With the full scale implementation of Minnesota Statutes Chapter 322C (the “Revised Act”) on January 1, 2018, more detailed statutory rules now govern the appointment, authority and use of special litigation committees (“SLCs”) by Minnesota limited liability companies (“LLCs”) when facing a derivative claim.
Up until January 1, 2018, there was very little guidance with respect to SLCs in the governing statutes. Practitioners were required to review and understand case law, such as the Minnesota Supreme Court’s decision in In re UnitedHealth Grp. Inc. Derivative Litig., 754 N.W.2d 544, 550 (Minn. 2008). Now, with the adoption of the Revised Act, Minnesota LLCs have more direction when choosing to appoint an SLC to address a member derivative demand and/or member derivative litigation. This article is intended to highlight some of the specific statutory provisions under the Revised Act that did not exist under the previous MN LLC Act, Chapter 322B, and which do not exist under the Minnesota Business Corporation Act, Chapter 302A.
As an initial matter, the appointment of an SLC is a highly effective response by a company when a derivative demand is made by an owner. An SLC enables a company, through the appointment of an SLC, to take control of claims even when a majority of the board is in a conflict of interest position. Indeed, the comments to the Revised Uniform Limited Liability Company Act, which the Revised Act is patterned after, highlight that an “SLC can serve as an ADR mechanism, help protect an agreed upon arrangement from strike suits, protect the interests of members who are neither plaintiffs nor defendants (if any), and bring to any judicial decision the benefits of a specially tailored business judgment.”
Once it is determined that derivative claims are alleged against a Minnesota LLC, the LLC may appoint an SLC to investigate the claims asserted and determine whether it is in the best interests of the company to pursue those claims. While it is common for courts to stay derivative litigation pending the completion of an SLC investigation, the Revised Act explicitly provides that the “court shall stay discovery for the time reasonably necessary to permit the committee to make its investigation.” This court directive is important because it allows the SLC to conduct its investigation without the company having to participate in two proceedings at the same time. That being said, Section 905 also provides that staying discovery is not intended to prevent the court from enforcing a member’s right to information as provided under Minn. Stat. § 322C.0410, or, for good cause shown, granting extraordinary relief in the form of a temporary restraining order or preliminary injunction. Read more.