Brinckerhoff v. Texas Eastern Products Pipeline Company, LLC , (Del. Ch., Nov. 25, 2008), read opinion here. In this decision, the Chancery Court denied a motion to dismiss based on Rule 12(b)(6), in connection with a fiduciary duty claim against certain directors. The Court found that the simple allegation that “the board of directors” authorized the transaction at issue – – is sufficient identification of “individual directors” serving on the board at the time.
However, as to the disclosure claims, the Court granted the motion to dismiss because the Court found that complaint “fails to point to any material information that was not already in the total mix or cured by the publication of subsequent proxy materials.”
Under Rule 12(b)(6) dismissal is “inappropriate unless the court determines that ‘the plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.’” (citations omitted.)
The Court also discussed merely “general notice pleading requirements of Rule 8(a)” that do not require complete detail (see footnote 12), and that the Court “must give the pleader ‘the benefit of all reasonable inferences that can be drawn from its pleading.’” (see footnote 13.)
The directors unsuccessfully argued that the amended complaint was not specific enough to describe whether and to what extent the “February 2006” directors were involved in the challenged transactions.
The Court reasoned, however, that merely referring to the “February 2006 directors” adequately put them on notice of the claims against them involving the challenged transactions.
Specifically, the Court explained that the inference that the “February 2006 directors” were involved in the contested transactions, is “not only one of the ‘various factual permutations reasonably possible within the framework of plaintiff’s allegations,’ it is arguably the most reasonable inference, exceeding the requirements to survive a Rule 12(b)(6) motion. (see footnote 14.)
In the course of dismissing the disclosure claim, the court discussed the requirements of Rule 8(a) notice requirements in the context of what detail would be adequate for a disclosure claim, and juxtaposing those requirements with the definition of materiality and the duty of candor of a fiduciary related to a corporate transaction.
A practical bit of knowledge useful to litigators relates to what documents can be considered by a court during a Rule 12(b)(6) motion. In footnote 24, the court explained that in a Rule 12(b)(6) motion the court generally may not consider documents extrinsic to the complaint, with two exceptions:
1) When “the document is integral to a plaintiff’s claim and incorporated into the complaint;” or
2) When “the document is not being relied upon to prove the truth of its contents.” (citation omitted.)
In concluding its analysis about why the disclosure claims would be dismissed, the Court explained that Delaware law does not require that a director “engage in ‘self-flagellation in his disclosures and draw legal conclusions implicating himself in a potential breach of fiduciary duty from surrounding facts an circumstances.’” (see footnote 38.)
UPDATE: The Wall Street Journal’s online edition highlighted this post here.