MBE Rules · Business Associations
Special Litigation Committees
Special litigation committees (Cal.)
The rule
A board may delegate derivative-suit review to an independent committee; California courts defer to a good-faith, reasonably investigated SLC dismissal recommendation, scrutinizing independence and thoroughness.
In plain English
A Special Litigation Committee (SLC) is a group appointed by a corporation's board to review derivative lawsuits and make recommendations on whether to pursue or dismiss them. California courts will generally respect the SLC's decision if it is made in good faith and based on a thorough investigation, focusing on the committee's independence and the quality of its inquiry.
Worked example
A corporation faces a derivative lawsuit alleging that its directors mismanaged funds. The board appoints an SLC composed of independent members who conduct a detailed investigation and recommend dismissing the suit. The court upholds the SLC's recommendation, finding that the committee acted in good faith and conducted a thorough review.
Memory hook
SLCs: Independence and thoroughness lead to deference.
The trap
Exams may present scenarios where the SLC's independence is questionable, prompting students to overlook the importance of the investigation's thoroughness in their analysis.
How examiners test it
Questions often involve a fact pattern where an SLC is formed, and candidates must assess the validity of its recommendation based on independence and the thoroughness of its investigation.
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