Foote v. Mehrotra

1

ROBERT FOOTE, derivatively on behalf of MICRON TECHNOLOGY, INC., Plaintiff, v. SANJAY MEHROTRA, ROBERT L. BAILEY, RICHARD M. BEYER, PATRICK J. BYRNE, LYNN A. DUGLE, STEVEN J. GOMO, MERCEDES JOHNSON, MARY PAT MCCARTHY, LAWRENCE N. MONDRY, ROBERT E. SWITZ, and MARYANN WRIGHT, Defendants, and MICRON TECHNOLOGY, INC., Nominal Defendant.

Civil Action No. 21-00169

United States District Court, D. Delaware

November 1, 2023

ORDER

Slomsky, J.

TABLE OF CONTENTS

I INTRODUCTION........................................................................................................................3

II BACKGROUND........................................................................................................................3

III. STANDARDS OF REVIEW ....................................................................................................5

A. Motion to Dismiss Standard ......................................................................................................5

B. Demand Futility Standard .........................................................................................................6

IV. ANALYSIS ..............................................................................................................................9

A. Count One Fails to Allege a Violation of Section 14(a) of the Securities Exchange Act.............9

1. Plaintiff's Allegations on Diversity Are Not Material Misrepresentations ....................................12

2. Plaintiff's Allegations Fail to Support Element One of the Securities Exchange Act Claim .........16

B. Plaintiff Fails to Meet the Requirements of Demand Futility .........................................................16

1. Plaintiff Fails to Allege that Defendants Face a Substantial Likelihood of Liability ......................17

2. Plaintiff Fails to Make Particularized Factual Allegations Specific to Each Director .....................21

C. The Court Will Not Exercise Supplemental Jurisdiction over Plaintiff's State Law Claims ...........23

V. CONCLUSION .................................................................................................................................25

I. INTRODUCTION

This case concerns a derivative action filed by Plaintiff Robert Foote (“Plaintiff” or “Foote”) on behalf of Micron Technology, Inc. (“Micron”), a company that designs and manufactures memory chips and storage products. (Doc. No. 12 at 14.) Plaintiff Foote is a shareholder of Micron. (Doc. No. 1 at ¶ 16.) Defendants are Directors of Micron. (Id. at ¶¶ 18-62.) They are: Sanjay Mehrotra, Robert Bailey, Richard Beyer, Patrick Byrne, Lynn Dugle, Steven Gomo, Mercedes Johnson, Mary McCarthy, Lawrence Mondry, Robert Switz, and Maryann Wright (“Defendants”). (Id.) Micron Technology Inc. is a nominal defendant in this case. (Id. at 1.)

In his Verified Complaint, Plaintiff alleges claims against Defendants for violations of Section 14(a) of the Securities Exchange Act of 1934 (“Securities Exchange Act”) (Count I), Breach of Fiduciary Duties (Count II), Unjust Enrichment (Count III), Waste of Corporate Assets (Count IV) Abuse of Control (Count V), and Gross Management (Count VI). (See id.) These claims arise out of allegedly false or misleading statements about Defendants' commitment to diversify Micron's workforce. (Id. at 24-31.) In response, Defendants have filed a Motion to Dismiss the Verified Shareholder Derivative Complaint. (Doc. Nos. 11-13.)

For reasons discussed below, Defendants' Motion to Dismiss will be granted on Count One, the only claim which confers federal jurisdiction over this case. (Doc. No. 11.) In addition, the Court will decline to exercise supplemental jurisdiction over the state law claims. Consequently, the Complaint will be dismissed in its entirety.

II. BACKGROUND

On February 9, 2021, Plaintiff filed a Shareholder Derivative Complaint on behalf of Micron against the individual Defendants who are former or current officers, directors, and/or fiduciaries of Micron. (See Doc. No. 1.)

In his Complaint, Plaintiff avers that Micron's 2018, 2019, and 2020 Proxy Statements contain false and misleading statements regarding Micron's commitment to diversity. (See id. at ¶5.) Plaintiff further alleges that Defendants' yearly Diversity, Equity, and Inclusion Report (“DEI Report”)^[1] constitutes “hollow words, given that the Company's workforce has not become meaningfully more diverse during [2018-2020].” (See id. at ¶ 2.) Plaintiff also contends that the diversity of senior leadership did not grow during this three-year period. (Id. at ¶ 3.) Regarding these shortfalls, Plaintiff notes Micron's failure to retain a sufficiently independent auditor to surveil the company's internal controls and ensure compliance with applicable law. (Id. at ¶ 118.) As a result, Plaintiff alleges in six Counts that Individual Defendants committed the violations listed above. (Id. at 51-60.)

On April 30, 2021, Defendants filed a Motion to Dismiss the Complaint and a Supporting Brief. (Docs. No. 11, 12). Defendants argue that the Securities Exchange Act does not support Plaintiff's claim, which is “part of a wave of similar poorly-conceived suits filed against major companies in the wake of a national conversation on race.” (Doc. No. 12 at 1.) In this regard, Defendants assert that Plaintiff has failed to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). (Id. at 28-30.) In addition, Plaintiff has not properly alleged demand futility^[2] as required by Federal Rule of Civil Procedure 23.1(b)(3). (Id. at 11-27.)

More specifically, Defendants submit that Plaintiff has not

offer[ed] . . . a shred of support for his wholly conclusory, unwarranted allegations. The Complaint contains no allegations of management misconduct, discrimination, or bias in connection with Micron's hiring or retention practices, let alone knowledge of or participation by its Board members . . .

(Id. at 3.)

On June 29, 2021, Plaintiff filed a Memorandum of Points and Authorities in Opposition to Defendants' Motion to Dismiss. (Doc. No. 15.) On July 29, 2021, Defendants filed a Reply. (Doc. No. 16.) On December 16, 2022, the Court held a hearing on the Motion to Dismiss with counsel for Plaintiff and Defendants. (Doc. No. 25.) Defendants' Motion is now ripe for disposition.

III. STANDARDS OF REVIEW

A. Motion to Dismiss Standard

The motion to dismiss standard under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim is set forth in Ashcroft v. Iqbal, 556 U.S. 662 (2009). After Iqbal it is clear that “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice” to defeat a Rule 12(b)(6) motion to dismiss. Id. at 678; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). “To survive dismissal, ‘a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Tatis v. Allied Interstate, LLC, 882 F.3d 422, 426 (3d Cir. 2018) (quoting Iqbal, 556 U.S. at 678). Facial plausibility is “more than a sheer possibility that a defendant has acted unlawfully.” Id. Instead, “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

Applying the principles of Iqbal and Twombly, the Third Circuit in Santiago v. Warminster Twp., 629 F.3d 121 (3d Cir. 2010), set forth a three-part analysis that a District Court in this Circuit must conduct in evaluating whether allegations in a complaint survive a Rule 12(b)(6) motion to dismiss:

First, the court must “tak[e] note of the elements a plaintiff must plead to state a claim.” Second, the court should identify allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Finally, “where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.”

Id. at 130 (quoting Iqbal, 556 U.S. at 675, 679). This “plausibility pleading standard” is normally broken into three parts: “(1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.” Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).

“[A] complaint must do more than allege the plaintiff's entitlement to relief . . . [it must] ‘show' such an entitlement with its facts. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009) (citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679 (second alteration in original) (citation omitted). The “plausibility” determination is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. (citation omitted).

B. Demand Futility Standard

“The standard for pleading demand futility with particularity under Federal Rule of Civil Procedure 23.1 is more stringent than the standard under Rule 12(b)(6).” Behrmann v. Brandt, No. CV 19-772-RGA, 2020 WL 4432536, at *3 (D. Del. July 31, 2020); see also Halpert v. Zhang, 966 F.Supp.2d 406, 415 (D.Del. 2013). Rule 23.1(b) states that a derivative action complaint must:

(1) allege that the plaintiff was a shareholder or member at the time of

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