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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Filed June 20, 2003
No. 01-7167
& No. 01–7175
CARRAMERICA REALTY CORPORATION, ET AL.,
APPELLANTS
v.
JOSEPH KAIDANOW AND ROBERT A. ARCORO,
APPELLEES
Appeals from the United States District Court
for the District of Columbia
(No. 99cv00260)
Supplemental Opinion on
Petition for Rehearing
–————
Before: EDWARDS and SENTELLE, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the court filed PER CURIAM.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
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PER CURIAM: This supplemental opinion addresses an issue
raised by the plaintiffs’ petition for rehearing of our decision
in CarrAmerica v. Kaidanow, 321 F.3d 165 (D.C. Cir. 2003).
There we held that a technical error made by the board of
directors in issuing conversion shares rendered the resulting
shares voidable rather than void and the defendants’ claims
were barred by the equitable doctrine of estoppel. Addition-
ally, we found that the board had properly ratified the shares
after they were issued. See id. at 166. Therefore, we
reversed the district court and ordered the grant of summary
judgment to the defendant CarrAmerica. Id. The plaintiffs,
Kaidanow and Arcoro, petition only on our grant of summary
judgment as to their claims of the directors’ breach of fiducia-
ry duties. Because the underlying facts of the case have
been articulated at length in our prior opinion, we will repeat
only those facts relevant to the specific issue here.
The Delaware General Corporation Law requires that the
plaintiff in a shareholder’s derivative suit be a shareholder of
the corporation he sues when the transaction of which he
complains occurs. Del. Code Ann. Tit. 8 § 327 (2001). The
defendants argue that Kaidanow and Arcoro lacked the prop-
er standing to bring their fiduciary duties claim because they
were not yet shareholders when the transaction which forms
the basis of their complaint took place. The critical question
to this inquiry is which transaction constitutes the plaintiffs’
claims. There are two possibilities. On May 7, 1998, the
board of directors met and authorized a resolution which
included the following paragraph:
NOW, THEREFORE, IT IS RESOLVED, that the
conversion of the CarrAmerica Loan into a loan,
some or all of which may be converted into equity of
the Corporation, hereby is approved; provided, that
the equity value used for conversion purposes shall
not be less than $20 per share; TTTT
On September 30, 1998, the officers executed the agreement
allowing CarrAmerica to convert its loan at the $20 per share
price. Kaidanow and Arcoro did not become shareholders
until August, therefore, if the complaint is based on the May
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7 action, they lack the requisite standing. However, if the
actual exercise of the agreement forms the basis of their
complaint, they were then shareholders, and do have standing
to bring these claims.
Delaware caselaw indicates that the time of the transaction
is when the wrongful acts occurred which the plaintiff is
seeking to remedy. In 7547 Partners v. Beck, 682 A.2d 160
(Del. 1996), the Delaware Supreme Court held that a breach
of fiduciary duty occurred when directors set the price term
of shares in a private placement IPO, not when the sale was
actually consummated. Id. at 162–63. The court reasoned
that ‘‘the timing of the allegedly wrongful transaction must be
determined by identifying the ‘wrongful acts which [Partners]
want[s] remedied and which are susceptible of being remed-
ied in a legal tribunal.’ ’’ Id. at 162. (quoting Newkirk v.
W.J. Rainey, Inc., 76 A.2d 121, 123 (Del. Ch. 1950)). The
court found that because the complaint was based on the
board’s ‘‘gross[ ] negligen[ce]’’ in setting the price at an
‘‘absurdly low amount’’ the transaction for which the plaintiffs
sought a remedy took place at the time of agreement on the
price, rather than the execution of the sale. Id. at 161–63.
The court has also stated that in order to properly challenge
a proposed merger, a plaintiff must have been a stockholder
at the time its terms are agreed upon, because it is those
terms which are challenged, not the technicalities of the
merger’s consummation. In re Beatrice Cos., Litigation, 522
A.2d 865, 1987 Del. LEXIS 1036, at *7–8 (Del. 1987). Finally,
in a recent case, a Chancery Court found that, ‘‘[a] stockhold-
er-plaintiff is barred from bringing claims when she pur-
chases stock after the board of directors has approved a
transaction and the transaction has been publicly disclosed.’’
Omnicare, Inc v. NCS Healthcare, Inc., 809 A.2d 1163, 1169
n.11 (Ct. Ch. Del. 2002).
This case presents circumstances similar to those in 7547
Partners. The claimed wrongful act in regard to the di-
rectors’ fiduciary duties, is that the $20 per share conversion
price set by the board was too low. The only action taken by
the directors in setting this price took place at the May 7
meeting, before Kaidanow and Arcoro were stockholders. If
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a breach of fiduciary duty had occurred in the price-setting it
would have happened on that date. In addition, although it is
unclear whether the board’s action was disclosed to the
general public at that time, the record is plain that both
plaintiffs were well aware of the action. In fact, the plaintiffs
claimed in their initial brief in this appeal that the May 7
resolution was a motivating factor for their subsequent stock
purchase.
The Delaware cases which might indicate an alternative
analysis have been essentially limited to their specific facts by
the precedent cited above. For example, in 7547 Partners,
the Delaware Supreme Court affirmed a Chancery Court’s
refusal to follow Maclary v. Pleasant Hills, Inc., 109 A.2d 830
(Ct. Ch. Del. 1954), and distinguished that case on its facts.
7547 Partners, 682 A.2d at 162. In Maclary, the court held
that the breach of a board’s fiduciary duties had occurred, not
when a resolution authorizing the issuance of stock was
authorized, but rather at the time the stock certificates were
actually issued, three years later. See 109 A.2d at 833–34.
In 7547 Partners, the court noted the unusual delay in
Maclary between the board’s action and the actual issuance
of the certificates and reasoned that those specific circum-
stances might require such a rule because that delay would
make it very difficult to discover and challenge a board’s
wrongdoing. See 682 A.2d at 162. The court determined
that no such ‘inexcusable inaction’ was extant in the case
before it, and therefore, Maclary did not control the outcome.
Id.
The facts of the present case fit the standard set by 7547
Partners, because here the action being challenged by the
plaintiffs was the action of the directors and there was no
unreasonable delay in carrying it out. Additionally, because
the plaintiffs were clearly aware of the board’s actions as they
were taking place, there is no reason to be concerned about
these plaintiffs’ ability to discover and challenge the alleged
breaches of fiduciary duties. Therefore, the action which
underlies the plaintiffs’ complaint occurred at the May 7
meeting, at which time neither plaintiff was a shareholder,
5
and thus neither has the requisite standing to challenge the
propriety of that action.
As a result, we grant summary judgment to the defendants
on the claim of a breach of their fiduciary duties.