Appeal from a judgment of the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge).
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court's Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must cite either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the 2 Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, 3 on the 21st day of November, two thousand eleven.
PRESENT: AMALYA L. KEARSE, JOSEPH M. MCLAUGHLIN, JOSE A. CABRANES, Circuit Judges.
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND 29 DECREED that the judgment of the District Court be AFFIRMED.
Plaintiff-appellant James Kautz appeals from a judgment granting defendants-appellees' motion 32 to dismiss his derivative securities class action complaint for failure to make a pre-suit demand as 33 required by Fed. R. Civ. P. 23.1. See Kautz v. Sugarman, No. 10 Civ. 3478, 2011 WL 1330676 (S.D.N.Y. 34 Mar. 31, 2011) ("Kautz I"). We assume the parties' familiarity with the underlying facts and the 35 procedural history of this case.
This appeal arises out of two parallel shareholder derivative complaints filed in the Southern 37 District of New York for the benefit of Nominal Defendant iStar Financial Inc. ("iStar") against current 38 and former iStar directors and officers for breaches of fiduciary duties, waste of corporate assets, unjust 1 enrichment, and related claims. Kautz did not make pre-suit demand on iStar, electing instead to plead 2 demand futility in his complaint. He alleged that demand was futile for four reasons: (1) the Board of 3 Directors (the "Board") had already rejected the demand of another alleged shareholder (that of Addie 4 Vancil, the plaintiff in the parallel derivative suit) (the "Vancil Demand") and therefore no reasonable 5 shareholder would believe that the Board would consider another pre-suit demand in good faith; (2) 6 three of the directors were members of iStar's audit committee during the relevant period, and therefore 7 had participated in the alleged misconduct that formed the factual basis for the derivative suit; (3) one of 8 the directors, Robert Sugarman, was also the Chief Executive Officer of iStar and therefore lacked 9 independence; and (4) several of the director defendants had participated in a decision to permit three of 10 iStar's executives who might have otherwise been implicated in the alleged wrongdoing to retire or 11 resign, rather than being fired for cause. See Amended Complaint ("Am. Compl.") ¶ 151, Kautz I, 2011 12 WL 1330676, No. 10 Civ. 3478 (S.D.N.Y. June 28, 2010).
13 On August 13, 2010, defendants moved to dismiss both the Kautz complaint and the Vancil 14 complaint, arguing that Kautz had failed to plead demand futility and that both Vancil and Kautz had 15 failed to state a claim on which relief can be granted. In Kautz's memorandum in opposition to the 16 defendants' motion to dismiss, he argued that his allegation that the directors had improperly permitted 17 several iStar executives to retire or resign necessarily gave rise to an inference that those directors had 18 also executed mutual releases with the departing executives. Those directors, according to Kautz, would 19 therefore face significant personal financial liability should the executives be found to have engaged in 20 wrongdoing, and therefore could not be relied upon to address his demand in good faith. Accordingly, 21 he argued, demand on those directors (who, not incidentally, comprised a majority of the Board) was 22 excused. See Kautz I, 2011 WL 1330676, at *10.
23 The District Court consolidated the two cases for argument and made several rulings in a joint 24 opinion, only two of which are relevant to us today. First, the court held that the Board's negative 25 response to the Vancil Demand did not excuse the requirement that Kautz make his own pre-suit 26 demand. Id. at *8. Second, it found that Kautz had failed to allege the existence of mutual releases 1 between the directors and the departed executives. Id. at *10. The court granted the motion to dismiss 2 as against Kautz and directed that the case be closed.*fn1 Id. at *10-11.
On appeal, Kautz argues that the court erred by failing to consider the Board's treatment of the 4 Vancil Demand to be a relevant factor in its analysis of Kautz's allegation of demand futility. He further 5 argues that the court erred in holding that he had not sufficiently alleged the existence of mutual releases 6 between certain of the Board members and iStar. We address the court's two rulings in turn.