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Davis Polk Achieves Victory for S&P Global Inc. in Shareholder Derivative Action

On February 13, 2018, the New York Appellate Division, First Department, affirmed the complete dismissal of a derivative lawsuit brought by two shareholders of McGraw Hill Financial, Inc. (now known as S&P Global). Davis Polk represented McGraw Hill as the nominal defendant.

The complaint, filed in August 2015, claimed that certain of the company’s directors and employees had breached their fiduciary duties by failing to prevent the company’s ratings services business (“S&P”) from issuing allegedly inflated credit ratings for RMBS and CDOs. The lawsuit was prompted by the Company’s earlier $1.5 billion settlement of claims by the Department of Justice and various state attorneys general that S&P had inflated its RMBS and CDO ratings during the period leading up to the financial crisis. The shareholders’ derivative action sought to hold the individual defendants liable for the settlement amounts that S&P paid to resolve those claims.

In December 2016, the trial court granted Davis Polk’s motion on behalf of the company to dismiss the complaint on the grounds that it failed to plead that plaintiffs were excused from the requirement of making a demand on the company’s directors before bringing suit on the company’s behalf.

On Tuesday, the Appellate Division affirmed the trial court’s dismissal of the complaint. The court rejected the plaintiffs’ claims that the company’s directors had failed to adequately oversee S&P’s ratings business or to respond to purported “red flags” of inflated ratings. The court agreed with Davis Polk’s arguments on behalf of the company that the complaint’s own allegations demonstrated the board’s appropriate oversight of the ratings business. The court also accepted arguments made separately by the individual defendants that the complaint’s breach of fiduciary duty claims were untimely and inadequately pled.

The Davis Polk team included partner Charles S. Duggan (who argued the appeal), counsel Brian M. Burnovski, associates Cristina Rincon and Jake Bissell-Linsk.