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In re Home Depot S'holder Derivative Litig.

In re Home Depot S'holder Derivative Litig.

United States District Court for the Northern District of Georgia, Atlanta Division

November 30, 2016, Decided; November 30, 2016, Filed

CIVIL ACTION FILE NO. 1:15-CV-2999-TWT

Opinion

 [*1320]  OPINION AND ORDER

This is a shareholder derivative action. It is before the Court on the Defendants' Motion to Dismiss [Doc. 45]. For the reasons set forth below, the Defendants' Motion to Dismiss [Doc. 45] is GRANTED.

I. Background

This case arises out of the breach of Home Depot's security systems and the theft of their customers' personal financial data (the "Breach") over the course of several months in 2014. Plaintiffs Bennek and Frohman are current Home Depot shareholders, and held shares in Home Depot at the time of the Breach.1 The nominal Defendant, The Home Depot, Inc. ("Home Depot") is a multinational home improvement retailer that is incorporated in Delaware, with its principal place of business in Georgia.2

Included as defendants in the suit are three current and former officers [**3]  of Home Depot (the "Officers"). Francis Blake was previously Chairman of the Board from January 2007 to February 2015, and served as CEO during that time until November 2014. Matthew Carey is Home Depot's Executive Vice President and Chief Information Officer ("CIO"). Craig Menear served as President of Home Depot's retail division from February to October 2014, and was appointed as CEO, President, and placed on the Board on November 1, 2014. On February 2, 2015, Menear was appointed Chairman of the Board.3

Also included as defendants are a number of current and former members of Home Depot's Board of Directors. Home Depot's Board currently consists of twelve members, nine of whom are named as defendants.4 One of them is Menear, who is also the Company's CEO and President.5 The remaining eight current directors are Defendants Bousbib, Brenneman, Brown, A. Carey, Codina, Foulkes, Katen, and Vadon, all of whom were Directors when the Breach occurred  [*1321]  (collectively, the "Outside Directors").6 Defendants Hill and Ackerman are former Directors who were on the Board during the Breach (collectively, the "Former Directors").7

On September 2, 2014, [**4]  Home Depot learned that it may have been the victim of a criminal breach of its payment card data systems.8 After an investigation, Home Depot confirmed that the Breach had occurred and that hackers had managed to steal the financial data of 56 million customers between April and September of 2014.9 This followed on the heels of a number of well publicized data breaches that occurred at major retailers like Target and Neiman Marcus the previous year.10 The hackers used a third-party vendor's user name and password to enter into Home Depot's network.11 The hackers then gained elevated rights which allowed them to access the rest of Home Depot's network and install a custom version of malware called BlackPOS.12 A similar version of BlackPOS was used in the Target data breach a few months prior, and essentially allowed the hackers to capture a customer's financial data every time a card was swiped at one of Home Depot's Point of Sale ("POS") terminals (e.g., a cash register).13 A little over a year after the Breach occurred, Home Depot reported that it had registered a net cost to the Company of $152 million.14 After all is said and done, the total cost to Home Depot because of the Breach has been [**5]  estimated to eventually reach nearly $10 billion.15

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223 F. Supp. 3d 1317 *; 2016 U.S. Dist. LEXIS 164841 **; Fed. Sec. L. Rep. (CCH) P99,463; 2016 WL 6995676

IN RE THE HOME DEPOT, INC. SHAREHOLDER DERIVATIVE LITIGATION

Subsequent History: Later proceeding at In re Home Depot, Inc. S'holder Derivative Litig., 2017 U.S. Dist. LEXIS 217368 (N.D. Ga., May 1, 2017)

CORE TERMS

proxy statement, shareholder, Plaintiffs', futility, omission, misleading, motion to dismiss, duty of loyalty, particularized, business judgment, causation, charter, courts, excused, reasonable doubt, allegations, breached, corporate assets, Securities Exchange Act, disclose, reasons, proxy

Civil Procedure, Class Actions, Derivative Actions, Demand Futility, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Demand Requirement, Preliminary Considerations, Federal & State Interrelationships, Erie Doctrine, Business & Corporate Law, Actions Against Corporations, Standing, Demands, Enforcement of Corporate Rights, Demands, Futility, Special Proceedings, Derivative Actions, Procedural Matters, Shareholder Actions, Management Duties & Liabilities, Fiduciary Duties, Duty of Loyalty, Business Judgment Rule, Directors & Officers, Fiduciary Duties, Pleading & Practice, Pleadings, Amendment of Pleadings, Corporate Governance, Compensation, Causes of Action, Securities Law, Postoffering & Secondary Distributions, Proxies, Private Rights of Action, Materiality, Securities Exchange Act of 1934 Actions, Heightened Pleading Requirements, Minimum Disclosure Standards