January 9, 2013 (PLANSPONSOR.com) – An appellate court has revived a lawsuit brought by two Puerto Rican pension plans against UBS Trust Company of Puerto Rico.
A district court granted UBS’ motion to dismiss on the ground that no presuit demand had been made to the boards of directors for closed-end investment funds advised by UBS Trust Company of Puerto Rico and owned by the pension plans, and plaintiffs had failed in their complaint to state with particularity the reasons such a demand would have been futile. The 1st U.S. Circuit Court of Appeals vacated the dismissal of the derivative claims and remanded the case for further proceedings. The appellate court found the district court's analysis of whether plaintiffs had established demand futility was flawed in two significant ways. First, in analyzing each director, the district court focused too narrowly on whether plaintiffs had alleged that the individual directors received a financial benefit from the retirement systems’ bonds transaction. According to the court’s opinion, previous case law requires the trial court to more broadly analyze the facts alleged concerning the circumstances of each director to determine whether plaintiffs have created a reasonable doubt that the director could objectively evaluate demand "without regard for" inappropriate influences. “In other words, the district court should have considered whether plaintiffs had pled facts sufficient to demonstrate that each director has such significant connections to the defendants, whether personal, financial, or otherwise, that he could not ‘impartially consider [demand] without being influenced by improper considerations,’" the court wrote.