Category: Business Judgment Rule
There has been a new development in the Xerox and Fujifilm (“Fuji”) litigation: Justice Ostrager of the New York Commercial Division declined to (i) certify the putative class, (ii) approve the proposed class settlement, and (iii) award the class attorney’s fees pursuant to a memorandum of understanding that was reached by defendant Xerox and putative class plaintiffs. The material terms of this agreement—changes to the Xerox Board of Directors—already took effect prior to the Justice Ostrager ruling.
Commercial Division Dismisses Shareholder Derivative Suit Because General News Reports and Articles Were Insufficient to Plead Demand Futility with Particularity
Before filing a shareholder derivative suit, the plaintiff must typically serve a pre-litigation demand upon the company’s Board of Directors, except in narrow circumstances where the demand may be futile. In Gammel v. Immelt, Justice Andrea Masley of the New York Commercial Division dismissed the shareholder derivative suit because the plaintiff did not meet the pre-litigation demand requirement and failed to plead with particularity the circumstances establishing the futility exception.
Last month, the First Department in Madison Sullivan Partners LLC v. PMG Sullivan St., LLC, 2019 N.Y. Slip Op. 04460 (June 6, 2019), affirmed the decision of former Commercial Division Justice Shirley Werner Kornreich that the Plaintiff in a LLC dispute failed to sufficiently allege a breach of fiduciary duty claim. The case concerned the parties’ relationship in a joint venture to develop Manhattan real estate as a mixed use project that was formed using several LLCs. In a detailed amended complaint, the Plaintiff alleged that Defendants collected monthly sums for work on a construction project for the venture, when Defendants were not actually working on the construction project but instead pursuing their own ventures.
On Wednesday June 5, 2019, all eight of the New York County Commercial Division justices participated on a panel for the New York State Bar Association’s Commercial and Federal Litigation Section on “Motion Practice Before the Commercial Division.” Motion practice is one of the most frequently used aspects of practice in the Commercial Division. The format was an informal question and answer session on motion practice, moderated by the Section’s Past Chair, Robert Holtzman.
Beginning in April 2019, the First Department has changed its practice to assign panels of four justices for oral argument, as opposed to five justices as has been the traditional practice of the court. This change is the result of three ongoing vacancies on the First Department that have remained unfilled by Governor Cuomo. The Presiding Justice of the First Department, Hon. Rolando Acosta, explained that the move to four justice panels is necessary because there are not enough judges to hear all the pending appeals. Aware that four justice panels could create a two-to-two split, Presiding Justice Acosta explained that a fifth judge can be brought in to issue a decision if needed. Parties can preserve their right to reargue or submit the case to a fifth justice by making a statement on the oral argument record. This change will likely remain in place until new judges are appointed to the court.
On October 16, 2018, the Appellate Division, First Department lifted several injunctions granted by the Commercial Division that had restrained a proposed merger deal between Xerox and Fujifilm (“Fuji”), and dismissed the Xerox shareholders’ actions against Fuji.
Commercial Division Allows Stockholder Challenge to Merger to Proceed Due to Allegations that the Special Committee Had a Conflict of Interest
On May 9, 2018, Judge Barry R. Ostrager of the Commercial Division denied a motion to dismiss a shareholder complaint in the Matter of Handy & Harman Ltd. Stockholder Litig., No. 654747/2017, 2018 BL 172083 (Sup. Ct. May 9, 2018), concluding that a plaintiff shareholder had sufficiently alleged that the Board’s Special Committee was conflicted when it recommended a merger transaction.[i]
On April 27, 2018, Justice Barry Ostrager of the Commercial Division enjoined a no-cash transaction that would have granted Fujifilm (“Fuji”) a 50.1% controlling interest in Xerox. Just days after the Court’s decision an agreement was reached whereby the CEO of Xerox, Jeff Jacobson, and six other current Xerox board members would step down from their positions, ceding control of the company to representatives of investors Carl Icahn and Darwin Deason. Shortly thereafter, Xerox reversed course, indicating publically that Jacobson would stay on as CEO. However, ultimately Xerox entered into a settlement agreement with Icahn and Deason resulting in the resignation of Jacobson and the scuttling of the Fuji Deal.