Lowinger v. Oberhelman, No. 18-1863 (7th Cir. 2019)Annotate this Case
In 2011 Caterpillar made serious inquiries about the possible acquisition of a Chinese mining company and its wholly‐owned subsidiary (Siwei). Caterpillar completed that acquisition in June 2012. Only after the closing did Caterpillar gain access to Siwei’s physical inventory and find that Siwei had overstated its profits and improperly recognized revenue. Caterpillar took a $580 million goodwill impairment charge just months after the acquisition. Plaintiffs, Caterpillar shareholders, filed a shareholder derivative suit alleging that several former Caterpillar officers breached their fiduciary duties by failing to conduct an adequate investigation of the Siwei acquisition, which caused Caterpillar’s loss. They made an unsuccessful demand that the Caterpillar Board bring the litigation. The district court dismissed the complaint for failure adequately to allege that the Board wrongfully refused to pursue the Plaintiffs’ claim. The Seventh Circuit affirmed. The Board’s decision not to litigate was protected by the “wide bounds of the business judgment rule.” The plaintiffs might come to a different conclusion about the strategic importance of the acquisition, the risk that litigation might cause disruption and excessive cost for Caterpillar, or the need to interview Siwei’s former CEO, but those types of business and investigative choices are exactly what the business judgment rule protects.