Donner Management Co. v. Shaffer

On March 13, 2002, Donner Management Company (Donner) (plaintiff) filed a derivative shareholder complaint against Michael Shaffer and Asia Web Holdings, Inc. (Asia Web) (defendants). Shaffer was a director and the chief executive officer of Asia Web. Donner’s complaint alleged that Shaffer had breached his fiduciary duty and engaged in conversion, and the complaint requested an accounting. On April 22, 2022, Asia Web filed a motion for Donner to post a bond for reasonable expenses and attorney’s fees. Donner voluntarily deposited a $50,000 cashier’s check as security to satisfy the bond and avoid a stay of discovery pending the bond-motion litigation. The parties conducted discovery, and a trial was scheduled. In February or March 2004, Asia Web appointed a special litigation committee of disinterested members to investigate Donner’s complaint. The special litigation committee determined that based on its business judgment, it was not in the Asia Web’s best interest to continue litigation. On May 28, 2004, Donner moved to dismiss its complaint based on the special litigation committee defense, which barred the action. Donner advised the trial court it was not necessary to hold an evidentiary hearing. Shaffer filed a motion for attorney’s fees and costs based on the $50,000 cashier’s check posted by Donner. The trial court ruled that Shaffer was the prevailing party and successful in making the derivative shareholder complaint go away and awarded him attorney’s fees. Donner appealed, arguing (1) there was no showing that no reasonable possibility existed that the derivative action would benefit the corporation, (2) an award of attorney’s fees required a showing that the lawsuit was frivolous, and (3) a dismissal without prejudice did not reflect the merits of the allegations in the complaint.