In re Tyco Int’l Ltd., MDL MDL-02-1335-B 10/14/04
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
In re Tyco International, Ltd. Multidistrict Litigation (MDL 1335)
MDL DOCKET NO. 02-1335-PB Civil N o . 02-352-PB Derivative Action Opinion No. 2004 DNH 155
MEMORANDUM AND ORDER
Shelly Evans brings this shareholder derivative action on
behalf of nominal defendant Tyco International, Ltd. against all
but one of Tyco’s current directors and several of its former
directors and officers. Asserting claims for equitable fraud,
breach of fiduciary duty, and waste, Evans contends that the
former officers systematically looted the company and made
material false statements concerning its financial condition; the
former directors knowingly, recklessly, or with gross negligence
failed to prevent the looting and misstatements; and the current
directors knowingly, recklessly, or with gross negligence failed to fully disclose the wrongdoing and aggressively pursue the
guilty parties.
Defendants move to dismiss Evans’ complaint on the ground
that she lacks standing to sue on Tyco’s behalf. As I explain in
this Memorandum and Order, the motions to dismiss are governed by
Bermudian law and present challenges to the court’s subject
matter jurisdiction. Because I construe Bermudian law to bar
Evans from suing on Tyco’s behalf, I dismiss her complaint.
I. BACKGROUND FACTS1
Evans paints a picture of “egregious corporate looting” and
“monumental accounting improprieties” at Tyco during the time
that defendant Dennis Kozlowski served as the company’s chief
executive officer. She charges that Kozlowski, defendant Mark
Swartz, Tyco’s former chief financial officer, and Mark Belnick,
the company’s former general counsel, looted the company of
hundreds of millions of dollars in unauthorized and undisclosed
compensation, benefits, and loans. She also claims that these
1 Evans outlines her claims in a 162-page complaint. I provide only a brief sketch of her allegations here and discuss specific allegations later to the extent that they are material to my analysis.
-2- defendants and others affiliated with Tyco made numerous false
public statements about the company’s finances and engaged in
fraudulent accounting practices. She charges that this
misconduct has seriously undermined Tyco’s value and has exposed
it to billions of dollars in potential liabilities as a result of
lawsuits brought against the company by disgruntled shareholders.
Evans also asserts that the board of directors that was in
place during Kozlowski’s tenure was hopelessly compromised by
financial entanglements with the company and its senior
management. As a result, she claims the former board member
defendants knowingly, recklessly, or with gross negligence
permitted Tyco’s senior management to loot the company and create
a false public impression about the company’s financial
condition.
Kozlowski was forced to resign in the summer of 2002 after
he was indicted for allegedly evading approximately $1 million in
New York state sales taxes. Additional indictments against
Kozlowski, Swartz, and Belnick soon followed. On July 2 5 , 2002,
the board chose defendant Edward Breen to serve as Tyco’s new
chief executive officer. Soon thereafter the company began to
-3- appoint new directors. By March 6, 2003, the entire board had
been replaced.
Evans charges that Breen and the other current directors
knowingly, recklessly, or with gross negligence failed to
accurately disclose the full extent of the past misconduct at
Tyco. She alleges that they authorized the expenditure of tens
of millions of dollars for incomplete and misleading outside
investigations that significantly understated the extent of the
misconduct. She claims that Breen and the other directors then
used the results of these investigations to create a misleading
picture of Tyco’s financial condition in order to obtain needed
financing for the company and to preserve the value of their
stock options and other benefits. She also asserts that the
current directors caused Tyco to file lawsuits against Kozlowski,
Swartz, and Belnick to shift responsibility for the past
misconduct from the former board to its former officers and to
minimize public perceptions concerning the extent of the
misconduct. Evans particularly faults the current directors for:
(1) failing to earlier disclose approximately $1.6 billion in
charges that Tyco announced in March and April of 2003; (2)
making misleading statements to shareholders in connection with a
-4- proposal to change Tyco’s place of incorporation from Bermuda to
Delaware; (3) approving the payment of $92 million to maintain
liability insurance for Tyco’s former officers and directors; (4)
failing to timely disclose additional charges that were
eventually required in response to a Securities and Exchange
Commission investigation; and (5) failing to aggressively pursue
claims against former officers and directors other than
Kozlowski, Swartz, and Belnick.
II. CHOICE OF LAW
The parties agree that Evans’ right to sue on Tyco’s behalf
is governed by the law of Bermuda, the place of Tyco’s
incorporation.2 They also agree that because Bermudian law in
this area is undeveloped, courts in Bermuda would look primarily
to English common law to resolve the questions that are now
2 Bermudian law applies because the forum state’s choice of law rules govern this diversity of citizenship case, see Klaxon C o . v . Stentor Elec. Mfg. Co., 313 U.S. 4 8 7 , 496 (1941), and New Hampshire law specifies that a shareholder’s ability to bring a derivative action is determined by using the law of the corporation’s place of incorporation, N.H. Rev. Stat. Ann. § 293- A:7.47 (1999).
-5- before me. 3 I accept these agreements and accordingly evaluate
Evans’ right to sue on Tyco’s behalf under English law as it
would be applied by a Bermudian court.
III. STANDARD OF REVIEW
Under English law, whether Evans is a proper plaintiff to
sue on Tyco’s behalf is viewed as a question of standing. Paul
L . Davies, Gower and Davie’s Principles of Modern Company Law 453
(7th ed. 2003); Elizabeth J. Boros, Minority Shareholders’
Remedies 184 (1995); A.J. Boyle, Minority Shareholders’ Remedies
8 (2002). American courts, in turn, generally view standing as a
component of subject matter jurisdiction. See, e.g., Dubois v .
United States Dep’t of Agric., 102 F.3d 1273, 1280-81 (1st Cir.
1996). Further, most standing challenges are analyzed under Fed.
R. Civ. P. 12(b)(1). See Valentin v . Hosp. Bella Vista, 254 F.3d
358, 362-63 (1st Cir. 2001) (stating that justiciability issues
should be analyzed under Rule 12(b)(1)); United States v . AVX
3 Evans argues that courts in Bermuda are also free to consider the law of other Commonwealth countries when answering unresolved legal issues. I agree and thus look to precedents in other Commonwealth countries to the extent that they are persuasive.
-6- Corp., 962 F.2d 1 0 8 , 114 n.6 (1st Cir. 1992) (leaving issue open
but noting that Rule 12(b)(1) arguably is the preferred rule for
analyzing standing questions); see also Colo. Envtl. Coalition v .
Wenker, 353 F.3d 1221, 1227 (10th Cir. 2004) (analyzing standing
question under Rule 12(b)(1)). Because I see no reason to
deviate from the generally accepted practice,4 I review the
motions to dismiss under Rule 12(b)(1).
Circuit precedent directs a district court to consider a
Rule 12(b)(1) challenge in one of three ways depending upon the
4 Tyco argues that English law requires Evans to make out a prima facie case that she is entitled to sue on Tyco’s behalf before she may proceed with her claim. See, e.g., Prudential Assurance C o . v . Newman Indus. Ltd., [1982] Ch. 204 (Eng. C.A. 1981) (recognizing requirement). This burden is more than a pleading burden, according to Tyco: it requires evidence. See, e.g., Civ. P. R. 19.9 (U.K. 1998) (requiring court permission to proceed with a derivative action and directing the plaintiff to produce “written evidence” in support of her standing claim). Relying on these principles and its contention that Evans cannot produce sufficient evidence to demonstrate that she has standing to sue, Tyco argues that I should dismiss the case without relying on any American procedural rule. I decline to follow this path and instead conclude that Rule 12(b)(1) provides the rubric for determining Evans’ standing to bring her claim. While, as I explain, Rule 12(b)(1) requires a plaintiff to produce evidence in support of her claim when her standing to sue is challenged and material jurisdictional facts are in dispute, I need not consider evidence to resolve the standing issue in this case because Evans lacks standing even if all of her properly pleaded averments of jurisdictional fact are true.
-7- nature of the jurisdictional contest. If there are no factual
disputes that are material to the jurisdictional issue, the court
should accept the plaintiff’s well-pleaded factual averments,
construe them favorably to the plaintiff, and resolve the issue.
See Valentin, 254 F.3d at 363. Alternatively, if material
jurisdictional facts are disputed, the court must resolve the
factual disputes before it can determine whether jurisdiction
exists. See id. If the disputed jurisdictional facts are
separable from the merits, the court should resolve the
jurisdictional question immediately. See id. I f , instead, the
jurisdictional dispute is inextricably intertwined with the
merits, the court may be required to leave the standing question
unresolved until the time of trial. See id. at 363 n.3.
I resolve the standing question presented by the motions to
dismiss without engaging in jurisdictional fact finding because I
conclude that I lack subject matter jurisdiction even if all of
Evans’ well-pleaded jurisdictional averments are true. In doing
s o , I am mindful both that Evans ultimately must prove that she
has standing to sue, See People to End Homelessness, Inc. v .
Derelco Singles Apartments Assoc., 339 F.3d 1 , 8-9 (1st Cir.
2003), and that I need not credit conclusory assertions in her
-8- complaint to the extent that they are inconsistent with
specifically pleaded or undisputed facts. See AVX Corp., 962
F.2d at 115 (analyzing standing question under Fed. R. Civ. P.
12(b)(6)); Robinson v . Gov’t of Malaysia, 269 F.3d 133, 146 (2d
Cir. 2001).
IV. DISCUSSION
A. The Rule in Foss v. Harbottle
A shareholder’s standing to sue on behalf of a corporation
under English law is governed by “the rule in Foss v . Harbottle.”
See, e.g., Davies, supra, at 444; K.W. Wedderburn, Shareholders’
Rights and the Rule in Foss v . Harbottle, 1957 Cambridge L.J.
194. The rule is derived from an 1843 court case of the same
name. See Foss v . Harbottle 2 Hare 461 (Eng. 1843). For our
purposes, the rule can be stated as follows: a shareholder may
ordinarily bring a derivative claim on behalf of a corporation
only if a simple majority of the shareholders could not ratify
the conduct on which the suit is based.5 Underlying the rule is
5 In its classic formulation, the rule is said to consist of two related rules:
First, the proper plaintiff in an action in respect of
-9- a commitment to the principle of majority rule with respect to
matters of ordinary corporate governance. See Wedderburn, supra,
at 197-98.
The rule in Foss v . Harbottle is subject to four
“exceptions” which permit a shareholder to bring suit when the
conduct at issue i s : (1) ultra vires; (2) requires a special
majority to ratify; (3) infringes a shareholder’s personal
rights; or (4) qualifies as a “fraud on the minority.” See
Edwards, [1950] 2 All E.R. 1064. Although it has been suggested
that these are not true exceptions because a shareholder’s suit
to protect her personal rights is not brought as a derivative
action and the other three exceptions merely describe
circumstances in which a derivative action is permitted because
a wrong alleged to be done to company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favor of what has been done, then cadit quaestio [there is an end to the argument].
Edwards v . Halliwell, [1950] 2 All E.R. 1064, at 1066 (C.A. 1950).
-10- the conduct on which action is based cannot be ratified by a
simple majority, see Davies, supra, at 450; Wedderburn, supra, at
203, I follow the conventional approach and analyze them as
exceptions.
Evans’ relies primarily on the fraud on the minority
exception, although she also invokes the ultra vires exception
and argues for the recognition of an “interests of justice”
exception. I address her arguments in turn.
1. Fraud on the Minority
It has been said that “[w]hen it comes to real confusion,
there is probably nothing to approach the familiar but slippery
expression, ‘fraud on the minority’ . . . .” L.S. Sealy,
Problems of Standing, Pleading and Proof in Corporate Litigation,
in Company Law in Change: Current Legal Problems 1 , 10 (B.G.
Pettet ed. 1987). The exception has two elements that work
together to limit the circumstances in which a minority
shareholder may seize control of the company’s right to sue. The
first is that the alleged wrongdoers must have “control” over a
majority of the stock with voting rights and the second is that
the wrongdoers must have committed “fraud.” See K.W. Wedderburn,
-11- Shareholders’ Rights and the Rule in Foss v . Harbottle
(continued), 1958 Cambridge L.J. 9 3 , 93-94. These labels are
deceptively simple, however, because, as the cases that have
considered the exceptions demonstrate, neither actual control nor
fraud as we traditionally understand the term is required to
qualify under the exception.
a. Control
English courts have struggled to develop a workable concept
of control in this context. In Prudential, [1982] Ch. 2 0 4 , at
219, the most influential modern case that addresses the issue,
the court of appeal noted in dictum that the concept of control
“embraces a broad spectrum extending from an overall absolute
majority of votes at one end, to a majority of votes at the other
end made up of those likely to be cast . . . as a result of
influence or apathy.” The court went on to suggest that rather
than attempt to make a judgment about control without adequate
information, “it may well be right for the judge trying the
preliminary issue [as to whether the plaintiff has standing] to
grant a sufficient adjournment to enable a meeting of
shareholders to be convened by the board, so that he can reach a
-12- conclusion in the light of the conduct o f , and proceedings a t ,
that meeting.” Id. at 222. I read Prudential to support the
view that a corporation’s board of directors will be deemed to
have control of a majority of the corporation’s voting shares for
purposes of the fraud on the minority exception if the evidence
demonstrates that it has acquired de facto control. Because I
have not undertaken a factual inquiry into this issue, I will
assume for purposes of analysis that Evans is correct in claiming
that the current board has acquired de facto control.
b. Fraud
The fraud on the minority exception does not require proof
of fraud as an American court would understand the term.
Instead, English courts speak of fraud in this context in a
broader equitable sense in which control is misused to benefit
the wrongdoers at the company’s expense. See, e.g., Konamaneni
v . Rolls Royce (India) Ltd., [2002] 1 W.L.R. 1269, at 1278 (Eng.
Ch. 2001); Estmanco (Kilner House) Ltd. v . Greater London
Council, [1982] 1 All E.R. 437 (Ch. 1982). While one court has
gone so far as to suggest that negligent conduct may qualify as
fraud in certain circumstances, see Daniels v . Daniels, [1978]
-13- Ch. 406, 414 (Eng. 1977), that court and virtually all other
courts that have applied the exception recognize that fraud is
not present unless the alleged wrongdoer has benefitted at the
company’s expense as a result of his midconduct. See, e.g., id.;
Clark v . Energia Global Int’l, Ltd., [2001] N o . 173, at 10
(Berm.) (“‘[f]raud on the minority’ means there has been some
element of misappropriation of company property”). Thus, English
law, unlike its American counterpart, does not permit a
derivative action to be maintained to remedy a breach of
fiduciary duty that does not involve self-dealing by those in
control.6 See, Miller, supra, at 6 2 . Accordingly, I examine
6 American law typically limits derivative actions by imposing a demand requirement, see, e.g., 19 Am. Jur. 2d Corporations §§ 1960-74 (2004); 18 C.J.S. Corporations § 407 (1990), and by enforcing the business judgement rule, see, e.g., 19 Am. Jur. 2d Corporations §§ 1975-78 (2004); 18 C.J.S. Corporations § 400 (1990). English law generally requires proof that the alleged wrongdoers are in control and have engaged in improper self-dealing. See, e.g., Geoffrey Miller, Political Structure and Corporate Governance: Some Points of Contrast Between the United States and England, 1998 Colum. Bus. L . Rev. 5 2 , 61-63. These differences result in a somewhat tighter screen for derivative claims under English law. The differences between the two jurisdictions are likely due to the fact that English courts attach somewhat greater importance to the principle of majority rule and are somewhat more skeptical about the efficiency of shareholder litigation as a means of controlling improper behavior by directors. See id. at 5 3 , 60-63, 68-69.
-14- Evans’ attempt to invoke the fraud on the minority exception by
looking to the sufficiency of her allegations that the current
directors have engaged in improper self-dealing at Tyco’s
expense.
c. Analysis
Although Evans has sued several of Tyco’s former directors
and officers as well as the company’s current directors, her
standing to maintain each of her claims depend upon the
sufficiency of her allegations that the current directors have
engaged in fraud on the minority. This is necessarily so because
it is the current board’s litigation judgment that she seeks to
displace. Thus, I turn to her allegations that the current
directors have engaged in fraud.
Evans claims that the current directors have breached their
duties to Tyco and its shareholders in a variety of ways. Apart
from defendant Breen, however, who arguably is in a different
position because of his status as Tyco’s chief executive officer,
Evans does not allege the kind of self-dealing by the current
directors that is necessary to satisfy the fraud requirement. At
most, she claims that the current directors are compromised by
-15- the need to “(i) . . . protect [their] own financial interests in
maintaining an artificially inflated value for their stock
options, (ii) to avoid personal liability, (iii) to avoid damage
to their personal reputations, and (iv) to perpetuate the myth
that they are ‘cleaning up’ Tyco and restoring its credibility
and integrity.” (Comp. at ¶ 437.) None of these allegations,
however, qualify as improper self-dealing. It is difficult to
see how the receipt of stock options can constitute improper
self-dealing, at least in a case such as this where the plaintiff
does not allege either that the options were unearned or that the
directors stood to gain in some special way from increases in the
company’s stock price at the expense of other shareholders. Nor
can a board’s decision to prevent the company from suing its
directors qualify as improper self-dealing. The directors of a
corporation always have an interest in avoiding the personal
liability and damage to their reputations that could result from
a breach of fiduciary duty lawsuit. If allegations of this sort
could satisfy the self-dealing component of a fraud on the
minority claim, the requirement would be meaningless because it
would be satisfied in every derivative action in which a breach
-16- of fiduciary duty claim is asserted against a sitting board of
directors. Such an interpretation defies both precedent and
reason and must be rejected.7 See, e.g., Barrett v . Duckett,
[1995] 1 B.C.L.C. 243 (Engl. C.A. 1994) (unauthorized directors
pay sought as damages); Burland v . Earle, [1902] A.C. 83 (P.C.
1901) (appeal taken from Ontario) (authorized salary not
disputed, but additional sums taken at the company’s expense were
disputed); see also Grobow v . Perot, 539 A.2d 1 8 0 , 188 (Del.
1988) (directors’ normal fees and emoluments not sufficient to
create a financial interest).
Evans makes a distinct fraud argument with respect to Breen
because, as Tyco’s chief executive officer, he has received
substantial salary, bonuses, stock options, and other benefits
from Tyco that could be at risk i f , as Evans charges, Breen
falsely certified Tyco’s financial statements pursuant to a
scheme to conceal the company’s true financial condition and
7 In a supplemental memorandum, plaintiff argues the current board received an additional benefit by re-authorizing Tyco’s D&O and fiduciary liability coverage for current board members as well as for the company’s former officers and directors. (Pl. Resp. to Questions at 9 ) . This benefit fails to fulfill the self-dealing requirement for the same reasons given above: it is not an additional benefit beyond the normal emoluments of office.
-17- thereby retain unearned employment benefits.8 Even if I accept
Evans’ argument that Breen’s alleged actions qualify as the kind
of self-dealing that is sufficient to support a fraud on the
minority claim, her standing argument fails because she has not
also sufficiently alleged that Breen controls either a majority
of the votes on the board of directors or otherwise controls a
majority of Tyco’s stock. See Daniels, [1978] Ch. at 414
(explaining that prior case rejecting derivative action was
properly decided “because in that case the powers of the
directors were effectively wielded not by the director who
benefitted but by the majority of independent directors who were
acting bona fide and did not benefit”).
In summary, if I assume that Evans has sufficiently alleged
that the current board has acquired control over a majority of
Tyco’s voting stock, her attempt to rely on the fraud on the
minority exception fails because she has not sufficiently pleaded
her claim that the current directors have engaged in fraud.
8 Under 15 U.S.C. § 7243, a corporation’s chief executive officer could be required to return certain compensation and stock sale profits that one earned in the 12 months following issue of certain financial documents that must later be restated because of misconduct.
-18- Alternatively, if I assume that she has sufficiently pleaded a
claim that Breen has engaged in fraud, her claim still fails
because she has not sufficiently pleaded that Breen has acquired
control over a majority of Tyco’s voting stock. Stated
differently, Evans’ cannot rely on the fraud on the minority
exception because she has not sufficiently pleaded a claim that
those who currently control the company are compromised by the
kind of self-dealing at the company’s expense that is required to
support a claim based on the exception.9
9 Evans argues that I should deviate from English and Bermudian precedents where necessary to bring the rule in Foss v . Harbottle in line with “modern legal thought.” Although the rule in Foss v . Harbottle is more than 150 years old, it continues to be applied in English and Bermudian courts despite scholarly criticism, see, e.g., Sealy, supra, and proposals to displace it with a statutory cause of action, see, e.g., Boyle, supra, at 60- 8 9 . While all common law rules must evolve in the face of changing experience, “modern legal thought” cannot be permitted to become a euphemism for American law. The English law of derivative actions is premised on a view of the importance of preserving majority rule in corporate governance that should not be lightly disregarded merely because it may conflict with the relatively greater importance that American law assigns to the protection of minority shareholder rights. Because I conclude that English and Bermudian courts would not do what Evans requests, I decline to rewrite the English common law of derivative actions to support her right to sue.
-19- 2. Ultra Vires
Evans devotes only a single paragraph to her argument that
her case qualifies under the ultra vires exception. She argues
that the exception applies because the current directors have
caused Tyco to make false and misleading statements about the
company’s financial condition. Such illegal acts, she reasons,
necessarily are ultra vires. Tyco responds by arguing that the
company is required to make statements about its financial
condition and that such statements are not ultra vires even if
they are false.
I need not take a position on this issue to dispose of
Evans’ attempt to invoke the ultra vires exception. The short
answer to her poorly developed argument is that both English and
Bermudian courts have recognized that when a shareholder seeks to
bring a derivative action to recover damages for past ultra vires
acts, the shareholder must demonstrate that the case qualifies
under the fraud on the minority exception. See Clark, [2001] N o .
173 at 1 1 ; Smith v . Croft (No.2), [1988] Ch. 1 1 4 , 172-73 (Eng.
1986). Because, as I have explained, Evans has not sufficiently
-20- pleaded fraud on the minority, her attempt to rely on the ultra
vires exception also fails.
3. Interests of Justice
Evans argues that there is a fifth exception to the rule in
Foss v . Harbottle for cases in which the interests of justice
require the allowance of a derivative claim. Her argument draws
weight from dicta found in Edwards v . Halliwell, where the court
stated that the rule is “not an inflexible rule and it will be
relaxed where necessary in the interests of justice.” [1950] 2
All E.R. at 1067. This sentiment has been echoed recently in the
Chancery court, Prudential Assurance C o . v . Newman Indus. Ltd.
(No.2), [1981] Ch. 2 5 7 , 323-27 (Eng. 1979), and by the Supreme
Court of New South Wales, Mesenberg v . Cord Industrial Recruiters
Pty Ltd., (1996) 130 F.L.R. 180 (Austl.). But even these courts
hedge their bets in citing the interests of justice as a distinct
exception to the rule in Foss v . Harbottle. See, e.g.,
Mesenberg, 130 F.L.R. at 184 (referring to the “so-called fifth
exception” based on Edwards v . Halliwell and stating that
“[a]lthough there is doubt as to whether this exception is part
of the law, there are weighty judgements which, despite
-21- indications of doubt, would conceive that it might exist . . .
.”) (emphasis added). Such commentary is hardly a ringing
endorsement for the existence of a fifth exception. Moreover,
the Chancery court’s reliance on the exception in Prudential was
rejected by the Court of Appeal which stated it was “not
convinced” that an exception to the rule in Foss v . Harbottle
“whenever the justice of the case so requires” was a practical
test. Prudential, [1982] Ch. 204 at 221; see also Konamaneni,
[2002] 1 W.L.R. at 1283 (stating that after the Prudential case
there is no justification for the assumption that there is a
general exception to the rule in Foss v . Harbottle where the
interest of justice so require); Estmanco, [1982] 1 All E.R. 437
(“I do not think that it can simply be said that there is an
exception from the rule whenever the justice of the case requires
it. . . . [T]he Court of Appeal [in Prudential] . . . observed
that this was ‘not a practical test’ . . . and I would
respectfully concur”).
While I share the skepticism expressed by the Court of
Appeal about the viability of a distinct interests of justice
exception, I need not decide whether a Bermudian court would ever
-22- recognize such an exception because I am satisfied that the
exception is unnecessary in this case. As I have explained,
Evans has not sufficiently alleged that the current board’s
independence is compromised by self-dealing or improper
entanglements with the company’s former officers and directors.
Moreover, while it is possible to question the motivation,
completeness and timing of many of the board’s activities, it is
undisputed that Tyco is aggressively prosecuting claims against
Kozlowski, Swartz and Belnick and has undertaken substantial
efforts to identify and disclose adverse information concerning
the company’s financial condition. In short, this case does not
present the kind of egregious misconduct by a self-interested
board of directors that would compel a Bermudian court to deviate
from the principle of majority control that underlies the rule in
Foss v . Harbottle.
Conclusion
Because Evans has failed to demonstrate that her case comes
within an exception to the rule in Foss v . Harbottle, I determine
that she lacks standing to bring a derivative claim on Tyco’s
-23- behalf. Accordingly, I grant the defendants’ motions to dismiss
(Doc. N o . 1 2 2 , 129, 1 3 0 , 1 4 2 , 143, 1 4 4 ) .
SO ORDERED.
Paul Barbadoro Chief Judge
October 1 4 , 2004
cc: Counsel of Record
-24-