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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

In re Citigroup Inc. Shareholder Derivative Litigation

In the wake of the Financial Crisis of 2008, stockholders were rightly upset. Boards of corporate America took what in hindsight appear to have been excess risk and helped push the entire economy to the brink of collapse. The case that follows, Citigroup, is typical of the derivative claims brought following the financial crisis.  In essence, the plaintiffs argument is that the defendant board mismanaged the company and missed obvious signs ('red flags') that things were heading in the wrong direction.  

Stockholders seek to hold directors accountable for the resulting failure in corporate performance. These claims are a version of "Caremark" oversight claims. Though rather than charging directors with missing misconduct of corporate officers, plaintiffs are charging directors with taking on excessive business risk. Remember, such claims must take the form of derivative claims. Consequently, plaintiffs must plead demand futility. This opinion is an opinion on a Rule 23.1 motion to dismiss.