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In re Sunrise Senior Living

May 1, 2008

IN RE SUNRISE SENIOR LIVING, INC. DERIVATIVE LITIGATION


This Document Relates To: ALL ACTIONS

Memorandum Opinion

Currently before the Court are defendants' motions to dismiss the consolidated complaint filed in this case, as well as the plaintiffs' subsequent motion to amend that consolidated complaint ("Compl."). On behalf of Sunrise Senior Living, Inc. ("Sunrise") and its shareholders, Brockton Contributory Retirement System ("Brockton"), Catherine Molner, and Robert Anderson initiated separate stockholder-derivative suits on January 19, January 31, and February 5, 2007, in this now-consolidated case against Sunrise, as a "nominal defendant," certain former and current members of its Board of Directors ("the Board"), and some of its former and current executive officers ("the Executives") as individual defendants. Compl. ¶ 1.*fn1 The plaintiffs' separate suits were consolidated on May 11, 2007, as each plaintiffs' claims arose "out of the same transactions and occurrences [and] involve[d] the same or substantially similar issues of law and fact." Stipulation and [Proposed] Order Consolidating Cases for All Purposes and Appointing a Leadership Structure ("Stipulation") [D.E. 19] at 5. Brockton, Molner, and Anderson (the "plaintiffs") were then appointed lead plaintiffs in the consolidated case. Id. On June 29, 2007, they filed their consolidated complaint against the defendants on behalf of the Sunrise shareholders, alleging "breaches of fiduciary duties, unjust enrichment, statutory and other violations of the law." Compl. ¶ 1. On August 27, 2007, the defendants filed motions to dismiss the consolidated complaint. Rather than responding to those motions, on October 26, 2007, the plaintiffs sought to file an amended consolidated complaint to which the defendants objected. As a consequence, the Clerk of the Court precluded the plaintiffs from filing the amended consolidated complaint without first securing written consent from the defendants or leave from the Court to do so.

Having read the various filings of the parties and for good cause shown, the Clerk of the Court will be ordered to accept for filing the plaintiffs' amended consolidated complaint for the following reasons and, as a consequence of this decision, the Court will deny without prejudice the defendants' motions to dismiss and for a stay of the proceedings in this case.

I. The Procedural History

As noted, on August 27, 2007, nineteen of the individual defendants collectively filed motions to dismiss the consolidated complaint, while defendants Sunrise, Bradley, and Rush each filed separate motions to dismiss. In its motion, Sunrise contends that the plaintiffs inadequately pleaded, under Delaware law, pre-suit-demand futility. Memorandum of Points and Authorities in Support of the Motion to Dismiss or in the Alternative Stay by Nominal Defendant Sunrise ("Sunrise Mem.") at 9-10. Sunrise thus asserts that a pre-suit demand of the Board was required before instituting this action and, absent that demand, this case should be dismissed. Id. at 9-14. Alternatively, Sunrise contends that the proceedings in this case should be stayed because moving forward at this time would jeopardize its defense in a securities class action lawsuit that is also pending before this Court, which according to Sunrise, has legal issues in common with this case. Id. at 36.

Bradley, on the other hand, moves for dismissal because the plaintiffs have allegedly failed to state a claim upon which relief can be granted. Memorandum of Points and Authorities in Support of Defendant David G. Bradley's Motion to Dismiss at 1-2, 5. This argument has two facets. First, Bradley argues that the plaintiffs' claims are barred by various statutes of limitations. Id. Additionally, he argues that the plaintiffs' breach of the duty of care, breach of the duty of loyalty, and aiding and betting claims are inadequately pled because, in violation of Rule 9(b) of the Federal Rules of Civil Procedure, the plaintiffs failed to plead with specificity the time, place, and content of the alleged misrepresentations, and the identities of the participants. Id. at 15, 16, 18.

Defendant Rush also moves to dismiss, asserting that the Court lacks personal jurisdiction over him and that the plaintiffs have failed to state a claim upon which relief can be granted. Defendant Bradley B. Rush's Memorandum of Points and Authorities in Support of His Motion to Dismiss at 1. The crux of Rush's Rule 12(b)(6) failure to state a claim argument is that the plaintiffs have failed to allege specific instances of his misconduct. Id. at 21-22. Rush's personal jurisdiction argument is premised on the notion that the plaintiffs have relied upon "conclusory allegations or blanket statements about all of the defendants," instead of setting forth Rush's personal contacts with the District of Columbia. Id. at 22. In the absence of specific averments about his personal contacts with this jurisdiction, Rush asserts that this Court lacks jurisdiction over him. Id.

The remaining defendants assert that the Court lacks subject-matter jurisdiction. Memorandum of Points and Authorities in Support of the Individual Defendants' Motion to Dismiss at 4-5, 31. This argument, however, is based upon the defendants' belief that the plaintiffs' have failed to sufficiently plead a federal claim. Id. at 4. These defendants also claim that the plaintiffs inadequately demonstrated their standing to bring this action. Id. at 7. Additionally, they argue that the plaintiffs failed to plead the Court's personal jurisdiction over them. Id. at 8-11. These defendants further assert that the plaintiffs' federal claims are barred by various statutes of limitations, that the plaintiffs failed to plead state or federal securities violation claims, and that the plaintiffs have failed to assert a state-law claim in counts four through eleven. Id. at 4, 11-42.

The plaintiffs responded to these motions on October 26, 2007, by attempting to amend the consolidated complaint, to which the defendants objected. Individual Defendants' and Nominal Defendant's Joint Memorandum in Opposition to Motion for Leave to Amend the Pleading ("Defs.' Opp'n") at 7-8. The defendants contend that the filing of the plaintiffs consolidated complaint constituted an amendment of the complaint. Id. at 9. Thus, they argue that the plaintiffs do not have the right to further amend the consolidated complaint absent their written consent or with leave of the Court. Id. at 1. Additionally, the defendants contend that further amendment of the consolidated complaint will "add nothing of substance" to the case. Id. Indeed, they characterize the plaintiffs' proposed amendments as a "last minute" effort to avoid dismissal. Id. "[G]ranting leave to amend," they argue, "will only result in undue delay and prejudice." Id. at 1, 9-12. In that regard, the defendants argue that: (1) the new information is irrelevant; (2) the defendants will have to "re-brief all their motions"; (3) allowing further amendment will delay resolution of the case; and (4) further amendment of the consolidated complaint will impose upon the defendants increased financial burdens. Id. at 12.

The plaintiffs seek to refute these contentions by asserting that consolidation of their individual complaints did not constitute an amendment. Memorandum of Points and Authorities in Support of Plaintiffs Motion for Leave to Amend the Pleading ("Pls.' Mem.") at 4-5. Thus, they argue that Rule 15(a) of the Federal Rules of Civil Procedure permits the filing of one amended consolidated complaint as a matter of right, absent, as here, a previously filed responsive pleading. Pls.' Mem. at 1. Alternatively, the plaintiffs argue that, even in the absence of the right to amend, they should be permitted to file their amended consolidated complaint because, as the Supreme Court reiterated in Foman v. Davis, 371 U.S. 178 (1962), such "'leave shall be freely given when justice so requires.'" Pls.' Mem. at 5 (quoting Foman, 371 U.S. at 182). In support of this alternative argument, the plaintiffs contend that since the filing of the consolidated complaint, Sunrise, contrary to one of the averments in the consolidated complaint, held an annual stockholders' meeting, new information has become available, and permitting the plaintiffs to amend their consolidated complaint will allow them to withdraw the mooted annual stockholder meeting averment and to plead the new information that has since emerged. Id. at 2. Additionally, the plaintiffs argue that judicial economy will be promoted by allowing them to add an additional plaintiff, rather than requiring that prospective party to file a separate stockholder-derivative action which, under this Court's May 11, 2007 order, would necessarily be consolidated with this case in any event. Plaintiffs' Reply Memorandum of Points and Authorities In Response to Defendants' Opposition to Plaintiffs' Motion for Leave to Amend The Pleading ("Pls.' Reply") at 5.

II. Analysis

A.

Like the United States District Court for the Southern District of Indiana in the case of In Re Guidant Corp., Master Derivative Docket No. 1:03-cv-0955-SEB-WTL, 2005 U.S. Dist. LEXIS 45701 (S.D. Ind. Dec. 22, 2005), this Court concludes that the consolidation of separate complaints does not constitute an amendment of the individually filed complaints. See Id. at **3-9 (denying motion to strike amended consolidated complaint in securities litigation case on the ground that the plaintiffs failed to seek leave from the trial court prior to filing amended complaint). Because the defendants have not yet filed responsive pleadings to the plaintiffs' initial consolidated complaint, the plaintiffs are, as a matter of right, entitled to amend their consolidated complaint. See Fed. R. Civ. P. 15(a)(1)(A) (permitting a plaintiff to amend its pleading without need for prior leave from the trial court "before being served with a responsive pleading." (emphasis added)); compare Fed. R. Civ. P. 7(a) (defining "pleadings") with Fed. R. Civ. P. 12(b) (explaining defensive motions). Thus, the plaintiffs cannot be deprived of their right to amend their pleading once under Rule ...


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