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Goldstein v. Wells

The Court of Appeals dismissed this shareholder derivative action, since the plaintiff shareholders failed to show that the directors suffered from an actual conflict of interest.

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The single issue on this appeal is whether the trial court erred when it dismissed a shareholder derivative action arising from the Wells Real Estate Investment Trust’s decision to internalize certain management and advisory functions of its real estate business, a decision later approved by over 90 percent of the Trust’s shareholders. Plaintiffs argue that the trial court should not have dismissed the derivative action because 1 three of the five committee members who reviewed and rejected the plaintiffs’ pre-suit demand had also served on the four-member committee approving the internalization and 2 the law firm that advised the demand committee had also advised the Trust concerning the internalization. To the plaintiffs, these facts show that the committee rejecting their demand did so under a “disabling” conflict of interest. We review a trial court’s dismissal of a shareholder’s derivative action only for an abuse of discretion. Thompson v. Scientific Atlanta , 275 Ga. App. 680, 682-683 621 SE2d 796 2005.

Maryland law presumes that directors act independently and in the best interest of the corporation. Werbowsky v. Collomb , 766 A2d 123, 144 Md. 2001. This presumption cannot be overcome without a showing that the director is “so personally and directly conflicted or committed to the decision in dispute that he cannot reasonably be expected to respond to a demand in good faith.” Id. at 144; see also Bender v. Schwartz , 917 A2d 142, 152 Md. Ct. Special Appeals, 2007, citing Levine v. Smith , 591 A2d 194, 212 Del. 1991.

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