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Chancery Grants Single-Member Special Litigation Committee’s Motion To Terminate Derivative Claims

In re Baker Hughes, a GE Company, Derivative Litigation, C.A. No. 2019-0201-LWW (Del. Ch. Apr. 17, 2023)
After the Court of Chancery made a pleadings stage determination that the demand was futile, a board of directors delegated its authority over derivative claims to a one-member special litigation committee.  The committee retained independent advisors, conducted a nine-month investigation, and determined the Court likely would hold the transactions at issue were entirely fair and further that prosecution would not be in the best interest of the company or its stockholders.  The committee moved to terminate the derivative action.  Derivative plaintiffs took discovery and opposed the motion to terminate, challenging the committee’s independence, process, and conclusions.

Though noting that a single-member special litigation committee is not ideal and results in “a particularly hefty burden” on the committee to prove diligence and independence, the Court granted the committee’s motion to terminate. The committee was delegated the board’s full authority and had retained independent advisors. And its single member was uninvolved in the challenged transactions and had no compromising personal or business ties to any defendant. The Court noted the committee should not have engaged in certain communications with an interested party during the investigation, but that those communications were non-substantive and did not impugn the committee’s integrity or objectivity. The Court found that the committee reasonably relied on advisors, sufficiently investigated potential conflicts even if opting not to include those findings in its report, had a reasonable basis for its conclusion that the transaction involved a fair process and fair price, and was not required to conduct an expected-value calculation of plaintiffs’ claims.

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