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From Antitrust Law Daily, October 20, 2016

Dow shareholder lacked standing in derivative suit over urethane price-fixing litigation

By Linda O’Brien, J.D., LL.M.

A shareholder lacked standing to bring a derivative suit on behalf of Dow Chemical Company against its executives and Board of Directors arising out of Dow’s involvement in urethane chemical products price-fixing class-action litigation, the federal district court in Bay City, Michigan, has ruled. The shareholder also failed to plead particularized facts to create reasonable doubt that his demand that Dow bring suit regarding the antitrust litigation was wrongfully refused (Levine v. Liveris, October 19, 2016, Ludington, T.).

In 2006, a series of class actions were filed against Dow Chemical Company and other producers of certain chemicals used in the manufacture of polyurethane products. The plaintiffs, industrial purchasers of polyurethane products, alleged that the polyurethane manufacturers conspired to fix prices and allocate customers and markets in violation of Section 1 of the Sherman Act. In April 2016, Dow agreed to pay a total of $835 million to the class to settle the price fixing claims. Dow also settled with additional plaintiffs who had chosen to opt out of the class action for $450 million.

Subsequently, Dow shareholder S.M. Levine filed a derivative suit against Dow CEO Andrew Liveris as well as members of Dow’s Board of Directors and several high-level executives. Levine alleged, among other claims, that the defendants breached their fiduciary duties by failing to ensure Dow’s compliance with federal antitrust laws and overseeing Dow’s defense in the urethane price fixing litigation. The defendants moved for dismissal.

Standing. The court determined that Levine failed to adequately allege the basis for derivative-suit standing. In this complaint, Levine only alleged that he "has been a Dow shareholder continuously and at all relevant times." Such generalized pleadings, absent any facts indicating when the plaintiff purchased his shares, did not comply with the procedural requirements of Federal Rule of Civil Procedure 23.1. Levine’s declaration and affidavit that he has owned Dow stock since 1989, filed in response to the defendants’ motion to dismiss, could not be considered since those documents were not included or referenced in the complaint. Without allegations of the specific dates of stock ownership, Levine lacked standing, in the court’s view.

Wrongful refusal. Levine failed to allege facts showing that his demand that Dow bring suit against the CEO and Board regarding the antitrust litigation was wrongfully refused, according to the court. Levine’s argument that the Board was not independent was rejected since he conceded that the Board possessed the independence necessary to respond by making his demand. In addition, Levine’s allegation that the Board as a whole was biased due to the accusations of wrongdoing by the directors in the demand was insufficient to demonstrate a wrongful refusal, in the court’s view.

Also rejected was Levine’s contention that the Board was not independent because, in response to his demand, the Board appointed an investigatory committee composed entirely of the named defendants. The court noted that, although Levine clearly disagreed with the Board’s refusal to bring suit, the Board was not required to create an entirely independent special litigation committee and the investigatory committee’s composition was not evidence of wrongful refusal.

Finally, Levine’s disagreement with the Board’s conclusions that there were no viable claims to be brought against former Dow board members and officers was insufficient to raise reasonable doubt that the Board acted in good faith and on an informed basis, the court concluded.

The case is No. 1:16-cv-11255-TLL-PTM.

Attorneys: Jennifer L. Lord (Pitt McGehee Palmer & Rivers, PC) for S.M. Levine. Jonathan E. Lauderbach (Warner Norcross & Judd, LLP) for Andrew N. Liveris.

Companies: Dow Chemical Co.

MainStory: TopStory Antitrust MichiganNews

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