Special Litigation Committees | Brian JM Quinn | November 15, 2013

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Special Litigation Committees

Original Creator: Brian JM Quinn Current Version: Brian JM Quinn Show/Hide

In situations where demand is futile, stockholders can file derivative litigation without making demand. Does that mean that boards have forever lost control over the derivative litigation? In some circumstances the answer is no.

The following cases lay out the doctrine with respect to how a board can retake control over derivative litigation in later stages.

Unlike in the case of demand and demand futility, at this stage of the litigation, boards bear the burden of proving that notwithstanding the fact that demand was previously futile, the board is now in a position to fairly consider the facts of the complaint.  As you will see, this is a heavy burden for a board to bear.

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  1. 1 Show/Hide More Zapata Corp. v. Maldonado
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
    Zapata is the leading case on standard a court will apply to a special litigation committee's attempt to take control over derivative litigation at a later stage – following the 23.1 motion to dismiss and prior to going to trial.
  2. 2 Show/Hide More In re Oracle Corp. Derivative Litigation
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
    At the later stages of shareholder litigation, a board may use a special litigation committee to attempt to take control of litigation back from shareholders. However, at that time the burden of proof with respect to the independence of the board and its special committee have shifted. The special committee bears the burden of proving its independence. At this stage, facts that might not have been troublesome at the 23.1 stage take on a different light.
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June 10, 2016

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