In the instant case, plaintiff ultimately filed a proper affidavit. (Docket entry No. 26). Further, plaintiff read the complaint and amended complaint and stated that the facts alleged therein were truthful. The Court concludes that the purpose of the verification requirement has been satisfied in this case and denies defendants' motion to dismiss on this basis.
D. Demand Requirement
Defendants maintain that plaintiff failed to make a proper demand on the Board of Directors. Rule 23.1 requires that "the complaint 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 the reasons for his failure to obtain the action . . . ." Rule 23.1 expressly requires that a shareholder's derivative complaint allege either that a demand was made or that demand should be excused since demand would have been futile. Lewis v. Curtis, 671 F.2d at 784.
The demand requirement prevents courts from interfering with the internal affairs of corporations until all intracorporate remedies have been exhausted. Thus, the demand requirement furthers a basic principle of corporate organization -- that the management of the corporation be entrusted to its board of directors. Cramer v. General Tel. & Electronics Corp., 582 F.2d 259, 274-75 (3d Cir. 1978), cert. denied, 439 U.S. 1129, 59 L. Ed. 2d 90, 99 S. Ct. 1048 (1979). Note, The Demand and Standing Requirements in Shareholder Derivative Actions, 44 U.Chi.L.Rev. 168, 171-72 (1976). At the same time, Rule 23.1 recognizes that it is sometimes necessary to have shareholders enforce and indeed assume the directors' duties of corporate governance. However, Rule 23.1 also acknowledges that because shareholders could be overzealous in their enforcement actions, there must be rules to "police the police." See Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 78 L. Ed. 2d 645, 104 S. Ct. 831 (1984). Thus, under Rule 23.1, the shareholder must either make a demand or plead with particularity the exceptional circumstances why a demand would be futile, i.e., why the board of directors should not be allowed to decide whether to institute litigation. Lewis v. Curtis, 671 F.2d at 784. The Court looks solely to the amended complaint to determine whether the plaintiff/stockholder has met this burden of alleging that demand is excused. Id. With these principles in mind, the Court will determine whether plaintiff's demand complied with Rule 23.1 and whether the justification set forth in paragraph 52 of the amended complaint make this a demand excused case.
1. Adequacy of the Demand
Defendants contend that plaintiff's March 8 demand letter was inadequate in that (1) the demand letter was not sent to the current Board of Directors; rather it was sent to the individual defendants named in the suit, some of whom are not current members of the Board; (2), since the Court had already dismissed plaintiff's derivative suit in 606 F. Supp. 889, the demand letter was asking the directors to take action in a case that was already pending or on account that had been dismissed; and (3) the instant suit was prematurely filed, i.e., the directors were not accorded sufficient time to act upon the demand and exercise their business judgment as to whether Westinghouse should pursue the claim.
Adequacy of demand must be determined on a case-by-case basis. In order to determine whether the demand is adequate, the Court must look to its purpose. Allison on behalf of G.M.C. v. General Motors Corp., 604 F. Supp. 1106, 1117 (D. Del.1985). Since the directors are charged with the duty and responsibility to manage corporate affairs, if misconduct has occurred, they should be given the initial opportunity to redress the wrongs unless demand is excused. The purpose of demand is to alert the board of directors so that it can take corrective action if any, as it feels is merited. Daily Income Fund, Inc. v. Fox, 464 U.S. 523, 533, 78 L. Ed. 2d 645, 104 S. Ct. 831 (1984). "At a minimum, a demand must identify the alleged wrongdoers, describe the factual basis of the wrongful acts and the harm caused to the corporation, and request remedial relief. In most instances, the shareholder need not specify his legal theory, every fact in support of that theory, or the precise quantum of damages." Allison, 604 F. Supp. at 1117. Upon demand, the board of directors after evaluating the factual allegations may decide to bring suit on behalf of the corporation or the board of directors may decide not to sue. In the event the board decides not to sue, a district court faced with a shareholder derivative suit must decide whether to defer to the board's judgment not to sue and dismiss the case. Weiss v. Temporary Investment Fund, Inc., 692 F.2d 928, 939-42 (3d Cir. 1982), vacated and remanded on other grounds, 465 U.S. 1001, 104 S. Ct. 989, 79 L. Ed. 2d 224 (1984); Cramer v. General Telephone & Electric Corp., 582 F.2d at 274-75.
Application of these guidelines to the instant demand leaves the Court to conclude that the demand cannot be considered adequate. Aside from the fact that only some of the members of the board were notified, the board was being asked to take action on a claim that had been dismissed. Assuming arguendo that the demand could be considered adequate, the board of directors was not afforded sufficient time to respond to the demand before plaintiff filed suit.
The complaint was filed on May 6, 1985, approximately two months after the last demand letter was sent out. There is no precise rule as to how much time a board must be given to respond to a demand. Adequate time should be allowed for a response. Nussbacher v. Continental Illinois Nat'l. Bank & Trust Co., 518 F.2d 873, 877 (7th Cir. 1975), cert. denied, 424 U.S. 928, 47 L. Ed. 2d 338, 96 S. Ct. 1142 (1976); Mills v. Esmark, Inc., 91 F.R.D. 70, 72-73 (N.D. Ill. 1981). Generally, the amount of time needed for a response will vary depending upon the complexity of the issues raised. See C. Wright & A. Miller, 7A Federal Practice and Procedure § 1831, 377 (1972). In the instant case, the complaint filed at Civil Action No. 83-856 alleged violations of the federal securities laws, including § 10(b) of the Securities Exchange Act of 1934 (the Act), which prohibits insider trading and fraudulent practices in connection with the purchase or sale of a security; § 14(a) of the Act, 15 U.S.C. § 78n(a), which prohibits the solicitation of false and misleading proxy material. The complaint also alleges breach of the defendants' fiduciary duty and common law fraud. Named as defendants are 23 individuals, including Price Waterhouse, a public accounting firm retained by Westinghouse. Given the complexity of these issues, the Court concludes that two months was not sufficient time for the Westinghouse Board to complete an adequate investigation of the items set forth in the demand letter. See Allison, 604 F. Supp. at 1118 (2-1/2 months is not enough time).
Premature filing of a suit after demand has been made frustrates the policy of Rule 23.1 "that an individual shareholder ordinarily should not usurp the responsibility of corporate management to determine whether and how to pursue a corporate claim." Weiss v. Temporary Investment Fund, Inc., 516 F. Supp. 665, 670 n. 13 (D. Del. 1981), aff'd., 692 F.2d 928 (3d Cir. 1982), vacated and remanded on other grounds, 465 U.S. 1001, 104 S. Ct. 989, 79 L. Ed. 2d 224 (1984). Premature filing of suits after demand is made is equivalent to failure to make a demand and warrants dismissal. Allison, 604 F. Supp. at 1118; Mills v. Esmark, Inc., 91 F.R.D. at 73. See Shlensky v. Dorsey, 574 F.2d 131 (3d Cir. 1978).
The Court concludes that the demand made on the board of directors is inadequate.
2. Futility of Demand
Having concluded that the demand in this case was inadequate, the Court nevertheless will determine whether demand should be excused, since any demand would be futile.
Plaintiff maintains that:
Any further demand upon the Board of Directors to redress the wrongs complained of would be futile, and in effect, constitute that they bring action against themselves as named defendants. The Board of Directors have not convened since the date of the demand, March 6 to March 8, to take action to redress the wrongs alleged in plaintiff's original action in Civil Action No. 83-856 which are identical to the wrongs alleged in this action because the Board of Directors are antagonistic to plaintiff's claim which adversely involves them in the wrongdoing complained of herein, and they are biased and self-interested in not redressing the matters complained of by plaintiff.