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McDowell v. Bracken

United States District Court, S.D. Florida

June 5, 2018

GEORGE R. BRACKEN, et al., Defendants.



         THIS CAUSE is before the Court upon Defendants' Motion to Dismiss Plaintiff's Verified Shareholder Derivative Complaint (the “Motion”). See ECF No. [25]. 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.

         I. BACKGROUND

         Plaintiff 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.[1] See ECF No. [1], 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.[2] 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 ¶ 26.
(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.[3] See Id. at ¶ 2.

         Many, 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 ¶ 89.

         Moreover, 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[4] 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 “onerous” provisions.

         Within 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.[5] See Id. at ¶¶ 84, 87.

         As a 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. [25]. Plaintiff timely filed his response, ECF No. [36], and Defendants timely filed their reply, ECF No. [37]. On May 15, 2018, the Court held a hearing on the Motion. See ECF Nos. [42]-[43]. The Motion is ripe for adjudication.


         Rule 8 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.”

         When 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).

         A court 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.


         Defendants 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 Defendants.

         A. Demand Futility under Delaware law.

         It is 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 effort.”).

         In 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.[6]

         1. Director Independence.

         The 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).

         At the 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.[7]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 ...

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