Corporate Governane—The Role of Special Litigation Committees

In reviewing decisions of a special litigation committee, courts have generally applied the business judgment rule to the "second-tier" decision by the committee when it moves to dismiss litigation challenging alleged "first-tier" wrongdoing. While all courts inquire into the independence and good faith of the committee, and the adequacy of its procedures, a judicial split exists as to whether the court can inquire into the substantive reasons why the committee believes the litigation should be dismissed. This Article analyzes the nature of structural bias and contrasts the procedural rights which a plaintiff possesses in a judicial proceeding with the lack of such rights in the special litigation committee context. It concludes that Auerbach should never be the standard of review, that Zapata is the appropriate standard where the "first-tier" wrong implicates the duty of care, and that no deference should be given to the committee when the underlying wrong involves a breach of the duty of loyalty.