COURT OF CHANCERY
OF THE
STATE OF DELAWARE
417 S. State Street
JOSEPH R. SLIGHTS III Dover, Delaware 19901
VICE CHANCELLOR Telephone: (302) 739-4397
Facsimile: (302) 739-6179
Date Submitted: May 28, 2019
Date Decided: July 12, 2019
A. Thompson Bayliss, Esquire Marcus E. Montejo, Esquire
Abrams & Bayliss LLP Prickett, Jones & Elliott, P.A.
20 Montchanin Road, Suite 200 1310 King Street
Wilmington, DE 19807 Wilmington, DE 19801
John L. Reed, Esquire Rudolf Koch, Esquire
DLA Piper LLP (US) Richards, Layton & Finger, P.A.
1201 N. Market Street, Suite 2100 920 North King Street
Wilmington, DE 19801 Wilmington, DE 19801
Robert S. Saunders, Esquire
Skadden, Arps, Slate,
Meagher & Flom LLP
One Rodney Square
Wilmington, DE 19801
Re: In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
Dear Counsel:
As you know, this case arises from the merger of Xura, Inc. and an affiliate of
Siris Capital Group, LLC (the “Merger”). The Merger has prompted certain Xura
stockholders to seek statutory appraisal of their Xura stock in this Court. One of
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 2
those stockholders, Obsidian Management LLC, filed a separate complaint in this
Court (the “Obsidian Complaint”) in which it raised breach of fiduciary duty claims
related to the Merger against Xura’s CEO, Philippe Tartavull, and aiding and
abetting breach of fiduciary duty claims against Siris, Frank Baker, a Siris Managing
Partner, and Michael Hulslander, also a principal of Siris (collectively the “Siris
Defendants”). On December 10, 2018, the Court granted the Siris Defendants’
motion to dismiss Obsidian’s aiding and abetting claims but denied the motion to
dismiss brought by Tartavull (the “Obsidian Opinion”).1 The facts relating to the
Merger and Obsidian’s claims against those involved in consummating the
transaction are spelled out in detail in the Obsidian Opinion.
Ten days after the Court issued the Obsidian Opinion, another appraisal
petitioner, Istvan Szoke, filed a complaint in this Court (the “Szoke Complaint”) that
is nearly identical to the Obsidian Complaint raising the same claims against the
same defendants named by Obsidian, including the Siris Defendants. Unlike
Obsidian, however, Szoke purports to bring his claims on behalf of a class of Xura
1
In re Xura, Inc. S’holder Litig., 2018 WL 6498677 (Del. Ch. Dec. 10, 2018).
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 3
stockholders. In doing so, he acknowledges that he read the Obsidian Opinion, took
note of the pleading deficiencies identified by the Court with respect to the aiding
and abetting claim and then attempted to cure those deficiencies with additional pled
facts in his complaint.
The Siris Defendants are not pleased. They believed they had achieved a
dismissal with prejudice and yet they now face another round of litigation relating
to the same Merger-related conduct at issue in the Obsidian Opinion. They have
moved to dismiss. Not surprisingly, their lead-off argument is that Szoke’s aiding
and abetting claim is barred by res judicata. In this regard, they point out that Szoke
and Obsidian’s principal are close friends and both Szoke and Obsidian have joined
together with a select few other Xura stockholders to seek appraisal. Szoke and
Obsidian are represented by the same counsel and there appears to have been some
degree of coordination between the litigants. According to the Siris Defendants,
these connections justify a finding that Szoke is bound by the Court’s disposition of
the claims against the Siris Defendants in the Obsidian Opinion. Alternatively, the
Siris Defendants urge the Court to adhere to stare decisis by finding that all of the
claims and issues raised by Szoke have been decided in the Obsidian Opinion.
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 4
It is tempting to take on the Siris Defendants’ res judicata argument. The
filing of the Szoke Complaint on the heels of the Court’s dismissal of Obsidian’s
aiding and abetting claim raises legitimate concerns that may justify claim
preclusion. But I need not go there for the simple reason that I am satisfied Szoke,
like Obsidian, has failed to state a viable aiding and abetting claim against the Siris
Defendants.2 For that reason, the Siris Defendants’ motion to dismiss must be
granted.3
Szoke’s complaint presents the same theories of aiding and abetting that were
advanced in Obsidian’s complaint. Specifically, Szoke alleges the Siris Defendants
aided and abetted Tartavull (and perhaps other Xura fiduciaries) (collectively, the
2
The Siris Defendants have also moved for fees on the ground that Szoke has engaged in
bad faith litigation conduct in bringing claims against the Siris Defendants that are nearly
identical to those dismissed in the Obsidian Opinion. I do not see it that way. First, Szoke
is purporting to represent a class of Xura stockholders. He arguably had a duty to his fellow
stockholders to take a shot at the aiding and abetting claim again. Second, Szoke has added
allegations in his complaint that were not pled in the Obsidian Complaint. That I have
ultimately determined those allegations are inadequate to state an aiding and abetting claim
does not mean that Szoke acted in bad faith in asserting the claims to begin with.
3
I note that Tartuvall has filed a motion to dismiss the Szoke Complaint as well. Because
Szoke’s claims against him mirror those found to have been adequately pled by Obsidian,
I denied that motion summarily. (D.I. 388).
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 5
“Xura Fiduciaries”) in breaching their fiduciary duties because Siris consummated
the Merger after: (i) knowing that Tartuvall had steered Xura into an underpriced
transaction with Xura, (ii) knowing that Xura stockholders were “dissatisfied with
Tartavull and that his hold on his CEO role was slipping,” and then “knowingly
exploit[ing]” this conflict by “deliberately induc[ing] Tartavull to believe that he
would be CEO of the Company after the Merger,” (iii) knowing that Francisco
Partners had approached Xura about a transaction and was diverted by the Xura
Fiduciaries to join Siris on the buy-side of the Merger, and (iv) facilitating the Xura
Fiduciaries’ allegedly inadequate public disclosures to Xura stockholders about the
Merger.4 As noted, I determined in the Obsidian Opinion that the plaintiff there had
not well-pled facts that would support any of these aiding and abetting theories.
The following chart, borrowed from the Siris Defendants’ Opening Brief, lays
out the allegations borrowed from the Obsidian Complaint, highlights the new aiding
and abetting allegations in the Szoke Complaint (as underlined), and then compares
4
See Szoke Compl. ¶¶ 83–84, 90, 101–104, 107, 139–140.
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 6
these allegations to the findings of inadequate pleading identified in the Obsidian
Opinion:
Pleading Deficiency Identified in the Redline Excerpt Showing New
Obsidian Plenary Complaint Allegation in the Szoke Complaint
“Plaintiff conspicuously stops short of “On information and belief, Siris knew
alleging any precedent facts, even on that major Xura stockholders had
information and belief, from which a expressed displeasure with Tartavull’s
pleading stage adverse inference could performance and that Tartavull’s hold
be drawn that Tartavull told or on his job was slipping.” (Szoke
otherwise indicated to Siris that he was Compl. ¶ 83; Ex. 1, new ¶ 83)
in danger of losing his job if the
Transaction fell through or that he was “On information and belief, Siris
motivated to steer Xura into the deliberately induced Tartavull to
Transaction for self-interested reasons.” believe that he would be CEO of the
(Mem. Op. at 40) Company after the Merger and would
receive lucrative employment benefits.
By doing so, Siris knowingly exploited
Tartavull’s conflict to secure an ally on
the inside and to obtain information
from Tartavull that it could use against
the Company and drive down the
transaction price.” (Szoke Compl. ¶ 84;
Ex. 1, new ¶ 84)
“On information and belief, Baker,
Hulslander and Siris knew that Xura’s
stockholders and its board were
dissatisfied with Tartavull and that his
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 7
hold on his CEO role was slipping.”
(Szoke Compl. ¶ 139; Ex. 1, new ¶ 139)
“Baker, Hulslander, and Siris each
knowingly participated in Tartavull’s
breachbreaches of fiduciary dutiesduty
by …, (ii) using Tartavull’s gloomy
employment prospects to Siris’s
advantage and to the detriment of
Xura’s stockholders by inducing
Tartavull to believe that he would
receive a lucrative employment package
as the Company’s CEO post-merger....”
(Szoke Compl. ¶ 140; Ex. 1, new ¶ 140)
“Plaintiff has not alleged anything to “But Francisco Partners did not bid.
support its conclusory allegation that Instead, it somehow learned that Siris
‘[t]he Siris Defendants knew that was Xura’s counterparty. On
Francisco Partners had expressed information and belief, Tartavull told
interest and [were] diverted to the buy- Franscico [sic] Partners that Siris was
side of the transaction.’” (Mem. Op. the Company’s counterparty. Instead of
at 43) submitting a competing proposal and
bidding against a rival private equity
firm, Francisco Partners reached out to
Siris about a potential co-investment on
the buy-side of the transaction. On
information and belief, Siris signaled to
Francisco Partners that it was open to
buy-side participation to avoid a
bidding war, but it told Francisco
Partners that it would need to obtain
approval from Xura before officially
beginning discussions about a buy-side
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 8
partnership.” (Szoke Compl. ¶ 90; Ex.
1, new ¶ 90)
“Plaintiff’s allegations that Siris “Shortly after the execution of the
somehow aided and abetted in the Merger Agreement, Xura and Siris
Board’s deficient disclosures also fall personnel began working on a draft of
short. At the outset, I note that an aiding the Proxy. On information and belief,
and abetting claim based on a third- Xura and Siris exchanged multiple
party’s alleged failure somehow to drafts of the Proxy, and advisers for
prevent a board from providing both sides were intimately involved in
misleading disclosures to stockholders the drafting process. On information
rests on thin ice. Yet that is what and belief, Xura and Siris personnel
Plaintiff alleges here. It has pled no facts carefully reviewed and approved each
to support an inference that Siris portion of the Proxy, including the
knowingly facilitated alleged disclosure “Background of the Merger” section of
deficiencies or otherwise ‘knowingly the document. On information and
participated” in that aspect of the belief, both Baker and Huslander [sic]
alleged breach of fiduciary. Instead, at were given the opportunity to comment
best, Plaintiff alleges (albeit summarily) on the Proxy, and both approved it
that Siris knew certain facts and knew before it was issued.” (Szoke Compl.
that the Board was not disclosing those ¶ 101; Ex. 1, new ¶ 101)
facts to stockholders.” (Mem. Op. at
42-43) “On July 12, 2016, Xura issued the
Proxy. But the ProxyIt did not give the
“I note Plaintiff alleges Siris Defendants stockholders all the information they
aided and abetted the purported needed to properly evaluate the Merger,
disclosure deficiencies for the first time and it misled them in key
in its Answering Brief. … The regardsrespects. The Proxy made no
Complaint simply claims Siris mention of Francisco Partners
Defendants aided and abetted a breach whatsoever – despite the fact that
of fiduciary duty ‘by engaging in direct Tartavull had detailed his
and improper communications with communications with Francisco
Tartavull throughout the negotiations Partners in comments on a draft of the
that led to the Merger.’ … This alone is Proxy. Instead, the Proxy trumpeted the
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 9
enough to disregard the claim.” (Mem. fact that Xura contacted ‘26 prospective
Op. at 42 n.147 (citation omitted)) buyers’ and that ‘[n]one of the parties
contacted during the go-shop process...
“In any event, with regard to the specific submitted an Acquisition Proposal to
disclosure violations Siris allegedly the Company.’ On information and
aided and abetted Xura in committing, belief, Siris and Xura jointly determined
Plaintiff has not alleged anything to that the Proxy should not include any
support its conclusory allegation that reference to Francisco Partners.”
‘[t]he Siris Defendants knew that (Szoke Compl. ¶ 102 (alteration in
Francisco Partners had expressed original); Ex. 1, new ¶ 102)
interest and [were] diverted to the buy-
side of the transaction.’” (Mem. Op. “The Proxy also failed to mention a
at 43 (alterations in original; citation number of meetings and direct
omitted)) communications between Tartavull and
Siris, including the February 24, 2016
meeting at which they discussed price
and other sensitive topics. As a result,
the Proxy painted an inaccurate picture
of the nature and frequency of
communications between Tartavull and
Siris. On information and belief, Siris
personnel commented on the Proxy’s
portrayal of the negotiating process and
were intimately involved in determining
what should and should not be
disclosed.” (Szoke Compl. ¶ 103; Ex. 1,
new ¶ 103)
“The Proxy described the Strategic
Committee as a committee the board
created to ‘review, evaluate and
negotiate the terms of a potential
transaction with Siris and to make
certain decisions between meetings of
the board of directors.’ On information
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 10
and belief, Xura and Siris jointly
determined to describe the Strategy
[sic] Committee in this way. But in fact,
as both the Company and Siris knew
perfectly well, the Strategic Committee
never met with Siris, never took formal
action, and was just a forum in which
Tartavull raised questions or concerns
about the business generally.” (Szoke
Compl. ¶ 104; Ex. 1, new ¶ 104)
“On information and belief, personnel
from Xura and Siris jointly developed
the Supplemental Proxy. Baker and
Hulsander [sic] were afforded the
opportunity to comment on the
Supplemental Proxy, and, on
information and belief, they approved
the Supplemental Proxy before it was
issued.” (Szoke Compl.
¶ 107; Ex. 1, new ¶ 107)
“Baker, Hulslander, and Siris each
knowingly participated in Tartavull’s
breachbreaches of fiduciary dutiesduty
by … (iii) knowingly participating in
the drafting and dissemination of
inaccurate and misleading disclosures
contained in the Proxy and the Proxy
Supplement.” (Szoke Compl. ¶ 140;
Ex. 1, new ¶ 140)
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 11
What is clear from this comparison is that Szoke has attempted to plug in the
pleading gaps the Court identified in the Obsidian Opinion principally with
allegations based “on information and belief.” This is so even though Szoke, and
his counsel, have had access to a fully developed discovery record in the Obsidian
appraisal and fiduciary duty actions for months.5 Pleading serial facts “on
information and belief” is no substitute for well-pled facts that will support a
reasonable inference of wrongdoing.6
What is lacking in the Szoke Complaint is what was lacking in the Obsidian
Complaint—well-pled allegations that Siris “knowingly participated” in the Xura
Fiduciaries’ alleged breaches of fiduciary duty. 7 “Knowing participation” means
5
Fact discovery in this consolidated action is complete or nearly complete. Trial will
commence on October 7, 2019.
6
See In re Coca-Cola Enters., Inc., 2007 WL 3122370, at *4 n.28 (Del. Ch. Oct. 17, 2007)
(“[i]f a complaint were held sufficient simply because it restates the legal elements of a
particular cause of action, Rule 8(a) would be rendered meaningless. Plaintiffs need not
offer prolix tales of abuse belabored by needless details, but plaintiffs must allege facts
sufficient to show that the legal elements of a claim have been satisfied.”), aff’d sub nom.
Int’l Bhd. Teamsters v. Coca-Cola Co., 954 A.2d 910 (Del. 2008); Aveta Inc. v. Cavallieri,
23 A.3d 157, 181 (Del. Ch. 2010) (dismissing complaint on stare decisis grounds upon
concluding that the new complaint did not plead new facts “beyond what [was] previously
considered.”).
7
Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001).
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 12
just that—the alleged aider and abettor must know the fiduciary is breaching his
fiduciary duty and then must participate, in some way, in that breach.8 The Szoke
Complaint, like the Obsidian Complaint, falls short on both fronts. First, there are
no well-pled allegations that, as it negotiated and eventually consummated the
Merger, Siris (and its negotiators) knew: (1) Tartuvull would be terminated as CEO
but for the Merger such that they could exploit that fact (by offering post-Merger
employment) to provoke Tartuvull to facilitate their low ball offer; (2) the Xura
Fiduciaries had directed Francisco Partners to withdraw its expression of interest to
acquire Xura on its own so that it could join Siris in its bid; or (3) Xura had failed to
provide adequate disclosures regarding the Merger to its stockholders. 9 Second,
8
Binks v. DSL.net, Inc., 2010 WL 1713629, at *10 (Del. Ch. Apr. 29, 2010). See also
Restatement (Second) of Torts §876 (“For harm resulting to a third person from the tortious
conduct of another, one is subject to liability if he (b) knows that the other's conduct
constitutes a breach of duty and gives substantial assistance or encouragement to the other
so to conduct himself”).
9
See In re Volcano Corp. S’holder Litig., 143 A.3d 727, 750 (Del. Ch. 2016) (noting that
the standard for pleading the “requisite scienter” in connection with the “knowing
participation” element of aiding and abetting imposes a “high burden”), aff’d, 2017
WL 563187 (Del. Feb. 9, 2017) (TABLE); Weinberger v. Rio Grande Indus., Inc., 519
A.2d 116, 131 (Del. Ch. 1986) (dismissing aiding and abetting claim against acquirer based
on the acquirer’s alleged knowing participation in false disclosures upon finding that
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 13
there are no well-pled allegations that the Siris Defendants “participated” in any
breach of fiduciary duty by giving “substantial assistance or encouragement” to any
of the Xura Fiduciaries.10 In this regard, it is not enough to allege that Siris drove a
hard bargain.11 Instead, Szoke was obliged to allege facts that would allow a
reasonable inference that the Siris Defendants took steps to assist the Xura
Fiduciaries in breaching their fiduciary duties knowing that the breaches were
occurring and knowing that they were assisting in those breaches. The Szoke
Complaint falls short of this mark.12
plaintiff had not pled that the acquirer knew the disclosures were misleading or that it
participated in the fiduciaries’ decision to make the disclosures).
10
See Restatement (Second) of Torts §876(b); see also Malpiede, 780 A.2d at 1097 n.78
(citing Restatement (Second) of Torts §876(b) with approval); Prairie Capital III, LP v.
Double E Hldg. Corp., 132 A.3d 35, 63 (Del. Ch. 2015) (same).
11
See Tomczak v. Morton Thiokol, Inc., 1990 WL 42607, at *16 (Del. Ch., Apr. 5, 1990)
(“Although Dow’s purchases certainly had the effect of putting economic pressure on
Morton Thiokol, what Dow essentially did was to simply pursue arm’s-length negotiations
with Morton Thiokol through their respective investment bankers in an effort to obtain
Texize at the best price that it could.”); Weinberger v. United Fin. Corp. of Cal., 1983
WL 20290, at *13 (Del. Ch., Oct. 13, 1983) (refusing to impose liability on sponsor of a
tender offer who negotiated aggressively with target at arm's-length to obtain the best price
possible).
12
For the reasons stated in the Obsidian Opinion, I reject again the argument that the Court
should draw adverse inferences at the pleadings stage against the Siris Defendants based
on the Szoke Complaint’s allegations of spoliation of evidence. The Obsidian Opinion
In re Xura, Inc. Stockholder Litigation
Consolidated C.A. No. 12698-VCS
July 12, 2019
Page 14
Based on the foregoing, Siris’ motion to dismiss the aiding and abetting claim,
Count II of the Szoke Complaint, must be granted.13
IT IS SO ORDERED.14
Very truly yours,
/s/ Joseph R. Slights III
held that Obsidian had “conspicuously stop[ped] short of alleging any precedent facts, even
on information and belief, from which a pleading stage adverse inference could be drawn
that Tartavull told or otherwise indicated to Siris that he was in danger of losing his job if
the Transaction fell through or that he was motivated to steer Xura into the Transaction for
self-interested reasons.” In re Xura, Inc. S’holders Litig., 2018 WL 6498677, at *9 n.92
(emphasis added)). As noted in the Obsidian Opinion, the inferences a plaintiff asks the
court to draw at the pleading stage must be reasonable and they must be grounded in pled
facts. Id. at *9 n.92, *14 n.139. No such reasonable inferences, adverse or otherwise, are
supported by any of the new “facts” pled in the Szoke Complaint.
13
I acknowledge Szoke’s letter dated June 24, 2019 (D.I. 417), submitted well after oral
argument on this motion, in which Szoke’s counsel describes at some length certain
documents produced by Francisco Partners, and then states that Szoke intends to file a
motion for leave to file a second amended complaint. I also acknowledge, and agree with,
the Siris Defendants’ June 25, 2019 letter (D.I. 419) in which they point out that Szoke’s
June 24 letter is an improper substitute for a proper motion for leave to amend. More than
two weeks have passed since Szoke’s June 24 letter, and he has not filed his motion for
leave to amend. Because I have concluded that the June 24 letter is not a proper means by
which to amend or supplement a pleading, I have not considered the contents of that letter
in deciding this motion.
14
In light of the close proximity of trial, the Siris Defendants shall respond to all ordered,
pending (or agreed to) party discovery as if they remained in this case as parties.