January 23, 2025
Conflicted Controllers: Del. Supreme Affirms Plaintiff Must Show Actual Control
Earlier this week, the Delaware Supreme Court issued its opinion in In re Oracle Corp. Derivative Litig. (Del. Sup.; 1/25) affirming the Delaware Chancery Court’s decision to apply the business judgment rule in the derivative matter by Oracle’s stockholders arguing that it overpaid for NetSuite because Larry Ellison, founder, director and officer of Oracle and significant stockholder of NetSuite, was a conflicted controller. As we shared in May 2023, in his seventh memorandum opinion in the litigation involving Oracle’s 2016 acquisition of NetSuite, VC Glasscock found that Ellison was not a controller of Oracle — distinguishing Ellison’s potential to control from actual control.
Here’s an excerpt from the Delaware Supreme Court’s opinion:
The test for actual control by a minority stockholder “is not an easy one to satisfy.” The minority stockholder must have “a combination of potent voting power and management control such that the stockholder could be deemed to have effective control of the board without actually owning a majority of stock.” To prove actual control over a specific transaction, a plaintiff must prove that the minority stockholder “exercised actual control over the board of directors during the course of a particular transaction.”
The Court declined to weigh evidence on appeal — noting that this appeal is not from an early-stage dismissal decision and facts and testimony favorable to plaintiffs’ arguments were fully vetted during a 10-day trial — and the plaintiffs were not arguing on appeal that the Vice Chancellor’s factual findings were clearly wrong. The Court nonetheless gives this helpful summary of unchallenged facts that VC Glasscock cited to conclude that Ellison did not exercise actual control:
– the Oracle board and management were not afraid to disagree with Ellison;
– Ellison neither controlled Oracle’s day-to-day functions nor dictated Oracle’s operations to the Oracle board;
– Ellison “scrupulously avoided” discussing the transaction with the Special Committee;
– Ellison neither proposed the transaction nor indirectly controlled the merger negotiations through his January 27, 2016, phone call with Goldberg; and
– although Ellison could have controlled the transaction, he did not interfere with or actually exercise control over the transaction.
– Meredith Ervine