Joy v. North
United States Court of Appeals for the Second Circuit
692 F.2d 880 (1982)
Citytrust (defendant) made a series of risky, sometimes unsecured or above-statutory-limit loans exceeding $2.5 million to the Katz Corporation for an office-building project, eventually taking over the building's mortgage when Katz's partnership transferred title, then selling the building to a buyer who defaulted, all without clear evidence the property generated enough rental income to cover the obligations Citytrust had assumed. Dr. Athalie Joy (plaintiff) brought a shareholder derivative suit on behalf of Citytrust's parent company, Bancorp, after an unsuccessful demand on the board; the board's Special Litigation Committee recommended dismissing most claims and settling others, but Joy refused to withdraw. The district court, after discovery into the committee's independence and competence, granted summary judgment to the outside defendants, applying the business-judgment rule to protect the committee's recommendation; Joy appealed.
Whether the business-judgment rule applies when a special litigation committee recommends dismissal of a shareholder derivative suit in cases involving direct financial harm to the corporation and a diminishing of shareholder investment value.