Delaware Business Litigation Report

Failure To Plead Particularized Oversight Fiduciary Duty Failure Under R.23.1 Invites Dismissal in Court of Chancery

David B. Shaev Profit Sharing Account v. C. Michael Armstrong, et al., C.A. No. 1449-N, 2006 WL 391931 (Del. Ch. Feb. 13, 2006). The facts here were litigated in In re Citigroup Inc. Shareholders Litigation, 2003 Del. Ch. LEXIS 61 (Del. Ch. June 05, 2003), aff'd, Rabinowitz v. Shapiro, 839 A.2d 666 (Del. 2003) (TABLE). That case involved alleged knowledge of fraudulent relationships between Citigroup and its former clients Enron and WorldCom and alleged breach of fiduciary duties. Both actions were dismissed under Rule 23.1 as conclusory. The new Plaintiff here, taking the cue from the court's earlier admonishment in In re Citigroup Inc. Shareholders Litigation, 2003 Del. Ch. LEXIS 61 (Del. Ch. June 05, 2003), aff'd, Rabinowitz v. Shapiro, 839 A.2d 666 (Del. 2003) (TABLE) that a "books and records" approach should have been taken prior to derivative claims filings did so and filed this Derivative Complaint. This Complaint was dismissed because it was conclusory under Chancery Court Rule 23.1. The court examined the Enron and WorldCom fiascos and their alleged connection to the Citigroup's board. The alleged fiduciary violations pivoted around failure of the board's oversight systems by lack of adequate internal controls and lack of care, thus involving a discussion of In re Caremark Int'l Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). After a lengthy discussion of Caremark, the court dismissed the Complaint. Authored by: Raj Srivatsan 302-888 6831 rsrivatsan@morrisjames.com Share