Lewis v. Fuqua

Delaware Court of Chancery · 1985 · Corporations

502 A.2d 962 (1985)

Updated August 22, 2026

CorporationsDerivative suitsSpecial Litigation CommitteesCorporate opportunityInterested directorsstockholder derivative actionSpecial Litigation Committeeindependence

Facts

Plaintiff alleged that J.B. Fuqua and other individual defendants diverted to themselves the opportunity to purchase Triton common stock while Fuqua Industries purchased Triton preferred stock from the same seller. The board never formally rejected the opportunity for the corporation to buy the Triton common stock, yet J.B. Fuqua and other defendants purchased that stock for themselves, and Fuqua Industries later bought additional Triton stock from the Walsh block at a higher per-share price. The board created a one-person Special Litigation Committee consisting of Terry Sanford, a director, defendant, and person with multiple ties to J.B. Fuqua and Duke University. After a four-and-a-half-month investigation, the committee recommended that the corporation seek dismissal of the suit.

Issue

Whether the corporation's derivative action should be dismissed under Zapata based on the recommendation of the Special Litigation Committee. Specifically, whether the corporation proved the committee's independence and a reasonable basis for its conclusions, and whether dismissal would be appropriate at this stage.

Rule

Under Zapata, when a corporation moves to dismiss a derivative suit based on a Special Litigation Committee recommendation, the court first examines under Rule 56 standards the committee's independence, good faith, and the reasonableness of its investigation and the bases for its conclusions, with the corporation bearing the burden of proof. If the corporation fails to show independence or reasonable bases for the committee's conclusions, the motion must be denied; even if step one is satisfied, the court may independently decide under step two that dismissal is not in the corporation's best interests.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A shareholder of Blue Mesa Holdings, a Delaware corporation based in Denver, files a derivative suit alleging that several directors diverted an acquisition opportunity to themselves. The board appoints a one-member special litigation committee consisting of Nora Whitfield, a current director who is also named as a defendant, served on the board when the challenged events occurred, and sits on the governing board of a museum that has received major donations from the corporation's chief executive, the lead defendant.

If Blue Mesa moves to dismiss based on Nora's recommendation after her committee completes a detailed investigation, how should the court rule at Zapata's first step?

Explanation. Under the majority opinion, the corporation bears the burden under Rule 56-like standards to prove the committee's independence. A one-person committee member who is a current director, a defendant, involved at the time of the alleged wrongs, and tied to the alleged wrongdoer through significant institutional or financial relationships presents a material factual question about independence. A thorough investigation alone does not cure that defect, so dismissal must be denied.