Plaintiff Benjamin Gamoran brings this derivative action against Neuberger Berman Equity Funds and one of its mutual funds, the Neuberger Berman International Fund; the Fund's investment advisors, Neuberger Berman, LLC, and Neuberger Berman Management, LLC; and several individual defendants, all of whom are or were managers, directors, or officers of these two entities. Plaintiff asserts direct and derivative civil RICO claims; derivative state-law claims for corporate waste, negligence, and breach of fiduciary duty; and direct state-law claims for breach of fiduciary duty and negligence.
The investment advisors and the individual defendants who work for them (the "Advisor defendants") now move to dismiss the complaint for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), and the fund entities and the individual defendants who work for them (the "Fund defendants") move to dismiss on the ground that plaintiff has failed to comply with demand requirements of Fed. R. Civ. P. 23.1 and of Delaware law.
The motions to dismiss are granted with leave to amend.
Neuberger Berman Equity Funds is a Delaware statutory trust and a registered investment company under the Investment Company Act of 1940. The Neuberger Berman International Fund is one of the mutual funds the company offers. As noted above, Neuberger Berman, LLC, and Neuberger Berman Management, LLC, advise the Fund defendants and manage the portfolio of the mutual fund at issue. In 2000, plaintiff purchased shares of Neuberger Berman Equity Funds through its International Fund portfolio.
The claims in this case all concern the Fund defendants' purchase of NETeller Plc ("NETeller") and 888 Holdings Plc ("888") stock on the London Stock Exchange in 2005 and 2006.*fn1 NETeller and 888 are online gambling businesses that, in the period in question, received a substantial share of their revenue from bets placed by United States residents. This business model attracted the attention of the federal government and state governments, leading to a string of crackdowns on internet gambling like 888 and NETeller.*fn2
These enforcement efforts effectively closed off the United States market to these businesses, causing the share price of both NETeller and 888 to plummet through 2006 and 2007.
Plaintiff claims that the Fund defendants' ownership of NETeller and 888 stock violated 18 U.S.C. § 1955(a), which imposes federal felony liability on whoever "conducts, finances, manages, supervises, directs, or owns all or part of an illegal gambling business." The Fund defendants' allegedly illegal stock ownership constitutes the predicate acts for plaintiff's civil RICO claims under 18 U.S.C. § 1962(c) and (d), as well as the acts underlying plaintiff's state-law claims.
II) Prior Cases Asserting Similar Claims
Plaintiff's counsel has filed several actions in various federal and state courts asserting substantially identical legal claims arising from mutual funds' ownership of the gambling company stock listed on foreign exchanges. Two of these cases are particularly relevant to the current litigation.
On July 16, 2010, Gamoran sued the present defendants in New York State court, alleging derivative state-law claims. The action was removed to this district and assigned to Judge Sand.
The court must mention at this point that to properly plead his derivative claims under Fed. R. Civ. P. 23.1, plaintiff was required to "state with particularity.any effort by the plaintiff to obtain the desired action from the directors or comparable authority and.the reasons for not obtaining the action or making the effort." This Rule contemplates the traditional state-law requirement that such plaintiffs must, as a "precondition for the [derivative] suit," demonstrate that "the corporation itself had ...