Skadden Wins Dismissal for Countrywide Directors

Skadden won a dismissal on Tuesday for two former directors of Countrywide Financial Corp. in a derivative lawsuit in the U.S. District Court for the District of Delaware. The court held that Countrywide's stock-for-stock merger with Bank of America eliminated the plaintiffs’ standing to pursue derivative claims against Countrywide board members. The Countrywide board faced more than $2 billion in damages for claims of breach of fiduciary duty and insider trading stemming from Countrywide's subprime mortgage practices and two stock repurchase plans implemented in 2006 and 2007. The case is significant because it distinguishes the Third Circuit's controversial 1992 decision in Rales v. Blasband, which held that stockholders could continue to pursue derivative claims after a stock-for-stock merger. Ultimately, the Delaware court agreed with the numerous Delaware decisions that have characterized the Rales opinion as inconsistent with well-settled Delaware law, and dismissed the case on standing grounds.