     11-1589; 11-1285
     Sollins; Lambrechet v. O’Neal

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
     ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
     DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
     ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
     SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1            At a stated term of the United States Court of Appeals
 2       for the Second Circuit, held at New York Law School, 185
 3       West Broadway, in the City of New York, on the 4th day of
 4       December, two thousand twelve.
 5
 6       PRESENT: DENNIS JACOBS,
 7                              Chief Judge,
 8                ROBERT A. KATZMANN,
 9                DEBRA A. LIVINGSTON,
10                              Circuit Judges.
11
12       - - - - - - - - - - - - - - - - - - - -X
13       N.A. LAMBRECHT, Derivatively on
14       Behalf of Nominal Defendant BANK OF
15       AMERICA CORPORATION and Double
16       Derivatively on Behalf of Nominal
17       Defendant MERRILL LYNCH & CO., INC.,
18
19                    Plaintiff-Appellant,
20
21                    -v.-                                               11-1285
22
23       E. STANLEY O’NEAL, AHMASS L.
24       FAKAHANY, GREGORY J. FLEMING, DO WOO
25       “DOW” KIM, OSMAN SEMERCI, DOUGLAS J.
26       MALLACH, JOHN A. THAIN, KENNETH D.
27       LEWIS, BRIAN T. MOYNIHAN, JOSEPH L.


                                                  1
 1   PRICE, GREGORY L. CURL, and JEFFREY
 2   N. EDWARDS,
 3
 4            Defendants-Appellees
 5
 6            -and-
 7
 8   MERRILL LYNCH & CO., INC., and BANK
 9   OF AMERICA CORPORATION,
10
11            Nominal Defendants-
12       Appellees.
13
14   - - - - - - - - - - - - - - - - - - - -X
15   S. LEONARD SOLLINS, as representative
16   for the estate of MIRIAM LOVEMAN,
17   Derivatively on Behalf of Nominal
18   Defendant BANK OF AMERICA CORPORATION
19   and Double Derivatively on Behalf of
20   Nominal Defendant MERRILL LYNCH &
21   CO., INC.,
22
23            Plaintiff-Appellant,
24
25            -v.-                              11-1589
26
27   E. STANLEY O’NEAL, JOHN A. THAIN,
28   AHMASS L. FAKAHANY, GREGORY J.
29   FLEMING, JEFFREY N. EDWARDS, CAROL T.
30   CHRIST, ARMANDO M. CODINA, VIRGIS W.
31   COLBERT, ALBERTO CRIBIORE, JOHN D.
32   FINNEGAN, JUDITH MAYHEW JONAS, JOSEPH
33   W. PRUEHER, ANN N. REESE, CHARLES O.
34   ROSSOTTI, and AULANA L. PETERS,
35
36            Defendants-Appellees
37
38            -and-
39
40   BANK OF AMERICA CORPORATION and
41   MERRILL LYNCH & CO., INC.,
42
43            Nominal Defendants-
44            Appellees.
45
46   - - - - - - - - - - - - - - - - - - - -X

                                     2
 1   FOR APPELLANT LAMBRECHT:   Jonathan W. Cuneo, Cuneo Gilbert
 2                              & Laduca, LLP, Washington D.C.
 3                              (Matthew E. Miller, Cuneo
 4                              Gilbert & Laduca, LLP,
 5                              Washington D.C.; Richard D.
 6                              Greenfield, Greenfield & Goodman
 7                              LLC, New York, NY; Adam Balick,
 8                              Balick & Balick, LLC,
 9                              Wilmington, DE; Bartholemew J.
10                              Dalton, Dalton & Associates,
11                              Wilmington, DE, on the brief).
12
13   FOR APPELLANT SOLLINS:     David A.P. Brower, Brower Piven,
14                              P.C., New York, NY.
15
16   FOR APPELLEES:             Jay B. Kasner, Skadden, Arps,
17                              Slate, Meagher & Flom LLP, New
18                              York, NY (Paul J. Lockwood,
19                              Scott D. Musoff, Skadden, Arps,
20                              Slate, Meagher & Flom LLP, New
21                              York, NY; Gregory A. Markel,
22                              Cadwalader, Wickersham & Taft
23                              LLP, New York, NY; Michael J.
24                              Chepiga and Sarah L. Dunn,
25                              Simpson Thacher & Bartlett LLP,
26                              New York, NY; Jonathan D. Polkes
27                              and Stephen A. Radin, Weil
28                              Gotshal & Manges LLP, New York,
29                              NY; Richard D. Bernstein,
30                              Willkie Farr & Gallagher LLP,
31                              Washington D.C.; James C. Dugan,
32                              Willkie Farr & Gallagher LLP,
33                              New York, NY; Andrew J. Levander
34                              and David S. Hoffner, Dechert
35                              LLP, New York, NY; James N.
36                              Benedict, Milbank, Tweed, Hadley
37                              & McCloy LLP, New York, NY;
38                              William Michael Moran, McCarter
39                              & English, LLP, New York, NY;
40                              Andrew J. Ceresney and Colby A.
41                              Smith, Debevoise & Plimpton LLP,
42                              Washington, DC; Lucia Chapman,
43                              Law Office of Henry Putzel, III,
44                              New York, NY; Richard D. Winberg

                                 3
 1                              and Eli J. Mark, Morvillo,
 2                              Abramowitz, Grand, Iason, Anello
 3                              & Bohrer, P.C., New York, NY;
 4                              Hollis Gonerka Bart, Brian
 5                              Dunefsky, and Chaya Weinberg-
 6                              Brodt, Withers Bergman LLP, New
 7                              York, NY; William H. Jeffress,
 8                              Julia Evans Guttman, and Maureen
 9                              P. Reid, Baker Botts LLP, New
10                              York, NY; Richard M. Strassberg
11                              and Mary K. Dulka, Goodwin
12                              Procter LLP, New York, NY, on
13                              the brief)
14
15        Appeal from a judgment of the United States District
16   Court for the Southern District of New York (Rakoff, J.).
17
18        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
19   AND DECREED that the judgment of the district court be
20   AFFIRMED.
21
22        N.A. Lambrecht and S. Leonard Sollins appeal an order
23   of the district court dismissing two double derivative
24   actions brought on behalf of Bank of America Corporation
25   (“BofA”) and its wholly owned subsidiary Merrill Lynch & Co.
26   (“Merrill”) following a merger of the two companies on
27   January 1, 2009 (“the Merger”). We assume the parties’
28   familiarity with the underlying facts, the procedural
29   history, and the issues presented for review.
30
31        We review dismissals pursuant to Rule 12(b)(6) of the
32   Federal Rules of Civil Procedure de novo. See Velez v.
33   Levy, 401 F.3d 75, 84 (2d Cir. 2005). Where “determination
34   of the sufficiency of allegations of futility depends on the
35   circumstances of the individual case, the standard of review
36   for dismissals based on Fed. R. Civ. P. 23.1 is abuse of
37   discretion.”1 Halebian v. Berv, 590 F.3d 195, 203 (2d Cir.


         1
           Lambrecht and Sollins challenge our use of an abuse
     of discretion standard for assessing the sufficiency of
     allegations under Rule 23.1 and instead urge that de novo
     review is more appropriate here. We decline to decide the
     issue, as the appellants’ claims would fail under either
     standard.
                                  4
 1   2009) (citation omitted). Under Rule 23.1, a plaintiff must
 2   “state with particularity . . . any effort by the plaintiff
 3   to obtain the desired action from the directors or
 4   comparable authority . . . and . . . the reasons for not
 5   obtaining the action or not making the effort.” Fed. R.
 6   Civ. P. 23.1(b)(3).
 7
 8        On March 28, 2011, the United States District Court for
 9   the Southern District of New York (Rakoff, J.) dismissed
10   Sollins’ and Lambrecht’s complaints for different, but
11   related, reasons. The court determined, first, that
12   Sollins–-whose predecessor-in-interest filed the action
13   without making pre-suit demand upon the Board--had failed to
14   establish demand futility. The court also held that
15   Lambrecht, who made three demands upon the BofA Board, was
16   unable to show that the Board had wrongfully refused her
17   request to pursue claims against Merrill’s former officers
18   and directors. We see no error in those rulings.
19
20        In a post-merger double derivative action, “the claim
21   is now (post merger) the property of the acquiring
22   corporation, [and] that corporation is now the only party
23   with standing to enforce the claim.” Lambrecht v. O’Neal, 3
24   A.3d 277, 284 (Del. 2010).2 Accordingly, a “double
25   derivative suit cannot go forward except in the unusual case
26   where the parent company board is shown to be incapable of
27   deciding impartially whether or not to enforce the claim
28   that the parent company now (indirectly) owns.” Id. at 290.
29   To satisfy this standard, a plaintiff must put forth
30   particularized allegations that “create a reasonable doubt
31   that, as of the time the complaint is filed, the board of
32   directors could have properly exercised its independent and
33   disinterested business judgment in responding to a demand.”
34   Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).
35
36        Notwithstanding Sollins’ arguments to the contrary,
37   “[d]emand futility analysis is conducted on a claim-by-claim
38   basis.” Beam v. Stewart, 833 A.2d 961, 977 n.48 (Del. Ch.
39   2003), aff’d, 845 A.2d 1040 (Del. 2003). Thus, “[e]ach
40   derivative claim for which no demand was made on the board
41   must be evaluated independently to determine whether demand


         2
           The parties agree that Delaware law governs our
     substantive legal analysis.
                                  5
 1   was futile as to that claim.” MCG Capital Corp. v. Maginn,
 2   No. 4521-CC, 2010 WL 1782271, at *7 (Del. Ch. May 5, 2010).
 3   Sollins brought five claims relating to BofA’s activities in
 4   connection with the Merger, but these claims were dismissed
 5   as part of a settlement. The majority of the remaining
 6   claims (Counts I - XI) relate to Merrill’s pre-Merger
 7   investment activities, while one claim (Count XII) relates
 8   to Merrill’s distribution of approximately $3.4 billion in
 9   employee bonuses in 2008.
10
11        Sollins suggests that BofA became “complicit” in the
12   wrongdoing relating to Merrill’s pre-Merger forays into the
13   subprime market by agreeing to allow Merrill to pay bonuses
14   at 2007 levels; agreeing to indemnify each present and
15   former director of Merrill for pre-Merger misconduct;
16   approving the Merger without determining the amount of
17   Merrill’s growing losses; failing to fully inform investors
18   of these losses; and consummating the Merger despite grave
19   reservations about Merrill’s financial position. But
20   Sollins’ arguments are misplaced. Sollins could have, and
21   did, assert claims based on the above-described actions that
22   the BofA Board took when entering into the Merger with
23   Merrill. Those claims settled. As the district court
24   correctly stated, Sollins cannot simply bootstrap his
25   subprime claims against Merrill onto these Merger-related
26   allegations against BofA in an attempt to circumvent the
27   demand requirement. See In re Bear Stearns Cos., Inc. Sec.,
28   Derivative, and ERISA Litig., No. 08-MDL-1963, 2011 WL
29   4063685, at *5 (S.D.N.Y. Sept. 13, 2011) (rejecting
30   plaintiff’s argument that “the JPMorgan Board was complicit
31   in and ratified the wrongdoing at Bear Stearns” in
32   attempting to justify its failure to make demand on the
33   JPMorgan Board).
34
35        In any event, because BofA’s directors are protected by
36   an exculpatory provision in the company’s articles of
37   incorporation, Sollins cannot demonstrate even a “mere
38   threat of personal liability” facing the BofA Board for
39   Merrill’s alleged pre-Merger misconduct, let alone a
40   “substantial likelihood.” Rales, 634 A.2d at 936.
41
42        Sollins’ demand futility argument with respect to Count
43   XII is a bit more troublesome. Unlike the wrongful acts
44   alleged in Counts I through XI, in which the BofA Board
45   clearly had no involvement, Count XII asserts a claim for

                                  6
 1   corporate waste in connection with the 2008 bonuses, which
 2   were a subject of pre-Merger negotiations between the
 3   Merrill and BofA Boards. In addition, a district court in
 4   this circuit has concluded that the BofA Board faced a
 5   substantial likelihood of liability under Section 14(a) and
 6   Rule 14a-9 of the Exchange Act for its alleged failure to
 7   adequately disclose these bonuses to shareholders in an
 8   October 31, 2008 joint proxy statement. See In re Bank of
 9   Am. Corp. Sec., Derivative, & ERISA Litig., 757 F. Supp. 2d
10   260, 329-31 (S.D.N.Y. 2010) (Castel, J.).
11
12        But the case before Judge Castel arose in a different
13   context. There, BofA shareholders filed direct and
14   derivative claims against the BofA Board for, inter alia,
15   alleged misstatements and omissions in the 2008 joint proxy,
16   whereas here Merrill shareholders seek to assert claims
17   against the Merrill Board for corporate waste. Even
18   assuming that the BofA Board would be unable to impartially
19   assess certain disclosure allegations being brought against
20   BofA’s officers and directors, that assumption is
21   insufficient here to demonstrate the BofA Board’s inability
22   to consider claims against the Merrill Board for its pre-
23   Merger bonus distribution scheme. Due to the strong
24   possibility that the BofA Board could pursue a claim against
25   the Merrill Board for corporate waste without substantially
26   undermining its ability to defend against disclosure
27   allegations under Section 14(a), Sollins has not shown a
28   “substantial likelihood of director liability.” Aronson v.
29   Lewis, 473 A.2d 805, 815 (Del. 1984). Accordingly, the
30   connection between Count XII and any disclosure-related
31   liability facing the BofA Board is too attenuated to excuse
32   demand under these circumstances.
33
34        As to Lambrecht’s arguments, a board’s refusal to act
35   on a shareholder’s demands is analyzed under the business
36   judgment rule. Levine v. Smith, 591 A.2d 194, 200 (Del.
37   1991), overruled on other grounds, Brehm v. Eisner, 746 A.2d
38   244 (Del. 2000). That rule establishes “a presumption that
39   in making a business decision the directors of a corporation
40   acted on an informed basis, in good faith and in the honest
41   belief that the action taken was in the best interests of
42   the company.” Aronson, 473 A.2d at 812 (citing Kaplan v.
43   Centex Corp., 284 A.2d 119, 124 (Del. Ch. 1971)). To
44   overcome this presumption, a plaintiff must “carry the
45   considerable burden of showing that the decision not to

                                  7
 1   bring the lawsuit was made in bad faith or was based on an
 2   unreasonable investigation.” RCM Sec. Fund, Inc. v.
 3   Stanton, 928 F.2d 1318, 1328 (2d Cir. 1991).
 4
 5        Lambrecht’s claims do not surmount this high bar. By
 6   making a demand upon the Board, she has conceded the Board’s
 7   independence. See Rales v. Blasband, 634 A.2d 927, 935 n.12
 8   (Del. 1993). This independent Board delegated the task of
 9   investigating Lambrecht’s claims to an audit committee,
10   which ultimately concluded that it was not in the company’s
11   best interests to pursue Lambrecht’s claims. In particular,
12   the committee cited [i] the possible compromise of pending
13   litigation and ongoing government inquiries involving BofA;
14   and [ii] the low probability of recovery against Merrill’s
15   former directors and officers in light of an exculpatory
16   clause in Merrill’s certificate of incorporation and the
17   difficulty of prevailing on a Caremark claim under Delaware
18   law. Given the foregoing, the district court was well
19   within its discretion in concluding that Lambrecht failed to
20   demonstrate that the Board either acted in bad faith or
21   conducted an unreasonable investigation.
22
23        Finding no merit in either Lambrecht’s or Sollins’
24   remaining arguments, we hereby AFFIRM the judgment of the
25   district court.
26
27
28                              FOR THE COURT:
29                              CATHERINE O’HAGAN WOLFE, CLERK
30




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