Justia Securities Law Opinion Summaries

Shareholders of Abercrombie & Fitch claimed that false statements by officers and directors in 2005 caused the price of the stock to rise and fall. The company formed a special litigation committee to investigate, as permitted under Delaware law. The district court dismissed the derivative action, based on the committee's findings. The Sixth Circuit conducted de novo review and reversed. The corporation had the burden of proving that the committee was independent, carried out its investigation in good faith, and reached a reasonable conclusion. One member of the committee, a board member subsequently named as a defendant, recused himself from consideration of certain allegations, but had relationships with the accused such that partial recusal was ineffective and he could not be considered independent. The recusal also left only one member able to consider certain accusations, where the company intended a two-member committee. The remaining member was a named defendant, a member of the audit committee, and played a role in the challenged actions.