October 19, 2018

NY Appeals Court Overrules Xerox Decision

We’ve previously blogged about the litigation challenging Xerox & Fujfilm’s controversial proposed merger.  In May, a New York Supreme Court judge issued a 25-page opinion enjoining the deal.  On Tuesday, New York’s 1st Dept. Court of Appeals issued a terse 3-page order overturning that ruling.

The Court held that all of the Xerox board’s decisions about the proposed transaction were protected by the business judgment rule. Here’s an excerpt addressing the former CEO’s conflicts that featured so prominently in the trial court’s ruling:

To the extent former CEO of Xerox, Jacobson, was conflicted, inasmuch as the transaction provided that he would serve as the future CEO of the new company, the conflict was acknowledged; he neither misled nor misinformed the board (see Mills Acquisition v. Macmillan, Inc., 559 A2d 1261, 1264 [Del. 1989], compare Deblinger v. Sani-Pine Prods. Co., Inc., 107 AD3d 659 [2nd Dept. 2013]). The board, which engaged outside advisors and discussed the transaction on numerous occasions prior to voting on agreeing to present it to shareholders, did not engage in a mere post hoc review, nor was the transaction unreasonable on its face (see In re MeadWestvaco Stockholders Litig., 168 A3d 675, 683 (Del Ch 2017), compare Sinclair Oil Corp. v. Levien, 280 A.2d 717 [Del. 1971]).

In light of the foregoing, the business judgment rule does apply (Auerbach v. Bennett, 47 NYS 619 [1979]. And upon application of the business judgment rule, plaintiffs did not make a showing of the likelihood of success on the merits in the actions, which allege breaches of fiduciary duty and fraud.

While the facts relating to the conflicts in this transaction cited in the trial court’s ruling were  eyebrow-raising, the 1st Dept.’s decision to overrule the decision is not all that surprising. As we noted in our prior blog, commentators observed at the time of the earlier decision that it was unlikely that a Delaware court would have enjoined the deal.

With the Court’s ruling, this Reuters article says that as far as the potential Fujifilm/Xerox deal goes, the game’s afoot once again.

John Jenkins