The Clerk of Court is directed to amend the official caption as set forth above.… v. Berv UNITED STATES COURT OF APPEALS 1 FOR THE SECOND CIRCUIT 2 August Term, 2010 3…

* The Clerk of Court is directed to amend the official
caption as set forth above.
** The Honorable Timothy C. Stanceu, of the United States
Court of International Trade, sitting by designation.
07-3750-cv
Halebian v. Berv
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2010 3
(Argued: February 5, 2009 4
Question Certified: December 29, 2009 5
Certified Question Answered: August 23, 2010 6
Decided: May 6, 2011) 7
Docket No. 07-3750-cv 8
------------------------------------- 9
JOHN HALEBIAN, 10
Plaintiff–Appellant, 11
- v - 12
ELLIOT J. BERV, DONALD M. CARLTON, A. BENTON COCANOUGHER, MARK T. 13
FINN, STEPHEN RANDOLPH GROSS, DIANA R. HARRINGTON, SUSAN B. 14
KERLEY, ALAN G. MERTEN, R. RICHARDSON PETTIT, 15
Defendants–Appellees, 16
CITIFUNDS TRUST III, 17
Nominal Defendant–Appellee. *
18
------------------------------------- 19
Before: SACK and PARKER, Circuit Judges, and STANCEU, Judge.**
20
Appeal from a judgment of the United States District 21
Court for the Southern District of New York (Naomi Reice 22
Buchwald, Judge) dismissing a three-count complaint arising from 23

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2
the renegotiation of certain investment-advisory agreements. We 1
certified a question to the Supreme Judicial Court of 2
Massachusetts as to the circumstances under which that State's 3
business judgment rule may be asserted in response to a 4
shareholder derivative suit under the Massachusetts Business 5
Corporation Act. Upon receipt of the answer, we affirm the 6
district court's dismissal of two of the plaintiff's claims 7
brought pursuant to various provisions of the Investment Company 8
Act, 15 U.S.C. §§ 80a-15(a) & 80a-20(a), and Massachusetts state 9
law. Regarding the third claim — a derivative state-law claim 10
for breach of fiduciary duty to which the certified question 11
related and as to which the district court granted a motion to 12
dismiss — we vacate the district court's judgment and remand with 13
instructions to the court to convert the motion to dismiss to a 14
motion for summary judgment, and to rule on that motion, after 15
further discovery should the court in the sound exercise of its 16
discretion determine that such further discovery is warranted. 17
Affirmed in part; vacated and remanded in part. 18
JOEL C. FEFFER (Daniella Quitt, James G. 19
Flynn, on the brief), Harwood Feffer 20
LLP, New York, NY, for 21
Plaintiff–Appellant. 22
JAMES S. DITTMAR, Goodwin Procter LLP, 23
Boston, MA (Michael K. Isenman, Matthew 24
M. Hoffman, Goodwin Procter LLP, 25
Washington, DC, on the brief), for 26
Defendants–Appellees. 27

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3
SACK, Circuit Judge: 1
Descriptions of the facts underlying this appeal have 2
now been published in three different reported decisions — in the 3
opinion of the United States District Court for the Southern 4
District of New York, Halebian v. Berv ("Halebian I"), 631 F. 5
Supp. 2d 284, 287–91 (S.D.N.Y. 2007); in this Court's previous 6
opinion certifying a question of state law to the Supreme 7
Judicial Court of Massachusetts, Halebian v. Berv ("Halebian 8
II"), 590 F.3d 195, 199–203 (2d Cir. 2009); and in the opinion of 9
the Supreme Judicial Court answering our question on 10
certification, Halebian v. Berv ("Halebian III"), 457 Mass. 620, 11
621–24, 931 N.E.2d 986, 987–89 (2010). We see no need to 12
reiterate them here except insofar as we think it necessary to an 13
understanding of our resolution of the narrow issues remaining 14
before us. 15
BACKGROUND 16
Halebian's Complaint 17
On May 30, 2006, John Halebian, a holder of shares in 18
one of six separate investment funds (the "Funds") within 19
CitiFunds Trust III (the "Trust"), a Massachusetts business 20
trust, filed a complaint raising three claims in the United 21
States District Court for the Southern District of New York 22
against members of the Trust's board of trustees (the "Board"). 23
The suit arose in connection with the June 23, 2005 corporate 24
sale (the "Transaction") of investment-adviser subsidiary 25

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4
companies that advised the six Funds. Pursuant to the 1
Transaction, Citigroup, Inc., which owned the adviser 2
subsidiaries, sold substantially all of its asset-management 3
business to Legg Mason, Inc., automatically terminating, under 4
federal law, the Funds' existing investment-advisory contracts. 5
Following the sale and contract termination, the Trust's Board 6
approved new investment-advisory agreements (the "New 7
Agreements") between the Trust and Legg Mason and then issued a 8
proxy statement to Trust shareholders recommending that they vote 9
to approve the New Agreements. 10
In his complaint, Halebian challenges two principal 11
aspects of the Transaction. First, he questions the New 12
Agreements' authorization of the payment of "soft dollars," which 13
permitted Legg Mason to hire broker–dealers that also perform 14
research services — a combination that often results in higher 15
commissions for the chosen broker–dealer than those paid to 16
standard broker–dealers. Second, he challenges shareholder 17
voting procedures permitting "echo voting," which in this case 18
allows Citigroup-affiliated service agents, as record holders of 19
certain shares of the Funds, to vote their total number of shares 20
in proportion to the votes they received from the shares' 21
beneficial owners, even if the service agents had not received 22
voting instructions from all of their customers. Halebian 23
asserts, in sum, that the "defendants . . . failed to avail 24
themselves of the opportunity to negotiate lower fees or seek 25

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5
competing bids from other qualified investment advisers" and 1
"utterly ignored their obligations of loyalty and good faith to 2
CitiTrust and its beneficiaries." Complaint ¶¶ 35, 40, Halebian 3
v. Berv, No. 06 Civ. 4099 (S.D.N.Y. May 30, 2006). 4
Halebian's Claim One, presented as a derivative claim 5
on behalf of the Trust, alleges that the defendants breached 6
their fiduciary duties to the Trust "in considering the . . . 7
[T]ransaction and in recommending the new advisory agreements." 8
Id. ¶ 54. Claims Two and Three, styled as direct claims, allege 9
that the defendants violated federal and state law by issuing 10
materially false and misleading statements and by omitting 11
material information from the proxy statement as part of an 12
effort to induce their shareholders to approve the Trust's New 13
Agreements with Legg Mason. Id. ¶¶ 60–61, 64–65. 14
The Defendants' Motion to Dismiss 15
On October 24, 2006, the defendants' counsel moved to 16
dismiss Halebian's complaint pursuant to, inter alia, Federal 17
Rule of Civil Procedure 12(b)(6). Regarding Claims Two and 18
Three, the defendants asserted that Federal Rules 12(b)(6) and 19
23.1, and various provisions of the Investment Company Act (the 20
"ICA"), 15 U.S.C. §§ 80a-15(a) & 80a-20(a), required dismissal of 21
the two claims because these claims were derivative in nature, 22
not direct, and as such failed as a matter of law. Specifically 23
addressing their requested dismissal of Claim One, the defendants 24
relied in part on a then-recently enacted provision of 25

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1 The nominal defendant in this action is a business trust,
not a corporation. However, as the Supreme Judicial Court
explained, "[b]ecause a business trust in practical effect is in
many respects similar to a corporation, the statute regulating
derivative actions applies to a shareholder bringing such a claim
against a corporation or a business trust." Halebian III, 457
Mass. at 623 n.4, 931 N.E.2d at 988 n.4 (citation and internal
quotation marks omitted).
6
Massachusetts law codifying the business-judgment rule permitting 1
a corporation's directors to move to dismiss a derivative lawsuit 2
as to the prosecution of which the leadership concluded would not 3
be in the corporation's best interest. 1 See Mass. Gen Laws ch. 4
156D, § 7.44(a). 5
Our Prior Panel Opinion 6
In Halebian II, we agreed with the defendants and the 7
district court, classifying the second and third claims asserted 8
in the plaintiff's complaint as derivative by looking to 9
Massachusetts law, which all agree is applicable. Halebian II, 10
590 F.3d at 210. We saw the gravamen of the second and third 11
claims as Halebian's challenge to the use of echo voting. We 12
then reasoned: 13
There is no indication that the alleged 14
unlawfulness of echo voting under section 15
15(a) of the ICA or Massachusetts law was 16
called to the attention of the Board by 17
Halebian or anyone else prior to the 18
institution of this lawsuit. And the Board 19
has consistently and strenuously denied that 20
echo voting violates these laws. Since the 21
Board was apparently not of the view, nor had 22
it been told, that using a Citigroup- 23
affiliated service agent other than a 24
broker–dealer to echo vote shares violated 25
the ICA or Massachusetts law, or indeed any 26
law, its failure to inform shareholders to 27

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7
the contrary does not appear to us to have 1
been potentially false and misleading so as 2
to be cognizable under Massachusetts or 3
federal law. 4
Id. (footnotes omitted). We thus expressed our inclination to 5
affirm the judgment of the district court (Naomi Reice Buchwald, 6
Judge) dismissing Halebian's second and third claims, but 7
declined to resolve them at that time. We reserved decision on 8
those claims so that we could consider any commentary or analysis 9
that the Supreme Judicial Court of Massachusetts might offer in 10
answering our certified question regarding Halebian's first 11
claim. Id. 12
As to Halebian's undisputedly derivative first claim, 13
which alleges a breach of fiduciary duty for failure to 14
investigate alternatives to the New Agreements between the Trust 15
and Legg Mason, we first rejected the district court's reliance 16
on Federal Rule of Civil Procedure 23.1 in dismissing the claim. 17
We were of the view that Halebian's complaint satisfied this 18
federal pleading rule for derivative claims and, accordingly, 19
that the claim thus "stands or falls on whether it was properly 20
dismissed pursuant to Massachusetts substantive law." Id. at 21
211. On the state-law question, the district court had ruled 22
that despite language in the state derivative-suit dismissal 23
provision indicating that it applies only to derivative 24
proceedings "commenced after the rejection of a demand," Mass. 25
Gen. Laws ch. 156D, § 7.44(a) (emphasis added), the defendants 26
could rely on the provision irrespective of the fact that the 27

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2 In our previous opinion, we expressed skepticism about the
district court's approach and conclusion, first noting that "it
is a well-established principle of Massachusetts law that when
'the language of the statute is clear, we must enforce it
according to its own terms.'" Halebian II, 590 F.3d at 212
(quoting Town of Milford v. Boyd, 434 Mass. 754, 757–58, 752
N.E.2d 732, 735 (2001)) (internal quotation marks omitted in
original). Though we recognized that "context matters," we were
"unconvinced that the statutory context required the district
court to take the path that it did." Id. at 212–13. In light of
commentary in the legislative record that "clearly anticipates
that in some instances, a corporation might require more than
ninety days to investigate and respond to the shareholder's
demand," we conceded that section 7.44 might apply to some
instances in which a suit was filed before a board's demand
rejection. Id. at 213 (emphasis in original). But we concluded
that if section 7.44 applied to all such instances, the need for
a stay — allowable by petition under section 7.43 of the statute
— would be nil. Id. We thus reasoned that the proper reading of
the statute as a whole might be that section "7.44 applies to
timely derivative actions filed before the rejection of the
demand that serves as the basis for the action not in all
circumstances, as the district court's ruling suggests, but only
when such an action was actually stayed in accordance with
section 7.43." Id. We found this reading to be consistent with
statutory commentary and, as a matter of policy, that it would
not impose "an unfair hardship on Massachusetts corporations."
Id. at 213–14.
8
plaintiff had filed suit before the Board's rejection of the 1
demand, provided they rejected the plaintiff's demand "after a 2
good faith review." Halebian I, 631 F. Supp. 2d at 294. 3
Proffering an alternative reading,2 but "declin[ing] to 4
resolve [the issue] in the first instance," Halebian II, 590 F.3d 5
at 210, we certified to the Supreme Judicial Court of 6
Massachusetts the following question: "Under Massachusetts law, 7
can the business judgment rule, established under Mass. Gen. Laws 8
ch. 156D, § 7.44, be applied to dismiss a derivative complaint 9
filed timely under section 7.42 but prior to a corporation's 10

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3 We added, as is our practice, that "[t]he certified
question may be deemed to cover any pertinent further issues of
Massachusetts law that the Supreme Judicial Court thinks is
appropriate and advisable to address, including" the issues
presented by Halebian's second and third claims discussed earlier
in the opinion. Halebian II, 590 F.3d at 215.
9
rejection of the demand that serves as the basis for the suit?" 3
1
Id. at 214. 2
Supreme Judicial Court's Response 3
On August 23, 2010, the Supreme Judicial Court issued 4
an opinion answering our certified question in the affirmative. 5
Halebian III, 457 Mass. at 621, 931 N.E.2d at 987. The court 6
reasoned, inter alia: 7
If we were to adopt the plaintiff's assertion 8
that the Legislature's inclusion of the 9
phrase, "commenced after rejection of a 10
demand," was intended to deny a corporation 11
the benefit of the business judgment doctrine 12
where it failed to reject a shareholder's 13
demand before the filing of a derivative 14
complaint, we would be giving § 7.44 an 15
interpretation that would be in direct 16
conflict with other language in the same 17
section and that would be inconsistent with 18
the statutory scheme embodied in the Act and 19
reflected in the commentary of its drafters. 20
For these reasons, despite the statute's 21
unfortunate inclusion of a phrase that, when 22
read in isolation, would suggest that 23
§ 7.44(a) was intended to limit dismissals 24
under the business judgment doctrine to 25
derivative proceedings "commenced after 26
rejection of a demand," we conclude that the 27
Legislature did not intend such a limitation. 28
Rather, we conclude that the Legislature 29
intended that a derivative action must be 30
dismissed under § 7.44 following a 31
corporation's independent determination, made 32
in good faith and after reasonable inquiry, 33
that maintenance of the derivative proceeding 34
is not in the best interests of the 35

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10
corporation, regardless whether the 1
derivative complaint has been filed before or 2
after the corporation's rejection of the 3
shareholder's demand. 4
Id. at 632–33, 931 N.E.2d at 995. 5
We now resolve the instant appeal in light of the 6
careful opinion of the Supreme Judicial Court of Massachusetts in 7
response to our certified question. 8
DISCUSSION 9
I. Claims Two and Three 10
Because the Supreme Judicial Court said nothing in 11
Halebian III that affects our analysis of Halebian's second and 12
third claims as set forth in Halebian II, we affirm the judgment 13
of the district court dismissing those claims for the reasons set 14
forth in our prior opinion. See Halebian II, 590 F.3d at 207–10. 15
II. Claim One 16
The Supreme Judicial Court, in agreement with the 17
district court in this case, ruled that a defendant in a 18
derivative suit governed by Massachusetts Law may employ the 19
business judgment rule, codified at Mass. Gen. Laws ch. 156D, 20
§ 7.44, to dismiss a shareholder complaint that is filed prior to 21
a corporation's rejection of the demand that serves as the basis 22
for the suit. Halebian III, 457 Mass. at 621, 931 N.E.2d at 987. 23
It does not follow, however, that we can affirm the district 24
court's judgment in its present form. 25
A. Operation of Section 7.44 26

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4 In a derivative suit, of course, the plaintiff ostensibly
brings his or her claims on behalf of the corporation in which he
or she owns an interest, against certain corporate leadership.
See 13 William Meade Fletcher, Fletcher Cyclopedia of the Law of
Corporations § 5939. Inasmuch as it is ordinarily brought
because the corporate leadership has declined to assert the claim
in issue, however, the corporation is normally treated as a
nominal defendant. See Meyer v. Fleming, 327 U.S. 161, 167
(1946). But see, e.g., Symes v. Harris, 472 F.3d 754, 761 (10th
Cir. 2006) (aligning corporation as plaintiff where corporation
was owned entirely by the plaintiffs and "no one within the
company . . . would oppose bringing the suit"). It is not the
nominal defendant "corporation" which moves to dismiss a
derivative suit, but the actual defendants — e.g., board members
— that make such a motion.
11
As stated by the Supreme Judicial Court, the business 1
judgment rule embodied in section 7.44 "protects a corporation's 2
decision that prosecution of [a] claim demanded by [a] 3
shareholder is not in the best interests of the corporation where 4
the decision is made in good faith by independent decision makers 5
after reasonable inquiry." 4 Id. at 627 n.11, 931 N.E.2d at 991 6
n.11. As applicable to this case after certification, section 7
7.44 provides that a derivative proceeding commenced either 8
before or after rejection of a demand "shall be dismissed by the 9
court on motion by the corporation if the court finds that . . . 10
a majority vote of independent directors present at a meeting of 11
the board of directors . . . has determined in good faith after 12
conducting a reasonable inquiry upon which its conclusions are 13
based that the maintenance of the proceeding is not in the best 14
interests of the corporation." Mass. Gen. Laws ch. 156D, 15
§§ 7.44(a), 7.44(b)(1) (emphases added). Upon filing its motion 16
to dismiss, the corporation must show by "a written filing with 17

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12
the court setting forth facts" that the corporation has 1
established independence, good faith, and the conduct of a 2
reasonable inquiry. Id. § 7.44(d). The court "shall" then 3
"dismiss the suit unless the plaintiff has alleged with 4
particularity facts . . . in its complaint or an amended 5
complaint or in a written filing to the court" rebutting the 6
corporation's filing. Id. (emphasis added). The statute further 7
provides that if the independence requirement in subsection (a) 8
is met, the plaintiff bears the burden of proving a lack of good 9
faith and reasonable inquiry on the part of the directors; by 10
contrast, if the independence requirement is not satisfied, the 11
corporation must prove that those two elements are present. Id. 12
§ 7.44(e). 13
In ruling on Claim One, the district court adverted to 14
the fact that the plaintiff did not plead or otherwise proffer 15
"any reason why the Board's decision to reject the demand was 16
illegitimate." Halebian I, 631 F. Supp. 2d at 296. But we think 17
that relying solely on the failure of the plaintiff to contest 18
the corporation's filing omits a crucial statutory step. The 19
statute requires a court to "find[]" that various conditions have 20
been satisfied: that the Board is independent, and that it in 21
good faith determined after a reasonable inquiry that the 22
plaintiff's suit was not in the corporation's best interests. 23
Mass. Gen. Laws ch. 156D, § 7.44(d). The latter component — the 24
existence of a good-faith, reasonable inquiry into the 25

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5 Further counseling such a conclusion is section 7.44(c),
which sets out various factors, none of which "shall by itself
cause a director to be considered not independent for the
purposes of" section 7.44. Mass. Gen. Laws ch. 156D, § 7.44(c)
(emphasis added). We infer little from the inclusion of
subsection (c) apart from that the Massachusetts legislature
intended for the reviewing court to consider other factors in an
evaluation of independence on a motion to dismiss brought under
section 7.44.
13
corporation's best interests vis-à-vis the plaintiff's suit — is 1
subject to the burden-shifting provisions of subsection (e). See 2
id. § 7.44(e). However, that such burden-shifting turns on the 3
independence of the decision maker unambiguously demonstrates 4
that the court's evaluation of independence is a prerequisite to 5
the operation of the dismissal statute in toto.5
6

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6 We also are not entirely in agreement with the district
court's characterization of the plaintiff's opposition to the
defendants' 12(b)(6) motion. The court stated that "in opposing
defendants' motion, plaintiff explicitly decline[d] to offer any
reason why the rejection of the demand was illegitimate," and it
expressed "concern[ about the] plaintiff's unwillingness to even
attempt to engage this issue." Halebian I, 631 F. Supp. 2d at
296 n.8. However, we view the plaintiff's opposition to the
defendants' motion to dismiss in this case in a different light.
To be sure, the plaintiff devoted much of his memorandum of
law in opposition to the 12(b)(6) motion to argument for
additional discovery, rather than to a direct refutation of the
defendants' section 7.44 filing. Pl.'s Mem. in Opp. to Def.'s
Mot. to Dismiss Compl., Halebian v. Berv, No. 06 Civ. 4099
(S.D.N.Y. Dec. 7, 2006). But the plaintiff made clear that his
goal in seeking additional discovery was precisely to rebut the
Board's assertions. See, e.g., id. at 11 (asserting that
defendants are "simultaneously acting as defendants, judge, and
jury"), 12 (arguing that "discovery is necessary to address the
danger of allowing the [Board] to appoint a few 'good ol' boys'
as a special litigation committee [("SLC")] and have legitimate
claims 'whitewashed' through the relative ease of constructing a
record of apparently diligent investigation (internal quotation
marks omitted)), 13 (expressing concern about the "strong
potential for structural bias in" SLCs), 14 (articulating the
"very serious danger that the [Board] . . . would be inherently
biased and fail to investigate plaintiff's allegations against
them and their fellow trustees in good faith").
Those statements are not factual assertions, and insofar as
the district court rejected their value as such, the court
clearly did not err. However, in our view, the plaintiff's
opposition here did not constitute an "explicit" refusal or
"unwillingness" to contest the Board's assertions under section
7.44.
14
We see no such finding of independence in Halebian I.6
1
Though the court's factual summary and legal discussion appear to 2
assume the Board's independence, see id. at 290, 295–96, the 3
statute by its own terms requires more, see Mass. Gen. Laws ch. 4
156D, § 7.44(a). Supporting this reading of the statutory text, 5
the Massachusetts Superior Court — in two of only four opinions 6

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15
of which we are aware to discuss the statute at issue here, three 1
of which are part of the same lawsuit — determined that in 2
evaluating a motion to dismiss under section 7.44, the court must 3
"begin[] with an evaluation of the independence of the" board or 4
committee charged with responding to a shareholder demand. Blake 5
v. Friendly Ice Cream Corp., No. 030003, 2006 WL 1579596, at *14, 6
2006 Mass. Super. LEXIS 241, at *47 (Super. Ct. Hampden County 7
May 24, 2006); see also Pinchuck v. State St. Corp., No. 09-2930, 8
2011 WL 477315, at *11–*13, 2011 Mass. Super. LEXIS 11, at 9
*29–*36 (Super. Ct. Suffolk County Jan. 19, 2011). The Blake 10
court then embarked upon a lengthy consideration of the 11
corporation's factual submissions purporting to demonstrate the 12
independence of the members of its special litigation committee 13
("SLC") as well as the propriety of the committee's formation, 14
evaluating their sufficiency against Massachusetts law. See 15
Blake, 2006 WL 1579596, at *14–*22, 2006 Mass. Super. LEXIS 241, 16
at *47–*77; see also Pinchuck, 2011 WL 477315, at *11–*13, 2011 17
Mass. Super. LEXIS 11, at *29–*36 (conducting a factual inquiry 18
into the independence of the special committee that rejected the 19
plaintiffs' demand). Having rejected the SLC's assertion of 20
independence based on the court's evidentiary review, the Blake 21
court next assessed the SLC's burden under section 7.44(e) "of 22
proving that its determination was in good faith and after a 23
reasonable inquiry upon which its conclusions were based." 24
Blake, 2006 WL 1579596, at *22, 2006 Mass. Super. LEXIS 241, at 25

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16
*78; see also Pinchuck, 2011 WL 477315, at *13–*15, 2011 Mass. 1
Super. LEXIS 11, at *36–*42. 2
In light of the requirement that a deciding court, in 3
ruling on a motion brought under section 7.44 to dismiss a 4
derivative suit, must evaluate the movant's evidentiary 5
submissions to determine whether the corporate entity rejecting a 6
plaintiff's demand is independent, and because the district court 7
did not do so in evaluating the defendants' motion under Federal 8
Rule of Civil Procedure 12(b)(6), we vacate the court's judgment 9
as to Claim One. 10
B. Relationship Between Section 7.44 and Rule 12(b)(6) 11
In Halebian II, we noted that the plaintiff also 12
pressed the argument that even assuming section 7.44 did apply to 13
the facts of this case — a question the Supreme Judicial Court 14
has now settled definitively in the affirmative — the district 15
court erred by failing to convert the Board's motion to dismiss 16
into a motion for summary judgment and in barring the plaintiff 17
from seeking discovery before deciding such a motion. Halebian 18
II, 590 F.3d at 211 n.13. We now conclude that, under the 19
circumstances presented here, the dictates of section 7.44 are 20
sufficiently in conflict with the contours of Federal Rule of 21
Civil Procedure 12(b)(6) as to require the district court to 22
complete its evaluation of this matter on remand by converting 23
the defendants' motion to dismiss into one for summary judgment. 24

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17
As we have noted, section 7.44 sets forth both 1
substantive standards for adjudicating the effectiveness of a 2
board's rejection of a demand and instructions regarding the 3
procedure by which that rejection must be communicated to — and 4
its validity established before — a court. The dismissal 5
procedure requires a defendant to submit various extrinsic 6
evidentiary materials that the plaintiff may not have referenced 7
or included within his complaint. See Mass. Gen. Laws ch. 156D, 8
§ 7.44(d). 9
By contrast, the purpose of Federal Rule of Civil 10
Procedure 12(b)(6) "is to test, in a streamlined fashion, the 11
formal sufficiency of the plaintiff's statement of a claim for 12
relief without resolving a contest regarding its substantive 13
merits." Global Network Commc'ns, Inc. v. City of New York, 458 14
F.3d 150, 155 (2d Cir. 2006) (emphasis omitted); accord LaBounty 15
v. Adler, 933 F.2d 121, 123 (2d Cir. 1991). The court therefore 16
does not ordinarily look beyond the complaint and attached 17
documents in deciding a motion to dismiss brought under the rule. 18
Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d 19
Cir. 2008). 20
On the other hand, of course, on a motion for summary 21
judgment under Federal Rule of Civil Procedure 56, the parties 22
test the substantive merits of the claim or claims and their 23
evidentiary support based on "additional supporting material" in 24
their possession or obtained during discovery. Chambers v. Time 25

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7 There are exceptions to Rule 12(b)(6)'s general
prohibition against considering materials outside the four
corners of the complaint. For example, it is well established
that on a motion to dismiss for failure to state a claim pursuant
to Rule 12(b)(6), the court may also rely upon "documents
attached to the complaint as exhibits[] and documents
incorporated by reference in the complaint." DiFolco v. MSNBC
Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citing Chambers,
282 F.3d at 153). Courts may also properly consider "matters of
which judicial notice may be taken, or documents either in
plaintiffs' possession or of which plaintiffs had knowledge and
relied on in bringing suit." Chambers, 282 F.3d at 153 (ellipsis
omitted) (quoting Brass v. Am. Film Techs., Inc., 987 F.2d 142,
150 (2d Cir. 1993) (dicta)). In Chambers, we noted that "a
plaintiff's reliance on the terms and effect of a document in
drafting the complaint is a necessary prerequisite to the court's
consideration of the document on a dismissal motion; mere notice
or possession is not enough." Id. (emphasis in original) (citing
Cortec, 949 F.2d at 47–48).
18
Warner, Inc., 282 F.3d 147, 154 (2d Cir. 2002); see Global 1
Network Commc'ns, 458 F.3d at 155 (Although Rule 12(b)(6) 2
"assesses the legal feasibility of the complaint, [it] does not 3
weigh the evidence that might be offered to support it."). When 4
"matters outside the pleadings are presented to and not excluded 5
by the court, the motion must be treated as one for summary 6
judgment under Rule 56," Fed. R. Civ. P. 12(d), in order to 7
ensure that the party against whom the motion to dismiss is made 8
may respond. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 9
42, 48 (2d Cir. 1991), cert. denied, 503 U.S. 960 (1992). 10
The procedure contemplated by section 7.44 of the 11
Massachusetts statute does not easily fit within the constraints 12
of Rule 12(b)(6), even as it has been broadened by occasional 13
judicial glosses on its terms. 7 While a dismissal pursuant to 14
Rule 12(b)(6) is, at bottom, a declaration that the plaintiff's 15

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19
complaint and incorporated materials are insufficient as a matter 1
of law to support a claim upon which relief may be granted, see 2
Cortec, 949 F.2d at 47, Massachusetts section 7.44 provides a 3
procedure by which a defendant must introduce extraneous material 4
in order to secure dismissal. The Massachusetts statute "imposes 5
an initial burden on the corporation to come forward with facts 6
to show it is entitled to the section's protection." Mass. Gen. 7
Laws ch. 156D, § 7.44, cmt. 2. To avail itself of section 7.44, 8
"the corporation is required . . . to present to the court a 9
filing containing facts justifying application of the business 10
judgment rule." Id.; see id. § 7.44(d); see also Blake, 2006 WL 11
1579596, at *11, 2006 Mass. Super. LEXIS 241, at *38 (concluding 12
that the party moving to dismiss under section 7.44 has an 13
"initial hurdle of showing that the [board committee which 14
decided to reject the plaintiff's demand] was properly 15
constituted" and also "bears the burden of submitting a written 16
filing with the court setting forth facts to show that a majority 17
of the Board was independent when the independent directors made 18
their determination, and that the independent directors . . . 19
made the determination in good faith after conducting a 20
reasonable inquiry upon which its conclusions are based"). 21
According to the statute, then, the corporation first 22
must file its motion to dismiss and "make a written filing with 23
the court setting forth facts to show . . . whether a majority of 24
the board of directors was independent at the time of the 25

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8 If the court concludes the board is not independent, the
burden shifts to the defendant in demonstrating good faith and a
reasonable inquiry. Id. § 7.44(e).
9 Section 7.44 permits plaintiffs to dispute by "alleg[ing]
with particularity facts rebutting the corporation's filing" in
three distinct ways: (1) pointing the court back to allegations
made in the plaintiff's initially filed complaint; (2) filing an
amended complaint; and (3) making some other "written filing."
Mass. Gen. Laws ch. 156D, § 7.44(d). In responding to a
defendant's 12(b)(6) motion to dismiss in federal court, a
plaintiff will generally have the ability to identify allegations
in the complaint, or amend the complaint to add specific
allegations, which call the purported bases for dismissal into
question. See Fed. R. Civ. P. 15(a)(1)(B), 15(a)(2). Insofar as
that is the case, section 7.44 would likely not conflict with the
Federal Rules of Civil Procedure. As, however, the instant case
implicates section 7.44(d)'s third, "written filing" response —
20
determination by the independent directors." Id. § 7.44(d). If, 1
as discussed in Part II(A), above, the trial court determines 2
that the board is independent, the plaintiff bears the burden of 3
demonstrating that the independent directors did not make the 4
determination "in good faith after conducting a reasonable 5
inquiry upon which their conclusions are based." 8 Id. §§ 6
7.44(d), 7.44(e). In this scenario, "the court shall dismiss the 7
suit unless the plaintiff has alleged with particularity facts 8
rebutting the corporation's filing in its complaint or an amended 9
complaint or in a written filing with the court." Id. Thus the 10
state statute explicitly contemplates an additional opportunity 11
for the plaintiff to rebut — if he or she has not done so in the 12
original complaint — the defendant's factual showings of 13
independence, good faith, and reasonable inquiry, either through 14
an amended complaint or some other "written filing with the 15
court." 9 See Blake, 2006 WL 1579596, at *11, 2006 Mass. Super. 16

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and given that, in any event, section 7.44 requires an initial
supplementary evidentiary filing by the moving defendant — we
still view the two procedural dictates as incompatible, at least
on the facts before us here. See also infra note 10 and
accompanying text.
21
LEXIS 241, at *38 ("If the SLC satisfies this burden of setting 1
forth such facts regarding independence and the plaintiff alleges 2
with particularity facts rebutting the SLC's written filing under 3
§ 7.44(d), the court assesses the evidence as to whether or not 4
the SLC was independent and whether it determined in good faith 5
after conducting a reasonable inquiry upon which its conclusions 6
are based that maintenance of the derivative proceeding is not in 7
the best interests of the corporation."). Section 7.44(d) also 8
requires that discovery be stayed upon the filing of the motion 9
to dismiss and the required supporting materials until the court 10
rules on the motion, unless a motion for discovery is made and 11
"good cause" shown for "specified discovery." Mass. Gen. Laws 12
ch. 156D, § 7.44(d). 13
Insofar as the section 7.44 procedure encourages or 14
requires the parties to submit, and under which it is expected 15
that the court will review, evidentiary materials outside the 16
scope of what the plaintiff has already included or incorporated 17
into his or her complaint, the section 7.44 procedure appears to 18
be incompatible with a federal court's limited powers to grant a 19
Rule 12(b)(6) motion to dismiss. Although we cannot foreclose 20
the possibility that there may be cases in which the two regimes 21

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10 For example, if a plaintiff files his or her complaint
after the board of directors has already formally rejected the
demand, a federal district court faced with a motion to dismiss
might deem the board's written rejection of the plaintiff's
demand to be incorporated by reference within, or integral to,
the plaintiff's complaint. That, we surmise, would obviate one
of the potential conflicts between section 7.44 and Rule
12(b)(6). Moreover, even where a plaintiff files his complaint
before a board's formal rejection of his demand, there might be
cases in which conversion will be unnecessary — for instance, if
a court permits the plaintiff to amend her complaint after the
board's rejection, the court might very well consider the written
rejection to be properly incorporated by reference. In such a
circumstance, a Rule 12(d) conversion might be unnecessary to a
district court's evaluation of evidence regarding the inquiries
mandated by section 7.44, in light of the policies undergirding
the conversion rule. See Cortec, 949 F.2d at 48 ("Where
plaintiff has actual notice of all the information in the
movant's papers and has relied upon these documents in framing
the complaint the necessity of translating a Rule 12(b)(6) motion
into one under Rule 56 is largely dissipated."). Even though we
decline to rule out the possibility that a case of that nature
will eventually arise in this Circuit, we do note that a
conclusion contrary to ours here might be in tension with Circuit
law governing the incorporation of material into a complaint.
See, e.g., Global Network Commc'ns, 458 F.3d at 157 ("In most
instances where th[e 'integral to the complaint'] exception is
recognized, the incorporated material is a contract or other
legal document containing obligations upon which the plaintiff's
complaint stands or falls, but which for some reason . . . was
not attached to the complaint. The exception thus prevents
plaintiffs from generating complaints invulnerable to Rule
12(b)(6) simply by clever drafting.").
In this case, though, the district court necessarily relied
on the defendants' extrinsic submissions in granting dismissal to
the defendants. Although the court was careful to disclaim any
consideration of materials improperly before it on a 12(b)(6)
motion, see Halebian I, 631 F. Supp. 2d at 287 n.1, we conclude
that on the instant facts, the dictates of section 7.44 made such
a task impossible.
22
would not conflict, 10 this is not one of them. The materials 1
submitted by the defendants to comply with section 7.44 fall 2
outside the bounds of what a federal court may properly consider 3
on a Rule 12(b)(6) motion, and the district court must examine 4

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23
those materials in order to make the findings mandated by section 1
7.44 as a prerequisite to dismissal. Because of these unique 2
circumstances, we instruct the district court, on remand, to 3
adjudicate the claim within the framework of summary judgment by 4
converting the defendants' motion to dismiss pursuant to Federal 5
Rule of Civil Procedure 12(d). See Fagin v. Gilmartin, 432 F.3d 6
276, 285 (3d Cir. 2005) (discussing a New Jersey state procedural 7
rule applicable in shareholder derivative cases and concluding 8
that "it would be better for the [d]istrict [c]ourt to consider 9
[the sufficiency of the board's rejection of a shareholder 10
demand] on summary judgment," rather than on a motion to 11
dismiss). 12
C. Discovery 13
Although Halebian contended in the district court, and 14
does so again on appeal, that he should have been afforded the 15
opportunity to conduct additional discovery in order to rebut the 16
Board's filing, under both Federal Rule 56 and section 7.44, the 17
availability of further discovery is a matter within the district 18
court's discretion. Cf. Fagin, 432 F.3d at 285 (noting that the 19
appellate panel remanding to the district court for resolution by 20
summary judgment "d[id] not intrude on the [district c]ourt's 21
discretion as to the extent of discovery it needs to decide the 22
issue"). While we decline to decide the question, the district 23
court may well have acted within its discretion in denying the 24
plaintiff's request for discovery, particularly in light of the 25

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11 We note that the various allegations in plaintiff's
opposition to the defendants' motion discussed in note 6, supra,
seem to us to arguably present "a specific argument . . . as to
what more discovery would yield," Halebian I, 631 F. Supp. 2d at
298. Whether the plaintiff's arguments on that issue are
convincing, though, is a question left to the sound discretion of
the district court on remand.
24
defendants' submission of "thousands of pages detailing the 1
backgrounds of the directors at issue, as well as the extensive 2
efforts made by the independent counsel in preparing its review 3
of the demand for the committee and the Board." Halebian I, 631 4
F. Supp. 2d at 298. We nonetheless think that a reevaluation of 5
any such application by the plaintiff for more discovery in light 6
of Rule 56 case law and procedures would be advisable on remand. 7
In rejecting the plaintiffs' discovery request, the 8
district court wrote: "Absent a specific allegation in the 9
complaint as to why the Board was not disinterested, nor why the 10
demand was refused, and absent a specific argument from plaintiff 11
as to what more discovery would yield, we decline to allow 12
plaintiff to avail himself of a premature opening of the 13
floodgates to discovery in an effort to cure the deficiencies in 14
the complaint." 11 Halebian I, 631 F. Supp. 2d at 298. In 15
addition, the district court suggested that the plaintiff — even 16
though filing his complaint before the Board's rejection — might 17
have anticipated that he would have to make allegations about 18
independence, and therefore could have done so in the original 19

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12 The court stated:
We realize that the complaint could not have
pled reasons why the Board's decision to
reject the demand was improper in light of
the fact that the complaint was filed prior
to the rejection. However, the complaint
could have asserted various reasons as to why
the Board was constituted of interested
trustees, or why the [Board's demand review
committee], as constituted, was inadequate as
a review mechanism for the Board.
Halebian I, 631 F. Supp. 2d at 296 n.8.
25
filing. 12 But we do not see how the plaintiff can be expected 1
to have made "specific allegation[s]" in the complaint as to "why 2
the demand was refused" when the Board had not yet taken final 3
action on the plaintiff's demand at the time his complaint was 4
filed. And the statute does not require the plaintiff to predict 5
the content of the defendants' submissions on its motion to 6
dismiss and preemptively rebut those submissions in its 7
complaint. 8
CONCLUSION 9
For the foregoing reasons, we affirm the judgment of 10
the district court dismissing Claims Two and Three of the 11
complaint. We vacate that portion of the district court's 12
judgment dismissing Claim One under Rule 12(b)(6) and remand this 13
matter to the district court for its resolution of Claim One in a 14
manner consistent with this opinion. 15

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