IN THE MATTER OF DISH NETWORK DERIVATIVE LITIGATION.
GEORGE R. BROKAW; CHARLES M. LILLIS; TOM A. ORTOLF; CHARLES W. ERGEN; CANTEY M. ERGEN; JAMES DEFRANCO; DAVID K. MOSKOWITZ; CARL E. VOGEL; THOMAS A. CULLEN; KYLE J. KISER; AND R. STANTON DODGE, Respondents. JACKSONVILLE POLICE AND FIRE PENSION FUND, Appellant, IN THE MATTER OF DISH NETWORK DERIVATIVE LITIGATION. JACKSONVILLE POLICE AND FIRE PENSION FUND, Appellant,
GEORGE R. BROKAW; CHARLES M. LILLIS; TOM A. ORTOLF; CHARLES W. ERGEN; CANTEY M. ERGEN; JAMES DEFRANCO; DAVID K MOSKOWITZ; CARL E. VOGEL; THOMAS A. CULLEN; KYLE J. KISER; AND R. STANTON DODGE, Respondents.
appeals from a district court order of dismissal after the
district court deferred to a special litigation
committee's determination that the derivative claims
should be dismissed and an order awarding costs. Eighth
Judicial District Court, Clark County; Elizabeth Goff
McDonald Carano, LLP, and Jeffrey A. Silvestri and Amanda C.
Yen, Las Vegas, and Debbie A. Leonard, Reno; Bernstein
Litowitz Berger & Grossman, LLP, and Mark Lebovitch,
Jeroen Van Kwawegen, and Adam D. Hollander, New York, New
York, for Appellant.
Holland & Hart, LLP, and J. Stephen Peek, Robert J.
Cassity, and David J. Freeman, Las Vegas, and Holly Stein
Sollod, Denver, Colorado; Young, Conway, Stargatt &
Taylor, LLP, and David C. McBride, Robert S. Brady, C. Barr
Flinn, and Emily V. Burton, Wilmington, Delaware, for
Respondents, George R. Brokaw, Charles M. Lillis, and Tom A.
Reisman Sorokac and Joshua H. Reisman and Robert R. Warns
III, Las Vegas; Willkie, Farr & Gallagher, LLP, and James
C. Dugan, Tariq Mundiya, and Mary K. Warren, New York, New
York, for Respondents, Charles W. Ergen and Cantey M. Ergen.
Pisanelli Bice, PLLC, and James J. Pisanelli and Debra L.
Spinelli, Las Vegas; Sidley Austin, LLP, and Bruce R. Braun,
Chicago, Illinois, for Respondents Thomas A. Cullen, Kyle J.
Riser, and R. Stanton Dodge.
Brownstein Hyatt Farber Schreck, LLP, and Maximilien D.
Fetaz, Kirk B. Lenhard, and Jeffrey S. Rugg, Las Vegas;
Sullivan & Cromwell, LLP, and Brian T. Frawley, New York,
New York, for Respondents James DeFranco, David K. Moskowitz,
Carl E. Vogel, and (in their capacity as Director Defendants)
George R. Bokaw, Charles M. Lillis, and Tom A. Ortolf
THE COURT EN BANC.
Jacksonville Police and Fire Pension Fund (Jacksonville)
brought suit, derivatively on behalf of DISH Network
Corporation, challenging certain conduct of, among others,
Charles W. Ergen, the chairman and chief executive officer of
DISH. To investigate Jacksonville's claims, DISH's
board of directors (the Board) created a Special Litigation
Committee (the SLC), respondent in this matter. After the SLC
concluded it was not in DISH's best interest to pursue
Jacksonville's derivative claims, the district court
deferred to the SLC's decision, dismissed the complaint,
and awarded costs to the SLC.
these consolidated appeals, we address the appropriate legal
standard for a district court's consideration of an
SLC's motion to defer to the SLC's recommendation
that derivative claims should be dismissed because pursuing
those claims would not be in the company's best interest.
In doing so, we adopt the standard set forth in Auerbach
v. Bennett, 393 N.E.2d 994 (N.Y. 1979), and conclude
that the district court did not abuse its discretion in
determining that the SLC was independent based upon its
voting structure, which required an independent member's
affirmative vote in order for any resolution of the SLC to
have effect, and that the SLC conducted a good-faith and
thorough investigation. We therefore affirm the district
court's order granting the SLC's motion to defer and
dismissing the complaint. With respect to costs, we affirm
the district court's awards for electronic discovery
costs and photocopying and scanning costs, but vacate the
award for teleconference costs because we conclude that the
district court lacked justifying documentation.
AND PROCEDURAL HISTORY
we recognize that the underlying litigation and related
proceedings involve extensive, complex, and contested facts,
see, e.g., In re LightSquared Inc., 511 B.R. 253,
265-314 (Bankr. S.D.N.Y. 2014), none of the issues before us
concern the substantive merits of Jacksonville's claims
or the SLC's determinations. Accordingly, we briefly
summarize the events leading up to our review and focus on
the facts most pertinent to the disposition of the instant
consolidated appeals-i.e., the SLC's formation and
case arises out of Ergen's purchases of secured debt of
LightSquared L.P. and DISH's efforts to acquire
LightSquared's assets after Ergen's purchases.
Challenging this conduct, DISH stockholder Jacksonville
brought claims for breach of loyalty and unjust enrichment
against Ergen, and claims for breach of loyalty against
DISH's Board and officers. LightSquared filed for Chapter
11 bankruptcy with approximately $1.7 billion face amount of
secured debt outstanding. The secured debt is governed by a
credit agreement, which lists DISH and Echostar Corporation,
an entity controlled by Ergen, as disqualified companies such
that neither can be an eligible assignee of the debt.
April 2012 to April 2013, Ergen, through SP Special
Opportunities, LLC (SPSO), another entity that he owns and
controls, and using funds provided from his personal assets,
purchased approximately $850 million of LightSquared's
secured debt for a total purchase price of approximately $690
million. Ergen later informed DISH and EchoStar of the
opportunity to acquire LightSquared's assets through its
bankruptcy. Ergen also disclosed to DISH's Board that he
purchased LightSquared debt.
meeting held several days later and without the Ergens, the
Board created the Special Transaction Committee (the STC) to
determine whether DISH would pursue the LightSquared
opportunity. On July 21, 2013, the STC recommended that DISH
submit a bid, and the STC was dissolved that same day. Based
on the STC's recommendation, on July 23, 2013, DISH
submitted a $2.22 billion bid to acquire LightSquared's
assets as part of a bankruptcy plan. However, on December 23,
2013, the Board authorized the termination of the bid.
DISH terminated its bid, on August 9, 2013, Jacksonville
instituted the instant derivative litigation. Originally,
Jacksonville brought certain claims for breach of loyalty and
unjust enrichment against Ergen and other directors and
officers arising from, among other things, (1) Ergen's
purchases, through SPSO, of LightSquared's secured debt;
(2) the STC established by the Board to consider a bid for
wireless spectrum and related assets of LightSquared; and (3)
DISH's subsequent bid for the LightSquared assets.
Jacksonville argued that Ergen's purchases of
LightSquared's secured debt usurped corporate
opportunities belonging to DISH, Ergen pressured DISH to make
the bid in order to ensure that LightSquared could use the
proceeds of DISH's bid to pay off Ergen's secured
debt at substantial profit to Ergen, and Ergen interfered
with the STC before it recommended the bid to the Board.
DISH terminated its bid, Jacksonville filed its second
amended complaint, adding as defendants the SLC members,
among others, and further alleging the bid would have been
beneficial to DISH and should not have been terminated. Thus,
in addition to the events listed above, Jacksonville's
claims stemmed from the withdrawal of DISH's bid and the
establishment of the SLC.
SLC's formation and investigation
September 18, 2013, the Board created the SLC to investigate
Jacksonville's claims and determine whether it was in the
company's best interest to pursue the claims. The SLC
initially consisted of long-standing board member Tom A.
Ortolf and George R. Brokaw, who became a board member on
October 7, 2013. In its status report to the court the
following month, Jacksonville noted the flawed composition of
the SLC, arguing Ortolf and Brokaw had close personal and
professional ties to Ergen. On December 9, 2013, Charles M.
Lillis, who became a board member on November 5, 2013, was
added to the SLC. The resolutions appointing Lillis to the
SLC made it so that the SLC could not act without
the SLC determined that it was not in DISH's best
interest to pursue the litigation. As detailed in its report
of over 300 pages, the SLC determined that the claims lacked
merit, DISH could not prevail on the claims, and pursuit of
the claims would be costly to DISH and undermine DISH's
defenses asserted in other litigation. The SLC decided that
the claims should be dismissed.
submitted its report to the district court on October 24,
2014. In the time leading up to the SLC's report, the
district court considered multiple motions, status reports,
and status conferences surrounding DISH's efforts to
acquire LightSquared's assets, the events in
LightSquared's bankruptcy and the adversary proceeding,
and the derivative claims.
SLC's motion to defer
investigating for almost a year, the SLC moved the court to
defer to the SLC's determination that the claims should
be dismissed. After an initial hearing and reviewing the
SLC's report and initial briefing on the motion to defer,
the district court granted Jacksonville discovery pursuant to
NRCP 56(f) regarding the SLC's independence and the
thoroughness of the SLC's investigation. After discovery,
the district court ordered supplemental briefing and oral
argument. Ultimately, the district court granted the
SLC's motion to defer, dismissing the case with
prejudice, and Jacksonville timely appealed.
the SLC filed its memorandum of costs, Jacksonville filed a
motion to re tax, challenging, in relevant part, costs sought
by the SLC for electronic discovery, photocopying and
scanning, and teleconferences. The district court awarded to
the SLC $151, 178.32 for "costs of the electronic
discovery vendors utilized by the SLC" because pursuant
to NRS 18.005(17), the costs "were a reasonable and
necessary expense incurred in connection with the action as a
method by which to acquire and process the information that
was required to be produced in response to
[Jacksonville]'s NRCP 56(f) discovery requests."
Additionally, the district court awarded to the SLC costs for
photocopying and scanning under NRS 18.005(12), and for
teleconference calls under NRS 18.005(13). Ultimately, the
SLC was awarded $186, 100.60 in costs, plus interest. Again,
Jacksonville timely appealed, and this court consolidated the
consolidated appeals primarily concern the district
court's granting the SLC's motion to defer to its
decision to dismiss Jacksonville's derivative complaint.
An SLC has the power to terminate a derivative complaint to
the extent allowed by the state of incorporation. See
Burks v. Lasker, 441 U.S. 471, 486 (1979). Although this
court has yet to address this issue, two principal legal
standards exist for considering an SLC's request to
dismiss derivative claims. See generally Zapata Corp, v.
Maldonado, 430 A.2d 779 (Del. 1981); Auerbach v.
Bennett, 393 N.E.2d 994 (N.Y. 1979). Under both tests,
the district court determines whether the SLC is independent
and conducted a good-faith, thorough investigation.
Zapata, 430 A.2d at 788; Auerbach, 393
N.E.2d at 1001, 1002-03; see also Curtis v. Nevens,
31 P.3d 146, 152 (Colo. 2001) (indicating that both tests
recognize "trial courts are well equipped to evaluate
the methodology and procedures best suited to conduct such an
investigation"). The Auerbach test stops
there-so long as the SLC is independent and employed
reasonable procedures in its analysis, courts following this
approach "may not second-guess [the SLC's] business
judgment in deciding not to pursue the derivative
litigation." Hirsch v. Jones Intercable, Inc.,
984 P.2d 629, 638 (Colo. 1999) (following Auerbach).
The Zapata approach, on the other hand, adds a
second step-if the court finds the SLC "was independent
and showed reasonable bases for good faith findings and
recommendations, the [c]ourt may proceed, in its discretion,
to . . . determine, applying its own independent business
judgment, whether the motion should be granted."
Zapata, 430 A.2d at 789. Because Nevada's
business judgment rule "prevents courts from
'substitut[ing] [their] own notions of what is or is not
sound business judgment, '" Wynn Resorts, Ltd.
v. Eighth Judicial Dist. Court, 133 Nev., Adv. Op. 52,
399 P.3d 334, 344 (2017) (alterations in original) (quoting
Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720
(Del. 1971)), we conclude that Auerbach is the
better approach. See Lewis v. Anderson, 615 F.2d
778, 783 (9th Cir. 1979) ("[T]he good faith exercise of
business judgment by a special litigation committee of
disinterested directors is immune to attack by shareholders
or the courts."); Miller v. Bargaheiser, 591
N.E.2d 1339, 1342-43 (Ohio Ct. App. 1990) (finding
Zapata's "degree of scrutiny to be
irreconcilable with the spirit of the business judgment
and as a matter of first impression, we hold that courts
should defer to the business judgment of an SLC that is
empowered to determine whether pursuing a derivative suit is
in the best interest of a company where the SLC is
independent and conducts a good-faith, thorough
investigation. See Auerbach, 393 N.E.2d at 996
("While the substantive aspects of a decision to
terminate a shareholders' derivative action against
defendant corporate directors made by a committee of
disinterested directors appointed by the corporation's
board of directors are beyond judicial inquiry under the
business judgment doctrine, the court may inquire as to the
disinterested independence of the members of that committee
and as to the appropriateness and sufficiency of the
investigative procedures chosen and pursued by the
committee."); see also Curtis, 31 P.3d at 152
(heeding "the cautionary words expressed by the New York
Court of Appeals in Auerbach, that a court 'may
not under the guise of consideration of such factors trespass
in the domain of business judgment.'" (quoting
Auerbach, 393 N.E.2d at 1002)). Additionally, we
conclude that the application of this standard is a matter
left to the sound discretion of the district court, and
absent an abuse of that discretion, the district court's
rulings will not be disturbed on appeal. See, e.g.,
Kokocinski ex rel. Medtronic, Inc. v. Collins, 850
F.3d 354, 361-62 (8th Cir. 2017); Miller, 591 N.E.2d
at 1343; see also Weddell v. H2O, Inc., 128 Nev. 94,
101, 271 P.3d 743, 748 (2012) ("The district court's
factual findings . . . are given deference and will be upheld
if not clearly erroneous and if supported by substantial
evidence." (quoting Ogawa v. Ogawa, 125 Nev.
660, 668, 221 P.3d 699, 704 (2009))).
district court did not abuse its discretion in deferring to
the SLC's ...