United States District Court, N.D. Illinois, Eastern DivisionJul 29, 2004
Case No. 03 C 9405. (N.D. Ill. Jul. 29, 2004)

Case No. 03 C 9405.

July 29, 2004



Plaintiff Dennis MacCoumber brought this shareholder derivative suit on behalf of Abbott Laboratories ("Abbott") against Abbott's board of directors ("the Board") alleging that the Board breached its fiduciary duties of good faith and loyalty by failing to prevent Abbott from fraudulently overcharging Medicare, which resulted in Abbott taking a charge of $600 million. The present matter comes before this Court on the Board's Motion to Dismiss, pursuant to Federal Rules of Civil Procedure 12(b)(6) and 23.1. Alternatively, the Board moves to stay the proceedings under theColorado River Abstention Doctrine pending a decision in Illinois state court. For the reasons that follow, the motion to dismiss is GRANTED.


The facts of the background are taken from MacCoumber's Complaint and the attachments thereto.

This case stems from the fraudulent conduct of an Abbott subsidiary, CG Nutritionals ("CG"), which illegally overcharged Medicare. In July 2003, Abbott reached a settlement with the United States Attorney's Office to resolve all outstanding issues arising from the fraud. As part of the settlement, CG pled guilty to one count of obstruction of a criminal investigation and Abbott agreed to pay a $600 million fine.

MacCoumber alleges that the Board breached its fiduciary duties of good faith and loyalty by: (1) knowing of and/or acquiescing to the fraud; and (2) failing to ensure that Abbott complied with Medicare rules and regulations or to adopt measures to prevent the fraudulent conduct.

To bolster this claim, MacCoumber cites to a 2001 settlement in which an Abbott joint venture, TAP Pharmaceutical Products, agreed to pay $875 million to settle charges of defrauding Medicare.

On September 9, 2003, pursuant to 805 ILCS 5/7.80, MacCoumber made a written presuit demand ("the Demand") on the Board, requesting that it commence an action for breach of fiduciary duty against the directors. The relevant part of MacCoumber's Demand states that:

the directors of Abbott breached their fiduciary duties by: (i) knowingly approving CG Nutritionals' Fraudulent conduct; and/or (ii) abdicating their responsibility to make a good faith effort to oversee the Company's operations. Mr. MacCoumber believes that the acts (and failures to act) described herein represent a systematic failure of the Board to effectively manage the affairs of Abbott. Among other things, it is apparent that the Board has failed to implement necessary oversight procedures and controls to effectively manage Abbott. The Board's systematic failure to properly manage the Company violates the directors' fiduciary duties of loyalty and good faith. As a result of the Board's multiple breaches of duty, Abbott has sustained damages, including, but not limited to, the $600 million in fines paid to settle with the U.S. Attorney's Office.
Pursuant to 805 ILCS 5/7.80, on behalf of Mr. MacCoumber, I hereby demand that the Board commence a civil action against each of the directors of Abbott to recover for the benefit of the Company the amount of damages sustained by the Company as a result of the directors' breaches of fiduciary duties alleged herein.
If within a reasonable period of time after receipt of this letter the Board has not commenced an action as demanded herein, Mr. MacCoumber will commence a shareholder's derivative action on behalf of Abbott seeking appropriate relief.

(Ex. A, Complaint.)

In response to the Demand, the Board issued a written reply ("the Response") on October 29, 2003. The Response stated that:

You should be aware that, before your Letter was sent three purported shareholder derivative actions were filed in the Circuit Court of Cook County, Illinois raising the same claims asserted in your Letter, and alleging that pre-suit demand on the Board would be futile (the "Litigation"). These lawsuits as originally filed were captioned Corwin v. Leiden, et al., No. 03 CH 10810 (filed June 27, 2003), Brody v. White, et al., No. 03 CH 12814 (filed July 31, 2003), and Gordon v. White, et al., No 03 CH 13089 (filed August 6, 2003). On September 26, 2003, Judge Dorothy Kinniard of the Circuit Court of Cook County, Illinois (Chancery Division) entered an order granting the plaintiffs' motions to consolidate the three actions before Judge Nancy Arnold of the Circuit Court of Cook County, Chancery Division. As of this date, defendants have yet to be served with a consolidated, amended complaint.
The Board strongly disagrees with the contention in the Litigation that a demand on the Board would be futile and will be contesting this issue in Court. Nevertheless, given the present posture of the Litigation, the Board has determined that it would not be a prudent expenditure of resources for it to initiate an inquiry into the allegations in your Letter at this time, inasmuch as the Company will also have to expend resources to defend against the contention that demand is futile and that the derivative action should therefore be allowed to proceed. The Board will monitor the progress of the Litigation and will consider your Letter at a later point in time, as circumstances warrant.
The Board will advise you promptly if, depending on the resolution of the demand futility issue in the Litigation, it determines that your demand is ripe for its consideration.

(Ex. B, Complaint) (Emphasis Added).

After the settlement of the criminal case but before the Demand, shareholders filed three separate derivative actions in Illinois state court ("State Court Litigation"). These cases have now been consolidated before Judge Nancy Arnold of the Circuit Court of Cook County, Chancery Division. The plaintiffs in the State Court Litigation claim that the directors breached their fiduciary duty and seek to recover the $600 million paid in the settlement of the criminal case. Unlike MacCoumber, however, the State Court Litigation Plaintiff did not make a demand on the Board. Instead, they allege that Demand would have been futile. Whether demand would have been futile is currently under consideration by Judge Arnold.

Apparently not satisfied with the Response, on December 31, 2003, MacCoumber brought the instant action. The Board has moved to dismiss on the grounds that MacCoumber has failed to sufficiently plead wrongful refusal of the Demand In the alternative the Board has moved to stay the proceedings pending the resolution of the State Court Litigation.


Before discussing the Board's Rule 12(b)(6) motion, this Court will set forth the standard of review under Rule 12(b)(6). In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the court must assume the truth of all facts alleged in the pleadings, construing allegations liberally and viewing them in the light most favorable to the non-moving party. See, e.g., McMath v. City of Gary, 976 F.2d 1026, 1031 (7th Cir. 1992);Gillman v. Burlington N.R.R. Co., 878 F.2d 1020, 1022 (7th Cir. 1989). Dismissal is properly granted only if it is clear that no set of facts which the plaintiff could prove consistent with the pleadings would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Kunik v. Racine County, Wis., 946 F.2d 1574, 1579 (7th Cir. 1991) (citing Hishon v. King Spalding, 467 U.S. 69, 73 (1984)).

The court will accept all well-pled factual allegations in the complaint as true. Miree v. DeKalb County, 433 U.S. 25, 27 n. 2 (1977). In addition, the court will construe the complaint liberally and will view the allegations in the light most favorable to the non-moving party. Craigs, Inc. v. General Electric Capital Corp., 12 F.3d 686, 688 (7th Cir. 1993). The court, however, is neither bound by the plaintiff's legal characterization of the facts, nor required to ignore facts set forth in the complaint that undermine the plaintiff's claims.Scott v. O'Grady, 975 F.2d 366, 368 (7th Cir. 1992).

In addition to the usual Rule 12(b)(6) standard of review, derivative actions are subject to review under Rule 23.1, which is discussed below. response to the subpoena, which reveal that two complaints of physical abuse had been filed against Officer Halloran and that two had been filed against Detective O'Brien.


The Board has moved to dismiss on the grounds that: (1) this action is premature because the Board did not refuse the Demand; and (2) even if the Board refused the Demand, MacCoumber has failed to sufficiently plead that refusal was an improper decision under the business judgment rule, as required by Rule 23.1 and 805 ILCS 5/7.80(b). Before addressing these specific contentions, the Court will first discuss the requirement for making a "pre-suit demand" in a derivative action.

A derivative action permits a shareholder to bring suit to enforce a corporate cause of action. Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 96 (1991). The purpose of the derivative suit is to allow an individual shareholder to protect the interests of the corporation from the "misfeasance and malfeasance" of the directors of the corporation. Id.

Before bringing a derivative action, however, the shareholder must make a written presuit demand on the board of directors of the corporation. See 805 ILCS 5/7.80; Fed.R.Civ.P. 23.1;Mills v. Esmark, Inc., 91 F.R.D. 70, 73 (N.D. Ill. 1981). A shareholder may not bring suit before making a demand unless such demand would be "futile." Mills, 91 F.R.D. at 73. The purpose of the demand requirement is to allow the corporation time to remedy the shareholder's complaints "prior to . . . judicial intervention." Id. See also Mozes v. Welch, 638 F. Supp. 215, 218 (D. Conn. 1986); Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 1831. Once demand is made, the board must investigate the alleged wrongdoing and then decide upon an appropriate course of action. Recchion v. Kirby, 637 F. Supp. 1309, 1318-19 (W.D. Pa. 1986).

If the board decides not to sue, the court must defer to its decision as long as it is a "reasonable business judgment." Id. Because a demand places control of the derivative litigation in the hands of the directors, a response is subject to review according to the traditional "business judgment rule." Levine v. Smith, 591 A.2d 194, 212 (Del. 1991). The business judgment rule is a presumption that "the directors of a corporation act on an informed basis in good faith and in the honest belief that the action taken was in the best interests of the company." In re Abbott Laboratories Derivative Shareholders Lit., 325 F.3d 795, 808 (7th Cir. 2003). The demand requirement affords the directors an opportunity to exercise their business judgment to waive a legal right of the corporation if they believe that it would be in the best interests of the corporation. Kamen, 500 U.S. at 96. The shareholder has the burden to raise a reasonable doubt that the board's decision is not protected by the business judgment rule. Levine, 591 A.2d at 214. For a board to benefit from the protection of the business judgment rule there must be due care, adequate information, and good faith in making the business decision. Miller v. Thomas, 656 N.E.2d 89, 95 (Ill.App.Ct. 1995). If a demand is refused, the shareholder can only maintain a derivative action if he can show that the board's decision was not protected by the business judgment rule. Lewis v. Hilton, 648 F. Supp. 725, 727 (N.D. Ill. Escamilla could have discovered plenty of documentation that others suffered abuse at the hands of the same detectives who questioned him well before the statute of limitations ran on his habeas claim. Thus, the new evidence that he presents is insufficient to toll the statute of limitations.

The second category of evidence presented by Escamilla is a group of affidavits that he submitted prove that he was not present at the scene of the shooting for which he was convicted. This evidence is proffered in support of Escamilla's claim that he was denied effective assistance of counsel because his attorney failed to investigate or present an alibi defense at trial. Two of the affidavits pertain to a conversation that took place on April 18, 2002 between Bertha Escamilla, the petitioner's mother, Lydia Taylor, Executive Director of the Justice Coalition of Greater Chicago, and Raphael Robinson, a witness who testified at Escamilla's trial. According to the affidavits, Robinson said during the conversation that his trial testimony, which suggested that Escamilla might have been present at the crime scene, had been improperly influenced by police pressure and possibly by threats of police abuse. Escamilla also submitted two other affidavits, one from Escamilla's wife, and another from an acquaintance. Both affiants claim that they were at home with Escamilla on the day of the murder.

Once again, these affidavits are not sufficient grounds for tolling the statute of limitations because they could have been obtained earlier through the exercise of "due diligence." Although the affidavits themselves were drafted in the past few months, Escamilla does not provide any explanation as to why he could not have obtained them at a much earlier date. Certainly, his mother could have spoken with Raphael Robinson well before 2002. As for the alibi witnesses, no reason has been provided as to why they could not have submitted affidavits immediately after the conclusion of his direct appeal, or even earlier. We thus find that none of the affidavits presented provides a basis for tolling the statute of limitations period.

Escamilla also argues that the statute of limitations should be tolled because he did not have access to his case files for several years. According to Escamilla, in 1997, he gave all of his documents to an "inmate law clerk, who was abruptly transferred." (Response at 2.) He claims that these documents were not returned to him until 2000. Although this is an unfortunate circumstance, it does not excuse Escamilla's tardiness in filing his habeas petition. Even if he is represented by counsel, a petitioner has an independent obligation to ensure that he meets all filing deadlines. See Modrowski v. Mote, 322 F.3d 965 (7th Cir. 2003) (dismissing a habeas petition that was filed one day late, despite the fact that the failure to meet the filing deadline was due to the petitioner's attorney's own incapacity). Thus, "clients, even if incarcerated, must `vigilantly oversee,' and ultimately bear responsibility for, their attorney's actions or failures." Id. at 968. Although we are not presented with an attorney/client relationship in this case, the rule is still applicable. Escamilla had an independent obligation to meet the filing deadline, even if he did not have access to all of his documents. At the very least, he could have filed his habeas corpus petition by the one-year deadline and requested leave to amend at a later date. Instead, he remained silent while he waited for his documents for two years. Thus, the loss of his documents is not an appropriate reason to toll the statute of limitations.

Finally, Escamilla argues that we should disregard his late filing because the "new" evidence that he presents proves that he is actually innocent. An actual innocence claim "can provide a gateway for federal habeas courts to review procedurally defaulted claims." See Caffey v. Briley, 266 F. Supp.2d 789, 793 (N.D. Ill. 2003) (citing Herrera v. Collins, 506 U.S. 390 (1993)). The Seventh Circuit has not yet ruled on the more specific question of whether an assertion of actual innocence can override § 2244(d)(1)'s statute of limitations in a case where the death penalty is not at issue. However, we need not speculate about how the Seventh Circuit would rule on such a question because, even assuming an actual innocence claim would allow him to circumvent the time-bar that he faces, the evidence presented by Escamilla is not sufficient to succeed on such a claim.

As the respondent points out, this issue is presently before the Seventh Circuit. See Gildon v. Bowen, 03-2076 (7th Cir. Oral Argument held May 26, 2004).

To demonstrate actual innocence, a petitioner must show that a constitutional violation has resulted in the conviction of a person who is actually innocent. Schlup v. Delo, 513 U.S. 298, 327 (1995). To do so, he must present new evidence which demonstrates that "it is more likely than not that no reasonable juror would have convicted him in light of the new evidence." Id. Both the United States Supreme Court and the Seventh Circuit have stressed that the actual innocence exception only applies in the most extraordinary cases. Id. at 299; see also Bell v. Pierson, 267 F.3d 544, 552 (7th Cir. 2001).

The phrase "new evidence" has different implications in both the statute of limitations and actual innocence contexts. As discussed above, to overcome § 2244's one-year statute of limitations, a habeas petitioner must present evidence that he could not have obtained earlier by the exercise of "due diligence." § 2244(d)(1)(D). In the context of an actual innocence claim, all that is required is that the new evidence be reliable and that it was not presented at the petitioner's original trial. Gomez v. Jaimet, 350 F.3d 673, 679 (7th Cir. 2003). Thus, when inquiring into actual innocence, there is no need to consider the question of when the petitioner discovered (or could have discovered) the evidence.

Escamilla presents "new" evidence which he believes will demonstrate that he was not present at the scene of the murder. Specifically, he claims that police officers improperly coerced the testimony of an eyewitness, Raphael Robinson. Robinson's testimony was crucial to demonstrating that there were three rather than two people present during the shooting. Escamilla also proffers the affidavits of several witnesses who claim that they were at home with Escamilla at the time of the shooting. Although this evidence might be helpful to Escamilla in asserting an alibi defense, it is not sufficient to establish actual innocence when considered in tandem with the other evidence that was presented at his trial. The substance of Escamilla's alibi defense is completely contradicted by Escamilla's own trial testimony, in which he admitted that he was present when the shooting occurred. Obviously, Escamilla's own trial testimony provides a basis for a reasonable juror to conclude that he was guilty of the murder, even in light of new conflicting testimony that he was not present when the shooting occurred. As such, he has not met the stringent actual innocence standard. Because he has not asserted any valid exception to § 2244's one-year statute of limitations, Escamilla's habeas corpus petition is time-barred.

Escamilla argues that he had no choice but to perjure himself by admitting that he was present at the shooting because he had already been beaten by the police into confessing. However, there is no evidence that Escamilla was forced to testify as he did. As such, Escamilla has no viable claim that he was forced to testify in violation of his Fifth Amendment rights under the United States Constitution. Furthermore, his alibi defense is also belied by the statement that he gave to the police, in which he admitted that he was present. Although Escamilla claims that this confession was taken in violation of his Fifth Amendment rights, that fact was never established at trial and there is no guarantee that Escamilla would prevail on a motion to suppress his confession if granted a new trial.


For the foregoing reasons, Escamilla's motion for a writ of habeas corpus is denied, as is his motion for appointment of counsel. If Escamilla wishes to appeal this dismissal, he may file a notice of appeal with this court within 30 days of the entry of judgment. Fed.R.App.P. 4(a)(4).

If Escamilla wishes to proceed in forma pauperis on appeal, he must file a motion to do so. The motion should set forth the issues that he plans to present on appeal. Fed.R.App.P. 24(a)(1)(C). Escamilla is warned that if a prisoner has had a total of three federal cases or appeals dismissed as frivolous, malicious, or for failure to state a claim, he may not file suit in federal court without prepaying the filing fee unless he is in imminent danger of serious physical injury. 28 U.S.C. § 1915(g). If Escamilla chooses to appeal and does not proceed in forma pauperis, he will be liable for the $105 appellate filing fee irrespective of the outcome of the appeal. Lucien v. Jockisch, 133 F.3d 464, 467 (7th Cir. 1998). It is so ordered.