Last week, New York State Supreme Court Justice Herman Cahn dismissed the shareholder class actions challenging Bear Stearns’ buyout by JPMorgan Chase & Co. The court found that Bear Stearns pursued the deal to prevent a “potentially cataclysmic” bankruptcy.
The lawsuits claimed that JPMorgan’s offer to purchase Bear Stearns was “unfair and inadequate,” and that Bear Stearns’ directors breached their fiduciary duties by failing to get the highest possible price. The court concluded that Bear Stearns directors’ approval of the merger didn’t subject them to liability, and granted the bank’s request for summary judgment, because the decisions were “shielded” by the business judgment rule. The court stated that Bear Stearns’ directors acted “expeditiously” to consider the company’s “limited options,” and that “the court should not, and will not, second guess their decisions.”
Robert Giuffra, a litigation partner at New York-based Sullivan & Cromwell told Bloomberg that
“Justice Cahn’s decision reflects that we are living through a period of extreme economic uncertainty…. “Given the financial tsunami that has washed over the economy, it’s hard for plaintiffs’ lawyers to argue that boards of directors have engaged in bad conduct when they’re making the best of a bad situation.”
“The worse the crisis has gotten, the harder it’s become for plaintiffs’ lawyers to successfully challenge corporate boards and executives,” Giuffra said.