United States District Court, S.D. Florida
ORDER ON DEFENDANTS' MOTION TO DISMISS
BLOOM, UNITED STATES DISTRICT JUDGE.
CAUSE is before the Court upon Defendants'
Motion to Dismiss Plaintiff's Verified Shareholder
Derivative Complaint (the “Motion”). See
ECF No. . The Court has reviewed the Motion, all
supporting and opposing submissions, the record and
applicable law, and is otherwise fully advised. For the
reasons that follow, Defendants' Motion is granted.
brings the present action derivatively and on behalf of
National Beverage Corp. (“NBC”), a Delaware
corporation with its principal place of business in Fort
Lauderdale, Florida. See ECF No. , at ¶ 1.
“Through its subsidiaries, NBC develops, produces and
distributes a portfolio of beverage brands that are sold and
distributed in the United States and abroad.”
Id. The action is brought against NBC's board of
directors, certain executive officers, and related entities
for purported violations of Delaware law and Section 14(a) of
the Securities and Exchange Act, 15 U.S.C. § 78a et
seq., during fiscal years 2015-2017 through the present
(the “Relevant Period”). See Id. To
better understand the nature of the allegations, a quick
summary of the ten defendants is provided below:
(1) N. Caporella founded NBC in 1985. See Id. at
¶ 3. He is NBC's Chief Executive Officer, the
Chairman of the board of directors, and the beneficial owner
of 73.6 percent of NBC's outstanding common stock as of
August 8, 2016. See Id. at ¶ 1.
(2) Bracken is NBC's Executive Vice President of Finance.
See Id. at ¶ 22.
(3) Cook is the Vice President - Controller and Chief
Accounting Officer of NBC. See Id. at ¶ 24.
(4) J. Caporella is N. Caporella's son, President of NBC
since 2002, and member of the board since 1987. See
Id. at ¶ 21.
(5) Conlee has served on the NBC board since 2009. See
Id. at ¶ 23. He has served as Chairman of NBC's
Compensation and Stock Option Committee, and has been a
member of the Audit Committee and Strategic Planning
Committee during the Relevant Period. See Id.
(6) Hathorn has been on NBC's board since 1997. See
Id. at ¶ 25. He previously served on the board from
1985 through 1993 prior to returning. See Id.
Throughout the Relevant Period, Hathorn has served as
Chairman of the Audit Committee, Deputy Chairman of the
Compensation and Stock Option Committee and Nominating
Committee, and has been a member of the Strategic Planning
Committee. See Id.
(7) Sheridan has served on the NBC board since 2009, serving
as Deputy Chairman of the Audit Committee and as a member of
the Compensation and Stock Option Committee and Nominating
Committee during the Relevant Period. See Id. at
(8) Corporate Manager Advisors, Inc. (“CMA”) is a
Delaware corporation wholly-owned by N. Caporella, with its
principal place of business in Fort Lauderdale, Florida.
See Id. at ¶ 17. N. Caporella is the
President of CMA, while Bracken is the Vice President.
See Id. Pursuant to a management agreement (the
“Agreement”) between NBC and CMA, CMA provides
the services of NBC's CEO and Chief Financial Officer
(that is, N. Caporella and Bracken), as well as the services
of other “unnamed senior and corporate personnel, who
purportedly provide management, administrative, and creative
functions” to NBC under the Agreement. See Id.
at ¶ 2.
if not all, of Plaintiff's allegations stem from alleged
omissions or inconsistencies between the provisions of the
Agreement and NBC's filings with the Securities and
Exchange Commission (“SEC”) during the Relevant
Period. For instance, under the Agreement, CMA provides its
management services and other functions to NBC for an annual
fee of 1 percent of NBC's net sales. See Id. at
¶ 41. However, the proxy statements filed with the SEC
during the Relevant Period state that CMA is “entitled
to a fee for rendering advice and expertise in connection
with significant transactions up and above the 1% of net
revenues management fee.” See Id. at ¶
Plaintiff alleges that the Agreement duplicates various
responsibilities and functions between NBC and CMA-including
administrative, sales, marketing, and legal services-for
which NBC employees are already being compensated. See
Id. at ¶¶ 45-68. Plaintiff further alleges
that the Agreement contains a Standard of Care
provision that violates Delaware law because it
“permit[s] officers to be shielded from liability under
Delaware's exculpatory [statutory] provision, which
applies only to directors.” See Id. at ¶
72. The Agreement also contains an “unreasonable”
termination clause that requires one year's written
notice to either NBC or CMA to terminate the Agreement, yet
provides for an automatic one-year renewal if not terminated.
See Id. at ¶ 73. According to Plaintiff, the
NBC board has continued to approve the Agreement during the
Relevant Period despite these “invalid” and
the proxy statements filed with the SEC during the Relevant
Period, NBC stated that the only perquisite received by its
employees beyond retirement, health, and insurance benefits,
was a car allowance. See Id. at ¶ 83.
Nevertheless, Plaintiff alleges that NBC paid for N.
Caporella's personal use of an aircraft partly owned by
NBC while failing to disclose this use in the company's
proxy statements. See Id. at ¶¶ 84, 87.
result of these allegedly false acts, statements, and
omissions, Plaintiff filed the present action against
Defendants on behalf of NBC, bringing forth claims for breach
of fiduciary duty (Count I) and corporate waste (Count II)
under Delaware law, and violations of Section 14(a) of the
Securities and Exchange Act (Count III) in connection with
the proxy statements filed during the Relevant Period.
See Id. at 44-47. On November 20, 2017, Defendants
filed the Motion. See ECF No. . Plaintiff timely
filed his response, ECF No. , and Defendants timely filed
their reply, ECF No. . On May 15, 2018, the Court held a
hearing on the Motion. See ECF Nos. -. The
Motion is ripe for adjudication.
of the Federal Rules of Civil Procedure requires that a
pleading contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). Although a complaint “does not
need detailed factual allegations, ” it must provide
“more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not
do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007); see Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (explaining that Rule 8(a)(2)'s pleading standard
“demands more than an unadorned,
the-defendant-unlawfully-harmed-me accusation”). In the
same vein, a complaint may not rest on “‘naked
assertion[s]' devoid of ‘further factual
enhancement.'” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 557 (alteration in
original)). “Factual allegations must be enough to
raise a right to relief above the speculative level.”
Twombly, 550 U.S. at 555. These elements are
required to survive a motion brought under Rule 12(b)(6),
which requests dismissal for “failure to state a claim
upon which relief can be granted.”
reviewing a motion under Rule 12(b)(6), a court, as a general
rule, must accept the plaintiff's allegations as true and
evaluate all plausible inferences derived from those facts in
favor of the plaintiff. See Miccosukee Tribe of Indians
of Fla. v. S. Everglades Restoration Alliance, 304 F.3d
1076, 1084 (11th Cir. 2002); AXA Equitable Life Ins. Co.
v. Infinity Fin. Grp., LLC, 608 F.Supp.2d 1349, 1353
(S.D. Fla. 2009). However, this tenet does not apply to legal
conclusions, and courts “are not bound to accept as
true a legal conclusion couched as a factual
allegation.” Twombly, 550 U.S. at 555; see
Iqbal, 556 U.S. at 678; Thaeter v. Palm Beach Cnty.
Sheriff's Office, 449 F.3d 1342, 1352 (11th Cir.
2006). Moreover, “courts may infer from the factual
allegations in the complaint ‘obvious alternative
explanations, ' which suggest lawful conduct rather than
the unlawful conduct the plaintiff would ask the court to
infer.” Am. Dental Ass'n v. Cigna Corp.,
605 F.3d 1283, 1290 (11th Cir. 2010) (quoting Iqbal,
556 U.S. at 682).
considering a Rule 12(b)(6) motion is generally limited to
the facts contained in the complaint and the attached
exhibits, including documents referred to in the complaint
that are central to the claim. See Wilchombe v. TeeVee
Toons, Inc., 555 F.3d 949, 959 (11th Cir. 2009);
Maxcess, Inc. v. Lucent Technologies, Inc., 433 F.3d
1337, 1340 (11th Cir. 2005) (“[A] document outside the
four corners of the complaint may still be considered if it
is central to the plaintiff's claims and is undisputed in
terms of authenticity.”) (citing Horsley v.
Feldt, 304 F.3d 1125, 1135 (11th Cir. 2002)).
“[W]hen the exhibits contradict the general and
conclusory allegations of the pleading, the exhibits
govern.” Griffin Indus., Inc. v. Irvin, 496
F.3d 1189, 1206 (11th Cir. 2007). It is through this lens
that the Court addresses the instant Motion.
have moved to dismiss all of Plaintiff's claims against
them. As the primary basis for dismissal, Defendants assert
that Plaintiff has not met the heightened pleading standards
that govern derivative suits in Delaware. In the alternative,
Defendants also allege that Plaintiff has failed to state his
claims as a matter of law. The Court will first address
Plaintiff's claims arising under Delaware law, and will
then discuss Plaintiff's federal claim against
Demand Futility under Delaware law.
undisputed that both of Plaintiff's claims for breach of
fiduciary duty and for corporate waste are subject to
Delaware's Court of Chancery Rule 23.1. “Because
the shareholders' ability to institute an action on
behalf of the corporation inherently impinges upon the
directors' power to manage the affairs of the
corporation[, ] the law imposes certain prerequisites on a
stockholder's right to sue derivatively.”
Kaplan v. Peat, Marwick, Mitchell &
Co., 540 A.2d 726, 730 (Del. 1988). Under Rule 23.1,
stockholders may “initiate a derivative suit to enforce
unasserted rights of the corporation without the board's
approval where they can show either that the board wrongfully
refused the plaintiff's pre-suit demand to initiate the
suit or, if no demand was made, that such a demand would be a
futile gesture and is therefore excused.” White v.
Panic, 783 A.2d 543, 550 (Del. 2001). “Where, as
in this case, a stockholder plaintiff initiates a derivative
action without making a pre-suit demand on the board, Rule
23.1 requires that the complaint allege with particularity
the reasons for the plaintiff's failure to demand action
from the board.” Id. at 550-51; see
also Ct. Ch. Rule 23.1(a) (“The complaint shall .
. . allege with particularity the efforts, if any, made by
the plaintiff to obtain the action the plaintiff desires from
the directors . . . and the reasons for the plaintiff's
failure to obtain the action or for not making the
Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), the
Supreme Court of Delaware held that a demand on the board is
excused only if the complaint contains particularized factual
allegations raising a reasonable doubt that either:
“(1) the directors are disinterested and
independent” or “(2) the challenged transaction
was otherwise the product of a valid exercise of business
judgment.” At the motion to dismiss stage,
“[p]laintiffs are entitled to all reasonable factual
inferences that logically flow from the particularized facts
alleged, but conclusory allegations are not considered as
expressly pleaded facts or factual inferences.”
Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000). As
will be explained in further detail below, Plaintiff has not
made the requisite showing under Aronson to excuse
pre-suit demand on the NBC board.
directors of the NBC board during the Relevant Period are N.
Caporella, J. Caporella, Conlee, Hathorn, and Sheridan.
“To establish demand futility under Aronson .
. . Plaintiff must impugn the ability of at least half of the
directors in office when it initiated this action . . . to
have considered a demand impartially.” Teamsters
Union 25 Health Servs. & Ins. Plan v. Baiera, 119
A.3d 44, 57 (Del. Ch. 2015).
hearing, Plaintiff admitted that he should have filed an
amended complaint rather than make arguments for the first
time in his response to the Motion that Conlee, Hathorn, and
Sheridan were not disinterested due to their compensation and
stock options. Nevertheless, when specifically asked by the
Court, Plaintiff stated that there were no other facts he
would have used or included in an amended complaint to
support his demand futility allegations, and, as such, all
the facts in support of those allegations were before the
Court. The Court also notes that Plaintiff had ample time and
opportunity to file an amended complaint, yet did not do
so.See Delaware Cty. Employees Ret. Fund
v. Sanchez, 124 A.3d 1017, 1021 n.14 (Del. 2015)
(“[W]e note that the proper way for the plaintiffs to
have used these materials is by seeking to amend their
complaint. It is not fair to the defendants, to the Court of
Chancery, or to this Court, nor is it proper under the rules
of either court, for the plaintiffs to put facts outside ...