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Piven v. Ryan

March 23, 2006


The opinion of the court was delivered by: Judge Blanche M. Manning


Until recently, Aon Corporation and other insurance carriers and reinsurers enjoyed a lucrative source of additional income-contingent commissions obtained from underwriters. However, rather than obtaining the commissions from underwriters offering its clients the best deals, Aon allegedly obtained them from companies offering it the biggest commissions. After becoming the target of an investigation by New York attorney general Elliot Spitzer, Aon admitted accepting contingent commissions, agreed to stop, and set up a $190-million fund for affected policyholders. Aon has agreed to pay millions more to settle related claims.

After Aon's scheme came to light, shareholder Sylvia Piven filed this derivative action against members of Aon's board of directors, contending that they, among other things, breached their fiduciary duties. The defendants have moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) because Piven filed suit before giving them adequate time to respond to her pre-suit demand letter. Alternatively, the defendants move to stay the proceedings under Colorado River pending the outcome of a similar case in Illinois state court. For the reasons that follow, the defendants' motion to dismiss is GRANTED.


The following facts are taken from Piven's complaint, and are deemed to be true. Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 592 (7th Cir. 2006). Aon's contingent commission scheme first came under scrutiny in 1999 as a result of a suit filed in state court, Daniel v. Aon Corp., No. 99 CH 11893, Circuit Court of Cook County, Illinois. In it, a class of insureds alleged that AON "received improper contingent commissions at the expense of and to the detriment of its clients." Although Aon did not disclose the existence of the lawsuit in its filings with the Securities and Exchange Commission until 2005, it nevertheless attracted the attention of attorney general Spitzer, who began investigating contingent commissions within the insurance industry. In October 2004, the Wall Street Journal reported that Aon was one of the subjects of Spitzer's investigation. Within days the value of its stock sunk 30%, followed by Aon's announcement on October 22, 2004, that it would no longer accept contingent commissions from underwriters.

The following month, Piven, on behalf of a trust that owns Aon stock, wrote to Aon making a pre-suit demand that the board "take the appropriate steps to provide for equitable and therapeutic relief, as well as retroactive damages, to remedy the breach of fiduciary duty, mismanagement and corporate waste described below." The Board considered Piven's demand at its January 2005 meeting, and advised her in writing that "outside law firms have been engaged to investigate, inter alia, the issues in your letter."

A short time later, Aon got hit with two lawsuits. The first was a derivative suit filed in February 2005 in state court, Sherman v. Ryan, 05 CH 03430, Circuit Court of Cook County, Illinois. It asserts claims similar to the ones raised in Piven's demand letter. The second suit was filed in March 2005 by Spitzer, joined by other state attorneys general including Illinois'. Aon settled the Spitzer suit the day after it was filed. In addition to creating a $190-million fund for affected policyholders, the settlement required Aon to implement reforms, including a prohibition on contingent commissions and similar schemes. CEO Patrick Ryan also issued the following apology: "Aon . . . entered into contingent commission agreements and other arrangements that created conflicts of interest. I deeply regret that we took advantage of those conflicts. . . Such conduct was improper and I apologize for it."

Following the filing of those two suits, in May 2005 the board responded again to Piven's demand letter. This time, the board stated that it would devote its resources to defending itself in the Sherman suit rather than "conduct additional inquiry into the allegations raised in your letter." However, the board added that it would "monitor the progress of the Sherman litigation and will consider your letter at a later point in time, as circumstances warrant." Unsatisfied with the board's response, on July 14, 2005, Piven sent a second demand letter, this time to examine the corporate books and records. The request was denied.

Piven then filed this suit. In it, she alleges breach of fiduciary duty, abuse of control, gross negligence and mismanagement, waste of corporate assets, breach of contract, unjust enrichment, and violation of a Delaware statute that allows shareholders to review corporate books. The defendants responded with a motion to dismiss. They advance two main reasons for either dismissing or staying Piven's suit. First, they contend that the suit should be dismissed because it is premature. Specifically, they argue that Piven may not yet sue because the Aon board has not failed to respond to her demand letter. Alternatively, the defendants argue that the case should be stayed because the Sherman case is pending in Illinois state court, was filed before this case, and raises almost identical issues. Because of the parallels between the cases, the defendants contend that the court should stay Piven's suit under the abstention doctrine set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 818 (1976).

Standard of Review

In ruling on a motion to dismiss under Rule 12(b)(6), the court must assume the truth of the facts alleged, and must construe the allegations in the light most favorable to non-moving party. Barnes v. Briley, 420 F.3d 673, 677 (7th Cir. 2005). Dismissal is proper only if the plaintiff would be unable to prove any facts that would entitle her to relief. Id. The parties have applied Delaware law, so the court will too.


Piven's suit is a derivative action, which permits a shareholder to enforce a corporate cause of action. See Kamen v. Kemper Fin. Srvs., Inc., 500 U.S. 90, 96 (1991). It allows individual shareholders like Piven to protect the interests of the corporation from the "misfeasance and malfeasance" of the corporate directors. Id.

However, before filing a derivative action, the shareholder must make a written pre-suit demand on the corporation's board. Brehm v. Eisner, 746 A.2d 244, 255 (Del. 2000). The purpose of the demand requirement is to allow the corporation time to remedy the shareholder's complaints. Id. Once demand is made, the board must investigate the alleged wrongdoing and then ...

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