773 F. Supp. 2d 330
S.D.N.Y.2011Background
- Derivative actions arise from Merrill Lynch's pre-merger CDO/mortgage exposure and the Merrill-BofA merger.
- Plaintiffs seek to compel BofA to sue Merrill officers/directors for pre-merger conduct and merger-related issues.
- Court previously dismissed for lack of standing; issues re-emerged as double-derivative actions after BofA acquired Merrill.
- Delaware law governs demand futility standards in double-derivative suits; Lambrecht held no standing requirements for the post-merger entity.
- Court analyzes whether BofA Board’s response to shareholder demands was in bad faith or the product of an inadequate investigation; actions are dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether demand futility excuses a claim against the BofA board | Loveman shows futility due to board's conflicts and merger context | BofA board capable of independent judgment; no special futility shown | Demand not excused; BofA board could independently judge claims |
| Whether Lambrecht demands regarding the Merger-related claims were wrongful | BofA board prejudged merits; demanded suits warranted | Board's prior decisions and merger context justify rejection; not wrongful | No bad-faith or unreasonable investigation; rejection lawful |
| Whether Count XII (corporate waste) survives given exculpation and due diligence | Count XII merits scrutiny despite exculpation | Exculpation §102(b)(7) shields directors; no personal benefit shown | Count XII barred by Delaware exculpation and no improper personal benefit |
| Whether the business judgment rule bars scrutiny of the Board's pre-merger actions | Board failed to conduct serious inquiry; need for scrutiny | Investigation reasonable; business judgment rule applies | Business judgment rule shields Board; no wrongful refusal shown |
Key Cases Cited
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (excuse of demand futility requires a reasonable doubt about independent judgment)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (demand to sue lies with directors' independence and lack of self-dealing)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (business judgment rule applies unless bad faith or unreasonable investigation shown)
- Kaplan v. Peat, Marwick, Mitchell & Co., 529 A.2d 254 (Del. Ch. 1987) (demand refusals require showing of wrongful conduct or lack of adequate inquiry)
- Scattered Corp. v. Chicago Stock Exch., 701 A.2d 70 (Del. Ch. 1997) (appointing standards for post-demand investigations; no automatic conclusions of bias)