In re Oracle Corporation Derivative Litigation

Supreme Court of Delaware
(2025)

ELI5:

Rule of Law:

A special litigation committee's decision to return a derivative suit to the plaintiffs, rather than seeking dismissal, does not trigger Zapata's heightened review standard for discovery issues. A minority stockholder is not deemed a controlling stockholder merely by potential influence or a visionary role if they do not exercise actual general or transaction-specific control over the board. Fiduciaries owe a duty of candor to the board, but failure to disclose post-acquisition plans is not a breach if the information is not material to the board's decision-making, particularly when the board is aware of the underlying strategic direction.

Facts:

Oracle Corporation, a technology company, accelerated its growth strategy through acquisitions starting in the 2000s, implementing a standard framework for assessing potential targets.
Lawrence Ellison, Oracle's co-founder, Chief Technology Officer, and Executive Chairman, had long considered NetSuite Inc., a cloud-based software company in which he also held a substantial equity stake, an Oracle acquisition target.
In February 2015, Ellison met with Oracle co-CEOs Safra Catz and Mark Hurd to discuss a potential NetSuite acquisition, but expressed concerns that NetSuite was trading at a high premium and that the acquisition would distract Oracle's transition to cloud-based products.
In October 2015, Ellison met with NetSuite leadership, including Evan Goldberg and Zachary Nelson, to advocate for a new growth strategy focused on designing software functionalities for specific industries in the small and medium business (SMB) market, leading to Project Atlas (later SuiteSuccess).
Shortly before a January 2016 Oracle board retreat, Ellison told Catz that "the time is now" for Oracle to buy NetSuite; at the retreat, NetSuite was presented as a target, and Ellison recused himself from the discussion.
On January 27, 2016, Ellison called NetSuite co-founder Evan Goldberg, assuring Goldberg that NetSuite would become a Global Business Unit within Oracle and that Ellison would remain neutral and out of the discussions and voting; Ellison did not disclose this phone call to the Oracle board or the later-formed special committee.
On March 18, 2016, the Oracle board, with Ellison recused, formed a Special Committee composed of Renee James, Leon Panetta, and George Conrades, empowered to control the potential NetSuite transaction.
Over the next seven months, the Special Committee, advised by independent counsel and a financial advisor, met 15 times to consider and negotiate the transaction, ultimately making a "best and final offer" of $109 per share, which NetSuite accepted.
The parties structured the transaction as a tender offer requiring a majority of NetSuite shares unaffiliated with Ellison, its officers, and directors to support it; after two extensions, the tender offer closed on November 4, 2016, with 53.2% of unaffiliated shares tendered, and the acquisition closed three days later.

Procedural Posture:

On May 3, 2017, an Oracle stockholder filed a derivative suit in the Court of Chancery of the State of Delaware against Lawrence Ellison, Safra Catz, members of the Special Committee, and Oracle, alleging Ellison forced Oracle to overpay for NetSuite.
The Court of Chancery consolidated a related action and denied Ellison's and Catz's motion to dismiss the claims against them.
The plaintiffs then voluntarily dismissed claims against all defendants except Ellison and Catz.
On May 4, 2018, the Oracle board formed a Special Litigation Committee (SLC) to investigate the plaintiffs’ claims and control the litigation, leading the Court of Chancery to stay the litigation for thirteen months.
In mid-July 2019, after the plaintiffs became frustrated with the SLC's lack of progress, the Court of Chancery permitted the plaintiffs to file an amended complaint, naming additional defendants.
On August 15, 2019, the SLC's counsel informed the Court of Chancery that a settlement was unlikely and that "the SLC has determined that the Lead Plaintiff should be allowed to proceed with the derivative litigation on behalf of Oracle," thereby returning the case to the plaintiffs.
The plaintiffs subsequently subpoenaed the SLC and its counsel for virtually all documents concerning the SLC’s investigation, including interview memoranda, which the SLC resisted, claiming privilege.
The Court of Chancery ordered the SLC to produce all relevant, non-privileged documents but denied the plaintiffs' motion to compel further production of specific documents, including interview memos, finding them protected by work product and ruling there was no waiver of confidentiality or substantial need/undue hardship.
The Court of Chancery held a ten-day trial in July and August 2022.
In its post-trial opinion, the Court of Chancery entered judgment for the remaining defendants, concluding that the Oracle/NetSuite transaction was negotiated at arm’s length by a fully empowered Special Committee, that Ellison did not exercise general or transactional control, and that neither Ellison nor Catz defrauded the board by withholding material information.
Plaintiffs-below/appellants appealed the Court of Chancery's judgment to the Supreme Court of the State of Delaware.

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Issue:

1. Does a special litigation committee's decision to return a derivative suit to the plaintiffs, instead of seeking dismissal, subject its discovery decisions (like withholding interview memos) to Zapata's heightened review or waive work product protection? 2. Did the Court of Chancery err by applying business judgment review, rather than entire fairness review, to the Oracle/NetSuite acquisition by finding that Lawrence Ellison was not a controlling stockholder? 3. Did the Court of Chancery err in its legal standard for evaluating whether Lawrence Ellison misled the Special Committee by allegedly concealing his future NetSuite plans, and by finding such plans immaterial?

Opinions:

Majority - Seitz, Chief Justice

No, a special litigation committee's decision to return a derivative suit to the plaintiffs does not subject its discovery decisions to Zapata's heightened review, nor does it waive work product protection for interview memos, especially when those disclosures occurred in a confidential mediation. The Court declined to extend Zapata's enhanced review beyond its specific purpose of reviewing an SLC's decision to terminate litigation (dismissal or settlement), as the SLC here returned the litigation to the plaintiffs, and the plaintiffs did not challenge the SLC's independence or good faith. Applying Zapata review in this context could chill candor and limit SLC effectiveness. Instead, discovery rules like Court of Chancery Rule 26(b)(3) are better suited. The Court found no waiver of work product protection, citing D.R.E. 510(a) and the "strong public policy favoring confidentiality in all mediation proceedings" as codified in Court of Chancery Rule 174. Disclosures made within confidential mediation proceedings do not constitute waiver. The plaintiffs failed to demonstrate substantial need or undue hardship under Rule 26(b)(3) to overcome work product protection, as they had access to most contemporaneous documents, could depose most witnesses, and only speculated about impeachment opportunities. No, the Court of Chancery did not err by applying business judgment review because Lawrence Ellison, despite his significant ownership and visionary role, was not found to be a controlling stockholder, having not exercised actual general or transaction-specific control over Oracle or its board during the acquisition. The Court reiterated that a minority stockholder (Ellison owned less than 30% of Oracle) is not presumed to be a controlling stockholder. To prove actual control, plaintiffs must show a "combination of potent voting power and management control" for general control, or actual control over the board during a specific transaction. The Court deferred to the Vice Chancellor's unchallenged factual findings after a ten-day trial, which concluded that Ellison did not exercise actual control. These findings included that the Oracle board and management were not afraid to disagree with Ellison, Ellison did not control day-to-day functions or dictate operations, he "scrupulously avoided" discussing the transaction with the Special Committee, and he neither proposed nor indirectly controlled negotiations through his call with Goldberg. The Court distinguished In re Cysive, Inc. Shareholders’ Litigation, noting that while Ellison was a co-founder and visionary, the factual findings in Cysive of sustained hands-on control and ability to install a new board were not present here, where Ellison was found not to exercise actual control despite his potential. No, the Court of Chancery did not err in its legal standard for evaluating a "fraud on the board" claim, though it clarified that the inquiry for fiduciaries accused of disloyal conduct is simply whether a conflicted fiduciary violated the duty of loyalty by failing to act in good faith and candor, which includes withholding material information. The court found that Ellison's alleged undisclosed post-acquisition plans were not material. The Supreme Court clarified that for fiduciaries accused of disloyal conduct, the proper inquiry is whether the conflicted fiduciary violated their duty of loyalty by failing to act in good faith and with candor toward the board, not a specific multi-factor "fraud on the board" test. Good faith requires candor, meaning fiduciaries cannot use superior information to mislead the board. However, the Court affirmed the Court of Chancery's finding that Ellison's post-acquisition plans were not "material" information that needed to be disclosed. The lower court found that Oracle's usual practice was to consider post-closing plans after a deal, and Ellison's plans did not propose an entirely unforeseeable strategic direction. The Special Committee was aware of the competitive landscape, NetSuite's upmarket ambitions, and its shift towards verticalization (SuiteSuccess) which addressed Ellison's prior concerns. Ellison, as a minority stockholder, lacked the unilateral ability to implement drastic changes without board approval, and the board was not "cowed or overawed" by him. Therefore, the undisclosed plans were immaterial to the Special Committee's evaluation and negotiation.

Analysis:

This case reinforces the limited scope of Zapata review for special litigation committees, clarifying that it does not extend to routine discovery disputes when the SLC returns control to plaintiffs, thereby preserving the confidentiality of SLC investigations. It provides crucial guidance on the high bar for establishing minority stockholder control, emphasizing actual rather than merely potential influence, even for visionary founders, which will make it harder for plaintiffs to shift the standard of review to entire fairness. Furthermore, it clarifies the standard for fiduciary disclosure duties, underscoring that not all information, especially about future operational plans, is material if the board is generally aware of strategic directions and the fiduciary lacks unilateral control to implement those plans.

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