IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
IN RE WEWORK LITIGATION ) Consolidated
) C.A. No. 2020-0258-AGB
)
MEMORANDUM OPINION
Date Submitted: December 14, 2020
Date Decided: December 14, 2020
William M. Lafferty, Kevin M. Coen, Sabrina M. Hendershot, and Sara Toscano,
MORRIS NICHOLS ARSHT & TUNNELL LLP, Wilmington, Delaware; Eric
Seiler, Philippe Adler, and Mala Ahuja Harker, FRIEDMAN KAPLAN SEILER &
ADELMAN LLP, New York, New York; William Christopher Carmody, Shawn J.
Rabin, and Arun Subramanian, SUSMAN GODFREY L.L.P., New York, New
York; Attorneys for Plaintiffs Adam Neumann and We Holdings LLC.
William B. Chandler, III, Brad D. Sorrels, Lori W. Will, Lindsay Kwoka
Faccenda, Leah E. Brenner, and Jeremy W. Gagas, WILSON SONSINI
GOODRICH & ROSATI, P.C., Wilmington, Delaware; David J. Berger, Steven
M. Guggenheim, and Dylan G. Savage, WILSON SONSINI GOODRICH &
ROSATI, P.C., Palo Alto, California; Michael S. Sommer, WILSON SONSINI
GOODRICH & ROSATI, P.C., New York, New York; Attorneys for the Special
Committee of the Board of Directors of The We Company.
Robert S. Saunders, Sarah R. Martin, and Arthur R. Bookout, SKADDEN, ARPS,
SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; George A.
Zimmerman, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, New York,
New York; Attorneys for The We Company.
Elena C. Norman, Rolin P. Bissell, and Nicholas J. Rohrer, YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; Erik J. Olson,
MORRISON & FOERSTER LLP, Palo Alto, California; James Bennett and Jordan
Eth, MORRISON & FOERSTER LLP, San Francisco, California; Attorneys for
Defendant SoftBank Group Corp.
Michael A. Barlow and E. Wade Houston, ABRAMS & BAYLISS LLP,
Wilmington, Delaware; John B. Quinn and Molly Stephens, QUINN EMANUEL
URQUHART & SULLIVAN, LLP, Los Angeles, California; Attorneys for
Defendant SoftBank Vision Fund (AIV M1) L.P.
BOUCHARD, Chancellor
This decision resolves the motions of SoftBank Group Corp. and SoftBank
Vision Fund (AIV M1) L.P. to dismiss the complaint of The We Company that
was filed at the direction of a special committee of its board of directors (the
“Special Committee”) on April 7, 2020.1 For the reasons explained below, the
motions brought under Rule 12(b)(1) for lack of standing will be denied and the
motions brought under Rule 12(b)(6) for failure to state a claim for relief will be
granted in part and denied in part. More specifically, as to the Rule 12(b)(6)
element of the motions, the claim for breach of contract survives in its entirety but
the claim for breach of fiduciary duty will be dismissed in its entirety.
I. BACKGROUND
Unless otherwise noted, the facts recited in this opinion come from the
Verified Complaint (the “Complaint”) and documents incorporated therein. Any
additional facts are subject to judicial notice.
A. The Parties
Plaintiff The We Company (“WeWork” or the “Company”) is a Delaware
corporation headquartered in New York City that provides space solutions and
1
As explained below in Part II, these motions were argued on July 21, 2020, but held in
abeyance pending the court’s adjudication of a separate motion to dismiss the Complaint
that the Company filed under Court of Chancery Rule 41(a) at the direction of a new
committee of the board of directors formed on May 29, 2020. The court’s decision on the
Rule 41(a) motion is being issued simultaneously with this opinion, thus the reason for
the submission date of this opinion.
1
related products and services.2 WeWork was co-founded by Adam Neumann, who
served as its CEO until September 24, 2019.3 We Holdings LLC is a Delaware
limited liability company of which Adam Neumann is a managing member. For
simplicity, this decision refers to Adam Neumann and We Holdings together as
“Neumann” and, when referring to Adam Neumann individually, as Mr. Neumann.
Defendant SoftBank Group Corp. (“SBG”) is a publicly-traded,
multinational conglomerate holding corporation incorporated under the laws of
Japan and headquartered in Tokyo, Japan.4 SBG is led by Masayoshi Son, its
Chairman and CEO.5 SBG has been heavily invested in WeWork since 2017,
when it made an initial investment of $3 billion in the Company.6
Defendant Vision Fund (AIV M1) L.P. (“Vision Fund”), a Delaware limited
partnership, is a $100 billion venture capital fund that was formed in 2017
following a conversation between Son and Saudi Crown Prince Mohammed bin
Salman.7 Vision Fund is an affiliate of SBG and is led by Son, who controls
2
Verified Compl. (“Compl.”) ¶ 23 (Dkt. 1).
3
Id. ¶¶ 1, 37.
4
Id. ¶ 25.
5
Id.
6
Id. ¶ 30.
7
Id. ¶ 26.
2
Vision Fund’s day-to-day operations along with other SBG executives.8 Vision
Fund is primarily financed through investments from SBG, SBG executives, and
Middle Eastern sovereign wealth funds.9 The Complaint at times refers to SBG
and Vision Fund together as “SoftBank.”
B. The MTA and the Stockholders’ Agreement
In early October 2019, with the Company facing a liquidity crisis, the
WeWork board of directors (the “Board”) began to explore strategic options to
avoid running out of cash.10 On October 12, 2019, the Board formed a special
committee consisting of directors Bruce Dunlevie and Lewis Frankfort (the
“Special Committee”) to evaluate the options available to the Company, in
particular debt financing arrangements that were underway with J.P. Morgan
Chase & Co. (“J.P. Morgan”) and a proposal from SBG.11
At the time SBG made its proposal to the Board, SBG and Vision Fund
owned 27.1% of WeWork’s equity on a fully-diluted basis and had designated two
members to the Board.12 In appointing Dunlevie and Frankfort to the Special
Committee, the Board determined that they were “free of any material conflict of
8
Id.
9
Id.
10
Id. ¶ 36.
11
Id. ¶¶ 38, 39.
12
Id. ¶ 35.
3
interest” relating to a potential transaction involving SBG, Vision Fund, or
Neumann.13
On October 22, 2019, the Company, SBG, Vision Fund, Mr. Neumann, and
We Holdings LLC entered into a Master Transaction Agreement (the “MTA”).14
The MTA obligated SBG, subject to certain terms and conditions, to undertake
three significant transactions: (i) provide the Company with $1.5 billion of equity
financing (the “Equity Financing”);15 (ii) purchase up to $3 billion of the
Company’s stock from Neumann and other stockholders of the Company in a
tender offer at a per share price no less than $19.19 (the “Tender Offer”);16 and (iii)
provide the Company with up to $5.05 billion of debt financing (the “Debt
Financing”).17
The Tender Offer was subject to multiple closing conditions.18 One such
condition was the completion of a “roll up” of two of WeWork’s joint ventures in
Asia, known as PacificCo and ChinaCo (together, the “JV Roll-Ups”).19 After the
13
Id. ¶ 24.
14
Id. ¶ 43; see Compl. Ex. A (“MTA”).
15
MTA § 2.01.
16
Id. § 3.01(a).
17
Id. §§ 4.01(a)-(b).
18
See id. § 3.01(a).
19
Compl. ¶¶ 51, 53.
4
filing of this action, the condition concerning the “PacificCo Roll-Up” was
satisfied.20
The “ChinaCo Roll-Up” involved a subsidiary of WeWork acquiring from
Vision Fund shares in ChinaCo, a company WeWork used to conduct operations in
China.21 In exchange for these shares of ChinaCo, Vision Fund would receive
WeWork shares.22 The ChinaCo Roll-Up provided that “other equityholders” of
ChinaCo “may participate in the JV Roll-Up.”23 To complete the ChinaCo Roll-
Up, these minority investors had to either participate in the transaction or waive
their first refusal and co-sale rights.24
The MTA contains provisions requiring the parties to use reasonable best
efforts to complete the ChinaCo Roll-Up and satisfy other closing conditions.
Section 8.03(a) of the MTA provides that SBG, Vision Fund, Neumann, and
WeWork “shall . . . use their respective reasonable best efforts . . . to consummate
and make effective as reasonably promptly as reasonably practicable after the date
hereof . . . the Transactions.”25 The term “Transactions” includes the JV Roll-Ups
20
See Mot. for Expedited Proceedings Hr’g Tr. at 12 (Apr. 17, 2020) (Dkt. 66); Mot. to
Dismiss Hr’g Tr. at 61 (July 21, 2020) (Dkt. 242).
21
MTA Ex. O (ChinaCo Share Purchase Agreement Term Sheet), at 1; Compl. ¶¶ 53, 71.
22
MTA Ex. O, at 1; Compl. ¶¶ 53, 71.
23
MTA Ex. O, at 1.
24
Id. at 2; see Compl. ¶ 53.
25
MTA § 8.03(a).
5
and the Tender Offer.26 Section 8.12 of the MTA requires SBG, Vision Fund, and
WeWork to use their “reasonable best efforts . . . to negotiate and finalize the final
forms of definitive JV Roll-Up Documents” no later than ten days after the funding
of the Equity Financing.27 The term “JV Roll-Up Documents” includes a purchase
agreement for the ChinaCo Roll-Up.28
The MTA also required the parties to enter into a stockholders’ agreement
(the “Stockholders’ Agreement”).29 The Stockholders’ Agreement gave SBG and
Vision Fund the right to designate five of the Company’s ten directors, one of
whom would be executive chairman of the Board.30 Neumann also executed a
proxy, pursuant to the Stockholder’s Agreement, giving voting control over his
super-voting founder shares to the Board, which constitute 14.1% of the
Company’s equity on a fully-diluted basis.31 As a result of the MTA, SBG and
Vision Fund owned approximately 43.4% and 8.9%, respectively, of WeWork’s
stock on a fully-diluted basis as of March 18, 2020.32
26
Id. § 1.01.
27
Id. § 8.12; see Compl. ¶ 54.
28
MTA § 11.15.
29
See MTA Ex. I (“Stockholders’ Agreement”).
30
Compl. ¶ 44; Stockholders’ Agreement §§ 2.01(b)(ii), 2.01(b)(v).
31
Compl. ¶¶ 44, 60; Stockholders’ Agreement § 5.08.
32
Id.
6
C. The Tender Offer, Trustbridge, and Amendment No. 1
In November 2019, SBG commenced the Tender Offer pursuant to an Offer
to Purchase.33 By this time, Son allegedly regretted his decision to invest in the
Company.34
Also in November 2019, SoftBank began pursuing a transaction concerning
ChinaCo, the terms and conditions of which allegedly were inconsistent with the
prescribed ChinaCo purchase agreement.35 Specifically, SoftBank pursued a
transaction with Trustbridge Partners (“Trustbridge”) which contemplated that
Trustbridge, instead of WeWork, would acquire 51% of ChinaCo and assume
operational control of ChinaCo.36
On or about December 26, 2019, Son and other SoftBank executives met in
person with representatives of Trustbridge to pursue a proposed transaction with
Trustbridge.37 At this meeting, Son and other representatives of SoftBank gave
Trustbridge reason to believe it would be against their interests to waive their
ChinaCo first refusal and co-sale rights.38 SoftBank also had discussions with
33
Id. ¶ 4.
34
Id. ¶ 7.
35
Id. ¶ 66.
36
Id.
37
Id.
38
Id. ¶ 67.
7
other ChinaCo minority investors to pressure them not to waive those rights,
although the time frame of this discussions is not clear.39 As recently as March 4,
2020, “following instruction from SoftBank,” Trustbridge wrote to the Company
on behalf of various ChinaCo minority stockholders indicating that they would not
waive their first refusal or co-sale rights.40
On December 27, 2019, the Company, Vision Fund, and SBG signed an
amendment to the MTA (“Amendment No. 1”).41 Amendment No. 1 altered the
sequencing of the transactions in the MTA by permitting the Debt Financing to
occur either before or after the closing of the Tender Offer.42 Amendment No. 1
also included an acknowledgement concerning the use of “reasonable best efforts”
with respect to the JV Roll-Ups.43 Specifically, Section 5(b) of Amendment No. 1
states, as follows:
39
See id.
40
Id. ¶ 69.
41
See Compl. Ex. B (“Amendment No. 1”).
42
Id. § 3.
43
Id. § 5(b).
8
Each Party hereby acknowledges that the Company, SBG and [Vision
Fund] caused their respective Affiliates to use reasonable best efforts
to negotiate and finalize the final forms of definitive JV Roll-Up
Documents, however, the JV Roll-Up Documents were not finalized
within ten (10) days of the 1.5 Agreement Funding. The Company,
SBG and [Vision Fund] will continue to cause their respective
Affiliates to use reasonable best efforts in accordance with this
Section 5.44
D. Termination of the Tender Offer
In February 2020, Vision Fund informed the Special Committee that, “at the
closing of the Tender Offer, it expected to receive the same ownership in the
Company it was promised in the MTA, including as a result of the ChinaCo share
exchange,” and “that it was not interested in any other transaction.”45 After
receiving this communication, in an effort to consummate the Tender Offer, the
Special Committee proposed an amendment to the MTA that, among other things,
would have allowed Vision Fund to retain its equity interest in ChinaCo while also
receiving the same number of newly-issued shares of Series H preferred stock that
Vision Fund would have received under the MTA upon completion of the ChinaCo
Roll-Up, equivalent to about 8% of WeWork’s stock.46 Although Vision Fund
44
Id.
45
Compl. ¶ 71.
46
Id. ¶ 72.
9
indicated it “found this proposal acceptable,” the proposal ultimately was
rejected.47
On March 17, 2020, in an amendment to the Offer to Purchase, SBG listed
four conditions to the Tender Offer, including the ChinaCo Roll-Up, it claimed had
not been satisfied and stated it would not be obligated to pay for any tendered
shares if these conditions were not satisfied by April 1, 2020.48 On April 1, 2020,
SBG terminated the Tender Offer, asserting that certain closing conditions,
including the ChinaCo Roll-Up, had not been satisfied.49
II. PROCEDURAL HISTORY
On April 7, 2020, the Company, acting under the direction of the Special
Committee, filed this action against SBG and Vision Fund. This action is
sometimes referred to as the “MTA Litigation.” The Complaint asserts two claims.
Count I asserts that SBG and Vision Fund breached Sections 8.03 and 8.12 of the
MTA by failing “to use reasonable best efforts to consummate the transactions
contemplated by the MTA.”50 Count II asserts that SBG and Vision Fund breached
47
Id. ¶¶ 72-73.
48
Id. ¶¶ 74-75; Compl. Ex. D (Amendment to Offer to Purchase Equity Securities of The
We Company).
49
Compl. ¶ 77; Compl. Ex. C (Notice Regarding Termination and Withdrawal of Offer to
Purchase Equity Securities of The We Company).
50
Compl. ¶ 92.
10
fiduciary duties they owe to the Company and its minority stockholders as “the
Company’s controlling stockholder.”51
On April 17, 2020 SBG and Vision Fund moved to dismiss the Complaint
pursuant to Court of Chancery Rules 12(b)(1) and 12(b)(6).52 After briefing, this
motion was argued on July 21, 2020.
In the meantime, on May 4, 2020, Neumann filed a complaint against SBG
and Vision Fund in a separate action (the “Neumann Complaint”).53 On May 28,
2020, the court entered an order consolidating the two actions for discovery and
trial while maintaining separate pleadings for the different plaintiffs.54 As
amended, the Neumann Complaint asserts claims for breach of contract and breach
of fiduciary duties similar to those asserted in the Complaint that was filed at the
direction of the Special Committee.55
On May 29, 2020, the Company’s board of directors, by a 6-2 vote,
appointed two new directors to the board for two-month terms and appointed those
directors to a committee (the “New Committee”) to determine “whether the Special
Committee has or should have . . . the authority to cause the Company to
51
Id. ¶¶ 100-02.
52
See Dkts. 30, 31.
53
See C.A. No. 2020-0329-AGB.
54
See Dkt. 109 ¶¶ 1, 4.
55
See generally Verified Am. Compl. ¶¶ 70-90 (Dkt. 131).
11
commence and/or continue the MTA Litigation.”56 On July 30, 2020, the
Company, acting at the direction of the New Committee, filed a motion for leave to
dismiss the Complaint under Court of Chancery Rule 41(a).57 This motion is
referred to as the “Rule 41(a) motion.”
The Rule 41(a) motion was argued on October 16, 2020. SBG and Vision
Fund’s motions to dismiss the Complaint were held in abeyance until the court’s
adjudication of the Rule 41(a) motion. The court’s opinion deciding the Rule 41(a)
motion is being issued simultaneously with this opinion.
On October 30, 2020, the court granted SBG’s partial motion to dismiss the
fiduciary duty claim in the Neumann Complaint and granted in part and denied in
part Vision Fund’s motion to dismiss the Neumann Complaint in its entirety.
Specifically, the court found that the Neumann Complaint stated a claim for breach
of the MTA against Vision Fund, but did not state a claim for breach of fiduciary
duty against SBG and Vision Fund because that claim was duplicative of the
breach of contract claim.58
56
Martin Decl. Ex. 14 (May 29, 2020 Board Minutes), Annex Res-2 (May 29, 2020
Board Resolutions), at Skadden_ NewCommittee 0000016 (Dkt. 372).
57
Dkt. 204.
58
See In re WeWork Litig., 2020 WL 6375438, at *1 (Del. Ch. Oct. 30, 2020). SBG did
not seek to dismiss Neumann’s breach of contract claim against it. Id. at *6.
12
III. ANALYSIS
SBG and Vision Fund’s motions to dismiss raise three issues. The first issue
is whether the Company has standing to assert claims under the MTA relating to
the Tender Offer. The standards relevant to this issue, which is governed by Court
of Chancery Rule 12(b)(1), are addressed in Part III.A.
The second issue is whether Count I of the Complaint for breach of the
MTA states a claim for relief against Vision Fund. The third issue is whether
Count II of the Complaint for breach of fiduciary duty states a claim for relief
against both SBG and Vision Fund. These issues are addressed in Parts III.B and
III.C, respectively. The standards that apply to a motion under Court of Chancery
Rule 12(b)(6) for failure to state a claim for relief are 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 non-moving 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.59
A. Does the Company Have Standing?
SBG and Vision Fund move under Court of Chancery Rule 12(b)(1) to
dismiss the Complaint in is entirely for lack of jurisdiction over the subject
59
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (internal quotation marks
and citations omitted).
13
matter.60 “Standing is a threshold jurisdictional requirement.”61 “Unlike the
federal courts, where standing may be subject to stated constitutional limits, state
courts apply the concept of standing as a matter of self-restraint to avoid the
rendering of advisory opinions at the behest of parties who are mere
intermeddlers.”62
Our Supreme Court has found that “[t]he requirements for Article III
constitutional standing,” as the United States Supreme Court explained them in
Lujan v. Defenders of Wildlife,63 “are generally the same as the standards for
determining standing to bring a case or controversy within the courts of
Delaware.”64 “To establish standing, a plaintiff or petitioner must demonstrate
first, that he or she sustained an ‘injury-in-fact’; and second, that the interests he or
she seeks to be protected are within the zone of interests to be protected.”65
“Injury-in-fact is not Mount Everest.”66 “The contours of the injury-in-fact
60
See SBG Opening Br. 14 (Dkt. 84); Vision Fund Opening Br. 1 (joining SBG’s
standing arguments) (Dkt. 83).
61
Hall v. Coupe, 2016 WL 3094406, at *3 (Del. Ch. May 25, 2016).
62
Dover Hist. Soc’y v. City of Dover Plan. Comm’n, 838 A.2d 1103, 1111 (Del. 2003)
(internal quotation marks omitted).
63
504 U.S. 555 (1992).
64
Dover Hist. Soc’y, 838 A.2d at 1111.
65
Id. at 1110.
66
Danvers Motor Co., Inc. v. Ford Motor Co., 432 F.3d 286, 294 (3d Cir. 2005) (Alito,
J.).
14
requirement, while not precisely defined, are very generous,” requiring only that “a
plaintiff has alleged some specific, identifiable trifle of injury.”67
The burden of establishing subject matter jurisdiction is on the plaintiff.68
“In deciding whether the plaintiff has met that burden, the Court need not accept
the plaintiff’s factual allegations as true and is free to consider facts not alleged in
the complaint.”69
SBG and Vision Fund contend that the Company—acting in this case at the
direction of the Special Committee70—does not have standing to sue for alleged
breaches of the MTA because the Company “was not injured when the Tender
Offer was terminated.”71 SBG contends that the Tender Offer “only benefits
67
Bowman v. Wilson, 672 F.2d 1145, 1151 (3d Cir. 1982) (internal citations and
quotation marks omitted).
68
Lewis v. AimCo Props., L.P., 2015 WL 557995, at *2 (Del. Ch. Feb. 10, 2015).
69
Shahin v. City of Dover, 2018 WL 4635730, at *3 (Del. Ch. Sept. 26, 2018) (citing
Appriva S’holders Litig. Co. v. ev3, Inc., 937 A.2d 1275, 1284 n.14 (Del. 2007)).
70
This decision does not consider whether the Special Committee had the authority to act
for the Company to assert a claim for breach of the MTA against SBG and Vision Fund.
The court addresses that issue in a separate opinion issued simultaneously with this
opinion in response to the Rule 41(a) motion the Company filed at the direction of the
New Committee. This decision confines itself to determining whether the Company
itself has standing to assert a claim for breach of the MTA against SBG and Vision Fund.
Because the court concludes that the breach of fiduciary duty claim in Count II of the
Complaint fails to state a claim for relief for the reasons explained in Part III.C, it does
not address the standing issue with respect to that claim.
71
SBG Reply. Br. 1 (Dkt. 165).
15
tendering stockholders,” not the Company,72 and that tendering stockholders can
assert their own claims against SBG under the Offer to Purchase for its alleged
failure to complete the Tender Offer.73
In response, the Company contends it has standing as a party to the MTA to
sue for the alleged breaches of the MTA and “that the Company was the
appropriate party to seek specific performance on behalf of itself and its
stockholders.”74 More specifically, the Company contends it has standing to assert
claims stemming from the Tender Offer as a “guardian of the minority
stockholders with respect to the MTA” because “Delaware courts have long
recognized that it is logical for companies to enforce the terms of agreements to
which the company is a party and not rely on stockholders to do so.”75
In its answering brief, the Company also contended that “the Company has
suffered an injury” because SBG had failed to provide $1.1 billion of the Debt
Financing required under the MTA, “which is contingent upon consummation of
the Tender Offer.”76 This issue became moot on June 12, 2020, the same day the
72
Id. at 9.
73
Id. at 8 n.4, 16.
74
WeWork Answering Br. 33 (Dkt. 132).
75
Id. at 34-35.
76
Id. at 24, 39.
16
Company filed its answering brief, when SBG “offered WeWork the [$1.1 billion]
debt facility on the terms provided in the MTA.”77
In connection with briefing on the Rule 41(a) motion, the Special Committee
submitted a declaration from Robert M. Daines, the Priztker Professor of Law and
Business and Associate Dean at Stanford Law School.78 Professor Daines opines
that the Company and all of its stockholders would benefit from consummation of
the Tender Offer by increasing SBG and Vision Fund’s combined equity
ownership from approximately 52.3% to 77.9%.79 Using Professor Daines’
declaration for support, the Special Committee argues in its brief in opposition to
the Rule 41(a) motion that this larger equity stake would increase SBG and Vision
Fund’s “incentive to increase Company value” by reducing agency costs and the
risk that they “would benefit [themselves] at the expense of WeWork and minority
stockholders.”80
77
SBG Reply. Br. 1.
78
See Decl. of Robert M. Daines in Support of the Special Committee’s Opp’n to The
We Company’s Mot. for Leave to Dismiss the Compl. Pursuant to Court of Chancery
Rule 41(a) (“Daines Decl.”) ¶ 5 (Dkt. 388).
79
Id. ¶ 21.
80
The Special Committee’s Brief in Opp’n to The We Company’s Mot. for Leave to
Dismiss the Compl. Pursuant to Court of Chancery Rule 41(a) at 3, 37-38 (Dkt. 385)
(citing Daines Decl. ¶¶ 35-37). As noted previously, the court may consider facts not
alleged in the complaint when deciding a motion for lack of subject matter jurisdiction.
Shahin, 2018 WL 4635730, at *3.
17
In my opinion, the Company has standing to sue SBG and Vision Fund for
alleged breaches of the MTA related to the Tender Offer for essentially three
reasons.
First, the Company is a party to the MTA. The MTA was “entered into by
and among” the Company, SBG, Vision Fund, Mr. Neumann, and We Holdings
LLC.81 The MTA expressly defines each of these entities and Mr. Neumann as the
“Parties” to the MTA.82
As our Supreme Court has stated: “It is a fundamental principle of contract
law that the parties to a contract are bound by its terms, and have the
corresponding right to enforce them.”83 Indeed, as numerous federal circuit courts
have found, “[w]hen one party fails to honor its commitments, the other party to
the contract suffers a legal injury sufficient to create standing even where that
81
MTA at 1.
82
Id.
83
NAF Hldgs., LLC v. Li & Fund (Trading) Ltd., 118 A.3d 175, 180-81 (Del. 2015)
(Strine, C.J.); see also 17B C.J.S. Contracts § 935 (2020) (“In the absence of a provision
in a contract specifically stating that it will inure to the benefit of a third person, parties to
a contract are presumed to have contracted for themselves, or their own benefit, and not
for the benefit of third parties.”).
18
party seems not to have incurred monetary loss or other concrete harm.”84 SBG
and Vision Fund have cited no case where a court found that a party to a contract
lacked standing to assert alleged breaches of that contract.
The MTA enumerates SBG and Vision Fund’s obligations with respect to
the Tender Offer, including their obligation under Sections 8.03 and 8.12 of the
MTA to use their respective “reasonable best efforts” to satisfy various closing
84
J.P. Morgan Chase Bank, N.A. v. McDonald, 760 F.3d 646, 651 (7th Cir. 2014)
(emphasis added) (citing Hydrite Chem. Co. v. Calumet Lubricants Co., 47 F.3d 887, 891
(7th Cir.1995) and 3 E. Allan Farnsworth, Farnsworth on Contracts § 12.8, p. 189
(2004)); see also Carlsen v. GameStop, Inc., 833 F.3d 903, 909 (8th Cir. 2016) (“Our
court previously has held that a plaintiff who has produced facts indicating it was a party
to a breached contract has a judicially cognizable interest for standing purposes,
regardless of the merits of the breach alleged.” (internal quotation marks omitted)); Katz
v. Pershing, LLC, 672 F.3d 64, 72 (1st Cir. 2012) (Stating that “[t]he invasion of a
common-law right (including a right conferred by contract) can constitute an injury
sufficient to create standing” and noting that “when a plaintiff generally alleges the
existence of a contract, express or implied, and a concomitant breach of that contract, her
pleading adequately shows an injury to her rights”); ABF Freight Sys., Inc. v. Int’l Bhd. of
Teamsters, 645 F.3d 954, 960 (8th Cir. 2011) (“None of YRC’s cases denied standing to
a plaintiff that produced facts indicating it was a party to a breached contract. Here, ABF
signed an agreement with the Union, which purports to make it a signatory to the NMFA.
. . . Whatever the merits of these points, ABF has produced sufficient facts, for standing
purposes, indicating a judicially cognizable interest in the NMFA.”); Cent. States Se. &
Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 504 F.3d 229,
242-43 (2d Cir. 2007) (“We reject the Self–Funded Plans’ claim that Janazzo must
establish specific financial harm before her Plan has standing, since it conflates a defense
to the merits of the Plan’s claim against Medco with the requirement to make a threshold
jurisdictional showing. In our view, the foregoing evidence supports the District Court’s
determination that Janazzo’s Plan was involved in a contractual relationship with Medco
so as to give her standing.”); Castle v. United States, 301 F.3d 1328, 1337 (Fed. Cir.
2002) (“We conclude that only Castle and Harlan have standing to sue for breach of the
alleged contract because only Castle and Harlan signed any document constituting the
alleged contract.”).
19
conditions. Other provisions of the MTA support WeWork’s standing as a party to
the MTA to sue for breach of these “reasonable best efforts” provisions. Section
11.06—titled “No Third-Party Beneficiaries”—provides, with certain exceptions
not relevant here, that the MTA “is for the sole benefit of the Parties . . . and
nothing herein, express or implied, shall give or be construed to give to any Person
. . . any legal or equitable rights hereunder.”85 Section 11.10 further provides in
relevant part that:
The Parties agree that in the event that any of the Transactions are not
consummated in accordance with the terms of this Agreement or the
other Transaction Agreements, . . . irreparable damage would occur,
no adequate remedy at Law would exist and damages would be
difficult to determine. Accordingly, the Parties acknowledge and
agree that the Parties shall be entitled to an injunction, specific
performance or other equitable relief to prevent breaches or threatened
breaches of this Agreement and the other Transaction Agreements and
to enforce specifically the terms and provisions of this Agreement and
the other Transaction Agreements, in addition to any other remedy at
Law or in equity.86
The plain language of these provisions reflect the shared intent of the Parties to the
MTA that the Company would have the right to seek specific performance under
the MTA to remedy a breach of SBG and Vision Fund’s obligations with respect to
the “Transactions,” which expressly includes the Tender Offer.87
85
MTA § 11.06 (emphasis added).
86
Id. § 11.10 (emphasis added).
87
Id. § 1.01.
20
Second, “injury-in-fact” is not limited “to those who could show economic
harm.”88 It thus is of no moment that the Company will not receive the proceeds of
the Tender Offer. The bargain struck in the MTA was that SBG, subject to
specified conditions, would invest a total of approximately $9.5 billion in
WeWork—not $6.5 billion—with $3 billion of the total amount attributable to the
Tender Offer. The ability of the Company—as a Party to the MTA—to seek
specific performance to enforce SBG and Vision Fund’s obligations to use their
reasonable best efforts to consummate the Tender Offer is critical to ensure that the
Company receives all the benefits in the MTA to which it is entitled, including the
benefit of having SBG deeply committed to the success of WeWork in connection
with the transfer of control of the Company from Neumann to SBG and Vision
Fund.
To that end, the Special Committee submitted evidence in the form of an
expert opinion that consummation of the Tender Offer not only would benefit
minority stockholders who receive payment for some of their shares, but also
would benefit the Company and all its stockholders by materially increasing SBG’s
stake in WeWork, which would reduce agency costs and increase SBG’s incentive
88
United States v. SCRAP, 412 U.S. 669, 686 (1973).
21
to enhance the value of the Company.89 The New Committee itself found that
closing the Tender Offer could provide a benefit to the Company, albeit a
“relatively small” benefit, in the form of improved employee morale and retention
by providing employees who tendered shares into the Tender Offer liquidity at an
attractive price.90
Third, given the disclaimer of third-party beneficiary rights in Section 11.06
of the MTA, none of the stockholders who tendered shares into the Tender Offer
(other than Mr. Neumann and his affiliated entity who are parties to the MTA)
would have standing to enforce the “reasonable best efforts” provisions of the
MTA, including the right to seek the equitable remedy of specific performance for
breach of those provisions based on the stipulation in Section 11.10 of the MTA.
89
Daines Decl. ¶¶ 35-37; see also Lucian A. Bebchuck & Kobi Kastiel, The Perils of
Small-Minority Controllers, 107 Geo. L.J. 1453, 1465 (2019) (“Conversely, whereas a
majority owner cannot be replaced and would not be disciplined by the market for
corporate control, her large equity stake in the controlled company provides powerful
financial incentives to maximize company value.” (emphasis added)); In re EZCORP Inc.
Consulting Agreement Deriv. Litig., 2016 WL 301245, at *2 (Del. Ch. Jan. 25, 2016)
(“The basic insight is a simple one: by virtue of its control over the firm, the controller
can direct how that firm deploys its capital. As an equity owner, the controller
participates in the resulting benefits (and losses) in proportion to its equity stake,
effectively gaining or losing on a pro rata basis with other stockholders. By contrast, in a
related-party transaction, the controller receives 100% of the benefit while only funding
the payment to the extent of its equity stake. The balance of the payment is funded by the
unaffiliated equity holders. The economic incentive to tunnel varies inversely with the
controller’s equity stake. All else equal, as the controller’s equity stake declines, the
relative benefit from a direct payment increase.”) (emphasis added).
90
See Martin Decl. Ex. 15 (Report of the New Committee of the Board of Directors of
The We Company), at 42-43.
22
This outcome is untenable “[a]s equity will not suffer a wrong without a
remedy.”91
Noting that “[a] tender offer creates a contract with the tendering party,”
SBG and Vision Fund argue that “[t]endering stockholders can sue to enforce that
contract.”92 In advancing this argument, SBG and Vision Fund assert that
“[w]hether or not tendering stockholders’ rights under the Offer to Purchase are
identical to terms included in the MTA is irrelevant.”93 The court disagrees.
SBG and Vision Fund have not cited any principle of law or equity—and the
court is aware of none—to support the notion that a party to a contract can avoid
accountability for its contractual obligations based on the availability of an
alternative theory of liability, particularly one that appears less potent. Putting
aside the complexity of determining ab initio all the issues that may arise in
enforcing a claim under the express or implied terms of the Offer to Purchase and
the differences between such a claim and a direct claim for breach of the MTA, it
91
Fischer v. Fischer, 1999 WL 1032768, at *4 (Del. Ch. Nov. 4, 1999).
92
SBG Opening Br. 20.
93
SBG Reply. Br. 8.
23
appears that such a claim would have at least two distinct disadvantages.94 One
disadvantage is that, unlike under the MTA, a tendering stockholder could not sue
Vision Fund for breach of a “reasonable best efforts” obligation under the Offer to
Purchase because it was not an offeror in the Tender Offer. 95 A second
disadvantage of being constrained to the terms of the Offer to Purchase is that
tendering stockholders would not be able to utilize SBG and Vision Fund’s
stipulation in Section 11.10 of the MTA that the failure to consummate the Tender
Offer in breach of the MTA would constitute irreparable harm and provide a
putative entitlement to specific performance.96
94
Further complicating the ability to make such an assessment, SBG has been coy about
what rights a tendering stockholder would have for breach of the Offer to Purchase. The
Offer to Purchase does not include the “reasonable best efforts” provisions set forth in the
MTA. In briefing this motion, SBG did not expressly acknowledge that all tendering
stockholders could assert a claim under the Offer to Purchase equivalent to a claim under
the MTA for breach of its reasonable best efforts provisions but stated instead, rather
elliptically, that “[i]f Neumann proves that SBG failed to use reasonable best efforts,
tendering stockholders would necessarily benefit in any consolidated trial.” SBG Reply
Br. 8 n.4. It was not until several months later, on October 13, 2020, that SBG expressly
stated “its position that, under the [Offer to Purchase], SBG has an implied obligation to
take reasonable best efforts equal to its obligations under the MTA’s express
obligations.” Dkt. 398 at 2.
95
See Gilbert v. El Paso Co., 490 A.2d 1050, 1054 (Del. Ch. 1984) (explaining that “[a]
tender offer results in formation of a contract” between the offeror and offerree).
96
See MTA § 11.10.
24
For the reasons explained above, the court finds that the Company has met
its burden of establishing standing. Accordingly, SBG and Vision Fund’s motion
to dismiss the Complaint under Court of Chancery Rule 12(b)(1) will be denied.
B. The Breach of Contract Claim
Count I of the Complaint asserts that SBG and Vision Fund breached
Sections 8.03 and 8.12 of the MTA by failing “to use reasonable best efforts to
consummate the transactions contemplated by the MTA, including the Tender
Offer and the roll-up of ChinaCo.”97 SBG did not move to dismiss Count I for
failure to state a claim for relief, tacitly conceding the viability of the Company’s
contract claim against it.
To establish a claim for a breach of contract under Delaware law, “a plaintiff
must prove: (1) the existence of a valid and enforceable contract; (2) that the
defendants breached the contract; and (3) that the plaintiff was damaged as a result
of those breaches.”98 Vision Fund only challenges the second element, arguing
that its alleged breach of the “reasonable best efforts” clauses of the MTA are not
reasonably conceivable.99
97
Compl. ¶ 92.
98
Ivize of Milwaukee, LLC v. Compex Litig. Support, LLC, 2009 WL 1111179, at *8
(Del. Ch. Apr. 27, 2009).
99
See Vision Fund Opening Br. 12; Vision Fund Reply Br. 12 (Dkt. 166).
25
Sections 8.03(a) and 8.12 of the MTA each required both SBG and Vision
Fund to use reasonable best efforts to complete the ChinaCo Roll-Up and to satisfy
other conditions to close the Tender Offer. Specifically, Section 8.03(a) of the
MTA states, in relevant part:
The Company, SBG, [Vision Fund], [and Neumann] shall . . . use
their respective reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and assist and cooperate with
the other Parties in doing, all things necessary, proper or advisable . . .
to consummate and make effective as reasonably promptly as
reasonably practicable after the date hereof . . . the Transactions. . . .100
The MTA defines the term “Transactions” to include the Tender Offer.101
Similarly, Section 8.12 required the Company, SBG, and Vision Fund “to
use reasonable best efforts to negotiate and finalize the final forms of definitive JV
Roll-Up Documents by the [Equity Financing] Funding (and in any event no later
than the tenth (10th) day following the date of the [Equity Financing] Funding).”102
Under Delaware law, reasonable best efforts clauses “impose obligations to
take all reasonable steps to solve problems and consummate the transaction.”103
“When evaluating whether a merger partner has used reasonable best efforts, this
court has looked to whether the party subject to the clause (i) had reasonable
100
MTA § 8.03(a).
101
Id. § 1.01.
102
Id. § 8.12.
103
Williams Cos. v. Energy Transfer Equity, L.P., 159 A.3d 264, 272 (Del. 2017).
26
grounds to take the action it did and (ii) sought to address problems with its
counterparty.”104
The Complaint alleges, among things, that “SoftBank”—which is defined to
include SBG and Vision Fund—“pursue[d] an alternative financing transaction
with Trustbridge” that was “inconsistent with the roll-up of ChinaCo required by
the MTA”105 and that SoftBank “had discussions with other ChinaCo minority
investors to pressure them not to waive” their first refusal and co-sale rights.106
Vision Fund contends that the Company’s breach of contract claim should
be dismissed under Court of Chancery Rule 12(b)(6) for failure to state a claim for
relief on the theory that the Complaint’s “allegations specific to Vision Fund
establish that it affirmatively tried to facilitate the closing of the JV Roll-Up
transactions, which was the only Tender Offer Condition that implicated Vision
Fund.”107 As to the ChinaCo Roll-Up, which is the only JV Roll-Up at issue,108
Vision Fund relies on a single paragraph in the 104-paragraph Complaint.
Specifically, Vision Fund points to paragraph 72 of the Complaint, which states
104
Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *91 (Del. Ch. Oct. 1, 2018),
aff’d, 198 A.3d 724 (Del. 2018).
105
Compl. ¶ 66.
106
Id. ¶ 67.
107
Vision Fund Opening Br. 14.
108
See supra Part I.B.
27
that Vision Fund at one point found “acceptable” an amendment to the MTA that
the Special Committee proposed to try to consummate the Tender Offer.109 The
proposed amendment, which ultimately was rejected, would have allowed Vision
Fund to retain its equity interests in ChinaCo while also receiving the shares of
WeWork (about 8% percent of the Company’s stock) it would have received under
the MTA upon completion of the ChinaCo share exchange.110
The fundamental problem with Vision Fund’s argument is that it asks the
court to ignore “contradictory allegations” in the Complaint and to rely on a single
allegation that Vision Fund views as “exculpatory” and that it believes “defeats”
the other allegations.111 This is impermissible. The court may not resolve material
factual disputes or weigh evidence on a motion dismiss.112
Accepting as true all the well-pleaded factual allegations of the Complaint
and drawing all reasonable inferences in favor of the Company at this stage of the
case, as the court must, the narrative of the Complaint is that “SoftBank” (i.e., SBG
and Vision Fund) schemed to thwart the ChinaCo Roll-Up in breach of their
109
See Vision Fund Opening Br. 8, 12, 14, 15, 23 (citing Compl. ¶ 72).
110
Compl. ¶ 72.
111
See Vision Fund Reply Br. 9; Vision Fund Opening Br. 15.
112
Malpiede v. Townson, 780 A.2d 1075, 1082 (Del. 2001) (“Because a motion to
dismiss under Chancery Rule 12(b)(6) must be decided without the benefit of
a factual record, the Court of Chancery may not resolve material factual disputes; instead,
the court is required to assume as true the well-pleaded allegations in the complaint.”).
28
reasonable best efforts obligations in order to avoid closing the Tender Offer.113
The well-plead allegations to that effect include SoftBank’s pursuit of an
alternative transaction with Trustbridge, the terms and conditions of which “were
inconsistent with the roll-up of ChinaCo required by the MTA”; discussions that
Son and other representatives of SoftBank had with Trustbridge and other ChinaCo
minority investors to pressure them not to waive their first refusal and co-sale
rights; and rejection of the Special Committee’s proposed amendment itself.114
Vision Fund protests that the Complaint wrongfully “lump[s] together”
Vision Fund and SBG by using the defined term “SoftBank” to refer to both
entities and contends that this “failure . . . alone requires dismissal of the breach of
contract claim against Vision Fund.”115 The court disagrees. Although group
pleading is generally disfavored, the Complaint’s use of the term “SoftBank” to
capture both SBG and Vision Fund was justified here given the close relationship
between these entities plead in the Complaint. Specifically, the Complaint alleges
that Vision Fund is an affiliate of SBG and that Son—who leads both SBG and
Vision Fund—controls Vision Fund’s day-to-day operations along with other SBG
113
See Compl. ¶¶ 63, 66-69, 94.
114
See id. ¶¶ 66-69, 73.
115
Vision Fund Opening Br. 13.
29
executives.116 Given these close-knit relationships, it understandably would be
difficult to discern whether Son and other SBG executives were wearing their SBG
or Vision Fund “hat” or both “hats” at given points in time. On a motion to
dismiss, the court cannot make such capacity determinations, which must await the
development of a factual record after discovery.117
In sum, as this court explained in denying Vision Fund’s motion to dismiss
the contract claim asserted against it in the Neumann Complaint, “[d]etermining
whether a party used reasonable best efforts is an inherently factual inquiry that is
not readily amenable to resolution at the pleadings stage.”118 Here, just because
Vision Fund is alleged to have been amenable at one point to amending the MTA
to facilitate the Tender Offer does not rule out that it failed to use its reasonable
efforts to complete the ChinaCo Roll-Up and to close the Tender Offer in other
respects. To the contrary, based on the overall narrative alleged in the Complaint,
it is reasonably conceivable that Vision Fund breached its reasonable best efforts
116
Compl. ¶ 26.
117
See Voigt v. Metcalf, 2020 WL 614999, at *28 (Del. Ch. Feb. 10, 2020) (declining at
the pleadings stage to make the “capacity determination” that certain individuals were
acting solely as representatives of an alleged controller rather than as directors of a
controlled entity because that “would require drawing inferences in favor of the
defendants, rather than the plaintiff.”).
30
obligations in Sections 8.03(a) and 8.12 of the MTA.119 Accordingly, Vision
Fund’s motion to dismiss Count I of the Complaint is denied.
C. The Fiduciary Duty Claim
Count II of the Complaint asserts that “SoftBank has repeatedly used its
influence over the Company to limit the Company’s options and force it into
favorable outcomes for SoftBank, to the detriment of the Company’s minority
stockholders” in breach of its fiduciary duties as the “Company’s controlling
118
In re WeWork Litig., 2020 WL 6375438, at *9 (Del. Ch. Oct. 30, 2020) (citing
Cooper Tire & Rubber Co. v. Apollo (Mauritius) Hldgs. Pvt. Ltd., 2013 WL 5787958, at
*6 (Del. Ch. Oct. 25, 2013), Crum & Crum Enters., Inc. v. NDC of Cal., LP, 2010 WL
4668456, at *5 (D. Del. Nov. 3, 2010), and Brown v. Buschman Co., 2002 WL 389139, at
*85 (D. Del. Mar. 12, 2002)).
119
Amendment No. 1 to the MTA “acknowledges that the Company, SBG and [Vision
Fund] caused their respective Affiliates to use reasonable best efforts to negotiate and
finalize the final forms of definitive JV Roll-Up Documents.” Amendment No. 1 § 5(b).
Based on this provision, Vision Fund argues in its reply brief that the Company should be
foreclosed from maintaining a contract claim against Vision Fund “based on the pre-
December 27, 2019 discussions in which Mr. Son is alleged to have participated.” Vision
Fund Reply Br. 6-7. The court disagrees. First, this argument was not made fairly in
Vision Fund’s opening brief, which mentions the acknowledgement in Amendment No. 1
once in a footnote that cannot fairly be read to be a ground for dismissal. See Vision
Fund Opening Br. 15 n.4; Franklin Balance Sheet Inv. Fund v. Crowley, 2006 WL
3095952, at *4 (Del. Ch. Oct. 19, 2006) (“Under the briefing rules, a party is obliged in
its motion and opening brief to set forth all of the grounds, authorities and arguments
supporting its motion. A movant should not hold matters in reserve for reply briefs.”)
(internal citation omitted); In re Asbestos Litig., 2007 WL 2410879, at *4 (Del. Super.
Aug. 27, 2007) (same). Second, the Complaint pleads that the discussions in question
took place “on or about December 26, 2019,” thus discovery is necessary to determine
the actual timing of these events. Compl. ¶ 66. Third, it is unclear who authorized
Amendment No. 1 on behalf of the Company, whether the Company was fully-informed
about the relevant discussions at that time, and whether an “acknowledgment” would
have preclusive effect.
31
stockholder.”120 Unlike the Neumann Complaint, which asserted that SBG and
Vision Fund owed fiduciary duties only after entering into the MTA, the Company
asserts that SBG and Vision Fund owed fiduciary duties both before and after
entering into the MTA.
SBG and Vision Fund advance essentially three arguments for why Count II
fails to state a claim for relief. First, they argue the allegations of the Complaint
are insufficient to establish the existence of a “control group” between SBG and
Vision Fund at any time.121 Second, with respect to the pre-MTA period, they
contend they did not owe fiduciary duties to WeWork and its stockholders because
“it is undisputed” that Neumann “controlled the Company” during this period.122
Third, with respect to the post-MTA period, they assert that the breach of fiduciary
duty claim in the Complaint simply duplicates the contract claim in the
Complaint.123
“[A] stockholder could be found a controller under Delaware law: where the
stockholder (1) owns more than 50% of the voting power of a corporation or (2)
owns less than 50% of the voting power of the corporation but ‘exercises
120
Compl. ¶¶ 100, 102.
121
See Vision Fund Reply Br. 22-26; SBG Reply Br. 26.
122
Vision Fund Reply Br. 28; see also SBG Reply Br. 25-26.
123
See Vision Fund Reply Br. 12-16; SBG Reply Br. 23, 29-31.
32
control over the business affairs of the corporation.’”124 “The requisite degree of
control can be shown to exist generally or with regard to the particular transaction
that is being challenged.”125 There are many ways to demonstrate actual control
over a particular decision:
It is impossible to identify or foresee all of the possible sources of
influence that could contribute to a finding of actual control over a
particular decision. Examples include, but are not limited, to: (i)
relationships with particular directors that compromise their
disinterestedness or independence, (ii) relationships with key
managers or advisors who play a critical role in presenting options,
providing information, and making recommendations, (iii) the
exercise of contractual rights to channel the corporation into a
particular outcome by blocking or restricting other paths, and (iv) the
existence of commercial relationships that provide the defendant with
leverage over the corporation, such as status as a key customer or
supplier.126
Our law also “recognizes that multiple stockholders together can constitute a
control group exercising majority or effective control, with each member subject to
the fiduciary duties of a controller,”127 as follows:
124
Sheldon v. Pinto Tech. Ventures, L.P., 220 A.3d 245, 251 (Del. 2019) (quoting In re
KKR Fin. Hldgs. LLC S'holder Litig., 101 A.3d 980, 991 (Del. Ch. 2014)) (alteration in
original).
125
Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 659 (Del. Ch. 2013) (internal
quotation marks omitted).
126
Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018 WL 3326693, at
*26 (Del. Ch. July 6, 2018) (internal citations omitted).
127
Sheldon, 220 A.3d at 251.
33
To demonstrate that a group of stockholders exercises control
collectively, the Appellants must establish that they are connected in
some legally significant way—such as by contract, common
ownership, agreement, or other arrangement—to work together
toward a shared goal. To show a legally significant connection, the
Appellants must allege that there was more than a mere concurrence
of self-interest among certain stockholders. Rather, there must be
some indication of an actual agreement, although it need not be formal
or written.128
With the above principles in mind, the court considers the Complaint’s
breach of fiduciary allegations with respect to the pre-MTA and post-MTA
periods, in turn, next.
1. The Fiduciary Duty Claim Pre-MTA
The Company argues that SBG and Vision Fund together “exerted control
over the Company prior to the execution of the MTA” through their “significant
equity and debt positions and control over the Company’s financing, the many
financial relationships with Mr. Neumann and the Board, and its ability to direct
the actions of the Company.”129 SBG and Vision Fund counter that the fiduciary
duty claim must be dismissed for the pre-MTA period because they were not
controlling stockholders and thus did not owe fiduciary duties to WeWork during
this period.130
128
Id. at 251-52 (internal quotation marks and citations omitted).
129
WeWork Answering Br. 49-50.
130
See Vision Fund Reply Br. 28-30; SBG Reply Br. 25-26.
34
As an initial matter, the Company’s contention that SBG and Vision Fund
exerted control over WeWork pre-MTA is inconsistent with documents quoted in
and submitted with its brief, namely minutes of an October 12, 2019 Board
meeting and resolutions the Board approved that day to create the Special
Committee, which negotiated the terms of the MTA.131 The Board minutes
acknowledge “the status of Mr. Neumann as the controlling stockholder of the
Company” before the MTA was executed.132 The resolutions recite that SBG’s
proposal—which became the transaction documented in the MTA—“would result
in SoftBank acquiring majority economic ownership and voting control of the
Company.”133
With respect to SBG and Vision Fund’s equity position and board
representation in the Company pre-MTA, the Complaint alleges only that they
“held approximately 27.1% of the Company’s stock on a fully-diluted basis and
131
See WeWork Answering Br. 13 (“Because SoftBank’s proposal ‘would result in
SoftBank acquiring majority economic ownership and voting control of the Company,’
and also contemplated that Mr. Neumann would receive benefits from SoftBank not
offered to other shareholders, the Board formed an independent committee to evaluate the
strategic alternatives available to the Company.”) (quoting Will Decl. Ex. M (Minutes of
the Board of Directors of The We Company dated October 12 and 13, 2019 with Board
Resolutions) (Dkt. 132)).
132
Will Decl. Ex. M (emphasis added).
133
Id. (emphasis added); See also The Special Committee’s Brief in Opp’n to The We
Company’s Mot. for Leave to Dismiss the Compl. Pursuant to Court of Chancery Rule
41(a) at 1 (“There is no dispute that [SBG and Vision Fund] gained control of The We
Company . . . through the Master Transaction Agreement.”) (emphasis added).
35
had designated two members of the Board.”134 These allegations are insufficient to
support a reasonable inference that SBG and Vision Fund held a control position in
the Company, separately or together. Missing from the Complaint are any
allegations concerning SBG and Vision Fund’s individual or combined voting
power or the total number of Board members pre-MTA. Without this information,
the court has no context from which it can reasonably infer that SBG and/or Vision
Fund could dictate the outcome of board or stockholder action. Also missing from
the Complaint are any allegations that SBG and/or Vision Fund formed a control
group pre-MTA with Mr. Neumann, who was recognized as the Company’s
“controlling stockholder” at that time in the October 12, 2019 Board minutes.135
In response to the selective information alleged in the Complaint, SBG
submitted (i) a copy of a Stockholders’ Agreement, dated July 15, 2019, by and
among the Company and various stockholders136 and (ii) a declaration from
Christopher C. McKinnon, corporate counsel of a wholly-owned subsidiary of
134
Compl. ¶ 35.
135
See Almond for Almond Family 2001 Tr. v. Glenhill Advisors LLC, 2018 WL 3954733,
at *26 (Del. Ch. August 17, 2018) (explaining that “for a preexisting controlling
stockholder to become part of a ‘control group’ with other stockholders, the preexisting
controlling stockholder would have to agree to share with other stockholders, or impose
limitations on, its own control power (such as through a voting agreement) for some
perceived advantage as part of a legally significant relationship with the other
stockholders.”), aff’d, 224 A.3d 200 (Del. 2019).
136
See SBG Reply Br. Ex. 1 (July 15, 2019 Stockholders’ Agreement).
36
SBG, to which is attached a capitalization table showing the economic and voting
interests of WeWork by major stockholders as of October 21, 2019, the day before
the MTA became effective.137 The Stockholders’ Agreement reflects that SBG had
the right to designate one of nine members of the Board.138 In his declaration,
McKinnon attests, based on “personal knowledge of and access to records
reflecting equity ownership in WeWork by SBG and other parties,” that:
As of October 21, 2019, Adam Neumann (individually and jointly
through his controlling position in We Holdings LLC) controlled
approximately 75% of the voting interests in the company on an
outstanding basis. SBG owned approximately 12% of economic
interests in WeWork on a fully diluted basis, which yielded
approximately 3.1% voting interests of WeWork on an outstanding
basis. Vision Fund owned approximately 15% of economic interests
on a fully-diluted basis, which yielded approximately 3.9% of voting
interests on an outstanding basis.139
The court takes judicial notice of this information, which comes “from sources
whose accuracy cannot reasonably be questioned.”140
137
McKinnon Decl. ¶¶ 1-2 (Dkt. 165).
138
SBG Reply Br. Ex. 1 § 2.01(b)(ii)(C).
139
McKinnon Decl. ¶¶ 2-3.
140
D.R.E. 201(a)(2). Even if the court disregarded this information, it would reach the
conclusion that the Company failed to allege facts to support a reasonable inference SBG
and Vision Fund held a control position in the Company, separately or together, based on
their equity interests and board representation because of the lack of well-plead
allegations providing context to understand the significance of (i) holding 27.1% of the
Company’s stock on a fully-diluted basis without knowing the voting power associated
with those shares and (ii) having two Board designees without knowing how many
directors were on the Board at the time.
37
Apart from focusing on SBG and Vision Fund’s equity interests in WeWork
and representation on its Board, the Company argues that SBG and Vision Fund
used their “negative control position to advantage itself” by “threatening not to
fund its $1.5 billion Warrant if the Company proceeded with J.P. Morgan’s debt
financing.”141 The referenced warrant dates back to January 2019, when
“SoftBank entered into a mandatory warrant agreement with WeWork pursuant to
which it agreed to provide another $1.5 billion in financing in exchange for
additional shares in the Company at a price of $110 per share (the ‘Warrant’).”142
According to the Company, SBG and Vision Fund made this threat “to force the
Company to agree to the MTA.”143 In support of this argument, the Company
primarily relies on this court’s decisions in Basho Technologies Holdco B, LLC v.
Georgetown Basho Investors, LLC144 and Voigt v. Metcalf.145
In Basho, an investor (Georgetown) in Basho Technologies, Inc. held a
majority of a certain series of preferred stock with rights that “gave it the ability to
block the Company from raising capital through equity financings.” 146 The court
141
WeWork Answering Br. 52.
142
Compl. ¶ 32.
143
WeWork Answering Br. 50.
144
2018 WL 3326693.
145
2020 WL 614999.
146
Basho, 2018 WL 3326693, at *29.
38
found after trial that “Georgetown exercised effective control over Basho”
concerning a financing transaction through “use of its contractual rights to channel
the Company into a position where it had no options other than to accept
Georgetown’s terms” while also taking actions to “spread misinformation” and
“manipulate the fundraising process.”147
In Voigt, a private equity firm (CD&R) held 34.8% of the voting power of
NCI Building Systems, Inc., had four designees on its twelve-person board,
“relationships of varying significance with another four directors,” and
“contractual veto rights over a wide range of actions that the Board could
otherwise take unilaterally.”148 The court found at the pleadings stage that “[t]hese
blocking rights weigh in favor of an inference that CD&R exercised control over
the Company generally by giving CD&R power over the Company beyond what
the holder of a mathematical majority of the voting power ordinarily could
wield.”149
Here, unlike in Basho or Voigt, the Complaint does not plead facts sufficient
to support a reasonable inference that SBG and/or Vision Fund had any contractual
veto or blocking rights “to channel [the] corporation into a particular outcome by
147
Id. at *28.
148
Voigt, 2020 WL 614999, at *1.
149
Id. at *19.
39
blocking other paths.”150 Accepting as true the allegations of the Complaint, SBG
engaged in hardball negotiating tactics by threatening not to fund the Warrant in
breach of its contractual obligations.151 That alleged threat, which is the stuff of a
litigation claim, is insufficient to support a reasonable inference that SBG and/or
Vision Fund had the power to exercise control over the Company to force it to
enter into the MTA. In sum, the Complaint fails to allege facts sufficient to
support a reasonable inference that SBG and Vision Fund had the voting power,
level of Board representation, contractual rights, or any other source of power to
impose its will unilaterally and cause the Company to enter into the MTA.
Indeed, the contention that SBG and Vision Fund could force the Company
to enter into the MTA runs counter to the gravamen of the Complaint, which
alleges that the Special Committee independently made this decision for the
Company.152 According to the Complaint, the Special Committee “thoroughly
assessed the options available to the Company,”153 including “certain debt
150
Id.
151
The allegations that “SoftBank” (i) abandoned a plan with Neumann to buy out other
stockholders of WeWork in mid-2018 (Compl. ¶ 31) and (ii) contributed to the failure of
WeWork’s IPO by pressing “the Company to grow at all costs” (Compl. ¶ 34) do not rise
to the level of supporting a reasonable inference that SBG and/or Vision Fund threatened
or acted to breach a contractual obligation, much less that they exercised actual control
over the Company.
152
Compl. ¶¶ 36, 39.
153
Id. ¶ 40.
40
financing arrangements through a marketing process led by J.P. Morgan Chase &
Co,”154 and “approved the transactions to be effected by the MTA” 155 after
concluding that the MTA was “in the best interests of the Company and its
disinterested minority stockholders.”156 Consistent with these allegations, the only
harm alleged in Count II for breach of fiduciary duty stems from a breach of the
MTA (i.e., depriving minority stockholders of liquidity by not closing the Tender
Offer) and not from execution of the MTA itself.157
For the reasons explained above, the court concludes that Count II of the
Complaint fails to state a claim for breach of fiduciary duty during the period
leading up to the MTA.
2. The Fiduciary Duty Claim Post-MTA
Turning to the post-MTA period, the Company again contends that SBG and
Vision Fund breached fiduciary duties they owed as the Company’s controlling
stockholders. The court addressed this same issue with respect to the Neumann
Complaint in an opinion issued on October 30, 2020, and incorporates Part III.B.
of that opinion herein.158
154
Id. ¶ 36.
155
Id. ¶ 42.
156
Id. ¶ 40.
157
See id. ¶ 104.
158
See WeWork, 2020 WL 6375438, at *11-14.
41
In that decision, the court held that, “[e]ven assuming that SBG and Vision
Fund owed fiduciary duties to the Company’s other stockholders” during this
period, Neumann’s fiduciary duty claim “must be dismissed because it is
duplicative of his breach of contract claims.” 159 Critical to reaching that
conclusion, the court found that “Neumann does not identify any additional facts
relevant to his fiduciary duty claim but not his contract claim” and that “no
independent basis thus exists to maintain the claim for breach of fiduciary duty.”160
The Company’s fiduciary duty claim suffers from the same deficiency.
The Company’s primary contention is that SBG and Vision Fund breached
their fiduciary duties by pursuing an alternative transaction—the Trustbridge
transaction—to thwart the ChinaCo Roll-Up.161 The factual allegations supporting
this claim are the same as the ones supporting the Company’s claim that SBG and
Vision Fund breached the MTA by failing to use “reasonable best efforts” to
159
Id. at *11.
160
Id. at *14.
161
See WeWork Answering Br. 55-56, 58-59. As a secondary matter, the Company
argues that “Softbank wrongfully fabricated a failed closing condition with respect to
[certain] lease renegotiations.” Id. at 59. Tellingly, this issue is described in the section
of the Company’s brief entitled “SoftBank Reneges on its Contractual Obligations.” See
id. at 22. It also appears that this issue may be academic. See Compl. ¶ 76 (explaining
that the “Company and [Special] Committee do not believe that the Default Condition
has been triggered” as a result of the lease renegotiations.).
42
complete the ChinaCo Roll-Up.162 Indeed, the Company jointly alleges the
contract and fiduciary claims in the Complaint, which asserts that “SoftBank’s
actions not only violated the reasonable best efforts covenants of the MTA, but
further demonstrate that SoftBank has put its own interests ahead of the minority
stockholders to which it owes fiduciary duties.”163
In sum, given the Company’s failure to identify any additional facts relevant
to its fiduciary duty claim but not its contract claim, there is no independent basis
for the breach of fiduciary duty claim. Accordingly, the Company’s fiduciary duty
claim stemming from SBG and Vision Fund’s post-MTA actions will be
dismissed.
IV. CONCLUSION
For the reasons explained above, SBG and Vision Fund’s motions to dismiss
are GRANTED in part, and DENIED in part.
IT IS SO ORDERED.
162
See, e.g., Compl. ¶¶ 66 (“The terms and conditions of the restructuring with
Trustbridge were inconsistent with the roll-up of ChinaCo required by the MTA.”), 67
(“On information and belief, SoftBank also had discussions with other ChinaCo minority
investors to pressure them not to waive those rights. SoftBank did so despite its
obligations under Sections 8.03 and 8.12 of the MTA to use its reasonable best efforts to
secure achievement of the ChinaCo roll-up.”), 69 (“On information and belief,
SoftBank’s discussions with Trustbridge and the other minority investors in ChinaCo
convinced those investors not to waive their first refusal and co-sale rights, and the JV
Roll-Up Condition was not satisfied by April 1, 2020.”).
163
Id. ¶ 69.
43