plaintiff, controlling more than one suit, might be faced with the dilemma of choosing which lawsuit's objectives are more important. (For instance, where sacrifice of one suit's objectives would enable success to be achieved in the other.) Then too, even assuming that Vanderbilt had previously sought to have defendants purchase his GRI stock at a premium, this past course of conduct directed toward defendants does not indicate that Vanderbilt presently holds an interest antagonistic to that of the class. At best, it might reveal a residual contentiousness between Vanderbilt and defendants. Inadequacy as a class representative is not made out merely because of a discordant relation between plaintiff and defendants. To the contrary, this may inspire plaintiff to be an even more forceful advocate. That plaintiff may have amorphous hostile feelings against defendants is not in itself relevant to the court given the absence of any concrete fact which reveals a conflict of interest between plaintiff and the class sufficient to make his representation inadequate, see 1 H. Newberg, Class Actions § 1120f (1977).
Demand Requirement Under Rule 23.1
Rule 23.1 of the Federal Rules of Civil Procedure provides that a plaintiff in a derivative action shall "allege with particularity the efforts, if any, made by the plaintiff to obtain the action he desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for his failure to obtain the action or for not making the effort." While failure to comply with Rule 23.1 is grounds for dismissal of the complaint, Shlensky v. Dorsey, 574 F.2d 131, 142 (3d Cir. 1978), the demand requirement itself may be excused where plaintiff's complaint alleges some facts which show that a demand would be futile. Addressing itself to the issue of futility, the Third Circuit held, in Lewis v. Curtis, 671 F.2d 779, 785 (3d Cir. 1982), cert. denied, 459 U.S. 880, 74 L. Ed. 2d 144, 103 S. Ct. 176, that "demand on the board should not be required . . . where the allegations of the complaint permit the inference by the court that the directors upon whom demand would be made lack the requisite disinterestedness to determine fairly whether the corporate claim should be pursued." The trial court should focus on whether a demand would be likely to prod the directors to correct a wrong. Lewis v. Curtis, 671 F.2d at 786.
Upon review of plaintiff Vanderbilt's complaint
in light of the principles of Lewis, the court concludes that any demand must be presumed futile due to either bias or involvement by the majority of GRI's board of directors. Plaintiff Vanderbilt is accordingly excused from the Rule 23.1 demand requirement.
The heart of plaintiff's complaint is that GRI's board of directors and its two parent corporations, Geo-Energy Limited and E.J. Lavino and Company ("EJL Company"), participated in a scheme to deplete GRI of its assets for defendants' personal gain, to the detriment of GRI and its minority shareholders. Defendants allegedly executed their plan by acquiring 80% control of GRI. The 80% interest was obtained only after defendants caused GRI to issue and sell 1.2 million shares of common stock to Geo-Energy Ltd. at a price unfairly low to GRI. Thereafter, defendants purportedly caused GRI to sell its assets to Geo-Energy Ltd. at a substantially inadequate price and misappropriated GRI's tax benefits for defendants' own personal gain.
Five of GRI's seven member board of directors, in addition to Geo-Energy Ltd. and EJL Company, are named as defendants. It is critical to note that four of the five defendant directors of GRI are also officers, directors, or both of either Geo-Energy Ltd. or EJL Company. GRI's President and Chairman of the Board is EJL Company's President, Chairman of the Board and principal stockholder. GRI's Chief Executive Officer and Vice Chairman of the Board is Geo-Energy Ltd's President and EJL Company's Vice President. GRI's Secretary, who is also a member of GRI's board, is EJL Company's Vice President and General Counsel. A fourth member of GRI's board is EJL Company's Vice President and Treasurer. Considering the nature of the claims in the complaint -- self-dealing in GRI's assets among GRI's board and its two parent corporations, and considering that a majority of GRI's board members are also board members or officers of the parent corporations who are alleged to have participated in the wrongdoing, it is obvious that the GRI board as a whole cannot be considered to be either unbiased or disinterested as to the claims of the complaint. Accordingly, the court finds that to require plaintiff to make demand in this case would be a meaningless formality which would only result in further delay of the suit and plaintiff's attempt to obtain relief. Demand is thus excused.
An appropriate Order will be entered denying defendants' motions to dismiss the complaint of Vanderbilt and Noah.
AND NOW, TO WIT, this 24th day of July, 1984, for the reasons stated in the foregoing Memorandum, IT IS ORDERED that defendants' motions to dismiss the complaint of plaintiffs Oliver DeGray Vanderbilt and Vanderbilt & Company, and the complaint of intervenor plaintiff C. Clay Noah, are denied.
Defendants shall file answers to the complaints within ten (10) days of the date of this Order.