Versata Enters. v. Selectica, Inc. - 5 A.3d 586 (Del. 2010)

Rule:

Under a Unocal analysis, the reasonableness of a corporate board's response to threat is determined in relation to the specific threat, at the time it was identified. Thus, it is the specific nature of the threat that sets the parameters for the range of permissible defensive tactics at any given time.

Facts:

To protect its substantial Net operating losses (NOLs) from being extinguished due to an "ownership change" under I.R.C. § 382, the corporation implemented the dilutive exchange provision of its NOL poison pill, which reduced the parent's interest from 6.7 percent to 3.3 percent, and adopted a reloaded NOL poison pill with a 4.99 percent trigger. When the parent then purchased shares above this cap, the corporation filed the instant suit. The trial court found that 1) the directors satisfied the first part of the Unocal test by showing they had reasonable grounds to believe the parent's stock ownership endangered the NOLs; 2) the defensive measures taken were not preclusive, as the 4.99 percent trigger would not preclude a hostile bidder's ability to win a proxy contest; 3) the directors satisfied the second part of the Unocal test by showing that their defensive responses were reasonable in relation to the threat. 

Issue:

Did the board withstand the enhanced judicial scrutiny required by the two-part Unocal test?

Answer:

Yes.

Conclusion:

The high court held that the board carried its burden of proof under both parts of the Unocal test. The high court held that the trial court’s findings were supported by the record. The trial court did not abuse its discretion in denying appellees' request for counsel fees, as the parent's bad faith was the basis for appellees' substantive claim and did not occur in the litigation itself.