Court Opinion

ID: 9658666
Source: CourtListenerOpinion
Date Created: 2023-08-23 21:07:47.777901+00
Date Added: 2024-06-11T18:13:57.700442
License: Public Domain

HANSON, Justice
(concurring in part, dissenting in part).
Although I concur with the decisions that boards of nonprofit corporations are protected by the business judgment rule, that nonprofit corporations may avail themselves of that rule by appointing a special litigation committee to decide whether the corporation should join a members’ derivative suit, and that Mur-nane may be viewed as a special litigation committee, I respectfully dissent on the decision to limit our review to Murnane’s first report. The district court did not base its dismissal order on Murnane’s first report because it concluded that procedural deficiencies precluded deference to Mur-nane’s recommendations. The district court granted MPRA’s motion to dismiss specifically on the basis of Murnane’s second report, concluding that it was entitled to deference because it reflected an independent investigation that was conducted in good faith.
I find no authority to support the majority opinion’s development of a “one strike you’re out” rule for conducting an investigation of claims made in a derivative action. The cases cited by the majority stand only for the proposition that the derivative action proceeds to trial when a motion to dismiss, based on the recommendation of a special litigation committee, is denied. They do not address the question of whether such denial is with prejudice to later renewal or, more specifically applicable here, whether the district court has discretion to defer ruling on the motion to dismiss to allow further investigation. Drawing on the analogy to summary judgment motions generally, the federal decisions are unanimous in holding that the denial of a motion for summary judgment does not become the “law of the case” so as to preclude the later grant of a renewed motion. See, e.g., Paulson v. Greyhound Lines, Inc., 628 F.Supp. 888, 891 (D.Minn.1986), and cases cited in 10A Charles Alan Wright, Arthur R. Miller, & Mary Kay *891Kane, Federal Practice and Procedure § 2718 n. 6 (1998). This rule has been recognized by the Minnesota Court of Appeals in Invest Cast, Inc. v. City of Blaine, 471 N.W.2d 368, 370 (Minn.App.1991); Brantner v. Fruehauf Corp., 1991 WL 10225 (Minn.App.). Even more to the point are those cases which hold that it is within the trial court’s discretion to deny a motion for summary judgment without prejudice to it being renewed at a later time. See Wright, Miller and Kane § 2718 n. 5; 2 David F. Herr & Roger S. Haydock, Minnesota Practice § 56.11 (1998).
For these reasons, I would not limit review to Murnane’s first report. Under these facts, where the deficiencies of the first report resulted from structural impediments imposed by the corporation upon the scope of the special litigation committee’s investigation, I would conclude that the district court has discretion to defer (or to deny without prejudice) a motion to dismiss to allow the corporation an opportunity to remove those structural impediments.
Moreover, I would conclude that MPRA did remove the structural impediments to Murnane’s investigation and that Mur-nane’s second report did reflect sufficient independence and good faith to warrant dismissal.
In reaching this conclusion, I am persuaded that the deficiencies in Murnane’s first report were not the product of any wrongdoing by Murnane, but instead were the necessary result of the structural impediments imposed by MPRA. That conclusion is confirmed by the majority opinion’s review of Murnane’s first report, which concludes that “Murnane lacked independence because the MPRA’s initial resolution restricted his factual investigation.” The resolution of the MPRA board, authorizing Murnane’s continuing investigation after his first report, was appropriately broad:
Special Counsel is not required to assume as correct any portion of the previous reports prepared on behalf of the Board of Directors. Special Counsel is encouraged to solicit facts, argument and other input from the parties to the litigation in such manner and form as Special Counsel deems appropriate. Special Counsel is not limited in any way as to how to conduct his investigation or what material he may consider. Special Counsel shall have complete independence and may undertake whatever good faith investigation he chooses.
The fault in Murnane’s first report was cured by his further investigation and second report. Murnane interviewed Janssen and their attorneys, reviewed documents they provided and analyzed the arguments they presented. Murnane considered all of the germane benefits and detriments to MPRA of participating in the litigation.
There may be situations where an initial investigation by a special litigation committee is so tainted that an expanded investigation, at least by the same committee, could not cure the deficiencies in the required independence and good faith. For example, if there was evidence that Murnane had developed some bias or was committed to reach the same recommendation no matter what facts or arguments were brought to his attention, the second report would stand no better than the first. However, I see no evidence that this was the case.
Finally, I cannot agree with the majority opinion’s view that Murnane’s legal evaluation of the likely outcome of the derivative action somehow discredited the independence or good faith of his investigation. *892Although Murnane, as a special litigation committee, was expected to exercise the “business judgment” of a board of directors, that business judgment must be applied to the merits of the derivative action. The best interests of MPRA depend upon an objective assessment of whether the likely outcome of the derivative action justifies the expenditure of time, effort and collegiality. In such a cost-benefit analysis, the potential benefit depends directly upon the likelihood of a favorable outcome in the litigation — the less likely a favorable outcome, the less benefit.
Murnane’s report concludes that there would be no benefit to participating in the derivative action — “the association would be unsuccessful in prosecuting a cause of action against Best & Flanagan, Brian Rice and Charles Berquist” — but that the cost would be significant, despite the willingness of Janssen’s counsel to proceed on a contingent fee basis — “the ongoing viability of the association and a harmonious relationship between its board of directors and legal counsel” would be adversely affected. This is precisely the type of business judgment that a special litigation committee is expected to make and, when made in good faith by a committee that is independent of the corporation’s board, it is entitled to deference by the court. Accordingly, I would reverse the court of appeals and conclude that the district court did not err when it dismissed the derivative action based on Murnane’s second report and recommendation.