Desaigoudar

In this shareholders’ derivative lawsuit, plaintiffs Aarathi and Chan Desaigoudar, as trustees of the Chan Desaigoudar Foundation, allege that eight directors or officers of California Micro Devices Corporation (CMD) wasted corporate assets and breached their fiduciary duties.

The superior court granted a defense motion for summary judgment on the ground that a special litigation committee appointed by the CMD board of directors made a good faith determination that it was not in the company’s best interest to prosecute the Desaigoudars’ claim. On appeal, plaintiffs contend: (1) the trial court erred in failing to consider the merits of their claim against the individual defendants; (2) the motion should not have been granted because discovery in the underlying lawsuit was stayed, and (3) the court erred in finding that there were no triable issues of fact.

We hold that judicial review of the decision of a special litigation committee is governed by the business judgment rule. When asserted in connection with a summary judgment motion the material issues of fact relevant to the special litigation committee defense are the independence of the committee members and their…