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E-MailAndrew Stern and Kai Haakon E. Liekefett are partners at Sidley Austin LLP. This post is based on their Sidley memorandum.
On October 16, 2018, the New York Appellate Division reversed an injunction that had stalled Fujifilm’s $6.1 billion transaction with Xerox for nearly five months and a completely dismissed all related claims against Fujifilm. The court’s decision in In re Xerox Corporation Consolidated Shareholder Litigation and Deason v. Fujifilm Holdings Corp. reaffirms the longstanding rule that a plaintiff must establish that a majority of the directors on a corporate board is interested or lacks independence with respect to a decision in order to rebut the business judgment rule.
On January 31, 2018, Xerox and Fujifilm announced a transaction pursuant to which (i) Fujifilm would take a 50.1 percent stake in Xerox, (ii) Fujifilm would contribute its 75 percent interest in Fuji Xerox Co. Ltd., Fujifilm and Xerox’s longstanding joint venture and (iii) existing Xerox stockholders would receive a $2.5 billion special dividend. After the transaction was announced, putative stockholder class plaintiffs, along with Xerox’s largest stockholder, Darwin Deason, sought to enjoin the deal, primarily arguing that Xerox’s CEO negotiated an unfair transaction for the purpose of securing continuing employment for himself. In addition to pleading breach of fiduciary duty claims against Xerox and its directors, plaintiffs also asserted aiding and abetting claims against Fujifilm. Carl Icahn publicly supported the stockholders’ efforts. On April 27, following a two-day evidentiary hearing, the New York Supreme Court preliminarily enjoined the transaction and simultaneously denied Fujifilm’s motion to dismiss.
Fujifilm appealed the decision and asserted primarily that the trial court had improperly concluded that a majority of the Xerox board was conflicted based solely on a finding that pursuant to the terms of the transaction agreements, five directors would continue to serve after the closing. Fujifilm successfully argued to the contrary, pointing to longstanding New York law holding that the prospect of retaining a directorship is not necessarily a material interest sufficient to rebut the business judgment rule.
The appellate court agreed. It noted that the board had engaged outside advisers and considered the transaction on numerous occasions and had “not engage[d] in a mere post hoc review, nor was the transaction unreasonable on its face.” Therefore, a unanimous court ordered a complete reversal of the trial court’s decisions “on the law and the facts,” dissolving the injunction and dismissing all claims against Fujifilm.
Sidley Austin represented Fujifilm in the case.
