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Seybold v. Groenink

March 12, 2007

MARLENE SEYBOLD, IRA DERIVATIVELY ON BEHALF OF ABN AMRO HOLDINGS, N.V., PLAINTIFF,
v.
RIJKMAN GROENINK, A.A. LOUDON, ARTHUR C. MARTINEZ, A. BURGMANS, D.R.J BARON DE ROTHSCHILD, L.S. GROENMAN, T.A. MAAS-DE BROUWER, M.V. PRATINI DE MORAES, P. SCARONI, LORD SHARMAN OF REDLYNCH, A.A. OLIJSLAGER, ROB F. VAN DEN BERGH, ANTHONY RUYS, WILCO JISKOOT, TOM DE SWAAN, JOOST KUIPER, DOLF COLLEE, AND HUGH SCOTT-BARRETT, -AND- DEFENDANTS, ABN AMRO HOLDINGS, N.V., NOMINAL DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION AND ORDER

This litigation raises the issue of whether an American holder of American Depository Receipts (ADRs)*fn1 in a bank incorporated in the Netherlands has standing to bring a shareholder derivative action against the corporation's directors for common law claims of breach of fiduciary duty and indemnification. It arises in the aftermath of the corporation's deficient compliance with federal anti-money laundering laws, deficiencies which have resulted in the corporation paying hundreds of millions of dollars to federal authorities. Finding that in this diversity action*fn2 New York choice of law rules require that the law of the Netherlands determine whether plaintiff has standing to bring a derivative claim, the defendants' motion to dismiss is granted.

Plaintiff Marlene Seybold is a New Jersey resident and holder of 400 ADRs of ABN Amro Holdings, N.V. ("ABN"), a prominent international corporation offering banking services and financial products worldwide. The defendants are eighteen individuals who are directors and/or senior officers of ABN, and who served in this capacity during the period when ABN failed to comply with federal anti-money laundering statutes.*fn3 Plaintiff has brought a derivative action on behalf of ABN against all of the individual defendants for breach of fiduciary duty and/or aiding and abetting the breach of fiduciary duty, and for indemnification for losses incurred and to be incurred by the corporation as a result of defendants' failures, which exposed ABN to liability to regulators. Seybold seeks disgorgement of any incentive-based or equity-based compensation received by the directors during the relevant time period pursuant to the Sarbanes Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified in various sections of 11, 15, 18, 28, and 29 of the U.S.C.) and common law.*fn4 She also seeks a judgment (1) declaring that the defendants breached their fiduciary duties, (2) requiring them to pay ABN the amounts it was damaged or will be damaged because of their conduct, (3) obligating the defendants to remit to ABN all of their salaries and other compensation received during the periods when they breached their duties, (4) requiring corrective measures and restraint from future wrongdoing, and (5) attorney's fees, expert fees, and other reasonable costs and expenses.

BACKGROUND

The following facts are taken from the complaint in the instant lawsuit and the parties' submissions on the defendants' motion to dismiss. The defendants' submissions include an expert declaration on the law of the Netherlands by Maarten J. Kroeze, Professor of Company Law, Erasmus University, Rotterdam; a declaration by Hendrik Willem Nagtglas Versteeg, secretary to the Supervisory and Managing Boards of ABN; plaintiff's June 2006 demand to the ABN Board of Directors; and the defendants' July 28 letter communicating the ABN Board of Director's response. The plaintiff's submissions include the July 2004 Agreement between ABN and American federal and state regulators on which the complaint relies.

A) ABN's Non-Compliance with Federal Anti-Money Laundering Statutes

ABN is a foreign bank, as defined in Section 3101(7) of the International Banking Act, 12 U.S.C. 3101(7), that is incorporated in Amsterdam, the Netherlands as an "N.V.", a public company with limited liability. It maintains a New York branch ("New York Branch") through which it offers banking services and financial products. Since 2003, ABN has come under investigation by federal and state regulatory authorities for deficiencies in its internal controls to ensure compliance with banking law and federal anti-money laundering laws, and for alleged violations of United States sanctions laws arising from transactions originating in the bank's office in Dubai, United Arab Emirates.

In July 2003, New York state regulators alerted ABN that transactions involving Eastern Europe and limited liability companies located in the United States were "suspect." ABN's subsequent investigation discovered billions of dollars in suspect shell-company transactions. As a result, the company terminated its relationship with certain client banks in Russia, Cyprus and the former Soviet republics. It also hired the U.S. law firm Morrison & Foerster to review the bank's handling of the issue.

B) The Agreement

In July 2004, ABN and its New York Branch entered into a publicly disclosed settlement agreement (the "Agreement") with the Federal Reserve Bank of Chicago, the Federal Reserve Bank of New York, the State of Illinois Department of Financial and Professional Regulation, and the New York State Banking Department. The purpose of this Agreement was to "address deficiencies relating to compliance with applicable federal and state laws, rules, and regulations relating to anti-money laundering policies and procedures." The Agreement required ABN to, among other things, allow the independent testing and audit of the New York Branch's anti-money laundering compliance, train relevant personnel, and institute a diligence program to identify and report suspicious transactions. The Agreement did not state that there had been a finding of money laundering.

C) Order to Destroy

In October 2004, while the chairman of ABN's Managing Board, defendant Rijkman Groenink, met with Federal Reserve Bank regulators in New York over the Eastern European transactions, he received a fax at the Ritz-Carlton Hotel concerning the results of an internal ABN investigation regarding Iran-Libya transactions. Groenink allegedly ordered his aides to destroy the report and to stop sending sensitive documents to the United States. ABN internal investigators later concluded that he rescinded the orders. ABN's in-house counsel reported the incident to Sullivan & Cromwell, the company's principal outside counsel.

D) Dubai Transaction

Notwithstanding the July 2004 Agreement, federal regulators found ABN to have violated U.S. anti-money laundering laws in December 2005. ABN admitted that a "handful" of officers falsely filed paperwork identifying money flows from its Dubai Branch to the New York Branch as generic interbank transactions when the transfers were destined for companies doing business with Iran and Libya in violation of U.S. sanctions against these countries. ABN conducted an internal investigation and entered into a settlement with U.S. and Dutch regulators calling for $80 million in fines addressing the failure to report suspicious transactions and for conducting illegal business with ...


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