Pinsly v. Holliday et al

Filing 34

MEMORANDUM AND ORDER in case 1:09-md-02058-PKC; granting (32) Motion to Dismiss; granting (35) Motion to Dismiss in case 1:12-cv-04568-PKC; granting Motion to Dismiss; granting Motion to Dismiss in case 1:09-md-02058-PKC. The defendants' motions in Pinsly v. Holliday, et al., are granted. (12 Civ. 4778, Docket #s 21, 24.) The defendants' motions in Waber v. Lewis, are granted. (12 Civ. 4568, Docket #s 32, 35; 09 MD 2058, Docket # 784, 787.) The Clerk is directed to terminate the motions and enter judgment in favor of the defendants in both actions.(Signed by Judge P. Kevin Castel on 4/25/2013). (Signed by Judge P. Kevin Castel on 4/25/2013) (ja)

USDSSDNY

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
______________________________________________________-----x

DOCUMENT
ELECTRONICALLY FILED
DOC#: _____________
DATE FILED: 'Y-a2S-13

"­

IN RE: BANK OF AMERICA CORP.
SECURITIES, DERIVATIVE, AND
EMPLOYEE RETIREMENT INCOME
SECURITY ACT (ERISA) LITIGATION

Master File No. 09 MD 2058 (PKC)

-----------------------------------------------------------x

MEMORANDUM AND ORDER

THIS DOCUMENT RELATES TO:
MICHAEL W ABER, derivatively on behalf of
BANK OF AMERICA CORPORATION,
Plaintiff,

12 Civ. 4568 (PKC)

-againstKENETH D. LEWIS,
Defendants,

-----------------------------------------------------------x
MATTHEW PINSL Y, derivatively on behalf of
BANK OF AMERICA CORPORATION,
Plaintiff,

12 Civ. 4778 (PKC)

-againstCHARLES O. HOLLIDAY, JR., et aI,
Defendants,

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P. KEVIN CASTEL, District Judge:
Plaintiffs Matthew Pinsly and Michael Waber bring separate derivative actions
on behalf of nominal defendant Bank of America Corporation ("BofA") alleging that BofA's
directors and officers breached their fiduciary duties and were unjustly enriched when BofA
acquired Countrywide Financial Corporation ("Countrywide") and Merrill, Lynch & Co.
("Merrill"). Pinsly separately alleges that defendants breached their fiduciary duties to BofA
when they invested in volatile subprime assets despite knowing of their attendant risks, while

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Waber separately asserts that defendants are liable to BofA for investigations and claims
concerning their lending practices. Both Pinsly and Waber submitted litigation demands to
BofA's board of directors, which declined to pursue the claims. Pinsly and Waber both
contend that the board's refusals to pursue legal action were motivated by bad faith and self­
interest.
All defendants have moved to dismiss the =-=~ and Waber complaints
pursuant to Rule 12(b)(6), Fed. R. eiv. P. In each case, separate motions have been filed by
the individual defendants and by nominal defendant BofA Because the two complaints set
forth similar allegations against overlapping parties, this Memorandum and Order reviews all
four motions to dismiss in the

and Waber cases.

Because the complaints do not plausibly allege that BofA's board refused
plaintiffs' litigation demands in violation of the Delaware business judgment rule, they are
dismissed. The plaintiffs' claims also are dismissed on separate and independent grounds.
For the reasons explained, the Order and Judgment in the consolidated derivative action,
which asserted claims arising from BofA's acquisition of Merrill, precludes plaintiffs from
pursuing these derivative actions concerning the Merrill acquisition.

09 MD 2058,

Docket # 805. Additionally, the Pinsly and Waber complaints name as defendants certain
individuals who had no affiliation with BofA at the time of the alleged wrongdoings, and also
fail to state claims for breach of fiduciary duty or unjust enrichment under Delaware law.
The Pinsly and Waber actions are therefore dismissed.
BACKGROUND
For the purposes of defendants' motions, all non-conclusory factual allegations
set forth in the two complaints are accepted as true, see Ashcroft v. Iqbal, 556 U.S. 662

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(2009), and all reasonable inferences are drawn in favor of Pin sly and Waber. See
Elevator Antitrust Litig .. 502 F.3d 47,50 (2d Cir. 2007).
A. BofA's Acquisition of Countrywide.
l. Countrywide-Based Allegations in the Pinsly Action.

BofA purchased Countrywide in 2008 for $4 billion. (Pinsly CompI't '['1[9-10.)
Defendants publicly stated that BofA conducted "extensive due diligence" of Countrywide,
even though, plaintiff asserts, there were significant liabilities and then-unknown problems
concerning Countrywide's underwriting and lending practices. (Pinsly Compl't

,r,

10-11,

108-09, 113-18.) According to PinsIy, the Countrywide acquisition "dramatically increased"
BofA's subprime exposure, leaving BofA with a portfolio of extensive liabilities and
deteriorating assets. (Pinsly CompI't 'I[,r 106-07, 119-25.) Pinsly asserts that defendants
withheld information about the true condition of Countrywide, which proved to be "one of the
most destructive acquisitions" in U.S. history, with "disastrous effects" that continue to harm
BofA and shareholders. (Pinsly CompI't '1['1[12-15.) The Complaint alleges that BofA has
suffered more than $20 billion of loss through litigation and the lost value of Countrywide­
related assets. (Pinsly Compl't'l['I[16-19.)
2. Countrywide-Based Allegations in the Waber Action.
Waber's complaint notes that in a press release, Lewis described Countrywide
as "the best domestic mortgage platform at an attractive price," and stated that its acquisition
would "affirm our position as the nation's premier lender to consumers. (Waber Compl't II]
64.) Kenneth Lewis, BofA's then-CEO, stated that the acquisition provided "an opportunity
to better serve our customers and to enhance future profitability." (Waber Compl 't '164.)

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The press release "went on to tout" Countrywide's subprime expertise. (Waber Compl't ~
65.)
Waber also recites defendants' representations that BofA conducted extensive
due diligence of Countrywide, asserts that defendants withheld information about
Countrywide's likely litigation and regulatory exposure, and contends that BofA diligence
failed to uncover problems with Countrywide's lending practices that ultimately led to
significant losses for BofA. (Waber Compl 't ~~ 66-72, 80-84.) Waber contends that
defendants caused BofA to issue materially misleading statements that praised Countrywide's
strengths and concealed its regulatory exposure. (Waber Compl't ~~ 228-36.) His complaint
summarizes legal and regulatory actions taken against Countrywide following the acquisition.
(Waber Comp]'t ~,r 75, 78-79, 263-82.) Waber also alleges that the legal fees for former
Countrywide executives, including its CEO Angelo Mozillo, were paid by BofA as part of an
indemnification clause contained in "the corporate bylaws." (Waber Compl't ~~ 85-88.) As a
result of past practices, Countrywide has caused BofA to lose billions in litigation and asset
write downs, Waber asserts. (Waber Compl 't ~~ 89-91.)
B. BofA's Acquisition of MerrilL

1. Merrill-Based Allegations in the Pinslv Action.
Pinsly asserts that defendants also made "another risky bet" in acquiring
Merrill for $29 per share. (Pinsly Comp]'t ~~ 20, 132.) He asserts that defendants overpaid
for the acquisition, that Merrill over-invested in "toxic assets," and that the acquisition had a
dilutive effect on BofA shares. (Pinsly Compl 't ~~ 20-22.) The transaction was hastily
negotiated and approved by the BofA directors without adequate diligence into Merrill's
condition, plaintiff claims. (Pinsly Compl't ~~ 23-24, 126-32.) Pinsly alleges that the

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transaction included an arrangement for large, undisclosed, discretionary bonuses to Merrill
employees. (Pin sly Compl't ~'1133-43, 196-97.) Defendants did not disclose to shareholders
that Merrill's ongoing losses exceeded prior forecasts, and they internally debated whether to
invoke a "material adverse effect" clause and terminate the transaction. (Pinsly Compl't ,r4J
25-27, 144-95,207-24,238-40.) In soliciting shareholder approval for the transaction,
defendants never updated BofA's proxy statement to reflect Merrill's deteriorating condition,
and did not disclose acts of government financial assistance that helped to consummate the
transaction. (Pinsly Compl't 4J~ 28-30, 198-202,225-37.) Pinsly notes that government
officials, courts and the SEC have identified actual and potential liability arising out of the
Merrill acquisition. (Pinsly Compl't ~4J 31-35, 271-81, 283-86.) Pinsly alleges that BofA has
reserved $20 billion for litigation exposure arising out of the Merrill acquisition and other
potential liabilities. (Pinsly Compl't '136.)
2. Merrill-Based Allegations in the Waber Action.
Like Pinsly, Waber alleges that, under Lewis's guidance, BofA hastily agreed
to acquire Merrill Lynch without conducting adequate diligence, while also agreeing to a
secret, accelerated bonus arrangement wherein Merrill employees would be paid up to $5.8
billion in discretionary compensation. (Waber Compl't 4J4J 92-110, 160-61,237-39.) Waber
alleges that various defendants, and particularly Lewis, publicly misrepresented Merrill's risk
profile, the Merrill bonus arrangement and Merrill's overall financial health. (Waber Compl't

'1'[ 111-17.)

Waber also claims that after the announcement of the transaction but prior to

shareholder approval, defendants consciously chose not to disclose significant ongoing losses
at Merrill, which totaled $15.5 billion during October and November 2008. (Waber CompJ't

4J4J 118-59, 169-72,243-55.) His complaint asserts that the shareholder proxy issued prior to

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the transaction misstated and omitted information related to the bonuses and the ongoing
losses. (Waber Compl't ~~ 162-68.) Even after the transaction was approved, defendants
concealed Merrill's true condition. (Waber Compl't 'I~ 196-205.)
Waber alleges that despite reservations about the transaction, Lewis agreed to
consummate the transaction under pressure from federal officials, and that BofA required
significant federal financial assistance in order to absorb the Merrill losses. (Waber Compl't
'1'1173-195.) In January 2009, when the market learned Merrill's true financial condition, the
federal financial assistance and the existence of the Merrill bonus arrangement, BofA share
prices dropped sharply. (Waber Compl't ~~ 206-227.) Waber notes that BofA has since had
to pay severance packages to Thain and Lewis. (Waber Compl't ~~ 292-94.)
C. Pinsly's Allegations Concerning BofA's Subprime Holdings.

Pinsly also sets forth allegations concerning BofA's history with originating
and investing in subprime real-estate loans. After previous public statements that conveyed
misgivings about the risks associated with subprime lending, beginning in 2005, BofA
expanded its holdings in subprime debt. (Pinsly Compl't ~'14-8, 77-79.) BofA periodically
purchased subprime mortgages from third parties and then pooled them with mid-level and
prime residential mortgages, which it then securitized and sold to investors as Collateralized
Debt Obligations ("CDOs"). (Pinsly CompI't ~~ 5, 78.) BofA made nine such CDO offerings
in 2005 and ten in 2006, after which it retained "super senior" interests in the CDOs. (Pinsly
Compl't ~!'I 5-6.) Plaintiff asserts that although they were known to be risky and volatile
investments, by the end of2007, BofA held $11.63 billion in CDOs. (Pinsly CompI't '1'17,
82.) In 2007, a rising number of BofA-originated loans began to default, including high-rated
consumer residential loans, which, plaintiff contends, reflected inadequate underwriting

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practices at BofA. (Pinsly Compl't ~~ 96.) Plaintiff contends that defendants orchestrated
BofA's participation in the sub prime market without adequate investigation, controls or
public disclosures. (Pinsly Compl't ~'1 8, 94-103.)
D. Plaintiffs' Litigation Dernands to the BofA Board.
1. Pinsly's Demand.
On August 4, 2011, Pinsly submitted a demand to the BofA Board pursuant to
Delaware Court of Chancery Rule 23.1, requesting the board to commence an action against
BofA's current and/or former directors and officers. (Pinsly Compl'QI,r 37, 295.) On January
19,2012, the board sent a letter to Pinsly's counsel stating that it had referred the demand to
its audit committee for review, and that the audit committee recommended against pursuing
the claims. (Pinsly Compl't ~'I 38-39, 296.) BofA's full board voted against commencing the
action demanded by Pinsly. (PinsIy CompI't ~'139-40, 297-98.) Pinsly asserts that the board
did not act with diligence and good faith, and did not adequately explain the basis for refusal.
(Pinsly Compl't '1'141-42,299-301.)
2. Waber's Demand.
Waber asserts that on July 18, 2011, he served BofA with a written demand
that the board establish a committee "to fully investigate and recover damages in connection
with, inter

the due diligence regarding the Countrywide merger, the indemnification of

Countrywide officers, Merrill Lynch bonuses, municipal derivatives, mortgage foreclose
problems and recent settlements ... ," (Waber Compl't'l 300; see also Bumovsky Dec. Ex. 3
(Docket # 37).) On October 19, 2011, BofA's general counsel wrote Waher stating that the
board had authorized its audit committee to review the demand. (Waber CompI't ~ 301.) On
January 19, 2012, an associate general counsel wrote to \Vaber's counsel stating that the audit

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committee and the board had reviewed the demand and concluded that it was not in BofA's
best interest to pursue the claims. (Waber Compl't ~1302; see also Burnovsky Dec. Ex. 4
(Docket # 37).) Waber asserts that none of the directors was disinterested or independent
with respect to his demand. (Waber CompI't ~1304.)
E. Parties to the Pinslv Complaint.
Pinsly is a BofA shareholder who has continually held BofA shares "since at
least 2005." (Pinsly Compl't 'l~ 46, 294.) BofA, the nominal defendant, is a Delaware
corporation with its principal place of business in Charlotte, North Carolina. (Pinsly Compl't
'147.) Defendant Joseph L. Price was an officer at BofA from June 2003 through September
2011, including from 2007 to 2010, when he was BofA's chief financial officer. (Pinsly
Compl't ~ 52.) Defendant Amy Woods Brinkley had the title of Global Risk Executive from
2001 to 2009. (Pinsly CompI't ~ 53.) Defendant Kenneth D. Lewis was BofA's CEO from
2001 to 2009. (Pinsly Compl't '154.) Defendant Brian Moynihan has been BofA's CEO
since 2009. (Pinsly Compl't ~ 60.) Defendant Alvaro G. de Molina was CFO from 2005 to
2006. (Pinsly Compl't ~ 64.) Defendant Barbara J. Desoer served as president ofBofA
Home Loans from 2008 through February 2012. (Pinsly Compl't ~ 65.) All other defendants
are named in their capacities as BofA's directors. (Pinsly Compl't ~1'148-51, 55-59, 61-63.)
Pinsly alleges that defendants failed to meet the fiduciary obligations that they
owed to BofA. (Pinsly Compl't 'r~ 68-71.) His complaint asserts nine separate breach of
fiduciary duty claims, all of which allege that, in essence, defendants disseminated false
infonnation, failed to properly manage BofA and failed to maintain adequate internal

controls. (Pinsly CompI't ~~ 302-15, 333-50.) Pinsly alleges that through lucrative bonuses
and salaries, defendants unjustly enriched themselves at the expense of BofA. (Pinsly

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CompI't 'l~ 316-18.) He also brings a claim captioned as "gross mismanagement," asserting
that defendants breached duties to manage and oversee BofA. (Pinsly Compl't 'f~ 319-22.)
F. Parties to the Waber Complaint.
Waber asserts claims against 14 of the defendants named in the Pinsly action,]
along with nine additional defendants. Defendant Neil Cotty was BofA's chief accounting
officer during the Merrill acquisition. (Waber Compl't ~ 33.) John A. Thain was Merrill's
CEO prior to its acquisition, and thereafter retained a senior position at Merrill until January
22,2009. (Waber Compl't ~ 32.) William Barnet, III, William P. Boardman, John T. Collins,
Gary L. Countryman, Charles O. Holliday, Walter E. Massey and Thomas M. Ryan are
current or former members of the BofA board. (Waber Compl't ~~ 35,37,40,41,43,46,51.)
Waber asserts five causes of action against all defendants. He alleges that
defendants breached their fiduciary duties by disseminating false and misleading statements
and by failing to maintain adequate internal controls against "obvious and pervasive"
problems within BofA. (Waber Compl't ~~ 305-12.) He also asserts claims of unjust
enrichment, "abuse of control" and "gross mismanagement." (Compl't ~'r 313-24.)
RULE 12(b)(6) STANDARD.
To survive a motion to dismiss under Rule 12(b)(6), Fed. R. Civ. P., "a
complaint must contain sufficient factual matter, accepted as tme, to 'state a claim to relief
that is plausible on its face.'" Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544,570 (2007». The "factual content" offered must "allow[ ] the court to draw the
reasonable inference that the defendant[s] [are] liable for the misconduct alleged." Id.
Accordingly, "the plausibility standard ... asks for more than a sheer possibility that a
I Specifically, Waber and Pinsly both name as defendants Lewis, Price, Ambani, Bies, Bramble, Colbert,
Gifford, Jones, Lozano, Moynihan, May, Powell, Rossotti and Scully.

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defendant has acted unlawfully." rd. "Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice." Id.; see also Twombly, 550
U.S. at 555.
A "complaint is deemed to include any written instrument attached to it as an
exhibit or any statements or documents incorporated in it by reference." Chambers v. Time
WarnIT, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (quoting In1'l Audiotext Network, Inc. v. Am.
Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (Q.§: curiam). "Where a document is not
incorporated by reference, the court may nevertheless consider it where the complaint 'relies
heavily upon its terms and effect,' thereby rendering the document' integral' to the
complaint." DiFolco v. MSNBCCable L.L.c., 622 F.3d 104, III (2d Cir. 2010) (quoting
Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir. 2006)). "However, 'even if a
document is integral to the complaint, it must be clear on the record that no dispute exists
regarding the authenticity or accuracy of the document.'"

Id. (quoting Faulkner v. Beer, 463

F.3d 130, 134 (2d Cir. 2006».
DISCUSSION
I.

Plaintiffs Do Not Set Forth Facts that Plausibly Allege the Board
Denied Their Litigation Demands in Bad Faith.
A. Pinsly's Complaint Does Not Set Forth Allegations Sufficient to

OverGQme Delaware's Business Judgment Rule.
BofA is a Delaware corporation with its headquarters in Charlotte, Korth
Carolina. (Pinsly Comp]'t '12.) The demand requirements in a derivative action are governed
by the law of the state of incorporation.
U.S. 90, 108-09 (1991).

See,~,

Kamen v. Kemper Fin. Servs., Inc., 500

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"A shareholder derivative suit is a uniquely equitable remedy in which a
shareholder asserts on behalf of a corporation a claim belonging not to the shareholder, but to
the corporation." Levine v. Smith, 591 A.2d 194,200 (Del. 1991), overruled in part on other
grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000)? "Derivative suits have been used
most frequently as a means of redressing hann to a corporation allegedly resulting from
misconduct by its directors." Rales v. Blasband, 634 A.2d 927, 933 (Del. 1993).
"Because directors are empowered to manage, or direct the management of, the
business and affairs of the corporation, 8 Del. C. § 141(a), the right of a stockholder to
prosecute a derivative suit is limited to situations where the stockholder has demanded that
the directors pursue the corporate claim and they have wrongfully refused to do so ...." Id.
at 932 (citing =~.=::, 591 A.2d at 200). "The purpose of pre-suit demand is to assure that the
stockholder affords the corporation the opportunity to address an alleged wrong without
litigation, to decide whether to invest the resources of the corporation in litigation, and to
control any litigation which does occur." Spiegel v. Buntrock, 571 A.2d 767, 772 (Del.
1990). "Consistent with the purpose of requiring a demand, a board decision to cause a
derivative suit to be dismissed as detrimental to the company, after demand has been made
and refused, will be respected unless it was wrongful." Zapata Corp. v. Maldonado, 430 A.2d
779, 784 (DeL 1981).
Pinsly submitted his litigation demand on August 4, 2011, contending that the
BofA board should "take action to remedy breaches of fiduciary duty and other violations of
law by certain current and fom1er directors and executive officers of the Company ...."
(Pinsly Compl't

A, at 1.) The demand letter asserted breaches of fiduciary duty consistent

2 Brehm, which overruled in part several rulings cited in this Memorandum and Order on points not relevant
here, held that a Chancery Court's conclusions as to demand excusal are reviewed de novo and not pursuant to
an abuse of discretion standard. 746 A.2d at 253.

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with the Complaint's above-summarized allegations. (Pinsly Compl't Ex. A.) In a letter
dated October 19,2011, Jennifer E. Bennett, an associate general counsel and assistant
corporate secretary at BofA, confirmed receipt of Pin sly's demand and stated that BofA's
board authorized its audit committee to review the demand and make recommendations to the
board as to any additional action. (Parmar Dec. Ex. A (Docket # 22).)
At the time that Pinsly submitted his demand, a majority of the board- eight of
thirteen directors

had begun their affiliations with BofA only after the Countrywide and

Merrill acquisitions. (Parmar Dec. Ex. 8. at 2-6 (Docket # 22).) These eight directors,
including all five members of the board's audit committee, were not affiliated with BofA until
after January 1,2009. (Id.) Only four of the thirteen directors had been board members
during the acquisitions of Countrywide and MerrilL (Id.) Another director, current CEO
Brian Moynihan, was a BofA officer at the time of the acquisition. (Id.)
In a meeting of January 11,2012, based on the audit committee's
recommendation, the board concluded that "it is not in the best interests of the Corporation to
take this action or pursue the claims that your letter appears to propose." (Id.) Pursuing the
claims could have a "potential adverse effects" on BofA in other pending litigations, and
"would likely impair the Corporation's defenses in these various proceedings and
investigations." (Id.) The letter stated that parties in those other actions would construe
BofA's pursuit of plaintiff s proposed claims as an admission of liability. (Id.) It noted the
presence of "practical barriers to recovery" on the claims, and said that any recovery was
likely outweighed by the risks of weakening BofA's defenses in those other pending actions.
(Id.) In her letter to Pinsly's attorney dated January 19,2012, Bennett stated that the board
would not take action or pursue plaintiffs proposed claims. (Pinsly Compl't

8.)

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Pinsly asserts that the letter ofJanuary 19 inadequately explained the board's
refusal to take further action on his demand letter. (Pinsly Compl't 4J~ 299-300.) According
to his complaint, the January 19 letter "contains no information whatsoever concerning what
kind of investigation the Audit Committee engaged in, or what its substantive findings were
regarding the merits of any of Plaintiffs claims as set forth in the Demand, despite the blanket
statement that there are 'legal and practical barriers to recovery.'" (Pinsly Compl't 4J 299;
emphasis in original.) He alleges that the board's response reflected "complete disregard" of
his claims. (Pinsly Compl't '\300.)
A board's refusal to pursue a shareholder's litigation demand is reviewed
under Delaware's business jUdgment rule. Levine, 591 A.2d at 209; Spiegel, 571 A.2d at
775-76; Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984). "The business judgment rule is a
presumption that in making a business decision, not involving self-interest, the directors of a
corporation acted on an informed basis, in good faith and in the honest belief that the action
taken was in the best interests of the company." Spiegel, 571 A.2d at 774. "[W]hen a board
refuses a demand, the only issues to be examined are the good faith and reasonableness of its
investigation." Id. at 777. If a board's refusal satisfies the business judgment rule, courts
will not disturb its decision. Id. In considering the board's course of action, "[c]ourts do not
measure, weigh or quantify directors' judgments." Brehm, 746 A.2d at 264. There is "no
prescribed procedure that a board must follow" for investigating a shareholder demand.
Levine, 591 A.2d at 214. 3

In opposition, Pinsly heavily relies on In re PSE&G Shareholder Litigation, 801 A.2d 295 (N.l 2002), a case
that applies New Jersey law to a New Jersey corporation. That decision adopts a "modified business judgment
rule" for reviewing demand refusals, one that places the initial burden on directors to demonstrate that they acted
reasonably and in good faith when rejecting a shareholder demand. Id. at 301. PSE&G is contrary to the
Delaware standard and does not apply here. Pinsly also relies on a New York trial court decision, Syracuse
Television, Inc. v. Chal1J:lel9, Syracuse, Inc., 273 N.Y.S.2d 16 (N.Y. Sup. Ct. Onondaga Cty. 1966), which
3

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Pinsly's complaint does not plausibly allege that BofA's board violated the
business judgment rule when it declined to pursue plaintiffs litigation demand. Its demand
allegations consist principally of two paragraphs. Paragraph 299 asserts that the board's letter
ofJanuary 19, 2012 did not adequately explain the substance and process of the audit
committee's inquiry. Paragraph 300 consists solely oflegal conclusions that are not afforded
the presumption of truth under Iqbal, and states: "Clearly, the Board's complete disregard of
the actual merits of the claims set forth in the Demand is improper and demonstrates the
Board's lack of diligence and good faith."
Drawing every reasonable inference in favor of the plaintiff, these assertions
fall far short of plausibly alleging facts defeating the presumption that the board did not act
with honest, good-faith belief that its refusal was in the best interest of the company. Spiegel,
571 A.2d at 774. They instead reflect plaintiffs subjective disagreement with the ultimate
merits of the board's refusal of his demand letter. But Delaware does not permit a court
second-guess the substantive merits of a demand's refusal or to prescribe a board's
deliberation process, so long as the board conducts itself in good faith. Brehm, 746 A.2d at
264; Levine, 591 A.2d at 214. As alleged in Pinsly's complaint, and in the January 19 letter
that it annexes as an exhibit, the board received plaintiffs demand, referred it to the audit
committee for consideration, and concluded that the risks posed by other, parallel litigations
outweighed any possible recovery. The complaint contains no assertions plausibly alleging
that the board's refusal of his demand violated the business judgment rule or was procedurally
deficient.

applied New York law to allegations that upon receipt of a litigation demand, a board of directors failed to
commence any investigation. New York law does not apply, and the Complaint here does not allege that the
board made no investigation, but that the board failed to explain to the shareholder's counsel the scope of its
investigation.

-1

Plaintiff makes no factual allegations as to why or how the eight directors who
joined the board after the events at issue, including the entire membership of the audit
committee, acted in bad faith or in their own self-interest in refusing a litigation demand
directed toward conduct that occurred prior to their roles on the board.

See,~,

Scattered

Corp. v. Chicago Stock Exch., Inc., 701 A.2d 70,75 (Del. 1997) (plaintiff must make
"particularized allegations" that the board "was biased [or] lacked independence" in order to
"create[ ] a reasonable doubt that demand was properly refused.").
Five of the thirteen directors were affiliated with BofA at the time of the
alleged wrongdoing, but Pinsly does not assert that their participation in the board's response
to the demand is evidence of bad faith. Under Delaware law, if a board's majority consists of
disinterested directors, the business judgment rule applies to its review of the litigation
demand, absent allegations of "specific facts pointing to bias." =-=-==,473 A.2d at 815 &
n.8. As Pinsly himself observes, Mount Moriah Cemetery on Behalf of Dun & Bradstreet
Corp v. Moritz, 1991 WL 50149, at *3 (Del. Ch. 1991), noted that "[b]y making demand, a
plaintiff tacitly admits that demand was not futile and, therefore, concedes that a majority of
the board is independent." Accord Spiegel, 571 A.2d at 777 (a litigation demand "tacitly
concedes the independence of a majority of the board to respond," and when a shareholder
challenges its refusal, "the only issues to be examined are the good faith and reasonableness
of its investigation. "). The fact that five of the thirteen directors, none of whom were
appointed to the audit committee, apparently voted with the eight disinterested directors in
approving the audit committee's recommendation does not raise an inference that the board's
refusal was biased or anything other than independent.

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Because the Complaint does not plausibly allege that the board's refusal of
plaintiffs litigation demand falls outside the protection of the business judgment rule, BofA's
motion is granted, and Pinsly's action is dismissed in its entirety.
B. For Substantially the Same Reasons, Waber's Complaint Does Not
Overcome Delaware's Business Judgment Rule.

As noted, on July 18, 2011, Waber's counsel wrote BofA asking its board to
establish an independent committee to investigate purported the purported breaches of duty
set forth in the Complaint. (Bumovsky Dec. Ex. 3 (Docket # 37).) On October 19,2011,
Bennett responded to Waber's counsel, stating that the board had authorized the audit
committee to review the demand, undertake any steps it deemed advisable, and make
recommendations to the full board. (Waber Opp. Mem. Ex. B (Docket # 43).)
In a response to the demand dated January 19, 2012, Bennett stated that
following the audit committee's review and recommendation, the full board concluded that it
was "not in the best interests of the Corporation to take this action or pursue the claims that
your letter appears to propose." (Bumovsky Dec.

4 (Docket # 37.) As with the response

to Pinsly, Bennett noted that pursuing the demand could have an adverse effect on BofA's
defenses in pending litigations, proceedings and investigations. (Id.) "Plaintiffs in these
cases would likely argue that assertion of such claims constitutes an admission of liability by
the Corporation as to the full scope of claims currently being asserted against the Corporation,
or otherwise seek to use any litigation papers filed by the Corporation against the Corporation
itself" (Id.) When weighing the likelihood of recovery from plaintiffs demand against the
likely impairments it would cause to BofA's defenses in other proceedings, the board elected
not to pursue the claims. (Id.)

-17­

Waber, like Pinsly, does not plausibly allege that the BofA board wrongfully
refused his demand in violation of Delaware law. Waber's sole allegation in support of the
purported unlawfulness of rejecting his demand is a conclusory assertion that the board was
not "disinterested and independent with respect to considering the Plaintiffs demand letters."
(Waber Compl't ~ 304.) This legal conclusion is not afforded the presumption of truth. Iqbal,
556 U.S. at 678; =-==-=- Scattered Corp., 701 A.2d at 75 ("conclusory statements" do not
allege "reasonable doubt upon the disinterestedness, good faith or reasonableness of the
Executive Committee in acting on the demand.").
A plaintiff may raise "reasonable doubt" as to director independence if "(1) a
majority of the board has a material financial or familial interest; [or] (2) a majority of the
board is incapable of acting independently for some other reason such as domination or
control ...." Grimes v. Donald, 673 A.2d 1207,1216 (Del. 1996). Delaware courts have
rejected as inadequate significantly more detailed allegations of director self-interest.
~,

591 A.2d at 207 ("Plaintiffs' conclusory allegations that the outside directors'

independence was compromised by the inside directors' misleading, manipulative and
deceptive conduct are unsupported by particularized facts."); Grobow v. Perot, 539 A.2d 180,
188-89 (Del. 1988) (allegations that directors received compensation for joining board and
that they faced potential "embarrassment" if they acted on plaintiff s demand did not raise
doubts as to disinterest or independence). Waber's bare, conclusory allegation that the board
was not "disinterested and independent with respect to considering the Plaintiffs demand
letters" does not plausibly allege that the directors lacked independence or had a personal
interest in rejected the demand. See also Mount Moriah, 1991 WL 50149, at *3; Spiegel, 571
A.2d at 777.

-18­

In addition, as noted in discussing Pinsly's demand, it is a matter of public
record that at the time Waber submitted his demand, eight ofBofA's thirteen board members
had no affiliation with BofA during the Merrill and Countrywide transactions, including all
members of the audit committee. Defendants Bramble, Gifford, Lozano and May were
directors during the transactions, and Moynihan, BofA's current CEO, was general counsel
during the transactions. (Waber Compl't ~~ 38, 42, 45, 47-48.) The lack of historical
connection between the eight new directors and the misconduct alleged in the Complaint
further reflects the conclusory nature of plaintiff's assertion that the directors were not
disinterested or independent
In opposition, Waber cites to Delaware cases concerning a board's use of a
special litigation committee to weigh a demand, arguing that the board's bad faith is
illustrated by its failure to form such a committee. (Waber Opp. Mem. at 12-17 (Docket #
43).) But Delaware does not require a board to delegate review of a litigation demand to a
special litigation committee, which is most often employed "to isolate the interested directors
from material information during either the investigative or decisional process." Spiegel,571
A.2d at 776 n.18. Waber has not articulated why a special litigation committee was required
to investigate the claims in his demand letter. (Waber Opp. Mem. at 12-15.) He also has not
explained why he is entitled to additional discovery into the good faith and reasonableness of
the board's decisionmaking process. (Waber Opp. Mem. at 15-17.) "The law in Delaware is
settled that plaintiffs in a derivative suit are not entitled to discovery to assist their compliance
with the particularized pleading requirement of Rule 23.1 in a case of demand refusaL"
Scattered Corp., 701 A.2d at 77.

-19­

Because Waber has not plausibly alleged that the BofA board wrongfully
refused his litigation demand, his complaint is dismissed in its entirety.
II.

Plaintiffs May Not Pursue Claims Directed to the Merrill Acquisition.

The two plaintiffs' respective failure to plausibly allege, in non-conclusory
tenns, that the Board's denial of their litigation demands were not protected by Delaware's
business judgment rule are, standing alone, a sufficient basis to dismiss the complaints. Their
complaints suffer from several additional infinnities, however, each of which provides
separate and independent grounds for dismissal.
A. Pinsly Now Charactepzes His Merrill Claims as "Moot."
On January 11, 2013, this Court approved, pursuant to Rule 23.1, Fed. R. Civ.
P., the settlement of a consolidated derivative action alleging that BofA's directors and
officers breached their fiduciary duties to BofA. (09 MD 2058, Docket # 796 (transcript of
proceedings), # 805 (order and final judgment).) The Order and Judgment in the parallel
derivative case states that BofA released all claims that "relate to, directly or indirectly, the
subject matter of the Derivative Action in any court, tribunal, forum or proceeding ...." (09
MD 2058, Docket # 805, at 4.) The Order and Judgment expressly stated that it did not
release Pinsly's "derivative claims related to [BofA' s] subprime exposures or its acquisition
of Countrywide ...." (Id. at 5-6.) In a letter dated January 25,2013, Pinsly acknowledged
that his Merrill-related claims are foreclosed by the final judgment in that case: "As a result of
the release of the Merrill acquisition related claims through the Settled Derivative Action, a
good portion of the Complaint is now moot ...." (Jan. 25 ItL at 4; see also 12 Civ. 4778,
Docket # 27,33 (denying plaintiffs applications for a stay).)

-20­

Pinsly's claims in this action that relate to Merrill are dismissed, on the
alternative basis that the Order and Final Judgment in the Consolidated Derivative Action
released and foreclosed BofA's claims related to the Merrill acquisition.
B. For the Same Reasons, Waber's Claims Directed to the Merrill
Transaction are Dismissed.

As with Pinsly's claims, the Order and Final Judgment in the Consolidated
Derivative Action precludes Waber from maintaining his claims directed to the Merrill
acquisition. (09 MD 2058, Docket # 805.) In ajoint letter to this Court dated October 8,
2012, the parties expressly acknowledged this, stating that plaintiffs Merrill "allegations will
be rendered moot by the proposed $20 million settlement dated July 3,2012 in the
Consolidated Derivative Action, Case No. 09 MD 2058." (Burnovsky Dec. Ex. 1 at n.l
(Docket # 37).) In his opposition memo, plaintiff does not address his claims against Merrill.
(Reply Mem. at 1 n.1 (Docket # 47).)
Waber's claims relating to the Merrill acquisition are dismissed on the
alternative basis that they are released and foreclosed by the judgment in the Consolidated
Derivative Action.
III.

Both Complaints Assert Claims against Defendants Who Had No
Affiliation to BofA'!t the Time of Alleged Wrongdoing.
A. The Pinsly Complaint Fails to State a Claim as to Eight
Defendants.

According to the Pinsly complaint, defendants Bies, Colbert, Holliday, Jones,
Powell, Rossotti and Scully did not join the BofA board until 2009. (Pinsly CompI't,-r,-r 55,
57-59,61-63.) The complaint defines the "relevant period" of this action as running "from
2005 to the present." (Pinsly Compl't,-r 1.) As to the purported misconduct, it asserts that
BofA acquired Countrywide in 2008, and that the Merrill acquisition was announced in

1­

September 2008, approved by shareholders the following December and consummated on
January 1,2009. (Pinsly Compl't 'II~11O, 20-30.) Plaintiffs allegations concerning BofA's
subprime exposure cite investment and underwriting practices from 2001 through 2008.
(Pinsly Compl't '11'114-7.) Thus, all alleged acts of wrongdoing set forth in the Pinsly
complaint occurred before these seven director-defendants joined the board in 2009.
To the extent that the complaint cites to events in 2009 and thereafter, they
describe the ongoing consequences of prior actions, including corrective disclosures, BofA's
litigation exposure, government regulatory actions and press reports concerning BofA's
ongoing losses.

(See,~,

Pinsly CompI'qI~ 13-14,16-17,31-36,102,119,121-25,133-34,

140-41,157,163,165,184,186,219,240-91.)
Pinsly alleges no facts that connect defendants Bies, Colbert, Holliday, Jones,
Powell, Rossotti or Scully to the alleged breaches of fiduciary duty relating to the
Countrywide or Merrill acquisitions, or to the BofA subprime portfolio. They appear to be
named as defendants based on their status as BofA directors, and not any purported
misconduct that occurred since they joined the board. While the Complaint defines the
"relevant period" as extending "to the present" (Pinsly CompI't '[1) it identifies no
misconduct that could be attributed to these defendants since they became members of the
BofA board. Plaintiffs claims against Bies, Colbert, Holliday, Jr., Jones, Powell, Rossotti
and Scully are therefore dismissed on this alternative ground.
In addition, defendants move to dismiss plaintiffs claims against fonner BofA
CFO Alvaro G. de Molina. The Complaint asserts that de Molina was CFO in 2005 and 2006.
(Pinsly Compl't ~164.) de Molina's tenure at BofA pre-dated the acquisitions of Merrill and

-22­

Countrywide. All claims against him that are directed to the Merrill and Countrywide
acquisitions are therefore dismissed on this alternative ground.

B. The Waber Complaint Fails to State a Claim as to Nine
Defendants.
Like Pinsly, Waber asserts claims against director-defendants who were not
affiliated with BofA at the time of the alleged underlying wrongdoing. Defendants Ambani,
Bies, Boardman, Colbert, Holliday, Jones, Powell, Rossotti and Scully joined the BofA board
between 2009 and 2011, prior to which, they were unaffiliated with the company. The
Complaint expressly alleges that Bies, Boardman, Holliday, Jones and Powell joined the
board in 2009. (Waber CompI'! ~'136-37, 43-44, 49.) The Complaint appears to contain no
specific allegations as to Scully's tenure or purported misconduct, aside from asserting that he
was a member of the board and its audit committee as of July 18,2011. (Waber Compl't'1
304.)
The Complaint inaccurately asserts that Ambani joined the board in March
2001 and that Colbert and Rossotti had joined the board by January 11,2008. (Waber
Compl't ~~ 34, 39, 50.) However, as reflected in BofA's public filings, Ambani joined the
board in March 2011, Colbert and Rossotti in January 2009 and Scully in August 2009.
(Burnovsky Dec. Ex. 5 at 2,3,6 (March 28,2012 Schedule 14A soliciting shareholder votes
for BofA directors) (Docket # 37)l
Waber's claims against defendants Ambani, Bies, Boardman, Colbert,
Holliday, Jones, Powell, Rossotti and Scully are dismissed on the alternative ground that they
Because the Complaint purports to allege the dates of tenure of the BofA directors, the Court considers this
Section 14A filing to be integral to the Complaint and appropriately considered as part of a Rule 12(b )(6)
motion. See generally
622 F.3d at 111. Waber does not dispute the relevance or authenticity of the
document. In addition, on a motion to dismiss, a court may take judicial notice of an SEC filing that is not
referenced in a complaint without converting a motion to dismiss into one for summary judgment. ~~"--'-'­
Time Warner Inc., 937 F.2d 767,774 (2d Cir. 1991).

4

-23­

did not join the BofA board until after the purported misconduct alleged in Waber's
complaint.
IV.

Pinsly Fails to Allege Breach of Fiduciary Duty or Unjust Enrichment.
A. Pinsly Fails to Allege Breach of Fiduciary Duty Against the
Director-Defendants for Failing to Monitor BofA Subprime
Holdings.

Delaware law permits a corporation to limit a director's personal liability to the
corporation or its shareholders "for monetary damages for breach of fiduciary duty as a
director," provided that it does not limit liability for a director's breach ofloyalty or for a
director's acts taken in bad faith or in knowing violation of the law. 8 Del. C. § 102(b )(7).
BofA's certificate of incorporation exculpates its directors from personal liability to the
corporation, except in cases of disloyalty and other exceptions not relevant here, "[t]o the
fullest extent pemlitted" under Delaware law. (Bumovsky Dec. Ex. 14, Art. 6 (Docket # 26).)
Thus, to state a claim for breach of fiduciary duty against the director defendants, Pinsly must
plausibly allege that they breached their duties of loyalty or acted in bad faith.
"[D]irector liability based on the duty of oversight 'is possibly the most
difficult theory in corporation law upon which a plaintiff might hope to win a judgment. '" In
re Citigroup S'holder Derivative Litig., 964 A.2d 106, 125 (Del. Ch. 2009) (quoting In re
Caremark Int'l Inc. Derivative Litig., 698 A.2d 959, 967 (Del. Ch. 1996)). To state a claim
that directors have not satisfied their oversight duties, a complaint must plausibly allege that
directors "utterly failed to implement any reporting or information system or controls," or
that, "having implemented such a system or controls, consciously failed to monitor or oversee
its operations thus disabling themselves from being informed of risks or problems requiring
their attention." Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). "[O]nly a sustained or

-24­

systematic failure of the board to exercise oversight - such as an utter failure to attempt to
assure a reasonable information and reporting system exists - will establish the lack of good
faith that is a necessary condition to liability." Caremark, 698 A.2d at 97l.
Bad faith is a "necessary condition to director oversight liability." In re
Citigroup S'holder Derivative Litig., 964 A.2d 106, 123 (DeL Ch. 20(9) (emphasis in
original). It "encompasses not only an intent to harm but also intentional dereliction of duty."
LyondellChem. Co. v. Ryan, 970 A.2d 235, 240 (Del. 2009). A plaintiff must allege that the
directors knew that they were violating their fiduciary obligations, intended to cause harm or
that they acted with a conscious disregard for their responsibilities. Id.; = = Canadian
Commercial Workers Indus. Pension Plan v. Alden, 2006 WL 456786, at *7 (DeL Ch. Feb.
22, 2006) (complaint must "allege specific facts showing that the accused directors had
knowledge of the alleged wrongdoing or ignored a 'red flag' regarding it or that the board
exhibited a sustained or systematic failure to exercise oversight."). Conclusory allegations
that defendants failed to act on "warning signs" in the broader economy do not suffice to state
a claim. In re Citigroup, 964 A.2d at 126-27.
Pinsly fails to allege that the director-defendants consciously failed to monitor
BofA's subprime holdings or the terms of the Countrywide acquisition, or that they acted with
conscious disregard for their responsibilities. His complaint expressly alleges that the BofA
board delegated oversight duties to the audit committee, including supervision of risk­
management policies and BofA's legal compliance. (Pinsly Comp]'t ~ 71.) Pinslyalleges
that BofA should have implemented additional internal controls to monitor subprime
exposure, but does not allege what those controls should have entailed. (Pin sly Compl't'l
80.) In addition, his complaint makes no allegations that identify where a breakdown in

-25­

oversight mechanisms allegedly occurred. He therefore fails to allege facts amounting to "a
sustained or systematic failure of the board to exercise oversight ...." Caremark, 699 A.2d
at 97l. His claims against the director-defendants arising out ofBofA's subprime holdings
are dismissed.
B. Pinsly's Complaint Fails to Allege Breach of Fiduciary Duty
Against the Officer-Defendants for Failing to Monitor BofA
Subprime Holdings.
Pinsly does not allege facts that plausibly support his claims that officerdefendants failed to satisfy their duties concerning BofA's subprime portfolio. As noted,
Lewis stated in 2001 that the "volatile earnings streams" of subprime holdings were
"unattractive from a risk reward standpoint," leading BofA to liquidate a $26.3 billion
subprime portfolio. (Pinsly CompI't'l 77.) Pinsly alleges that beginning in 2005, and
contrary to prior company policy, BofA expanded its holdings in subprime debt and CDOs.
(Pinsly CompI't '1'; 79-82.)
In its November 2007 Form 10-Q filing, BofA reported "significant
dislocations in the CDO market," described itself as "an active participant in the CDO
market," and stated that "current dislocations in the markets ... may have broader impacts on
the Corporation," likely to "adversely impact our results during the fourth quarter." (Pinsly
Compl't'li 84.) In an annual report filed with the SEC on February 28,2008, BofA stated that
a rise in mortgage defaults and concerns about "faltering" subprime and mortgage markets
"triggered financial market turbulence" the previous summer. (Pinsly Compl't '193.)
Pinsly cites "lax" and inadequate internal controls (Pinsly CompI't ~~ 93, 99,
101.) He also states that in 2010, defendants "admitted" that they incorrectly classified

-26­

certain transactions as '''sales' when they were really a 'secured borrowing'" and that the
error was a result of "an internal 'control deficiency' ...." (Pinsly Compl't ~ 102.)

In opposition to the motion, Pinsly argues that defendants reversed, without
announcement, the established BofA policy of not investing in sUbprime assets. (Pinsly Opp.
Mem. at 19.) But the complaint also alleges that by 2007, BofA's quarterly filing
characterized the company as "active" in the subprime market. (Pinsly Compl't ~ 84.) Pinsly
has not alleged facts to support his contention that the officer-defendants misled shareholders
about the extent ofBofA's subprime holdings. See,

In re INFOUSA, Inc. S 'holders

953 A.2d 963, 990 (DeL Ch. 2007) (derivative liability for breach of fiduciary duty
may arise when a corporation misleads shareholders, "particularly where it can be shown that
the directors involved issued their communication with the knowledge that it was deceptive or
incomplete ...."). Aside from citing to the 2001 remarks of Lewis, the Pinsly complaint
makes no individualized allegations as to the officer defendants.

id. at 990-95 (reviewing

allegations as to each individual defendant's potential liability). As to Lewis, the complaint
does not allege that Lewis deliberately misled shareholders, or that BofA did not sell its 2001
holdings before later re-entering the subprime market.
Pinsly therefore fails to state a claim for breach of fiduciary duty as to the
officer-defendants' role in BofA's subprime holdings.
C. Pinsly's Complaint Fails to State a Claim against Any

Defendant as to the Countrywide Acquisition.
Pinsly's complaint alleges that defendants failed "to conduct a proper and
thorough due diligence investigation of Countrywide's core business operations," and that
they should have discovered "improper mortgage origination practices, lax underwriting
standards, and toxic debt securitization practices." (Pinsly Compl't'~ 108, 117,329.) The

-27­

complaint notes BofA's representations that diligence was conducted over 30 days and
involved more than 60 professionals, and does not allege that those representations were false.
(Pinsly CompI't ~~[ 108, 114.)
"[T]here is a vast difference between an inadequate or flawed effort to carry
out fiduciary duties and a conscious disregard for those duties." Lyondell Chern. Co. v. Ryan,
970 A.2d 235,243 (Del. 2009). Pinsly does not identify particular defects in the due
diligence process or which facts he contends should have been uncovered during diligence.
His complaint does not set forth facts to plausibly allege that diligence was conducted in bad
faith.

See,~,

In re Lear Corp. S'holder Litig., 967 A.2d 640, 652 (Del. Ch. 2008) (plaintiff

does not allege bad faith by merely asserting "that the directors made an unreasonable or even
grossly unreasonable judgment."). The complaint does not assert that any officers were
members of the diligence team or they were grossly negligent in supervising diligence.
These allegations are insufficient to state a claim that defendants breached their fiduciary
duties in conducting or supervising diligence of Countrywide.
In addition, Pinsly does not plausibly allege that defendants breached their
fiduciary duty to BofA by making misleading statements about the Countrywide acquisition.
His complaint recites representations that the acquisition was "an important advancement" in
customer service, "a rare opportunity" and "a unique opportunity" for BofA, and that the
acquisition was beneficial to BofA from a tax perspective. (Pinsly Compl't ~!'111O-11.)
Delaware courts have observed that a breach of fiduciary duty may arise when directors "are
deliberately misinfonning shareholders about the business of the corporation, either directly
or by a public statement ...." Malone v. Bnncat, 722 A.2d 5, 14 (Del. Sup. C1. 1998). The
statements concerning the potential benefits of the Countrywide acquisition, however, are

-28­

generalizations stated by officers that do not constitute misrepresentations of fact. For that
same reason, assuming that officers can be liable for breach of fiduciary duty based on
misstatements that are unrelated to a solicitation of shareholder approval, such claims are also
dismissed against the officer defendants.
Because Pinsly does not plausibly allege that defendants breached a fiduciary
duty as to the Countrywide due diligence or representations made about the benefits of
acquiring Countrywide, plaintiffs claims are dismissed.
D. Pinsly Fails to Allege Unjust Enrichment.
Because Pinsly's unjust enrichment claim is premised on defendants' violation
of their fiduciary duties, and the breach of fiduciary duty claim is dismissed, Pinsly's unjust
enrichment claim is dismissed as well. See,

Monroe Cnty. Employees' Ret. Sys. v.

Carlson, 2010 WL 2376890, at *2 (Del. Ch. June 7, 2010) ("Count III must be dismissed
because the unjust enrichment claim asserted therein depends on the success of the breach of
fiduciary duty claim alleged in Count Ir.").
V.

Waber's Complaint Fails to State a Claim As to the Countrywide
Acquisition and Other PurporteQ Misconduct.

For the same reasons, Waber's complaint fails to plausibly allege that the
defendants in his action violated their fiduciary duties to BofA.
Waber asserts that the defendants failed to ensure that BofA "conduct[ed]
adequate due diligence" of Countrywide, stating that BofA should have uncovered
"fraudulent loan practices and "extremely lax underwriting guidelines," and then "backed out
of the deal, or purchased Countrywide at a much lower price." (Waber Compl't ~'t[ 72,80,
269.) He acknowledges that BofA stated that diligence took place over 30 days and involved
more than 60 professionals, and does not assert that this representation was false. (Waber

-29­

Compi 't 'l~ 67, 232.) Waber also alleges that BofA "uncovered major problems and potential
liabilities" at Countrywide, but failed to disclose them. (Waber CompI't,; 70.) Like Pinsly,
Waber fails to allege bad faith, which is a "necessary condition to director oversight liability,"
In re Citigroup, 964 A.2d at 123, and "encompasses not only an intent to harm but also a
dereliction of duty." Lyondell, 970 A.2d at 240. Similarly, as to BofA's officers, the
complaint fails to allege that defendants were "grossly negligent" in carrying out their duties
during the Countrywide transaction, such that they displayed "gross negligence" amounting to
"reckless indifference to or a deliberate disregard of the whole body of stockholders or actions
which are without the bounds of reason." Tomczak v. Morton Thiokot, Inc., 1990 WL 42607,
at *12 (Del. Ch. Apr. 5,1990) (quotation marks omitted); see also In re Bank of Am. Corp.
Sec., I)erivative & Emp't Ret. Income Sec. Act ("ERISA") Litig., 757 F. Supp. 2d 260, 338­
39 (S.D.N.Y. 2010) (because derivative complaint failed to allege officers' participation in
diligence or responsibility beyond their job titles, plaintiffs failed to plausibly allege gross
negligence or bad faith).
Waber also fails to plausible allege that defendants made any
misrepresentation concerning the Countrywide acquisition. As previously discussed,
statements that Countrywide offered "the best domestic mortgage platform at an attractive
price" and represented a "one time opportunity" are optimistic generalizations and not
actionable misstatements, and do not support an inference that defendants were "deliberately
misinforming shareholders about the business of the corporation, either directly or by public
statement." Malone, 722 A.2d at 14.

In addition to Waber's allegations concerning the Countrywide acquisition, he
briefly describes a variety of other incidents in which the defendants purp0l1edly breached

-30­

their duties to BofA. He alleges that defendants are liable to BofA for "numerous
whistleblower lawsuits" involving BofA and Countrywide. (Waber Compl't '1'263-69.) He
notes that on June 3,2009, the SEC filed complaints against BofA and others, alleging that
they misled investors about the liquidity risks of auction-rate securities, and that BofA "and
the other firms entered into a S6.7 billion settlement with the SEC for these complaints."
(Waber Compl't '1275.) The complaint mentions an October 19,2012 news report that the
FBI was investigating whether BofA engaged in criminal misconduct as to its mortgage
documentation practices, particularly its employees' practice of "robo-signing" applications
without scrutiny. (Waber Compl't ,; 276.) Lastly, Waber states that in July 2010, Bloomberg
Markets "accused" BofA "of engaging in a conspiracy" in which municipalities' financial
advisers colluded with BofA "to rig bids on auctions for guaranteed investment contracts."
(Waber Compl't,;,; 283-84.)
In describing these lawsuits, investigations and accusations, Waber's
complaint fails to connect the purported misconduct to the individual defendants. All claims
directed to these incidents are dismissed, on the alternative ground that Waber has failed to
allege bad faith or gross negligence, let alone articulate a theory as to how defendants are
liable in these assorted matters. See,

:=:...I-:==' 970 A.2d at 240; Tomczak, 1990 WL

42607, at * 12. In addition, most of these actions, reports or investigations are unresolved
accusations, from which it is unclear whether BofA suffered any economic harm.
Lastly, because Waber has failed to plausibly allege that defendants breached
their fiduciary duties, his unjust enrichment claim is dismissed. Monroe Cty.
201 0 WL 2376890, at *2.

E[l1~B.~"LSYli~,

_

...

_-----

...

_-_._--------­

-31

VI.

Waber and Pinsly Have Not Set Forth a Valid Basis to Grant Leave to
Amend.
A. Pinsly.

Pinsly argues that in the event that this action is dismissed, he should be
granted "leave to amend to include, inter alia, new allegations based on books and records
obtained through the 220 Action." (Pinsly Opp. Mem. at 25 n.20.) Pinsly had previously
moved to stay this action based on a proceeding that he commenced in Delaware Chancery
Court, through which he sought to compel disclosure of records related to the refusal of his
litigation demand. The Court denied that application in an Order dated March 5,2013.
(Docket # 33.) As noted in that Order, the Delaware Code provides a qualified right for
shareholders to inspect corporate books and records. 8 De1. C. § 220; Amalgamated Bank v.
NetApp, Inc., 2012 WL 379908, at *3 (Del. Ch. Feb. 6, 2012). As that Order observed, Pinsly
commenced his Section 220 proceeding on October 2,2012, several months after he brought
this action. With exceptions not applicable here, Delaware tribunals have required plaintiffs
to bring a Section 220 action prior to pursuing derivative relief.

Central Laborers Pension

Fund v. News Corp., 2011 WL 6224538, at *2 (Del. Ch. Nov. 30,2011) (derivative plaintiff
not permitted "to use the tools of Section 220 while actively pursuing a simultaneously-filed
plenary derivative action at its early stages.'); Amalgamated Bank, 2012 WL 379908, at *3-4
(reviewing general disfavor of commencing Section 220 proceeding after filing derivative
complaint, but noting exceptions when "plenary court either advised or suggested that the
stockholder-plaintiffs make use of Section 220 in order to successfully plead demand
futility ...."); cf South v. Baker, 62 A.3d 1,

(Del. Ch. 2012) ("Recent Court of Chancery

decisions have suggested an evidentiary presumption that a plaintiff who files a Caremark
claim hastily and without using Section 220 or otherwise conducting a meaningful

-32­

investigation has acted disloyally to the corporation and served instead the interests of the law
finn who filed suit.").
Pinsly's application is based on conjecture. At this point, he has not asserted
that he possesses additional infonnation that affects the outcome of any ground raised in
defendants' motions to dismiss. His request to amend is, in effect, a second application to
stay this action until he sees whether he can obtain material in the Section 220 action.
Pinsly's request for leave to replead is therefore denied.
B. Waber.

Waber has not articulated any basis to grant his request for leave to replead.
(Waber Opp. Mem. at 23 nA.) He merely asserts that leave is freely given under Rule
15(a)(2), Fed. R. Civ. P., and requests leave to amend in the event that defendants' motions
are granted. Anned with defendants' motions to dismiss, Waber has not articulated what he
would allege to cure any claimed deficiency. It is simply a blank-check request to amend,
which is denied.
CONCLUSION
The defendants' motions in Pinsly v. Holliday, et al., are granted. (12 Civ.
4778, Docket # 21,24.)
The defendants' motions in Waber v. Lewis,

are granted. (12 Civ. 4568,

Docket # 32, 35; 09 MD 2058, Docket # 784, 787.)
The Clerk is directed to tenninate the motions and enter judgment in favor of
the defendants in both actions.

-33­

SO ORDERED.

~//

Dated: New York, New York
April 25, 2013

P.· yin Castel
United States District Judge