Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Dish Network Derivative Litigation

Supreme Court of Nevada

September 14, 2017

IN THE MATTER OF DISH NETWORK DERIVATIVE LITIGATION.
v.
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,
v.
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.

         Consolidated 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 Gonzalez, Judge.

          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. Ortolf.

          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

         BEFORE THE COURT EN BANC.

          OPINION

          GIBBONS, J.

         Appellant 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.

         In 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.

         FACTS AND PROCEDURAL HISTORY

         While 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.[1] 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 investigation.

         Background summary

         This 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.

         From 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.

         At a 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.

         Derivative litigation

         Before 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.

         After 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.

         The SLC's formation and investigation

         On 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 Lillis's approval.

         Ultimately, 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.

         The SLC 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.

         The SLC's motion to defer

         After 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.

Costs

         After 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 two appeals.

         DISCUSSION

         These 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 rule").

         Accordingly, 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))).[2]

         The district court did not abuse its discretion in deferring to the SLC's ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.