Seidl v. Am. Century Co., Inc, No. 14-2796 (8th Cir. 2015)
Annotate this CaseAmerican Century, a mutual fund, offers investment portfolios, including Ultra Fund. Ultra Fund invested in PartyGaming, a Gibraltar company that facilitated internet gambling. In 2005, PartyGaming made an initial public offering of its stock, which was listed on the London Stock Exchange. In its prospectus, PartyGaming noted that the legality of online gaming was uncertain in several countries, including the U.S.; 87 percent of its revenue came from U.S. customers. PartyGaming acknowledged that “action by US authorities … prohibiting or restricting PartyGaming from offering online gaming in the US . . . could result in investors losing all or a very substantial part of their investment.” Ultra Fund purchased shares in PartyGaming totaling over $81 million. In 2006, following increased government enforcement against illegal internet gambling, the stock price dropped. Ultra Fund divested itself of PartyGaming, losing $16 million. Seidl, a shareholder, claimed negligence, waste, and breach of fiduciary duty against American Century. The company refused her demand to bring an action. Seidl brought a shareholder’s derivative action. The Eighth Circuit affirmed summary judgment for the defendants, concluding that Seidl could not bring suit where the company had declined to do so in a valid exercise of business judgment. The litigation committee adopted a reasonable methodology in conducting its investigation and reaching its conclusion.
Court Description: Colloton, Author, with Loken and Smith, Circuit Judges] Civil Case - shareholder derivative action. After Ultra Fund, a mutual fund overseen by American Century Mutual Funds, Inc., invested in PartyGaming PLC, a company that facilitated internet gambling and subsequently agreed that its gambling business violated criminal statutes, a shareholder in Ultra Fund demanded the Board of American Century Mutual Funds to pursue derivative claims for negligence, waste and breach of fiduciary duties. The Board formed a special litigation committee and enlisted a law firm to assist in investigating the claims; the committee reported that it was not in the company?s best interest to pursue the claim and the Board voted to accept the recommendation. Seidl brought suit challenging the decision and asserting breach of contract. The district court?s grant of summary judgment in favor of defendants is affirmed, as Seidl failed to raise a question whether the committee members were for any substantial reason incapable of making a decision with only the best interests of the corporation in mind, the committee acted with reasonable investigation, the report addressed each of the proposed derivative claims and the committee adopted a reasonable methodology in conducting the investigation and reaching the conclusion. Thus, we must defer to the committee?s business judgment in recommending that the Board refuse Seidl's demand. The district court did not abuse its discretion in denying Seidl?s motion to unseal deposition testimony.
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