Delaware Court Of Chancery Grants Motion To Dismiss Holding That Fiduciaries Of Acquired Entity Did Not Aid And Abet Alleged Fiduciary Breaches By Acquirer
On June 22, 2020, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted a motion to dismiss a derivative claim for aiding and abetting breaches of fiduciary duty brought by stockholders of Oracle Corporation against the CEO and Chairman of NetSuite, Inc., in connection with alleged breaches of fiduciary duty by Oracle’s directors arising from its acquisition of NetSuite. In Re Oracle Corp. Deriv. Litig., C.A. No. 2017-0337-SG (Del. Ch. June 22, 2020). Plaintiffs alleged that defendants had aided and abetted breaches by Oracle’s directors by failing to disclose in NetSuite’s public filings certain aspects of the negotiations that allegedly would have alerted Oracle’s special committee for the merger to the fact that Oracle was overpaying. The Court acknowledged the “incongruity” of plaintiffs’ theory that fiduciaries of a target whose obligation to their stockholders is to “maximize price” could be held liable for aiding and abetting the acquirer’s fiduciaries by not disclosing information that would have led the latter to “scuttle” a deal favoring the target. The Court suggested that there could be such a case—in the Court’s language, “in the infinite garden of theoretical inequity, such a flower may bloom”—but this is not it. Instead, the Court held that it was not reasonably conceivable that the difference between what was disclosed and what plaintiffs alleged should have been disclosed constituted “substantial assistance”—a necessary element for aiding and abetting—to the acquirer’s fiduciaries in their alleged breaches.
Plaintiffs alleged that defendants did not disclose in the target’s public filings that there were early discussions of a price range and about the way the target would have been operated as an independent unit after the acquisition. Plaintiffs contended that defendants were obligated by their duty of candor to the target’s stockholders to disclose this information and their silence in aid of the allegedly corrupt scheme of the acquirer’s fiduciaries thus constituted the requisite substantial assistance. As the Court characterized it, “[u]nder this theory, the claims of Oracle’s stockholders ride the coattails of the duties owed to the stockholders of their acquisition target, without regard to whether the target stockholders were themselves harmed by such breach.”
On the specifics of the allegations, however, the Court found it did not need to reach the theoretical viability of this theory of liability. That is because the substance of the very information that plaintiffs allege was not disclosed was in fact disclosed.
Specifically, while the discussion of the price range was not initially disclosed in the target’s merger-related filings, it was later disclosed in a letter that the target publicly filed and later added as an exhibit to the merger-related filings by amendment. Likewise, the Court found that the substance of the discussion indicating that the target was intended to function as an independent unit was publicly disclosed as was the fact that the board chairs of the respective companies discussed the possible deal before the special committee of the acquirer was constituted. Thus, found the Court, it was “not reasonably conceivable that if only the . . . defendants had ensured additional disclosures, [the acquirer’s] Special Committee and directors would have put the kibosh on the acquisition.”