The Delaware chancery court has decided two very important cases arising out of notorious cases of managerial malfeasance or neglect – In re Citigroup Inc Shareholder Derivative Litigation, decided February 24, and American International Group, Inc. Consolidated Derivative Litigation, decided February 10.

As discussed in a Wachtell, Lipton, Rosen & Katz client memorandum posted here last week, and by Francis Pileggi here, the Citigroup decision reaffirms business judgment protection in Delaware by emphasizing the “extremely high burden” plaintiffs face in suing directors for breach of Caremark oversight duties. In this case, Chancellor Chandler held that merely claiming that directors made a bad business decision by failure to monitor business risk was not enough to excuse demand in a derivative suit.

However, in the AIG decision, Vice Chancellor Strine refused to dismiss a Caremark claim in the face of allegations of criminality and insider trading. This case was also analyzed by Francis Pileggi here.

Rather than rehashing the excellent analyses of these cases discussed in the posts linked above, I will focus on the broader implications of these opinions for corporate fiduciary jurisprudence in the post-meltdown era. I will emphasize three issues: the indeterminacy of corporate fiduciary law, the weakness of this law and other corporate monitoring devices in addressing the recent breakdown in corporate governance; and how these cases relate to Delaware jurisprudence on unincorporated business entities.

(more…)