Opinion ID: 213943
Heading Depth: 3
Heading Rank: 4

Heading: Was the SLC Independent?

Text: Although Zapata allows courts to use their business judgment and independently determine whether the special litigation committee's motion to dismiss is actually in the best interests of the corporation, courts put the most weight on Zapata's first prong and, specifically, whether the committee was independent. See Oracle, 824 A.2d at 940 (describing the moral gravity . . . and social pressures on special litigation committee members and noting that for this reason, the independence inquiry is critically important). In accordance with this, Delaware courts hold special litigation committees to a very high standard of independence. Special litigation committees are not presumed to be independent, and the special litigation committee must prove its independence beyond reproach. See Beam, 845 A.2d at 1055; Lewis, 502 A.2d at 967. In light of Tuttle's recusal, we are left with strong doubts as to the special litigation committee's independence and cannot conclude that Abercrombie has clearly demonstrated its special litigation committee's independence. While the allegations of Brisky's lack of independence may not, standing alone, compel a finding of lack of independence, we cannot conclude that the special litigation committee was independent in light of Tuttle's recusal. We look not only to the fact of objectivity and validity when reviewing special litigation committee determinations, but also the appearance of objectivity and validity. The composition and conduct of a special litigation committee therefore must be such as to instill confidence in the judiciary and, as important, the stockholders of the company that the committee can act with integrity and objectivity. Biondi v. Scrushy, 820 A.2d 1148, 1156, 1166 (Del.Ch.2003). Tuttle's decision to recuse himself from considering claims against Singer, and Singer's central role in the alleged wrongdoing, casts serious doubt on Tuttle's objectivity as to the claims as a whole and does not instill confidence in us. While not dispositive, Brisky's status as a named defendant adds to the doubt regarding this special litigation committee's independence. Particularly where Abercrombie had the opportunity to work with competent counsel and cherry pick who would serve on its special litigation committee, it cannot now rely on the recommendation of a special litigation committee with such dubious independence. This is one of those rare situations where Abercrombie had every opportunity to create an independent special litigation committee but nonetheless failed to do so. Delaware law gives an independent special litigation committee extremely wide latitude to conclude that a derivative suit is not in the best interests of the corporation, but the committee must be independent. In light of the tremendous discretion and power that special litigation committees are afforded under the Zapata procedure, it is not unreasonable to require that corporations comply with the protocols set out by the Delaware Supreme Court and staff their special litigation committees with individuals who can exercise independent judgment. Because we conclude that there are serious doubts as to Abercrombie's special litigation committee's independence, we need not consider whether the committee carried out its investigation in good faith or whether its conclusions are reasonable. Without a demonstration that its special litigation committee was independent, Abercrombie's motion to dismiss based on the committee's recommendation cannot be granted.