Business Associations Keyed to Hamilton
In re Oracle Corp. Derivative Litigation
Facts
Shareholders (Plaintiff) of Oracle Corp. (Oracle) brought a derivative action, claiming insider trading by four members (Defendant) of Oracle’s board of directors—Ellison (D), Henley (D), Lucas (D), and Boskin (D). Ellison (D) was Oracle’s Chairman and one of the wealthiest men in the world. The suit alleged those directors (Defendant) breached their fiduciary duty, as did the non-trading directors (Defendant), whose indifference according to the plaintiff shareholders (Plaintiff) amounted to subjective bad faith. The special litigation committee (SLC) was formed by Oracle to investigate the charges in the derivative action and to decide whether to press the claims raised, terminate the action, or settle. Two Oracle board members, having joined the board after the alleged breaches, were named to the SLC. They were each professors at Stanford University and both agreed to forfeit any compensation related to the SLC if their compensation was determined to impair their impartiality. The SLC’s legal an analytic advisors’ independence was not challenged. Their investigation was extensive, and the committee produced a very lengthy report that concluded that Oracle should not pursue any of the derivative action claims. The SLC based its opinion on Oracle’s quarterly earnings cycle, and determined that none of the accused directors had possessed material, non-public information. The SLC, in its report, took the position that its members were independent. In this regard, the report pointed out that the SLC members received no compensation from Oracle other than as directors, that neither were on the board at the time of the alleged wrongdoing, that they were willing to return their compensation, and that no other material ties existed between the SLC members and the defendants. However, the report failed to indicate that there were significant ties between Oracle, the trading defendants (Defendant), and Stanford University (Stanford)—namely, in the form of very large donations, or potential donations, that the SLC members were aware of. Also, one of the SLC members had been taught by one of the trading Defendants, and both were senior fellows and steering committee members of a Stanford research institute. The SLC argued that even together, these facts regarding the ties among Oracle, the Defendants, Stanford, and the SLC members did not impair the independence of the SLC. In so arguing, the SLC placed great weight on the fact that none of the Defendants had the practical ability to deprive either SLC member of their current positions at Stanford. Given their tenure, neither did Stanford itself have any practical ability to punish them for taking action adverse to Oracle or any of the defendants.
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