Laura Seidl v. American Century Companies Inc
799 F.3d 983
8th Cir.2015Background
- Laura Seidl, an Ultra Fund shareholder, brought a derivative suit under Maryland law after the Fund lost ~$16 million investing ~$81 million in PartyGaming, an online gambling company whose legality in the U.S. was uncertain. PartyGaming later entered a DOJ non‑prosecution agreement acknowledging criminal liability.
- Seidl filed an initial suit in SDNY (dismissed for failure to make a pre‑suit demand); she then sent a demand to American Century Mutual Funds’ Board and filed a derivative complaint in the W.D. Missouri naming the Fund as nominal defendant and various corporate officers and directors as defendants.
- The Board appointed a two‑member special litigation committee (Olson and Whitten), retained independent counsel, reviewed ~4,000 documents, conducted ~22 interviews, and produced an 81‑page report recommending refusal of Seidl’s demand; the Board unanimously accepted the recommendation.
- The district court granted summary judgment for defendants, finding the committee was independent, acted in good faith, and conducted a reasonable investigation such that judicial deference under Maryland’s business judgment rule was appropriate; the court also sealed portions of a deposition as work product.
- On appeal the Eighth Circuit affirmed, holding (1) Seidl failed to raise a material factual dispute about the committee’s independence or good‑faith methodology, (2) the committee reasonably concluded litigation was not in the Fund’s best interests, and (3) sealing deposition excerpts tied to counsel’s draft work product was not an abuse of discretion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the special litigation committee was independent and impartial | Olson’s social/professional contacts with a defendant director and board compensation created a genuine conflict | Committee members were disinterested (not involved in transactions), compensated board service alone doesn’t show interest, and contacts were casual acquaintances | Committee was independent; plaintiff failed to raise a material fact issue |
| Whether the committee’s investigation and methodology were reasonable | Committee omitted material findings (draft memo) and insulated its process from plaintiff; failed to confront witnesses on key points | Committee retained independent counsel, reviewed ~4,000 docs, conducted 22 interviews, met regularly, and produced an 81‑page report explaining procedures/conclusions | Investigation was reasonable in methodology and scope; conclusions entitled to deference |
| Whether the Board’s adoption of the committee recommendation can be judicially reviewed or is precluded because the Board retained final authority | Board’s retention of final decision and presence of defendant directors undermines independence | Adoption of a disinterested committee’s recommendation is valid; mere threat of liability doesn’t disqualify directors | Board’s adoption of committee report did not defeat deference; courts review independence/faith/reasonableness, not substantive second‑guessing |
| Whether deposition excerpts should be unsealed (work product) | District court’s comments implicated deposition; public interest favors unsealing | Draft memo and deposition divulged counsel’s work product; sealing protects work product | Sealing deposition excerpts as protected work product was not an abuse of discretion |
Key Cases Cited
- Werbowsky v. Collomb, 766 A.2d 123 (Md. 2001) (describing derivative action demand requirement and board control over litigation decisions)
- Boland v. Boland, 31 A.3d 529 (Md. 2011) (special litigation committee standards: independence, good faith, reasonable investigation)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (business judgment rule presumption of directors acting on informed basis in good faith)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (limiting aspects of Aronson on other grounds)
- Auerbach v. Bennett, 393 N.E.2d 994 (N.Y. 1979) (deference to special litigation committee conclusions where independent and reasonable)
- IDT Corp. v. eBay, 709 F.3d 1220 (8th Cir. 2013) (common‑law right of access to judicial records balanced against confidentiality)
- Webster Groves Sch. Dist. v. Pulitzer Pub. Co., 898 F.2d 1371 (8th Cir. 1990) (review standard for district court’s control over its records)
- Nixon v. Warner Communications, 435 U.S. 589 (U.S. 1978) (every court has supervisory power over its records)