Archive: May 5, 2014

Third Point LLC v. Ruprecht, C.A. No. 9469-VCP (May 2, 2014) (Parsons, V.C.)

By David Bernstein and Meredith Laitner

On May 2, 2014, the Delaware Chancery Court issued its decision in Third Point LLC v. Ruprecht, C.A. No. 9469-VCP (May 2, 2014) (Parsons, V.C.), denying plaintiffs’ motion for a preliminary injunction which, if granted, would have delayed the Sotheby’s annual stockholder meeting until the court could determine whether the members of the Sotheby’s Board violated their fiduciary duties by adopting a “poison pill” rights plan that would be triggered if anybody acquired 10% of Sotheby’s outstanding shares, except that a Schedule 13G filer (which must be a passive investor) could acquire up to 20%.  Third Point had accumulated 9.6% of Sotheby’s stock and had nominated three candidates, including Third Point’s CEO, Daniel Loeb, for election to the Sotheby’s Board.  Third Point had asked that it be permitted to acquire up to 20% of Sotheby’s shares, but the Sotheby’s Board denied the request.  Third Point claimed in the lawsuit that this adoption of the poison pill rights plan and refusal to grant the requested waiver was an impermissible effort by the Sotheby’s Board to obtain an advantage in the proxy contest. 

Third Point had commenced the lawsuit in March 2014 after a series of acrimonious public and private communications in which Loeb had referred to what he claimed was Sotheby’s deteriorating competitive position with regard to Christie’s, accused Sotheby’s of having “a sleepy board and overpaid executive team,” said he intended to replace the CEO of Sotheby’s, and told people inside and outside of Sotheby’s that he would shortly be running Sotheby’s.  In return, Sotheby’s had publicly listed what it viewed as Loeb’s failed efforts to remake companies after it got footholds on their boards.

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2009 Caiola Family Trust, et al. v. PWA, LLC, et al., C.A. No. 8028-VCP (Apr. 30, 2014) (Parsons, V.C.)

By Nick Froio and Marisa DiLemme

In this opinion, Vice Chancellor Parsons considers the parties’ cross motions for summary judgment as to the proper interpretation of a key provision of the operating agreement (the “Operating Agreement”) of Dunes Point West Associates, LLC (the “Company”), a Delaware limited liability company, relating to the Company’s management. The plaintiffs, together, own 90% of the Company, and are the only non-managing members of the Company. The defendants are PWA, LLC (“PWA”), the Company’s managing member and the holder of a10% interest in the Company, and Ward Katz, the managing member of PWA and sole owner of the Company’s property manager, Dunes Residential Services, Inc. (“DRS”). In July 2012, plaintiffs voted to terminate DRS as property manager. Shortly thereafter, the plaintiffs voted to terminate PWA as managing member for “Cause” due to PWA having materially breached the Operating Agreement by not implementing their decision to replace DRS with a new property manager.

The plaintiffs argued that Section 8.4(a) of the Operating Agreement allows the non-managing members to mandate removal of the property manager by majority vote since one of the actions upon which the non-managing members are entitled to vote under Section 8.4(a) included the termination of the management agreement under which DRS was appointed property manager. The defendants argued that Section 8.4(a) of the Operating Agreement only gives the non-managing members a limited veto right over those Company actions. The Court found Section 8.4(a) to be unambiguous and agreed with the defendant’s interpretation of the provision as granting only a limited veto power.

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