De Moya v. Fernandez, 88-2115

• Decision Date: 07 March 1990
• Docket Number: No. 88-2115,88-2115
• Parties: 15 Fla. L. Weekly D633 Jorge De MOYA, Jorge Juan De Moya, Alvaro De Moya, and Armando De Moya, for the use and benefit of Badgett Resources, Inc., a Florida corporation, Appellants, v. Jose FERNANDEZ, Michael Garffer, Lonnie Padgett, Marion Mosely, Sawgrass Rock Quarry, Inc., a Florida corporation, Brown Badgett, and Badgett Resources, Inc., a Florida corporation, Appellees.
• Court: Florida District Court of Appeals

Page 644

559 So.2d 644

15 Fla. L. Weekly D633

Jorge De MOYA, Jorge Juan De Moya, Alvaro De Moya, and Armando De Moya, for the use and benefit of Badgett Resources, Inc., a Florida corporation, Appellants, v. Jose FERNANDEZ, Michael Garffer, Lonnie Padgett, Marion Mosely, Sawgrass Rock Quarry, Inc., a Florida corporation, Brown Badgett, and Badgett Resources, Inc., a Florida corporation, Appellees.

No. 88-2115.

District Court of Appeal of Florida,

Fourth District.

March 7, 1990.

Rehearing Denied May 15, 1990.

Karen H. Curtis, P.A. of Shutts & Bowen, and Miguel A. Pirez-Fabar, Miami, for appellants.

John H. Payne, III, and Charles S. Dale, Jr., Fort Lauderdale, for appellees.

STONE, Judge.

This is an appeal by the plaintiffs, minority shareholders, from an order dismissing a corporate derivative action. The receiver for the corporation, Defendant-Badgett, filed the motion to terminate the litigation as being in the best interests of the corporation. The suit involved allegations of wrongdoing against the majority directors and the receiver, who was also the principal creditor of the business, for matters occurring prior to his appointment as receiver. The court appointed receivership attorney filed the motion to terminate in the receiver's name. The trial court found the suit could not result in the corporation having assets in excess of the existing liabilities owed to the receiver-Badgett, individually.

The trial court adopted a procedure used in many jurisdictions which permit a special litigation committee of disinterested corporate directors to control or recommend the dismissal of shareholder derivative actions if in the best interests of the corporation. See generally Zapata Corp. v. Maldonado, 430 A.2d 779 (Del.1981); Auerbach v. Bennett, 47 N.Y.2d 619, 419 N.Y.S.2d 920, 393 N.E.2d 994 (1979). Jurisdictions differ regarding whether the trial court must make an independent business judgment, as to the best interest of the corporation, before accepting a recommendation by a special litigation committee to terminate the litigation. However, in either event, a trial court must make a determination that the committee recommending dismissal is independent, acting in good faith and has a reasonable and objective basis for its report. Zapata Corp. v. Maldonado; Auerbach v. Bennett. See also Block, Prussin & Wachtel, Dismissal of Derivative Actions Under the Business Judgment Rule: Zapata One Year Later, 38 Bus.Law. 401 (1983); Cox, Searching for the Corporation's Voice in Derivative Suit Litigation: A Critique of Zapata and the Alf Project, 6 Duke L.J. 959 (1982).

We reverse the order granting the motion and dismissing this action. We reverse because the record reflects insufficient evidence upon which to evaluate the thoroughness of the report or the independence of the receiver's attorney, whose recommendation was accepted by the court. In addition, the record reflects inadequate sworn testimony or evidence from which to make any findings.

The appellants do not contest the authority of the trial court to enter an order dismissing the suit if it is based on an objective recommendation by an independent and unbiased receiver or counsel for the corporation. Nevertheless, the appellants...