Sidley secured the reversal of an injunction that had stalled Fujifilm’s $6.1 billion transaction with Xerox for nearly five months and a complete dismissal of related claims against Fujifilm. The New York Appellate Division’s decision in In re Xerox Corporation Consolidated Shareholder Litigation and Deason v. Fujifilm Holdings Corp. reaffirms the longstanding rule that a plaintiff must establish that a majority of the directors on a corporate board is interested or lacks independence with respect to a decision in order to rebut the business judgment rule.
On January 31, 2018, Xerox and Fujifilm announced a transaction pursuant to which (i) Fujifilm would take a 50.1 percent stake in Xerox, (ii) Fujifilm would contribute its 75 percent interest in Fuji Xerox Co. Ltd., Fujifilm and Xerox’s longstanding joint venture and (iii) existing Xerox stockholders would receive a $2.5 billion special dividend. After the transaction was announced, putative stockholder class plaintiffs, along with Xerox’s largest stockholder, Darwin Deason, sought to enjoin the deal, primarily arguing that Xerox’s CEO negotiated an unfair transaction for the purpose of securing continuing employment for himself. In addition to pleading breach of fiduciary duty claims against Xerox and its directors, plaintiffs also asserted aiding and abetting claims against Fujifilm. Carl Icahn and affiliates publicly supported the stockholders’ efforts. On April 27, following a two-day evidentiary hearing, the New York Supreme Court preliminarily enjoined the transaction and simultaneously denied Fujifilm’s motion to dismiss.
Sidley’s involvement began shortly thereafter, which included an appeal from the trial court’s injunction decision. That appeal asserted primarily that the trial court had improperly concluded that a majority of the Xerox board was conflicted based solely on a finding that pursuant to the terms of the transaction agreements, five directors would continue to serve after the closing. Sidley successfully argued to the contrary, pointing to longstanding New York law holding that the prospect of retaining a directorship is not necessarily a material interest sufficient to rebut the business judgment rule. The appellate court further noted that the board had engaged outside advisers and considered the transaction on numerous occasions and had “not engage[d] in a mere post hoc review, nor was the transaction unreasonable on its face.” Therefore, a unanimous court ordered a complete reversal of the trial court’s decisions “on the law and the facts,” dissolving the injunction and dismissing all claims against Fujifilm.
The Sidley litigation team was led by partner and co-leader of the firm's Securities and Shareholder Litigation practice Andrew W. Stern, partners Eamon P. Joyce, Nicholas P. Crowell and Alex J. Kaplan and associates Charlotte K. Newell and Elizabeth Y. Austin. The corporate team was led by partner and co-leader of the M&A practice Scott M. Freeman, partner and leader of Shareholder Activism practice Kai Haakon Liekefett and partner Edward G. Kamman.