Tp Orthodontics, Inc. v. Kesling
2013 Ind. App. LEXIS 419
| Ind. Ct. App. | 2013Background
- In 2010, three sibling shareholders filed a derivative suit on behalf of TP Orthodontics (TPO) against their brother Andrew, TPO's president.
- TPO's board created a three-member special litigation committee to evaluate the siblings' claims and advise on whether to pursue them.
- The committee investigated for about a year, reviewing ~10,000 documents and conducting 40+ interviews, and issued a written report identifying which claims to pursue.
- TPO filed a motion to dismiss the rejected claims and attached a heavily redacted copy of the committee's report under seal.
- The siblings moved to obtain the unredacted report; the trial court ordered production under seal; the matter proceeded on interlocutory appeal.
- Indiana law governs challenges to a committee's decision, requiring showings of disinterestedness and good faith, and provides for access to the committee's report for such challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a corporation must produce the complete SL committee report to derivative plaintiffs. | Keslings need the unredacted report to challenge good faith. | TPO asserts business-judgment respect limits inquiry and privilege may apply. | Yes; production required for good-faith challenge and to inform courts. |
| What standard governs discovery and review of the committee's actions. | Discovery should reveal the report to rebut presumption of good faith. | Limited inquiry allowed into procedures, not substance, under business-judgment rule. | Discovery proper; broad access to the report justified. |
| Whether the report's privilege (attorney-client/work product) can be waived. | Privilege should not block production where fairness requires access. | Privilege may apply; production could compromise privilege. | Privilege waived for the written report to ensure fairness and litigation needs. |
| Whether the entire report is relevant to evaluating good faith and disinterestedness. | Full report needed to assess investigation adequacy and diligence. | Only relevant are procedures; full report could be unnecessary. | Entire report is relevant to good faith; allowed access. |
| Impact on business-judgment rule by requiring disclosure of committee reports. | Disclosure does not erode business-judgment protections. | Production could undermine business-judgment boundaries. | No erosion; trial courts can interpret and apply the rule. |
Key Cases Cited
- Perrigo Co. v. Dayco Corp., 128 F.3d 430 (6th Cir. 1997) (fairness and practicality support access to the report)
- Joy v. North, 692 F.2d 880 (2d Cir. 1982) (disclosure of underlying data when a committee recommends termination)
- Cutshall v. Barker, 733 N.E.2d 973 (Ind. Ct. App. 2000) (recognizes limits of inquiry under business-judgment rule but allows access to report in derivative context)
- Marcuccilli v. Ken Corp., 766 N.E.2d 444 (Ind. Ct. App. 2002) (discusses access/contexts for committee reports)
- In re Guidant S’holders Derivative Litig., 841 N.E.2d 571 (Ind. 2006) (adopts Auerbach approach; business-judgment rule with limited judicial intrusion)