Booth Family Trust v. Jeffries
2011 U.S. App. LEXIS 6814
| 6th Cir. | 2011Background
- Shareholders of Abercrombie & Fitch file a derivative suit alleging misleading 2005 public statements to inflate the stock price and subsequent investigations and lawsuits.
- Abercrombie forms a two-member Special Litigation Committee (SLC) in Oct. 2005; Brestle and Tuttle initially serve; Brisky later replaces Brestle; Cahill Gordon & Reindell LLP investigates and advises.
- Tuttle abstains from considering the claims against Singer, who is central to the alleged wrongdoing; the SLC completes a 144-page report finding no evidence to support the claims and recommends dismissal.
- Abercrombie moves to dismiss under Fed. R. Civ. P. 41(a)(2) following Zapata Corp. v. Maldonado framework; district court finds SLC independent and acting in good faith, and grants the motion to dismiss.
- Sixth Circuit reverses, holding serious questions about SLC independence, and remands for further proceedings; the court reviews the Zapata independence prong de novo under federal law.
- Dissent contends Tuttle’s partial recusal does not prove lack of independence and would affirm district court’s dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for Zapata-based dismissal | De novo review for independence and good faith findings | Deferential review under Zapata framework | De novo review applies |
| Independence of the SLC given Tuttle's recusal | Tuttle's recusal does not negate independence; others can act impartially | Recusal creates substantial doubt about independence | Serious doubts about independence; SLC not independent |
Key Cases Cited
- Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) (framework for dismissing derivative suits via SLC; independence and business judgment)
- In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003) (independence and impartiality standard for SLCs; focus on appearance and objectivity)
- Beam v. Stewart, 845 A.2d 1040 (Del. 2004) (independence requires 'above reproach' standard; no presumption of independence)
- Lewis v. Fuqua, 502 A.2d 962 (Del. Ch. 1985) (outside relationships or friendship alone do not automatically defeat independence)
- Sutherland v. Sutherland, 958 A.2d 235 (Del. Ch. 2008) (flexibility in committee composition; no rigid prohibition on multi-member or partial recusal)
- Kaplan v. Wyatt, 499 A.2d 1184 (Del. 1985) (recusal context; independence considerations and potential influence on performance of duties)