Nathanson v. Tortoise Capital Advisors

• Court: Court of Special Appeals of Maryland
• Decided: August 28, 2025
• Docket: 0370/24
• Status: Published

Opinion

Howard Nathanson, et al. v. Tortoise Capital Advisors, LLC, et al., No. 370, Sept. Term 2024. Opinion by Arthur, J.

CORPORATIONS—SHAREHOLDER DERIVATIVE ACTIONS

Under Maryland law, before a shareholder may bring a derivative action on behalf of a corporation, the shareholder ordinarily must make a demand upon the board of directors to bring the action. Under a “very limited exception” to this rule, a shareholder may be excused from this requirement if the shareholder can “clearly demonstrate, in a very particular manner,” that “a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb, 362 Md. 581, 620 (2001).

In this case, shareholders sued derivatively, on behalf of two investment funds, against an advisory firm and the directors for the funds. The shareholders alleged that the defendants engaged in reckless practices that caused the funds to incur investment losses. The shareholders argued that the directors were too conflicted to consider a demand and had demonstrated by their conduct that they were committed not to pursue any recovery.

The shareholders’ allegations did not satisfy the narrow futility exception under Maryland law. Naming directors as defendants, establishing that directors face potential personal liability, or establishing that directors may lack insurance coverage does not suffice to show futility. Analysis of futility generally does not permit courts to consider the merits of the underlying claims. Allegations that rest on speculation about the directors’ motives are insufficient to meet the pleading standard. Shareholders may not use a defendant’s hostile response to the suit to demonstrate that a pre-suit demand would have been futile. Collectively, the allegations here did not clearly demonstrate with particularity that the directors were so personally and directly conflicted or committed to decisions in dispute that they could not reasonably be expected to consider a demand in good faith and within the scope of the business judgment rule.

STATUTE OF LIMITATIONS—TOLLING

The statute governing the supplemental jurisdiction of the United States district courts includes a tolling provision that must be applied in state courts. This statute provides that the “period of limitations for any claim asserted” under the supplemental jurisdiction of a United States district court “shall be tolled while the claim is pending and for a period of 30 days after it is dismissed[.]” 28 U.S.C. § 1367(d). This provision does not require a dismissal on one of the grounds mentioned in the same Code section. Accordingly, 28 U.S.C. § 1367(d) requires tolling where a plaintiff asserts both federal claims and supplemental state-law claims in a United States district court and the district court subsequently dismisses the action on the ground of forum non conveniens. Circuit Court for Baltimore City Case No. 24-C-23-002372

REPORTED

IN THE APPELLATE COURT

OF MARYLAND

No. 370

September Term, 2024 ______________________________________

HOWARD NATHANSON, ET AL.

v.

TORTOISE CAPITAL ADVISORS, LLC, ET AL.

______________________________________

Arthur, Tang, Meredith, Timothy E. (Senior Judge, Specially Assigned),

JJ. ______________________________________

Opinion by Arthur, J. ______________________________________

Filed: August 28, 2025

Pursuant to the Maryland Uniform Electronic Legal Materials Act (§§ 10-1601 et seq. of the State Government Article) this document is authentic.

2025.08.28 15:06:40 -04'00' Gregory Hilton, Clerk This appeal arises from a shareholder derivative action. Under Maryland law,

before a shareholder may bring a derivative action on behalf of a corporation, the

shareholder ordinarily must make a demand upon the board of directors to bring the

action. Under a “very limited exception” to this rule, a shareholder may be excused from

this requirement if the shareholder can “clearly demonstrate, in a very particular manner,”

that “a majority of the directors are so personally and directly conflicted or committed to

the decision in dispute that they cannot reasonably be expected to respond to a demand in

good faith and within the ambit of the business judgment rule.” Werbowsky v. Collomb,

362 Md. 581, 620 (2001).

In this case, two shareholders brought suit derivatively, on behalf of two

investment funds, against an advisory firm and against the directors for the investment

funds. The shareholders alleged that the defendants engaged in reckless borrowing

practices that caused the investment funds to lose more than $1 billion of value in early

2020. The shareholders argued that they were excused from the demand requirement

because any demand upon the directors would have been futile.

The Circuit Court for Baltimore City dismissed the derivative action, concluding

that the shareholders failed to demonstrate that they were excused from the pre-suit

demand requirement. The shareholders have appealed to this Court. For the reasons

explained in this opinion, the judgment will be affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

Because this appeal arises from the dismissal of a complaint, the following factual

summary is based on the allegations made in the complaint. See, e.g., RRC Northeast, LLC v. BAA Maryland, Inc., 413 Md. 638, 644 n.1 (2010).

A. Investment Losses in Early 2020

Tortoise Energy Infrastructure Corp. (TYG) and Tortoise Midstream Energy Fund,

Inc. (NTG), are Maryland corporations that operate as closed-end investment

companies. 1 Both companies hold equity securities in the energy industry, including 0F

interests in companies that gather, process, store, or transport natural gas. A five-member

Board of Directors manages the two companies. The same five persons have served as

the Directors for both companies continuously since 2018. Throughout this case, the

parties have referred to TYG and NTG collectively as “the Funds.”

Tortoise Capital Advisors, L.L.C. (“Tortoise”), is a Delaware limited liability

company that operates as an investment advisory firm. Under a series of advisory

contracts, Tortoise managed the day-to-day operations of the Funds and controlled the

investment portfolios owned by the Funds. Tortoise collected management fees

calculated as a percentage of the Funds’ total assets, including assets acquired through

leverage.

Under the management of Tortoise, the Funds increased their total assets through

various borrowing methods, using a combination of credit facilities, senior notes, and

preferred shares. These borrowing instruments required the Funds to maintain specified

levels of net assets relative to the amounts borrowed. If the Funds violated these asset-

coverage requirements, the Funds would need to pay down some of their outstanding

1 “TYG” and “NTG” are the stock ticker symbols used by the two companies.

2 debt.

In public filings, the Funds represented that their policy was to use leverage

representing approximately 25% of their total assets on average. The Funds also

represented that their leverage ratios normally would range between 20% and 30% of

total assets. Nevertheless, by 2017, the Funds’ leverage ratios exceeded 30% of total

assets. By the end of 2019, Tortoise had increased the Funds’ leverage ratios to nearly

40% of total assets.

In February 2020, energy prices fell sharply as a result of the COVID-19

pandemic and a pricing dispute between Russia and the Organization of the Petroleum

Exporting Countries (OPEC). The falling energy prices triggered a liquidity crisis for the

Funds, which lacked sufficient cash to pay down their outstanding debt to meet their

asset-coverage requirements. Tortoise responded by selling most of the securities owned

by the Funds at a loss. By the end of March 2020, TYG allegedly reported losses of $572

million, reflecting a decline of nearly 84% of its net assets. At the same time, NTG

allegedly reported losses of $520 million, reflecting a decline of 74% of its net assets.

In November 2020, the Board renewed the Funds’ advisory contracts with

Tortoise on the same terms as the prior contracts. At the time of the renewal, the Board

stated that it considered Tortoise’s “handling of the leverage target” to be “responsible”

and that it considered the Funds’ performance to be “reasonable” under the management

of Tortoise.

At the end of 2020, the Funds reported realized losses of more than $1 billion.

Although other comparable investment funds also declined during 2020, the Funds

3 performed significantly worse, declining several times more than the average decline for

comparable funds during that period.

B. Derivative Action in the U.S. District Court for the District of Kansas

On August 18, 2022, Gus Gordon, a shareholder of TYG, and Howard Nathanson,

a shareholder of NTG, filed a complaint in the United States District Court for the

District of Kansas. 2 The two shareholders brought suit derivatively, on behalf of the 1F

Funds, against Tortoise and against each of the five Directors for the Funds.

In their federal complaint, the shareholders asserted one count for rescission of the

Funds’ advisory contracts with Tortoise. The shareholders alleged that the advisory

contracts were voidable on the ground that Tortoise’s conduct violated the federal

Investment Advisers Act of 1940. The shareholders further asserted that the Funds were

entitled to rescissionary damages.

Along with their claim under the Investment Advisers Act, the shareholders

asserted one count for breach of fiduciary duty under Maryland law. The shareholders

alleged that the Directors and Tortoise breached their fiduciary duties by making

misrepresentations about the Funds’ use of leverage and by recklessly managing the

Funds’ use of leverage. The shareholders alleged that this conduct caused the Funds to

incur hundreds of millions of dollars of investment losses in early 2020. The

shareholders sought compensatory damages from Tortoise and from the Directors.

Under the Federal Rules of Civil Procedure, a shareholder derivative complaint

2 According to the shareholders, the Funds list an address in Kansas as their business address, and Tortoise maintains its principal place of business in Kansas.

4 must “state with particularity: (A) any effort by the plaintiff to obtain the desired action

from the directors or comparable authority . . .; and (B) the reasons for not obtaining the

action or not making the effort.” Fed. R. Civ. P. 23.1(b)(3). In their federal complaint,

the shareholders asserted that, under Maryland law, 3 they were excused from making a 2F

pre-suit demand because any demand would be futile. The shareholders asserted that one

of the Directors, Howard Birzer, also served as an executive for Tortoise and, therefore,

could not claim to be independent or disinterested. The shareholders alleged that the

other Directors had demonstrated that they lacked the capacity to fairly consider a

litigation demand.

Tortoise and the Directors moved to dismiss the federal complaint on multiple

grounds. The defendants contended that the bylaws for TYG and NTG required the

shareholders to bring their action in Maryland. The defendants also contended that the

shareholders failed to establish that they were excused from the requirement of making a

pre-suit demand upon the Board. In addition, the defendants contended that the

shareholders failed to state a claim upon which relief could be granted, either under the

Investment Advisers Act or under Maryland law.

The Funds, as nominal defendants to the derivative action, joined the motions to

dismiss in part. The Funds asked the court to dismiss the action either on grounds of

forum non conveniens or based on the failure to make a pre-suit demand. The Funds

3 In shareholder derivative actions, courts apply the substantive law of the state of incorporation. Bender v. Schwartz, 172 Md. App. 648, 665 (2007) (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 108-09 (1991)).

5 declined to take any position on the merits of the shareholders’ substantive claims.

On February 1, 2023, the district court dismissed the federal complaint without

prejudice. Nathanson v. Tortoise Capital Advisors, L.L.C., No. 2:22-cv-02328-HLT-

RES, 2023 WL 1434292 (D. Kan. Feb. 1, 2023) (unreported). The court concluded that

the forum-selection provisions in the bylaws of TYG and NTG were enforceable and

applicable to the action. Id. at *4. Those provisions designate the Circuit Court for

Baltimore City as the exclusive forum for certain actions, including derivative actions on

behalf of the Funds and actions alleging a breach of a duty owed by a director of the

Funds. The court noted that there was no “dispute[] that an adequate alternative forum

exists in Maryland.” Id. at *5. The court dismissed the action under the doctrine of

forum non conveniens and declined to decide any other issues raised in the motion to

dismiss. Id.

Meanwhile, before the filing of the federal action, an attorney representing a third-

party investment manager had sent a letter asking the Board to discuss potentially

purchasing the Funds’ claims against Tortoise in exchange for a payment and a share of

any proceeds. 4 The Board responded to the proposal in March 2023, shortly after the 3F

dismissal of the federal action. The Board rejected the proposal, stating that it had

determined that it was not in the best interests of the Funds to pursue an assignment of

the claims.

4 According to the defendants, the attorney who sent the proposal also serves as counsel for the shareholders.

6 C. Derivative Action in the Circuit Court for Baltimore City

On May 12, 2023, Mr. Gordon and Mr. Nathanson initiated the present action by

filing a complaint in the Circuit Court for Baltimore City. The two shareholders again

brought suit derivatively, on behalf of the Funds, against Tortoise and against the five

Directors.

The complaint included many of the same factual allegations made in the federal

action, along with updated and additional allegations. As they did in their federal

complaint, the shareholders asserted one count for rescission of the advisory contracts

and one count for breach of fiduciary duty. The shareholders again sought compensatory

damages, alleging that Tortoise and the Directors recklessly managed the Funds’ use of

leverage and caused the Funds to lose more than $1 billion of value in early 2020. The

shareholders again asserted that they were excused from making a pre-suit demand

because any such demand would be futile.

By an amended complaint filed in November 2023, the shareholders added a new

count alleging that Tortoise and the Directors committed gross negligence. The

shareholders brought the gross-negligence claims directly against Tortoise and the

Directors, not as derivative claims on behalf of the Funds. 5 4F

5 The original complaint in the circuit court also included a claim seeking to rescind certain provisions of amended bylaws enacted by the Funds in October 2020. The shareholders alleged that the amended bylaws diminished shareholder voting rights in violation of the Investment Company Act of 1940 (ICA), 15 U.S.C. §§ 80a-1 to 80a- 64. The amended complaint also included a request for a declaratory judgment stating that the amended bylaws violated the ICA. The shareholders voluntarily dismissed those counts after a federal district court in a separate case issued an order rescinding certain provisions from the amended bylaws.

7 All defendants moved to dismiss the amended complaint. Collectively, the

defendants advanced three separate grounds for dismissal. First, the defendants argued

that Maryland’s three-year statute of limitations barred the shareholders’ claims. In this

regard, the defendants asserted that the shareholders did not file their complaint in the

circuit court until May 2023, more than three years after the Funds reported a sharp

decline in value in February 2020. Second, the defendants argued that the derivative

claims should be dismissed based on the failure to make a pre-suit demand. The

defendants argued that the allegations were insufficient to establish that the shareholders

were excused from the demand requirement. Third, the defendants argued that each

count of the amended complaint failed to state a claim upon which relief could be

granted.

Opposing the motions to dismiss, the shareholders contended that their action was

timely and that all counts stated viable causes of action. The shareholders acknowledged

that they filed their original complaint in the circuit court more than three years after the

Funds suffered a sharp decline in value in February 2020. The shareholders nevertheless

invoked 28 U.S.C. § 1367(d), which provides that the “period of limitations for any claim

asserted” under the supplemental jurisdiction of a federal district court “shall be tolled

while the claim is pending and for a period of 30 days after it is dismissed[.]” The

shareholders argued that this provision suspended the running of the statute of limitations

for more than five months, during the pendency of the federal action, plus 30 days after

the dismissal of that action. On that basis, the shareholders argued that their claims were

8 timely. 6 5F

In opposition to the motions to dismiss, the shareholders further contended that

they had the right to pursue derivative claims under the futility exception to the pre-suit

demand requirement. The shareholders argued that the Directors were incapable of

considering a demand because they faced the potential for unexculpated personal liability

for alleged damages exceeding hundreds of millions of dollars. The shareholders further

argued that the Directors had demonstrated through their conduct that they were

committed to a decision not to pursue any recovery on behalf of the Funds. The

shareholders pointed to the following alleged conduct of the Directors: the Board

“repeatedly rehired” Tortoise after the Funds collapsed in value and “stated . . . that

Tortoise’s ‘handling of the leverage target’ was ‘responsible’” when it renewed the

advisory contracts; in October 2020, the Board enacted amended bylaws, which,

according to the shareholders, were intended to insulate the Directors from shareholder

control; the Board sought dismissal of the Kansas action and “publicly” stated that the

shareholders’ claims were “‘meritless’” in filings in the Kansas action; and the Board

first ignored, and then ultimately rejected, a proposal to assign the Funds’ claims to a

third party in exchange for a cash payment and a share of any proceeds.

6 The shareholders asserted that the statute of limitations was further tolled by an agreement in which the defendants had agreed to suspend the statute of limitations from April 19, 2023, until May 12, 2023. The additional 23 days, however, were immaterial to the issue of whether the statute of limitations had already expired months before the date of the tolling agreement.

9 D. Dismissal of the Amended Complaint

The circuit court considered the motions to dismiss the amended complaint at a

hearing on February 16, 2024. At the end of the hearing, the court announced that it

would dismiss all counts with prejudice and without leave to amend.

In its oral ruling, the court explained that it considered only the amended

complaint and two documents mentioned in the amended complaint: the complaint filed

in the United States District Court for the District of Kansas and the order dismissing that

complaint. The court stated that it did not consider any other extraneous materials, such

as exhibits offered in support of or in opposition to the motions.

The court first considered whether the claims were timely under the three-year

statute of limitations. The court noted that the amended complaint alleged that the Funds

reported a sharp decline in value at the end of February 2020. The court concluded that

the shareholders’ claims accrued “no later than” February 29, 2020. The court noted that

the amended complaint included “no statement” as to why the statute of limitations “may

have been tolled” for any claims. The court reasoned, therefore, that it appeared from the

face of the pleadings that the statute of limitations had expired before the shareholders

filed their original complaint in Maryland on May 12, 2023. The court stated that the

amended complaint “could be dismissed” “on that basis alone[.]”

Next, the court considered the shareholders’ argument that 28 U.S.C. § 1367(d)

suspended the statute of limitations while their previous action was pending in federal

court. That provision states, in pertinent part, that “[t]he period of limitations for any

claim asserted” under the supplemental jurisdiction of a United States district court “shall

10 be tolled while the claim is pending and for a period of 30 days after it is dismissed[.]”

28 U.S.C. § 1367(d).

The court reasoned that the count for rescission of the advisory contracts did not

qualify for tolling under 28 U.S.C. § 1367(d) because it was a federal claim asserted

under the original jurisdiction of the district court, not a state-law claim asserted under

the supplemental jurisdiction of the district court. The court reasoned that the count for

gross negligence did not qualify for tolling under 28 U.S.C. § 1367(d) because the

shareholders had not expressly asserted any claim for gross negligence in the federal

action. The court concluded, therefore, that those counts should be dismissed with

prejudice based on the statute of limitations.

The court concluded that the remaining count, alleging breach of fiduciary duty,

could qualify for tolling under 28 U.S.C. § 1367(d). The court observed that the

shareholders previously asserted their state-law claims for breach of fiduciary duty in

federal district court, along with a federal claim under the Investment Advisers Act. The

court observed that the language of the statute purports to provide for tolling whenever a

supplemental claim is “dismissed[,]” regardless of the basis for the dismissal. The court

concluded that, if permitted to amend their pleadings, the shareholders could set forth the

additional facts establishing that 28 U.S.C. § 1367(d) tolled the statute of limitations for

their breach-of-fiduciary-duty claims and, thus, that those claims were timely.

Next, the court analyzed whether the allegations in the amended complaint were

sufficient to establish the futility of a pre-suit demand. The court observed that, under

Maryland law, shareholders generally must make a demand upon the board of directors

11 before they may bring a derivative action on behalf of the corporation. As the court

explained, Maryland recognizes a “very limited exception” to the demand requirement.

See Werbowsky v. Collomb, 362 Md. 581, 620 (2001). Under that exception, the demand

requirement may be excused “when the allegations or evidence clearly demonstrate, in a

very particular manner,” that “a majority of the directors are so personally and directly

conflicted or committed to the decision in dispute that they cannot reasonably be

expected to respond to a demand in good faith and within the ambit of the business

judgment rule.” Id.

The court stated that, under this exception, the demand requirement will not be

excused “simply because a majority of the directors approved or participated in some

way in the challenged transaction[,]” or “on the basis of generalized or speculative

allegations that they are conflicted[,]” or “because they are paid well[,] . . . [or] because

they are chosen as directors at the behest of controlling stockholders, or . . . would be

hostile to the action.” The court remarked that other courts applying the Werbowsky

standard “have pretty much eliminated every other reason” that might establish demand

futility “except for self-dealing.” The court noted that the shareholders did not allege

self-dealing in their pleadings.

The court observed that other courts applying Werbowsky have concluded that

demand is not excused merely because the directors are named as defendants in the

action, or face the potential of personal liability, or may lack insurance coverage. The

court concluded, therefore, that the shareholders could not establish futility by alleging

that the Directors faced the potential of unexculpated personal liability. The court further

12 observed that courts have interpreted the Werbowsky standard to “disallow[]

consideration of the merits of the case in analyzing demand futility.” On that basis, the

court concluded that the shareholders could not establish futility by alleging that the

Directors made misstatements to investors and violated their fiduciary duties. The court

also stated that it would disregard any “conclusory” allegations asserting that the Board

had already demonstrated that it would not pursue any recovery, reasoning that these

allegations were “not specific” enough to satisfy the pleading standard.

The court reviewed each of the factual allegations listed in the amended complaint

purportedly to demonstrate that the Board was incapable of considering a litigation

demand. These allegations included the following conduct by the Board: rehiring

Tortoise after the collapse of the Funds’ value in early 2020, publicly describing

Tortoise’s management of the Funds as “responsible[,]” enacting amended bylaws,

seeking dismissal of the federal action, characterizing the shareholders’ claims in the

federal action as “meritless[,]” and ignoring or rejecting a third-party offer to discuss

potentially purchasing the Funds’ claims. The court reasoned that these allegations were

either inadequate to establish demand futility or not specific enough to satisfy the

Werbowsky pleading standard.

Accordingly, the court concluded that the amended complaint failed to establish

that demand should be excused under the futility exception. Because the court

determined that the claims should be dismissed based on the failure to make pre-suit

demand, the court concluded that any “amendment to fix the statute of limitations issues”

for the breach-of-fiduciary-duty claim would be ineffective.

13 On February 16, 2024, the circuit court entered orders granting the motions to

dismiss and dismissing the amended complaint with prejudice. The shareholders filed a

timely notice of appeal to this Court.

E. Post-Judgment Developments

On April 2, 2024, a few weeks after the circuit court dismissed the derivative

action, the shareholders sent a demand letter to the Board. The letter set forth in detail

the shareholders’ allegations that Tortoise and the Directors breached their fiduciary

duties. The shareholders demanded that the Board appoint a committee made up of

independent and disinterested directors to investigate the alleged breaches of fiduciary

duty. The shareholders demanded that the Board “take all necessary actions to obtain

recovery for harm to the Funds” and “pursue appropriate legal remedies against the

responsible parties, including causing the Funds to initiate litigation or authorizing [the]

[s]hareholders to initiate litigation on behalf of the Funds.”

By letter dated August 24, 2024, counsel for the Board’s Demand Review

Committee rejected the demand. The letter stated that a Demand Review Committee

made up of disinterested and independent directors had completed the investigation with

the assistance of independent counsel. The letter also stated that the Committee had

concluded that the Funds do not have viable claims against Tortoise or the Directors and

had recommended that the Funds should not pursue those claims.

On November 22, 2024, the shareholders initiated a separate derivative action by

filing a complaint in the Circuit Court for Baltimore City. The shareholders raised a

single count against Tortoise and against the five Directors for breach of fiduciary duty.

14 The factual allegations of the new complaint were substantially the same as the

allegations from the earlier pleadings. The new complaint, however, replaced the section

titled “Demand Futility Allegations,” with a new section titled “Derivative and Wrongful

Demand Refusal Allegations.” The shareholders alleged that the Board’s refusal of the

litigation demand was not a legitimate exercise of business judgment and should be set

aside so that the shareholders could pursue the claims on behalf of the Funds. 7 6F

DISCUSSION

In this appeal, the shareholders contend that the circuit court erred when it granted

the defendants’ motions to dismiss. The shareholders argue that the allegations in their

pleadings were sufficient to establish that they were excused from making a pre-suit

demand upon the Board. The shareholders ask this Court to reverse the judgment and to

reinstate the derivative claims against Tortoise and the Directors for breach of fiduciary

duty. 8 7F

In their appellate brief, the shareholders present the following questions:

1. Did the trial court reversibly err in departing from settled precedent in Werbowsky v. Collomb, 362 Md. 581 (2001), by ruling that demand futility can be shown only where the company faces immediate harm or a plaintiff alleges a majority of directors engaged in self-dealing, and disregarding allegations that the directors could not reasonably consider a demand because they would face material, personal liability in any action brought against them and had demonstrated their commitment to the acts and

As of the date of this opinion, the separate derivative action alleging the 7

wrongful refusal of the shareholders’ demand remains pending as Howard Nathanson et al. v. Tortoise Capital Advisors, L.L.C., et al., No. C-24-CV-24-004103 in the Circuit Court for Baltimore City.

The shareholders do not challenge the dismissal of the count for rescission of the 8

advisory contracts or the count for gross negligence.

15 decisions at issue through after-the-fact entrenchment and opposition to such an action?

2. Did the trial court reversibly err when it departed from established pleading standards by failing to consider Appellants’ allegations as a whole and drawing inferences in favor of Appellees when evaluating whether Appellants had adequately alleged demand futility?

3. Did the trial court reversibly err in ruling that Count II is barred by the statute of limitations absent supplemental allegations that the limitations period was tolled during the pendency of a federal action asserting the same claim?

The defendants filed three appellate briefs: one on behalf of Tortoise and Mr.

Birzer, the Director affiliated with Tortoise; one on behalf of the four Directors who are

independent from Tortoise; and one on behalf of the Funds, as nominal defendants. All

defendants contend that the circuit court was correct when it dismissed the derivative

action based on the failure to make pre-suit demand. Alternatively, the defendants argue

that the demand issue is now moot because, after the dismissal of the derivative action,

the shareholders made a demand upon the Board and the Board rejected it. In addition,

the defendants argue that the circuit court should have dismissed the claims based on the

expiration of the three-year statute of limitations.

As the circuit court did, we will begin by addressing the timeliness of the action

under the statute of limitations. Afterwards, we will address whether the shareholders

sufficiently demonstrated that they were excused from making a pre-suit demand upon

the Board. Ultimately, we agree with the circuit court that, although the claims for

breach of fiduciary duty are timely, this derivative action does not qualify under the

narrow futility exception to the demand requirement.

16 I. Statute of Limitations

In general, this Court reviews a ruling on a motion to dismiss a complaint to

determine whether the ruling was legally correct, without deference to the circuit court.

See Caruso Builder Belle Oak, LLC v. Sullivan, 489 Md. 346, 361 (2025). When

deciding a motion to dismiss, the court must assume the truth of the facts alleged in the

complaint, as well as all factual inferences that may reasonably be drawn in favor of the

plaintiff. Litz v. Maryland Dep’t of Env’t, 434 Md. 623, 643 (2013). Accordingly, “‘[a]

motion to dismiss ordinarily should not be granted . . . on the [ground] that the cause of

action is barred by the statute of limitations unless it is clear from the facts and

allegations on the face of the complaint that the statute of limitations has run.’” Caruso

Builder Belle Oak, LLC v. Sullivan, 489 Md. at 361 (quoting Litz v. Maryland Dep’t of

Env’t, 434 Md. at 641).

Under Maryland’s default statute of limitations, a “civil action at law” must be

filed “within three years from the date it accrues” unless another statute provides a

different limitations period. Md. Code (1974, 2020 Repl. Vol.), § 5-101 of the Courts

and Judicial Proceedings Article. Generally, a civil claim accrues when the plaintiff

knew or through the exercise of reasonable diligence should have known of the facts

giving rise to the claim. See, e.g., Windesheim v. Larocca, 443 Md. 312, 326-27 (2015).

In this appeal, the shareholders take no issue with the circuit court’s determination that

the three-year limitations period for the breach-of-fiduciary-duty claims began on or

before February 29, 2020. For their part, the defendants have not argued that the claims

accrued at an earlier date.

17 The parties disagree on whether a subsequent event—the filing of the derivative

action in federal district court in Kansas—suspended the running of the statute of

limitations. On August 18, 2022, with several months remaining in the three-year

limitations period, the same shareholders sued the same defendants in the United States

District Court for the District of Kansas. In that action, the shareholders asserted one

count for rescission of the advisory contracts under federal law and one count for breach

of fiduciary duty under Maryland law. The district court dismissed the entire action

without prejudice on February 1, 2023, under the doctrine of forum non conveniens. No

party appealed from the dismissal order. Three months after the dismissal, on May 12,

2023, the shareholders initiated the present action in the Circuit Court for Baltimore City,

reasserting the derivative claims against the defendants for breach of fiduciary duty. 98F

The shareholders contend that a federal statute, 28 U.S.C. § 1367(d), tolled the

statute of limitations for their breach-of-fiduciary-duty claims while those claims were

9 Maryland Rule 2-101(b) permits a party to refile claims in the circuit court within 30 days after certain dismissals. This provision applies when a party brings an action “in a United States District Court or a court of another state within the period of limitations prescribed by Maryland law” and that court dismisses the action “(1) for lack of jurisdiction, (2) because the court declines to exercise jurisdiction, or (3) because the action is barred by the statute of limitations required to be applied by that court[.]” Id. The Rule states that, in those designated circumstances, “an action filed in a circuit court within 30 days after the entry of the order of dismissal” is treated as timely. Id. This Court has stated that, when “a court with jurisdiction to hear a case . . . dismisses the case on the ground of forum non conveniens, that is indisputably an instance of ‘the court’s declin[ing] to exercise jurisdiction.’” Antar v. Mike Egan Ins. Agency, Inc., 209 Md. App. 336, 354 n.7 (2012). In the present case, the shareholders cannot rely on Md. Rule 2-101(b) because they filed their complaint in the circuit court more than 30 days after the dismissal of the federal action. Even though the parties entered into a tolling agreement on April 19, 2023, the agreement did not take effect until more than 30 days after the dismissal of the federal action.

18 pending in federal district court and for 30 days after the dismissal of those claims. On

that basis, the shareholders argue that the statute of limitations had not expired when the

shareholders initiated the present action.

Generally, federal district courts “‘are courts of limited jurisdiction.’” Royal

Canin U.S.A., Inc. v. Wullschleger, 604 U.S. 22, 26 (2025) (quoting Kokkonen v.

Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994)). By statute, a United

States district court has original jurisdiction over limited categories of civil actions,

including actions arising under federal law and suits between citizens of different states

where the amount in controversy exceeds the statutory minimum. See 28 U.S.C. §§

1331, 1332(a)(1). In addition, 28 U.S.C. § 1367(a) grants the district court supplemental

jurisdiction over state-law claims that are sufficiently related to an action within the

court’s original jurisdiction.

Subsection (a) of section 1367 provides that, in an action over which the district

court has original jurisdiction, the court “shall have supplemental jurisdiction over all

other claims that are so related to claims in the action within such original jurisdiction

that they form part of the same case or controversy under Article III of the United States

Constitution.” Subsection (b) imposes certain restrictions on the exercise of

supplemental jurisdiction where the court’s original jurisdiction is based solely on

diversity of citizenship. Subsection (c) authorizes the court to decline to exercise

supplemental jurisdiction under any of the following circumstances: “(1) the claim raises

a novel or complex issue of State law, (2) the claim substantially predominates over the

claim or claims over which the district court has original jurisdiction, (3) the district court

19 has dismissed all claims over which it has original jurisdiction, or (4) in exceptional

circumstances, there are other compelling reasons for declining jurisdiction.”

At issue in this appeal is subsection (d), which requires tolling of any statute of

limitations when a plaintiff asserts state-law claims under the supplemental jurisdiction of

the district court. This subsection states:

The period of limitations for any claim asserted under subsection (a), and for any other claim in the same action that is voluntarily dismissed at the same time as or after the dismissal of the claim under subsection (a), shall be tolled while the claim is pending and for a period of 30 days after it is dismissed unless State law provides for a longer tolling period.

Congress first enacted 28 U.S.C. § 1367 as part of the Judicial Improvements Act

of 1990. Before this enactment, the United States Supreme Court had held that, in

actions arising under federal law, district courts could exercise jurisdiction over state-law

claims “if the federal and state law claims ‘derive from a common nucleus of operative

fact[.]’” Raygor v. Regents of Univ. of Minn., 534 U.S. 533, 539 (2002) (quoting United

Mine Workers of America v. Gibbs, 383 U.S. 715, 725 (1966)). The Court held that this

exercise of jurisdiction is proper where the relationship between the federal and state-law

claims “permits the conclusion that the entire action before the court comprises” a single

“‘case’” within the meaning of Article III, section 2, of the United States Constitution.

United Mine Workers of America v. Gibbs, 383 U.S. at 725. Congress enacted 28 U.S.C.

§ 1367 with the intention “to codify (and, to some extent, modify) existing case law”

regarding the scope of supplemental jurisdiction. Turner v. Kight, 406 Md. 167, 173

(2008). In crafting this legislation, Congress “appreciat[ed] that ‘[s]upplemental

20 jurisdiction has enabled federal courts and litigants to . . . deal economically—in single

rather than multiple litigation—with related matters.’” Artis v. District of Columbia, 583

U.S. 71, 75 (2018) (quoting H.R. Rep. No. 101-734, at 28 (1990)).

The tolling provision of section 1367(d) is “intended to ‘eliminate[] a serious

impediment to access to the Federal courts on the part of plaintiffs pursuing federal and

state law claims that derive from a common nucleus of operative facts.’” Turner v. Kight,

406 Md. at 185 (quoting Jinks v. Richland County, S.C., 538 U.S. 456, 463 (2003))

(further citation and quotation marks omitted). Absent a tolling provision, limitations

would continue to run while a state-law claim is pending as a supplemental claim in

federal district court. Consequently, if a district court dismissed a supplemental claim

without prejudice after the limitations period, the dismissal would have the same effect as

a dismissal with prejudice. See Artis v. District of Columbia, 583 U.S. at 76 (citing

Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 352 (1988)). “This consequence may

work injustice to the plaintiff: although [the plaintiff] has brought [the] suit in timely

manner,” the claims nevertheless are “time barred[.]” Carnegie-Mellon Univ. v. Cohill,

484 U.S. at 352.

“To prevent the limitations period” for supplemental claims “from expiring while

the plaintiff was fruitlessly pursuing them in federal court, § 1367(d) provides a tolling

rule that must be applied by state courts[.]” Jinks v. Richland County, S.C., 538 U.S. at

459. This provision suspends the running of any state statute of limitations (i.e., “stop[s]

the clock”) from the time when a supplemental claim is filed in a federal district court

until 30 days after the court dismisses the supplemental claim. Artis v. District of

21 Columbia, 583 U.S. at 75; see Raygor v. Regents of Univ. of Minn., 534 U.S. at 542

(stating that, where subsection (d) applies, “it w[ill] toll the state statute of limitations for

30 days in addition to however long the claim had been pending in federal court”);

Turner v. Kight, 406 Md. at 189 (concluding that Ҥ 1367(d) serves to suspend the

running of a State statute of limitations from the time the State-law claim is filed in U.S.

District Court until 30 days after . . . a final judgment is entered by the U.S. District Court

dismissing the [supplemental] State-law claims”).

Before the enactment of section 1367, plaintiffs pursuing federal claims along with

related state-law claims faced a choice between “unattractive options[.]” Jinks v.

Richland County, S.C., 538 U.S. at 463. Plaintiffs “could file a single federal-court

action,” but they “would run the risk that the federal court would dismiss the state-law

claims after the limitations period had expired[.]” Id. Plaintiffs “could file a single state-

law action, which would abandon their right to a federal forum[.]” Id. Or plaintiffs

“could file separate, timely actions in federal and state court and ask that the state-court

litigation be stayed pending resolution of the federal case,” but doing so “would increase

litigation costs with no guarantee that the state court would oblige.” Id. “Section

1367(d) replaces this selection of inadequate choices with the assurance that state-law

claims asserted under § 1367(a) will not become time barred while pending in federal

court.” Id. at 463-64. This provision “promotes fair and efficient operation of the federal

courts” by “providing a straightforward tolling rule in place of th[e] regime” that existed

22 before its enactment. Id. at 463. 10 9F

Under the language of 28 U.S.C. § 1367(d), claims must be “asserted under

subsection (a)” to qualify for tolling. See Rounds v. Maryland-Nat’l Capital Park &

Planning Comm’n, 441 Md. 621, 661 (2015) (holding that, “[u]nder 28 U.S.C. § 1367(d),

‘in order to benefit from tolling, the claim must have been expressly asserted in federal

court’”) (quoting In re Vertrue Mktg. & Sales Practices Litig., 712 F. Supp. 2d 703, 722

(N.D. Ohio 2010), aff’d, 719 F.3d 474 (6th Cir. 2013)). In the present appeal, the

defendants have not disputed that the breach-of-fiduciary-duty claim was a “claim

asserted under subsection (a)” of section 1367.

As the basis for subject matter jurisdiction, the federal complaint cited 28 U.S.C. §

1331, which grants the district courts original jurisdiction over actions arising under

federal law. The federal complaint did not mention 28 U.S.C. § 1367(a), which provides

supplemental jurisdiction over state-law claims that are related to an action within the

court’s original jurisdiction. Nevertheless, the court and all parties recognized that the

claims for breach of fiduciary duty arose under Maryland law, not federal law. As the

district court explained, the shareholders had asserted “[o]ne claim aris[ing] under federal

securities law, and [an]other claim aris[ing] under Maryland law.” Nathanson v. Tortoise

10 As summarized by Justice John Paul Stevens, “[s]ubsection (d) of § 1367 responds to the risk that the plaintiff’s state-law claim, even though timely when filed as a part of the federal lawsuit, may be dismissed after the state period of limitations has expired.” Raygor v. Regents of Univ. of Minn., 534 U.S. at 550 (Stevens, J., dissenting). The tolling provision “avoid[s] the necessity of duplicate filings[.]” Id. At the same time, any “impact of this provision on the defendant is minimal, because the timely filing in federal court provides [the defendant] with the same notice as if a duplicate complaint had also been filed in state court.” Id.

23 Capital Advisors, L.L.C., 2023 WL 1434292, at *4 (D. Kan. Feb. 1, 2023) (unreported).

In opposition to the motion to dismiss the federal complaint, the shareholders

argued that the district court had “supplemental jurisdiction over the state-law claim”

under 28 U.S.C. § 1367(a). In response, the defendants argued that the court should

“decline to exercise supplemental jurisdiction over the state law claim” under 28 U.S.C. §

1367(c). By asking the court to decline to exercise supplemental jurisdiction, the

defendants acknowledged that the shareholders had “asserted” that claim under

subsection (a).

In addition to the requirement that a claim be “asserted” under subsection (a),

subsection (d) measures the tolling effect in relation to when the claim is “dismissed[.]”

In pertinent part, it states that “[t]he period of limitations for any claim asserted under

subsection (a) . . . shall be tolled while the claim is pending and for a period of 30 days

after it is dismissed[.]” 28 U.S.C. § 1367(d) (emphasis added). As the circuit court

observed, this language purports to require tolling without regard for the reasons for the

dismissal. In this appeal, the shareholders contend that subsection (d) “does not render

tolling contingent on the nature of the dismissal[.]” The shareholders argue, therefore,

that the statute requires tolling when a district court dismisses both federal claims and

supplemental state-law claims under the doctrine of forum non conveniens.

Without question, the language of subsection (d) covers the district court’s

dismissal of the state-law claims for breach of fiduciary duty. The shareholders

“asserted” those claims under the court’s authority to exercise supplemental jurisdiction,

and the district court “dismissed” those claims. The United States Supreme Court has

24 explained: “On its face, subsection (d) purports to apply to dismissals of ‘any claim

asserted under subsection (a).’” Raygor v. Regents of Univ. of Minn., 534 U.S. at 542

(emphasis in original). “Thus,” subsection (d) “could be broadly read to apply to any

claim technically ‘asserted’ under subsection (a) as long as it was later dismissed,

regardless of the reason for dismissal.” Id.

On the other hand, the Court has noted that Ҥ 1367(d) occurs in the context of a

statute that specifically contemplates only a few grounds for dismissal.” Raygor v.

Regents of Univ. of Minn., 534 U.S. at 545. A claim may be subject to dismissal under

the statute “if it fails to ‘form part of the same case or controversy’ as a claim within the

district court’s original jurisdiction[,]” as required by subsection (a); “if exercising

jurisdiction over [the claim] would be ‘inconsistent’” with the diversity jurisdiction

statute, as stated in subsection (b); or in one of the “four specific situations in which a

district court may decline to exercise supplemental jurisdiction over a particular claim”

under subsection (c). Id. “Given that particular context,” the Court has remarked that “it

is unclear if the tolling provision was meant to apply to dismissals for reasons

unmentioned by the statute[.]” Id.

Although the Raygor Court identified two possible interpretations of 28 U.S.C. §

1367(d), one broad and one narrow, the Court ultimately did not adopt either one. The

plaintiffs in the Raygor case had initially sued “an arm of the State of Minnesota” in

federal district court, raising employment discrimination claims under both federal law

and state law. Id. at 536-37. The district court dismissed all claims based on the State’s

immunity under the Eleventh Amendment. Id. at 537. The plaintiffs refiled their state-

25 law claims in a Minnesota state court, which proceeded to dismiss those claims based on

the expiration of the statute of limitations. Id. at 538.

Upholding the dismissal, the United States Supreme Court concluded that 28

U.S.C. § 1367(d) did not toll the statute of limitations when the federal district court

dismissed the supplemental state-law claims on the ground of Eleventh Amendment

immunity. Id. at 542-46. The Court reasoned that “reading subsection (d) to apply when

state law claims against nonconsenting States are dismissed on Eleventh Amendment

grounds” would “raise[] serious doubts about the constitutionality of the provision given

principles of state sovereign immunity.” Id. at 542. Because the statute expressed “no

specific or unequivocal intent to toll the statute of limitations for claims asserted against

nonconsenting States,” the Court held that the tolling provision does not “apply to

dismissals of claims against nonconsenting States dismissed on Eleventh Amendment

grounds.” Id. at 545-46.

The holding of Raygor is expressly limited to claims against a state. See id. at 547

(stating that the Court “express[ed] no view on the application . . . of § 1367(d) . . . when

a defendant is not a State”). One year after that decision, the Court declined to extend the

holding of Raygor where the defendant was “not a State, but a political subdivision of a

State[.]” Jinks v. Richland County, S.C., 538 U.S. at 466. The Court explained:

“Although we held in Raygor . . ., that § 1367(d) does not apply to claims filed in federal

court against States but subsequently dismissed on sovereign immunity grounds, we did

so to avoid interpreting the statute in a manner that would raise ‘serious constitutional

doubt’ in light of our decisions protecting a State’s sovereign immunity from

26 congressional abrogation[.]” Id. (emphasis in original) (quoting Raygor v. Regents of

Univ. of Minn., 534 U.S. at 543). In the decades since Raygor and Jinks, the Court still

has not settled whether 28 U.S.C. § 1367(d) should be interpreted as written, to apply to

dismissals on virtually any ground, or whether it should be construed narrowly, to include

only dismissals under that particular Code section. See generally 13D Wright & Miller’s

Federal Practice and Practice & Procedure § 3567.4 (4th ed. 2023).

No party to this appeal has cited any authority addressing whether 28 U.S.C. §

1367(d) tolls the statute of limitations for a supplemental claim when a federal district

court dismisses an action on grounds of forum non conveniens. Several courts outside of

Maryland, however, have decided a related issue. Appellate courts in the District of

Columbia, Florida, and Michigan have held that § 1367(d) tolls the statute of limitations

for a supplemental claim when a federal district court dismisses an action for lack of

federal subject matter jurisdiction. Stevens v. ARCO Mgmt. of Washington, D.C., Inc.,

751 A.2d 995, 998 (D.C. 2000); Krause v. Textron Fin. Corp., 59 So. 3d 1085, 1091 (Fla.

2011); Foley v. Azam, 257 So. 3d 1134, 1139 (Fla. Dist. Ct. App. 2018); Scarfo v.

Ginsberg, 817 So. 2d 919, 920-21 (Fla. Dist. Ct. App. 2002); Puetz v. Spectrum Health

Hosps., 919 N.W.2d 439, 448 (Mich. Ct. App. 2018). Those courts have uniformly

rejected the notion that the tolling effect of 28 U.S.C. § 1367(d) is restricted to dismissals

under that section. 11 10F

11 An appellate court in Arizona concluded that 28 U.S.C. § 1367(d) does not toll the statute of limitations for supplemental claims when a federal district court dismisses an action for lack of subject matter jurisdiction. Morris v. Giovan, 242 P.3d 181, 184 (Ariz. Ct. App. 2010). The Arizona court believed that the Raygor opinion dictated this

27 Statutory language is the primary reason why courts have concluded that tolling

under 28 U.S.C. § 1367(d) is not contingent on the ground for the dismissal. Subsection

(d) “provides that its tolling provision applies to ‘any claim asserted under subsection

(a).’” Puetz v. Spectrum Health Hosps., 919 N.W.2d at 447 (quoting 28 U.S.C. §

1367(d)). Subsection (d) “does not, by its terms, bar the application of the tolling

provision” when a claim is dismissed on grounds other than those mentioned within the

same section. Krause v. Textron Fin. Corp., 59 So. 3d at 1090. “[T]he language of

subsection (d) . . . does not condition its application to discretionary dismissals under

subsection (c).” Stevens v. ARCO Mgmt. of Washington, D.C., Inc., 751 A.2d at 998.

Moreover, the tolling provision does not purport to “require a successful assertion of

federal jurisdiction.” Id. (emphasis in original); see also Foley v. Azam, 257 So. 3d at

1139. The only express requirement is “that the claim be asserted under section

1367(a).” Scarfo v. Ginsberg, 817 So. 2d at 921 (emphasis in original).

A few federal trial courts have adopted a narrow construction of 28 U.S.C. §

1367(d), concluding that tolling occurs only when a district court declines to exercise

jurisdiction over a supplemental claim on one of the grounds mentioned in subsection (c).

See Centaur Classic Convertible Arbitrage Fund Ltd. v. Countrywide Fin. Corp., 878 F.

result. According to that court: “it follows that if § 1367(d) does not apply in an action dismissed on constitutional grounds, so, too, it should not apply in an action dismissed for lack of a federal question.” Id. at 183. In our assessment, the reasoning of Morris v. Giovan is unconvincing. “[W]ithout citing legal authority, the Morris court presumed that the same constitutional concerns” that exist when a claim is dismissed based on Eleventh Amendment immunity also “were present when a case is dismissed for [lack] of subject-matter jurisdiction.” Puetz v. Spectrum Health Hosps., 919 N.W.2d at 446.

28 Supp. 2d 1009, 1019 (C.D. Cal. 2011); Parrish v. HBO & Co., 85 F. Supp. 2d 792, 797

(S.D. Ohio 1999). The primary basis for that conclusion is certain language found in the

legislative history of the statute. A report recommending the adoption of section 1367

describes the tolling provision as follows: “Subsection [(d)] provides a period of tolling

of statutes of limitations for any supplemental claim that is dismissed under this

section[.]” H.R. Rep. No. 101-734, at 30 (1990). Citing that statement, some courts have

reasoned that “Congress did not intend the phrase ‘the dismissal’ to include dismissal of

the supplemental state law claim by any procedure but, rather, dismissal pursuant to §

1367(c) only.” Centaur Classic Convertible Arbitrage Fund Ltd. v. Countrywide Fin.

Corp., 878 F. Supp. 2d at 1019 (emphasis in original) (citing Parrish v. HBO & Co., 85

F. Supp. 2d at 796). 12 11F

As others have observed, the language from the House Report suggesting a

“‘limitation on the type of dismissals . . . (i.e., dismissal “under this section”) did not find

its way into the statute.’” Blinn v. Florida Dep’t of Transp., 781 So. 2d 1103, 1107 (Fla.

Dist. Ct. App. 2000) (quoting Patrick D. Murphy, A Federal Practitioner’s Guide to

Supplemental Jurisdiction Under 28 U.S.C. § 1367, 78 Marq. L. Rev. 973, 1033

(Summer 1995)). To construe the tolling provision to be limited to dismissals under that

section “would be to add words to the statutory text in the belief that some textually

unspoken ‘legislative intent’ so required[,]” even though Congress failed to “indicate[]

12 Although the House Report accurately states that subsection (d) provides tolling for any supplemental claim dismissed under that section, the Report does not state that tolling occurs only if a claim is dismissed under that section.

29 such a purpose anywhere in the text actually adopted.” Scarfo v. Ginsberg, 817 So. 2d at

921.

Courts that have rejected a narrow construction of 28 U.S.C. § 1367(d) have

reasoned that “[a]pplying the statute as written is . . . in line with Congress’s intent when

enacting the statute.” Puetz v. Spectrum Health Hosps., 919 N.W.2d at 447. A narrow

construction of the tolling provision “would work against judicial efficiency[,]” because

it “would tend to compel prudent federal litigants who present state claims to file

duplicative and wasteful protective suits in state court.” Stevens v. ARCO Mgmt. of

Washington, D.C., Inc., 751 A.2d at 1002. “[G]iving subsection (d) its straightforward

meaning and applying it to any claim asserted,” without an additional requirement

concerning the basis for the dismissal, “enhances sound principles of judicial economy.”

Id. “Such an interpretation obviates the necessity of filing a purely protective action in a

state court to forestall the possibility that the asserted federal claim supporting the

supplemental jurisdiction might, for some reason, be dismissed[.]” Id.

Without an assurance of tolling, plaintiffs who face some possibility of dismissal

outside the limitations period, on one ground or another, would confront the same

“inadequate choices” available before the enactment of section 1367: undertaking the risk

that the state-law claims might become time barred, abandoning the federal forum

altogether, or filing duplicative lawsuits at their expense. See Jinks v. Richland County,

S.C., 538 U.S. at 463-64. Just as a plaintiff asserting supplemental claims faces the risk

that the district court might decline to exercise supplemental jurisdiction over the state-

law claims, the plaintiff also faces a risk that the district court might dismiss the entire

30 action for lack of federal subject matter jurisdiction or under the doctrine of forum non

conveniens. Plaintiffs cannot compel the district court to base a dismissal decision on

one ground as opposed to another. From the plaintiff’s perspective, therefore, the need to

bring a placeholder lawsuit in state court would not depend on the ground for the

potential dismissal. The present case offers a useful illustration. Absent a tolling

guarantee, a plaintiff in the shareholders’ position, facing the threat of a dismissal without

prejudice of supplemental state-law claims, might need to rush to file duplicate claims in

state court within a dwindling limitations period.

In our assessment, the appellate opinions concluding that tolling under 28 U.S.C. §

1367(d) does not require a dismissal on one of the grounds mentioned in the same section

are persuasive. This “straightforward” interpretation of the tolling provision (Stevens v.

ARCO Mgmt. of Washington, D.C., Inc., 751 A.2d at 1002) is not only faithful to the

enacted language but also consistent with the purposes of the legislation. Just as courts

have concluded that the tolling provision applies when a federal district court dismisses

an action for lack of subject matter jurisdiction, we conclude that the tolling provision

should also apply when the district court dismisses an action on the ground of forum non

conveniens.

In their briefs, the defendants propose additional restrictions not found in the

language of 28 U.S.C. § 1367(d). The defendants argue that tolling should occur only if

the federal district court orders a “merits-based dismissal[]” of the federal claims and

then declines to exercise supplemental jurisdiction over a state-law claim. In their view,

the tolling provision should not apply here because the district court “dismissed the entire

31 action on procedural grounds[.]”

As support for this purported distinction between a “merits-based” dismissal or a

dismissal on procedural grounds, the defendants selectively quote dicta from Cain v.

Midland Funding, LLC, 475 Md. 4 (2021). The plaintiff in that case contended that the

statute of limitations for his claims against a consumer debt buyer had been tolled while

he was a putative member of an earlier class action in federal district court. Id. at 53.

The Court concluded that the statute of limitations had been tolled under Maryland’s

cross-jurisdictional tolling doctrine. Id. at 69. In light of that conclusion, the Court

declined to address an alternative argument that 28 U.S.C. § 1367(d) also provided

tolling. Id. at 69-70. The Court stated: “Given our holding that Maryland recognizes

cross-jurisdictional class action tolling, we do not need to determine whether the federal

supplemental jurisdiction statute, § 1367(d), applies to later filed individual claims after a

non-merits dismissal of class action certification.” Id. at 70. In a footnote, the Court

added that Artis v. District of Columbia, 583 U.S. 71 (2018), the leading opinion to

analyze the meaning of § 1367(d), “does not address the applicability of the supplemental

jurisdiction statute to a non-merits dismissal of class action certification.” Cain v.

Midland Funding, LLC, 475 Md. at 70 n.31.

Contrary to the defendants’ arguments, Cain neither holds nor suggests that the

tolling under 28 U.S.C. § 1367(d) requires a “merits-based dismissal[].” The Cain

opinion merely identified an unresolved issue: the existing precedent did not address how

28 U.S.C. § 1367(d) might apply where the plaintiff previously participated as a putative

class member of a class action, which was dismissed by a federal district court. This

32 observation might have some significance here if the shareholders were seeking to apply

§ 1367(d) based on their participation as putative members in a class action in federal

district court. The present circumstances have nothing to do with prior participation in a

class action.

In one of the appellate briefs, some defendants argue that, in order for 28 U.S.C. §

1367(d) to provide tolling, “there must be . . . an earlier action in which a federal court

exercised federal supplemental jurisdiction” over substantially the same state-law claims.

(Emphasis added.) Those defendants argue that the tolling provision should not apply

here because, in their view, the district court “did not exercise supplemental jurisdiction

over [the shareholders’] breach of fiduciary duty claim[s]” when it dismissed those

claims on inconvenient forum grounds. (Emphasis in original.)

The theory that 28 U.S.C. § 1367(d) applies only after a federal district court

“exercise[s]” supplemental jurisdiction prior to a dismissal lacks support in the statutory

language or case law. The tolling provision includes no requirement that the district

court must first “exercise” jurisdiction over a state-law claim, whatever that requirement

might entail. As the defendants themselves recognize, it is beyond dispute that

subsection (d) of section 1367 requires tolling when the district court “decline[s] to

exercise” supplemental jurisdiction on one of the grounds listed in subsection (c). E.g.,

Artis v. District of Columbia, 583 U.S. at 77; Turner v. Kight, 406 Md. at 169-70.

Accordingly, an additional requirement that tolling necessitates some “exercise” of

supplemental jurisdiction would make little sense.

At oral argument in this case, the defendants acknowledged the lack of authority

33 holding that 28 U.S.C. § 1367(d) denies tolling when a district court dismisses an action

on forum non conveniens grounds. The defendants nevertheless cited Holt v. County of

Orange, 91 F.4th 1013 (9th Cir. 2024), in support of their position. In that opinion, the

Ninth Circuit held that a plaintiff’s “voluntary dismissal of a supplemental state-law

claim does not trigger tolling under § 1367(d).” Id. at 1019. 13 The court relied on the 12F

“‘well settled’” principle that “a voluntary dismissal generally does not toll the statute of

limitations for the dismissed claims for the period during which those claims were

pending.” Id. at 1020 (quoting 9 Wright & Miller’s Federal Practice and Procedure §

2367 (4th ed. 2023)). The court was “unwilling to conclude that § 1367(d) abrogated

such an entrenched legal rule absent a clear indication that Congress meant to do so.” Id.

For similar reasons, the Holt court held that a dismissal of a supplemental claim on

the ground of improper joinder does not trigger the tolling effect of 28 U.S.C. § 1367(d).

Id. at 1021. The court reasoned that, “as with voluntary dismissals, it is well established

that dismissal of a party for improper joinder does not toll the statute of limitations for the

period that party’s claims were pending before the dismissal.” Id. The court reasoned

“that § 1367(d) does not abrogate this settled rule just as it does not abrogate the rule that

claims are not tolled by voluntary dismissals.” Id.

The reasoning of Holt is inapplicable to circumstances in which a district court

dismisses an action under the doctrine of forum non conveniens. The defendants have

13 Other courts have concluded that a 28 U.S.C. § 1367(d) does provide tolling upon a voluntary dismissal of a supplemental claim. Blinn v. Florida Dep’t of Transp., 781 So. 2d at 1108; Naragon v. Dayton Power & Light Co., 934 F. Supp. 899, 902 (S.D. Ohio 1996).

34 not identified any principle, well-settled or otherwise, which forbids tolling when a court

dismisses a claim on inconvenient forum grounds. Thus, interpreting subsection (d) to

include this type of dismissal does not require the abrogation of any entrenched principle.

Tolling under those circumstances poses no conflict with the policies underlying the

forum non conveniens doctrine, because any forum non conveniens dismissal

presupposes that the plaintiff may reinstate the claims in an “alternative forum.” See,

e.g., Piper Aircraft Co. v. Reyno, 454 U.S. 235, 254 n.22 (1981). Indeed, when the

defendants asked the district court for a dismissal on inconvenient forum grounds, they

asserted: “This case, if brought at all, belongs in Maryland.” Moreover, the purposes of

the statute of limitations were fulfilled under the circumstances, because all defendants

received adequate notice of the claims through the timely action in federal court. See

Puetz v. Spectrum Health Hosps., 919 N.W.2d at 447-48. 14 13F

In summary, we see no error in the circuit court’s conclusion that 28 U.S.C. §

1367(d) tolled the period of limitations for the shareholders’ claims for breach of

fiduciary duty while those claims were pending in federal district court and for 30 days

after that court’s dismissal of those claims. By operation of this tolling provision, the

14 At oral argument, the defendants also theorized that a plaintiff should not gain the benefit of 28 U.S.C. § 1367(d) if a federal district court dismisses an action based on what the defendants call “procedural inadequacies” in the pleadings. This theory lacks support in Holt v. County of Orange or other case law. In any event, it is incorrect to suggest that the district court’s forum non conveniens determination, enforcing the forum-selection clauses invoked by the defendants, means that there was some “inadequac[y]” in the pleadings. Cf. Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49, 59 (2013) (explaining that “a forum-selection clause does not render venue in a court ‘wrong’ or ‘improper’ within the meaning of” provisions governing venue).

35 breach-of-fiduciary-duty claims were timely in the circuit court. The defendants were not

entitled to a dismissal based on the statute of limitations. 15 14F

II. Pre-Suit Demand Requirement and the Futility Exception

As the central issue in this appeal, the shareholders contend that the circuit court

erred when it dismissed the derivative action on the ground that the shareholders failed to

make a pre-suit demand upon the Board. The shareholders argue that their allegations

were sufficient to establish that they were excused from the demand requirement.

This Court reviews the grant of a motion to dismiss, without deference, to

determine whether the ruling was legally correct. Oliveira v. Sugarman, 451 Md. 208,

219 (2017). When evaluating a motion to dismiss, courts “‘must assume the truth of all

relevant and material facts that are well pleaded and all inferences which can reasonably

be drawn from those pleadings.”” Wheeling v. Selene Fin. LP, 473 Md. 356, 374 (2021)

(quoting Barclay v. Castruccio, 469 Md. 368, 373-74 (2020)). Nevertheless, “ambiguity

or uncertainty in the allegations” generally “must be construed against the pleader.”

Shenker v. Laureate Educ., Inc., 411 Md. 317, 335 (2009). “Mere conclusory charges

that are not factual allegations need not be considered.” Id. An action should be

dismissed where “the allegations and permissible inferences, if true, still fail” to establish

that the plaintiff is entitled to relief. Oliveira v. Sugarman, 451 Md. at 219-20.

15 No party has addressed the potential effect of the administrative orders through which Maryland tolled the statutes of limitations for civil actions while courts were closed to the public as an emergency measure in response to the COVID-19 pandemic. See generally Murphy v. Liberty Mut. Ins. Co., 478 Md. 333, 350-62 (2022); Matter of Hosein, 484 Md. 559, 563-69 (2023) (per curiam). Accordingly, our opinion does not analyze that issue.

36 Under the Maryland General Corporation Law, “[a]ll business and affairs of a

corporation” are “managed by or under the direction of a board of directors.” Md. Code

(1975, 2014 Repl. Vol.), § 2-401(a) of the Corporations and Associations Article (Corps.

& Ass’ns). Except for certain powers expressly reserved to stockholders, “[a]ll powers of

the corporation” are “exercised by or under the authority of the board of directors[.]”

Corps. & Ass’ns § 2-401(b). “Shareholders are not ordinarily permitted to interfere in the

management of the company; they are the owners of the company but not its managers.”

Werbowsky v. Collomb, 362 Md. 581, 599 (2001). Like other business decisions, the

decision of whether a corporation should pursue litigation ordinarily rests with the

directors or officers appointed by the directors. Id. Thus, as a general rule, “‘an action at

law to recover damages for an injury to a corporation can be brought only in the name of

the corporation itself acting through its directors, and not by an individual stockholder

[even] though the injury may incidentally result in diminishing or destroying the value of

the stock.’” Eastland Food Corp. v. Mekhaya, 486 Md. 1, 37 (2023) (quoting Waller v.

Waller, 187 Md. 185, 189 (1946)).

Shareholders ordinarily may not use the courts to override business decisions

made by the directors of the corporation. See Boland v. Boland, 423 Md. 296, 328

(2011). Courts recognize a “‘presumption that in making a business decision the

directors of a corporation acted on an informed basis, in good faith and in the honest

belief that the action taken was in the best interests of the company.’” Id. (quoting

Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)). This principle, known as the business

judgment rule, is codified in section 2-405.1 of the Corporations and Associations

37 Article. Under this provision, directors owe the corporation a duty to “act: (1) [i]n good

faith; (2) [i]n a manner the director reasonably believes to be in the best interests of the

corporation; and (3) [w]ith the care that an ordinarily prudent person in a like position

would use under similar circumstances.” Corps. & Ass’ns § 2-405.1(c). “An act of a

director of a corporation is presumed to be in accordance” with this standard of conduct.

Corps. & Ass’ns § 2-405.1(g). Directors are immune from liability for acts taken in

accordance with this standard. Corps. & Ass’ns § 2-405.1(e).

A derivative action is “‘an extraordinary equitable device’” through which

shareholders, in certain circumstances, may “‘enforce a corporate right that the

corporation failed to assert on its own behalf.’” Mona v. Mona Elec. Grp., Inc., 176 Md.

App. 672, 698 (2007) (quoting Werbowsky v. Collomb, 362 Md. at 599). The derivative

form of action “is essentially a suit by the shareholders to compel the corporation to sue

and, simultaneously, a suit by the corporation” against one or more defendants. George

Wasserman & Janice Wasserman Goldsten Family LLC v. Kay, 197 Md. App. 586, 610

(2011) (citing Werbowsky v. Collomb, 362 Md. at 599). “Because a derivative lawsuit

intrudes upon the board of directors’ managerial control of the corporation, shareholders

are required to first make a demand that the board take action before initiating a

derivative suit[,]” unless that requirement is lawfully excused. Oliveira v. Sugarman, 451

Md. at 223 (citing Werbowsky v. Collomb, 362 Md. at 600). The purpose of the demand

requirement “‘is to afford the directors an opportunity to exercise their reasonable

business judgment’” to decide whether the corporation should bring suit. Id. (quoting

Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 96 (1991)).

38 “Once demand is made, the corporation’s board of directors must conduct an

investigation into the allegations in the demand and determine whether pursuing the

demanded litigation is in the best interests of the corporation.” Shenker v. Laureate

Educ., Inc., 411 Md. at 344. Commonly, the board will appoint a special litigation

committee of independent directors to decide whether the corporation should pursue the

litigation. Boland v. Boland, 423 Md. at 332. If the board refuses the demand, the

shareholder may bring “a ‘demand refused’ action.” Shenker v. Laureate Educ., Inc., 411

Md. at 344 (quoting Bender v. Schwartz, 172 Md. App. 648, 666 (2007)). “The corporate

board’s decision to deny the litigation demand receives the same business judgment rule

presumption as any other board decision.” Oliveira v. Sugarman, 451 Md. at 223. Thus,

in order to establish the right to proceed in the derivative action, the shareholder must

overcome the presumption that the decision was the product of business judgment. Id.

“Traditionally, another way” for a shareholder to pursue a derivative action “was

to bring a ‘demand excused’ action.” Boland v. Boland, 423 Md. at 331 n.25. The most

authoritative opinion concerning this narrow exception to the demand requirement under

Maryland law is Werbowsky v. Collomb, 362 Md. 581 (2001).

In Werbowsky, the Court explained that in Maryland, as in most other states,

courts developed a pre-suit demand requirement for derivative actions, subject to the

exception “‘that no such prior demand is required when it would be futile.’” Werbowsky

v. Collomb, 362 Md. at 601-02 (quoting Parish v. Maryland & Virginia Milk Producers

Ass’n, 250 Md. 24, 82 (1968)). The Court recognized a nationwide trend over the

preceding decades “to enforce more strictly the requirement of pre-suit demand and at

39 least to circumscribe, if not effectively eliminate, the futility exception.” Id. at 607.

In particular, the Court explained, both the American Bar Association (ABA) and

the American Law Institute (ALI) had proposed model legislation that would eliminate

the futility exception. Id. at 611-14. Recommending a universal demand requirement,

the ABA and ALI emphasized the purposes served by a demand, the relatively minimal

burden of making a demand, and the costs of threshold litigation concerning whether

demand was excused. Id. at 612-13. Influenced by those proposals, many states had

established a universal demand requirement by legislation, while one state had created a

universal demand requirement by judicial decision. Id. at 614-15. The Court announced:

“There is much to be said for the ABA/ALI approach, but . . . we are not prepared, at this

point, to engraft it as part of our common law.” Id. at 617. The Court reasoned that,

because those proposals represented “a radical departure from [Maryland’s] current

common law,” those proposals should be enacted, if at all, through the legislative process

rather than through litigation. Id. at 618.

The Werbowsky Court nevertheless expressed substantial agreement with the

policy of requiring demand for nearly every derivative action. The Court stressed that the

“demand requirement is important.” Id. (emphasis in original). The Court stated that the

“control of corporate affairs” by directors “should not be impinged based on non-specific

or speculative allegations of wrongdoing.” Id. at 619. The Court also stated that neither

directors nor corporations “should . . . be put unnecessarily at risk by minority

shareholders bent simply on mischief, who file derivative actions not to correct abuse as

much to coerce nuisance settlements.” Id. The Court “agree[d] . . . with the ABA/ALI

40 that, in most cases, a pre-suit demand on the directors is not an onerous requirement.” Id.

The Court stated that a pre-suit demand “gives the directors—even interested, non-

independent directors—an opportunity to consider, or reconsider, the issue in dispute.”

Id. The Court opined that the “futility exception essentially eliminates any chance at

meaningful pre-litigation alternative dispute resolution[,]” and “virtually assures

extensive and expensive judicial wrangling over a peripheral issue that may result in

preliminary determinations regarding director culpability that, after trial on the merits,

turn out to be unsupportable.” Id.

Although the Werbowsky Court declined to eliminate the futility exception, the

Court “adopted” a new “standard” for assessing futility. Id. at 622. The Court declared

that demand should not be excused “simply because a majority of the directors approved

or participated in some way in the challenged transaction or decision, or on the basis of

generalized or speculative allegations that they are conflicted or are controlled by other

conflicted persons, or because they are paid well for their services as directors, were

chosen as directors at the behest of controlling stockholders, or would be hostile to the

action.” Id. at 618. The Court concluded:

We adhere, for the time being, to the futility exception, but, consistent with what appears to be the prevailing philosophy throughout the country, regard it as a very limited exception, to be applied only when the allegations or evidence clearly demonstrate, in a very particular manner, either that (1) a demand, or a delay in awaiting a response to a demand, would cause irreparable harm to the corporation, or (2) a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule.

Id. at 620.

41 The Court has explained that “[t]his exception to the demand requirement is quite

narrow and does not encompass every instance in which a majority of the board of

directors is interested.” Oliviera v. Sugarman, 451 Md. at 229. “A director that expects

to derive a personal benefit from a corporate transaction—and is therefore not

disinterested—is not necessarily ‘so personally and directly conflicted or committed to

the decision in dispute that [the director] cannot reasonably be expected to respond to a

demand in good faith and within the ambit of the business judgment rule.’” Id. (quoting

Werbowsky v. Collomb, 362 Md. at 620). In other words, the demonstrated conflict or

commitment should be so substantial that it would “cause[] [the directors] to reject a

demand for [a] reason not within the ambit of the business judgment rule.” Werbowsky v.

Collomb, 362 Md. at 622.

In sum, although the Werbowsky opinion did not “yet . . . close the door” on the

futility exception (Boland v. Boland, 423 Md. at 331 n.25), the Court substantially

narrowed the scope of the exception. See Oliveira v. Sugarman, 226 Md. App. 524, 542

n.11 (2016) (stating that “demand is excused only in very extreme circumstances”), aff’d,

451 Md. 208 (2017); Danielewicz v. Arnold, 137 Md. App. 601, 632-33 (2001) (stating

that the futility exception “should not be lightly accepted”); see also Gordon v. Sznewajs,

357 F. Supp. 3d 1009, 1019 n.9 (C.D. Cal. 2018) (stating that “[t]he Maryland demand

requirement is strictly construed and frequently leads to the dismissal of derivative

actions”) (citation and internal quotation marks omitted). Under Werbowsky, “the

demand requirement . . . is near universal[.]” James J. Hanks, Jr., Maryland Corporation

Law § 7.22(C), at 7-90 (2d ed. 2020). Courts applying the Werbowsky standard “have

42 rarely held demand on the board futile.” Id. § 7.22(C), at 7-81 n.309. In the present case,

the shareholders have cited no published opinion in which any court applying the

Werbowsky standard determined that a demand upon the board of directors would have

been futile. 16 15F

Although the defendants contend that this derivative action does not qualify under

the narrow futility exception, the defendants also argue that it is unnecessary for this

Court to address the futility issue. The defendants observe that, a few weeks after the

circuit court dismissed the derivative action, the shareholders sent a demand letter asking

the Board to seek recovery on behalf of the Funds for the alleged breaches of fiduciary

duty by Tortoise and the Directors. A few months later, counsel for the Demand Review

Committee notified the shareholders that the Committee had rejected the litigation

demand. Shortly thereafter, the shareholders initiated a separate action in the Circuit

Court for Baltimore City, reasserting their derivative claims and alleging that the Board

wrongfully refused the demand.

In this appeal, the defendants contend that, by making a litigation demand after the

16 In their appellate brief, the shareholders cite Trasatti v. Trasatti, 2018 WL 2750266 (Md. Ct. Spec. App. June 7, 2018) (unreported). An unreported opinion of this Court may be cited as persuasive authority only if it was “issued on or after July 1, 2023[,]” and “only if no reported authority adequately addresses an issue before the court.” Md. Rule 1-104(a)(2)(B). Because the cited opinion was issued before July 2023, it does not constitute persuasive authority. See Md. Rule 1-104(a) (2022). In any event, the opinion cited by the shareholders is inapposite. “Unlike in Werbowsky (and many shareholder derivative actions), where there is a corporate board comprised of interested and disinterested directors,” the cited case involved a partnership “controlled entirely by” two general partners alleged to have engaged in self-dealing to the detriment of the limited partners. Trasatti v. Trasatti, 2018 WL 2750266, at *12.

43 dismissal of their derivative action, the shareholders have “moot[ed]” their claim that

they were excused from the demand requirement. According to the defendants, any

decision concerning demand futility would amount to an impermissible “advisory

opinion.” The defendants argue this Court should either dismiss the appeal on the ground

of mootness or affirm the judgment because the Board has already rejected the demand.

In reply, the shareholders argue that their demand “was not a waiver” of their

allegations “that the Board cannot fairly consider a demand[.]” The shareholders assert

that, when they made the demand, they “did not concede that the Board members were

capable of impartially considering a demand in good faith.” The shareholders assert that

they “made the demand solely to preserve the Funds’ rights pending the outcome of this

appeal.”

“A question presented on appeal is moot ‘if, at the time it is before the court, there

is no longer any existing controversy between the parties, so that there is no longer an

effective remedy which the court can provide.’” Sugarloaf All., Inc. v. Frederick County,

265 Md. App. 199, 227 (2025) (quoting Syed v. Lee, 488 Md. 537, 578 (2024)) (further

citation and quotation marks omitted). “In other words, an issue is moot where ‘past

facts and occurrences have produced a situation in which, without any future action, any

judgment or decree the court might enter would be without effect.’” Id. (quoting La

Valle v. La Valle, 432 Md. 343, 351 (2013)) (further citation and quotation marks

omitted). Using these formulations, it is difficult to envision how the issue of whether

the shareholders are excused from the demand requirement in this action might be

characterized as moot.

44 As the basis for their mootness argument, the defendants rely on Stotland v. GAF

Corp., 469 A.2d 421 (Del. 1983) (per curiam). In that case, after a trial court had

dismissed a derivative action, one of the plaintiffs made a litigation demand upon the

board of directors. Id. at 422. At the same time, the plaintiffs also appealed from the

dismissal. Id. The Supreme Court of Delaware concluded that the issues presented in the

appeal “ha[d] been rendered moot by the demand made” upon the board. Id. at 423. The

court stated that “the effect of such demand is to place control of the litigation in the

hands of the . . . directors.” Id. at 422. The court relied on its own precedent holding

“that once a demand has been made, absent a wrongful refusal, the stockholders’ ability

to initiate a derivative suit is terminated.” Id. (citing Zapata Corp. v. Maldonado, 430

A.2d 779, 784-86 (Del. 1981)). The court further concluded that, because the board had

not yet considered the demand, “[a]ny claim of a wrongful refusal by [the directors] to

consider the demand” was premature. Id. at 423. The court dismissed the appeal and

remanded the case with instructions for the trial court to retain jurisdiction pending the

board’s decision concerning the demand. Id.

Although the Stotland opinion stated that the issue of whether demand was

excused becomes “moot” when a shareholder makes a demand, subsequent Delaware

opinions have treated a shareholder’s demand as a waiver of the claim that demand was

excused. In Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990), the court stated that “[a]

shareholder who makes a demand can no longer argue that demand is excused.” Id. at

775 (citing Stotland v. GAF Corp., 469 A.2d at 423). According to the court: “By

making a demand, a stockholder tacitly acknowledges the absence of facts to support a

45 finding of futility.” Id. A later opinion explained this holding as follows: “If a demand is

made, the stockholder has spent one . . . ‘arrow’ in the ‘quiver.’ The spent ‘arrow’ is the

right to claim that demand is excused.” Grimes v. Donald, 673 A.2d 1207, 1218-19 (Del.

1996). In other words, under Delaware law, “[i]f the stockholders make a demand, . . .

they are deemed to have waived any claim they might otherwise have had that the board

cannot independently act on the demand.” Scattered Corp. v. Chicago Stock Exch., Inc.,

701 A.2d 70, 74 (Del. 1997).

As the defendants acknowledge, Maryland appellate courts “have not yet

considered the effect of a post-suit demand” on a pending action alleging that demand

was excused. Nevertheless, this Court favorably discussed the Delaware Supreme

Court’s waiver holding in Bender v. Schwartz, 172 Md. App. 648 (2007). In that case,

plaintiffs appealed after a trial court rejected their claim that two corporate boards had

wrongfully refused a litigation demand. Id. at 663. Describing the standards applicable

to the action, this Court stated: “By making a demand, the shareholder(s) ‘are deemed to

have waived any claim they might otherwise have had that the board cannot

independently act on the demand.’” Id. at 666 (emphasis in original) (quoting Scattered

Corp. v. Chicago Stock Exch., Inc., 701 A.2d at 74); see also Mona v. Mona Elec. Grp.,

Inc., 176 Md. App. 672, 700 (2007) (quoting Bender v. Schwartz, 172 Md. App. at 666).

The Court further stated: “To the extent [the plaintiffs] are now claiming that the [special

demand committees] were not capable of acting independently, the claim was waived by

making demands on the boards.” Bender v. Schwartz, 172 Md. App. at 667 n.2 (citing

Scattered Corp. v. Chicago Stock Exch., Inc., 701 A.2d at 74).

46 As the defendants point out, at least one court has interpreted Bender v. Schwartz

as an endorsement of Delaware law concerning the effect of a demand. See In re Regions

Morgan Keegan Sec., Derivative, ERISA Litig., 742 F. Supp. 2d 917, 923 (W.D. Tenn.

2010) (citing Bender v. Schwartz for the proposition that “Maryland law follows

Delaware law and prohibits a party from simultaneously pleading that demand was made

and that it is excused”). Nevertheless, in a case decided after Bender v. Schwartz,

Maryland’s highest court cast doubt on the notion that, whenever the shareholder makes a

demand, the shareholder necessarily concedes that the board is capable of acting

independently on the demand.

In Boland v. Boland, 423 Md. 296 (2011), an appeal concerning the grant of

summary judgment in a demand refusal action, the Court commented on the “narrowing”

of the futility exception. Id. at 331 n.25. The Court observed: “Under Werbowsky, a

demand on the board may be required, or at least advisable, even though the board itself

may not be in a position to render the decision itself, due to the nature of the allegations

or the existence of adverse interests.” Id. The Court further noted: “Indeed, one

justification for the expanded demand requirement is to give the corporation an

opportunity to engage [a special litigation committee].” Id. The Court concluded:

Because courts have encouraged derivative plaintiffs to file such a demand, including in cases where the Board may find it advisable to appoint [a special litigation committee], see Werbowsky, 362 Md. at 619, . . . it is clear that the derivative plaintiff may continue to contest the independence of the board members after filing such a demand, and should not be prejudiced by that choice.

Id.

47 To our understanding, the Boland Court reasoned that, because Maryland’s

demand requirement has become so narrow, and because it has become common practice

to refer demands to a special committee, derivative plaintiffs are either required to or can

reasonably be expected to make a demand even if they firmly believe that the directors

themselves cannot fairly consider the demand. Boland then establishes that, under

Maryland law, a “derivative plaintiff may continue to contest the independence of the

board members after” making a demand “and should not be prejudiced by th[e] choice”

to make a demand. Id. These propositions are in some tension with the statement that,

“[b]y making a demand, the shareholder(s) ‘are deemed to have waived any claim they

might otherwise have had that the board cannot independently act on the demand.’”

Bender v. Schwartz, 172 Md. App. at 666 (emphasis in original) (quoting Scattered Corp.

v. Chicago Stock Exch., Inc., 701 A.2d at 74).

In light of Boland, we will proceed on the assumption that, when the shareholders

made a demand upon the Board, the shareholders did not waive their previously asserted

claim that demand was excused. Accordingly, we decline to dismiss the appeal on the

ground of mootness.

In this appeal, the shareholders contend that the circuit court erred when it

determined that the shareholders were not excused from the demand requirement. The

shareholders argue that the Court misconstrued and misapplied the Werbowsky standard

and failed to assume the truth of all factual allegations and reasonable inferences drawn

from those allegations. The shareholders argue that they “alleged particularized facts

demonstrating that a majority of the Board could not be reasonably expected to consider a

48 demand in good faith and within the ambit of the business judgment rule.”

As their most prominent argument in support of futility, the shareholders assert

that the Directors “would be conflicted in considering a demand” because they “would

face potential personal liability” for the alleged damages. The shareholders assert that,

by law, directors cannot be indemnified for liability resulting from recklessness or gross

negligence. The shareholders note that their complaint included allegations of reckless or

grossly negligent conduct by the Directors. The shareholders also note that the alleged

damages, based on investment losses exceeding $1 billion, are considerable. The

shareholders argue that “the prospect of material (to put it mildly) personal liability”

certainly would affect the Directors’ “willingness to consider, in good faith, a demand to

pursue litigation against themselves.”

As the defendants point out, courts applying the Werbowsky standard have

concluded that naming directors as defendants, establishing that the directors face the

potential for personal liability, or establishing that the directors may lack insurance

coverage will not suffice to demonstrate that demand would be futile. See Gomes v.

American Century Cos., 710 F.3d 811, 817 (8th Cir. 2013) (rejecting argument that

investment fund fiduciaries “could not fairly consider a demand because they were

responsible for the [f]unds’ illegal actions and w[ould] be liable if [the] claim

succeed[ed]”); Weinberg ex rel. BioMed Realty Trust, Inc. v. Gold, 838 F. Supp. 2d 355,

359-61 (D. Md. 2012) (rejecting argument that demand was futile based on allegation

that the directors were “interested in the outcome of the litigation because each one

face[d] a substantial likelihood of liability”); Seidl v. American Century Cos., 713 F.

49 Supp. 2d 249, 260-61 (S.D.N.Y. 2010) (concluding that “demand is not excused under

Maryland law based on a plaintiff’s speculation” that the directors “would be forced to

sue themselves” or based on a “conclusory allegation that [the] directors w[ould] be

exposed to civil and criminal liability”), aff’d, 427 Fed. App’x 35 (2d Cir. 2011); In re

Regions Morgan Keegan Sec., Derivative, ERISA Litig., 694 F. Supp. 2d 879, 887-88

(W.D. Tenn. 2010) (concluding that allegations establishing the “lack of insurance

coverage” for the directors or allegations that the directors “might have to sue themselves

or other directors” are not enough to establish futility).

“‘It is no answer to say that demand is necessarily futile because . . . the directors

would have to sue themselves, thereby placing the conduct of the litigation in hostile

hands[.]’” Oliviera v. Sugarman, 226 Md. App. at 544 (quoting Brehm v. Eisner, 746

A.2d 244, 257 n.34 (Del. 2000)). As one court has explained, the purposes of the demand

requirement “would be nullified in every shareholders’ derivative suit that named

directors as defendants if simply naming them as parties provided [an] excuse for pre-suit

demand.” Weinberg ex rel. BioMed Realty Trust, Inc. v. Gold, 838 F. Supp. 2d at 360-61.

Indeed, “[n]o Maryland court has held after Werbowsky that demand was excused

because the directors participated in the transaction giving rise to the claim and might be

personally liable if the claim succeeded.” Gomes v. American Century Cos., 710 F.3d at

817. This outcome is consistent with the directive that demand is not excused “simply

because a majority of the directors approved or participated in some way in the

challenged transaction or decision[.]” Werbowsky v. Collomb, 362 Md. at 618.

The shareholders seek to differentiate their action from this line of authority by

50 asserting that their allegations against the directors are “extensive” and that the potential

for liability here is “significant” for the directors. The relevant case law does not support

a distinction between actions with a substantial potential of personal liability for

directors, as opposed to the mere potential of some personal liability. Moreover, creating

such a distinction would require or invite courts to evaluate the merits of the underlying

claims against the directors. Yet the Werbowsky formulation is designed to “focus[] the

court’s attention on the real, limited, issue—the futility of a pre-suit demand—and

avoid[] injecting into a preliminary proceeding issues that go more to the merits of the

complaint[.]” Id. at 620. Thus, “Werbowsky implicitly disallows consideration of the

merits of the case in analyzing demand futility.” Weinberg ex rel. BioMed Realty Trust,

Inc. v. Gold, 838 F. Supp. 2d at 361. Courts need not and should not evaluate “whether a

director faces a likelihood of liability” when deciding the discrete issue of whether

demand would be futile. Gordon v. Sznewajs, 357 F. Supp. 3d at 1019 n.9 (rejecting

argument that shareholder could establish futility by alleging that directors faced a

substantial likelihood of liability).

The shareholders point to pre-Werbowsky opinions in support of their position that

potential personal liability should be considered when assessing whether demand upon

the directors would be futile. The shareholders assert that it is “useless” to require

demand where “the directors, or officers of a corporation having the authority to direct its

litigation, are themselves guilty of the wrong complained of” and where acceding to the

demand would require “the perpetrators of the wrong to conduct a litigation against

themselves.” Davis v. Gemmell, 70 Md. 356, 376 (1889). The shareholders also cite

51 Parish v. Maryland and Virginia Milk Producers Ass’n, 250 Md. 24, 83-84 (1968), in

which the Court determined that shareholders were excused from making a demand

where the shareholders stated causes of action against the directors and alleged that the

majority of the directors had participated in the alleged wrongdoing.

The pre-Werbowsky opinions cited by the shareholders are no longer controlling.

The Werbowsky opinion thoroughly examined the opinions cited by the shareholders (see

Werbowsky v. Collomb, 362 Md. at 604, 606-07), but ultimately established a more

demanding standard for futility. See Danielewicz v. Arnold, 137 Md. App. at 630

(concluding that “any liberal approach” to demand futility “suggested in Parish has

certainly become more stringent as a result of the [Court’s] decision in Werbowsky”).

The Werbowsky opinion effectively “repudiated” the prior case law under which a

shareholder could establish futility by alleging that a majority of the directors participated

in the alleged wrongdoing and might be personally liable. Gomes v. American Century

Cos., 710 F.3d at 817. Even if the potential for personal liability on the part of the

directors might have been enough under the pre-Werbowsky standards, it no longer

supports a finding of futility.

In addition to arguing that the Directors are “conflicted” because they face a risk

of personal liability, the shareholders argue that the Directors are “committed” to

decisions that the shareholders dispute. As the shareholders recognize, the Werbowsky

formulation focuses on a specific type of commitment. It recognizes that demand might

be considered futile where the allegations clearly demonstrate that the majority of

directors are “so personally and directly conflicted or committed to the decision in dispute

52 that they cannot reasonably be expected to respond to a demand in good faith and within

the ambit of the business judgment rule.” Werbowsky v. Collomb, 362 Md. at 620

(emphasis added).

In their arguments, the shareholders provide little clarity on which decisions are in

dispute in this action. The pleadings call into dispute the decisions that allegedly caused

the Funds’ downturn in early 2020: the Board’s alleged decisions to permit Tortoise to

engage in reckless use of leverage as the investment advisor for the Funds. In arguing

that the Directors have demonstrated their “commitment” to disputed decisions, the

shareholders focus on “after-the-fact” decisions, i.e., decisions made after the value of the

Funds collapsed in early 2020. The shareholders argue that the Directors’ “post-crash

conduct” demonstrates that they are “irrevocably committed to avoiding accountability

for themselves or Tortoise for the reckless mismanagement and oversight failures that

caused the Funds’ losses.”

As purported proof of this type of commitment, the shareholders assert that, after

the value of the Funds declined in early 2020, the Board “repeatedly rehired” Tortoise as

the investment advisor for the Funds and “repeatedly stated” that Tortoise’s performance

justified renewal of the contracts. In our assessment, this conduct fails to demonstrate

any kind of irrevocable commitment. Like the decision to engage Tortoise before 2020,

the Board’s decision to renew the advisory contracts in 2020 was a business decision

entrusted to the Board. The Board’s statements that it considered the “quality” of

Tortoise’s services, including Tortoise’s “handling of the leverage target,” are at least

facially consistent with an exercise of business judgment. Virtually any time a corporate

53 board announces a business decision, one can expect the board to make favorable

statements about its own decision. Statements of this kind demonstrate the ordinary

degree of support that one would expect for any decision by a corporate board, not the

type of extraordinary commitment that might establish that the board is incapable of

considering or reconsidering a disputed matter.

The shareholders take issue with the Board’s decisions to retain Tortoise as

investment advisor for the Funds in 2020 and thereafter. The shareholders characterize

Tortoise’s management of the Funds as “egregious” and assert that the Board’s

evaluation of Tortoise went “against all objective facts[.]” Because these assertions

involve the merits of the underlying claims regarding the Funds’ collapse in value, they

cannot be considered when evaluating whether demand would be futile. See Weinberg ex

rel. BioMed Realty Trust, Inc. v. Gold, 838 F. Supp. 2d at 361; see also Gordon v.

Sznewajs, 357 F. Supp. 3d at 1019 n.9.

The shareholders assert that the Directors also demonstrated their commitment to

the disputed decisions by enacting amended bylaws in October 2020. According to the

pleadings, the amended bylaws restricted a shareholder’s ability to nominate new

directors and diminished shareholder voting rights in violation of the Investment

Company Act of 1940. The shareholders acknowledged that, at the time of that decision,

the Board announced that the purpose of the amended bylaws “was to protect ‘long-term

value for stockholders[.]’” The shareholders nevertheless alleged, in a conclusory

fashion, that the true purpose of the amended bylaws was to frustrate potential efforts to

replace the Directors after the value of the Funds collapsed earlier that year.

54 The shareholders’ allegations concerning the amended bylaws are too speculative

to “clearly demonstrate, in a very particular manner,” that the Directors are committed to

a decision in dispute. Werbowsky v. Collomb, 365 Md. at 620. Even if one or more

provisions of the amended bylaws violated federal law, the decision to enact the amended

bylaws is immaterial unless it has some particular connection to the decisions disputed in

this action. See Gordon v. Sznewajs, 357 F. Supp. 3d at 1018 (explaining that, to satisfy

the Werbowsky standard, the allegations must demonstrate a director’s “commitment not

to ‘wrongdoing’ generally, but to ‘the decision in dispute’”). As described in the

pleadings, the amended bylaws were provisions of general applicability, without any

direct connection to disputed decisions involving Tortoise, the use of leverage by the

Funds, or a potential suit against Tortoise. Although the shareholders theorize that the

Directors amended the bylaws “to insulate themselves and Tortoise from shareholders,”

the shareholders fail to identify particularized facts in support of their theory. This sort of

“conjecture and speculation” is insufficient to meet the Werbowsky standard.

Danielewicz v. Arnold, 137 Md. App. at 631.

The shareholders also assert that the Board demonstrated a “commitment to do

nothing about the challenged conduct” by failing to pursue legal action after the Funds

declined in value in early 2020. The shareholders argue that the Board’s failure to

“investigate or evaluate the potential claims” demonstrates the Directors’ “commitment

to shielding themselves and Tortoise from shareholder accountability[.]”

Contrary to these arguments, board inaction is an unremarkable factual allegation

in a derivative complaint. By definition, a shareholder derivative action is an attempt to

55 assert a right that the corporation failed to assert on its own behalf. Werbowsky v.

Collomb, 362 Md. at 599. Allegations that directors did not “s[eek] recovery of the

amounts” that the shareholders “believe[] ought to be recovered[,]” or that directors

“exhibited antipathy” towards a potential lawsuit by “failing to rescind” a disputed

decision when given the opportunity to do so, are not sufficient to excuse demand.

Weinberg ex rel. BioMed Realty Trust, Inc. v. Gold, 838 F. Supp. 2d at 362. Here, the

fact that the Directors “took no legal action” for more than two years after the Funds

declined in value “does not suggest that the directors were so committed to the decision

not to bring suit that they could not respond in good faith to a demand.” Seidl v.

American Century Cos., 713 F. Supp. 2d at 259.

The shareholders nevertheless argue that the Board’s inaction is notable because,

according to the shareholders, the Directors “were aware of potential claims arising out of

the Funds’ collapse” long before the derivative suit. The shareholders point to their

allegation that, in June 2021, they “served inspection demands seeking documents and

information regarding the Funds’ mismanagement and collapse.” The shareholders also

point to their allegation that, in July 2022, a third-party investment fund manager “sent a

letter to the Board requesting to discuss the potential for purchasing the Funds’ claims

against Tortoise in exchange for a cash payment to the Funds and a portion of the

ultimate recovery.”

Even if these two requests were enough to inform the Board of potential claims,

neither type of request would require the Board to make an investigation. Under

Maryland law, a corporate board has an obligation to conduct an investigation once it

56 receives a litigation demand from a shareholder. See Boland v. Boland, 423 Md. at 330;

Bender v. Schwartz, 172 Md. App. at 666. Neither a document inspection request from a

shareholder nor a third-party solicitation to discuss the potential assignment of claims can

be viewed as the equivalent of a shareholder litigation demand. It would be unreasonable

to draw adverse inferences from the Board’s failure to conduct an investigation that the

Board had no obligation to conduct.

Finally, the shareholders argue that the Directors demonstrated their commitment

to disputed decisions through their hostile response to the shareholders’ first derivative

action in federal court. The shareholders assert that the Directors “caused the Funds to

seek dismissal” of the federal action and that the Board “publicly” stated in its filings in

that action “that the Funds’ claims are ‘meritless[.]’”

Generally, courts have interpreted the Werbowsky opinion to mean that demand

should not be excused based on a showing that the directors are hostile to the action. See

Gordon v. Sznewajs, 357 F. Supp. 3d at 1021; Seidl v. American Century Cos., 713 F.

Supp. 2d at 259-60. Moreover, courts applying Werbowsky have consistently concluded

that shareholders may not use a defendant’s response to the derivative suit to demonstrate

that a demand would have been futile before that suit. “The futility of pre-suit demand

should not be analyzed based on post-filing circumstances.” Weinberg ex rel. BioMed

Realty Trust, Inc., 838 F. Supp. 2d at 360. “The futility of making a demand must be

gauged at the time the derivative action is commenced, not afterward with the benefit of

hindsight.” Seidl v. American Century Cos., 713 F. Supp. 2d at 259. “If demand was not

futile when the complaint was filed, then the shareholder had no right to initiate the

57 action.” Gomes v. American Century Cos., 710 F.3d at 817. Thus, courts ordinarily do

not “look past the date on which” a shareholder filed a derivative action “to determine

whether demand was excused” in that action. Id.

The shareholders identify no reason for this Court to depart from the prevailing

approach of measuring futility at the time of suit. The present circumstances are

somewhat atypical because the shareholders initiated two separate actions. The

shareholders first filed a derivative action in federal district court on August 18, 2022,

and, after the district court dismissed that action on inconvenient forum grounds, refiled

the same claims in the Circuit Court for Baltimore City on May 12, 2023. Despite the

formal separation between the two actions, the essential allegations in both complaints

are substantively identical. Accordingly, we conclude that the more relevant filing date

for the purposes of assessing futility is the date of the first derivative suit. Under the

circumstances, it would elevate form over substance to rely on the defendants’ responses

to the initial action to establish the futility of demand in the second action.

Considered in their totality, the allegations in this case do not satisfy the “very

limited exception” to the demand requirement recognized in Werbowsky v. Collomb, 362

Md. at 620. Most of the allegations offered to show futility (allegations about potential

personal liability, allegations concerning the merits of the underlying claims, allegations

that lack the requisite particularity, and allegations about post-filing circumstances)

deserve minimal or no weight. The remaining allegations do little more than confirm that

the Directors continued to have a favorable opinion of Tortoise as the investment advisor

for the Funds after the downturn in early 2020. These allegations may or may not have

58 been enough to show that a shareholder demand was unlikely to succeed. But “futility”

in this context is not the same thing as a “failure.” Kamen v. Kemper Fin. Servs., Inc.,

939 F.2d 458, 462 (7th Cir. 1991) (applying Maryland law). “A demand is ‘futile’”

where “the directors’ minds are closed to argument.” Id. 17 The factual allegations here 16F

do not clearly demonstrate that the Directors were so conflicted or committed that they

would reject a demand for reasons not within the scope of the business judgment rule.

In sum, we conclude that the allegations made by the shareholders do not “clearly

demonstrate, in a very particular manner” that “a majority of the directors are so

personally and directly conflicted or committed to the decision[s] in dispute that they

cannot reasonably be expected to respond to a demand in good faith and within the ambit

of the business judgment rule.” Werbowsky v. Collomb, 362 Md. at 620. The circuit

court’s decision to dismiss the amended complaint on account of the shareholders’ failure

to make a pre-suit demand was correct.

JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY AFFIRMED. COSTS TO BE PAID BY APPELLANTS.

17 Although the Kamen case predates Werbowsky, the Court expressly stated that it “agreed with much of what the Seventh Circuit court said in Kamen” when it formulated the standards for the futility in Werbowsky v. Collomb, 362 Md. at 618.