The opinion of the court was delivered by: JOHN W. DARRAH, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Todd Fener, filed a shareholder derivative suit
against Defendants, alleging breaches of fiduciary duties, abuse
of control, gross mismanagement, waste of corporate assets, and
unjust enrichment. Presently pending before the court is the
Defendants' Motion to Dismiss pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure for Plaintiff's failure to
allege a "pre-suit demand" on the Board of Directors. BACKGROUND
A reading of Fener's Amended Shareholder Derivative Complaint
supports the following summary of the alleged conduct of the
Arthur J. Gallagher & Co. ("the Company") was founded by Arthur
J. Gallagher ("Arthur") in 1927. The Company is engaged in
providing insurance brokerage, risk management, and related
services to clients in the United States and abroad. Its
principal activity is insurance brokerage, including the
negotiation and placement of insurance for its clients. The
Company is the nation's fourth largest insurance broker and is
incorporated in the State of Delaware.
In 1950, Arthur divided the Company between himself and his
three sons, wherein he retained forty percent of the Company and
each of his sons received a twenty percent of the Company and
appointment to the Board of Directors ("the Board"). In 1984, the
Company went public; and, in 1986, it was listed on the New York
Defendant Robert Gallagher ("Robert"), one of Arthur's sons,
began acting as the Chief Executive Officer from 1963 through
1994 and President from 1963 to 1990. In 1990, Robert became
Chairman of the Board; and his brother, John Gallagher ("John")
became Vice Chairman. At that same time, Defendant Patrick
Gallagher ("Patrick") John's son and Robert's nephew became
the President and Chief Operating Officer. A few years later,
Patrick became the Chief Operating Officer and CEO. Currently,
Robert is still Chairman of the Board; and Patrick is still a
Director, President and CEO.
Defendant David S. Johnson is, and has been since 2003, a
Director of the Company. Johnson has served: as President of
North American Commercial for Kraft Foods, Inc. since 2003; as
President of North American Operations, Technology, Procurement,
Information Systems and Sales for Kraft Foods North America, Inc. from 2002 to 2003; as
Group Vice-President of Kraft Foods North America, Inc. from 2000
to 2002; and as Executive Vice-President of Kraft Foods, Inc.
from 1998 to 2000.
Defendant Bernard Hengesbaugh is, and has been since 2004, a
Director of the Company. Hengesbaugh has served as Chairman of
the Board of CNA Financial Corporation, an insurer of commercial
enterprises, since 2002; and prior to that, he served as Chairman
and CEO of CNA Insurance Companies from 1999 to 2002 and in
various executive capacities with CNA since 1990. The Company and
certain of its subsidiaries engage in brokerage and other
transactions on behalf of CNA Financial and certain of its
subsidiaries. Because of Hengesbaugh's dual fiduciary capacities
to the Company and CNA, and the importance of the Company's
ongoing business to CNA, Hengesbaugh is financially beholden to
Robert, Patrick, and the Company's management.
Defendant Elbert Hand is, and has been since 2002, a Director
of the Company. Hand currently serves as the Chairman of the
Board of Hartmarx Corporation, a consumer apparel products
business, and previously served as Hartmarx's CEO from 1992 to
April 2002 and as President and COO from 1985 to 1992.
Defendant Ilene Gordon was a Director of the Company. Gordon
has served: as President of Food Packaging, Americas, Alcan, Inc.
since 2004; as President of Pechiney Plastic Packaging, Inc. and
Senior Vice-President of Pechiney Group since 1999 to 2004; as
Vice-President and General Manager of Tenneco Packaging Folding
Carton from 1997 to 1999; and as Vice-President of Operations for
Tenneco, Inc. from 1994 to 1997.
Defendant Gary Coughlan was a Director of the Company. Coughlan
served as a Senior Vice-President and CFO of Abbott Laboratories
from 1990 to March 2001. Prior to that, Coughlan served as Senior Vice-President of Kraft General Foods from 1989
to 1990 and as Senior Vice-President and CFO of Kraft, Inc.,
which he joined in 1972, where he served with Johnson.
Defendant T. Kimball Brooker was a Director of the Company.
Brooker has served as President of Barbara Oil Company, an oil
and gas exploration and investment business, since 1989 and as a
Managing Director of Morgan Stanley & Co., Inc. from 1975 to
Defendant James Wimmer was a Director of the Company. Wimmer, a
lawyer, served as a partner of Lord, Bissel & Brook from 1959 to
1992 and was Of Counsel from 1992 to 1999, representing companies
and individuals in securities and insurance-related matters.
During the relevant period, Wimmer sold 19,000 shares of the
Company stock for proceeds of $627,510.
Defendants Brooker, Gordon, Hand, and Wimmer compromise the
Company's Compensation Committee Board, which determines and
approves the compensation of the CEO and makes recommendations to
the Board with respect to the Company's compensation plans and
equity-based plans. Because the members of the Compensation
Committee Board control the other Defendants' awards, ...