Conroy ex rel. Aflac, Inc. v. Daniel P. Amos, Paul S. Amos Ii, Douglas W. Johnson, Charles B. Knapp, Barbara K. Rimer, Elizabeth Hudson, W. Paul Bowers, Joseph L. Moskowitz, Melvin T. Stith, & Aflac, Inc., CASE NO. 4:18-CV-33 (CDL)

Citation338 F.Supp.3d 1309
Decision Date31 August 2018
Docket NumberCASE NO. 4:18-CV-33 (CDL)
Parties Martin CONROY, Gerard McCarthy, and Louis Varela, derivatively on behalf of Aflac, Inc., Plaintiffs, v. Daniel P. AMOS, Paul S. Amos II, Douglas W. Johnson, Charles B. Knapp, Barbara K. Rimer, Elizabeth Hudson, W. Paul Bowers, Joseph L. Moskowitz, Melvin T. Stith, and AFLAC, Incorporated, Defendants.
CourtUnited States District Courts. 11th Circuit. Middle District of Georgia

Dimitry Joffe, New York, NY, Jerry L. Sims, Sims Moss Kline & Davis LLP, Atlanta, GA, for Plaintiffs.

Brett D. Jaffe, Alston & Bird, LLP, New York, NY, Jonathan D. Kossak, Kirby D. Behre, William P. Barry, Miller & Chevalier Chartered, Washington, DC, David M. Chaiken, Troutman Sanders LLP, Lisa R. Bugni, Mary Catherine Gill, Lauren Macon, Alston & Bird LLP, Atlanta, GA, for Defendants.

ORDER

CLAY D. LAND, CHIEF U.S. DISTRICT JUDGE

Plaintiffs are shareholders of Defendant Aflac Incorporated ("AFLAC"). Concerned about several corporate transactions and potential mismanagement, they urged AFLAC to bring claims against certain officers and members of the board of directors for breach of fiduciary duty, unjust enrichment, and violations of sections 10(b), 14(a), and 20A(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n(a), 78t-1(a). After AFLAC notified Plaintiffs that a committee of outside directors investigated the claims and determined, with the advice of independent counsel, that pursuing them was not in AFLAC's best interests, Plaintiffs filed this derivative action on behalf of AFLAC against Defendants, who are current and former officers and/or directors. Defendants respond that the outside directors were independent and made their determination in good faith after conducting a reasonable investigation. Accordingly, they move to dismiss this action pursuant to Georgia's derivative-action dismissal statute, O.C.G.A. § 14-2-744. Plaintiffs oppose dismissal, arguing that the outside directors were not independent, that they did not conduct a reasonable investigation, and that they did not act in good faith. For the reasons explained in the remainder of this Order, Defendants' motions to dismiss (ECF Nos. 42 & 43) are granted.

FISH & FAMILY

Before addressing the merits of the pending motion to dismiss, the Court must respond to Plaintiffs' counsel's invitation for the undersigned to evaluate whether he should recuse himself from these proceedings. In a footnote in Plaintiffs' counsel's brief, he suggests that the undersigned should consider recusal because of certain familial relationships and the undersigned's affiliation with the so-called Fish House Gang. Pls.' Resp. to Defs.' Mot. to Dismiss 18 n.10, ECF No. 51. Preliminarily, the undersigned notes that because counsel did not file an affidavit pursuant to 28 U.S.C. § 144, the undersigned is not required to refer the recusal issue to another judge before proceeding further in this action. Nonetheless, the undersigned finds it necessary to clear up any suggestion of bias. United States v. Kelly , 888 F.2d 732, 744 (11th Cir. 1989) (explaining that a judge has an obligation under 28 U.S.C. § 455 to recuse, sua sponte , when proper grounds exist).

Plaintiffs' counsel suggests that the undersigned and certain Defendants are members of what he describes as a "tight-knit group of local elites" called the Fish House Gang , also known as the Fish House Crowd by those who have no motive to sensationalize the moniker. This group actually includes approximately two-hundred invitees who gather three or four times a year to enjoy fried fish, french fries, hushpuppies, coleslaw, and each other's company. The undersigned has been invited to these functions over the years and has attended with some regularity. The group conducts no official business, charges no membership fees, and has no stated organizational purpose. The attendees pay for the cost of their own meals. Although it is possible that one or more of the Defendants in this action may have attended one or more of these fried-fish suppers in the past, the undersigned has no specific recollection of them having done so and does not believe that they are presently on the invitee list.

The applicable recusal standards provide no basis for counsel's careless suggestion that attendance at these functions disqualifies the undersigned from presiding over these proceedings. Under 28 U.S.C. § 455(a), the test is "whether an objective, disinterested, lay observer" knowing the grounds on which recusal is sought "would entertain a significant doubt about the judge's impartiality." Parker v. Connors Steel Co. , 855 F.2d 1510, 1524 (11th Cir. 1988). Attendance at social events that a party to litigation may have also attended does not create the appearance of partiality or bias and is not a legitimate basis for recusal. See Parrish v. Bd. of Comm'rs of Ala. State Bar , 524 F.2d 98, 101, 104 (5th Cir. 1975) (finding judge's friendship with defendants, witnesses, and defense counsel did not "exceed what might be expected as background or associational activities" of "the usual district judge" and did not give reasonable grounds to question judge's impartiality);1 Code of Conduct for United States Judges Canon 4 cmt. (Judicial Conference 2014) ("Complete separation of a judge from extrajudicial activities is neither possible nor wise; a judge should not become isolated from the society in which the judge lives."). Nor does it provide a basis for recusal under § 455(b)(1), which asks whether the undersigned actually has a personal bias or prejudice concerning a party. United States v. Amedeo , 487 F.3d 823, 828 (11th Cir. 2007).

Plaintiffs' counsel's recusal suggestions extend beyond the Fish House Crowd. He suggests that the undersigned should consider recusal because certain members of the undersigned's extended family are allegedly related to the Amoses and that other members of the undersigned's extended family are allegedly AFLAC employees. A judge must recuse when "a person within the third degree of relationship" to the judge is or could be involved in a proceeding in certain ways or has "an interest that could be substantially affected by the outcome of the proceeding." 28 U.S.C. § 455(b)(5). None of the individuals counsel identifies are within the third degree of relationship to the undersigned; at least one of the identified family members is dead; and to the best of the undersigned's knowledge, the others are not employed with AFLAC.

Neither fish nor family disqualifies the undersigned from presiding over this action. And because "there is as much obligation for a judge not to recuse when there is no occasion for him to do so as there is for him to do so when there is," the undersigned has a solemn duty to remain. Carter v. W. Publ'g Co. , No. 99-11959-EE, 1999 WL 994997, at *2 (11th Cir. Nov. 1, 1999) (Tjoflat, J., addendum to pro forma order denying recusal motion) (alteration in original) (quoting Hinman v. Rogers , 831 F.2d 937, 939 (10th Cir. 1987) ).

DISMISSAL UNDER O.C.G.A. § 14-2-744

A shareholder derivative action filed in the name of a corporation organized under the laws of Georgia may be dismissed if a committee of two or more independent members of the corporation's board of directors conducts a reasonable investigation into the claims and makes a good faith determination that maintenance of the action is not in the corporation's best interests. O.C.G.A. § 14-2-744(a)(b). The corporation has the burden of proving "the independence and good faith of the group making the determination and the reasonableness of the investigation." Id. § 14-2-744(a). The Court thus examines the record to determine whether Defendants carried that burden.

THE RECORD

The Court finds that the present record is substantial and adequate for the Court to make its determination as to whether AFLAC has carried its burden here. Plaintiffs' counsel seeks leave to conduct limited discovery into the independence and good faith of the independent directors and the reasonableness of their investigation. While the Court may permit limited discovery "to facilitate inquiries into independence, good faith, and the reasonableness of the investigation," Thompson v. Sci. Atlanta, Inc. , 275 Ga.App. 680, 621 S.E.2d 796, 799 (2005) (quoting Kaplan v. Wyatt (Kaplan II ), 499 A.2d 1184, 1192 (Del. 1985) ), such discovery at this stage of a derivative proceeding is "intended more as an aid to the Court than it is as a preparation tool for the parties," Kaplan v. Wyatt (Kaplan I ), 484 A.2d 501, 510 (Del. Ch. 1984). And it may be authorized when necessary "to facilitate the inquiries of the trial court." Kaplan I , 484 A.2d at 510. In this case, the Court does not find that discovery is necessary to aid it in its resolution of the pending motions to dismiss. The existing voluminous record sufficiently illuminates the issues to be decided, and additional discovery is not likely to make a material difference.

I. The Parties

AFLAC is a holding company that provides supplemental insurance products through its wholly owned subsidiary American Family Life Assurance Company of Columbus ("Aflac"). Am. Compl. ¶ 37, ECF No. 23. Plaintiffs are disgruntled former employees and current shareholders of AFLAC stock who wish to assert claims on behalf of and for the benefit of AFLAC. Id. ¶¶ 29–36. Defendant Amos is the son of one of the three founding brothers of AFLAC, the current CEO of AFLAC, and the chairman of AFLAC's board of directors; Defendant Amos II is Amos' son and was the president of Aflac and a member of AFLAC's board until June 8, 2017. Id. ¶¶ 43–44. Defendants Johnson, Knapp, Rimer, Hudson, Bowers, Moskowitz, and Stith are non-management members of AFLAC's board, or "outside directors." Some of the outside directors are chairs and/or members of certain board committees. Id. ¶¶ 46, 49–50, 52–55.

II. Plaintiffs Notify AFLAC Senior Management & Outside Directors of Alleged Fraudulent Practices

In December 2016, Plaintiff...

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