Litigation

Court of Chancery Reaffirms The Business Judgment Rule

By Morris James LLP

In re Citigroup Inc. Shareholder Derivative Litig., C.A. 3338-CC (Del. Ch. Feb. 24, 2009)

After the recent decision in the AIG case denying a motion to dismiss a complaint, there was some concern that perhaps the Court of Chancery was loosening the pleading requirements to state a claim under the Caremark line of case law. Caremark, of course, suggested that directors might be liable for failing to properly supervise management even when the directors did not receive any personal benefit as a result.

In this latest decision, the Chancellor has put those fears to rest. He distinguished the AIG decision and strongly affirmed that the business judgment rule protects directors when they make business decisions, even those that involve risk to the entity.

Thus, it is important to read the AIG decision and this decision together to get a full picture of how the Court is reacting to the calls to assign blame in the current financial crisis.

Full post as published by Delaware Business Litigation Report on February 24, 2009 (boomark / email).