Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

SEIDEL v. ALLEGIS CORP.

January 9, 1989

HAROLD M. SEIDEL, individually, derivately, and in a representative capacity on behalf of all those similarly situated, Plaintiff,
v.
ALLEGIS CORPORATION, Defendant and Nominal Defendant, and WALTER A. HAAS, JR., ANDREW F. BRIMMER, et al., Defendants


George M. Marovich, United States District Judge.


The opinion of the court was delivered by: MAROVICH

GEORGE M. MAROVICH, UNITED STATES DISTRICT JUDGE.

 On September 17, 1987, plaintiff Harold M. Seidel, filed his second amended complaint against Allegis Corporation ("Allegis") and 17 individual directors and former directors of Allegis. The complaint purports to assert individual, derivative, and class action claims, alleging that Allegis's directors breached fiduciary duties to the corporation and its shareholders by engaging in the conduct complained of as part of a scheme of entrenchment. Subject matter jurisdiction is premised on diversity of citizenship.

 Allegis filed a motion to dismiss and was joined in that motion by the individual defendants. The motion to dismiss is predicated on two issues:

 
Are plaintiff's claims against defendants personal, or must they be brought derivately on behalf of Allegis?
 
If plaintiff's claims are derivative, is plaintiff barred from bringing them for failure to make a proper demand on Allegis prior to filing suit, as required by Delaware Chancery Court Rule 23.1, and the parallel provisions of Rule 23.1 of the Federal Rules of Civil Procedure?

 Discussion

 Generally, the law of a party's state of incorporation is controlling in cases involving substantive corporate law issues. Millsap v. Central Wisconsin Motor Transport Co., 41 Ill. App. 2d 1, 189 N.E.2d 793 (1st Dist. 1962) Allegis is a Delaware corporation and, thus, any substantive claims against it are governed by Delaware law. See Burks v. Lasker, 441 U.S. 471, 99 S. Ct. 1831, 60 L. Ed. 2d 404 (1979); Crocker v. Federal Deposit Ins. Corp., 826 F.2d 347, 349 (5th Cir. 1987). This includes the issues raised by Allegis of whether claims are derivative or personal and whether a proper demand has been made on the corporation pursuant to Fed. R. Civ. P. 23.1. See Lewis v. Hilton, 648 F. Supp. 725, 727 (N.D. Ill. 1986) (citing Kreindler v. Marx, 85 F.R.D. 612, 615 (N.D. Ill. 1979)); Tankersley v. Albright, 80 F.R.D. 441, 444 (N.D. Ill. 1978). Thus, the issues raised by Allegis's motion to dismiss must be determined with reference to Delaware law.

 Allegis first argues that plaintiff's claims in Counts I through III are derivative in nature. As to Count I, Allegis argues that allegations of breach of fiduciary duty by the board members to the corporation and its shareholders represent a classic derivative claim because all shareholders would be affected equally. As to Counts II and III, Allegis asserts that plaintiff has failed to plead any specific restraints by defendants of the shareholders' ability to transfer stock or vote their shares.

 Plaintiff claims, however, that he has pleaded individual injury as well as a derivative claim because he has alleged both a special injury and deprivation of a contractual right. The court disagrees.

 Under Delaware law, the issue of whether claims are individual or derivative is determined by viewing the complaint taken as a whole. Moran v. Household International, Inc., 490 A.2d 1059, 1069-70 (Del. Ch. 1985). Characterizations made in the pleadings are not controlling. Kalmanovitz v. G. Heileman Brewing Co., 595 F. Supp. 1385, 1399 (D.C. Del. 1984), aff'd 769 F.2d 152 (3d Cir. 1985). A single complaint may contain both derivative and individual claims if there are sufficient allegations to support both claims. Duman v. Crown Zellerbach Corp., 107 F.R.D. 761 (N.D. Ill. 1985) Generally, claims are considered to be derivative where all stockholders are affected equally. Bokat v. Getty Oil Co., 262 A.2d 246, 249 (Del. Super. Ct. 1970).

 There are two exceptions which give rise to individual claims. A stockholder may have an individual claim if he has suffered a special injury which is distinct from the harm to the corporation. Elster v. American Airlines, Inc., 34 Del. Ch. 94, 100 A.2d 219, 222 (Del. Ch. 1953). A stockholder may also have an individual claim if he is deprived of a contractual right. Moran, supra, 490 A.2d at 1070. Neither of these exceptions have been adequately pleaded in the case at bar.

 In Count I of his second amended complaint, plaintiff alleges that Allegis's Board of Directors owed a fiduciary duty to the shareholders that they breached by adopting a poison pill plan (waste) as well as other business decisions and, as a result, the value of the company and, therefore, shares in it, diminished. This type of breach of fiduciary duty claim has been recognized as a derivative claim. See Shapiro v. Pabst Brewing Co., (Del. Ch. No. 7339, July 30, 1985), 11 Del. Journ. Corp. Law 704, 709 (1986). Allegations of mismanagement which depress the value of stock, as those alleged here, represent wrongs against the corporation, not an individual. See Bokat, supra, 262 A.2d at 249. Because the wrongs alleged in Count I affect all shareholders equally, plaintiff's Count I is a derivative claim.

 In Counts II and III, plaintiff alleges that defendants' adoption of a poison pill plan effectively denied shareholders the right to sell their shares and vote their shares. In both counts, plaintiff seeks to demonstrate that defendants' actions have denied his ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.