A plaintiff accusing Citigroup’s board of being disloyal to shareholders by disregarding indications that the megabank’s mortgage servicing and foreclosure practices were faulty in the runup to the financial crisis told the Second Circuit on Friday that a lower court judge used the wrong standard in dismissing the suit. The trial court judge had applied the Delaware standard articulated in In re: Caremark — one of the toughest to clear on the law.
Plaintiff’s counsel argued that the facts of the case were different enough that Caremark doesn’t apply. Among other things, the board had implemented controls in contravention of Caremark’sconditions precedent.
Citigroup Inc. countered that it was right to accept Caremark into the court’s analysis, which found that the board had to have had “red flags” in front of it pointing toward possible misconduct for an allegation of disloyalty to stand.
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