Filed: September 14, 2010
Opinion by Judge Deborah S. Eyler
Held: Courts must apply the business judgment rule in reviewing the decision of a board’s special litigation committee not to pursue a derivative claim alleging self-dealing.
Facts: Certain shareholders (the “Shareholders”) of Boland Trane Associates, Inc. and Boland Trane Services, Inc. (collectively, the “Corporations”) filed derivative claims against the Corporations, alleging that their directors engaged in self-dealing transactions. The directors appointed a special litigation committee to investigate whether to pursue the derivative claims. After conducting an investigation, the committee determined that the claims had no merit and advised that the directors seek to have the claims dismissed.
The circuit court granted summary judgment in favor of the Corporations, deferring to the special litigation committee’s decision under the business judgment rule. The Court of Special Appeals affirmed.
Analysis: The Court of Special Appeals held that the business judgment rule was the proper standard of review. Maryland case law has already addressed the level of deference courts must give to determinations of special litigation committees. A new standard does not apply simply because the Shareholders characterize their claims as alleging self-dealing. Unless the actual members of the special litigation committee themselves engaged in self-dealing (which was not the case), the court must defer to the committee’s decision in accordance with the business judgment rule.
Opinion by Judge Deborah S. Eyler
Held: Courts must apply the business judgment rule in reviewing the decision of a board’s special litigation committee not to pursue a derivative claim alleging self-dealing.
Facts: Certain shareholders (the “Shareholders”) of Boland Trane Associates, Inc. and Boland Trane Services, Inc. (collectively, the “Corporations”) filed derivative claims against the Corporations, alleging that their directors engaged in self-dealing transactions. The directors appointed a special litigation committee to investigate whether to pursue the derivative claims. After conducting an investigation, the committee determined that the claims had no merit and advised that the directors seek to have the claims dismissed.
The circuit court granted summary judgment in favor of the Corporations, deferring to the special litigation committee’s decision under the business judgment rule. The Court of Special Appeals affirmed.
Analysis: The Court of Special Appeals held that the business judgment rule was the proper standard of review. Maryland case law has already addressed the level of deference courts must give to determinations of special litigation committees. A new standard does not apply simply because the Shareholders characterize their claims as alleging self-dealing. Unless the actual members of the special litigation committee themselves engaged in self-dealing (which was not the case), the court must defer to the committee’s decision in accordance with the business judgment rule.
The full opinion is available in pdf.
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