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Can Target Fiduciaries Aid and Abet an Acquirer’s Board for Breach of Fiduciary Duty?

By | June 22, 2020

In re Oracle Corp. Derivative Litigation considered whether a fiduciary for an acquired entity can aid and abet breaches of duty by a fiduciary for the buyer.  Theoretically yes, almost anything is possible.  But what if the breach of duty relates only to the buyer paying the seller too much? It is an odd case, since the target fiduciaries have a duty to maximize price.

This case related to Oracle’s acquisition of NetSuite. To bring an action for aiding and abetting a breach of fiduciary duty to Oracle stockholders, the plaintiff must plead among other things that the NetSuite defendants knowingly participated in that breach by Oracle fiduciaries that remained as defendants.

Among other things, absent a fiduciary or contractual relationship, Delaware law generally does not impose a duty to speak.  Here the lead plaintiff claimed the NetSuite defendants undertook action to provide substantial aid to two Oracle defendants breach of their own duties to Oracle—the alleged substantial aid was silence on the history of key transactional negotiations.

To that end, the lead plaintiff pointed out that the NetSuite defendants owed fiduciary duties to make disclosures to NetSuite stockholders about the acquisition of NetSuite. The lead plaintiff posited that the NetSuite defendants breached those duties in aid of the secrecy necessary to further the Oracle defendants’ corrupt scheme. That is, the disclosures required of the NetSuite defendants to NetSuite’s stockholders would, if made, result in disclosure to the public, which would in turn result in disclosure to Oracle’s special committee. The lead plaintiff alleged that such disclosures would have put Oracle’s directors on alert to the allegedly lopsided transaction terms, and would have led Oracle to scuttle the deal.

For this claim to succeed, the Delaware Court of Chancery said this required:

  • Pleading that the NetSuite defendants’ fiduciary duties to NetSuite and its stockholders required that they cause NetSuite to disclose certain information, and
  • The NetSuite defendants intentionally violated such duties in furtherance of the Oracle defendants’ breach of duty to Oracle.

For emphasis the court noted the lead plaintiff’s theory was that the NetSuite defendants intentionally breached a duty of candor to NetSuite stockholders, because compliance with this duty would have also informed the public, and ultimately Oracle’s special committee, which would have imperiled the scheme to overpay NetSuite stockholders.

But under the facts alleged, the Court found that it need not determine whether the NetSuite defendants breached a duty to NetSuite’s stockholders. The reason was that even if the NetSuite defendants did breach a duty to disclose, it was not reasonably conceivable that by their silence they provided substantial assistance to the Oracle defendants’ alleged breaches of fiduciary duty, in light of the actual disclosures of record.

The court found sufficient disclosures were made so that the NetSuite defendants did not provide substantial assistance to the Oracle stockholders.  The NetSuite defendants’ actions could not have provided substantial assistance to the Oracle defendants’ breach of duty, because the alleged attempt that the NetSuite defendants made to keep certain negotiations secret from Oracle failed. It was not reasonably conceivable that the difference between what was disclosed and what the lead plaintiff alleged should have been disclosed constituted substantial assistance to the Oracle defendant’s scheme to cause Oracle to overpay for NetSuite.

Contact Steve Quinlivan for more information.