s amended motion to dismiss alleged a number of factual matters not mentioned in plaintiffs’ petition, including the law of Delaware. Attached was Wheelabrator’s New York counsel’s affidavit submitting further facts for consideration.
We have consistently held the law of a sister state, statutory or common, is a question of fact.
In re Drumheller’s Estate,
But a motion to dismiss is not a pleading. R.C.P. 68 and 109; see
Iowa City
v.
Muscatine Development Company,
Plaintiffs not only failed to raise these issues below, they countered with a brief alleging additional facts not asserted in their petition, and on one facet of their argument rely on Delaware law.
Nor do plaintiffs argue on appeal the alleged Delaware law was not pleaded or proved or properly before trial court. They do not assert we should disregard it.
Some of the events complained of in this petition occurred almost 12 years ago. This action is more than two years old. There is no issue and no controversy concerning the *635 Delaware law referred to in both briefs. If trial court committed error, the parties gave the court no chance to correct it. In this instance we are inclined to dispose of this appeal on the issues framed and argued by the parties. We shall consider the Delaware statutory and case law referred to in the briefs. This decision should not be accepted as precedent for ignoring our rules of pleading or proof relating to foreign law, or our rules which confine the scope of inquiry on an R.C.P. 104(b) motion to dismiss a petition.
II. Demand on the corporation.
Authority to sue for corporate injuries ordinarily reposes in corporate management. Generally, for a stockholder to show a right to sue on behalf of the corporation, he or she must allege with some particularity remedies within the corporation have been exhausted by making sufficient demand upon the directors or other officers to sue or show sufficient reason for not doing so.
Delaware & H. Co. v. Albany & S. R. Co.,
In Iowa this concept presently is incorporated in a rule of civil procedure:
“Rule 44. Shareholder’s actions.
“Shareholders in an incorporated or unincorporated association, who sue to enforce its rights because of its failure to do so, shall support their petition by affidavit, and allege their efforts to have the directors, trustees or other shareholders bring the action or enforce the right, or a sufficient reason for not making such effort.”
An expanded version of the same principle is found in rule 23.1 (formerly 23(b)), F.R. C.P. Relating to this rule the Supreme Court in
Surowitz
v.
Hilton Hotels Corp.,
“Rule 23(b) was not written in order to bar derivative suits. Unquestionably it was originally adopted and has served since in part as a means to discourage ‘strike suits’ by people who might be interested in getting quick dollars by making charges without regard to their truth so as to coerce corporate managers to settle worthless claims in order to get rid of them. On the other hand, however, derivative suits have played a rather important role in protecting shareholders of corporations from the designing schemes and wiles of insiders who are willing to betray their company’s interests in order to enrich themselves.”
Behind the demand rule is the rationale courts should not interfere in internal affairs of private corporations until all intracorporate remedies have been exhausted. The demand provides opportunity for directors to occupy their usual status as corporate managers and gives the corporation a chance to take control of litigation to be brought on its own behalf. 3B Moore’s Federal Practice § 23.1.19, at 23.1-79 — 23.-1-99 (2d ed. 1976); 7A Wright and Miller, Federal Practice and Procedure, § 1832, at 383-392 (1972); comment, Stockholder Derivative Actions, 44 U.Chi.L.Rev. 168, 171— 172 (1976).
Federal courts divide on the question whether F.R.C.P. 23.1 should be applied rigidly. Several jurisdictions hold rule 23.1 is an exceptional rule of pleading, serving a special purpose, and does not fall within the liberalized “notice” pleading concept.
In re Kauffman Mutual Fund Actions,
Iowa decisions indicate this court has not imposed onerous restraints in derivative actions. See
Holi-Rest, Inc. v. Treloar,
These decisions do not assist us, however, in determining what must be contained in a challenged petition to meet the R.C.P. 44 requirement that stockholders must “allege * * * sufficient reason for not making such effort.” In Holi-Rest, supra, neither demand nor reason for not making it were alleged, but the issue was not raised in trial court or this court. The unusual circumstances there alleged clearly indicated demand would have been an empty formality.
On this issue we are persuaded by those decisions which hold a general allegation of futility of demand is sufficient if other assertions of fact in the petition are detailed enough to demonstrate a demand would have been unavailing. See, e. g.,
Liboff v. Wolfson,
“The demand requirement also imposes little hardship on the complaining shareholders. The requirement can be satisfied by simply mailing a copy of the complaint to the board of directors advising them that unless the corporation enforces its rights, the shareholders will institute a derivative action against the alleged wrongdoer. A refusal should ordinarily have to be secured, but a failure by the directors to act within a reasonable time should suffice to satisfy the demand requirement.”
(footnotes omitted)
—Comment, Stockholder Derivative Actions, supra, 44 U.Chi.L.Rev. at 172
In the case before us, the demand issue is further complicated. The events plaintiffs complain of are alleged to have occurred in the period July, 1967, to February, 1972. GUG, it is alleged, merged into All American Delaware Corporation in 1973, “at which time defendant All American Delaware Corporation assumed all of the rights and obligations of the defendant General United Group, Incorporated.” Plaintiffs further alleged the Delaware corporation in turn merged into All American Life and Casualty Company.
This petition was filed three years later on May 27, 1976. At that point GUG was nonexistent. Yet the petition as twice amended continued to assert demand had not been made on GUG directors “because *637 such a demand would be futile because the directors would never authorize suit against themselves.”
Plaintiffs’ brief (page 5) capsulates their analysis of this litigation in the following manner:
“In succinct terms: In a derivative action Plaintiff Shidler is suing the true plaintiff, his own company, All American, to recover for All American against Wheelabrator and Schroeder for premium-bribery.
“Henceforward Plaintiff Shidler as a moving force will disappear from this Brief. The discussion will solely concern: All American versus Wheelabrator and Schroeder, in the matter of premium-bribery in the sale of control of GUG.”
This petition does not allege any demand was made on the directors of either subsequent “All American” corporation. It does not allege a demand would be futile, nor does it allege any reason, let alone a sufficient reason, for not making demand. See R.C.P. 44. Unlike the situation in HoliRest, defendant in this action raised this issue in trial court and pursues it here.
Plaintiffs’ brief refers to Moody’s reports, and makes other factual assertions not contained in their petition, to show a minority of directors of the All American corporations were former GUG directors. We cannot take judicial notice of such matters. The petition does not allege the former GUG directors were on the All American board or controlled the All American corporations. Nor were All American directors made defendants.
If, as the decisions indicate, a demand on a preceding board of the same corporation would not meet requirements of the rule, it seems obvious a pleading which does not allege any demand on the board of a successor corporation, nor any excuse for such failure, would be fatally defective. See
Corey v. Independent Ice Co.,
We hold trial court properly sustained the motion to dismiss on the ground plaintiffs’ petition did not comply with R.C.P. 44.
III. Plaintiffs’ standing to sue derivatively.
District court found plaintiffs lacked standing to sue derivatively on GUG’s behalf. It reasoned Delaware law controlled the issue because GUG had been merged into a Delaware corporation.
Plaintiffs assert their claim survived the merger. They rely on the following portions of § 496A.73, The Code, (“Effect of merger or consolidation”):
“When such merger * * * has been effected:
"* * *
“5. Such surviving * * * corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged * * *; and any claim existing or action or proceeding pending by or against any of such corporations may be prosecuted as if such merger * * * had not taken place, or such surviving * * * corporation may be substituted in its place. Neither the rights of creditors nor any liens upon the property of any such corporation shall be impaired by such merger * * *.” (emphasis supplied)
An examination of Chapter 496A, The Code, indicates the statutory provision above quoted is part of a sequence of statutes relating to merger of domestic corporations. These statutes commence with § 496A.68 “Procedure for merger. Any two or more domestic corporations may merge * * *.” They terminate with § 496A.73, describing the effect of such merger.
However, § 496A.74, The Code, addresses merger between domestic and foreign corporations:
“One or more foreign corporations and one or more domestic corporations may be merged * * * in the following manner, if such merger * * * is permitted by the laws of the state under which each such foreign corporation is organized: * * *
*638 "2. * * *
"c. * * *
“The effect of such merger * * * shall be the same as in the case of the merger * * * of domestic corporations, if the surviving * * * corporation is to be governed by the laws of this state. If the surviving * * * corporation is to be governed by the laws of any state other than this state, the effect of such merger * * * shall be the same as in the case of the merger * * * of domestic corporations except insofar as the laws of such other state provide otherwise.” (emphasis supplied)
Trial court found the last quoted statutory provision to require application of Delaware law, specifically, Del.Code Ann. tit. 8, § 259(a):
“When any merger * * * shall have become effective under this chapter, for all purposes of the laws of this State the separate existence of all the constituent corporations, or of all such constituent corporations except the one into which the other or others of such constituent corporations have been merged, as the case may be, shall cease and the constituent corporations shall become a new corporation, or be merged into 1 of such corporations, as the case may be, possessing all the rights, privileges, powers and franchises as well of a public as of a private nature, and being subject to all the restrictions, disabilities and duties of each of such corporations so merged * * *
This Delaware statute has been interpreted consistently to deny a corporation that disappears in merger and its former shareholders standing to maintain a claim. See
Smallwood v. Pearl Brewing Company,
We think trial court properly ruled the governing Iowa statute is §-496A.74(2)(c), not § 496A.73(5). Other Iowa code provisions also distinguish between mergers of domestic corporations and mergers of domestic and foreign corporations. See, e. g., §§ 491.110 and 491.111, The Code. When interpreting such statutory schemes, we seek to give effect to all provisions of the Act, and do not presume statutes are repetitious or superfluous.
State v. Jennie Coulter Day Nursery,
Plaintiffs allege they are stockholders of GUG. They do not allege they are stockholders of either All American corporation, nor do they plead the merger gave them the right to exchange GUG stock for All American stock.
They first assert standing to maintain this action for GUG relying on § 496A.73(5) (“[A]ny claim existing * * * may be prosecuted as if such merger * * * had not taken place * * *.”). We have explored that theory and rejected it, above, on the ground § 496A.73 relates only to merger of domestic corporations.
Plaintiffs next rely on three federal decisions, all presenting situations distinguishable from the one pled in this action. While
Jones v. Missouri-Edison Electric Co.,
Smallwood v. Pearl Brewing Company,
supra,
Miller v. Steinbach,
Contending they have standing to sue, plaintiffs argue in the alternative “All American” (referring to both successor corporations) should be the derivative plaintiff to assert the cause of action formerly held by GUG. This theory is unsupported by any allegations in the petition. Nowhere is it asserted plaintiffs are stockholders of “All American,” or that the merger effected after the events complained of contemplated a stock-for-stock exchange. We already have noted that under the Delaware law made applicable by the Iowa code, derivative rights pass to the surviving corporation. Limited as we are by the confines of the petition under attack, we are not convinced, as are plaintiffs (without citation of authorities) that, “[w]ere there perchance an Iowa Code to the contrary again no matter, because Equity would nonetheless hold contra the Code, so patent are the equities of the matter.” We are not convinced a statutory mandate to apply the law of a sister state may be ignored so readily.
The § 496A.74(2)(c) requirement we apply Delaware law, coupled with plaintiffs’ failure to attack the merger, may in this instance have relegated plaintiffs to their payoff rights as dissenting shareholders, see § 496A.74(2)(c), or their rights under litigation presently in federal court, referred to in the briefs. These matters are not before us on this appeal and we take no notice of them.
In view of the allegations of this petition, we hold trial court was right in ruling plaintiffs had no standing to sue.
AFFIRMED.