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dismissing plaintiff's claims because they relied on such a combination, but granting leave to replead
Summary of this case from Plymouth County Retirement Association v. SchroederOpinion
Case Number C 06-4128 JF.
November 19, 2007
I. BACKGROUND
1. Procedural Background
This derivative action arises from the alleged backdating of stock options by directors and officers of nominal defendant Apple Computer Inc. ("Apple"). The initial complaint was filed on June 30, 2006. On November 2, 2006, the Court appointed a leadership structure for this litigation in light of the consolidation of a number of cases under the above caption. On December 18, 2006, Plaintiffs filed a consolidated shareholder derivative complaint. On January 18, 2007, Plaintiffs moved to amend their complaint. That request was granted on February 26, 2007, and the operative pleading ("the Amended Complaint") was filed on March 6, 2007.
The Amended Complaint bears the title "First Amended Shareholder Derivative Complaint."
The Amended Complaint names thirteen defendants ("the Individual Defendants"): Fred D. Anderson; Timothy D. Cook; Steven P. Jobs; Ronald B. Johnson; Mitchell Mandich; Peter Oppenheimer; Jonathan Rubinstein; Avadis Tevanian, Jr.; Nancy Heinen; William V. Campbell; Millard Drexler; Arthur D. Levinson; and Jerome B. York. Complaint ¶¶ 40-52. The Amended Complaint refers to Anderson, Cook, Jobs, Johnson, Mandich, Rubinstein, and Tevanian as the "Backdating Defendants;" to Anderson, Cook, Jobs, Johnson, Levinson, Mandich, Oppenheimer, Rubinstein, Tevanian, and York as the "Insider Selling Defendants;" to Campbell, Drexler, Levinson, and York as the "Compensation Committee Defendants;" to Campbell, Levinson, and York as the "Audit Committee Defendants." Id. ¶¶ 53-56.
The Amended Complaint includes ten state-law claims: (1) breach of fiduciary duty by option backdating, against the Backdating, Audit Committee, and Compensation Committee Defendants; (2) breach of fiduciary duty by insider selling, against the Insider Selling Defendants; (3) aiding and abetting breach of fiduciary duty, against the Audit Committee and Compensation Committee Defendants; (4) unjust enrichment, against the Backdating and Insider Selling Defendants; (5) constructive fraud, against the Individual Defendants; (6) abuse of control, against the Individual Defendants; (7) corporate waste and gift, against the Individual Defendants; (8) gross mismanagement, against the Individual Defendants; (9) rescission, against the Individual Defendants; and (10) violation of California Corporate Code. The Complaint also asserts three federal claims under the Securities Exchange Act: (11) violation of section 14(a); (12) violation of section 10(b); and (13) violation of section 20(a).
On April 20, 2007, the Individual Defendants moved to dismiss the Amended Complaint for failure to state a claim upon which relief can be granted, and Apple moved to dismiss the Amended Complaint for failure to make demand. Plaintiffs oppose the motions. The Court heard oral argument on September 7, 2007.
2. Factual Background
Plaintiffs make the following general allegations. Between fiscal years 1997 and 2002, Apple granted stock options pursuant to at least three different stock option plans: the 1990 Stock Option Plan; the 1997 Employee Stock Option Plan; and the 1998 Executive Officer Stock Plan. Id. ¶ 78-79. The stated purpose of each plan was to attract and retain the best available personnel and to provide incentives to such personnel to promote the success of Apple. Id. ¶ 80. The plans required that the exercise price for any stock option issued be at least 100% of the fair market value of the common stock on the date of the grant. Id. ¶ 82.
According to the Amended Complaint:
Defendants, over the course of nearly a decade, abdicated their fiduciary obligations, and lied to Apple's public shareholders, by permitting the Board to manipulate the Company's stock option plans to maximize compensation to selected executives. As a result, these favored executives improperly and unlawfully amassed a fortune in Apple stock and stock options, and caused the Company to overstate its earnings and issue materially false and misleading financial statements since at least fiscal 1997, and to restate its reported financial results for fiscal years 2004 through 2006.Id. ¶ 2. Apple "never disclosed that the Apple Board permitted Defendants to manipulate the Company's option grants by backdating options and otherwise timing grants to maximize personal benefits." Id. ¶ 4. Instead, "the Company deliberately concealed from the investing public the fact that the Board permitted such manipulation of the stock grant dates and affirmatively misrepresented that all options were granted at an exercise price equal to the fair market value on the date of grant." Id.
On June 29, 2006, Apple issued a press release announcing that its internal investigation had discovered "irregularities related to the issuance of certain stock option grants made between 1997 and 2001." Id. ¶ 5. On July 19, 2006, Apple issued a second press release stating that it did not anticipate a "material adjustment" to financial results. Id. ¶ 6. However, on August 3, 2006, Apple announced that it had discovered further irregularities that likely would result in financial restatements, and that its financial reports for fiscal years 2003, 2004, and 2005 no longer should be relied upon. Id. ¶ 7. In its annual report for fiscal year ending September 30, 2006, Apple made the following disclosures: the originally assigned grant dates for 6,428 grants on 42 dates were incorrect, causing Apple to recognize a pre-tax stock-based compensation expense of $105 million; Jobs was not only aware of the options backdating but also received some of the grants and recommended some of the dates chosen; and Board minutes were falsified in order to cover up the wrongdoing. Id. ¶ 10. One of the largest grants during this period was made to Jobs, in the form of a grant of options to purchase ten million shares with a grant date of January 12, 2000. Id. ¶ 12. The timing of the grants was such that they occurred either shortly after a drop in the stock price or shortly before an increase. Plaintiffs argue that: "[t]he timing of these grants could not have been by pure coincidence." Id. ¶ 11.
Plaintiffs make the following additional allegations with respect to the Individual Defendants: Anderson served as the Company's Executive Vice President and Chief Financial Officer from April 1996 to June 2004. Id. ¶ 40. Anderson became a member of the Board in June 2004, at which time he left the officer position he previously had held. Id. ¶ 40, 150. Cook is Apple's Chief Operating Officer. Id. ¶ 41. Jobs has been the Chief Executive Officer of Apple since 2000; he was interim Chief Operating Officer from September 1997 to 2000 and has been a director since August 1997. Id. at ¶ 42. Johnson has served as a Senior Vice President of Apple since 2000. Id. ¶ 43. Mandich served as a Senior of Vice President of Apple from February 1997 to October 2000, when he resigned. Id. ¶ 44. Oppenheimer joined Apple in 1996 and now serves as its Senior Vice President and Chief Financial Officer. Id. ¶ 45. Rubinstein served as a Senior Vice President of Apple from February 1997 to May 2004. Id. ¶ 46. Tevanian served as a Senior Vice President of Apple from February 1997 to March 31, 2006, when he resigned without explanation. Id. ¶ 47. Heinen served as General Counsel to Apple from 1997 until May 2006, when she left the company without explanation, Id. ¶ 48; as General Counsel, Heinen reviewed all company financial statements, press releases and/or other filings with the SEC. Id. Campbell has served as a director since August 1997, Id. ¶ 49; he also has served as a member of the Audit Committee since August 1997 and of the Compensation Committee since August 2001. Id. Drexler has served as a director since 1999, including as a member of the Compensation Committee since November 2002. Id. ¶ 50. Levinson has served as a director since fiscal year 2000, including as a member of the Compensation Committee from August 2001 through fiscal year 2003 and as a member of the Audit Committee since fiscal year 2000. Id. ¶ 51. York has served as a director since August 1997, as a member of the Compensation Committee from August 2001 through November 2002, and as a member of the Audit Committee since August 1997. Id. ¶ 52.
Plaintiffs allege that between April 2000 and August 2001, Apple had no compensation committee. Id. ¶ 141. In the absence of such a committee, all such responsibilities belonged to the full Board. Id. At the time this action was commenced, the Board was comprised of seven directors: Anderson, Campbell, Drexler, Jobs, Levinson, York, and non-defendant Albert Gore, Jr. When the Complaint was filed, Anderson had been replaced by non-defendant Eric Schmidt. Plaintiffs allege that demand would be futile because Jobs, Anderson, Campbell, Drexler, and York all have adverse interests that render them incapable of fair, unbiased consideration. Id. ¶ 213, 216.
Anderson and Schmidt served together on the Board from August 29, 2006 to September 30, 2006. Id. ¶ 215 n. 7.
II. LEGAL STANDARD
1. Motion to Dismiss
For purposes of a motion to dismiss, the plaintiff's allegations are taken as true, and the Court must construe the complaint in the light most favorable to the plaintiff. Jenkins v. McKeithen, 395 U.S. 411, 421 (1969). Leave to amend must be granted unless it is clear that the complaint's deficiencies cannot be cured by amendment. Lucas v. Department of Corrections, 66 F.3d 245, 248 (9th Cir. 1995). When amendment would be futile, however, dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996). On a motion to dismiss, the Court's review is limited to the face of the complaint and matters judicially noticeable. North Star International v. Arizona Corporation Commission, 720 F.2d 578, 581 (9th Cir. 1983); MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986); Beliveau v. Caras, 873 F.Supp. 1393, 1395 (C.D. Cal. 1995). However, under the "incorporation by reference" doctrine, the Court also may consider documents that are referenced extensively in the complaint and are accepted by all parties as authentic, even though the documents are not physically attached to the complaint. In re Silicon Graphics, Inc. Securities Litigation, 183 F.3d 970 (9th Cir. 1999).
2. Demand Requirement
A derivative complaint must "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and, if necessary, from the shareholders or members, and the reasons for the plaintiff's failure to obtain the action or for not making the effort." Fed.R.Civ.P. 23.1. The existence and satisfaction of a demand requirement is a substantive issue governed by state law. See Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 96-97 (1991). When the challenged decision is that of the board in place at the time of the filing of the complaint, failure to make demand may be excused if a plaintiff can raise a reason to doubt that a majority of the board is disinterested or independent or that the challenged acts were the product of the board's valid exercise of business judgment. Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); see also Ryan v. Gifford, 918 A.2d 341, 352 (Del.Ch. 2007) (discussing Aronson). However, "[w]here there is no conscious decision by the corporate board of directors to act or refrain from acting, the business judgment rule has no application." Rales v. Blasband, 634 A.2d 927, 933 (Del. 1993); see also Ryan, 918 A.2d at 352 (discussing Rales). In such a situation, demand may be excused only if a plaintiff "can create a reasonable doubt that, as of the time the complaint is filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand." Id. at 353 (citing Rales, 634 A.3d 933-34).
California courts follow Delaware law in demand futility cases. See Oakland Raiders v. National Football League, 93 Cal.App.4th 572, 586 n. 5 (2001) ("The parties agree that we may properly rely on corporate law developed in the State of Delaware given that it is identical to California corporate law for all practical purposes.").
III. ANALYSIS
1. Motion to Dismiss for Failure to State a Claim
Because the existence of a viable federal claim is a prerequisite to the exercise of its subject-matter jurisdiction, the Court addresses the three federal claims first.
Rule 14a-9 provides:
No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.17 C.F.R. § 240.14a-9(a). To state a claim under Rule 14a-9 and Section 14(a), a plaintiff must allege that: (1) the defendant made a false or misleading statement or omission of material fact; (2) the misstatement or omission was made with the requisite level of culpability; and (3) the statement provided an essential link in the accomplishment of the transaction. Desaigoudar v. Meyercord, 223 F.3d 1020, 1022 (9th Cir. 2000).
The Individual Defendants assert that Plaintiff's Section 14(a) claim is time-barred because it was not filed within one year after discovery of the facts constituting the violation, or within three years following publication of the proxy statement as required by statute. However, Plaintiffs contend that their 14(a) claim sounds in fraud and therefore is governed by 28 U.S.C. § 1658(b), which provides a five-year statute of repose and a two-year statute of limitations for a "private right of action that involves a claim of fraud, deceit, manipulation or contrivance in contravention of a regulatory requirement concerning the securities laws." See Plaintiffs' Consolidated Memorandum of Points and Authorities in Opposition to Defendants' Motion to Dismiss First Amended Shareholder Derivative Complaint ("Opposition") at 44.
The Court concludes that § 1658(b) applies to the Section 14(a) claim because such a claim does not sound in fraud. See In re Exxon Mobil Corp. Sec. Litig., 387 F.Supp.2d 407, 424 (D.N.J. 2005); In re Global Crossing, Ltd. Sec. Litig., 313 F.Supp.2d 189, 196-97 (S.D.N.Y. 2003); In re Zoran Corp. Deriv. Litig., 2007 WL 1650948, at *24 (N.D.Cal. June 5, 2007). As currently pled, Plaintiffs' Section 14(a) claim alleges false statements made more than three years prior to the filing of this action. See Amended Complaint ¶ 277 (alleging false proxy statements from 1997 to 2002). Accordingly, the claim will be dismissed. While the Court will grant leave to amend, Plaintiffs should not amend this claim unless they can allege violations of Section 14(a) by the publication of proxy statements that occurred on or after July 30, 2003, and unless they commenced the present action within one year after discovery of the violation.
In light of the foregoing discussion, the Court need not reach Defendants' challenges to the sufficiency of the allegations. However, assuming without deciding that the Private Securities Litigation Reform Act ("PSLRA") also applies to Section 14(a) claims, see e.g. In re Textainer Partnership Securities Litig., 2005 WL 3801596 (N.D.Cal. March 8, 2005); In re McKesson HBOC, Inc. Sec. Litig., 126 F.Supp.2d 1248, 1267 (N.D.Cal. 2000), and that Plaintiffs can assert a claim that is not time-barred, greater specificity likely would strengthen this claim considerably.
This Court has held in another action that the PSLRA has foreclosed the application of the "group published pleading" doctrine, which holds that when false or misleading information is conveyed in group published statements, it is reasonable to presume that the statements are the result of the collective actions of the company's officers. In re Nextcard, Inc. Sec. Litig., No. C 01-21029, 2006 WL 708663, at *2-3 (N.D.Cal. March 20, 2006).
b. Claim Twelve: Violation of Section 10(b)
i. Statute of Limitations
As noted above, claims of securities fraud are subject to 28 U.S.C. § 1658(b) which provides:
[A] private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78c(a)(47)), may be brought not later than the earlier of —
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.See, e.g., In re Heritage Bond Litig., 289 F. Supp. 2d 1132, 1147-48 (C.D.Cal. 2003). This statute of limitations is not subject to equitable tolling. Durning v. Citibank, Int'l, 990 F.2d 1133, 1136-37 (9th Cir. 1993). Because Plaintiffs' claim under section 10(b) sounds in fraud, section 1658(b) applies. In light of Plaintiffs' allegation that the practice of backdating options came to light in 2005, the two-year discovery period does not bar the instant action at the pleading stage. Accordingly, the applicable period for this analysis is the five-year period of repose which commenced on the period after June 30, 2001.
"A statute of repose is a fixed, statutory cutoff date, usually independent of any variable, such as claimant's awareness of a violation." Munoz v. Ashcroft, 339 F.3d 950, 957 (9th Cir. 2003) (citing Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350, 363 (1991)).
The only allegedly backdated option grants within this period are those alleged to have occurred in fiscal year 2002. See Amended Complaint ¶¶ 118-119 (discussing period from October 19, 2001 to December 14, 2001). However, Plaintiffs also allege that Apple filed a series of false financial statements during the five-year period of repose, raising a question as to whether the filing of such subsequent false financial statements preserves claims for alleged options manipulation that occurred outside the period. The Court concludes that in light of the statute's focus on the date of the "violation," the statute of limitations must be applied to the specific violations alleged. To the extent that Plaintiffs' claim is based on the backdating itself, the period of repose began to run on the date that the option grant was made. See Durning, 990 F.2d at 1136 (noting that the federal rule is that a cause of action accrues at the completion of the sale of the instrument); Falkowski v. Imation Corp., 309 F.3d 1123, 1130 (9th Cir. 2002) (describing the grant of an option as "a purchase or sale" under the Securities Litigation Uniform Standards Act). Plaintiffs may be able to state a claim under Section 10(b) and Rule 10(b)(5) for dissemination of fraudulent financial statements, but the dates of such statements themselves must fall within the five-year period. Plaintiffs may not avoid the effect of the statute of limitations by combining allegations of recent financial statements and time-barred option backdating. Because the claim under section 10(b) as currently pled depends upon such a combination, it will be dismissed. The Court will grant leave to amend so that Plaintiffs may allege independent wrongful acts that occurred on or after June 30, 2001.
The Court is skeptical of a continuing wrong theory that would create liability under Section 10(b) upon the issuance of a financial statement that merely fails to correct a prior false statement. Such a theory appears to approximate the effects of the fraudulent concealment doctrine in relation to equitable tolling, a doctrine that does not apply in the Section 10(b) context.
In re Dynex Capital, Inc. Sec. Litig., No. 05 CV 1897, 2006 WL 314524 *5 (S.D.N.Y. Feb 10, 2006), a New York district court opinion cited by Plaintiffs, does not hold to the contrary. In that case, the Court expressly distinguished a situation in which the alleged securities transaction fell within the five-year period from one in which the underlying transaction fell outside the five-year period. Dynex, 2006 WL 314524 at n. 4 (citing Shalam v. KPMG, L.L.P., No. 05 CV 3602, 2005 WL 2139928 *2 (S.D.N.Y. Sept. 6, 2005)).
ii. Sufficiency of the Allegations
Section 10(b) makes it unlawful
[t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.15 U.S.C. § 78j(b). Rule 10b-5 makes it unlawful for any person to use interstate commerce
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 C.F.R. § 240.10b-5. In cases involving publicly-traded securities and purchases or sales in public securities markets, the elements of an action under Section 10(b) and Rule 10b-5 are: (1) a material misrepresentation or omission; (2) scienter; (3) a connection with the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-42 (2005).
Plaintiffs must meet two heightened pleading standards. First, Fed.R.Civ.P. 9(b) requires that "the circumstances constituting fraud . . . be stated with particularity." The Ninth Circuit has explained that a "plaintiff must include statements regarding the time, place, and nature of the alleged fraudulent activities, and that mere conclusory allegations of fraud are insufficient." In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1548 (9th Cir. 1994). A plaintiff asserting fraud "must set forth an explanation as to why the statement or omission complained of was false or misleading." Id. (internal quotation marks omitted); see also Yourish v. California Amplifier, 191 F.3d 983, 992-93 (9th Cir. 1999).
Second, the Private Securities Litigation Reform Act ("PSLRA") raises the pleading standard further:
(1) Misleading statements and omissions
In any private action arising under this chapter in which the plaintiff alleges that the defendant —
(A) made an untrue statement of a material fact; or
(B) omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading; the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.
(2) Required state of mind
In any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.
15 U.S.C. § 78u-4b(1)-(2).
In connection with their 10(b) claim Plaintiffs allege the following:
Defendants had actual knowledge of the misrepresentations and omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing the truth.
Amended Complaint ¶ 286. This allegation is insufficient to create the strong inference of scienter required by the PSLRA, even when it is viewed in light of the factual allegations found elsewhere in the Amended Complaint. Rather, Plaintiffs' pleading in its present form is characterized by conclusory, general, and non-individualized assertions as to all of the Defendants. The only individualized allegation is that Apple found in the course of its investigation that Jobs was aware of the backdating. See Amended Complaint ¶ 173. In order to meet the requirements of the PSLRA, Plaintiffs must provide more detailed allegations giving rise to a stronger inference of scienter on the part of each defendant.
Plaintiffs also include allegations of scheme liability. See, e.g., Amended Complaint ¶¶ 282-83, 285. The issue of whether a scheme liability claim may be brought pursuant to § 10(b) was argued before the Supreme Court on October 9, 2007 in Stoneridge Inv. Partners, LLC v. Scientific-Atlantic, Inc., No. 05-1974. No opinion has been issued in that case to date. The Ninth Circuit has explained that:
Participation in a fraudulent transaction by itself, however, is insufficient to qualify the defendant as a "primary violator" if the deceptive nature of the transaction or scheme was not an intended result, at least in part, of the defendant's own conduct. We hold that to be liable as a primary violator of § 10(b) for participation in a "scheme to defraud," the defendant must have engaged in conduct that had the principal purpose and effect of creating a false appearance of fact in furtherance of the scheme. It is not enough that a transaction in which a defendant was involved had a deceptive purpose and effect; the defendant's own conduct contributing to the transaction or overall scheme must have had a deceptive purpose and effect.Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1048 (9th Cir. 2006). Because the Amended Complaint contains insufficient allegations that the various defendants' contributions to the overall scheme had a deceptive purpose and effect, the scheme allegations also will be dismissed. While Plaintiffs may include such allegations of scheme liability in an amended complaint, the Court has considerable doubt that Plaintiffs will be able to state a claim for scheme liability.
iii. Claim Thirteen: Violation of Section 20(a)
To state a claim under Section 20(a), a plaintiff must allege (1) a primary violation of federal securities laws; and (2) that the defendant exercised actual power or control over the primary violator. Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065 (9th Cir. 2000). The statute of limitations analysis pertaining to the Section 10(b) claim applies equally to the Section 20(a) claim. See, e.g., In re Heritage Bond Litigation, 289 F. Supp. 2d at 1148. Because Plaintiffs have failed to state a claim for a primary violation of the securities laws, this claim also will be dismissed with leave to amend.
c. Claims Under State Law
As discussed above, Plaintiffs have yet to state a federal claim that is not time-barred and that meets the heightened pleading requirements of federal law. Because the Court would lack jurisdiction to entertain Plaintiffs' state law claims in the absence of a valid federal claim, the Court need not address the sufficiency of the state law claims at this time. However, Defendants appear to raise a number of valid arguments with respect to these claims, and Plaintiffs may wish to amend the claims accordingly.
2. Motion to Dismiss for Failure to Make Demand
Apple also moves to dismiss the Amended Complaint for failure to make demand. It argues that demand is not excused because Plaintiffs' allegations do not show that a majority of the Board faces a substantial risk of liability or that the Board's independence otherwise has been compromised. In light of its conclusion that Plaintiffs have yet to state a claim for violation of federal law, the Court need not address this aspect of Defendants' motion at this time.
IV. ORDER
Good cause therefor appearing, IT IS HEREBY ORDERED that Defendants' motion to dismiss for failure to state a claim is GRANTED with leave to amend, and Defendants' motion to dismiss for failure to make demand is DEFERRED. Any amended pleading shall be filed within thirty (30) days of the date of this order.