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May 9 — A shareholder can't proceed with a lawsuit accusing ADT Corp. directors of breaching their fiduciary duties by making decisions solely to appease an activist investor, the Delaware Chancery Court ruled May 6.
Vice Chancellor Tamika Montgomery-Reeves said shareholder-plaintiff Jeran Binning failed to showed his claims were sufficiently different from those in a lawsuit that the court previously dismissed.
Binning challenged a series of board decisions in his action, including its approval of an alleged overpriced repurchase of over $450 million of company stock from hedge fund Corvex Management LP.
The chancery court in April 2015 dismissed a similar derivative lawsuit filed by shareholder Walter Ryan because Ryan's complaint failed to plead specific facts showing that a pre-suit demand on the board to take legal action would have been futile (13 CARE 919, 5/1/15).
Under Delaware law, shareholders that bring derivative lawsuits on behalf of their companies must show they had asked the company's board to pursue the action, unless doing so would be futile. Both Binning and Ryan's lawsuits claimed that demand would have been futile because a majority of ADT's board acted with the purpose of entrenching its members in making the disputed decisions.
The court found that Binning's complaint included seven distinct allegations and legal arguments that were absent from Ryan's lawsuit, including that the Securities and Exchange Commission had begun investigating the challenged transactions. However, Montgomery-Reeves said that all of the distinctions weren't enough to impact the court's demand futility analysis.
“Binning does not even attempt to explain how the SEC investigation would support a finding that demand on the Board would have been futile,” she wrote, adding that the SEC has since concluded its probe and didn't recommend an enforcement action.
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The opinion is available at http://www.bloomberglaw.com/public/document/Binning_v_Gursahaney_No_10586VCMR_2016_BL_145556_Del_Ch_May_06_20.
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