MARYLAND CASE FOR BUSINESS LITIGATION

Facts:

Plaintiff, a Delaware limited partnership (LP), filed suit against defendant, a Maryland corporation (MC) and some of its officers and directors. The LP owned public preferred stock in the MC. It claimed that it was owed dividends on its stock, and asserted claims that management and control of the MC were directed towards benefiting the common stock holders at the expense of the preferred stock holders. After investigating the matter through two special litigation committees (SLC), the MC concluded that there was no evidence to support the LP’s derivative claims, which alleged breaches of fiduciary duties by the MC officers and directors. The LP filed suit against defendant alleging in multiple claims that the LP was due accrued and unpaid dividends on its stock. The MC filed a motion under Md. R. 2-502 to dismiss the LP’s derivative claims based on the business judgment rule under Md. Code Ann., Corp. & Ass’ns § 2-405.1 (2007).

Issue:

Whether this Court should defer to the business judgment of defendant’s board and dismiss plaintiffs’ derivative claims without a trial on their merits and are the findings and conclusion of the 2nd SLC reasonable?

Discussion:

At the completion of the two hearings conducted on the motion, this Court had before it the 2nd SLC’s Revised Report of July 20, 2007 (41 pages in length), and Revised Conclusions (4 pages in length), as well as twenty-five document exhibits appended to the Revised Report and Conclusions. Additionally, the record was composed of all pleadings previously filed in the litigation which were relevant to the issues posed by the present motion; all hearing exhibits pertaining to the work of the 1st and 2nd SLCs, correspondence, handwritten notes of members, witness interview lists, memoranda and notes of the 1st and 2nd SLC, meeting minutes, seven prior draft 1st SLC Reports and one interim 1st SLC Report to the board, the 2nd SLC Revised Report and Conclusions; deposition transcripts and dvd’s, internal defendant’s documents including Amended and Restated Bylaws, the Certificates of Resolution, a list of committee members and their powers and duties, draft minutes of meetings of the board of directors, Transaction Committee meeting minutes, salary schedule of defendants; Forms 10-Q, 10-K and 8-K; defendant’s draft proxy agreements, board meeting agenda and minutes defendant’s corporation’s Certificate of Resolutions and ubIQuity.com unanimous written consents regarding defendant; deposition and various correspondence in e-mail, letter and fax form among and between the parties. This court initially noted that the LP bore the burden of proof on the issues of independence, good faith, and reasonableness with respect to a determination under the business judgment rule pursuant to § 2-405.1. It found no evidence that the SLC members were biased. Rather, the court determined that the members of the SLC and their legal advisors acted independently and in a disinterested manner, and that they performed their duties in good faith. Further, this court found that the SLC undertook a reasonable investigation of the derivative claims, and that the SLC’s findings and conclusions were reasonable.

Conclusion:

This court hence dismissed the LP’s derivative claims with prejudice.

Disclaimer:

These summaries are provided by the SRIS Law Group.  They represent the firm’s unofficial views of the Justices’ opinions.  The original opinions should be consulted for their authoritative content