In Diep v. Trimaran Pollo Partners, LLC, No. 313-2021, 2022 Del. LEXIS 192 (Del. June 28, 2022), the Delaware Supreme Court affirmed the Court of Chancery’s decision dismissing a stockholder derivative action where the company had appointed a special litigation committee (SLC) after the action had survived a motion to dismiss.
In this split decision, the majority found that the trial court had properly evaluated the SLC’s independence, investigation, and conclusions, and affirmed the trial court’s dismissal of the action. The majority explained that the fact that an SLC member has personal or professional ties to a defendant director does not automatically create a conflict for that SLC member. Instead, the question is whether the personal or professional ties are such that the SLC member would be more willing to risk her reputation than her relationship with the defendant director. Further, the fact that SLC members served on the company’s board at the time the company joined a motion to dismiss the present lawsuit does not automatically indicate that the SLC “prejudged” the merits of the lawsuit it was later charged with investigating.
The dissenting opinion its concern that the situation involved more than the “mere presence” of the SLC members on the board at the time of a motion to dismiss. Instead, in the dissent’s view, there was the further important fact that the motion to dismiss was based on the same substantive issues that the SLC would later be tasked with investigating, and the record suggested that the board must have engaged in substantive discussion and approval of the motion to dismiss.