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Hawaii Structural Ironworkers Pension Trust Fund v. Belda

July 9, 2008


The opinion of the court was delivered by: Ambrose, Chief District Judge


This shareholder derivative action, commenced by plaintiff Hawaii Structural Ironworkers Pension Trust Fund ("Plaintiff") derivatively on behalf of Alcoa, Inc. ("Alcoa"), involves allegations of bribery and violations of the Foreign Corrupt Practices Act on the part of Defendants. Defendants Alain J.P. Belda, Kathryn S. Fuller, Carlos Ghosn, Joseph T. Gorman, Judith M. Geuron, Klaus Kleinfeld, Michael G. Morris, E. Stanley O'Neal, James W. Owens, Henry B. Schacht, Ratan N. Tata, Franklin A. Thomas and Ernesto Zedillo (collectively, the "Director Defendants"), along with Defendants Lawrence R. Purtell and Bernt Reitan, have moved to dismiss the complaint [Docket No. 47] for lack of standing due to Plaintiff's failure to make a pre-suit demand on Alcoa's Board of Directors, and for failure to state a claim. For the reasons set forth below, I grant Defendants' motion to dismiss.


I. Background

On February 27, 2008, a civil RICO action was filed in this Court under the caption Aluminum Bahrain B.S.C. v. Alcoa, Inc., Alcoa World Alumina LLC, William Rice and Victor Dahdaleh, No. 2:08-cv-0029 (the "Alba Action"). The Alba Action alleged that Alcoa, an affiliate and certain individuals engaged in fraud and bribery of foreign officials over a period of fifteen years and sought one billion dollars in damages. On March 20, 2008, the Department of Justice ("DOJ") moved to intervene and stay discovery in the Alba Action, to prevent interference with its own criminal investigation. By March 22, 2008, it was "widely reported" in the news media that Alcoa was under investigation by the DOJ over the accusations that the company bribed officials in Bahrain in connection with its business dealings. (Complaint, ¶ 13.)*fn1

On March 27, 2008, I granted the DOJ's motion and stayed indefinitely all discovery in the Alba Action.

The Complaint in this shareholder derivative action was filed on May 6, 2008, along with a motion for a temporary restraining order and preliminary injunction. The Complaint asserts claims for breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment and gross mismanagement, alleging that the Defendants, consisting of the entire Alcoa Board of Directors as well as certain senior executives and agents, breached their fiduciary duties to Alcoa by participating in and/or failing to prevent the misconduct alleged in the Alba Action. All of the claims are derivative in nature. In connection with its action, Plaintiff also sought a TRO and preliminary injunction enjoining any Alcoa Directors or officers identified as subjects or targets of the DOJ investigation from participating in Board decisions relating to Alcoa's response to the investigation and any criminal charges ensuing therefrom.

It is undisputed that Plaintiff did not make a demand on Alcoa's Board of Directors (the "Board") prior to commencing this action on May 6, 2008. In its Complaint, Plaintiff alleges that "[p]resuit demand on the Alcoa Board of Directors to bring the derivative claims asserted herein is excused because Alcoa and its shareholders will suffer irreparable injury if demand were required to be made upon the Alcoa Board of Directors and plaintiff is required to sit by idly while the defendants named herein abuse their positions of trust and control at Alcoa to compromise Alcoa's interests in favor of their own." (Complaint, at ¶ 135.) After outlining the allegations against Alcoa in the Alba Action and the resultant DOJ investigation, Plaintiff alleges that "without this Court's intervention - the fox will be left in charge of the henhouse." (Id.) Plaintiff further asserts that its "ability to seek injunctive relief on Alcoa's behalf to recover and/or enjoin the dissipation of illegal profits and unjust enrichment would be unduly stymied if plaintiff were required to await the Alcoa Board's reconsideration of the public position it has already taken in defending itself and denying any misconduct occurred." (Id.) Finally, Plaintiff alleges that "the entire Alcoa Board is incapable of exercising valid business judgment, as of the filing of this suit, as to investigate and/or prosecute these claims would expose (or increase the exposure of) each Board member to criminal and/or civil liability for the misconduct alleged herein." (Id. at ¶ 136(b).)*fn2

By letter of counsel dated May 7, 2008, Plaintiff notified Alcoa's Board that it had filed a shareholder derivative complaint and provided the Board with a copy of the Complaint. [Docket No. 48-6, at 2.] Plaintiff further stated that "[t]his letter also serves as a formal demand that the Alcoa Board of Directors immediately investigate and commence legal action for remedial and other relief against [the Defendants] for breach of fiduciary duty, abuse of control, gross mismanagement, corporate waste, and unjust enrichment, as alleged in the attached Complaint." [Id.]

By letter of counsel dated May 19, 2008, the Board responded to Plaintiff's demand. [Docket No. 48-7, at 2.]

Second, with respect to the section of your letter titled "Demand on Alcoa Board to Commence Litigation" - which you sent the day after you filed your derivative action - as you know (and your complaint alleges) Alba filed a complaint in federal court in the Western District of Pennsylvania alleging that Alcoa (and others) committed fraud and violated the Federal RICO statute in connection with an alleged bribery scheme. You are likewise aware (and allege in your complaint) that the Department of Justice ("DOJ") has opened a criminal investigation into the allegations set forth in the Alba complaint and sought a stay of discovery in that action. In response, Judge Ambrose has administratively closed the Alba litigation pending the resolution of the DOJ's criminal investigation. You may not be aware, however, that : (1) Alcoa is cooperating with the DOJ; (2) Alcoa has established a special committee (comprised of independent Alcoa directors Henry Schacht and Franklin Thomas) to oversee an investigation into the Alba allegations; (3) the special committee has retained Baker & McKenzie to conduct that independent investigation into the allegations in Alba's complaint; and (4) Baker & McKenzie is coordinating its investigation with the DOJ's investigation.

In light of the above, the Board, through the special committee, has already commenced an independent investigation into the allegations stated in the Alba complaint, which are repeated in the derivative complaint that you have filed. To the extent that your letter requests commencement of a second investigation into those allegations, the Board has considered your demand and, because an investigation has already been commenced, has determined that it would not be in the best interests of Alcoa for the Board to commence another investigation into the Alba allegations at this time. Needless to say, the Board will be kept apprised of developments in the DOJ and Baker & McKenzie investigations and will reassess this decision as appropriate. The Board has also considered your demand to commence litigation and has determined that it would not be in the best interest of Alcoa to commence litigation at this time.

Let me make an additional point with respect to your demand. It would appear that you believe that pre-suit demand is excused under Cucker v. Mikalauskas (sic), 547 Pa. 600, 692 A.2d 1042 91997), but neither your letter nor the complaint you filed set forth facts that would excuse pre-suit demand. [Id. at 2-3.]

On May 21, 2008, I held an argument, via telephone, in connection with Plaintiff's motion for a TRO. During the argument, Adam Safwat, an assistant U.S. Attorney with the DOJ, informed the Court that the DOJ as of that time had not informed Alcoa that any of its officers or directors were considered either targets or were subjects with respect to its criminal investigation. By order dated May 27, 2008, I denied Plaintiff's motion for a TRO on the grounds that Plaintiff had failed to establish irreparable harm. I further set a briefing schedule for Defendants' anticipated motion to dismiss and for responses to the motion for a preliminary injunction. A preliminary injunction hearing was set for July 8, 2008, and later rescheduled for July 21, 2008.

II. Legal Analysis

A. Standard Of Review

In deciding a motion to dismiss under Fed R. Civ. P. 12(b)(6), all factual allegations, and all reasonable inferences therefrom, must be accepted as true and viewed in a light most favorable to the plaintiff. Haspel v. State Farm Mut. Auto. Ins. Co., 2007 WL 2030272, at *1 (3d Cir. July 16, 2007). "The issue is not whether the plaintiff will prevail at the end but only whether he should be entitled to offer evidence to support his claim." ...

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