Case Brief

Bezirdjian filed a shareholder derivative action against current and former members of the board of directors of Chevron Corporation, alleging breaches of fiduciary duty, gross mismanagement, constructive fraud and waste of corporate assets in connection with illicit payments Chevron allegedly made to Saddam Hussein in exchange for Iraqi oil from 2000 to 2003.

The allegations of the complaint were based on an article published in May 2007 in the New York Times. Chevron never defended the alleged payments to Saddam Hussein, essentially asked the Court to assume the truth of those allegations, and yet obtained an order dismissing the case without ever having to provide plaintiff with any documents, information or testimony regarding any of plaintiff's claims. Chevron responded to the complaint by:

* forming a committee of the board composed of three directors who were not on the board when the alleged payments to Saddam Hussein were made, * granting the committee the power to investigate the allegations of the complaint and resolving that the committee's conclusions would be binding on the board without further review, * obtaining a stay of the litigation to permit the committee to perform its investigation, and * moving for judgment in its favor solely on the basis of the committee's recommendation, as reported to plaintiff in a letter from Chevron's attorney.

The letter stated that the Committee and its counsel interviewed 34 individuals, reviewed over 150,000 pages of documents, and "determined it not to be in the best interests of Chevron or its stockholders to pursue the claims asserted" in Bezirdjian's complaint. Issue

Does the committee of the board failed to act independently, reasonably and in good faith or not.

Decision No. The court granted Chevron's motion for judgment on the pleadings, denying plaintiff discovery. Reason The court determined under Delaware law that the plaintiff had failed to show that the special committee failed to act independently, reasonably and in good faith. Plaintiff appealed, and the Court of Appeal unanimously affirmed the decision of the Superior Court.. Opinion

I agree with the court decision. The plaintiff failed to meet his burden to allege facts sufficient to rebut the presumption that a special committee of the board exercised valid business judgment when it refused to maintain the underlying lawsuit.