                           NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        MAY 3 2018
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

JUDITH BURBRINK, an individual,                 No.    15-35842

                Plaintiff-Appellant,            D.C. No. 2:15-cv-00377-JCC

 v.
                                                MEMORANDUM*
PHYLLIS J. CAMPBELL; MICHELLE M.
EBANKS; ENRIQUE HERNANDEZ, Jr.;
JEANNE P. JACKSON; ROBERT G.
MILLER; BLAKE W. NORDSTROM;
ERIK B. NORDSTROM; PETER E.
NORDSTROM; PHILIP G. SATRE; BRAD
SMITH; FELECIA D. THORNTON; B.
KEVIN TURNER; ROBERT D. WALTER;
ALISON A. WINTER; HANGAR THREE
LLC; JWB AIRCRAFT LEASING
COMPANY, INC.; JD PLANE, LLC; JW
LTD.; M&B BEAVER LLC; TB PLANE,
LLC; 247N, LLC; SDJ, LLC;
NORDSTROM, INC.,

                Defendants-Appellees.

                   Appeal from the United States District Court
                     for the Western District of Washington
                  John C. Coughenour, District Judge, Presiding

                      Argued and Submitted February 5, 2018
                               Seattle, Washington


      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: M. SMITH and MURGUIA, Circuit Judges, and ROBRENO,** District
Judge.

          Judith Burbrink appeals the district court’s dismissal of her shareholder

derivative lawsuit against Nordstrom, Inc. (“Nordstrom”), and others, for lack of

shareholder derivative standing. Burbrink alleges that the Nordstrom Board of

Director’s (“Board”) Corporate Governance and Nominating Committee

(“Governance Committee”) breached its fiduciary duties by (1) approving

transactions allegedly beneficial to the Nordstrom family and (2) providing

misleading information to investors in Nordstrom’s proxy statements about those

transactions. It is undisputed that Burbrink did not make a demand on the Board

requesting that Nordstrom bring derivative claims in the company’s own name.

However, Burbrink maintains that she was excused from making such a demand

because a majority of the Board members are interested either in the disputed

transactions or are not independent, and therefore any demand would have been

futile.

          The district court granted Nordstrom’s motion to dismiss Burbrink’s lawsuit

pursuant to Federal Rule of Civil Procedure 23.1 because Burbrink failed to

sufficiently plead that demand was excused. We have jurisdiction pursuant to 28




          **
             The Honorable Eduardo C. Robreno, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.

                                             2
U.S.C. § 1291. We review for abuse of discretion the district court’s order

dismissing the shareholder suit for failure to demonstrate demand futility, and we

affirm. See Rosenbloom v. Pyott, 765 F.3d 1137, 1147 (9th Cir. 2014).

      Individual shareholders can sue officers, directors, and third parties to

enforce causes of action belonging to a corporation through a derivative lawsuit.

See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95 (1991); Rales v. Blasband,

634 A.2d 927, 932 (Del. 1993). However, shareholders seeking to file derivative

suits must first demand that a corporation’s board of directors take action or state

with particularity in a complaint why such demand would have been futile. Fed. R.

Civ. P. 23.1; see In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 989–90 (9th

Cir. 1999), superseded by statute on other grounds as recognized in In re Quality

Sys., Inc. Sec. Litig., 865 F.3d 1130, 1146 (9th Cir. 2017). “Although Rule 23.1

supplies the pleading standard for assessing allegations of demand futility, [t]he

substantive law which determines whether demand is, in fact, futile is provided by

the state of incorporation of the entity on whose behalf the plaintiff is seeking

relief.” Rosenbloom, 765 F.3d at 1148 (alteration in original) (quoting Scalisi v.

Fund Asset Mgmt., L.P., 380 F.3d 133, 138 (2d Cir. 2004)). Washington is a

“demand futility” state. In re F5 Networks, Inc., 207 P.3d 433, 438 (Wash. 2009).

This means that Washington courts “look to the complaint to determine ‘whether

or not the particularized factual allegations of a derivative stockholder complaint


                                          3
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.’” Id. at 437 (quoting Rales, 634 A.2d at 934).

Washington courts follow Delaware’s demand futility standard. Id. at 439.

      The district court applied the familiar Aronson test to determine whether

Burbrink was excused from making a demand on Nordstrom’s Board. See Aronson

v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other grounds by Brehm v.

Eisner, 746 A.2d 244, 253–54 (Del. 2000). Under Aronson, a court asks “whether,

under the particularized facts alleged, a reasonable doubt is created that: (1) the

directors are disinterested and independent [or] (2) the challenged transaction was

otherwise the product of a valid exercise of business judgment.” Rales, 634 A.2d at

933(alteration in original) (quoting Aronson, 473 A.2d at 814). If a plaintiff meets

either prong, she is excused from making a demand on the board of directors.

Brehm, 746 A.2d at 256. As relates to the first prong, a “reasonable doubt is akin to

the concept that the stockholder has a ‘reasonable belief’ that the board lacks

independence or that the transaction was not protected by the business judgment

rule.” Grimes v. Donald, 673 A.2d 1207, 1217 n.17 (Del. 1996), overruled on

other grounds by Brehm, 746 A.2d at 253–54. Additionally, where a plaintiff can

demonstrate that a director faces a substantial likelihood of liability, such directors




                                           4
may be deemed interested for demand purposes. See Aronson, 473 A.2d at 815; see

also Rosenbloom, 765 F.3d at 1150.

      Here, to meet Aronson’s first prong, Burbrink must show that at least seven

of Nordstrom’s thirteen directors, a majority, were interested or lacked

independence. See Aronson, 473 A.2d at 812. The parties do not dispute the district

court’s finding that three Board members—Blake, Erik, and Peter Nordstrom—

were interested in the disputed transactions under Aronson. On appeal, Burbrink

argues the district court abused its discretion by finding that the Governance

Committee members were immunized from liability because (1) they justifiably

relied on the ARGUS expert report and (2) the exculpatory provision in

Nordstrom’s corporate charter was not wholly inapplicable to this case because

Burbrink requested both monetary and equitable relief.

      1.     The district court did not abuse its discretion in finding that the

Governance Committee justifiably relied on the ARGUS expert report in making

its decisions about the challenged transactions. ARGUS is an industry leader in

providing specialized aviation services to companies that, among other things,

maintain business aircraft. Nordstrom engaged ARGUS to provide a third-party

analysis of what the Nordstrom Flight Department should charge for the disputed

transactions. Because Burbrink failed to allege particularized facts that the

Governance Committee members faced a substantial likelihood of liability by


                                           5
relying on the ARGUS expert report, the district court did not abuse its discretion

in concluding that the Governance Committee justifiably relied on the ARGUS

expert report. See Aronson, 473 A.2d at 815.

      Further, the district court did not abuse its discretion in concluding that the

Washington Business Corporation Act, Wash. Rev. Code § 23B.08.300(2)(b),

permitted the Governance Committee to rely on the ARGUS expert report to

approve the disputed transactions, because the report constitutes the type of

information upon which boards of directors routinely rely in making decisions. See

RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 855 (Del. 2015) (“Directors

frequently rely on expert opinions concerning the fairness of proposed transactions,

and the Delaware General Corporation Law recognizes that directors may rely

upon such expert opinions.” (citing Citron v. Fairchild Camera & Instrument

Corp., 569 A.2d 53, 66 (Del. 1989))).

      2.     Nordstrom’s corporate charter contains an exculpatory clause, and the

district court considered whether this clause shielded the Governance Committee

defendants from a substantial likelihood of liability for approving the disputed

transactions and approving the inclusion of allegedly misleading information in

Nordstrom’s proxy statements. This means that the district court considered

whether Nordstrom’s charter protects its Board members from facing personal

liability for monetary damages resulting from actions taken in their capacity as


                                          6
Board members.

      The district court did not abuse its discretion by finding that the exculpatory

clause in Nordstrom’s corporate charter made the Governance Committee

members highly unlikely to face a substantial likelihood of liability. Contrary to

Burbrink’s assertions, the district did not find that the exculpatory clause

prohibited Burbrink from seeking equitable relief. Rather, the district court found

that “the Nordstrom Corporate Charter shields directors from liability for money

damages.” Even assuming that the district court improperly found that the

exculpatory provision in Nordstrom’s corporate charter applies to this case, it was

harmless error. The exculpatory clause was but one of the factors—others included

the ARGUS expert report and the business judgment rule—the district court

considered in assessing whether the Governance Committee members faced a

substantial likelihood of liability. Because each factor provides independent

support for the district court’s decision, the district court did not abuse its

discretion when it concluded the Governance Committee members did not face a

substantial likelihood of liability, and any error was harmless. See La. Mun. Police

Emps.’ Ret. Sys. v. Wynn, 829 F.3d 1048, 1063–64 (9th Cir. 2016).

      3.     Finally, we consider the district court’s determination that Burbrink

failed to rebut the presumption that the disputed transactions were exercises of

sound business judgment. The Aronson and Rales tests are used to determine


                                            7
whether a plaintiff meets demand futility under Delaware law. See Teamsters

Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 56–57 (Del. Ch.

2015). Under Rales, Burbrink’s claims must be dismissed “unless, based on the

particularized facts alleged, [Burbrink] creates ‘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.’”

Calma v. Templeton, 114 A.3d 563, 575 (Del. Ch. 2015) (quoting Rales, 634 A.2d

at 934). Rales “applies when a plaintiff does not challenge a decision of the board

in place at the time the complaint is filed.” Baiera, 119 A.3d at 56 (quoting Ryan v.

Gifford, 918 A.2d 341, 352 (Del. Ch. 2007)). This includes “where a derivative

plaintiff challenges a decision approved by a board committee consisting of less

than half of the directors who would have considered a demand, had one been

made.” Id. at 56–57.

      Here, because the Governance Committee that approved the disputed

transactions constituted less than half of Nordstrom’s Board, the Rales test applies.

See Calma, 114 A.3d at 575 (“[B]ecause the decisions to grant the RSU Awards

were made by less than half of the Citrix directors in office when Plaintiff filed the

Complaint, the Rales test applies.”); see also Baiera, 119 A.3d at 56–57. Although

the district court arguably erred in considering whether the disputed transactions

were protected as exercises of sound business judgment by applying the second


                                          8
prong of the Aronson test rather than the Rales test, any error was harmless. See

Wynn, 829 F.3d at 1063. Because Burbrink’s allegations are too general and not

specific as to individual Governance Committee members, under either Aronson’s

second prong or the Rales test, Burbrink has failed to allege particularized facts to

rebut the presumption that the decisions concerning the disputed transactions here

were exercises of independent business judgment. See Baiera, 119 A.3d at 58; see

also Brehm, 746 A.2d at 256. Therefore, Burbrink has not rebutted the

presumption that the business judgment rule applies and the district court’s grant of

Nordstrom’s Rule 23.1 motion was not an abuse of discretion. See Rosenbloom,

765 F.3d at 1147; Rales, 634 A.2d at 933; Aronson, 473 A.2d at 815.

      AFFIRMED.




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