Early 2009, then Vice-Chancellor Strine of the Delaware Chancery Court issued the - by now well-known - opinion in the AIG derivative suit case, that contains many instructive pages on let's say good corporate law and governance practices. I highlighted the case here. Over three years passed. Then Lawrence Cunningham wrote this post about the opinion, the other day.
Civil Trial Judge Excesses and Leo Strine’s AIG Slur
posted by Lawrence Cunningham
Should civil trial courts describe the pleadings alleging wrongdoing in criminal terms? In reading large numbers of opinions in corporate cases over the years, I can recall only one judge who did so. The judge was Leo Strine, an otherwise-obscure figure known among corporate law devotees because of his seat on the Delaware court that hears many business disputes among corporate interests.
In a shareholder lawsuit, Strine was evaluating whether the plaintiffs’ lawyers had alleged a link between their general claim that a corporation lacked adequate internal controls and their further claim that two corporate directors, in particular, knew of this. Strine acknowledged that making the link between a general failure of internal control and someone’s personal knowledge, and therefore culpability, requires a fair amount of detailed specifics. The defendants had challenged the plaintiff’s complaint as deficient in this regard. Strine then wrote the following (the snide style appears in the original, as I am quoting this literally):
“But here? Really? The Complaint fairly supports the assertion that AIG’s Inner Circle led a—and I use this term with knowledge of its strength—criminal organization.”
The prejudicial quality of this calculated and intemperate statement is obvious. It was also gratuitous, because it is beyond the relevant jurisdiction, experience and pleadings. According to lawyers and participants in the case, the statement crystalized Strine’s biased attitude throughout the case and others he oversaw involving the same people. All arose out of the corporate power struggle of March 2005 in which the board of American International Group, under pressure from Eliot Spitzter, ousted Hank Greenberg, its chairman and chief executive of forty years (and leader of what Strine maliciously called the “Inner Circle”).
In addition to being substantively inflammatory, Strine’s gratuitous comment was dangerous because of its timing. Strine published that statement in February 2009, in a case that was trivial in terms of the stakes for Greenberg. It was just four months before a civil trial would begin in New York federal court where Greenberg fought his former company over $20 billion worth of property.
As it turned out, Greenberg won the $20 billion case, following a three-week jury trial, though the jury deliberated for only half a day and the judge, Jed Rakoff, said the plaintiffs did not come close to making out a case. Even so, Strine’s reckless comments could have biased those jurors too. Strine should not have written those words. It would have sufficed to say the pleadings met the required standard. He should expunge the invective from the record or at least apologize for it. Strine would also do well generally to abandon the snide, malicious, gratuitous style of writing on display in this opinion, which is injudicious and unbecoming.
The case was In re American International Group Shareholders’ Derivative Litigation, 965 A.2d 673 (Strine, Delaware Chancery, February 10, 2009).
Ehm. Ok. Wow. I'm not sure where all this comes from, but I sympathize with Max Kennerly's comment on this, well, slur?
You’ve grossly misread the meaning of that quote.
The question on a motion to dismiss is if the plaintiff’s alleged facts — assumed to be true — state a viable claim for relief. Strine’s point was that the facts alleged did far more than state a viable claim: they were so strong as to allege criminal activity. Strine was thus lambasting the defense lawyers for wasting the court’s time in filing a motion to dismiss that obviously could not be granted on the facts alleged.
Do you think defense lawyers should be praised for filing frivolous motions? That judges should remain absolutely silent when lawyers file wasteful, unnecessary motions that obviously cannot be granted?