Lead Opinion
OPINION
By the Court,
AMERCO is а Nevada corporation controlled by the feuding Shoen family. Its main operating subsidiary is U-Haul International, Inc. AMERCO has engaged in numerous business transactions with the SAC entities, which are real estate holding companies controlled by AMERCO shareholder and executive officer Mark Shoen. Based on several of those transactions, appellants filed the underlying shareholder derivative suit in 2002 against AMERCO’s former and current directors, Mark, and the SAC entities, primarily for breach of fiduciary duty and aiding and abetting the breach of that fiduciary duty. However, appellants failed to make a demand for corrective action on the AMERCO board of directors, and subsequently, the district court granted respondents’ motion to dismiss for failure to adequately allege demand futility. Appellants appealed that decision, and this court reversed and remanded for reconsideration, after clarifying the demand futility standards. See Shoen v. SAC Holding Corp.,
In this appeal, we first address whether a claim-release clause contained in the Goldwasser settlement agreement reached by different shareholders several years earlier bars the derivative claims now asserted by appellant shareholders. We conclude that it does not. When a settlement agreement does not contain language exhibiting a clear intent to release future claims, the release clause is limited to the claims that existed at the time the settlement agreement was reached.
Second, we address whether appellant shareholders could bring their derivative claims against the corporation’s alleged coconspir-ators. In doing so, we examine, for the first time, the defense of in pari delicto
Finally, we address various arguments set forth by respondents regarding alternative grounds for affirming the district court’s order of dismissal, including whether the district court properly held that appellants adequately pleaded demand futility, whether appellants sufficiently pleaded their causes of action, and whether appellants’ claims are barred by the statute of limitations. We conclude that appellants adequately pleaded demand futility, but the district court must now conduct a proper evidentiary hearing regarding whether the evidence supports appellants’ allegations; ap
FACTS
To put our discussion in context, we present an overview of the factual and procedural background of this case.
Joe, James, and Mark created SAC Self-Storage Corporation and Two SAC Self-Storage Corporation in 1993 to serve as real estate holding corporations. The common stock issued by the two corporations was split evenly between Joe, James, and Mark. However, in December 1994, a short time before Joe and James filed for personal bankruptcy, they sold their shares to Mark, allegedly for $100. After this transaction, Mark Shoen owned and controlled SAC Self-Storage Corporation and Two SAC Self-Storage Corporation. In 1996, these two entities were merged into a new corporation called Three SAC. Since 1996, many additional SAC corporations or partnerships have been formed under Nevada law (referred to here as the SAC entities), and Mark controls each one.
In 2002 and 2003, Paul and other appellant shareholders Ron Belec, Alan Kahn, and Glenbrook Capital Limited Partnership filed individual derivative suits, which were subsequently consolidated, against Joe, James, and Mark, as well as against current and former AMERCO directors Charles Bayer, William Carty, John Dodds, Richard Herrera, Aubrey Johnson, John Brogan, and James Grogan. Appellants alleged that respondents breached their fiduciary obligations to AMERCO by engaging in improper and unfair transactions with the SAC entities to AMERCO’s detri
District court proceedings on remand
Upon reversing and remanding the matter in Shoen, appellants were permitted to file an amended complaint. Id. at 645,
In their amended complaint, appellants alleged that AMERCO’s transactions with the SAC entities were improper for three reasons. First, appellants contended that AMERCO sold properties to the SAC entities at unfairly low prices and failed to seek approval for the transactions from the AMERCO board of directors. The price for most self-storage properties was generally “calculated at ‘acquisition cost plus capitalized expenses,’ ” which appellants alleged was unfair because, among other things, it failed to account for appreciation in the properties between the time AMERCO acquired them and the time it sold them to the SAC entities.
Second, appellants alleged that AMERCO financed the SAC entities’ purchase of other properties by providing over $600 million in nonrecourse loans. Appellants contended that some of the loans occurred during financial downturns “when AMERCO was in need of capital for its own business.”
Third, appellants alleged that AMERCO entered into management agreements, pursuant to which U-Haul operates self-storage facilities on behalf of the SAC entities. For each property that the
Moreover, appellants alleged that AMERCO’s public filings misled its shareholders regarding the SAC transactions. Appellants alleged that AMERCO’s annual reports, quarterly reports, and proxy statements for fiscal years 1995 through 2002 referred to the SAC entities in a distorted and confusing manner, without any of the context necessary to understand the nature or scope of the relationship between AMERCO and the SAC entities. Additionally, appellants contended that AMERCO never disclosed how much revenue was collected from the SAC entities or discussed the transactions in its public filings.
Regarding demand futility, appellants set forth in the amended complaint several reasons why demand on AMERCO’s board of directors would be futile. First, appellants alleged that “a majority of the board has a material interest in the subject of the demand.” Second, appellants contended that Joe, James, and Mark “dominate and control the AMERCO Board,” and thus the board is not independent оf Joe, James, and Mark.
AMERCO, acting through its board of directors, filed a motion to dismiss appellants’ derivative action for failure to allege demand futility adequately. All other respondents also filed motions to dismiss appellants’ amended complaint, based on the Goldwasser waiver and release in the Goldwasser settlement agreement, the in pari delicto doctrine, failure to state claims upon which relief may be granted, and the statute of limitations. The district court denied AMERCO’s motion to dismiss, finding that appellants “satisfied the heightened pleading requirements of demand futility by showing a majority of the members of the AMERCO Board of Directors were interested parties in the SAC transactions.” The district court also scheduled a hearing for all issues, except demand futility, raised in the other respondents’ motions to dismiss. Before recounting the hearing and the district court’s subsequent ruling on the motions to dismiss, it is necessary to examine briefly the derivative suit that eventually resulted in the Goldwasser settlement.
The events giving rise to the Goldwasser settlement began in 1988 when several shareholders filed suit in Arizona (the Arizona litigation), challenging a stock transaction that gave control of AMERCO to Joe, James, and Mark. The Arizona litigation resulted in a billion-dollar jury verdict in favor of the plaintiffs.
Subsequently, in 1994, AMERCO shareholders from the Arizona litigation, the Goldwasser plaintiffs, filed a shareholder derivative suit on behalf of AMERCO in federal court in Nevada against AMERCO management, including Joe, James, Mark, Bayer, Carty, Dodds, and Herrera. The Goldwasser plaintiffs sought, in part, an injunction to prevent Joe, James, and Mark from causing AMERCO to indemnify them in the judgment from the Arizona litigation. During discussions between the parties’ counsel, the Goldwasser plaintiffs questioned the propriety of the diversion of corporate assets from AMERCO to the two SAC entities then in existence. The parties ultimately reached a settlement agreement in 1995. To assuage the Goldwasser plaintiffs’ concerns regarding the SAC entities, a letter from AMERCO describing the SAC transactions was included in the agreement, and the settlement agreement contained a release clause whereby the Goldwasser plaintiffs agreed to release various claims against the defendants, including those claims related to matters addressed in the letter describing the SAC transactions.
District court hearing on the motions to dismiss
After the hearing on the alternative bases alleged for dismissal, the district court granted respondents’ motions to dismiss on two separate grounds. First, the district court determined that “the Goldwasser settlement released the claims which are the subject of this action.” The court reasoned that because the Goldwasser plaintiffs raised derivative claims on behalf of AMERCO, the released claims, including those related to the letter describing the SAC transactions, “were released on behalf of [AMERCO]” and “therefore, [appellants] cannot relitigate said claims on behalf of [AMERCO].” Second, the district court found that appellants could not derivatively sue the SAC entities. The court reasoned that because AMERCO “participated in the challenged transaсtions,” appellants cannot file a derivative claim on AMERCO’s behalf for those transactions. This appeal followed.
DISCUSSION
Standard of review
A district court order granting a motion to dismiss “is rigorously reviewed.” Shoen,
The Goldwasser settlement did not release appellants ’ claims
The first ground upon which the district court granted respondents’ motions to dismiss was that the claim-release clause in the Goldwasser settlement agreement precludes appellants’ present claims. Appellants argue that the district court erred because the release clause was limited to claims in existence at the time that the parties reached the settlement agreement and did not apply to claims, like those asserted below, arising out of future transactions. We agree.
Because settlement agreements are contracts, they are “governed by principles of contract law.’ ’ Mack v. Estate of Mack,
The Goldwasser settlement agreement’s definition of released claims refers to those “that have been or that could have been asserted in the Litigation or in the securities actions with which the Litigation is consolidated.” (Emphasis added.) The released claims thus include unknown claims, which are “any Released Claims which AMERCO or any Plaintiff does not know or suspect to exist in his, her or its favor, or derivatively in favor of AMERCO, at the time of the release.’ ’ (Emphasis added.) The agreement then states that “AMERCO and the Plaintiffs . . . shall be deemed to have . . . fully, finally and forever settled and released any and all
We conclude that these clear and explicit terms limit the release to claims that were in existence at the time the Goldwasser settlement agreement was reached, including any claims related to the transactions with the two SAC entities that existed at that time, even if the facts giving rise to those claims had not yet been discovered. However, we conclude that claims arising out of any SAC transactions that occurred after the date of the release are not included in the release. Even if, as respondents contend, AMERCO indicated to the Goldwasser plaintiffs that future SAC transactions would occur, we reject the notion that claims arising from those prospective transactions were released. Not only does the agreement lack language that indicates any intent to release such future claims, but the express language refers to claims that existed at the time of the settlement agreement. Accordingly, we conclude that appellants’ derivative claims, which arose out of SAC transactions that occurred post-Goldwasser, were not released in the settlement agreement. Thus, we affirm the district court’s dismissal of appellant’s derivative claims related to AMERCO’s transactions with the two SAC entities, but we reverse that portion of the district court’s order finding that the Goldwasser settlement agreement precludes appellants from pursuing the derivative claims on behalf of AMERCO pertaining to post-Goldwasser SAC transactions.
Appellants’ claims against the SAC entities are not necessarily barred by the in pari delicto doctrine
The district court granted respondents’ motions to dismiss appellants’ claims against the SAC entities on the ground that appellants lacked standing. As a preliminary matter, the district court’s perception of this defense as a standing issue is somewhat flawed. The district court apparеntly imputed respondents’ actions to AMERCO and relied on the in pari delicto doctrine to find that appellants’ derivative claims filed on behalf of AMERCO were precluded because AMERCO “participated in the challenged transactions and, therefore, cannot bring a claim against the SAC entities based on the transactions.”
Although some courts conflate the concepts of standing and in pari delicto, we conclude that they are subject to separate analyses. The Second Circuit Court of Appeals has treated claims against a third party where wrongdoing was imputed to the corporation as an issue of standing, concluding that the corporation cannot bring a claim under those circumstances. Shearson Lehman Hutton, Inc. v.
Although state courts do not have constitutional Article III standing, “Nevada has a long history of requiring an actual justi-ciable controversy as a predicate to judicial relief.” Doe v. Bryan,
The in pari delicto doctrine
We have previously recognized the in pari delicto doctrine as an equitable defense in actions between individuals. Shimrak v. Garcia-Mendoza,
When a party suffers injury from wrongdoing in which he engaged, the doctrine of in pari delicto often prevents him from re
In assessing whether the in pari delicto doctrine applies to a derivative actiоn against a corporation, we must first determine whether acts of a director or officer are imputed to the corporation and then address the elements of the in pari delicto defense. Under basic corporate agency law, the actions of corporate agents are imputed to the corporation. Strohecker v. Mut. B. & L. Assn.,
A corporation can acquire knowledge or receive notice only through its officers and agents, and hence the rule holding a principal, in case of a natural person, bound by notice to his agent is particularly applicable to corporations, the general rule being that the corporation is affected with constructive knowledge, regardless of its actual knowledge, of all the material facts of which its officer or agent receives notice or acquires knowledge while acting in the course of his employment and within the scope of his authority, and the corporation is charged with such knowledge even though the officer or agent does not in fact communicate his knowledge to the corporation.
Id. (internal quotations omitted). The rationale for imputing an agent’s acts to the corporation is to encourage corporate managers to carefully select and monitor those who are acting on the corporation’s behalf. In re American Intern. Group, Inc.,
We now hold that the agent’s actions must be completely and totally adverse to the corporation to invoke the exception. See
We also recognize a limited exception to the adverse interest exception whereby an agent’s аctions are imputed to the corporation even if the agent totally abandons the corporation’s interest. Pursuant to the “sole actor” rule, the adverse interest exception will not preclude imputation if the agent is the sole agent or sole shareholder of a corporation. In re Mediators, Inc.,
In applying the sole-actor rule, other courts have considered the presence of innocent decision-makers. Some have determined that
Application of the in pari delicto doctrine in the instant case
In evaluating the pleadings in this case to determine whether the actions of AMERCO’s officers are imputed to AMERCO, we “recognize all factual allegations in [the] complaint as true and draw all inferences in [the plaintiff’s] favor.” Buzz Stew, LLC v. City of N. Las Vegas,
Having determined that the acts of AMERCO’s agents are imputed to AMERCO does not end our inquiry into the in pari delicto defense. To assess whether the in pari delicto defense precludes a derivative suit here requires application of the factors set
“the courts should not be so enamored with the latin phrase ‘in pari delicto’ that they blindly extend the rule to every case where illegality appears somewhere in the transaction. The fundamental purpose of the rule must always be kept in mind, and the realities of the situation must be considered. Where, by applying the rule, [1] the public cannot be protected because the transaction has been completed, [2] where no serious moral turpitude is involved, [3] where the defendant is the one guilty of the greatest moral fault, and [4] where to apply the rule will bе to permit the defendant to be unjustly enriched at the expense of the plaintiff, the rule should not be applied.’ ’
Shimrak,
Respondents’ arguments regarding alternative grounds for affirmance
Although the district court dismissed appellants’ amended complaint based solely on the Goldwasser settlement and its determination that appellants could not pursue claims against the SAC entities, respondents also argued other grounds for dismissing appellants’ amended complaint, which they now offer on appeal as alternate rationales for affirming the district court’s order. Since these alternate grounds were raised in the district court below, we have elected to address these issues on appeal. See Nevada Power Co. v. Haggerty, 115 Nev 353, 365 n.9,
In 2003, the district court granted respondents’ motion to dismiss on the ground that appellants had not adequately pleaded demand futility pursuant to NRCP 23.1. See Shoen v. SAC Holding Corp.,
Respondents argue that the district court applied the wrong demand futility test and, thus, an alternate ground upon which we should affirm the district court’s subsequent order granting the motions to dismiss is that appellants failed to meet the pleading requirements set forth in Shoen. We disagree.
Persons filing shareholder derivative suits face a heightened pleading requirement pursuant to NRCP 23.1. Shoen,
To determine whether demand upon the board is excused, we apply standards articulated by the Delaware Supreme Court in Aronson v. Lewis,
Under the Rales test, we evaluate whether particularized facts in the shareholder derivative complaint “raise[ ] a reasonable doubt that the current board of directors would be able to exercise its independent and disinterested business judgment in responding to a demand.” Id. at 642,
At the time that appellants filed their shareholder derivative suit, eight persons composed AMERCO’s board of directors: Joe, James, Bayer, Carty, Dodds, Brogan, Grogan, and M. Frank Lyons.
Additional directors are allegedly interested and lack independence
We conclude that appellants adequately alleged that three other directors — Bayer, Carty, and Dodds — lack disinterestedness and
With regard to Carty and Dodds, appellants alleged in their amended complaint that while acting as directors of U-Haul, the two board members authorized millions of dollars in nonrecourse loans to the SAC entities, and, in their roles as directors of AREC, they consented to the sale of hundreds of properties to the SAC entities. Additionally, appellants alleged that, like Bayer, Carty and Dodds signed false annual AMERCO reports.
Appellants further alleged that Carty is not impartial because he is Joe and Mark’s uncle, even becoming like a “father figure” to them. See Harbor Finance Partners v. Huizenga,
Regarding Dodds, appellants further alleged that he has a “close, bias-producing relationship with [Joe Shoen].” According
Further allegations in the amended complaint included that Joe, James, and Mark “dominate and control the AMERCO Board” and that they have “pack[ed] the AMERCO Board with loyal subordinates.” Appellants also alleged that Joe, James, and Mark were in a position to manipulate Bayer, Carty, and Dodds because the former group of men have the power to fire the latter group and discontinue their salaries and pension benefits. Appellants contended that in the past, Joe retaliated against directors that took positions adverse to his.
In accepting appellants’ allegations as true, see Shoen,
Some of appellants’ causes of action were pleaded sufficiently
Respondents contend that an additional alternate ground upon which this court should affirm the district court’s order is that appellants failed to state claims upon which relief can be granted. The claims against all of the respondents are: (1) engaging in
Before addressing each cause of action, we necessarily note that appellants’ claims are subject to different pleading standards. Pursuant to NRS 78.138(7), to show that a director breached his or her fiduciary duty, a shareholder must prove that the director’s “act or failure to act constituted a breach of his or her fiduciary duties” and that the “breach of those duties involved intentional misconduct, fraud or a knowing violation of the law.” NRCP 9(b) provides, in pertinent part, that “[i]n all averments of fraud[,] ... the circumstances constituting fraud . . . shall be stated with particularity.” Because appellants’ claims of breach of the fiduciary duty are, in this instance, allegations of fraud committed by respondent officers and directors, for those causes of action, appellants must satisfy the heightened pleading requirement of NRCP 9(b). For all other causes of action, appellants need only satisfy the more liberal pleading requirements of NRCP 8(a) (“a claim for relief . . . shall contain ... a short and plain statement of the claim showing that the pleader is entitled to relief”).
Breach of fiduciary duty of loyalty/usurpation of corporate opportunities
Appellants’ first and second causes of action in the amended complaint contained allegations that respondents breached the fiduciary duty of loyalty by self-dealing and usurping corporate opportunities, and, with regard to the SAC entities, aiding and abetting a breach of fiduciary duty. “[T]he duty of loyalty requires the board and its directors to maintain, in good faith, the corporation’s and its shareholders’ bеst interests over anyone else’s interests.” Shoen,
Mark Shoen
In the amended complaint, appellants first alleged that Mark, one of AMERCO’s executive officers, was materially self-interested in the transfer of AMERCO assets and opportunities to the SAC entities due to his ownership and control of the SAC entities. Appellants contended that Mark breached his fiduciary duty of loyalty, placing his own interests above those of AMERCO, when he caused AMERCO to sell property to SAC entities at below-market prices and usurped corporate opportunities that he had learned about as an officer of AMERCO, “by causing the SAC [ejntities ... to buy [self-storage] properties” despite his knowledge that AMERCO would have been interested in the properties and without obtaining disinterested director approval. Considering the accusations to be true, we determine that appellants have set forth claims upon which relief can be granted, based on a breach of the fiduciary duty of loyalty by Mark.
Joe and James Shoen
Appellants further alleged in the first cause of action in the amended complaint that Joe and James retained an undisclosed pecuniary interest in the SAC еntities and that their self-interest in the SAC transactions was increased through their familial ties to Mark. However, appellants offered no explanation as to why or how Joe and James personally benefited from the diversion of AMERCO’s assets to a company owned by Mark, other than to suggest that the sale of their SAC-entity shares to Mark was below-market, which infers that they secretly retained an interest in the entities. We conclude that merely alleging that Joe and James benefited because they had an interest in aiding their brother and might have a continued pecuniary interest of some sort fails to meet the heightened pleading standard in NRCP 9(b). Thus, respondents are correct that the claim in the first cause of action in the amended complaint was properly dismissed as to Joe and James, albeit for incorrect reasons. See LVCVA v. Secretary of State,
Bayer, Carty, Dodds, Herrera, Johnson, Brogan, and Grogan
Appellants alleged that Bayer, Carty, Dodds, Herrera, Johnson, Brogan, and Grogan breached their duty of loyalty “by knowingly orchestrating, participating, facilitating and aiding and abetting the self-dealing transactions.” In particular, appellants alleged that these respondents “knowingly signed misleading and incomplete public filings” that failed to include the details of the SAC transactions. Appellants contended that Bayer, Carty, Dodds, Herrera, Johnson, Brogan, and Grogan knew the filings were false because, as members of the boards of various AMERCO subsidiaries, they approved loans to the SAC entities and were aware of the details of the transactions. However, simply alleging that the public filings did not contain enough information about the SAC entities does not demonstrate that respondents engaged in intentional misconduct or fraud. Given the statutory requirements of NRCP 9(b), we determine that appellants’ claim in the first cause of action in the amended complaint of a breach of the fiduciary duty of loyalty by Bayer, Carty, Dodds, Herrera, Johnson, Brogan, and Grogan was not pleaded with sufficient particularity and was correctly dismissed.
The SAC entities
The SAC entities allegedly aided and abetted the other respondents’ breaches of fiduciary duty. Although we have not previously recognized a claim for aiding and abetting the breach of a fiduciary duty, we take this opportunity to do so. We adopt the standard applied by Delaware courts, which requires that four elements be shown: (1) a fiduciary relationship exists, (2) the fiduciary breached the fiduciary relationship, (3) the third party knowingly participated in the breach, and (4) the breach of the fiduciary relationship resulted in damages. Malpiede v. Townson,
The extent of appellants’ allegation was that “[t]he SAC [entities (acting through Defendant [Mark Shoen]) knowingly participated in the breaches of fiduciary duties by facilitating the transfer of AMERCO’s assets at below-market рrices.” However, because Mark owns and controls the SAC entities, we conclude that appellants have sufficiently satisfied the elements enunciated in
Appellants failed to adequately plead a cause of action for ultra vires acts
Appellants’ third cause of action pleaded in their amended complaint was based on respondents engaging in ultra vires acts. We previously stated that “a corporate act is said to be ultra vires when it goes beyond the powers allowed by state law or the [corporation’s] articles of incorporation.” Shoen,
In the amended complaint, appellants alleged that AMERCO acted in violation of its articles of incorporation when it transacted business with the SAC entities without obtaining shareholder approval prior to consummating the transactions. Because AMERCO’s articles of incorporation permit such actions as long as shareholder approval is obtained, such actions were “unauthorized” but not ultra vires. Appellants failed to demonstrate otherwise. Thus, we conclude that appellants’ cause of action for ultra vires acts must be dismissed.
Wrongful interference with prospective economic advantage
Appellants next allege wrongful interference with prospective economic advantage, against all respondents. Interference with prospective economic advantage requires appellants to demonstrate the following five factors:
(1) a prospective contractual relationship between the plaintiff and a third party; (2) knowledge by the defendant of the prospective relationship; (3) intent to harm the plaintiff by preventing the relationship; (4) the absence of privilege or justification by the defendant; and (5) actual harm to the plaintiff as a result of the defendant’s conduct.
Wichinsky v. Mosa,
In their amended complaint, appellants alleged that ‘ ‘AMERCO had prospective economic or contractual relationships with cus
Unlike the claims of breach of fiduciary duty, appellants’ claim for wrongful interference with prospective economic advantage is not based on fraud; thus, it is not subject to the heightened pleading requirement in NRCP 9(b). Accepting as true each of the appellants’ particularized factual allegations and drawing every fair inference in their favor, appellants satisfied the general pleading requirement of NRCP 8(a).
Unjust enrichment
Appellants’ next cause of action is for unjust enrichment against the SAC entities. “Unjust enrichment occurs whenever a person has and retains a benefit which in equity and good conscience belongs to another.” Nevada Industrial Dev. v. Benedetti,
Appellants alleged in the amended complaint that “the SAC [ejntities have received, and they retain, money and property of AMERCO.” The SAC entities allegedly accomplished this through transactions that they entered into with AMERCO. Under the more liberal pleading requirements of NRCP 8(a), we conclude that appellants’ unjust enrichment claim was pleaded sufficiently.
The final ground upon which respondents urge this court to affirm the district court’s order is that the statute of limitations for appellants’ claims has expired. If the allegations contained in the amended complaint demonstrate that the statute of limitations has run, then dismissal upon the pleadings is appropriate. See Shape & Yost, Inc. v. Fallon Nat’l Bank,
Appellants’ initial two causes of action alleged a breach of the fiduciary duty. A breach of fiduciary duty is analogous to fraud, and thus, Nevada applies the three-year statute of limitation set forth in NRS 11.190(3)(d). Nevada State Bank v. Jamison Partnership,
Appellants’ claim for wrongful interference with prospective economic advantage is subject to a four-year statute of limitations. See NRS 11.190(2)(c); Orr v. Bank of America, NT & SA,
A determination of “ ‘[w]hen the plaintiff knew or in the exercise of proper diligence should have known of the facts constituting the elements of his cause of action is a question of fact for the trier of fact.’ ” Nevada State Bank,
CONCLUSION
In conclusion, the Goldwasser settlement did not release claims that arose after the agreement because the claim release clause only released those claims that existed at the time of the settlement. Additionally, while the acts of AMERCO’s agents are imputed to AMERCO, the in pari delicto defense may not preclude appellants from bringing claims against respondents. We remand to the district court to examine the factors in Shimrak and determine whether the in pari delicto defense applies. We also remand to the district court to conduct an evidentiary hearing to determine whether demand was futile.
As to the alternative grounds for affirming the district court, we affirm in part and reverse in part. As to Mark, we conclude that the appellants sufficiently pleaded a breach of the fiduciary duty оf loyalty, usurpation of corporate opportunities, and wrongful interference with prospective economic advantage. Appellants also sufficiently pleaded breach of the fiduciary duty of loyalty for aiding and abetting a breach, wrongful interference with prospective economic advantage, and unjust enrichment against the SAC entities. As to the other respondents, appellants sufficiently pleaded wrongful interference with prospective economic advantage. Therefore, we reverse the district court’s dismissal of these claims. As to all other claims, we conclude that appellants did not sufficiently plead them and the district court correctly dismissed them.
Accordingly, we affirm in part and reverse in part the district court’s order and remand this matter for proceedings consistent with this opinion.
Notes
The lead plaintiffs in the lawsuit that resulted in the 1995 settlement were named Goldwasser, and thus, the parties and the district court refer to it as “the Goldwasser settlement.”
The in pari delicto defense precludes a party who has engaged in wrongdoing from recovering when they are at least partially at fault. Official Committee v. R.F. Lafferty & Co.,
A more detailed account of the factual background can be found in our previous opinion in this matter, Shoen v. SAC Holding Corp.,
Appellants also argue that demand is excused because they alleged ultra vires acts. See Shoen,
At least one court has concluded that the adverse interest exception is either an exception to the general rule of imputation or an exception to the in pari delicto defense because the outcome is the same in either case. American Intern. Group, Consol. Deriv. Lit.,
On appeal, respondents also claim that dismissal is proper because the AMERCO shareholders ratified the SAC transactions. Ratification was the subject of a motion to dismiss in 2007, but the district court denied it because there were genuine issues of material fact regarding the sufficiency of the disclosure regarding those transactions. The district court did not again consider this ratification defense. However, respondents now request that we take judicial notice of public filings filed in 2008, after the district court’s latest dis
Lyons is not a party to this case.
Our dissenting colleague acknowledges that the parties do not address whether demand futility should be assessed based on the composition of the board in place in 2002 when the original complaint was filed, or in 2006 when the amended complaint was filed, citing Braddock v. Zimmerman,
Respondents request this court to take judicial notice of a bankruptcy court’s findings “that ‘the appointment [of AMERCO’s officers and directors] is consistent with the interests of the creditors and the equity security holder[s] and with public policy.’ ” Respondents argue that this finding demonstrates the independence of the AMERCO board of directors. Respondents also contend that the bankruptcy court addressed the fairness of the SAC transactions.
We may take judicial notice of facts that are “[generally known within the territorial jurisdiction of the trial court,” as well as those that are “[c]apable of accurate and ready determination . . . [and] not subject to reasonable dispute.” NRS 47.130(2). Several courts have concluded that “[a] court may take judicial notice of a document filed in another court ‘not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related filings.’ ” Liberty Mut. Ins. Co. v. Rotches Pork Packers, Inc.,
Our dissenting colleague points to the bankruptcy court’s findings in the context of analyzing demand futility. However, the dissent overlooks a provision in the bankruptcy plan that expressly allowed appellants’ derivative claims to proceed after the plan was approved:
Notwithstanding anything in this Plan to the contrary, the Confirmation of this Plan shall not (i) enjoin, impact or affect the prosecution of the Derivative Actions ....
“Derivative Actions,” as defined by the reorganization plan, specifically include the matters that resulted in this appeal. As a consequence, it is clear that the bankruptcy court order provides no basis for resolving whether the directors were interested for purposes of demand futility.
Respondents contend that this court should affirm the district court’s order because appellants have not overcome the presumption that respondents acted in good faith. Pursuant to Nevada’s business judgment rule set forth in NRS 78.138, directors and officers benefit from the “‘presumption that in making a business decision [they] . . . acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.’ ” Shoen,
Nevada does not recognize a cause of action for abuse of control, and in the cases to which appellants cite, claims for abuse of control are essentially claims for breach of the fiduciary duty of loyalty. See Weinberger v. UOP, Inc.,
Our dissenting colleague argues that because we dismissed the breach of fiduciary duty claims against the directors, we must also dismiss the wrongful interference claims. In reaching this conclusion, the dissenting justice contends that a wrongful interference claim fails if the plaintiff does not present sufficient evidence that the director’s actions overcome the business judgment presumption. While we do not dismiss this analysis, the parties did not brief this argument on appeal, and it is thus not properly before this court. See NRAP 28; see also Bongiovi v. Sullivan,
Appellants request that this court reassign the matter to a different judge upon remand, arguing that “Judge Adams’ successive dismissals demonstrate that he has prejudged this case.” However, appellants fail to cite any basis for disqualification under the Nevada Code of Judicial Conduct, and thus, we conclude that reassignment is not warranted.
Concurrence in Part
concurring in part and dissenting in part:
In Shoen v. SAC Holding Corp.,
1. Dismissal of the wrongful interference claims
The majority dismisses under NRCP 9(b) and NRCP 12(b)(5) all of the claims asserted against the individual directors except the wrongful interference with prospective economic advantage claim. I would go further and dismiss the wrongful interference claim as well. “It is hornbook law that the actions complained of in a claim for intentional interference with prospective advantage must be wrongful.” Panter v. Marshall Fields & Co.,
2. Proceedings on remand
I cannot agree with the majority that the amended complaint adequately alleges demand futility and would instead remand with instructions to the district court to conduct the analysis ordered in
“Demand futility analysis is conducted on a claim-by-claim basis.” Beam ex rel. M. Stewart Living v. Stewart,
It appears from the amended complaint that this is a type of double-derivative suit,
Although Shoen I obviously did not address the yet-to-be-filed amended complaint, its suggestion that demand futility be determined under the test articulated in Rales remains appropriate. Shoen I,
The main claims that survive dismissal are those against Mark Shoen and the SAC entities. As to those claims, none of the directors except Joe Shoen and James Shoen appear disqualified by personal interest from fairly judging the suit demand. The issue that I would remand to the district court, therefore, is whether, as to those claims, the amended complaint pleads particularized facts sufficient to overcome the presumption that, in assessing that suit demand, the directors charged with doing so can be faithful to their fiduciary duties to AMERCO. Beam,
The surviving claims in the amended complaint, at their core, challenge the structural relationship between AMERCO, its subsidiaries, and the SAC special purpose entities. This structure and these relationships have been examined repeatedly, first by the United States District Court for the District of Arizona in Gold-wasser, and more recently and much more comprehensively by the United States Bankruptcy Court for the District of Nevada in In re: AMERCO, No. BR-03-52103-GWZ (Bankr. D. Nev. 2004).
Given the unique and incontestable record facts, I would set the pleading bar higher than my colleagues do before subjecting this entity and its shareholders to derivative litigation. I am unconvinced that the conclusory, though prolix, allegations in the
The district court’s determination that being named defendants in this suit makes the directors sufficiently “interested” as to excuse demand is clearly erroneous and contrary to the law of this case. Shoen I,
The amended complaint alleges indirect injury to the parent, AMERCO, in which the plaintiffs have an interest, as a result of alleged direct injuries to its subsidiaries, AREC and U-Haul. Recent Delaware cases, on whose demand futility law we relied in Shoen I, holds that “in a double derivative action involving a wholly owned subsidiary, a stockholder plaintiff only must plead demand futility (or otherwise satisfy Rule 23.1) at the parent level.” Hamilton Partners, L.P. v. England,
After plaintiffs filed the original complaint but before the amended complaint was filed, the United States Bankruptcy Court for the District of Nevada entered its 11 U.S.C. § 1129(a)(5) order in In re AMERCO, No. BR-03-52103-GWZ (Bankr. D. Nev. 2004), approving AMERCO’s plan of reorganization. In this order, the Bankruptcy Court specifically found that the AMERCO board’s composition “is consistent with the interests of creditors and equity security holders and with public policy,” including, presumably, the requirements of applicable state and federal corporate law, to include the independence requirements under the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7213, and the entity’s listing stock exchange rules. Id.
As the majority recognizes, this issue is potentially dispositive in this case but cannot be resolved by this court because it depends on the adequacy of disclosures not included in the record on appeal.