Chancery Dismisses Conclusive Allegations of Gross Negligence and Disloyalty Against Oracle Officers and Directors Related to Alleged Self-Controlled NetSuite Acquisition | Morris James LLP

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Regarding Oracle Corp. Derv. Litigation, CA n ° 2017-0337-SG (Dél. Ch. 21 June 2021)

Although Delaware maintains a notice of plea standard, this ruling reflects that conclusive allegations of breach of fiduciary duty made against officers and directors of a Delaware corporation may be considered insufficient to make a claim.

The plaintiff shareholders of Oracle Corporation have challenged its acquisition of NetSuite as a controlled and self-interested transaction benefiting the founder of both companies, Larry Ellison. The plaintiffs further alleged that two Oracle director-directors – Mark Hurd and Jeffrey Henley – were not independent of Ellison and had breached their fiduciary duties. Hurd and Henley have offered to fire.

With respect to Hurd, the Court found that the allegations were related to his role as an officer and, therefore, the Court assessed the claim against him as a breach of duty of loyalty and an unconscionable breach of duty of care. . The court ruled that the plaintiffs had failed to demonstrate that Hurd had been grossly or unfairly negligent by (1) simply attending a meeting where the board told him to contact NetSuite to see if he was would be prepared to consider an indication of interest; (2) attend a special committee presentation as a passive observer; and (3) make public comments that contradicted information previously provided to the Special Committee by another agent, when there was no claim that Hurd was even aware of what the Special Committee had been said.

The Court followed a similar analysis with regard to Henley. First, the Court determined that the allegations against Henley concerned his role as a director, not least because the complaint did not even identify Henley’s management position. Accordingly, the Court applied the Cornerstone analysis to determine whether the plaintiffs brought a claim for breach of duty of loyalty by Henley: (1) whether Henley lacked independence from Ellison; and (2) whether he acted to promote Ellison’s personal interest. While the Court found that Henley lacked independence from Ellison, the Court also found that his only alleged action – namely voting with all the other board members simply to ask management to assess the feasibility of the acquisition of NetSuite – was not unfair. Likewise, the complainants’ assertion that he had unspecified material knowledge of NetSuite that he did not disclose to the Special Committee was conclusive.

Accordingly, the Court allowed Hurd and Henley’s motions to dismiss.

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