Alford v. Shaw

358 S.E.2d 323 (1987)

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Nature of the Case

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Facts

Minority shareholders (P) asserted mismanagement and fraud. The board of AAA then voted to appoint a committee to investigate the alleged fraud. A retired insurance executive and a former judge of the North Carolina Court of Appeals were elected to the board and then appointed to investigate the alleged wrongdoing. Before the investigation was completed, P filed a shareholder's derivative action naming Ds, the controlling shareholders of AAA and the majority of its directors. The suit alleged fraud, self-dealing, and negligence acquiescence which amounted to a looting of the corporation. Upon completion of its investigation, the committee filed a report that the majority of P's claims be dismissed with prejudice and the two remaining claims be settled in accordance with an attached settlement agreement. The trial court agreed holding that the business judgment rule controlled the case and granted the motions. The Court of Appeals reversed; corporate directors who are parties to a derivative action may not confer upon a special committee the power to bind the corporation as to derivative litigation.