The U.S. District Court for the Central District of California recently granted the defendants’ motion for judgment on the pleadings in a consolidated shareholder derivative action alleging breach of fiduciary duty against Countrywide’s former directors and officers arising out of Countrywide’s exposure to the subprime crisis. In re Countrywide Financial Corporation Derivative Litigation, Case No. CV-07-06923-MRP (December 11, 2008).
We previously discussed the decision in which the US District Court for the District of Delaware dismissed a shareholder derivative action against Countrywide's directors and officers here. Applying reasoning similar to that employed in the court's decision in the derivative action in Delaware, the California federal court held that Countrywide’s merger with Bank of America eliminated the plaintiffs’ standing to pursue derivative claims on Countrywide’s behalf because the shareholder plaintiffs ran afoul of the requirement that they must continuously hold shares of Countrywide stock throughout the course of the litigation.
In dismissing the action, the court also declined to exercise its equitable power to allow the plaintiffs to retain standing to pursue their derivative claims for relief. The court reasoned that it would only allow the plaintiffs to retain standing if: (1) the value of the derivative claim was not included in the consideration by Bank of America as part of the merger; and (2) such consideration was not at least as valuable as the value of Countrywide, including the derivative claims for relief. In light of the fact that the Countrywide shareholders had already brought a direct action against Countrywide’s former directors and officers in Delaware Chancery Court regarding the fairness of the consideration paid by Bank of America, the court found that the proceedings in Delaware would sufficiently protect the plaintiffs' interests such that the court’s exercise of its equitable power to confer standing was unnecessary.
For a copy of the decision, please click here.