United States District Court, District of Colorado
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
CRAIG B. SHAFFER UNITED STATES MAGISTRATE JUDGE
This civil action comes before the court on Defendants’ Motion to Dismiss the Second Amended Complaint. The court has reviewed the Motion, Plaintiff’s Opposition (filed April 22, 2014) (Doc. # 133), Defendants’ Reply (filed May 7, 2014) (Doc. # 134), the pleadings, the entire case file, and the applicable law and is sufficiently advised in the premises.
I. Statement of the Case
This is a shareholder derivative action brought against certain current and former officers and directors of CIBER, Inc. (See Second Amended Verified Complaint (“SAC”) (Doc. # 119) at 2 of 69, ¶ 121). Mr. Seni, a resident of Illinois, holds CIBER common stock that he purchased on January 6, 2011. (See Id . at ¶ 15). CIBER is a Delaware corporation with principal executive offices located in Greenwood Village, Colorado. (See Doc. # 119 at ¶ 16). CIBER is a global information technology consulting, services, and outsourcing company for both commercial and government clients. (See id.). The services offered by CIBER include application development and management, enterprise resource planning implementation, change management, project management, systems integration, infrastructure management and end-user computing, and strategic business and technology consulting. (See Id . at ¶¶ 16, 26). Defendant Peterschmidt is a resident of Colorado and is CIBER's President, CEO, and a director since July 2010. (See Doc. # 119 at 17). Defendant Pumilia, a Colorado resident, is CIBER's Executive Vice President, Chief Financial Officer ("CFO"), and Treasurer since April 2011. (See Id . at ¶ 18). Defendant Cheesbrough, a resident of Colorado, was CIBER's Executive Vice President and CFO from October 2007 to April 2011, Treasurer from February 2008 to April 2011, a director from November 2002 to April 2011, and Interim CEO and President from April 2010 to July 2010. (See Id . at ¶ 19). Defendant Jacobs is a resident of Colorado, began serving on the Board in 2005, became Chairman on April 11, 2010, and is a member of the Audit Committee and the Chair of the Nominating/Governance Committee. (See Id . at ¶ 20). Defendant McGill, a resident of Arizona, has served as a director of CIBER since 1998 and is a member of the Audit and Compensation Committees. (See Id . at ¶ 21). Defendant Kurtz, a Colorado resident, has served as a director of CIBER since December 2007 and is the Chairman of the Audit and Compensation Committees. (See Id . at ¶ 22). Defendant Spira is an Ohio resident, served as a director from 1994 to 1998 and again from 2002 to the present, and is a member of the Compensation and Nominating/ Governance Committees. (See Id . at ¶ 23). Defendant Lauk is a resident of California, a director of CIBER, and a member of the Audit Committee. (See Id . at ¶ 24). The court has jurisdiction over this case based on diversity of citizenship under Title 28 U.S.C. § 1332.
On March 22, 2013, District Judge Blackburn granted Defendants’ initial Motion to Dismiss, finding that Mr. Seni failed “to make sufficiently specific allegations addressing each defendant individually” and that his “group pleading” did “not provide the specificity required” by Rules 12 and 8, as interpreted in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). (See Order Granting Motion to Dismiss (Doc. # 64) at 5 of 10). With Judge Blackburn’s permission, Mr. Seni filed his Amended Complaint on April 26, 2013. (See Id . at 9 of 10; Doc. # 65). On May 20, 2013, Defendants and Nominal Defendant moved to dismiss the Amended Complaint. (See Doc. # 72). Judge Blackburn referred the Motion to Dismiss to the Magistrate Judge on July 10, 2013. (See Doc. # 90). On December 17, 2013, the Magistrate Judge recommended that the Amended Complaint be dismissed pursuant to Fed.R.Civ.P. 23.1 and 12(b)(6). (See Doc. # 113). In the absence of any objection by any party, Judge Blackburn approved and adopted the Recommendation and sua sponte permitted Mr. Seni to file a motion to amend his complaint. (See Doc. # 115). The SAC was accepted by the court and filed on February 27, 2014. (See Doc. # 119). On March 24, 2014, Defendants filed the instant Motion to Dismiss the SAC. (See Doc. # 125). Pursuant to the Order Referring Motions dated March 24, 2014 (Doc. # 127), the Motion was referred to the Magistrate Judge.
This civil action arises “out of the Individual Defendants’ decision to issue materially false and misleading statements concerning CIBER’s financial results and business prospects in connection with a Company-wide transformation and leadership transition in 2010 and 2011.” (See Doc. # 119 at ¶ 1). In November 2010, CIBER identified problems with its operational organization and announced “plans for a major restructuring of the Company’s operations, ” to begin in fiscal year 2011. (See Id . at ¶¶ 29-31, 33). CIBER also announced its long-term business outlook and financial guidance for fiscal year 2011. (See Id . at ¶ 42). On August 3, 2011, CIBER reported its results for the second quarter of 2011, and suspended guidance for 2011. (See Id . at ¶¶ 97-98). CIBER announced that its overall performance for 2011 had been “adversely affected by issues in our North American business and on the balance sheet” and stated: “[s]pecifically, as a result of a more disciplined approach to managing CIBER, we identified five fixed-price contracts signed in 2009 or earlier in the United States that no longer carry the same level of profitability and thus diminished earnings in the quarter.” (See Doc. # 119 at ¶ 98).
Mr. Seni alleges that in 2010 and 2011, Defendants “made (or caused CIBER to make) numerous false or misleading statements about the progress of the transformation and its impact on the Company’s financial health and internal controls, ” and regarding the long term business outlook and financial guidance for fiscal year 2011. (See Doc. # 119 at ¶¶ 38, 41, 45, 46, 49, 52, 56, 58). He alleges that “Defendants Peterschmidt, Cheesbrough, and Pumilia, individually and on behalf of the Company, made false and misleading statements in public filings, press releases, and conference calls that touted the Company's positive financial results, significant growth, and presented aggressive forward guidance” and that Defendants, Jacobs, Kurtz, Lauk, McGill, and Spira, “each gained contemporaneous, direct access to non-public facts demonstrating that these public statements were materially false and misleading.” (See Doc. # 119 at ¶ 2). Mr. Seni asserts three claims against the Individual Defendants for: (1) breach of fiduciary, (2) unjust enrichment, and (3) corporate waste. (See Doc. # 119 at ¶¶ 143-58).
II. Standard of Review
Defendants move to dismiss the SAC pursuant to Federal Rules of Civil Procedure 23.1 for failure to plead demand futility and 12(b)(6) for failure to state a claim to which relief can be granted. Rule 23.1 “establishes the procedural requirements for bringing a shareholder derivative suit in federal court.” Kenney v. Koenig, 426 F.Supp.2d 1175, 1180 (D. Colo. 2006). “[T]he management of corporations is entrusted to their boards of directors, ” and “shareholders typically are foreclosed from suing on behalf of a corporation on a claim that the corporation itself has not brought.” Loveman v. Lauder, 484 F.Supp.2d 259, 264 (S.D.N.Y. 2007). An exception is that a shareholder may sue derivatively on behalf of a company. “The derivative form of action permits an individual shareholder to bring suit to enforce a corporate cause of action against officers, directors, and third parties.” Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 96 (1991) (internal quotation marks and citation omitted). “Devised as a suit in equity, the purpose of the derivative action was to place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of ‘faithless directors and managers.’” Id. (internal quotation marks and citation omitted).
“To prevent abuse of this remedy, however, equity courts established as a precondition for the suit that the shareholder demonstrate that the corporation itself had refused to proceed after suitable demand, unless excused by extraordinary conditions.” Kamen, 500 U.S. at 96 (internal quotation marks and citation omitted). “The purpose of the demand requirement is to affor[d] the directors an opportunity to exercise their reasonable business judgment and waive a legal right vested in the corporation in the belief that its best interests will be promoted by not insisting on such right.” Id. (internal quotation marks and citation omitted). A shareholder may sue derivatively on behalf of a company if the shareholder sufficiently alleges that a demand would be a futile gesture and is therefore excused. Loveman, 484 F.Supp.2d at 265 (citation omitted). “Ordinarily, it is only when demand is excused that the shareholder enjoys the right to initiate suit on behalf of his corporation in disregard of the directors’ wishes.” Kamen, 500 U.S. at 96 (internal quotation marks and citation omitted). A complaint must “allege with particularity any effort by the plaintiff to obtain the desired action from the directors” and “the reasons for not obtaining the action or not making the effort.” Fed.R.Civ.P. 23.1(b)(3).
Rule 12(b)(6) permits dismissal of a complaint for “failure to state a claim upon which relief can be granted.” “Motions to dismiss for failure to allege demand futility are considered under Fed.R.Civ.P. 12(b)(6).” In re Keithley Instruments, Inc. Derivative Litigation, 599 F.Supp.2d 875, 888 (N.D. Ohio 2008) (citation omitted). “The difference between the 12(b)(6) and 23.1 standards is in the level of detail demanded of the plaintiff’s allegations.” Desimone v. Barrows, 924 A.2d 908, 928 (Del. Ch. 2007). “Because the standard under Rule 12(b)(6) is less stringent than that for pleading factual particularity under Rule 23.1, where [a] plaintiff alleges particularized facts sufficient to prove demand futility under the second prong of Aronson, that plaintiff a fortiori rebuts the business judgment rule for the purpose of surviving a motion to dismiss pursuant to Rule 12(b)(6).” Ausikaitis on behalf of Masimo Corporation v. Kiani, 962 F.Supp.2d 661, 679 (D. Del. 2013) (internal quotation marks and citations omitted).
The parties agree that the demand requirements for this derivative suit are determined by Delaware law. (See “Order Granting Motion to Dismiss” (Doc. # 64) (internal quotation marks, citations, and footnotes omitted)). “Under Delaware law, the right of a stockholder to prosecute a derivative action is limited to situations where the stockholder has demanded that the directors pursue the corporate claim and they have wrongfully refused to do so or where demand is excused because the directors are incapable of making an impartial decision regarding such litigation.” (See Doc. # 64) (citing Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993)) (internal quotation marks and footnotes omitted). Mr. Seni alleges that he “did not make a pre-suit demand on the Board to pursue this action, because such a demand would have been a futile and wasteful act.” (See Doc. # 119 at ¶ 124). “The demand requirement can be excused if the plaintiff pleads particular facts creating a reasonable doubt that the majority of the board would be disinterested or independent in making a decision on a demand.” (See Doc. # 64 at 8 of 10). See Rales, 634 A.2d at 935 (“[T]he board must be able to act free of personal financial interest and improper extraneous influences.”).
“Rule 23.1 speaks only to the adequacy of the shareholder representative’s pleadings, ” Kamen, 500 U.S. at 96, and “demand[s] atypically rigorous pleading by plaintiffs.” In re SAIC Inc. Derivative Litigation, No. 12 Civ. 2437(JPO), 2013 WL 2466796, at * 15 (S.D.N.Y. June 10, 2013). “To establish that demand is excused under Rule 23.1, the pleadings must comply with stringent requirements of factual particularity and set forth particularized factual statements that are essential to the claim.” In re Citigroup Inc. Shareholder Derivative Litigation, 964 A.2d 106, 120 (Del. Ch. 2009) (internal quotation marks and citation omitted). Demand is excused if “under the particularized facts alleged, a reasonable doubt is created that: (1) the directors are disinterested and independent and (2) the challenged transaction was otherwise the product of a valid exercise of business judgment.” Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000). A director is considered to be interested if he will be “materially affected, either to his benefit or detriment, by a decision of the board, in a manner not shared by the corporation and the stockholders.” Seminaris v. Landa, 662 A.2d 1350, 1354 (Del. Ch. 1995). See also Aronson, 473 A.2d at 814 (“directorial interest also exists where a corporate decision will have a materially detrimental impact on a director, but not on the ...