The Commercial Division of the New York Supreme Court has dismissed a shareholder suit against Bank of America, applying more stringent Delaware law to the case in which Bank of America is accused of allegedly breaching its fiduciary duty relating to the sale of residential mortgage-backed securities (“RMBS”) and Libor dealings.
In his dismissal of the suit — David Shaev Profit Sharing Plan v. Bank of America Corp. et al., (No. 652580/2011, in the Supreme Court of the State of New York, County of New York) — Judge Melvin Schweitzer said that Delaware law — not New York law — was applicable and that the plaintiff did not have the right to sue under Delaware law because the complaint did not provide evidence of a breach of fiduciary duty by the individual directors of the bank. Judge Schweitzer also said the pleadings failed to provide grounds for omitting a shareholder demand on the directors.
Judge Schweitzer noted that Bank of America, which is incorporated in Delaware, is not a corporation under the New York Banking Law and, as such, the provisions of the New York Banking Law do not apply to the case.
David Shaev Profit Sharing Plan brought suit in 2011, alleging that the bank and its executives failed to conduct due diligence in securitizing mortgage loans by including residential mortgage-backed securities that third-party firms had recommended for exclusion. In addition, the plaintiff argued that the bank’s individual directors owed a higher duty of care than those imposed on ordinary corporations, saying the directors neglected their duty in pushing for the bank to compete aggressively in the RMBS market.
David Shaev Profit Sharing Plan amended its filing in 2012 to include an accusation that Bank of America suppressed its Libor rates that were reported to an aggregating service to downplay the risk of loan defaults.
In his dismissal, Judge Schweitzer also held that the plaintiff had failed to plead relevant facts that would enable the court to evaluate the independence and interestedness of the bank’s directors, as well as “the valid exercise of business judgment by a majority of the directors,” at the times each claim was submitted.
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