## Facts

- AmSouth Bancorporation and a subsidiary paid $40 million in criminal fines and $10 million in civil penalties after investigations found Bank Secrecy Act and anti–money laundering reporting failures (including failures to file Suspicious Activity Reports).
- AmSouth had a compliance structure that included a BSA officer, a BSA/AML compliance department, a corporate security department, an oversight committee for suspicious activity, and written policies and reporting mechanisms providing the board compliance reports and training.
- The alleged violations were attributed to employees’ noncompliance with existing policies rather than a complete absence of board-level compliance systems.
- AmSouth’s charter included a DGCL § 102(b)(7) provision exculpating directors from monetary liability for duty-of-care breaches, absent bad faith or disloyalty.
- Shareholders filed a derivative action without making a pre-suit demand, asserting demand futility based on an alleged substantial likelihood of director liability for oversight failures.

## Issues

1. Whether the complaint pleaded particularized facts supporting a Caremark oversight claim by alleging bad-faith board conduct (i.e., sustained or systematic failure of oversight).
2. Whether demand was excused under Court of Chancery Rule 23.1 given the § 102(b)(7) exculpation clause and the requirement to plead non-exculpated (bad-faith/loyalty) liability.

## Decision

- The Delaware Supreme Court affirmed dismissal of the derivative complaint.
- The court held the complaint did not plead an “utter failure” to implement reporting or controls, nor a conscious failure to monitor such controls amounting to bad faith.
- Because plaintiffs failed to plead particularized facts showing a substantial likelihood of non-exculpated liability, they failed to plead demand futility under Rule 23.1.

## Legal Principles

- “Good faith” is not a standalone fiduciary duty; it is part of the duty of loyalty, and bad faith includes intentional dereliction of duty or conscious disregard of responsibilities.
- Caremark oversight liability requires pleading and proving either (a) an utter failure to implement any reasonable information and reporting system, or (b) a conscious failure to monitor or oversee an implemented system.
- In a corporation with a DGCL § 102(b)(7) exculpation provision, demand futility generally requires particularized allegations showing a substantial likelihood of non-exculpated liability (bad faith/loyalty), not merely negligent oversight or imperfect compliance systems.

## Conclusion

The court upheld dismissal because the pleaded facts showed the company had compliance systems and did not support an inference that directors consciously ignored known compliance duties; without particularized allegations of bad-faith oversight failure, plaintiffs could not establish non-exculpated liability or excuse demand under Rule 23.1.


Stone v. Ritter, 911 A.2d 362 (Del. 2006)