In re Citigroup Inc. S'holder Derivative Litig.
United States District Court for the Southern District of New York
May 17, 2011, Decided; May 17, 2011, Filed
07 Civ. 9841 (SHS)
[*211] OPINION & ORDER
SIDNEY H. STEIN, U.S. District Judge.
Plaintiffs, shareholders of Citigroup, Inc., allege in this consolidated derivative action that defendants — current and former Citigroup officers and directors — are liable for wrongdoing in connection with the company's issuance of, and investments in, mortgage-backed assets. This [*212] Court dismissed the prior complaint in this matter on the ground that it failed to demonstrate that plaintiffs were excused from their obligation to make a demand on Citigroup's board of directors prior to bringing this suit. Plaintiffs have submitted an amended complaint that defendants maintain suffers from the same defect. Defendants have now moved pursuant to Federal Rules of Civil Procedure 12(b)(6) and 23.1 to dismiss the complaint on that basis. Because plaintiffs' allegations do not give rise to a reasonable doubt that a majority of the Citigroup board — as it existed in September 2009 when the amended complaint was filed — would not objectively assess a demand, [**3] the Court grants defendants' motion.
A. The Consolidated Complaint
Citigroup announced on November 4, 2007 an $8 to $11 billion write-down on mortgage-backed assets. (First Am. Consolidated Derivative Action Compl. ("Am. Compl.") ¶ 139.) That prompted a flurry of litigation, including this consolidated shareholder derivative action brought on behalf of Citigroup. Plaintiffs' initial consolidated complaint alleged that various Citigroup officers and directors harmed the company by breaching their fiduciary duties of care and loyalty by allowing Citigroup to invest in risky mortgage-backed assets; breaching their fiduciary duty of disclosure by concealing Citigroup's exposure to these assets; wasting corporate assets on the repurchase of Citigroup stock at inflated prices in 2007; committing securities fraud via misleading statements regarding Citigroup's mortgage-backed assets; engaging in insider trading; and unjustly enriching themselves. (Verified Consolidated Derivative Action Compl. ("Cons. Compl.") ¶¶ 129-60.)
It is uncontested that plaintiffs did not demand of Citigroup's board of directors that Citigroup itself pursue these claims against defendants before plaintiffs [**4] filed this action. As a result, plaintiffs are required to show that "demand [upon the board of directors] is excused because the directors [were] incapable of making an impartial decision regarding whether to institute such litigation." Stone ex rel. AmSouth Bancorp. v. Ritter, 911 A.2d 362, 367 (Del. 2006). This Court granted defendants' motion to dismiss the consolidated complaint because plaintiffs failed to plead particularized facts demonstrating that the board "as it existed in November 2007 was incapable . . . of objectively evaluating a demand." In re Citigroup Inc. S'holder Derivative Litig. (Citigroup Derivative), No. 07 Civ. 9841, 2009 U.S. Dist. LEXIS 75564, 2009 WL 2610746, at *4 (S.D.N.Y. Aug. 25, 2009) (internal quotation marks and footnote omitted). In that opinion — the reader's knowledge of which is presumed — the Court permitted plaintiffs to seek leave to file an amended complaint. 2009 U.S. Dist. LEXIS 75564, [WL] at *13.Read The Full CaseNot a Lexis Advance subscriber? Try it out for free.
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788 F. Supp. 2d 211 *; 2011 U.S. Dist. LEXIS 52941 **
IN RE CITIGROUP INC. SHAREHOLDER DERIVATIVE LITIGATION. This document relates to all actions.
Prior History: In re Citigroup Inc., 2009 U.S. Dist. LEXIS 75564 (S.D.N.Y., Aug. 25, 2009)
amended complaint, board of directors, consolidated, futility, derivative action, allegations, particularized
Business & Corporate Law, Actions Against Corporations, Derivative Actions, Procedural Matters, General Overview, Civil Procedure, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim