Bender v. Schwartz

⁶⁶⁰ JAMES R. EYLER, Judge. This appeal stems from a dispute between members of the Bender family, shareholders in two corporations, Blake Construction Co., Inc., a Delaware Corporation (“Blake”), and Glade Valley Farms, Inc., a Maryland corporation (“Glade Valley”), and partners in various related partnerships. Scott Bender, et al., appellants, appeal from an order of the Circuit Court for Montgomery County dismissing their shareholder derivative action filed against Steven Schwartz, et al., appellees. Procedural and Factual Background Appellants are Morton Bender, four of his children (Scott, Jay, Kenneth, and Lisa Bender Feldman) and the eight Alpha Trusts controlled by Jeffrey, the fifth child, minority shareholders in Blake and Glade Valley.

Blake is engaged in real estate and construction activities, and Glade Valley owns a large horse farm in Frederick County and boards, breeds, trains, and sells race horses. Both corporations are nominal appellants. Appellees are the directors, officers, and controlling shareholders of Blake and Glade Valley: Stanley Bender, Howard Bender, Sondra Bender, David Bender, SSB, LLC (formerly Stanley S. Bender, a Blake shareholder), Stanley Prill, and Steven Schwartz. Appellees Howard Bender, Stanley Bender, David Bender, and Steven Schwartz are officers of Blake, and Stanley Prill was an officer of Blake until 2001.

Howard Bender and Stanley Bender are directors of Blake. Stanley Prill was a director of Blake until his resignation on June 1, 1998. David Bender was elected a director of Blake in 2003, after the filing of this action. Glade Valley’s current directors are Howard Bender, Sondra Bender, and Dr. Robert Leonard.

Stanley Prill has had no interest, position, or involvement with Glade Valley. Appellants filed their original complaint on October 2, 2002, alleging waste of corporate assets and breach of fiduciary duty. Appellants asserted that the case should be allowed to ⁶⁶¹ proceed as a shareholder derivative action without demand upon the boards of directors of Blake and Glade Valley because demand would be futile. Appellees moved to dismiss the complaint, arguing that the facts alleged were insufficient to excuse a demand on the boards of directors.

After a hearing on March 11, 2003, the circuit court granted appellees’ motion to dismiss, with leave to amend. Appellants did not amend in an attempt to state additional facts to show that demand should be excused. On March 17, 2003, appellants sent a demand letter to the boards of Blake and Glade Valley, demanding that the directors investigate the allegations in the First Amended Complaint (“FAC”), attached thereto, which had not yet been filed, and bring an action against the appellees for various breaches of fiduciary duty. The demand letter and FAC alleged that appellees had committed specific acts of corporate waste and diversions of corporate opportunities.

As stated in appellants’ brief, these claims included: - Excessive salaries, benefits and fees to the [appellees]. - Causing Blake, the Partnerships and Glade Valley to enter into transactions in which [appellees] (or members of their family) were personally interested. - Failing to adhere to Delaware and Maryland codes. - Failing to properly respond to Scott Bender’s Section 220 Action [a request for documents under the Delaware Code]. - Loaning from Blake to Glade Valley, detrimentally to Blake. - Theft of corporate opportunities by CCSI [Contract Cleaning Services, Inc.], JIB Monitoring, and SB Construction Company. - Theft of corporate opportunities by development projects owned by only some of Blake’s shareholders. - Using Blake employees and equipment to provide personal services to the Defendants. - Concealing transactions. ⁶⁶² - Use of Glade Valley by Howard and Sondra without fair compensation. - Placing Glade Valley in a Joint Venture with Blake, (citations to demand letter and FAC omitted). On April 10, 2003, appellants filed the FAC. In May 2003, the directors of Blake and Glade Valley appointed special committees (hereinafter “Demand Committee(s)” or “Committee(s)”) to investigate the allegations in the demand letter and FAC. Specifically, on May 13, 2003, Glade Valley appointed director Dr. Robert A. Leonard (one of the original shareholders of Glade Valley who retired in 2000, but who is accused of no wrongdoing), as its “disinterested” Demand Committee.

On May 20, 2003, Blake elected three new directors, two of whom, Melvin J. Estrin and Richard S. Cohen, were appointed as the “disinterested” Demand Committee. Each Demand Committee was given full authority to investigate and act authoritatively on behalf of their respective corporations as to appellants’ demand. Each retained independent legal counsel to assist in its investigation and report. On May 23, 2003, appellees moved to dismiss the FAC.

The circuit court held hearings on November 25, 2003 and February 19, 2004. The court determined that a further hearing would be held on the partnership claims 1 and stayed the derivative claims pending the reports of the Demand Committees. The Glade Valley Demand Committee issued its report in April 2004 and submitted it to the court on August 17, 2004. The report was sixteen pages long with sixteen exhibits.

The Blake Demand Committee issued its report in June 2004 and submitted it to the court on August 16, 2004. The report was sixty-one pages long with one hundred and eighty-four exhibits. Both reports concluded that there was no basis for the ⁶⁶³ allegations in the FAC and that litigation should not be pursued. On September 24, 2004, the circuit court entered an order that allowed appellants limited discovery into the reasonableness of the Demand Committees’ investigations.

On June 25, 2005, appellants filed a Second Amended Complaint (“SAC”), alleging wrongful refusal of demand. The SAC, at issue in this appeal, contained two counts, in which appellants alleged that the Demand Committees failed to adequately investigate the allegations in the demand letter, and wrongfully refused the demand to authorize the derivative suit against appellees. Appellants also alleged that the investigations by the Demand Committees revealed other additional areas of breach of duty including excessive bond fees, the excessive payment of fifteen million dollars in life insurance premiums, and breach of duty in connection with a racing stable run by Howard and Sondra on the grounds of Glade Valley. Appellees moved to dismiss on the grounds that (1) appellants alleged no facts showing that the Demand Committees were not independent and that the investigations were not reasonable, (2) many of the claims in the SAC were not raised in the demand letter, and (3) many of the claims alleged harm to appellants individually and were not derivative claims.

After a hearing on March 2, 2006, the circuit court, by Memorandum Opinion and Order (“Mem. Op.”)dated March 28, 2006, dismissed the SAC with prejudice. Standard of Review The circuit court, by agreement of the parties, decided the issues before us, not on a motion to dismiss, but under Maryland Rule 2-502, whereby: [i]f at any stage of an action a question arises that is within the sole province of the court to decide, ... and if it would be convenient to have the question decided before proceeding further, the court, on motion or on its own initiative, may order that the question be presented for decision in the ⁶⁶⁴ manner the court deems expedient. In resolving the question, the court may accept facts stipulated by the parties, may find facts after receiving evidence, and may draw inferences from these facts.

The proceedings and decisions of the court shall be on the record, and the decisions shall be reviewable upon appeal after entry of an appealable order or judgment. A decision under Rule 2-502 is a trial on the merits, with respect to the issues decided. Thus, as in all actions tried without a jury, we shall review questions of law de novo and shall not set aside the circuit court’s findings of fact unless they are “clearly erroneous.” See Md. Rule 8-131(c). The issues were tried on a documentary record.

The underlying facts were not in dispute, but inferences to be drawn and the conclusion to be reached were in dispute. The circuit court reviewed the record and determined that: (1) the investigations by the Demand Committees were reasonable; (2) some of appellants’ claims had not been presented to the Committees; and (3) some of appellants’ claims were personal, not derivative, in nature. With respect to the determination of reasonableness, the circuit court applied the business judgment rule to all except three of the challenged transactions, to which it applied an entire fairness standard. To the extent that the circuit court resolved conflicting inferences of fact, we shall defer to those factual determinations.

It appears that the circuit court’s ultimate conclusions were conclusions of law, however. Thus, we shall perform essentially the same function as the circuit court. Contentions Appellants present the following questions for our review on appeal, as rephrased by us: 1. Did the circuit court err in concluding that (a) the Demand Committees properly utilized the business judgment test in reviewing the challenged transactions, as opposed to an entire fairness test, and (b) in applying the business judgment ⁶⁶⁵ rule itself, rather than the entire fairness test, to all but three of appellant’s claims? 2.

Did the circuit court err in finding that certain claims were not raised in the Demand Letter or the attached FAC and, therefore, did not need to be investigated by the Demand Committees? 3. Did the circuit court err in finding that the Demand Committees’ investigations were reasonable? 4. Did the circuit court err in dismissing the individual claims with prejudice? Finding no reversible error, we will affirm the judgment of the circuit court.

Discussion Substantively, a shareholder derivative suit is governed by the law of the state of incorporation. Kamen v. Kemper Financial Serv., Inc., 500 U.S. 90, 108-09 , 111 S.Ct. 1711 , 114 L.Ed.2d 152 (1991). Because Blake is a Delaware corporation, Delaware law controls its actions. Because Glade Valley is a Maryland corporation, Maryland law controls its actions.

I. Standard for Wrongful Refusal of a Demand Generally, the business and affairs of a corporation, including the decision to institute litigation, are managed under the direction of its board of directors. Aronson v. Lewis, 473 A.2d 805, 811 (Del.1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del.2000); Werbowsky v. Collomb, 362 Md. 581, 598-99 , 766 A.2d 123 (2001). Developed as a check on that power, the derivative form of action permits an individual shareholder or a group of shareholders to bring “suit to enforce a corporate cause of action against officers, directors, and third parties” where those in control of the company refuse to assert a claim belonging to it. Kamen, 500 U.S. at 95 , 111 S.Ct. 1711 (quoting Ross v. Bernhard, 396 U.S. 531, 534 , 90 S.Ct. 733 , 24 L.Ed.2d 729 (1970)); see also Werbowsky, 362 Md. at 599 , 766 A.2d 123 . “If the wrong alleged was committed against the stockholder ⁶⁶⁶ rather than the corporation, then the stockholder must bring the action as a direct action — either individually or as a representative of a class — and not as a derivative action.” James J. Hanks, Jr., Maryland Corporation Law 268 (Aspen 2007).

Before bringing a derivative suit in Maryland or Delaware, the shareholder must either make a demand on the board of directors that the corporation bring the suit, or show that demand is excused as futile. Kamen, 500 U.S. at 96 , 111 S.Ct. 1711 ; Waller v. Waller, 187 Md. 185, 192 , 49 A.2d 449 (1946). Once a demand is made, the corporation’s board of directors must conduct an investigation into the allegations in the demand and determine whether pursuing the demanded litigation is in the best interests of the corporation. See In re Oracle Corp. Derivative Litigation, 808 A.2d 1206, 1212 (Del.Ch.2002).

The board may appoint a committee of disinterested directors to conduct this investigation. Aronson, 473 A.2d at 813 . If the corporation, after an investigation, fails to take the action requested by the shareholder(s) (i.e., to bring the suit), the shareholder(s) may bring a “demand refused” action. Id.

By making a demand, the shareholder(s) “are deemed to have waived any claim they might otherwise have had that the board cannot independently act on the demand.” Scattered Corp. v. Chicago Stock Exchange, Inc., 701 A.2d 70, 74 (1997) (emphasis added). The plaintiff may still allege, however, that the board in fact did not act independently or that demand was wrongly refused. Id. at 71 ; Werbowsky, 362 Md. at 619 , 766 A.2d 123 . In determining whether a demand was wrongly refused, a court reviews the board’s investigation under the business judgment rule, deferring to the decision of the board or committee not to pursue litigation unless the stockholders can show either that the board or committee’s investigation or decision was not conducted independently and in good faith, or that it was not within the realm of sound business judgment.

Levine v. Smith, 591 A.2d 194, 212 (Del.1991); Werbowsky, ⁶⁶⁷ 362 Md. at 620 , 766 A.2d 123 . See Md.Code (1999 Repl.Vol.) Corporations and Associations § 2-405.1(e) (disinterested directors are presumed to perform their duties properly). The court asks whether any rational business person could have reached that result, proceeding independently and in good faith with the best interests of the corporation in mind. Aronson, 473 A.2d at 812 .

A stockholder must show more than mere suspicions and must state a claim in particular, rather than conclusory terms. Grimes v. Donald, 673 A.2d 1207, 1217 (Del.1996). “The burden is on the party challenging the decision to establish facts rebutting the presumption” that the directors acted reasonably and in the best interests of the corporation. Aronson, 473 A.2d at 812 . Appellants do not allege that any member of either Demand Committee failed to conduct the investigations independently and in good faith.

Additionally, there is no allegation properly before us that Demand Committee members were not capable of acting independently. 2 Therefore, the Demand Committees’ conclusions must be evaluated to determine whether the Committees’ investigations were rea ⁶⁶⁸ sonable and whether the Committees had reasonable bases for their conclusions, i.e., within the ambit of the business judgment rule. The burden to rebut the presumption that they acted in the best interests of the corporations is on appellants. Aronson, 473 A.2d at 812 ; see also Werbowsky, 362 Md. at p. 618-619 , 766 A.2d 123 .

II

Sufficiency of Demand Letter Appellants contend that the circuit court erred in concluding that nine matters could not be the subject of a “wrongful refusal” action because they had not been included in the demand letter or the attached FAC. The court described the nine matters as follows. 1. Why were the Plaintiffs not offered ownership opportunities in Contract Cleaning Services, JIB, and other ventures? (Paragraphs 62, 63, 64) 3 . 2.

Why Howard and Stanley Bender did not seek stockholder approval for payment of bond guaranty fees paid to them? (Paragraph 67). 3. Whether Howard and Stanley Bender engaged in any analysis as to the propriety or the amount of fees before causing the payment of these fees to themselves? (Paragraph 67). 4.

Whether Stanley Bender was working as an employee of Blake at the time of an interest f[r]ee Blake loan for home purchase and/or renovation? (Paragraph 70). 5. Whether Stanley Prill or Stanley Bender continued to provide service to Blake or were still an employee of Blake when Blake was paying premiums on their life insurance policies? (Paragraph 70). 6.

Why Stanley Bender was continued on the active payroll of Blake through 1999 when he apparently moved to Florida in 1987. (Paragraph 71). ⁶⁶⁹ 7. Was there available land contiguous to Glade Valley’s land which was a corporate opportunity that should have been brought to the attention of the Glade Valley shareholders? (Paragraph 78). 8.

Why was there no investigation of the racing stable used by others of Glade Valley assets, services or employees that were not compensated? (Paragraph 80). 9. Why was there no investigation into Dr. Leonard’s stock sale to Mr. and Mrs. Bender in alleged violation of Glade Valley’s Articles and By-Laws? (Paragraph 81).

Appellants claim that the standard for a demand letter is that articulated in Allison on Behalf of General Motors Corporation v. General Motors Corp., 604 F.Supp. 1106 (1117) (D.Del.), aff'd, 782 F.2d 1026 (3rd Cir.1985). At a minimum, a demand must identify the alleged wrongdoers, describe the factual basis of the wrongful acts and the harm caused to the corporation, and request remedial relief. In most instances, the shareholder need not specify his legal theory, every fact in support of that theory, or the precise quantum of damages. Decisions as to how and on what theory the corporation will pursue wrongdoers are the proper province of the Board of Directors.

Allison, 604 F.Supp. at 1117 . Appellant contends that, for the nine complaints that the circuit court held were not “included” in the demand, the demand letter and accompanying FAC sufficiently identified the alleged wrongdoers, described the wrongful acts and harm caused to the corporation, and requested remedial relief. We agree with the circuit court that, to require investigation by the Demand Committees, appellants’ claims must have been “articulated in the demand.” See Scattered, 701 A.2d at 73 . Each claim must be articulated specifically enough to give directors a fair opportunity to initiate the action requested by appellants.

Shlensky v. Dorsey, 574 F.2d 131, 141 (3rd Cir.1978); see also Halprin v. Babbitt, 303 F.2d 138, 141 (1st Cir.1962). With respect to the claims listed above, appellants did not provide sufficient allegations in their ⁶⁷⁰ demand letter or FAC, even under the Allison standard, to alert the Demand Committees to the existence of appellants’ claims. Appellants failed to allege the factual basis of these wrongful acts and the harm to the corporation. Each claim will be discussed in more detail in section III.

III

Reasonableness of Investigations Appellants contend that the circuit court erred in concluding that the Demand Committees’ investigations were reasonable. Appellants argue that the Demand Committees should have applied the “entire fairness standard,” rather than the business judgment standard, to each complained-of transaction. We disagree. The entire fairness standard, a two-pronged inquiry into fair process and fair price, is a judicial review standard.

Courts differ on when it is applicable, if at all, but generally it is employed to evaluate transactions when directors are “on both sides of a transaction.” Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del.1983). In all of the cases relied on by appellants, the courts examined a transaction involving interested persons or a transaction that eliminated or otherwise changed a minority shareholder’s ownership interest. See Krasner v. Moffett, 826 A.2d 277 (Del.2003) (directors on both sides of merger transaction); Emerald Partners v. Berlin, 787 A.2d 85 (Del.2001) (self dealing in merger transaction); Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34 (Del.1994) (applied enhanced scrutiny, not entire fairness test, to transaction resulting in a change in control and defensive measures taken in response to a tender offer); Nixon v. Blackwell, 626 A.2d 1366 (Del.1993) (directors conflicted by limiting stock ownership and insurance plans to employee shareholders); Aronson, 473 A.2d 805 (self dealing); Weinberger, 457 A.2d 701 (minority shareholder suit attacking validity of cash-out merger between parent and subsidiary that eliminated the minority shareholders); Gelfman v. Weeden Investors, L.P., 859 A.2d 89 (Del.Ch.2004) (self dealing); Solomon v. Armstrong, 747 A.2d 1098 (Del.Ch.1999) ⁶⁷¹ (self dealing between parent and subsidiary); Guth v. Loft, Inc., 5 A.2d 503 (Del.1939) (suit by corporation against its president, asserting president usurped corporate opportunity for personal gain); Lerner v. Lerner Corp., 132 Md.App. 32 , 750 A.2d 709 (2000) (in closely held corporation with two shareholders, minority shareholder contested reverse stock split freeze-out transaction eliminating the minority shareholder). Appellant argues that the entire fairness standard should have been applied to all of their claims here because “[a] controlling stockholder relationship atone can raise an inference of improper dealing, which mandates application of the entire fairness doctrine,” citing Solomon, 747 A.2d at 1112, n. 13 .

Because note 13 is not on page 1112 and has nothing to do with entire fairness, we presume that appellant is referring to note 35. Note 35 distinguishes Solomon from note 13 in Citron v. E.I. Du Pont de Nemours & Co., 584 A.2d 490, 500 (1990), which cites “conflicting cases and suggests] that the parent-subsidiary or controlling stockholder relationship alone can raise an inference of improper dealing during a transaction.” This is contrary to Solomon’s main point in note 35, which is that “[s]elf-dealing occurs when the parent, by virtue of its domination of the subsidiary, causes the subsidiary to act in such a way that the parent receives something from the subsidiary to the exclusion of, and detriment to, the minority stockholders of the subsidiary.” The Citron footnote deals with the question of whether, in a parent-subsidiary transaction, self-dealing requires both that the parent be on both sides of the transaction and that the parent dictate the terms of the transaction, or whether only the former is required. This issue is not relevant to appellants’ claims. Demand Committees, as disinterested persons, are required to conduct reasonable investigations of the claims asserted in a demand letter and, in making their decisions, exercise reasonable business judgment.

The courts, in judicially reviewing whether the Demand Committees conducted a reasonable investigation, apply the business judgment rule. “Reasonableness implicates the business judgment rule’s re ⁶⁷² quirement of procedural due care; that is, whether [appellees] acted on an informed basis in rejecting [appellant’s] demand.” Levine v. Smith, 591 A.2d 194, 213 (Del.1991), overruled on other grounds, Brehm, 746 A.2d 244 . What is reasonable “must always turn on the nature and characteristics of the particular subject being investigated.” Auerbach v. Bennett, 47 N.Y.2d 619 , 419 N.Y.S.2d 920 , 393 N.E.2d 994, 1003 (1979). Courts have examined a number of factors in determining whether a demand committee’s investigation was reasonable. Courts have placed special emphasis on whether committees engaged independent counsel to “guide its deliberations and to advise it.” Id.; see also Grafman v. Century Broad.

Corp., 762 F.Supp. 215, 220 (N.D.Ill.1991) (applying Delaware law) (identifying use of “capable counsel” as indicia of reasonableness); Genzer v. Cunningham, 498 F.Supp. 682, 693 (E.D.Mich.1980); Rosengarten v. Int’l Tel. & Tel. Corp., 466 F.Supp. 817, 825 (S.D.N.Y.1979) (desirable to rely on counsel); Brinckerhoff v. JAC Holding Corp., 263 A.D.2d 352 , 692 N.Y.S.2d 381 (N.Y.App.Div.1999) (holding that plaintiffs raised reasonable doubt as to the reasonableness of demand committee’s investigation because the committee was not represented by independent counsel but rather by an attorney who had represented the corporation in connection with the challenged transaction). Courts have also emphasized whether an investigating committee produced a report, the length of such report, and whether it documented the committee’s procedures, reasoning, and conclusions. Brinckerhoff, 692 N.Y.S.2d at 381 (considering two-page report that failed to document committee’s procedures, reasoning, and conclusions in determining that plaintiff raised reasonable doubt as to reasonableness of investigation).

Courts have also looked to: (1) whether the committee properly identified the claims at issue, Grafman, 762 F.Supp. at 220 ; (2) whether the committee reviewed the testimony of or interviewed directors, officers, and employees, Grafman, 762 F.Supp. at 220 (noting that committee had interviewed twenty witnesses), Genzer, 498 F.Supp. at 684 (noting use of three hundred question ⁶⁷³ naires and fifty-six personal interviews), Auerbach, 419 N.Y.S.2d 920 , 393 N.E.2d at 1003 ; (3) reviewed documents regarding the complained-of transactions, Grafman, 762 F.Supp. at 220 (noting that committee had reviewed over 20,000 documents), Auerbach, 419 N.Y.S.2d 920 , 393 N.E.2d at 1003 ; and (4) the number of times the demand committee met, Genzer, 498 F.Supp. at 694 (noting committee met a dozen times). A. Reasonableness of Blake Demand Committee’s Investigation Appellants have contested specific items in the Blake Demand Committee’s investigation, which will be addressed in detail below. First, we note that the overall procedure was reasonable. The Committee hired independent counsel and worked together with counsel in the investigation and report writing.

The Demand Committee directors, and not legal counsel made the decision to forego pursuit of the demand. The Demand Committee produced a report in writing that was sixty-one pages in length, contained one hundred and eighty-four exhibits, and detailed the process utilized in the Demand Committee’s investigation. The Committee properly identified the issues raised by appellants in their demand letter and responded to those issues in their written report. The Committee interviewed eleven witnesses and requested interviews with appellants, but received no response.

The Committee also reviewed hundreds of documents in reference to appellants’ claims, including corporate records, contracts, financial records, correspondence, and partnership and joint venture documents, among others. 1. Contract Cleaning Services, Inc. (“CCSI”) CCSI was created by appellees to perform cleaning operations for Blake. Appellants challenge the Blake Demand Committee’s investigation into appellants’ claim that appellees usurped a corporate opportunity 4 by failing to offer ⁶⁷⁴ any of Morton Bender’s children the opportunity to become shareholders of CCSI. In appellants’ FAC, appellants claimed that the creation of CCSI was a theft of a Blake corporate opportunity, and in appellants’ SAC, appellants also complained that Morton Bender’s children were not offered the opportunity to become shareholders in CCSI.

The new claim in the SAC was not included in the demand letter or FAC. 5 Since this claim was not included in the demand letter or FAC, the Demand Committee had no obligation to investigate it. The claim regarding any harm to Morton Bender’s children is personal to them, and not a cause of action that Blake could pursue as a corporation; thus it was not a matter appropriate for a stockholder derivative action. The Demand Committee was not obligated to investigate any harm personal to appellants. Further, the Committee did conduct a reasonable investigation into the CCSI issue.

The Committee conducted interviews with Howard Bender, Steven Schwartz, and Stan ⁶⁷⁵ ley Prill. The committee also relied on information from counsel for Morton Bender relating to a prior matter. The Committee considered that Blake had not performed cleaning operations before the creation of CCSI, had never derived income from providing cleaning services, and that no assets or funds of Blake were used in the establishment or operations of CCSI. The Committee also considered that Morton Bender was offered an opportunity to participate as a stockholder of CCSI but declined to do so.

Based on this information, the Blake Demand Committee concluded that the creation of CCSI was not theft of a corporate opportunity. We hold that appellants failed to rebut the presumption that the Committee’s investigation was reasonable and its conclusion within the realm of sound business judgment. 2. JIB Monitoring Services, Inc. (“JIB”) JIB was created by appellees. Appellants complain that the Demand Committee failed to reasonably investigate why JIB was not incorporated as a subsidiary of the company, or, alternatively, not offered to appellants individually.

Appellants contend that the Blake Demand Committee “failed to consider objective market data, relied on the wrongdoer’s representations, and critically failed to investigate whether Blake employees were used to perform services for JIB.” The Demand Committee report states that the Committee reviewed relevant documents, including financial information, and interviewed appropriate individuals. On this information, the Committee found that “no assets or funds” of Blake were used in the creation or operation of JIB. The Committee considered that “these types of services typically were not provided directly by management companies, and any funds derived from them were never a part of the operations, services, or revenues of Blake.... ” The Committee noted that no appellant “received any salary or benefit from JIB other than proportional distributions of profits as a shareholder,” thus implying that their part in JIB did not compromise appellants’ duties to Blake. The Committee also considered ⁶⁷⁶ that JIB’s earnings never reached a “significant level” that would justify a suit against appellees.

Appellants complain that the Committee failed to consider objective market data and failed to investigate whether Blake employees were used to perform services for JIB. Appellants offered no information suggesting that Blake employees were used by JIB monitoring or what effect objective market data might have had on the Committee’s conclusion. Nor was the Committee required to investigate common employees or objective market data for their investigation to be reasonable. Brehm, 746 A.2d at 259 (holding directors/committee responsible for considering only “material facts that are reasonably available, not those that are immaterial or out of the Board’s reasonable reach”).

We hold that appellants failed to rebut the presumption that the Committee’s investigation was reasonable and its conclusion within the realm of sound business judgment. Appellants’ complaint that ownership of JIB was not offered to appellants individually is an