Auerbach v. Bennett
Court of Appeals of New York
393 N.E.2d 994 (1979)
The board of directors of General Telephone & Electronics Corporation (defendant) conducted an investigation and found that General Telephone and its officers had made bribe payments, and that some of the directors had been directly involved in those payments. Auerbach (plaintiff), a shareholder, in connection with other shareholders including Wallenstein, brought a derivative action against the board, General Telephone, and Arthur Anderson & Co., General Telephone’s outside auditor. Auerbach’s complaint alleged that the board members involved in the transactions and Arthur Anderson were both liable to General Telephone for the money lost through those improper transactions. The board of directors formed a special litigation committee, composed of directors who joined the board after the questionable transactions took place, and asked them to evaluate what General Telephone should do about the litigation Auerbach initiated. The special committee found that the directors had not violated their fiduciary duties, and that the claims were without merit, and that the lawsuit should be dismissed. After this finding, the trial court dismissed the action, and Wallenstein (but not Auerbach) appealed.
Rule of Law
Holding and Reasoning (Jones, J.)
Dissent (Cooke, C.J.)
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