## Facts

- A Zapata Corporation stockholder filed a shareholder derivative action in the Delaware Court of Chancery against ten officers and/or directors for alleged fiduciary breaches.
- The stockholder made no pre-suit demand on the board, alleging demand was futile because the directors were defendants and allegedly participated in the challenged conduct.
- After several defendant directors left the board, the remaining directors added two new outside directors and formed an independent investigation committee composed only of those new directors.
- The committee investigated and recommended that the derivative action (and related litigation) be dismissed as contrary to the company’s best interests.
- The corporation moved to dismiss the Chancery action (or for summary judgment) based on the committee’s recommendation.
- The Court of Chancery denied the motion, concluding that when demand is excused, the business judgment rule does not permit a board-appointed committee to terminate the derivative suit.
- The corporation pursued an interlocutory appeal to the Delaware Supreme Court.

## Issues

1. Whether, after demand is excused as futile, a board-authorized committee of disinterested directors may seek dismissal of a pending derivative action on the corporation’s behalf.
2. What standard of judicial review governs a motion to dismiss a derivative action based on a special litigation committee’s recommendation.

## Decision

- The Delaware Supreme Court reversed and remanded.
- The court held that a properly authorized special litigation committee may move to dismiss a derivative action even when demand was excused.
- The court rejected both (a) an unqualified stockholder right to control litigation once demand is excused and (b) unreviewable deference to committee recommendations.
- The court adopted a two-step framework for trial-court review of dismissal motions grounded in a committee recommendation:
  - First, the corporation must prove the committee’s independence, good faith, and reasonable investigation.
  - Second, even if that showing is made, the court must exercise its own independent business judgment on whether dismissal is in the corporation’s best interests.

## Legal Principles

- Board management authority includes deciding whether the corporation should pursue, settle, or terminate corporate litigation, subject to equitable limits in derivative-suit contexts.
- A special litigation committee’s recommendation is not accepted automatically; the corporation bears the burden to show the committee’s independence, good faith, and reasonable investigatory basis.
- Judicial review of special litigation committee dismissal motions requires a second, discretionary inquiry in which the court determines—using its own independent business judgment—whether dismissal serves the corporation’s best interests.
- Demand excusal for futility allows a derivative suit to proceed, but does not eliminate the board’s ability to respond through a properly constituted committee subject to the two-step review.

## Conclusion

The Delaware Supreme Court held that a special litigation committee may seek dismissal of a derivative action filed without demand due to futility, but only after the corporation proves the committee’s independence, good faith, and reasonable investigation, and the court separately determines, in its own business judgment, that dismissal is in the corporation’s best interests.


Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981)