Partners v. Permira Advisers LLC

Decision Date23 July 2014
Docket NumberNo. 2012AP1967.,2012AP1967.
Citation2014 WI 86,849 N.W.2d 693,356 Wis.2d 665
PartiesDATA KEY PARTNERS, Plaintiff–Appellant, v. PERMIRA ADVISERS LLC, Raphael Holding Company and Raphael Acquisition Corp., Defendants–Respondents, Terrance D. Paul, Judith Ames Paul, Addison L. Piper, Harold E. Jordan, Mark D. Musick, Randall J. Erickson, and Glenn R. James, Defendants–Respondents–Petitioners, Renaissance Learning, Inc., Defendant.
CourtWisconsin Supreme Court


For the defendants-respondents-petitioners, there were briefs by Jonathan C. Medow and Mayer Brown LLP, Chicago; Leon S. Schmidt Jr. and Schmidt & Grace, Wisconsin Rapids; and Howard A. Pollack, Michael B. Apfeld, and Godfrey & Kahn, S.C., Milwaukee; and oral argument by Jonathan C. Medow and Michael B. Apfeld.

For the plaintiff-appellant, there was a brief by Richard B. Brualdi and The Brualdi Law Firm, P.C., New York; and Stacy Taeuber, Madison; and oral argument by Richard B. Brualdi.


¶ 1 We review a decision of the court of appeals 1 reversing, in part, an order of the circuit court 2 that dismissed the Second Amended Complaint because it failed to state a claim upon which relief could be granted. Plaintiffs claim that defendants violated their fiduciary duties to the minority shareholder by selling Renaissance Learning, Inc. to Permira Advisers, LLC.3 Defendant directors contend that plaintiffs have not pled facts sufficient to show that they are entitled to relief because they have not pled around the business judgment rule, codified at Wis. Stat. § 180.0828 (2011–12).4 As to the majority shareholders,they claim that plaintiffs have likewise failed to plead facts sufficient to show that they are entitled to relief.

¶ 2 We conclude that Wis. Stat. § 180.0828(1) unequivocally sets forth the terms on which directors may be held liable for their decisions. The business judgment rule is both a substantive law and a procedural device by which to allocate a burden. Reget v. Paige, 2001 WI App 73, ¶¶ 17–18, 242 Wis.2d 278, 626 N.W.2d 302 (the rule “immunize[s] individual directors from liability and protects the board's actions” and “creates an evidentiary presumption that the acts of the board of directors were done in good faith”). As such, a party challenging the decision of a director must plead facts sufficient to plausibly show that he or she is entitled to relief, i.e., facts that show the director's actions constitute: a “willful failure to deal fairly” with a “shareholder [ ] in connection with a matter in which the director has a material conflict of interest”; a “violation of criminal law”; a “transaction from which the director derived an improper personal profit”; or [w]illful misconduct.” § 180.0828(1)(a)(d). This is a straightforward application of notice pleading standards to the substantive law of the case because substantive law drives what facts must be pled.

¶ 3 The Second Amended Complaint does not plead facts sufficient to plausibly show that the directors' actions come within the terms of potential liability, or that Judith and Terrance Paul (the Pauls) received an improper material benefit at the expense of the minority shareholders. Accordingly, we reverse the decision of the court of appeals in regard to the issues presented to us for review.


¶ 4 This lawsuit arises out of the merger and sale (hereinafter sale) of Renaissance Learning, Inc., a publicly traded corporation. Plaintiffs are Data Key Partners, a partnership whose type is not apparent from the pleadings, and three partners, Lawrence Bass, Paul Berger and Robert Garfield. The partners allege indirect interests in Renaissance due to the shares of Renaissance that Data Key Partners owned.

¶ 5 The Pauls are the founders of Renaissance. They were directors of Renaissance and controlled 69 percent of outstanding Renaissance shares at the time of the sale. Defendants Addison Piper, Harold Jordan, Mark Musick, Randall Erickson and Glenn James also were directors of Renaissance at the time of the challenged transaction (hereinafter non-Paul directors).

¶ 6 Defendants Permira Advisers LLC, Raphael Holding Company and Raphael Acquisition Corporation are business organizations involved in the purchase of Renaissance. The claims made against all defendants for failure to disclose and against these corporate defendants for aiding and abetting are not part of this review.5 (Counts III and IV, Second Amended Complaint.)

¶ 7 The Pauls decided to sell their interest in Renaissance. Permira approached Renaissance, and made several offers to purchase the entire company. In its final offer, Permira offered to pay $15 per share to the Pauls and $16.60 per share to the minority shareholders. Renaissance's board of directors approved Permira's offer and Renaissance's shareholders accepted it, with the sale set to close October 19, 2011. As part of Permira's contract with Renaissance, Renaissance was obligated to pay a $13 million penalty if Renaissance cancelled the sale to Permira.

¶ 8 On September 27, 2011, after the agreement to sell Renaissance to Permira was reached, Plato Learning, Inc. began a bidding war. In one bid, Plato offered to purchase Renaissance for a payment to the Pauls of $15.10 per share and a payment to minority shareholders of $18 per share. That bid was not accepted. As a final bid, Plato offered $16.90 per share for all shareholders' interests, with no difference between minority and majority shares. This last offer would have netted the Pauls roughly $38 million more than the sale to Permira. It also was rejected, but not before plaintiffs sued to stop the Permira sale.

¶ 9 On October 7, 2011, plaintiffs sued in federal district court, claiming violations of the Securities Exchange Act of 1934 and breach of defendants' fiduciary duty. They sought to enjoin the sale to Permira. On October 14, 2011, the federal district court denied plaintiffs' motion to enjoin the sale, concluding that plaintiffs did not have “any likelihood of success” on the merits of their claims. Plaintiffs withdrew the federal claims, thereby raising a question of whether the federal court had jurisdiction. On November 28, 2011, the federal case was dismissed.

¶ 10 On September 23, 2011, plaintiffs commenced the lawsuit that is now before us in Wood County. Plaintiffs contend that Renaissance directors, which include the Pauls, breached their fiduciary duty to the minority shareholders. (Count I, Second Amended Complaint.) Plaintiffs also contend that defendants “are not entitled to any protection of Sec. 180.0828, Wis. Stat. or any protective provision in the Company's Articles of Incorporation or Bylaws.” 6

¶ 11 Plaintiffs further contend that the Pauls breached their fiduciary duty as majority shareholders by choosing to sell their majority interest in Renaissance to Permira. (Count II, Second Amended Complaint.) Plaintiffs alleged that the “Pauls have put ... their personal interest in monetizing their holdings in the Company ... ahead of that of the Company and the Company's minority shareholders.” 7

¶ 12 The circuit court heard argument that Plato's offer was subject to many contingencies, and that the board of directors of Renaissance was concerned that Plato could not fulfill them in the time remaining before the sale to Permira was set to close. The Pauls supported the transaction with Permira because it was more certain to result in an actual sale for all shareholders and because Renaissance would be subject to a $13 million penalty if Renaissance's contract with Permira was breached. Renaissance was sold, and the sale netted the minority shareholders a 40 percent premium on the value of their shares when compared with the public exchange price prior to the bidding war. Because of the difference in the per share price paid to minority and majority shareholders, the minority shareholders received$10 million more than what they would have received if all shareholders were paid the same per share price by Permira.

¶ 13 Based on this information, the circuit court dismissed the Second Amended Complaint after concluding that it failed to state a claim upon which relief can be granted. The court reasoned that the business judgment rule protected the directors' actions and that the Pauls violated no legal 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 the directors and the Pauls. (Counts I and II, Second Amended Complaint.) The court of appeals criticized the circuit court for noting that there was a reasonable inference that a deal with Plato might not close and concluded that the business judgment rule should not be used to dismiss a complaint. Id., ¶ 23.

¶ 15 We granted defendants' petition for review, and now reverse the court of appeals on the claims presented to us for review.


¶ 16 Before us, plaintiffs contend that defendants, in their role as directors of Renaissance, breached their fiduciary duty to minority shareholders when the sale to Permira occurred. Plaintiffs further contend that the Pauls, as majority shareholders, also breached their fiduciary duty to minority shareholders when they voted their shares in favor of the sale to Permira. Defendants raise the business judgment rule and the insufficiency of the facts pleaded in the Second Amended Complaint as requiring dismissal for failure to state a claim.

A. Standard of Review

¶ 17 Whether a complaint states a claim upon which relief can be granted is a question of law for our independent review; however, we benefit from discussions of the court of appeals and circuit court. DeBruin v. St. Patrick Congregation, 2012 WI 94, ¶ 10, 343 Wis.2d 83, 816 N.W.2d 878.

¶ 18 When we review a motion to dismiss,...

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