Carpenters' Pension Fund of IL v. Michael Neidorff, No. 20-3216 (8th Cir. 2022)Annotate this Case
Following the merger of Centene Corporation ("Centene") and Health Net, Inc. ("Health Net)," certain shareholders of Centene (collectively, Plaintiffs) brought five claims on behalf of the corporation against certain of its former and then-current directors and officers and nominal defendant Centene (collectively, Defendants). Plaintiffs did not make a pre-suit demand on Centene's Board of Directors (the Board). The district court dismissed their complaint with prejudice, finding that the plaintiffs failed to plead particularized facts demonstrating that a demand would have been futile.
The Eighth Circuit found that the plaintiffs failed to plead facts showing the relevant documents contained a material misrepresentation. Further, the court did not consider the second or third claims because the plaintiffs made no argument contesting the district court's finding that a majority of the Board faces a substantial likelihood of liability. Next, the circuit court held that the plaintiffs' futility argument was patently insufficient. Finally, the circuit court found that at least half of the Board does not face a substantial likelihood of liability under the plaintiffs' insider trading claim. As such, the circuit court found the same as to plaintiffs' unjust enrichment claim pertaining to alleged insider trading. The circuit court affirmed the district court's decisions.
Court Description: [Shepherd, Author, with Wollman and Kobes, Circuit Judges] Civil Case - Shareholder Derivative Action. Following the merger of Centene Corporation and Health Net, Inc., Centene shareholders brought claims against certain former and current directors and officers, claiming a violation of section 14(a) of the Securities Exchange Act of 1934; breach of fiduciary duties of good faith, fair dealing, and due care; breach of fiduciary duty of loyalty, good faith, and candor in connection with securities law violations; insider trading; and unjust enrichment. The shareholders did not make a pre-suit demand on Centene's Board of Directors and the district court dismissed the complaint with prejudice, finding the shareholders had failed to plead particularized facts demonstrating that demand would have been futile, as required in Fed.R. Civ. P. 23.1(b)(3). The standard for determining futility under Delaware law is set forth. The shareholders failed to plead facts showing the proxy statement contained a material misrepresentation or omission and thus failed to plead particularized facts demonstrating at least half the Board faced a substantial likelihood of liability of their section 14(a) claim; because Centene's articles of incorporation contained an exculpation provision limiting directors' liability under Delaware law, none of the directors faced a substantial likelihood of liability on duty of care, duty of loyalty or bad faith claims. Shareholders did not plead particularized facts relating to breach of duty of disclosure. In claims of insider trading by two of the eight directors, the district court correctly found shareholders failed to demonstrate a majority of the Board faced a substantial likelihood of liability for insider trading. Same analysis applied to unjust enrichment claims. The district court's dismissal is affirmed.