New Jersey Case on Special Litigation Committees

A County Chancery Court Judge in New Jersey rejected the findings of a special litigation subcommittee of the board of directors.  Steel Partners II v Aronson. A private equity fund had sued the board for blocking a takeover by adopting a poison pill and by buying votes.  The Court held a three-day mini trial on the special committee's findings on the litigation and threw them out.  The Court also questioned the special committee's approval of the CEO's compensation package, which was three times the net earnings of the company over a five year period.

This is the first such case that has rejected the findings on the merits that I have seen.  It represents courts' new unwillingness to accept band-aid procedural ratifications to serious agency problems.