Quantum Technology Partners Ii v. Altman Browning and Company

MEMORANDUM *

1. There is complete diversity between the parties. See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006).

2. While the bylaws of a Delaware corporation “are a contract between the corporation and its stockholders,” Kidsco Inc. v. Dinsmore, 674 A.2d 483, 492 (Del. 1995), Quantum didn’t cite any authority holding that shareholders can sue each other for breach of such bylaws. We conclude they cannot.

3. Quantum didn’t allege facts showing that the representations about Altman Browning & Company (ABCo)’s capabilities were false or misleading when Browning and Baker made them to Dickman. See Yourish v. Cal. Amplifier, 191 F.3d 983, 993 (9th Cir. 1999). The falsity of the statements can’t be inferred from ABCo’s failure to meet the milestones in the agreement with Apex. See Commc’ns Grp., Inc. v. GTE Mobilnet of Or., 127 Or.App. 121, 871 P.2d 502, 504 (1994); see also In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548-49 (9th Cir. 1994) (en banc).

4. Dickman’s email to Apex’s largest shareholder, which predicted that Quantum’s suit would make “Apex’s and possibly [the shareholder’s] fund raising somewhat radioactive,” causing Apex not to “survive[ ]” for very long, is strong evidence that Quantum’s interests diverged from those of Apex’s other shareholders. See Emerald Partners v. Berlin, 564 A.2d 670, 673-74 (Del.Ch. 1989). The district court didn’t abuse its discretion in finding that Quantum wasn’t an adequate shareholder representative. See Fed.R.Civ.P. 23.1.

5. Quantum can’t claim demand futility because it made demand on Apex’s board of directors. See Spiegel v. Buntrock, 571 A.2d 767, 775 (Del. 1990). Apex’s Special Investigation Committee (SIC), which had “sole authority” to investigate Quantum’s allegations, concluded that the “ultimate outcome” of the challenged board actions “was fair to [Apex],” and that “the diversion of resources to pursue litigation ... would surely cripple [Apex].” (Emphasis added.) This conclusion isn’t subject to judicial review, id. at 778, and Quantum hasn’t alleged facts indicating that the SIC’s investigation was deficient, see Grimes v. DSC Commc’ns Corp., 724 A.2d 561, 565 (Del.Ch. 1998); see also Levine v. Smith, 591 A.2d 194, 214 (Del. 1991), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244, 253-54 (Del. 2000).

AFFIRMED.