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In Re Citigroup Inc. Shareholder

May 17, 2011


The opinion of the court was delivered by: Sidney H. Stein, U.S. District Judge.


This document relates to all actions.

Plaintiffs, shareholders of Citigroup, Inc., allege in this consolidated derivative action that defendants -- current and former Citigroup officers and directors -- are liable for wrongdoing in connection with the company's issuance of, and investments in, mortgage-backed assets. This Court dismissed the prior complaint in this matter on the ground that it failed to demonstrate that plaintiffs were excused from their obligation to make a demand on Citigroup's board of directors prior to bringing this suit. Plaintiffs have submitted an amended complaint that defendants maintain suffers from the same defect. Defendants have now moved pursuant to Federal Rules of Civil Procedure 12(b)(6) and 23.1 to dismiss the complaint on that basis. Because plaintiffs' allegations do not give rise to a reasonable doubt that a majority of the Citigroup board -- as it existed in September 2009 when the amended complaint was filed -- would not objectively assess a demand, the Court grants defendants' motion.


A. The Consolidated Complaint

Citigroup announced on November 4, 2007 an $8 to $11 billion write-down on mortgage-backed assets. (First Am. Consolidated Derivative Action Compl. ("Am. Compl.") ¶ 139.) That prompted a flurry of litigation, including this consolidated shareholder derivative action brought on behalf of Citigroup. Plaintiffs' initial consolidated complaint alleged that various Citigroup officers and directors harmed the company by breaching their fiduciary duties of care and loyalty by allowing Citigroup to invest in risky mortgage-backed assets; breaching their fiduciary duty of disclosure by concealing Citigroup's exposure to these assets; wasting corporate assets on the repurchase of Citigroup stock at inflated prices in 2007; committing securities fraud via misleading statements regarding Citigroup's mortgage-backed assets; engaging in insider trading; and unjustly enriching themselves. (Verified Consolidated Derivative Action Compl. ("Cons. Compl.") ¶¶ 129-60.)

It is uncontested that plaintiffs did not demand of Citigroup's board of directors that Citigroup itself pursue these claims against defendants before plaintiffs filed this action. As a result, plaintiffs are required to show that "demand [upon the board of directors] is excused because the directors [were] incapable of making an impartial decision regarding whether to institute such litigation."*fn1 Stone ex rel. AmSouth Bancorp. v. Ritter, 911 A.2d 362, 367 (Del. 2006). This Court granted defendants' motion to dismiss the consolidated complaint because plaintiffs failed to plead particularized facts demonstrating that the board "as it existed in November 2007 was incapable . . . of objectively evaluating a demand." In re Citigroup Inc. S'holder Derivative Litig. (Citigroup Derivative), No. 07 Civ. 9841, 2009 WL 2610746, at *4 (S.D.N.Y. Aug. 25, 2009) (internal quotation marks and footnote omitted). In that opinion -- the reader's knowledge of which is presumed -- the Court permitted plaintiffs to seek leave to file an amended complaint. Id. at *13.

B. The Amended Complaint

Three weeks after the Court's opinion was issued, plaintiffs moved for leave to file an amended complaint and submitted a proposed First Amended Consolidated Derivative Action Complaint ("Amended Complaint"). The Court granted that motion.

The Amended Complaint repeats essentially the whole of its predecessor pleading, with two main additions. Drawing heavily from the complaint filed in In re Citigroup Bondholders Litigation, No. 08 Civ. 9522 -- a document specifically incorporated by reference into the Amended Complaint, (Am. Compl. ¶ 265) -- plaintiffs now allege that defendants were responsible for misleading statements and omissions in certain Citigroup registration statements. (Id. ¶ 1, see id. ¶¶ 78-92, 108-35, 141-72.) These allegations form the basis of claims arising under Section 11 of the Securities Act of 1933.*fn2 (Id. ¶¶ 300-08.) Plaintiffs also claim that the board of directors wasted corporate assets in the retirement package the board gave Charles Prince, Citigroup's departing CEO, on November 4, 2007. (Id. ¶¶ 223-28, 294-95.)


In resolving a motion to dismiss pursuant to Rule 12(b)(6), a court considers the complaint as well as "any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). A court accepts the truth of the facts alleged in the complaint and draws all reasonable inferences in the plaintiff's favor. Id. But that acceptance need not extend to allegations "contradicted by documents deemed to be part of the complaint, or materials amenable to judicial notice." In re Yukos Oil Co. Sec. Litig., No. 04 Civ. 5243, 2006 WL 3026024, at *12 (S.D.N.Y. Oct. 25, 2006); see Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1095 (2d Cir. 1995).

A. Plaintiffs must plead demand futility as to the September 2009 Citigroup board

Demand futility is assessed with the respect to the board of directors extant "as of the time the complaint was filed." Braddock v. Zimmerman, 906 A.2d 776, 785 (Del. 2006). For the initial consolidated complaint, that meant evaluating demand as against the November 2007 Citigroup board. Citigroup Derivative, 2009 WL 2610746 at *4 & n.7. But where, as here, "a complaint is amended with permission following a dismissal without prejudice . . . the [] demand inquiry must be assessed by reference to the board in place at the time when the amended complaint is filed." Braddock, 906 A.2d at 786 (emphasis added). The Court therefore evaluates whether a demand on the board would be futile with respect to the ...

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