Free Opening Brief in Support - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ­­­­­­­­­­­­­­­­­­­­­­­­­­­x DONALD F. BENOIT, Derivatively on : Behalf of MBNA CORP., and on Behalf of : Himself and All Others Similarly Situated, : : Plaintiff, : v. : : BRUCE L. HAMMONDS, et al., : Civ. No. 07-CV-561-GMS : Defendants, : : ­ and­ : : BANK OF AMERICA CORPORATION, a : Delaware Corporation, AS SUCCESSOR : IN INTEREST TO MBNA CORP., and : MBNA CORP., a Maryland Corporation, : : Nominal Defendants. : ­­­­­­­­­­­­­­­­­­­­­­­­­­­x Additional Caption on Following Page OPENING BRIEF IN SUPPORT OF THE MBNA OUTSIDE DIRECTOR DEFENDANTS' MOTION TO DISMISS Edward P. Welch (I.D. No. 671) Edward B. Micheletti (I.D. No. 3794) SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP One Rodney Square P.O. Box. 636 Wilmington, Delaware 19899 Tel.: (302) 651-3000 Fax: (302) 651-3001 E-mail: [email protected] Attorneys for the MBNA Outside Director Defendants

Of The New York Bar: Jay B. Kasner Susan L. Saltzstein SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 4 Times Square New York, New York 10036-6522 (212) 735-3000 DATED: April 17, 2008

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­­­­­­­­­­­­­­­­­­­­­­­­­­­x : LEMON BAY PARTNERS, LLP and : MALCOLM ROSENWALD, : : Plaintiff, : : v. : : BRUCE L. HAMMONDS, et al., : Civ. No. 07-CV-562-GMS : Defendants, : : ­ and­ : : BANK OF AMERICA CORPORATION, : AS SUCCESSOR IN INTEREST TO : MBNA CORP., and MBNA CORP., : : Nominal Defendants. : : ­­­­­­­­­­­­­­­­­­­­­­­­­­­x

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TABLE OF CONTENTS PAGE TABLE OF CASES AND AUTHORITIES ........................................................................ i NATURE AND STAGE OF THE PROCEEDINGS ..........................................................1 SUMMARY OF ARGUMENT ...........................................................................................4 STATEMENT OF FACTS ..................................................................................................7 A. B. The Company (And Its Independent Board)................................................7 MBNA's January 2005 Earnings Forecast And First Quarter 2005 Results..........................................................................................................7 The Merger...................................................................................................8 MBNA Shareholders Approve The Merger.................................................9 The Duplicative Complaints ........................................................................9

C. D. E.

ARGUMENT.....................................................................................................................10 I. PLAINTIFFS' CLAIMS IGNORE THE COURT'S PREVIOUS ORDERS, ARE PROCEDURALLY UNSOUND, AND ARE BARRED BY THE DOCTRINE OF RES JUDICATA..........................................................................10 TO THE EXTENT THE COURT REACHES THE MERITS OF THIS DISPUTE, THE DUPLICATIVE COMPLAINTS MUST BE DISMISSED UNDER MARYLAND LAW. ........................................................15 A. B. Standard Of Review...................................................................................15 The Internal Affairs Doctrine Mandates That Maryland Law Governs This Dispute. ..............................................................................16 Under Maryland Law, Breach Of Fiduciary Duty Claims Are Derivative...................................................................................................17 By Virtue Of The Merger, Plaintiffs Have Lost Standing To Pursue Their Claims Against The Outside Directors.............................................19 Plaintiffs Have Not Alleged That Demand Was Excused. ........................21

II.

C.

D.

E.

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III.

IN THE ALTERNATIVE, THE DUPLICATIVE COMPLAINTS SHOULD BE DISMISSED FOR FAILURE TO STATE A CLAIM...................24 A. Conclusory Breach Of Fiduciary Duty Allegations Fail To State A Claim..........................................................................................................24 1. Plaintiffs' conclusory allegations of mismanagement and lack of oversight fail to state a claim. ............................................26

B.

Plaintiffs' Attack On The Merger Process Should Fail..............................29 1. Plaintiffs' reliance on Revlon, Unocal or any other heightened form of judicial scrutiny of director conduct should be rejected. .........................................................................29 Plaintiffs' allegations that the Outside Directors failed to obtain the highest Merger price do not state a claim under Maryland law. ................................................................................30 The Merger claims fail because the Merger was ratified by the MBNA shareholders after full and fair disclosure. ..................34

2.

3.

C.

The Duplicative Complaints Should Be Dismissed In Their Entirety Because The Outside Directors Are Not Subject To Liability For Money Damages. ..................................................................35

CONCLUSION..................................................................................................................37

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TABLE OF CASES AND AUTHORITIES Aronson v. Lewis, 473 A.2d 805 (Del. 1984), overruled on other grounds sub nom. Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ....................................................21, 25 Barkan v. Amsted Indus., Inc., 567 A.2d 1279 (Del. 1989) ....................................................................................30 In re Baxter Int'l, Inc. S'holders Litig., 654 A.2d 1268 (Del. Ch. 1995)................................................................................6 Boone v. Kurtz, 617 F.2d 435 (5th Cir. 1980) .................................................................................13 Brambles USA, Inc. v. Blocker, 735 F. Supp. 1239 (D. Del. 1990)............................................................................2 Bromwell v. Michigan Mut. Ins. Co., 115 F.3d 208 (3d Cir. 1997)...................................................................................13 In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996)................................................................................26 Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) ......................................................................................34 Century Nat'l Bank v. Makkar, 751 A.2d 1 (Md. Ct. Spec. App. 2000) ..................................................................25 Cincinnati Bell Cellular Sys. Co. v. Ameritech Mobile Phone Serv. of Cincinnati, Inc., C.A. No. 13389, 1996 WL 506906 (Del. Ch. Sept. 3, 1996), aff'd mem., 692 A.2d 411 (Del. 1997) ......................................................................................27 In re Citigroup Inc. S'holders Litig., C.A. No. 19827, 2003 WL 21384599 (Del. Ch. June 5, 2003), aff'd mem. sub nom. Rabinovitz v. Shapiro, 839 A.2d 666 (Del. 2003)..................................28 Criden v. Steinberg, C.A. No. 17082, 2000 WL 354390 (Del. Ch. Mar. 23, 2000) ...............................15 CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69 (1987).................................................................................................16 i

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Danielewicz v. Arnold, 769 A.2d 274 (Md. Ct. Spec. App. 2001) ............................................18, 19, 24, 30 In re Digital Island Sec. Litig., C.A. No. 02-57-GMS, 2002 WL 31667863 (D. Del. Nov. 25, 2002), aff'd, 357 F.3d 322 (3d Cir. 2004).........................................................................12 In re Encore Computer Corp. S'holders Litig., C.A. No. 16044, 2000 WL 823373 (Del. Ch. June 16, 2000) ...............................25 Ercole v. Conectiv & Coventry Health Care of Del., Inc., C.A. No. 03-186-GMS, 2003 WL 21104926 (D. Del. May 15, 2003)..........................................................................................15 Ettridge v. TSI Group, Inc., 548 A.2d 813 (Md. 1988) ......................................................................................19 Ferguson v. Cramer, 695 A.2d 603 (Md. Ct. Spec. App. 1997), aff'd, 709 A.2d 1279 (Md. 1998) ....................................................................................25 In re First Interstate Bancorp Consol. S'holder Litig., 729 A.2d 851 (Del. Ch. 1998)..........................................................................19, 21 In re Frederick's of Hollywood, Inc. S'holders Litig., C.A. No. 15944, 2000 WL 130630 (Del. Ch. Jan. 31, 2000) ....................26, 27, 34 Freedman v. Rest. Assocs. Indus., C.A. No. 9212, 1990 WL 135923 (Del. Ch. Sept. 19, 1990).................................30 In re Freeport-McMoran Sulphur, Inc. S'holders Litig., C.A. No. 16729, 2001 WL 50203 (Del. Ch. Jan. 11, 2001) ..................................26 Grasty v. United States Patent and Trademark Office, 211 Fed. Appx. 952, 953-954 (Fed. Cir. 2007)......................................................13 Globis Partners., L.P. v. Plumtree Software, Inc., C.A. No. 1577-VCP, 2007 Del. Ch. LEXIS 169 (Del. Ch. Nov. 30, 2007)........................................................................................32 Goodman v. Poland, 395 F. Supp. 660 (D. Md. 1975) ............................................................................17 Grill v. Hoblitzell, 771 F. Supp. 709 (D. Md. 1991) ........................................................................5, 36 ii

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Grobow v. Perot, 526 A.2d 914 (Del. Ch. 1987), aff'd, 539 A.2d 180 (Del. 1988) ......................................................................................22 Guttman v. Huang, 823 A.2d 492 (Del. Ch. 2003)................................................................................28 Hayes v. Crown Cent. Petroleum Corp., 249 F. Supp. 2d 725 (E.D. Va. 2002), aff'd, 78 Fed. Appx. 857 (4th Cir. 2003).........................................................................36 Herd v. Major Realty Corp., C.A. No. 10707, 1990 WL 212307 (Del. Ch. Dec. 21, 1990) ...............................30 Hudson v. Prime Retail, Inc., C.A. No. 24-C-03-5806, 2004 WL 1982383 (Md. Cir. Ct. Apr. 1, 2004) ........................................................5, 24, 25, 29, 31, 34 Jasinover v. Rouse Co., C.A. No. 13-C-04-59594, 2004 WL 3135516 (Md. Cir. Ct. Nov. 4, 2004)....................................................................5, 29, 31, 32 Jolly Roger Fund LP v. Sizeler Prop. Investors, Inc., C.A. No. RDB 05-841, 2005 WL 2989343 (D. Md. Nov. 3, 2005)......................................................................................18, 19 Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991).................................................................................................17 Knox v. Rosenberg, No. H-99-0123 (S.D. Tex. Sept. 28, 1999) ............................................................36 Lemon Bay Partners LLP v. Hammonds, C.A. No. 05-327 (GMS), 2007 WL 1830899 (D. Del. June 26, 2007)........................................................................1, 2, 4, 10, 11 Lewis v. Anderson, 477 A.2d 1040 (Del. 1984) ..............................................................................19, 20 Lewis v. Leaseway Transp. Corp., C.A. No. 8720, 1990 WL 67383 (Del. Ch. May 16, 1990) ...................................32 Lewis v. Ward, 852 A.2d 896 (Del. 2004) ................................................................................20, 21

iii

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Llewellyn v. Queen City Dairy, Inc., 48 A.2d 322 (Md. 1946) ........................................................................................17 In re MONY Group Inc. S'holder Litig., 852 A.2d 9 (Del. Ch. 2004)....................................................................................33 Magnus Electronics, Inc. v. La Republica Argentina, 830 F.2d 1396 (7th Cir. 1987) ...............................................................................14 McDermott Inc. v. Lewis, 531 A.2d 206 (Del. 1987) ................................................................................16, 17 McMillan v. Intercargo Corp., 768 A.2d 492 (Del. Ch. 2000)..........................................................................16, 26 Morse v. Lower Merion Sch. Dist., 132 F.3d 902 (3d Cir. 1997)...................................................................................16 Nebenzahl v. Miller, C.A. No. 13206, 1993 WL 488284 (Del. Ch. Nov. 8, 1993).................................28 Official Comm. of Unsecured Creditors of Integrated Health Servs., Inc. v. Elkins, C.A. No. 20228, 2004 WL 1949290 (Del. Ch. Aug. 24, 2004).............................28 Pogostin v. Rice, C.A. No. 6235, 1983 WL 17985 (Del. Ch. Aug. 12, 1983), aff'd, 480 A.2d 619 (Del. 1984) ......................................................................................22 Porter v. Texas Commerce Bancshares, Inc., C.A. No. 9114, 1989 WL 120358 (Del. Ch. Oct. 12, 1989) ............................19, 32 In re Prudential Ins. Co. Derivative Litig., 659 A.2d 961 (N.J. Super. Ct. Ch. Div. 1995).......................................................23 Rattner v. Bidzos, C.A. No. 19700, 2003 WL 22284323 (Del. Ch. Sept. 30, 2003)...........................28 Resource Ventures, Inc. v. Resources Mgmt. Int'l, Inc., 42 F. Supp. 2d 423 (D. Del. 1999)...........................................................................7 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1985) ......................................................................................29

iv

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Sale v. Pittsburgh Steel Co., 57 F. Supp. 283 (W.D. Pa., 1944)..........................................................................11 Sanchez v. Caribbean Carriers Ltd., 552 F.2d 70 (2d Cir. 1977).....................................................................................14 Schoen v. Mountain Producers Corp, 170 F.2d 707 (3d Cir. 1948)...................................................................................11 S. Freedman & Co. v. Raab, 180 Fed. Appx. 316 (3d Cir. 2006) .............................................................................2, 11 Shaw v. Merritt-Chapman & Scott Corp., 554 F.2d 786 (6th Cir. 1977) .................................................................................14 Stone v. Ritter, 911 A.2d 362 (Del. 2006) ......................................................................................27 Sussex County Senior Servs., Inc. v. Carl J. Williams & Sons, Inc., C.A. No. 99-473-GMS, 1999 WL 33220035 (D. Del. Dec. 29, 1999)..................15 In re Talley Indus., Inc. S'holders Litig., C.A. No. 15961, 1998 WL 191939 (Del. Ch. Apr. 13, 1998)................................23 In re Toys "R" Us, Inc., S'holder Litig., 877 A.2d 975 (Del. Ch. 2005)................................................................................33 Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) ......................................................................................29 Valentine v. On Target, Inc., 686 A.2d 636 (Md. Ct. Spec. App. 1996), aff'd, 727 A.2d 947 (Md. 1999) ......................................................................................25 VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108 (Del. 2005) ....................................................................................16 Waller v. Waller, 49 A.2d 449 (Md. 1946) ........................................................................................18 Walsh v. International Longshoremen's Ass'n, AFL-CIO, 630 F.2d 864 (1st Cir. 1980)..................................................................................14 Weiss v. Samsonite Corp., 741 A.2d 366 (Del. Ch.), aff'd mem., 746 A.2d 277 (Del. 1999) ............................8 v

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Werbowsky v. Collomb, 766 A.2d 123 (Md. 2001) ................................................................................17, 28 In re Wheelabrator Techs. Inc. S'holders Litig., C.A. No. 11495, 1992 WL 212595 (Del. Ch. Sept. 1, 1992).................................17 Wittman v. Crooke, 707 A.2d 422 (Md. Ct. Spec. App. 1998) ..................................................24, 33, 34

STATUTES Fed. R. Civ. P. 23.1 .........................................................................................................21 28 U.S.C. § 1401 .............................................................................................................11 8 Del. C. § 102(b)(7) .......................................................................................................35 Maryland's Corporate Code § 2-405.1.....................................................17, 18, 24, 28, 32 Maryland's Corporate Code § 2-405.2.....................................................................5, 6, 35 Md. Code Ann., Cts. & Jud. Proc. Code § 5-418 ............................................................35 Kenneth B. Abel, The Maryland Corporation: Legal Aspects of Organization & Operation § VI(H) (2004) ............................................................29 James J. Hanks, Jr., Maryland Corporation Law, § 6.6[b] ..............................................29 James J. Hanks, Jr., Maryland Corporation Law, § 6.9...................................................35

vi

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NATURE AND STAGE OF THE PROCEEDINGS More than two years ago, on November 21, 2005, Plaintiffs Lemon Bay Partners, LLP, Donald F. Benoit and Malcolm Rosenwald filed a Consolidated Amended Complaint, alleging, for the most part, state law fiduciary duty claims against MBNA's officers and directors (the "Original Action").1 On June 26, 2007, after full briefing ­ including sur-reply briefing on the issues of subject matter jurisdiction ­ the Court issued a written opinion dismissing Plaintiffs' claims in their entirety under Rule 12(b)(1). See Lemon Bay Partners, LLP v. Hammonds, C.A. No. 05-327 (GMS), 2007 WL 1830899, at *5 (D. Del. June 26, 2007).2 Specifically, the Court held that: [T]he state law claims in this case substantially predominate over the federal claim. The [Consolidated Amended Complaint] is comprised almost entirely of state law issues that bear no discernable relationship to the contribution claim, and the plaintiffs present no persuasive reason for the court to use its discretionary power to exercise supplemental jurisdiction in this case. Given the foregoing, the court concludes that exercising supplemental jurisdiction in a case such as this would be an improper exercise of subject matter jurisdiction, since it 'would truly permit the tail to wag the dog.'
1

On August 25, 2005, the parties agreed and the Court ordered that any related shareholder derivative action would be consolidated with the Original Action (the "Consolidation Order"). (D.I. 28). The Consolidation Order also made clear that Plaintiffs could not separately bring subsequent actions raising essentially the same facts and claims against the same defendants. Specifically, the Consolidation Order stated that it "shall apply to each shareholder derivative and state law based class action arising out of the same or substantially the same transactions or events as these cases that is subsequently filed in, removed to or transferred to this Court". . . "and counsel are to assist in assuring that counsel in subsequent actions receive notice of this Order." Id. Specifically, the Court ordered that: 1. The defendants' Motions to Dismiss (D.I. 38, D.I. 42) are GRANTED. 2. The plaintiffs' amended complaint (D.I. 31) is hereby DISMISSED in its entirety. 3. The Clerk of Court is directed to close this case.

2

See Lemon Bay Partners, LLP v. Hammonds, 2007 WL 1830899, at *6.

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Id. at *5 (citing In re Litig. Trust of MDIP, No. Civ. A. 03-779-GMS, 2005 WL 1242157, at *5 (D. Del. May 25, 2005)). The Court also squarely held that "since the plaintiffs failed to affirmatively and distinctly assert diversity jurisdiction in their amended complaint, the plaintiffs cannot now assert diversity as a possible basis for subject matter jurisdiction." Id. at *5 n.9 (citing S. Freedman & Co. v. Raab, 180 Fed. Appx. 316, 320 (3d Cir. 2006) ("It is well established that the basis upon which jurisdiction depends must be alleged affirmatively and distinctly and cannot be established argumentatively or by mere inference.")). Not satisfied with the Court's well-reasoned Opinion dismissing the action, Plaintiffs moved on July 11, 2007, for reconsideration ("Motion for Reconsideration"). (Consol. D.I. 76).3 Rather than wait for the Court to decide their Motion for Reconsideration, Plaintiffs filed two new complaints, again on behalf of Lemon Bay Partners, LLP, Malcolm Rosenwald and Donald F. Benoit, on September 18, 2007, against the same Defendants, raising virtually the same facts and claims as the Original Action (the "Duplicative Actions").4 Just like the Original Action, the Duplicative Actions arise out of events related to market disclosures made by MBNA Corporation ("MBNA" or the "Company") between January 21 and April 21, 2005, and a stock and cash merger between MBNA and Bank of America Corporation ("BAC") that was approved by MBNA shareholders on November 3, 2005 (the "Merger"). As to the former outside directors of MBNA (the "Outside Directors"), the Duplicative Actions allege that

3

In many respects, Plaintiffs were attempting to treat the Court's Opinion as a "'first draft[], subject to revision and reconsideration at [Plaintiffs'] pleasure,"' an approach that this Court does not condone. See Brambles USA, Inc. v. Blocker, 735 F. Supp. 1239, 1241 (D. Del. 1990) (citation omitted). In fact, in a letter to the Court dated September 18, 2007, Plaintiffs acknowledged that the two "new" complaints in this action were "similar" to the dismissed pleading in the Original Action. (Consol. D.I. 79). 2

4

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they (1) breached their fiduciary oversight duties (Count Four); (2) breached their fiduciary duties in connection with the Merger through gross mismanagement (Count Six); and (3) breached their so-called Revlon duties (Count Seven). Most significantly, the Duplicative Actions again failed to raise any federal law claims against the Outside Directors. Plaintiffs then attempted to push the Duplicative Actions forward, even before the Court had the opportunity to rule on their Motion for Reconsideration. First, Plaintiffs filed a motion for consolidation and to be appointed lead plaintiff of the Duplicative Actions ("Motion for Consolidation and Lead Plaintiff") (D.I. 26), and later filed a Motion to vacate the stay of discovery imposed by the Private Securities Litigation Reform Act of 1995 ("Motion to Vacate") (D.I. 33).5 Since Plaintiffs brought the Duplicative Actions, and with each subsequent filing, Defendants have told Plaintiffs that the pursuit of these actions was improper and flouted the Court's authority to decide the Original Action. (D.I. 30, 37) Nevertheless, Plaintiffs persisted in pursuing these virtually identical claims. On March 26, 2008, the Court denied Plaintiffs' Motion for Reconsideration in the Original Action. The following day, the Outside Directors sent a letter to Plaintiffs requesting that they voluntarily withdraw the Duplicative Actions against the Outside Directors. (Ex. A) The Outside Directors also informed the Plaintiffs that they intended to file a motion to dismiss the Duplicative Actions if Plaintiffs did not agree to withdraw them. Plaintiffs refused to do so, and indicated that they intended to pursue both appellate review of the Court's decision in the Original Action and the Duplicative Actions. (Ex. B)

5

To make matters worse, Plaintiffs' Motion to Vacate asks this Court to permit them to participate in discovery in another action, Baker v. MBNA Corp., et al., 05-CV-272 (GMS) ("Securities Action"), where the Outside Directors are not a named party and have had no involvement with discovery in that case. 3

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Shortly thereafter, the Outside Directors moved to dismiss the Duplicative Actions. Plaintiffs' conduct has forced the Outside Directors to file this accompanying brief, which is regrettably lengthy, and which must necessarily address the many arguments presented in the earlier motion to dismiss. SUMMARY OF ARGUMENT Plaintiffs' continued pursuit of state law fiduciary claims against the Outside Directors ignores the Court's decision to dismiss virtually identically claims in the Original Action on jurisdictional grounds and deny their Motion for Reconsideration. See Lemon Bay Partners, 2007 WL 1830899, at *5. Plaintiffs' actions are especially egregious given that they have stated that they intend to appeal the Court's dismissal of the Original Action, thereby allowing them to pursue their claims in both a trial court and appellate court at the same time. Plaintiffs' tactics are a blatant abuse of the judicial process. Moreover, Plaintiffs' attempt to plead diversity jurisdiction in the Benoit action (Benoit ¶ 17(a)), defies the Court's ruling that "the plaintiffs cannot now assert diversity as a possible basis for subject matter jurisdiction." See Lemon Bay Partners, 2007 WL 1830899, at *5 n.9. For these procedural reasons alone, the Duplicative Actions should be dismissed. In the alternative, the Court may dismiss the Duplicative Actions on a number of grounds, including, the following: 1. Plaintiffs' actions are in violation of the Court-ordered Consolidation Order entered in the Original Action, and are, in any event, barred on res judicata grounds. Indeed, such repetition wastes the Court's resources and is exactly what the rule of res judicata is designed to prevent. 2. Under the continuous ownership rule, which applies in both Maryland and

Delaware, Plaintiffs cannot assert derivative claims on behalf of either MBNA (which no longer 4

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exists) or BAC. MBNA's merger with BAC, which closed on January 1, 2006, extinguished Plaintiffs' standing to pursue derivative claims against the Outside Directors. Likewise, a plaintiff cannot assert claims on behalf of a company based on events that occurred before he or she acquired shares in the company. Plaintiffs were not BAC shareholders at the time of the events at issue, and, therefore, they cannot assert derivative claims on BAC's behalf based on those events. 3. Even if Plaintiffs were allowed to circumvent the continuous ownership rule and assert derivative claims, Plaintiffs' claims should be dismissed for failure to make a demand on either the MBNA or BAC boards of directors. 4. Plaintiffs fail to adequately plead any breach of fiduciary duty claims under Section 2-405.1 of the Maryland Corporations and Associations Law, which states that "corporate directors [who] perform their duties (1) in good faith, (2) in a manner [the director] reasonably believes to be in the best interests of the corporation, and (3) with the care that an ordinarily prudent person in a like position would use under similar circumstances . . . [have] no liability by reason of being or having been a director of a corporation." Hudson v. Prime Retail, Inc., C.A. No. 24-C-03-5806, 2004 WL 1982383, at *11 (Md. Cir. Ct. Apr. 1, 2004). In fact, Plaintiffs' claims against the Outside Directors are, for the most part, premised entirely on their purported breach of so-called Revlon-based fiduciary duties, which Maryland courts have specifically stated are not recognized under Maryland corporation law. See, e.g., Jasinover v. Rouse Co., C.A. No. 13-C-04-59594, 2004 WL 3135516, at *9 (Md. Cir. Ct. Nov. 4, 2004). 5. MBNA's certificate of incorporation (the "MBNA Charter") immunizes MBNA's Directors from any liability predicated on the kinds of claims Plaintiffs seek to pursue. See Md. Code Ann., Corps. & Ass'ns § 2-405.2; Grill v. Hoblitzell, 771 F. Supp. 709, 712 (D.

5

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Md. 1991) (dismissing derivative action against directors of a Maryland corporation pursuant to Maryland Corporate Code § 2-405.2). 6 6. Plaintiffs' Merger-related claims should be dismissed on the ground that MBNA shareholders, who were fully informed about the Merger, have ratified the MBNA Board's actions in connection with the Merger by overwhelmingly voting in favor of the Merger, effectively extinguishing Plaintiffs' claims against the Outside Directors. For all of these reasons, and as set forth more fully below, the Outside Directors respectfully submit that all claims asserted against them should be dismissed.

6

The court may take judicial notice of the MBNA Charter. (Ex. E) See In re Baxter Int'l, Inc. S'holders Litig., 654 A.2d 1268, 1270 (Del. Ch. 1995) (when reviewing whether a certificate of incorporation exempts directors from liability, "[t]he court may take judicial notice of the certificate [of incorporation] in deciding a motion to dismiss").

6

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STATEMENT OF FACTS7 A. The Company (And Its Independent Board) MBNA, a Maryland company headquartered in Wilmington, Delaware, was (as of 2004) the world's largest independent credit card lender. (Lemon Bay ¶ 43; Benoit ¶ 44) MBNA had a ten-member board of directors. (Lemon Bay ¶¶ 21, 30-38; Benoit ¶¶ 21, 30-38) Only one out of the ten directors ­ Bruce Hammonds, MBNA's Chief Executive Officer and President ­ is expressly alleged to also be an officer of the Company.8 B. MBNA's January 2005 Earnings Forecast And First Quarter 2005 Results In January 2005, MBNA reported its fourth quarter and full year 2004 financial results. (Lemon Bay ¶ 67; Benoit ¶ 68) By many standards, MBNA had a strong 2004 financial performance. Plaintiffs do not directly challenge the accuracy of MBNA's reported financial results for 2004, but rather merely incorporate by reference allegations asserted in the Securities Action ­ an action in which the Outside Directors are not named parties. (See Lemon Bay ¶ 63; Benoit ¶ 64). Thereafter, between January 25, 2005 and February 3, 2005, certain officer defendants allegedly sold shares of the Company's stock. (Lemon Bay ¶ 74; Benoit ¶ 75) Relying on the separately filed Securities Action, Plaintiffs suggest that these insiders were
7

The Statement of Facts is taken from the few well-pleaded allegations in the Lemon Bay Partners Complaint (cited herein as "Lemon Bay") and the virtually identical Benoit Complaint (cited herein as "Benoit"). While these allegations may be accepted as true for purposes of this motion only, the Court may not accept Plaintiffs' conclusory allegations as true. See, e.g., Resource Ventures, Inc. v. Resources Mgmt. Int'l, Inc., 42 F. Supp. 2d 423, 438 (D. Del. 1999) (court "'not required to accept legal conclusions either alleged or inferred from the pleaded facts'") (quoting Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993)). The remaining eight independent directors are referred to as the Outside Directors. They are James H. Berick, Mary M. Boies, Benjamin R. Civiletti, William L. Jews, Stuart L. Markowitz, William B. Milstead, Thomas G. Murdough and Laura S. Unger. However, Murdough resigned as a director before Plaintiffs filed any derivative action. 7

8

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aware of a pending business downturn at the time they sold their shares (Lemon Bay ¶ 137; Benoit ¶ 138) ­ but allege no factual support for this contention. Moreover, there is no allegation in the Duplicative Complaints that the Outside Directors participated in any of the alleged stock sales, or were on notice (or should have been on notice) of any facts suggesting wrongdoing in connection with those sales. C. The Merger On June 30, 2005, MBNA announced it had reached a merger agreement with BAC, whereby each share of MBNA stock would be exchanged for $27.50 in cash and shares of BAC stock (the "Merger Agreement"). (Lemon Bay ¶ 83; Benoit ¶ 84) The Merger price represented a significant premium over (1) the $21.07 closing price of MBNA's shares the day before the announcement of the Merger (Lemon Bay ¶ 16; Benoit ¶ 16); and (2) the $23.11 closing price of MBNA's shares on April 20, 2005, the day before MBNA's first-quarter 2005 earnings results were announced (which Plaintiffs claim led to the general decline in MBNA's stock price).9 (Ex. C) MBNA's Board unanimously approved the Merger. (Lemon Bay ¶ 80; Benoit ¶ 81) The Merger was the culmination of a thorough search process for potential merger partners. (Lemon Bay ¶ 14; Benoit ¶ 14) MBNA hired not one, but two, financial advisors to assist it in connection with the search process. (Lemon Bay ¶ 3; Benoit ¶ 3) In early June 2005, the MBNA Board met with management, its financial advisors and its outside counsel (Wachtell, Lipton, Rosen & Katz) to discuss certain issues, including (1) the Company's recent financial performance and prospects, (2) consolidation activity in the credit card industry and the general

9

The Court may take judicial notice of MBNA's stock prices. See, e.g., Weiss v. Samsonite Corp., 741 A.2d 366, 375 n.26 (Del. Ch.), aff'd mem., 746 A.2d 277 (Del. 1999) (taking judicial notice of trading price of listed stock in ruling on a motion to dismiss). 8

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environment, (3) long-term trends, and (4) other developments in the markets in which MBNA conducts business. (Lemon Bay ¶ 75; Benoit ¶ 76) The Board also considered "[p]ossible strategic alternatives," including remaining independent or engaging in a business combination. (Id.) Thereafter, MBNA held discussions with at least one other potential merger partner (Wachovia Inc. ("Wachovia")) (Lemon Bay ¶ 78; Benoit ¶ 79), and had a list of several other merger candidates it was willing to consider. (Lemon Bay ¶ 75; Benoit ¶ 76) Ultimately, MBNA approved a deal with BAC, which represented a significant premium to MBNA's shareholders. (Lemon Bay ¶ 16; Benoit ¶ 16) D. MBNA Shareholders Approve The Merger On or about September 26, 2005, MBNA sent proxy materials to shareholders containing extensive disclosures about the Merger and the search process. (Lemon Bay ¶ 75; Benoit ¶ 76) Thereafter, on November 3, 2005, MBNA's shareholders approved the Merger. (Lemon Bay ¶ 16; Benoit ¶ 16) For the more than four months between the time the Merger was announced and the shareholders approved the Merger, no other suitor came forward. (Lemon Bay ¶ 15; Benoit ¶ 15) E. The Duplicative Complaints The Duplicative Complaints, though lengthy, consist largely of conclusory allegations and unsubstantiated attacks on the presumptively careful, loyal and good faith efforts of the MBNA Board in connection with the Company's disclosure of its first-quarter 2005 results and the Merger process. As to the Outside Directors, what the Duplicative Complaints fail to allege speaks volumes. Critically, Plaintiffs do not allege any federal claims against the Outside Directors, and fail to state sufficient facts supporting their three state law fiduciary counts. Even a cursory review of the Duplicative Complaints leads one to the conclusion that the Outside Directors here were disinterested and independent ­ Plaintiffs have not adequately alleged that 9

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any of them acted disloyally or failed to act independently or in good faith in connection with the Merger. Indeed, Plaintiffs largely ignore the Outside Directors, choosing instead to lump them together with all other defendants when attempting to state a claim. This tactic ­ which leaves Plaintiffs without any alleged factual support for any of the claims against the eight Outside Directors ­ dooms the Duplicative Complaints to failure. As explained below, all claims against the Outside Directors ­ which consist solely of state law fiduciary claims ­ should be dismissed as a matter of law. ARGUMENT I. PLAINTIFFS' CLAIMS IGNORE THE COURT'S PREVIOUS ORDERS, ARE PROCEDURALLY UNSOUND, AND ARE BARRED BY THE DOCTRINE OF RES JUDICATA. Plaintiffs' pursuit of the Duplicative Actions is a blatant attempt to end-run the Court's decision to dismiss virtually identically claims in the Original Action on jurisdictional grounds. More than two years ago, the Outside Directors moved to dismiss the Original Action on a number of grounds, including lack of subject matter jurisdiction. After full briefing ­ including sur-reply briefing on the issue of subject matter jurisdiction ­ the Court issued a written opinion granting the Outside Directors' motion, and directed the Clerk of the Court to close the case. Lemon Bay Partners, LLP, 2007 WL 1830899, at *5-6. In dismissing the action, the Court specifically ruled that "it is without jurisdiction over the subject matter of this action" because the "state law claims. . . substantially predominate over the federal claim." Id. at *1, 5. Unsatisfied with the Court's ruling, Plaintiffs moved for reconsideration, which this Court denied on March 26, 2008. However, before the Court had the opportunity to rule on Plaintiffs' own Motion for Reconsideration, Plaintiffs filed these Duplicative Actions that predominantly mirror the

10

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Original Action and continue to assert only state law fiduciary claims against the Outside Directors. While the Duplicative Actions allege additional federal law claims against the Inside Director Defendants ­ they fail to raise any federal law claims against the Outside Directors. Instead, Plaintiffs attempted to make another go around at pleading jurisdiction by asserting diversity jurisdiction in the Benoit complaint. (Benoit ¶ 17(a)). Benoit's long-abandoned theory of diversity jurisdiction, which ­ apart from its dubious prospects, given that MBNA's principal place of business was Wilmington, Delaware10 ­ was consciously dropped from the case at the time Plaintiffs filed their Consolidated Amended Complaint, and the Court ruled that "plaintiffs cannot now assert diversity as a possible basis for subject matter jurisdiction." See Lemon Bay, 2007 WL 1830899, at *5 n.9. To make matters worse, Plaintiffs have expressed that they intend to seek appellate review of the Court's decision in the Original Action, while at the same time pursue the Duplicative Actions, thereby allowing them to litigate their claims in two forums. This tactic is an improper attempt to interfere with the Court's decision-making process, forces the Defendants to defend against these claims on multiple fronts, and opens the door to potential inconsistent

10

There is significant doubt as to whether Plaintiffs could even establish diversity jurisdiction given that MBNA was a citizen of both Maryland (where it is incorporated) and Delaware (where its principal place of business is located), and at least one of the defendants was a Delaware resident. See, e.g., Raab, 180 Fed. Appx. at 320 (for purposes of diversity jurisdiction, a corporation is a resident of the state of its incorporation and its principal place of business). Under 28 U.S.C. § 1401, an action brought by a stockholder on behalf of a corporation may be prosecuted in "any judicial district where the corporation might have sued the same defendants." Thus, because at least one of the individual defendants is a resident of Delaware, Plaintiffs have not established that diversity exists here. See, e.g., Sale v. Pittsburgh Steel Co., 57 F. Supp. 283 (W.D. Pa., 1944) (finding requisite diversity jurisdiction lacking where corporation and some of defendants were residents of the district); Schoen v. Mountain Producers Corp., 170 F.2d 707 (3d Cir. 1948) (holding that in a derivative action, section 1401 requires that there be diversity between the injured corporation and all other defendants). 11

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rulings. Accordingly, the Court should dismiss the Duplicative Actions to put an end to such inappropriate procedural gamesmanship. In addition to these reasons, the Duplicative Actions should be dismissed for several other procedural-based reasons. First, the filing of the Duplicative Complaints directly contradicts the Consolidation Order agreed upon by the parties and ordered by the Court in the Original Action. (D.I. 28). The Consolidation Order made clear that Plaintiffs could not separately bring new actions raising essentially the same facts and claims against the same defendants. See id. ("This Order shall apply to each shareholder derivative and state law based class action arising out of the same or substantially the same transactions or events as these cases that is subsequently filed in, removed to or transferred to this Court". . . and "counsel are to assist in assuring that counsel in subsequent actions receive notice of this Order."). Therefore, the subsequent filing of the Duplicative Actions violates the Consolidation Order. Second, Plaintiffs made a tactical decision not to amend the Consolidated Amended Complaint in the Original Action in response to the Outside Directors' motion to dismiss. Plaintiffs are now bound by that decision, and, as a result, cannot simply file two "new" complaints to avoid dismissal. Had they wanted to amend or revise the original Consolidated Amended Complaint to avoid dismissal, they should have done so before the Court granted the motion to dismiss.11 See e.g., In re Digital Island Sec. Litig., C.A. No. 02-57-GMS, 2002 WL 31667863, at *1 (D. Del. Nov. 25, 2002) ("When faced with the defendants' motion to dismiss,

11

Plaintiffs clearly had a chance to amend, but chose not to take it. In fact, Plaintiffs admitted this point by representing to the Court in their sur-reply brief in opposition to the motion to dismiss the Original Action that they "do not now move to re-plead." (D.I. 60 Sur-Reply at 13) 12

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the plaintiffs would have been well within their rights to request leave to amend. Instead, they chose to oppose the motion, in its entirety, without seeking such relief. Such an approach is highly suspect as the plaintiffs were aware of the facts which they now seek to add at the time the original pleading was filed. Thus, there is no excuse for failure to plead them before the case was dismissed."), aff'd, 357 F.3d 322 (3d Cir. 2004). In fact, in the Motion for Reconsideration, the Court denied Plaintiffs' meritless contention that the Court erred by "overlooking" their motion for leave to amend their Consolidated Amended Complaint to add additional counts in an effort to establish jurisdiction. (D.I. 43 Pls.' Op. Br. at 10-15) As such, permitting Plaintiffs to continue to pursue these Duplicative Actions will effectively allow them the relief that the Court denied them in their Motion for Reconsideration. Third, Plaintiffs are barred under the doctrine of res judicata from bringing any further actions in this Court based on the same facts underlying the previously dismissed complaint. "Although the dismissal of a complaint for lack of jurisdiction does not adjudicate the merits so as to make the case res judicata on the substance of the asserted claim, it does adjudicate the court's jurisdiction, and a second complaint cannot command a second consideration of the same jurisdictional claims." Boone v. Kurtz, 617 F.2d 435, 436 (5th Cir. 1980) (holding that complaint was properly dismissed under the doctrine of res judicata where the District Court had already dismissed an almost identical complaint for lack of jurisdiction); Bromwell v. Michigan Mut. Ins. Co., 115 F.3d 208, 212-13 (3d Cir. 1997) ("A dismissal for lack of subject-matter jurisdiction, while `not binding as to all matters which could have been raised,' is, however, conclusive as to matters actually adjudged.") (citations omitted); Grasty v. U.S. Patent and Trademark Office, 211 Fed. Appx. 952, 953-54 (Fed. Cir. 2007) (applying the law of the Third Circuit and stating that "[i]t has long been the rule that principles of res judicata apply

13

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to jurisdictional determinations ­ both subject matter and personal.") (citation omitted); Shaw v. Merritt-Chapman & Scott Corp., 554 F.2d 786, 789 (6th Cir. 1977) (holding that "while a dismissal for lack of jurisdiction does not constitute an adjudication upon the merits, it does constitute a binding determination on the jurisdictional question, which is not subject to collateral attack"). Moreover, Plaintiffs cannot simply rework the Consolidated Amended Complaint in the Original Action and add claims (or revise old ones) in newly-filed complaints in the same Court to avoid dismissal. "The res judicata doctrine . . . not only binds the parties and their privies as to grounds or issues actually litigated, but also as to any other admissible matter which might have been offered for that purpose." See Sanchez v. Caribbean Carriers Ltd., 552 F.2d 70, 71 (2d Cir. 1977) (citation omitted) (barring second suit arising from identical facts and issues where court had already dismissed a similar action for lack of jurisdiction and finding that new claim asserted by plaintiff did not affect the decision); see also Magnus Elecs., Inc. v. La Republica Argentina, 830 F.2d 1396, 1400 (7th Cir. 1987) (holding that "it does not make sense to allow a plaintiff to begin the same suit over and over again in the same court, each time alleging additional facts that the plaintiff was aware of from the beginning of the suit, until it finally satisfies the jurisdictional requirements"). Plaintiffs are bound by the Court's decision in the Original Action and their only option is to appeal the Court's dismissal. Shaw, 554 F.2d at 789 (holding that plaintiffs were barred from bringing a subsequent suit asserting essentially the same claims and citing the same jurisdictional basis because plaintiff did not appeal the dismissal). Simply put, "the remedy for a [purported] wrong decision is the right of appeal, not an unlimited opportunity to bring repetitious petitions." See Walsh v. Int'l Longshoremen's Ass'n, AFL-CIO, 630 F.2d 864, 869 (1st Cir. 1980); see also Magnus Electronics, Inc., 830 F.2d at

14

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1402 (holding that plaintiff could have appealed the court's decision, but could not simply file a new suit in district court and allege new bases of subject matter jurisdiction that were available to it at the time of the first-filed suit). Accordingly, the Duplicative Complaints should be dismissed. In any event, to the extent the Court considers the Duplicative Complaints, Plaintiffs have not asserted any federal law claims against the Outside Directors. In fact, as to the Outside Directors, the Duplicative Complaints assert only three state fiduciary counts ­ Count Four (breach of fiduciary oversight duties), Count Six (breach of fiduciary duties in connection with the Merger through gross mismanagement), and Count Seven (breach of fiduciary Revlon duties). As such, these "new" complaints do not affect the Court's wellreasoned decision that it lacks subject matter jurisdiction as to claims asserted against the Outside Directors. For these reasons, the Duplicative Actions should be dismissed in their entirety. II. TO THE EXTENT THE COURT REACHES THE MERITS OF THIS DISPUTE, THE DUPLICATIVE COMPLAINTS MUST BE DISMISSED UNDER MARYLAND LAW. A. Standard Of Review. To survive a motion to dismiss, a complaint must allege facts that, if taken as true, would establish each and every element of a claim upon which relief can be granted. Criden v. Steinberg, C.A. No. 17082, 2000 WL 354390, at *2 n.7 (D. Del. Mar. 23, 2000) (citation omitted). Where, as here, the Duplicative Complaints are largely composed of "bald assertions" and "legal conclusions," the Court need not credit those allegations in ruling on a motion to dismiss. Ercole v. Conectiv & Coventry Health Care of Del., Inc., C.A. No. 03-186 GMS, 2003 WL 21104926, at *1 (D. Del. May 15, 2003); Sussex County Senior Servs., Inc. v. Carl J. Williams & Sons, Inc., C.A. No. 99-473-GMS, 1999 WL 33220035, at *1 (D. Del. Dec. 29, 1999) 15

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(citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (in analyzing a motion to dismiss, the court "need not accept legal conclusions [pled] in the guise of factual allegations as being true"); see also McMillan v. Intercargo Corp., 768 A.2d 492, 496 (Del. Ch. 2000) (dismissing complaint that alleged "no facts from which a reasonable inference can be drawn that any conflicting self-interest or bad faith motive caused the defendant directors to fail to meet their obligations"). B. The Internal Affairs Doctrine Mandates That Maryland Law Governs This Dispute. "The internal affairs doctrine is a long-standing choice of law principle which recognizes that only one state should have the authority to regulate a corporation's internal affairs ­ the state of incorporation." VantagePoint Venture Partners 1996 v. Examen, Inc., 871 A.2d 1108, 1112 (Del. 2005); see also CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 91 (1987) (holding it is "an accepted part of the business landscape in this country for States to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares"); McDermott Inc. v. Lewis, 531 A.2d 206, 209 (Del. 1987) (noting that the "internal affairs doctrine is a major tenet of Delaware corporation law having important federal constitutional underpinnings"). Indeed, under the internal affairs doctrine, courts routinely apply the law of the state of incorporation to "'the entire gamut of internal corporate affairs."' VantagePoint, 871 A.2d at 1113 (citations omitted). This includes "those matters that pertain to the relationships among or between the corporation and its officers, directors, and shareholders." Id.; see also McDermott, 531 A.2d at 216 ("[D]irectors and officers have a significant right, under the fourteenth amendment's due process clause, to know what law will be applied to their actions.").

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Although its headquarters were located in Delaware, MBNA was incorporated under Maryland law.12 Accordingly, under the internal affairs doctrine, Plaintiffs' substantive claims against the Outside Directors, including the issue of whether Plaintiffs were excused from making demand on the MBNA Board, are governed by Maryland law. See McDermott, 531 A.2d at 209; Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 101, 106 (1991) ("[a] court [that is] entertaining a derivative action . . . must apply the demand futility exception as it is defined by the law of the State of incorporation"; to do otherwise "would necessarily infuse corporate decision making with uncertainty" and result in "disruption to the internal affairs of the corporation"). C. Under Maryland Law, Breach Of Fiduciary Duty Claims Are Derivative. Under Maryland law, a director's obligation "runs . . . to the corporation and not, at least directly, to the shareholders." Werbowsky v. Collomb, 766 A.2d 123, 144 (Md. 2001) (emphasis added); see also Maryland Corporate Code ("MCC") § 2-405.1(g) (explaining that "nothing in this section creates a duty of any director of a corporation enforceable otherwise than by the corporation or in the right of the corporation") (emphasis added); Goodman v. Poland, 395 F. Supp. 660, 680 (D. Md. 1975) (stating that "an officer or director is not in a fiduciary relationship with an individual stockholder with respect to his stock"); Llewellyn v. Queen City Dairy, Inc., 48 A.2d 322, 327 (Md. 1946) (same principle).

12

Though Plaintiffs fail to allege that MBNA was incorporated in Maryland, they acknowledge that Maryland law governs their claims by repeatedly alluding to "Maryland fiduciary jurisprudence" in their Complaints. (See, e.g., Lemon Bay ¶¶ 152, 158; Benoit ¶¶ 153, 159) In any event, the MBNA Charter clearly establishes that it is a Maryland company. (Ex. E) The Court may take judicial notice of the charter for purposes of this motion. See In re Wheelabrator Techs. Inc. S'holders Litig., C.A. No. 11495, 1992 WL 212595, at *11 (Del. Ch. Sept. 1, 1992). 17

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By definition, then, any claims of breach of fiduciary duty under Maryland law are derivative in nature, because they are "enforceable" only "by the corporation or in the right of the corporation," and not directly (by way of a class claim or otherwise) by stockholders. See MCC § 2-405.1(a); see also Waller v. Waller, 49 A.2d 449, 452 (Md. 1946) ("Where directors commit a breach of trust, they are liable to the corporation, not to its creditors or stockholders, and any damages recovered are assets of the corporation, and the equities of the creditors and stockholders are sought and obtained through the medium of the corporate entity.") (emphasis added); Danielewicz v. Arnold, 769 A.2d 274, 281-82 (Md. App. 2001) (explaining that principles set forth in Waller are "well-settled law" in Maryland); Jolly Roger Fund LP v. Sizeler Property Investors, Inc., C.A. No. RDB 05-841, 2005 WL 2989343, at *6 (D. Md. Nov. 3, 2005) (under Maryland law, "an action that causes harm to a corporation and incidentally injures shareholders by diminishing or destroying the value of their stock is not a direct action") (emphasis added) (citing Waller, 49 A.2d at 452)). Here, the three counts in the Duplicative Complaints that name the Outside Directors admittedly are claims for breach of fiduciary duty or were brought on behalf of the Company,13 and, therefore, are derivative under Maryland law. As a result, pursuant to blackletter law discussed below, the Duplicative Complaints must be dismissed because Plaintiffs have lost standing to pursue such derivative claims.

13

See, e.g., Lemon Bay ¶¶ 128-29; Benoit ¶¶ 129-30 (Count IV: "The MBNA Individual Defendants owed and owe MBNA fiduciary obligations" and they "breached their fiduciary duties of care, loyalty, reasonable inquiry, oversight, good faith and supervision.") (emphasis added); Lemon Bay ¶ 144; Benoit ¶ 145 (Count VI:: "[t]he MBNA Director Defendants breached their duty of entire fairness") (emphasis added); Lemon Bay ¶ 154; Benoit ¶ 155 (Count VII: "[t]he Director Defendants breached their Revlon Duties"). 18

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D. By Virtue Of The Merger, Plaintiffs Have Lost Standing To Pursue Claims Against The Outside Directors. It is well-settled under Maryland law, pursuant to the "contemporaneous

Their

ownership" rule, that a stockholder suing derivatively must demonstrate actual ownership of shares in the corporation, both at the time of the alleged wrongs and during the litigation. See, e.g., Ettridge v. TSI Group, Inc., 548 A.2d 813, 817-18 (Md. 1988) (describing contemporaneous ownership rule under Maryland law, noting that it "has been codified in federal practice at Fed. Rule Civ. Proc. 23.1(1), and has been followed by most of the states"); Danielewicz, 769 A.2d at 281-82 (affirming decision that vested remainder interest did not confer standing to pursue derivative claims because plaintiff lacked possessory interest at the time of the alleged wrong). Thus, a plaintiff who owns stock in a Maryland corporation loses standing to pursue derivative claims when that plaintiff ceases to be a shareholder ­ including by reason of a merger. See, e.g., Ettridge, 548 A.2d at 817-18; Danielewicz, 769 A.2d at 281-82; see also Lewis v. Anderson, 477 A.2d 1040, 1046, 1049 (Del. 1984) (holding that because derivative standing is dependent upon the ownership of stock, "[a] plaintiff who ceases to be a shareholder, whether by reason of a merger or for any other reason, loses standing to continue a derivative suit"); In re First Interstate Bancorp Consol. S'holder Litig., 729 A.2d 851, 868 (Del. Ch. 1998) (holding that plaintiff stockholders' ability to pursue derivative claims on behalf of First Interstate was extinguished as a result of a stock-for-stock merger with Wells Fargo); Porter v. Texas Commerce Bancshares, Inc., C.A. No. 9114, 1989 WL 120358, at *5 (Del. Ch. Oct. 12, 1989) (holding that a "merger in which a corporation's shareholders received stock in another

19

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corporation, other securities or cash, will always result in termination of the right of the premerger shareholders to sue on behalf of the company") (emphasis added).14 Therefore, by virtue of the Merger, Plaintiffs have lost standing to pursue the derivative claims here, a fact that Plaintiffs concede. (Lemon Bay ¶ 91; Benoit ¶ 92 ("Upon completion of the Merger between MBNA and Bank of America . . . MBNA's derivative claims passed by operation of law to Bank of America, the surviving corporation.")) For this reason, the Duplicative Complaints should be dismissed in their entirety as to the Outside Directors. In an attempt to avoid this result, Plaintiffs have concocted two arguments for why the black-letter principle established by the contemporaneous ownership rule should be ignored.15 First, Plaintiffs contend that Defendants agreed to the Merger solely to "escape liability" for their derivative claims. (Lemon Bay ¶ 82; Benoit ¶ 83) Plaintiffs, however, offer no alleged factual support for this conclusion, and it is well-settled that conclusory allegations do not suffice to avoid the standing requirement of the contemporaneous ownership rule. Lewis v. Ward, 852 A.2d 896, 905 (Del. 2004) (holding that the "particularized pleading requirement of Rule 9(b) must be satisfied by a derivative complaint that seeks to invoke the fraud exception in Lewis v. Anderson"). Moreover, Plaintiffs' conclusory claim is belied by the Duplicative Complaints, which clearly allege that the MBNA Board turned down an earlier offer from

14

Where appropriate, Maryland courts will consider the expertise of the Delaware courts on questions of corporate law. See, e.g., Jolly Roger, 2005 WL 2989343, at *3 ("With respect to corporate governance issues, Maryland courts often look to Delaware caselaw."). It appears that Plaintiffs are attempting to invoke the two recognized exceptions under Delaware law to the iron-clad rule that a shareholder of a merger entity loses standing to assert pre-merger derivative claims ­ (i) where the merger itself is the subject of a claim of fraud (i.e., designed solely for the purpose of avoiding director liability), or (ii) where the merger is, in reality, merely a reorganization that does not affect plaintiffs' ownership in the business enterprise. See Lewis v. Anderson, 477 A.2d at 1046 n.10. 20

15

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Wachovia before accepting the BAC offer. (Lemon Bay ¶ 78; Benoit ¶ 79) This allegation is inconsistent with Plaintiffs' theory that Defendants, including the Outside Directors, agreed to the Merger solely to avoid derivative liability. Second, to the extent Plaintiffs contend that receipt of BAC stock in connection with the Merger somehow permits them to circumvent the "contemporaneous ownership" rule and continue to pursue derivative claims against the MBNA directors on behalf of BAC, Delaware courts have conclusively rejected this claim, and the same result should be reached here. See, e.g., First Interstate, 729 A.2d at 867 (rejecting argument that receiving stock in a merger invoked exception to the standing rule; holding that such an exception "would not apply to mergers with outside or pre-existing corporations with substantial assets").16 E. Plaintiffs Have Not Alleged That Demand Was Excused. Plaintiffs appear to have abandoned their claim that demand upon the MBNA board of directors would have been futile. This is most likely because Plaintiffs have conceded that, by virtue of the Merger, "MBNA's derivative claims [have] passed by operation of law to Bank of America, the surviving corporation." (Lemon Bay ¶ 91; Benoit ¶ 92). Even if the Court were to conclude that receiving shares of BAC stock was sufficient to provide Plaintiffs with continued standing to pursue their claims (which it should not), Plaintiffs have also failed to show why demand on the BAC Board would be excused. By

16

In fact, under Delaware law, a stock-for-stock merger with a large public company, such as BAC, results in the application of the contemporaneous ownership rule, and deprives Plaintiffs of standing to pursue derivative claims ­ whether or not they continue on as stockholders of the acquiring company. See, e.g., In re First Interstate Bancorp Consol. S'holder Litig., 729 A.2d at 867 (holding that plaintiff stockholders' ability to pursue derivative claims on behalf of First Interstate was extinguished as a result of a stock-for-stock merger with Wells Fargo); see also Lewis, 852 A.2d at 903-04 (rejecting plaintiffs' request to ignore application of contemporaneous ownership rule in context of stock-for-stock mergers). 21

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any standard ­ and, here, the demand futility test relating to the BAC Board would have to be considered under Delaware law, because BAC is a Delaware company ­ Plaintiffs have not shown that demand is futile. See Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); Fed. R. Civ. P. 23.1 (requiring plaintiff to "allege with particularity the efforts, if any, made by the plaintiff to obtain the action [the plaintiff] desires from the directors . . . and the reasons for [the plaintiff's] failure to obtain the action or for not making the effort"). Other than making the conclusory allegation that the "BAC Board has already pre-judged the merits of this action" (Lemon Bay ¶ 93; Benoit ¶ 94), Plaintiffs offer absolutely no particularized allegations about any of BAC's directors that support the notion that they are unable to consider fairly any demand. In fact, Plaintiffs do not allege any specific facts that raise a reasonable doubt as to the independence or disinterestedness of the seventeen BAC board members. See, e.g., Pogostin v. Rice, C.A. No. 6235, 1983 WL 17985, at *3 (Del. Ch. Aug. 12, 1983) (dismissing complaint where "Plaintiffs did not allege any facts," particularized or otherwise, that established that demand on the board was futile), aff'd, 480 A.2d 619 (Del. 1984). Instead, Plaintiffs' lone attempt to argue that a demand on the BAC Board would be futile is based on their allegation that the BAC board of directors could not pursue the claims Plaintiffs have asserted here because it "agreed to indemnify and hold harmless each present and former director, officer and employee of MBNA from liability and exculpation. . . to the fullest extent provided by applicable law, the MBNA articles of incorporation and the MBNA bylaws." (Lemon Bay ¶ 94; Benoit 95) Plaintiffs' reasoning fails as a matter of fact and law. First, written indemnity and insurance obligations do not "preordain that the Board would reject a demand that otherwise had merit." Grobow v. Perot, 526 A.2d 914, 925 n.14 (Del. Ch. 1987) (granting motion to dismiss for failure to plead demand futility, holding that

22

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"[i]ndemnification as an adjunct to a business transaction is not illegal or necessarily imprudent. The corporation's obligation to indemnify a director is not unlimited. Accordingly, it would be incorrect to conclude that the mere presence of the indemnity provision in the buy-out agreement would [contractually obligate] the Board [to] reject a demand that otherwise had merit."), aff'd, 539 A.2d 180 (Del. 1988). Second, the specific language upon which Plaintiffs rely to support their assertion is the typical boilerplate indemnification language found in any standard merger agreement. See Merger Agreement at Section 6.7: Indemnification; Directors' and Officers' Insurance; relevant excerpt attached hereto as Ex. D; see also In re Talley Indus., Inc. S'holders Litig., C.A. No. 15961, 1998 WL 191939, at *4 n.1 (Del. Ch. Apr. 13, 1998) (recognizing as "typical" and "common[]" the exculpation, indemnification and insurance provisions included in merger agreement). Notably absent from that passage is any mention of