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Lieblein v. Ersek

United States District Court, D. Colorado

September 29, 2017

STANLEY LIEBLEIN, Derivatively on Behalf of The Western Union Company, CITY OF CAMBRIDGE RETIREMENT SYSTEM, and MARTA/ATU LOCAL 732 EMPLOYEES RETIREMENT PLAN, Plaintiffs,
v.
HIKMET ERSEK; SCOTT T. SCHEIRMAN; JACK M. GREENBERG; DINYAR S. DEVITRE; RICHARD A. GOODMAN; BETSY D. HOLDEN; LINDA FAYNE LEVINSON; ROBERTO G. MENDOZA; SOLOMON D. TRUJILLO, and FRANCES M. FRAGOS TOWNSEND Defendants, and THE WESTERN UNION COMPANY, a Delaware corporation, Nominal Defendant

          OPINION AND ORDER GRANTING MOTION TO DISMISS

          MARCIA S. KRIEGER CHIEF UNITED STATES DISTRICT JUDGE

         THIS MATTER comes before the Court pursuant to the Defendants' Motion to Dismiss the Plaintiffs' Verified Second Amended Consolidated Shareholder Derivative Complaint (#137), the Plaintiffs' response (#143), and the Defendants' reply (#146).

         ALLEGED FACTS

         This is a shareholder derivative suit brought by shareholders of Nominal Defendant Western Union Company (“WU”) against certain WU directors and officers. The Verified Second Amended Consolidated Shareholder Derivative Complaint (“Second Amended Complaint”) (#132) is lengthy and complex, so the Court offers only a greatly summarized version of facts here and elaborates in more detail in its analysis as necessary. All allegations are viewed in the light most favorable to the Plaintiffs.

         WU's primary business operations involve facilitating domestic and international money transfers, by which a customer may send money to a recipient nearly anywhere in the world, usually within a matter of minutes. WU provides this service through a broad network of domestic and international “agents, ” individuals and entities that serve as WU's storefronts where customers can send or receive funds.

         WU owns and operates two subsidiary organizations. Western Union Financial Services, Inc. (“WUFSI”) facilitates consumer-to-consumer money transfers, and Western Union Business Solutions (“WUBS”) facilitates business-to-business and business-to-consumer money transfers.

         The money transfer industry is a common means by which persons engaged in serious criminal activity attempt to launder money. As a consequence, the money transfer industry is heavily-regulated, both domestically and internationally. Among other things, transactions above a certain dollar threshold trigger requirements that WU obtain and retain identification information for senders and recipients and require WU to disclose high-value transactions to regulatory authorities. Customers (both licit and illicit) sometimes attempt to avoid triggering these regulatory requirements by “structuring” a large transaction as several smaller transactions, each falling below the necessary dollar threshold.

         WU allegedly has a reputation for lax compliance with these and other anti-money laundering (“AML”) regulations. Customers were aware of this fact, and those seeking to avoid or evade scrutiny of their transfers were more likely to use WU than its competitors. This allowed WU to charge premium rates to such customers. As a result, WU has enjoyed an unusually large profit margin relative to its competitors and its market share.

         After 2002, WU was the subject of frequent investigations and regulatory actions by state and federal authorities who sought to enforce WU's compliance with AML rules and policies. For purposes of this action, the most prominent of the regulatory actions was brought by the State of Arizona in 2005 against WUFSI. The Arizona investigation revealed that WUFSI and its agents were not maintaining proper records and that some of WUFSI's agents in the Southwest border area of the United States - Arizona and the area within 200 miles north and south of the United States/Mexico Border, which accounts for 25% of WU's domestic revenues - knowingly facilitated money laundering of funds paid over to human smugglers. In 2010, WUFSI and Arizona entered into a settlement agreement - the Southwest Border Agreement (“SBA”) - intended to resolve the matter. Among its provisions, the SBA required WUFSI to allow a court-appointed Monitor to evaluate and recommend improvements to the company's AML procedures in the Southwest Border Area. Later, the SBA was expanded to include WUBS.

         The Plaintiffs contend that, notwithstanding the SBA, WU has resisted adoption of the AML policies recommended by the Monitor, has attempted to narrow the scope of the Monitor's authority, and has generally resisted demands that it improve its (and its agents') compliance with regulatory requirements. In 2013, Arizona asserted that WU was in material breach of the SBA in various respects. The parties resolved that dispute by WU's agreement to extend the Monitor's oversight for several more years and to engage in even more aggressive recordkeeping and reporting on transactions over $500 in the Southwest United States. The Plaintiffs contend that the additional expenses and reporting requirements resulting from this controversy could have been avoided if Defendants had ensured good faith compliance with governmental entities dating back as early as 2003.

         Based on these allegations, the Plaintiffs filed a Complaint (#1) and asserted six causes of action. The Defendants moved to dismiss the Complaint (#57, 58), arguing, among other things, that the Plaintiffs had not adequately pled facts showing that making a pre-suit demand on the WU Board of Directors to bring this action would have been futile. The Court granted the motion (#97), but also gave the Plaintiffs leave to amend. The Plaintiffs subsequently filed their Amended Complaint (#98) and, later, a Second Amended Complaint (#132).

         In the Second Amended Complaint, the Plaintiffs allege, generally, that each named director and officer breached his/her fiduciary duties to WU by “consciously disregarding obvious and problematic deficiencies in WU's internal compliance policies and failing to correct such material weaknesses” after “they were each warned specifically and repeatedly, over a number of years, about … willful and widespread legal violations …” The Second Amended Complaint asserts two causes of action: (i) breach of fiduciary duty under an unspecified jurisdiction's common law against the “Individual Defendants”, and (ii) breach of fiduciary duty under an unspecified jurisdiction's common law against Defendant Ersek.

         The Defendants filed a joint Motion to Dismiss (#137), again arguing that the Second Amended Complaint does not allege sufficient facts to warrant excusing the Plaintiffs from having to make a demand on WU's Board with regard to any of their claims.

         ANALYSIS

         A. Standard of review

The Defendants bring their motion to dismiss under Federal Rule of Civil Procedure 23.1. Rule 23.1 requires plaintiffs bringing a derivative action to either make a pre-suit demand on the corporation's board or to plead with specificity why that failure should be excused. In re ZAGG Inc., 826 F.3d 1222, 1227-28 (10th Cir. 2016). If the plaintiffs' pleadings are insufficient, their claims may be dismissed under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. See McCall v. Scott, 239 F.3d 808, 815-16 (6th Cir. 2001).

         In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept all well-pleaded allegations in the Complaint as true and view those allegations in the light most favorable to the nonmoving party. Stidham v. Peace Officer Standards & Training, 265 F.3d 1144, 1149 (10th Cir. 2001) (quoting Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). The Court must limit its consideration to the four corners of the Complaint, any documents attached thereto, and any external documents that are referenced in the Complaint and whose accuracy is not in dispute. Oxendine v. Kaplan, 241 F.3d 1272, 1275 (10th Cir. 2001); Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002); Dean Witter Reynolds, Inc. v. Howsam, 261 F.3d 956, 961 (10th Cir. 2001).

         A claim is subject to dismissal if it fails to state a claim for relief that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To make such an assessment, the Court first discards those averments in the Complaint that are merely legal conclusions or “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Id. at 678-79. The Court takes the remaining, well-pleaded factual contentions, treats them as true, and ascertains whether those facts (coupled, of course, with the law establishing the requisite elements of the claim) support a claim that is “plausible” or whether the claim being asserted is merely “conceivable” or “possible” under the facts alleged. Id. What is required to reach the level of “plausibility” varies from context ...


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