Hesley v. Hecla Mining Company et al

Filing 64

MEMORANDUM DECISION AND ORDER Defendants' Motion to Dismiss (Docket No. 40 ) is GRANTED, with leave to amend. Within 42 days of this Memorandum Decision and Order, Plaintiffs may move to file an Amended Complaint. Signed by Judge Ronald E. Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (jp)

UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO

IN RE HECLA MINING COMPANY
DERIVATIVE SHAREHOLDER LITIGATION

Case No.: 2:12-CV-00097-REB

Consolidated with Case Nos:
__________________________________________ 2:12-cv-00098-CWD
2:12-cv-000119-MHW
This Document Relates To:
MEMORANDUM DECISION AND
ALL ACTIONS
ORDER RE: DEFENDANTS’
MOTION TO DISMISS
(Docket No. 40)

Currently pending before the Court is Defendants’ Motion to Dismiss (Docket No. 40).
Having carefully reviewed the record, participated in oral argument, and otherwise being fully
advised, the undersigned enters the following Memorandum Decision and Order:
I. RELEVANT BACKGROUND1
A.

The Parties
1.

Plaintiffs Glenda Hesley, Gerald Moss, and Jeffrey Adams (“Plaintiffs”) were

stockholders of Nominal Defendant Hecla Mining Company (“Hecla”) at all times relevant to
this action. See Compl., ¶¶ 20-22 (Docket No. 33); but see supra.
2.

Hecla is a Delaware corporation, headquartered in Coeur d’Alene, Idaho. See id.

at ¶¶ 23 & 25 (Docket No. 33). Hecla engages in the discovery, acquisition, development,
production, and sale of various precious and base metals, including silver, gold, lead, and zinc.

1

For the purposes of Defendants’ Motion to Dismiss only, this section is drawn upon the
allegations contained within Plaintiffs’ Consolidated Verified Shareholder Derivative Complaint
for Breach of Fiduciary Duty and Unjust Enrichment (“Complaint”) (Docket No. 33). See infra.
MEMORANDUM DECISION AND ORDER - 1

The focal point of its production and the source of the vast majority of its revenues and profits is
its silver production. See id. at ¶¶ 2, 23, 62, & 63. Hecla owns and operates two mines: (1) the
Greens Creek mine near Juneau, Alaska, and (2) the Lucky Friday mine in Mullan, Idaho. See
id. at ¶¶ 2, 24 & 64. Hecla’s flagship mine is the Lucky Friday mine. See id. at ¶¶ 3 & 68.
3.

Plaintiffs bring this suit derivatively against all seven members of Hecla’s board

of directors and certain Hecla officers, alleging “breaches of fiduciary duties and other violations
of law relating to a failure to ensure compliance with safety regulations.” Id. at ¶¶ 1, 28, 34, 40,
44, 47, 51, 55, & 59. Specifically, the Individual Defendants include:
•

Phillips S. Baker, Jr.: Hecla’s CEO since May 2003; Hecla’s President since
November 2001; a Hecla director since November 2001; Hecla’s CFO from
May 2001 to June 2003; Hecla’s COO from November 2001 to May 2003;
and a Hecla Vice President from May 2001 to November 2001. See id. at
¶ 27.

•

James A. Sabala: Hecla’s Senior Vice President since March 2008; and
Hecla’s CFO since May 2008. See id. at ¶ 33.

•

John H. Bowles: A Hecla director since 2006; Chairman of Hecla’s Audit
Committee since May 2006; a member of Hecla’s Health, Safety,
Environmental & Technical Committee (“Safety Committee”) since August
2010 (and also on the predecessor of the Safety Committee since March
2007); serves or has previously served as a director on other companies’
board of directors involved with mining or mineral exploration, including
Mercator Minerals Ltd., Boss Power Corp., and HudBay Mineral Inc.; held
an officer position with the Mining Suppliers Association of British
Columbia; and was appointed a Fellow of the Canadian Institute of Mining
and Petroleum. See id. at ¶¶ 38 & 39.

•

Terry V. Rogers: A Hecla director since 2007; Chairman of Hecla’s Safety
Committee since February 2012; a member of Hecla’s Audit Committee
since February 2008; had been a member of Hecla’s Safety Committee since
August 2010 (and also on the predecessor of the Safety Committee since
February 2008); serves or has previously served as a member on other
mining companies’ boards of directors, including Kumtor Operating
Company and Centerra Gold Inc.; and has held executive positions at other

MEMORANDUM DECISION AND ORDER - 2

mining companies during his 30 years of employment in the mining industry.
See id. at ¶¶ 42 & 43.
•

•

Anthony P. Taylor: A Hecla director since 2002; a member of Hecla’s Safety
Committee since August 2010; was the inaugural Chairman of Hecla’s Safety
Committee until March 2011 (and also served on the predecessor of the
Safety Committee since 2006); and served as a director and executive officer
at several mineral exploration companies, including Crown Gold
Corporation, SELEX Resources Ltd., Gold Summit Corporation, Millennium
Mining Corporation, and Greencastle Resources Limited. See id. at ¶¶ 49 &
50.

•

Ted Crumley: A Hecla director since 1995, and Chairman of Hecla’s board
of Directors (“Board”) since May 2006. See id. at ¶ 54.

•

B.

Charles B. Stanley: A Hecla director since 2007; a member of Hecla’s Audit
Committee since February 2008; and a member of Hecla’s Safety Committee
since August 2010 (and also on the predecessor of the Safety Committee
since February 2008). See id. at ¶ 46.

George R. Nethercutt, Jr.: A Hecla director since 2005; served on Hecla’s
Audit Committee in 2006; a former U.S. Congressman, with mining
legislation a focus of his political career; and served as a private consultant
and represented clients with mining issues. See id. at ¶¶ 57 & 58.

Mining Incidents at the Lucky Friday Mine
4.

Between 2007 and 2011, a series of “rock burst”, “ground fall”, and “tunnel

collapse” incidents occurred at the Lucky Friday mine. See id. at ¶¶ 100-116, 120-121, & 125131. According to Plaintiffs, these events (and any related investigations) “put the Director
Defendants[2] on notice of the persistent dangerous conditions at Lucky Friday mine.” See Pls.’
Opp. to Mot. to Dismiss, p. 5 (Docket No. 43) (citing Compl., ¶¶ 104, 110, 113, 116, & 122
(Docket No. 33) (“Consistent with the Individual Defendants’ fiduciary duties and obligations,

2

Plaintiffs refer to Individual Defendants Baker, Bowles, Rogers, Stanley, Taylor,
Crumley, and Nethercutt collectively as “Director Defendants.” See Pls.’ Opp. to Mot. to
Dismiss, p. 1, n.1 (Docket No. 43).
MEMORANDUM DECISION AND ORDER - 3

defendants were required to be informed and upon information and belief, were informed of
these kinds of safety incidents.”)).
5.

In 2011, Hecla experienced three “tragic and catastrophic” accidents at the Lucky

Friday mine. See Compl., ¶ 132 (Docket No. 33).
•

April 15, 2011: A miner is killed when a rock fall strikes him while watering
down a muck pile in a stope. See id. at ¶¶ 133-134. Hecla informs its
investors of the accident on April 19, 2011. See id. at ¶ 136. The Mine
Safety and Health Administration (“MSHA”) investigates the accident and,
on November 17, 2011, issues a report citing Hecla for various safety
violations. See id. at ¶¶ 137-139; see also Ex. B to Defs.’ Mot. to Dismiss
(Docket No. 40, Att. 3).3

•

November 17, 2011: A contract miner is injured while trying to free plugged
material in a bin excavation. See Compl., ¶ 147 (Docket No. 33). The miner
and co-worker entered the bin from the top to remove blockage below them.
See id. Material gave way, engulfing them; the miner was freed from the
material and hospitalized, but died two days later from his injuries. See id.
Hecla informs its investors of the accident on November 18, 2011. See id.
at ¶ 149. MSHA investigates the accident and, on June 19, 2012, issues a
report citing the independent contractor and Hecla for various safety
violations. See id. at ¶¶ 148 & 150; see also Ex. C to Defs.’ Mot. to Dismiss
(Docket No. 40, Att. 4).

•

December 14, 2011: Seven employees are injured by a rock burst while
working below the surface. See Compl., ¶ 151 (Docket No. 33). MSHA
investigates the accident, conducts a “special impact investigation,” and
orders Hecla to shut down the Lucky Friday mine until work conditions are
safe. See id. at ¶¶ 156 & 165. According to Plaintiffs, “[t]hese inspections
resulted in a multitude of citations and orders issued to [Hecla].” See id. at
¶ 157; see also id. at ¶¶ 158-164 & 190 (“In all, MSHA issued 59 citations
to Hecla for 27 different safety violations as a result of the special impact
investigation – of those 27 distinct types of violations, 18 of them
represented repeat violations for which the Lucky Friday mine had received
a combined 87 total citations over the previous decade.”).

3

MSHA’s enforcement orders and citations were terminated based on Hecla’s corrective
actions. See Ex. B to Defs.’ Mot. to Dismiss, pp. 7-9 (Docket No. 40, Att. 3).
MEMORANDUM DECISION AND ORDER - 4

C.

Lucky Friday Mine Closes Indefinitely
6.

During the inspection following the December 14, 2011 incident, MSHA issued a

citation to Hecla regarding a build-up of sand and concrete material on the walls and beams of
the primary access to the Lucky Friday mine, known as the “Silver Shaft.” See id. at ¶ 158.4
7.

On January 5, 2012, MSHA issued a closure order for the Lucky Friday mine,

citing built-up material in the Silver Shaft. See id. at ¶ 167.
8.

Because federal law requires mines to have two points of exit, on January 11,

2012, Hecla announced that the Lucky Friday mine would be closed until early 2013 to remove
the build-up in the Silver Shaft. See id. at ¶¶ 168 & 169.
9.

Owing to the Lucky Friday mine’s closure, Hecla lowered its estimated silver

production for 2012 from 9.5 million ounces to 7 million ounces – an approximate loss in
production, based on market value, of at least $70.7 million. See id. at ¶¶ 191 & 270. Moreover,
on February 21, 2012, Hecla reported that an additional $62 million in costs would be necessary
to bring the Lucky Friday mine into compliance with MSHA safety regulations. See id. at ¶¶
192 & 270.
D.

Procedural Backdrop
10.

On February 29, 2012, Plaintiff Hesley brought a shareholder derivative action on

Hecla’s behalf (Case No. 2:12-cv-00097-REB). On February 29, 2012, Plaintiff Moss brought a
shareholder derivative action on Hecla’s behalf (Case No. 2:12-cv-00098-CWD). On March 9,

4

Although Plaintiffs’ Complaint contains allegations of several other MSHA violations
and/or citations, there are no allegations about any previous MSHA citations for built-up
material in the Silver Shaft. Additionally, Plaintiffs do not allege that any injury resulted from
the build-up, and they do not allege that MSHA claimed any connection between the build-up in
the Silver Shaft and any of the above-cited incidents.
MEMORANDUM DECISION AND ORDER - 5

2012, Plaintiff Adams brought a shareholder derivative action on Hecla’s behalf (Case No. 2:12cv-00119-MHW). On May 17, 2012, the undersigned consolidated these three actions into one
case (Case No. 2:12-cv-0097-REB). See 5/17/12 Order (Docket No. 14).
11.

On June 20, 2012, the parties to this action stipulated to its temporary stay,

pending either (1) the resolution of a motion to dismiss in a related securities fraud lawsuit thensituated in this Court before U.S. District Judge B. Lynn Winmill, or (2) any party’s unilateral
decision to lift the stay with 10 days notice. See Stip. to Temporarily Stay Action (Docket No.
21). On June 28, 2012, the undersigned adopted the parties’ stipulation and temporarily stayed
this action. See 6/28/12 Order (Docket No. 22).
12.

On July 10, 2012, the parties consented to the undersigned’s jurisdiction. See

7/10/12 Notice (Docket No. 23).
13.

On November 8, 2012, Defendants notified Plaintiffs that they intended to lift the

temporary stay and, on November 9, 2012, filed a formal Notice of Lifting the Stay of
Proceedings, explaining that, on September 25, 2012, the Delaware Court of Chancery “issued a
decision dismissing a shareholder derivative lawsuit against the same defendants with virtually
identical allegations” and that “[t]his decision demonstrates conclusively how Delaware law
would treat the plaintiffs’ allegations here.” See Notice (Docket No. 28); see also Defs.’ Status
Report (Docket No. 30). The referenced decision is South v. Baker, 62 A.3d 1 (Del. Ch. 2012).
14.

On January 7, 2013, Plaintiffs filed their Complaint. See Compl. (Docket No.

33). Therein, Plaintiffs generally allege that the Defendants’ “wrongful conduct . . . ultimately
resulted in the closure of the Lucky Friday mine, causing severe injury to Hecla’s financial
position and prospects, as well as causing substantial damages to Hecla’s reputation, goodwill,

MEMORANDUM DECISION AND ORDER - 6

and standing in the business community.” See id. at ¶ 1. Further, Plaintiffs assert claims on
behalf of Hecla against Hecla’s board of directors (and its CEO and CFO) for breach of fiduciary
duties and unjust enrichment. See id. at ¶¶ 315-330.
15.

On February 8, 2013, Defendants filed the at-issue Motion to Dismiss, primarily

arguing that, because Plaintiffs made no demand upon Hecla’s present board of directors, they
were required, but failed, to adequately plead that such demand would be futile. See Defs.’
Mem. in Supp. of Mot. to Dismiss, pp. 9-26 (Docket No. 40, Att. 1). Defendants additionally
submit that Plaintiffs failed to plead with particularity that they purchased shares of Hecla before
the date of the first alleged wrongdoing as alleged in their Complaint. See id. at pp. 8-9.
16.

On June 11, 2013, Gerald Moss was dismissed/withdrawn as a named Plaintiff.

See Not. of Voluntary Dismissal (Docket No. 53); 6/11/13 DEO (Docket No. 54).
17.

On July 16, 2013, the undersigned heard oral argument on Defendants’ Motion to

Dismiss. See 7/16/13 Minute Entry (Docket No. 56).
II. DISCUSSION
A.

Legal Standard
Typically, FRCP 8(a)(2) requires only “a short and plain statement of the claim showing

that the pleader is entitled to relief,” to “give the defendant fair notice of what the . . . claim is
and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
While a complaint attacked by an FRCP 12(b)(6) motion to dismiss “does not need detailed
factual allegations,” it must set forth “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.” Id. at 555. To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim for

MEMORANDUM DECISION AND ORDER - 7

relief that is plausible on its face.” Id. at 570. A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged. Id. at 556. The plausibility standard is not akin to a
“probability requirement,” but it asks for more than a sheer possibility that a defendant has acted
unlawfully. Id. Where a complaint pleads facts that are “merely consistent with” a defendant’s
liability, it “stops short of the line between possibility and plausibility of ‘entitlement to relief.’”
Id. at 557.
The Supreme Court identified two “working principles” that underlie Twombly in
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, the court need not accept as true, legal
conclusions that are couched as factual allegations. See id. FRCP 8 does not “unlock the doors
of discovery for a plaintiff armed with nothing more than conclusions.” Id. at 678-79. Second,
to survive a motion to dismiss, a complaint must state a plausible claim for relief. See id. at 679.
“Determining whether a complaint states a plausible claim for relief will . . . be a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Id.
Providing too much in the complaint may also be fatal to a plaintiff. Dismissal may be
appropriate when a plaintiff has included sufficient allegations disclosing some absolute defense
or bar to recovery. See Weisbuch v. County of L.A., 119 F.3d 778, 783, n.1 (9th Cir. 1997)
(stating that “[i]f the pleadings establish facts compelling a decision one way, that is as good as
if depositions and other expensively obtained evidence on summary judgment establish the
identical facts”).
Generally, a dismissal without leave to amend is improper unless it is beyond doubt that
the complaint “could not be saved by any amendment.” Harris v. Amgen, Inc., 573 F.3d 728,
MEMORANDUM DECISION AND ORDER - 8

737 (9th Cir. 2009) (issued two months after Iqbal).5 The Ninth Circuit has held that “in
dismissals for failure to state a claim, a district court should grant leave to amend even if no
request to amend the pleading was made, unless it determines that the pleading could not
possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern
California Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether a
plaintiff will prevail but whether he “is entitled to offer evidence to support the claims.” Diaz v.
Int’l Longshore and Warehouse Union, Local 13, 474 F.3d 1202, 1205 (9th Cir. 2008) (citations
omitted).
However, FRCP 23.1 contains pleading requirements specific to shareholder derivative
suits. For example, “[a] shareholder seeking to vindicate the interests of a corporation through a
derivative suit must first demand action from the corporation’s directors or plead with
particularity the reasons why such demand would have been futile.” In re Silicon Graphics Inc.
Securities Litig., 183 F.3d 970, 989 (9th Cir. 1999) (citing Fed. R. Civ. P. 23.1(b)(3)(A) & (B)
(“The complaint must be verified and must . . . state 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.”)); see also Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90,
101 (1991) (demand requirement premised on “the basic principle of corporate governance that

5

There is some question as to the continued vitality of the liberal amendment policy
expressed in Harris, based as it is on language in Conley v. Gibson, 355 U.S. 41, 45-46 (1957),
suggesting, in part, that “a complaint should not be dismissed for failure to state a claim unless it
appears beyond doubt that the plaintiff can prove no set of facts in support of his claim . . . .”
Given Twombly and, more recently, Iqbal’s rejection of the liberal pleading standards adopted by
Conley, a question arises as to whether the liberal amendment policy of Harris still exists.
Nevertheless, the Ninth Circuit has continued to apply the liberal amendment policy even after
dismissing claims for violating Iqbal and Twombly. See, e.g., Market Trading, Inc. v. AT & T
Mobility, LLC, 388 Fed. Appx. 707 (9th Cir. 2010) (unpublished).
MEMORANDUM DECISION AND ORDER - 9

the decisions of a corporation – including the decision to initiate litigation – should be made by
the board of directors,” not individual shareholders). Additionally relevant here, a shareholder
suing derivatively must allege that he or she owned stock “at the time of the transaction
complained of.” Fed. R. Civ. P. 23.1(b)(1). A plaintiff who fails to satisfy the contemporaneous
ownership requirement lacks standing to bring a shareholder derivative suit. See In re Verisign,
Inc., Derivative Litig., 531 F. Supp. 2d 1173, 1202 (N.D. Cal. 2007) (“A derivative plaintiff has
no standing to challenge option transactions that occurred prior to the time that plaintiff owned
company stock.”).
In these respects, then, FRCP 23.1 raises the “pleading standard higher than the normal
standard applicable to the analysis of a pleading challenged under FRCP 12(b)(6).” In re Am.
Int’l Grp., Inc. Derivative Litig., 700 F. Supp. 2d 419, 430 (S.D.N.Y. 2010); see also McPadden
v. Sidhu, 964 A.2d 1262, 1269 (Del. Ch. 2008) (noting that this burden “is more onerous than
that demanded by FRCP 12(b)(6).”).
B.

Plaintiffs Have Not Adequately Pled Demand Futility
Plaintiffs acknowledge that they made no demand upon any of the Hecla board prior to

filing the present lawsuit. See Compl., ¶¶ 275-314 (Docket No. 33) (“Making a demand on the
Board would have been futile.”). Hence, their Complaint must plead particularized factual
allegations establishing demand excusal. See supra. FRCP 23.1 does not set forth the
circumstances under which a demand would be futile; instead, for these standards, courts turn to
the law of the state of incorporation – here, Delaware. See In re Silicon Graphics, 183 F.3d at
990.

MEMORANDUM DECISION AND ORDER - 10

Under Delaware law, when a decision of the board of directors is challenged in a
derivative suit, two tests are available to determine whether demand is futile. See Wood v.
Baum, 953 A.2d 136, 140 (Del. 2008).
The first test – the “Aronson” test – “applies to claims involving a contested transaction
i.e., where it is alleged that the directors made a conscious business decision in breach of their
fiduciary duties.” Id. (citing Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984)). Under the
Aronson test, a plaintiff must plead sufficient facts to raise a reasonable doubt that: “(1) the
directors are disinterested and independent [or that] (2) the challenged transaction was otherwise
the product of a valid exercise of business judgment.” Aronson, 473 A.2d at 814.
The second test – the “Rales” test – “applies where the subject of a derivative suit is not a
business decision of the [b]oard but rather a violation of the [b]oard’s oversight duties.” Wood,
953 A.2d at 140 (citing Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993)). In such cases,
demand may be excused as futile if a plaintiff “can 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.” Ryan v. Gifford, 918 A.2d 341, 353
(Del. Ch. 2007) (citing Rales, 634 A.2d 933-34). Under the Rales test, “[i]ndependence is a factspecific determination made in the context of a particular case.” Beam ex. rel. Martha Stewart
Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1049-50 (Del. 2004). A key inquiry “is
whether the plaintiffs have pled facts that show that [the] directors face a sufficiently substantial
threat of personal liability” to render them “interested” for purposes of considering the demand.
Guttman v. Huang, 823 A.2d 492, 502 (Del. Ch. 2003); see also Desimone v. Barrows, 924 A.2d
908, 928 (Del. Ch. 2007) (where derivative plaintiff does not challenge a specific transaction

MEMORANDUM DECISION AND ORDER - 11

approved by board, plaintiff must adequately plead that majority of company’s board of directors
were incapable of objectively responding to demand because they either (1) “face a sufficiently
substantial threat of personal liability” and are thus themselves interested, or (2) “are
compromised in their ability to act independently of interested directors”).
Here, Defendants seek the dismissal of Plaintiffs’ claims against the backdrop of the
Rales test, essentially arguing that Plaintiffs have not properly alleged that (1) Hecla’s directors
face a substantial likelihood of liability, or that (2) a majority of Hecla’s directors lack
independence. See Defs.’ Mem. in Supp. of Mot. to Dismiss, pp. 10-26 (Docket No. 40, Att. 1).
Plaintiffs disagree, seemingly favoring the Aronson test’s application to excuse the absence of
any pre-suit demand upon Hecla’s board. See Pls.’ Opp. to Mot. to Dismiss, pp. 14-22 (Docket
No. 43).
1.

Plaintiffs’ Complaint Does Not Clearly Implicate the Business Judgment Rule as
Contemplated by the Aronson Test

It is not immediately clear whether Plaintiffs are alleging claims based upon the Hecla
board’s (1) failure to monitor, or (2) conscious decision not to take action (or both). Compare
Compl. ¶ 284 (Docket No. 33) (“All of the Director Defendants are explicitly responsible for the
oversight of Hecla management and are ultimately responsible for the repeated and pervasive
culture of non-compliance with safety violations.”), with id. at ¶ 282 (“All of the Director
Defendants, despite personal knowledge of widely reported red flags, consciously chose to take
no meaningful actions to address the red flags and thus, breached their fiduciary duties to ensure
compliance with safety regulations.”). On the one hand, Plaintiffs’ claims seem to be based
simply on an alleged negligent dereliction of duty theory of recovery; on the other hand, they

MEMORANDUM DECISION AND ORDER - 12

could be interpreted as attacking the Hecla board’s alleged affirmative and informed decision not
to take necessary compliance actions and safety-related measures.
Delaware case law does not definitively answer the question of which test – Rales or
Aronson – applies to such situations. Compare In re infoUSA, Inc. S’holders Litig., 953 A.2d
963, 986 (Del. Ch. 2007) (“The Court cannot address the business judgment of an action not
taken and, therefore, should concern itself with what is now known as the Rales test . . . .”), with
South, 62 A.3d at *15 (“A board that fails to act in the face of such information makes a
conscious decision, and the decision not to act is just as much of a decision as a decision to
act.”). Regardless, to the extent Plaintiffs’ claims allege the Hecla board’s mismanagement of
the company or violations of the board’s oversight duties (and the undersigned concludes for
these purposes that Plaintiffs do make such allegations), there is no dispute that the Rales test
applies. See, e.g., Defs.’ Reply in Supp. of Mot. to Dismiss, p. 10, n.4 (Docket No. 52) (“But the
Delaware Supreme Court has held clearly that Rales ‘applies where the subject of a derivative
suit is not a business decision of the Board but rather a violation of the Board’s oversight
duties.’”) (quoting Wood, 953 A.2d at 140). Still, as a practical matter, even if this Court were to
apply the Aronson test to the Complaint’s allegations, the analysis relating to the Hecla directors’
interestedness and independence (see infra) would control the conclusion of any business
judgment rule analysis, for the reason that Plaintiffs’ rationale for arguing that the business
judgment rule does not apply is similar to the argument raised with respect to the alleged
substantial threat of personal liability facing the Defendants.
Indeed, which exact test for analyzing demand futility might be used here – whether the
Aronson test or the Rales test – appears inconsequential to Plaintiffs in their opposition to

MEMORANDUM DECISION AND ORDER - 13

Defendants’ Motion to Dismiss. See Pls.’ Opp. to Mot. to Dismiss, p. 14 (Docket No. 43) (“In
any event, in this case, the label of which test to apply is immaterial. Under either standard, the
facts alleged raise a reasonable doubt that the Director Defendants were capable of making an
impartial decision regarding this litigation.”). Given the inherent overlap between the two tests
(at least insofar as whether Hecla’s directors were interested and/or independent),6 this
Memorandum Decision and Order will consider the parties’ respective arguments vis à vis the
Rales test, regardless of whether such arguments are (or could be) otherwise encapsulated by
some other demand futility test. Therefore, the Court will analyze whether, at the time the
Complaint was filed, Hecla’s board could have exercised its “independent and disinterested
business judgment in responding to a demand.” Rales, 634 A.2d at 934.
2.

Plaintiffs Have Not Properly Alleged That Hecla’s Directors/Officers Face a
Substantial Likelihood of Liability

“To plead demand futility, a stockholder plaintiff must plead facts establishing a
sufficient connection between the corporate trauma and the board such that at least half of the

6

“The Aronson and Rales [tests] have been described as complementary versions of the
same inquiry.” In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, *16 (Del.
Ch. 2013) (citing David B. Shaev Profit Sharing Account v. Armstrong, 2006 WL 391931, *4
(Del. Ch. 2013) (“[T]he Rales test, in reality, folds the two-pronged Aronson test into one
broader examination. It allows, in other words, a court to determine both whether a corporate
board on which demand might be made is disinterested and independent, and whether a majority
of directors face a substantial likelihood of personal liability, because doubt has been created as
to whether their actions were products of a legitimate business judgment.”); Guttman, 823 A.2d
at 501 (“At first blush, the Rales test looks somewhat different from Aronson, in that [it]
involves a singular inquiry . . . . Upon closer examination, however, that singular inquiry makes
germane all of the concerns relevant to both the first and second prongs of Aronson.”); Donald J.
Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court
of Chancery § 9.02[b][3][iii], at 9-97 (2011) (“[I]t is arguable that the current state of the law is
conceptually inverted and that it would be both simpler and more direct to regard the original
Aronson analysis as a subpart of the more generally applicable and flexible principle set forth in
Rales.”)).
MEMORANDUM DECISION AND ORDER - 14

directors face ‘a substantial likelihood of personal liability.’” South, 62 A.3d at *14 (quoting
Desimone, 924 A.2d at 914). Simply “‘describing the calamity and alleging that it occurred on
the directors’ watch’” is not enough. South, 62 A.3d at *14 (quoting La. Mun. Police Empls.’
Ret. Sys. v. Pyott, 46 A.3d 313, 335-36 (Del. Ch. 2012)). Moreover, “the mere threat of personal
liability . . . is insufficient to challenge either the independence or disinterestedness of directors.”
Aronson, 473 a.2d at 815. Instead, “demand will be excused based on a possibility of personal
director liability only in the rare case when a plaintiff is able to show director conduct that is ‘so
egregious on its face that board approval cannot meet the test of business judgment, and a
substantial likelihood of director liability therefore exists.’” In re Citigroup Inc. S’holder Deriv.
Litig., 964 A.2d 106, 121 (Del. Ch. 2009) (citing Aronson, 473 A.2d at 815).
In their effort to meet this more rigorous standard (and, thereby, excuse the absence of
any pre-suit demand), Plaintiffs contend that the majority of Hecla’s board faces a substantial
threat of liability because (1) the board members breached their fiduciary duties in consciously
choosing to take no meaningful steps to oversee the Lucky Friday mine’s compliance with
MSHA safety regulations (see Pls.’ Opp. to Mot. to Dismiss, pp. 14-19 (Docket No. 43) (citing
Compl., ¶¶ 281-285 (Docket No. 33)); (2) the board members breached their fiduciary duties by
allowing false and misleading statements to be disclosed to the public (see Compl., ¶¶ 224-258
& 289 (Docket No. 33); (3) the directors who sit on the Safety and Audit Committees face
further risk of liability owing to their “heightened duties” (see Pls.’ Opp. to Mot. to Dismiss, pp.
19-20 (Docket No. 43) (citing Compl., ¶¶ 211-217, 292-300 (Docket No. 33)); and (4) directors
Baker and Taylor engaged in insider stock sales in violation of their duty of loyalty (see Pls.’
Opp. to Mot. to Dismiss, pp. 20-22 (Docket No. 43) (citing Compl., ¶¶ 301-302 (Docket No.

MEMORANDUM DECISION AND ORDER - 15

33)). According to Defendants, however, such claims are unsupported by the particularized
allegations required under Delaware law. See Defs.’ Mem. in Supp. of Mot. to Dismiss, pp. 1124 (Docket No. 40, Att.1); see also Defs.’ Reply in Supp. of Mot. to Dismiss, pp. 5-15 (Docket
No. 52).
a.

The Alleged Breaches of Fiduciary Duties by Hecla Directors
Regarding Oversight Responsibilities

Plaintiffs’ allegations that Hecla’s directors (1) “knowingly permitt[ed] [Hecla] to act
with complete disregard of necessary safety requirements,” and (2) “fail[ed] to take actions
concerning the Lucky Friday mine after being put on notice of the need to correct safety issues”
(Compl., ¶¶ 289-290 (Docket No. 33)) essentially amount to a classic “Caremark claim.” See
South, 62 A.3d at *6 (“[D]irectors can be held liable under this [Caremark claim] theory for
knowingly causing or consciously permitting the corporation to violate positive law, or for
failing utterly to attempt to establish a reporting system or other oversight mechanism to monitor
the corporation’s legal compliance.”).7 Because such a claim “requires a plaintiff to show that
‘the directors knew that they were not discharging their fiduciary obligations’ – i.e., bad faith[8] –
7

South dealt with virtually identical allegations to this case in a parallel derivative suit
brought against Hecla defendants in the Delaware Court of Chancery. There, the court dismissed
the plaintiffs’ claims because the demand futility allegations did not contain sufficient
particularity. See South 62 A.3d at *19 (“Because the complaint lacks particularized facts
supporting a reasonable inference that a majority of the Board faces a substantial risk of liability,
the Souths have not pled demand futility and their lawsuit is subject to dismissal under Rule
23.1.”). Even so, the dismissal was specifically without prejudice to this Idaho derivative case.
See id. at *26 (“Consequently, the dismissal of the Souths’ complaint should not have preclusive
effect on the litigation of more diligent stockholders . . . .”). Defendants here, of course, rely
heavily upon South’s consideration of the same issues/arguments raised in their Motion to
Dismiss; conversely, Plaintiffs attempt to distinguish their case from South, arguing that they
represent the above-referenced “more diligent stockholders.”
8

This is consistent with section 102(b)(7) of Delaware Corporation Law, allowing
companies to limit the personal liability of a director to the corporation or its shareholders for
MEMORANDUM DECISION AND ORDER - 16

as a ‘necessary condition[ ] predicate for director oversight liability,’ it has been considered
‘possibly the most difficult theory in corporation law.’” In re China Auto. Sys. Inc. Deriv. Litig.,
2013 WL 4672059, *7 (Del. Ch. 2013) (quoting Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006);
In re Caremark Intern. Inc. Deriv. Litig., 698 A.2d 959, 967 (Del. Ch. 1996)); see also Beam,
845 A.2d at 1048-49 (“[D]irectors are entitled to a presumption that they were faithful to their
fiduciary duties. In the context of pre-suit demand, the burden is upon the plaintiff in a
derivative action to overcome that presumption.”).
Plaintiffs attempt to satisfy their burden of pleading particularity by contending that the
board (1) violated positive law, (2) ignored red flags concerning safety violations, and (3) failed
to ensure that a reasonable information and reporting system existed. See Compl., ¶¶ 289-291
(Docket No. 33). Defendants contend such arguments are an inadequate toward showing that the
Hecla Directors/Officers face a substantial likelihood of liability. See Defs.’ Mem. in Supp. of

monetary damages for breach of fiduciary duty so long as the director’s actions are (1) not a
breach of their duty of loyalty, (2) not made in bad faith, and/or (3) do not involve intentional
misconduct or a knowing violation of law. See 8 Del. C. § 102(b)(7); see also Defs.’ Mem. in
Supp. of Mot. to Dismiss, p. 12, n.4 (Docket No. 40, Att. 1) (requesting that Court take judicial
notice of Hecla’s certificate of incorporation and section 102(b)(7) provision therein). Plaintiffs’
argument against section 102(b)(7)’s application at the motion to dismiss stage (see Pls.’ Opp. to
Mot. to Dismiss, pp. 22-23 (Docket No. 43) is without merit. See, e.g., Metropolitan Life Ins.
Co. v. Tremont Group Holdings, Inc., 2012 WL 6632681. *7 (Del. Ch. 2012) (addressing
whether exculpatory provision application is affirmative defense, holding that, “[n]evertheless,
the Court may grant a motion to dismiss a claim where the plaintiffs have not adequately pled
that the defendants’ conduct constitutes a non-exculpated claim against a person subject to, for
example, a limited partnership agreement containing an exculpation clause.”) (citing
Brinckerhoff v. Enbridge Energy Co., 2012 WL 1931242, *2, n.11 (Del. Ch. 2012); Wood, 953
A.2d at 141; Malpiede v. Townson, 780 A.2d 1075, 1079 (Del. 2001)); Official Comm. of
Unsecured Creditors of Integrated Health Servs., Inc. v. Elkins, 2004 WL 1949290, *9, n.38
(Del. Ch. 2004) (“A defense under [section] 102(b)(7) may be considered in the context of a
motion to dismiss.”); but see In re Tower Air, Inc., 416 F.3d 229, 242 (3rd Cir. 2005)
(recognizing in dictum that exculpation provision is affirmative defense).
MEMORANDUM DECISION AND ORDER - 17

Mot. to Dismiss, pp. 12-16 (Docket No. 40, Att. 1). The undersigned agrees that Plaintiffs have
failed to adequately plead the particular details of their Caremark claim.
First, Plaintiffs repeatedly assert throughout their Complaint that Defendants actively
caused or permitted Hecla to violate mine safety law. See, e.g., Compl., p. 37 (Docket No. 33)
(“The Director Defendants Are Culpable for Their Failure to Ensure Compliance”)
(emphasis in original); id at ¶ 179 (“One of the primary duties of the Director Defendants was
to ensure that the Company’s operations are in compliance with all applicable laws,
including MSHA regulations.”) (emphasis in original); id. at ¶ 204(iv) (“The Director
Defendants were supposed to fulfill these functions through, among other things . . . . reviewing
compliance with applicable laws and regulations and adopting policies of corporate
conduct to assure compliance with applicable laws and regulations . . . .” (emphasis in
original) (internal quotations omitted); ¶ 289 (“Directors Bowles, Rogers, Stanley, Taylor,
Baker, Crumley, and Nethercutt face a substantial likelihood of liability for breach of fiduciary
duty for knowingly permitting the Company to act with complete disregard of necessary safety
requirements . . . .”); see also Pls.’ Opp. to Mot. to Dismiss, p. 14 (Docket No. 43) (“Plaintiffs
allege that the Director Defendants knew their affirmative duty to ensure that the Lucky Friday
mine complied with MSHA safety regulations; they knew the Lucky Friday mine was not in
compliance, and chose to taken no meaningful steps to ensure compliance.”) (citing Compl., ¶¶
281-285 (Docket No. 33)). However, as Defendants point out, Plaintiffs provide no allegations
of fact beyond these conclusory assertions regarding either the information made available to the
board or what the board did in response to such information. See Defs.’ Mem. in Supp. of Mot.

MEMORANDUM DECISION AND ORDER - 18

to Dismiss, p. 13 (Docket No. 40, Att. 1).9 Simply put, more is needed. See South, 62 A.3d at
*16 (dismissing plaintiffs’ emphasis on MSHA’s findings to support claim that board actively
violated positive law, holding “it is not reasonable to infer that the Board acted in bad faith based
on references to ‘management,’ particularly when the MSHA Report focuses on nuts-and-bolts
operational issues . . . . Each of the illustrative violations references a day-to-day operational
issue in the Lucky Friday mine. None suggests a Board-level decision.”);10 see also Wood, 953
A.2d at 142 (“[T]he Complaint alleges many violations of federal securities and tax laws but
does not plead with particularity the specific conduct in which each defendant “knowingly”
engaged, or that the defendants knew that such conduct was illegal.”) (citing Rattner v. Bidzos,
2003 WL 22284323, *13 (Del. Ch. 2003) (holding that demand was not excused where

9

In other words, how is one to say that the Director Defendants were indeed informed of
or were separately aware that the Lucky Friday mine was violating certain safety regulations and
recommended a course of action that was ignored or improperly implemented by the appropriate
personnel? Plaintiffs’ allegations are far too sparse upon such critical components of their claim
and that, via their Motion to Dismiss, is Defendants’ point.
10

The Court has carefully considered Plaintiffs’ efforts to distinguish this case from
South and it appears that more pre-filing investigative work may well have occurred here than in
South. See Pls.’ Opp. to Mot. to Dismiss, pp. 7-12 (Docket No. 43). However, even though
Plaintiffs assert that their allegations “reveal a long history of dangerous conditions and repeated
safety violations consciously ignored by the culpable Defendants” (id. at p. 8 (emphasis added)),
the underpinnings for such a statement simply are inadequate. None of the paragraphs cited by
Plaintiffs supports their proposition (¶¶ 68-193 & 220-222 (id.)) or contains any factual
allegations detailing with any particularity the Hecla directors’ conscious disregard of their
duties. Instead, such paragraphs contain generalized background information and conclusory
allegations that function only through implication, and strained implication at that. Similarly,
Plaintiffs’ arguments in response to Defendants’ Motion to Dismiss, like the referenced
allegations in their Complaint, do not specifically speak to Defendants’ knowledge, if any, or to
any corresponding conduct in the face of that knowledge and, therefore, their responsive
arguments also fall short of supporting the underlying claims against a motion to dismiss. See
Wood, 953 A.2d at 140 (“‘[C]onclusory allegations are not considered as expressly pleaded facts
or factual inferences.’”) (quoting Beam, 845 A.2d at 1048 (Del. 2004)). So, while this case and
South have their differences, they remain alike in this important respect.
MEMORANDUM DECISION AND ORDER - 19

complaint “is quick to prattle off numerous alleged infractions of laws, rules, and principles [but
never indicates] the accounting procedures employed by the company or the Board’s
involvement in [the company’s] financial recording and reporting systems.”)).
Second, Plaintiffs’ allegations that the Director Defendants were aware of, yet ignored,
“red flags” concerning safety violations (see, e.g., Compl., ¶¶ 218-219, 221, 281, & 290 (Docket
No. 33)) are similarly lacking. The Complaint does detail at length various incidents comprising
alleged “evidence of illegality – the proverbial ‘red flag[s]’” (South, 62 A.3d at *15), but it fails
to then connect the dots with particularized factual allegations that Hecla’s board consciously
failed to act after learning about them. There are no particularized facts about the board’s
conduct generally in that regard, nor particularized facts speaking to whether the board was
actually aware of the red flags, what the board was told about any red flags, or what was the
board’s response to those red flags. See id. at *17 (“Although the complaint asserts that the
directors knew of and ignored the 2011 safety incidents, the complaint nowhere alleges anything
that the directors were told about the incidents, what the Board’s response was, or even that the
incidents were connected in any way.”);11 In re Verifone Holdings, Inc. S’holder Deriv. Litig.,
11

The sheer number of alleged “red flags” in this case unquestionably exceeds those
considered in South. However, it cannot be said that a large volume of such red flags is a
substitute for Plaintiffs’ obligation to plead with specificity the board’s knowledge of, and
response to, those red flags – particularly when no alleged red flags spoke to built-up material in
the Silver Shaft. Further, the board’s knowledge cannot be inferred simply by virtue of the 2011
incidents (discussed supra). See Stone, 911 A.2d at 373 (“With the benefit of hindsight, the
plaintiffs’ complaint seeks to equate a bad outcome with bad faith. The lacuna in the plaintiffs’
argument is a failure to recognize that the directors’ good faith exercise of oversight
responsibility may not invariably prevent employees from violating criminal laws, or from
causing the corporation to incur significant financial liability, or both . . . .”); see also South, 62
A.3d at *18 (“In a large corporation engaged in a dangerous business, three incidents could
readily happen in a single year because of decisions made and actions taken sufficiently deep in
the organization for the board not to have been involved.”); In re Mutual Funds Inv. Litig., 384
F. Supp. 2d 873, 880 (D. Md. 2005) (“Perhaps with the benefit of hindsight it may be said that
MEMORANDUM DECISION AND ORDER - 20

2009 WL 1458233, *11 (N.D. Cal. 2009) (“Again, the director defendants are not required to
possess detailed information about all aspects of the business, nor are they expected to monitor
or otherwise gauge all of the factors affecting inventory valuation [(an alleged red flag)].
Plaintiffs do not allege with particularity how, when, or which of the directors became aware of
the inventory valuations and how they failed to act upon this knowledge.”). As a result,
Plaintiffs’ reliance upon such alleged red flags, without more, is not sufficient to support an
argument that Defendants face a substantial likelihood of liability.12
Third, Plaintiffs’ contention that Hecla’s board allowed Hecla “to operate without an
adequate system of internal controls” (Compl., ¶ 291 (Docket No. 33)) is also unsupported by
any particularized factual allegations in the Complaint. Cf. Caremark, 698 A.2d at 971 (holding
the fund trustees were asleep at the switch and should have been more vigilant in detecting late
trading and market timing activities occurring within the Janus funds. However, at most their
failure to do so constituted negligence, not the intentional conduct, recklessness, or, at the least,
gross negligence required to hold them liable for their inactions.”) (internal Delaware citations
omitted). Finally, any blanket argument that board members on Hecla’s Safety Committee must
have known about, yet consciously ignored, the alleged problems at the Lucky Friday mine
because they were charged with overseeing mine safety is not persuasive (see infra). See South,
62 A.3d at *17 (“As numerous Delaware decisions make clear, an allegation that the underlying
cause of a corporate trauma falls within the delegated authority of a board committee does not
support an inference that the directors on that committee knew of and consciously disregarded
the problem for purposes of Rule 23.1.”) (citing Wood, 953 A.2d at 142; In re Goldman Sachs
Grp., Inc. S’holder Litig., 2011 WL 4826104, *22-23 (Del. Ch. 2011); Citigroup, 964 A.2d at
126-28; Rattner, 2003 WL 22284323 at *12-13; Desimone, 924 A.2d at 938).
12

Plaintiffs’ reliance on In re Pfizer Inc. Shareholder Derivative Litigation, 722 F. Supp.
2d 453 (S.D.N.Y. 2010), is overstated. See Pls.’ Opp. to Mot. to Dismiss, pp. 15-16 (Docket No.
43). In addition to not being controlling upon this Court, in Pfizer, the complaint contained
factually-specific allegations concerning the board’s knowledge of purported red flags. See
Pfizer, 722 F. Supp. 2d at 460 (“[T]he Complaint details at great length a large number of reports
made to members of the board [relating to settlements, violation notices and warning letters,
kickbacks, and off-label marketing] from which it may reasonably be inferred that they all knew
of Pfizer’s continued misconduct and chose to disregard it.”). In contrast, Plaintiffs’ Complaint
here is not nearly as detailed, particularly as to the critical links to the board and the board’s
knowledge.
MEMORANDUM DECISION AND ORDER - 21

that prerequisite showing of bad faith can be made by alleging with particularity a “sustained or
systematic failure of the board to exercise oversight – such as an utter failure to attempt to assure
a reasonable information and reporting system exists.”). To the contrary, the Complaint
acknowledges that (1) Hecla’s directors have significant experience with mining and exploration
companies (see Compl., ¶¶ 27, 33, 38-39, 42-43, 46, 49-50, 54, & 57-58 (Docket No. 33)), and
(2) Hecla maintained a Safety Committee to oversee Hecla’s compliance with its health, safety,
and environmental policies (see id. at ¶¶ 211-213). Such allegations do not forever preclude an
interrelated claim premised upon breach of fiduciary/oversight duties, but if not counteracted
with specific and particular allegations calling into question the existence of a valid and
operational oversight/reporting system, a claim to the contrary is necessarily compromised. See
South, 62 A.3d at *8 & *18 (“The Safety Committee’s existence and mandate are likewise
inconsistent with the complaint’s central premise of intentionally indolent directors. . . . . These
pled facts do not support an inference of an ‘utter failure to attempt to assure a reasonable
information and reporting system exists,’ but rather the opposite: an evident effort to establish a
reasonable system. The complaint thus ‘refutes the assertion that the directors’ utterly failed to
attempt to fulfill their oversight obligations.”) (quoting Caremark, 698 A.2d at 971; Stone, 911
A.2d at 372) (citing Ash v. McCall, 2000 WL 1370341, *15, n.57 (Del. Ch. 2000) (“the existence
of an audit committee . . . is some evidence that a monitoring and compliance system was in
place”)).13
13

Plaintiffs’ reliance on In re Abbott Laboratories Derivative Shareholders Litigation,
325 F.3d 795 (7th Cir. 2003) also claims more ground than is justified. See Pls.’ Opp. to Mot. to
Dismiss, pp. 16-17 (Docket No. 43). In addition to not being controlling upon this Court, in
Abbot Labs, the FDA conducted 13 inspections of the company to determine whether it was in
compliance with FDA regulations, sent four certified warning letters to the company (three of
which were sent directly to the chairman of the board), implemented a “Voluntary Compliance
MEMORANDUM DECISION AND ORDER - 22

b.

The Alleged Breaches by Hecla Directors of Fiduciary Duties
Regarding False and Misleading Statements to the Public

“[E]ven in the absence of a request for shareholder action, shareholders are entitled to
honest communication from directors, given with complete candor and in good faith.” infoUSA,
953 A.2d at 990. “When there is no request for shareholder action, a shareholder plaintiff can
demonstrate a breach of fiduciary duty by showing that the directors ‘deliberately misinform[ed]
shareholders about the business of the corporation, either directly or by a public statement.’”
Citigroup, 964 A.2d at 132 (quoting Malone v. Brincat, 722 A.2d 5, 14 (Del. 1998)). This is
accomplished by (1) “alleg[ing] with sufficient specificity the actual misstatements or omissions
that constituted a violation of the board’s duty of disclosure,” including “allegations regarding
what the directors knew and when”; (2) “specific factual allegations that reasonably suggest
sufficient board involvement in the preparation of the disclosures that would allow [the court] to
reasonably conclude that the director defendants face a substantial threat of personal liability”;
and (3) “sufficiently alleg[ing] that the director defendants had knowledge that any disclosures
or omissions were false or misleading or that the director defendants acted in bad faith in not
adequately informing themselves.” Citigroup, 964 A.2d at 132-134 (internal citations omitted).
Defendants argue that Plaintiffs failed to satisfy these requirements when alleging that Hecla’s
directors breached their fiduciary duties by “allowing false and misleading statements to be
disclosed to the public” (Compl., ¶ 289 (Docket No. 33)). See Defs.’ Mem. in Supp. of Mot. to
Dismiss, pp. 16-19 (Docket No. 40, Att. 1). The undersigned agrees.
Plan” to remedy compliance problems, filed a court complaint seeking an injunction, ordered the
company to destroy non-compliant product inventory, and met at least ten times with company
representatives, including the chairman of the board. See Abbott Labs, 325 F.3d at 799-802.
Abbott Labs offers a more compelling collection of red flags, linked directly to a starker picture
of a sustained and systematic failure of board oversight. In contrast, here, there is no indication
(or even allegation) of individual board member involvement with respect to any administrative
agency warnings.
MEMORANDUM DECISION AND ORDER - 23

First, Plaintiffs’ Complaint does not specify how false and misleading statements
allegedly made by Hecla directors to the public actually harmed Hecla itself – that is, absent any
harm to Hecla, there is necessarily no basis to conclude that its directors face any corresponding
liability. See id. at p. 17. To the extent the requisite harm is premised upon the related securities
fraud lawsuit before Judge Winmill (see supra; Compl., ¶¶ 15 & 273 (Docket No. 33)), that
action was dismissed on September 26, 2013. See Bricklayers of Western Pennsylvania Pension
Plan v. Hecla Min. Co., 2013 WL 5423875 (D. Idaho 2013).14 Alternatively, where the requisite
harm is premised upon damages allegedly caused by Hecla’s “devastated” credibility at the
hands of any alleged false and misleading statements (see Compl., ¶ 271 (Docket No. 33)),
Plaintiffs offer no supporting particularized allegations of fact to that end.
Second, Plaintiffs’ Complaint contains a scattershot collection of allegations that the
“Director Defendants caused Hecla” to issue false and misleading statements. See, e.g., id. at ¶¶
225, 226, 232, 234, 237, 241, 245, 248, 252, 254, & 258. A closer examination of that section of
Plaintiffs’ Complaint (see id. at ¶¶ 224-258) reveals only one instance where Hecla’s board in
toto issued a statement (the February 25, 2011 Form 10-K). See id. at ¶ 229.15 The rest of the
14

Although granting the defendants’ motion to dismiss, Judge Winmill gave the
plaintiffs until October 18, 2013 to amend their complaint. However, the plaintiffs never
amended their complaint and, on November 5, 2013, Judge Winmill entered a judgment in the
defendants’ favor, dismissing the case in its entirety, with prejudice.
15

The Form 10-K states in part that “[w]e strive to achieve excellent mine safety and
health performance,” then lists the various ways such a goal is to be achieved. See Compl.,
¶ 229 (Docket No. 33). Such a statement constitutes an expression of optimism or an
aspirational ideal that does not, by itself, amount to the basis of a claim against Hecla’s board
once something bad happens. See, e.g., Airborne Health, Inc. v. Squid Soap, LP, 2010 WL
2836391, *8 (Del. Ch. 2010) (“Under Delaware law, a company’s optimistic statements praising
its own ‘skills, experience, and resources’ are mere puffery and cannot form the basis for a fraud
claim.’”) (citing Solow v. Aspect Res., LLC, 2004 WL 2694916, *3 (Del. Ch. 2004)); Tracinda
Corp. v. DaimlerChrysler AG, 197 F. Supp. 2d 42, 83 (D. Del. 2002) (“The Third Circuit has
MEMORANDUM DECISION AND ORDER - 24

allegedly false and misleading statements were reports, press releases, earnings updates, or
statements made to analysts by management, not the Hecla board as a whole.16 What is left,
then, are generalized allegations that Hecla’s board made (or consciously permitted Hecla to
make) false and misleading statements. This is just not enough. See Citigroup, 964 A.2d at 133,
n.88 (“Pleading that the director defendants ‘caused’ or ‘caused or allowed’ the Company to
issue certain statements is not sufficient particularized pleading to excuse demand under Rule
23.1. It is unclear from such allegations how the board was actually involved in creating or
approving the statements, factual details that are crucial to determining whether demand on the
board of directors would have been excused as futile.”).
Third, and perhaps most importantly, Plaintiffs’ Complaint overlooks the need for factual
allegations speaking to the directors’ subjective awareness of the allegedly false and misleading
statements. See id. at 134 (“A determination of whether the alleged misleading statements or
omissions were made with knowledge or in bad faith requires an analysis of the state of mind of
the individual director defendants, and plaintiffs have not made specific factual allegations that
would allow for such an inquiry.”). The fact of accidents at Hecla’s Lucky Friday mine or
MSHA’s investigations and citations related thereto – significant as they may be – does not
mean (for the purposes of considering Defendants’ Motion to Dismiss) that Hecla’s directors
understood that the statements in question were false or materially misleading when made. See
recognized that vague, non-specific statements of optimism or hope by corporate managers are
inactionable in a securities fraud case.”).
16

It should be pointed out that, while Plaintiffs’ Complaint largely fails to reference
allegedly false and misleading statements made by the entire Hecla board, it does reference
statements made by a single board member, Mr. Baker (also Hecla’s CEO). See, e.g., Compl., ¶¶
227, 238, 242 (Docket No. 33). Still, Plaintiffs do not allege that any other statement was signed
by any Hecla director other than Mr. Baker.
MEMORANDUM DECISION AND ORDER - 25

id. at 135 (“Merely alleging that there were signs of problems in the subprime mortgage market
is not sufficient to show that the director defendants knew that Citigroup’s disclosures were false
or misleading. The allegations are not sufficiently specific to Citigroup or to the director
defendants to meet the strict pleading requirements of Rule 23.1.”). Again, more is needed.17
c.

Board Committee Members’ Alleged Exposure to a Substantial Threat
of Liability

Along with allegations against Hecla’s entire board, Plaintiffs allege that certain directors
(those on Hecla’s Safety and Audit Committees) “face further risk of liability” given their
additional committee responsibilities. See Compl., ¶¶ 292-300 (Docket No. 33).
•

Hecla’s Safety Committee

Plaintiffs contend that Defendants Bowles, Rogers, Stanley, and Taylor, who were
members of Hecla’s Safety Committee, (1) had a duty “‘to assist the Board of Directors in
fulfilling its oversight responsibilities in relation to: reviewing health, safety, and environmental
policies’”; (2) received reports on “‘any material noncompliance with health, safety or
environmental law, and management’s response to such noncompliance’”; and (3) after receiving
such reports, “utterly failed to comply with this duty.” Id. at ¶ 294; see also id. at ¶ 295
(“Through the reports [D]efendants Bowles, Rogers, Stanley, and Taylor received, they were
aware of the history of ongoing MSHA violations at the Lucky Friday mine and then failed to
properly deal with the Company’s insufficient response to the repeated and mounting dangerous
conditions at the Lucky Friday mine.”). In response, Defendants argue that “[t]hese boilerplate

17

As Defendants point out in their briefing, Plaintiffs offer no response to Defendants’
arguments that Plaintiffs’ Complaint fails to adequately allege that Hecla’s directors face liability
for allowing false and misleading statements to be disclosed. See Defs.’ Reply in Supp. of Mot.
to Dismiss, p. 5, n.1 (Docket No. 52)
MEMORANDUM DECISION AND ORDER - 26

allegations are no more particularized than [P]laintiffs’ oversight allegations against the entire
board.” Defs.’ Mem. in Supp. of Mot. to Dismiss, p. 20 (Docket No. 40, Att. 1). For reasons
similar to those described above, the undersigned agrees.
First, notwithstanding Plaintiffs’ claim that Safety Committee members received certain
reports yet failed to take any action (see supra), the necessary details buttressing such claims are
notably lacking. There are no allegations of what reports the Safety Committee received, when
it received the reports, what was contained in them, and/or what the Committee did or did not do
in response to that information. In other words, Plaintiffs do not tie any of these Defendants’
actual conduct to their individual liability beyond, simply, their association with a committee
whose generalized duties are associated in name with safety incidents at the Lucky Friday mine.
The fact that accidents occurred, without more, does not establish that these Defendants face a
substantial threat of liability. When considering this very issue, the court in South explained:
Rather than making particularized allegations about red flags and director
knowledge, the plaintiffs argued that the members of the Safety Committee must
have known about and consciously ignored the problems at the Lucky [Friday] mine
because they were charged with overseeing safety. As numerous Delaware decisions
make clear, an allegation that the underlying cause of a corporate trauma falls
within the delegated authority of a board committee does not support an inference
that the directors on that committee knew of and consciously disregarded the
problem for purposes of Rule 23.1. The existence of the Safety Committee and the
scope of its charter are not sufficient to establish the necessary connection to the
Board.
South, 62 A.3d at *17 (emphasis added).
Second, to the extent Plaintiffs provide more specificity to their allegations concerning
Hecla’s Safety Committee members’ potential liability by referencing the MSHA reports
generated after the April 15, 2011 and November 17, 2011 accidents (discussed supra; see also

MEMORANDUM DECISION AND ORDER - 27

Compl., ¶¶ 296 & 297 (Docket No. 33)), such claims remain incomplete. Not only do these
reports not mention any directors on Hecla’s Safety Committee (referring instead to the Lucky
Friday mine’s “management” (see supra, citing South, 62 A.3d at *16)), they explicitly go on to
describe Hecla’s subsequent “corrective actions” (see, e.g., Ex. B to Defs.’ Mot. to Dismiss, pp.
7-9 (Docket No. 40, Att. 3); Ex. C to Defs.’ Mot. to Dismiss, pp. 5-6 (Docket No. 40, Att. 4)).
References to “corrective actions” implicitly contradict Plaintiff’s retrospective claim that Hecla
and/or its Safety Committee did nothing in response to these accidents.18
•

Hecla’s Audit Committee

Plaintiffs contend that Defendants Bowles, Rogers, and Stanley, members of the Audit
Committee, each face a substantial threat of liability for Hecla’s public disclosures. See Compl.,
¶¶ 299 & 300 (Docket No. 300) (outlining Audit Committee’s duties and alleging that
Defendants Bowles, Rogers, and Stanley breached these duties by “allow[ing] the issuance of
public statements that were false and misleading). Defendants challenge these allegations,
arguing that Plaintiffs “offer no well-pled factual allegations to support this conclusory
assertion” and that “‘shareholder plaintiffs must show that the misstatement was made
knowingly or in bad fath,’ which is not met by bare allegations that a directors’ committee was
charged with reviewing a company’s public statements.” Defs.’ Mem. in Supp. of Mot. to
Dismiss, pp. 22-23 (Docket No. 40, Att. 1) (quoting Citigroup, 964 A.2d at 135). For reasons
similar to those articulated above, the undersigned agrees.
Merely alleging the fact of a director defendant’s membership on a company’s audit
committee – like those on the company’s board itself (see supra) – does not support an inference
18

The reports’ discussion of these corrective actions only cuts against Plaintiffs’
currently-pled allegations; it does not prevent claims against Hecla’s board and/or Safety
Committee members in the event more particularized facts can be alleged going forward.
MEMORANDUM DECISION AND ORDER - 28

that a director knowingly breached a fiduciary duty (measured by the aspirational standard
established by the internal documents detailing a company’s oversight system) in connection
with any alleged misstatements by management. See South, 62 A.3d at *17, n.6 (citing Wood,
953 A.2d at 142 (rejecting allegation that service on Audit Committee was sufficient to support
inference of knowing participation in illegal conduct); Citigroup, 964 A.2d at 126-28 (rejecting
as insufficient allegations based on directors’ membership in Audit & Risk Management
Committee and status as financial experts); Rattner, 2003 WL 22284323 at *12-*13 (rejecting
inference that directors who were alleged to have served on Audit Committee therefore faced “a
substantial likelihood of liability for failing to oversee [the company’s] compliance with required
accounting and disclosure standards”); Desimone, 924 A.2d at 940 (holding that allegations
about extensive backdating of stock options did not support inference “that [the corporation’s]
internal controls were deficient, much less that the board, the Audit Committee, or [the
corporation’s] auditors had any reason to suspect that they were or that backdating was
occurring”)).
Plaintiffs’ opposition to Defendants’ Motion to Dismiss does not highlight any
allegations within their Complaint where more particular facts can be found associating the
Safety and/or Audit Committee members’ individual conduct with liability. Instead, Plaintiffs
reiterate their general contention that, “[w]here committee members have permitted wrongdoing
to occur, they face a substantial threat of personal liability, creating a reasonable doubt as to their
disinterestedness in considering a demand. See Pls.’ Opp. to Mot. to Dismiss, pp. 19-20 (Docket
No. 43). This is insufficient toward fending off a motion to dismiss and Plaintiffs’ legal citations
suggesting the opposite are misplaced. See supra (citing South, 62 A.3d at *17 (discussing

MEMORANDUM DECISION AND ORDER - 29

Delaware precedent rejecting inference that committee members knew of and ignored alleged
problems by virtue of their delegated authorities)).
First, in In re Countrywide Financial Corp. Derivative Litigation, 554 F. Supp. 2d 1044
(C.D. 2008), the district court in California pointed to specific “red flags of such prominence”
that went to “the very core” of the company’s business model such that defendants “must have
examined and considered them in the course of their committee oversight duties.” Id. at 1082.
This Court acknowledges that there is a certain syllogistic attractiveness to such an analysis upon
the facts of this case. After all, the nature of the accidents and the following investigations are of
a nature that seem to be inescapably bound for discussion in the boardroom. But, the nature of
Delaware law upon such matters (and in particular as to the burden that must be carried by
Plaintiffs in this case) requires more than a “how could they not have known” argument.
Plaintiffs offer no particularized facts demonstrating that Hecla’s board/committee members
were aware of the so-called red flags pertaining to wrongdoings within the company – let alone
red flags speaking directly to the very core of Hecla’s business model. See supra. Absent this
level of detail in such allegations, there is no place for reliance upon “inferences of scienter”
such as employed by the Countrywide court to support individual defendant liability, even if
recognized under Delaware law. See Defs.’ Reply in Supp. of Mot. to Dismiss, p. 13 (Docket
No. 52) (“No Delaware court has ever approved such an inference, and even the Countrywide
court cited to decisions of Delaware and other courts holding precisely the opposite.”).
Second, In re Reliance Securities Litigation, 135 F. Supp. 2d 480 (D. Del. 2001), spoke
to whether subcommittee members could be considered “control persons” under section 20(a) of
the Exchange Act for the purpose of imposing secondary liability on individuals exercising

MEMORANDUM DECISION AND ORDER - 30

control over a primary violator of the securities laws. See id. at 518. As pled, this is not a
question raised in the instant litigation and not addressed in Defendants’ Motion to Dismiss.
Finally, Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007) dealt with allegations of
board/committee members’ approval/acceptance of the backdating of stock options. See id. at
355-56. Ryan addressed allegations of actual board/committee member conduct, not whether
mere membership on a committee could create a substantial threat of individual liability so as to
excuse demand under FRCP 23.1.
Like before, Plaintiffs’ failure to plead with more particularity impairs their ability to
show that Hecla’s Audit Committee members face a substantial likelihood of liability.19
19

It is possible that Plaintiffs might find sufficient facts to remedy their failure to plead
particular facts establishing board and/or committee member involvement in conscious
wrongdoing by obtaining Hecla’s books and records under Section 220 of the General
Corporation Law, 8 Del. C. § 220. See China Agritech, 2013 WL 2181514 at *1 (“Before filing
suit, Rish used Section 220 . . . to obtain books and records, and his complaint relies both on
materials that the Company produced and on the glaring absence from the production of books
and records that the Company should have readily possessed and provided.”); South, 62 A.3d at
*6 (“Because a plaintiff asserting a Caremark claim must plead facts sufficient to establish board
involvement in conscious wrongdoing, our Supreme Court has admonished stockholders
repeatedly to use Section 220 . . . to obtain books and records and investigate their claims before
filing suit.”) (citing Beam, 845 A.2d at 1056 (“Both this Court and the Court of Chancery have
continually advised plaintiffs who seek to plead facts establishing demand futility that the
plaintiffs might successfully have used a Section 220 books and records inspection to uncover
such facts.”); White v. Panic, 783 A.2d 543, 556-57 (Del. 2001) (“[T]his case demonstrates the
salutary effects of a rule encouraging plaintiffs to conduct a thorough investigation, using the
‘tools at hand’ including the use of actions under 8 Del. C. § 220 for books and records, before
filing a complaint . . . . [F]urther pre-suit investigation in this case may have yielded the
particularized facts required to show that demand is excused or it may have revealed that the
board acted in the best interests of the corporation.”)); Pyott, 46 A.3d at 344 (“Not surprisingly,
without first obtaining books and records, stockholders have not been able to link the trauma to
the directors, and their Caremark complaints have been dismissed. By contrast, stockholders
who have used Section 220 and obtained documents showing board consideration or
involvement have been able to survive Rule 23.1 motions. Put simply, fast-filing generates
dismissals.”); Markewich ex. rel. Medtronic, Inc. v. Collins, 622 F. Supp. 2d 802, 810, n.9 (D.
Minn. 2009) (“Prior to filing the Complaint in this case, Plaintiff could have inspected
Medtronic’s books and records to amass a more robust factual predicate to survive a motion to
MEMORANDUM DECISION AND ORDER - 31

d.

Defendants Baker and Taylor’s Duty of Loyalty and Alleged Insider
Trading

Plaintiffs contend that Defendants Baker and Taylor “face a further risk of liability for
insider sales” because they “sold Hecla stock under highly suspicious circumstances.” Compl.,
¶¶ 29, 52, 264-265, 267, 301-303 (Docket No. 33). Defendants disagree, arguing that (1) even if
true, a majority of Hecla directors remain disinterested, thus providing no basis for excusing a
pre-suit demand; and (2) the allegations lack the necessary particularity in any event. See Defs.’
Mem. in Supp. of Mot. to Dismiss, pp. 23-24 (Docket No. 40, Att. 1). The undersigned agrees.
As a threshold matter, even assuming that Defendants Baker and Taylor breached their
duties of loyalty by engaging in illegal insider sales, such allegations do not implicate a majority
of Hecla’s board. Without more, insufficient facts exist to raise a reasonable doubt that Hecla’s
directors as a whole are disinterested or face a substantial threat of liability for insider trading.
See, e.g., Rattner, 2003 WL 22284323 at *11 (holding that plaintiff’s allegations did not create
reasonable doubt that majority of board is disinterested with respect to insider trading claims
because “even somehow assuming Sclavos suffers from a disabling interest, nothing has been
pleaded with particularity as to the scienter of seven of the eight members of the Board.”). As a
result, such a basis for excusing a pre-suit demand is missing.
Further, to support a claim for insider trading “‘it must be shown that each sale by each
individual defendant was entered into and completed on the basis of, and because of, adverse
material non-public information.’” Id. (quoting Stepak v. Ross, 1985 WL 21137 at *5 (Del. Ch.

dismiss, but chose not to do so.”); infoUSA, 953 A.2d at 973 (“Plaintiffs have followed this
Court’s oft-issued advice and brought their action based upon documents received as part of a
request for books and records under 8 Del. C. § 220. As a result, the amended consolidated
complaint overflows with detail.”).
MEMORANDUM DECISION AND ORDER - 32

1985); citing Guttman, 823 A.2d at 505 (“Delaware case law makes the same policy judgments
as federal law does, which is that insider trading claims depend importantly on proof that the
selling defendants acted with scienter.”)).20 Looking at Plaintiffs’ allegations of insider trading,
only conclusory statements are made (see Compl., ¶¶ 29, 52, 264-267, 302-303 (Docket No.
33)); no particularized facts exist to indicate that Defendants Baker and Taylor had (and
improperly used) material, non-public information. See Guttman, 823 A.2d at 505 (dismissing
insider trading claims that “fail[ed] to allege particularized facts that support a rational inference
that these five directors possessed information about NVIDIA’s actual performance that was
materially different than existed in the marketplace at the time they traded, much less that they
consciously acted to exploit such superior knowledge.”). Merely pointing out conduct touted as
“highly suspicious” – as Plaintiffs attempt to do (see Compl., ¶ 301 (Docket No. 33)) – does not
satisfy Plaintiffs’ burden in opposing Defendants’ Motion to Dismiss..21
20

Attempting to distinguish Rattner and Guttman, Plaintiffs argue that their Complaint
does not assert a claim for insider trading but, rather, “merely alleges the suspicious trades
support a substantial likelihood of liability for breaching their fiduciary duties of loyalty,
rendering any demand upon them futile.” Pls.’ Opp. to Mot. to Dismiss, p. 21, n.7 (docket No.
43). But Rattner and Guttman dealt with breach of loyalty/fiduciary duties claims in the context
of allegedly improper insider stock sales. Compare Rattner, 2003 WL 22284323 at *4-*5
(“Rattner alleges that the Selling Defendants, in violation of their fiduciary duties, engaged in
insider trading; that is, the Selling Defendants profited from selling VeriSign common stock . . .
while knowing that improper accounting practices at VeriSign, the products of which were
publicly disseminated through material misstatements, created an inflated market price.”), with
Guttman, 823 A.2d at 504 (“The cursory allegations of the complaint in this action do not come
close to meeting the plaintiffs’ burden to show that these five defendants face a substantial threat
of liability for insider trading-based fiduciary duty violations. . . . . This is fatal to the plaintiffs’
effort to show demand excusal.”).
21

In Guttman, the court indicated that the plaintiffs’ insider trading allegations could
also stand to benefit from searching Hecla’s books and records via Section 220 of the General
Corporation Law, 8 Del. C. § 220. See Guttman, 823 A.2d at 504; see also Silverberg on Behalf
of Dendreon Corp. v. Gold, 2013 WL 6859282, *13, n.67 (Del. Ch. 2013) (concluding that
plaintiff’s demand for corporate books and records pursuant to 8 Del. C. § 220 “contributed
MEMORANDUM DECISION AND ORDER - 33

3.

Plaintiffs Have Not Properly Alleged That a Majority of Hecla’s Directors Lack
Independence

Plaintiffs claim that “demand is futile as to Defendant Baker because of his lack of
independence.” Compl., p. 75, ¶¶ 304-312 (Docket No. 33). According to Plaintiffs, Defendant
Baker “lacks independence from the other directors due to his interest in maintaining his
executive position at Hecla and the ability of the Board to terminate his employment.” Id. at
¶ 309. Except, even if true, these allegations do not speak to the independence of the remaining
board members – the majority of Hecla’s board – to determine whether the absence of any presuit demand is excused. See supra. In short, Defendant Baker’s independence (or alleged lack
thereof) is immaterial to the issues raised within Defendants’ Motion to Dismiss. See Defs.’
Mem. in Supp. of Mot. to Dismiss, p. 25 (Docket No. 40, Att. 1) (“Even on Plaintiffs’ telling,
then, this leaves six directors who are independent – a clear majority of Hecla’s seven-member
board. Thus, Plaintiffs’ contention that Baker lacks independence cannot establish that a
majority of Hecla’s board is incapable of independently making a decision whether Hecla should
pursue litigation.”) (emphasis in original).22
All told, under the unique facts of this case, and recognizing the difficulty in adequately
pleading a shareholder derivative suit (see supra), Plaintiffs have not demonstrated demand
futility. While their allegations may have survived a motion to dismiss under more typical
situations, under Delaware law addressing circumstances presented here, Plaintiffs’ allegations
significantly” to his ability to plead particularized facts that director defendants possessed
material, non-public information when they sold their stock to satisfy requirements of FRCP
23.1).
22

Defendants contend that Plaintiffs offer no response to Defendants’ argument that
Plaintiffs’ Complaint fails to adequately allege that a majority of Hecla’s directors lack
independence. See Defs.’ Reply in Supp. of Mot. to Dismiss, p. 5 (Docket No. 52).
MEMORANDUM DECISION AND ORDER - 34

(as numerous as they may be) nonetheless fall short of the type of allegations needed to rebut the
presumption that a director – when assessing a demand request – would be faithful to his
fiduciary duties. Therefore, Plaintiffs’ derivative claims are dismissed for failing to adequately
plead demand futility.
C.

Plaintiffs’ Contemporaneous Ownership of Hecla Stock and Standing
To establish standing under FRCP 23.1, a shareholder’s derivative complaint must allege

that the “plaintiff was a shareholder or member at the time of the transaction complained of, or
that the plaintiff’s share or membership later devolved on it by operation of law.” Fed. R. Civ. P.
23.1(b)(1).23 In essence, this “contemporaneous ownership rule” is a procedural requirement that
“denies a derivative plaintiff standing to challenge transactions that occurred prior to the time the
plaintiff became a shareholder.” Ensign Corp. v. Interlogic Trace, Inc., 1990 WL 213085, *2
(S.D.N.Y. 1990). “The policies underlying the requirement are twofold: (1) to prevent potential
derivative plaintiffs from ‘buying a lawsuit’ by purchasing stock; and (2) to insure that derivative
actions are brought by shareholders who have actually suffered injury and have an interest in the
outcome of the case.” Id.
Plaintiffs’ Complaint alleges that each Plaintiff owned Hecla stock at times relevant to
this action, and is a current Hecla stockholder. See Compl., ¶¶ 20-22 (Docket No. 33). Are such
generalized allegations enough under FRCP 23.1? Defendants say no; Plaintiffs say yes.
Compare Defs.’ Mem. in Supp. of Mot. to Dismiss, pp. 8-9 (Docket No. 40, Att. 1) (“‘This
23

Section 327 of the General Corporation Law, 8 Del. C. § 327, parallels FRCP 23.1's
contemporaneous ownership requirement and provides: “In any derivative suit instituted by a
stockholder of a corporation, it shall be averred in the complaint that the plaintiff was a
stockholder of the corporation at the time of the transaction of which such stockholder complains
or that such stockholder’s stock thereafter devolved upon such stockholder by operation of law.”
8 Del. Code § 327
MEMORANDUM DECISION AND ORDER - 35

vague allegation does not satisfy the strict standard of Rule 23.1'”) (quoting Accuray, Inc.
S’holder Deriv. Litig., 757 F. Supp. 2d 919, 926 (N.D. Cal. 2010)), with Pls.’ Opp. to Mot. to
Dismiss, pp. 23-25 (Docket No. 43) (“Nothing in [FRCP 23.1] requires the specificity that the
Defendants demand.”).
No uniformly-recognized, bright-line, rule dictates the degree of specificity needed when
alleging a shareholder’s standing to bring a derivative suit. Had Defendants’ Motion to Dismiss
focused on this issue alone (or its alternate arguments rejected), this Court would dissect the
arguments, contrasting them against the case law in various circuits, and resolve as a matter of
law the parties’ positions. But that is not this case. Although the Court has concluded that
Plaintiffs’ Complaint must be dismissed for failure to adequately plead demand futility, the
decision doing so is made without prejudice and Plaintiffs will be granted leave to amend their
Complaint to address the shortcomings raised by Defendants’ Motion to Dismiss and identified
in this Memorandum Decision and Order. With this in mind (and in the interests of
completeness), should Plaintiffs seek to file an amended complaint, any amendment should also
incorporate more specificity as to the timing and duration of Plaintiffs’ ownership of Hecla
stock. Such information is readily available to Plaintiffs and easily integrated into any pleading
in the event this litigation progresses to that point.
///
///
///
///
///

MEMORANDUM DECISION AND ORDER - 36

III. ORDER
For the foregoing reasons, IT IS HEREBY ORDERED THAT Defendants’ Motion to
Dismiss (Docket No. 40) is GRANTED, with leave to amend.
Within 42 days of this Memorandum Decision and Order, Plaintiffs may move to file an
Amended Complaint.
DATED: February 20, 2014

Honorable Ronald E. Bush
U. S. Magistrate Judge

MEMORANDUM DECISION AND ORDER - 37