week, there was coverage in the financial press about the dismissal of a
securities law suit by a New York court against the independent directors of
Satyam. Now, a copy of the order dated January 2, 2013 issued by Judge Barbara
Jones of the Southern District of New York is available through D&O
Diary, which also carries a detailed analysis of the opinion.
shareholder suits failed on two counts, one procedural and the other substantive.
On the procedural count, it was found that on an analysis of the principle laid
down by the US Supreme Court in Morrison,
the plaintiff shareholders’ claim is to fail because they either bought shares
on an Indian stock exchange or exercised employee stock options which was said
to have taken place in India. In other words, the New York court was unable to
exercise jurisdiction. On the substantive count, it was found that the
shareholders’ claim against the independent directors of Satyam was not
sustainable because the claims concern an “intricate and well-concealed fraud
perpetrated by a very small group of insiders and only reinforce the inference that
the [independent directors] were themselves victims of the fraud.”
Although the evidence of
successful personal actions against independent directors even in the US is
limited, this court ruling would provide some source of comfort to independent
directors who are usually concerned about personal liability for actions that
are beyond their control.