Recently, the Delaware Court of Chancery ruled that it would allow an important shareholder lawsuit against Barnes & Noble to proceed. Here is a take from Grant & Eisenhofer, the co-lead counsel to the group of institutional shareholders who have brought the case as a derivative action on behalf of Barnes & Noble:
Chancery Court Vice Chancellor Leo Strine denied a motion to dismiss a lawsuit against seven current or former directors of Barnes & Noble for approving a 2007 acquisition of a college textbook subsidiary controlled by B&N’s Chairman Leonard Riggio (here’s the court transcript referred to in the ruling which is really the substance). Other directors named include Riggio’s brother and Barnes & Noble Vice Chairman Stephen Riggio, along with Irene Miller, the company’s former Vice Chair who is currently lead director of Coach.
Shareholders are challenging the board’s approval of B&N’s $596 million acquisition of textbook retailer Barnes & Noble College Booksellers, alleging the board breached its fiduciary duties to the company in purchasing a failing company in a sinking industry. They allege the driving purpose behind the deal was to enrich Len Riggio. In his bench ruling allowing the case to move forward, Vice Chancellor Strine considered the actions of the board – including alleged conflicts among some board members – and concluded that the board’s approval of the acquisition “gives off a very fishy smell.”
Notes the firm’s co-Managing Partner Stuart Grant, “This case will demonstrate that Len Riggio forced a nearly $600 million deal onto shareholders as a way to extricate himself from a retail business that he knew was failing. In cashing out on favorable terms for himself, he forced Barnes & Noble’s public shareholders to ‘double-down’ on a losing investment.”