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[PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 20-14352
____________________
JERRELL WHITTEN,
derivatively o.b.o. FleetCor Technologies, Inc.,
Plaintiff-Appellant,
versus
RONALD F. CLARKE,
MICHAEL BUCKMAN,
JOSEPH W. FARRELLY,
THOMAS M. HAGERTY,
MARK A. JOHNSON, et al.,
Defendants-Appellees.
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2 Opinion of the Court 20-14352
____________________
Appeal from the United States District Court
for the Northern District of Georgia
D.C. Docket No. 1:17-cv-02585-LMM
____________________
Before WILLIAM PRYOR, Chief Judge, JORDAN, and ANDERSON, Cir-
cuit Judges.
ANDERSON, Circuit Judge:
Delaware corporate law requires a shareholder who intends
to initiate a derivative action on behalf of a corporation to either
make a demand on the board of directors to rectify the alleged
wrongs, or show why demand is excused. Under Delaware law,
demand is excused, among other reasons, if a majority of the board
of directors faces a substantial likelihood of liability. In July 2017,
Whitten, a shareholder and citizen of Illinois, brought this share-
holder derivative action alleging breach of fiduciary duties by
FleetCor’s directors and executives without first making a demand
on the board. Whitten argues that demand was excused because a
majority of the board faced a substantial likelihood of liability for
their breach of fiduciary duties. The district court held that Whit-
ten had failed to adequately plead that demand was excused and
dismissed Whitten’s claims. After careful review and with the ben-
efit of oral argument, we affirm.
I. BACKGROUND
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20-14352 Opinion of the Court 3
Whitten filed his complaint in this shareholder derivative ac-
tion on July 10, 2017. Following other legal developments, detailed
below, Whitten filed an amended complaint. The complaint
names as defendants FleetCor’s CEO, Ronald F. Clarke, FleetCor’s
CFO, Eric R. Dey, and all but one member of FleetCor’s Board of
Directors. 1 Clarke is the only member of the Board who is not an
Outside Director. Dey is not a member of the Board. Whitten
alleges breaches of fiduciary duties and unjust enrichment by the
Defendants. The complaint names FleetCor, incorporated in Del-
aware and headquartered in Georgia, a nominal defendant.
FleetCor provides workforce payment products and derives
its revenue primarily from the sale and maintenance of its fuel card
programs for businesses. Fuel cards are generally distributed by
businesses to their employees, allowing those employees to pur-
chase fuel at gas stations. FleetCor also coordinated with partners,
like Chevron/Texaco, to implement branded fuel card programs.
In 2007, FleetCor contracted with Chevron to manage Chevron’s
card program for ten years. That relationship ended on December
31, 2016.
1
The named defendants that sat on FleetCor’s Board of Directors at the time
the first complaint was filed include: Ronald F. Clarke (“Clarke”), Michael
Buckman (“Buckman”), Joseph W. Farrelly (“Farrelly”), Thomas M. Hagerty
(“Hagerty”), Mark A. Johnson (“Johnson”), Richard Macchia (“Macchia”), Jef-
frey S. Sloan (“Sloan”), and Steven T. Stull (“Stull”). Hala Moddelmog, the
other Director at the time the underlying action was commenced, is not a
party to this suit.
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4 Opinion of the Court 20-14352
Whitten alleges that FleetCor engaged in a scheme to artifi-
cially inflate its stock price between February 2016 and May 2017.
Whitten alleges that during this period, FleetCor advertised on its
website that FleetCor clients “[p]ay no fees—no set-up fees, trans-
action fees, card fees or annual fees.” Furthermore, Whitten al-
leges that FleetCor’s sales staff were told to market FleetCor’s fuel
cards as having no fees. In contrast to its marketing, Whitten al-
leges that FleetCor charged a multitude of fees, including late fees,
high risk fees, Minimum Program Administration fees, Program
Fees, Account Fees, and Convenience Network and Out of Net-
work Fees. FleetCor allegedly tested its ability to impose such fees
in certain customers’ invoices. FleetCor allegedly waited to do so
until a few months had passed when most customers would stop
monitoring their invoices. Whitten argued that these allegedly de-
ceptive business practices artificially inflated FleetCor’s stock.
Whitten also alleges that FleetCor included false or mislead-
ing statements in the company’s 2015 and 2016 10-K filings. Whit-
ten notes that the Defendant directors all signed those filings.
Whitten further alleges that the Board’s Audit Committee was re-
quired to discuss earnings releases and earnings guidance with
management and knowingly or recklessly reviewed and approved
of the false or misleading statements allegedly contained therein.
Whitten specifically notes that one Board member, Macchia, re-
viewed and revised an earnings call script.
Whitten further alleges that, during this period, five mem-
bers of the Board sold stock: Clarke, Farrelly, Hagerty, Johnson,
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20-14352 Opinion of the Court 5
and Macchia (collectively, “Selling Defendants”). Whitten argues
that those directors traded on adverse, nonpublic information and,
therefore, face a substantial likelihood of liability for those insider
stock sales.
Whitten’s complaint highlights numerous public reports
and investigations into FleetCor. The first was published on March
1, 2017, when Capitol Forum, a consumer-focused financial jour-
nalism publication, published a report raising questions about the
legitimacy of FleetCor’s fee-based income. On March 20, 2017,
Capitol Forum published a follow-up report providing more details
on the alleged scheme. On April 4, 2017, Citron Research, an
online stock commentary site, published a similar report detailing
FleetCor’s alleged fee scheme. On April 27, 2017, Capitol Forum
published a report on FleetCor’s bill payment system. And on that
same day, Citron published a follow-up report on FleetCor’s fees.
Shortly thereafter, on May 1, 2017, Chevron filed suit against
FleetCor alleging that “FleetCor seeks to maximize its profits by
harvesting the accounts for fees while failing to service the ac-
counts at the contractually required levels.” Chevron’s complaint
specifically alleged that FleetCor “allow[ed] the number of sales
personnel to fall below contractual requirements; increas[ed] cus-
tomer card shipping-and-handling fees without approval; and at-
tempt[ed] to cut call-center hours without approval.” On June 14,
2017, a federal securities law class action was filed against FleetCor.
Two and a half years later, on December 20, 2019, the Fed-
eral Trade Commission (“FTC”) brought suit against FleetCor,
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6 Opinion of the Court 20-14352
alleging violations of the Federal Trade Commission Act, 15 U.S.C.
§ 53(b). The FTC complaint alleged FleetCor engaged in deceptive
billing and sales practices to collect unwarranted fees. That same
day, FleetCor issued a press release stating that the FTC’s claims
lacked merit and that FleetCor disagreed with them.
In its briefing to the district court, Whitten argued that de-
mand on the Board was futile for two reasons. First, Whitten ar-
gued that FleetCor’s press release in response to the FTC com-
plaint shows that the Board prejudged the claims here. Second,
Whitten argued that a majority of the Board faced a substantial
likelihood of liability on the claims. The district court found that
neither of these arguments showed that demand was futile.
On the prejudgment claim, the district court held that direc-
tor impartiality is determined at the time the plaintiff’s complaint
is filed. Therefore, FleetCor’s press release in December 2019, al-
most two and a half years after the filing of Whitten’s complaint,
could not show that the Board prejudged the merits and that de-
mand would have been futile in July 2017. The district court also
found that Whitten failed to allege that the press release was at-
tributable to the Board. Whitten does not appeal this holding.
On the substantial likelihood of liability claim, which Whit-
ten does appeal, the district court held that his argument also failed.
Although the district court suggested that the Board should have
known about FleetCor’s alleged fee scheme, the district court held
that Whitten failed to adequately plead that at least a majority of
the Board actually knew about the fee scheme. Because Whitten’s
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20-14352 Opinion of the Court 7
claims for liability based on insider trading and disseminating false
or misleading statements required Board knowledge of the alleg-
edly fraudulent scheme, the district court held that those claims
failed. The district court further held that Whitten failed to allege
particularized facts showing that the Selling Defendants knew ad-
verse, nonpublic information and traded on that information. The
district court additionally held that Whitten failed to allege that any
Board member besides Clarke and Macchia played any role in the
allegedly misleading earnings guidance. And the district court
noted that signing a 10-K report is insufficient by itself to sustain a
misstatement claim.
Accordingly, the district court granted Defendants’ motion
to dismiss because Whitten failed to show demand was excused.
This appeal followed.
II. JURISDICTION
The district court had jurisdiction over this case through di-
versity jurisdiction. 28 U.S.C. § 1332. Typically, in a shareholder’s
derivative action, “the corporation is properly realigned as a plain-
tiff since it is the real party in interest.” Duffey v. Wheeler, 820
F.2d 1161, 1163 (11th Cir. 1987) (citing Koster v. Lumbermens Mut.
Cas. Co., 330 U.S. 518, 522–23, 67 S. Ct. 828, 831 (1947)). If
FleetCor were realigned as a plaintiff, complete diversity would be
destroyed because both FleetCor and members of the Board are
domiciled in Georgia. That would remove this case from our ju-
risdiction.
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8 Opinion of the Court 20-14352
But where “the management is antagonistic to the stock-
holder,” the corporation is properly a defendant. Smith v. Sperling,
354 U.S. 91, 96, 77 S. Ct. 1112, 1115 (1957). And “if the complaint
in a derivative action alleges that the controlling shareholders or
dominant officials of the corporation are guilty of fraud or malfea-
sance, then antagonism is clearly evident and the corporation re-
mains a defendant.” Liddy v. Urbanek, 707 F.2d 1222, 1224 (11th
Cir. 1983). Whitten’s complaint makes such allegations. There-
fore, based on Whitten’s allegations, there is the requisite antago-
nism between Whitten and management. See id. FleetCor, then,
remains a nominal defendant. Because Whitten is a citizen of Illi-
nois and no defendant is domiciled in that state, there is complete
diversity between the parties here, and we have jurisdiction.
III. STANDARD OF REVIEW
We have long reviewed a “district court’s dismissal under
Federal Rule of Civil Procedure 23.1 for abuse of discretion.”
Freedman v. magicJack Vocaltec, Ltd., 963 F.3d 1125, 1130–31
(11th Cir. 2020) (citing Stepak v. Addison, 20 F.3d 398, 402 (11th
Cir. 1994)); see also Rothenberg v. Sec. Mgmt. Co., 667 F.2d 958,
960 (11th Cir. 1982). The district court abuses its discretion when
it “applies an incorrect legal standard, or applies improper proce-
dures, or relies on clearly erroneous factfinding, or if it reaches a
conclusion that is clearly unreasonable or incorrect.” Schiavo ex
rel. Schindler v. Schiavo, 403 F.3d 1223, 1226 (11th Cir. 2005) (per
curiam). “A district court would necessarily abuse its discretion if
it based its ruling on an erroneous view of the law or on a clearly
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20-14352 Opinion of the Court 9
erroneous assessment of the evidence.” Highmark Inc. v. Allcare
Health Mgmt. Sys., Inc., 572 U.S. 559, 563 n.2, 134 S. Ct. 1744, 1748
n.2 (2014) (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
405, 110 S. Ct. 2447, 2461 (1990)).
Whitten argues that our review here should be de novo for
two reasons. First, Whitten argues that since Delaware law gov-
erns the standard for demand excusal and Delaware reviews dis-
missals for a demand failure de novo, we should do so as well. Sec-
ond, Whitten notes that federal courts are trending toward de novo
review of dismissals under Rule 23.1. Neither argument requires
any change in our standard of review.
First, while the substantive requirements for whether de-
mand is excused are defined by Delaware law in this appeal, Garber
v. Lego, 11 F.3d 1197, 1201 (3d Cir. 1993) (citing Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 108–09, 111 S. Ct. 1711, 1723 (1991)),
the “proper standard of review is a question of federal procedure
and is governed by federal law,” West v. State Farm Fire & Cas.
Co., 868 F.2d 348, 350 (9th Cir. 1989) (citing Miller v. United States,
587 F.2d 991, 994 (9th Cir. 1978)); see also In re Abbott Lab’ys De-
rivative S’holders Litig., 325 F.3d 795, 803 (7th Cir. 2003) (“State
law does not govern the relation between the trial court and the
appellate court in a diversity litigation.” (citing Mayer v. Gary Part-
ners & Co., 29 F.3d 330, 335 (7th Cir. 1994))). Thus, while Dela-
ware courts review dismissals for failure to make a pre-suit demand
de novo under Delaware’s Rule 23.1, Brehm v. Eisner, 746 A.2d
244, 253 (Del. 2000), that does not control our standard of review.
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And contrary to Whitten’s argument, because our consistent appli-
cation of abuse of discretion review to dismissals under Federal
Rule of Civil Procedure 23.1 is not an interpretation of Delaware
law, the Delaware Supreme Court’s intervening decision in Brehm
does not render our prior holdings “clearly wrong.” See Lee v. Fro-
zen Food Express, Inc., 592 F.2d 271, 272 (5th Cir. 1979) (holding
that we follow prior panel decisions “absent a subsequent state
court decision or statutory amendment which makes this Court’s
decision clearly wrong”). 2
Second, because the standard of review for dismissals under
Federal Rule of Civil Procedure 23.1 is a matter of federal law and
not influenced by developments in Delaware law, we are bound by
prior panel decisions of our Court. Cargill v. Turpin, 120 F.3d 1366,
1386 (11th Cir. 1997). “The law of this circuit is ‘emphatic’ that
only the Supreme Court or this court sitting en banc can judicially
overrule a prior panel decision.” Id. (citing United States v.
Woodard, 938 F.2d 1255, 1258 (11th Cir. 1991)). Thus, even if fed-
eral courts are trending toward de novo review, our prior cases are
clear that we review dismissals under Rule 23.1 for abuse of discre-
tion.
Nevertheless, we clarify what our abuse of discretion review
entails here. Rule 23.1 contains numerous requirements that a
plaintiff must meet to maintain a derivative action. See FED. R. CIV.
2
Decisions of the former Fifth Circuit are binding on our Circuit. See Bonner
v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).
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20-14352 Opinion of the Court 11
P. 23.1. Whitten’s argument on appeal is that the district court
erred by concluding that he failed to adequately plead particular-
ized facts showing that demand was excused. A district court
“abuse[s] its discretion if it based its ruling on an erroneous view of
the law.” Highmark, 572 U.S. at 563 n.2, 134 S. Ct. at 1748 n.2 (in-
ternal quotation marks omitted). And whether a complaint meets
the requisite pleading standard is a question of law. Cf. id. at 563,
134 S. Ct. at 1748 (noting that “[t]raditionally, decisions on ‘ques-
tions of law’ are ‘reviewable de novo’”); Hill v. White, 321 F.3d
1334, 1335 (11th Cir. 2003) (holding that “[w]e review de novo the
district court’s grant of a motion to dismiss under 12(b)(6) for fail-
ure to state a claim”). Therefore, although a district court must
construe the allegations in the complaint “in the light most favora-
ble to the plaintiff,” Hill, 321 F.3d at 1335, and “draw all reasonable
inferences in the plaintiff’s favor,” Randall v. Scott, 610 F.3d 701,
705 (11th Cir. 2010), whether the complaint fails “to state a claim
upon which relief can be granted” is a question of law, FED. R. CIV.
P. 12(b)(6). The same is true even if the complaint is subject to a
heightened pleading standard. See Ambrosia Coal & Constr. Co.
v. Pages Morales, 482 F.3d 1309, 1316–17 (11th Cir. 2007) (review-
ing de novo a complaint subject to Federal Rule of Civil Procedure
9(b)’s heightened pleading standard for fraud). The proper proce-
dural vehicle for demand excusal in our Circuit is Rule 23.1. Peller
v. S. Co., 911 F.2d 1532, 1536 (11th Cir. 1990). But the inquiry is
similar to that with respect to Rule 12(b)(6) and Rule 9(b), so
whether the complaint adequately pleads demand excusal under
Rule 23.1 is a question of law. While we review the district court’s
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12 Opinion of the Court 20-14352
decision for abuse of discretion, a legal error made by the district
court, as Whitten argues occurred here, is reviewed de novo and,
if error, would warrant reversal.
IV. DISCUSSION
Federal Rule of Civil Procedure 23.1 governs pleading re-
quirements for derivative actions in federal court. FED. R. CIV. P.
23.1. In pertinent part, Rule 23.1 provides:
(b) Pleading Requirements. The complaint must be
verified and must:
...
(3) state with particularity:
(A) any effort by the plaintiff to obtain
the desired action from the directors or
comparable authority, and if necessary,
from the shareholders or members; and
(B) the reasons for not obtaining the ac-
tion or not making the effort.
FED. R. CIV. P. 23.1(b). Importantly, “Rule 23.1 speaks only to the
adequacy of the shareholder representative’s pleadings.” Kamen,
500 U.S. at 96, 111 S. Ct. at 1716. To “determine whether the de-
mand requirement may be excused,” id., we “must look to the sub-
stantive requirements of the exception as it is defined by the state
of incorporation,” Garber, 11 F.3d at 1201 (citing Kamen, 500 U.S.
at 108–09, 111 S. Ct. at 1723).
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Because FleetCor is incorporated in Delaware, Delaware
substantive law determines the requirements for demand excusal
here. See Garber, 11 F.3d at 1201. But since this action is in federal
court, Whitten must “state with particularity” his “reasons
for . . . not making the effort” to make a demand on the Board.
FED. R. CIV. P. 23.1(b), (b)(3). In other words, Whitten’s pleadings
must state with particularity why, under Delaware law, demand is
excused. And unlike other heightened pleading standards, Rule
23.1 provides no exceptions to the requirement to “state with par-
ticularity.” Specifically, Federal Rule of Civil Procedure 9 provides
that “[i]n alleging fraud or mistake, a party must state with partic-
ularity the circumstances constituting fraud or mistake.” FED. R.
CIV. P. 9(b). But Rule 9 allows that “[m]alice, intent, knowledge,
and other conditions of a person’s mind may be alleged generally.”
Id. Rule 23.1, however, provides no such exceptions.3 Therefore,
Whitten must state with particularity all factual allegations, includ-
ing knowledge, which are necessary to show demand excusal un-
der Delaware law.
Delaware law typically requires that a plaintiff make a de-
mand on a board before filing suit. Aronson v. Lewis, 473 A.2d 805,
3
Although Whitten alleges fraud by FleetCor, Whitten does not argue that
Rule 9(b) applies to his pleading for demand excusal. We, thus, consider that
argument waived and express no opinion on any application of Rule 9(b) to
demand excusal. See Williams v. Bd. of Regents of Univ. Sys. of Ga., 477 F.3d
1282, 1303 (11th Cir. 2007) (explaining that arguments not raised on appeal are
waived).
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809 (Del. 1984), overruled with respect to another issue by Brehm,
746 A.2d at 254 (overruling Aronson’s discussion of the appropriate
standard of review). This requirement “is a rule of substantive
right designed to give a corporation the opportunity to rectify an
alleged wrong without litigation, and to control any litigation
which does arise.” Id. Delaware law, however, excuses that re-
quirement if “that demand would be futile.” Braddock v. Zimmer-
man, 906 A.2d 776, 784 (Del. 2006).
Delaware law has traditionally provided two tests for when
demand would be futile, the test articulated in Aronson and the test
articulated in Rales v. Blasband, 634 A.2d 927 (Del. 1993). Brad-
dock, 906 A.2d at 784. Under Aronson’s two-part test, demand is
excused if the complaint pleads “particularized facts creating a rea-
sonable doubt that ‘(1) the directors are disinterested and independ-
ent or (2) the challenged transaction was otherwise the product of
a valid exercise of business judgment.’” Id. (quoting Rales, 634
A.2d at 933). But Aronson does not apply if “the subject of the de-
rivative suit is not a business decision of the board.” Rales, 634 A.2d
at 934. In that case, Rales applies, and “a 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 judg-
ment in responding to a demand.” Id.
One month after the district court held oral argument in this
case, but before the district court ruled, the Delaware Supreme
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Court clarified the requirements for demand excusal and adopted
a universal three-part test. United Food & Com. Workers Union
& Participating Food Indus. Emps. Tri-State Pension Fund v. Zuck-
erberg, 262 A.3d 1034, 1058 (Del. 2021). That three-part test, eval-
uated “on a director-by-director basis,” for determining whether
demand is excused is as follows:
(i) whether the director received a material personal
benefit from the alleged misconduct that is the sub-
ject of the litigation demand;
(ii) whether the director would face a substantial like-
lihood of liability on any of the claims that are the sub-
ject of the litigation demand; and
(iii) whether the director lacks independence from
someone who received a material personal benefit
from the alleged misconduct that is the subject of the
litigation demand or who would face a substantial
likelihood of liability on any of the claims that are the
subject of the litigation demand.
Id. at 1059. The Delaware Supreme Court described this refined
test as “[b]lending the Aronson test with the Rales test.” Id. More-
over, the Court noted that “cases properly construing Aronson,
Rales, and their progeny remain good law.” Id.
In the portion of the district court’s opinion relevant to this
appeal, the district court evaluated demand futility based on
whether “the claims exposed a majority of the Board to a substan-
tial likelihood of personal liability.” This test appears both in the
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16 Opinion of the Court 20-14352
refined three-part test described in Zuckerberg and in the progeny
of Aronson and Rales. See Conrad v. Blank, 940 A.2d 28, 37 (Del.
Ch. 2007). We apply the same test.
Whitten argues that a majority of the Board faced a substan-
tial likelihood of liability for three reasons. First, Whitten argues
that the Board knowingly and/or recklessly allowed the Company
to violate the law. Second, Whitten argues that members of the
Board engaged in insider trading. Third, Whitten argues that the
Board approved false and misleading statements. All three argu-
ments require that the Board or a majority of the Board knew
about the allegedly fraudulent scheme. Thus, we first address
whether Whitten has alleged with particularity that the Board
knew of the allegedly fraudulent scheme. Then, we address Whit-
ten’s three arguments in turn. We conclude that Whitten failed to
adequately plead demand futility.
A. Whether Whitten alleged with sufficient particu-
larity that the Board knew of the allegedly fraud-
ulent scheme.
All three of Whitten’s arguments for why members of the
Board face a substantial likelihood of liability depend on those
members of the Board having knowledge of the alleged fraudulent
scheme. And because Rule 23.1 applies, Whitten must “state with
particularity” facts showing that a majority of the Board had
knowledge or facts that allow the court to draw the reasonable in-
ference that it did. FED. R. CIV. P. 23.1.
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20-14352 Opinion of the Court 17
Whitten does not attempt to plead that each director knew
on an individual basis. However, allegations against the directors
as a group do not appear to be impermissible under Delaware law.
See In re Am. Int’l Grp., Inc., 965 A.2d 763, 797 (Del. Ch. 2009)
(noting that “these group accusations are used sparingly” but con-
cluding that “the Complaint pleads details about the fraudulent
schemes that, when taken with the pled facts regarding Matthews’
and Tizzio’s roles at AIG, support the inference that they knew of
and approved much of the wrongdoing”). After careful considera-
tion, we conclude that Whitten’s allegations fail to show that the
Board as a group or individually knew of the alleged fraudulent
scheme here.
In briefing to the district court, Whitten argued that the fol-
lowing seven facts, along with the allegation that fraudulent fees
accounted for 76 percent of FleetCor’s revenues, showed Board
knowledge:
(i) FleetCor’s illicit fees and revenues derived there-
from were closely tracked, both at the Board and em-
ployee levels; (ii) employees were directed to test fees
on vulnerable customers; (iii) customers routinely
complained, both to FleetCor and the Better Business
Bureau, regarding the illicit fees, and even sued
FleetCor for the same; (iv) Capitol Forum and Citron
published several publicly available investigative re-
ports detailing the fee scheme; (v) the Company’s for-
mer largest customer, Chevron, sued FleetCor on
May 1, 2017 for “harvesting [customer] accounts for
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18 Opinion of the Court 20-14352
fees”; (vi) shareholders filed the Securities Class Ac-
tion for the same misconduct; and (vii) federal regu-
lators were actively investigating FleetCor.
But these facts, when considered together, fail to show Board
knowledge.
For all the above facts, Whitten failed to plead that the Board
was actually aware of any of them at the relevant time for Whit-
ten’s demand on the Board. The relevant time of course is the pe-
riod of time before Whitten filed suit on July 10, 2017. That is when
Whitten would have had to make his demand on the Board to act.
And to prove that a majority of the Board had a substantial likeli-
hood of liability at that time (such that the Board could not con-
sider his demand impartially), Whitten would have to show a ma-
jority of the Board had knowledge of the allegedly fraudulent
scheme and had either acted in a manner to create personal liability
(e.g., insider trading) or delayed acting long enough to be liable for
knowingly or recklessly allowing fraud to continue.
Despite claiming in his briefs that the Board tracked reve-
nues derived from fees, the complaint actually only alleges that
FleetCor tracked related information and provides no evidence
that information indicating a fraudulent fee scheme reached the
Board at the relevant time. Cf. Rosenbloom v. Pyott, 765 F.3d
1137, 1152 (9th Cir. 2014) (concluding Board knew or should have
known about off-label marketing where complaint provided that
“Board continued to closely and regularly monitor off-label Botox
sales”). The same is true for FleetCor’s alleged testing of fees; there
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20-14352 Opinion of the Court 19
are no particularized allegations that the Board knew of the prac-
tice. Similarly, there are no allegations that customer complaints
reached the Board. As the district court noted, the one customer
lawsuit cited by Whitten was for a $1,000 fee—a lawsuit that would
be unlikely to come to the Board’s attention. Cf. McCall v. Scott,
239 F.3d 808, 822 (6th Cir. 2001) (concluding that statement in 10-
K confirming existence of qui tam action was sufficient to show
“Board was aware of the lawsuit”). Whitten argues that the Capitol
Forum and Citron reports show the Board should have known
about issues contained in those reports before publication—on the
theory that if outsiders knew, the Board should have. But Whit-
ten’s complaint fails to provide allegations, and certainly provides
no particularized allegations, showing that the Board had
knowledge of those issues until the publication of the reports, be-
ginning March 1, 2017, shortly before Whitten filed suit. March 1,
2017 is after the occurrence of the alleged misconduct that Whitten
identifies as providing the basis for a substantial likelihood of liabil-
ity. The latest alleged misstatement in Whitten’s complaint was
made February 8, 2017, and as described below, the relevant al-
leged insider sales occurred before March 1, 2017. Thus, Whitten’s
allegations fail to identify any actions taken by a majority of the
Board members such as to subject them to a substantial likelihood
of liability. Similarly, the federal securities class action was filed
less than a month before Whitten filed suit on July 10, 2017. The
FTC’s lawsuit, moreover, was brought well after Whitten filed his
complaint. And of course, Whitten was obligated to have made his
demand before he filed suit.
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20 Opinion of the Court 20-14352
The allegations regarding the Chevron lawsuit also fail to
show Board knowledge. Nothing in Whitten’s complaint shows
that the Board was aware of the allegations in Chevron’s complaint
prior to May 1, 2017. Nor did Whitten plead particularized facts
that the Board knew about Chevron ending its relationship with
FleetCor prior to the termination that occurred on December 31,
2016. And even if the Board was informed about the specifics of
the Chevron lawsuit prior to its filing or earlier, Chevron’s com-
plaint would not alert the Board to FleetCor’s alleged fraud. The
Chevron lawsuit complains that FleetCor sought “to maximize its
profits by harvesting accounts for fees” while providing “poor ser-
vice” and “failing to service the accounts at the contractually re-
quired levels.” Chevron’s complaint, then, does not indicate fraud
but rather indicates breach of contract and highlights that Chevron
was looking to avoid fees. Whitten’s allegations surrounding
FleetCor’s Board meetings similarly fall short. Those allegations
fail to show the Board was on notice of any alleged fraud or decep-
tion.
While Whitten argues that 76% of FleetCor’s revenue came
from fees and that all the fees were fraudulent, Whitten’s com-
plaint fails to plead particularized facts showing that Board mem-
bers other than Clarke knew of the fraud or knew of FleetCor’s
allegedly deceptive marketing by its salespeople. And, as the dis-
trict court noted, any inference of knowledge of the allegedly
fraudulent scheme based on the percentage of revenue FleetCor
received from fees does not extend to Outside Directors. While it
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20-14352 Opinion of the Court 21
is reasonable to assume managers are privy to the daily operations
of a company, the same is not true for Outside Directors. Cf.
Pfeiffer v. Toll, 989 A.2d 683, 693 (Del. Ch. 2010) (affording such an
inference of knowledge under very different circumstances and un-
der Rule 12(b)(6) but expressly distinguishing cases under Rule
23.1), abrogated on other grounds by Kahn v. Kolberg Kravis Rob-
erts & Co., 23 A.3d 831 (Del. 2011).
Because Whitten failed to adequately plead Board
knowledge of the allegedly fraudulent scheme, all three of his
claims that purportedly show that a majority of the Board faced a
substantial likelihood of liability fail. Nevertheless, we discuss the
three claims below in more detail.
B. Whether the Board is liable for knowingly or
recklessly allowing the alleged fraud to continue.
Defendants argue that Whitten failed to preserve any claim
that the Board knew and failed to act because he disavowed any
Caremark4 claim before the district court. Whitten responds that
his claim is not a Caremark claim, which would allege an uncon-
sidered failure of the Board, Caremark, 698 A.2d at 967, because he
alleges conscious disregard. Whitten argues that this conscious dis-
regard claim is along the lines of In re Abbott and In re Pfizer. 5 We
4
In re Caremark Int’l, Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996).
5
In re Pfizer Inc. S’holder Derivative Litig., 722 F. Supp. 2d. 453 (S.D.N.Y.
2010).
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22 Opinion of the Court 20-14352
need not decide whether Whitten waived this claim below because
he has failed to adequately plead liability on this claim.
While Whitten argues that the district court erred by ignor-
ing his theory of liability that the Board knowingly and/or reck-
lessly allowed FleetCor to violate the law, this theory is not con-
nected to an underlying claim of liability in the complaint. As
Zuckerberg makes clear, to determine demand excusal, we ask
“whether the director faces a substantial likelihood of liability on
any of the claims that would be the subject of the litigation de-
mand.” 262 A.2d 1034, 1059. In his complaint, Whitten brought
four counts against the Defendants: (1) breach of fiduciary duties
for disseminating false and misleading information to shareholders;
(2) breach of fiduciary duties for insider trading and misappropria-
tion of company information; (3) unjust enrichment; and (4) con-
tribution. Whitten’s theory that the Defendants allowed FleetCor
to violate the law, then, is not connected to the underlying claims
in his lawsuit and cannot establish demand excusal on his claims.
In other words, even if Whitten could show the Defendants know-
ingly or recklessly allowed FleetCor to violate the law, Whitten
could not show that the Defendants faced a “substantial likelihood
of liability on any of the claims” that he brought in his complaint.
Id. Therefore, Whitten’s argument that demand is excused be-
cause the Board faced liability for knowingly and/or recklessly al-
lowing FleetCor to violate the law fails.
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20-14352 Opinion of the Court 23
C. Whether a majority of the Board faces liability
for insider trading.
Whitten argues that the Selling Defendants face a substantial
likelihood of liability for their stock sales. To succeed, Whitten
must show that each of the Selling Defendants knew and traded on
“material, non-public information” about FleetCor. Guttman v.
Huang, 823 A.2d 492, 502 (Del. Ch. 2003). Because there were nine
Directors when Whitten filed his complaint, to succeed, Whitten
must show that five directors were interested (tainted) because
they faced a substantial likelihood of liability. Even assuming ar-
guendo that Whitten might be able to show that Clarke and Mac-
chia are interested based on approving misstatements (see discus-
sion below), in order to show that a majority of the Board faced a
substantial likelihood of liability, Whitten needs to show a likeli-
hood of liability for each of the three other Selling Defendants who
are on the Board—Hagerty, Johnson, and Farrelly. Because Whit-
ten cannot show that either Johnson or Farrelly face liability, Whit-
ten failed to plead demand excusal on this basis. 6
6
By focusing on Johnson and Farrelly, we do not imply that Hagerty or Mac-
chia face liability. Whitten simply must show that a majority of the Board
faces liability to establish demand excusal. In other words, Whitten must
show that there are five interested (tainted) Directors. He succeeds with re-
spect to Clarke. We have assumed arguendo that he could also include Mac-
chia. Thus, to succeed, Whitten has to show that three more Directors faced
a substantial likelihood of liability. Thus, Whitten needs all three of the other
Selling Directors—Hagerty, Johnson, and Farrelly. If Whitten fails with
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24 Opinion of the Court 20-14352
As discussed above, Whitten has failed to show that the
Board had knowledge of the alleged fraudulent scheme and that
dooms Whitten’s insider trading claims. However, even assuming
arguendo that Whitten successfully pleaded that the Board had
knowledge that Chevron would be terminating its contract with
FleetCor as early as the October 2016 Board meeting, neither John-
son nor Farrelly could face any substantial risk of liability based on
their sales because their alleged insider sales occurred before Octo-
ber 2016. 7 Their sales also occurred well before the publication of
the Capitol Forum and Citron reports. 8 Whitten’s allegations fail
to show Johnson and Farrelly face a substantial likelihood of liabil-
ity based on Whitten’s insider trading claims. Therefore, demand
was not excused.
respect to even one of the three, his claim fails. We focus on Johnson and
Farrelly only because Whitten’s failure with respect to them is most obvious.
7
Moreover, as noted above, Chevron’s dissatisfaction with FleetCor sug-
gested only dissatisfaction with contractually agreed-upon services and exces-
sive fees—not fraud.
8
It is not clear that any sales after the publication of those reports would be
suspicious since those reports are public information.
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20-14352 Opinion of the Court 25
D. Whether a majority of the Board faces liability
for knowing or reckless misstatements.
Whitten argues that the Board is liable for purported mis-
statements made in earnings calls and earnings guidance.9 This
misstatement theory is without merit for two separate and inde-
pendent reasons. First, as discussed above, Whitten failed to plead
particularized facts showing that a majority of the Board knew of
the alleged fraudulent scheme. Thus, a majority of the Board can-
not be liable for any alleged knowing or reckless misstatements in
earnings calls and earnings call guidance.
Second, Whitten must show that at least five members of
the Board are liable for the alleged misstatements. And Whitten
failed to allege that any members of the Board besides Clarke and
possibly Macchia even participated in any misstatements. Even as-
suming that any misstatement in the earnings calls could be at-
tributed to Macchia based on the limited role he played, Whitten
cannot show that the rest of the Board is subject to a substantial
likelihood of liability on the misstatement claims. Thus, even if we
9
Whitten does not appeal the district court’s holding that board members’
routine approval of FleetCor’s 10-K filings is insufficient under Delaware law
to sustain a misstatement claim. Nor would an appeal on that issue likely pre-
vail. See In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106, 134 (Del.
Ch. 2009) (concluding that allegations that directors reviewed routine disclo-
sures was insufficient to conclude that they faced a substantial likelihood of
liability).
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26 Opinion of the Court 20-14352
assume (contrary to fact) that the Board had knowledge, Whitten’s
misstatement claim would fail to show demand excusal.
Whitten argues that the district court should have reasona-
bly inferred participation by the rest of the Board based on two
considerations: (1) an email from Macchia showing he had re-
viewed and revised an earnings call script and (2) FleetCor’s corpo-
rate governance policy that provides that the Audit Committee
should discuss earnings press releases with management. But nei-
ther of those warrant any such inference. Conduct by one Board
member does not imply identical conduct by other Board mem-
bers, especially where Whitten is required to plead particularized
facts for why demand was excused and the Defendants are not sim-
ilarly situated. Cf. In re The Home Depot, Inc. S’holder Derivative
Litig., 223 F. Supp. 3d 1317, 1325 (N.D. Ga. 2016) (concluding
“group pleading may be enough” where “defendants are ‘similarly
situated’”). Macchia, as a member of the Audit Committee, has
certain duties related to earnings calls. Specifically, FleetCor’s gov-
ernance requires the Audit Committee to “discuss with manage-
ment earnings press releases . . . and any earnings guidance.” But
those discussions “may be done generally.” Thus, no reasonable
inference can be drawn from FleetCor’s corporate governance doc-
uments or Macchia’s actions that any other member of the Audit
Committee—or the Board for that matter—played any role in spe-
cific purported misstatements in earnings calls. Whitten’s argu-
ment that a majority of the Board faces a substantial likelihood of
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20-14352 Opinion of the Court 27
liability for knowing or reckless misstatements, then, fails to excuse
demand.
V. CONCLUSION
For the foregoing reasons, Whitten failed to plead particu-
larized facts showing demand was excused. Therefore, we affirm
the district court’s dismissal of Whitten’s complaint under Rule
23.1.
AFFIRMED.