Thompson v. Scientific Atlanta, Inc., A05A1447.

• Decision Date: 30 September 2005
• Docket Number: No. A05A1447.,A05A1447.
• Parties: THOMPSON v. SCIENTIFIC ATLANTA, INC.
• Court: Georgia Court of Appeals

275 Ga. App. 680

621 S.E.2d 796

THOMPSON v. SCIENTIFIC ATLANTA, INC.

No. A05A1447.

Court of Appeals of Georgia.

September 30, 2005.

Joshua A. Millican, Atlanta, for Appellant.

Oscar N. Persons, Susan E. Hurd, Kelly C. Wilcove, Alston & Bird, Atlanta, Gerald Davidson, Jr., Davidson & Tucker, LLP, Duluth, for Appellee.

ANDREWS, Presiding Judge.

Paul Thompson, a shareholder in Scientific Atlanta, Inc. (SA), appeals from the trial court's dismissal, pursuant to OCGA § 14-2-744(a), of his shareholders' derivative action against SA.

SA is a Gwinnett County corporation engaged in the design, development, and manufacturing of networks used by cable operators to distribute video and other services to customers. In 1998, SA began shipping newly developed digital set-tops (units placed on televisions to enable access to cable and other services) and other digital network equipment that replaced analog set-tops and equipment previously sold by SA.

In its Third Quarter Fiscal Year 2001 earnings release on April 19, 2001, SA reported record financial results, but indicated it expected to sustain business performance at the present level rather than expand the business at growth rates previously achieved. During SA's Fourth Quarter Fiscal Year 2001, certain officers and directors traded their stock in the company during SA's open trading window and these sales were in line with their previous trading histories.

On July 19, 2001, financial results for the Fourth Quarter Fiscal Year 2001 and for the entire fiscal year were released by SA, reflecting a record year for SA in many ways. The announcement also indicated, however, that new orders and sales declined in the Fourth Quarter from the Third Quarter. Following this announcement, SA's stock price dropped as numerous analysts expressed concern about the apparent declining demand for digital set-tops in the cable industry and what effect that would have on SA's growth.

On December 10, 2001, SA received a "derivative demand" letter from Thompson in which he alleged that the stock price drop had been due to breaches of fiduciary duty by members of the Board of Directors and demanded that SA sue the defendants for unspecified damages. SA responded by letter, requesting additional information concerning the allegations. No response was received from Thompson.

On February 16, 2002, the Board of Directors held a special meeting and appointed three members of the Board who had not sold stock in the questioned transactions to serve as the Special Litigation Committee (SLC) provided for in OCGA § 14-2-744(a).¹ The SLC was to conduct an investigation of Thompson's allegations. On May 15, 2002, the Board approved a resolution that provided the SLC with full power and authority to make final binding determinations on the Board's behalf regarding the derivative action. The SLC had full access to all SA personnel, advisors, and records, and SA directed all officers and employees to cooperate with the SLC. The SLC retained independent legal counsel and a special accounting advisor.

On November 14, 2003,² Thompson filed his complaint, naming as defendants all members of the Board of Directors and numerous senior corporate officers, claiming breaches of fiduciary duties by these individuals, including releasing inaccurate financial information and then engaging in stock sales based on alleged insider information.

On February 9, 2004, after interviewing numerous witnesses, reviewing voluminous documents, and consulting with independent legal counsel and financial advisors, the SLC issued its report, which determined that Thompson's claims were without merit and contrary to the best interests of SA and its shareholders.

Pursuant to this report, the Board of Directors adopted the SLC's recommendations and a motion to dismiss Thompson's lawsuit was filed on March 18, 2004. A copy of the motion and the SLC's report were served on Thompson by regular mail that same day. Uniform Superior Court Rule 6.2 requires that "[u]nless otherwise ordered by the judge, each party opposing a motion shall serve and file a response, reply memorandum, affidavits, or other responsive material not later than 30 days after service of the motion."³ (Emphasis supplied.)

No response or request for extension of time having been filed by Thompson, SA filed its formal notice of this fact with the trial court on April 27, 2004, along with a proposed order for dismissal. Thompson then filed an "Emergency Motion To Set Schedule On Defendants' Motion To Dismiss" on April 30, 2004, and a hearing was set by the court for June 2, 2004.

At that hearing, Thompson's counsel acknowledged that, as of that date, no requests for discovery had been filed by Thompson, indicated some miscommunications between the parties, and stated that she thought Thompson had 60 days within which to respond to SA's motion to dismiss.

Thompson's sole enumeration of error is that the court erred by dismissing the action under OCGA § 14-2-744 "without allowing Plaintiff and his counsel a fair opportunity to conduct discovery to aid the court in determining whether the SLC was independent, thorough, and came to reasonable conclusions."

As acknowledged by Thompson, the decisions of the trial court in this matter are not subject to review by this Court in the absence of an abuse of discretion by the trial court. See, e.g., Millsap v. American Family Corp., 208 Ga.App. 230, 233(3), 430 S.E.2d 385 (1993); Cohutta Mills v. Bunch, 166 Ga.App. 395, 396(2), 304 S.E.2d 431 (1983).

OCGA § 14-2-744, Dismissal, provides, in pertinent part, that

(a) The court may dismiss a derivative proceeding if, on motion by the corporation, the court finds that one of the groups specified in subsection (b) of this Code section has made a determination in good faith after conducting a reasonable investigation upon which its conclusions are based that the maintenance of the derivative suit is not in the best interests of the corporation. The corporation shall have the burden of proving the independence and good faith of the group making the determination and...