The Use of Special Litigation Committees to Terminate Shareholder Derivative Suits

A corporation's board of directors will frequently appoint a special litigation committee when faced with a shareholders' derivative action against fellow directors. Committee dismissal of such actions is the subject of increasing scrutiny by the courts. The author addresses this particular issue by analyzing the relevant federal and state court decisions and by focusing on special procedures that should be employed to ensure that the decision reached by the special litigation committee serves the best interests of the corporation and its shareholders. The author concludes that the principle of corporate accountability should determine the extent to which such committees may exercise their business judgment to bar such shareholder derivative suits.