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Brautigam v. Rubin

United States District Court, S.D. New York

September 24, 2014

MICHAEL G. BRAUTIGAM, Plaintiff,
v.
ROBERT E. RUBIN, et al., Defendants

Page 500

For Michael G. Brautigam, an individual, Plaintiff: Joe R. Whatley, JR., LEAD ATTORNEY, Edith M. Kallas, Whatley Kallas LLP(NYC), New York, N.Y. USA; Brian Dale Brooks, Smith Segura & Raphael, LLP, New York, N.Y. USA; Christopher D. Jennings, William T. Crowder, PRO HAC VICES, John G. Emerson, Jr., Scott E. Poynter, Emerson Poynter LLP, Little Rock, AR USA; J. Gerard Stranch, IV, James G. Stranch, III, Joe P. Leniski, Jr, PRO HAC VICES, Branstetter, Stranch & Jennings, PLLC, Nashville, TN USA; Robert A. Jigarjian, PRO HAC VICE, Jigarjian Law Offices, San Anselmo, CA USA.

For Robert E. Rubin, Vikram Pandit, Defendants: Brad Scott Karp, Richard A. Rosen, Susanna Michele Buergel, LEAD ATTORNEYS, Jane Baek O'Brien, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, N.Y. USA.

For C. Michael Armstrong, John M. Deutch, Anne M. Mulcahy, Alain J.P. Belda, Timothy C. Collins, Jerry A. Grundhofer, Robert L. Joss, Andrew N. Liveris, Michael E. O'Neill, Richard D. Parsons, Lawrence R. Ricciardi, Judith Rodin, Robert L. Ryan, Anthony M. Santomero, Diana L. Taylor, William S. Thompson, Jr., Ernesto Zedillo, Defendants: Mary Jane Eaton, LEAD ATTORNEY, Sameer Nitanand Advani, Willkie Farr & Gallagher LLP (NY), New York, N.Y. USA.

For Citigroup, Inc., Nominal Defendant: Steven M. Bierman, LEAD ATTORNEY, Jonathan Warren Muenz, Sidley Austin LLP (NY), New York, N.Y. USA.

OPINION

Page 501

Thomas P. Griesa, United States District Judge.

This is a derivative action brought on behalf of nominal defendant Citigroup, Inc. against several corporate directors. Plaintiff Michael Brautigam alleges that these defendants breached their fiduciary duties to the company and its shareholders by failing to properly oversee the company's mortgage-servicing operations. This failure of oversight, plaintiff alleges, caused Citigroup to suffer liability and reputational harm. In addition, plaintiff contends that the board's recommendation to reject a shareholder proposal without disclosure of certain facts constitutes a breach of its duty of disclosure.

Defendants move to dismiss the complaint. The motion is granted.

Procedural Background

Plaintiff filed this action on April 20, 2011. The court consolidated this case with another, and on February 14, 2012, plaintiff filed a consolidated complaint. Plaintiff amended that complaint on May 15, 2012. On March 29, 2013, the court dismissed plaintiff's amended consolidated complaint with leave to amend. On September 19, 2013, plaintiff filed the second amended consolidated complaint.

The Complaint

The Parties

Plaintiff Michael Brautigam, a citizen of Ohio, is currently a Citigroup shareholder who purchased his shares in the company before the events described in the complaint.

Nominal defendant Citigroup is a Delaware corporation with its principal place of business in New York City. Citigroup is a holding company for a global portfolio of financial-services companies. The Citigroup corporate charter contains the following exculpation provision:

No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction

Page 502

from which the director derived an improper personal benefit.

Individual defendants are Robert E. Rubin, C. Michael Armstrong, John M. Deutch, Anne M. Mulcahy, Vikram Pandit, Alain J.P. Belda, Timothy C. Collins, Jerry A. Grundhofer, Robert L. Joss, Andrew N. Liveris, Michael E. O'Neill, Richard D. Parsons, Lawrence R. Ricciardi, Judith Rodin, Robert L. Ryan, Anthony M. Santomero, Diana L. Taylor, William S. Thompson, and Ernesto Zedillo. All are current or former Citigroup directors. None are citizens of Ohio.

Plaintiff has not demanded that the current Citigroup board institute litigation against defendants.

Citigroup's Mortgage-Servicing Business

One of Citigroup's many enterprises was mortgage servicing--essentially, collecting mortgage payments from the mortgagors and distributing the proceeds. This service included default management (taking defaulted residential loans through foreclosure) and loss mitigation (negotiating alternatives to foreclosure, such as repayment plans and loan modifications). The collapse of the residential mortgage market in 2007 caused Citigroup to shift its mortgage-servicing business to focus on default management and loss mitigation.

The essence of the complaint is that the director defendants were aware of, but failed to heed, red flags that would have alerted them to problems in Citigroup's mortgage-servicing business. Plaintiff asserts that Citigroup's directors wrongfully permitted Citigroup to engage in unlawful foreclosure practices ...


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