624 N.E.2d 1118
Nos. A-92-03652 and A-92-05925.Court of Common Pleas, Hamilton County.
Decided October 2, 1992.
Gene Mesh Assoc. and Gene I. Mesh, for plaintiffs.
Taft, Stettinius Hollister, L. Clifford Craig and Mark G. Kobasuk, for defendants.
RALPH WINKLER, Judge.
This consolidated matter came before the court on motions to dismiss, pursuant to Civ.R. 12(B)(6) and 23.1, filed by defendant Star Banc Corporation and the individual defendants. The court, having considered the motions, the memoranda of law and the arguments of counsel, finds that plaintiffs have failed to comply with the pleading requirements of Civ.R. 23.1 governing derivative actions and have failed to state a claim upon which relief can be granted under Civ.R. 12(B)(6) and, therefore, the complaints are hereby dismissed, based upon the following.
1. Plaintiffs’ claims are wholly derivative. Although Abrahamson’s action purports to be both a class and derivative action, a plaintiff shareholder does not have an independent cause of action where there is no showing that he has been injured in any capacity other than in common with other shareholders as a consequence of the alleged wrongful acts Adair v. Wozniak (1986), 23 Ohio St.3d 174, 176, 23 OBR 339, 341, 492 N.E.2d 426, 428; Hancock v. SLD Dev., Inc. (May 28, 1982), Williams App. No. WMS-81-25, unreported, 1982 WL 6425. Plaintiff Abrahamson’s alleged damage — the lost opportunity to secure a premium for his shares following rejection of an acquisition overture — is damage that all shareholders would suffer. See Lewis v. Spencer (Oct. 31, 1989), Del.Ch. No. 8651, Fed.Sec.L.Rep. ¶ 94,873, 1989 WL 129529, affirmed (Del. 1990), 577 A.2d 753; Sumers v. Beneficial Corp. (Mar. 9, 1988), Del.Ch. No. 8788, unreported, 1988 WL 23948. Accordingly, Abrahamson has suffered no alleged injury separate and distinct from other shareholders and his claims are wholly derivative.
Therefore, Abrahamson has no standing to assert an individual claim or a class action against the defendants.
2. The Abrahamson and Lindhorst complaints fail to comply with the pleading requirements of Civil Rule 23.1 governing derivative actions. Rule 23.1 requires that the complaint “allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors and, if necessary, from the shareholders and the reasons for his failure to obtain the action or for not making the effort.” Where a plaintiff does not make a demand on the corporation’s directors, he or she must state with particularity why such a demand would have been futile. “The requirement of demand upon directors is a rule of judicial economy which places a duty upon a plaintiff in a derivative action to first exhaust his intracorporate remedies.” Carlin v. Brownfield (June 18, 1985), Franklin App. No. 84AP-345, unreported, 1985 WL 10327.
3. Plaintiffs have not made a demand upon the directors of Star Banc Corporation nor have plaintiffs pled with particularity that demand on the directors would have been futile and therefore was excused. Plaintiffs’ alleged reasons for not making demand on the directors of Star Banc Corporation are conclusory and insufficient under Civ.R. 23.1. Plaintiffs’ allegations are clearly deficient because R.C. 1701.59(C) expressly provides that a director is presumed to be acting in good faith and in a manner he reasonably believes is in the best interest of the corporation in all cases, including those affecting or involving a change of control.
4. Aside from noncompliance with Civ.R. 23.1, plaintiffs’ complaints also must be dismissed on the independent ground that the complaints fail to state a claim upon which relief can be granted pursuant to Civ.R. 12(B)(6). The essence of plaintiffs’ claims is that the defendants rejected an offer to acquire Star Banc Corporation at a premium and failed to disclose to the shareholders that such an offer had been made. These allegations fail to state a claim upon which relief can be granted.
5. Under Ohio statutory law, Star Banc’s directors manage the affairs of the corporation and have a statutory duty to approve or disapprove merger proposals. R.C. 1701.59(A) and 1701.78(D). Directors do not have a duty to sell simply because a proposal may represent a premium over current trading values for the corporation’s stock. Paramount Communications, Inc. v. Time Inc.
(Del. 1989), 571 A.2d 1140, 1154. In determining what they believe to be in the best interest of the corporation, in addition to considering the interest of the corporation’s shareholders, directors are expressly authorized by statute to consider other factors, such as community and societal considerations and the long-term as well as the short-term interests of the corporation and its shareholders, including the
possibility that these interests may best be served by the continued independence of the corporation. R.C. 1701.13(F) and 1701.59(E).
6. Furthermore, under Ohio law the directors of a corporation are granted a statutory presumption that they have acted in good faith and in the best interests of the corporation. R.C. 1701.59(C). A judgment for money damages, moreover, requires clear and convincing proof that the directors’ act or omission to act was undertaken with deliberate intent to cause injury to the corporation or with reckless disregard for the best interests of the corporation. R.C. 1701.59(D). Plaintiffs have pled no facts, as distinct from generalized conclusions, which if proved would overcome the presumption of good faith and satisfy the requirements of R.C. 1701.59(D).
7. Ohio law does not require directors to submit every acquisition proposal to shareholders. The Ohio Revised Code expresses no statutory duties requiring directors to submit to shareholders acquisition proposals or overtures. While there appear to be no Ohio decisions addressing the issue, Delaware law is instructive and the Delaware courts have expressly held that directors have no duty to submit to shareholders acquisition proposals or takeover bids. Moran v. Household Internatl., Inc., (Del.Ch. 1985), 490 A.2d 1059, 1070, affirmed (Del. 1985), 500 A.2d 1346; Sumers v. Beneficial Corp., supra.
Delaware courts have dismissed complaints similar to the ones at issue here. See Lewis v. Spencer, supra; Sumers v. Beneficial Corp., supra; Lewis v. Honeywell, Inc. (July 28, 1987), Del.Ch. No. 8651, Fed.Sec.L.Rep. ¶ 93,565, 1987 WL 14747.
8. For the foregoing reasons, plaintiffs’ actions are hereby dismissed.