United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 24, 2009 Decided December 29, 2009
No. 08-7101
CITY OF HARPER WOODS EMPLOYEES’ RETIREMENT SYSTEM,
DERIVATIVELY ON BEHALF OF BAE SYSTEMS PLC.,
APPELLANT
v.
RICHARD (DICK) L. OLVER, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:07-cv-01646)
Eric Alan Isaacson argued the cause for appellant. With
him on the briefs were Patrick J. Coughlin, Mark Solomon, and
Roger M. Adelman. Jonathan W. Cuneo entered an appearance.
Lawrence Byrne argued the cause for appellees BAE
Systems, PLC and the Individual BAE Systems PLC appellees.
With him on the brief were Mary K. Warren and Sterling P.A.
Darling, Jr.
Christopher T. Lutz, Eric M. Roth, Adir G. Waldman, and
Richard L. Brusca were on the brief for appellees the PNC
Financial Services Group, Inc. and the Allbrittons.
Before: GINSBURG and HENDERSON, Circuit Judges, and
EDWARDS, Senior Circuit Judge.
2
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: City of Harper Woods
Employees’ Retirement System (“Harper Woods”), a pension
fund, brought a shareholder derivative suit on behalf of BAE
Systems PLC (“BAE”) alleging intentional, reckless, and
negligent breaches of fiduciary duties and waste of corporate
assets by current and former directors and executives of BAE.
Harper Woods also sued PNC Financial Services Group, the
legal successor to Riggs Bank, as well as Joseph, Barbara, and
Robert Allbritton, Riggs’ former controlling shareholders and
operating executives, for aiding and abetting the alleged
breaches of fiduciary duties. The District Court dismissed the
suit, holding that English law controls and that Harper Woods
has no standing under English law to pursue the instant action.
See City of Harper Woods Employees’ Ret. Sys. v. Olver, 577 F.
Supp. 2d 124, 137 (D.D.C. 2008). Harper Woods appeals the
dismissal of its complaint, contending that the District Court
erred in applying English law. Harper Woods also asserts that,
if English law in fact bars this derivative suit, a public policy
exception to the applicable choice of law rule applies, and that
District of Columbia law should thus govern its suit.
We affirm the judgment of the District Court. First, we find
that, pursuant to the District of Columbia’s internal affairs
doctrine, English law applies to this case. Second, we hold that
Harper Woods has not shown that its complaint falls outside the
rule of Foss v. Harbottle, (1843) 2 Hare 461, 67 E.R. 189, which
establishes that the company, not a shareholder, is the proper
plaintiff in a suit seeking redress for wrongs allegedly
committed against the company. Moreover, we find that Harper
Woods has failed to demonstrate that an exception to the rule of
Foss v. Harbottle applies in this case. Finally, we hold that
Harper Woods forfeited its claim that the District Court erred in
dismissing its complaint with prejudice.
3
I. BACKGROUND
BAE is a publicly owned corporation, incorporated in
England and Wales, that operates in the United States through
its subsidiary BAE Systems, Inc. Harper Woods is a pension
fund that owns approximately 3500 American Depository
Receipts (“ADR”) representing shares of BAE. An ADR
“represents ownership in a security issued by a foreign company
in foreign markets.” City of Monroe Employees Ret. Sys. v.
Bridgestone Corp., 399 F.3d 651, 656 n.2 (6th Cir. 2005).
On September 19, 2007, Harper Woods filed a shareholder
derivative suit on behalf of BAE against BAE’s board of
directors, some of whom are also officers of the company, and
12 former officers and directors (“BAE defendants”). Harper
Woods named BAE as a nominal defendant in the suit, as is
typical with shareholder derivative suits. BAE Systems, Inc.,
the American subsidiary, was not named as a defendant.
Harper Woods alleged that the BAE defendants engaged in
“intentional, reckless, and/or negligent breaches of their
fiduciary duties of care, control and candor, involving illegal,
improper, and/or ultra vires conduct, including causing BAE to
violate the laws of the United States and international business
codes and conventions . . . by making, or permitting to be made,
improper and/or illegal bribes, kickbacks and other payments.”
Complaint ¶ 1, reprinted in 1 Joint Appendix (“J.A.”) 27.
According to Harper Woods, the BAE defendants “caused BAE
to engage in a pattern and practice of making illegal and
improper payments to secure contracts and false and misleading
statements to conceal and cover them up,” in violation of U.S.
and United Kingdom law. Id. ¶ 5, 1 J.A. 29-30. Specifically,
Harper Woods alleged that the BAE defendants “undertook
illegal and improper conduct . . . in breach of their fiduciary
duties to BAE,” including paying more than $2 billion in bribes
and kickbacks to Prince Bandar Bin Sultan of Saudi Arabia in
order to obtain a large contract (known as the Al-Yamamah
4
contract) from the Saudi Arabian Ministry of Defense. Id. ¶¶ 6-
8, 1 J.A. 30-32. Harper Woods further alleged that the “illegal
or improper payments were secretly bargained for at the outset
of the Al-Yamamah contract,” and that Bandar received most of
this money in Washington, D.C., via an account at Riggs Bank.
Id. ¶¶ 8-9, 1 J.A. 31-32. Harper Woods sought damages
(including punitive damages), an accounting by defendants, and
an order directing BAE to undertake certain corporate
governance reforms. Id. at 88-89, 1 J.A. 114-15.
The BAE defendants moved to dismiss on three grounds:
lack of standing, forum non conveniens, and lack of personal
jurisdiction. They submitted with their motion to dismiss a
declaration from Martin Moore QC, a barrister in private
practice in London appointed Queen’s Counsel in 2002. Decl.
of Martin Moore QC, ¶ 1 (Feb. 1, 2008), reprinted in 3 J.A. 755;
see also BLACK’S LAW DICTIONARY (9th ed. 2009) (defining
Queen’s Counsel as “an elite, senior-level barrister or
advocate”). Mr. Moore was “asked to give [his] view as to the
circumstances in which, as a matter of English law, a
shareholder in an English incorporated company, such as BAE
PLC, can bring proceedings derivatively on behalf of that
company to remedy alleged harm caused to the company
concerned.” Moore Decl. ¶ 6, 3 J.A. 756. BAE also asked Mr.
Moore “to consider from an English law standpoint whether the
Plaintiff’s allegations in this action are sufficient to establish its
right to bring the claims asserted in the Complaint derivatively
on behalf of BAE PLC against the named defendants.” Id.
Mr. Moore concluded that Harper Woods could not bring its
derivative action against the BAE defendants on behalf of BAE.
Id. ¶ 80, 3 J.A. 775. He stated that the conduct of the BAE
defendant directors came within the English rule of Foss v.
Harbottle, which provides that the company is the proper
plaintiff when a wrong is done to the company, whether by a
director or by others. Id. ¶ 30, 3 J.A. 763. Though the wrongs
5
allegedly committed by the BAE defendants constituted
breaches of regulatory, civil, or criminal law, the rule of Foss v.
Harbottle concerns itself with alleged wrongs done to the
company. Id. ¶¶ 37, 39, 3 J.A. 765. The “essence” of the
alleged wrongs done to the company by the director-defendants
consisted of “mismanagement and failure of oversight,”
according to Mr. Moore. Id. ¶ 17, 3 J.A. 759; see also id. ¶ 39,
3 J.A. 765-66. Since the directors’ conduct could be ratified by
a majority of shareholders, Mr. Moore stated that the company
was the proper plaintiff in an action against the directors unless
one of the exceptions to the Foss rule applied. Id. ¶¶ 39-40, 3
J.A. 766. Mr. Moore then declared that none of the exceptions
applied. See id. ¶¶ 33, 49, 52, 57, 3 J.A. 764, 768-70. Finally,
Mr. Moore described remedies for director misconduct, other
than derivative suits. Id. ¶¶ 75-79, 3 J.A. 774-75. Under
English law, these remedies include statutory rights to demand
a shareholder meeting, to submit resolutions at the meeting, and
to remove directors by ordinary resolution; to petition the High
Court in England for relief on the grounds that the company’s
affairs have been or are conducted in a way that is unfairly
prejudicial to shareholder interests; and in some circumstances
to bring a claim directly against the directors accused of
misconduct. Id. ¶¶ 76-78, 3 J.A. 774-75.
Opposing BAE’s motion to dismiss, Harper Woods
submitted a declaration from Paul Girolami QC, a barrister
appointed Queen’s Counsel in 2002 and appointed in 2006 to sit
as a deputy High Court Judge in the Chancery Division of the
High Court. Decl. of Paul Girolami QC, ¶¶ 1-2 (Apr. 23, 2008),
reprinted in 5 J.A. 1282-83. Mr. Girolami declared, “I have
been asked to give my views on, and in response to, the
declaration of Mr. Moore. Like him I have made this
declaration on the same basis as I would have done were this
expert evidence given in English proceedings.” Id. ¶ 4, 5 J.A.
1283. Additionally, Mr. Girolami stated, “It is not . . . for me to
express views on what the Complaint should properly be
6
understood as alleging, nor on whether Mr. Moore’s
understanding is correct. But it does seem to me possible that
his characterisation of the Complaint is too limited . . . .” Id.
¶ 5, 5 J.A. 1283-84. Expressing his views on English company
law, Mr. Girolami agreed with Mr. Moore that, as a general
matter, a complaint for mismanagement and failure of
supervision falls within the rule barring shareholder derivative
suits; he stated, however, that shareholders could bring a
derivative suit for other breaches beyond failure of oversight if
those breaches were incapable of ratification by a majority of
shareholders. Id. ¶ 6(3)-(4), 5 J.A. 1284-85. In particular, Mr.
Girolami asserted that, under English law, directors may commit
breaches of duty, in addition to ultra vires acts, that are
incapable of being ratified by shareholders. Id. ¶ 22, 5 J.A.
1293-94. Admitting that “there is a dearth of decided English
cases in support of the point,” Mr. Girolami explained that the
leading treatises on English law state that illegal acts cannot be
ratified by shareholders. See id. ¶¶ 22-23, 5 J.A. 1293-97.
The BAE defendants submitted a second declaration from
Martin Moore with their reply to Harper Woods’ opposition to
the motion to dismiss. In this declaration, Mr. Moore
convincingly showed “that the authoritative statements of the
rule in Foss v. Harbottle, both old and new, do not suggest that
there is an exception to the rule where conduct is illegal.”
Second Decl. of Martin Moore QC, ¶ 25 (May 23, 2008),
reprinted in 5 J.A. 1458; see also id. ¶¶ 25-37, 5 J.A. 1458-63
(citing and discussing significant English authorities indicating
that general illegality does not constitute an exception to Foss v.
Harbottle).
The District Court conducted a hearing on the motion to
dismiss on June 20, 2008. At the end of the hearing, the District
Court invited supplemental submissions on the question of
whether it is possible under U.K. law to ratify an illegal act. Tr.
of Hearing (June 20, 2008) at 88, reprinted in 5 J.A. 1633. In
7
response, the BAE defendants filed a third declaration from
Martin Moore stating that, under English law, an illegal act by
a company director is ratifiable by shareholders. Supplemental
Decl. of Martin Moore QC, ¶¶ 1-2 (June 27, 2008), reprinted in
5 J.A. 1469. Harper Woods filed a second declaration from Paul
Girolami, reaching the opposite conclusion, declaring that
shareholders cannot ratify breaches of duty by directors that
consist of “applying the company’s money in making illegal or
improper payments” in violation of criminal law. Second Decl.
of Paul Girolami QC ¶ 2 (July 7, 2008), reprinted in 5 J.A. 1474.
In its complaint, Harper Woods also named as defendants
Prince Bandar Bin Sultan; PNC Financial Services Group, the
legal successor to Riggs Bank following a merger; and Joseph,
Robert, and Barbara Allbritton, three former executives and
controlling shareholders of Riggs. PNC and the Allbrittons
(“PNC defendants”) jointly moved to dismiss the complaint,
arguing that the BAE defendants’ motion to dismiss should be
granted based on lack of standing and therefore the aiding and
abetting claims against the PNC defendants should be dismissed
as well. PNC’s and the Allbrittons’ Joint Motion to Dismiss at
2 (Jan. 31, 2008), reprinted in 1 J.A. 131; Memorandum of
Points and Authorities in Support of PNC’s and the Allbrittons’
Joint Motion to Dismiss at 9 & n.9 (Jan. 31, 2008), reprinted in
1 J.A. 145. PNC and the Albrittons additionally moved to
dismiss on two alternate grounds: (1) failure to state a claim for
aiding and abetting and (2) application of the in pari delicto
defense to bar the claims against the PNC defendants. See
PNC’s and the Allbrittons’ Joint Motion to Dismiss at 2, 1 J.A.
131.
The District Court, applying English law, granted the
motion to dismiss, holding that Harper Woods lacked standing
to bring the shareholder derivative suit. Harper Woods, 577 F.
Supp. 2d at 137. The District Court applied the common law
rule of Foss v. Harbottle, which governed shareholder derivative
8
suits until it was superseded by the U.K. Companies Act 2006.
See id. at 131, 137. Harper Woods does not contest on appeal
the District Court’s finding that the 2006 Act does not apply
retroactively to its complaint. See id. at 137.
Applying the rule of Foss v. Harbottle, the District Court
found that shareholders may not bring derivative actions under
English law except in limited circumstances, none of which is
applicable in this case. See Harper Woods, 577 F. Supp. 2d at
131-36. The District Court dismissed the claims against the
PNC defendants on the basis that plaintiffs who lack standing to
bring a derivative claim for breach of fiduciary duty cannot
pursue counts for aiding and abetting those breaches. Id. (citing
Mann v. GTCR Golder Rauner, L.L.C., 483 F. Supp. 2d 884, 899
(D. Ariz. 2007)). The District Court thus did not address the
defendants’ motions to dismiss on grounds of forum non
conveniens, lack of personal jurisdiction, failure to state a claim
for aiding and abetting, and in pari delicto.
Appellant filed a timely appeal with this court challenging
the District Court’s dismissal of its complaint.
II. ANALYSIS
A. Standard of Review
This court reviews choice of law issues de novo. Williams
v. First Gov’t Mortgage & Investors Corp., 176 F.3d 497, 499
(D.C. Cir. 1999).
As a general matter, it is well understood that “the party
invoking federal jurisdiction bears the burden of establishing”
its standing. Steel Co. v. Citizens for a Better Env’t, 523 U.S.
83, 104 (1998). Moreover, plaintiffs bear the burden of
establishing standing to bring a derivative suit under English
law, which applies to this case. See Prudential Assurance Co.
Ltd. v. Newman Indus. Ltd. (No. 2), [1982] Ch. 204, 221-22
(C.A.) (stating that plaintiff, before proceeding with a derivative
9
suit, must “establish a prima facie case . . . that the action falls
within the proper boundaries of the exception to the rule in Foss
v. Harbottle”); see also Tr. of Oral Argument at 11 (Plaintiff’s
counsel acknowledged, “I think that I’ve got the burden of
indicating that we come within an exception to the rule of Foss
v. Harbottle.”).
The District Court’s determination of an issue of foreign
law is treated as a ruling on a question of law and our review is
therefore de novo. FED. R. CIV. P. 44.1; see also Ry. Labor
Executives’ Ass’n v. U.S. R.R. Ret. Bd., 749 F.2d 856, 860 & n.7
(D.C. Cir. 1984). Reviewing a motion to dismiss, this court
accepts as true all of the factual allegations contained in the
complaint and draws all inferences in favor of the nonmoving
party. See Ctr. for Law & Educ. v. Dep’t of Educ., 396 F.3d
1152, 1156 (D.C. Cir. 2005). Though the court construes the
complaint liberally in the plaintiff’s favor, it need not accept
inferences unsupported by facts or legal conclusions cast in the
form of factual allegations. See Kowal v. MCI Commc’ns Corp.,
16 F.3d 1271, 1276 (D.C. Cir. 1994).
B. The Applicable Law
As the District Court correctly determined, English law
applies to this case. A federal court sitting in diversity applies
the conflict of law rules of the forum in which it sits. See
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
When a claim addresses matters of corporate governance or
other internal affairs of a company, D.C. courts apply the law of
the state of incorporation. See Cowin v. Bresler, 741 F.2d 410,
414 n.4 (D.C. Cir. 1984); see also Labovitz v. Wash. Times
Corp., 900 F. Supp. 500, 503 (D.D.C. 1995). As the District
Court recognized, this internal affairs doctrine applies to
corporations incorporated outside of the United States. See
Harper Woods, 577 F. Supp. 2d at 129 (citing cases). BAE is
incorporated in England and Wales, so English law applies to
this shareholder derivative suit.
10
In an attempt to avoid an application of English law, Harper
Woods argues that the District Court erred in failing to apply a
public policy exception to the District of Columbia’s internal
affairs doctrine. See Harper Woods, 577 F. Supp. 2d. at 129;
RESTATEMENT (SECOND) CONFLICT OF LAWS § 309 (1971).
However, this exception is normally applied only where the laws
of the jurisdiction of incorporation are immoral or unjust, see,
e.g., Hausman v. Buckley, 299 F.2d 696, 705 (2d Cir. 1962); In
re BP, PLC Derivative Litig., 507 F. Supp. 2d 302, 308-09 &
n.19 (S.D.N.Y. 2007), or another state has a “more significant
relationship” to the parties and transaction or overriding interest
in the issue to be decided. See RESTATEMENT (SECOND)
CONFLICT OF LAWS § 309 (1971); In re BP, 507 F. Supp. 2d at
308-09 & n.20. The District Court concluded that neither
rationale applies here. See Harper Woods, 577 F. Supp. 2d at
129-30. Harper Woods cites to nothing in local law that
impugns this judgment, and we affirm it.
C. Plaintiff’s Standing
Harper Woods contends that the District Court erred in
holding that it lacked standing under English law to pursue the
shareholder derivative claim. Harper Woods advances two
principal arguments: First, it contends that the complaint does
not fall within the rule of Foss v. Harbottle and is therefore not
barred by the rule; and, second, it asserts that even if the
complaint is within the compass of Foss, the suit still may
proceed because the complaint is covered by one of three
exceptions to the Foss rule. We disagree on both counts.
We affirm the District Court’s judgments that the complaint
comes within the rule of Foss v. Harbottle and that none of the
exceptions to the rule apply. We hold further that, even
assuming Harper Woods’ complaint can be characterized as
alleging that the directors committed illegal acts rather than
mere breaches of fiduciary duty, it still falls within the rule of
Foss v. Harbottle. Harper Woods has not shown that
11
shareholders cannot ratify illegal acts of directors that are not
ultra vires, so the conduct at issue does not fall outside the scope
of the rule. The District Court did not reach this point because
it characterized Harper Woods’ complaint as alleging failure of
supervision and oversight, which both parties’ experts agreed
could be ratified under English law. See Harper Woods, 577 F.
Supp. 2d at 132-33 & n.11; see also Moore Decl. ¶ 38, 3 J.A.
765; Girolami Decl. ¶ 6(3), 5 J.A. 1284-85.
1. The Rule of Foss v. Harbottle
Prior to the passage of the U.K. Companies Act 2006,
English law did not permit shareholder derivative suits except in
the very limited circumstances outlined in Foss v. Harbottle.
See (1843) 2 Hare 461, 67 E.R. 189. English courts describe the
rule of Foss v. Harbottle as having five components. First, the
Foss rule provides that the proper plaintiff in an action regarding
a wrong allegedly done to a company is prima facie the
company itself. See Prudential, [1982] Ch. at 210; Edwards v.
Halliwell, [1950] 2 All E.R. 1064, 1066 (C.A.). Second, no
individual shareholder can maintain an action if the alleged
wrong is capable of ratification by a simple majority of
shareholders. Prudential, [1982] Ch. at 210; Edwards, [1950]
2 All E.R. at 1066. Third, where the alleged wrong is ultra
vires, the rule has no application because a majority of
shareholders cannot ratify the transaction (the ultra vires
exception). Prudential, [1982] Ch. at 210; Edwards, [1950] 2
All E.R. at 1067; see also Moore Decl. ¶ 33.1, 3 J.A. 765.
Fourth, where the wrongdoers themselves are in control of the
company and the alleged action amounts to fraud, the rule is
relaxed to allow the minority to sue (the wrongdoer control or
“fraud on the minority” exception). Prudential, [1982] Ch. at
211; Edwards, [1950] 2 All E.R. at 1067; see also Moore Decl.
¶ 33.3, 3 J.A. 765; Girolami Decl. ¶ 29, 5 J.A. 1301. Fifth, the
Foss rule does not prevent a shareholder from suing if the
alleged wrong could be validly sanctioned only by a special
12
majority (the super majority exception). Prudential, [1982] Ch.
at 210-11; Edwards, [1950] 2 All E.R. at 1067; see also Moore
Decl. ¶ 33.2, 3 J.A. 765; Girolami Decl. ¶ 13, 5 J.A. 1289.
As the District Court recognized, a court applying the Foss
rule must first determine whether the alleged wrongdoing is
capable of ratification by a simple majority of shareholders.
Harper Woods, 577 F. Supp. 2d at 132 (citing Moore Decl. ¶ 36,
3 J.A. 765). The District Court was correct to conclude that
while “full and frank” disclosure of the matters to be ratified
may be necessary for an actual shareholder ratification to be
valid, such disclosure is irrelevant to the operative question
under Foss v. Harbottle, viz., whether conduct is in principle
capable of ratification. See id. at 133 (citing Moore Second
Decl. ¶¶ 48-49, 5 J.A. 1465-66); see also Edwards, [1950] 2 All
E.R. at 1066 (explaining that “where the alleged wrong is a
transaction which might be made binding on the company . . . by
a simple majority of the members, no individual member of the
company is allowed to maintain an action” because no wrong
has been done to the company if a majority approves the
transaction and the company itself can bring suit if a majority of
shareholders do not approve) (emphasis added). If the actions
alleged in the complaint are capable of ratification, a shareholder
may not pursue a derivative action on behalf of the corporation
unless one of the exceptions to the rule of Foss v. Harbottle
applies. Harper Woods, 577 F. Supp. 2d at 132 (citing Moore
Decl. ¶ 36, 3 J.A. 765).
2. Ratification of Illegal Acts
The District Court found that “the essence of Plaintiff’s
Complaint” is “[f]ailure of supervision and oversight.” Harper
Woods, 577 F. Supp. 2d at 132 n.11. The District Court
explained that the wrongs allegedly done to the company that
gave rise to the derivative suit were breaches of fiduciary duty,
not breaches of regulatory, civil, or criminal law. Id. at 132.
The parties’ experts agree that breaches of fiduciary duty for
13
mismanagement and failure of supervision are capable of
ratification by shareholders. See Moore Decl. ¶ 39, 3 J.A. 765-
66; Girolami Decl. ¶ 6(3), 5 J.A. 1284-85. Ratification would
render the wrongful act – the failure of supervision and
oversight – no longer a breach of duty to the company. Harper
Woods, 577 F. Supp. 2d at 133 (citing Moore Supp. Decl. ¶ 4, 5
J.A. 1469-70).
Harper Woods seemingly disputes this characterization of
its complaint, noting that the District Court “accepted Mr.
Moore’s narrow characterization” of the complaint instead of
accepting as true all material allegations and construing the
complaint in the light most favorable to Harper Woods. See
Appellant’s Br. at 16-17 (citing Warth v. Seldin, 422 U.S. 490,
501 (1975)). It is at best questionable whether the complaint
alleges anything more than breaches of fiduciary duty. The
complaint asserts, in conclusory terms, that the directors “caused
BAE to engage in a pattern and practice of making illegal and
improper payments” and made “false and misleading statements
to conceal and cover up [the payments].” Complaint ¶ 5, 1 J.A.
29-30; see also id. ¶ 8, 1 J.A. 30-31 (alleging that BAE
defendants “undertook illegal and improper conduct . . .
including paying bribes or kickbacks” to Prince Bandar); id.
¶ 113, 1 J.A. 97 (same). These unsupported assertions are
insufficient to charge the defendant directors with illegal acts.
Although we must construe the complaint liberally in Harper
Woods’ favor, we need not accept legal conclusions cast in the
form of factual allegations. See Kowal, 16 F.3d at 1276. Our
skepticism regarding the frailties of the complaint was fueled
during oral argument when counsel for Harper Woods
acknowledged that the complaint focuses on “a breach of
fiduciary duty, a failure to supervise, and in all likelihood, a
deliberate turning of a blind eye.” Tr. of Oral Argument at 7.
In the end analysis, however, Harper Woods’ arguments
regarding the breadth of the complaint are much ado about
14
nothing. Even if Harper Woods’ complaint can be construed as
an action against the directors for committing illegal acts,
Harper Woods has not convincingly demonstrated that English
law finds illegal acts incapable of ratification by shareholders.
At oral argument, Harper Woods relied primarily on a 1915 Irish
case, Cockburn v. Newbridge Sanitary Steam Laundry Co. Ltd.,
[1915] 1 I.R. 237 (C.A.). Although the Cockburn case
recognized that “[i]llegality and ultra vires are not
interchangeable terms,” the court in fact conflated the two,
noting that “it is difficult, if not impossible, to conceive a case
in which a company can do an illegal act . . . and act within its
powers.” Id. at 254. The court then discussed a case involving
an ultra vires act “unaffected by criminality,” id., and concluded
that the ultra vires argument is stronger “when the whole matter
is tainted with criminality.” Id. at 255. The court held that,
because the agreement entered into by the director-defendant in
Cockburn was likely to be illegal, “[i]t would, accordingly, have
been quite beyond the powers of the company to have entered
into it.” Id. The Cockburn decision is perplexing, to say the
least, in part because it can be read as nothing more than an
application of the ultra vires exception to the Foss rule. In other
words, whether or not “illegal,” the court found that the alleged
wrongdoing in Cockburn undoubtedly involved an ultra vires
action.
In his second declaration, Mr. Moore dismisses Cockburn
as “an Irish case” that “is not binding on the English courts.”
Moore Second Decl. ¶ 27(c), 5 J.A. 1459. Mr. Moore makes a
more compelling argument, however, when he points out that
“the reasoning underlying the decision [in Cockburn] is
fundamentally incompatible with important and binding English
authority, in particular Rolled Steel Prods. (Holdings) Ltd. v.
British Steel Corp., [1986] Ch. 246[, 297 (C.A.)] and Arab
Monetary Fund v. Hashim, [1993] 1 Lloyd’s L. Rep. 543[, 569
(Q.B.)].” Id. In Rolled Steel, the court stated that “the phrase
‘ultra vires’ in the context of company law should for the future
15
be rigidly confined to describing acts which are beyond the
corporate capacity of a company.” Rolled Steel, [1986] Ch. at
297 (Slade, L.J.). In other words, the court made it clear that “a
company has capacity to carry out a transaction which falls
within its objects even though carried out by wrongful exercise
of its powers.” Id. at 303 (Browne-Wilkinson, L.J.).
The Law Commission’s Consultation Paper on Shareholder
Remedies, cited by Mr. Moore, confirms this conclusion, stating
that “where an act which a company commits is illegal it is not
also ultra vires unless it is also beyond the capacity it is given by
the Companies Acts.” See Moore Second Decl. ¶ 25(c), 5 J.A.
1458; see also THE LAW COMMISSION, SHAREHOLDER
REMEDIES: A CONSULTATION PAPER ¶ 4.21 (The Stationery
Office 1996) [hereinafter LAW COMMISSION CONSULTATION
PAPER]. The Law Commission Consultation Paper continues,
“The description of the rule in Foss v[.] Harbottle [previously
described in the consultation paper] applies to illegal acts which
are ultra vires in this sense. Where the company proposes to do
some other illegal act, a member may bring proceedings to
restrain the company from so acting, but it is doubtful whether
he can bring proceedings to recover damages for any loss which
the company may suffer as a result without showing a fraud on
the minority.” LAW COMMISSION CONSULTATION PAPER at
¶ 4.21. Harper Woods’ expert, Mr. Girolami, cites this language
to show that the point is not free from doubt and that “the Law
Commission report does not espouse Mr. Moore’s apparently
doubt-free view that all illegal acts can be ratified by a simple
majority.” Girolami Second Decl. ¶ 6, 5 J.A. 1476-77. But
Plaintiff has the burden of demonstrating standing to bring the
derivative suit, see Prudential, [1982] Ch. at 221-22, and Harper
Woods has not demonstrated that illegal acts cannot be ratified.
Harper Woods also relies on treatises to support its claim
that illegal acts cannot be ratified. However, only two treatises
cite English cases in support of the proposition that the Foss rule
16
does not apply if the alleged wrong is illegal or criminal. See
Girolami Decl. ¶ 23(c), (f), 5 J.A. 1295, 1296-97. Only one of
the cases cited – Powell v. Kempton Park Racecourse, [1987] 2
Q.B. 242 (C.A.) – concerns a criminally illegal action of the
type alleged by Harper Woods. The other three cases do not
concern criminally illegal conduct. See Drown v. Gaumont-
British Picture Corp., Ltd., [1937] Ch. 402, 402 (shareholder
sued to restrain company and its directors from paying a
dividend out of capital); Baillie v. Oriental Tel. and Elec. Co.
Ltd., [1915] 1 Ch. 503, 504, 515 (C.A.) (shareholder brought suit
to have declared invalid certain special resolutions that he
alleged were not validly enacted and thus not binding on the
company); Const v. Harris, (1824) 37 E.R. 1191, 1191, 1196
(Ch.) (member of a partnership brought suit to compel other
partners to act according to a covenant previously entered into
by the partnership).
As for Kempton Park, the plaintiffs in that case sought an
injunction to restrain the company from knowingly permitting
illegal activities in an enclosure at the racetrack in violation of
the Betting Act, 1853. See Powell v. Kempton Park Racecourse,
[1987] 2 Q.B. 242, 253 (C.A.). The case concerned whether the
alleged activity was in fact illegal, and the defendants did not
argue that the court lacked jurisdiction to enjoin the defendants
from committing a criminal act. Id. at 260 (Lindley, L.J.); id. at
268 (Lopes, L.J.). The Law Commission acknowledges that a
shareholder may bring suit to restrain the company from acting
in a certain way, LAW COMMISSION CONSULTATION PAPER at
¶¶ 2.29, 4.22, a type of suit that differs from a shareholder
derivative suit and does not fall within the rule of Foss v.
Harbottle. See Smith v. Croft (No. 2), [1988] Ch. 114, 167, 177;
see also LAW COMMISSION CONSULTATION PAPER at ¶ 4.22.
The aforecited Drown case is also a suit seeking to restrain a
company and its directors from taking a certain action, although
it involves the payment of a dividend rather than criminally
illegal conduct. See Drown, [1937] Ch. at 402.
17
Harper Woods has cited no case in which an English court
has authoritatively held that a criminally illegal, but not ultra
vires, act is outside the rule of Foss v. Harbottle and therefore
a shareholder derivative suit may proceed. Mr. Girolami cites
an Australian case, Australian Agric. Co. v. Oatmont Pty Ltd.,
(1992) 8 A.C.S.R. 255, in support of his claim that shareholder
derivative actions may be permissible in cases involving nothing
more than alleged criminal illegalities. But the decision simply
cannot carry the weight of authority that Harper Woods would
like. In his second declaration, Mr. Moore aptly disposes of the
Australian case:
Australian Agricultural Co. v. Oatmont Pty [1992] is an
Australian case, again not binding on the English courts,
and should be treated with caution in the light of the
Australian courts’ less restrictive approach to the rule in
Foss v. Harbottle. Further, it is not clear that the comments
quoted by Mr. Girolami at his paragraph 25 refer to an
exception to the rule at all. It is clear that the court
considers that causing the company to act illegally would be
a breach of the directors’ duties, but all that is said is that
this “could well give rise” to a derivative action. It is not
suggested that such an action could necessarily be pursued
in the absence of one or more of the established exceptions
to the rule in Foss v. Harbottle (in particular, fraud on the
minority).
Moore Second Decl. ¶ 27(d), 5 J.A. 1459-60.
Because Harper Woods has failed to demonstrate that,
under authoritative English law, the alleged activities of the
defendants – whether construed as breach of fiduciary duties or
illegal acts – are incapable of ratification, the complaint falls
within the rule of Foss v. Harbottle and the company itself is the
proper plaintiff unless an exception to the rule applies.
18
3. Exceptions to the Rule of Foss v. Harbottle
Harper Woods contends that three exceptions to the Foss
rule bring its complaint outside the purview of the rule: the
ultra vires exception, the wrongdoer control exception, and the
interests of justice exception. The District Court correctly
explained why these exceptions do not apply, see Harper
Woods, 577 F. Supp. 2d at 133-36 & n.13, and we affirm.
The ultra vires exception does not apply because Harper
Woods did not allege ultra vires conduct. In English law, an
ultra vires act is an act “beyond the corporate capacity of a
company.” Rolled Steel, [1986] Ch. at 297. Whether conduct
is ultra vires thus depends upon whether a company is capable
of performing the act, as set forth in the company’s
memorandum of association. Id. at 295. Harper Woods did not
allege that BAE lacked the corporate capacity to make payments
to Bandar. Furthermore, at least one English court has held that
payment of a bribe is not an ultra vires act where the company’s
memorandum authorizes it to provide compensation in return for
services rendered in the conduct of its business. See Arab
Monetary Fund, [1993] 1 Lloyd’s Rep. at 569.
The wrongdoer control exception also does not apply. This
exception may be applicable when director-defendants have
allegedly committed “fraud” by using their powers or positions
at the company to benefit themselves at the company’s expense.
Moore Decl. ¶ 53, 3 J.A. 769; Girolami Decl. ¶ 29, 5 J.A. 1301.
However, shareholder-plaintiffs may invoke this exception only
when the director-defendants have been in “control” of the
company. See Moore Decl. ¶¶ 54-55, 3 J.A. 769-70; Girolami
Decl. ¶ 31, 5 J.A. 1302. Harper Woods did not allege that the
BAE defendants benefitted personally from any fraud, as both
parties’ experts agree must occur for this exception to apply.
Moore Decl. ¶ 53, 3 J.A. 769; Girolami Decl. ¶ 29, 5 J.A. 1301.
Harper Woods alleged only that BAE’s directors and top
managers held onto their “prestigious and lucrative BAE
19
positions” by representing that BAE was a “highly ethical law
abiding corporation . . . achieving very substantial profits due to
the skills of its top managers,” while in reality increasing profits
through illegal activities. Complaint ¶¶ 3-4, 1 J.A. 28-29. As
the District Court explained, these allegations do not constitute
the necessary self-dealing by a director sufficient to invoke the
wrongdoer control exception. See Harper Woods, 577 F. Supp.
2d at 135. Because Harper Woods did not allege fraud, this
court need not reach the “control prong” of the wrongdoer
control exception. See id. at 136.
Finally, Harper Woods has not proven the existence of an
“interests of justice” exception to the Foss rule. Even if Foss v.
Harbottle itself recognizes such an exception, Harper Woods
has not demonstrated that it has no other remedy to rectify its
injury. See Foss, 2 Hare at 492, 67 E.R. at 203 (“claims of
justice” allow a suit to go forward where “no adequate remedy”
exists to rectify injury). BAE’s expert, Mr. Moore, set forth a
number of remedies for director misconduct apart from a
shareholder derivative suit. See Moore Decl. ¶¶ 75-79, 3 J.A.
774-75. That Harper Woods prefers a derivative suit to other
available remedies does not mean that “no adequate remedy”
exists.
D. Dismissal With Prejudice
Finally, we hold that Harper Woods may not pursue its
claim that the District Court erred in dismissing the complaint
with prejudice, because this claim has been forfeited. When a
plaintiff fails to seek leave from the District Court to amend its
complaint, either before or after its complaint is dismissed, it
forfeits the right to seek leave to amend on appeal. See Gov’t of
Guam v. Am. President Lines, 28 F.3d 142, 150-51 (D.C. Cir.
1994); see also Drake v. FAA, 291 F.3d 59, 72 (D.C. Cir. 2002).
This rule applies where, as here, the court of appeals affirms
dismissal of the complaint. Drake, 291 F.3d at 72 (citing United
20
States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 552-53
(D.C. Cir. 2002)).
Harper Woods relies primarily on two cases that are
inapposite, Belizan v. Hershon, 434 F.3d 579 (D.C. Cir. 2006),
and Firestone v. Firestone, 76 F.3d 1205 (D.C. Cir. 1996) (per
curiam). See Appellant Br. at 27-28, 51. In those cases, the
plaintiffs sought leave from the District Court to amend their
complaints by filing Rule 59(e) motions after their complaints
were dismissed. See Belizan, 434 F.3d at 581; Firestone, 76
F.3d at 1208. Harper Woods never moved to amend its
complaint in the District Court. At most, in its opposition to the
PNC defendants’ motion to dismiss, Harper Woods made a brief
request for leave to amend if the District Court were to dismiss
any of its claims and briefly mentioned amendment with respect
to its claims against the BAE defendants. See Plaintiff’s
Consolidated Opposition to Defendants’ Motions to Dismiss at
7, 82, reprinted in 3 J.A. 842, 917 (request to amend to add
allegations against PNC defendants); id. at 60, 3 J.A. 895
(briefly mentioning facts alleged “or pled through amendment”
with respect to the BAE defendants). “‘[A] bare request in an
opposition to a motion to dismiss – without any indication of the
particular grounds on which amendment is sought – does not
constitute’” a motion to amend. United States ex rel. Williams
v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1259 (D.C.
Cir. 2004) (quoting Kowal, 16 F.3d at 1280). We therefore find
that Harper Woods did not move for leave to amend in the
District Court and hold that it cannot now belatedly seek a
remand from this court to amend its complaint.
E. Dismissal of Aiding and Abetting Claims
The District Court dismissed the claims against the PNC
defendants on the ground that plaintiffs who lack standing to
bring a derivative claim for breach of fiduciary duty cannot
pursue counts for aiding and abetting those breaches. See Mann,
483 F. Supp. 2d at 899. We affirm this judgment for it is
21
eminently sound and Harper Woods cites no good authority to
refute it. Indeed, Harper Woods did not challenge the District
Court’s judgment in its opening brief to this court. Nor did
Harper Woods challenge this specific point in its reply brief.
Even if it had raised the matter in its reply brief, that would have
been too late to preserve the issue for appellate review. Am.
Wildlands v. Kempthorne, 530 F.3d 991, 1001 (D.C. Cir. 2008)
(citing Rollins Envtl. Servs. v. EPA, 937 F.2d 649, 652 n.2 (D.C.
Cir. 1991)). It is clear here that the judgment of the District
Court admits of no viable challenge.
III. CONCLUSION
For the foregoing reasons, we affirm the judgment of the
District Court.