The Final Chapter: Delaware Supreme Court Affirms Ruling in Favor of Larry Ellison and Safra Catz for NetSuite Deal Litigation

On January 21, 2025, the Delaware Supreme Court affirmed the Court of Chancery’s post-trial opinion in favor of the Defendants in In re Oracle Corp. Derivative Litigation.

In brief, the litigation – which spanned over five years, five amended complaints, and six pre-trial decisions – concerned allegations that Oracle founder and CTO Larry Ellison, with assistance from CEO Safra Catz, caused the company to overpay for its 2016 acquisition of NetSuite, a company in which Ellison also had a significant stake. Plaintiffs also alleged that the members of the Oracle board’s independent transaction committee, which evaluated and negotiated the transaction, either conspired with Ellison and Catz and failed to act independently or were deceived by Ellison and Catz, leading to the company’s overpayment. During the course of the case, the Oracle board formed a Special Litigation Committee (“SLC”) to investigate the derivative plaintiffs’ claims. The SLC, with assistance of counsel, conducted interviews and prepared interview memoranda, attempted to settle the case in mediation with the individual defendants, and ultimately returned the case to Plaintiffs to pursue in litigation.

After a 10-day trial in July and August of 2022, Vice Chancellor Glasscock issued an opinion finding for Defendants in full. For this blog’s prior coverage of that post-trial opinion, and other developments during the litigation including the post-trial dismissal of Sidley client Renée James, the chair of the board’s independent transaction committee, read here.

Key aspects of the lower court’s opinion as relevant to the appeal were as follows: The Court of Chancery found that Ellison was not a general controller of Oracle, and also did not control this specific transaction. The court also applied a multi-factor test to assess Plaintiffs’ “fraud on the board” theory which contended that Ellison and Catz deceived the independent transaction committee, and found no such fraud occurred. As a result of those analyses, the court applied a business judgment review, rather than an entire fairness review, to evaluate the acquisition.

Plaintiffs raised several issues on appeal, and the court affirmed in favor of Defendants on each. The court’s opinion has important implications for SLC privilege protections, controlling stockholder analysis, and application of the business judgment rule to potentially conflicted transactions.

Access to SLC Materials

Plaintiffs first contended that the lower court erred in not allowing them access to SLC documents that had been withheld as privileged. Plaintiffs sought discovery from the SLC and, after discovery disputes, received all the documents the SLC reviewed and relied upon in its investigation, except for those subject to any valid claim of privilege. Plaintiffs did not get, among other documents, the SLC’s interview memoranda, which the court concluded were subject to work product protection.

Previously, in Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981), the court held that an SLC’s determination to dismiss a derivative lawsuit is subject to a higher standard of review than business judgment, and under Zapata courts routinely allow discovery into SLC investigations. Plaintiffs argued that Zapata-style discovery should apply here, even where the SLC did not dismiss the lawsuit, because withholding interview memos hindered Plaintiffs’ prosecution of the case. The court rejected that argument, concluding that discovery rules under Rule 26(b)(3) should apply in situations where an SLC has turned over litigation to plaintiffs.

The court also held that even though the SLC exchanged its privileged materials with the individual defendants during mediation, the work product protection was not waived because confidential mediation proceedings carry a strong expectation of privacy.

Ellison’s Status as a Controller

The court left undisturbed the lower court’s finding that Ellison, who over time has held between a 20% to 43% ownership interest in Oracle, was not a controlling stockholder – either generally, or for the purposes of the NetSuite transaction.

The court noted that the question of whether a company co-founder and visionary leader, who was not a majority stockholder, could have such influence to obtain the status of a “controlling stockholder” is intensely factual. Thus, the court deferred to Vice Chancellor Glasscock’s fact-specific analysis informed by a 10-day trial, and adopted the findings that Oracle’s board and management were not afraid to disagree with Ellison, Ellison did not control Oracle’s day-to-day functions, and Ellison did not interfere with the NetSuite transaction or discuss it with the independent transaction committee.

Given that Plaintiffs could not challenge the factual findings underpinning the lower court’s conclusion, the court left that conclusion in place.

Fraud on the Board and Business Judgment Review

Lastly, the court affirmed the rejection of Plaintiffs’ “fraud on the board” theory.

The lower court applied a multi-factor test to analyze whether Ellison committed fraud on the independent transaction committee by withholding material information from the committee and full board. The court actually rejected the lower court’s multi-factor approach, and held that when it comes to fiduciaries accused of disloyal conduct under a fraud on the board theory, the inquiry should be simply whether the fiduciary violated their duty of good faith by withholding material information from the board, engaging in deceptive conduct, or otherwise misleading the board.

With that in mind, the court then affirmed the lower court’s factual findings that Ellison did not withhold material information regarding his plans for integrating and operating NetSuite following the acquisition from the independent transaction committee. First, the court found it is unlikely that the independent transaction committee would have considered that information material, given the surrounding factual circumstances of the transaction. And second, if Ellison had in fact spoken with the independent transaction committee about his vision for NetSuite, the court noted that it is likely that Plaintiffs would quickly pivot and claim he improperly exerted his influence over the committee.

Given that Ellison was not a controller, and that no fraud on the board occurred, the court affirmed application of the business judgment rule, and therefore the judgment in favor of Defendants.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.