Lambrecht v Bank of Am. Corp.
Annotate this CaseDecided on October 1, 2010
Supreme Court, New York County
N.A. Lambrecht, Plaintiff,
against
Bank of America Corporation, Defendant.
650182/09E
Paul G. Feinman, J.
In this action to compel production of corporate books and records, plaintiff N.A. Lambrecht (plaintiff) moves for partial summary judgment directing defendant Bank of America Corporation (BOAC) to produce certain records. BOAC cross-moves, pursuant to CPLR 3212, for summary judgment dismissing the complaint.
BACKGROUND
Familiarity with the court's prior decision and order dated January 3, 2010, and entered on January 5, 2010 (01/05/10 Order), is presumed.
Plaintiff is a former stockholder of nonparty Merrill Lynch (Merrill). In January 2009, Merrill merged with and into BOAC, becoming BOAC's wholly-owned subsidiary (the Merger). Since this was a stock-for-stock merger, plaintiff's shares of Merrill common stock were converted into those of BOAC.
In January 2008, prior to the Merger, plaintiff made a written demand on the board of Merrill (the Merrill Board) to commence litigation against Merrill's CEO, Stanley O'Neal (O'Neal), and Merrill's directors, for breach of fiduciary duty in aggressively pursuing high-risk subprime mortgage-based investments without proper risk-management procedures in place. The Merrill Board, in writing, rejected plaintiff's demand.
In July 2008, plaintiff commenced a shareholder derivative action in the Southern District of New York, captioned Lambrecht v O'Neal, file number 08 Civ 6582, against Merrill's officers and directors for breach of their fiduciary duties, based on the aforementioned alleged conduct (the Derivative Action).
In November 2008, plaintiff made a demand on the board of BOAC (the BOAC Board) to either intervene in the Derivative Action or to commence separate legal proceedings against Merrill's officer and directors.
In January 2009, after the Merger was completed, plaintiff in writing renewed her November 2008 demand on the BOAC Board.
On February 2, 2009, plaintiff sent a letter to BOAC (the February 2009 Letter), in which she demanded, pursuant to Delaware General Corporation Law (DGCL), Section 220, to inspect and copy certain records and documents of BOAC and Merrill (Section 220 Demand). Plaintiff stated that her two purposes for requesting the documents were (a) "to investigate the possibility [*2]of corporate mismanagement or wrongdoing by the present and/or former management of Merrill ... and (2) to obtain additional information concerning the refusal by [Merrill and BOAC's Boards] of the litigation demands [made in January 2009] ... " (id. at 4). BOAC refused to produce any documents.
In February 2009, the Derivative Action was dismissed, because plaintiff, as a result of the Merger, was no longer a Merrill shareholder and, hence, lacked standing to bring a derivative action on Merrill's behalf (see Matter of Merrill Lynch & Co., Inc., Securities, Derivative and ERISA Litigation, 597 F Supp 2d 427, 431 [SD NY 2009]).
In July 2009, the BOAC Board informed plaintiff that it would not cause Merrill to pursue litigation against Merrill's former officers and directors (02/18/10 Cuneo Aff., exhibit 10, 07/15/10 letter from Alice Herald to plaintiff's counsel).
In September 2009, plaintiff filed a double derivative action (the Double Derivative Action) in the Southern District of New York, captioned Lambrecht v O'Neal, file number 09 Civ 8259, against (1) Merrill's officers and directors, for breach of fiduciary duties based on risky investments in subprime-backed securities, as well as against (2) Merrill's and BOAC's officers for unjust enrichment based on improper bonus payments to Merrill's employees in December 2008 (see 04/09/10 Roth Aff., exhibit P, the Double Derivative Action Complaint).
In this action, plaintiff seeks that the court compel BOAC to comply with her Section 220 Demand.
Previously, in motion sequence 001, BOAC moved, pursuant to CPLR 3211 (a) (7), to dismiss the complaint. In its January 5, 2010 Order, this court held that plaintiff lacks a "proper purpose," within the meaning of DGCL Section 220, with respect to documents pertaining to the Merrill Board's actions taken prior to the Merger (see 01/05/10 Order, at 6-9). This court granted BOAC's motion to the extent that (1) "plaintiff's demand for documents in paragraphs one, two, five, eight, nine, twelve, and thirteen of the February 2, 2009 demand letter [was] dismissed" and (2) that "with respect to the remaining demands, plaintiff's demand for documents [was] dismissed except to the extent they pertain to the consideration, if any, by the current boards of [Merrill and BOAC] of [plaintiff's litigation demand made in January 2009]" (id. at 11-12).
On February 18, 2010, plaintiff filed her current motion for partial summary judgment seeking an order compelling production of documents that are responsive to the demands that have not been dismissed by the court's prior Order.
On March 1, 2010, BOAC interposed its answer and, on April 9, 2010, cross-moved for summary judgment dismissing the complaint.
DISCUSSION
To obtain summary judgment, a movant must tender evidentiary proof that would establish the movant's cause of action or defense sufficiently to warrant judgment in his or her favor as a matter of law (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). "[T]o defeat a motion for summary judgment the opposing party must show facts sufficient to require a trial of any issue of fact" (id., quoting CPLR 3212 [b] [internal quotation marks omitted]).
Plaintiff's Motion
As BOAC argues, pursuant to CPLR 3212 (a), a motion for summary judgment may not be made before issue is joined, "and the requirement is strictly adhered to" (City of Rochester v Chiarella, 65 NY2d 92, 101 [1985]; see also Sonny Boy Realty, Inc. v City of New York, 8 AD3d [*3]171, 172 [1st Dept 2004], affd 4 NY2d 858 [2005]). Here, plaintiff had moved for partial summary judgment before BOAC served an answer to the complaint (04/09/10 Roth Aff., ¶¶ 32-33, exhibit T). Accordingly, issue was not joined, and, hence, plaintiff's motion was premature when made (see e.g. Valentine Tr., Inc. v Kernizan, 191 AD2d 159, 160 [1st Dept 1993]).
Even if plaintiff's filing of her motion before the joinder of issue could be excused (see e.g. Duell v Hancock, 83 AD2d 762, 762-763 [4th Dept 1981]), she has failed to make a prima facie showing of entitlement to judgment as a matter of law (see e.g. Pirrelli v Long Is. R.R., 226 AD2d 166, 167 [1st Dept 1996]). Specifically, plaintiff must show that her actual primary purpose behind her Section 220 Demand is "proper" (see Del Code Ann, tit 8, § 220 [b]; see also Thomas & Betts Corp. v Leviton Mfg. Co., Inc., 681 A2d 1026, 1030-1031 [Del Supr 1996]). Plaintiff has not provided any evidentiary proof that would establish, as a matter of law, that she has a "proper purpose" (see 02/18/10 Cuneo Aff., exhibits 1-10). Accordingly, plaintiff's motion is denied.
In her reply, plaintiff, for the first time, requests that the court vacate the January 5, 2010 Order to the extent that it holds that plaintiff lacks a proper purpose to obtain documents relating to the Merrill Board's pre-merger activities. "[Tlhe function of a reply affidavit is to address arguments made in opposition to the position taken by movant and not to permit the movant to introduce new arguments in support of the motion" (see e.g. Ritt v Lenox Hill Hosp., 182 AD2d 560, 562 [1st Dept 1992]). Plaintiff's request is procedurally improper, as it was not made in plaintiff's original motion papers.
Even if this deficiency could be excused on the ground that BOAC had an opportunity, in its reply, to oppose plaintiff's request, the court sees no reason to vacate or modify its prior Order. Plaintiff's first stated purpose for her Section 220 Demand is to investigate Merill's pre-Merger mismanagement (see 01/05/10 Order, at 6; see also 02/18/10Cuneo Aff., exhibit 6, the February 2009 Letter, at 4). Plaintiff does not deny that she intends to use information, obtained pursuant to the Section 220 Demand, for the purposes of the Double Derivate Action. As this court previoulsy held, plaintiff has no standing to pursue such an action and, hence, the first stated purpose is not "proper" (see 01/05/10 Order, at 8-9; see also Saito v McCall, 2004 WL 3029876, *5, 2004 Del Ch LEXIS 205 [Del Ch 2004]; West Coast Mgt. & Capital, LLC v Carrier Access Corp., 914 A2d 636, 641 [Del Ch 2006]).[FN1] Accordingly, plaintiff's request is denied.
BOAC's Cross Motion
BOAC cross-moved, after interposing its answer, thereby complying with the requirement [*4]that a motion for summary judgment be made after joinder of issue (see CPLR 3212 [a]; see also Sonny Boy Realty, Inc., 8 AD3d at 172).
BOAC contends that plaintiff lacks "proper purpose" with respect to her remaining document demands, because she intends to use information obtained primarily in order to bolster her allegation in the Double Derivative Action that the BOAC Board wrongfuly refused her litigation demands. In support, BOAC offers plaintiff's testimony, where she admits that this is, in fact, her purpose (see 04/09/10 Roth Aff., exhibit A, Plaintiff's Dep. Tr., at 24-26). Additionally, in her response to BOAC's document request, plaintiff stated that
she intends to use information derived from the requested books and records to enhance her allegations, in the [Double Derivative Action], that the Board of Directors of Bank of America wrongfully refused her litigation demands[,] ... [and she also] contemplates the possibility of using any such documents and/or the information contained therein to communicate with present shareholders of [BOAC]
(04/09/10 Roth Aff., exhibit U, Plaintiff's Responses and Objections to Defendant's Notice to Produce Documents, at 2-3, "Response to Request No. 2" [emphasis added]).
Plaintiff concedes that her primary purpose is to investigate the refusal by the BOAC Board of the litigation demands that she made in January 2009 (see 02/18/10 Cuneo Aff., exhibits 4, 5). Plaintiff demanded then that the BOAC Board cause Merrill to litigate against Merrill's former directors and officers for their pre-Merger conduct (see id.).
The parties argue as to whether investigation of BOAC Board's refusal to litigate is a "proper purpose," given that plaintiff lacks standing to bring a double-derivative action based on the pre-Merger conduct of Merrill's directors and officers.
It is well-settled that "the demand requirement exists at the threshold of derivative litigation" (Brandin v Deason, 941 A2d 1020, 1024 n 16 [Del Ch 2007]). Plaintiff here seeks records in order to satisfy the demand requirement in the Double Derivative Action. However, plaintiff lacks standing to pursue the Double Derivative Action (see 01/05/10 Order, at 7-9; see also n 1, supra). Accordingly, inspecting records that she plans to use as part of the Double Derivative Action does not serve a "proper purpose"[FN2] (see e.g. Grimes v DSC Communications Corp., CA No 16145-NC [Del Ch, Nov. 6, 1998] [Lamb, J.] [attached to BOAC's Appendix of Unreported Decisions as exhibit 2]).
Plaintiff's contention that she also plans to use the records in order to communicate with other shareholders is irrelevant, because the focus of the inquiry is on the primary purpose behind the Section 220 Demand (see Thomas & Betts Corp. v Leviton Mfg. Co., Inc., 681 A2d 1026,[*5]1030 n 1 [Del Sup Ct 1996] ["the shareholder's primary purpose must be proper; any secondary purpose, whether proper or not, is irrelevant"]). Here, plaintiff's primary purpose is not "proper."
Credible Basis
Even if the aforementioned purpose could be considered "proper," as BOAC argues, plaintiff has offered no credible basis from which the court can infer that BOAC's decision not to pursue claims against Merrill's former directors and officers was the product of wrongdoing.
[S]tockholders seeking inspection under section 220 must present some evidence to suggest a credible basis from which a court can infer that mismanagement, waste or wrongdoing may have occurred
(Seinfeld v Verizon Communications., Inc., 909 A2d 117, 118 [Del Supr 2006] [internal quotation marks and citations omitted] [emphasis added]). "[T]he credible basis' standard sets the lowest possible burden of proof" (id. at 123). "That threshold may be satisfied by a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing'" (id., citing Security First Corp. v U.S. Die Casting & Dev. Co., 687 A2d 563, 568 [Del Supr 1997]). Delaware courts have required a showing of "credible basis" in actions to enforce DGCL Section 220 demands, where a board's wrongful refusal to litigate was an alleged purpose (see e.g. Weiland v Central & South West Corp., 1989 WL 48740, 1989 Del Ch LEXIS 48 [Del Ch 1989]).
In support, BOAC offers plaintiff's testimony. She testified that in making her Section 220 Demand, she did not have a basis for believing that the BOAC Board was involved in any wrongdoing (see 04/09/10 Roth Aff., exhibit A, Plaintiff Dep. Tr., at 145-153, 193-194). Rather, she testified that she wanted to obtain the records first and then determine whether there was any evidence of wrongdoing (see id. at 146-147, 155, 195). Accordingly, BOAC has made a prima facie showing of entitlement to judgment that plaintiff lacks a "credible basis" behind her Section 220 Demand (see Zuckerman, 49 NY2d at 562).
In opposition, plaintiff has failed to "show facts sufficient to require a trial of any issue of fact" (id.). Plaintiff does not provide an affidavit or point to any other evidence that would create an issue of fact as to whether she has a "credible basis" behind her Section 220 Demand. The court need not address BOAC's remaining argument, made at the oral argument, in support of its motion (see Oral Arg. Tr., at 16-18, 21-23, 24-25). Accordingly, BOAC's motion is granted, and the complaint is dismissed.
CONCLUSION
For the foregoing reasons, it is hereby
ORDERED that the motion for summary judgment of plaintiff N.A. Lambrecht is denied; and it is further
ORDERED that the motion of defendant Bank of America Corporation for summary judgment is granted and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated: October 1, 2010____________________________________
J.S.C. Footnotes
Footnote 1: The parties informed this court that the issue of plaintiff's standing to pursue a double derivative action on BOAC's behalf premised on Merrill's pre-Merger conduct was raised in the Double Derivative Action (Oral Arg. Tr., at 2-3). The federal court (Rakoff, J.) questioned the policy rationale of holding in Saito on the issue of standing and, therefore, certified to the Delaware Supreme Court the question of law as to whether a shareholder, under the circumstances as those of plaintiff's, has standing to pursue a double derivative action (see 04/09/10 Roth Aff., exhibit S, 03/01/10 Double Derivative Action Tr., at 8-11; see also 04/23/10Cuneo Aff., ¶¶ 30-34; exhibits 19-20). In April 2010, the Delaware Supreme Court accepted the certification of question of law (see 04/23/10Cuneo Aff., ¶ 34). The parties here have not requested that this action be stayed pending a decision of the Delaware Supreme Court on the certified question.
Footnote 2: Plaintiff claims that in the 01/05/10 Order, "this Court held that the purpose of investigating the refusal of Plaintiff's litigation demands was a proper purpose regardless of whether Plaintiff had such standing" (Plaintiff's 04/23/10 Reply Mem. Law, at 8 [emphasis in the original]). Plaintiff misconstrues the court's holding. In deciding, on a motion to dismiss, whether plaintiff had a cause of action, the court stated that she "appears to be entitled to documents pertaining to BOAC and Merrill's consideration, if any, given to her [litigation] demand[s] ... " (01/05/10 Order, at 9-10). The court, however, did not hold that plaintiff's actual primary purpose was "proper."
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