1. What is the purpose of Rule 23.1?

2. Did the stockholder plaintiffs usurp the board’s right to manage the affairs of the corporation in this case?

Plaintiff stockholders sued derivatively CEO Maurice Greenberg, CFO Howard Smith, and other former officers who had served on American Insurance Group’s (AIG’s) board of directors. The plaintiffs took this action on behalf of the corporation for damages the former officers had caused AIG by having the corporation engage in illegal acts. Among other illegalities, the plaintiffs asserted that AIG had created a fictional reinsurance business transaction with General Reinsurance Corp. to inflate loss reserves, thus making AIG appear to be a healthier company than it actually was and inflating AIGs stock price. AIG’s board of directors formed a special litigation committee (SLC) to look into the stockholder plaintiffs’ allegations, giving full authority to the SLC to address the litigation. The SLC investigated all matters and decided to join this action as a direct plaintiff on behalf of the corporation, asserting breach of fiduciary duty and indemnification claims against former CEO Greenberg and former CFO Smith. The defendants, Greenberg and Smith, contended that the stockholder plaintiffs must make a demand on the full board. Moreover, they asserted that under procedural law, boards of directors should not be lightly bypassed by derivative plaintiffs.

JUDICIAL OPINION

STRINE, Vice Chancellor … Here, the AIG board’s primacy in decision making has been fully honored. The AIG board invested complete authority in an SLC to decide what position the corporation would take with regard to this lawsuit. This case was then delayed for a lengthy period during which the SLC evaluated what position to take.

The SLC’s task was a complicated one, especially given the reality that the fraudulent schemes pled in the Complaint were ones that exposed AIG itself to liability. Thus, the SLC had to weigh the advantage of having AIG prosecute claims against the defendants with the disadvantage of affirmatively accusing AIG officials of wrongful acts that third-party plaintiffs would impute to AIG itself. In the end, the SLC chose to have AIG sue Greenberg and Smith itself, to seek dismissal of certain defendants, and to otherwise take no position on the Stockholder Plaintiffs’ claims.…

Given this reality, the Stockholder Plaintiffs need not make a demand because demand would be futile. The SLC has had a full and fair opportunity to decide whether to prosecute the claims brought by the Stockholder Plaintiffs, seek their dismissal, or take no position and permit the …………