# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 4- 27 96

__ __ __ __ __ __ __ __ __ __ __ __ __ _

Lau ra Se id l, d eri va ti ve ly on b eh al f of th e n om in al de

fe nd an t wit h re sp ect to th e Am eri can Cen tu ry

Ult ra Fu nd

,

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff - App el la nt

,

v.

Am eri can Cen tu ry

Co m pa ni es , Inc .; Am eri can Cen tu ry Inv es tm en t M an ag em en t,
In c.; J am es E. Sto wers , Jr.; James E. Sto wers , III; Jo na th an S. Tho m as ; Th om as A.

Bro wn; PH.D. And rea C . Hall ; Do na ld H. Pratt ; Gal e E. Say ers ; M . Jea nn in e St ran djo rd ; Ti m ot hy S. W eb st er; W il li am M. Ly on s; Mark Mal lo n; W ad e Sl om e; Bru ce Wim

be rly; Je rry

Su ll iv an ; Am eri can Cen tu ry Mu tu al Fu nd s, In c., do in g bu si ne ss as Am eri can Cen tu ry Ult ra Fu nd

,

ll ll ll ll ll ll ll ll ll ll l Defe nd

an ts - App el le es

.

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s Di st ric t Co ur t fo r th e Weste rn Dis tri ct of M is so ur i - Kan sa s C it y

__ __ __ __ __ __

Su bm it te d: Feb ru ary 10 , 20 15
Fil ed : Au gu st 21 , 20 15

__ __ __ __ __ __

Befo re LOKEN, SMITH, and COLLOTON, Cir cu it Ju dg es

.

__ __ __ __ __ __COLLOTON, Ci rcu it Ju dg e.

Lau ra Sei dl

, a sh ar e h o l d e r o f a m ut ua l fu nd of

fere d by Am eri can Cen tu ry

Co m pa ni es , In c., so u g h t th ro ug h th e de vi ce of a sh areh ol de r’s de riv at iv e act io n to

en fo rce al le ge d rig ht s of th e co m pa ny. The co m

pa ny refu se d he r de m an d to br in g an

act io n, a n d Sei dl br ou gh t su it ag ai ns t se ve ral co rp or at e en ti ti es an d in di vi du al

de fen da nt s. The di st ric t co ur t g r a n te d su m m ary jud gm en t fo r th e de fen da nt s, 1

co nc lu di ng th at Sei dl co ul d no t br in g su it whe re th e co m pa ny ha d de cl in ed to do so

in a va li d e xe rci se of b us in es s ju dg m en t. Sei dl ap pe al s, an d we a ffi rm

.

I.

Thi s ap pe al ari se s ou t of a sh areh ol de r de riv at iv e act io n go ve rn ed by Mar y la nd

la w. A de riv at iv e act io n is “ an ex tra or di na ry eq ui ta bl e de vi ce to en ab le sh areh ol de rs

to en fo rce a co rp or at e rig ht th at th e co rp or at io n fai le d to as se rt on it s own be ha lf.”

W er bo ws ky v. Co ll omb

, 76 6 A.2d 12 3, 13 3 (Md

. 20 01 ). Bec au se th e bu si ne ss affa irs

of a co rp or at io n are m an ag ed by th e bo ard of di rect or s, “ an y ex erci se of th e co rp or at e

po wer to in st it ut e li ti ga ti on

. . . r es ts wit h th e di rect or s.” Id

. The bo ard is req ui red

to ex erci se it s br oa d m an ag eri al au th or it y wit h go od fai th

, in th e be st in te res ts of th e

co rp or at io n, an d wit h th e care of an or di na ry an d pr ud en t pe rs o n i n s i mi l ar
ci rcu m st an ces

. The se ob li ga ti on s ru n to th e co rp or at io n, an d no t to th e sh areh ol de rs

. W he re th e bo ard vi ol at es it s ob li g a ti on s to th e co rp or at io n, sh areh ol de rs m ay fil e a
de riv at iv e act io n o n b eh al f of th e co rp or at io n. Id

.

Bec au se th e rig ht at is su e in a de riv at iv e act io n be lo ng s to th e co rp or at io n, a
sh areh ol de r m

us t m ak e a go od fai th effo rt to co m pe l th e co rp or at io n to su e be fo re sh e

may p u rs ue th e co rp or at io n’s cl ai m s in a de riv at iv e su it

. Id

. at 13 3- 34

. Th i s

The Hon or ab le Ortr ie D. Sm it h, Uni te d St at es Dis tri ct Ju dg e fo r th e W es te rn 1

Dis tri ct of M is so ur i.

-2

-pr eco nd it io n t o s u i t is kn own as th e de m an d req ui rem en t, an d it m an da te s th at th e

co m pl ai ni ng sh areh ol de r m ak e a de m an d up on th e bo ard to co m m en ce th e act io n on

th e co rp or at io n’s be ha lf. Id

. at 13 5. Befo re de ci di ng whe th er to acce pt or reject th e
sh areh ol de r’s de m an d, a bo ard or di na ril y wil l ap po in t a sp eci al li ti ga ti on co m m it te e,

co mp o s e d of di si nt eres te d di rect or s, to in ve st ig at e th e m eri ts of th e sh areh ol de r’s

pr op os ed cl ai m s an d adv is e th e bo ard

. Id

. at 14 4. If a sh areh ol de r m ak es a de m an d

an d th e bo ard refu se s it

, th en th e sh areh ol de r m ay se ek jud ic ia l rev ie w of th at

de ci si on an d t he reas on s u nd erl y in g i t. Id

.

Am eri can Cen tu ry Mu tu al Fu nd s, In c. is a “ se rie s” m ut ua l fu nd

, in co rp or at ed

in Mar y la n d , t ha t of

fers a va rie ty o f po rtf

ol io s of se cu rit ie s fo r in ve st m en t. One of

t h e s e i s th e Ult ra Fu nd

. Am eri can Cen tu ry Mu tu al Fu nd s’s bo ard of di rect or s

ov ers ees al l ei gh te en of it s fu nd s, in cl ud in g t h e U l t ra Fu nd

. Am eri can Cen tu ry

Mu tu a l Fu nd s is co nt ro ll ed by an in ve st m en t m an ag em en t co m pa ny, Am eri can

Cen tu ry Co m

pa ni es , In c., th ro ug h it s su bs id ia ry , Am eri ca n Cen tu ry In ve st m en t

Man ag em en t, In c.

Thi s de riv at iv e su it ari se s ou t of th e Ult ra Fu nd ’s in ve st m en t in Part y Gam in g

Pl c. Part y Gam in g is a Gib ral ta r co m pa ny th at faci li ta te d in te rn et ga m bl in g by

op erat in g web si te s t hr ou gh whi ch pl ay ers co ul d g am bl e o n p ok er g am es

.

In Ju ne 20 05

, Part y Gam in g m ad e an in it ia l pu bl ic of feri ng of it s st oc k, whi ch

was li st ed on th e Lon do n St oc k Exc ha ng e. In it s pr os pe ct us , Part y Gam in g no te d th at

“ [t]he leg al it y

of c us to m ers en ga gi ng in on li ne ga m in g is

. . . un cert ai n in a nu m be r

of co un tri es ,” in cl ud in g th e Uni te d St at es

. In th e fir st qu art er of 20 05

, ap pr ox im at el y
ei gh ty-sev en pe rcen t of Part y Gam in g’s rev en ue cam e fro m Uni te d St at es cu st om ers ,

an d Part y Gam in g ack no wled ge d in it s pr os pe ct us th at “ an y act io n by US au th or it ie s

th at ha s th e effe ct of p r o h ib it in g or res tri ct in g Part y Gam in g fro m of feri ng on li ne

ga m in g in th e US

. . . co ul d res ul t in in ve st or s lo si ng al l or a ve ry su bs ta nt ia l pa rt of

th ei r in ve st m en t.”

-3

-The Ult ra Fu nd di d n o t p a r ti ci pa te in Part y Gam in g’s in it ia l pu bl ic of feri ng

. In st ead

, fro m Ju ly 2 0 0 5 t h ro ug h Ja nu ary 20 06

, th e Ult ra Fu nd pu rch as ed ne arl y
th irt y -fi ve m il li on sh ares in Part y Gam in g on th e op en m ark et

, to ta li ng o v er $8 1

m il li on in in ve st or fun ds

.

In Ju ly 20 06

, in th e wak e of in crea se d Uni te d St at es go ve rn m en t en fo rcem en t

ag ai ns t il le ga l in te rn et ga m bl in g, th e st oc k pr ic e fo r pu bl ic ly tra de d on li ne ga m bl in g

co m pa ni es , in cl ud in g Part y Gam in g, dr op pe d si gn if ic an tly

. T he U ltr a Fu

nd re spon de d
by di ve st in g it se lf of al l of it s sh ares in Part y Gam in g, se ll in g th e la st of it s sh ares by

Ju ly 31

. The U l t r a F u n d lo st ap pr ox im at el y $1 6 m il li on as a res ul t of it s fai le d

in ve st m en t i n P art y Gam in g.

In Apr il 20 09

, Part y Gam in g en te red in to a no n- pr os ecu ti on ag reem en t wit h th e
Uni te d S t a t e s Dep art m en t of Ju st ic e, in whi ch it ag reed to fo rfei t $1 05 m il li on in

cri m in al pro ceed s. Par tyGam in g agr eed th at it s gam bl in g bu si ne ss vi ol at ed se ve ral

cri m in al st at ut es , in cl ud in g 18 U.S.C. § 19 55

. Tha t st at ut e es ta bl i s h e s cri m in al

li ab il it y fo r w h o e v e r “ co nd uc ts , f in an ces , m an ag es , s up erv is es , d ire ct s, or own s al l

or pa rt o f an il le ga l g am

bl in g b us in es s.”

Sei dl be cam e a sh areh ol d e r i n th e Ult ra Fu nd be fo re th e Fu nd in ve st ed in

Part y Gam in g in 20 05

. In Octo be r 20 08

, sh e fil ed su it in th e So ut he rn Dis tri ct of New

Yo rk ag ai ns t Am eri can Cen tu ry Mu tu al Fu nd s, Am eri can Cen tu ry In ve st m en t

Man ag em en t, Am eri can Cen tu ry Co m pa ni es , a n d se ve ral in di vi du al de fen da nt s,

as se rti ng , in te r a li a , st at e la w cla im s fo r was te , neg li ge nc e, an d b reac h of fid uc ia ry
du ty on be ha lf of he rs el f an d ot he r in ve st or s in th e Ult ra Fu nd

. Se id l v. Am. Cen tu ry

Co s., In c. , 7 13 F. Su pp . 2 d 24 9, 25 4 (S.D.N.Y. 2 01 0) . The d is tri ct co ur t di sm is se d

th e act io n, ru li ng th at Sei dl ’s cl ai m s m us t be br ou gh t th ro ug h a de riv at iv e act io n on
be ha lf of th e co rp or at io n, bu t t ha t Se id l h ad no t m ad e th e req ui red pr e-s ui t de m an d

th at th e co rp or at e bo ard fil e su it

. Id

. at 25 5- 62

. Th e S eco nd Ci rcu it affi rm ed th e
di sm is sa l. Se id l v. Am. Cen tu ry Co s., In c. , 42 7 F . App ’x 35 (2d Cir . 20 11 ).

-4

-In Ju ne 20 10

, Sei dl se nt a le tt er to th e Bo ard of Am eri can Cen tu ry Mu t u al

Fu nd s d em an di ng th at it pu rs ue th e cl ai m s co nt ai ne d i n t he co m pl ai nt sh e ha d fil ed

in th e So ut he rn Dis tri ct of New Yor k. The fo ll owi ng m on th

, Sei dl fil ed su it in th e

W es te rn Dis tri ct of Mi ss ou ri, na m in g Am eri can Cen tu ry Mu tu al Fu nd s as a no m in al

de fen da nt

, an d al le gi ng de riv at iv e cl ai m s fo r n e g l i ge nc e, was te

, an d br each of

fid uc ia ry du ty ag ai ns t Am eri can Cen tu ry Co m pa ni es , Am eri can Cen tu ry In ve st m en t

Man ag em en t, an d se ve ral in di vi du al s: th e ni ne pe op le who se rv ed as bo ard m em be rs

at th e ti m e of th e Part y Gam in g tra ns act io ns , two ot he r of fic ers of Am eri can Cen tu ry

Mu tu al Fu nd s, an d th e th ree co -p or tfo li o m an ag ers of th e Ult ra Fu nd who al le ge dl y

were res po ns ib le fo r th e de ci si on to in ve s t i n Part y Gam in g. W e refe r to th es e

in di vi du al an d e nt it y

de fen da nt s co ll ect iv el y

as “ Am eri can Cen tu ry .”

In res po ns e to Sei dl ’s de m an d, th e Bo ard fo rm ed a spe cial li ti ga ti on co m m it te e,

co m po se d o f Ja m es Ols on an d J oh n Whi tt en . Olso n a nd W hi tt en were m em be rs of

th e Bo ard whe n th e de m an d was m ad e, bu t were no t m em be rs whe n th e in ve st m en ts

in Part y Gam in g were m ad e or so ld

. The co m m it te e en li st ed a la w fir m to as si st in

co nd uc ti ng th e in ve st ig at io n in to Sei dl ’s pr op os ed cl ai m s. The di st ric t co ur t st ay ed

Sei dl ’s act io n pe nd in g a de ci si on by th e co m m it te e an d th e Bo ard on Sei dl ’s de m an d.

On Ja nu ary 25

, 20 11

, th e co m m it te e is su ed an 81 -p ag e rep or t, co nc lu di ng th at it was

no t in th e be st in te res t s of Am eri can Cen tu ry Mu tu al Fu nd s or it s sh areh ol de rs to

pu rs ue th e cl ai m s in Sei dl ’s de m a n d

. Th e Bo ard th en un an im ou sl y acce pt ed th e

rep or t an d i ts reco m

m en da ti on

.

In Aug us t 20 11

, Sei dl fil ed an am en de d com pl ai nt

, whi ch ad de d a ne w cl ai m

fo r br each of co nt ract

. Am eri can Cen tu ry m ov ed to di sm is s Sei dl ’s cl ai m s, arg ui ng

th at th e co ur t sh ou ld de fer to th e co m m it t e e’s reco m

m en da ti on an d th e Bo ard ’s

de ci si on to refu se Sei dl ’s de m an d. The di st ric t co ur t de ni ed th e m ot io n an d al lo wed

li m it ed di sc ov ery, bu t s t at ed th at it wou ld rev is it Am eri can Cen tu ry ’s arg um en t on

a m ot io n fo r su m

m ary jud gm en t.

-5

-In Ju ly 20 14

, th e di st ric t co ur t gr an te d su m m ary jud gm en t in fav or of Am eri can

Cen tu ry , co nc lu di ng th a t t h e sp eci al li ti ga ti on co m m it te e’s bu si ne ss jud gm en t was

en ti tl ed to d efer en ce un de r Mar y la nd la w an d th at it wou ld no t di st ur b th e Bo ard ’s

de ci si on to reject Sei dl ’s de m an d. The di st ric t co ur t al so no te d th at Sei dl or di na ril y

wou ld be pr ecl ud ed fro m pu rs ui ng he r br each of co n t r act cl ai m , b ecau se it was no t

in cl ud ed in he r pr e-s ui t de m an d, bu t be cau se th e sp eci al li ti ga ti on co m m it te e
ad dr es se d th e al le ge d br each in it s rep or t, th e co ur t res ol ve d th e cl ai m on th e m eri ts

.

Sei dl ap pe al s, a rg ui ng pr im ari ly th at th e sp eci al li ti ga ti on co m m it te e’s

r eco m m en da ti on an d th e Bo ard ’s de ci si on are no t en ti tl ed to de fere nc e un de r

Mar y la nd la w, an d th at sh e is en ti tl ed to a tri al on th e m eri ts of he r de riv at iv e cl ai m s.

II.

Am eri can Cen tu ry Mu tu al Fu nd s is a M a r yl an d co rp or at io n, an d th e pa rti es

ag ree th at Mar y la nd la w g ov ern s th is di sp ut e. At co m m on la w, a de ri v a t i v e act io n

was de si gn ed to be “ a jus ti fia bl e, bu t li m it ed

, in tru si on up on th e ge ne ral au th or it y of

th e d ire ct or s to m an ag e th e bu si ne ss affa irs of th e co rp or at io n.” W er bo ws ky

, 76 6

A.2d at 13 5. Deri va ti ve act io ns are in te nd ed to pr ov id e in di vi du al sh areh ol de rs wit h

a m ech an is m fo r pr ot ect in g “ th e in te res ts of th e co rp or at io n fro m th e m is feas an ce an d

m al feas an ce of fai th le ss di rect o r s an d m an ag ers .” Bol an d v. Bol an d

, 31 A.3d 52 9,

54 8 (Md

. 20 11 ) (in te rn al qu ot at io n m ark om it te d)

. Bu t de sp it e th e ro le gi ve n to th e

s h a reh ol de r in a de riv at iv e act io n, “ th e co rp or at io n is th e real pa rty in in te res t a n d

. . . [t]he su bs ta nt iv e cl ai m be lo ng s to th e co rp or at io n.” Id

. (in te rn al qu ot at io n m ark

om it te d)

.

Mar y la nd la w ba la nc es th e in te res ts of th e sh areh ol de rs wit h t h os e of th e

co rp or at io n an d it s di r e c t o r s by ap pl y in g “ va ry in g le ve ls of jud ic ia l sc ru ti ny” to

co rp or at e de ci si on s. Id

. The de fau lt st an da rd is th e bu si ne ss jud gm en t ru le , whi ch

pr es um es th at “ in m ak in g a bu si ne ss de ci si on th e di rect or s of a co rp or at io n act ed on

-6

-an in fo rm ed ba si s, in go od fai th an d in th e ho ne st be li ef th at th e act io n ta ke n was in

th e be st in te res t of th e co m pa ny.” Aro ns on v. Lewi s , 47 3 A.2d 80 5, 81 2 (Del

. 19 84 ),

ov er ru le d on ot he r gr ou nd s by Breh m v

. Ei s n er , 74 6 A.2d 24 4, 25 4 (Del

. 20 00 ).

Und er th is de fere nt ia l st an da rd

, un le ss th e di rect or s ab us ed th ei r di sc ret io n, th e co ur t

wil l res pe ct th ei r ju d g men t an d wil l no t rev ie w th e su bs ta nc e of th e di rect or s’

un de rlyin g d eci si on

. Id

.

Bu t th e pr ot ect io n of th e bu si ne ss jud gm en t ru le is no t ab so lu te

. The bu si ne ss jud gm en t ru le ap pl ie s to co rp or at e de ci si on s on ly w h ere th e di rect or s are
di si nt eres te d. Bol an d

, 31 A.3d at 54 9. “ ‘[T] hi s m ean s th at d i r e c t o rs can ne it he r

ap pe ar on bo th si de s of a t r a ns act io n no r ex pe ct to de riv e an y pe rs on al fin an ci al

b e n e fit fro m it in th e se ns e of se lf- de al in g, as op po se d to a be ne fit whi ch de vo lv e s

u p o n t he co rp or at io n or al l st oc kh ol de rs ge ne ral ly.’ ” Id

. (q uo ti ng W er bo ws ky , 7 66

A.2d at 13 8)

. If a sh areh ol de r can sh ow th at “ th e bo ard or co m m it te e’s in ve st ig at io n

or de ci si on was no t co nd uc te d in de pe nd en tl y an d in go od fai t h

, or th at it was no t

wit hi n th e real m of so un d bu si ne ss jud gm en t,” th en th e rev ie win g co ur t wil l no t de fer

to th e b oa rd ’s bu si ne ss jud gm en t. Id

. (in te rn al qu ot at io n m ark om it te d)

.

The Co ur t of App eal s of Mar y la nd

, th e hi gh es t co ur t of th e St at e, ha s affi rm ed

th at th e bu si ne ss jud gm en t ru le ap pl ie s to a bo ard ’s de ci si on to refu se a sh areh ol de r’s

de m an d. A c o u r t co ns id eri ng an act io n ch al le ng in g th e refu sa l of a de m an d un de r

Mar y la nd la w sh ou ld th eref or e “ li m it [ ] it s rev ie w to whe th er th e bo ard act ed

in de pe nd en tl y , in go od fai th

, an d wit hi n th e real m of so un d bu si ne ss jud gm en t.” Id

. (in te rn al qu ot at io n m ark s o m it te d)

.

In pr act ic e, a co rp or at e bo ard so m e t i mes ap pr ov es bu si ne ss tra ns act io ns in

whi ch no t al l di rect or s are en ti rel y di si nt eres te d. To ret ai n t he pr ot ect io ns of th e
bu si ne ss jud gm en t ru le

, a bo ard m ay “ is ol at [e] th e ta in te d di rect or s an d de le ga t[e ] th e

co rp or at io n’s de ci si on -m ak in g ab il it y ” to a sp eci al li ti ga ti on co m m it te e co m

po se d of

in de pe nd en t, d is in te res te d d ire ct or s. Id

. at 55 1. The co m m it te e is “ ve st ed wit h t he

-7

-au th or it y to r e n d e r a co rp or at e de ci si on ,” in cl ud in g “ te rm in at io n of a de riv at iv e

la wsu it .” Id

.

U n de r Mar y la nd la w, co ur ts m us t de fer to a sp eci al li ti ga ti on co m m it te e ’s

su bs ta nt iv e de ci si on s as lo ng as th e co m m it te e was “ in de pe nd en t, act ed in go od fai th

,

an d m ad e a reas on ab le in ve st ig at io n an d pr inc ipl ed

, fa ct ua lly supp or

te d conc lu si on s.”

Id

. at 56 1; se e Aue rb ac h v. Ben ne tt

, 39 3 N.E.2d 99 4, 10 00 (N.Y. 19 79 ). A co ur t ne ed

no t p res um e, ho wev er, t ha t a c om m it te e sa ti sf ie s th e req ui rem en ts of i nd ep en de nc e

an d go od fai th

, a n d of reas on ab le m et ho do lo gy. A rev ie win g co ur t sh ou ld

in de pe nd en tl y as se ss whe th er th e co m m it te e sa ti sf

ie d th es e pr ereq ui si te s. Bol an d

, 31

A.3d at 5 63 , 56 6.

On a m ot io n fo r su m

m ary jud gm en t, th e di rect or s m us t “ st at e ho w th ey ch os e

th e [s pe ci al li ti ga ti on co m m it te e] m em

be rs an d co m e fo rward wit h so m e ev id en ce

th at th e [co m

m it te e] co nd uc te d a reas on ab le in qu iry up on whi ch it s co nc lu si on is

ba se d an d th at no si gn ifi c a n t bu si ne ss or pe rs on al rel at io ns hi ps im pu gn ed th e [ c o mm i t t ee’s] in de pe nd en ce an d go od fai th .” Id

. at 56 1. Onc e th e di rect or s h a v e

m ad e su ch a sh owi ng , th e bu rd en th en “ sh ift s to th e de riv at iv e pl ai nt iff s to co m e

fo rward wit h ev id en ce reg ard in g th es e is su es su ffi ci en t to su rv iv e su m m ary jud gm en t.” Id

. at 5 56

.

A.

W e fir st co ns id er th e in de pe nd en ce an d go od fai th of th e sp eci al li t ig at io n

co m m it te e th at rev ie wed Sei dl ’s de m an d. “ In de te rm in in g whe th er th e [co m m it te e]

was su ffi ci en tl y in de pe nd en t fro m th e de fen da nt -d ire ct or s, [we] sh ou ld fir st co ns id er

an y si gn ifi can t bu si ne ss rel at io ns hi p or affi li at io ns be twee n the [c om m itt ee ] m em

be rs

an d t he de fen da nt di rect or s.” Bol an d

, 31 A.3d at 56 4. W e al so m ay as se ss “ th e

sp eci fic ci rcu m st an ces su rro un di ng th e se le ct io n an d de le ga ti on of res po ns ib il it y to

th e [co m m it te e] in de te rm in in g whe th er it has sh own it s in de pe nd en ce.” Id

. at 56 5.

-8

-The in de pe nd en ce in qu iry “ do es no t req ui re th e di rect or s to sh ow, be y on d al l do ub t,

th at no co nc ei va bl e th e o r y o f i n flu en ce ex is ts be twee n th em an d th e [co m m it te e].”

Id

.

Sei dl do es no t di sp ut e th at th e co rp or at io n cam e fo rward wit h it s rat io na le fo r

se le ct in g th e co m

m it te e m em

be rs

. The Bo ard se le ct ed Ols on an d W hi tt en to se rv e

on th e sp eci al li ti ga ti on co m m it te e be cau se th ey were no t vo ti ng di rect or s at th e ti m e

of th e rel ev an t Part y Gam in g tra ns act io ns , an d th ey were no t na m ed as de fen da nt s in

th is a c t i o n

. The co rp or at io n al so pr es en te d ev id en ce th at th e co m m it te e ret ai ne d

ou ts id e co un se l fo r th e pu rp os e of in ve st ig at in g Sei dl ’s de m an d. Neit he r th e

co m pe ns at io n of th e co m

m it te e m em

be rs no r th e sp eci al co un se l de pe nd ed up on th ei r

co nc lu si on s reg ard in g Sei dl ’s de m an d. The se sh owi ng s are su ffi ci en t to su st ai n th e

co rp or at io n’s i ni ti al bu rd en on th e in de pe nd en ce i nq ui ry

.

Sei dl arg ue s th at th e co m

m it te e’s in de pe nd en ce was im pu gn ed be cau se Ols on

an d W hi tt en rece iv ed co m pe ns at io n as m em

be rs of th e Bo ard . She als o a rg ue s t ha t

Ols on ’s so ci al an d pr of

es si on al rel at io ns hi p wit h Don al d Prat t, a de fen da nt di rect or ,

co ns ti tu te s a si gn ifi can t pe rs on al rel at io ns hi p th at wou ld de pr iv e th e co m m it te e of th e

req ui si te in de pe nd en ce. To su pp or t he r arg um en t, Sei dl po in ts to th e fo ll owi ng fact s: (1 ) Ols on an d Prat t ha ve pl ay ed go lf to ge th er; (2 ) th ey at te nd ed th e sa m e ch ur ch ; (3 )

th ey ha ve vi si te d e ach ot he r’s ho m es ; (4 ) Ols on ha s t rie d t o so li ci t Pratt ’s bu si ne ss ;

an d (5 ) th ey

sh are m ut ua l fr ie nd s.

W e di sa gr ee wit h Sei dl ’s co nt en ti on th at th e bo ard co m pe ns at io n of th e

co m m it te e m em

be rs im pu gn ed th ei r in de pe nd en ce. Alt ho ug h Ols on an d W hi tt en , as

ret ire d bu si ne ss m en , de riv e at le as t ha lf of th ei r cu rren t in co m e fro m th ei r se rv ic e on

th e Bo ard

, al le ga ti on s th at a co m m it te e m em

be r “ rece iv ed su bs ta nt ia l co m pe ns at io n are, b y th em se lv es , in su ffi ci en t t o d em on st rat e th at th e d ire ct or s ar e in te res te d.” In

re Fra nk li n Mut

. Fun ds Fee Li ti g. , 38 8 F. Su pp

. 2d 45 1, 47 0 (D.N.J. 20 05 ) (ap pl y in g

Mar y la nd la w). And Mar y la nd ’s hi gh es t co ur t ha s “ co ns is te nt ly fo un d th es e types of

-9

-al le ga ti on s in su ffi ci en t to sh ow la ck of in de pe nd en ce.” Sc al is i v. Gri ll s , 50 1 F. Su pp

. 2d 35 6, 3 62 (E.D.N.Y. 20 07 ) (ap pl y in g M arylan d l aw).

Nor do Ols on ’s co nt act s wit h Prat t rai se a ge nu in e is su e of m at eri al fact on th e

q u es ti on of in de pe nd en ce. Ols on an d Prat t pl ay ed go lf to ge th er on an in fr e q u e n t

ba si s ov er te n y ears ag o whe n th ey were m em be rs of th e sa m e co un try cl ub

, an d

Ols on te st if

i e d t h a t h e a nd hi s wife m ay ha ve at te nd ed a la rg e pa rty at th e Prat ts ’

ho m e. The reco rd

, ho wev er, do es no t sh ow th at Ols on an d Prat t were in ti m at e fri en ds

or co m pa ni on s, an d “ a m ere acq ua in ta nc e of a pa rty wou ld no t be dis qu al ifi ed fro m

se rv in g on a sp eci al li ti ga ti on co m m it te e.” Bol an d

, 31 A.3d at 56 5 n.4 4; se e al so In

re Ora cl e Se cs

. Li ti

g. , 85 2 F. Su pp

. 14 37

, 14 42 (N.D. Cal

. 19 94 ) (“ Bu si ne ss de al in gs

se ld om ta ke pl ace be twee n co m pl et e st ran ge rs an d it wou ld be a st rai ne d an d art ifi ci al

ru le whi ch req ui red a di rect or to be un acq ua in te d or un in vo lv ed wit h fel lo w di rect or s

in ord er t o b e reg ard ed as i nd ep en de nt .”).

Sei dl ’s fin al arg um en t wi t h res pe ct to in de pe nd en ce is th at th e Bo ard

, rat he r

th an th e co m

m it te e, m ad e th e fin al de ci si on reg ard in g whe th er to refu se he r de m an d.

Sh e co nt en ds th at be cau se th ere were pu ta ti ve de fen da nt s se rv in g on th e Bo ard whe n
he r de m an d was refu se d, th e ul ti m at e de ci si on was no t m ad e by di si nt eres te d

di rect or s. Bu t it is w e l l s e tt le d th at th e m ere th reat of li ab il it y do es no t ren de r
di rect or s in cap ab le of co ns id eri ng a sh areh ol de r de m an d. Se e Aro ns on , 47 3 A.2d at

81 5; Se min ar is v. La nd

a , 66 2 A.2d 13 5 0

, 13 55 (Del

. Ch

. 19 95 ) (rejec ti ng su ch

arg um en ts as “ a sl ig ht ly al te red ve rs io n of th e di sc red it ed refr ai n— ‘y ou can ’t ex pe ct

di rect or s to su e th em se lv es ’”). W e are th us no t pe rs ua de d th at th e Bo ard ’s ret en ti on

of fin al de ci s i o n

- mak in g po wer is su ffi ci en t un de r Mar y la nd la w to pr ecl ud e

su m m ary jud gm en t, es pe ci al ly whe re th e B o a r d ad op te d th e reco m m en da ti on of a
di si nt eres te d s pe ci al li ti ga ti on co m m it te e.

W e th eref

or e ag ree wit h th e di st ric t co ur t th at Sei dl fai le d t o ra is e a q ue st io n

of fact as to whe th er th e co mm i t t e e mem be rs were, “

fo r an y su bs ta nt ia l re as on ,

-1 0-in cap ab le of maki ng a de ci si on wit h on ly th e be st in te res ts of th e co rp or at io n in

m in d.” Bol an d

, 31 A.3d at 5 57

.

B.

To pr ev ai l on su m

m ar y j udg m en t, Am eri can Cen tu ry al so was req ui red to sh ow

th at th e co m

m it te e co nd uc te d a reas on ab le in ve st ig at io n to su pp or t it s co nc lu si on s.

“ The rev ie win g co ur t m us t e x a mi n e th e m et ho do lo gi es an d pr oc ed ur es of th e [co m m it te e’s] in ve st ig at io n, an d whe th er th ere was a reas on a b l e ba si s fo r it s

co nc lu si on s.” I

d

. a t 56 6. A rev ie win g co ur t sh ou ld no t qu es ti on th e co m m it te e’s

su bs ta nt iv e co nc lu si on s, bu t sh ou ld ex am in e th e co m m it te e’s rep or t to de te rm in e
whe th er it co nt ai ns an y pr oc ed ur al irr eg ul ari ti es th at su gg es t un reas on ab le ne ss

. Id

.

Fo r ex am pl e, “ ad dr es si ng th e wro ng is su es is an ex am pl e o f u nr eas on ab le

m et h o d o l o g y .” Id

. W e al so m ay co ns id er (1 ) whe th er th e co m m it te e en ga ge d

in de pe nd en t co un se l to as s i s t in th e in ve st ig at io n; (2 ) whe th er th e co m m it te e

pr od uc ed a rep or t, it s le ng th

, an d whe th er th e rep or t do cu m en te d th e co m m it te e’s

pr oc ed ur es , reas on in g, an d co nc lu si on s; (3 ) whe th er th e co m m it te e in te rv ie wed an d

rev ie wed th e te st im on y of rel ev an t di rect or s, of fic ers , an d em

pl oyees; (4 ) whe th er th e

co m m it te e or it s co un se l rev ie wed do cu m en ts rel ev an t to the que sti ona ble tr an sa ct ion ;

a n d (5 ) th e nu m

be r of ti m es th e co m

m it te e m et

. Sc al is i

, 50 1 F. Su pp

. 2 d a t 3 6 3
(ci ti ng Ben de r v. S

ch wa rt z , 91 7 A.2 d 1 42 , 15 5- 56 (Md . Ct. Sp ec. Ap p. 2 00 7) ).

It is un di sp ut ed th at th e co m m it te e en ga ge d in de pe nd en t co un se l an d th at th e

co m m it te e, to ge th e r w i t h it s co un se l, rev ie wed ov er 40 00 do cu m en ts th at were
id en ti fie d as po te nt ia ll y res po ns iv e. Bo t h Wh i t te n an d Ols on pa rti ci pa te d in al l or

al m os t al l of th e twen ty-two in te rv ie ws of rel ev an t di rect or s, of fic ers , an d em

pl oyees.
The co m m it te e m et wit h it s co un se l ap pr ox im at el y ev ery week ov er th e co ur se of fo ur

m on th s, an d th e in ve st ig at io n res ul te d in an ei gh ty-on e-p ag e rep or t th at de ta il ed th e

co m m it te e’s in ve st ig at io n p ro ced ur es an d i ts co nc lu si on s.

-1 1-Sei dl co nt en ds th at th e co m m it te e ad d r es se d th e wro ng is su es in it s

in ve st ig at io n an d r e p o rt an d th at it reac he d “ un pr in ci pl ed ” co nc lu si on s. The

co m m it te e’s rep or t, ho wev er, co ns id ered each of Sei dl ’s pr op os ed de riv at iv e cl ai m s

co nt ai ne d in he r co m

pl ai nt

, an d al so in cl ud ed an as se ss m en t of he r ad di ti on al br each

of co nt ract cl ai m

. Co nt rary to Sei dl ’s as se rti on s, th e co m m it te e di d no t co nc lu de th at

th e Bo ard vi ol at ed § 1 95 5 b y in ve st in g in Part y Gam in g. Th e rep or t co nc lu de d t ha t

it was “ un cl ear in 20 05 ho w U.S. la w en fo rcem en t wou ld tre at an on li ne co m pa ny

of feri ng on ly po ke r an d cas in o ga m bl in g, su ch as Part y Gam in g.” The co m m it te e

“ fo un d no cas es in whi ch th e go ve rn m en t ch arg ed a pa ss iv e in ve st or in a ga m bl in g
bu si ne ss wit h vi ol at in g Sect io n 19 55

, ev en th ou gh m an y fin an ci al in st it ut io ns op en ly

in ve st ed in ga m

bl in g co m

pa ni es th at were la te r pr os ecu te d fo r v i o l a ti ng ga m bl in g

la ws.”

Afte r as se ss in g each cl ai m , th e co m m it te e de te rm in ed th at Sei dl ’s cl ai m s were

no t le ga ll y vi ab le

, an d th at pu rs ui ng th e cl ai m s was no t in th e be st in te res t of th e

co rp or at io n, g iv en th e co st of li ti ga ti on an d th e weak ne ss of th e cl ai m s. Thi s was a

pe rm is si bl e bu si ne ss jud gm en t: a sp eci al l i ti ga ti on co m m it te e m ay reas on ab ly

de te rm in e th at it is no t in th e be st in te res ts of th e co rp or at io n t o p u r s u e a le ga l

rem ed y , ev en whe re a pr op os ed de fen da nt ha s vi ol at ed th e la w. Bol an d

, 31 A.3d at

55 4 n .31

.

Sei dl a r g u e s th at a dr aft m em or an du m pr ep ared by th e co m m it te e’s co un se l

sh ows th at th e co m

m it te e co nc lu de d th at th e Part y Gam in g in ve st m en ts were i ll eg al

bu t wit hh el d th os e co nc lu si on s fro m th e Bo ard in th e fin al c o mm i t t e e rep or t. The

dr aft , d at ed Nov em

be r 30 , 2 01 0, was pr es en te d to th e c o mm i t t e e du rin g th e co ur se

of it s in ve st ig at io n, bu t it was ne ve r pr ov id ed to th e Bo ard

. Sei dl arg ue s th at se ve ral

m at eri al fin di ng s an d c on cl us io ns th at su pp or te d he r cl ai m s— in pa rti cu la r, th at th e

Part y Gam in g tra ns act io ns were il le ga l— were om itte d fr om the fi na l rep or t du e to bi as

of th e sp eci al li ti ga ti on co m m it te e.

-1 2-As th e di st ric t co ur t co rrec tl y no t e d

, ho wev er, “ [b ]y de fin it io n dr aft s are

p r e l i mina ry an d do no t rep res en t th e fin al op in io n.” The dr aft m em or an du m wa s

pr ep ared by co u n s el an d pr es en te d to th e co m m it te e whi le it s in ve st ig at io n was

on go in g; th e dr aft was n o t a co m pr eh en si ve rep or t an d di d no t rep res en t th e

co m m it te e’s fin al op in io n on th e m at te r. And reg a r d l e s s of whe th er th e co m m it te e

act ua ll y co nc lu de d th at th e Part yGa mi n g i nv es tm en ts were il le ga l, th e fin al rep or t

ex pr es sl y as su m ed th e po ss ib il it y th at th e in ve st m en ts vi ol at ed § 19 5 5

, b u t st il l

co nc lu de d th at Sei dl ’s pr op os ed cl ai m s wou ld be di ffi cu lt to pr ov e, la ck ed m eri t, an d

sh ou ld no t b e p ur su ed

.

Sei dl ’s co m

pl ai nt th at th e co m

m it te e’s in ve st ig at io n was im pr op erl y in su la te d

fro m sc ru ti ny is al so un av ai li ng

. A l t h o u gh Bol an d ack no wled ge s a sh areh ol de r pl ai nt iff ’s rig ht to acce ss in fo rm at io n ab ou t th e co m m it te e’s pr oc es s aft er th e

in ve st ig at io n, id

. at 55 9, Bol an d do es no t es ta bl is h th at a pl ai nt iff ha s th e rig ht to

pa rti ci pa te in th e co m

m it te e’s in ve st i g a t io n, an d we do no t th in k Mar y la nd la w

req ui res th at op po rtu ni ty. Cf

. Pomp eo v. Hefn er , CIV. A. Nos

. 68 06

, 68 72

, 19 83 W L

20 28 4, at *2 (Del

. Ch

. Mar

. 23

, 19 83 ) (“ [T]he d eri va ti ve pl ai nt iff sh ou ld no t be

pe rm it te d to in te rm ed dl e or act co ex te ns iv el y wit h th e in de pe nd en t arm of th e bo ard

of di rect or s al on g th e way .”). Sei dl do es no t arg ue th at th e Bo ard de ni ed he r acce ss

to in fo rm at io n ab ou t th e co m m it te e’s in ve st ig at io n aft er it oc cu rred

. Sh e was

pr ov id ed wit h al l of th e do cu m en ts th at th e co m m it te e rev ie wed an d m em or an da

su m m ari zi ng al l twen ty-two wit ne ss in te rv ie ws. Sh e de po se d bo th of th e co m m it te e

m em be rs

. The co m

m it te e ex pr es sl y di sc us se d th e pr ud en ce o f al lo win g Sei dl ’s

co un se l to pa rti ci pa te fu rth er in th e in ve st ig at io n, bu t de ci de d th at “ it was no t in th e

Fu nd ’s bes t i nt eres t” to do so

.

Fi na ll y , Sei dl arg ue s th at th e co m m it te e fai le d to in qu ire in to va rio us m at te rs

an d di d no t co nf

ro nt th e wit ne ss es wit h c ert ai n d is cl os ur es . W e are no t co nv in ced

. Sei dl ci te s Ols on ’s de po si ti on t e s t i m on y to su pp or t he r cl ai m th at Ols on fai le d to

ch al le ng e a wit ne ss reg ard in g an e-m ai l he se nt

, bu t th e co m m it te e’s in te rv ie w

-1 3-sc he du le an d in de pe nd en t co un se l’s no te s sh ow th at th e au th or of th e e-m ai l an d two

ot he r wit ne ss es all were q ue st io ne d a bo ut th at e-m ai l d ur in g t he ir i nt erv ie ws.

S i mi l arl y , Sei dl ’s arg um en t th at th e co m m it te e fai le d to as k wit ne ss es ab ou t

il le ga li ti es ack no wled ge d in th e Part y Gam in g pr os pe ct us is un su pp or te d b y th e

reco rd

. Part y Gam in g’s pr os pe ct us di d no t es ta bl is h th at on li ne in te rn et ga m bl in g
vi ol at ed Uni te d St at es la w; it m erel y no te d th at th e Ju st ic e Dep art m en t’s po si ti on was

th at on li ne in te rn et ga m

bl in g vi ol at ed th e la w. The Part yGa mi n g pr os pe ct us was

co ns is te nt wit h a co nc lu si on th at th e le ga li ty of on li ne ga m bl in g was un cert ai n at th e

ti m e o f th e Fu nd ’s in ve st m en ts

.

The un di sp ut ed m at eri al fact s es ta bli sh tha t the co m

m itt ee ad opted a reas on ab le

m et ho do lo gy in co nd uc ti ng it s in ve st ig at i o n a n d reac hi ng it s co nc lu si on

. Bec au se
Sei dl ha s fai le d to crea te a ge nu in e is su e of m at e r i al fact as to th e co m m it te e’s

in de pe nd en ce, go od fai th

, an d m et ho do lo gy, we m us t de fer to th e co m

m it te e’s

bu si ne ss jud gm en t in reco m m en di ng th at th e Bo ard refu se he r de m an d. W e th eref or e

affi rm th e d is tri ct co ur t’s g ran t o f su m m ary jud gm en t.

III.

Asi de fro m th e m eri ts of th e cas e, Sei dl req ue st s th at we un se al ap pr ox im at el y

ni ne pa ge s of a de po si ti on of Ja m es Ols on , a m em be r of th e sp eci al li ti ga ti on

co m m it te e. Sei dl arg ue s th at th e di st ric t co ur t un fai rly accu se d he r co un se l of

en ga gi ng in un pr of

es si on al co nd uc t du rin g a de po si ti on

. Bec au se th e di st ric t co ur t’s

co m m en ta ry is pu bl ic ly av ai la bl e in a fo ot no te to th e o r d e r on su m m ary jud gm en t,

Sei dl arg ue s t ha t t he de po si ti on te st im on y rel at ed to th e co ur t’s as se rti on sh ou ld be

pu bl ic ly avai la bl e as well

.

The re is a co m

m on -la w rig ht of acce ss to jud ic ia l reco rd s, bu t th e rig ht is no t

ab so lu te

. IDT Co rp

. v. eBa y , 7 0 9 F

. 3 d 1 2 2 0

, 12 22 (8 th Ci r. 20 13 ). A co ur t m us t

-1 4-weig h “ th e de gr ee to whi ch se al in g a jud ic ia l reco rd wou ld in te rfer e wit h th e in te res ts

se rv ed by the co m

m on -la w rig ht of acce ss an d ba la nc e th at in te rfer en ce ag ai ns t t he

sa lu ta ry in te res ts se rv ed by m ai nt ai ni ng co nf id en ti al it y of th e in fo rm at io n so ug ht to

be se al ed .” Id

. at 12 23

. “ ‘E ve ry co ur t ha s su pe rv is or y po wer ov er it s own reco rd s,’”

an d we rev ie w a di st ric t co ur t’s de ci si on to se al a f i l e f or ab us e of di sc ret io n.

W eb st er Gro ves Sc h. Dis t. v. Pul it ze r Pub

. Co

. , 89 8 F.2 d 13 71

, 13 76 (8 th Ci r. 19 90 )
(q uo ti ng Ni

xo n , 43 5 U.S. at 59 8)

.

The di st ric t co ur t de te rm in ed th at th e dr aft m em or an du m pr ep ared by co un se l

fo r th e sp eci al li ti ga ti on co m m it te e was pr ot ect ed fro m di sc lo su re as att or ne y wor k

pr od uc t, an d th at d e p o s it io n ex cerp ts th at di vu lg ed th e co nt en ts of th e dr aft

m em or an du m sh ou ld th eref or e be se al ed

. R. Doc

. 12 0, at 6- 7. W e fin d no fau lt in

th is co n c l u s i o n , an d we reject Sei dl ’s co nt en ti on th at co un se l waiv ed th e wor k

pr od uc t pro te ct io n. The di st ric t cou rt di d no t im po se a sa nc ti on on Sei dl ’s co un se l,

an d Sei dl ha s pr of

fere d no su bs ta nt ia l pu bl ic in te res t in un se al in g th e reco rd m at eri al

. W e th eref or e co nc lu de th at th e di st ric t co ur t di d no t ab us e it s di sc ret io n by or de rin g

th e d ep os it io n e xc erp ts fil ed un de r se al

.

* * *

The jud gm en t o f th e d is tri ct co ur t i s af fir m ed

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

-1 5-