IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE ORACLE CORPORATION ) CONSOLIDATED
DERIVATIVE LITIGATION ) C.A. No. 2017-0337-SG
MEMORANDUM OPINION
Date Submitted: March 11, 2020
Date Decided: June 22, 2020
Joel Friedlander, Jeffrey M. Gorris, Christopher P. Quinn, and Bradley P. Lehman,
of FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; OF COUNSEL:
Randall J. Baron and David A. Knotts, of ROBBINS GELLER RUDMAN & DOWD
LLP, San Diego, California; Christopher H. Lyons, of ROBBINS GELLER
RUDMAN & DOWD LLP, Nashville, Tennessee; Brian J. Robbins, Stephen J. Oddo,
and Gregory Del Gaizo, of ROBBINS LLP, San Diego, California, Attorneys for
Lead Plaintiff Firemen’s Retirement System of St. Louis.
Elena C. Norman and Richard J. Thomas, of YOUNG CONAWAY STARGATT &
TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: Peter A. Wald, of
LATHAM & WATKINS LLP, San Francisco, California; Blair Connelly, of
LATHAM & WATKINS LLP, New York, New York, Attorneys for Defendants
Lawrence J. Ellison and Safra A. Catz.
Kenneth J. Nachbar, John P. DiTomo, and Thomas P. Will, of MORRIS, NICHOLS,
ARSHT & TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Sara B. Brody
and Jaime A. Bartlett, of SIDLEY AUSTIN LLP, San Francisco, California; Matthew
J. Dolan, of SIDLEY AUSTIN LLP, Palo Alto, California, Attorneys for Defendants
Jeffrey O. Henley, Renée J. James, and Paula R. Hurd as Trustee of the Hurd Family
Trust.
A. Thompson Bayliss and E. Wade Houston, of ABRAMS & BAYLISS LLP,
Wilmington, Delaware; OF COUNSEL: John W. Spiegel, George M. Garvey, and
John M. Gildersleeve, of MUNGER, TOLLES & OLSON LLP, Los Angeles,
California, Attorneys for Defendant Evan Goldberg.
Andrew S. Dupre and Sarah E. Delia, of MCCARTER & ENGLISH, LLP,
Wilmington, Delaware; OF COUNSEL: Robert P. Feldman, of QUINN EMANUEL
URQUHART & SULLIVAN, LLP, Redwood Shores, California; Christopher D.
Kercher, of QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York,
New York, Attorneys for Defendant Zachary Nelson.
Thomas A. Beck, Blake Rohrbacher, Susan M. Hannigan, Matthew D. Perri, and
Daniel E. Kaprow, of RICHARDS, LAYTON & FINGER, P.A., Wilmington,
Delaware, Attorneys for Nominal Defendant Oracle Corporation.
GLASSCOCK, Vice Chancellor
This matter was brought by stockholders of a major technology company,
Oracle Corporation (“Oracle”). They allege that breaches of fiduciary duty inhere
in Oracle’s overpriced acquisition of a second technology company, NetSuite, Inc.
(“NetSuite”). The fiduciary duty claims against Oracle fiduciaries Ellison and Catz
have withstood a motion to dismiss.1
Among the other Defendants are both the Chief Executive Officer and the
Chairman of the Board of the acquired company, NetSuite. Plaintiffs allege that
these NetSuite fiduciaries tortiously aided and abetted breaches of duty by Oracle
fiduciaries. This Memorandum Opinion resolves these two Defendants’ Motions to
Dismiss.
Can a fiduciary for an acquired entity aid and abet breaches of duty by a
fiduciary for the buyer? Brief reflection reveals that, in the infinite garden of
theoretical inequity, such a flower may bloom. But what if the breach of duty relates
only to the buyer paying the seller too much? In such a case, the cogitation quotient
must increase, in light of the fact that the seller’s fiduciaries have a duty to their own
stockholders to maximize price.2 At Oral Argument, Lead Plaintiff’s counsel offered
this memorable hypothetical (moderately enhanced here to make the implicit,
explicit):
1
In re Oracle Corp. Derivative Litig., 2018 WL 1381331 (Del. Ch. Mar. 19, 2018).
2
See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986).
1
Posit two technology companies, both founded by the same rapacious genius
(“RG”). Co. A is a giant; Co. B is smaller, and does not initially compete in Co. A’s
space. As Co. A grows, however, it begins to compete with Co. B; insiders at both
companies (but not the trading public) are aware that ultimately Co. A will
outcompete and destroy Co. B.
RG is a large blockholder of Co. B. Along with his minion, the CEO of Co.
A (“Minion”), he develops a scheme to transfer Co. A’s wealth to himself through
the overpriced acquisition of Co. B. Minion meets with one of two pliable
fiduciaries of Co. B. She informally suggests a purchase of Co. B at $100/share,
which both Minion and the pliable fiduciary know to be a gross overvaluation. The
pliable fiduciary responds with an even grosser proposal of $125. Thus, a price
collar is set.
Thereafter, a secret dinner is held, attended by RG and the other pliable Co.
B fiduciary. The following facts and aspects of the scheme are made explicit at the
dinner:
Co. B will be destroyed by competition with Co. A, although this fact is not
yet reflected in Co. B’s trading price.
It is in Co. A’s business interest to simply proceed without acquiring Co. B.
The inevitable destruction of Co. B means that Co. B’s pliable fiduciaries will
lose their jobs, and their stock in Co. B will decline in value.
2
It is in RG’s financial interest as a blockholder of Co. B. that Co. A buy Co.
B at an excessive price, within the price collar. He shares that interest with the other
stockholders of Co. B—including the pliable fiduciaries. In addition, the pliable
fiduciaries have an interest not shared with the other Co. B stockholders; RG and
Minion promise them perpetual employment via Co. A, if Co. B is acquired by Co.
A. Additionally, it is implied that Minion will be rewarded by RG upon Co. A’s
acquisition of Co. B.
Thus, in the overpriced purchase of Co. B by Co. A, everyone wins except
Co. A and its stockholders, who will be impoverished.
RG and Minion convey to the pliable Co. B fiduciaries that Minion can make
the deal happen. She will use her influence over Co. A’s board to set up a sham
special committee of loyal but gullible directors of Co. A, then use her powers of
persuasion and obfuscation to steer the special committee to a purchase within the
price collar. She will also ensure that the scheme is concealed from the stockholders
and loyal fiduciaries of Co. A.
However, RG and Minion inform the pliable fiduciaries of Co. B that they
have an important role to play in the scheme as well, requiring the pliable fiduciaries
to commit a corrupt act. The pliable fiduciaries must ensure that the scheme,
including the perpetual employment agreement and price collar, is not disclosed to
the Co. B stockholders who will be asked to approve the sale. This concealment will
3
require that the pliable fiduciaries ensure that Co. B issue misleading disclosures to
its stockholders. This will be in breach of the duty of candor owed by the pliable
fiduciaries to their stockholders, but no damages will result; Co. B stockholders are
in fact incidental beneficiaries of the scheme. The deception is necessary to the
scheme, however, for the following reason: if the scheme becomes public, it will
likely become known by the special committee of loyal but gullible directors of Co.
A. The scales will fall from these committee members’ eyes; gullible no more, they
will realize that Co. A is being fleeced, and nix the deal.
The scheme is agreed to; Minion does her part; the pliable fiduciaries of Co.
B actively conceal the scheme from the public by omitting the pertinent details from
Co. B’s securities filings, and the merger is consummated to the detriment of Co. A
and its stockholders.
A complaint based on this hypothetical against the pliable fiduciaries, alleging
aiding and abetting of RG’s and Minion’s breaches of duty, composed of well-pled
allegations sufficient to permit me to plausibly infer all the forgoing facts, would
withstand a motion to dismiss.
As Plaintiffs’ counsel conceded, however, his hypothetical does not reflect the
real-world Third Amended Complaint (“TAC”), the operative pleading here. The
TAC is but a faint shadow of the robust hypothetical. In the TAC, the part of the
rapacious genius is filled by Defendant Lawrence J. Ellison; the Minion by
4
Defendant Safra A. Catz; the pliable fiduciaries by Defendants Evan Goldberg and
Zachary Nelson of NetSuite; with Oracle as Co. A and NetSuite as Co. B. The TAC
alleges only that the price collar discussion between Katz and Nelson took place,
and that Ellison discussed with Goldberg that NetSuite would remain as an
independent entity post-acquisition, presumably implying continued employment
for Goldberg and Nelson. The TAC also reveals that NetSuite disclosed the
foregoing information to its stockholders. The TAC alleges that these disclosures in
NetSuite’s Schedule 14D-9 were inadequate in two respects: the full context (i.e.
date and substance) of the discussion of the preservation of NetSuite, post-
acquisition, was omitted; and the supplemental nature of the disclosure of the price
collar discussion made that disclosure inadequate.
Even if I could reasonably infer that these alleged disclosure deficiencies were
the result of a scheme akin to the one described in the hypothetical—that is, even if
I found the rather florid hypothesization above was reasonably implied by the facts
pled—it is not reasonably conceivable that the disclosure deficiencies just described
represent substantial assistance to Ellison’s and Catz’s alleged breach of fiduciary
duty. That is, it is not the case that the intention of Oracle to keep NetSuite as an
independent subsidiary was concealed in NetSuite’s public filings. It is not the case
that the “price collar” discussion was concealed—it was initially omitted but
disclosed in filings and by a supplemental proxy. In other words, it is the form of
5
those disclosures that is relied on by the Lead Plaintiff to constitute substantial
assistance by Nelson and Goldberg to the Ellison and Katz scheme. The Plaintiffs
theory appears to be that if the date of the first discussion of the preservation of post-
acquisition NetSuite had only been disclosed, or if the disclosure of the price collar
had only been packaged differently, Oracle’s special committee would have been
alerted to the fact that the acquisition was not in Oracle’s interest, and withdrawn
from the acquisition. I find that inference unreasonable. In fact, it is unreasonable
to conclude that the NetSuite disclosure deficiencies alleged, compared to “perfect”
disclosures, assisted Ellison and Katz’ scheme, at all. Since not only knowledge and
scienter, but also substantial assistance, are elements of the aiding and abetting tort,
the Motions to Dismiss must be granted, and I need not examine whether the Lead
Plaintiff has successfully alleged the other elements of the claim. A more detailed
look at the facts, and my reasoning, is below.
I. BACKGROUND3
A. The Parties and Relevant Non-Parties
Nominal Defendant Oracle is a Delaware corporation headquartered in
Redwood City, California.4 Oracle is a technology company that offers an integrated
3
The facts, except where otherwise noted, are drawn from the Lead Plaintiff’s Verified Third
Amended Derivative Complaint, D.I. 315 (the “Third Amended Complaint” or “TAC”), and are
presumed true for the purposes of evaluating the Defendants’ Motions to Dismiss.
4
TAC, ¶ 21.
6
array of applications, servers, storage, and cloud technologies.5 Oracle has over
135,000 full-time employees, over 420,000 customers across 175 countries, and its
market capitalization exceeds $200 billion.6
Non-party NetSuite was founded in 1998 and provided cloud-based financial
management and enterprise resource planning (“ERP”) software suites for medium
sized businesses.7 On November 5, 2016, NetSuite was acquired by Oracle for $109
per share (the “Acquisition”).8
Defendant Lawrence J. Ellison founded Oracle in 1977 and served as Oracle’s
Chief Executive Officer until September 2014, at which time he became Chairman
of the Board and Chief Technology Officer.9 Ellison also co-founded NetSuite in
1998.10 Ellison and his affiliates beneficially owned an aggregate of approximately
44.8% of NetSuite’s common stock prior to the Acquisition.11
Defendant Safra A. Catz has been Oracle’s Chief Executive Officer since
September 2014 and has held other various positions with Oracle since 1999.12
5
Id.
6
Id.
7
Id. ¶¶ 52, 59.
8
Id. ¶¶ 157, 181.
9
Id. ¶ 23.
10
Id. ¶ 52.
11
Id. ¶ 23.
12
Id. ¶ 24.
7
Defendant Evan Goldberg co-founded NetSuite with Ellison in 1998 after
working at Oracle for eight years.13 Goldberg was Chief Technology Officer and
Chairman of the Board of NetSuite.14 Upon consummation of the Acquisition
Goldberg was named Executive Vice President, Oracle NetSuite Global Business
Unit, with responsibility for product strategy and development.15
Defendant Zachary Nelson was the Chief Executive Officer of NetSuite.16
Before joining NetSuite, Nelson worked at Oracle, where he was Oracle’s longest-
serving Vice President for Marketing.17
Defendant Paula R. Hurd as Trustee of the Hurd Family Trust is the legal
successor to Mark V. Hurd, who was Oracle’s Chief Executive Officer from
September 2014 until his death in October 2019.18 Hurd was Oracle’s President
from September 2010 to September 2014.19
Defendant Jeffrey O. Henley has been Oracle’s Executive Vice Chairman of
the Board since September 2014.20 Henley was Oracle’s Chairman of the Board
13
Id. ¶ 28.
14
Id.
15
Id.
16
Id. ¶ 29.
17
Id.
18
Id. ¶ 25.
19
Id.
20
Id. ¶ 26.
8
from January 2004 to September 2014 and Oracle’s Executive Vice President and
Chief Financial Officer from March 1991 to July 2004.21
Defendant Renée J. James is a director of Oracle, a position she has held since
December 2015.22 James was the chair of the special committee of Oracle’s Board
empowered with respect to the Acquisition.23
Lead Plaintiff Firemen’s Retirement System of St. Louis (the “Lead Plaintiff”)
was a stockholder of Oracle at the time of the conduct described in the TAC and has
continuously held Oracle stock since that time.24
B. Increasing Competition Between Oracle and NetSuite; NetSuite Identified
as an Acquisition Target
NetSuite was founded in 1998 by Ellison and Goldberg to provide companies
with business management software over the internet.25 Ellison, through an
affiliated entity, provided the financial backing to start NetSuite and the TAC alleges
that Ellison was NetSuite’s controlling stockholder.26 Ellison long viewed NetSuite
as his company and long planned for Oracle to acquire it—when Ellison’s
biographer asked Ellison what would happen if Microsoft made an offer for
NetSuite, Ellison responded: “I’d tell them to get [expletive]. I suppose [Goldberg]
21
Id.
22
Id. ¶ 27
23
Id. ¶ 110.
24
Id. ¶ 20.
25
Id. ¶ 52.
26
Id.
9
might take a swing at me, but I own 55 percent of the company, and there’s no way
in hell Microsoft’s going to get it.”27 NetSuite was publicly offered in December
2007 at a valuation of approximately $1.5 billion (the “IPO”), with Ellison and his
affiliates owning approximately 65% of NetSuite’s common stock.28
After NetSuite’s IPO, NetSuite experienced rapid growth, expanding annual
revenues from $108 million in 2007 to $741 million in 2015.29 Important to
NetSuite’s growth was that it provided cloud-based financial management and ERP
software suites for medium-sized businesses without meaningful competition from
large ERP software providers.30 But by 2015, the large ERP software providers—
including Oracle—began to aggressively target the small and mid-sized businesses
that were NetSuite’s core customers.31
Oracle was particularly focused on outcompeting NetSuite, and Henley
wanted to ensure Oracle was communicating the message that Oracle believed that
the mid-market would be Oracle’s biggest market-share gain in future years.32
Simultaneously, Ellison and Catz began exploring buying NetSuite, and Ellison
wanted to receive premium value for his controlling stake in NetSuite before the
market realized the negative impact to NetSuite from pressure from the larger ERP
27
Id. ¶ 53.
28
Id. ¶ 54.
29
Id.
30
Id. ¶ 59.
31
Id.
32
Id. ¶¶ 60–61.
10
providers.33 On February 20, 2015, Ellison wrote Catz: “We need to discuss
NetSuite” and later that day, Ellison, Goldberg, and Nelson held a conference call.34
By February 25, 2015, a presentation book was prepared for Ellison, Catz, and Hurd
about a potential acquisition of NetSuite by Oracle, with a baseline assumption that
Oracle would pay $120 per share of NetSuite, an 18.9% premium from NetSuite’s
then-price of $100.91 per share.35
Internal Oracle presentations from around this time period reflected the
increasing competition between Oracle and NetSuite. For instance, a presentation
to the Board’s Committee on Independence Issues (the “Independence
Committee”)—which was charged with approving software subscription and
licensing support agreements between Oracle and NetSuite because they were
“Related Party Transactions”—noted that Oracle and NetSuite competed for $23.6
million of opportunities in fiscal year 2014 and $39.1 million of opportunities in
2015 compared to $16.7 million of opportunities cumulatively from fiscal years
2007 to 2013.36 The same presentation noted that Ellison’s “potential conflicts of
interest . . . could prevent potential acquirers such as SAP or Microsoft from making
a bid for NetSuite even if it is in the best interest of [NetSuite] shareholders.”37 A
33
Id. ¶ 60.
34
Id. ¶ 62.
35
Id.
36
Id. ¶ 64.
37
Id.
11
2015 Oracle internal management presentation provided advice on how to compete
with NetSuite in winning new customers and identified 11 reasons why Oracle wins
in head-to-head competition and 8 reasons why NetSuite wins.38
NetSuite likewise recognized the increasing competition between itself and
Oracle. A December 2015 NetSuite senior management presentation identified
Oracle as a competitor—shortly after that presentation Nelson emailed Ellison
stating: “You know we are 24X as large as you in Cloud ERP ;)” Ellison responded
that Oracle had “about 2,000 cloud ERP customers.”39 Nelson responded to Ellison
that NetSuite had “about 13000 (live) individual ERP companies.”40 NetSuite’s
stock price fell from $107.31 per share on January 2, 2015 to $53.11 per share on
February 12, 2016.41
Industry analysts commented on competition between Oracle and NetSuite.
In June 2016, Cowen and Company opined that Oracle was the “biggest near-term
competitive threat” to NetSuite in part because Oracle had “move[d] down into the
mid-market where it historically did not compete.”42 Stifel Nicholaus & Company
noted in July 2016 that “checks continue to suggest Oracle is having increasing
38
Id. ¶ 66.
39
Id. ¶ 69.
40
Id.
41
Id. ¶ 70.
42
Id. ¶ 71.
12
success in cloud ERP in the mid-market and Microsoft is making a more aggressive
push[.]”43
Against this backdrop, Ellison decided that Oracle should acquire NetSuite.44
At a two-day in-person Board meeting on January 14–15, 2016 attended by all then-
directors of Oracle, Catz led a strategy discussed with the Board, during which the
Board was given a verbal overview of a potential acquisition of NetSuite, which had
been code-named “Napa.”45 Ellison sat in on the management proposal and the
subsequent Board discussion even though Oracle’s Independence Committee had
responsibility to review and approve related party transactions, such as a potential
acquisition of NetSuite.46 The proposal focused solely on the possibility of acquiring
NetSuite, with no discussion of alternatives—additionally, management did not
provide the Board with written materials regarding the potential NetSuite
acquisition.47 After the discussion, Oracle’s Board “directed management to
continue to assess the feasibility of pursuing Project Napa” and directed Catz and
Hurd “to understand if NetSuite would be willing to receive an indication of interest
but to not engage in any price discussions or otherwise engage with NetSuite’s
management.”48
43
Id. ¶ 72.
44
Id. ¶ 76.
45
Id.
46
Id. ¶ 77.
47
Id.
48
Id. (internal quotation marks omitted).
13
C. Communications Between Oracle and NetSuite Fiduciaries
On January 15, 2016, Catz asked Nelson (then NetSuite’s CEO) if he was
available for dinner; the two dined on January 19, 2016 and spoke again shortly
after.49 Twice thereafter Nelson summarized his discussions with Catz. Notes from
a January 25, 2016 NetSuite Board meeting state: “Z at $120. S more at $100.”50
Months later, Nelson told the story of his conversation with Catz to investment
professionals at T. Rowe Price, a large blockholder of NetSuite stock. A T. Rowe
Price representative memorialized Nelson’s telling: “Safra’s $100 bid (off the cuff
according to N). Zack’s $125 bid (off the cuff according to N),” and “a loose, pre-
due-diligence exploratory conversation where a price range of $100–125 was
discussed.”51 Deposition testimony regarding the conversation states: “[Nelson]
didn’t specifically say, Safra said this. It was more like, Safra, you know, mentioned
100; I went back with 125[,]” and “[Nelson said Catz] almost made the statement
‘It’s time,’ you know, as, like, it was an inevitability that now you have to come, so
to speak.”52
Six days after Catz and Nelson’s conversation, Goldberg (then NetSuite’s
Chief Technology Officer and Chairman of the Board) arranged a principal-to-
49
Id. ¶ 79.
50
Id. ¶ 81. Nelson’s first name is Zachary and Catz’s first name is Safra.
51
Id. ¶ 82.
52
Id. ¶ 83.
14
principal conversation between himself and Ellison.53 Per the TAC, during that
conversation, Goldberg “secured an undisclosed understanding from Ellison about
how an acquisition would work.”54 Part of this understanding was that Ellison
promised not to harm NetSuite in the acquisition process and to keep the NetSuite
business intact post-closing.55 Goldberg recounts: “There was a commitment at [sic]
highest level of Oracle—Mark Hurd, Safra Catz and Larry Ellison—to maintain the
integrity of the Netsuite organization. We became what’s called a global business
unit.”56
By February 2 or 3, 2016, each of Ellison, Catz, Nelson, and Goldberg had
agreed in principle on a friendly cash acquisition of NetSuite by Oracle within a
price range of $100 to $125.57 On February 3, 2016, Goldberg proposed to Ellison
that Ellison have dinner with Goldberg and Goldberg’s wife upon the signing of the
Acquisition agreement, writing: “This is a huge life event for Cindy and me—
NetSuite is a huge part of both of our lives. At some point, probably after an
agreement is inked (assuming it is) we’d love to have dinner with you to talk about
it, just from a personal angle.”58
53
Id. ¶ 92.
54
Id.
55
Id.
56
Id.
57
Id. ¶ 95.
58
Id. ¶ 94.
15
D. The Special Committee is Constituted; Initial Negotiations
Oracle’s Board held a special meeting about NetSuite on March 18, 2016;
Ellison, Henley, and Hurd absented themselves from the Board meeting.59 At the
meeting, Catz reported back to the Board on her discussion with Nelson; the Board
minutes read:
Ms. Catz stated that following the January board meeting, as directed
by the Board, she had reached out to a senior representative of NetSuite
to gauge whether NetSuite would be willing to consider a potential offer
from the Corporation. Ms. Catz stated that the NetSuite representative
had indicated that the NetSuite board would be willing to consider an
offer from the Corporation. Ms. Catz informed the Board that no other
terms or details relating to any potential transaction with NetSuite were
discussed.60
Notably, the Board minutes do not reflect that Catz and Nelson discussed a price
collar of $100 to $125.
Oracle’s Board appointed directors James, Leon Panetta, and George
Conrades as members of a special committee empowered with respect to the
Acquisition (the “Special Committee”).61 None of the three Special Committee
members were members of the Independence Committee.62 Oracle’s Board
resolutions delegated the full and exclusive power of the Board and the
Independence Committee to the Special Committee with regard to the potential
59
Id. ¶ 103.
60
Id. ¶ 104.
61
Id. ¶ 105.
62
Id.
16
NetSuite acquisition, including the express power to make the required
determinations under the Independence Committee charter and Oracle’s conflict of
interest policy.63 The Special Committee was also given responsibility for directing
senior management’s involvement in assessing a potential transaction.64 The only
identified power of the Special Committee with respect to potential alternatives—
that is, other than the NetSuite acquisition—was to “evaluate” them.65
The Special Committee held its first meeting on April 8, 2016—
management’s presentation materials for that meeting stated that Oracle and
NetSuite each bring “complementary strengths in the business applications industry”
with no mention of head-to-head competition between the two companies.66
Defendant James was appointed as chair of the Special Committee. 67 Additionally,
the Special Committee retained Moelis & Company LLC (“Moelis”) as its financial
advisor.68
The TAC alleges that James “operated in complete sync with Catz and
allowed Catz to lead the acquisition of NetSuite.”69 Catz presented at 10 of the 13
63
Id. ¶ 106.
64
Id.
65
Id.
66
Id. ¶ 109.
67
Id. ¶ 110.
68
Id. ¶ 114.
69
Id. ¶ 113.
17
Special Committee meetings, and the TAC alleges that the Special Committee
followed each recommendation made by Catz and Oracle’s management team.70
On May 20, 2016, the Special Committee met to decide whether to pursue an
acquisition of NetSuite.71 The Special Committee heard presentations from Oracle’s
management and Moelis—both presentations concluded that NetSuite was
preferable to other acquisition targets.72 Management’s presentation advocated that
NetSuite was the “best strategic fit,” and the Special Committee determined that it
would focus on an acquisition of NetSuite.73 On May 26, 2016, Ellison was
instructed not to communicate with Catz or other Oracle personnel about the
acquisition.74
On May 27, 2016, the Special Committee met once again to consider the
potential NetSuite acquisition.75 Moelis presented its preliminary financial analysis
of NetSuite, which included a Selected Public SaaS Companies analysis, a Selected
Precedent Transactions analysis, and a discounted cash flow (“DCF”) analysis.76
Catz and Douglas Kehring, Oracle’s Chief of Staff, also presented to the Special
70
Id.
71
Id. ¶ 115.
72
Id. ¶ 116.
73
Id. ¶ 119.
74
Id. ¶ 113.
75
Id. ¶ 121.
76
Id. ¶ 122.
18
Committee at the meeting, and their presentation included two DCF calculations.77
The Special Committee decided to offer $100 per share to buy NetSuite.78
NetSuite responded to Oracle’s offer with a counter-offer of $125 per share.79
Following NetSuite’s counter-offer, the Special Committee met on June 8, 2016 with
Moelis, and members of Oracle management (including Catz) present.80
Management advised the Special Committee to offer $106 per share, and the Special
Committee asked Moelis to convey an offer of $106 per share to NetSuite.81
NetSuite responded by offering $120 per share.82 On June 14, 2016, the Special
Committee met again, at which time management advised the Special Committee
not to immediately respond to the counter-offer, and the Special Committee
complied.83
E. Oracle and NetSuite Agree to the Acquisition at $109 per Share
NetSuite’s stock price closed at $67.36 per share on June 27, 2016,
representing an approximately 15% decline over the course of two trading days. 84
On June 28, 2016, James, Moelis, and Oracle management considered suspending
further work on the Acquisition and retracting Oracle’s latest offer of $106 per
77
Id. ¶ 129.
78
Id. ¶ 121.
79
Id. ¶ 131.
80
Id. ¶ 132.
81
Id.
82
Id. ¶ 133.
83
Id.
84
Id. ¶ 134.
19
share.85 The same day, NetSuite’s financial advisor contacted Moelis indicating that
“recent market volatility as a result of the vote on Brexit may have created a window
of opportunity to come to an agreement on price.”86 Ultimately, Catz recommended
that on June 30, 2016 the parties schedule a due diligence session to review
NetSuite’s financial results for the just-completed quarter—the Special Committee
followed Catz’s recommendation.87 On July 6, 2016, Oracle management, James,
and Moelis had a due diligence call with NetSuite regarding NetSuite’s quarterly
financial results, but NetSuite did not share certain key financial metrics.88
At a July 8, 2016 Special Committee meeting, Catz recommended that the
Special Committee request additional meetings between Oracle management and
NetSuite, and the Special Committee did so.89 Between July 8 and July 12, 2016,
Oracle management, led by Catz, held multiple meetings and calls with NetSuite.90
Oracle’s due diligence reflected that NetSuite’s “quarter [was] soft” and that there
was “some legitimate concerns about the quarter.”91 On July 12, 2016, the Special
Committee convened again and heard a new presentation from Oracle management
reflecting the results of additional due diligence, which included new DCF ranges
85
Id. ¶ 135.
86
Id. ¶ 136.
87
Id.
88
Id. ¶ 137.
89
Id. ¶ 138.
90
Id.
91
Id. ¶ 139.
20
with significant reductions in value compared to the May 27, 2016 presentation.92
The Special Committee decided to reaffirm Oracle’s previous offer of $106 per
share.93 Shortly after this meeting, Catz instructed Oracle’s management team to
“revert to the original,” and Oracle management thereafter labeled the newly created
projections the “Conservative” case, the prior projections were deemed the “Base”
case, and management also created an “Upside” case.94
NetSuite made a counter-offer of $111 per share, and the Special Committee
met on July 13, 2016 to consider the counter-offer.95 At the meeting Oracle
management presented the “Conservative,” “Base,” and “Upside” valuations.96 The
valuation ranges presented the previous day—$93.78 to $120.83 per share labeled
“DCF (Terminal Value Multiple)” and $53.94 to $115.59 per share labeled “DCF
(Perpetuity Growth Rate)”—were again presented, but at this meeting those ranges
were labeled “Conservative.”97 The “Base” and “Upside” valuations were also
presented, and the DCF Terminal Value range was entirely above $110 per share for
“Base” and entirely above $120 per share for “Upside.”98 Catz offered her views to
the Special Committee on potential next steps.99 Thereafter, the Special Committee
92
Id. ¶¶ 140, 142.
93
Id. ¶ 141.
94
Id. ¶ 142.
95
Id. ¶ 143.
96
Id.
97
Id.
98
Id.
99
Id.
21
resolved to make a “best and final” proposal at $109 per share.100 On July 14, 2016,
Goldberg emailed Ellison: “I guess this means… We can start arguing politics again
soon!”101
Throughout the June and July 2016 negotiations Ellison was permitted to
negotiate directly with NetSuite regarding how Ellison would vote his NetSuite
shares should NetSuite receive an offer superior to Oracle’s.102 The Special
Committee “opened this direct line of communication” but “did not indicate that any
topic was off-limits” and was not informed of back-and-forth negotiations or
whether Ellison negotiated any issues directly with NetSuite other than the voting of
Ellison’s shares.103 Ellison ultimately agreed to vote his NetSuite shares
proportionately with NetSuite’s other stockholders in such a scenario.104
NetSuite agreed to Oracle’s offer of $109 per share.105 On July 27, 2016, the
Special Committee met, with Catz and other Oracle management in attendance, to
approve a tender offer for NetSuite at the agreed price.106 Moelis presented a fairness
analysis at the meeting and the TAC alleges that “Moelis’ own analyses
demonstrated that Oracle’s proposed offer of $109 per share significantly overvalued
100
Id. ¶ 144.
101
Id. ¶ 145. I note that the ellipsis is in the TAC and as used here does not denote the omission
of text.
102
Id. ¶ 146.
103
Id. ¶ 147.
104
Id.
105
Id. ¶ 148.
106
Id.
22
NetSuite.”107 The TAC also alleges that Oracle’s management “manipulated” parts
of Moelis’s analysis, inflating NetSuite’s value.108 Moelis indicated that it was
prepared to provide a fairness opinion at $109 per share.109 At the meeting, the
Special Committee adopted resolutions to effectuate the Acquisition.110 On July 28,
2016, Oracle announced that it would acquire NetSuite for $109 per share.111
F. The Tender Offer and Disclosures
On August 18, 2016, Oracle filed its Schedule TO and Offer to Purchase (the
“Schedule TO and Offer to Purchase.”)112 On the same day, NetSuite filed its
Schedule 14D-9 (the “Schedule 14D-9”), which was signed by Nelson.113 Both
filings were filed with the Securities and Exchange Commission (the “SEC”). The
Schedule 14D-9 stated that the offer price of $109 per share “represents a 62%
premium to the trading price at which the Shares closed on June 27, 2016, the last
trading day before public speculation and market rumors that NetSuite was
potentially the subject of an acquisition transaction involving Oracle[.]”114
The Schedule 14D-9 and the Schedule TO and Offer to Purchase identically
disclosed the following regarding Catz and Nelson’s discussions in January 2016:
107
Id. ¶ 156.
108
Id. ¶ 153.
109
Id. ¶ 156.
110
Id. ¶ 157.
111
Id.
112
Id. ¶ 166.
113
Id.
114
Id. ¶ 167.
23
On January 21, 2016, a senior representative of Oracle indicated to a
senior representative of NetSuite that Oracle would be potentially
interested in acquiring NetSuite. The senior representative of NetSuite
responded that he would need to discuss with the NetSuite Board its
willingness to consider an offer to acquire NetSuite.115
There was no mention of the price collar of $100 to $125 disclosed in the Schedule
14D-9 or the Schedule TO and Offer to Purchase.116
On August 30, 2016, Nelson and NetSuite lead director Steve Gomo met with
T. Rowe Price, the largest public stockholder of NetSuite.117 Nelson was instructed
to provide T. Rowe Price only with information that was publicly available and
previously disclosed.118 At the meeting, Nelson described his January 21, 2016
conversation with Catz.119 On September 6, 2016, numerous portfolio managers
from T. Rowe Price co-signed a letter to the board of directors of NetSuite
summarizing Nelson’s description of the conversation as follows: “In our recent
meeting, Mr. Nelson described the initial contact with Oracle as a loose, pre-due-
diligence exploratory conversation where a price range of $100–125 was
discussed.”120 The letter expressed concern that this price discussion “may have
anchored the subsequent discussions.”121
115
Id. ¶ 168.
116
Id. ¶¶ 168–69.
117
Id. ¶ 171.
118
Id. ¶ 172.
119
Id. ¶ 173.
120
Id. ¶ 174.
121
Id.
24
On September 7, 2016, NetSuite publicly filed the T. Rowe Price letter and
indicated that NetSuite’s Board had met to discuss the letter.122 The public filing
“did not comment on the accuracy of T. Rowe Price’s summary of Nelson’s
description of his initial conversation with Catz.”123 Additionally, the TAC alleges
that NetSuite did not amend the Schedule 14D-9 regarding the details of the
conversation with Catz referenced in T. Rowe Price’s letter.124 However, on
September 7, 2016, NetSuite amended the Schedule 14D-9 by attaching the T. Rowe
Price letter as an exhibit and referencing the public filing of the letter.125
On October 27, 2016, T. Rowe Price sent a letter to the Special Committee
that referenced the views expressed in its letter to NetSuite’s Board from September
6, 2016.126 Oracle did not amend its Schedule TO and Offer to Purchase to add any
details about the Nelson-Catz conversation.127
Additionally, NetSuite’s Schedule 14D-9 disclosed the following of the
conversation between Goldberg and Ellison regarding the future of NetSuite post-
Acquisition as follows: “Mr. Ellison indicated his understanding that Oracle would
be potentially interested in acquiring NetSuite. He also indicated that he would not
122
Id. ¶ 175.
123
Id.
124
Id.
125
NetSuite Defs.’ Reply Br. in Support of Their Mot. to Dismiss Count Two of the Verified Third
Am. Derivative Compl., D.I. 332, Ex. J, Amendment No. 1 to the Schedule 14D-9.
126
TAC, ¶ 176.
127
Id.
25
seek to influence NetSuite’s decision with respect to an acquisition.”128 The
Schedule 14D-9 did not disclose Ellison’s commitment that the NetSuite
organization would not be harmed in the Acquisition process and that NetSuite
would become an intact, freestanding business unit within Oracle.129
The Acquisition closed on November 5, 2016.130 On November 4, 2016 James
emailed the Special Committee and senior executives at Oracle: “This was the #1
thing we said we needed to do for our strategy at last year’s offsite and you are now
on your way!”131
G. Procedural History
The Lead Plaintiff filed the original complaint in this Action on July 18, 2017,
and filed the TAC on February 18, 2020.132 The TAC pleads two counts. Count
One alleges breach of fiduciary duty by Oracle fiduciaries Ellison, Catz, Hurd,
Henley, and James (the “Oracle Fiduciaries”) in connection with the Acquisition.133
Count Two alleges that Goldberg and Nelson (the “NetSuite Defendants”) aided and
abetted the Oracle Fiduciaries’ breach of fiduciary duty.134 The NetSuite Defendants
128
Id. ¶ 13.
129
Id.
130
Id. ¶ 181.
131
Id. ¶ 182.
132
Two months before the Lead Plaintiff’s original complaint was filed, another Oracle
stockholder had filed a separate Complaint in this Court challenging the same transaction and, on
September 7, 2017, I designated the Lead Plaintiff’s original complaint as the operative pleading.
See In re Oracle Corp. Derivative Litig., 2019 WL 6522297, at *4 n.91 (Del. Ch. Dec. 4, 2019).
133
TAC, ¶¶ 201–05.
134
Id. ¶¶ 206–07.
26
have moved to dismiss Count Two of the TAC. I heard Oral Argument on the
NetSuite Defendants’ Motions on March 11, 2020, and considered the matter
submitted for decision on that date.
II. ANALYSIS
The NetSuite Defendants have moved to dismiss Count Two of the TAC
pursuant to Chancery Court Rule 12(b)(6).135 The standard of review for a Rule
12(b)(6) motion is well settled:
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the nonmoving party; and (iv) dismissal is inappropriate
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible of proof.136
When reviewing a motion to dismiss, the Court may take into consideration
documents incorporated into the pleadings by reference and judicially noticeable
facts available in public SEC filings.137
A. The Lead Plaintiff’s Allegations
The Lead Plaintiff has alleged that the NetSuite Defendants aided and abetted
the Oracle Fiduciaries’ alleged breaches of fiduciary duty. The elements of aiding
and abetting a breach of fiduciary duty are: “(i) the existence of a fiduciary
135
Ch. Ct. R. 12(b)(6).
136
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (footnotes and internal quotation
marks omitted).
137
Reith v. Lichtenstein, 2019 WL 2714065, at *1 (Del. Ch. June 28, 2019).
27
relationship, (ii) a breach of the fiduciary’s duty, (iii) knowing participation in that
breach by the defendants, and (iv) damages proximately caused by the breach.”138
The Lead Plaintiff’s aiding and abetting claims center on Goldberg’s and
Nelson’s alleged aiding and abetting of Ellison’s and Catz’s breaches of fiduciary
duty. The Lead Plaintiffs “theory of liability” is that “Goldberg and Nelson knew
the substance and materiality of their respective early discussions with Ellison and
Catz—(i.e. a high bargaining range of $100 to $125 per share and social terms that
benefitted Goldberg)—but nonetheless caused NetSuite not to record or publicly
discuss the substance of those early discussions.”139 Thus, the Lead Plaintiff’s
theory is that in not causing NetSuite to disclose certain details of the early
conversations, Goldberg and Nelson were participating in a “conspiracy of silence”
that prevented Oracle’s Special Committee and other directors from learning the
substance of such conversations.140
The Lead Plaintiff alleges that had these Oracle parties learned the truth, it is
“an open question whether Oracle would have gone forward with the tender offer if
the outside directors had obtained credible information that Catz had concealed her
138
RBC Capital Mkts., LLC v. Jervis, 129 A.3d 816, 861 (Del. 2015) (citing Malpiede v. Townson,
780 A.2d 1075, 1096 (Del. 2001)).
139
Pl.’s Answering Br. in Opp’n to NetSuite Defs.’ Opening Br. in Support of Their Mot. to
Dismiss Count Two of the Third Am. Derivative Compl., D.I. 328 (Pls.’ Answ. Br.”), at 21.
140
See Oral Arg. Tr., at 28:5–28:10 (“Okay. But just to be clear, the theory is the Oracle side
would have the ability to walk if it was fully disclosed later. And by the NetSuite people not
disclosing it, they took away from the Oracle side the ability to walk . . . .”).
28
secret price discussions from the Board.”141 The Lead Plaintiff further argues that
“[c]orrective disclosures of material facts about the early discussions may have
prompted more scrutiny of the transaction and impacted investors’ trading strategies
and tendering decisions, as well as investigative action and potential drastic steps by
Oracle’s Board to remedy the fraud perpetrated on them by Ellison and Catz.”142
Had NetSuite’s disclosures told the whole story, per the Lead Plaintiff, it would have
set in motion a cascade of events that would have stymied Ellison and Catz’s scheme
for Oracle to acquire NetSuite at an inflated price.
B. Knowing Participation as an Element of Aiding and Abetting
For the aiding and abetting claims to survive this motion to dismiss stage, it
must be reasonably conceivable that the NetSuite Defendants knowingly
participated in the alleged breaches of fiduciary duty by the Oracle Fiduciaries.143
“Because the involvement of secondary actors in tortious conduct can take a variety
of forms that can differ vastly in their magnitude, effect, and consequential
culpability, the element of ‘knowing participation’ requires that the secondary actor
have provided ‘substantial assistance’ to the primary violator.”144 This requirement,
141
Pls.’ Answ. Br., at 25 (internal quotation marks omitted).
142
Id. at 26–27.
143
See RBC, 129 A.3d at 861; In re Xura, Inc. S’holder Litig., 2019 WL 3063599, at *3 (Del. Ch.
July 12, 2019)).
144
In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *41 (Del. Ch. Aug. 27, 2015)
(citing Kuhns v. Bruce A. Hiler Delaware QPRT, 2014 WL 1292860, at *21 (Del. Ch. Mar. 13,
2014)).
29
that an alleged aider-and-abettor must have provided “substantial assistance” for
liability to attach, emanates from Section 876(b) of the Restatement (Second) of
Torts (the “Restatement”).145 The Restatement’s comments to Section 876(b) state:
“If the encouragement or assistance is a substantial factor in causing the resulting
tort, the one giving it is himself a tortfeasor and is responsible for the consequences
of the other’s act.”146 Thus, the secondary actor must have provided “assistance . . .
or participation” in aid of the primary actor’s allegedly unlawful acts.147 Whether a
secondary actor knowingly provided substantial assistance is “necessarily fact
intensive.”148 In its inquiry, the court may consider, among other factors, “[t]he
nature of the tortious act that the secondary actor participated in or encouraged,
including its severity, the clarity of the violation, the extent of the consequences, and
the secondary actor’s knowledge of these aspects” and “[t]he amount, kind, and
duration of assistance given, including how directly involved the secondary actor
was in the primary actor’s conduct.”149 To withstand a motion to dismiss, a plaintiff
must plead facts making it reasonably conceivable that the defendant knowingly
145
Restatement (Second) of Torts § 876(b) (1979). Section 876(b) of the Restatement has been
cited with approval in this Court and in the Delaware Supreme Court. See Malpiede v. Townson,
780 A.2d 1075, 1097 n.78 (Del. 2001); Dole, 2015 WL 5052214, at *41–42; Xura, 2019 WL
3063599, at *3.
146
Restatement (Second) of Torts § 876 cmt. d (1979).
147
Id.
148
Dole, 2015 WL 5052214, at *42.
149
Id.
30
supported a breach of duty and that his resulting assistance to the primary actor
constituted substantial assistance in causing the breach.
C. The NetSuite Defendants Did Not Provide Substantial Assistance
The Lead Plaintiff alleges that the NetSuite Defendants caused NetSuite to
fail to disclose the substance of (i) the Nelson-Catz January 21, 2016 discussion (the
“Price Collar Discussion”) and (ii) the Goldberg-Ellison discussion regarding the
survival of NetSuite post-Acquisition (the “NetSuite Discussion”). The Lead
Plaintiff alleges that such disclosures would have put Oracle’s directors on alert to
the allegedly lopsided terms, and would have led Oracle to scuttle the deal. Because
such disclosure would have thwarted Ellison and Catz’s scheme, the Lead Plaintiff
alleges that the NetSuite Defendant’s silence constituted substantial assistance to the
Oracle Fiduciaries’ breach of duty.
Before turning to that analysis, it is important to note the duty that, according
to the Lead Plaintiff, the NetSuite Defendants have breached. Absent a fiduciary or
contractual relationship, “Delaware law generally does not impose a duty to
speak.”150 The TAC does not plead that such a relationship existed between the
NetSuite Defendants and the injured parties at Oracle. Thus, upon first glance, even
if the NetSuite Defendants believed that the Oracle Defendants intended to breach
150
MetCap Sec. LLC v. Pearl Senior Care, Inc., 2007 WL 1498989, at *5 (Del. Ch. May 16, 2007)
(citing Nicolet, Inc. v. Nutt, 525 A.2d 146, 150 (Del. 1987)).
31
fiduciary duties to Oracle, Delaware law recognizes no affirmative duty of the
NetSuite Defendants to so inform Oracle, its fiduciaries, or its stockholders.
Implicitly conceding that the NetSuite Defendants did not owe Oracle or its
stockholders an affirmative duty to speak, the Lead Plaintiff’s theory of liability is
not that the NetSuite Defendants breached such a duty. Instead, the NetSuite
Defendants’ liability to the Plaintiffs here requires that they undertook action to
provide substantial aid to Ellison and Catz to facilitate those Defendants’ breach of
their own duties to Oracle—the alleged substantial aid was silence. But, given the
general unwillingness of our law to impose a duty to speak, how could mere silence
be cognizable as substantial assistance in tortious aiding and abetting?
Confronting this question, the Lead Plaintiff must identify an obligation of the
NetSuite Defendants to speak. To this end, the Lead Plaintiff points out that the
NetSuite Defendants did owe fiduciary duties to make disclosures to NetSuite
stockholders in way of the Acquisition.151 The Lead Plaintiff posits that the NetSuite
Defendants breached those duties in aid of the secrecy necessary to Ellison and
Catz’s corrupt scheme. That is, the disclosures required of the NetSuite Defendants
to NetSuite’s stockholders would, if made, result in disclosure to the public, which
151
See Raul v. Astoria Fin. Corp., 2014 WL 2795312, at *8 (Del. Ch. June 20, 2014) (“Under
Delaware law, directors owe a fiduciary duty to fully and accurately disclose all material
information to stockholders when seeking stockholder action, which duty arises out of a director’s
duties of both loyalty and care.” (footnotes and quotation marks omitted)).
32
would in turn result in disclosure to Oracle’s Special Committee. Ellison and Catz’s
scheme required that the latter disclosure be prevented. Under this theory, the claims
of Oracle’s stockholders ride the coattails of the duties owed to the stockholders of
their acquisition target,152 without regard to whether the target stockholders were
themselves harmed by such breach.153 Thus, to succeed on its aiding and abetting
claims the Lead Plaintiff must show: (1) that the NetSuite Defendants intentionally
breached a duty owed to NetSuite and its stockholders and (2) in doing so
substantially assisted a breach of duty to Oracle.154 To survive the NetSuite
Defendants’ Motions to Dismiss, the facts averred by the Lead Plaintiff must make
the forgoing reasonably conceivable.
This requires not only a pleading that reasonably implies that the NetSuite
Defendants’ fiduciary duties to NetSuite and its stockholders required that they
cause NetSuite to disclose the Price Collar Discussion and the NetSuite Discussion,
but also that the NetSuite Defendants intentionally violated such duties in
furtherance of the Oracle Defendants’ breach of duty to Oracle. Again, the Lead
152
While the breach of duty to speak by the NetSuite Defendants alleged in the TAC is a breach
of a duty of disclosure to NetSuite, one could envision other duties—such as those under federal
securities laws—that an acquirer’s stockholders could seek to import to allege that a defendant is
liable for aiding and abetting due to a failure to speak.
153
In fact, the Lead Plaintiff’s theory is that NetSuite’s stockholders benefitted from the scheme.
154
The incongruity of the Lead Plaintiff’s theory crystallizes when one considers that the NetSuite
Defendants contemporaneously had a duty to “get the best price for the stockholders at a sale of
the company.” Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 242 (Del. 2009) (quoting Revlon, Inc.
v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 182 (Del. 1986)) (internal alterations
omitted).
33
Plaintiff’s theory is that the NetSuite Defendants intentionally breached a duty of
candor to NetSuite stockholders, because compliance with this duty would have also
informed the public, and ultimately Oracle’s Special Committee, imperiling the
overpayment scheme. But under the facts alleged, I find that I need not determine
whether the NetSuite Defendants breached a duty to NetSuite’s stockholders. That
is because even if the NetSuite Defendants did breach a duty to disclose, it is not
reasonably conceivable that by their silence they provided substantial assistance to
the Oracle Fiduciaries’ alleged breaches of fiduciary duty, in light of the actual
disclosures of record.
1. The Price Collar Discussion
The Lead Plaintiff’s primary contention involves concealment of the price
collar. The TAC alleges that the NetSuite Defendants provided substantial
assistance to Ellison and Catz by not causing NetSuite to disclose the substance of
the Price Collar Discussion. To this point, the discussion of a price range of $100–
$125 was not included in the original Schedule 14D-9.155 However, after the
Schedule 14D-9 was filed, Nelson did disclose the Price Collar Discussion to T.
Rowe Price, a large blockholder of NetSuite stock, leading T. Rowe Price to write a
letter to NetSuite’s Board expressing concerns about the Acquisition (the “T. Rowe
155
See Transmittal Aff. of E. Wade Houston, Esq., D.I. 290 (“Houston Aff.”), Ex. F, NetSuite
Schedule 14D-9 (“Schedule 14D-9”).
34
Price Letter”). T. Rowe Price’s concern was that the Price Collar Discussion was
unfair to NetSuite’s stockholders because it cabined NetSuite’s price at a level
unfairly low.156 NetSuite publicly filed the T. Rowe Price Letter with the SEC as an
attachment to a Form 8-K the day after the letter was written.157 The Form 8-K itself
stated that “[o]n September 6, 2016, the Transactions Committee of [NetSuite’s]
Board of Directors and [NetSuite’s] Board both met to discuss the letter.
[NetSuite’s] Board unanimously reaffirmed its recommendation that stockholders
accept Oracle’s offer and tender their shares.”158
Regarding the Nelson-Catz conversation, the T. Rowe Price Letter states:
In our recent meeting, Mr. Nelson described the initial contact with
Oracle as a loose, pre-due-diligence, exploratory conversation where a
price range of $100–$125 was discussed. We don’t think it’s a
coincidence that the final agreement ended up very close to the
midpoint of that range. We are concerned that this initial conversation
—which by your account came as a surprise to NetSuite —may have
anchored the subsequent discussions. This anchoring effect, in
combination with the disincentives for other bidders to come forward,
may have prevented full price discovery. We were disappointed to see
in the tender offer document that NetSuite did not undertake an
outbound market check with inquiries to other logical purchasers before
agreeing to Oracle’s offer.159
156
Houston Aff., Ex. G, NetSuite Form 8-K Filed September 6, 2016, Ex. 99.1 (“T. Rowe Price
Letter”), at 1–2.
157
Houston Aff., Ex. G, NetSuite Form 8-K Filed September 6, 2016.
158
Houston Aff., Ex. G, NetSuite Form 8-K Filed September 6, 2016, Item 8.01.
159
T. Rowe Price Letter, at 2.
35
When presented with this public disclosure of the supposedly clandestine Price
Collar Discussion, the Lead Plaintiffs’ response is that the 8-K is “not an affirmative
disclosure by NetSuite of what Catz and Nelson actually said” and that it was “not
part of the tender offer materials” and “did not bind NetSuite, much less induce
Oracle to make a parallel disclosure.”160 But in addition to the 8-K NetSuite did
make the T. Rowe Price Letter part of the tender offer materials by amending the
Schedule 14D-9 and attaching the T. Rowe Price Letter as an exhibit.161
Upon review of these NetSuite public filings, it is, to my mind, not reasonably
conceivable that the NetSuite Defendants could have provided substantial assistance
to Ellison and Catz by failing to disclose the Price Collar Discussion to NetSuite’s
stockholders, and thus to the public. This is because the disclosure of the T. Rowe
Price Letter by NetSuite contained the relevant substance of the Price Collar
Discussion, i.e. that Nelson and Catz had discussed a price range before Oracle’s
Special Committee was constituted, and after Oracle’s Board had specifically
instructed Catz “not engage in any price discussions” with NetSuite.162 I cannot
make the inference that the Form 8-K and amended Schedule 14D-9 disclosures
were insufficient to alert those on the Oracle side of the Price Collar Discussion, but
160
Pls.’ Answ. Br., at 25–26.
161
NetSuite Defs.’ Reply Br. in Support of Their Mot. to Dismiss Count Two of the Verified Third
Am. Derivative Compl., D.I. 332, Ex. J, Amendment No. 1 to the Schedule 14D-9.
162
TAC, ¶ 77.
36
also that disclosure by some other method would have been sufficient to bring the
matter to Oracle’s attention. Furthermore, even if the NetSuite Defendants had been
trying to keep the Price Collar Discussion secret, and, assuming it was unknown by
Oracle’s Special Committee and directors until NetSuite’s disclosures, it is not
reasonably conceivable that the NetSuite Defendants ultimately provided assistance
to or participation in Ellison’s and Catz’s alleged breaches of duty, because after
NetSuite’s disclosures the Price Collar Discussion was no longer a secret.
It is important to keep in mind that the liability of the NetSuite Defendants
here does not turn simply on whether they complied with fiduciary duties to NetSuite
and its stockholders in regard to the proxy disclosures. Even assuming that fact, the
NetSuite Defendants can be held in this Action only if it is also reasonably
conceivable that they substantially assisted the Oracle Fiduciaries breach of duty to
Oracle. The Lead Plaintiff’s counter to my finding above is that the disclosure of
the T. Rowe Price Letter was insufficient because it was not an affirmative disclosure
by NetSuite of what Nelson and Catz actually said. This is unavailing, because the
Lead Plaintiff’s theory does not hinge simply on a breach of duty to NetSuite. There
are, of course, certain circumstances—typically involving direct rather than
secondary liability for breach of fiduciary duties—where affirmative statements by
an acquisition target on the 14D-9 itself must be the focus of the court’s analysis.163
163
E.g. Morrison v. Berry, 191 A.3d 268 (Del. 2018).
37
But bearing in mind how the Lead Plaintiff has pled its case, whether the disclosures
complied with the NetSuite Defendants’ fiduciary duties to NetSuite is irrelevant if
the disclosures nonetheless were sufficient to alert those on the Oracle side of the
Price Collar Discussion. It is not reasonably conceivable that the disclosure of the
Price Collar Discussion by NetSuite in two separate SEC filings did not, at a
minimum, disclose to the public and to Oracle that Catz and Goldberg discussed a
price collar when Catz was not authorized to discuss price and before the Special
Committee was constituted. Moreover, it is not reasonably conceivable that such a
public disclosure failed to find the Oracle Special Committee, who had a duty to
gather information pertinent to whether Oracle was overpaying for NetSuite.
Thus, regardless of whether the NetSuite Defendants’ disclosures of the Price
Collar Discussion comported with their fiduciary duties to NetSuite, the NetSuite
Defendants’ actions cannot have provided substantial assistance to Ellison and
Catz’s breach of duty, because the alleged attempt that the NetSuite Defendants
made to keep the Price Collar Discussion secret from Oracle failed. It is not
reasonably conceivable that the difference between what was disclosed and what the
Lead Plaintiff alleges should have been disclosed constituted substantial assistance
to Ellison and Catz’s scheme to cause Oracle to overpay for NetSuite.
38
2. The NetSuite Discussion
The Lead Plaintiff also alleges that the NetSuite Defendants aided and abetted
Ellison’s and Catz’s alleged breaches of fiduciary duty by not causing NetSuite to
disclose the substance of the “NetSuite Discussion,” which concerned Ellison’s
commitment to Goldberg to keep NetSuite intact post-closing.164 Pursuant to the
NetSuite Discussion, Goldberg allegedly “secured an undisclosed understanding
from Ellison about how an acquisition would work” by February 3, 2016, before the
Special Committee was even constituted.165 The Lead Plaintiff alleges that after the
NetSuite Discussion, the general terms of the Acquisition were set, rendering the
negotiations between the respective special committees of Oracle and NetSuite a fait
accompli. But, per the Lead Plaintiff, revelation of the details of the NetSuite
Discussion to the Oracle Special Committee could have caused the Special
Committee to repudiate the sale. Therefore, concealment of the NetSuite Discussion
was necessary to Ellison and Catz’s scheme. The NetSuite Defendants allegedly
breached duties to NetSuite’s’ stockholders in order to conceal the NetSuite
Discussion from the public and, ultimately, the Oracle Special Committee.
NetSuite publicly disclosed the alleged substance of the NetSuite Discussion
on numerous occasions. In NetSuite’s July 28, 2016 press release announcing the
164
It is unclear whether Nelson is included in this allegation or it is against Goldberg alone, but
for purposes of this analysis, I assume the allegation is against both.
165
TAC, ¶¶ 92, 94, 105.
39
Acquisition, Mark Hurd is quoted as saying: “Oracle and NetSuite cloud applications
are complementary, and will coexist in the marketplace forever. . . . We intend to
invest heavily in both products — engineering and distribution.”166 In a publicly
filed letter to customers on July 29, 2016 signed by Goldberg and Nelson, NetSuite
states: “Oracle is committed to protecting and enhancing customer investments in
NetSuite solutions. After the close of the transaction, Oracle plans to accelerate the
pace of investment in NetSuite functionality and capabilities.”167 Thus, it was no
secret at the time the parties agreed to the Acquisition that Oracle intended for
NetSuite to function as an independent business unit. Goldberg and Nelson could
not have provided substantial assistance by failing to disclose the substance of the
NetSuite Discussion because such information was already public.
But the Lead Plaintiff’s also raises concerns about non-disclosure of the
timing of the NetSuite Discussion. The Lead Plaintiff argues that by not disclosing
that Goldberg and Ellison had such a discussion early on in the process, and before
any formal negotiations, the NetSuite Defendants enabled Ellison and Catz to
perpetrate a charade whereby it appeared to the public—and Oracle’s Special
Committee—that the Acquisition was being negotiated by special committees but
166
Houston Aff., Ex. A, NetSuite Press Release: Oracle Buys NetSuite, at 1. This press release
was an exhibit to a NetSuite SEC filing.
167
Houston Aff. Ex. D, NetSuite Letter to Customers, at 1.
40
that, in reality, the principals had already come to a basic understanding in advance.
NetSuite’s Schedule 14D-9 refutes such a narrative. The Schedule 14D-9 states:
[O]n January 27, 2016, in response to a desire expressed by Mr.
Goldberg to speak to Mr. Ellison to understand Oracle’s interest in a
possible acquisition, Messrs. Goldberg and Ellison spoke. Mr. Ellison
indicated his understanding that Oracle would be potentially interested
in acquiring NetSuite. He also indicated that he would not seek to
influence NetSuite’s decision with respect to an acquisition.168
Therefore, it was no secret to Oracle that Goldberg and Ellison had a conversation
regarding the Acquisition early in the process. The Lead Plaintiff may argue that
the NetSuite Defendants had a duty to their stockholders to disclose more about the
conversation, but, again, that is not the crucial inquiry here. Even if the NetSuite
Defendants breached a duty owed to NetSuite’s stockholders, the inquiry is whether
it is reasonably conceivable that the NetSuite Defendants provided substantial
assistance to Ellison’s and Catz’s alleged breaches of fiduciary duty by hiding the
NetSuite Discussion from Oracle via deficiencies in NetSuite’s securities filings. I
find that it is not reasonably conceivable that the NetSuite Defendants could have
provided assistance or participation to Ellison and Catz in this regard because the
substance of the NetSuite Discussion (that NetSuite would be kept intact) and the
fact that a discussion occurred between Ellison and Goldberg on January 27, 2016
were publicly disclosed by NetSuite. Such public disclosures were obtainable by the
168
Schedule 14D-9, at 18.
41
party with the most incentive to inform itself of flaws in the bargaining process: the
Oracle Special Committee. As with the Price Collar Discussion, it is not reasonably
conceivable that the difference between what was disclosed and what the Lead
Plaintiff alleges should have been disclosed regarding the NetSuite Discussion
constituted substantial assistance to Ellison and Catz’s scheme to cause Oracle to
overpay for NetSuite.
***
By the time the Schedule 14D-9—including the challenged disclosures of the
NetSuite Discussion and the Price Collar Discussion—issued, Oracle’s Special
Committee had already approved the tender offer. Sticking with the Lead Plaintiff’s
theory of liability—that had the NetSuite Defendants disclosed more, it could have
led those on the Oracle side to scuttle the Acquisition before it closed—all the
information existing that the Lead Plaintiff insists was necessary to such a
reassessment had been disclosed in securities filings while the tender offer was still
outstanding. Thus, the NetSuite Defendants could not have provided substantial
assistance to Ellison and Catz because it is not reasonably conceivable that if only
the NetSuite Defendants had ensured additional disclosures Oracle’s Special
Committee and directors would have put the kibosh on the Acquisition. The
disclosures made are sufficient to make the Lead Plaintiff’s theory of substantial
assistance not reasonably conceivable.
42
III. CONCLUSION
The NetSuite Defendants motion to dismiss Count Two of the TAC is
GRANTED. The parties should submit a form of order consistent with this
Memorandum Opinion.
43