KBC Asset Management N.V. v. Mcnamara et al

Filing 53

MEMORANDUM ORDER re 12 MOTION to Dismiss is GRANTED; 46 REPORT AND RECOMMENDATION is ADOPTED. Signed by Judge Leonard P. Stark on 5/12/16. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
KBC ASSET MANAGEMENT NV, derivatively
on behalf of CHEMED CORPORATION,
Plaintiff,
v.

Civil Action No. 13-1854-LPS-CJB

KEVIN J. MCNAMARA, et. al.,
Defendants
and
CHEMED CORPORATION, a Delaware
corporation,
Nominal Defendant.

MEMORANDUM ORDER
WHEREAS , Magistrate Judge Burke issued a 49-page Report and Recommendations
("Report") (D.I. 46), dated December 23, 2015 , recommending that Defendants' Motion to
Dismiss ("Motion") (D.I. 12) be granted with one opportunity for leave to amend;
WHEREAS , on January 1, 2016, Plaintiff objected to the Report ("Objections") (D.I. 47),
arguing that the Report misapplied the standards for pleading (1) a Caremark claim and
(2) actual knowledge;
WHEREAS, on January 28, 2016, Defendants responded to the Objections (D.I. 48),
arguing that the Report (1) correctly applied both standards, (2) correctly concluded that Plaintiff
failed to allege knowledge, directly or inferentially, and (3) that Plaintiffs Complaint should be
dismissed with prejudice and without leave to amend;
WHEREAS on April 27, 2016, the Court heard oral argument on the Motion and

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Objections;
WHEREAS , the Court has considered Defendant' s Motion de nova, as it presents casedispositive issues, see 28 U.S.C. § 636(b)(l ); Fed. R. Civ. P. 72(b)(3), and has further reviewed
all of the pertinent filings ;
NOW THEREFORE, IT IS HEREBY ORDERED that:
1.

Plaintiff s Objections are OVERRULED, Judge Burke' s Report is ADOPTED,

Defendants' Motion (D.I. 12) is GRANTED, and Plaintiff s Complaint is DISMISSED without
prejudice to its opportunity to file an amended Complaint.
2.

The Report correctly states and applies the Caremark "should have known"

standard, which requires a complainant not only to point to "red flags" the Board could have
seen , but also to state a basis for inferring that the Board did see those red flags. See, e.g. David
B. Shaev Profit Sharing A ccount v. Armstrong, 2006 WL 391931 , at *5 (Del. Ch. Feb. 13, 2006),

ajf'd, 911 A.2d 802 (Del. 2006). As the Report describes in detail, the Complaint alleges a

number of bad facts, but fails to provide a basis for inferring that the requisite number of Board
members were aware of the alleged red flags at the time demand was required. (D.I. 46 at 25-44)
Although the discussion of the alleged "red flags" and reasons for the allegations ' insufficiency
are included in a portion of the Report entitled "Plaintiffs Failed to Sufficiently Demonstrate the
Board' s Actual Knowledge" (id. at 25 (emphasis added)), the Report explains that the Complaint
relies on the same factual allegations as a basis for both its claim that the Board knew of the
alleged misconduct and its claim that the Board should have known of it. (Id. at 25 and 46) In
other words, Plaintiff's position is that these same facts gave the Board actual knowledge of the
misconduct or at least were "red flags" upon which the Board had a duty to act. Either way, the
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Plaintiffs demand futility argument hinges on the Board having been aware of the bad facts.
Since the Report correctly finds that the Complaint does not allege with particularity that the
Board was aware ofthem,1 Judge Burke was correct to conclude that Plaintiffs ' pleadings are
insufficient.
3.

Further, and contrary to Plaintiffs Objections, the Report specifically recognizes

that actual knowledge may be pled inferentially. (See D.I. 46 at 25 and 44) The Report explains
in detail why Plaintiffs factual allegations, individually and collectively, fail to provide a basis
for a reasonable inference that the Board knew of the alleged misconduct. (Id. at 25-45) Given
the Report' s detailed analysis, the Court finds it unnecessary to further address Plaintiffs
Objections on this point.
4.

IT IS FURTHER ORDERED that (1) Plaintiff shall, ifit chooses, file within thirty

(30) days of the date of this Order an amended complaint that addresses the deficiencies of its
duty ofloyalty claim, as described in the Report;2 and (2) failure to do so shall result in dismissal
with prejudice.

May 12, 2016
Wilmington, Delaware

HONORABLE LEON
P. STARK
UNITED STATES DISTRICT JUDGE

1

The Parties disagree about whether Plaintiffs needed to allege facts sufficient to provide
a basis for inferring that an actual majority of the board members had knowledge of the bad
facts, or whether, given that there were an even number of board members, knowledge by
precisely half of the board members would have been sufficient. Given the deficiencies in
Plaintiffs pleadings, the Court need not decide this dispute.
2

Defendants oppose amendment, asking that dismissal be with prejudice. The Court is
not convinced that amendment would cause undue prejudice or would be futile; allowing one
opportunity for amendment is appropriate.
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