A federal appeals court has affirmed the dismissal of double-derivative lawsuits that sought to force Bank of America to force its subsidiary-by-merger Merrill Lynch to bring claims against former Merrill officers and directors over investments in allegedly risky Collateralized Debt Obligations. By summary order, Judges Dennis Jacobs (See Profile), Robert Katzmann (See Profile) and Debra Ann Livingston (See Profile) upheld the decisions of Southern District Judge Jed Rakoff (See Profile) in Lambrecht v. O’Neal, 11-1285, and Sollins v. O’Neal, 11-1589. Rakoff had dismissed Sollins’ case because Sollins’ predecessor-in-interest failed to make a pre-suit demand on the board of directors and thus had failed to show futility.
While the plaintiff in Lambrecht made demands on the board, Rakoff found the plaintiff was unable to show the board refused to pursue claims against the officers and directors. The circuit, after hearing oral arguments on Oct. 12 at New York Law School, found no error with either ruling. The claims of Lambrecht, it said, failed to surmount the “high bar” of the business judgment rule.
Sollins had argued that BofA was “complicit” in wrongdoing connected to Merrill’s pre-merger foray into the subprime market by, among other things, agreeing to let Merrill pay bonuses at 2007 levels. “As the district court correctly stated, Sollins cannot simply bootstrap his subprime claims against Merrill onto these merger-related allegations against BofA in an attempt to circumvent the demand requirement,” the circuit panel said yesterday.