The District Court for the Southern District of New York consolidated three separate derivative actions brought by shareholders of Ambac Financial Group, Inc (Ambac) against Ambac officers and directors in which claims for breach of fiduciary duty, corporate waste, unjust enrichment and violations of the Securities Exchange Act of 1934 were alleged (Consolidated Action). The plaintiffs in two derivative actions filed against Ambac’s officers and directors in the Delaware Court of Chancery (Proposed Intervenors) moved to intervene in the Consolidated Actions pending in the Southern District (both as of right and with the Court’s permission) and to be designated as co-lead plaintiffs with respect to the breach of fiduciary duty claim, which was the sole claim asserted in the Delaware actions. The three original plaintiffs opposed the motion.
The Court began by noting that, among other things, a party seeking to intervene as of right must show that its interest is not adequately represented by the other parties to the action in which intervention is sought. The Court then clarified that because the Proposed Intervenors sought to intervene as plaintiffs in a shareholder derivative action, the “true party in interest” was the corporation itself, and not the Proposed Intervenors. Accordingly, the Court ruled that granting intervention would not be appropriate if the original three plaintiffs in the Consolidated Action could adequately represent Ambac’s interests.
The Proposed Intervenors, while conceding that the original plaintiffs adequately represented Ambac’s interest on two of the three existing claims, asserted that their proposed Complaint in Intervention contained more detailed allegations regarding the third claim—for breach of fiduciary duty—and that they would more “vigorously prosecute” that claim. However, after noting that the Proposed Intervenors must rebut “the presumption of adequate representation by the party already in the action,” the Court held that the presumption had not been rebutted. The Court ruled that simply because the original plaintiffs had asserted not only a fiduciary duty claim but also additional causes of action in the Consolidated Action did not render the original plaintiffs’ representation “inadequate” with respect to the fiduciary duty claim. Having held that the Proposed Intervenors could not intervene as a matter of right, the Court then declined to exercise discretion to grant them permissive intervention. (Ambac Financial Group, Inc., Derivative Litigation, No. 08 Civ. 854 (SHS), 2009 WL 1309148 (S.D.N.Y. May 12, 2009))