Paul Davis, Appellant,v.Scottish Re Group Limited, et al., Respondents, et al., Defendants.

Brief

N.Y.October 10, 2017

To Be Argued By: JEAN-MARIE L. ATAMIAN Time Requested 20 Mirrutes APL-2016-00146 New York County Clerk's Index No. 654027/13 Olnurt nf J\pp.eals STATE OF NEW YORK ..... PAUL DAVIS, Plaintiff-Appellant, -against- SCOTTISH REGROUP LIMITED, SCOTTISH RE (U.S.), INC., Nominal Defendants-Respondents, (Caption continued on inside cover) BRIEF FOR NOMINAL DEFENDANTS-RESPONDENTS AND DEFENDANTS-RESPONDENTS JEAN-MARIE L. ATAMIAN JAMES ANCONE MAYER BROWN LLP 1221 Avenue of the Americas New York, New York 10020 Telephone: (212) 506-25 00 Facsimile: (212) 262-1910 Attorneys for Nominal Defendants- Respondents Scottish Re Group Limited, Scottish Re (U.S.), Inc., and Defendants-Respondents Jeffrey Hughes, Larry Port and Raymond Wechsler HOWARD 0. GODNICK ANDREW D. GLADSTEIN SCHULTE ROTH & ZABEL LLP 919 Third Avenue New York, New York 10022 Telephone: (212) 7 56-2000 Facsimile: (212) 593-5955 Attorneys for Defendants-Respondents Cerberus Capital Management L.P. and SRGL Acquisition, LDC (Counsel continued on inside cover) November 17, 2016 CERBERUS CAPITAL MANAGEMENT L.P., SRGL ACQUISITION, LDC, MASSACHUSETTS MUTUAL LIFE INSURANCE CO., JEFFREY HUGHES, LARRY PORT, and RAYMOND WECHSLER, Defendants-Respondents, —and— BENTON STREET PARTNERS I, L.P., BENTON STREET PARTNERS II, L.P., BENTON STREET PARTNERS III, L.P., JONATHAN BLOOMER, BRETT ADAMCZYK, JAMES BUTLER, JAMES CHAPMAN, THOMAS FINKE, ROBERT JOYAL, MICHAEL ROLLINGS, MEREDITH ALICIA RATAJCZAK, MICHAEL STEVEN BAUMSTEIN, and DANIEL RYAN ROTH, Defendants. JENNIFER J. BARRETT JOSHUA S. MARGOLIN QUINN EMANUEL URQUHART & SULLIVAN, LLP 51 Madison Avenue, 22nd Floor New York, New York 10010 Telephone: (212) 849-7000 Facsimile: (212) 849-7100 Attorneys for Defendant-Respondent Massachusetts Mutual Life Insurance Company CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 500.1(f) of the Rules of the Court of Appeals, the Defendants-Respondents make the following statements: Nominal Defendant-Respondent Scottish Re Group Limited states that it is not a public company and that it does not have any direct or indirect parent company. Scottish Re Group Limited’s direct and indirect subsidiaries and affiliates are as follows: Scottish Re Life (Bermuda) Limited; Scottish Annuity & Life Insurance Company (Cayman) Ltd.; Scottish Re (Dublin) Limited; Orkney Re II plc; Scottish Financial (Luxembourg) S.á.r.l.; Scottish Holdings, Inc.; and Scottish Re (U.S.), Inc. Nominal Defendant-Respondent Scottish Re (U.S.), Inc. states that it is not a public company. Scottish Re (U.S.), Inc. is an indirect wholly-owned subsidiary of Scottish Re Group Limited and is affiliated with the following companies: Scottish Re Life (Bermuda) Limited; Scottish Annuity & Life Insurance Company (Cayman) Ltd.; Scottish Re (Dublin) Limited; Orkney Re II plc; Scottish Financial (Luxembourg) S.á.r.l.; and Scottish Holdings, Inc. Cerberus Capital Management L.P. states that it is not a public company. Cerberus Capital Management L.P. is a limited partnership organized and existing under the laws of the State of Delaware. There is no parent corporation or subsidiary of Cerberus Capital Management L.P. and no publicly-held corporation owns 10% or more of the ownership interest of Cerberus Capital Management L.P. Attached as Exhibit A is a list of management and general partner entities affiliated with Cerberus Capital Management L.P. SRGL Acquisition, LDC states that it is not a public company. SRGL Acquisition, LDC is a Cayman Islands exempted limited duration company, controlled by funds and accounts affiliated with Cerberus Capital Management L.P. Massachusetts Mutual Life Insurance Company states that it is not a public company and does not have any direct or indirect parent company. Attached as Exhibit B is a list of Massachusetts Mutual Life Insurance Company’s direct and indirect subsidiaries and affiliates. STATUS OF RELATED LITIGATION The status of related litigation in Plaintiff-Appellant’s brief is accurate as of November 16, 2016, except that oral argument before the trial court regarding the repleaded claims was, in fact, held on November 7, 2016. TABLE OF CONTENTS Page ii PRELIMINARY STATEMENT ..............................................................................1 COUNTERSTATEMENT OF CERTIFIED QUESTIONS.....................................5 COUNTERSTATEMENT OF FACTS ....................................................................6 A. Cerberus And MassMutual Affiliates Invest In Scottish Re.............................................................................6 B. The Corporate Transactions At Issue...................................................7 i. The Orkney Unwind ..................................................................7 ii. The Merger...............................................................................10 C. The Trial Court Dismisses Plaintiff’s Derivative Claims...............................................................................12 D. The First Department Affirms Dismissal Of The Derivative Claims ..................................................................14 ARGUMENT ..........................................................................................................15 POINT I PLAINTIFF LACKS STANDING TO BRING THE DERIVATIVE CLAIMS PURSUANT TO RULE 12(A) BECAUSE HE FAILED TO SEEK THE REQUIRED LEAVE FROM A CAYMAN ISLANDS COURT....................................................15 A. Rule 12(A) Is Substantive Because A Shareholder’s Right To Bring Derivative Claims Is Extinguished If It Is Not Satisfied .........16 B. Courts Have Consistently Held That Rules Limiting A Shareholder’s Right To Bring A Derivative Claim Are Substantive .........................................................................................26 C. Applying Rule 12(A) To Cayman Islands Shareholder Derivative Actions Filed In New York Promotes Public Policy .......33 POINT II PLAINTIFF LACKS STANDING TO BRING THE DERIVATIVE CLAIMS AGAINST THE DIRECTORS UNDER FOSS ...........................41 A. The Trial Court Correctly Concluded That Plaintiff Failed To Allege The Required Element of Control ..........................................44 iii B. The Trial Court Correctly Concluded That Plaintiff Failed To Allege The Necessary Element of Equitable Fraud ...........................48 CONCLUSION.......................................................................................................54 iv TABLE OF AUTHORITIES Page(s) Cases Alteram S.A. v. Beacon Hill Asset Mgmt. LLC, No. 03 Civ. 2387 (LAK), 2004 WL 367709 (S.D.N.Y. Feb. 27, 2004) ...................................................................................................................41 ARC Capital, LLC v. Kalra, No. 652931/2012, 2013 N.Y. Misc. LEXIS 2600 (N.Y. Sup. Ct., N.Y. Cnty. June 18, 2013) ...........................................................................passim Batchelder v. Kawamoto, 147 F.3d 915 (9th Cir. 1998) ..............................................................................32 In re BP P.L.C. Derivative Litig., 507 F. Supp. 2d 302 (S.D.N.Y. 2007) ....................................................34, 39, 44 Chateau D’If v. City of N.Y., 219 A.D.2d 205 (1st Dep’t 1996) .......................................................................42 City of Harper Woods Emps.’ Ret. Sys. v. Olver, 577 F. Supp. 2d 124 (D.D.C. 2008), aff’d, 589 F.3d 1292 (D.C. Cir. 2009) ............................................................................................................44 CMIA Partners Equity Ltd. v. O’Neill, No. 603622/2009, 2010 WL 4904479 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 22, 2010) ..............................................................................................42, 43 Curbow Family LLC v. Morgan Stanley Inv. Advisors, 36 Misc. 3d 889 (N.Y. Sup. Ct., N.Y. Cnty. 2012) ......................................31, 32 Daniels v. Daniels [1978] CH 406 ..............................................................................................51, 52 Dragon Investments II Co. v. Shanahan, No. 0602868/2005, 2007 WL 4144251 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 2, 2007) ...............................................................................................passim Edgar v. Mite Corp., 457 U.S. 624 (1982)............................................................................................33 v Feiner Family Trust v. VBI Corp., No. 07 Civ. 1914 (RPP), 2007 WL 2615448 (S.D.N.Y. Sept. 11, 2007) .................................................................................................42, 50, 51, 53 Foss v. Harbottle, [1843] 2 Hare 461 ........................................................................................passim Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC., 376 F. Supp. 2d 385 (S.D.N.Y. 2005) ................................................................41 Goldstein v. Siegel, 19 A.D.2d 489 (1st Dep’t 1963) .........................................................................46 Hart v. Gen. Motors Corp., 129 A.D.2d 179 (1st Dep’t 1987) ...........................................................13, 33, 36 Hausman v. Buckley, 299 F.2d 696 (2d Cir. 1962) .........................................................................16, 30 Hayat v. Al-Mazeedi, No. 08/004, 2011 Mass. Super. LEXIS 73 (Mass. Super. Ct. Jan. 11, 2011) .......................................................................................................25, 26 Lerner v. Prince, 119 A.D.3d 122 (1st Dep’t 2014) .................................................................31, 35 Lerner v. Prince, 36 Misc. 3d 297 (N.Y. Sup. Ct., N.Y. Cnty. 2012) ......................................29, 35 Levine v. Milton, 42 Del. Ch. 597, 219 A.2d 145 (Del. Ch. 1966).................................................32 Lewis v. Dicker, 118 Misc. 2d 28 (N.Y. Sup. Ct., Kings Cnty. 1982) ..............................24, 29, 30 Locals 302 & 612 of Int’l Union of Operating Eng’rs – Emp’rs Constr. Indus. Ret. Tr. v. Blanchard, No. 04 Civ. 5954(LAP), 2005 WL 2063852 (S.D.N.Y. Aug. 25, 2005) .................................................................................................28, 29, 36, 37 Loucks v. Standard Oil Co., 224 N.Y. 99 (1918) (Cardozo, J.) .......................................................................39 vi Randall v. Arabian Am. Oil Co., 778 F.2d 1146 (5th Cir. 1985) ............................................................................26 Renova Res. Private Equity Ltd. v. Gilbertson, [2009] C.I.L.R. 268......................................................................................passim Rottenberg v. Pfeiffer, 86 Misc. 2d 556 (N.Y. Sup. Ct., Nassau Cnty. 1976), aff’d 59 A.D.2d 756 (2d Dep’t 1977).........................................................................30, 31 Sachs v. Adeli, 26 A.D.3d 52 (1st Dep’t 2005) ...........................................................................26 Sapirstein-Stone-Weiss Found. v. Merkin, 950 F. Supp. 2d 621 (S.D.N.Y. 2013) ................................................................41 Schultz v. Reynolds & Newport Ltd., [1992-93] C.I.L.R. 59, 79-80 (R. 1746).......................................................passim Seybold v. Groenink, No. 06 Civ. 772 (DLC), 2007 WL 737502 (S.D.N.Y. Mar. 12, 2007) .......................................................................................................33, 34, 39 Shenwick v. HM Ruby Fund, L.P., 106 A.D.3d 638 (1st Dep’t 2013) .....................................................42, 43, 48, 53 Shenwick v. HM Ruby Fund, L.P., No. 652082/2011, 2012 N.Y. Misc. LEXIS 6141 (N.Y. Sup. Ct., N.Y. Cnty. June 5, 2012), aff’d 106 A.D.3d 638 (1st Dep’t 2013) ....................53 Skillgames, LLC v. Brody, 1 A.D.3d 247 (1st Dep’t 2003) ...........................................................................53 Tanges v. Heidelberg North America, 93 N.Y.2d 48 (1999) ....................................................................................passim Tenn. Coal, Iron & R.R. Co. v. Georgia, 233 U.S. 354 (1914)............................................................................................26 Trustees of the Masonic Hall & Asylum Fund v. PwC LLP, No. 08 Civ. 10495 (GEL), 2009 WL 290543 (S.D.N.Y. Feb. 9, 2009) ...................................................................................................................41 vii Vaughn v. LJ Int’l, Inc., 174 Cal. App. 4th 213, 94 Cal. Rptr. 3d 166 (2009) ..........................................32 Winn v. Shafer, 499 F. Supp. 2d 390 (S.D.N.Y. 2007) .........................................................passim Statutes Rule 12(A) of the of the Rules of the Grand Court of the Cayman Islands ..........................................................................................................passim U.K. Companies Act of 2006...................................................................................44 Other Authorities CPLR § 3211(a)(3)...................................................................................................35 CPLR § 3211(c) .......................................................................................................36 Scott M. Berman, Hedge Fund Litigation, in DANIEL A. STRACHMAN, THE FUNDAMENTALS OF HEDGE FUND MANAGEMENT app. (2d ed. 2012), http://onlinelibrary.wiley.com/doi/10.1002/9781119204947.app1/pdf .............40 PRELIMINARY STATEMENT1 Plaintiff-Appellant Paul Davis is a sophisticated value investor and former minority owner of ordinary shares in Scottish Re, a Cayman Islands company. Although a resident of Mexico, he initiated this action in New York against no fewer than 13 individual and 8 corporate defendants seeking millions of dollars in undefined “damages.” Of particular relevance, plaintiff asserted three derivative claims, purportedly on behalf of Scottish Re, alleging that the Directors breached fiduciary duties in connection with their negotiation of a 2011 merger (“Merger”) with outside investors in which plaintiff sold his 13 million ordinary shares in Scottish Re at a 76% premium for about $4 million, and the unwinding of a reinsurance financing transaction by SRUS, Scottish Re’s wholly-owned subsidiary (“Orkney Unwind”). Below, the First Department and the trial court properly dismissed these three claims based on two independent and dispositive principles of Cayman Islands law that govern shareholder standing to bring 1 This brief is submitted on behalf of Nominal Defendants-Respondents Scottish Re Group Limited (“Scottish Re” or “Company”) and Scottish Re (U.S.), Inc. (“SRUS”) and Defendants-Respondents Jeffrey Hughes, Larry Port, and Raymond Wechsler (collectively, “Directors”), Cerberus Capital Management L.P. (“Cerberus”), SRGL Acquisition, LDC (“SRGL Acquisition”), and Massachusetts Mutual Life Insurance Company (“MassMutual”), in support of affirmance of the decision of the Appellate Division, First Department, dated March 10, 2016, and the decision of the trial court, New York County, I.A.S. Part 49 (Sherwood, J.), dated October 7, 2014. Scottish Re and SRUS are only Nominal Defendants- Respondents because there are no claims asserted directly against them on appeal. 2 derivative claims, each of which requires affirmance. First, plaintiff lacks standing to bring the three derivative claims because he failed to satisfy Rule 12(A) of the Rules of the Grand Court of the Cayman Islands (“Rule 12(A)”), which required him to seek leave from a Cayman Islands court to pursue derivative claims on behalf of Scottish Re. As explained in the leading Cayman Islands case on this issue—a case plaintiff fails to cite in his brief—the purpose of Rule 12(A), which requires a shareholder to demonstrate that he has a prima facie case on the merits through an evidentiary showing in a Cayman Islands court at the commencement of a derivative action, is “to provide a safeguard to prevent vexatious or inappropriate claims, which were not in the interests of the company concerned to pursue.” Renova Res. Private Equity Ltd. v. Gilbertson, [2009] C.I.L.R. 268 ¶ 7 (R. 1670).2 Below, the First Department and the trial court both agreed that Rule 12(A) applies under New York’s internal affairs doctrine because it is a substantive rule regulating corporate governance disputes of Cayman Islands companies. Because plaintiff did not seek, let alone obtain, the required leave from a Cayman Islands court, both courts agreed that he lacked standing to bring his purported derivative claims. That result is entirely consistent with the other New York County Commercial Division court to reach the precise issue of whether Rule 12(A) is substantive. ARC Capital, LLC v. Kalra, No. 2 Cites to “R. __.” are to the record on appeal. 3 652931/2012, 2013 N.Y. Misc. LEXIS 2600 (N.Y. Sup. Ct., N.Y. Cnty. June 18, 2013). It is also consistent with Dragon Investments II Co. v. Shanahan, No. 0602868/2005, 2007 WL 4144251, at 4 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 2, 2007), which held that the English leave-of-court rule on which Rule 12(A) is based is substantive. The judicial recognition that this fundamental Cayman Islands gate-keeping statute is indisputably substantive in nature is also fully consistent with a substantial body of New York authority holding that rules restricting a shareholder’s right to bring derivative claims on behalf of a company—including rules requiring that shareholders make a demand on the company’s board of directors before filing such claims—are substantive rules, not mere rules of procedure. The overriding policy of the internal affairs doctrine is that the country (or state) in which a corporation is chartered has the paramount interest in regulating the relationships between the corporation and its officers, directors, and shareholders. New York courts have routinely recognized the importance of that policy by applying the laws of other nations under the internal affairs doctrine even where adherence to the doctrine results in a shareholder being completely barred from bringing derivative claims. There is no reason to diverge from this substantial body of law to excuse plaintiff’s utter failure to comply with the far less severe requirements imposed by Rule 12(A). The time has come to end plaintiff’s 4 bid to foster uncertainty and instability where none exists by exposing directors of Cayman Islands companies to potential derivative actions merely because a dissident shareholder elects to sidestep Rule 12(A) by commencing suit in New York. See Point I, infra. Second, plaintiff also lacks standing under the long-established rule in Foss v. Harbottle, [1843] 2 Hare 461, which prohibits shareholder derivative suits under Cayman Islands law unless they fit into one of four very narrow exceptions. As the trial court held, plaintiff fails to plead any facts even remotely suggesting that he might be entitled to proceed under the only narrow exception he invoked, the fraud on the minority exception. That exception is a stringent two-part test under which plaintiff was required to assert factual allegations that the Directors (1) controlled a majority of Scottish Re’s voting shares and (2) personally benefited by “lining their pockets” at the expense of Scottish Re in connection with the corporate transactions at issue. But, as the trial court recognized, plaintiff cannot satisfy one much less both prongs of this exacting test. Indeed, each of the Directors beneficially owned less than 1% of Scottish Re’s voting shares3 and there is not a single allegation (factual or otherwise) in the Complaint that any of the Directors engaged in self-dealing at Scottish Re’s expense. Therefore, in addition 3 In fact, the 14 Scottish Re directors and officers at the time of the relevant transactions collectively beneficially owned a mere 3.6% of the voting shares in Scottish Re. (R. 215-217 & n.12) 5 to affirming the dismissal of the derivative claims for lack of standing under Rule 12(A), the Court should also affirm the dismissal of those claims for lack of standing under Foss. See Point II, infra. COUNTERSTATEMENT OF CERTIFIED QUESTIONS 1. Is Rule 12(A) a substantive rule for purposes of New York’s conflict- of-law rules that must be applied under the internal affairs doctrine in this case given that (i) Scottish Re is a Cayman Islands company, (ii) the purpose of Rule 12(A) is to filter out, at the commencement of a case, vexatious shareholder derivative claims purportedly asserted on behalf of Cayman Islands companies, and (iii) the purpose of Rule 12(A) is implemented by requiring a shareholder to demonstrate with affidavit evidence that the derivative claims are meritorious or else face dismissal? The First Department unanimously answered “yes.” 2. Did plaintiff fail to allege facts that satisfy the narrow “fraud on the minority” exception to the rule in Foss v. Harbottle, [1843] 2 Hare 461, where plaintiff admits that each of the Directors beneficially owned less than 1% of Scottish Re’s voting shares and the Complaint lacks a single factual allegation that any of the Directors personally benefited at the expense of Scottish Re from the transactions plaintiff challenges? 6 The First Department did not reach this issue. The trial court answered “yes.” COUNTERSTATEMENT OF FACTS A. Cerberus And MassMutual Affiliates Invest In Scottish Re. Scottish Re is a Cayman Islands company engaged in the business of reinsurance. (R. 424 ¶¶ 5, 6.) By the end of 2006, Scottish Re’s financial condition was dire. (R. 494.) The company faced the specter of bankruptcy absent a significant capital infusion. (R. 475, 496-497.) To avoid such an ominous outcome, and preserve value for its shareholders, in late 2006, Scottish Re’s then- Board of Directors (“Board”) undertook a public process to secure either a sale of, or a substantial capital investment in, the Company. (R. 495-505.) As a result, Cerberus and MassMutual agreed to make a $600 million rescue equity investment in Scottish Re through certain of their affiliates: Benton Street Partners I, L.P.; Benton Street Partners II, L.P.; Benton Street Partners III, L.P (collectively, “Benton Entities”); and SRGL Acquisition. (R. 428 ¶ 21.) In return for their investments, SRGL Acquisition and the Benton Entities (collectively, “Investors”) each received 500,000 Convertible Cumulative Participating Preferred Shares of Scottish Re for $300 million. (R. 428 ¶ 21, 550.) As disclosed to and as approved by shareholders of Scottish Re, the Investors held the right to vote those shares on an “as converted” basis which, if exercised, 7 represented approximately 68% of Scottish Re’s outstanding voting shares as of early 2007. (R. 428 ¶ 22.) The Investors also held the right to designate two-thirds of the members of Scottish Re’s Board. (R. 210.) Following this $600 million capital injection by the Investors, Scottish Re’s capital structure consisted of three classes of shares: Convertible Cumulative Preferred Participating Shares, Non-Cumulative Perpetual Preferred Shares (“PPS”), and ordinary shares. (R. 427 ¶ 19.) At some point prior to the transactions at issue, plaintiff, a resident of Mexico City, Mexico, had purchased sizable blocks of the Company’s ordinary shares and PPS. Plaintiff previously owned more than 13 million Scottish Re ordinary shares and he currently owns more than 2.4 million Scottish Re PPS (R. 423 ¶ 4, 429 ¶ 24.) Shortly prior to the closing of the Merger and Orkney Unwind transactions, Scottish Re’s Board consisted of 10 members, each of whom was named a defendant in this action. (R. 218-220.) Prior to the closing of these transactions, each of these directors beneficially owned less than 1% of Scottish Re’s voting shares. (R. 215.) B. The Corporate Transactions At Issue. i. The Orkney Unwind. In 2005, before the Investors had become affiliated with Scottish Re, SRUS had needed funding to meet a required regulatory reserve. (R. 141.) To raise the 8 funds, SRUS formed Orkney Holdings, LLC (“Orkney Holdings”) and its subsidiary, Orkney Re, Inc. (“Orkney Re”). Orkney Holdings, a subsidiary of SRUS, issued and sold to unaffiliated third parties a series of notes (“Notes”) in a private offering. (R. 212.) Four years later, in 2009, certain affiliates of Cerberus (not including SRGL Acquisition) purchased an aggregate principal amount of $700 million of the Notes at a discount. (R. 141-142.) The purchase was made on the secondary market from a third party unaffiliated with Scottish Re or any of its affiliates. (R. 141- 142.) None of Scottish Re, its affiliates, SRUS, Orkney Holdings, Orkney Re, MassMutual, or the Benton Entities was a party to the purchase. (R. 141-142.) In 2011, Scottish Re sought to unwind the Orkney Re and Orkney Holdings structure. (R. 141.) The primary purpose of the Orkney Unwind was to strengthen SRUS’s regulatory capital and surplus positions, and alleviate regulatory restrictions on SRUS. (R. 142-144.) To accomplish those corporate objectives, the Orkney Unwind required Orkney Holdings to repurchase, at a discount, the Notes it had previously issued, including the Notes held by the Cerberus affiliates, and subsequently cancel those Notes. (R. 141-142.) Specifically, Orkney Holdings purchased the Notes held by affiliates of Cerberus at a 35% discount to par, whereas it purchased the Notes held by unaffiliated noteholders at a 10% discount to par. (R. 141-142.) 9 Though not required to do so under Cayman Islands law or the Company’s Articles of Association, Scottish Re appointed a special committee of disinterested directors (“Special Committee”), including Jeffrey Hughes, to evaluate the Orkney Unwind. (R. 142.) Notably, Mr. Hughes represented one of Scottish Re’s largest ordinary shareholders that was unaffiliated with either Cerberus or MassMutual (i.e., the Cypress Group). Therefore, his interests were aligned with those of the unaffiliated ordinary shareholders, including plaintiff, and he had every economic incentive to object to any action that might damage Scottish Re or the ordinary shareholders. (R. 159.) To assist it with its charge, the Special Committee retained two highly regarded professional firms: Cahill, Gordon & Reindel LLP (“Cahill”), as legal adviser, and Houlihan Lokey Financial Advisors, Inc. (“Houlihan”), as financial adviser. (R. 142.) In its evaluation of the transaction, the Special Committee also considered an analysis prepared by Scottish Re and its financial adviser Merrill Lynch, Pierce, Fenner & Smith Inc., which issued a fairness opinion and compared the benefits of the Orkney Unwind with the alternative of allowing the Notes to remain outstanding to maturity. (R. 142.) After a comprehensive review process, the Special Committee (including Mr. Hughes) unanimously determined that the transaction was in the best interest of Scottish Re and its shareholders, and the transaction was unanimously approved by the full Board on the Special Committee’s recommendation. (R. 441 ¶ 66.) 10 There is no allegation that any of the directors of Scottish Re, including the Directors who are parties to this appeal, the directors of SRUS, or MassMutual and the Benton Entities personally benefited from the Orkney Unwind. ii. The Merger. On January 28, 2011, the Investors offered to acquire all outstanding ordinary shares of Scottish Re not owned by the Investors in a merger transaction governed by Cayman Islands law, for $0.21 a share. (R. 149.) The offer represented a 35% premium over the January 26, 2011 closing price. (R. 149.) Promptly after receiving the offer, the Board requested that the Special Committee review the Investors’ offer. (R. 149.) As noted above, the Special Committee included Mr. Hughes, who represented a substantial holder of ordinary shares unaffiliated with the Investors and whose interests were aligned with other unaffiliated ordinary shareholders, including plaintiff. The Special Committee retained independent and highly respected professionals in connection with the proposed transaction; namely, the law firms of Cahill, as special counsel, and Appleby Global, as Cayman Islands counsel, as well as Houlihan to evaluate and opine upon the financial fairness of the offer. (R. 136.) In April 2011, after months of arms-length negotiations with the Investors, the Special Committee obtained a 43% increase in the offer price, from $0.21 a share to $0.30 a share. (R. 155.) Houlihan issued a fairness opinion that the 11 Merger consideration offered to ordinary shareholders was fair from a financial point of view. (R. 156.) Indeed, this enhanced offer represented a 76% premium. (R. 135.) Moreover, although not required by either Cayman Islands law or Scottish Re’s Articles of Association, the merger agreement required the affirmative vote of a majority of the unaffiliated ordinary shares at an extraordinary general meeting to approve the Merger. (R. 123, 127.) Ultimately, the Special Committee recommended that the Board approve the Merger. (R. 155- 156.) On May 11, 2011, Scottish Re circulated a 102-page Information Statement, which set forth, in exacting detail, the background of the Merger and incorporated a copy of the merger agreement and Houlihan’s fairness opinion. (R. 114-116, 226-269, 283-287.) Plaintiff admits receiving a copy of the Information Statement. (R. 434-435 ¶ 45.) Significantly, the Information Statement expressly notified shareholders that, pursuant to the Cayman Islands Companies Law, they had the right to request that a Cayman Islands court appraise the value of their ordinary shares if they were dissatisfied with the Merger consideration. (R. 179.) The Merger was ultimately approved by 68% of the voting unaffiliated ordinary shareholders. (R. 442 ¶ 69.) As a result of the Merger, the Investors obtained 100% of Scottish Re’s voting shares. (R. 434 ¶ 43.) Although plaintiff acknowledges communicating with the Board to register his displeasure with its 12 alleged failure to adequately evaluate the Merger (R. 442 ¶ 71), he elected not to pursue his statutory appraisal rights in a Cayman Islands court, a decision he subsequently confirmed in a letter to the General Counsel of Scottish Re. (R. 693.) Simply put, instead of pursuing his appraisal remedies, plaintiff chose, with eyes wide open, to pocket nearly $4 million in Merger consideration (R. 693), only to come back for more nearly three years later. Finally, and in connection with the second prong of the two-part test which must be satisfied under the fraud on the minority exception to the Foss rule, the Complaint lacks a single factual allegation that any director, including those who are parties to this appeal, ever personally benefited from the Merger at the expense of Scottish Re. C. The Trial Court Dismisses Plaintiff’s Derivative Claims. Almost three years after accepting over $4 million in Merger consideration, plaintiff initiated this action, asserting no fewer than 10 claims against Scottish Re, SRUS, their respective directors, Cerberus, SRGL Acquisition, MassMutual, and the Benton Entities. (R. 446-459 ¶¶ 86-159.) Only Claims 7, 9, and 10 are relevant to this appeal, and plaintiff admits that these are all derivative claims properly belonging to Scottish Re. (Br. 12-13.)4 In Claims 7 and 9, plaintiff alleges that the Directors committed corporate waste and breached their alleged 4 Citations to “Br.” are to the Brief of Plaintiff-Appellant, dated September 26, 2016. 13 fiduciary duties to Scottish Re in connection with the Merger and the Orkney Unwind. (R. 454 ¶¶ 132-135; R. 456 ¶ 147.) In Claim 10, plaintiff alleges that certain directors of Scottish Re and all the directors of SRUS breached their fiduciary duties by approving the Orkney Unwind. (R. 457-458 ¶ 155.) Although he does not assert Claims 7 or 9 against the Investors, plaintiff brings Claim 10 against them. (Br. 13.) The defendants moved to dismiss the derivative claims arguing, as a threshold matter, that Cayman Islands law governs these claims under New York’s internal affairs doctrine because Scottish Re is a Cayman Islands company. See Hart v. Gen. Motors Corp., 129 A.D.2d 179, 185 (1st Dep’t 1987). Given this paramount fact, defendants submitted the Declarations of Nigel K. Meeson QC, an expert on Cayman Islands law. (R. 774-799, 3921-3942.) Following extensive oral argument, the trial court concluded that plaintiff lacked standing to bring the derivative claims because he had failed to obtain leave from a Cayman Islands court to pursue those claims, as required by Rule 12(A). (R. 55-57.) The trial court also held that, even if Rule 12(A) did not warrant dismissal of the derivative claims (and it does), plaintiff would still lack standing to bring those claims under Foss. (R. 57-58.) Separately, the trial court held that it lacked personal jurisdiction over the Benton Entities and all of the directors, except Messrs. Hughes, Port, and Wechsler. (R. 49-52.) Accordingly, it “dismiss[ed] the entire 14 Complaint” as against the Benton Entities and the other directors. (R. 62; see also id. 63-65.) D. The First Department Affirms Dismissal Of The Derivative Claims. Although plaintiff appealed the dismissal of the derivative claims, he chose not to appeal the dismissal of the directors on personal jurisdiction grounds.5 (R. 4250.) Therefore, the only directors who were parties to the appeal were Messrs. Hughes, Port, and Wechsler, who had not challenged the trial court’s personal jurisdiction. (R. 4250.) After oral argument, the First Department unanimously affirmed the dismissal of the derivative claims based on plaintiff’s failure to comply with Rule 12(A). (R. 4261-4262.) Applying this Court’s governing test in Tanges v. Heidelberg North America, 93 N.Y.2d 48 (1999), the First Department reasoned that Rule 12(A) is applicable to derivative actions commenced in New York because it is a “substantive, rather than procedural, condition precedent to the continuation of a derivative action[.]” (R. 4261.) The First Department found it unnecessary to reach the trial court’s ruling that these claims were also subject to dismissal under Foss. (R. 4262.) The First Department subsequently granted plaintiff leave to appeal with respect to the two certified questions. 5 Plaintiff appealed the trial court’s dismissal of all claims asserted against the Benton Entities for lack of personal jurisdiction. The First Department affirmed this ruling and, thus, the Benton Entities are not parties to this appeal. (R. 4262- 4263.) 15 ARGUMENT POINT I PLAINTIFF LACKS STANDING TO BRING THE DERIVATIVE CLAIMS PURSUANT TO RULE 12(A) BECAUSE HE FAILED TO SEEK THE REQUIRED LEAVE FROM A CAYMAN ISLANDS COURT Both a unanimous First Department and the trial court held that Rule 12(A) is a substantive rule of Cayman Islands law that must be applied in this case under the internal affairs doctrine. Because plaintiff did not comply with this fundamental gate-keeping statute, both courts agreed that the derivative claims should be dismissed. Dismissal should be affirmed for at least three reasons. First, the First Department properly applied the Court’s controlling test in Tanges v. Heidelberg N. Am., 93 N.Y.2d 48 (1999), to conclude that Rule 12(A) is substantive because a shareholder’s right to bring derivative claims and the corresponding remedy are extinguished if he does not satisfy Rule 12(A)’s strictures. Like the First Department, the other two New York courts to have reached this precise issue—the trial court in this case and Justice Bransten in ARC Capital—have similarly found Rule 12(A) to be substantive.6 Second, the First Department’s ruling is consistent with and fully supported by a long line of cases in which New York courts have treated as substantive any 6 Plaintiff concedes that, if Rule 12(A) is in fact substantive, it must be applied here under New York’s internal affairs doctrine. Therefore, the narrow question before the Court is whether Rule 12(A) is substantive under New York conflict-of-law principles. 16 rule that limits or places a condition precedent on a shareholder’s right to bring derivative claims on behalf of companies incorporated under the laws of another State or nation. Third, applying Rule 12(A) as the substantive law of the Cayman Islands furthers the critical policy underlying New York’s internal affairs doctrine, which is to ensure that the relationships between a company and its officers, directors, and shareholders are governed by the laws of the country in which the company is incorporated, here the Cayman Islands. A. Rule 12(A) Is Substantive Because A Shareholder’s Right To Bring Derivative Claims Is Extinguished If It Is Not Satisfied. Under New York conflict-of-law principles, a New York court must determine for itself whether a rule is substantive or procedural. Tanges, 93 N.Y.2d at 54. A rule is procedural if it merely deals with a remedy or a means by which a remedy is enforced, whereas a rule is substantive if it “envelope[s] both the right and the remedy.” Id. at 56. As three New York courts have uniformly held, Rule 12(A) is indisputably substantive because a shareholder loses the right to pursue derivative claims if the shareholder cannot demonstrate to a Cayman Islands court through affidavit evidence that the claims he seeks to assert have merit. As the Second Circuit stated, in holding that a similar rule in a derivative action was substantive, “the issue is not just ‘who’ may maintain an action or ‘how’ it will be brought, but ‘if’ it will be brought.” Hausman v. Buckley, 299 F.2d 696, 701 (2d 17 Cir. 1962). It is hard to fathom a rule that more clearly envelopes a shareholder’s right to bring derivative claims on behalf of a Cayman Islands company. The substantive nature of Rule 12(A) is built directly into its text. Tellingly, although plaintiff asks the Court to consider Rule 12(A), he never quotes its text— presumably in recognition of the salient fact that Rule 12(A), on its face, evinces its substantive nature: (1) This rule applies to every action begun by writ by one or more shareholders of a company where the cause of action is vested in the company and relief is accordingly sought on its behalf (referred to in this rule as a “derivative action”). (2) Where a Defendant in a derivative action has given notice of intention to defend, the Plaintiff must apply to the Court for leave to continue the action. (3) The application must be supported by an affidavit verifying the facts on which the claim and the entitlement to sue on behalf of the company are based. * * * (8) On the hearing of the application under paragraph (2), the Court may – (a) grant leave to continue the action, for such period and upon such period and upon such terms as the Court may think fit; (b) subject to paragraph (11), dismiss the action; (c) adjourn the application and give such direction as to joinder of parties, the filing of further evidence, discovery, cross examination of deponents and otherwise as it may consider expedient. 18 (R. 2012-2013 (emphasis added).) As the rule plainly states, once a defendant in a derivative action challenges a shareholder’s right to bring the claims, the shareholder must make an evidentiary showing “by an affidavit” to the “Court,” which is defined as the “Grand Court of the Cayman Islands,” of his “entitlement”—that is, his right—“to sue on behalf of the company.” (R. 2012.) The Grand Court is statutorily required to then hold a substantive hearing to determine whether the shareholder has satisfied this burden and to dismiss the derivative action if that showing is deemed insufficient. Renova, [2009] C.I.L.R. ¶ 35 (“For the plaintiff to obtain leave to continue with the action, I consider that I must be satisfied in the exercise of my discretion that its case is not spurious or unfounded, that it is a serious as opposed to a speculative case, that it is a case brought bona fide on reasonable grounds, on behalf of and in the interests of the company and that it is sufficiently strong to justify granting leave for the action to continue rather than dismissing it at this preliminary stage.”) (R. 1675); see also R. 2013. Although Renova is the seminal Cayman Islands case construing Rule 12(A), plaintiff fails to cite it even once in his opening brief. The ostensible reason for this glaring omission is that, in Renova, the Grand Court emphasized that Rule 12(A) acts as a “filter” that limits the right of shareholders to proceed with 19 derivative claims, thereby ensuring that Cayman Islands companies and directors are not embroiled in frivolous and costly shareholder litigation: The purpose of requiring the plaintiff to obtain leave to continue the derivative action, as I understand it, is to prevent the expense and time of (and to protect the defendants against) vexatious or unfounded litigation which has little or no prospect of success or which is clearly brought by an aggrieved shareholder for his own reasons rather than in the interests of the company. Renova Res. Private Equity Ltd. v. Gilbertson, [2009] C.I.L.R. 268 ¶ 35 (R. 1675). To satisfy the rule, the Grand Court continued, a shareholder must demonstrate a prima facie case “that the claim falls within the exception to the rule in Foss v. Harbottle” and “on the merits against the defendant.” Id. ¶¶ 29, 31 (R. 1675) (emphasis added). In other words, the shareholder must show not only that he has standing to pursue the derivative claim under Foss but also that there is a solid evidentiary basis on the merits of the derivative claim. Again, plaintiff undoubtedly chose to omit Renova from his opening brief because it cogently explains that Rule 12(A) is precisely the kind of “filtering” rule that New York courts have routinely enforced as substantive under the internal affairs doctrine. See Point I.B infra. The Grand Court’s application of Rule 12(A) in Renova further supports the conclusion that the rule is substantive. In that case, the shareholder plaintiff alleged that the director defendant of a Cayman Islands company had made a secret profit by diverting a valuable corporate opportunity from the company to himself 20 in breach of his fiduciary duties. Renova, [2009] C.I.L.R. ¶¶ 36, 39 (R. 1676). The director challenged the shareholder’s right to bring the derivative action and, thus, the Grand Court held a hearing pursuant to Rule 12(A). Id. ¶¶ 1-3 (R. 1669). Following the submission of affidavit evidence and oral argument on the merits, the Grand Court concluded that the shareholder had satisfied Rule 12(A) by supporting his allegations with prima facie evidence on the merits of the derivative claim. Id. ¶ 73 (“I am satisfied that the plaintiff on behalf of the company has a prima facie case and that this is not an action which should be dismissed at this stage.”) (R. 1684). Similarly, here, had plaintiff deigned to comply with Rule 12(A), he would have been required to proffer evidence demonstrating that the Directors and Investors allegedly breached their fiduciary duties in connection with the Merger and Orkney Unwind. As in Renova, the Grand Court would have scrutinized the proffered evidence to determine whether plaintiff’s claims should be filtered out as “vexatious or unfounded.” Rule 12(A), therefore, goes to the very heart of plaintiff’s right to bring these claims. Relying on Renova, Justice Bransten of the Commercial Division concluded that Rule 12(A) is a “substantive, rather than procedural, rule” under the controlling Tanges test. ARC Capital, LLC v. Kalra, No. 652931/2012, 2013 N.Y. Misc. LEXIS 2600, at *7 (N.Y. Sup. Ct., N.Y. Cnty. June 18, 2013). She found persuasive expert testimony—similar to Mr. Meeson’s here—that, “while the steps 21 outlined in [Rule 12(A)] provide a procedural framework, the requirement to seek leave of court is substantive under Cayman Islands law because once the ‘application to continue’ is filed, the court will hold a substantive hearing to determine if the case is bona fide.” Id. at *8. Justice Bransten recognized that the purpose of that hearing, as explained by Renova, is for the shareholder to demonstrate that the derivative claims are “brought bona fide on reasonable grounds on behalf of and in the interests of the company.” Id. at *9 (quoting Renova, [2009] C.I.L.R. ¶ 35 (R. 1675)).7 If the shareholder fails to make this showing, the derivative claims are subject to dismissal and, therefore, Justice Bransten reasoned, Rule 12(A) “envelopes both the right and the remedy.” Id. at *7 (internal quotation marks omitted). Since the shareholder in ARC Capital had not complied with Rule 12(A), Justice Bransten dismissed the derivative claims. Similarly, in this case, the trial court correctly concluded under Tanges that Rule 12(A) is substantive because a shareholder’s right to proceed with a derivative claim is “extinguished” if he does not comply with its requirements. (R. 56.) Accordingly, the trial court dismissed plaintiff’s derivative claims on account of his undisputed failure to ever seek, let alone obtain, leave from a Cayman Islands court to pursue those claims. (R. 55.) On appeal, the First Department 7 In keeping with his pattern of sweeping under the rug Cayman Islands case law that eviscerates his position, plaintiff fails to inform the Court that Justice Bransten relied not only on an analogous case that found a Canadian leave-of-court rule to be substantive, but also on Renova. (Br. 24-25.) 22 unanimously affirmed the trial court’s holding that Rule 12(A) is substantive. (R. 4261-4262.) Following Tanges, the First Department concluded that Rule 12(A) operates as a “condition[] precedent” to a shareholder’s “right to bring” a derivative claim. (R. 4262.)8 It further explained that the purpose of Rule 12(A) is for the Grand Court to determine whether the at-issue derivative claims “may proceed” just as analogous shareholder demand rules—which New York courts have uniformly held are substantive, see infra Point I.B.—require boards of directors to determine whether to prosecute claims on behalf of their companies. (R. 4262.) Regardless of whether a shareholder’s right to bring derivative claims is determined by a court or a board of directors, the nature of the rule is the same: it is substantive, not procedural. Plaintiff’s principal argument that Rule 12(A) is procedural merely because it does not apply exclusively to claims being asserted on behalf of Cayman Islands companies is a red herring. (Br. 20-21, 26.) As plaintiff concedes, Rule 12(A) does apply to derivative claims filed by shareholders of Cayman Islands companies in that country. Moreover, plaintiff misses the point. The governing test under Tanges turns on how the rule operates—specifically, whether it envelopes both the remedy and the right of a shareholder to bring derivative claims and it most 8 Contrary to plaintiff’s mischaracterization of the ruling (Br. 19-20), the First Department properly applied Tanges in holding that Rule 12(A) is substantive because it is a “condition[] precedent” to a shareholder’s “right” to bring derivative claims on behalf of a corporation. (R. 4262 (emphasis added).) 23 certainly does. The fact that the Grand Court might apply Rule 12(A) in a case involving a non-Cayman Islands company says nothing about whether Rule 12(A) envelopes both the remedy and the right of a shareholder to bring derivative claims on behalf of a Cayman Islands company. Plaintiff’s remarkable failure to even acknowledge, much less address, the leading Cayman Islands case explaining the substantive policy behind the adoption of this gate-keeping statute speaks volumes. Renova, [2009] C.I.L.R. ¶ 35 (“The purpose of requiring the plaintiff to obtain leave to continue the derivative action, as I understand it, is to prevent the expense and time of (and to protect the defendants against) vexatious or unfounded litigation….”) (R. 1675). Simply ignoring Renova because it conclusively undermines plaintiff’s position hardly transforms Rule 12(A) from a decidedly substantive rule to a merely procedural rule. Plaintiff also contends that Rule 12(A) is procedural because it is located in the Grand Court Rules of the Cayman Islands and not the Cayman Islands Companies Law. (Br. 21-22.) But as the Court emphatically held in rejecting such superficial contentions, “the law of the forum normally determines for itself whether a given question is one of substance or procedure.” Tanges, 93 N.Y.2d at 54 (internal quotation marks omitted). In Tanges, the Court found that a Connecticut statute of repose was substantive despite the fact that the Supreme Court of Connecticut had deemed the statute to be procedural. Id. Here, plaintiff 24 cannot point to a single Cayman Islands case finding Rule 12(A) to be procedural under Cayman Islands law, relying on its mere location in the Grand Court Rules. New York courts have rejected similar arguments in the context of shareholder derivative actions. E.g., Dragon Invs. II Co. v. Shanahan, No. 0602868/2005, 2007 WL 4144251, at 4 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 2, 2007) (leave of court requirement was “substantive” even though rule was part of the “Civil Procedure Rules” of England and Wales); Lewis v. Dicker, 118 Misc. 2d 28, 31 (N.Y. Sup. Ct., Kings Cnty. 1982) (“[R]egardless of Pennsylvania’s placement of the demand requirement within its procedural rules, this court holds that the [shareholder] demand requirement is a matter of substantive law, governed by the conflict of law rules dealing with matters of substance.”). Again, the critical inquiry is whether Rule 12(A) limits or places a condition on a shareholder’s right to bring derivative claims on behalf of a Cayman Islands company (it does).9 Plaintiff also complains that the First Department did not consider whether New York courts are “capable” of addressing whether a shareholder plaintiff has standing under Cayman Islands law. (Br. 23-24.) But that too is besides the point. Under the Court’s governing test in Tanges, the critical inquiry is whether Rule 9 Contrary to plaintiff’s assertion, Mr. Meeson did not remotely concede that Rule 12(A) is a procedural rule for purposes of New York’s conflict-of-laws analysis. (Br. 22.) Rather, Mr. Meeson stated—and the First Department held— that Rule 12(A) operates to bring the “substantive issue” of a shareholder’s right to assert derivative claims before a Cayman Islands court. (R. 3924 ¶ 15.) 25 12(A) is substantive, not, as plaintiff seems to suggest, whether New York provides defendants a mechanism to challenge standing under the CPLR. Plaintiff’s citation to New York federal and state cases in which courts have addressed whether a shareholder has standing under Foss is misleading because in none of those cases did defendants argue that the shareholder had failed to comply with Rule 12(A). (Br. 23-24.) As Renova makes clear, demonstrating standing under Foss is only one of Rule 12(A)’s requirements; a shareholder must also convince the Grand Court that he has a prima facie case on the merits of the derivative claim. Plaintiff next contends that Rule 12(A) “[b]y its own terms” does not apply to derivative actions commenced in courts outside the Cayman Islands. (Br. 27.) As a threshold matter, nothing in either Rule 12(A) or the Grand Court Rules precludes Rule 12(A)’s application in a different forum. In addition, the logic of his premise is fundamentally flawed. The mere fact that a rule applies in the courts of State X does not foreclose its application in the courts of State Y as a result of State Y’s conflict-of-law principles. If plaintiff were correct, one forum’s rules could never be applied in a foreign forum, a result that would gut conflict-of-law jurisprudence. Finally, the only relevant authority on which plaintiff relies, see Hayat v. Al-Mazeedi, No. 08/004, 2011 Mass. Super. LEXIS 73 (Mass. Super. Ct. Jan. 11, 2011), is readily distinguishable because it applied the conflict-of-law principles of Massachusetts. (Br. 23.) Moreover, the decision merely assumed, 26 without analysis, that Rule 12(A) is procedural, id. at *27-28, a premise which has now been convincingly rejected by three New York courts.10 In sum, two Justices of the New York Commercial Division and five Justices of the First Department have uniformly held that Rule 12(A) is a substantive rule under this Court’s controlling standard in Tanges. No New York authority is to the contrary and plaintiff fails to show why the Court should stray from the persuasive reasoning of these decisions. B. Courts Have Consistently Held That Rules Limiting A Shareholder’s Right To Bring A Derivative Claim Are Substantive. Decades of New York precedent support the conclusion that Rule 12(A) is substantive. Applying this State’s conflict-of-law rules, courts have long held that rules from other jurisdictions that condition or limit a shareholder’s right to assert derivative claims on behalf of a company are substantive rules in New York under the internal affairs doctrine.11 As explained below, courts have consistently held that leave-of-court rules, rules requiring the permission of a majority of 10 The other cases plaintiff cites are readily distinguishable as none of them address shareholder derivative claims or implicate the internal affairs doctrine. See Tenn. Coal, Iron & R.R. Co. v. Georgia, 233 U.S. 354, 358 (1914) (statutory tort claim asserted by employee against employer); Randall v. Arabian Am. Oil Co., 778 F.2d 1146, 1147-48 (5th Cir. 1985) (wrongful discharge claim brought by employee against employer); Sachs v. Adeli, 26 A.D.3d 52, 53 (1st Dep’t 2005) (dispute relating to shareholder’s motion to compel company to release tax returns). 27 shareholders to file a derivative action, pre-suit demand requirements, and even rules restricting a shareholder’s entitlement to discovery in derivative actions are all substantive rules. Like these rules, Rule 12(A) is unquestionably substantive because it requires a Cayman Islands court to determine in conclusive fashion, at the outset, whether a shareholder has the right to bring derivative claims.12 Most significantly, courts have treated as substantive leave-of-court rules that operate to weed out meritless shareholder derivative claims at the beginning of a case—the singular purpose behind Rule 12(A). Dragon Investments II Co. v. Shanahan, No. 0602868/2005, 2007 WL 4144251 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 2, 2007), is highly persuasive. There, the court held as substantive an English rule that required a shareholder to seek leave of a British Virgin Islands court and submit evidence to support his entitlement to sue on behalf of the company before proceeding with a derivative claim. Id. at 3-4. The court reasoned that “these requirements, like the demand rules under New York law, are substantive 11 Plaintiff fails to even mention the internal affairs doctrine, which is a critical legal principle governing shareholder derivative actions. 12 Plaintiff conveniently ignores the fact that Rule 12(A) requires a Cayman Islands court to assess the merits of the derivative claim in arguing that Rule 12(A) is akin to a statute of limitations, which are generally considered “procedural” for conflict-of-law purposes. (Br. 19-20.) On the contrary, Rule 12(A) is fundamentally unlike a statute of limitations. As the First Department held, it requires a Cayman Islands court to determine, in the first instance, whether a shareholder has the right to proceed with the claim—that is without question a substantive inquiry as it envelops both the “right and the remedy” in the language of Tanges. 28 conditions precedent put in place to protect a corporation from undue interference, and therefore, must be applied in this derivative action.” Id. at 4. As a result of plaintiff’s admitted failure to seek leave from the foreign court, the New York court dismissed the derivative claims. Id. The requirements of this English rule are similar to those contained in Rule 12(A). Compare id. at 4, with R. 2012-2014. And the reason for that is simple: Rule 12(A) is based on that English rule. Renova, [2009] C.I.L.R. ¶ 7 (R. 1670.) Notably, Rule 12(A) came into effect only one year after the promulgation of the English rule, a rule located in Part 19.9 of the Civil Procedure Rules of England and Wales at the time of the Dragon case. Id. Indeed, plaintiff’s expert admitted that Rule 12(A) and the English rule interpreted in Dragon have “the same terms.” (R. 2069 ¶ 41.) Similarly, in Locals 302 & 612 of Int’l Union of Operating Eng’rs – Emp’rs Constr. Indus. Ret. Tr. v. Blanchard, No. 04 Civ. 5954(LAP), 2005 WL 2063852 (S.D.N.Y. Aug. 25, 2005), the court dismissed derivative claims filed by shareholders in a Canadian corporation because the shareholders had failed to comply with a Canadian leave- of-court rule. Id. at *6-7. Specifically, Canadian law required the shareholders to seek leave from certain Canadian courts to proceed with derivative claims and designated those courts with exclusive jurisdiction to hear such claims. Id. at *7 & n.3. This “leave” requirement under Canadian law, like Rule 12(A) under Cayman Islands law, was deemed substantive under New York conflict-of-law principles 29 because it is a “statutory precondition[] … intended to protect the corporation from undue interference.” Id. at *6 (internal quotation marks omitted). As the court succinctly stated: “No determination could be more substantive.” Id. New York courts have also repeatedly held that shareholder demand rules are substantive. In fact, the First Department in this case explained that Rule 12(A) operates like the shareholder demand requirements that are commonplace in other jurisdictions because they both are “conditions precedent to the right to bring the lawsuit.” (R. 4262.) That is an apt analogy for an additional reason: both rules have the same underlying purpose in filtering out meritless derivative claims that would otherwise impede sound corporate governance. See Renova, [2009] C.I.L.R. 268 ¶ 31 (R. 1675); Dragon, 2007 WL 4144251 at *4 (demand rules “are substantive conditions precedent put in place to protect a corporation from undue interference”). In Lerner v. Prince, 36 Misc. 3d 297 (N.Y. Sup. Ct., N.Y. Cnty. 2012), the court applied Delaware’s shareholder demand rules in a derivative action commenced against a Delaware corporation, explaining that “[u]nder New York’s choice of law rules, the substantive law of the state of incorporation governs compliance with the demand requirement.” Id. at 305. And, in Lewis v. Dicker, 118 Misc. 2d 28 (N.Y. Sup. Ct., Kings Cnty. 1982), the court held that Pennsylvania’s rules requiring a shareholder to make a pre-derivative suit demand on a board of directors (and the exceptions to that rule) were substantive because 30 they placed an “impediment” on a shareholder’s right to bring derivative claims. Id. at 30-31. In a similar vein, courts have held that rules requiring the consent of other shareholders before a derivative claim may proceed are substantive. In Hausman, the district court dismissed a derivative claim filed by a shareholder in a Venezuelan corporation because he had failed to obtain permission to file such a claim from a majority of the shareholders as required under Venezuelan law. 299 F.2d at 698 & n.5. On appeal, the Second Circuit affirmed based on its finding that the Venezuelan law was substantive and, accordingly, that it must be applied in the New York case under the internal affairs doctrine. Id. at 701-702. In reaching this conclusion, the Second Circuit observed that the “condition imposed by Venezuelan law on the right to enforce corporate claims goes to the substance of that right, and cannot be treated as dealing with the mere procedure by which the claims are enforced.” Id. at 701. The issue was “not just ‘who’ may maintain an action or ‘how’ it will be brought, but ‘if’ it will be brought.” Id. Likewise, in Rottenberg v. Pfeiffer, 86 Misc. 2d 556 (N.Y. Sup. Ct., Nassau Cnty. 1976), aff’d 59 A.D.2d 756 (2d Dep’t 1977), the court dismissed derivative claims brought by a shareholder in a Massachusetts business trust for failure to make a demand upon the other shareholders prior to filing the lawsuit. The court applied this Massachusetts rule in the New York action, reasoning that, “[s]ince a demand upon 31 stockholders of a business corporation would be a condition precedent to a derivative action, so also would such a demand upon the shareholders of a business trust be a prerequisite to a derivative action[.]” Id. at 560 (internal citations omitted). Finally, even rules governing a shareholder’s right to discovery in a derivative action—which, at first blush, might appear to be procedural—have been found to be substantive because they implicate issues of corporate governance. In Lerner v. Prince, 119 A.D.3d 122 (1st Dep’t 2014), the First Department considered the nature of a Delaware rule prohibiting a shareholder from obtaining discovery in a derivative action where the board of directors had declined the shareholder’s demand to pursue litigation on behalf of the company. Id. at 128- 129. The court explained that, while discovery rules might be considered procedural in other circumstances, that the case was “a purported derivative action places it into a different context.” Id. at 128. “The decision whether to permit discovery once directors have refused a demand,” the court concluded, “is therefore a substantive question, going directly to the basis of the purported derivative suit.” Id. The same reasoning was applied in Curbow Family LLC v. Morgan Stanley Inv. Advisors, 36 Misc. 3d 889 (N.Y. Sup. Ct., N.Y. Cnty. 2012). There, the court applied as substantive a Massachusetts discovery statute that 32 presumptively stayed discovery pending motions to dismiss in demand-refused derivative cases. Id. at 894. In sum, these cases conclusively demonstrate that, under New York law, any rule that conditions or limits a shareholder’s right to bring derivative claims on behalf of a company is deemed substantive.13 As the First Department, the trial court, and Justice Bransten in ARC Capital held, this is precisely what Rule 12(A) does and, thus, it is unquestionably substantive. 13 New York stands in good company. Courts across the country have similarly held that rules governing shareholder standing to sue derivatively on behalf of a corporation are substantive because they pertain to the internal affairs of the corporation. See, e.g., Batchelder v. Kawamoto, 147 F.3d 915, 920 (9th Cir. 1998) (holding that Japanese law applies to standing to sue derivatively on behalf of Japanese corporation because shareholder’s “prerogative to step into the shoes of the parent corporation as derivative plaintiff, or of the subsidiary as double derivative plaintiff, must be determined by the law of the place of incorporation of the company in which he holds an interest”); Vaughn v. LJ Int’l, Inc., 174 Cal. App. 4th 213, 221, 94 Cal. Rptr. 3d 166, 171 (2009) (holding that British Virgin Islands law applies to standing to sue derivatively on behalf of British Virgin Islands corporation because “presence or absence of standing to bring an action is most appropriately characterized as resolving a substantive right” and is not “a matter of mere court administration or ‘mode of proceeding’”); Levine v. Milton, 42 Del. Ch. 597, 600, 219 A.2d 145, 147 (Del. Ch. 1966) (holding that Panamanian law applies to standing to bring a double-derivative claim on behalf of Panamanian corporation because the “right of a stockholder to bring a derivative action is a question of substantive law to be determined by the law of the state or country of incorporation”) 33 C. Applying Rule 12(A) To Cayman Islands Shareholder Derivative Actions Filed In New York Promotes Public Policy. The judicial interpretation of Rule 12(A) as a substantive rule furthers New York public policy for at least three reasons. First, recognizing Rule 12(A) as substantive supports the overriding purpose of New York’s internal affairs doctrine, which is to promote consistency and uniformity in the treatment of a company’s officers, directors, and shareholders. The doctrine has long been recognized as beneficial by the U.S. Supreme Court and courts of this State. See Edgar v. Mite Corp., 457 U.S. 624, 645-646 (1982) (“The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.”); Hart, 129 A.D.2d at 184. Notably, although plaintiff makes no mention of it, New York’s internal affairs doctrine has a “public policy” exception, but courts have repeatedly rejected invitations by shareholder plaintiffs to apply the exception even where application of a foreign rule in New York completely bars pursuit of derivative claims against the directors of a foreign corporation. For example, in Seybold v. Groenink, No. 06 Civ. 772 (DLC), 2007 WL 737502 (S.D.N.Y. Mar. 12, 2007), the court dismissed derivative claims for lack of standing because applicable Dutch law did not 34 recognize the type of claims the shareholder was attempting to prosecute against directors and officers of a Dutch bank in connection with its purported failure to comply with anti-money laundering statutes. Id. at *1, *6. The shareholder, in attempting to circumvent the dispositive impact of the internal affairs doctrine, argued that applying Dutch law in New York to bar her claim contravened various public policies, including the protection of New York’s financial markets. Id. at *7. The court declined to apply the public policy exception and enforced Dutch law to bar her claim even though she was left without a remedy in New York. Id. And, in In re BP P.L.C. Derivative Litig., 507 F. Supp. 2d 302, 310 (S.D.N.Y. 2007), the court similarly rejected a shareholder’s argument that the public policy exception should apply where English law barred the derivative claims. Here, as explained infra at 38-39, shareholders of Cayman Islands companies may pursue derivative claims in the Cayman Islands (or in other jurisdictions for that matter) once they have complied with Rule 12(A). Notwithstanding plaintiff’s conclusory assertion, he could have pursued a derivative action in New York had he obtained the required leave to move forward from a Cayman Islands court. Given the fact that New York courts have routinely applied foreign rules that completely bar derivative claims, plaintiff’s policy argument against applying Rule 12(A), which does not bar shareholders in New 35 York once they have obtained the required leave of a Cayman Islands court, does not overcome the overriding beneficial purpose of the internal affairs doctrine. Second, application of Rule 12(A) in New York mitigates the likelihood of forum shopping. In Lerner, the First Department recognized that if Delaware’s rule prohibiting discovery in certain derivative actions were not applied in New York, it “would almost certainly lead future plaintiffs to forum shop in an effort to circumvent the Delaware prohibition against discovery.” 119 A.D.3d at 129. Similarly, here, if Rule 12(A) were not applied to shareholder derivative actions filed in New York, it would create a loophole for opportunistic shareholders to avoid the rigorous evidence-based examination that the Grand Court is required to undertake under Rule 12(A). There is no equivalent New York rule requiring a shareholder to make such a showing to a New York court at the inception of an action. Plaintiff’s contention that Rule 12(A)’s “filtering” purpose might be achieved with motions to dismiss under CPLR § 3211(a)(3) (Br. 22-23), is plainly wrong because such motions are based on a shareholder’s allegations, which must be taken as true for purposes of such motions, and not on evidence, as is the case in a hearing under Rule 12(A). The Renova court could not have been clearer in explaining that the substantive hearing held pursuant to Rule 12(A) requires the Grand Court to assess and weigh the evidence submitted by the parties to 36 determine whether the shareholder may pursue the derivative claims.14 Renova, [2009] C.I.L.R. ¶¶ 34-35 (R. 1675). Third, applying Rule 12(A) is consistent with the expectations of commercial actors that the laws of the Cayman Islands will apply to derivative actions filed on behalf of Cayman Islands companies. See Blanchard, 2005 WL 2063852, at *3 n.2 (“[S]tockholders impliedly consent to be governed by the law of a corporation’s state of incorporation when they purchase stock in the company”); Hart, 129 A.D.2d at 185 (“The corporation and its shareholders rightfully expect that the laws under which they have chosen to do business will be applied.”). As a general matter, Cayman Islands law limits shareholder involvement in the management of Cayman Islands companies. As the trial court correctly noted, Cayman Islands law—unlike New York law—does not impose fiduciary duties on directors to shareholders or on majority shareholders to minority shareholders, absent extraordinary circumstances. (R. 43.) Furthermore, Cayman Islands law severely restricts the rights of shareholders to bring derivative claims under the time-honored rule set forth in Foss v. Harbottle. (R. 43.) Thus, Rule 12(A) is but one particular illustration of this overriding policy of Cayman Islands law. 14 The fact that the trial court has the discretion to convert a motion to dismiss into one for summary judgment, see CPLR § 3211(c), does not change this analysis since Rule 12(A) requires an evidentiary showing in all cases. (Br. 23.) 37 In view of the compelling fact that New York courts have for decades applied rules from other jurisdictions to bar or limit a shareholder from prosecuting derivative claims governed by foreign law in New York, plaintiff’s hyperbolic rhetoric that applying Rule 12(A) in New York will have “draconian” policy ramifications is baseless. (Br. 26.) To begin with, there is nothing “draconian” in applying governing Cayman Islands law to claims owned by a Cayman Islands company in a New York court, pursuant to the internal affairs doctrine. Without citing any authority, plaintiff contends, in purely conclusory fashion, that application of Rule 12(A) “closes the door” of New York courts to shareholders of Cayman Islands companies. (Br. 29.) This is simply not true. And, there is nothing even remotely unfair about applying the law of the state of incorporation (in particular, leave-of-court requirements, see Blanchard, 2005 WL 2063852, at *6-7; Dragon, 2007 WL 4144251, at 4) to a dispute between a shareholder and a company. Here, plaintiff’s lament that he might be denied his day in court rings hollow because, in 2011, he intentionally decided not to pursue his exclusive appraisal remedy in the Cayman Islands. Instead, he pocketed nearly $4 million in merger consideration and then decided, years later, to sue Scottish Re in New York. Plaintiff, a non-New York resident and a sophisticated value investor, voluntarily purchased shares in a Cayman Islands company and was thus on notice that potential disputes would likely be governed by Cayman Islands law. He was 38 also fully aware that he could have challenged the Merger consideration in a Cayman Islands court but he chose not to. And, on top of that, nothing prevented him from bringing his derivative claims in the Cayman Islands in the first place. Moreover, contrary to plaintiff’s bare assertion (Br. 16), which is unsupported by any authority, New York courts may still hear derivative claims against directors of a Cayman Islands company once a shareholder has obtained the required leave to prosecute such claims from a Cayman Islands court. See ARC Capital, 2013 N.Y. Misc. LEXIS 2600, at *10-11 (dismissing complaint but allowing shareholder plaintiff to refile derivative claims in New York if Cayman Islands Grand Court allowed plaintiff to pursue such claims on behalf of company); see also Dragon, 2007 WL 4144251, at 4 (allowing shareholder plaintiff to prosecute derivative claim in New York on condition that plaintiff first obtain permission to proceed from the courts of the British Virgin Islands). Nothing in the record even remotely suggests that a Cayman Islands court would or could take steps to interfere with a shareholder’s ability to file derivative claims on behalf of a Cayman Islands company in New York after having obtained leave to do so—plaintiff merely states that, in his view, there is a “possibility” this might occur. (Br. 26.) In support, plaintiff cites an article devoid of any supporting authority and an inapposite quotation from his legal expert that similarly lacks any authority. (Br. 27-28.) Again, the whole point of Rule 12(A) is to require 39 dissident shareholders to seek and obtain leave to prosecute purported derivative claims from a Cayman Islands court. But, even assuming, arguendo, that a Cayman Islands court might not grant leave to a shareholder to continue an action previously filed in New York, such a speculative scenario would not be a basis for the Court to refuse to apply Rule 12(A) as a substantive rule. To begin with, and as demonstrated above, New York courts have applied rules from other jurisdictions that completely bar shareholders from pursuing derivative claims in New York. See, e.g., Seybold, 2007 WL 737502, at *6; In re BP P.L.C. Derivative Litig., 507 F. Supp. 2d at 310. Moreover, such an outcome would simply require shareholders seeking to sue derivatively on behalf of a Cayman Islands company to file and litigate those claims in the Cayman Islands. That scenario would merely flow from a shareholder’s voluntary decision to invest in a Cayman Islands company. Cf. Loucks v. Standard Oil Co., 224 N.Y. 99, 111 (1918) (“[Courts] are not free to refuse to enforce a foreign right at the pleasure of the judges, to suit the individual notion of expediency or fairness.”) (Cardozo, J.). Furthermore, plaintiff’s manufactured concern, which is unsupported by any authority or evidence, that Cayman Islands-based hedge funds might use Rule 12(A) to “insulate themselves” from lawsuits in New York is overly simplistic and, more importantly, wrong. (Br. 28.) Again, Rule 12(A) does not prohibit a 40 shareholder from continuing a derivative action in New York once the required leave from a Cayman Islands court has been obtained. And, critically, Rule 12(A) does nothing to prevent a shareholder or investor in a Cayman Islands company from bringing non-derivative claims in New York in the first instance, assuming there is personal jurisdiction.15 One need look no further than this very case for proof of this premise. In particular, plaintiff filed, in the trial court, two allegedly direct breach of fiduciary duty claims against the Directors and Investors based on the same transactions that are at issue in the derivative claims and he is currently litigating a breach of contract claim against Scottish Re in that very court. Furthermore, plaintiff’s demonstrably false contention ignores the realities of hedge fund litigation. As commentators have explained, “[f]unds themselves are sued less often because they are protected from private actions by court order and/or are insolvent.” Scott M. Berman, Hedge Fund Litigation, in DANIEL A. STRACHMAN, THE FUNDAMENTALS OF HEDGE FUND MANAGEMENT app. at 170 (2d ed. 2012), http://onlinelibrary.wiley.com/doi/10.1002/9781119204947.app1/pdf. Instead, claims filed in New York are typically made against fund managers and 15 Plaintiff’s uninformative reference to the number of entities that operate under Cayman Islands law shows nothing other than the unremarkable fact that investors—including non-New York residents, like plaintiff—avail themselves of certain fiscal advantages offered by that jurisdiction. (Br. 29 n.9.) Indeed, it certainly says nothing about how many of those entities might have ties to New York. 41 third parties that provided services to the fund, including auditors, administrators, and prime brokers. See, e.g., Trustees of the Masonic Hall & Asylum Fund v. PwC LLP, No. 08 Civ. 10495 (GEL), 2009 WL 290543 (S.D.N.Y. Feb. 9, 2009); Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC., 376 F. Supp. 2d 385 (S.D.N.Y. 2005). And rather than assert derivative claims on behalf of the underlying fund, investors have typically brought a wide spectrum of direct claims against these parties, including federal securities fraud, common law fraud, breach of fiduciary duty, professional malpractice, negligence, and aiding and abetting common law fraud. See, e.g., Sapirstein-Stone-Weiss Found. v. Merkin, 950 F. Supp. 2d 621 (S.D.N.Y. 2013); Trustees of the Masonic Hall & Asylum Fund, 2009 WL 290543, at *1 n.2; Fraternity Fund Ltd., 376 F. Supp. 2d at 406; Alteram S.A. v. Beacon Hill Asset Mgmt. LLC, No. 03 Civ. 2387 (LAK), 2004 WL 367709 (S.D.N.Y. Feb. 27, 2004). The application of Rule 12(A) in New York judicial proceedings will not alter that reality. POINT II PLAINTIFF LACKS STANDING TO BRING THE DERIVATIVE CLAIMS AGAINST THE DIRECTORS UNDER FOSS Even assuming, arguendo, that Rule 12(A) did not bar plaintiff’s derivative claims (it does), dismissal of those claims against the Directors should still be 42 affirmed for lack of standing.16 As the trial court properly held, under Cayman Islands law, plaintiff’s derivative claims are barred by the longstanding principle enunciated in Foss v. Harbottle. (R. 57-58.) Under Foss, “derivative claims are owned and controlled by the company, not its shareholders,” Winn v. Shafer, 499 F. Supp. 2d 390, 396 (S.D.N.Y. 2007), and “a shareholder is not permitted to bring a derivative action on behalf of that company.” Id.; see also Schultz v. Reynolds, [1992-93] C.I.L.R. 59 at 63-64 (R. 3312-3313). New York courts have repeatedly applied the Foss rule to dismiss derivative claims brought under Cayman Islands law for lack of standing, see, e.g., Shenwick v. HM Ruby Fund, L.P., 106 A.D.3d 638, 639 (1st Dep’t 2013); CMIA Partners Equity Ltd. v. O’Neill, No. 16 As a threshold matter, the dismissal of Claim 10, which plaintiff states is the only derivative claim asserted against the Investors, see Br. 12-13, should be affirmed because the Investors, as majority shareholders, did not owe Scottish Re any fiduciary duties. See Feiner Family Trust v. VBI Corp., No. 07 Civ. 1914 (RPP), 2007 WL 2615448, at *7 (S.D.N.Y. Sept. 11, 2007) (“[U]nder Cayman Islands law, majority shareholders do not owe fiduciary duties to the company[.]”); see also (R. 790-791 ¶¶ 70, 77.) As Mr. Meeson explained below, “a majority shareholder’s right to free[ly] exercise [his shares] in what he regards as his own best interests is explicitly recognized under Cayman Islands law.” (R. 791 ¶ 76 (internal quotation marks omitted).) Plaintiffs’ expert never addressed, let alone refuted, this point. Because plaintiff’s derivative claim against the Investors is indisputably deficient as a matter of Cayman Islands law, the Court need not reach the issue of whether plaintiff lacks standing to assert that claim under Foss. Moreover, the Court may properly reach this issue on appeal because the parties briefed it and it involves a pure question of Cayman Islands law. Chateau D’If v. City of N.Y., 219 A.D.2d 205, 209 (1st Dep’t 1996) (an issue on appeal “should be reviewed” where “the record on appeal is sufficient for its resolution and the issue is determinative[.]”). 43 603622/2009, 2010 WL 4904479, at *6-9 (N.Y. Sup. Ct., N.Y. Cnty. Nov. 22, 2010), including derivative claims against the then-directors of Scottish Re, see Winn, 499 F. Supp. 2d at 396-398. Cayman Islands law only recognizes four narrow exceptions to the Foss rule. Schultz, [1992-93] C.I.L.R. at 64-65 (R. 3313-3314). Here, the only exception at issue is the “fraud on the minority” exception. However, in order to invoke that exception, plaintiff “must plead and prove each of the following: first, the ‘alleged wrongdoers must have ‘control’ over a majority of the stock with voting rights, and second, those wrongdoers must have committed ‘fraud.’” Winn, 499 F. Supp. 2d at 396. The trial court correctly held that plaintiff failed to satisfy either prong of this two-part test (R. 57-58), and plaintiff fails to proffer any basis that might even remotely alter this conclusion. Contrary to plaintiff’s misleading reference to the U.K. Companies Act of 2006 (Br. 32), which has no bearing on Cayman Islands law, neither the legislature nor the courts of the Cayman Islands have eroded the stringent Foss test. In fact, Cayman Islands courts have applied Foss both before, see Schultz, [1992-93] C.I.L.R. 59, and after, see Renova, [2009] C.I.L.R. 268 (R. 1666), the enactment in 2006 of the U.K. Companies Act. Indeed, the fact that the Cayman Islands legislature and courts have declined to follow the U.K.’s lead in the 10 years since the U.K. Companies Act was passed is compelling evidence that the strict common 44 law requirements of the Foss rule are alive and well under Cayman Islands law. In fact, despite no fewer than 12 separate amendments to the Cayman Islands Companies Law since the U.K. abolished the Foss rule, the Cayman Islands legislature has elected not to disturb Foss. (R. 1845.) Plaintiff’s reliance on legal developments unrelated to Cayman Islands law (Br. 32-33) serves to underscore the weakness of his arguments. See In re BP P.LC. Derivative Litig., 507 F. Supp. 2d at 311 (rejecting contention that passage of U.K. Companies Act of 2006 undermined validity of Foss with respect to derivative claims). As demonstrated below, the trial court’s dismissal of the derivative claims under Foss should be affirmed. A. The Trial Court Correctly Concluded That Plaintiff Failed To Allege The Required Element of Control. Plaintiff was required to allege that the Directors controlled “a majority of the stock with voting rights[.]” Winn, 499 F. Supp. 2d at 396. A derivative plaintiff may sufficiently plead control by showing that the wrongdoers beneficially own a majority of the corporation’s voting shares or have acquired de facto control of those voting shares.17 Id. As the trial court held, the Complaint is 17 Significantly, this test focuses on control of the company’s voting shares during a general meeting of shareholders (R. 786 ¶ 47); see also City of Harper Woods Emps.’ Ret. Sys. v. Olver, 577 F. Supp. 2d 124, 136 (D.D.C. 2008), aff’d, 589 F.3d 1292 (D.C. Cir. 2009) (“[T]he control requirement is nevertheless firmly focused on the ability to obtain (directly or indirectly) a majority of the votes cast in general meeting.”) (internal quotation marks omitted)), which is a specific 45 devoid of any allegations establishing either form of control. As an initial matter, the trial court noted that “the Complaint does not allege that the Scottish Re directors individually held a controlling share of voting rights in Scottish Re.” (R. 58.) The trial court further noted that plaintiff admits in the Complaint that the Investors (not the directors of Scottish Re) collectively acquired a majority of Scottish Re’s voting shares in 2007, and held these shares until April 2011 when they acquired complete ownership of Scottish Re’s ordinary shares in the Merger. (R. 57-58.) In fact, each of the Directors beneficially owned less than 1% of Scottish Re’s ordinary shares as of May 11, 2011 (R. 215), and all of the directors and officers of the Company collectively owned a grand total of 3.6% of Scottish Re’s ordinary shares as of that date. (R. 215-217 & n.12.) As the trial court concluded, “[t]hese facts necessarily imply that the Directors did not have ‘control’ over a majority of the stock with voting rights during this period.” (R. 58.) Indeed, plaintiff openly acknowledges that the “Investors acquired control of Scottish Re” in 2007. (Br. 9 (emphasis added).) On appeal, plaintiff does not even attempt to argue that the Directors had control over Scottish Re’s voting shares. Rather, plaintiff resorts to recycling an argument that was soundly rejected by the trial court; namely, that the Directors and Investors acted “in concert” which, in turn, purportedly allowed the Directors inquiry—not “‘control’ of the company” in any loose sense, as plaintiff incorrectly states. (Br. 34.) 46 to obtain de facto control over a majority of Scottish Re’s voting shares. (Br. 35- 37.) However, unlike fine wine, plaintiff’s theory has failed to improve with age. In particular, plaintiff is still unable to identify a single factual allegation in the Complaint to buttress the fanciful notion that the Directors somehow controlled the Company’s voting shares—voting shares that were indisputably owned by the Investors. In the absence of any factual support, he instead peppers his brief with vague references to a “conspiracy” between the Directors and the Investors to somehow harm the Company. (Br. 5, 37, 38, 44.) But these conclusory buzzwords—which are wholly unsupported by any factual allegations in the Complaint—are of no help in salvaging his premise. See Goldstein v. Siegel, 19 A.D.2d 489, 493 (1st Dep’t 1963) (“A bare conclusory allegation of conspiracy is usually held insufficient.”). At most, plaintiff’s allegations reflect the unremarkable fact that certain of the Directors were nominees of the Investors.18 (R. 218-219.) This does not remotely establish that the Directors influenced (much less directed) the Investors in voting their shares. As the trial court held, these facts are legally irrelevant. Equally fatal to plaintiff’s argument is his glaring failure to cite a single case in which a court has concluded that directors exercised de facto control over a 18 Mr. Hughes was not a nominee of the Investors, as he was nominated by the Cypress Group, a holder of a large number of Scottish Re’s ordinary shares. (R. 140.) 47 majority of voting shares that they did not own. In fact, both the trial court in this case and the Cayman Islands Court of Appeal—whose decisions are binding statements of Cayman Islands law (R. 3926 ¶ 31)—have rejected plaintiff’s theory. (R. 58.) Specifically, a director does not obtain control of a majority shareholder’s voting shares merely because the majority shareholder employs or appoints that director to a company’s board of directors. See Schultz, [1992-93] C.I.L.R. at 79- 80 (R. 3328-3329); see also R. 3308-3331, 3931-3932. In Schultz, a shareholder unsuccessfully attempted to satisfy the “control” prong of the two-part Foss test by arguing that the director defendant, who was not a shareholder of the company, nevertheless controlled the company by virtue of his employment by the ultimate parent of the company. Id. 72 (R. 3321.) The court explained that control was, instead, vested in the company’s sole shareholder and, thus, “[t]here [could] be no legal control” of the company by the director defendant. Id. 73 (R. 3322.) The court also noted that the director defendant had a duty to act in the best interests of the company and was “bound to ignore the interests of [his] employer.” Id. (R. 3322.) Therefore, plaintiff’s theory of de facto control is entirely unavailing. Plaintiff’s inability to allege the required element of control against the Directors alone warrants affirmance under Foss. 48 B. The Trial Court Correctly Concluded That Plaintiff Failed To Allege The Necessary Element of Equitable Fraud. The trial court also held that plaintiff failed to allege sufficient facts to satisfy the second prong of the Foss rule; that is, he never alleges that any of the Directors engaged in equitable fraud. (R. 58 n.6.) In Schultz, the Cayman Islands Court of Appeal unanimously held that equitable fraud is not present unless the alleged wrongdoer “benefits [himself] at the expense of the company.” Schultz, [1992-93] C.I.L.R. at 79 (R. 3328); see Shenwick, 106 A.D.3d at 639 (alleging a “personal benefit at the company’s expense” is necessary to satisfy equitable fraud prong) (applying Cayman Islands law); Winn, 499 F. Supp. 2d at 397 (“English law requires that there be self-dealing by the alleged wrongdoers.”); see also R. 787. In other words, plaintiff must allege that the Directors essentially “lined their pockets” to the detriment of Scottish Re.19 In Schultz, the plaintiff, a beneficial holder of shares in a Cayman Islands company, asserted a derivative claim on behalf of the company against one of its directors, alleging that he had improperly transferred funds from the company to a third party. Schultz, [1992-93] C.I.L.R. at 63 (R. 3312). In reviewing the viability 19 Plaintiff mischaracterizes the governing standard by implying that equitable fraud does not require an allegation that the wrongdoer benefited from his misconduct. (Br. 41.) As Mr. Meeson explained, (R. 3926 ¶ 31), the Cayman Islands Court of Appeal squarely rejected that proposition in Schultz after canvassing the relevant case law, including Prudential, the case that plaintiff misconstrues in support of his baseless assertion. See Schultz, [1992-93] C.I.L.R. at 79 (R. 3328). 49 of the claim, the Cayman Islands Court of Appeal observed that plaintiff had failed to establish that the director “received any benefit” from transferring the funds out of the company. Id. at 72 (R. 3321). Accordingly, the court concluded that plaintiff “ha[d] not established the essential element of fraud which is necessary to bring the claim within the exception to the rule in Foss v. Harbottle.” Id. Here, the trial court correctly applied Cayman Islands law as articulated in Schultz, observing that, “[a]bsent evidence that the Scottish Re Directors engaged in self-dealing at the expense of Scottish Re with respect to the transactions at issue, the ‘fraud on the minority’ exception is inapplicable.” (R. 58 n.6.) Against this legal backdrop, the trial court found the fraud on the minority exception inapplicable because “[t]here are no allegations that the Scottish Re Directors benefit[ed] themselves at the expense of Scottish Re.” (R. 58 n.6 internal quotation marks omitted).) Indeed, just as the plaintiff in Schultz failed to plead facts establishing that the director benefited from the transfer of funds, plaintiff here does not remotely allege how any of the Directors engaged in self-dealing with respect to the Merger or Orkney Unwind. With respect to Claim 7, plaintiff alleges in conclusory fashion that the Directors somehow “wasted” corporate assets in connection with their evaluation of these two transactions. (R. 454.) There is not a single factual allegation that such conduct was undertaken by the Directors to divert corporate assets or secure 50 any financial emoluments for their personal benefit. Notably, even if plaintiff had alleged (and he does not) that the Directors owned ordinary shares at the time, they would not have personally benefited “at the expense of the company,” Schultz, [1992-93] C.I.L.R. at 79 (R. 3328), because the Investors—not Scottish Re—paid the Merger consideration and the Directors would have received the same amount per share as all other owners of ordinary shares, including plaintiff. (R. 434-441.) Moreover, there are no allegations explaining how the Directors improperly benefited from the Merger—indeed, the Directors did not purchase any shares from ordinary shareholders. See Feiner, 2007 WL 2615448, at *6 (finding no self- dealing for purposes of fraud on the minority exception where directors did not personally purchase any shares from minority shareholders in at-issue transaction). With respect to Claims 9 and 10, plaintiff alleges that the Directors breached their fiduciary duties by allowing the Orkney Unwind to occur.20 (R. 455-459 ¶¶ 145-159.) However, plaintiff completely mischaracterizes the Orkney Unwind in an attempt to show self-dealing where none exists. (Br. 44) To begin with, he fails to disclose that Cerberus purchased the Notes on the secondary market (R. 141-142)—not from Scottish Re. Thus, the purchase and subsequent sale of these Notes was not, and could never have been, “at the expense” of Scottish Re. See 20 Plaintiff asserts Claim 10 against the SRUS directors, but, as explained supra at 13-14, the trial court dismissed all claims against them for lack of personal jurisdiction and plaintiff never appealed that ruling. Thus, the SRUS directors are not parties to this appeal. 51 Feiner, 2007 WL 2615448, at *6 (“The fraud on the minority exception, however, requires that self-dealing … be at the expense of the company.”) (citing Daniels v. Daniels, [1978] Ch. 406, 414). And, there is absolutely no allegation that any of the Directors benefited from the repurchase of the Notes.21 That deficiency alone is fatal. Given the lack of a single factual allegation that the Directors engaged in any self-dealing, plaintiff now conjures a nebulous “benefit-by-conspiracy” theory that has absolutely no support in Cayman Islands law. (Br. 42-46.) Plaintiff’s “support” for this baseless theory stems from one sentence of dicta from Schultz in which one of the three judges on the panel noted that an allegation of conspiracy “could arguably”—not that it did—satisfy the equitable fraud prong. Schultz, [1992-93] C.I.L.R. at 81 (R. 3330). However, as plaintiff admits, the conspiracy allegation in Schultz was included in a proposed amendment that was denied, and, thus, the Cayman Islands Court of Appeal never evaluated the conspiracy allegation on its merits. Id. Furthermore, plaintiff’s position contravenes the controlling standard, which unequivocally requires that the Directors benefited “themselves at the expense of the company.” Id. at 79 (R. 3328) (emphasis added). Plaintiff’s reliance on Daniels v. Daniels, [1978] Ch. 406, is also unavailing. (Br. 43-44.) That case did not address, let alone endorse, plaintiff’s “benefit-by- 21 Nor does plaintiff ever allege that MassMutual or the Benton Entities benefited from the Orkney Unwind. 52 conspiracy” theory. In Daniels, the court merely refused to conclude prior to discovery that one director had not benefited from an egregious case of self- dealing where it was alleged that (i) he and his wife were the sole directors and controlling shareholders of a company and (ii) he had approved the sale of the company’s land to her at a discount which she subsequently sold for a large profit. Daniels, [1978] Ch. at 408, 414-415 (R. 2424, 2430-2431.) Here, no factual allegations of self-dealing are pleaded, let alone the type of extreme allegations that, on their face, smack of an insider sweetheart deal as in Daniels. Plaintiff next points to the unremarkable fact that six of the ten Scottish Re directors were employed by or served as directors of Cerberus or MassMutual- affiliated entities. (Br. 45-46.) Based on these innocuous facts that were disclosed to all unaffiliated ordinary shareholders in the 2011 Information Statement issued by the Company, plaintiff insinuates that an inference should be drawn that these reputable businesspeople, who implemented numerous safeguards for the benefit of ordinary shareholders, “lined their pockets” at the expense of Scottish Re with respect to these transactions. (Br. 45.) Such speculation hardly supports that inference. See Skillgames, LLC v. Brody, 1 A.D.3d 247, 250 (1st Dep’t 2003) (“inherently incredible” allegations not entitled to presumption of truth at motion to dismiss stage). In short, nowhere does he provide any factual support for his 53 assertion that the Directors benefited from the transactions he challenges. (Br. 45- 46.) The reason is crystal clear: there is none. Moreover, contrary to plaintiff’s assertion, Daniels does not support the notion that plaintiff should be allowed to engage in a scavenger hunt to unearth potential allegations of self-dealing through discovery. (Br. 45.) That gets it exactly backwards. Indeed, numerous courts have dismissed derivative claims for failure to plead equitable fraud on pre-discovery motions to dismiss. See Shenwick, 106 A.D.3d at 638-639; see also Winn, 499 F. Supp. 2d at 392, 398; Feiner, 2007 WL 2615448, at *6; Shenwick v. HM Ruby Fund, L.P., No. 652082/2011, 2012 N.Y. Misc. LEXIS 6141, *1, *13-19 (N.Y. Sup. Ct., N.Y. Cnty. June 5, 2012), aff’d 106 A.D.3d 638 (1st Dep’t 2013). Notably, even though the derivative plaintiff in Winn alleged that the then-directors of Scottish Re had benefited by receiving “substantial salaries” and “bonuses,” the court found these allegations to be insufficient and dismissed the claims without discovery. This is an even stronger case for dismissal than Winn because there are simply no allegations of self-dealing by any of the directors of Scottish Re, including the three who are parties to this appeal. Finally, plaintiff’s attempt to rely on the so-called “fifth exception” to the Foss rule, which has never been adopted by any Cayman Islands court, warrants little attention. (Br. 46-48.) As Mr. Meeson explained, “the concept of a vague 54 fifth exception based on the ‘interests of justice’ is not part of Cayman Islands law.” (R. 3928 ¶ 38; see also id. ¶¶ 39-51.) Plaintiff does not and cannot show otherwise. And, contrary to plaintiff’s bluster, the Scottish Re directors (i) thoroughly evaluated the transactions at issue (R. 142, 149, 155, 156), (ii) hired reputable outside legal and financial advisers to assist them in that process (R. 136, 142), (iii) created a Special Committee to review the transactions (R. 142, 149), and (iv) implemented safeguards that exceeded the requirements of Cayman Islands law (R. 157-158). * * * In sum, plaintiff fails to allege any facts that satisfy the narrow fraud on the minority exception to the Foss rule. Plaintiff’s allegations amount to little more than an untimely, ill-conceived and unsustainable challenge to the business judgment of the Scottish Re and SRUS directors who reasonably relied on the independent advice of highly skilled professionals in evaluating the merits of both the Merger and the Orkney Unwind. Accordingly, this Court should affirm the dismissal of plaintiff’s derivative claims for lack of standing under Foss. CONCLUSION The Court should affirm the dismissal of the derivative claims for two reasons. First, the First Department correctly concluded that Rule 12(A) of the Cayman Islands is a substantive gate-keeping statute that must be applied under 55 New York’s well-established conflict-of-law rules. As the First Department explained, it is undisputed that plaintiff never attempted to satisfy Rule 12(A) by obtaining permission to sue on behalf of Scottish Re from a Cayman Islands court. His derivative claims fail on this basis alone. Second, even if this Court were to disagree with the First Department concerning the applicability of Rule 12(A), the trial court’s dismissal of the derivative claims under the Foss rule should be affirmed. Dated: New York, New York November 17, 2016 MAYER BROWN LLP By:~-&._.ili ~ Jean-Marie L. Atamian James An cone 1221 A venue of the Americas New York, NY 10020 (212) 506-2500 jatamian@mayerbrown.com jancone@mayerbrown.com Counsel for Nominal Defendants- Respondents Scottish Re Group Limited and Scottish Re (US.), Inc. and Defendants-Respondents Jeffrey Hughes, Larry Port, and Raymond Wechsler 56 Dated: New York, New York November 17, 2016 TE ROTH) & ZABEL LLP 4~- Andrew D. Gladstein 919 Third A venue New York, NY 10022 (212) 756-2000 howard.godnick@ srz.com andrew .gladstein @srz.com Counsel for Defendants-Respondents Cerberus Capital Management L.P. and SRGL Acquisition, LDC Dated: New York, New York November 17, 2016 QUINN EMANUEL URQUHART & SULLIVAN . Je r J. Barrett Joshua S. Margolin 51 Madison Ave., 22nd Floor New York, NY 10010 (212) 849-7000 jenniferbarrett@quinnemanuel.com joshuamargolin@quinnemanuel.com Counsel for Defendant-Respondent Massachusetts Mutual Life Insurance Company PRINTING SPECIFICATIONS STATEMENT The undersigned counsel hereby certifies that this brief was prepared using Microsoft Office Word 2007 with Times New Roman font in 14 point size and double spacing. Footnotes and headings comply with 22 N.Y.C.R.R. § 500.1. The brief contains 12,136 words, inclusive of point headings and footnotes. Dated: New York, New York November 17, 2016 MAYER BROWN LLP By: ~-J1~ M~ J~an-Marie L. Atamian James An cone 1221 Avenue ofthe Americas New York, NY 10020 (212) 506-2500 jatamian@mayerbrown.com j ancone@mayerbrown.com Counsel for Nominal Defendants- Respondents Scottish Re and SRUS and Defendants-Respondents Jeffrey Hughes, Larry Port, and Raymond Wechsler EXHIBIT A CERBERUS CAPITAL MANAGEMENT L.P. AFFILIATES Avatar GP, LLC CBF Senior Loan Fund A GP, LLC CECA Partners, L.P. Cerberus Associates, L.L.C. Cerberus Associates II, L.L.C. Cerberus Associates II, Ltd. Cerberus Asia Associates, L.L.C. Cerberus Asia Operations and Advisory Limited Cerberus Asia Pacific Advisors Limited Cerberus ASRS Credit Opportunities Manager, LLC Cerberus AUS Levered Opportunities Master Fund GP, LLC Cerberus Beijing Advisors Limited Cerberus California, LLC Cerberus Capital Chicago LLC Cerberus Capital Management II, L.P. Cerberus CMBS-1 GP, LLC Cerberus CMBS Associates, L.L.C. Cerberus Deutschland Beteiligungsberatung GMBH Cerberus European Advisors, LLC Cerberus European Servicing Advisors (Deutschland) GmBH Cerberus European Servicing Advisors Ltd Cerberus European Serving Ltd Cerberus EUF 1 GP, LLC Cerberus FSBA Levered Opportunities GP, LLC Cerberus Global Investment Advisors, LLC Cerberus Iberia Advisors, S.L. Cerberus ICQ Levered Opportunities GP, LLC Cerberus ICQ Offshore Levered GP, LLC Cerberus Institutional Associates, L.L.C. Cerberus Institutional Associates, Ltd. Cerberus Institutional Associates AD, L.L.C. Cerberus Institutional Associates (America), L.L.C. Cerberus Institutional Associates AEN, Ltd. Cerberus Institutional Associates AN, L.L.C. Cerberus Institutional Associates CAL II, Ltd. Cerberus Institutional Associates CDP IC, L.L.C. Cerberus Institutional Associates CP, L.L.C. Cerberus Institutional Associates CT, L.L.C. Cerberus Institutional Associates CT II, Ltd. Cerberus Institutional Assocaites DH, L.L.C. Cerberus Institutional Associates GSI, Ltd. Cerberus Institutional Associates HH, L.L.C. Cerberus Institutional Associates II, L.L.C. Cerberus Institutional Associates II, Ltd. Cerberus Institutional Associates III, Ltd. Cerberus Institutional Associates MA, L.L.C. Cerberus Institutional Associates OT, L.L.C. Cerberus Institutional Associates PW, L.L.C. Cerberus Institutional Associates SC, L.L.C. Cerberus Institutional Associates SC II, Ltd. Cerberus Institutional Associates SMRS, L.L.C. Cerberus Institutional International Associates, L.L.C. Cerberus Institutional Management II, LLC Cerberus Japan K.K. Cerberus KRS Levered Opportunities GP, LLC Cerberus Levered Opportunities GP, LLC Cerberus Levered Opportunities II GP, LLC Cerberus Levered Opportunities III GP, LLC Cerberus Levered Opportunities Master Fund GP, LLC Cerberus Levered Opportunities Master Fund II GP, LLC Cerberus MG GP, LLC Cerberus NJ Credit Opportunities GP, LLC Cerberus Offshore Levered Opportunities III GP, LLC Cerberus Operations and Advisory Company, LLC Cerberus Operations and Advisory Company UK Limited Cerberus PEM GP, LLC Cerberus PSERS Levered Opportunities GP, LLC Cerberus PSL GP, LLC Cerberus Real Estate GP, L.L.C. Cerberus Real Estate GP III, L.L.C. Cerberus Real Estate GP IV, L.L.C. Cerberus RMBS Associates, L.L.C. Cerberus RMBS Associates II, L.L.C. Cerberus RMBS Associates III, L.L.C. Cerberus Global Residential Mortgage Associates, Ltd. (f/k/a: Cerberus RMBS Associates, Ltd.) Cerberus RMBS Associates II, Ltd. Cerberus Siguler Guff GP, LLC Cerberus Sub-Advisory I, LLC Cerberus SUPP GP LDC Cerberus SWC Levered Opportunities GP, LLC Cerberus UK Management Limited Cerberus Unlevered Opportunities GP, LLC Dymas Capital Management Company, LLC Patridge Hill Overseas Management, LLC Portfolio Consulting and Advisory Company, LLC Styx Associates LLC Thames Collections Limited EXHIBIT B MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY DIRECT AND INDIRECT SUBSIDIARIES AND AFFILIATES ACRE Capital Corporation, ACRE Capital Holdings LLC, ACRE Capital LLC, Alchemy Copyrights, LLC, Almack Holding Partnership GP Limited, Almack Mezzanine Fund Limited, Almack Mezzanine Fund II Limited, Almack Mezzanine GP III Limited, Apex Credit Partners LLC, Babson Capital Floating Rate Income Fund Management LLC, Babson CLO Investment Partners GP, LLC, Babson European Direct Lending 1 GP LLP, Babson Global Loan Feeder Management LLC, Babson GPC GP S.à.r.l., Babson Investment Grade CLO Debt Management LLC, Baring Asset Management Limited, Baring Asset Management (Asia) Holdings Limited, Baring Asset Management (Asia) Limited, Baring Asset Management (Australia) Pty Limited, Baring Asset Management GmbH, Baring Asset Management (Japan) Limited, Baring Asset Management Korea Limited, Baring Asset Management Switzerland Sàrl, Baring Asset Management UK Holdings Limited, Baring France SAS, Baring Fund Managers Limited, Baring International Fund Managers (Bermuda) Limited, Baring International Fund Managers (Ireland) Baring International Investment Management Holdings, Baring International Investment Limited, Baring Investment Services Limited, Baring North America LLC, Baring Pension Trustees Limited, Baring SICE (Taiwan) Limited, Barings Advisers (Japan) KK, Barings Australia Holding Company Pty Ltd, Barings Australia Pty Ltd, Barings Capital Finance LLC, Barings Global Advisers Limited, Barings Guernsey Limited, Barings LLC, Barings Investment Advisers (Hong Kong) Limited, Baring North America LLC, Barings Real Estate Advisers Inc., Barings Real Estate Advisers Japan KK, Barings Real Estate Advisers LLC, Barings Real Estate Advisers (Continental Europe), Barings Real Estate Advisers Europe Finance LLP, Barings Real Estate Advisers Europe LLP, Barings Real Estate Advisers GmbH, Barings Real Estate UK Holdings Limited, Barings Securities LLC, Barings (U.K.) Limited, Barings TERO Management LLC, BCF Europe Funding Limited, BCF Senior Funding I Designated Activity Company, BCF Senior Funding I LLC, BCGSS 2 GP LLP, Benton Street Advisors, Inc., Benton Street Partners I, L.P., Benton Street Partners II, L.P, Benton Street Partners III, L.P., Berkshire Way LLC, BREAE AIRM LLP, C.M. Life Insurance Company, CML Mezzanine Investor, LLC, CML Mezzanine Investor L, LLC, CML Mezzanine Investor III, LLC, CML Re Finance LLC, CMS Special Situations Investor, LLC, Country Club Office Plaza LLC, Fern Street LLC, First Mercantile Trust Company, Great Lakes III GP, LLC, HarbourView Asset Management, Haven Life Insurance Agency, LLC, Index Management Solutions, LLC, Invicta Advisors LLC, Jefferies Finance Business Credit LLC, Jefferies Finance Europe, SCSp, Jefferies Finance LLC, JFIN Asset Management LLC, JFIN Business Credit Fund I LLC, JFIN CLO 2007 Ltd., JFIN CLO 2012 Ltd., JFIN CLO 2013 Ltd., JFIN CLO 2014 Ltd., JFIN CLO 2014-II Ltd., JFIN CLO 2015 Ltd., JFIN CLO 2015-II Ltd., JFIN CLO 2016 Ltd., JFIN Co-Issuer Corporation, JFIN Europe GP, S.à.r.l., JFIN Fund III LLC, JFIN High Yield Investments LLC, JFIN LC Fund LLC, JFIN MM CLO 2014, Ltd., JFIN Revolver CLO Holdings LLC, JFIN Revolver CLO Ltd., JFINE Revolver CLO 2014 Ltd., JFIN Revolver FLO 2015 Ltd., JFIN Revolver CLO 2015-II Ltd., Loan Strategies Management LLC, Lyme Adirondack Forest Company, LLC, Lyme Adirondack Timber Sales, Inc., Lyme Adirondack Timberlands I, LLC, Lyme Adirondack Timberlands II, LLC, MassMutual Asia Investors, Ltd., MassMutual Asia Limited, MassMutual Asset Finance LLC, MassMutual Assignment Company, MassMutual Baring Holding, LLC, MassMutual Capital Partners LLC, MassMutual External Benefits Group LLC, MassMutual Guardian Limited, MassMutual Holdings (Bermuda) Limited, MassMutual Holding MSC, Inc., MassMutual Holdings LLC, MassMutual Internacional (Chile) SpA, MassMutual International Holding MSC, Inc., MassMutual International LLC, MassMutual Insurance Consultants, Limited, MassMutual Life Insurance Company, MassMutual Retirement Services, LLC, MassMutual Services Limited, MassMutual Trustees Limited, MassMutual Ventures LLC, Mezzco LLC, Mezzco II LLC, Mezzco III LLC, Mezzco IV LLC, Mezzco Australia LLC, Mezzco Australia II LLC, Milestone Acquisition Holding, LLC, MM Asset Management Holding LLC, MM Rothesay Holdco US LLC, MMAF Equipment Finance LLC 2009-A, MMAF Equipment Finance LLC 2001- A, MMC Equipment Finance LLC, MML Bay State Life Insurance Company, MML Distributors, LLC, LLC, MML Insurance Agency, LLC, MML Investment Advisers, LLC, MML Investors Services, LLC, MML Management Corporation, MML Mezzanine Investor, LLC, MML Mezzanine Investor II, LLC, MML Mezzanine Investor III, LLC, MML Mezzanine Investor L, LLC, MML Private Equity Fund Investor LLC, MML Private Equity Intercontinental LLC, MML Private Placement Investment Company, I, LLC, MML Re Finance LLC, MML Special Situations Investor LLC, MML Strategic Distributors, LLC, MMLISI Financial Alliances, MSC Holding Company, LLC, MSI Financial Services, Inc., MSP-SC, LLC, OFI Global Asset Management, Inc., OFI Global Institutional Inc., OFI Global Trust Company, OFI International, Ltd., OFI Private Investments Inc., OFI SteelPath, Inc., Oppenheimer Acquisition Corp., Oppenheimer Funds Distributor, Inc., Oppenheimer Funds, Inc., Oppenheimer Real Estate Management, Inc., Pioneers Gate LLC, Protective Capital, Red Lake Ventures, LLC, SDCOS Management LLC, Settlement Agent LLC, Shareholder Services, Inc., Society of Grownups, LLC, Solar Acquisition Holding LLC, Somerset Special Opportunities Management, LLC, Sweet Tree Holdings 1, LLC, Tamiami Citrus, LLC, Teaktree Acquisition, LLC, Timberland Forest Holdings LLC, Tremont (Bermuda), Limited, Tremont GP, LLC, Tremont Group Holdings, Inc., Tremont Partners, LLC, Trinity Investment Management Corporation, U.S. Buyer Broadcasting, LLC, U.S. Pharmaceutical Holdings I, LLC, U.S. Pharmaceutical Holdings II, LLC, U.S. WIG Holdings, LP, VGS Acquisition holding, LLC, VTL Associates, LLC, WC Aircraft Holdings US II, LLC, Wood Creek Aircraft Holding I, LP, Wood Creek Index Company, LLC, and WP-SC, LLC.