Peller v. Southern Company

Georgia Power, a Georgia corporation, was a wholly owned subsidiary of Southern Company (the companies) (defendants), a Delaware corporation, which operated electric utilities and power plants. Kenneth Peller (plaintiff) was a shareholder of Southern Company. Without making a demand, Peller filed a derivative suit against the companies and their directors (defendants) alleging negligence and breach of their fiduciary duties regarding certain decisions that authorized Georgia Power to construct a nuclear power plant. The companies appointed a special litigation committee (the committee) to investigate Peller’s claims, which was composed of members with prior connections to the companies. Meanwhile, the Georgia Public Service Commission (PSC) undertook a ratemaking investigation to determine whether Georgia Power could recover the costs of constructing the nuclear power plant by raising customer rates. The committee’s deadline to submit its report to the district court was well after the deadline for PSC’s investigation. Nevertheless, the day before PSC’s deadline, the committee recommended dismissal of Peller’s lawsuit because the challenged decisions constituted correct or reasonable business judgments when made, the directors’ actions were neither arbitrary nor self-interested, and middle-management personnel were responsible for the decisions. The next day, PSC reported many imprudent management decisions by the companies. The companies moved to dismiss Peller’s lawsuit. The district court applied Delaware law, excused Peller’s demand, and denied the companies’ motion because the committee had not shown it arrived at the correct conclusion and had acted in bad faith by conducting its investigation in a way that kept its investigatory documents privileged. The district court certified its denial for interlocutory appeal. The committee argued that the district court was obligated to defer to the committee’s judgment.