Five years ago, I noted that the Nevada Supreme Court had adopted New York's more deferential approach for assessing special litigation qualifications in Auerbach v. Bennett, 393 N.E.2d 994 (N.Y. 1979) over that of the Delaware Supreme Court in Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). In re DISH Network Derivative Litigation, 133 Nev. 438, 442-43, 401 P.3d 1081, 1087-88 (2017). Under Auerbach, a shareholder is not be permitted to proceed with derivative litigation after an special litigation committee requests dismissal, unless and until the district court determines at an evidentiary hearing that the committee lacked independence or failed to conduct a thorough investigation in good faith.
In an unpublished order of affirmance issued this summer, the Nevada Supreme Court addressed the evidentiary standard to be applied to the trial court's determination. Plumbers Loc. Union No. 519 Pension Tr. Fund v. Ergen, 514 P.3d 440 (Table), 2022 WL 3150988. The Court found that the trial court had correctly applied a preponderance of the evidence standard to its determination that a special litigation committee was independent, acted in good faith and conducted a thorough investigation. It thus rejected the appellants' argument that the trial court should have applied the summary judgment standard, to which de novo review would apply on appeal.
For those interested in California's position on Auerbach versus Zapata, see this post. Readers in the jurisprudence of special litigation committees in Delaware will want to read this recent post by Professor Stephen Bainbridge.
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