Special litigation committees: key recent decisions

September 2026 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

September 2026 Issue

In the face of public reports of negative business or legal developments, companies and their directors are often forced to address shareholder demands that directors be subject to suit for the breaches of fiduciary duty that allegedly led to such developments.

Special litigation committees (SLCs) remain a potent tool for managing this risk while at the same time maintaining confidence in board oversight. This article summarises recent decisions, focusing on SLC composition and independence, deference and challenges to SLC processes and conclusions, and what plaintiffs can discover about an SLC’s investigation.

Overview

SLCs are board-authorised committees formed to evaluate shareholder derivative claims or demands seeking to file lawsuits against directors for alleged breaches of fiduciary duty – in situations where a majority of the board may lack independence or disinterestedness in the disputed matter.

SLCs typically consist of one or more independent, disinterested directors empowered to determine whether pursuing, settling or dismissing the claims is in the corporation’s best interest. The judgment of an SLC generally receives a significant amount of deference.

As the Delaware Chancery Court has observed, as long as the SLC “undertake[s] a diligent and good faith investigation, often with assistance from advisors, and carefully appl[ies] the relevant legal standards to the evidence it uncovers and draw[s] conclusions supported by reasonable bases, the court will generally support its judgment” (In re Baker Hughes, a GE Co. Derivative Litigation (2023)).

Although the standard of review for a motion to dismiss based on an SLC’s determination varies by jurisdiction, most courts have adopted Delaware’s Zapata framework. First, there must be no material factual dispute existing regarding the SLC’s independence, good faith, reasonable investigation and reasonable bases for its conclusions.

Second, upon such a showing, the court may apply the highly deferential business judgment rule to decide whether dismissal is appropriate. Typically, the putative derivative plaintiff is entitled to limited discovery “‘focused in light of its purpose, i.e., verification of the independence and good faith of the committee’ ... [and is] not entitled to a fishing expedition or the sort of broad discovery available in a plenary dispute”.

Recent developments and takeaways

Appointment/composition. Courts in recent years have continued to scrutinise SLC member independence and disinterestedness on a member by member record. Whether a committee has one member or several, and regardless of who bears the burden, courts ask the same question: could each member investigate this defendant without pulling punches?

The Delaware Supreme Court addressed this issue in Diep v. Trimaran Pollo Partners, L.L.C. (2022), where it affirmed a lower court ruling granting an SLC’s motion to terminate the shareholder action based on its investigative findings.

The court found the two SLC members at issue independent because the record did not show they had “approved or participated in a substantive way” in the decision to file that motion, and their professional and personal connections to the controller’s principal did not defeat independence given their independent business backgrounds and upfront disclosure of the ties.

Two years later, in In re Carvana Co. Stockholders Litigation (2024), the Delaware Chancery Court exercised similar deference in granting the SLC’s motion to dismiss after finding its two-member committee independent, well-advised and methodologically sound.

In doing so, the court rejected the plaintiffs’ bases for challenging the members’ independence, including: (i) their reliance on counsel recommended by the board; (ii) their status as defendants in unrelated insider-trading suits; (iii) approving the direct offering, or sitting on the board when the company filed its initial motion to dismiss; and (iv) one member’s minor business ties through auto-dealership pilot programmes.

More recently, however, the court took a more discerning approach to SLC member independence in Grabski ex rel. Coinbase Glob., Inc. v. Andreessen (2026), finding a triable dispute concerning independence and thereby denying the SLC’s motion to terminate.

Noting that the nonindependence of even one of a two-member SLC “is sufficient alone to require denial” of the motion, the court found the challenged member’s testimony that he was independent and would sue the defendants without hesitation irrelevant, and focused instead on his relationships with the defendants, including their repeated presence at his career milestones, early investment in and advising of his start-up, and his “thick ties” to a defendant’s venture capital firm. The court found these posed an “unacceptable risk of bias” in the process.

Single-member SLCs can pass muster, but only with enhanced scrutiny of independence, scope and diligence, as Baker Hughes underscores. Lori W. Will, vice chancellor of the Delaware Court of Chancery, acknowledged the committee was imperfect – the sole member had exchanged messages with an investigation subject and the report left some transaction-adviser conflicts undiscussed – but found the member’s independence, the thoroughness of a nine-month investigation (roughly 110,000 documents reviewed and 22 witness interviews) and the reasonableness of the conclusions, satisfied the Zapata first step.

Outside Delaware, some states shift to the shareholder the burden of proving independence. In Indiana, for example, an appeals court in Velox Express, Inc. v. Waltz (2026) recently affirmed that an SLC is presumed to be independent unless the shareholder proves otherwise. The court found that the plaintiff’s claim that two SLC members were “longtime friends”, without more, did not establish a lack of independence.

These recent cases reinforce several points. Boards should evaluate not only direct financial ties, but also patterns of co-investment, advisory roles, recurring collaborations and other shared affiliations when assessing independence. Comprehensive, upfront disclosure of relationships and potential conflicts remains essential and can shape the SLC’s narrative. And scrutiny intensifies as committee size shrinks, with a single-member SLC facing the highest bar.

Challenges to an SLC’s investigative process. The Zapata first step also requires examination of the SLC’s investigative process. Recent case law demonstrates that courts across jurisdictions vary in the degree to which they scrutinise that process.

In Carvana, for example, a two-member SLC reviewed roughly 100,000 pages and interviewed 16 witnesses over seven months before concluding that claims against the company’s controlling stockholder’s self-enrichment lacked merit. The court found the SLC’s degree of reliance on the work of its external counsel proper because members stayed engaged by participating in decisions about document sources, custodians and potential witnesses.

It found that members’ inability to recall investigation details months later did not undermine the SLC’s work, given the extensively documented 170-page report. The court also declined to treat one member’s unenthusiastic comments about the process as evidencing an unreasonable investigation and rejected plaintiffs’ argument that the SLC should have gathered additional texts, given its already expansive collection of emails, slack messages and texts across 18 custodians.

A recent California case, on the other hand, offers an extreme example of how discerning some courts can be in reviewing the reasonableness of an SLC investigation. In Chodniewicz v. ART.com, Inc. (2026), the trial court, applying Delaware law, denied an SLC’s motion to terminate after finding triable issues about the investigation’s reasonableness.

The court held a six-day bench trial on the issue after eight months of discovery into the SLC’s independence and process, ultimately finding that the investigation was reasonable, comparing it favourably to Carvana and Baker Hughes. The court also rejected as “nitpicking” complaints that the SLC had not personally attended interviews, reiterating that competent reliance on counsel does not itself make an investigation unreasonable.

Together, these cases highlight some factors that investigations must address to withstand judicial reviews. First, genuine, ongoing member engagement in the process. Second, avoiding the appearance of any bias. Third, documented consideration of every allegation, even minor ones. Lastly, a fact-gathering effort broad enough to withstand second-guessing.

Discovery issues. While there are limits on what plaintiffs can obtain in Zapata discovery, recent case law affirms that timing matters just as much as scope, and that district courts have extremely broad discretion in controlling discovery. A prolonged SLC process risks losing the chance to stay discovery pending investigation.

In In re Abbott Laboratories Infant Formula Shareholder Derivative Litigation (2025), the court partially denied a delayed stay request, on the grounds that by then, the parties had already expended substantial effort on written discovery, and the documents being produced in the lawsuit itself largely overlapped with what the SLC was reviewing.

The court thus found it more efficient to let written discovery continue rather than to pause and resume it later. It drew a sharper line for oral discovery, however, staying depositions because witness preparation and testimony could interfere with the company’s own need to interview those same witnesses for the SLC’s investigation.

The Delaware Supreme Court’s decision in In re Oracle Corp. Derivative Litigation (2025) highlights another recurring discovery issue in the SLC context: privilege. In Oracle Corp., the SLC, through counsel, conducted interviews, prepared interview memoranda, attempted to settle the case in mediation with the individual defendants, and ultimately returned the case to plaintiffs to pursue in litigation.

Plaintiffs received everything the SLC had reviewed and relied upon except materials subject to a valid privilege claim, including the SLC’s interview memoranda. The court affirmed: because the SLC had returned to the plaintiff control of the litigation rather than moving to terminate it, ordinary discovery rules, and not Zapata’s heightened scrutiny over the investigation process, governed.

The court ruled that allowing complete discovery of all documents provided to or created by an SLC could chill candour and limit the effectiveness of SLCs going forward.

Conclusion

In sum, these cases counsel corporations to move deliberately on two fronts: act quickly with formation of an SLC to preserve the ability to stay discovery pending completion of its investigation, and exercise care when generating work product, even product that would in other contexts be subject to privilege.

SLCs offer a way for companies and their boards of directors to avoid costly, distracting and discovery-heavy shareholder litigation while at the same time investigating the merits of allegations against directors in a controlled manner.

As this recent caselaw confirms, however, companies and the directors involved should approach with prudence the decision of not only whether to stand up an SLC, but also how it is composed and how its investigation is conducted.

Patrick F. Linehan and Brigida Benitez are partners and Ning He is of counsel at Steptoe LLP. Mr Linehan can be contacted on +1 (202) 429 8154 or by email: plinehan@steptoe.com. Ms Benitez can be contacted on +1 (202) 429 6261 or by email: bbenitez@steptoe.com. Ms He can be contacted on +1 (312) 577 1281 or by email: nhe@steptoe.com.

Patrick F. Linehan, Brigida Benitez and Ning He

Steptoe LLP