Xerox Dodges Investor Claims Over $6.4B Merger

Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...

By Michael Greene

Aug. 1 — An investor can't pursue a derivative lawsuit alleging that certain Xerox Corp. directors and officers breached their fiduciary duties in connection with the company's $6.4 billion acquisition of Affiliated Computer Services Inc. (ACS), the U.S. District Court for the Southern District of New York ruled July 29 ( Sciabacucchi v. Burns , 2016 BL 245572, S.D.N.Y., No. 15-cv-7506 (PKC), 7/29/16 ).

Plaintiff Matthew Sciabacucchi alleged the defendants failed to discover ACS accounting improprieties that caused Xerox to pay an inflated price for the information technology company in 2010.

As required under New York law, Sciabacucchi in 2013 made a demand on the Xerox board to investigate and initiate legal action against the officers and directors.

In dismissing the lawsuit, Judge P. Kevin Castel concluded that Xerox's board hadn't wrongfully rejected the shareholder's litigation demand. The judge, applying New York law, said the board's investigation of the shareholder's demand “was more than procedurally adequate.”

Two former ACS executives in 2014 agreed to pay a monetary penalty to resolve Securities and Exchange Commission allegations that they caused ACS to falsely report revenue (168 SLD, 8/29/14).

Demand Refusal

The court found that the board's rejection of the litigation demand was protected under the deferential business judgment rule.

In determining that the Xerox board's probe was adequate, the court observed that the board appointed two qualified independent directors to run a Demand Review Committee to investigate the allegations. The committee retained outside counsel to assist in its investigation and the procedures utilized by the committee and its outside counsel showed that their review was reasonably complete, the court said.

The court also determined that the committee's failure to interview a representative of the SEC didn't render its investigation inadequate.

New York law doesn't require specific witnesses or categories of witnesses to be interviewed during a demand investigation, the court said. It added that the only requirements regarding the scope of an investigation are that the areas and subjects examined are reasonably complete.

“There is no reasonable basis to infer that the [Demand Review Committtee] would have obtained a more complete understanding of the facts and circumstances underlying the shareholder demand if they interviewed any of the SEC employees who worked on the ACS investigation,” Castel wrote.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

For More Information

The court's opinion is available at

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.