Miller v. Register and Tribune Syndicate, Inc.

Supreme Court of Iowa · 1983 · Corporations

CorporationsDerivative litigationBoard delegationSpecial litigation committeesBusiness judgment rulechapter 491 corporationsspecial litigation committeederivative suit

Facts

Plaintiff brought a derivative action on behalf of Register and Tribune Syndicate, Inc., alleging the corporation had sold stock at fraudulently low prices and for grossly inadequate consideration to key employees, including the four director defendants. While that suit was pending, the four directors expanded the board from four to six members, elected two new directors, and unanimously created an Independent Litigation Committee consisting of those two new directors. The resolution gave the committee full board authority to investigate the derivative claims, determine in good faith whether the litigation should continue, and bind the corporation to its decision. The committee later reported that no further expenditure should be made to continue the lawsuit, and the corporation sought summary judgment in federal court based on that recommendation.

Issue

May the board of directors of an Iowa corporation organized under chapter 491, acting through directors who are named as defendants in a derivative action, appoint a special litigation committee of newer directors and give that committee power to investigate the action, decide in good faith whether it should be prosecuted, dismissed, or settled, and bind the corporation to that decision? More specifically, does the board have power to delegate that authority when a majority of the board is personally interested in the litigation?

Rule

Under Iowa law, directors of Iowa corporations organized under chapter 491, or any other corporate enabling legislation, who are parties to a derivative action may not confer upon a special committee of the type described in the certified question the power to bind the corporation as to its conduct of that litigation. Although chapter 491 corporations may generally delegate authority through their articles, bylaws, and organic corporate law, that delegation may not be used to invoke the business judgment rule through a committee appointed by directors who are defendants in the derivative suit because of the danger of structural bias.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

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

Prairie Ledger Holdings, an Iowa corporation organized under chapter 491, has articles and bylaws allowing the board to create committees and delegate any board authority not prohibited by law. A shareholder files a derivative suit against a former officer, but none of the current five directors is named as a defendant or alleged to have participated in the challenged transactions.

Under the majority opinion's rule, which is the best assessment of the board's power to create a litigation committee with authority to investigate and decide whether the corporation should continue or settle the suit?

Explanation. The majority held that chapter 491 corporations possess broad delegation power under Iowa corporate law, and that articles and bylaws may authorize delegation to a special litigation committee. The prohibition is not categorical; it applies when directors who make the appointment are parties to the derivative action. Here, no current directors are defendants, so the board's general delegation power remains available.