Stone v. Ritter case brief

Stone v. Ritter case brief summary
911 A.2d 362 (Del. 2006)

CASE SYNOPSIS

Plaintiff shareholders appealed a judgment of the Court of Chancery of the State of Delaware, in and for New Castle County, which granted defendant current and former corporate directors' motion to dismiss the shareholders' derivative action alleging a violation of the directors' duty of good faith regarding banking law violations. The chancery court dismissed the derivative complaint under Del. Ch. Ct. R. 23.1.

CASE FACTS
The bank and corporation paid fines and civil penalties for the bank's failure to file Suspicious Activity Reports in violation of the Bank Secrecy Act, 31 U.S.C.S. § 5318(g), in relation to a money laundering scheme. The shareholders alleged that the directors failed to implement any statutorily required monitoring, reporting, or information controls that would have enabled them to learn of the problems.

DISCUSSION

• On a appeal, the court found that the chancery court applied the correct standard. 
• A necessary condition for director oversight liability was a sustained or systematic failure of the board of directors to exercise oversight. 
• A consultant's report reflected that the directors not only discharged their oversight responsibility to establish an information and reporting system but also proved that the system was designed to permit the directors to periodically monitor the bank's compliance with regulations. 
• Although there were ultimately failures by employees to report deficiencies, there was no basis for an oversight claim seeking to hold the directors personally liable for such failures by the employees.

CONCLUSION
The court affirmed the judgment.


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