Carroll v McKinnell

[*1] Carroll v McKinnell 2008 NY Slip Op 50567(U) [19 Misc 3d 1106(A)] Decided on March 17, 2008 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 17, 2008
Supreme Court, New York County

Sharon Carroll, Derivatively On Behalf of Pfizer, Inc., Plaintiff,

against

Henry A. McKinnell, KAREN L. KATEN, DAVID L. SHEDLARZ, PETER B. CORR, C.L. CLEMENTE, WILLIAM C. STEERE, JR., JOHN F. NIBLACK, JEFFREY B. KINDLER, ROBERT N. BURT, WILLIAM H. GRAY III, CONSTANCE J. HORNER, WILLIAM R. HOWELL, GEORGE A. LORCH, ALEX J. MANDL, MICHAEL I. SOVERN, MICHAEL S. BROWN, M. ANTHONY BURNS, W. DON CORNWELL, STANLEY O. IKENBERRY, DANA G. MEAD, FRANKLIN D. RAINES, RUTH J. SIMMONS, JEAN-PAUL VALLES, HARRY P. KAMEN, GEORGE B. HARVEY, THOMAS G. LABRECQUE, Defendants, Pfizer, Inc., a Delaware corporation, Nominal Defendant.



601879/06



For Plaintiffs:

Lasky & Rifkind Ltd.

140 Broadway, 23rd Floor

New York, NY 10005

(Leigh Lasky)

For Defendants:

Cadwalader, Wickersham & Taft LLP

One World Financial Center

New York, NY 10281

(Gregory A. Markel, Jason M. Halper,

Ryan J. Andreoli)

Robbins Umeda & Fink, LLP

610 West Ash Street, Suite 1800 San Diego, CA 92101

(Jeffrey P. Fink, Felipe J. Arroyo,

Ashley R. Palmer)

Bernard J. Fried, J.

This is a shareholder derivative action brought by shareholder Sharon Carroll on behalf of nominal defendant Pfizer, Inc. (Pfizer) for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment.

Defendants originally moved to dismiss the complaint for failure to adequately plead that Pfizer's Board of Directors (Pfizer) acted wrongfully in refusing plaintiff's demand that it commence certain litigation on behalf of Pfizer related to the marketing and sale of the prescription drugs Celebrex and Bextra. Alternatively, defendants moved to stay this action pursuant to CPLR 3211 (a) (4) and 2001, pending resolution of eight substantially similar shareholder derivative actions filed in the United States District Court for the Southern District of New York, and consolidated under the caption, In re Pfizer Inc. Derivative Securities Litigation (the Pfizer Derivative MDL), which, as in this case, alleged that certain present and former directors and officers of Pfizer breached their fiduciary duties to Pfizer in connection the marketing and sale of Celebrex and Bextra.

On July 17, 2007, the Honorable Judge Richard Owen dismissed the Pfizer Derivative MDL for failure to plead that demand on the Board was excused as futile (see In re Pfizer Inc. Derivative Securities Litigation, 503 F Supp 2d 680 [SD NY 2007]). In the Pfizer Derivative MDL, the court was required to determine whether the plaintiffs satisfied Rule 23.1 of the Federal Rules of Civil Procedure, which requires that a derivative plaintiff make a pre-suit demand on the board of directors to commence the action. Since the plaintiffs in that case did not make a demand on the Board, the court was required to determine whether making a demand would have been futile. Under controlling Delaware law, demand is excused as futile when the particularized factual allegations in the complaint raise a reasonable doubt as to disinterest or independence of a majority of the board.

In the Federal Complaint, the plaintiffs alleged 12 separate reasons why some or all of the members of the Board should be considered interested or lacking in independence. The court dismissed the Federal Complaint with prejudice, and found that these 12 factors, whether individually or in the aggregate, failed to raise a reasonable doubt as to the disinterest or independence of a majority of the Board. In so holding, the court found that the members of the Board at the time the actions were commenced were not disabled from considering a demand, and that thus, demand was not excused. On July 31, 2007, the court determined that the plaintiffs would not be granted leave to amend the Federal Complaint and that consequently, the dismissal was with prejudice (see 7/31/07 decision of Judge Richard Owen [Aff. of Jason Halper, Exh B]).

On August 31, 2007, during oral argument on defendants' motion to dismiss, I requested supplemental briefing on the possible preclusive effect of Judge Owen's decision. Defendants then withdrew their argument that this action should be stayed.

In her memorandum of law in opposition to defendants' motion to dismiss, plaintiff asserted that her demand was wrongfully refused for two primary reasons: (1) because "the [*2]Board here is not disinterested or independent" (Pl Br., at 7); and (2) because the Board rejected her demand in less than two months (Pl Br., at 5-6).

As set forth below, plaintiff in this case is precluded under principles of collateral estoppel from challenging the first of these two grounds the independence and disinterest of the Pfizer Board because that issue was already raised and conclusively determined in the Pfizer Derivative MDL. With respect to her second ground the Board's rejection of plaintiff's demand within two months of receiving it Delaware courts have consistently rejected the argument that a board's refusal of demand was wrongful simply because it was, as here, issued promptly. Thus, plaintiff's complaint must be dismissed.

"Where the judgment to be given preclusive effect is made in a federal forum the scope of that judgment, including the applicability of principles of res judicata and collateral estoppel, are governed by federal law" (Jerome J. Steiker Co., Inc. v Eccelston Props., Ltd., 156 Misc 2d 308, 313 [Sup Ct, NY County 1992]; see also United States Dept. of Justice v Hudson, 2007 WL 2461783, * 2 [ND NY 2007] ["Federal principles of collateral estoppel apply to determine the preclusive effect of a prior federal judgment"]). In this case, because the judgment to be given preclusive effect was rendered by the United States District Court for the Southern District of New York, federal principles of collateral estoppel apply.

Under federal law, "[c]ollateral estoppel requires four elements: (1) that the identical issue was raised in the first proceeding; (2) that the issue was actually litigated and decided; (3) that the party to be precluded had a full and fair opportunity to litigate the issue; and (4) that resolution of the issue was necessary to support a final judgment" (United States Dept. of Justice v Hudson, 2007 WL 2461783 at * 2, citing Ball v A.O. Smith Corp., 451 F3d 66 [2d Cir 2006]). New York law is substantially identical (see Pinnacle Consultants, Ltd. v Leucadia Natl. Corp., 94 NY2d 426, 432 [2000] ["The doctrine [of collateral estoppel] applies if the issue in the second action was raised, necessarily decided and material in the first action,' and if the party had a full and fair opportunity to litigate the issue in the earlier action'"] [citations omitted]; Marvel Characters, Inc. v Simon, 310 F3d 280, 286 [2d Cir 2002] ["there is no discernible difference between federal and New York law concerning res judicata and collateral estoppel"]).

It is well-settled that collateral estoppel may be applied in the shareholder derivative context. Several recent decisions have held that where one shareholder derivative action is dismissed for failure to adequately plead that the corporation's board of directors is disqualified from considering whether to initiate litigation, all other shareholders of that corporation are precluded from relitigating that issue.

For example in Levin v Kozlowski (13 Misc 3d 1236 (A), 2006 NY Slip Op 52142(U) [Sup Ct, NY County 2006], affd 45 AD3d 387 [1st Dept 2007]), a decision that I recently rendered, the defendants moved to dismiss a shareholder derivative complaint, primarily on the ground that the issue of whether Tyco International Ltd.'s board of directors was disqualified from making the decision to pursue litigation had (as in the present case) already been conclusively determined in a prior action in federal district court. In the federal action, the district court had concluded that the shareholder plaintiff " lacked standing to bring a derivative claim on Tyco's behalf,' and dismissed all of the claims that had been asserted" (id. at * 6). After the federal action was dismissed, the shareholder plaintiffs in the action pending in New York state court argued that they should be permitted to relitigate the standing issue. In dismissing the [*3]plaintiffs' claims, I held that:

Plaintiffs' claims in the current case are substantially identical to the claims in the Federal Action. Therefore, the identical, controlling legal issue whether plaintiffs have standing to sue was already decided by Judge Barbadoro. Additionally, plaintiffs and their counsel have already had a full and fair opportunity to contest Judge Barbadoro's determination that they lack standing to bring the present shareholder derivative action. Thus, plaintiffs' claims are barred by collateral estoppel, and the complaint must be dismissed pursuant to CPLR 3211 (a) (5).

Id. at * 7. In reaching this determination, I reasoned that "all of the allegations of the complaint in the present case were also made in the Federal Action, and thus, the issue of whether plaintiffs have standing to sue derivatively on Tyco's behalf is identical to that previously and necessarily adjudicated in the Federal Action" (id. at * 8).

Likewise, in Henik v LaBranche (433 F Supp 2d 372 [SD NY 2006]), the defendants moved to dismiss the plaintiffs' shareholder derivative claims on the grounds that "the doctrines of res judicata and collateral estoppel preclude Plaintiffs from relitigating the issue of demand futility because Justice Freedman previously concluded in an almost identical action ... that Plaintiffs failed to plead facts excusing a demand on the LaBranche board of directors" (id. at 377). In dismissing the plaintiff's claims, the court held that the plaintiffs were "precluded, on both res judicata and collateral estoppel grounds, from relitigating the issue of demand futility" (id. at 381). Thus, the plaintiffs were not permitted to relitigate the issue of the board's disinterest or independence. The court reasoned that "if this were not the rule, shareholder plaintiffs could indefinitely relitigate the demand futility question in an unlimited number of state and federal courts, a result the preclusion doctrine specifically is aimed at avoiding" (id. at 380; see also In re Sonus Networks, Inc., 499 F3d 47, 64 [1st Cir 2007] [Court granted defendants' motion to dismiss the plaintiffs' shareholder derivative complaint on the ground that the dismissal of a related action in state court barred the federal suit as well; federal plaintiff was precluded from re-litigating the issue of the disinterest and independence of Sonus' board, as "[t]he defendants have already been put to the trouble of litigating the very question at issue, and the policy of repose strongly militates in favor of preclusion"]).

In this case, plaintiff asserts that the Board was interested or lacked independence primarily because certain members of the Board sold Pfizer stock between 2000 and 2004 (see Pl Br., at 7). However, allegations regarding these stock sales and the Board's interest and/or lack of independence were already raised in the Federal Complaint in the Pfizer Derivative MDL. The federal plaintiffs asserted that the Board was interested or lacked independence for twelve different reasons, including that certain of the members of the Board "personally profited from their illegal insider trading while in possession of material, adverse, and non-public information regarding the Company, and more specifically, the knowledge of extreme cardiovascular health risks associated with the use of Celebrex and/or Bextra" (Federal Complaint, ¶ 192). The federal plaintiffs also asserted that the Board was interested or lacked independence because: (1) "Pfizer's Board actively and personally participated in the events leading up to the FDA's actions regarding the requirement for Celebrex of a black box' warning to the public" (id., ¶ 187); (2) "the members of the Board receive benefits, stock options and other emoluments by virtue of their membership on the Board and their control of Pfizer" (id., ¶ 199); (3) they allegedly failed [*4]to comply with Pfizer's Policies on Business Conduct (id., ¶ 205); (4) they "held substantial holdings of Pfizer common stock" and therefore "had every incentive to participate in the issuance of false and misleading statements about the business of Pfizer in order to effectuate a rise in Pfizer's stock price and a commensurate increase in their own net worth" (id., ¶ 211); and (5) certain Board members had "long-standing business ties" by virtue of having served together on the boards of other companies (id,. ¶ 212). In light of all of these allegations, the disinterest and independence of the Board clearly was raised in the Pfizer Derivative MDL.

The complaint (and briefs) in this case do not contain any allegations regarding the disinterest and independence of the Board that are new or different from those contained in the Federal Complaint. Here, plaintiff principally relies on allegations of insider trading in support of her claim that "the Board here is not disinterested or independent" (Pl Br., at 7). However, the complaint in this action, like the Federal Complaint, merely lists certain sales of Pfizer stock executed by certain of the Defendants between 2000 and 2004 (Complaint, ¶ 123; Federal Complaint, ¶ 177). The complaint does not provide any new facts related to these sales, and in fact does not even include all of the sales listed in the Federal Complaint. Thus, Plaintiff cannot argue that there are allegations regarding the independence of a majority of the members of the Board that are before the court here that were not before the court in the Pfizer Derivative MDL.

In addition, the substantive allegations in the Federal Complaint and the complaint here are substantially similar (see Halper Aff., Exh A [comparison of complaint with the Federal Complaint]). Each complaint is based on allegations that Pfizer's officers and directors knew that the Cox-2 inhibitor drugs Celebrex and Bextra were associated with an increased risk of cardiovascular events, but failed to disclose that information to the public. Each complaint cites to or quotes from the same Pfizer public filings with the Securities and Exchange Commission, the majority of which merely recite the success of Celebrex and Bextra. In addition, the complaint here copies entire sections of the Federal Complaint. In short, all allegations regarding the disinterest and independence of a majority of the members of the Board asserted in the complaint here were also asserted in the Federal Complaint.

In the Pfizer Derivative MDL, the court was required to determine whether the plaintiffs satisfied Rule 23.1 of the Federal Rules of Civil Procedure, which "requires that a derivative plaintiff make a pre-suit demand on the board of directors to commence the action, or plead particularized facts demonstrating that demand was excused as futile" (In re Pfizer, 503 F Supp 2d at 683). Since the plaintiffs in that case did not make a demand on the Board, the court was required to determine whether making a demand would have been futile (id.). Under controlling Delaware law, demand is excused as futile when the allegations in the complaint raise a reasonable doubt as to interest or independence of a majority of the board (id.).

Accordingly, in order to determine that the Federal Complaint failed to adequately plead that demand was excused as futile, the court was required to and did address the adequacy of the plaintiffs' allegations concerning the disinterest and independence of the Board that would have considered a demand. In doing so, the court held that: (1) "Plaintiffs have failed to sufficiently allege that a majority of directors had a disabling interest" (id. at 685); and (2) "Plaintiffs have also failed to allege that a majority of directors lacked independence" (id. at 686). The court explicitly rejected each of the twelve categories of allegations impugning the disinterest and independence of the Board, including the only category asserted by plaintiff here (i.e., allegations [*5]of insider trading). With respect to the federal plaintiffs' allegations that certain of the director defendants were interested because they sold Pfizer stock between 2000 and 2004, the court held that "plaintiffs fail to allege particularized facts demonstrating defendants possessed material, non-public information when the sales were made" (id. at 685-686). Overall, the court recognized that it "must examine the totality of the circumstances," but nonetheless determined that "I do not see how aggregating a number of factors, none of which excuses demand, can somehow excuse demand" (id. at 686).

It is thus clear that the federal court was required to determine the adequacy of the federal plaintiffs' allegations regarding the disinterest and independence of the Board. While the plaintiff here has only asserted one out of the 12 categories of allegations regarding director interest or lack of independence that is contained in the Federal Complaint (i.e., insider trading), the federal court explicitly rejected nearly identical allegations as insufficient to create a disabling interest or a lack of independence. Significantly, plaintiff's complaint does not contain any allegations regarding the disinterest and independence of the Board that are new or different from those contained in the Federal Complaint.

Plaintiff contends in her supplemental brief that the decision in the Pfizer Derivative MDL does not have preclusive effect in this case because the Pfizer Derivative MDL was a demand futility case, while this case is a demand refusal case:

This court must decide whether Pfizer's Board wrongfully refused Plaintiff's demand to institute litigation. This requires a factual inquiry into whether the investigation prompting refusal is done reasonably, in good faith, and with the Company's best interests in mind. In contrast, the Federal Action determined that plaintiffs did not adequately plead that Pfizer's Board was interested and lacked independence.

Pl Suppl Br., at 5 (citations omitted). Specifically, plaintiff asserts that "[t]he issue before this Court is distinct from the one decided in the Federal Action" because "Delaware courts have consistently held that whether demand is wrongfully refused and whether demand is excused as futile are two unique issues' (id. at 4). This argument completely misses the mark.

Plaintiff attempts to plead wrongful refusal of demand in part by alleging that a majority of Pfizer's Board "is not disinterested or independent' (Pl Br., at 7). Plaintiff cannot, and has not, disputed that the issue of the Board's disinterest and independence was raised and decided in the Pfizer Derivative MDL. In assessing whether demand is excused as futile, courts must determine whether a majority of the board is interested or lacks independence (see Rales v Blasband, 634 A2d 927 [Del 1993]). The federal plaintiffs asserted that the Board was interested or lacked independence for 12 separate reasons, including the exact reason raised by plaintiff in her opposition brief that certain members of the Board "personally profited from their illegal insider trading while in possession of material, adverse and non-public information regarding the Company and, more specifically, knowledge of extreme cardiovascular health risks associated with the use of Celebrex and/or Bextra" (Federal Complaint, ¶ 192). In light of these allegations, the disinterest and independence of the Board was clearly raised in the Pfizer Derivative MDL.

Plaintiff also asserts that "[w]hether Pfizer's Board conducted a proper investigation and acted in good faith and with the Company's best interests in mind in responding to a demand was not decided in the Federal Action" (Pl Suppl Br., at 6). This argument also misses the point. [*6]Defendants are not arguing that the Pfizer Derivative MDL addressed the adequacy of the Board's investigation of plaintiff's demand. Rather, defendants argue that plaintiff is estopped from asserting that a majority of the Board which investigated plaintiff's demand was interested or lacked independence, because the Federal Court already conclusively determined this issue.

Once the party seeking to assert collateral estoppel has demonstrated, as here, that the same issue was necessarily decided in a prior action, the burden then shifts to the party opposing the application of collateral estoppel to demonstrate the absence of a full and fair opportunity to litigate the issue (see Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343 [1999]; NAS Elecs., Inc. v Transtech Elecs. PTE Ltd., 262 F Supp 2d 134 [SDNY 2003]; Levin v Kozlowski, 13 Misc 3d 1236 (A), supra).

The plaintiffs in the Pfizer Derivative MDL unquestionably had a full and fair opportunity to litigate the issue of the Board's independence. The lead plaintiffs in that case had over six months from the date on which they were appointed lead plaintiffs to file and serve a consolidated amended complaint. The lead plaintiffs used that time to draft a 133-page complaint, which contained 31 pages, including 46 separate paragraphs, devoted solely to allegations regarding the Board's interest and/or lack of independence (see Federal Complaint, ¶¶ 179-225). The plaintiffs also submitted a 62-page brief in opposition to the defendants' motion to dismiss, 39 pages of which were devoted to the issue of the Board's interest and/or lack of independence (see Halper Aff., Ex. G [Plaintiffs' Opposition to Defendants' Motion to Dismiss the Verified, Consolidated and Amended Shareholder Derivative Complaint, dated July 31, 2006]). The issue of demand futility was also extensively debated at the oral argument before Judge Owen on September 29, 2006.

Plaintiff argues that, while the federal plaintiffs in the Pfizer Derivative MDL might have had a full and fair opportunity to litigate the issue of the Board's disinterest and independence, she has not had that opportunity. Specifically, plaintiff states that she "is an independent shareholder and has a statutory right to assert claims to protect Pfizer when, as here, the Board refuses to do so" (Pl Suppl Br., at 3, n 4). I reject this argument.

While the plaintiff here is a different shareholder than the shareholder plaintiffs in the Pfizer Derivative MDL, that fact is irrelevant, particularly because plaintiff here is represented by the same counsel as two of the plaintiffs in the Pfizer Derivative MDL. As a threshold matter, the real plaintiff in both cases, as in all shareholder derivative cases, is the corporation (see Levine v Smith, 591 A2d 194, 200 [Del 1991] ["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"], overruled on other grounds by Brehm v Eisner, 746 A2d 244 [Del 2000]; White v Panic, 783 A2d 543, 546 [Del. 2001] (the demand requirement "is designed to implement the principle that the cause of action [in shareholder derivative suits] belongs to the corporation, not the stockholder plaintiff"]). Thus Pfizer, and not the individual shareholder who has commenced the action, is the real plaintiff (see Ross v Bernhard, 396 US 531, 538 [1970] ["Although named a defendant, [the corporation] is the real party in interest, the stockholder being at best the nominal plaintiff"]).

Moreover, numerous courts in similar circumstances have rejected arguments against the application of collateral estoppel in shareholder derivative litigation on the ground that one shareholder should not be bound by a decision rendered against a different shareholder plaintiff. [*7]For example, in Levin v Koslowski, I held that "[a]lthough the particular Tyco shareholders named as plaintiffs in this suit are different from those in the Federal Action, a nonparty to a prior litigation may be collaterally estopped by a determination in that litigation by having a relationship with a party to the prior litigation such that his own rights or obligations in the subsequent proceeding are conditioned in one way or another on, or derivative of, the rights of the party to the prior litigation'" (13 Misc 3d at * 10, quoting D'Arata v New York Cent. Mut. Fire Ins. Co., 76 NY2d 659, 664 [1990]; see also Henik v La Branche, 433 F Supp 2d at 381 ["although Henik and Lewis were not named Plaintiffs in the Brown action, there is nothing differentiating the standing analysis to be undertaken from that done so in Brown, and preclusive effect shall be given to the Brown dismissal"]; In re Sonus Networks, 499 F3d at 64 ["The question was whether demand on the board of directors would have been futile, which is an issue that would have been the same no matter which shareholder served as nominal plaintiff"]; In re Career Educ. Corp. Deriv. Litig., 2007 WL 2875203 [Del Ch 2007] [shareholder plaintiff collaterally estopped from relitigating the issue of the board's independence based on a final judgment in a prior shareholder derivative suit]).

These decisions rely upon that fact that "in derivative suits, shareholder plaintiffs are treated like equal and effectively interchangeable members of a class action because their claims belong to and are brought on behalf of the corporation, rather than on behalf of themselves" (Levin v Kozlowski, 13 Misc 3d at * 10; see also In re Career Educ. Corp. Deriv. Litig., 2007 WL 2875203 at * 10 ["Because the corporation is the true party in interest in a derivative suit, courts have precluded different derivative plaintiffs in subsequent suits"]). Thus, "prior legal determinations in derivative suits can bind all other similarly situated plaintiffs who might bring subsequent derivative claims, thus avoiding wasteful and duplicative litigation" (Levin v Kozlowski, 13 Misc 3d at * 10).

Here, there is no difference between the plaintiffs in the Pfizer Derivative MDL and plaintiff here. Each plaintiff seeks to assert claims on behalf of Pfizer, not individual claims. Thus, plaintiff is bound by the determination in that case.

Accordingly, plaintiff is collaterally estopped from challenging the disinterest and independence of the Board. In light of this determination, the only remaining issue is the adequacy of the Board's investigation of plaintiff's demand. The only allegation in the complaint regarding the Board's investigation is plaintiff's assertion, on information and belief, that:

On or about February 24, 2006, Plaintiff received the Board's refusal of her demand. The refusal omitted any information concerning a Board investigation of plaintiff's demand. Accordingly, plaintiff on information and belief, based upon the complexity of the issues raised in plaintiff's demand and the Board's quick determination to refuse plaintiff's demand in less than two months, alleges that the Board failed to conduct a reasonable and good faith investigation of plaintiff's demand before refusing it. Because the Board's refusal of plaintiff's demand was wrongful, plaintiff brings this action on behalf of Pfizer.

Complaint, ¶ 175.

Plaintiff's allegation regarding wrongful refusal of demand, i.e., that the Board rejected her demand too quickly, is patently deficient under well-settled Delaware law. Under Delaware law, "[a] demand, when required and refused (if not wrongful), terminates a stockholders's legal [*8]ability to initiate a derivative action" (Zapata Corp. v Maldonado, 430 A2d 779, 784 [Del 1981]). Thus, when a shareholder makes a demand upon a corporation's board of directors to initiate litigation and that demand is refused, the shareholder may only initiate a derivative action if he or she can allege particularized facts demonstrating that the demand was wrongfully refused (see Scattered Corp. v Chicago Stock Exch., Inc., 1996 WL 417507 [Del Ch 1996], affd 701 A2d 70 [Del 1997], overruled on other grounds by Brehm v Eisner, 746 A2d 244, supra; see also Sterling v Mulholland, 1998 WL 879714, * 2 [SD NY 1998] ["The plaintiff must allege with particularity facts that create a reasonable basis for inferring that the board's refusal was wrongful"]).

Applying these principles, it is well settled that a "plaintiff claiming wrongful refusal of a demand has the burden to plead particularized facts that create a reasonable doubt as to whether the board conducted its investigation of the claims set forth in the Demand reasonably and in good faith" (Scattered Corp. v Chicago Stock Exch., Inc., 1996 WL 417507 at * 3). Conclusory, ipse dixit, assertions are insufficient (see Grimes v Donald, 673 A2d 1207 [Del 1996], overruled on other grounds by Brehm v Eisner, 746 A2d 244, supra). In short, "once the shareholder makes the demand on the board, thereby conceding that a majority of the board is independent, the Court's only inquiry is into the board's good faith and the reasonableness of the investigation" (Charal Inv. Co. v Rockefeller, 1995 WL 684869, * 2 [Del Ch 1995] [citation omitted]).

The Board's decision to reject a shareholder demand under Delaware law is protected by the presumption of the business judgment rule (see Khanna v McMinn, 2006 WL 1388744 , * 13 [Del Ch 2006] [once a shareholder has made demand, his or her only recourse is "to demonstrate that demand was wrongfully rejected, but, as with any board decision, rejection of shareholder demand is afforded the presumptions of the business judgment rule"]; see also Scattered Corp. v Chicago Stock Exch., Inc., 1996 WL 417507, supra). 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 v Buntrock, 571 A2d 767, 774 [Del 1990]). " The burden is on the party challenging the decision to establish facts rebutting this presumption'" (id., quoting Aronson v Lewis, 473 A2d 805, 812 [Del 1984], overruled on other grounds by Brehm v Eisner 746 A2d 244, supra). If a complaint fails to plead facts rebutting this presumption, then "the board of directors' decision not to pursue the derivative claim will be respected by the courts" (id. at 777). To overcome that presumption when a disinterested and independent board has rejected a shareholder demand, the plaintiff must plead "particularized facts creating a reason to doubt that the [board's] investigation of the demand was reasonable and conducted in good faith" (Scattered Corp. v Chicago Stock Exch., Inc., 701 A2d at 76]).

Plaintiff has not overcome the presumption here. Here, the complaint contains only one conclusory allegation that attempts to overcome the presumption of the business judgment rule, i.e., that demand was wrongfully refused because the Board rejected her demand too quickly. Delaware courts have consistently rejected the allegation that a board's refusal of demand was wrongful simply because it was issued promptly (see Baron v Siff, 1997 WL 666973, * 3 [Del Ch 1997] ["That the refusal letter is dated nine days after the demand letter is also insufficient to rebut the presumption that the Board adequately investigated the demand"]; Levine v Smith, 591 A2d 194, supra [complaint did not adequately plead wrongful refusal where the board rejected plaintiff's demand less than one month after receiving it]). [*9]

In this case, the Board rejected plaintiff's demand on February 24, 2006, more than six weeks after receiving it (see Def Opening Br., at 12). In addition, the eight derivative actions that were consolidated in the Pfizer Derivative MDL, as well as other related litigation, had already been pending for over one year when plaintiff made her demand (id. at 25; see also Halper Aff., Exh H, at Exh 13, at 65-66 [discussing COX-2 related litigation, including suits under the federal securities laws, ERISA, and state consumer protection statutes]).[FN1]

The allegations in the complaint largely track the allegations of the Federal Complaint (see Halper Aff., Exh A [comparison of complaint with the federal complaint]). Significantly, the complaint cites to or quotes from nearly all the same Pfizer public filings that are referenced in the Federal Complaint (id.). In addition, some sections of the complaint are copied verbatim from the Federal Complaint (id.). As a result, it is clear that the Board was already familiar with the issues raised in plaintiff's demand when it received and considered that demand (see Mount Moriah Cemetery on Behalf of Dun & Bradstreet Corp. v Moritz, 1991 WL 50149, * 4 [Del Ch], affd 599 A2d 413 [Del 1991] [dismissing complaint alleging that the board's investigation of a demand was inadequate, where the issues raised in the demand were "well known" to the board as a result of other related litigation]). In short, nothing about the duration of the Board's consideration of plaintiff's demand or the timing of its refusal raise any doubt as to the good faith or reasonableness of its investigation. Thus, plaintiff's challenge to the adequacy of the Board's investigation fails as a matter of law.

Plaintiff cites to the Delaware Supreme Court's decision in Scattered Corp. for the proposition that "while a board may appear independent and disinterested (the issue in a demand excused matter), this hypothetical independence does not answer the question of whether it acted in good faith and with the company's best interests in mind [in investigating the demand] (the issue in a demand refused matter" (Pl Suppl Br., at 6). However, the Delaware Supreme Court's decision in Scattered Corp. is inapplicable for two reasons. First, plaintiff may not relitigate the issue of the Board's independence and disinterest because the Federal Court already conclusively resolved this issue. Second, as to the separate question of whether the Board "acted in good faith" (or, in other words, adequately invested plaintiff's demand), while that issue was not determined by the Federal Court, the complaint plainly fails to plead sufficient particularized facts to call into question the Board's investigation of plaintiff's demand. [*10]

Plaintiff also contends that, in the event that her complaint is dismissed, she should be given the opportunity to replead. However, it is well-settled that a complaint should be dismissed with prejudice where the plaintiff is unable to adequately allege facts sufficient to support his or her claims (see Cortec Indus., Inc. v Sum Holding L.P., 949 F2d 42 [2d Cir 1991], cert denied sub nom 403 US 960 [1992]). Where a defect in a complaint cannot be cured by amendment, it is futile to grant leave to amend (see Hinderstein v Town of Babylon, 34 AD3d 738, 738 [2d Dept 2006] [affirming Supreme Court's denial of leave to amend where the "proposed amendment was palpably insufficient as a matter of law and totally devoid of merit"]). In this case, plaintiff has failed to allege any new facts that would cure the deficiencies in the complaint (see Brennan v J.P. Morgan Sec., Inc., 7 Misc 3d 1013 (A), * 4 [Sup Ct, NY County 2004] [denying leave to amend where plaintiff gave "no indication of how an amended pleading would possess more merit than the present one"]). As a result, amendment of the complaint would be futile since any amendment would not salvage the claims asserted therein.

First, plaintiff should not be permitted to amend the complaint to add allegations regarding the disinterest and independence of a majority of the Board because, as previously determined, plaintiff is collaterally estopped from re-litigating that issue in light of the decision in the Pfizer Derivative MDL.

Second, with respect to plaintiff's claim of wrongful refusal of demand, plaintiff asserts only one additional argument in her supplemental brief that supposedly would "show that demand was wrongfully refused." Specifically, plaintiff asserts that:

Defendants' statements that they know of the derivative actions suggests that the Board is apprised of lawsuits filed against the Company. This suggests that the Board would have been apprised of the 2001 consumer class actions filed against the Company, thus further supporting plaintiff's assertions that the investigation [of her demand] was not done in good faith.

Pl Suppl Br., at 8. Plaintiff fails, however, to explain why the filing of these actions in 2001 compromised the Board's investigation of plaintiff's demand five years later. The mere fact that a consumer class action was commenced against Pfizer in 2001 has no bearing on the Board's investigation of plaintiff's demand in 2006. This is clearly not the type of particularized factual allegation that "would "create a reasonable doubt as to whether the board conducted its investigation of the claims set forth in the Demand reasonably and in good faith" (Scattered Corp. v Chicago Stock Exch., Inc., 1996 WL 417507 at * 3).

In short, plaintiff has failed to allege any new facts that would cure the fatal defects in her complaint (see Rice v Penguin Putnam, Inc., 289 AD2d 318, 319 [2d Dept 2001] appeal dismissed, lv denied 98 NY2d 635 [2002] [denying leave to amend where plaintiff "failed to demonstrate good ground' to support an amendment ... or to make an evidentiary showing that his proposed amendment has merit"] [citations omitted]). As a result, amendment of the complaint would be futile, and the complaint is dismissed with prejudice.

I have considered the remaining claims, and I find them to be without merit.

Accordingly, it is

ORDERED that the motion to dismiss is granted, and the complaint is dismissed with prejudice, with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: __March 17, 2008

ENTER:

_______________________

J.S.C. Footnotes

Footnote 1:Judicial notice may be taken of the fact that the complaints in the eight derivative actions that were consolidated into the Pfizer Derivative MDL were filed in December 2004 and January 2005, more than a year before plaintiff made her demand here (see In re Justin EE, 153 AD2d 772, 774 [3d Dept 1989], appeal denied 75 NY2d 704 [1990] ["A court may take judicial notice of prior judicial proceedings though in a different court and involving different parties"]; Liberty Mut. Ins. Co. v Rotches Pork Packers, Inc., 969 F2d 1384, 1388 [2d Cir 1992] ["A court may take judicial notice of a document filed in another court not for the truth of the matters asserted in the other litigation, but rather to establish the fact of such litigation and related filings'"] [citation omitted]; Intellective, Inc. v Massachusetts Mut. Life Ins. Co., 190 F Supp 2d 600 [SD NY 2002] [taking judicial notice of a complaint filed in a related case filed in New York State Court]).