Stone v. Ritter

AmSouth Bancorporation (AmSouth) (defendant) paid a $50 million fine due to its failure to maintain sufficient internal controls regarding the Bank Secrecy Act and antimoney-laundering requirements. AmSouth’s fine resulted from its failure to detect that two bank customers ran a Ponzi scheme involving the customers’ AmSouth accounts. A subsequent report issued by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) found that (1) AmSouth failed to file required suspicious-activity reports with the Treasury Department, (2) AmSouth failed to develop an antimoney-laundering program to prevent the bank from being used for money-laundering purposes, and (3) AmSouth’s board of directors and management failed to exercise adequate oversight of AmSouth’s antimoney-laundering program. AmSouth shareholders William and Sandra Stone (plaintiffs) brought a shareholder-derivative action against C. Dowd Ritter and other former or current AmSouth directors (collectively, directors) (defendants), alleging that the directors breached their fiduciary duties to AmSouth by failing to institute sufficient internal controls. The Stones’ complaint reiterated FinCEN’s findings regarding AmSouth’s control deficiencies but did not plead particularized facts underlying FinCEN’s conclusions. The Stones did not make a presuit litigation demand on AmSouth’s board. Instead, the Stones contended that a majority of the board could not disinterestedly and independently consider a demand because the directors faced a substantial likelihood of liability over the Stones’ claim. Therefore, the Stones argued, demand was futile. However, the Stones did not plead with particularity that the directors were presented with any red flags regarding the adequacy of AmSouth’s controls or that the directors consciously ignored any such red flags. The Stones further contended that demand was excused because the directors intentionally disregarded their oversight duties by not exercising any business judgment regarding AmSouth’s internal controls. But, again, the Stones did not plead any supporting facts with particularity.