Burgess Ex Rel. BancorpSouth, Inc. v. Patterson
188 So. 3d 537
| Miss. | 2016Background
- Shareholder William Burgess sent a presuit demand under Miss. Code §79-4-7.42 alleging BancorpSouth management issued materially false financial statements after the 2008 downturn and requesting the board sue insiders for fiduciary breaches.
- The BancorpSouth board appointed a three-member Special Committee (Franklin, Holliman, Mitchell), retained outside counsel and a corporate-law expert, and concluded after investigation that pursuing derivative litigation was not in the company’s best interest.
- Burgess sued derivatively after the Special Committee rejected his demand, alleging the committee was not independent, its inquiry was inadequate, and asserting claims for breach of fiduciary duty, failure of oversight, unjust enrichment, and improper retention of incentive compensation.
- Defendants moved to dismiss under Miss. Code §79-4-7.44, submitting affidavits and a privileged in camera Special Committee report; defendants argued Burgess failed to plead particularized facts showing the committee members were not "qualified directors" or that the committee’s good-faith, reasonable inquiry requirement was unmet.
- The circuit court dismissed for failure to plead particularized facts; the Mississippi Supreme Court reviewed the dismissal as a mixed question of law and fact and affirmed, holding Burgess failed the heightened pleading requirement and was not entitled to pre-dismissal discovery of the committee report.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint alleged with particularity that a majority of directors were not "qualified directors" under §79-4-1.43 | Burgess alleged relationships, long-standing ties, and firm payments showing material relationships/interests (e.g., Patterson–Holliman ties; Mitchell firm represented BancorpSouth; Franklin’s long tenure) | Defendants argued allegations were conclusory, disclosed payments were minimal, and statutory definitions do not bar mere business/social relationships | Held: Allegations were conclusory and insufficient under the heightened pleading standard; dismissal affirmed |
| Who bears burden to prove good faith and reasonable inquiry under §79-4-7.44 | Burgess argued committee did not prove independence/good faith; sought to shift burden | Defendants argued statute places threshold pleading burden on plaintiff and, if plaintiff fails, plaintiff must prove committee’s determination not made in good faith after reasonable inquiry | Held: Where plaintiff fails to plead lack of qualified directors, plaintiff bears burden to prove committee did not act in good faith after a reasonable inquiry; Burgess failed to meet it |
| Whether trial court may consider Special Committee report in camera and whether Burgess was entitled to it pre-dismissal | Burgess argued report must be produced and in camera submission to judge was improper ex parte communication; sought discovery to meet pleading requirements | Defendants asserted work-product and attorney-client privileges and that plaintiff is not entitled to discovery to augment pleadings at motion-to-dismiss stage | Held: In camera submission for judge’s review was appropriate; plaintiff not entitled to discovery of the report in the derivative action prior to a legally sufficient complaint |
| Standard of appellate review for §79-4-7.44 dismissals | Burgess implicitly urged de novo review of factual sufficiency | Defendants relied on deference to trial court factual findings | Held: Review is mixed question — factual findings reviewed for clear error and legal conclusions reviewed de novo; applied to affirm dismissal |
Key Cases Cited
- Sojitz Am. Capital Corp. v. Kaufman, 61 A.3d 566 (Conn. App. Ct. 2013) (statute-identical authority applying heightened pleading and mixed review for §7.44-type dismissals)
- Einhorn v. Culea, 591 N.W.2d 908 (Wis. Ct. App. 1999) (independence of special committee is mixed fact-law question; factual findings reviewed for clear error)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (derivative pleadings require particularized factual allegations; prolix conclusory complaints insufficient)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (friendship/social ties insufficient alone to negate director independence; stronger particularized allegations required)
- Auerbach v. Bennett, 393 N.E.2d 994 (N.Y. 1979) (business judgment rule limits court review of special committee procedures; courts may not substitute their judgment for committee’s business judgment)
- Grimes v. DSC Communications Corp., 724 A.2d 561 (Del. Ch. 1998) (derivative plaintiffs are not entitled to discovery in the derivative action to meet pleading requirements; Section 220 or similar tools exist for pre-suit information)