The First Department, in this shareholders’ derivative action against Morgan Stanley, determined the plaintiffs did not demonstrate that a pre-suit demand upon the board of directors would have been futile. Therefore, the action was properly dismissed (without prejudice). The lawsuit involved the so-called “London Whale” debacle where $6.2 billion was lost in high-risk trading despite public representations the group engaged in only low risk hedging. The court explained the relevant criteria for a futility demonstration:
Plaintiffs’ claim, based on the Board’s alleged failure to properly exercise its oversight duties, is premised on the theory of liability articulated in In re Caremark Intl. Inc. Derivative Litig. (698 A2d 959…). * * *
In Caremark cases, allegations of demand futility are analyzed under the principles set forth in Rales v Blasband (634 A2d 927, 933-934 [Del 1993]) …). Under Rales, the plaintiff must plead particularized facts raising “a reasonable doubt that, [at] the time the complaint [was] filed, the board of directors could have properly exercised its independent and disinterested business judgment in responding to a demand” … . To rebut the presumption of disinterestedness, the plaintiff must plead particularized facts that, if proved, would establish that a majority of the directors face a “substantial likelihood” of personal liability for the wrongdoing alleged in the complaint … . A “mere threat” of liability is insufficient … .
Here, plaintiffs failed to make the requisite showing that the board could not exercise independent business judgment because a majority of directors faced a substantial likelihood of liability for the challenged conduct. At the time plaintiffs filed their complaint, the board consisted of 11 directors. At most, plaintiffs showed that four of them — inside director Dimon and the three members of the Risk Policy Committee — faced a substantial likelihood of liability … . “Because a majority of the directors are independent, demand is not excused”… . Wandel v Dimon, 2016 NY Slip Op 00252, 1st Dept 1-14-16
CRIMINAL LAW (SEXUAL ASSAULT REFORM ACT DOES NOT VIOLATE EX POST FACTO CLAUSE)/SEXUAL ASSAULT REFORM ACT [SARA] (1000-FOOT SCHOOL-GROUNDS NO-GO ZONE IS NOT PUNITIVE IN EFFECT AND DOES NOT VIOLATE EX POST FACTO CLAUSE)/CONSTITUTIONAL LAW (1000-FOOT SCHOOL-GROUNDS NO-GO ZONE IN THE SEXUAL ASSAULT REFORM ACT IS NOT PUNITIVE IN EFFECT AND THEREFORE DOES NOT VIOLATE EX POST FACTO CLAUSE)/EX POST FACTO CLAUSE (1000-FOOT SCHOOL-GROUNDS NO-GO ZONE IN THE SEXUAL ASSAULT REFORM ACT IS NOT PUNITIVE IN EFFECT AND THEREFORE DOES NOT VIOLATE EX POST FACTO CLAUSE)