Delaware Supreme Court Affirms Dismissal of Derivative Lawsuit Against ADT’s Directors

The Delaware Supreme Court affirmed the Delaware Court of Chancery's dismissal of a derivative lawsuit against the directors of The ADT Corporation, represented by Paul, Weiss, as well as defendants Corvex Management LP, a hedge fund that previously held approximately 5 percent of ADT's stock, and Keith Meister, Corvex's founder and principal. The derivative complaint alleged that, in a desire to appease Corvex and maintain their positions on the ADT board, ADT's directors breached their fiduciary duties by (i) appointing Meister to ADT's board, (ii) engaging in a stock repurchase program similar to one that Meister had advocated and (iii) repurchasing Corvex's ADT stock a year later. The plaintiff alleged that Corvex had threatened to run a proxy contest and remove the ADT board if the directors did not acquiesce to its proposals. The plaintiff alleged that demand was excused because ADT's directors had been motivated to entrench themselves in office and therefore had a self-interest in the transactions. The Court of Chancery had rejected the plaintiff's claim of demand futility, ruling that the plaintiff had not adequately alleged that the directors faced an actual threat of removal by Corvex, or that entrenchment was the directors' sole or primary purpose. The Court of Chancery had also ruled that the complaint did not provide a reason to doubt that the challenged transactions were a valid exercise of the ADT board's business judgment. In its November 19 Order, the Delaware Supreme Court affirmed the Court of Chancery's "well-reasoned" decision dismissing the complaint.

The Paul, Weiss team included, among others, litigation partner Daniel Kramer (who argued the matter in the Chancery Court and in the Supreme Court) and counsel Robert Kravitz.