Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981)
Zapata Corp. v.
When demand is excused in a shareholder derivative suit, what standard governs a court's review of a special litigation committee's decision to terminate the litigation, and may a court exercise its own business judgment to deny dismissal even if the committee is independent and acted in good faith after a reasonable investigation?
Delaware adopts a two-step test for SLC motions to dismiss when demand is excused: (1) The corporation bears the burden to prove that the SLC was independent, acted in good faith, and had reasonable bases for its conclusions after a reasonable investigation. Limited discovery may be permitted on these issues. If the corporation fails at this step, the motion is denied. (2) If the corporation meets step one, the court may, in its discretion, apply its own independent business judgment to determine whether the motion to dismiss should be granted, i.e., whether dismissal is in the corporation's best interests. This approach departs from purely deferential standards by authorizing substantive judicial review even when the SLC satisfies procedural and independence requirements.
A board of directors may delegate to an SLC the authority to decide whether to pursue or dismiss a derivative action even where demand has been excused, but the trial court must apply a two-step analysis: first, assess the SLC's independence, good faith, and reasonableness of investigation; second, if that showing is made, exercise its own business judgment to determine whether dismissal is in the corporation's best interests. The case was remanded for application of this standard.
Zapata is the definitive Delaware authority on special litigation committees in the demand-excused context. It delineates the burden of proof (on the corporation), authorizes limited discovery into independence and investigative adequacy, and—critically—permits courts to exercise independent business judgment to deny dismissal even when an SLC appears procedurally sound. The case remains central to understanding derivative litigation strategy, the interplay with demand futility doctrine, and the limits of the business judgment rule when board members are potential defendants. For law students, Zapata frames how Delaware reconciles board managerial authority with the need for accountability, and it provides the analytic template later applied and refined in cases evaluating SLC independence and effectiveness.