The Supreme Court affirmed the Court of Chancery’s decision in favor of the defendants in a derivative suit challenging Oracle’s acquisition of NetSuite, led by the company’s co-founder Larry Ellison. Oracle’s board had formed a special litigation committee (the “SLC”), which took control of the case and investigated the claims, but eventually decided to return the case back to the plaintiffs to prosecute after failing to reach a settlement. Following a trial, the Court of Chancery entered judgment for the defendants, concluding that the transaction was negotiated at arm’s length by a fully empowered special transaction committee and finding no fiduciary duty breach (the “Special Committee”). On appeal, the stockholders argued that the Court of Chancery erred by permitting the SLC to withhold from production interview memoranda from its investigation, by applying business judgment review to the transaction, and by finding that the co-founder’s undisclosed future operational plans were immaterial to the Special Committee’s evaluation of the transaction and not a fraud on the board.
The Supreme Court first held that the Court of Chancery did not error by allowing the SLC to withhold its interview memoranda in discovery. The Supreme Court declined to extend Zapata analysis beyond the review of a Zapata committee’s decision to terminate litigation. Here, the SLC decided not to terminate the litigation, and, instead, returned the litigation to the plaintiffs to pursue. The Supreme Court reasoned that plaintiffs did not need discovery of the SLC’s investigation to evaluate the SLC’s decision. Additionally, the attorney interview summaries were protected from disclosure by work-product doctrine and the Supreme Court disagreed that the SLC’s non-opinion work product protection should yield to the plaintiffs’ alleged substantial need for the memoranda.
The Supreme Court next found that the Court of Chancery properly applied the business judgment standard of review to the transaction. The plaintiffs argued that Ellison, who held ownership in both NetSuite and Oracle, controlled Oracle and was conflicted, and, therefore, entire fairness standard of review should apply. The Court of Chancery found that although Ellison held a substantial block of stock and was Oracle visionary leader, the plaintiffs failed to prove that he wielded either general control over the company or transaction-specific control. The Supreme Court would not weigh the evidence on appeal and, in affirming, observed that the plaintiff did not challenge the trial court’s factual findings of a lack of control. Finally, the Supreme Court agreed with the Court of Chancery’s finding that the plaintiffs failed to prove that Ellison withheld material information from the Special Committee. Accordingly, the Supreme Court affirmed.
