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Court of Chancery of Delaware, New Castle
May 28, 2003, Submitted ; June 13, 2003, Decided
CONSOLIDATED C.A. No. 18751
[*920] STRINE, Vice Chancellor
In this opinion, I address the motion of the special litigation committee ("SLC") of Oracle Corporation to terminate this action, "the Delaware Derivative Action," and other such actions pending in the name of Oracle against certain Oracle directors and officers. These actions allege that these Oracle directors engaged in insider trading while in possession [**2] of material, non-public information showing that Oracle would not meet the earnings guidance it gave to the market for the third quarter of Oracle's fiscal year 2001. The SLC bears the burden of persuasion on this motion and must convince me that there is no material issue of fact calling into doubt its independence. This requirement is set forth in Zapata Corp. v. Maldonado 1 and its progeny. 2
] The question of independence "turns on whether a director is, for any substantial reason, incapable of making a decision with only the best interests of the corporation in mind." 3 [**3] That is, the independence test ultimately "focus[es] on impartiality and objectivity." 4 In this case, the SLC has failed to demonstrate that no material factual question exists regarding its independence.
During discovery, it emerged that the two SLC members - both of whom are professors at Stanford University - are being asked to investigate fellow Oracle directors who have important ties to Stanford, too. Among the directors who are accused by the derivative plaintiffs of insider trading are: (1) another Stanford professor, who taught one of the SLC members when the SLC member was a Ph.D. candidate and who serves as a senior fellow and a steering committee member alongside that SLC member at the Stanford Institute for Economic Policy Research or "SIEPR"; (2) a Stanford alumnus who has directed millions of dollars of contributions to Stanford during recent years, serves as Chair of SIEPR's Advisory Board and has a conference center named for him at SIEPR's facility, and has contributed nearly $ 600,000 to SIEPR and the Stanford Law School, both parts of Stanford with which one of the SLC members is closely affiliated; and (3) Oracle's CEO, who has made millions of dollars in donations to Stanford through a personal [*921] foundation and large donations indirectly through Oracle, and [**4] who was considering making donations of his $ 100 million house and $ 170 million for a scholarship program as late as August 2001, at around the same time period the SLC members were added to the Oracle board. Taken together, these and other facts cause me to harbor a reasonable doubt about the impartiality of the SLC.
] It is no easy task to decide whether to accuse a fellow director of insider trading. For Oracle to compound that difficulty by requiring SLC members to consider accusing a fellow professor and two large benefactors of their university of conduct that is rightly considered a violation of criminal law was unnecessary and inconsistent with the concept of independence recognized by our law. The possibility that these extraneous considerations biased the inquiry of the SLC is too substantial for this court to ignore. I therefore deny the SLC's motion to terminate.
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824 A.2d 917 *; 2003 Del. Ch. LEXIS 55 **
IN RE ORACLE CORP. DERIVATIVE LITIGATION
Subsequent History: [**1] As Revised June 17, 2003.
Appeal denied by Oracle Corp. v. Barone, 829 A.2d 141, 2003 Del. LEXIS 392 (Del., July 28, 2003)
Summary judgment granted by In re Oracle Corp. Derivative Litig., 867 A.2d 904, 2004 Del. Ch. LEXIS 177 (Del. Ch., Nov. 24, 2004)
Prior History: In re Oracle Corp. Derivative Litig., 808 A.2d 1206, 2002 Del. Ch. LEXIS 92 (Del. Ch., July 10, 2002)In re Oracle Corp. Secs. Litig., 2003 U.S. Dist. LEXIS 9980 (N.D. Cal., Mar. 24, 2003)
Disposition: Motion to terminate action denied.
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