ordinary and prudent person

In October 1977 Dr. Athalie Doris Joy filed a shareholder derivative suit in the United States District Court for the District of Connecticut on behalf of Connecticut Financial Services Corporation, later Citytrust Bancorp, Inc., against its wholly owned banking subsidiary Citytrust and its officers and directors. The complaint asserted common-law claims for breach of fiduciary duty and violations of the National Bank Act arising from a series of loans made by Citytrust to the Katz Corporation to finance construction of an office building in Norwalk, Connecticut, and sought recovery of approximately six million dollars. The underlying transactions began in 1967 when Citytrust entered a twenty-year lease for space in the planned building. In January 1971 Katz obtained a four-million-dollar construction mortgage in which Citytrust participated for five hundred thousand dollars while Chase Manhattan Bank supplied the remainder. Unsecured advances from Citytrust to Katz grew steadily, reaching nine hundred thousand dollars by December 1972 and one million eight hundred forty thousand dollars by June 1973. In November 1973 Citytrust obtained a blanket second mortgage on the building and other Katz properties. By April 1975 Citytrust had extended more than two million six hundred thousand dollars in loans and, as a condition of refinancing arranged with Lincoln National Life Insurance Company, assumed a thirty-year master lease guaranteeing the six-million-dollar Lincoln loan. National Bank Examiners classified portions of the Katz debt as doubtful in 1975 and substandard earlier. On August 18, 1976 the Citytrust board authorized additional loans that caused the total indebtedness to exceed the ten-percent statutory limit, after which Citytrust charged off two million dollars. In June 1977 the Katz partnership conveyed title to the building to Citytrust in exchange for releases, and Citytrust assumed the six-million-dollar Lincoln mortgage. Second Nutmeg Financial later purchased the building but subsequently defaulted, returning ownership to Citytrust. After the Supreme Court decided Burks v. Lasker, the boards of Citytrust and its parent created a Special Litigation Committee consisting of two newly elected outside directors, Marion S. Kellogg and Ernest C. Trefz. The Committee retained independent counsel, investigated for nine months, and issued a report recommending dismissal as to twenty-three outside defendants and possible settlement with seven inside defendants. The district court permitted limited discovery on the Committee's bona fides, placed the report under seal, granted summary judgment for the twenty-three outside defendants, and Joy appealed both the judgment and the sealing order to the Second Circuit.

Alfred S. Johnson Incorporated was incorporated in 1955 to process color photographs for reproduction in printed form. Johnson originally owned all 100 shares but sold 20 shares to James DeBaun, the primary salesman, and 10 shares to Walter Stephens, the production manager. Johnson died testate on January 15, 1965, and his will named First Western Bank and Trust Company as executor and trustee of a trust holding the remaining 70 shares. George Furman, a Bank employee, administered the trust directly while the Bank voted the shares at meetings but left management to DeBaun, Stephens, and estimator Jack Hawkins. Under DeBaun and Stephens' guidance, the corporation's net after-tax profits increased from $15,903 in fiscal 1964 to $56,710 in the first ten months of 1968. In October 1966, the Bank's trust department determined the investment unsuitable and decided to sell the 70 shares without notifying anyone connected with the corporation. The Bank obtained an appraisal from General Appraisal Company valuing the corporation at $326,000 as a going concern and retained W.H. Daum Investment Company to find a buyer. In 1968, Raymond J. Mattison offered to buy the shares through S.O.F. Fund, an inter vivos revocable trust. The Bank received a Dun & Bradstreet report on May 24, 1968, noting pending litigation, bankruptcies, and tax liens against Mattison's entities. Bank vice-president I. Earl Funk knew of an unsatisfied 1957 superior court judgment against Mattison for fraud obtained by the Bank's predecessor. After Mattison proposed using corporate assets to secure the purchase price balance, the Bank entered an exchange agreement on July 11, 1968, transferring the shares to Mattison as trustee while retaining a pledge and requiring a security agreement on corporate assets. Mattison assumed control on July 11, 1968, and began diverting $73,144 in cash and assigning receivables to his shell company MICO. DeBaun left the corporation in September 1968, and Stephens left in December. Although aware of some misconduct, the Bank took no action until April 25, 1969, when it filed for a receiver. It later voted to replace the board but did not pursue ouster until June 20, 1969, when it shut down operations. At that point, the corporation's debts exceeded assets by over $200,000, and the Bank sold remaining assets for $60,000. DeBaun and Stephens filed an individual action for damage to their shareholdings and a derivative action on behalf of the corporation. After the Bank demurred to both complaints, the individual action was dismissed and the derivative action proceeded to trial before a judge. The trial court entered judgment for the corporation, and the Bank appealed.

Pritchard & Baird Intermediaries Corp., a reinsurance broker, was incorporated in New York in 1959 with five directors including Charles Pritchard Sr., his wife Lillian Pritchard, their sons Charles Jr. and William, and George Baird and his wife Marjorie. The corporation issued 200 shares, with Charles Sr. holding 120. In 1964, the Bairds resigned and sold their stock, leaving the Pritchards as the only directors of the close family corporation. Upon Charles Sr.'s death in December 1973, Lillian Pritchard inherited 72 shares, becoming the largest shareholder with 48 percent of the stock. The corporation commingled premiums, commissions, and loss payments from clients in a single account rather than segregating them as was customary in the reinsurance industry. Beginning in 1970, Charles Jr. and William began withdrawing substantial sums identified on the books as shareholders' loans, which grew from approximately $438,000 in 1970 to more than $12.3 million by the time of bankruptcy in October 1975. These withdrawals exceeded corporate revenues in later years. The annual financial statements showed corresponding increases in working capital deficits, rising from $389,022 in 1970 to $10,176,419 in 1975. No corporate resolutions authorized the loans, no notes evidenced the debts, and no interest was paid or repayments made. Lillian Pritchard took no active role in the corporation's affairs. She visited the Morristown offices only once and never read or obtained the annual financial statements, which were delivered only to Charles Jr. upon his instructions. After her husband's death, she was bedridden for six months, became listless, and drank heavily. The trial court found her competent and that her lack of knowledge resulted from her failure to make any effort to discharge her responsibilities as a director. An involuntary petition in bankruptcy was filed against Pritchard & Baird in December 1975. The trustees in bankruptcy brought suit against the estate of Lillian Pritchard, among others. The trial court entered judgment against her estate for $10,355,736.91 plus interest based on negligence in permitting the payments to her sons. The Appellate Division affirmed the judgment, though on the theory of conversion of trust funds. The Supreme Court of New Jersey granted certification limited to the issue of Lillian Pritchard's liability as a director.

In August 2002 a West Virginia jury found A. T. Massey Coal Co. and its affiliates liable for fraudulent misrepresentation, concealment, and tortious interference with existing contractual relations and awarded Hugh Caperton, Harman Development Corp., Harman Mining Corp., and Sovereign Coal Sales $50 million in compensatory and punitive damages. In June 2004 the trial court denied Massey's post-trial motions, and in March 2005 it denied Massey's motion for judgment as a matter of law. During the 2004 judicial election cycle Don Blankenship, Massey's chairman, chief executive officer, and president, contributed the statutory maximum of $1,000 to Brent Benjamin's campaign committee, almost $2.5 million to the §527 organization And For The Sake Of The Kids that opposed incumbent Justice McGraw and supported Benjamin, and just over $500,000 in independent expenditures for mailings, letters, television, and newspaper advertisements supporting Benjamin. Blankenship's $3 million in contributions were more than the total amount spent by all other Benjamin supporters and three times the amount spent by Benjamin's own committee. Benjamin won the election with 382,036 votes (53.3 percent) to McGraw's 334,301 votes (46.7 percent). In October 2005, before Massey filed its petition for appeal, Caperton moved to disqualify now-Justice Benjamin under the Due Process Clause and the West Virginia Code of Judicial Conduct. Justice Benjamin denied the motion in April 2006. In December 2006 Massey filed its petition for appeal, which the West Virginia Supreme Court of Appeals granted. In November 2007 that court reversed the $50 million verdict in a 3-to-2 decision in which Justice Benjamin joined the majority. Caperton sought rehearing, and the parties moved for disqualification of three justices; Justice Maynard recused after photographs surfaced of him vacationing with Blankenship, and Justice Starcher recused, but Justice Benjamin again declined to recuse. Justice Benjamin, now acting chief justice, selected two replacement judges. Caperton moved a third time for disqualification, supported by a public opinion poll showing that over 67 percent of West Virginians doubted Justice Benjamin's impartiality, but he again refused. In April 2008 the court again reversed the verdict in a 3-to-2 decision. Four months later Justice Benjamin filed a concurring opinion defending both the merits and his participation. The Supreme Court of the United States granted certiorari.