(Westlaw) The Delaware Supreme Court has upheld a lower court ruling siding with Oracle Corp. co-founder and Chairman Larry Ellison and another director in a derivative action alleging an unfair process in the technology company’s 2016 acquisition of NetSuite Inc.
In re Oracle Corp. Derivative Litigation, No. 139-2024, 2025 WL 249066 (Del. Jan. 21, 2025).
The high court said Jan. 21 that it found no error in the Delaware Chancery Court’s decision to apply the business judgment standard of review, instead of the entire fairness standard, to the NetSuite transaction because the plaintiffs failed to show that Ellison wielded actual control over the deal.
Netsuite acquisition
Ellison founded Oracle, a technology company offering software, hardware, and cloud computing technologies, and served as its CEO until 2014, when he became the company’s chief technology officer and chairman.
Safra Catz and Mark Hurd succeeded Ellison as co-CEOs, and after Hurd died in 2019, Catz became the sole CEO, the opinion said.
Meanwhile, in March 2016, Oracle formed a special committee to negotiate a potential deal to acquire NetSuite, a technology company offering cloud-based enterprise resource planning, according to the opinion.
NetSuite accepted Oracle’s $109-per-share offer three months later, and in November 2016, 53% of NetSuite’s shares that were unaffiliated with Ellison and other Oracle and NetSuite directors agreed to tender their shares.
An Oracle stockholder sued the company, Ellison, Catz and other executives in May 2017 in a Delaware Chancery Court derivative suit alleging Ellison exerted undue influence on the deal, and that the company overpaid for NetSuite. Subsequently, the court dismissed all the defendants except Ellison and Catz from the suit.
In 2022 the Chancery Court sided with Ellison and Catz, determining the transaction was negotiated at arm’s length by a fully empowered special committee, and that Ellison did not exert an improper amount of control over the deal.
The plaintiffs appealed to the Delaware Supreme Court, saying the Chancery Court erred by applying the business judgment standard of review, rather than the entire fairness standard, to a transaction involving an alleged controlling stockholder.
Insufficient control
A stockholder who owns or controls less than 50% of a corporation’s voting power, like Ellison, who owned 28.8% of Oracle’s at the time of this transaction, is not presumed to be a controlling stockholder with fiduciary duties owed to the corporation, the high court explained.
However, a minority stockholder can be shown to be a controlling stockholder by demonstrating that they exercised “actual control,” either generally or in a specific transaction, the opinion said.
The Chancery Court determined that Ellison neither controlled Oracle’s day-to-day functions nor dictated its operations to the board. It also found that he avoided discussing the transaction with the special committee, and that Oracle’s board and management were not afraid to disagree with him, the court said.
Although the plaintiffs assert that certain facts and testimony are favorable to their arguments, the Delaware Supreme Court does not weigh evidence on appeal, it explained.
Consequently, because the plaintiffs do not argue that the Chancery Court’s “contrary factual findings on general and transactional control are clearly wrong,” their appeal on these grounds must be denied, the court concluded.
Joel Friedlander and Jeffrey M. Gorris of Friedlander & Gorris PA represented the appellant. Elena C. Norman and Richard J. Thomas of Young Conaway Stargatt & Taylor LLP represented Ellison and Catz, and Kevin R. Shannon and Berton W. Ashman of Potter Anderson & Corroon LLP represented Oracle.
By Douglas Mentes
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