Stone v. Ritter case brief summary
911 A.2d 362 (Del. 2006)
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.
On a appeal, the court
found that the chancery court applied the correct standard.
necessary condition for director oversight liability was a sustained
or systematic failure of the board of directors to exercise
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.
Recommended Supplements for Corporations and Business Associations Law
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