Cleary Gottlieb sustained its lower court victory when the Delaware Supreme Court unanimously affirmed the decision of Vice Chancellor Stephen Lamb of the Court of Chancery dismissing derivative claims against Citigroup’s Board of Directors. The Supreme Court issued its decision on November 6, 2006.
In a second attempt to impose personal liability on Board members (Cleary Gottlieb helped defeat a similar suit two years ago), the shareholder argued that board members breached their fiduciary duties because they did not know about certain Citibank transactions with Enron and alleged conflicts of interest in connection with equity research reports issued by Salomon Smith Barney’s Jack Grubman. In its unanimous order, the Delaware Supreme Court affirmed Vice Chancellor Lamb’s dismissal in light of his well-reasoned opinion and the Court’s Delaware Supreme Court’s decision in Stone v. Ritter, decided the same day, which reaffirmed the principle under Delaware law that directors are not subject to personal liability simply because, despite having enacted reasonable systems of internal controls, they were unaware of alleged misconduct.