Conroy v. Amos, 338 F. Supp. 3d 1309 (M.D. Ga. 2018)
Georgia law warrants the dismissal of a derivative claims if a corporation’s decision not to pursue the claims is based upon a recommendation from an independent and disinterested committee and a reasonable and good faith investigation.
Georgia’s derivative-action dismissal statute, O.C.G.A. § 14-2-744, authorizes dismissal of a derivative action if the court is satisfied that the corporation has carried its burden of proving that: (1) a committee of two or more independent directors; (2) conducted a reasonable investigation of the claims; and (3) made a good faith determination that maintenance of the action is not in the corporation’s best interests.
A group of shareholders (the “Plaintiffs”) informally and formally notified Aflac, Inc., (“AFLAC”) of an alleged fraudulent scheme to manipulate its key operational metrics to recruit sales associates. Among other claims, the Plaintiffs asserted breach of fiduciary duty, securities fraud and proxy fraud claims. AFLAC’s board established a special litigation committee (the “SLC”) and gave it the power to retain independent counsel in response to the Plaintiffs’ formal demand letters. The SLC investigated and issued a detailed report for all three formal demands. In each case, the SLC advised AFLAC that pursuit of the claims was not in the company’s best interest. Nonetheless, the Plaintiffs instituted the present lawsuit while the second demand was outstanding. The company moved to dismiss the suit based on its reliance upon the SLC’s recommendations.
The court found that the members of SLC were both disinterested – in the sense of not having a personal interest in the transaction being challenged – and independent – in the sense of not being influenced in favor of the alleged wrongdoers by reason of personal or other relationships. In other words, the court found that the SLC members neither faced a substantial likelihood of personal liability nor were beholden to the alleged wrongdoers.
The court further found that the SLC conducted a reasonable and good faith investigation because it relied on non-conflicted, independent counsel to engage in a comprehensive investigation of both documentary and testimonial evidence.
As a result, the court dismissed the Plaintiffs’ claims against AFLAC because it found that the company had met its burden under Georgia law to warrant dismissal of the derivative claims based upon the actions and composition of the SLC.