J. O. House v. Estate of J. K. Edmondson

A minority shareholder in a closely held Tennessee corporation filed a derivative suit claiming that the company’s majority shareholder, who also served as the corporation’s president and chairman of its board of directors, misappropriated corporate funds. The minority shareholder also filed an individual claim against the majority shareholder alleging that he breached a pre-incorporation agreement in which the majority shareholder agreed to offer available stock to the corporation and other shareholders before purchasing the stock himself. A litigation committee appointed by the corporation to investigate the allegations against the majority shareholder found merit to the charges. The litigation committee recommended to the corporation that the company either settle the derivative claim or proceed with the litigation if the majority shareholder was unwilling to resolve the lawsuit in accordance with terms proposed by the committee. The trial court found that the litigation committee’s findings and recommendations were in the corporation’s best interests and that, once a settlement was reached, the derivative suit would be dismissed. The trial court also granted summary judgment to the majority shareholder on the individual breach of contract claim and denied the minority shareholder’s request for attorney’s fees. The Court of Appeals affirmed the trial court’s acceptance of the litigation committee’s report and the denial of attorney’s fees to the minority shareholder, but reversed the trial court’s grant of summary judgment to the majority shareholder on the breach of contract claim. We accepted review to determine: (1) whether a plaintiff in a shareholder’s derivative suit brought on behalf of a for-profit corporation may recover attorney’s fees; and (2) whether the trial court was correct in adopting the findings of the litigation committee’s report. We hold that Tennessee law does not authorize an award of attorney’s fees to a plaintiff in a shareholder’s derivative suit brought on behalf of a for-profit corporation. We also hold that the trial court did not err in approving the sufficiently independent, thoroughly researched report of the litigation committee. Accordingly, the judgment of the Court of Appeals as to those issues is affirmed.