Michael Reiter v. Richard D. Fairbank (Capital One Financial Corp.)

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MICHAEL REITER, Derivatively on )
Behalf of CAPITAL ONE FINANCIAL )
CORPORATION, )
)
Plaintiff, )
v. )
) C.A. No. 11693-CB
RICHARD D. FAIRBANK, PATRICK )
W. GROSS, LEWIS HAY, III, MAYO )
A. SHATTUCK III, ANN FRITZ )
HACKETT, PIERRE E. LEROY, )
BRADFORD H. WARNER, PETER E. )
RASKIND, BENJAMIN P. JENKINS, )
III, and CATHERINE G. WEST, )
)
Defendants,
)
and )
)
CAPITAL ONE FINANCIAL )
CORPORATION, a Delaware )
corporation, )
Nominal Defendant. )
)

MEMORANDUM OPINION
Date Submitted: July 22, 2016
Date Decided: October 18, 2016
Blake A. Bennett, COOCH AND TAYLOR, P.A., Wilmington, Delaware; Brian J.
Robbins, George C. Aguilar and Jay N. Razzouk, ROBBINS ARROYO LLP, San
Diego, California, Attorneys for Plaintiff.
S. Mark Hurd, Richard Li and Dean J. Shauger, MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; Maeve L. O’Connor, DEBEVOISE &
PLIMPTON LLP, New York, New York; Jonathan R. Tuttle and Anna A. Moody,
DEBEVOISE & PLIMPTON LLP, Washington, District of Columbia, Attorneys
for Defendants and Nominal Defendant.
BOUCHARD, C.
 In this derivative action, a stockholder of Capital One Financial Corporation

asserts that its directors breached their fiduciary duty of loyalty and unjustly

enriched themselves by consciously disregarding their responsibility to oversee

Capital One’s compliance with the Bank Secrecy Act and other anti-money

laundering laws (“BSA/AML”). Plaintiff’s central allegation is that the directors

ignored red flags that Capital One’s BSA/AML compliance program failed to

satisfy statutory requirements relating to services Capital One provided to clients

engaged in check cashing, a business that poses an inherent risk for money

laundering.

Before filing this action, plaintiff prudently sought and obtained books and

records from Capital One under 8 Del. C. § 220. Those documents, which are

incorporated into the complaint, show that the board’s Audit and Risk Committee

and its successor committees received at least twenty-five reports over a three-and-

a-half-year period explaining the company’s BSA/AML compliance risk, which

escalated from “low” in early 2011 to “high” in early 2013, where it remained in

2014. Significantly, those same reports explained to the directors in meaningful

detail on a regular basis the initiatives management was taking to ameliorate

Capital One’s BSA/AML compliance risk, including management’s decision in

early 2014 to exit the check cashing business altogether, and none of those reports

reflected that the Company’s BSA/AML controls and procedures had been found

1
to violate statutory requirements or that anyone within Capital One had engaged in

fraudulent or illegal conduct.

Defendants have moved to dismiss the complaint under Court of Chancery

Rule 12(b)(6) for failure to state a claim for relief, and under Rule 23.1 for failure

to make a demand on the board before filing suit. As to the latter issue, plaintiff

contends that demand would have been futile because all ten members of Capital

One’s board when suit was filed, including nine outside directors whose

independence is unquestioned, face a substantial likelihood of personal liability for

the underlying claims.

The standard under Delaware law for imposing oversight liability on a

director is an exacting one that requires evidence of bad faith, meaning that “the

directors knew that they were not discharging their fiduciary obligations.” 1 For the

reasons explained below, I conclude after carefully reviewing the allegations of the

complaint and the documents incorporated therein, that plaintiff has failed to allege

facts from which it reasonably may be inferred that the defendants consciously

allowed Capital One to violate BSA/AML statutory requirements so as to

demonstrate that they acted in bad faith. Plaintiff thus has failed to plead with

particularity that a majority of Capital One’s directors face a substantial likelihood

1
Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).

2
of liability for the claims asserted in this case. Accordingly, demand would not

have been futile and the complaint will be dismissed with prejudice.

I. BACKGROUND

Unless noted otherwise, the facts recited in this opinion are based on the

allegations in the Verified Stockholder Derivative Complaint (the “Complaint”)

and the documents incorporated therein.2

A. The Parties

Capital One Financial Corporation (“Capital One” or the “Company”) is a

Delaware corporation headquartered in Virginia. It offers a broad spectrum of

financial products and services through its banking and non-banking subsidiaries.

The defendants were the ten members of Capital One’s board of directors

when plaintiff filed this action: Richard D. Fairbank, Patrick W. Gross, Lewis Hay,

III, Mayo A. Shattuck III, Ann Fritz Hackett, Pierre E. Leroy, Bradford H. Warner,

Peter E. Raskind, Benjamin P. Jenkins, III, and Catherine G. West. Fairbank, the

President and Chief Executive Officer of Capital One, was the only employee

director on the board.

In May 2013, the Audit and Risk Committee of Capital One’s board of

directors was split into two separate committees: the Risk Committee and the

2
I consider these documents in accordance with the incorporation-by-reference doctrine
discussed below. See Part II.A.1.

3
Audit Committee. All defendants except Fairbank served on Capital One’s Audit

and Risk Committee or at least one of its two successor committees at some point

between June 2011 and January 2015, the time period relevant to this case.3

Plaintiff Michael Reiter alleges he was a stockholder of Capital One at the

time of the “wrongdoing complained of” and has been a stockholder continuously

since then.4

B. Capital One Begins Servicing Check Cashing Businesses

In December 2006, Capital One acquired North Fork Bancorporation, Inc.

and began providing banking services to check cashing and related money services

businesses in New York and New Jersey. The year before the acquisition, North

Fork entered into a memorandum of understanding with the Federal Deposit

Insurance Corporation and the New York State Banking Department concerning

weaknesses in North Fork’s program to comply with anti-money laundering laws

and the Bank Secrecy Act of 1970. As a result of the acquisition, Capital One

assumed North Fork’s obligations under the memorandum of understanding.

According to a 2014 report, Capital One considered exiting the business of

serving check cashers after the North Fork acquisition, but the New York State

Department of Financial Services encouraged the Company “to keep the business

3
Compl. ¶¶ 12-21.
4
Id. ¶ 10.

4
to serve the unbanked and underbanked.” 5 Capital One continued to serve check

cashing businesses in the decade following its acquisition of North Fork.

C. Regulatory Scrutiny of Check Cashing Businesses

Check cashing businesses are a significant focus of anti-money laundering

laws and regulations (“AML”), including the Bank Secrecy Act of 1970 (“BSA”)

(together, as defined above, the “BSA/AML”).

The Bank Secrecy Act of 1970, 6 as amended, requires financial institutions

in the United States to assist government agencies to detect and prevent money

laundering activities. It “establishes program, recordkeeping, and reporting

requirements for national banks, federal savings associations, federal branches, and

agencies of foreign banks.”7 The implementing regulations of the BSA impose

various requirements on financial institutions, including:

• Maintaining a system of internal controls to ensure ongoing BSA/AML

compliance and independent testing for compliance;

• Designating an individual responsible for coordinating and monitoring

day-to-day compliance;

• Providing training for appropriate personnel;
5
Id. ¶ 46 (quoting Capital One’s Commercial Banking: Compliance and Reputation Risk
Management report to the Risk Committee, dated June 11, 2014).
6
31 U.S.C. 5311 et seq.
7
Compl. ¶ 33.

5
 • Filing Suspicious Activity Reports (“SARs”) when certain suspected

violations of federal law or regulation are detected; and

• Implementing a written Customer Identification Program appropriate for

the bank’s size and risk profile.

In 2005, six regulatory agencies issued the Interagency Interpretive

Guidance on Providing Banking Services to Money Services Businesses Operating

in the United States setting forth guidelines for financial institutions, such as

Capital One, to incorporate into their BSA/AML programs. Those guidelines

include certain minimum internal policies, procedures, and controls relating to

providing banking services to check cashing businesses. In 2010, regulators jointly

released guidance concerning BSA/AML compliance stating that:

The cornerstone of a strong Bank Secrecy Act/Anti-Money
Laundering (BSA/AML) compliance program is the adoption and
implementation of internal controls . . . . The requirement that a
financial institution know its customers, and the risks presented by its
customers, is basic and fundamental to the development and
implementation of an effective BSA/AML compliance program. 8

According to the Complaint, to comply with United States anti-money

laundering laws and regulations, Capital One’s BSA/AML program must include

standards and guidelines, approved by the board, regarding “whether to close a

suspicious account and when to report suspicious activity, or activity known by the

8
Id. ¶ 49.

6
Company to be under investigation or in violation of the U.S. anti-money

laundering regime, via SARs.”9 The Complaint further alleges that Capital One

must establish an internal control system that ensures the board “is informed of

compliance deficiencies, BSA/AML program deficiencies, corrective action taken,

and SARs filed related to all of the foregoing.”10

As new BSA/AML regulations and guidance have been issued, regulators

have stepped up their enforcement efforts. In 2005, the Financial Crimes

Enforcement Network (“FinCEN”) fined ABN Amro $40 million “because ABN’s

New York branch failed to set up an adequate Bank Secrecy Act program,

including an anti-money laundering system.” 11 Several months later, FinCEN

fined BankAtlantic $10 million for similar violations. In 2007, The Wall Street

Journal reported that BSA/AML-related fines over the preceding two years totaled

at least $87 million, compared to $1 million in 2001 and 2002.

D. Capital One’s Directors Receive Regular Reports on the
Company’s BSA/AML Program

Providing commercial banking services to check cashing businesses,

particularly in New York’s urban area, presents an inherent risk for violating anti-

money laundering laws and regulations. As stated in a June 2011 report to the
9
Id. ¶ 42.
10
Id.
11
Id. ¶ 48.

7
Audit and Risk Committee, the Company’s “Bank Segment . . . features high risk

products and services, a large branch network located in high intensity drug

trafficking and metropolitan areas, and a high risk customer base that includes

most large New York check cashing businesses.”12

Capital One’s Audit and Risk Committee, and later its separate Audit

Committee and Risk Committee, received regular reports from management

regarding the Company’s BSA/AML compliance program from June 2011 to

January 2015, the time period relevant to this action. 13 The Complaint cites to and

quotes extensively from at least twenty-five such reports, which include quarterly

Enterprise State of Compliance reports,14 Enterprise Risk Profile reports,15 periodic

Compliance Risk Updates,16 and various other AML program assessments and

updates. 17 The committee members also received updates on regulatory

12
Id. ¶ 51 (quoting Capital One’s 1Q 2011 Enterprise State of Compliance report dated
June 2011).
13
Id. ¶ 95.
14
See id. ¶¶ 51, 52, 55, 57, 61, 63, 68, 70, 77.
15
See id. ¶¶ 62, 66, 71, 74, 76.
16
See id. ¶¶ 53, 56.
17
E.g., Chief Risk Officer Report, id. ¶ 54; AML and OFAC Compliance Risk
Assessment, id. ¶ 58; Anti-Money Laundering (AML) Assessment, id. ¶ 64; and
Independent Compliance Transaction Testing Program Update, id.

8
movements and discussed BSA/AML compliance issues during their committee

meetings. 18

Capital One performed periodic internal audits of its risk compliance

programs, the results of which were reported to the Audit and Risk Committee, and

after May 2013, to the Audit Committee. In a July 2013 report to the Audit

Committee, the internal auditors rated Capital One’s AML program as “Needs

Strengthening;”19 in two later audits, covering the first and fourth quarters of 2014,

the auditors rated the Company’s AML program as “Inadequate.” 20

E. Capital One Becomes the Subject of Regulatory Investigations
and Decides to Exit the Check Cashing Business

On December 3, 2013, Capital One received a grand jury subpoena from the

New York District Attorney requesting information concerning the Company’s

AML controls and check cashing clients. It was reported to the Audit Committee

the next month, on January 23, 2014, that “management has decided to exit the

business of banking check cashers” in parallel with the “ongoing investigation into

potential violations of anti-money laundering laws by several of the company’s

18
See id. ¶¶ 59, 60, 65, 67.
19
Id. ¶ 67.
20
Id. ¶¶ 73, 80.

9
commercial clients.” 21 Later in 2014, Capital One received another four grand jury

subpoenas from the New York District Attorney requesting additional information

concerning the Company’s AML controls and check cashing clients.22

On February 6, 2015, Capital One received a grand jury subpoena from the

United States Department of Justice requesting, among other things, all documents

previously produced in response to the New York District Attorney’s subpoenas,

Capital One’s BSA/AML policies and procedures, related board and committee

meeting minutes, compliance audits and testing reports, and details on specific

customers and clients. 23

On July 10, 2015, Capital One consented to the entry of an order issued by

the Office of the Comptroller of Currency (“OCC”) concerning the Company’s

BSA/AML controls (the “Consent Order”). 24 In the Consent Order, the OCC

found that Capital One had “failed to adopt and implement a compliance program

that adequately covers the required BSA/AML program elements due to an

21
Id. ¶ 70 (quoting Capital One’s Compliance Report for the Fourth Quarter of 2013
dated January 23, 2014).
22
Id. ¶¶ 75, 79.
23
Id. ¶ 81.
24
Id. ¶ 8. The stipulation documenting Capital One’s consent reflects that it did so
“without admitting or denying any wrongdoing.” Bennett Aff. Ex. 12 (Stipulation and
Consent to the Issuance of a Consent Order) at 2.

10
inadequate system of internal controls and ineffective independent testing.” 25 The

OCC thus ordered Capital One to adopt a series of remedial actions. The OCC

proceeding against Capital One has concluded, but the investigations of the New

York District Attorney and the Department of Justice remain open, along with

another investigation by the FinCEN. These investigations pertain to “certain

check casher clients of the Commercial Banking business and Capital One’s anti-

money laundering (“AML”) program.” 26

F. Procedural History

On November 10, 2015, after obtaining books and records from the

Company under 8 Del. C. § 220, plaintiff filed the Complaint, which asserts two

derivative claims on behalf of Capital One. Count I asserts an oversight claim for

breach of the fiduciary duty of loyalty against all defendants. Count II asserts a

claim of unjust enrichment against all defendants concerning their receipt of

compensation and director remuneration.

On January 29, 2016, defendants filed a motion (1) to dismiss the Complaint

under Court of Chancery Rule 23.1 for failure to make a pre-suit demand and

under Court of Chancery Rule 12(b)(6) for failure to state a claim upon which
25
Compl. ¶ 83 (quoting Consent Order).
26
Id. ¶ 85 (quoting the Company’s Quarterly Report on Form 10-Q filed with the SEC
on August 3, 2015).

11
relief can be granted, and (2) in the alternative, to stay the action pending the

resolution of the ongoing regulatory investigations.

II. ANALYSIS

For the reasons explained below, I conclude that demand was not excused

under Rule 23.1 for either of the claims asserted in the Complaint. Accordingly, I

do not reach defendants’ arguments under Rule 12(b)(6) or for a stay.

A. Legal Standards

1. Pleading Principles under Rule 23.1

Under Court of Chancery Rule 23.1, a plaintiff in a derivative action must

“allege with particularity the efforts, if any, made by the plaintiff to obtain the

action the plaintiff desires from the directors or comparable authority and the

reasons for the plaintiff’s failure to obtain the action or for not making the

effort.”27 The rationale behind this rule is that “directors are entitled to a

presumption that they were faithful to their fiduciary duties,” and it is the

plaintiff’s burden to overcome that presumption in the context of a pre-suit

demand. 28

27
Ch. Ct. R. 23.1(a).
28
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048-
49 (Del. 2004).

12
 “On a motion to dismiss pursuant to Rule 23.1, the Court considers the same

documents, similarly accepts well-pled allegations as true, and makes reasonable

inferences in favor of the plaintiff—all as it does in considering a motion to

dismiss under Rule 12(b)(6).”29 Additionally, where a complaint quotes or

characterizes some parts of a document but omits other parts of the same

document, the Court may apply the incorporation-by-reference doctrine to guard

against the cherry-picking of words in the document out of context.

Under the incorporation-by-reference doctrine, “[a] plaintiff may not

reference certain documents outside the complaint and at the same time prevent the

court from considering those documents’ actual terms.” 30 Vice Chancellor Laster

recently provided the following helpful summary of the doctrine:

The incorporation-by-reference doctrine permits a court to review the
actual document to ensure that the plaintiff has not misrepresented its
contents and that any inference the plaintiff seeks to have drawn is a
reasonable one. The doctrine limits the ability of the plaintiff to take
language out of context, because the defendants can point the court to
the entire document. The doctrine also enables courts to dispose of
meritless complaints at the pleading stage. Without the ability to
consider the document at issue in its entirety, complaints that quoted
only selected and misleading portions of such documents could not be
dismissed under Rule 12(b)(6) even though they would be doomed to
failure. With the incorporation-by-reference doctrine, a complaint
may, despite allegations to the contrary, be dismissed where the

29
Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 976
(Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 2004).
30
Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013).

13
 unambiguous language of documents upon which the claims are based
contradict the complaint’s allegations. Likewise, a claim may be
dismissed if allegations in the complaint or in the exhibits
incorporated into the complaint effectively negate the claim as a
matter of law.31

The Complaint here extensively cites to and quotes from documents plaintiff

obtained from the Company through a books and records inspection demand under

8 Del. C. § 220. Accordingly, I may apply the incorporation-by-reference doctrine

with respect to the documents referenced in the Complaint in evaluating the

sufficiency of the Complaint’s allegations to demonstrate demand futility.

2. The Demand Futility Standard

Under Delaware law, the Court applies one of two tests to determine

whether a plaintiff’s demand upon the board would be futile. The first test,

established in Aronson v. Lewis, applies when a plaintiff is challenging a decision

of the board of directors.32 The second test, established in Rales v. Blasband,33

applies when the derivative action is based on a board’s inaction or a violation of

31
Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016) (internal
citations and quotations omitted).
32
Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other grounds by
Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
33
634 A.2d 927 (Del. 1993).

14
the board’s oversight duties. 34 Because plaintiff’s claims in this action are

predicated upon an alleged failure of the board to act, the Rales test applies.35

Under the Rales test, the Court “must determine whether or not the

particularized factual allegations of a derivative stockholder complaint create a

reasonable doubt that, as of the time the complaint is filed, the board of directors

could have properly exercised its independent and disinterested business judgment

in responding to a demand.”36 A reasonable doubt as to the board’s independence

and disinterestedness exists when plaintiff’s demand exposes a majority of the

board of directors to “a substantial likelihood” of personal liability. 37 “[T]he mere

threat of personal liability . . . is insufficient;”38 rather, the complained-of conduct

must “be ‘so egregious on its face’ that the board could not have exercised its

34
See Wood v. Baum, 953 A.2d 136, 140 (Del. 2008) (“The [Rales] test applies where the
subject of a derivative suit is not a business decision of the Board but rather a violation of
the Board’s oversight duties.”).
35
Whether the Rales test or the Aronson test applies ultimately makes no substantive
difference in my view because “the Rales test, in reality, folds the two-pronged Aronson
test into one broader examination.” See Teamsters Union 25 Health Servs. & Ins. Plan v.
Baiera, 119 A.3d 44, 67 n.131 (Del. Ch. 2015) (internal quotation omitted).
36
Rales, 634 A.2d at 934.
37
Id. at 936 (quoting Aronson, 473 A.2d at 815).
38
Aronson, 473 A.2d at 815.

15
business judgment in responding to a stockholder demand to pursue those

claims.” 39 Courts assess demand futility on a claim-by-claim basis. 40

B. Demand Is Not Excused for the Caremark Claim

In Count I of the Complaint, plaintiff asserts that defendants breached their

fiduciary duty of loyalty as members of Capital One’s board by “purposefully,

knowingly, or recklessly causing or allowing the Company to violate the

BSA/AML, as well as other applicable law.” 41 Plaintiff further asserts that demand

would be futile as to Count I because all ten defendants, including the nine outside

directors whose independence is unquestioned, have a disqualifying interest in

deciding whether the Company should pursue this claim because they each

allegedly “face a substantial likelihood of liability for such breach.”42 This is a

quintessential Caremark oversight claim. 43

39
Melbourne Municipal Firefighters’ Pension Trust Fund v. Jacobs, 2016 WL 4076369,
at *6 (Del. Ch. Aug. 1, 2016) (citing Aronson, 473 A.2d at 815).
40
MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *18 (Del. Ch. May 5, 2010)
(“Demand futility must be determined on a claim-by-claim basis.”).
41
Compl. ¶¶ 105-6. The Complaint does not allege that defendants breached their duty
of care. The defendants would be exculpated from such a claim in any event under
Capital One’s Restated Certificate of Incorporation, which contains a Section 102(b)(7)
provision. See Defs.’ Op. Br. 17.
42
Compl. ¶¶ 96, 98, 100, 102.
43
Although the Complaint and plaintiff’s answering brief assert that Capital One’s Code
of Conduct and Code of Ethics impose additional duties on all defendants, and that
Capital One’s charter imposes additional oversight duties on those defendants who served
16
 1. The Caremark Liability Standard

In 1996, Chancellor Allen famously reviewed the duties of directors to

monitor corporate operations in Caremark, where it had been alleged that the

company’s “directors allowed a situation to develop and continue which exposed

the corporation to enormous legal liability.” 44 Commenting that the theory “is

possibly the most difficult theory in corporation law upon which a plaintiff might

hope to win a judgment,” 45 the Chancellor opined that to demonstrate that the

directors had breached a fiduciary duty by failing to adequately control the

company’s employees, “plaintiffs would have to show either (1) that the directors

knew or (2) should have known that violations of law were occurring and, in either

event, (3) that the directors took no steps in a good faith effort to prevent or

remedy that situation, and (4) that such failure proximately resulted in the losses

complained of.”46

on the Audit and Risk Committee or its successor committees, plaintiff has not sought
relief based on those provisions. See Compl. ¶¶ 28-31, 103-112; Pl.’s Ans. Br. 39-40.
44
In re Caremark Int’l Inc. Derivative Litigation, 698 A.2d 959, 967 (Del. Ch. 1996).
45
Id.
46
Id. at 971. Chancellor Allen appeared to conceive of the claim as implicating the duty
of care. The Delaware Supreme Court later clarified that the obligation to act in good
faith, which was central to Caremark’s formulation of the standard for oversight liability,
is a component of the duty of loyalty. Stone, 911 A.2d at 370.

17
 Ten years later, the Delaware Supreme Court explained in Disney that

“intentional dereliction of duty” or “a conscious disregard for one’s

responsibilities,” which “is more culpable than simple inattention or failure to be

informed of all facts material to the decision,” falls within the ambit of fiduciary

misconduct that would violate the obligation to act in good faith. 47 Later that year,

in Stone v. Ritter, the Delaware Supreme Court embraced the Caremark framework

for director oversight liability and clarified, consistent with its decision in Disney,

that to impose personal liability on a director for a failure of oversight requires

evidence that “the directors knew that they were not discharging their fiduciary

obligations.”48

Caremark articulates the necessary conditions predicate for director
oversight liability: (a) the directors utterly failed to implement any
reporting or information system or controls; or (b) having
implemented such a system or controls, consciously failed to monitor
or oversee its operations thus disabling themselves from being
informed of risks or problems requiring their attention. In either case,
imposition of liability requires a showing that the directors knew that
they were not discharging their fiduciary obligations. Where directors
fail to act in the face of a known duty to act, thereby demonstrating a
conscious disregard for their responsibilities, they breach their duty of
loyalty by failing to discharge that fiduciary obligation in good faith. 49

47
In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 66 (Del. 2006).
48
Stone, 911 A.2d at 370.
49
Id.

18
 The need to demonstrate scienter to establish liability under an oversight

theory follows not only from Caremark itself, but from the existence of charter

provisions exculpating directors from liability for breaches of the duty of care that

have become ubiquitous in corporate America. As then-Vice Chancellor Strine

explained in the Massey case:

The Massey charter also includes an exculpatory charter provision
insulating the directors from claims of even gross negligence. As a
result, in order to receive a monetary judgment against the Massey
directors and officers, the plaintiffs will have to prove that the
directors and officers acted with scienter. That reality also exists
because of the Caremark decision itself, which our Supreme Court
has embraced as setting the liability standard in this context. The
Caremark liability standard is a high one, and requires proof that a
director acted inconsistent with his fiduciary duties and, most
importantly, that the director knew he was so acting. For obvious
reasons, the motive of independent directors to put profits ahead of
compliance with the law is weaker than for managers and thus the
challenge for a plaintiff to convince a fact-finder of any specific
independent director’s culpability has to be regarded as at best
difficult.50

Because “directors’ good faith exercise of oversight responsibility may not

invariably prevent employees from violating criminal laws, or from causing the

corporation to incur significant financial liability, or both,”51 a plaintiff asserting a

Caremark oversight claim must plead with particularity “a sufficient connection

50
In re Massey Energy Co., 2011 WL 2176479, at *22 (Del. Ch. May 31, 2011).
51
Stone, 911 A.2d at 373.

19
between the corporate trauma and the board.”52 To establish such a connection, a

plaintiff may plead that the board knew of evidence of corporate misconduct—the

proverbial “red flag”—yet acted in bad faith by consciously disregarding its duty

to address that misconduct. 53

In applying the Caremark theory of liability, even in the face of alleged red

flags, this Court has been careful to distinguish between failing to fulfill one’s

oversight obligations with respect to fraudulent or criminal conduct as opposed to

monitoring the business risk of the enterprise:

There are significant differences between failing to oversee employee
fraudulent or criminal conduct and failing to recognize the extent of a
Company’s business risk. Directors should, indeed must under
Delaware law, ensure that reasonable information and reporting
systems exist that would put them on notice of fraudulent or criminal
conduct within the company. Such oversight programs allow
directors to intervene and prevent frauds or other wrongdoing that
could expose the company to risk of loss as a result of such conduct.54

As this Court stated more recently, “imposing Caremark-type duties on directors to

monitor business risk is fundamentally different from imposing on directors a duty

to monitor fraud and illegal activity.” 55

52
Louisiana Mun. Police Empls.’ Ret. Sys. v. Pyott, 46 A.3d 313, 340 (Del. Ch. 2012),
rev’d on other grounds, 74 A.3d 612 (Del. 2013).
53
Id. at 341.
54
In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 131 (Del. Ch. 2009).
55
In re The Goldman Sachs Group, Inc. S’holder Litig., 2011 WL 4826104, at *22 (Del.
Ch. Oct. 12, 2011) (internal quotation omitted).
20
 2. The Complaint Fails to Plead Particularized Facts from
Which it Reasonably May be Inferred that Defendants
Acted in Bad Faith

In this case, plaintiff does not contend that Capital One’s directors failed to

implement any reporting or information systems or controls with respect to

BSA/AML compliance. 56 Plaintiff would be hard-pressed to advance such an

argument given the numerous documents he obtained from the Company through

his Section 220 demand that show the opposite. Those documents, which are

referenced throughout the Complaint, show that the members of the Audit and Risk

Committee and its successor committees received at least twenty-five reports on a

regular basis during the three-and-a-half-year period in question (June 2011 to

January 2015) explaining the Company’s AML risk exposure and detailing

management’s plans to address the exposure,57 and that similar reports also were

provided to the full board periodically. 58

Plaintiff instead contends that the Capital One board consciously failed to

act after learning about “evidence of illegality.” 59 More specifically, plaintiff

contends that, despite the Company’s statutory obligation to maintain BSA/AML

56
Pl.’s Ans. Br. 32-33.
57
See Compl. ¶¶ 51-68, 70-71, 73-74, 76-77, 80 (describing over twenty-five reports
provided to the Audit and Risk Committee and its successor committees).
58
Id. ¶¶ 72, 78.
59
Pl.’s Ans. Br. 31 (internal quotation omitted).

21
controls and procedures, its directors consciously ignored “numerous red flags

demonstrating the statutory inadequacy of those control and procedures.”60 The

gravamen of the Complaint is that these alleged inadequacies concerned the

Company’s provision of banking services to check cashing businesses, which

exposed Capital One to liability for money-laundering activities they committed.61

Plaintiff does not identify a key event or particular document allegedly

constituting a red flag, but instead advances a much more diffuse theory.

Specifically, plaintiff contends that the numerous reports that were provided

regularly to the Capital One directors from June 2011 to January 2015 constituted a

series of red flags that should have triggered a duty for the board to act.62

According to plaintiff, armed with the information in these reports, the board

should have intervened and independently conducted “some type of compliance

check” at some point during this three-and-a-half-year period, 63 and the board’s

failure to do so justifies a reasonable inference that the defendants “conscious[ly]

60
Id. 33-34.
61
See Compl. ¶¶ 2-3, 5-6, 105-6.
62
Tr. Oral Arg. at 23.
63
Tr. Oral Arg. at 30.

22
disregard[ed] . . . their duty to implement internal controls required by BSA/AML

regulations” and therefore breached their fiduciary duty of loyalty. 64

When pressed to be more specific, plaintiff identified five reports, one for

each year from 2011 to 2015, as his “best” evidence of red flags.65 Using that

framework, I next review the allegations in the Complaint concerning these five

reports along with other statements in them and from other reports referenced in

the Complaint that I may consider under the incorporation-by-reference doctrine.66

In conducting this review, I do not rely on the truth of the matters asserted in the

reports that are not repeated in the Complaint, but I consider those parts for the

purpose of assessing what information was made available to the directors, which

speaks to the directors’ states of mind and bears on whether it would be reasonable

to infer that they intentionally disregarded their fiduciary duties in bad faith—the

core inquiry in a Caremark oversight claim. 67

64
Pl.’s Ans. Br. 28.
65
Tr. Oral Arg. at 23.
66
See supra Part II.A.1.
67
See Vanderbilt Income and Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691
A.2d 609, 613 (Del. 1996) (“The exceptions to the general Rule 12(b)(6) prohibition
against considering documents outside of the pleadings are usually limited to two
situations. The first exception is when the document is integral to a plaintiff’s claim and
incorporated into the complaint. The second exception is when the document is not being
relied upon to prove the truth of its contents.”) (internal quotation omitted).

23
 For 2011, plaintiff referred to the Audit and Risk Committee’s “1Q 2011

Enterprise State of Compliance” report dated June 2011.68 The Complaint alleges

this report:

. . . shows high quantity of AML risk, high future risk, and poor and
worsening quality of AML risk management. It also shows the high
quantity of risk and future risk as unchanged, implying that the Audit
and Risk Committee Defendants had been aware of these risk levels
before the first quarter of 2011. The high quantity of AML risk
shown in the report was attributed specifically to “high risk products
and services, a large branch network located in high intensity drug
trafficking and metropolitan areas, and a high risk customer base that
includes most large New York check cashing businesses.” The poor
and worsening quality of AML risk management was attributed to
“operational process breakdowns.”69

Other parts of the same report stated that: “Net AML Risk remained low, trending

steady during the quarter. . . . AML Compliance is engaged in all projects to ensure

compensating controls are in place. . . . Remediation is underway. . . . AML and

Fraud working to deliver enhanced fraud monitoring of ACH payments which will

decrease risk.”70

68
Tr. Oral Arg. at 24.
69
Compl. ¶ 51.
70
Shauger Aff. Ex. H (1Q 2011 Enterprise State of Compliance report to the Audit and
Risk Committee, dated June 2011) at CONADEL0001187.

24
 For 2012, plaintiff pointed to the Audit and Risk Committee’s “1Q 2012

Enterprise State of Compliance” report dated June 5, 2012. 71 The Complaint

alleges that this report:

. . . highlighted the Company’s “At Risk” and “Worsening” AML
internal control environment. The report stated that “Enterprise Net
Risk has been downgraded” and described AML “Inherent Risk” as
“High,” due to “high risk products and services, large branch network
located in high intensity drug trafficking and metropolitan areas, high
risk customer base that includes most large New York check cashing
businesses,” AML “Governance & Control” as “At Risk,” and the
“Future Trend” as “Worsening.” The report further stated that in
March over 10% of AML controls were “operating ineffectively,” and
suffered from “elongated time to resolve exceptions,” specifically
including AML-critical CIP exceptions.72

Other parts of the same report stated that the “Medium” risk rating was partially

due to “inadequate control environment in Canada . . . and the anticipated

complexities of integrating HSBC and ING” 73 and listed a series of “[a]ctions

needed to get back into stated [risk] appetite.”74 In other words, management had

identified to the Audit and Risk Committee the actions they believed necessary to

achieve the Company’s compliance goal.

71
Tr. Oral Arg. at 26.
72
Compl. ¶ 55.
73
Shauger Aff. Ex. F (1Q 2012 Enterprise State of Compliance report to the Audit and
Risk Committee, dated June 5, 2012) at CONADEL0001528.
74
Id.

25
 Additionally, a memo from the Chief Compliance Officer to the Audit and

Risk Committee from the month before stated that management was preparing a

detailed assessment of the AML program deficiencies noted in a recent regulatory

action against Citibank to make sure Capital One’s own program was adequate.75

A few months later, in October 2012, the Chief Compliance Officer reported to the

Audit and Risk Committee in another memo that: “We are watching several trends

that may impact our risk profile and compel us to modify our approach or control

environment. The most significant issue arises from recent enforcement orders

against financial institutions in their AML and OFAC Programs and the shift the

OCC will take in examining our Program.” 76 That same month, the Audit and Risk

Committee recommended to the board certain revisions to the Company’s AML

policy. 77

For 2013, plaintiff focused on the Audit and Risk Committee’s “Enterprise

Risk Profile: Summary Report” dated February 12, 2013.78 The Complaint alleges

this report:

. . . provided the Audit and Risk Committee Defendants with
additional warnings about the Company’s “High” AML compliance

75
Shauger Aff. Ex. C (memo re May 2012 Compliance Risk Update, dated May 7, 2012)
at CONADEL0001469.
76
Shauger Aff. Ex. B (memo re 2012 AML and OFAC Compliance Risk Assessment,
dated October 22, 2012) at CONADEL0002458.
77
Tr. Oral Arg. at 31.

26
 risk. The report warned that “[f]ailing to mitigate [this] risk[] could
result in non-compliance with applicable requirements and, in a worst
case scenario, fines and reputational exposure similar to those
incurred under recent consent orders.” The report further described
AML as the “Top Risk” and described how “based on recent
enforcement actions left unchecked the consequences of unmanaged
risks in this area could result in violations of law.”79

Another part of the same report reiterated the regulatory actions that had been

taken against other financial institutions and the inherent risk posed by money

laundering activity: “While the corporate AML program is sound, regulatory

actions at other financial institutions have been well publicized. Inherently, money

laundering, terrorist financing, and economic sanctions remain a top risk for

financial institutions. Management is proactively ensuring the corporate AML

program is strengthened to meet evolving expectations.” 80 A second presentation

provided to the Audit and Risk Committee on the same date elaborated on

management’s initiatives to address the Company’s AML risk:

Management is taking action to put remediation plans and dates in
place. Focus is on establishing the correct governance in Enterprise
Payments to address cash handling policy and operational needs,
continued build of AML Model Governance processes, and
moving/revising first line of defense controls for CIP.81
78
Tr. Oral Arg. at 26.
79
Compl. ¶ 62.
80
Shauger Aff. Ex. M (Enterprise Risk Profile report to the Audit and Risk Committee,
dated February 12, 2013) at CONADEL0000656.
81
Shauger Aff. Ex. N (Q4 2012 Enterprise State of Compliance report to the Audit and
Risk Committee, dated February 12, 2013) at CONADEL0000757.

27
 According to the Complaint, yet another report provided to the Audit

Committee on October 24, 2013, “seemed to spark in earnest the Board’s reactive

mad dash efforts—ultimately far too little too late—to rectify Capital One’s

critically deficient AML controls.”82 In an unusual twist, plaintiff’s counsel

disclaimed this exculpatory allegation of his own Complaint, which is repeated

elsewhere in the Complaint,83 as not “well-pled.”84

A few months later, in a compliance report for the fourth quarter of 2013

dated January 23, 2014, the members of the Audit Committee were informed that

management had decided to exit the business of serving check cashers “in parallel”

with an investigation of potential violations of anti-money laundering laws that

was being conducted of several of the Company’s clients. 85 A memorandum sent

to the members of the Audit and Risk Committee on the same day further

explained that management’s decision to exit the check cashing business was

expected to be executed in 2014, and that Capital One’s “AML Compliance

Program is operating within tolerance” outside of the “Check Casher Group:”

82
Compl. ¶ 68.
83
See id. ¶ 70.
84
Tr. Oral Arg. at 46.
85
Compl. ¶ 70.

28
 • Management has decided to exit the Check Cashing business and a
plan is underway to execute this decision throughout 2014. AML
is closely monitoring these account relationships and performing
additional due diligence as they wind down.

• With the exception of the Check Casher Group, the core AML
Compliance Management Program is operating with tolerance;
however, AML inherently remains a top risk to the company. 86

For 2014, plaintiff relied on the Audit Committee’s “Corporate Audit &

Security Services First Quarter 2014” report dated April 25, 2014. 87 The

Complaint alleges that this report:

. . . described Capital One’s internal audit findings. Far from showing
improvement following the stark warnings received by the Individual
Defendants in the preceding months, the Company’s “High” risk
AML Compliance Risk Management program was rated
“Inadequate,” the worst possible rating. This would begin a series of
internal reports showing that in the face of extreme risk and regulatory
scrutiny, the Individual Defendants continued to fail improving
Capital One’s AML controls to an acceptable level. The report cites a
need for robust procedures, well-trained associates, and a strong
management review function to comply with FinCEN and bank
regulators’ expectations. It also identified other key issues of concern,
including inconsistencies in investigation and narrative preparation
related to alerted transactions, lack of associate training, and a weak
management review process that failed to make robust notations, pose
questions, or challenge conclusions.88

86
Bennett Aff. Ex. 5 (memo re 2013 AML and OFAC Compliance Risk Assessment,
dated January 23, 2014) at CONADEL0000903.
87
Tr. Oral Arg. at 28.
88
Compl. ¶ 73.

29
Other parts of the same report stated that the audit department concluded that

Capital One’s “Bank Secrecy Act Operations Procedures are quite detailed,” that

the “unplanned use of consultants in the compliance area required to support one-

time efforts related to enhancing the BSA/AML risk assessment methodology and

audit program” had caused the department to go over budget, and that the

department’s contractor usage “is primarily driven by additional projects

supporting the compliance audit team in areas including quality assurance and

enhancements of the BSA/AML risk assessment process.” 89

In a memo to the Audit Committee for the next quarter, the Chief

Compliance Officer reported that the Company had launched a comprehensive

initiative to improve its AML compliance program:

AML remains a top compliance risk for the company, primarily due to
heightened regulatory expectations; high alert volumes; a need to
enhance AML controls and strengthen the AML organization; and an
ongoing law enforcement investigation into alleged criminal activity
by certain of the company’s commercial clients.

*****

In coordination, the Chief Risk Officer, the Chief Compliance Officer
and the new Chief AML Officer have launched a comprehensive
initiative to improve our enterprise AML compliance program,
including all core controls, processes, and policies.90
89
Shauger Aff. Ex. S (Corporate Audit & Security Services First Quarter 2014 Audit
Committee Report, dated April 25, 2014) at CONADEL0001062, CONADEL0001069.
90
Shauger Aff. Ex. V (memo re Quarterly Compliance Report for the Second Quarter of
2014, dated July 24, 2014) at CONADEL0001276.

30
 The fifth and final report plaintiff identified as his best evidence of red flags

is the Audit Committee’s “Corporate Audit & Security Services Fourth Quarter

2014” report dated January 22, 2015.91 The Complaint discusses two statements in

this report: that it “confirmed the Company’s AML Program was still rated ‘At

Risk’ and described as ‘Inadequate,’” and that it “reported on ‘risk management

and control issues,’ warning ‘significant effort remains to enhance the overall

AML [Compliance Management Program].’” 92 But the report also said the

following:

Management is in the process of addressing ineffective model
governance practices. . . . The Model Risk Office issued an AML
Notice, . . . , which requires high risk AML models to be compliant
with the Model Policy by April 2015, while medium and low risk
AML models are expected to be fully compliant by October 2015. . . .
Management self-identified the need to ensure a uniform and
coordinated approach to referring fraud cases for potential SAR and
STR reporting. . . . Prior to the conclusion of this audit, management
established a dedicated workstream in the AML Strategic Plan to
address this concern by December 31, 2014. 93

Additionally, in a section entitled “AML Strategic Plan,” the report included the

observations that “[w]here specific needs have been identified, the [AML

91
Tr. Oral Arg. at 29.
92
Compl. ¶ 80.
93
Bennett Aff. Ex. 6 (Corporate Audit & Security Services Fourth Quarter 2014 Audit
Committee Report, dated January 22, 2015) at CONADEL0002577,
CONADEL0002582.

31
compliance program] has elevated recruiting activities to support delivery

commitments” and that “[d]uring the fourth quarter, management made a

deliberate decision to focus efforts on completing deliverable commitments.” 94

To summarize, the five reports plaintiff identified as his best evidence of red

flags show that Capital One’s directors were made aware that (1) the Company’s

assessment of its AML compliance risk had escalated from “low” in the first

quarter of 2011,95 to “medium” in the first quarter of 2012,96 and then to “high” as

of February 2013,97 (2) that management had decided to exit the business of

serving check cashers by January 2014, and (3) that the Company’s AML risk

exposure remained high in 2014 as it implemented its plan to exit the check

cashing business.98 None of these reports, however, states that the Company’s

94
Defs.’ Reply Br. Ex. B (Corporate Audit & Security Services Fourth Quarter 2014
Audit Committee Report, dated January 22, 2015) at CONADEL0002576.
95
Shauger Aff. Ex. H (1Q 2011 Enterprise State of Compliance report to the Audit and
Risk Committee, dated June 2011) at CONADEL0001187.
96
Shauger Aff. Ex. F (1Q 2012 Enterprise State of Compliance report to the Audit and
Risk Committee, dated June 5, 2012) at CONADEL0001528.
97
Shauger Aff. Ex. M (Enterprise Risk Profile report to the Audit and Risk Committee,
dated February 12, 2013) at CONADEL0000675; see also id. Ex. N (Q4 2012 Enterprise
State of Compliance report to the Audit and Risk Committee, dated February 12, 2013) at
CONADEL0000757.
98
See Shauger Aff. Ex. S (Corporate Audit & Security Services First Quarter 2014 Audit
Committee Report, dated April 25, 2014) at CONADL0001062; Bennett Aff. Ex. 6
(Corporate Audit & Security Services Fourth Quarter 2014 Audit Committee Report,
dated January 22, 2015) at CONADEL0002577.

32
BSA/AML controls and procedures actually had been found to violate statutory

requirements at any time or that anyone within Capital One had engaged in

fraudulent or criminal conduct. In other words, the core factual allegations of the

Complaint do not amount to red flags of illegal conduct.99

Giving plaintiff all reasonable inferences, the allegations of the Complaint

plead at most flags of a different hue, namely yellow flags of caution concerning

the Company’s escalating AML compliance risk that was occurring in tandem with

heightened regulatory scrutiny of AML compliance in the financial services

industry. The escalation occurred over a two-year period and led to management’s

decision less than one year later to exit the business of serving check cashers,

which was the root cause of Capital One’s AML compliance exposure according to

the Complaint. Significantly, the reports the directors received did not place them

on notice that management had refused to act or displayed an indifference to

complying with the BSA/AML. To the contrary, the same reports that described

the Company’s heightened compliance risk simultaneously explained to the

directors in considerable detail on a regular basis the initiatives management was

taking to address those problems and to ameliorate the AML compliance risk.

99
Although the OCC found in July 2015 “regulatory deficiencies in [Capital One’s]
AML program emanating from [its] former Check Cashing Group within the Commercial
Banking business,” Compl. ¶ 83, this event occurred in July 2015 after the Company had
decided to exit the check cashing business, which explains why plaintiff does not view
that event to have been a red flag. Tr. Oral Arg. at 33-34.

33
Thus the factual context here is fundamentally inconsistent with the inference

plaintiff asks the Court to draw—that the directors must have known they were

breaching their fiduciary duties by tolerating a climate in which the Company was

operating part of its business in defiance of the law.

The factual allegations of this case stand in stark contrast to the two key

authorities on which plaintiff relies: this Court’s decisions in the Massey and Pyott

cases. In Massey, the company “had pled guilty to criminal charges, had suffered

other serious judgments and settlements as a result of violations of law, had been

caught trying to hide violations of law and suppress material evidence, and had

miners suffer death and serious injuries at its facilities.”100 Based on these and

other “objective facts” of the company’s record as a “recidivist” law-breaker, the

Court found it was reasonably inferable “that the Board and management were

aware of a troubling continuing pattern of non-compliance in fact and of a

managerial attitude suggestive of a desire to fight with and hide evidence from the

company’s regulators,” and thus opined that a viable Caremark claim likely had

been pled. 101

In Pyott, plaintiff’s particularized allegations allowed the Court to draw an

inference that the Allergen board “knowingly approved and subsequently oversaw

100
Massey, 2011 WL 2176479, at *20.
101
Id. at *20-21.

34
a business plan that required illegal off-label marketing and support initiatives for

Botox.”102 In other words, Pyott involved the board’s “knowing use of illegal

means to pursue profit”103 in contravention of the common sense principle that “a

fiduciary of a Delaware corporation cannot be loyal to a Delaware corporation by

knowingly causing it to seek profits by violating the law.” 104

Unlike in Massey and Pyott, plaintiff does not contend, and the pled facts

would not warrant the inference, that Capital One’s management embraced a

strategy to pursue profits by employing illegal means, much less that its directors

were knowingly complicit in such a strategy. To the contrary, the Complaint’s

allegations evidence that Capital One’s management made efforts to cope with

tightening regulations and more aggressive AML enforcement actions, and

regularly kept the directors informed of those efforts along the way. Those efforts

included designation of a new Chief AML Officer, monthly training, quarterly

internal audits, other initiatives taken in response to the changing regulatory

102
Pyott, 46 A.3d at 356.
103
Id. at 352.
104
Id.

35
landscape,105 and ultimately, the decision to exit altogether the check cashing

business that presented the most acute BSA/AML challenges. 106

As discussed previously, the Delaware Supreme Court made clear a decade

ago that directors can be found liable for a Caremark oversight claim only if they

fail to discharge their fiduciary duties in good faith, meaning that “the directors

knew that they were not discharging their fiduciary obligations.” 107 “Good faith,

not a good result, is what is required of the board.”108 As our Supreme Court

explained more recently in Lyondell Chemical Co. v. Ryan, “there is a vast

difference between an inadequate or flawed effort to carry out fiduciary duties and

a conscious disregard for those duties.” 109

Here, the allegations of the Complaint and the documents incorporated

therein would allow reasonable minds to argue either side of a debate over whether

the directors’ oversight of the Company’s BSA/AML compliance program was

sufficiently robust or flawed. But what those allegations do not reasonably permit

105
Shauger Aff. Ex. Q (Anti-Money Laundering (AML) Assessment report to the Audit
and Risk Committee, dated February 12, 2013) at CONADEL0000762.
106
Bennett Aff. Ex. 5 (memo re 2013 AML and OFAC Compliance Risk Assessment,
dated January 23, 2014) at CONADEL0000903.
107
Stone, 911 A.2d at 370.
108
In re The Goldman Sachs Group, Inc. S’holder Litig., 2011 WL 4826104, at *23.
109
Lyondell Chemical Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009).

36
for the reasons explained above is an inference that the defendants consciously

allowed Capital One to violate the law so as to sustain a finding they acted in bad

faith. As such, plaintiff has failed to plead with particularity that a majority of

Capital One’s ten-member board acted in such an egregious manner that they

would face a substantial likelihood of liability for breaching their fiduciary duty of

loyalty so as to disqualify them from applying disinterested and independent

consideration to a stockholder demand. Thus, demand is not excused as to Count I.

C. Demand Is Not Excused for the Unjust Enrichment Claim

Count II of the Complaint asserts that defendants “were unjustly enriched as

a result of the compensation and director remuneration they received while

breaching fiduciary duties owed to Capital One.” 110 Plaintiff readily acknowledges

that this claim rises or falls with the viability of Count I. 111 Thus, because plaintiff

has failed to allege particularized facts to excuse his failure to make a demand

concerning Count I, it necessarily follows that demand would not have been futile

as to Count II.

III. CONCLUSION

For the foregoing reasons, plaintiff has failed to demonstrate that demand

would have been futile with respect to either of the two claims in the Complaint.

110
Compl. ¶ 110.
111
Tr. Oral Arg. at 39.

37
Accordingly, defendants’ motion to dismiss the Complaint with prejudice is

GRANTED.

IT IS SO ORDERED.

38