This case is about certain modalities of accountability in a corporate business setting.
Petitioners are shareholders
We must determine, among other things, whether Board Respondents, in the course of negotiating with the acquiring
In June 2006, at a regularly scheduled meeting of Laureate's Board of Directors, Board Respondent Becker, Laureate's Chairman and CEO, spoke to the Board about the possibility of exploring a transaction between Laureate and private equity investors that would cause Laureate to "go private." The Board authorized Becker
On 8 September 2006, Becker informed the Board that he intended to make an offer to purchase Laureate, at which time the Board created a Special Committee composed of three independent directors, Board Respondents McGuire, Pollock, and Wilson, with the authority to retain independent advisors and make independent assessments of any proposed offers. The Special Committee retained the law firm Pillsbury Winthrop Shaw Pittman LLP as its legal counsel, and Morgan Stanley and Merrill Lynch as its financial advisors.
Three days later, Becker submitted a letter to the Board stating that he and Sterling Capital proposed to acquire Laureate for $55 per share. On 22 September 2006, the Special Committee requested that Becker withdraw his proposal so that an appropriate process or set of procedures could be put into place regarding Becker's development of proposals and the Special Committee's evaluation of those proposals. Becker withdrew the first offer the next day and, on 29 September 2006, the Special Committee adopted a set of procedures intended to govern the due diligence process Becker and other potential financing sources would be required to follow in order to submit an offer.
Becker thereafter submitted a second offer to the Special Committee, on behalf of Investor Respondents (which included Sterling Capital) to purchase Laureate for $60.50 per share. That price constituted an 11.1 % premium over Laureate's then most recently traded stock price. The proposal included a 45-day "go shop" provision which allowed Laureate to solicit other offers, but required that Laureate pay Investor Respondents a $55 million termination fee if it reached an agreement with another acquirer during the go-shop period, or $110 million if it reached such an agreement afterwards. Morgan Stanley and Merrill Lynch concluded that the offer was fair financially, although that conclusion was disputed contemporaneously by several of Laureate's largest institutional shareholders.
The Special Committee unanimously recommended on 28 January 2007 that the Board approve the proposed transaction. The Board unanimously agreed, and Laureate announced the news. Neither Becker nor Hoehn-Saric, another Laureate director who held an interest in Sterling Capital, participated in the Board's meeting that lead to approval of the offer.
On 30 January 2007, Petitioners filed two direct shareholder complaints in the Circuit Court for Baltimore City relating to the proposed merger at the $60.50 per share price. The Circuit Court consolidated the complaints into a single complaint, and Petitioners thereafter filed a Consolidated Amended Complaint on 5 April 2007. That complaint alleged that, during the course of the acquisition, (1) Board Respondents breached the fiduciary duties that they owed to Petitioners as shareholders, (2) Board Respondents and Investor Respondents conspired to breach those fiduciary duties, and (3) Board Respondents and Investor Respondents aided and abetted that breach.
Respondents filed motions to dismiss.
Laureate announced on 3 June 2007 that it accepted an increased offer from Investor Respondents to acquire Laureate at a price of $62 per share by way of a tender offer and second-step (or "short-form") merger, a process whereby Investor Respondents would purchase, at a price per share equal to the offer price, a number of newly issued shares of Laureate's common stock sufficient to provide the Investor Respondents with ownership of one share more than 90% of the total shares outstanding and then, by virtue of their 90% ownership, convert all remaining shares of Laureate's common stock into the right to receive the same price paid per share in the tender offer.
The Circuit Court heard argument on the motion and, on 26 June 2007, granted the motion to dismiss the Second Amended Complaint, with prejudice. In its order, the court stated that Petitioners' claims "suffer from a threshold flaw that is fatal to their efforts," namely that "the vehicle they have chosen to utilize for those purposes, i.e., a direct action against corporate directors for alleged violations of fiduciary duties, is unavailable to them in Maryland." The trial judge based his decision on § 2-405.1(g) of the Corporations and Associations Article, holding that subsection (g) "was enacted to foreclose exactly the kinds of claims which [Petitioners]
After having their motion for reconsideration of the order of dismissal and a motion for leave to amend the Second Amended Consolidated Complaint denied by the Circuit Court, Petitioners appealed timely to the Court of Special Appeals.
The Court of Special Appeals, in an unreported opinion, affirmed the Circuit Court's dismissal of Petitioners' action, holding that directors of Maryland corporations owe no common law fiduciary duties directly to their shareholders and that, in a cash-out merger transaction, any claims shareholders may have against directors for breach of fiduciary duties must be brought derivatively on behalf of the corporation. Specifically, the unanimous panel of the intermediate appellate court concluded that "the plain language of CA § 2-405.1(g) bars Shareholders' direct claim because the words of that subsection, given their ordinary meaning and read in the manner in which they are most commonly understood, provide that shareholder claims against directors for breaches of fiduciary duties may only be pursued by the corporation or derivatively by its shareholders." Based on this conclusion, our appellate brethren upheld the Circuit Court's dismissal of the breach of fiduciary duties claim because it did not state a legally sufficient cause of action.
The Court of Special Appeals also affirmed the Circuit Court's dismissal of Petitioners' civil conspiracy claim against Investor Respondents based on its determination that Investor Respondents did not owe a fiduciary duty to Petitioners and thus were legally incapable of committing the underlying tort of breach of fiduciary duty. Finally, the intermediate appellate court held that the Amended Complaint did not allege sufficiently that Investor Respondents encouraged, incited, aided, or abetted the act of the direct perpetrators of the alleged tort, concluding instead that the actions of Investor Respondents were merely those "normally attendant to a private entity pursuing the private acquisition of a public corporation."
II. STANDARD OF REVIEW
We review the grant of a motion to dismiss as a question of law. Reichs Ford Rd. Joint Venture v. State Rds. Comm'n of the State Hwy. Admin., 388 Md. 500, 509, 880 A.2d 307, 312 (2005). In considering a dismissal, we inquire whether the well-pleaded allegations of fact contained in the complaint, taken as true, reveal any set of facts that would support the claim made. Pittway Corp. v. Collins, 409 Md. 218, 238-39, 973 A.2d 771, 783 (2009); Flaherty v. Weinberg, 303 Md. 116, 135-36, 492 A.2d 618, 628 (1985). A court must assume the truth of all well-pleaded relevant and material facts as well as all inferences that reasonably may be drawn therefrom, and order dismissal only if the allegations and permissible inferences, if true, would not afford relief to the plaintiff, i.e., the allegations do not state a cause of action. Pittway, 409 Md. at 239, 973 A.2d at 783; Lloyd v. Gen. Motors Corp., 397 Md. 108, 121, 916 A.2d 257, 264 (2007); Reichs Ford, 388 Md. at 509, 880 A.2d at 312; Alleco, Inc. v. The Harry & Jeanette Weinberg Found., Inc., 340 Md. 176, 193, 665 A.2d 1038, 1046 (1995); Lizzi v. Washington Metro. Area Transit Auth., 156 Md.App. 1, 7, 845 A.2d 60, 64 (2003). Any ambiguity or uncertainty in the allegations bearing on whether the complaint states a cause of action must be construed against the pleader. Alleco, 340 Md. at 193, 665 A.2d at 1046. Mere conclusory charges that are not factual allegations need not be considered. Lloyd, 397 Md. at 121, 916 A.2d at 264-65. This Court views all well-pleaded facts and the inferences from those facts in a light most favorable to the plaintiff, the non-moving party. Pittway, 409 Md. at 239, 973 A.2d at 783; Lloyd, 397 Md. at 122, 916 A.2d at 265; Reichs Ford, 388 Md. at 509, 880 A.2d at 312.
III. DIRECT AND DERIVATIVE SUITS AGAINST DIRECTORS
The Court of Special Appeals held that § 2-405.1(a) provides the sole source of duties owed by corporate directors and that § 2-405.1(g) bars all direct shareholder claims against those corporate directors
A. The Sources of Corporate Directors' Duties
Section 2-401(a) states that "[t]he business and affairs of a corporation shall be managed under the direction of a board of directors." § 2-401(a). In undertaking those managerial decisions, directors and officers owe the duty of care contained in § 2-405.1(a)
The Court of Special Appeals here found that § 2-405.1(a) is the sole source of directorial duties. Petitioners seek to refute this conclusion and argue that the only duties referred to in § 2-405.1(a) are those that involve the management of the business and affairs of the corporation, matters in which the corporation has an interest, such as the decision whether a corporation should be sold. Those duties, they concede, must be performed in the best interests of the corporation and are enforceable only by the corporation. Beyond and pre-existing § 2-405.1(a), however, lie additional common law duties (referred to by Petitioners as "Shareholder duties") that are triggered once a threshold decision to sell the corporation has been made and which concern only matters personal to the shareholders. Those duties allegedly arise from the Board's undertaking to negotiate the price that shareholders will receive for their shares in a cash-out acquisition of ownership of the corporation, and include fiduciary duties of candor and maximization of the consideration offered for the shares. On
It long has been established, by cases decided both prior to and subsequent to the Legislature's enactment of the duty of care for corporate directors contained in § 2-405.1(a), that directors of Maryland corporations stand in a fiduciary relationship to the corporations that they manage and the shareholders of those corporations, a relationship that imposes on directors duties of care, loyalty, and good faith. Hoffman Steam Coal Co. v. Cumberland Coal & Iron Co., 16 Md. 456, 507 (1860); Booth v. Robinson, 55 Md. 419, 436-37 (1881); Storetrax.com, Inc. v. Gurland, 397 Md. 37, 53, 915 A.2d 991, 1000 (2007); Mona, 176 Md.App. at 695, 934 A.2d at 463. We have noted that the "confidence reposed in them, and the position they occupy towards the corporation and its stockholders, require a strict and faithful discharge of duty, and they are not allowed to derive from their position, either directly or indirectly, any profit or advantage whatever, except it be with the full knowledge and concurrence of the company, represented by others than themselves." Booth, 55 Md. at 437; Coffman v. Maryland Publ'g Co., 167 Md. 275, 289, 173 A. 248, 254 (1934) (noting that officers and directors "stand in a fiduciary relationship both to the corporation and to the stockholders, and may not under any circumstances use the power intrusted to them to promote their personal interests at the expense of the stockholders"). We have found also that "[i]t is clear that officers and directors of a corporation stand in a sufficiently confidential relation to the corporation's stockholders to impose a duty upon them to reveal all facts material to the corporate transactions." Parish v. Maryland & Virginia Milk Producers Ass'n, 250 Md. 24, 74, 242 A.2d 512, 539 (1968). These fiduciary duties are not intermittent or occasional, but instead are the "constant compass by which all director actions for the corporation and interactions with its shareholders must be guided." Storetrax, 397 Md. at 54, 915 A.2d at 1001 (quoting Malone v. Brincat, 722 A.2d 5, 10 (Del.1998)).
It is without question that § 2-405.1(a) governs the duty of care owed by directors when they undertake managerial decisions on behalf of the corporation. When directors undertake to negotiate a price that shareholders will receive in the context of a cash-out merger transaction, however, they assume a different role than solely "managing the business and affairs of the corporation." Duties concerning the management of the corporation's affairs change after the decision is made to sell the corporation. See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del.1986) (noting that, once sale became inevitable, "[t]he directors' role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company"). Beyond that point, in negotiating a share price that shareholders will receive in a cash-out merger, directors act as fiduciaries on behalf of the shareholders. See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 48-49 (Del.1994) (noting that once directors decide to sell control of a corporation,
Based on the well-established principle that statutes are not presumed to make alterations in the common law other than as may be declared expressly, we disagree with the Court of Special Appeals's and Board Respondents' contentions that § 2-405.1(a) supersedes or supplants all recognized common law duties that pre-existed the adoption of the statute in 1976. See Walzer v. Osborne, 395 Md. 563, 573-74, 911 A.2d 427, 433 (2006); Davis v. Slater, 383 Md. 599, 615-16, 861 A.2d 78, 87 (2004); Romm v. Flax, 340 Md. 690, 698, 668 A.2d 1, 4-5 (1995). We read § 2-405.1(a) as codifying the duty of care owed by directors when acting in their managerial capacities, rather than as a replacement of all previously recognized common law fiduciary duties of directors owed to the corporation and its shareholders. As such, we hold that § 2-405.1(a) does not provide the sole source of directorial duties, and that other, common law fiduciary duties of directors remain in place and may be triggered by the occurrence of appropriate events.
This view is shared in an opinion authored by the Maryland Attorney General in 1997. See 62 Op. Atty Gen. Md. 804 (Md.1977). There, the Attorney General contended that the statutory standard of care contained in § 2-405.1(a) imposes "separate and distinct obligations upon corporate officers and directors" from other common law duties, such as the duty to refrain from usurping a corporate opportunity. Id. at 812. In that opinion, cited favorably by the Court of Special Appeals in cases prior to the present litigation, see Indep. Distribs., Inc. v. Katz, 99 Md.App. 441, 461, 637 A.2d 886, 895 (1994), the Attorney General opined that when the Legislature enacted § 2-405.1(a), "it did not intend to abrogate the fiduciary duty imposed upon a director or officer not to usurp a corporate opportunity." 62 Op. Atty Gen. Md. at 13-14. Although we deal here with directorial duties other than refraining from usurping corporate opportunity, the Attorney General's opinion suggests that, in enacting § 2-405.1(a), the General Assembly did not seek to occupy the entire field of directorial duties owed by corporate directors, but instead intended to codify the duty of care owed by directors in exercising their managerial duties.
Our conclusion also is consistent with the Delaware Supreme Court's holding in Revlon. In that case, the Delaware Supreme Court held that, where it is clear that the board has determined that the corporation is for sale or sale is a foregone conclusion, the duty of the directors "changed from the preservation of [the corporation] as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit." Revlon, 506 A.2d at 182. The court noted that, at this point, the "directors' role changed from defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company." Id.
Board Respondents contend that § 2-405.1(f), an amendment to the statute added in 1999 stating that "[a]n act of a director
Thus, we hold that the Court of Special Appeals erred in concluding that § 2-405.1(a) is the sole source of directorial duties for Maryland corporations and that that subsection supersedes and subsumes all pre-existing common law duties owed by corporate directors to their shareholders. Once the threshold decision to sell Laureate was made, Board Respondents owed fiduciary duties of candor and maximization of shareholder value to Petitioners, common law duties not encompassed or superseded by § 2-405.1(a).
B. Derivative and Direct Suits
The Court of Special Appeals held that Petitioners could not pursue their claims for breach of fiduciary duty directly because § 2-405.1(g), also added in 1999, bars all shareholder direct claims and they had "presented no evidence that their grievances are personal to them rather than common to all of Laureate's shareholders." Thus any such claim for breach of fiduciary duties had to proceed derivatively, if at all. Petitioners argue that the "only parties with any interest in—and therefore, with any claim regarding—how much Laureate's public shareholders would personally receive for their shares are the shareholders themselves," and that the "only means available for [Petitioners] to protect themselves from loss of their property for inadequate consideration as a direct result of the breaches of fiduciary duties by [Board Respondents] is through a direct action." They claim that, when it comes to the consideration that shareholders receive for their stock in a cash-out merger transaction, the corporation has no interest and, thus, no enforceable right to be asserted derivatively. In riposte, Board Respondents contend that a direct claim by a shareholder for breach of duty cannot proceed unless there was an independent and personal relationship between the shareholder and the director. We agree with Petitioners and hold that, in a cash-out merger transaction where the decision to sell the corporation already has been made, shareholders may pursue direct claims against directors for breach of their fiduciary duties of candor and maximization of shareholder value.
The business and affairs of a corporation, including the decision to institute litigation, are managed generally under the direction of its board of directors. Bender v. Schwartz, 172 Md.App. 648, 665, 917 A.2d 142, 152 (2007). Ordinarily, a shareholder does not have standing to sue to redress an injury to the corporation resulting from directorial mismanagement.
In Waller v. Waller, we outlined in detail the general concept of the derivative suit and the reasons for allowing such claims:
Waller v. Waller, 187 Md. 185, 189-90, 49 A.2d 449, 452 (1946). We continued to say that:
Id. at 190, 49 A.2d at 452.
In order to sue derivatively on behalf of the corporation, a plaintiff shareholder must overcome a number of procedural hurdles and demonstrate that he or she, rather than the corporation itself, should control the litigation. Specifically, before instituting suit, the derivative plaintiff either must make a demand on the corporation's board of directors to pursue the claim against the offending parties or demonstrate to the court that such demand would be futile due to the conflicting interests of the members of the board. Bender, 172 Md.App. at 666, 917 A.2d at 152; Mona, 176 Md.App. at 699, 934 A.2d at 465-66. Once demand is made, the corporation's board of directors must conduct an investigation into the allegations in the demand and determine whether pursuing the demanded litigation is in the best interests of the corporation. Bender, 172 Md.App. at 666, 917 A.2d at 152; Mona, 176 Md.App. at 700, 934 A.2d at 466. If
It is "well established that courts generally will not interfere with the internal management of a corporation." Devereux v. Berger, 264 Md. 20, 31, 284 A.2d 605, 612 (1971) (quoting Parish, 250 Md. at 74, 242 A.2d at 540). In a derivative action, the business judgment rule protects a disinterested director from liability to the corporation and its stockholders by insulating the business decisions made by the director from judicial review, absent a showing of fraud, self-dealing, unconscionable conduct, or bad faith. NAACP v. Golding, 342 Md. 663, 673, 679 A.2d 554, 559 (1996). The "conduct of the corporation's affairs are placed in the hands of the board of directors and if the majority of the board properly exercises its business judgment, the directors are not ordinarily liable." Devereux, 264 Md. at 31-32, 284 A.2d at 612 (quoting Parish, 250 Md. at 74, 242 A.2d at 540). We have held that the business judgment rule applies to all decisions regarding the corporation's management. NAACP, 342 Md. at 673, 679 A.2d at 559.
In contrast to a derivative action, a shareholder may bring a direct action, either individually or as a representative of a class, against alleged corporate wrongdoers when the shareholder suffers the harm directly or a duty is owed directly to the shareholder, though such harm also may be a violation of a duty owing to the corporation. Matthews v. Headley Chocolate Co., 130 Md. 523, 536, 100 A. 645, 650 (1917) (noting that shareholders may sue directly where "they have suffered some peculiar injury independent of what the company has suffered"); Waller v. Waller, 187 Md. at 192, 49 A.2d at 453; Bender, 172 Md.App. at 665-66, 917 A.2d at 152; Danielewicz, 137 Md.App. at 618, 769 A.2d at 284. Cases where direct harm is suffered by shareholders include, for example, actions to enforce a shareholder's right to vote or right to inspect corporate records. That the plaintiff suffered his or her injury in common with all other shareholders is not determinative of whether the injury suffered is direct or indirect. See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del.2004) (noting that the issue of whether a claim should be brought derivatively or directly turns on considerations of who suffered the alleged harm and who would receive the benefit of any recovery); Strougo v. Bassini, 282 F.3d 162, 171 (2d Cir.2002) (applying Maryland law) (noting that, in Maryland, where shareholders suffer an injury distinct from that of the corporation, rather than deriving from an injury to the business or property of the corporation, "the corporation lacks standing to sue, and Maryland's `distinct injury' rule allows shareholders access to the courts to seek compensation directly"). Where the rights attendant to stock ownership are adversely affected, shareholders generally are entitled to sue directly, and any monetary relief granted goes to the shareholder. Mona, 176 Md.App. at 697, 934 A.2d at 464; see also 13 William Meade Fletcher, Cyclopedia of the Law of Private Corporations § 5939 (2004 Rev. Vol.). If the plaintiff demonstrates that he or she has suffered the alleged injury directly, he or she need not make demand on the corporate board of directors or prove futility of demand, and the business judgment rule does not apply.
Here, Petitioners claim that Board Respondents violated the fiduciary duties of candor and maximization of value that they owed directly to Laureate's shareholders. As discussed above, where a shareholder's action is based on breach of a duty owed directly to the shareholder, a direct action may be filed against the directors. Thus, because the fiduciary duties of Board Respondents were owed directly to Petitioners as shareholders, Petitioners may proceed directly against Board Respondents.
In addition, it is clear that, here, the injury alleged, namely, a lesser value that shareholders received for their shares in the cash-out merger, is an injury suffered solely by the shareholders and not by Laureate as a corporate entity. Such an injury, if suffered, is a direct one, separate from any injury suffered by the corporation, thus allowing Petitioners to proceed with their direct action against Board Respondents. A higher or lower price received by shareholders for their shares in the cash-out merger in no way implicated Laureate's interests and causes no harm to the corporation.
Were Petitioners required to bring their action derivatively, any recovery would go to the corporation. Such a result demonstrates the error of labeling Petitioners' action a derivative claim, as Board Respondents retaining control of Laureate, the defendants who allegedly breached their fiduciary duties to the shareholders, would share in any potential recovery. Petitioners alleged a direct claim against Board Respondents and were not required to proceed derivatively in the name of the corporation.
C. The Scope and Effect of Section 2-405.1(g)
The Court of Special Appeals concluded that § 2-405.1(g), which provides that "[n]othing 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," barred Petitioners' direct claim and that the statute contemplated no forms of action for breach of fiduciary duties enforceable other than derivatively. That court also found that the statute "supersedes the common law with respect to claims by shareholders against directors for breach of their fiduciary duties." Petitioners contend that subsection (g) was intended solely to provide a board of directors with additional protections in defending against an unsolicited takeover where the corporation is not for sale and was not designed to affect or
The cardinal rule of statutory interpretation is to ascertain and carry out the true intention of the Legislature. Reichs Ford, 388 Md. at 517, 880 A.2d at 316; W. Corr. Inst. v. Geiger, 371 Md. 125, 140, 807 A.2d 32, 41 (2002). We look first to the language of the statute itself and its stated intention, according the words of the statute their ordinary and natural significance. Reichs Ford, 388 Md. at 517, 880 A.2d at 316; Geiger, 371 Md. at 141, 807 A.2d at 41-42. Where the words of a statute are plain and free from ambiguity, and express a definite and simple meaning, courts do not normally look beyond the words to determine legislative intent. Id. at 141, 807 A.2d at 42. In conducting statutory interpretation, "[w]e neither add nor delete words to a clear and unambiguous statute to give it a meaning not reflected by the words the Legislature used or engage in forced or subtle interpretation in an attempt to extend or limit the statute's meaning." BAA, PLC v. Acacia Mut. Life Ins. Co., 400 Md. 136, 151, 929 A.2d 1, 10 (2007) (quoting Taylor v. NationsBank, N.A., 365 Md. 166, 181, 776 A.2d 645, 654 (2001)). The statute is to be read so that no word, phrase, clause, or sentence is rendered meaningless. Reichs Ford, 388 Md. at 517, 880 A.2d at 316. Where a statute is plainly susceptible of more than one meaning and thus contains an ambiguity, however, courts consider not only the literal or usual meaning of the words, but also their meaning and effect in light of the setting, the objectives and purpose of the enactment. Romm, 340 Md. at 693, 668 A.2d at 2. In construing statutory language, we seek to avoid results which are illogical, unreasonable, or inconsistent with common sense. Id.
According to our reading, the language of subsection (g), which states that "[n]othing 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," plainly means that, to the extent § 2-405.1 creates duties on directors such as the duty of care contained in § 2-405.1(a), those duties are enforceable only by the corporation or through a shareholders' derivative action. The language of the statute makes no mention of barring direct shareholder actions against directors based on duties created other than by § 2-405.1, such as the fiduciary duties of candor and maximization of shareholder value discussed infra. See § 2-405.2 ("The charter of the corporation may include any provision expanding or limiting the liability of its directors and officers to the corporation or its stockholders....") (emphasis added). Thus, based on the plain language of § 2-405.1(g), we hold that the subsection does not bar direct shareholder actions where such actions are based on duties imposed or authorized otherwise than by § 2-405.1.
For the sake of testing the validity of our construction, we note that evidence from the legislative history of the 1999 amendments explicitly states that the Legislature, in adding subsection (g), sought "to strengthen Maryland's laws relating to unsolicited takeovers of corporations and real estate investment trusts." Bill Analysis of S.B. 169 (1999); Senate Judicial Proceedings Committee Report of Feb. 25,
Board Respondents contend anticipatorily that this reading of § 2-405.1 is at odds with the provisions of § 2-405.1(c) and § 5-417 of the Courts and Judicial Proceedings Article, the latter of which states that "[a] person who performs the duties of that person in accordance with the standard provided under § 2-405.1 of the Corporations and Associations Article has no liability by reason of being or having been a director of a corporation." Md.Code Ann., Cts. & Jud. Proc. § 5-417 (1974, 2006 Repl.Vol.). As noted earlier, however, the standard of care provided by § 2-405.1(a), which otherwise would immunize directorial actions from judicial scrutiny, is inapplicable to decisions made outside the purely managerial context, such as negotiating the price shareholders will receive in a cash-out merger transaction. Thus, while § 2-405.1(c) and § 5-417 of the Courts and Judicial Proceedings Article provide for liability to be limited by the
We hold, therefore, that the Court of Special Appeals erred in holding that § 2-405.1(g) bars all shareholders' direct suits. In the context of a cash-out merger transaction, where the decision to sell the corporation already has been made by the Board of Directors, those directors owe common law fiduciary duties of candor and maximization of shareholder value directly to the shareholders themselves, and claims for breach of those duties may be brought directly, despite the provisions of § 2-405.1(g). Thus, we hold that Petitioners may proceed in a direct action against Board Respondents based on their claims of breach of fiduciary duties owed directly to them by Board Respondents.
IV. CIVIL CONSPIRACY
The Court of Special Appeals upheld the dismissal of Petitioners' claim against Investor Respondents for civil conspiracy on the ground that Investor Respondents did not owe fiduciary duties to Petitioners and were "consequently legally incapable of committing the underlying tort."
Civil conspiracy is "a combination of two or more persons by an agreement or understanding to accomplish an unlawful act or to use unlawful means to accomplish an unlawful act not in itself illegal, with the further requirement that the act or means employed must result in damages to the plaintiff." Hoffman v. Stamper, 385 Md. 1, 24, 867 A.2d 276, 290 (2005) (quoting Green v. Wash. Sub. San. Comm'n, 259 Md. 206, 221, 269 A.2d 815, 824 (1970)). The plaintiff "must also prove the commission of an overt act, in furtherance of the agreement, that caused the plaintiff to suffer actual injury." Id. at 25, 867 A.2d at 290. The tort of civil conspiracy "lies in the act causing the harm; the agreement to commit the act is not actionable on its own but rather is in the nature of an aggravating factor." Id.; Alleco, 340 Md. at 189, 665 A.2d at 1044-45 (noting that conspiracy "is not a separate tort capable of independently sustaining an award of damages in the absence of other tortious injury to the plaintiff"). A participant in the conspiracy may be held liable civilly as long as some act was performed in furtherance of the conspiracy, even if performed by another participant. Id.
We have not had occasion previously to consider whether a defendant may be held liable as a civil co-conspirator where that defendant is legally incapable of committing the underlying tort. Other courts, however, have held that "tort liability arising from a conspiracy presupposes that the coconspirator is legally capable of committing a tort, that is, that she owes a duty to the plaintiff recognized by law and is potentially subject to liability for breach of that duty." See Bahari v. Countrywide Home Loans, 2005 WL 3505604, at *6, 2005 U.S. Dist. LEXIS 34741, at *19-20 (D.Md. Dec. 16, 2005); BEP, Inc. v. Atkinson,
V. AIDING AND ABETTING
The Court of Special Appeals also held that the Amended Complaint did not allege sufficiently that Investor Respondents encouraged, incited, aided or abetted the act of the direct perpetrators of the alleged tort of breach of fiduciary duty and therefore upheld dismissal of the aiding and abetting count. We affirm that judgment.
We note at the outset that Petitioners, in their brief before this Court, rely heavily on allegations made in their Second Amended Complaint to support their contention that the Circuit Court erred in dismissing the aiding and abetting claim against Investor Respondents. The 11 May 2007 order of dismissal regarding the aiding and abetting claim was based solely on Petitioners' Amended Complaint, and no claim for aiding and abetting against Investor Respondents appears in the Second Amended Complaint. Thus, we determine the sufficiency of the claim for aiding and abetting by examining only the Amended Complaint.
The allegations made by Petitioners fail to demonstrate that the actions taken by Investor Respondents, alleged to have aided and abetted Board Respondents' breach of fiduciary duties, were anything more than "those normally attendant to a private entity pursuing the private acquisition of a public corporation." The crux of Petitioners' allegations seem to pin their claim on the restrictive nature of the merger agreement presented by Investor Respondents to Board Respondents. We fail to see how merely offering an agreement containing penalties if Board Respondents solicited or accepted competing bids for Laureate rises to the level of encouraging or inciting Board Respondents' alleged breach of their fiduciary duties.
We hold that, in the context of a cashout corporate merger transaction where the board of directors already has made the decision to sell the corporation, Board Respondents thereafter owed common law fiduciary duties of candor and maximization of shareholder value directly to Petitioners, entitling Petitioners to bring a direct action against those Board Respondents for alleged breach of those fiduciary duties. As such, we reverse in part the judgment of the Court of Special Appeals which affirmed the Circuit Court's dismissal of those claims. We affirm, however, the dismissal of Petitioners' civil conspiracy and aiding and abetting
Unocal, 493 A.2d at 954 (internal citation omitted). The legislative history of the 1999 amendments to § 2-405.1 make it abundantly clear that the Maryland Legislature considered, but decided not to impose, such a heightened standard in hostile takeover situations.