Data Key Partners v. Permira Advisors LLC
| Decision Date | 01 August 2013 |
| Docket Number | No. 2012AP1967.,2012AP1967. |
| Citation | 350 Wis.2d 347,2013 WI App 107,837 N.W.2d 624 |
| Parties | DATA KEY PARTNERS, Plaintiff–Appellant, v. PERMIRA ADVISORS LLC, Raphael Holding Company, Terrance D. Paul, Judith Ames Paul, Addison L. Piper, Harold E. Jordan, Mark D. Musick, Randall J. Erickson, Glenn R. James and Raphael Acquisition Corp., Defendants–Respondents, Renaissance Learning, Inc., Defendant. |
| Court | Wisconsin Court of Appeals |
OPINION TEXT STARTS HERE
On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Stacy Taeuber of Law Offices of Stacy Taeuber, Madison, and Richard B. Brualdi of The Brualdi Law Firm, P.C., New York, New York.
On behalf of the defendants-respondents, the cause was submitted on the joint brief of Jonathan C. Medow of Mayer Brown LLP, Chicago, Illinois; Leon S. Schmidt, Jr., of Schmidt & Grace, Wisconsin Rapids; Nancy J. Sennett, Andrew J. Wronski, and Eric Pearson of Foley & Lardner LLP, Milwaukee; Garrett J. Waltzer of Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California; and Howard A. Pollack and Michael B. Apfeld of Godfrey & Kahn, S.C., Milwaukee.
Before BLANCHARD, P.J., LUNDSTEN and HIGGINBOTHAM, JJ.
[350 Wis.2d 352]¶ 1 Data Key Partners, a former minority shareholder in Renaissance Learning, Inc., appeals a circuit court judgment that dismissed Data Key's claims arising out of the sale of Renaissance to Permira Advisors, LLC. Data Key alleged that Renaissance's directors and its majority shareholders (who are also directors) breached various fiduciary duties and that Permira aided and abetted the breaches. Data Key argues that the circuit court erred in concluding that its complaint failed to state a claim upon which relief may be granted. As primary support for this argument, Data Key asserts that the court erred in giving the Renaissance directors the benefit of the business judgment rule at the motion to dismiss stage of the proceedings.
¶ 2 We conclude that the circuit court should not have applied the business judgment rule to Data Key's claims at the motion to dismiss stage. Based in part on that conclusion, we further conclude that the court erred in dismissing Data Key's claim against the directors for breach of fiduciary duty. We also conclude that the court erred in dismissing Data Key's claim against the Pauls for breach of fiduciary duty in their capacity as majority shareholders. However, Data Key fails to persuade us that the court erred in dismissing the claim against the directors for failure to disclose information and the claim against Permira for aiding and abetting breaches of fiduciary duty. We reverse and remand for further proceedings on Data Key's surviving claims.
¶ 3 Unless otherwise indicated, the facts below are drawn from the allegations in Data Key's complaint. We take the allegations as true for purposes of Data Key's appeal from the circuit court's decision on a motion to dismiss for failure to state a claim. See Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 923, 471 N.W.2d 179 (1991). We summarize some of the most pertinent allegations here, referencing additional allegations as needed in discussion below.
¶ 4 Renaissance was a publically traded Wisconsin corporation before being sold to Permira and affiliated entities. The board of directors of Renaissance included Terrance and Judith Paul. The Pauls co-founded Renaissance and owned or controlled a majority of its shares.
¶ 5 As indicated above, Data Key was a minority shareholder in Renaissance. Renaissance had approximately 29 million shares of common stock outstanding, held by approximately 269 stockholders and by more than 2,000 beneficial owners.
¶ 6 It is undisputed for purposes here that the sale of Renaissance required the approval of a majority of its board and a majority of its shareholders.
¶ 7 The events leading to the sale of Renaissance to Permira began with the Pauls' decision to “cash out” their ownership in Renaissance as part of their retirement plans. Given the large number of shares that the Pauls held, they were unable to sell their shares on the open market. Also, the Pauls believed they could maximize the share price by selling the entire company. The Pauls' personal banker, Goldman Sachs, was selected to act as financial advisor for the sale of Renaissance.
¶ 8 Renaissance and Permira entered into an “Agreement and Plan of Merger” under which Permira would merge with or purchase Renaissance for $14.85 per share.1 A different company, Plato Learning, Inc., then offered to purchase Renaissance for $15.50 per share.
¶ 9 The Renaissance board of directors rejected the Plato offer and instead entered into an amended agreement with Permira under which Permira would pay $15 per share to the Pauls and $16.60 per share to minority shareholders. The directors made this decision for several reasons, including: the Pauls thought that a deal with Permira had a high likelihood of closing, the Pauls believed that any deal with Plato carried a higher risk of non-consummation, and a failure to close a deal with Permira would result in a $13 million termination fee. In addition, Permira had agreed to grant a license benefitting a separate company controlled by the Pauls.
¶ 10 Plato made a revised offer consisting of $15.10 per share for the Pauls and $18 per share for minority shareholders, equaling an aggregate purchase price of approximately $471 million. The Pauls informed the other board members that they would not support acceptance of this revised Plato offer.
¶ 11 Plato made a third offer for a total of approximately $496 million. This offer was also rejected by Renaissance leadership, and Renaissance was sold to Permira. From what we can discern from the parties' arguments and the record, the sale resulted in a price of $15 per share for the Pauls and $16.60 per share for minority shareholders, consistent with the amended agreement between Renaissance and Permira.
¶ 12 Alleging that it represented the minority shareholders as a class, Data Key sued the Pauls, the other Renaissance directors, and Permira.2 Data Key alleged four claims, all involving the sale:
(1) A claim against the Renaissance directors, including the Pauls, for breach of fiduciary duty. Data Key alleged breach of those duties based on a variety of conduct, including that the non-Paul directors abdicated their responsibilities as directors and submitted to the will of the Pauls, and that the directors had personal interests in the sale.
(2) A claim against the Pauls for breach of fiduciary duty in their capacity as majority shareholders, namely, placing their own interests over those of the minority shareholders.
(3) A claim against the directors for failure to disclose information. 3 Data Key alleged that the directors omitted material information from the proxy statement describing the sale, including information regarding alleged conflicts of interest by Goldman Sachs, which prevented the shareholders from making informed decisions on whether to vote in favor of the sale to Permira.
(4) A claim against Permira for allegedly aiding and abetting breaches of fiduciary duty by the other defendants.
¶ 13 The circuit court dismissed Data Key's complaint, concluding that Data Key failed to state a claim upon which relief may be granted. We address the circuit court's reasoning as needed in the discussion below.
[350 Wis.2d 356]¶ 14 As indicated above, Data Key appeals. The defendants—the Pauls, the other directors, and Permira—have submitted a joint response brief.
¶ 15 We review a circuit court's decision on a motion to dismiss for failure to state a claim de novo. H.A. Friend & Co. v. Professional Stationery, Inc., 2006 WI App 141, ¶ 8, 294 Wis.2d 754, 720 N.W.2d 96. “The facts set forth in the complaint must be taken as true and the complaint dismissed only if it appears certain that no relief can be granted under any set of facts that the plaintiffs might prove in support of their allegations.” Northridge Co., 162 Wis.2d at 923, 471 N.W.2d 179. “The reviewing court must construe the facts set forth in the complaint and all reasonable inferences that may be drawn from those facts in favor of stating a claim.” Id. at 923–24, 471 N.W.2d 179.
¶ 16 As to Data Key's first claim, for breach of fiduciary duty by the directors, the court appeared to conclude that the only reasonable inference from the complaint allegations was that the directors reasonably exercised their business judgment. The court similarly appeared to conclude that the complaint supported a reasonable inference that there were “issues” or “questions” as to the likelihood of a Plato deal closing, and that the directors thus reasonably declined to pursue such a deal. In addition, the court relied on a Delaware case, Mendel v. Carroll, 651 A.2d 297 (Del.Ch.1994), as standing for the proposition that a board's fiduciary duties do not authorize the board “to deploy corporate power against the majority stockholders.” 4
¶ 17 Data Key argues that the circuit court erred in failing to adhere to the pleading standards applicable to a motion to dismiss. As primary support for this argument, Data Key argues that the court erred in applying the business judgment rule at the motion to dismiss stage of proceedings. Data Key also argues that the court's reliance on Mendel was misplaced. We agree with Data Key's arguments, each of which we discuss in more detail below.
¶ 18 We begin with Data Key's argument regarding the business judgment rule. The circuit court dismissed Data Key's claim against the directors for breach of fiduciary duty based in significant part on the court's application of that rule. Similarly, many of the defendants' arguments depend on the application of that rule.
¶ 19 “The business judgment rule ... contributes to judicial economy by limiting court involvement in...
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Partners v. Permira Advisers LLC
...duty when they chose to sell Renaissance to Permira. ¶ 14 The court of appeals reversed in part.8Data Key Partners v. Permira Advisors LLC, 2013 WI App 107, 350 Wis.2d 347, 837 N.W.2d 624. It concluded that there were sufficient facts alleged to show breach of fiduciary duty claims against ......