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STATE OF MINNESOTA IN SUPREME COURT A08-114 Certified Question U.S. District Court, District of Minnesota Anderson, G. Barry, J. Concurring, Anderson, Paul H., J. Took no part, Magnuson, C.J., and Meyer, J.

In re UnitedHealth Group Incorporated Shareholder Derivative Litigation and In re UnitedHealth Group Incorporated PSLRA Litigation. Filed: August 14, 2008 Office of Appellate Courts

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Garrett Dennis Blanchfield, Jr., Reinhardt Wendorf & Blanchfield, St. Paul, Minnesota, for plaintiff. Karl L. Cambronne, Minneapolis, Minnesota, for plaintiff. Andrew J. Brown, Coughlin Stoia, San Diego, California, for plaintiff. Barbara Podlucky Berens, Kelly & Berens, Minneapolis, Minnesota, for defendant. Peter William Carter, Marianne D. Short, Dorsey & Whitney, Minneapolis, Minnesota, for defendant. David L. Hashmall, Felhaber Larson, Minneapolis, Minnesota for defendant. Richard G. Mark, Minneapolis, Minnesota, for defendant. Seth L. Levine, Foley & Lardner, New York, New York, for defendant. Alexandra Shapiro, Blair Connelly, David M. Brodsky, Lori Alvino McGill, Latham & Watkins, New York, New York, for defendant. 1

Daniel John Supalla, Briggs and Morgan, Minneapolis, Minnesota, for defendant. Jeffrey Jerome Harrington, Assistant Attorney General, St. Paul, Minnesota, amicus. Vernon J. Vanderweide, Head, Seifert & Vanderweide, Minneapolis, Minnesota, intervenor.

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SYLLABUS 1. Minnesota Rule of Civil Procedure 23.09 is a procedural rule and therefore

cannot be applied by a federal court exercising supplemental jurisdiction over claims asserted under state law. 2. A state court addressing a certified question of state law is an improper

forum in which to address the proper interpretation of federal procedural rules. 3. The Minnesota business judgment rule requires a reviewing court to defer

to a special litigation committees decision to settle a shareholder derivative action if the proponent of that decision demonstrates that (1) the members of the committee possessed a disinterested independence and (2) the committees investigative procedures and methodologies were adequate, appropriate, and pursued in good faith. Certified question answered.

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OPINION ANDERSON, G. Barry, Justice. This case arises from a certified question from the United States District Court for the District of Minnesota regarding the extent to which a court, in deciding whether to approve a proposed settlement of a shareholder derivative action, must defer to the decision of a special litigation committee "SLC" that the derivative action should be settled on specific terms. In 2006 the Wall Street Journal reported that executives at various U.S. corporations received stock options on dates that coincided with a low price (or, in some cases, the lowest price for a given time frame) and that those options appeared to have been backdated.1 See Charles Forelle & James Bandler, The Perfect Payday, Wall St. J., Mar. 18, 2006, at A1. Among the corporations discussed in the article was UnitedHealth Group, Inc. ("UnitedHealth"), see id., a Minnesota corporation with its principal executive offices in Minnetonka. The article noted that Dr. William McGuire, CEO and chairman of the board of UnitedHealth, received UnitedHealth stock options that might

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Backdating stock options, the article explained, is problematic because it brings "an instant paper gain," which, under accounting rules, is "equivalent to extra pay and thus is a cost to the company." Charles Forelle & James Bandler, The Perfect Payday, Wall St. J., Mar. 18, 2006, at A1. Failure to recognize this cost as a matter of corporate accounting may, in turn, mean that the company has overstated its profits, possibly necessitating a restatement of past financial results. Id. Backdating, in and of itself, is not illegal "as long as it is duly authorized by the board, fully disclosed, and reported in keeping with tax rules." M. P. Narayanan et al., The Economic Impact of Backdating of Executive Stock Options, 105 Mich. L. Rev. 1597, 1601-02 (2007). 3

have been backdated. UnitedHealth.

Id.

McGuire subsequently resigned from his position at

Shortly after the publication of the Wall Street Journal article, a number of actions were brought against McGuire and other UnitedHealth executives, including (1) federal shareholder derivative litigation, (2) federal securities class actions under the Private Securities Litigation Reform Act ("PSLRA litigation"), and (3) state derivative suits under Minnesota law. The state derivative suits were brought in Minnesota district court, whereas the federal derivative litigation and PSLRA litigation were brought in the United States District Court for the District of Minnesota. The Securities Exchange Commission brought its own action against McGuire; the parties reached a settlement in which McGuire agreed to return $400 million to UnitedHealth and pay a $7 million civil fine. In settling the SEC action, McGuire agreed not to "make or permit to be made any public statement denying, directly or indirectly, any allegation in the [SEC] complaint or creating the impression that the complaint is without factual basis." On July 19, 2006, UnitedHealths board passed a resolution creating a twomember SLC under Minn. Stat.

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