## Facts

- A DISH Network Corporation shareholder filed a derivative action alleging that DISH’s chairman/CEO and other directors and officers engaged in self-dealing and breached fiduciary duties involving purchases of LightSquared secured debt and DISH’s efforts to acquire LightSquared’s assets during bankruptcy.
- DISH’s board formed a special litigation committee (SLC) to investigate and decide whether pursuing the derivative claims was in DISH’s best interest.
- The SLC initially consisted of two directors alleged to be close personal friends of the chairman and his wife; after an independence challenge, the board added a third director (Lillis).
- The board adopted a voting rule requiring Lillis’s affirmative vote for any SLC action to be effective.
- Over nearly a year, the SLC monitored the bankruptcy proceedings, interviewed witnesses, reviewed documents, obtained legal advice, and held multiple meetings.
- The SLC determined that pursuing the derivative claims was not in DISH’s best interest and sought dismissal.
- The district court found the SLC independent and its investigation adequate, deferred to the SLC’s recommendation, dismissed the action, and awarded costs to the SLC.
- The shareholder appealed, disputing SLC independence (based on limited prior work and occasional social contact between Lillis and another director) and challenging portions of the cost award.

## Issues

1. What standard governs judicial review of an SLC’s recommendation to dismiss a shareholder derivative action as not in the corporation’s best interest?
2. Whether the SLC was independent given director relationships and the SLC’s voting structure requiring an independent member’s affirmative vote.
3. Whether the SLC conducted a good-faith, thorough investigation using reasonable procedures.
4. Whether the district court properly awarded the SLC particular categories of litigation costs, including electronic discovery, copying/scanning, and teleconferencing charges.

## Decision

- The court adopted the Auerbach standard: courts defer to an SLC’s business judgment to dismiss derivative claims if the SLC is independent and conducted a good-faith, thorough investigation.
- The court held the SLC was independent, relying on the district court’s finding that Lillis was independent and the voting structure requiring his affirmative vote for any SLC action.
- The court held the SLC conducted a good-faith, thorough investigation and that the district court did not abuse its discretion in deferring to the SLC and dismissing the derivative action.
- The court affirmed costs for electronic discovery and photocopying/scanning as recoverable litigation costs tied to discovery production.
- The court vacated the teleconferencing cost award due to lack of supporting documentation.
- Disposition: affirmed in part and vacated in part.

## Legal Principles

- When an SLC is empowered to determine whether continuing a derivative suit is in the corporation’s best interest, a court should defer to the SLC’s business judgment if the SLC (1) is independent and (2) conducted a good-faith, thorough investigation with reasonable procedures.
- Judicial review focuses on the SLC’s independence and the adequacy and good faith of its investigative process, not the substantive merits of the SLC’s ultimate business decision.
- Social or professional relationships, without more, do not necessarily defeat SLC independence; structural protections (including voting rules requiring an independent member’s affirmative vote) may support an independence finding.
- The district court’s decision to defer to an SLC under this framework is reviewed for abuse of discretion.
- Litigation costs may be awarded when supported by the record and shown to be incurred to acquire and process information required for discovery; costs lacking documentation may be denied.

## Conclusion

Nevada adopted a deferential, process-focused standard for SLC-based dismissal of derivative suits, affirming dismissal where an independent SLC used reasonable, good-faith investigative procedures, while limiting cost awards to documented, recoverable expenses.


Matter of DISH Network Derivative Litig., 401 P.3d 1081 (Nev. 2017)