Novell Board Did Not Act in Bad Faith, Del. Court Holds in Would-Be Class Suit

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Dec. 1 — Novell Inc.'s board did not act in bad faith in completing a merger and patent sale by unlawfully treating bidders differently, the Delaware Chancery Court held Nov. 25 in a would-be shareholder class action.

Granting the board's summary judgment bid, Vice Chancellor John W. Noble held that the former shareholder plaintiffs failed to supply a “factual basis for concluding that the Board acted with improper motives.”

The court recounted that in November 2010, the Novell board approved a deal under which Novell would be acquired by a wholly owned subsidiary of Attachmate Corp., a software concern. Novell also agreed to sell patents, pending patent applications and lapsed patent applications to a consortium of technology concerns. In February 2011, Novell's shareholders approved the acquisition, which was consummated in April 2011.

In their complaints, the plaintiffs alleged that the Novell board breached its fiduciary duties by favoring Attachmate over competing bidders. In January 2013, the court allowed the plaintiffs' “bad faith claim” to survive a dismissal bid (11 CARE 34, 1/11/13). Subsequently, the defendants moved for a summary judgment, arguing that the plaintiffs have failed to perfect facts showing that the board acted with “any improper motive.”

‘Realm of Reasonableness.'

The court explained that the main issue is whether the board acted on some motive other than “advancing the corporation's best interests.” Applying the applicable “enhanced scrutiny” standard, the court found that “nothing” about the board's actions in consummating the deal was “unreasonable.”

“Delaware law does not require a board to treat all bidders equally, and Defendants have presented unrebutted evidence demonstrating that their actions during the sales process were at least within the realm of reasonableness,” it said.

Plaintiffs were represented by Grant & Eisenhofer P.A., Wilmington, Del.; Faruqi & Faruqi LLP, Wilmington, Del.; and Bernstein Litowitz Berger & Grossman LLP, New York.

Defendants were represented by Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Del. and Boston.

The opinion is available at http://www.bloomberglaw.com/public/document/CONF_ORD_ON_DISCCONS_W6012_6019_6020_6021_6024_6030_6037_6039_604.