Pennsylvania § 8884 - Special litigation committee.

§ 8884. Special litigation committee.

(a) General rule.--If a limited liability company or its members or managers receive a demand to bring an action to enforce a right of the company, or if a derivative action is commenced before demand has been made on the company or its members or managers, the members in a member-managed limited liability company, or the managers in a manager-managed limited liability company, may appoint a special litigation committee to investigate the claims asserted in the demand or action and to determine on behalf of the company or recommend to the managers or members whether pursuing any of the claims asserted is in the best interests of the company. The company must deliver a notice in record form to the person making the demand, or to the plaintiff if a derivative action has been commenced, promptly after the appointment of a committee under this section notifying the person making the demand or the plaintiff that a committee has been appointed and identifying by name the members of the committee. A committee may not be appointed under this section if:

(1) every member of the company is also a manager of the company; or

(2) the company is member-managed and every member is actively involved in the management of the company.

(b) Discovery stay.--If the members or managers appoint a special litigation committee and an action is commenced before a determination has been made under subsection (e):

(1) On motion by the limited liability company, or the committee made in the name of the company, the court shall stay discovery for the time reasonably necessary to permit the committee to make its investigation, except for good cause shown.

(2) The time for the defendants to plead shall be tolled until the process provided for under subsection (f) has been completed.

(c) Composition of committee.--A special litigation committee shall be composed of two or more individuals who:

(1) are not interested in the claims asserted in the demand;

(2) are capable as a group of objective judgment in the circumstances; and

(3) may, but need not, be members or managers.

(c.1) Committee members who are not managers.--A member of a special litigation committee who is not a manager, when acting as a member of the committee, is subject to the liabilities imposed, and entitled to the rights and immunities conferred, by sections 8848 (relating to reimbursement, indemnification, advancement and insurance) and 8849.2 (relating to standards of conduct for managers).

(d) Appointment of committee.--A special litigation committee may be appointed:

(1) in a member-managed limited liability company:

(i) by a majority of the members not named as actual or potential parties in the demand or action; and

(ii) if all members are named as actual or potential parties in the demand or action, by a majority of the members so named; or

(2) in a manager-managed limited liability company:

(i) by a majority of the managers not named as actual or potential parties in the demand or action; and

(ii) if all managers are named as actual or potential parties in the demand or action, by a majority of the managers so named.

(e) Determination.--After appropriate investigation by a special litigation committee, the committee may determine, or the committee may recommend to the managers or members that they determine, that it is in the best interests of the limited liability company that:

(1) an action based on some or all of the claims asserted in the demand not be brought by the company but that the company not object to an action being brought by the party that made the demand:

(2) an action based on some or all of the claims asserted in the demand be brought by the company;

(3) some or all of the claims asserted in the demand be settled on terms determined or recommended by the committee;

(4) an action not be brought based on any of the claims asserted in the demand;

(5) an action already commenced continue under the control of:

(i) the plaintiff;

(ii) the company; or

(iii) the committee;

(6) some or all of the claims asserted in an action already commenced be settled on terms determined or recommended by the committee; or

(7) an action already commenced be dismissed.

(f) Court review and action.--If a special litigation committee is appointed and a derivative action is commenced either before or after either the committee makes a determination under subsection (e) or the members or managers determine under that subsection to accept the recommendation of the committee:

(1) The limited liability company or the committee shall file with the court after a determination is made under subsection (e) a statement of the determination and a report of the committee supporting the determination. The company or the committee shall serve each party with a copy of the determination and report. If the company or the committee moves to file the report under seal, the report shall be served on the parties subject to an appropriate stipulation agreed to by the parties or a protective order issued by the court.

(2) The company or the committee shall file with the court a motion, pleading or notice consistent with the determination under subsection (e).

(3) If the determination is one described in subsection (e)(2), (3), (4), (5)(ii), (6) or (7), the court shall determine whether the members of the committee met the qualifications required under subsection (c)(1) and (2) and whether the committee conducted its investigation and made its determination or recommendation in good faith, independently and with reasonable care. The plaintiff has the burden of proving that the committee did not meet those qualifications or act in the required manner. If the court finds that the members of the committee met the qualifications required under subsection (c)(1) and (2) and that the committee acted in good faith, independently and with reasonable care, the court shall enforce the determination of the committee or the members or managers. Otherwise, the court shall:

(i) dissolve any stay of discovery entered under subsection (b);

(ii) allow the action to continue under the control of the plaintiff; and

(iii) permit the defendants to file preliminary objections and other appropriate motions and pleadings.

(g) Attorney General.--Nothing in this section shall limit the rights, powers and duties of the Attorney General under other applicable law with respect to a limited liability company organized for a charitable purpose.

(h) Interest of a defendant.--The fact that a person is named as a defendant does not make the person interested in the claims asserted in a demand or action for purposes of subsection (c)(1) if the claims against the person:

(1) are based only on an allegation that the person approved of or acquiesced in the transaction or conduct that is the subject of the claims; and

(2) do not otherwise allege with particularity facts that, if true, raise a significant prospect that the person would be adjudged liable.

(i) Cross reference.--See section 8815(c)(18) (relating to contents of operating agreement).

(Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

2022 Amendment. Act 122 amended subsecs. (a), (b)(1), (e) intro. par., (3) and (6) and (f), added subsec. (c.1) and relettered former subsec. (h) to subsec. (i) and added present subsec. (h).

Cross References. Section 8884 is referred to in sections 8815, 8882 of this title.