In re Novell, Inc. S'holder Litig.
| Decision Date | 10 February 2012 |
| Docket Number | CIVIL ACTION NO. 10-12076-RWZ |
| Parties | In re NOVELL, INC. SHAREHOLDER LITIGATION |
| Court | U.S. District Court — District of Massachusetts |
ZOBEL, D.J.
Michael Rosenberg, Mohan Desai, Robert G. Ciancetti, Leslie Jacobs, and Bruce M. Scotland (collectively, "plaintiffs") bring this class action as former shareholders of Novell, Inc., against individual defendants who are all former directors of Novell ("Novell Directors"),1 and defendant Attachmate Corporation for conduct arising out of Novell's merger with Attachmate in 2011.2 Plaintiffs' Consolidated Complaint3 contains three counts: Count I - breach of fiduciary duty against the Novell Directors, and aiding and abetting breach of fiduciary duty against Attachmate; Count II - violation of section 14(a) of the Securities Exchange Act of 1934 ("§ 14(a)" and "the 1934 Act," respectively) and Rule 14a-9 against all defendants; and, Count III -violation of section 20(a) of the 1934 Act ("§ 20(a)") against all defendants.4
Defendants move to dismiss all claims against them for failure to state a claim, Docket ## 46, 51, or in the alternative, to stay proceedings pending the outcome of a class action lawsuit in the Delaware Court of Chancery, In re Novell, Inc. Shareholders Litigation, Consolidated C.A. No. 6032-VCN (the or "Delaware action").5 Docket ## 49, 58. For the reasons enumerated below, Attachmate's motion to dismiss is allowed, as is the Novell Directors' motion for a stay of these proceedings pending further order of this court.
For purposes of this Order, I consider as true the facts as alleged in the Consolidated Complaint. I also consider documents incorporated by reference therein,matters susceptible to judicial notice, and matters of public record, including state court records. Giragosian v. Ryan, 547 F.3d 59, 65-66 (1st Cir. 2008).
Novell is a Delaware software company headquartered in Waltham, Massachusetts. On March 2, 2010, Novell's Board of Directors ("the Board") received an unsolicited bid from one of Novell's associated shareholders, Elliott Associates, L.P., and Elliott International L.P. (collectively, "Elliott"), proposing a purchase price of $5.75 per share. Later that month, the Board issued a press release announcing rejection of Elliott's bid as inadequate. From March through November 2010, the Board solicited and evaluated purchasers for Novell ("the sale process"). During the sale process, eight potential buyers, including Attachmate, proposed price ranges from $5.50 to $7.50 per share. Novell's financial advisor, J.P. Morgan, also contacted and evaluated 52 potential buyers, reviewed strategic alternatives, and provided the Novell Directors with a fairness opinion of Attachmate's proposal.
On November 22, 2010, Novell announced that it had entered into a merger agreement with Attachmate. On December 14, 2010, Novell issued a proxy statement ("the Preliminary Proxy") explaining the sale process, disclosing the terms of the merger agreement, and recommending that Novell shareholders vote in favor of the merger. Novell subsequently amended the Preliminary Proxy on December 27, 2010, and again on January 14, 2011 ("the Definitive Proxy"). On February 3, 2011, Novell filed a supplement to the Definitive Proxy, making additional disclosures.Approximately 99 percent of shares voting approved the merger on February 17, 2011.
Attachmate agreed to purchase Novell for $6.10 per share, a transaction valued at approximately $2.2 billion. The purchase was contingent on the separate but concurrent sale of a number of Novell's patents to CPTN, a consortium of technology companies organized by Microsoft Corporation, for $450 million ("the patent purchase agreement"). Certain members of Novell's Board and management stood to gain financially from the merger, in the form of vested stock options and "lucrative cash payments" if their employment was terminated after the acquisition. Docket # 45 ¶¶ 57-58.
Novell agreed to discontinue any discussions with all other potential acquirers and not to enter into new discussions ("No Shop" provision); to give Attachmate five days to match any competing proposals ("Matching Rights" provision); and to pay Attachmate a $60 million termination fee in the event that Novell received and accepted a better offer ("Termination Fee" provision). Attachmate agreed to pay Novell a $120 million termination fee ("reverse termination fee") in the event that Attachmate failed to consummate the merger.
Elliott and Attachmate entered into a separate agreement whereby Elliott pledged equity to support Attachmate's purchase of Novell in the form of Elliott's 7.1% ownership in Novell common stock. In return, Elliott would become an equity shareholder in Wizard Parent, Attachmate's parent corporation. Francisco Partners, one of Attachmate's principal shareholders, also provided equity to finance Attachmate's purchase of Novell.
Gary Greenfield, one of the Novell Directors, was once an operating partner of Francisco Partners, and since 2003 has been CEO of GXS, Inc., a subsidiary of Francisco Partners. During the sale process, Greenfield also had a "continuing passive interest in certain of Francisco Partners' investment funds," although, in September 2010, he "did not have definitive information as to which fund or funds of Francisco Partners might be used to finance [the proposed merger with Attachmate]." Docket # 52 Ex. A at 38. On September 21, 2010, the Board determined, with Greenfield abstaining, that his "continued participation in the [sale] process would be beneficial and enhance [the Board's ability] to consider and pursue [Novell's and its stockholders'] best interest." Id. The Board also "ratified" Greenfield's "prior participation as a member of the Board in deliberations and decisions relative to the process." Id. On or about October 21, 2010, at the request of Novell Director Crandall, Greenfield contacted Francisco Partners to ask that Attachmate reconsider a transaction for the purchase of Novell.
On November 21, 2010, the Board, with Greenfield abstaining, voted to approve the Attachmate merger and resolved to recommend that Novell shareholders do likewise. Subsequent to the announcement of the merger, Greenfield "advised Novell that he had received notice that certain funds of Francisco Partners in which he was a passive investor would be participating in the acquisition of Novell." Id. at 76-77. Francisco Partners "agreed to waive Greenfield's commitment to co-invest to fund the acquisition of Novell." Id. at 77.
A pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal quotation marks omitted). The facts pleaded must allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. The court will identify and disregard any statements in the complaint that are either "legal conclusions couched as facts or bare bones recitals of the elements of action." Harron v. Town of Franklin, 660 F.3d 531, 535 (1st Cir. 2011)(citing Iqbal, 129 S.Ct. at 1949-50, and Ocasio-Hernandez v. Fortuno-Burset, 640 F.3d 1, 12 (1st Cir.2011)).
A. Aiding and Abetting Claims Against Attachmate
Plaintiffs allege that the Novell Directors breached their fiduciary duties of care and loyalty by failing to maximize shareholder value of Novell through the sale process. They allege that Attachmate aided and abetted such breach by the Novell Directors. To survive Attachmate's motion to dismiss, the complaint must allege facts that satisfy the four elements of an aiding and abetting claim: (1) the existence of a fiduciary relationship; (2) a breach of the fiduciary's duty; (3) knowing participation in that breach by the defendants; and (4) damages proximately caused by the breach. Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001)(internal quotations omitted).
"A third party may be liable for aiding and abetting a breach of a corporate fiduciary's duty to the stockholders if the third party 'knowingly participates' in thebreach." Id. "Knowing participation in a board's fiduciary breach requires that the third party act with the knowledge that the conduct advocated or assisted constitutes such a breach." Id. at 1097 (). "Similarly, a bidder may be liable to a target's stockholders for aiding and abetting a fiduciary breach by the target's board where the bidder and the board conspire in or agree to the fiduciary breach." Id. at 1097-98 (emphasis added).
Only two allegations implicate conduct by Attachmate and are therefore relevant to the claim against it. First, plaintiffs claim that the Novell Directors permitted defendant Greenfield to negotiate with Attachmate on Novell's behalf despite knowing of his affiliation with Francisco Partners. Second, they allege that the Novell Directors "allowed" Elliott to finance the acquisition by exchanging Novell common stock for rollover shares in Attachmate's parent company, Wizard Parent LLC, thereby securing for Elliott a "material financial benefit" not shared by Novell's other public shareholders. Docket # 45 ¶¶ 8, 54. Plaintiffs argue that Attachmate "knowingly participated" in the Novell Directors' alleged breach because Attachmate "knew" of Greenfield's affiliation with Francisco Partners and "knew"...
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