Matter of DISH Network Derivative Litigation

Shareholder Jacksonville Police and Fire Pension Fund (Jacksonville) brought a derivative action on behalf of Nevada corporation DISH Network Corporation (DISH) (plaintiffs) challenging actions taken by chairman and chief executive officer Charles Ergen and 10 other executives and directors (defendants) after DISH acquired debt in a company that filed bankruptcy. Named directors included Ergen’s wife, Cantey Ergen, the Ergens’ close personal friends Tom Oltorf and George Brokaw, and independent directors Charles Lillis and Thomas Cullen. Initially the board appointed a special litigation committee (SLC) composed of Oltorf and Brokaw to investigate Jacksonville’s claims. When Jacksonville challenged the SLC’s independence because of Oltorf and Brokaw’s close ties to the Ergens, the board added Lillis and provided the SLC could not act without his affirmative vote. The SLC monitored the bankruptcy proceedings and conducted a comprehensive investigation for almost a year, conducting interviews, reviewing documents, obtaining legal advice, and holding multiple meetings. The SLC concluded Jacksonville’s claims should be dismissed and moved the court to defer to that determination. Jacksonville again challenged the SLC’s independence. The court found Lillis was independent, which, combined with the voting structure, made the SLC independent; deferred to the SLC’s determination; and dismissed the case. Jacksonville appealed, arguing Lillis lacked independence solely because he and Cullen had worked together before and saw each other socially once or twice a year, without challenging the finding that Lillis lacked financial or business connections to others in the lawsuit beyond serving on DISH’s board.