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Chancery Finds for Defendants in Challenge to Oracle Acquisition of NetSuite

In re Oracle Corporation Derivative Litigation, Consol. C.A. No. 2017-0337-SG (Del. Ch. May 12, 2023)
In this “vigorously litigated” matter, the Plaintiffs argued that Oracle’s founder and current officer and director, Larry Ellison, manipulated a special committee of Oracle’s board to overpay for NetSuite, another company in which Ellison was a substantial investor. Plaintiffs offered two theories to bring the transaction within the entire fairness standard of review: first, that Ellison was a controller who sat on both sides of the transaction, and second, that Ellison, on his own and with Oracle CEO Safra Catz, misled the Oracle board and special committee, and thus the transaction was a product of fraud. Post-trial, the Court of Chancery rejected both theories, applied the business judgment rule, and found for the defendants.

First, the Court found that Ellison, a minority shareholder, was not a controller because he recused himself from the board's discussion of the NetSuite acquisition throughout the process. Additionally, the Court found that although Ellison had “clout,” he did not exercise actual control over the company and that the board “was not afraid to stand opposed to Ellison.” Further, the Court found that Ellison “scrupulously avoided” any discussion of the transaction with the special committee and that the committee negotiated the transaction “unmolested by his influence.”

The Court also did not find any evidence of fraud on the board. As the Court stated, “[a]t minimum, for a fraud on the board claim to result in entire fairness, a defendant must have manipulated a supine board.” The Court rejected Plaintiffs’ assertion that Ellison and CEO Catz misled or defrauded the board or the special committee and, indeed, found that the committee made its own independent determinations consistent with the company’s past dealings and not because of any deception by Ellison or Catz.

This decision serves as a potent reminder that even if a Court finds that a plaintiff has pled sufficient facts at the pleadings stage to allege inference of control, that does not preclude review under the business judgment rule at trial. 

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