Sciabacucchi v. Liberty Broadband Corp.
| Decision Date | 02 May 2022 |
| Docket Number | C. A. 11418-VCG |
| Parties | MATTHEW SCIABACUCCHI and HIALEAH EMPLOYEES' RETIREMENT SYSTEM, Plaintiffs, v. LIBERTY BROADBAND CORPORATION, JOHN MALONE, GREGORY MAFFEI, MICHAEL HUSEBY, BALAN NAIR, ERIC ZINTERHOFER, CRAIG JACOBSON, THOMAS RUTLEDGE, DAVID MERRITT, LANCE CONN, and JOHN MARKLEY, Defendants and CHARTER COMMUNICATIONS, INC., Nominal Defendant. |
| Court | Court of Chancery of Delaware |
Submitted: January 19, 2022.
Nathan A. Cook, of BLOCK & LEVITON LLP, Wilmington, Delaware Kurt M. Heyman, Aaron M. Nelson, and Melissa N. Donimirski of HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington Delaware; OF COUNSEL: Jason M. Leviton, Joel A. Fleming, and Lauren G. Milgroom, of BLOCK & LEVITON LLP, Boston, Massachusetts, Attorneys for Plaintiff Matthew Sciabacucchi.
Gregory V. Varallo and Andrew E. Blumberg, of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; OF COUNSEL: Alla Zayenchik and Thomas James, of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York, Attorneys for Plaintiff Hialeah Employees' Retirement System.
David C. McBride, Martin S. Lessner, James M. Yoch, Jr., and Paul J. Loughman, of YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF COUNSEL: William Savitt, Ryan A. McLeod, Anitha Reddy, Adam M. Gogolak, David E. Kirk, and Zachary M. David, of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York, Attorneys for Defendants Lance Conn, Michael Huseby, Craig Jacobson, John Markley, David Merritt, Balan Nair, Thomas Rutledge, and Eric Zinterhofer.
Peter J. Walsh, Jr., Brian C. Ralston, Tyler J. Leavengood, and Jaclyn C. Levy, of POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF COUNSEL: Richard B. Harper, of BAKER BOTTS LLP, New York, New York; Thomas E. O'Brien, of BAKER BOTTS LLP, Dallas, Texas, Attorneys for Defendants Liberty Broadband Corporation, John Malone, and Gregory Maffei.
Sam Glasscock III, Vice Chancellor.
It has become a commonplace that motions for summary judgment are not sustainable in most internal-affairs corporate litigation in this Court. Even this Court's practice guide suggests as much.[1] It is not hard to see why. Nearly all allegations in such litigation have already withstood a motion to dismiss, often under the demanding standard of Rule 23.1. Then, discovery has ensued, which often creates enormous records such that a pursuit of summary judgment rivals a trial in the way of effort, for litigants and jurists alike. Most importantly, such litigation typically involves alleged fiduciary duty breaches. These issues involve agency questions, resolution of which involves a determination of parties' intentions and motivations, issues typically best resolved following live testimony.
The instant case involves approval by corporate directors of challenged transactions advocated by two directors who were dual fiduciaries, for both the pertinent company and for the counterparty to the transactions. I evaluated whether the stockholder-Plaintiff's[2] allegations were sufficient, at the pleading stage, to make it reasonably conceivable that the majority of the board of directors was unable to bring its business judgment to bear in a decision to sue fellow directors and the counterparty; I concluded that Plaintiff Sciabacucchi had succeeded, and that demand, accordingly, was excused. Relying on the same pleadings and the plaintiff- friendly assumptions of Rule 12(b)(6), I found it reasonably conceivable that a majority of the board of directors was not independent of the dual fiduciaries, and therefore business judgment did not apply at the motion-to-dismiss phase of the proceedings. Vigorous discovery on the Plaintiffs' allegations ensued.
Before me now are two motions for summary judgment on grounds similar to those rejected under Rule 12(b)(6). These are by no means frivolous or make-weight motions. They are thoughtful attempts by the Defendants to achieve a litigation victory without the further effort and expense of trial. And achieving summary judgment in fiduciary duty matters, if unlikely, is by no means impossible. Although I have previously addressed these issues at the pleading stage, on summary judgment review, a record exists. The presumption is in favor of director independence, and the burden at trial will be for the Plaintiffs to submit evidence sufficient to rebut that presumption. It is in light of the seriousness of the Defendants' motions, and in light of those facts as have been advanced, that I undertake the following substantive review, which attentive readers[3] will no doubt find a slog. After that review, however, I find that the Defendants are not entitled to summary judgment here. The Defendants have pointed to the evidentiary record as implying that a majority of the board of directors is independent. They compare this to contrary inferences drawn by the Plaintiffs supporting a finding of lack of independence, which they find weak.
If it were the movants' burden here merely to convince me that it is more likely than not that I will find the majority of the board of directors independent after trial, the result might, perhaps, be different. But my task here is not to weigh the evidence, or to weigh the comparative strength of competing inferences themselves adequately supported by the evidence. I conclude there is sufficient evidence of record that a majority of the board of directors lacked independence to go forward to trial. Of course, if I find after trial that a majority of the board of directors was unconflicted, the business judgment rule may apply to the challenged transactions. But I cannot find here that business judgment applies, as a matter of law.[4]
The Defendants also contend that the evidence demonstrates as a matter of law that the challenged transactions were entirely fair. Again, at this stage, I must decline to enter summary judgment, based on the record as it exists. Assuming that entire fairness applies, that matter is for a post-trial decision, as well.
The transactions underlying the remaining causes of action here are, to put it mildly, intricate, and have been recounted in detail in my prior opinions in this matter, Sciabacucchi I[5] and Sciabacucchi II.[6] The interested reader should refer to those memorandum opinions for the fullest possible background. The facts included in the following section are strictly those necessary to resolution of the motions before me.
Plaintiff Matthew Sciabacucchi has been the plaintiff in this action since its inception.[8] Plaintiff Hialeah Employees' Retirement System (together with Sciabacucchi, the "Plaintiffs") joined the action via stipulation in November 2019.[9] Both of the Plaintiffs were stockholders of Charter Communications, Inc. ("Charter" or the "Company") at the time of the challenged transactions.[10]
Nominal Defendant Charter is a Delaware corporation and is one of the largest cable providers in the United States.[11] Charter's board of directors (the "Board") consisted of the following directors at the pertinent time: Defendants John Malone, Gregory Maffei, W. Lance Conn, John Markley, Jr., David Merritt, Craig Jacobson, Michael Huseby, Eric Zinterhofer, Balan Nair, and Thomas Rutledge (collectively, the "Director Defendants").[12] Rutledge was Charter's Chief Executive Officer ("CEO"[13]); Zinterhofer was Charter's Chairman of the Board prior to the challenged transactions.[14]
Defendant Liberty Broadband Corporation ("Liberty Broadband") is a Delaware corporation, and a 26%[15] stockholder in Charter, making it the largest Charter stockholder.[16] Liberty Broadband once was a wholly owned subsidiary of non-party Liberty Media Corporation ("Liberty Media"), which spun off Liberty Broadband in 2014.[17] Malone owns approximately 47% of the voting power of Liberty Broadband.[18]
Liberty Broadband has certain contractual rights with respect to Charter, including the right to designate four of ten Board members.[19] The four Board members at the pertinent time were Malone, Maffei, Nair, and Huseby.[20] This Memorandum Opinion refers to Malone, Maffei, Nair, and Huseby from time to time as the "Liberty Broadband designees." Similarly, this Memorandum Opinion refers to Conn, Markley, Merritt, Jacobson, Zinterhofer, and Rutledge as the "non-Liberty Broadband directors" upon occasion.
Non-party Advance/Newhouse Partnership ("Newhouse") is a privately owned New York partnership.[21] Prior to the transactions at issue in this matter, Newhouse owned non-party Bright House Networks, LLC ("Bright House"), another cable company.[22] Non-party Steve Miron was the Newhouse CEO at the pertinent time.[23]
Other pertinent non-parties include Time Warner Cable Inc. ("TWC"), Liberty Global plc ("Liberty Global"); Liberty Latin America ("Liberty LatAm"); Mike Fries, the CEO of Liberty Global; and Searchlight Capital Partners, L.P. ("Searchlight"). Both Liberty Global and Liberty LatAm are, as their names suggest, part of the broader Malone-affiliated Liberty conglomerate.[24] Searchlight is a private equity firm that Zinterhofer co-founded.[25]
Because this Memorandum Opinion undertakes a deep dive into the independence of certain Charter directors, I also broadly outline here facts necessary to the independence inquiry. The parties do not dispute many, if any, facts pertaining to director independence; rather, the inquiry focuses on the inferences to be drawn from the undisputed facts. A subset of the most important facts pertaining to independence is organized below, with a full discussion proceeding in the pertinent analysis section a. Zinterhofer As noted above, Zinterhofer was the Chairman of Charter's Board at the time of the pertinent...
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