Brautigam v. Dahlback

SUMMARY ORDER Plaintiff-Appellant Michael G. Brauti-gam appeals from the district court’s Opinion & Order, dated March 26, 2014, granting Defendants-Appellees’ motion to dismiss. We assume the parties’ familiarity with the underlying facts, procedural history, and issues for review.1 Appellant argues that the district court erred by evaluating his demand futility argument under Rales v. Blasband, 634 A.2d 927 (Del.1993), which, in derivative cases that do not involve a challenge to an action by the company’s board of directors, requires courts to determine whether there is a “reasonable doubt that ... the board of directors could have [54] properly exercised its independent and disinterested business judgment in responding to a demand.” Id. at 933-34.2 Appellant contends that the rule set forth in Aronson v. Lewis, 473 A.2d 805 (Del.1984), which generally applies to allegations of affirmative Board action, is more appropriate. On a de novo review, we agree with the well-reasoned opinion of the district court that the Rales standard is applicable here. The Complaint did not aver with particularity that Appellees had any role in formulating the alleged statements or otherwise made any decisions about what information to include or exclude from its disclosures. See Rales, 634 A.2d at 933 (“The absence of board action, therefore, makes it impossible to perform the essential inquiry contemplated by Ar-onson — whether the directors have acted in conformity with the business judgment rule in approving the challenged transaction.”). Appellant contends that the district court erred in failing to infer from the pleadings that Appellees Dahlback, Friedman, Johnson, and George could not exercise disinterested business judgment in responding to his demand because, if the derivative claim proceeded, they would face a “substantial likelihood” of personal liability for breaching their duties of loyalty. Rales, 634 A.2d at 936. Again we agree with the well-reasoned views of the district court. The district court clearly did not abuse its discretion when it found that the Complaint failed to make particularized pleadings that Appellees Dahlback, Friedman, Johnson, or George made decisions regarding collateralized debt obligations (“CDOs”), “knew what disclosures were and were not made to prospective CDO investors, or had knowledge of any details of Goldman’s transactions regarding the short and long positions it took in the CDOs.” Brautigam v. Blankfein, 8 F.Supp.3d 395, 405 (S.D.N.Y.2014); see In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 968-71 (Del.Ch.1996). We have considered Appellant’s remaining arguments and find them to be without merit. For the reasons stated above, the judgment of the district court is AFFIRMED. Footnotes [1] Where "determination of the sufficiency of allegations of futility depends on the circumstances of the individual case,” the standard of review for dismissals based on Federal Rule of Civil Procedure 23.1 is abuse of discretion. Kaster v. Modification Sys., Inc., 731 F.2d 1014, 1018 (2d Cir.1984). "However, where a challenge is made to the legal precepts applied by the district court in making a discretionary determination, plenary review of the district court's choice and interpretation of those legal precepts is appropriate.” Scalisi v. Fund Asset Mgmt., L.P., 380 F.3d 133, 137 (2d Cir.2004). We need not, and do not, address whether an abuse of discretion standard is appropriate for dismissals based on the sufficiency of the allegation of futility because our decision would be the same under de novo review. See id. at 137 n. 6. [2] In determining whether demand is excused, we apply the substantive law of Delaware. See MBIA Inc. v. Federal Ins. Co., 652 F.3d 152, 163 (2d Cir.2011).