## Facts

- Two closely held, family-owned corporations had stock held primarily among eight siblings; three siblings served as officers/directors and controlling shareholders, while others were minority, non-manager shareholders.
- After the parents’ deaths, the corporations used stock purchase agreements (SPAs) to restrict share transfers and structure succession and control.
- The director-siblings caused multiple stock redemptions and purchases (including via entities they controlled), using pricing tied to book value or an earlier appraisal and, in some instances, retroactive approvals and promissory-note financing.
- Minority shareholders alleged the transactions were self-dealing and breached fiduciary duties, harming the corporations and minority shareholders.
- The minority shareholders made a litigation demand; the boards formed a Special Litigation Committee (SLC) to evaluate whether pursuing derivative claims served the corporations’ interests.
- The SLC retained counsel, conducted interviews and document review, and concluded the transactions were appropriate and that continuing the derivative litigation was not in the corporations’ best interests.
- The minority shareholders filed (1) a derivative action alleging fiduciary breaches and related wrongs and (2) direct shareholder claims (including oppression) in related litigation concerning SPA enforcement.
- In a parallel declaratory judgment action, a corporation sought declarations enforcing SPA repurchase rights after a sibling’s death; the estate and certain siblings resisted.

## Issues

1. What standard must Maryland courts apply when a corporation seeks dismissal or summary judgment of a shareholder derivative action based on an SLC recommendation not to pursue the claims?
2. Whether Maryland should adopt Delaware’s Zapata approach permitting courts to apply independent business judgment to the merits of the SLC’s recommendation.
3. Whether an SLC-based summary judgment in a derivative action constitutes a final adjudication on the merits that bars related direct shareholder claims or other related litigation under res judicata.
4. How to distinguish direct shareholder claims from derivative corporate claims in closely held corporations.

## Decision

- The court rejected the Zapata two-step merits review and held Maryland courts instead review (a) the SLC’s independence and (b) whether the SLC conducted a reasonable investigation and reached principled, factually supported conclusions.
- The SLC is entitled to no presumption of independence; the corporation bears the burden to prove independence and a reasonable investigative process.
- The court reversed the derivative-action summary judgment because the trial court did not conduct an adequate inquiry into SLC independence and the reasonableness of its investigation.
- The court held that summary judgment entered in deference to an SLC determination that litigation is not in the corporation’s best interests is not a merits adjudication of the underlying claims.
- The court reversed, in relevant part, the dismissal of direct shareholder claims that had been barred on res judicata grounds and remanded for further proceedings.

## Legal Principles

- When dismissal or summary judgment of a derivative claim is sought based on an SLC recommendation, the court must examine SLC independence and the adequacy of the SLC’s investigative procedures and reasoning.
- The corporation bears the burden of showing SLC independence and a reasonable investigation culminating in principled, fact-based conclusions.
- Maryland courts do not substitute judicial business judgment for an SLC’s substantive business decision; judicial review centers on independence and process.
- An SLC-driven derivative dismissal does not constitute a final adjudication on the merits of the underlying fiduciary-duty allegations for res judicata purposes.
- Direct-versus-derivative classification turns on the nature of the right asserted and the remedy sought: corporate injury and corporate recovery indicate a derivative claim; personal shareholder injury and personal relief indicate a direct claim.

## Conclusion

The court required rigorous, non-deferential review of an SLC’s independence and investigative process before terminating derivative litigation and held that an SLC-based termination of a derivative case does not, by itself, preclude related direct shareholder claims under res judicata.


Boland v. Boland Trane Assocs., Inc., 423 Md. 296, 31 A.3d 529 (2011)