Opinion ID: 1288403
Heading Depth: 3
Heading Rank: 3

Heading: Janssen v. Best & Flanagan

Text: Turning to our own precedent for guidance in resolving the certified question, we observe that our only case addressing the business judgment rule in the context of an SLC decision is Janssen v. Best & Flanagan, 662 N.W.2d 876 (Minn.2003). In Janssen, members of a nonprofit corporation brought a derivative suit concerning a failed business investment. Id. at 879. In response, the nonprofit appointed an attorney to act as an SLC and assess what action, if any, the board should take, but the board instructed the attorney to accept as correct the factual findings made during two earlier investigations into the investment. Id. at 880. The attorney recommended dismissal of the litigation, and the nonprofit moved for the derivative suit to be dismissed. Id. The district court dismissed the suit, but the court of appeals reversed, determining that the threshold test of the business judgment rule had not been met. Id. at 881. We observed in Janssen that every variation of the business judgment rule, as applied to SLCs, contains two essential elements: At a minimum, the board must establish that the committee acted in good faith and was sufficiently independent from the board of directors to dispassionately review the derivative lawsuit. Id. at 888. Because the attorney had been told by the nonprofit how to conduct his investigation, we determined that his recommendation did not warrant any deference. Id. Concluding that the attorney's investigation failed the most minimal version of a business judgment rule, we refused to adopt a particular version of the business judgment rule for use with Minnesota nonprofit organizations. Id. at 888 n. 5 Janssen represents neither an acceptance nor a rejection of any particular permutation of the business judgment rule. Recognizing the need for caution in a unique circumstance, we merely set forth the minimal requirements of the business judgment rulegood faith on the part of the SLC and independence from the board of directors. Id. at 888 & n. 5. The concurrence misinterprets Janssen as indicating that the business judgment rule does not shelter decisions that are irrational or unreasonable. Although we did state in Janssen that `[t]he business judgment rule is a presumption protecting conduct by directors that can be attributed to any rational business purpose,' id. at 882 (quoting Dennis J. Block et al., The Business Judgment Rule: Fiduciary Duties of Corporate Directors 18 (5th ed.1998)), this statement was based on a treatise, not precedent, and it was not part of our narrow holding that the two elements of the business judgment rule are good faith and independence, id. at 888. To say that we endorsed no particular approach to the business judgment rule is not to suggest the absence of guidance for our resolution of the certified question. First, we acknowledged in Janssen that every jurisdiction's business judgment rule requires, at a minimum, analysis of an SLC's good faith and independence. Id. Second, by giving no deference to an improperly constituted SLC, we implied that no deference is to be given to the decision of a conflicted board of directors that never attempted to create an independent SLC in the first place. See id. Certainly, it would be most unusual if, by simply declining to create an SLC, a board having a conflict of interest was entitled to more deference than if it had created an SLC later deemed faulty in litigation. Third, we indicated that the board bears the burden of proof to establish that the business judgment rule has been satisfied. See id. (stating that the board must establish that the committee acted in good faith and was sufficiently independent). Finally, we clarified that a board has one opportunity to properly convene an SLC, which itself has only one opportunity to conduct a proper investigation. Id. at 889-90.