Matthew Sciabacucchi v. Liberty Broadband Corporation ( 2022 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MATTHEW SCIABACUCCHI and
HIALEAH EMPLOYEES’ RETIREMENT
SYSTEM,
Plaintiffs,
v.
LIBERTY BROADBAND
CORPORATION, JOHN MALONE,
GREGORY MAFFEI, MICHAEL C.A. No. 11418-VCG
HUSEBY, BALAN NAIR, ERIC
ZINTERHOFER, CRAIG JACOBSON,
THOMAS RUTLEDGE, DAVID
MERRITT, LANCE CONN, and JOHN
MARKLEY,
Defendants,
and
CHARTER COMMUNICATIONS, INC.,
Nominal Defendant.
MEMORANDUM OPINION
Date Submitted: January 19, 2022
Date Decided: May 2, 2022
Nathan A. Cook, of BLOCK & LEVITON LLP, Wilmington, Delaware; Kurt M.
Heyman, Aaron M. Nelson, and Melissa N. Donimirski, of HEYMAN ENERIO
GATTUSO & HIRZEL LLP, Wilmington, Delaware; OF COUNSEL: Jason M.
Leviton, Joel A. Fleming, and Lauren G. Milgroom, of BLOCK & LEVITON LLP,
Boston, Massachusetts, Attorneys for Plaintiff Matthew Sciabacucchi.
Gregory V. Varallo and Andrew E. Blumberg, of BERNSTEIN LITOWITZ
BERGER & GROSSMANN LLP, Wilmington, Delaware; OF COUNSEL: Alla
Zayenchik and Thomas James, of BERNSTEIN LITOWITZ BERGER &
GROSSMANN LLP, New York, New York, Attorneys for Plaintiff Hialeah
Employees’ Retirement System.
David C. McBride, Martin S. Lessner, James M. Yoch, Jr., and Paul J. Loughman, of
YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF
COUNSEL: William Savitt, Ryan A. McLeod, Anitha Reddy, Adam M. Gogolak,
David E. Kirk, and Zachary M. David, of WACHTELL, LIPTON, ROSEN & KATZ,
New York, New York, Attorneys for Defendants Lance Conn, Michael Huseby, Craig
Jacobson, John Markley, David Merritt, Balan Nair, Thomas Rutledge, and Eric
Zinterhofer.
Peter J. Walsh, Jr., Brian C. Ralston, Tyler J. Leavengood, and Jaclyn C. Levy, of
POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; OF
COUNSEL: Richard B. Harper, of BAKER BOTTS LLP, New York, New York;
Thomas E. O’Brien, of BAKER BOTTS LLP, Dallas, Texas, Attorneys for
Defendants Liberty Broadband Corporation, John Malone, and Gregory Maffei.
GLASSCOCK, Vice Chancellor
It has become a commonplace that motions for summary judgment are not
sustainable in most internal-affairs corporate litigation in this Court. Even this
Court’s practice guide suggests as much.1 It is not hard to see why. Nearly all
allegations in such litigation have already withstood a motion to dismiss, often under
the demanding standard of Rule 23.1. Then, discovery has ensued, which often
creates enormous records such that a pursuit of summary judgment rivals a trial in
the way of effort, for litigants and jurists alike. Most importantly, such litigation
typically involves alleged fiduciary duty breaches. These issues involve agency
questions, resolution of which involves a determination of parties’ intentions and
motivations, issues typically best resolved following live testimony.
The instant case involves approval by corporate directors of challenged
transactions advocated by two directors who were dual fiduciaries, for both the
pertinent company and for the counterparty to the transactions. I evaluated whether
the stockholder-Plaintiff’s 2 allegations were sufficient, at the pleading stage, to make
it reasonably conceivable that the majority of the board of directors was unable to
bring its business judgment to bear in a decision to sue fellow directors and the
counterparty; I concluded that Plaintiff Sciabacucchi had succeeded, and that
demand, accordingly, was excused. Relying on the same pleadings and the plaintiff-
1
Guidelines to Help Lawyers Practice in the Court of Chancery, § C(5)(e)(iii)(C) (Aug. 2021).
2
I use the singular, because this review occurred prior to the stipulated entry of a second plaintiff
in this action. See infra note 9 and accompanying text.
1
friendly assumptions of Rule 12(b)(6), I found it reasonably conceivable that a
majority of the board of directors was not independent of the dual fiduciaries, and
therefore business judgment did not apply at the motion-to-dismiss phase of the
proceedings. Vigorous discovery on the Plaintiffs’ allegations ensued.
Before me now are two motions for summary judgment on grounds similar to
those rejected under Rule 12(b)(6). These are by no means frivolous or make-weight
motions. They are thoughtful attempts by the Defendants to achieve a litigation
victory without the further effort and expense of trial. And achieving summary
judgment in fiduciary duty matters, if unlikely, is by no means impossible. Although
I have previously addressed these issues at the pleading stage, on summary judgment
review, a record exists. The presumption is in favor of director independence, and
the burden at trial will be for the Plaintiffs to submit evidence sufficient to rebut that
presumption. It is in light of the seriousness of the Defendants’ motions, and in light
of those facts as have been advanced, that I undertake the following substantive
review, which attentive readers 3 will no doubt find a slog. After that review,
however, I find that the Defendants are not entitled to summary judgment here. The
Defendants have pointed to the evidentiary record as implying that a majority of the
board of directors is independent. They compare this to contrary inferences drawn
by the Plaintiffs supporting a finding of lack of independence, which they find weak.
3
If any.
2
If it were the movants’ burden here merely to convince me that it is more likely than
not that I will find the majority of the board of directors independent after trial, the
result might, perhaps, be different. But my task here is not to weigh the evidence,
or to weigh the comparative strength of competing inferences themselves adequately
supported by the evidence. I conclude there is sufficient evidence of record that a
majority of the board of directors lacked independence to go forward to trial. Of
course, if I find after trial that a majority of the board of directors was unconflicted,
the business judgment rule may apply to the challenged transactions. But I cannot
find here that business judgment applies, as a matter of law.4
The Defendants also contend that the evidence demonstrates as a matter of
law that the challenged transactions were entirely fair. Again, at this stage, I must
decline to enter summary judgment, based on the record as it exists. Assuming that
entire fairness applies, that matter is for a post-trial decision, as well.
I. BACKGROUND
The transactions underlying the remaining causes of action here are, to put it
mildly, intricate, and have been recounted in detail in my prior opinions in this
4
The Plaintiffs advance other theories on which they may recover derivatively, even if the majority
of the board is found independent. Given my decision here, I need not address these theories in
this Memorandum Opinion—they are preserved for trial.
3
matter, Sciabacucchi I 5 and Sciabacucchi II. 6 The interested reader should refer to
those memorandum opinions for the fullest possible background. The facts included
in the following section are strictly those necessary to resolution of the motions
before me.
A. Factual Overview7
1. The Parties and Relevant Non-Parties
Plaintiff Matthew Sciabacucchi has been the plaintiff in this action since its
inception. 8 Plaintiff Hialeah Employees’ Retirement System (together with
Sciabacucchi, the “Plaintiffs”) joined the action via stipulation in November 2019. 9
5
See Sciabacucchi v. Liberty Broadband Corp., 2017 WL 2352152, at *17 (Del. Ch. May 31,
2017) [hereinafter “Sciabacucchi I”].
6
Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *13 (Del. Ch. July 26, 2018)
[hereinafter “Sciabacucchi II”]. I note that the operative complaint in Sciabacucchi I and
Sciabacucchi II was the first amended complaint in this action. The operative complaint here is
the second amended complaint. Verified Second Am. Derivative Compl., Dkt. No. 287
[hereinafter “Compl.”]
7
Where facts beyond my prior opinions are necessary, I draw them from the evidence submitted
under affidavit with the parties’ papers. Citations in the form of “Cook Decl. —” refer to the
Transmittal Decl. Pursuant to 10 Del. C. § 3927 of Nathan A. Cook Connection Pls.’ Omnibus
Answering Br. Opp’n Defs.’ Mots. Summ. J., Dkt. No. 326. Citations in the form of “Cook Decl.,
Ex. —” refer to the exhibits attached to the Cook Declaration, Dkt. Nos. 327–29. Citations in the
form of “Loughman Decl. —” refer to the Transmittal Aff. of Paul J. Loughman Supp. Director
Defs.’ Opening Br. Supp. Their Mot. Summ. J., Dkt. No. 306. Citations in the form of “Loughman
Decl., Ex. —” refer to the exhibits attached to the Loughman Declaration, Dkt. Nos. 307, 308,
310–18.
8
Verified Class Action Compl. for Breach of Fiduciary Duties, Dkt. No. 1.
9
Granted (Stipulation and Proposed Order Regarding Joinder of Hialeah Employees’ Retirement
System), Dkt. No. 136.
4
Both of the Plaintiffs were stockholders of Charter Communications, Inc. (“Charter”
or the “Company”) at the time of the challenged transactions. 10
Nominal Defendant Charter is a Delaware corporation and is one of the largest
cable providers in the United States.11 Charter’s board of directors (the “Board”)
consisted of the following directors at the pertinent time: Defendants John Malone,
Gregory Maffei, W. Lance Conn, John Markley, Jr., David Merritt, Craig Jacobson,
Michael Huseby, Eric Zinterhofer, Balan Nair, and Thomas Rutledge (collectively,
the “Director Defendants”).12 Rutledge was Charter’s Chief Executive Officer
(“CEO”13); Zinterhofer was Charter’s Chairman of the Board prior to the challenged
transactions. 14
Defendant Liberty Broadband Corporation (“Liberty Broadband”) is a
Delaware corporation, and a 26% 15 stockholder in Charter, making it the largest
10
See Sciabacucchi II, 2018 WL 3599997, at *2; Aff. and Verification of Robert W. Williams III
on Behalf of Hialeah Employees’ Retirement System in Supp. of Mot. for Permissive Joinder of
Hialeah Employees’ Retirement System ¶ 2, Dkt. No. 130.
11
Sciabacucchi II, 2018 WL 3599997, at *2.
12
Id. Note that for these motions—unlike the motion to dismiss—Malone and Maffei have moved
with the other directors, rather than with Liberty Broadband. See Director Defs.’ Mot. Summ. J.,
Dkt. No. 306.
13
I use this defined term, along with similarly abbreviated terms for chief financial officer and
chief technology officer, without specificity as to any one person throughout this Memorandum
Opinion.
14
Sciabacucchi I, 2017 WL 2352152, at *5.
15
The exact percentage ownership Liberty Broadband had in Charter at the time of the
Acquisitions is not clear from the record, which references the original 27.3% investment in 2013,
as well as 26% ownership and 27% ownership figures. See Loughman Decl., Ex. 17, at Ex. 99.1
(press release affiliated with the original investment specifying that the percentage beneficial
ownership obtained by Liberty Media was 27.3%); Compl. ¶ 169 (referring, via quotation, to
“above 26%” ownership in Charter); id. ¶ 3 (referring to 27% ownership); Sciabacucchi II, 2018
5
Charter stockholder. 16 Liberty Broadband once was a wholly owned subsidiary of
non-party Liberty Media Corporation (“Liberty Media”), which spun off Liberty
Broadband in 2014.17 Malone owns approximately 47% of the voting power of
Liberty Broadband.18
Liberty Broadband has certain contractual rights with respect to Charter,
including the right to designate four of ten Board members.19 The four Board
members at the pertinent time were Malone, Maffei, Nair, and Huseby. 20 This
Memorandum Opinion refers to Malone, Maffei, Nair, and Huseby from time to time
as the “Liberty Broadband designees.” Similarly, this Memorandum Opinion refers
to Conn, Markley, Merritt, Jacobson, Zinterhofer, and Rutledge as the “non-Liberty
Broadband directors” upon occasion.
Non-party Advance/Newhouse Partnership (“Newhouse”) is a privately
owned New York partnership.21 Prior to the transactions at issue in this matter,
Newhouse owned non-party Bright House Networks, LLC (“Bright House”),
WL 3599997, at *2 (referring to “approximately 26%” ownership of Charter by Liberty
Broadband). I am confident the ultimate figure was close to 26%, and therefore use that figure
throughout this Memorandum Opinion.
16
Sciabacucchi II, 2018 WL 3599997, at *1–2.
17
Id. at *1.
18
Id.
19
Id. at *2.
20
Id.
21
Sciabacucchi I, 2017 WL 2352152, at *6.
6
another cable company.22 Non-party Steve Miron was the Newhouse CEO at the
pertinent time. 23
Other pertinent non-parties include Time Warner Cable Inc. (“TWC”),
Liberty Global plc (“Liberty Global”); Liberty Latin America (“Liberty LatAm”);
Mike Fries, the CEO of Liberty Global; and Searchlight Capital Partners, L.P.
(“Searchlight”). Both Liberty Global and Liberty LatAm are, as their names suggest,
part of the broader Malone-affiliated Liberty conglomerate.24 Searchlight is a
private equity firm that Zinterhofer co-founded.25
Because this Memorandum Opinion undertakes a deep dive into the
independence of certain Charter directors, I also broadly outline here facts necessary
to the independence inquiry. The parties do not dispute many, if any, facts pertaining
to director independence; rather, the inquiry focuses on the inferences to be drawn
from the undisputed facts. A subset of the most important facts pertaining to
independence is organized below, with a full discussion proceeding in the pertinent
analysis section.
22
Sciabacucchi II, 2018 WL 3599997, at *3.
23
Pls.’ Omnibus Answering Br. Opp’n Defs.’ Mots. Summ. J. 21, Dkt. No. 326 [hereinafter “AB”]
(identifying Miron as CEO of Newhouse).
24
See, e.g., Cook Decl., Ex. 93, at GS_096216 (showing Liberty Global as part of the Liberty
companies overview); see also Loughman Decl., Ex. 115 (describing Liberty Latin America as
“one of the companies in the Malone Liberty orbit”).
25
See Loughman Decl., Ex. 59, 25:5–9.
7
a. Zinterhofer
As noted above, Zinterhofer was the Chairman of Charter’s Board at the time
of the pertinent transactions, though he did not retain that title following the
associated closings.26 Newhouse insisted upon the change in Chairman from
Zinterhofer to Rutledge, citing Newhouse’s “confidence in Tom [Rutledge].” 27 The
Plaintiffs push the alternative theory—supported by documentary evidence from
Newhouse’s financial advisors—that Newhouse may have had concerns regarding
Zinterhofer’s independence from the Liberty entities.28 This theory is discussed in
full detail in the pertinent analysis section.
The most important subset of facts relating to Zinterhofer’s independence
stems from Searchlight, the venture capital fund Zinterhofer co-founded in 2010.29
Searchlight (of which Zinterhofer was “approximately” a 30% owner at the pertinent
time) has engaged in multiple business dealings with Liberty Global, one of
Malone’s Liberty companies.30 The first deal between Searchlight and Liberty
Global was a joint venture that purchased a Puerto Rican cable company for $600
million in 2012. 31 Two years later, Searchlight and Liberty Global invested in
26
See, e.g., AB 82 (discussing Newhouse’s “successful push to have Zinterhofer replaced as
Chairman”).
27
See Loughman Decl., Ex. 38, at 103:11–24.
28
See, e.g., Cook Decl., Exs. 146, 147, 148.
29
Loughman Decl., Ex. 59, at 25:5–9.
30
See infra Section II.A.2.a.
31
Loughman Decl., Ex. 59, at 34:17–35:12.
8
another Puerto Rican cable company for $272.5 million.32 In 2018, Zinterhofer
became a director for Liberty LatAm, an entity spun off of Liberty Global in 2018.33
Various sets of Charter Board minutes reflect that the affiliation between Searchlight
and Malone was at least considered by the Board in connection with Zinterhofer’s
independence. 34
The Plaintiffs have also aggregated facts about various transactions that
overlapped with Malone-affiliated entities, on which transactions Zinterhofer
worked in previous positions, including directorships.35 I consider these in further
detail in my analysis below.
b. Huseby
Although Huseby sat on Charter’s Board as a Liberty Broadband designee,
his primary employment was his position as CEO of Barnes & Noble at the pertinent
time. 36 Prior to becoming the CEO, Huseby had been the Chief Financial Officer
(“CFO”) of Barnes & Noble, a position he obtained after Maffei, who sat on the
32
Id. at Ex. 59, at 42:18–43:25.
33
Id. at Ex. 59, at 63:24–64:21; id. at Ex. 112, 143:21–144:2.
34
See, e.g., Cook Decl., Ex. 162, at 2 (“[A]s previously disclosed, Mr. Zinterhofer’s firm,
Searchlight Capital, was party to a joint venture investment in Puerto Rico with Liberty Global
plc.”); see also id. at Ex. 214, at 2 (“Mr. Cohen also reminded the Board that Mr. Zinterhofer’s
firm, Searchlight Capital, has a joint venture investment in Puerto Rico with Liberty
Global [redacted] . . . .”).
35
See infra Section II.A.2.a.
36
See Loughman Decl., Ex. 95, at 75:18–21; 78:14–79:5.
9
Barnes & Noble board of directors as a Liberty Media designee, referred him as a
candidate for the position.37
Huseby had also previously served as an executive officer for two different
companies at the same time that Malone sat on the boards of those companies:
AT&T Broadband in “the early 2000s” and Cablevision in 2005.38
Huseby and Maffei have also overlapped to a minor extent personally,
including memberships at a common country club as of 2015, and playing at least
two rounds of golf together.39
Two Charter directors testified in depositions generally that they considered
the Liberty Broadband designees, including Huseby, conflicted with respect to
Liberty Broadband.40
Besides the above facts, the Plaintiffs also challenge Huseby’s independence
on basis of two email exchanges.41 I consider these in further detail in the pertinent
analysis section.
c. Nair
Like Huseby, Nair was a Liberty Broadband designee at the pertinent time,
but unlike Huseby, Nair was also employed by a Liberty company—Liberty
37
See id. at Ex. 95, at 45:12–49:16; see also Compl. ¶ 48(f).
38
See Loughman Decl., Ex. 95, at 64:10–16 (AT&T); 19:12–22:9 (Cablevision).
39
Id. at Ex. 95, at 28:23–31:9.
40
Id. at Ex. 59, 95:6–14 (Zinterhofer); id. at Ex. 93, 120:6–121:10 (Jacobson).
41
See infra Section II.A.2.b.
10
Global.42 Nair was then serving Liberty Global as the Executive Vice President and
Chief Technology Officer (“CTO”), 43 a position that placed Nair in some physical
proximity to Malone and Maffei—including not just working out of the same
building, but attending certain annual business meetings at Malone’s properties. 44
Nair has given interviews which led him to speak about Malone; the pertinent
quotes are discussed in detail in the analysis section of this Memorandum Opinion.45
As with Huseby, certain directors testified that they considered the Liberty
Broadband designees, including, necessarily, Nair, conflicted with respect to Liberty
Broadband.46
Finally, Nair sent at least one email to Maffei inquiring as to whether Maffei
and Malone were on board with one of the proposed transactions at issue in this
action. 47
I consider all of these facts below.
42
Cook Decl., Ex. 19, at 7.
43
See id.44
Loughman Decl., Ex. 112, at 72:10–74:4; id. at Ex. 112, at 56:8–57:3; id. at Ex. 112, at 30:15–
36:23.
45
See infra Section II.A.2.c.
46
See supra note 40 and accompanying text.
47
Cook Decl., Ex. 212.
11
d. Rutledge
Rutledge was the CEO and a director of Charter at the time of the challenged
transactions, 48 such that Charter constituted Rutledge’s primary employment.49
Following the closings, Rutledge became the Chairman of the Charter Board, and he
also received a new employment contract with increased compensation (though,
perhaps, not in direct connection with the challenged transactions). 50
Rutledge, like Nair, has given certain statements about Malone to the press
that the Plaintiffs argue demonstrate a lack of independence.51
Finally, Rutledge was perceived as conflicted by at least one Charter director
with respect to certain of the transactions at issue here, due to his position as Charter
management. 52
I undertake a full analysis of each of these facts later in this Memorandum
Opinion.
2. Charter Attempts to Acquire TWC and Enters the Original Bright
House Transaction
Charter began expressing interest in acquiring TWC in June 2013. 53 In
preparation for a potential deal, Charter began to retain specialists, including
48
Sciabacucchi I, 2017 WL 2352152, at *5.
49
See Cook Decl., Ex. 66, at 32.
50
See id. at Ex. 214, at 2; AB 73–74.
51
See infra Section II.A.2.d.
52
Loughman Decl., Ex. 8, at 97:25–98:10.
53
See, e.g., Cook Decl., Ex. 88 (June 18, 2013 meeting minutes of the Charter Board reflecting
discussion of a potential combination with TWC).
12
retaining Goldman Sachs & Co. (“Goldman Sachs”) and LionTree LLC
(“LionTree”) as financial advisors. 54 From the very beginning of the TWC pursuit,
Charter was on notice that Liberty Broadband (then Liberty Media) would have an
interest in providing equity “in the event that it was desirable to sell equity in any
transaction.”55
Charter made its first offer to acquire TWC on July 10, 2013.56 TWC rejected
the first offer within a day.57 A few months later, prior to October 2, 2013, TWC’s
financial advisors reached out to Charter to indicate that TWC was open to
discussing a potential acquisition. 58 Charter discussed the potential merger with
TWC further at an October 17, 2013 Board meeting. 59
Resolutions from that same Board meeting indicate that the Company was
considering entering into an equity financing with Liberty Media as part of the TWC
merger (the “2013 Resolutions”).60 The 2013 Resolutions indicated that the Liberty
Media designees (Malone, Maffei, Huseby, and Nair) and Rutledge would recuse
themselves for “all purposes in connection” with any such Liberty Media equity
54
Id. at Ex. 89, at CHARTER00211325.
55
Id. at Ex. 88, at CHARTER00211321.
56
Id. at Ex. 92, at CHARTER00091707.
57
Id. at Ex. 91, at CHARTERDIR00025463.
58
Id. at Ex. 94, at CHARTER00211726.
59
Id. at Ex. 99.
60
Id. at Ex. 99, at Ex. A.
13
financing.61 The 2013 Resolutions also established a working group, composed of
directors Zinterhofer, Markley, and Merritt, to negotiate any such equity financing.62
Shortly thereafter, on October 24, 2013, Charter made a second offer to TWC
for mixed cash and stock consideration that it considered to represent a value of $127
per TWC share.63 TWC rejected the offer one week later.64
In January 2014, Charter released a public letter to TWC, making a third offer
to acquire the company.65 TWC rejected the offer yet again. 66
In February 2014, TWC and Comcast Corporation (“Comcast”) announced
that they had entered into a definitive merger agreement. 67 Charter subsequently
entered into certain subscriber swaps with TWC and Comcast, and a purchase
agreement for the acquisition of a subsidiary to be spun off following the completion
of the Comcast-TWC merger, both contingent upon the closing of the Comcast-
TWC merger (the “Comcast-TWC Divestment Transactions”). 68 The Plaintiffs
suggest that Charter’s Board was “tak[ing its] cues” from Malone throughout these
negotiations. 69
61
See id. at Ex. 99, at Ex. A.
62
See id. at Ex. 99, at Ex. A.
63
Id. at Ex. 100.
64
Id. at Ex. 104.
65
Id. at Ex. 6.
66
Id. at Ex. 7.
67
Id. at Ex. 8.
68
Sciabacucchi I, 2017 WL 2352152, at *9.
69
AB 20; see also Cook Decl., Ex. 125 (email from financial advisor describing Malone as
“dominat[ing]” at least one phone call in April 2014).
14
Charter then turned its attention to acquiring a different cable company: Bright
House. 70 Charter and Bright House began exploring their potential combination and
negotiated drafts of term sheets “throughout the summer and into the fall.” 71 In
October 2014, Charter and Bright House shared the draft term sheet with Liberty
Media, which provided comments.72 Per the Plaintiffs, Maffei did not take kindly
to the terms Charter and Bright House had negotiated, writing that the term sheet
was “[r]idiculous . . . we are so far from accepting this.” 73 The email chain is
unclear, but Maffei’s email appears to have been directed to Zinterhofer, who
responded, “I will make that very clear[.]”74
After Maffei’s team provided its comments, Charter and Bright House
continued to negotiate the Bright House transaction, though Bright House’s owner,
Newhouse, evidently did not react positively to the Liberty Media comments.75
After additional discussions, Maffei again put his foot down when the transaction
was not taking shape as he had hoped: “Liberty [Media] has communicated its
positions and as far as I’m concerned, we are done. If they’re not acceptable . . . we
should move on.” 76
70
Sciabacucchi II, 2018 WL 3599997, at *3.
71
Sciabacucchi I, 2017 WL 2352152, at *9.
72
Id.73
Cook Decl., Ex. 155.
74
See id. at Ex. 155.
75
Id. at Ex. 181.
76
Id. at Ex. 195.
15
After a few weeks of discussions, Maffei explained at a Charter Board
meeting on March 5, 2015: “Liberty [Broadband] needed to retain a stake of at least
25% in [Charter], and to hold the largest voting stake, with a similar number of board
seats, in order to avoid regulation under the Investment Company Act of 1940.”77
Newhouse, Charter, and Liberty Broadband finally came to a structure that
suited all involved on March 31, 2015 (the “Original Bright House Transaction”).78
That structure contemplated a $700 million Liberty Broadband investment in newly
issued Charter shares. 79 The reference price for this investment was based on “the
same 60-day weighted average price,” $173, as that used in the acquisition of Bright
House itself.80
The interested reader may question why the $700 million investment was
desirable to Liberty Broadband—and why Liberty Broadband was as involved as
they were in negotiating the Original Bright House Transaction. Sciabacucchi I
touches upon the issue in some detail. 81 Per the Plaintiffs, for Liberty Broadband to
avoid “devastating regulatory consequences,” it needed to avoid regulation under
the Investment Company Act of 1940 (the “‘40 Act”). 82 According to the Plaintiffs,
the ‘40 Act contains a rebuttable presumption that a stockholder with 25% or greater
77
Id. at Ex. 205.
78
Sciabacucchi I, 2017 WL 2352152, at *9–10.
79
Id.80
Id. at *9.
81
See id. at *7–8.
82
AB 11.
16
voting power is a controller and not a passive investor.83 Thus, Liberty Broadband,
which owned over 25% of Charter as of May 2014, 84 presumably wanted to avoid
dilution under any version of the Bright House transaction. This is borne out by
various evidence aggregated by the Plaintiffs, primarily emails from financial
advisors,85 and Maffei’s statements at the March 5, 2015 Charter Board meeting. 86
The Original Bright House Transaction was conditioned upon the completion
of the Comcast-TWC Divestment Transactions. 87
3. Charter Pursues the Acquisitions
The Comcast-TWC merger was terminated on April 24, 2015, due to an
inability to overcome regulatory difficulties.88 The Comcast-TWC Divestment
Transactions and the Original Bright House Transaction would thus never come to
fruition.89
83
Id.
84
Compl. ¶ 169.
85
See, e.g., Cook Decl., Ex. 157 (LionTree describing the voting arrangement to Charter as a
“[k]ey issue”); id. at Ex. 139 (Charter CFO identifying Liberty Broadband’s “need to maintain
25% for a period of time”); id. at Ex. 131 (internal LionTree emails stating that LionTree “need[s]
to really figure out the 25% point for Liberty”).
86
See supra note 77 and accompanying text.
87
Sciabacucchi I, 2017 WL 2352152, at *11.
88
Id.89
Id.17
Charter jumped right back into the ring to pursue TWC. On May 5, 2015,
Charter made its fourth offer to acquire TWC. 90 Per the Plaintiffs’ answering brief,
this offer was rejected as well.91
At a May 4 Board meeting, the Charter Board affirmed its desire to re-paper
a deal with Bright House on “substantially the same economic and governance terms
as previously agreed.” 92
Thus began an exercise of threading the needle so that Charter could acquire
both TWC and Bright House, while continuing to satisfy Liberty Broadband’s stock
ownership desires in conjunction with the ‘40 Act.
a. The Broadband Transactions
As briefly mentioned before, Liberty Broadband had a demonstrated interest
in ensuring that, following the accomplishment of any or all of Charter’s acquisition
activity, it remained a beneficial owner in excess of 25% of Charter’s voting
power.93 In the Original Bright House Transaction, Liberty Broadband had
negotiated a $700 million investment in Charter stock at the reference price to be
paid in connection with the broader acquisition of Bright House.94
90
AB 38; Loughman Decl., Ex. 37, at 144.
91
AB 38. I cite to the answering brief because it is not clear to me from the proxy that this fourth
offer was actually rejected, though the proxy does make clear that a second bidder had emerged
and was similarly aggressively pursuing TWC. See Loughman Decl., Ex. 37, at 144.
92
Sciabacucchi I, 2017 WL 2352152, at *11.
93
See supra notes 81–86 and accompanying text.
94
See supra note 80 and accompanying text.
18
Liberty Broadband clearly had interests in the potential acquisitions that
differed from those of Charter. And LionTree, one of the financial advisors that had
been retained by Charter at the beginning of the TWC pursuit in 2013, had previously
received “substantial fees” from Liberty Broadband. 95 Per the Director Defendants,
“the non-[Liberty] Broadband designee directors decided to rely only on Goldman
Sachs for advice regarding a potential transaction between Charter and [Liberty]
Broadband.”96 The Plaintiffs dispute whether this cordoning-off of LionTree
actually occurred.97
Another consideration as Charter worked towards accomplishing the desired
transactions in their totality was a corporate governance restriction contained in
Article Eighth of Charter’s certificate of incorporation, restricting business
combinations between Charter and an “Interested Stockholder.”98 Liberty
Broadband, by virtue of its ownership stake in Charter, was an “Interested
Stockholder.”99 Article Eighth prohibits any business combination, including the
issuance of securities, with Liberty Broadband unless two conditions are met: (1) a
majority of “Continuing Directors,” as defined in the Article, has to vote in favor of
the business combination, and (2) a majority of stockholders entitled to vote
95
Director Defs.’ Opening Br. Supp. Their Mot. Summ. J. 18, Dkt. No. 306 [hereinafter “OB”].
96
Id.
97
See, e.g., AB 15.
98
Sciabacucchi I, 2017 WL 2352152, at *6; see also Loughman Decl., Ex. 5, at 11–15.
99
See Sciabacucchi I, 2017 WL 2352152, at *6 (identifying stockholders in excess of 10% as
interested stockholders).
19
(excluding the Interested Stockholder and any affiliates/associates) has to vote in
favor of the business combination. 100
The Charter Board had already determined to put the Bright House transaction
back together on “substantially the same” terms, including economic terms, after the
TWC-Comcast merger was terminated. 101 Liberty Broadband and Charter thus
agreed that the terms of the Liberty Broadband investment in connection with any
Bright House transaction would remain financially identical: Liberty Broadband
would purchase $700 million worth of Charter shares at $173 per share. 102
Charter then turned its attention towards designing a second Liberty
Broadband equity investment that would allow Charter to acquire TWC without
diluting Liberty Broadband’s beneficial ownership stake in Charter.103 The two
companies ultimately agreed that Liberty Broadband would make an additional
investment of $4.3 billion in Charter, to be priced “at a recent market price, on which
the TWC transaction value was also based.” 104 In the end, that price was $176.95
per share. 105
The Plaintiffs also complain about the fact that Liberty Interactive
Corporation (“Liberty Interactive”) and Liberty Broadband (both TWC
100
See id.101
See supra note 92 and accompanying text.
102
Sciabacucchi I, 2017 WL 2352152, at *11.
103
See id.104
Id.105
See, e.g., Sciabacucchi II, 2018 WL 3599997, at *5.
20
stockholders) negotiated to receive, alone among all TWC stockholders, all stock
consideration in exchange for their TWC shares as part of the Charter-TWC merger
(such exchange right, the “Rollover”).106 This had certain tax benefits for the Liberty
entities.107
The Plaintiffs also challenge certain governance considerations to be received
by Liberty Broadband from Newhouse as part of the revisited Bright House
transaction.108
Finally, the Plaintiffs complain of the price-per-share Liberty Broadband was
due to pay in connection with each investment, “because it wasn’t buying shares
with closing risk.” 109 That is, the Liberty Broadband investments were conditioned
upon the closing of the new Bright House transaction and the TWC merger. 110
The two Liberty Broadband investments—the $700 million investment in
Charter at $173 per share, and the $4.3 billion investment in Charter at $176.95 per
share—the Rollover and the governance considerations are collectively referred to
in this Memorandum Opinion as the “Broadband Transactions.”
106
Sciabacucchi I, 2017 WL 2352152, at *11, *12.
107
See, e.g., Cook Decl., Ex. 247.
108
Compl. ¶ 4(d).
109
AB 2.
110
The Plaintiffs make this point multiple times in their answering brief, but do not point me to
the exact portions of the transaction documents that support the statement. See, e.g., id. Based on
a review of the proxy, the citations appear to be the following: Loughman Decl., Ex. 37, at C-17
(Bright House investment); id. at Ex. 37, at D-10 (TWC investment).
21
b. The Bright House and TWC Mergers
On May 21, 2015, the Charter Board authorized a fifth offer for TWC, offering
a consideration election to TWC stockholders between either $100 in cash and
0.5409 shares in Charter per TWC share, or $115 in cash and 0.4562 shares in
Charter per TWC share. 111 TWC called Charter later that same day to inform Charter
that TWC “was authorized to proceed” with the fifth offer.112
In the meantime, a slightly altered Bright House transaction had been
negotiated.113
Charter’s Board then met to consider the final-form transactions. 114 The
Board had been provided with a set of draft resolutions drafted by legal counsel
containing approvals for each of the proposed transactions—the Broadband
Transactions, the updated-form Bright House transaction, and the TWC transaction
(collectively, the “Acquisitions”). 115 Liberty Broadband designees voted “in favor
of all of the resolutions previously circulated to the Board.”116 Those directors,
along with financial advisor LionTree, then left the Board meeting. 117 The
111
Sciabacucchi I, 2017 WL 2352152, at *12.
112
Id.; see also AB 47.
113
See Sciabacucchi I, 2017 WL 2352152, at *13.
114
Id. at *12.
115
See Cook Decl., Ex. 262.
116
Id. at Ex. 266. Malone was not in attendance. See Compl. ¶ 290.
117
Cook Decl., Ex. 266.
22
remaining directors received a presentation from Goldman Sachs and engaged in
discussions.118
The meeting minutes taken from this last Board meeting do not reflect a vote
by the non-Liberty Broadband directors with respect to the Acquisitions.119
Contemporaneous hand-written notes taken by Charter’s assistant corporate
secretary do reflect a vote by the non-Liberty Broadband directors to approve the
Acquisitions.120 Relatedly, the draft resolutions circulated to the Charter Board were
evidently never finalized.121 Despite this, contemporaneous emails indicate that the
Charter Board (including the non-Liberty Broadband directors) had fully approved
the Acquisitions.122
Charter filed a definitive proxy statement (the “proxy”) with the Securities
and Exchange Commission relating to the Acquisitions and soliciting a stockholder
vote.123 Notably, the stockholders were asked to approve the Acquisitions and
separately to approve the Broadband Transactions; the Board structured the vote,
however, so that consummation of the Acquisitions was dependent upon stockholder
118
Id. at Ex. 266.
119
Id. at Ex. 266.
120
Transmittal Aff. of Paul J. Loughman Supp. Director Defs.’ Reply Further Supp. Their Mot.
Summ. J., Ex. 122, at CHARTER00211963, Dkt. No. 336 [hereinafter “Loughman Reply Decl.”].
121
See AB 54.
122
Loughman Reply Decl., Ex. 123 (email from Rutledge at 12:36 a.m. on May 24th stating that
“board approvals are all complete”); id. at Ex. 124 (email from Winfrey at 2:01 a.m. on May 24th
stating that the “board fully approved by the way.”).
123
Id. at Ex. 37.
23
approval of the Broadband Transactions.124 It was this structure I found coercive for
Corwin purposes in Sciabacucchi I.125
In September 2015, the Charter stockholders approved the Acquisitions, and
the TWC merger and Bright House transactions closed on May 18, 2016.126
***
All told, the Plaintiffs’ suit here challenges only the Broadband Transactions,
rather than the broader Acquisitions.127 That is, the Plaintiffs do not challenge either
the TWC merger or the Bright House acquisition,128 which they agree were a “home
run” for Charter.129
As outlined above, the complained-of Broadband Transactions consist of four
parts: (1) the Bright House acquisition-linked $700 million investment in Charter at
a reference price of $173 per share; (2) the TWC merger-linked $4.3 billion
investment in Charter at a reference price of $176.95 per share; (3) the Rollover,
allowing Liberty Broadband and Liberty Interactive to obtain a tax benefit
unavailable to other TWC stockholders in connection with the TWC merger; and (4)
certain governance considerations afforded to Liberty Broadband in connection with
124
Sciabacucchi I, 2017 WL 2352152, at *21–22.
125
Id. at *24.
126
Sciabacucchi II, 2018 WL 3599997, at *5.
127
Compl. ¶¶ 3–4.
128
Id. ¶ 2.
129
AB 1 (quoting OB 1).
24
the final Bright House transaction. 130 The Plaintiffs’ position is that none of these
agreements were entirely fair. 131
B. Procedural History
The original complaint in this action was filed in August 2015, along with a
motions to expedite and for a preliminary injunction. 132 That complaint alleged,
among other things, that the proxy Charter had filed in connection with the
Acquisitions was materially incomplete.133 Following those filings, Charter made
certain supplemental disclosures, and Plaintiff Sciabacucchi withdrew his motions
to expedite and for preliminary injunction. 134 Plaintiff Sciabacucchi filed an
amended complaint in April 2016 (the “First Amended Complaint”).135
Two motions to dismiss were filed against the First Amended Complaint, one
brought by the “Charter Defendants”—i.e., Charter and all of its directors as of the
Acquisitions, excepting Malone and Maffei, 136 and one brought by the “Liberty
130
See, e.g., Compl. ¶¶ 19–22.
131
See, e.g., id. The Plaintiffs’ challenged transactions appear to have expanded just slightly
following Sciabacucchi II and following a second amendment to their original complaint.
Sciabacucchi II, 2018 WL 3599997, at *5; see also Compl. ¶ 4. Sciabacucchi II listed the same
four categories of challenged transactions but restricted the governance considerations solely to
Liberty Broadband’s receipt of a voting proxy from Newhouse. See Sciabacucchi II, 2018 WL
3599997, at *4–5.
132
Verified Class Action Compl. for Breach of Fiduciary Duties, Dkt. No. 1; Mot. for Prelim. Inj.,
Dkt. No. 1; Mot. for Expedited Proceedings, Dkt. No. 1.
133
Sciabacucchi I, 2017 WL 2352152, at *13.
134
See id.; see also Letter dated Sept. 10, 2015, to Sam Glasscock III from Melissa N. Donimirski
Regarding Withdrawal of Pl.’s Mot. to Expedite and Mot. for Prelim. Inj. 2, Dkt. No. 12.
135
Verified Am. Class Action Compl., Dkt. No. 15.
136
Charter Defs.’ Mot. to Dismiss the Verified Am. Class Action Compl., Dkt. No. 25.
25
Broadband Defendants”—Liberty Broadband, Malone, and Maffei.137 I addressed
these motions to dismiss in two separate memorandum opinions. The first,
Sciabacucchi I, held that (1) Malone and Liberty Broadband, collectively, were not
controllers of Charter at the pertinent time; and (2) that any potential breaches of
fiduciary duty were not cleansed by the stockholder vote under Corwin, because the
First Amended Complaint had adequately alleged that the stockholder vote upon the
Acquisitions was structurally coerced, as the broader Acquisitions were conditioned
on a stockholder vote in favor of the Broadband Transactions.138 I did not make
holdings as to director independence in Sciabacucchi I, other than to say that even
if a majority of the Charter Board lacked independence (which Plaintiff
Sciabacucchi had argued), this would not be sufficient to show that Liberty
Broadband and Malone controlled Charter. 139
Sciabacucchi I ultimately reserved decision on the motions to dismiss,
pending supplemental briefing on the question of whether Plaintiff Sciabacucchi’s
137
The Liberty Broadband Defs.’ Mot. to Dismiss the Verified Am. Class Action Compl., Dkt.
No. 22. I do not use these terms in the remainder of this Memorandum Opinion.
138
See generally Sciabaccuchi I, 2017 WL 2352152; see also Sciabacucchi II, 2018 WL 3599997,
at *6.
139
Sciabacucchi I, 2017 WL 2352152, at *17–18.
26
claims were direct or derivative. 140 I resolved the remainder of the motions to
dismiss in Sciabacucchi II on July 26, 2018. 141
Sciabacucchi II found that the two remaining claims were solely derivative in
nature because of the lack of a controlling stockholder.142 Because the claims were
derivative, I then assessed whether the First Amended Complaint had satisfied Court
of Chancery Rule 23.1 in pleading demand futility. 143 To satisfy Rule 23.1, Plaintiff
Sciabacucchi needed to have alleged particularized facts showing that demand
would have been futile because at least half of Charter’s Board lacked independence
from Malone, who was interested in the Broadband Transactions. 144
I therefore undertook an independence analysis in the context of demand
futility with respect to three of the directors.145 I found that directors Nair, Rutledge,
and Zinterhofer lacked independence in the context of demand futility—that is, in
the context of a decision whether to sue Malone—and that demand was consequently
140
Id. at *24–25. That briefing was provided, and Plaintiff Sciabacucchi conceded in that briefing
that two counts in the First Amended Complaint were predicated upon the allegation that Liberty
Broadband and Malone controlled Charter. Sciabacucchi II, 2018 WL 3599997, at *6. Those two
counts were dismissed in Sciabacucchi II. See generally id.141
See generally Sciabacucchi II, 2018 WL 3599997.
142
Id. at *7–10. Sciabacucchi II involved analysis of the direct and/or derivative nature of Plaintiff
Sciabacucchi’s claims at length, an issue no longer pertinent to our law following the Delaware
Supreme Court’s holdings in Brookfield Asset Mgmt. v. Rosson. See generally 261 A.3d 1251(Del. 2021).
143
Ct. Ch. R. 23.1.
144
Sciabacucchi II, 2018 WL 3599997, at *10–11.
145
Id. at *10–15. The Defendants had conceded that Malone and Maffei lacked independence,
and therefore only three further directors needed to lack independence for the purposes of demand
futility in order for Plaintiff Sciabacucchi to demonstrate that demand was excused. See id. at *12.
27
excused.146 With respect to Nair, I found that he lacked independence in the demand
futility context primarily due to his employment at a separate Liberty entity (Liberty
Global), of which Malone was a 25% stockholder. 147 For Rutledge’s part, I found
that he lacked independence to consider a demand impartially largely due to his
status as a “highly compensated senior executive at Charter,” where Malone (via
Liberty Broadband) controlled 26% of the voting stock.148 Finally, as to Zinterhofer,
I found that he lacked independence for purposes of demand futility principally
because of his outside business relationships with Malone, particularly those
pertaining to joint ventures in Puerto Rico. 149 I did not address Huseby’s
independence at the motion to dismiss stage.
Sciabacucchi II also separately found that the First Amended Complaint pled
a viable claim for breach of fiduciary duty by the Charter directors, and that entire
fairness applied to the transactions at issue at the pleading stage.150
Following Sciabacucchi II, a second plaintiff joined the action via stipulation
in November 2019; 151 the parties also began engaging in significant discovery at this
time. The Plaintiffs then moved for leave to amend the First Amended Complaint
146
See id.
147
See id. at *12–13.
148
Id. at *13.
149
Id. at *13–14.
150
Id. at *15–16.
151
See Granted (Stipulation and Proposed Order Regarding Joinder of Hialeah Employees’
Retirement System), Dkt. No. 136.
28
in January 2021.152 That motion was opposed, and following briefing, I granted it
in part and denied it in part by Memorandum Opinion in August 2021 (Sciabacucchi
III). 153 The second amended complaint (the “Complaint”) was filed in September
2021, 154 following which the Defendants filed answers; 155 thereafter, the Defendants
moved for summary judgment. 156 Briefing followed, and I heard oral argument on
the motions for summary judgment on January 19, 2022. 157 This Memorandum
Opinion addresses both the Director Defendants’ motion for summary judgment (the
“Director Defendants’ Motion”) and Liberty Broadband’s motion for summary
judgment.
II. ANALYSIS
The standard of review upon a motion for summary judgment is well known.
Per Court of Chancery Rule 56(c), if the evidence, taken together, shows that there
is “no genuine issue as to any material fact,” and if the moving party is “entitled to
a judgment as a matter of law,” summary judgment may be entered. 158 As the
152
Mot. for Leave to File Verified Second Am. Derivative and Class Action Compl., Dkt. No. 247.
153
See generally Sciabacucchi v. Malone, 2021 WL 3662394 (Del. Ch. Aug. 18, 2021).
154
Compl.
155
Answer of Defs. Liberty Broadband Corp., John Malone, and Gregory Maffei to Verified
Second Am. Derivative Compl., Dkt. No. 299; Nominal Def. Charter Communications, Inc.’s
Answer to the Verified Second Am. Derivative Compl., Dkt. No. 300; The Director Defs.’ Answer
to the Verified Second Am. Derivative Compl., Dkt. No. 301.
156
Director Defs.’ Mot. for Summ. J., Dkt. No. 306; Liberty Broadband Corp.’s Mot. for Summ.
J., Dkt. No. 309.
157
See Tr. of 1.19.22 Oral Arg. on Defs’ Mots. for Summ. J., Dkt. No. 344 [hereinafter “Oral
Arg.”].
158
Ct. Ch. R. 56(c).
29
Delaware Supreme Court has noted, “[t]here is no right to summary judgment.”159
In fact, summary judgment “must . . . be denied if there is a dispute regarding the
inferences which might be drawn from the facts.” 160 The evidence must be construed
“in the light most favorable to the non-moving party.” 161 Any motion for summary
judgment should be denied “if there is any reasonable hypothesis by which the
opposing party may recover.”162
Summary judgment is inappropriate where the matter “depends to any
material extent upon a determination of credibility.”163 When a party’s state of mind
is at issue, “a credibility determination is ‘often central to the case.’” 164 “The test is
not whether the judge considering summary judgment is skeptical that [the non-
movant] will ultimately prevail.”165 If, upon review of the facts presented in support
of a summary judgment motion, the court determines that it is desirable to develop
the facts more thoroughly at trial to aid in the application of the law, the court may
deny summary judgment.166 However, the United States Supreme Court, construing
Rule 56(c) of the Federal Rules of Civil Procedure, has noted that summary
159
Empire of Am. Relocation Servs., Inc. v. Com. Credit Co., 551 A.2d 433, 435 (Del. 1988) (citing
Cross v. Hair, 258 A.2d 277, 278 (Del. 1969)).
160
See id. (citing Schagrin v. Wilmington Med. Ctr., Inc., 304 A.2d 61, 63 (Del. Super. 1973)).
161
See In re El Paso Pipeline Partners, L.P. Deriv. Litig., 2014 WL 2768782, at *8 (Del. Ch. June
12, 2014) (quoting Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99 (Del. 1992)).
162
Id. (citing Vanaman v. Milford Mem’l Hosp., Inc., 272 A.2d 718, 720 (Del. 1970)).
163
Id. (citing Cerberus Int’l, Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1150 (Del. 2002)).
164
Id. (citing Johnson v. Shapiro, 2002 WL 31438477, at *4 (Del. Ch. Oct. 18, 2002)).
165
Cerberus Int’l, 794 A.2d at 1150.
166
In re El Paso, 2014 WL 2768782, at *9.
30
judgment is appropriately granted “even where ‘colorable . . . or [in]significantly
probative [evidence]’ is present in the record, if no reasonable trier of fact could find
for the plaintiff on that evidence.”167
The Director Defendants have presented me with two major bases on which
to grant their motion for summary judgment. First, they ask me to find based upon
the record that has been developed that a majority of Charter’s Board at the time of
the vote upon the Acquisitions (including the Broadband Transactions) was
independent, and that the appropriate standard of review is thus the business
judgment rule. Second, alternatively, they argue that even if the Broadband
Transactions are subject to review under entire fairness, they have adduced a record
that demonstrates both fair process and fair price, as a matter of law.
Liberty Broadband’s motion for summary judgment largely rises and falls
with the Director Defendants’ Motion, as the cause of action against Liberty
Broadband is for aiding and abetting breach of fiduciary duty. If the Director
Defendants succeed in demonstrating that a majority of the Board was independent
and disinterested, Liberty Broadband might prevail upon its motion. If the Director
Defendants are unable to prevail as to fiduciary duty at this stage, Liberty Broadband
will likely be unable to overcome that finding as well.
167
Haft v. Haft, 671 A.2d 413, 419 (Del. Ch. 1995) (citing Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249–50 (1986)).
31
Because vindication of the Director Defendants’ independence theory would
relieve me of the need to address entire fairness, I assess independence first.
A. The Independence Analysis
In order for the Director Defendants to prevail upon a motion for summary
judgment, they must show that a majority of the Charter Board was independent168
such that the independent directors could bring their business judgment to bear in
the context of voting upon the Acquisitions, including the Broadband Transactions.
This differs from the independence inquiry I undertook at the motion to dismiss
stage, wherein the Plaintiffs showed that it was reasonably conceivable that a
majority of the Charter Board would have had its discretion sterilized in responding
to a demand for litigation, including against fellow directors.169 To repeat, the
inquiry here is whether, for purposes of voting sterilization—which differs from
assessing a demand—a majority of the Charter Board was independent in assessing
the Acquisitions.
This Court has addressed the contextual nature of the independence inquiry in
some detail in In re Oracle Corporation Derivative Litigation, a Court of Chancery
168
The parties have not disputed whether Nair, Huseby, Rutledge, or Zinterhofer was interested in
the transaction. As I acknowledged in Sciabacucchi II, Malone was indisputably interested, but
the Director Defendants do not champion his independence here. See Sciabacucchi II, 2018 WL
3599997, at *11.
169
Id. at *10–15.
32
case from 2003. 170 In Oracle, before addressing the independence of a special
litigation committee, the Court stated:
It is, I daresay, easier to say no to a friend, relative,
colleague, or boss who seeks assent for an act (e.g., a
transaction) that has not yet occurred than it would be to
cause a corporation to sue that person . . . . Denying a
fellow director the ability to proceed on a matter important
to him may not be easy, but it must, as a general matter, be
less difficult than finding that there is reason to believe
that the fellow director has committed serious wrongdoing
and that a derivative suit should proceed against him. 171
Notably, independence in the context of a special litigation committee is even more
demanding, as directors on a special litigation committee do not enjoy the
presumption of independence; rather, the directors composing the committee have
the burden of establishing their own independence. 172
Despite this distinction, at least two Delaware cases have followed Oracle’s
proclamation outside of the special litigation committee context. In re BGC
Partners, Inc. Derivative Litigation noted that a demand futility analysis is an
“exercise in the hypothetical,” and that “[a] director’s objectivity concerning a
hypothetical demand could be compromised even if her actions in evaluating a
transaction were beyond reproach.”173 The Court quoted Oracle approvingly,
170
In re Oracle Corp. Deriv. Litig., 824 A.2d 917 (Del. Ch. 2003).
171
Id. at 940.
172
See London v. Tyrrell, 2010 WL 877528, at *12–13 (Del. Ch. Mar. 11, 2010); Beam ex rel.
Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1055 (Del. 2004).
173
In re BGC Partners, Inc. Deriv. Litig., 2021 WL 4271788, at *11 (Del. Ch. Sept. 20, 2021).
33
agreeing that a director “faces greater difficulty” in assessing a demand than he does
in denying a fellow director “the ability to proceed on a matter important to him.”174
The Delaware Supreme Court has also indirectly addressed the issue of
contextual precision in undertaking an independence inquiry. In Marchand v.
Barnhill, the Court reviewed a determination the lower court had made as to an
individual’s independence.175 The lower court, in that instance, had concluded that
because the questioned director had voted contrary to the interested party “on a
proposal to separate the CEO and Chairman position,” certain interpersonal ties “did
not matter” for purposes of assessing the director’s independence in the demand
futility context.176 The Delaware Supreme Court disagreed: “the decision whether
to sue someone is materially different and more important than the decision whether
to part company with that person on a vote about corporate governance, and . . .
precedent recognizes that the nature of the decision at issue must be considered in
determining whether a director is independent.” 177
This review of caselaw crystallizes the importance of assessing independence
in a precise factual context. Acknowledging these distinctions, then, what can the
reader take away from the above discussion of independence as applied to a vote for
174
Id. at *11. I do note that In re BGC Partners undertook this explanation in the context of
assessing a Cornerstone claim—so although the context is similar to the case before me, it is not
identical. See id. at *10–12.
175
Marchand v. Barnhill, 212 A.3d 805, 819 (Del. 2019).
176
Id.177
Id.34
or against major transactions? Caselaw appears to be—slowly—coalescing as
follows.
Where the independence inquiry relates to special litigation committees, it
requires a showing of independence by the special litigation committee, having
displaced the common-law presumption of director independence. 178 This differs
dramatically from the other two contexts considered above.
The independence inquiry as it relates to demand futility arises in the context
where the challenged directors are not themselves interested in the question posed
in the demand, but are alleged not to be independent of those who are. Where the
latter are fellow directors, the required demonstration appears to be the easiest for a
plaintiff to clear, given the natural reluctance of directors to take the action
demanded—ultimately, choosing to sue fellow directors. If, as Oracle suggests, the
difficulty of impartially assessing a demand to sue fellow board members (or to sue
business associates, friends, family, etc.), is high, it follows that a plaintiff would
find it easier to impugn a director’s independence in the context of demand futility.
Successfully impugning a director’s independence with respect to voting on
transactions, conversely, should be more difficult than challenging that same
independence with respect to assessing a demand. The ultimate factual burden upon
a plaintiff to prove a director’s lack of independence at trial will vary accordingly.
178
See supra note 172 and accompanying text.
35
The important point is that the decision in question must be viewed in the context of
the director’s relationship and her ability, in light of that relationship, to apply her
business judgment thereto.
I have found, at the pleading stage, that Plaintiff Sciabacucchi had alleged
sufficient facts to determine not only that demand was excused, but that the business
judgment of a majority of the directors was sufficiently impugned to make it
reasonably conceivable that entire fairness must be the standard of review upon a
motion to dismiss.179 The question before me today stands in a different procedural
context: that of summary judgment. Director independence law creates friction with
the summary judgment standard, as “there is a presumption that directors are
independent.”180 At the same time, the Court must recall that the facts “are viewed
in the light most favorable to the nonmoving party” on a motion for summary
judgment.181 Thus, though I start from the presumption of independence in assessing
each challenged director, I remain cognizant that any interpretative gloss on facts
must benefit the Plaintiffs. To grant summary judgment, the record must be such
that I find that the Plaintiffs cannot meet their burden to rebut independence at trial,
as a matter of law.
179
See supra note 150 and accompanying text.
180
In re MFW S’holders Litig., 67 A.3d 496, 509 (Del. Ch. 2013), aff’d sub nom. Kahn v. M & F
Worldwide Corp., 88 A.3d 635 (Del. 2014).
181
In re Energy Transfer Equity L.P. Unitholder Litig., 2017 WL 782495, at *9 (Del. Ch. Feb. 28,
2017).
36
With this framework in mind, then, I address the facts before me. The Charter
Board consisted of ten directors at the time of the vote on the Acquisitions. Four of
these directors—Conn, Markley, Merritt, and Jacobson—have not been challenged
by the Plaintiffs on independence grounds 182 at summary judgment. The Director
Defendants have conceded that two more of the directors—Malone and Maffei, dual
fiduciaries—were not independent. 183
To show the independence of a majority of the Board, and obtain the business
judgment rule standard of review, the Director Defendants must establish that six of
the ten directors on Charter’s Board were independent at the pertinent time. That
leaves a dispute over the independence of Nair and Huseby, both Liberty Broadband
designees; Rutledge, the CEO at the time of the Acquisitions; and Zinterhofer, the
Chairman at the time of the Acquisitions. If the Director Defendants can show that
the record compels me to find two of the four challenged directors were independent,
the Director Defendants are entitled to the judgment they seek.
To displace the presumption of independence, the Plaintiffs must demonstrate
as to each challenged director that he was either (1) beholden to Malone, Maffei, or
Liberty Broadband or (2) so under the influence of Malone, Maffei, or Liberty
182
The Plaintiffs do not contend that a majority of the Board was interested in the Acquisitions,
including the Broadband Transactions.
183
See supra note 145.
37
Broadband that his discretion was sterilized.184 “Delaware law does not contain
bright-line tests for determining independence but instead engages in a case-by-case
fact specific inquiry based on” the facts. 185 Facts submitted to rebut the presumption
of independence should be reviewed “holistically, because they can be additive.”186
Plaintiffs seeking to show that a director was not independent must demonstrate that
the director in question had ties to the “person whose proposal or actions he or she
is evaluating;” ties so substantial that she could not “objectively discharge . . . her
fiduciary duties.” 187 The inquiry is whether those ties were material such that they
displace the impartiality of the individual director. 188 Only if, in light of the record
that has been adduced, I can find that the Plaintiffs will be unable to demonstrate a
lack of independence as to a majority of the Board, can I grant the Director
Defendants’ motion here.
Before I turn to facts relating to the individual directors, I briefly address what
the Plaintiffs consider predicate issues which could lead to application of entire
fairness without a finding of lack of directorial independence.
184
Kahn, 88 A.3d at 648–49.
185
Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 61 (Del. Ch. 2015).
186
Voigt v. Metcalf, 2020 WL 614999, at *13 (Del. Ch. Feb. 10, 2020).
187
Kahn, 88 A.3d at 649.
188
Id.38
1. The Plaintiffs’ Predicate Issues
Per the Plaintiffs, acceptance of any one of these three predicate-issue theories
would require the application of the entire fairness standard of review,189 eliminating
the need to assess independence director-by-director. They challenge (1) whether
the Acquisitions were in fact approved by the full Board, and particularly whether
the non-Liberty Broadband directors voted in favor of the Acquisitions;190
(2) whether fraud on the Board occurred in the context of a financial advisor,
LionTree; 191 and (3) whether a set of Board resolutions from 2013 conclusively
establishes a lack of independence as to certain directors.192 Because of my decision,
below, that the issue of independence of a majority of the board awaits trial, I see no
benefit in addressing these arguments here, rather than on a post-trial record.
Nonetheless, it is worth laying out the Plaintiffs’ argument with respect to one of
these issues, involving the “2013 Resolutions,” as these facts are integral to the
independence inquiry that follows.
In 2013, the Charter Board geared up to make the first of many offers to buy
TWC. As described in the facts section, Charter made and TWC rejected four offers
189
The result if I accept at least one of the predicate-issue theories is disputed. See Director Defs.’
Reply Further Supp. Their Mot. Summ. J. 18, Dkt. No. 335. [hereinafter “RB”] (reflecting Director
Defendants’ belief that if the Acquisitions were not approved, the transactions would be void).
190
AB 59–62.
191
Id. at 82–85.
192
Id. at 64–65; Oral Arg. at 100:1–8, 107:4–13. I do note that this argument is championed less
thoroughly in the Plaintiffs’ briefing, but I still understand its presentation to be that of a predicate
issue.
39
before the fifth was accepted. The first Charter proposal was made on July 10, 2013.
Before the second proposal was made, on October 17, 2013, Charter held a Board
meeting.193 At that meeting, the Board voted on and approved a set of resolutions
outlining a potential equity transaction with Liberty (defined above as the “2013
Resolutions”).194 The 2013 Resolutions read in part:
WHEREAS, the Company is contemplating the
possibility of a strategic business combination that may
involve an equity financing, and Liberty Media has
advised the Board that it is considering to propose an
additional investment in the Company (an “Equity
Transaction”);
WHEREAS, the four directors previously designated for
appointment to the Board by Liberty Media (the “Liberty
Directors”) and Mr. Rutledge have advised the Board that
they will recuse themselves for all purposes in connection
with any such Equity Transaction;195
The 2013 Resolutions go on to identify the remainder of the Board as
“Remaining Directors,” and to empower the Remaining Directors to explore such an
equity transaction.196 The four “Liberty” directors recused by the 2013 Resolutions
are Malone, Maffei, Nair, and Huseby.
193
Cook Decl., Ex. 99.
194
Id. at Ex. 99, at Ex. A. The reference to “Liberty” above the line is intentional, as the Liberty
entity in question was actually Liberty Media, rather than Liberty Broadband. See id. at Ex. 99, at
Ex. A.
195
Id. at Ex. 99, at Ex. A.
196
Id. at Ex. 99, at Ex. A.
40
The 2013 Resolutions are pertinent because, per the Plaintiffs, they indicate
that the “Charter Board recognized” that Malone, Maffei, Nair, Huseby, and
Rutledge “were conflicted.”197 The implication is that they therefore lacked
independence for purposes of any equity transaction undertaken by Charter with
Liberty Media/Broadband. In theory, no further independence inquiry is necessary,
and I should proceed directly to the application of the entire fairness standard of
review.
I do not find the issue to be this straightforward. The 2013 Resolutions
identify the recused directors (with the exception of Rutledge) as “the four directors
previously designated for appointment to the Board by Liberty Media.” 198 No
further factual finding regarding Malone, Maffei, Nair, and Huseby is delineated;
the recusal appears to be solely due to their status as Charter Board designees of
Liberty. This is not sufficient to foreclose a further independence analysis, as
Delaware law does not recognize designee status as sufficient in itself to demonstrate
a director’s lack of independence as relates to the designating entity, and the
presumption of independence continues to apply to designee directors, unless
rebutted. 199 In addition, and pertinent to the further independence inquiry I engage
197
Oral Arg., at 110:10–15; 110:19–111:20; 107:4–13.
198
Cook Decl., Ex. 99, at Ex. A.
199
Rudd v. Brown, 2020 WL 5494526, at *12 (Del. Ch. Sept. 11, 2020) (citing In re W. Nat. Corp.
S’holders Litig., 2000 WL 710192, at *15 (Del. Ch. May 22, 2000)).
41
with below, the 2013 Resolutions are not reflective by their plain language of a
determination by the Company as to any conflict or lack of independence on the part
of the enumerated directors. 200 Rather, they are cast as an action by these five
directors (the decision to recuse themselves). 201
In other words, the 2013 Resolutions are pertinent to, but not dispositive of,
the question of independence.
2. Director-by-Director Assessment Upon the Summary Judgment
Standard
I now turn to the director-by-director independence inquiry, ultimately
determining that I must deny the Director Defendants’ Motion at summary
judgment.
Below I address the facts aggregated with respect to each of the contested
directors: Zinterhofer, Huseby, Nair, and Rutledge. I am aided in this by the parties’
briefing, which disputes almost none of the facts regarding each contested director’s
independence, but disputes primarily inferences to be drawn from the aggregated
facts.
a. Zinterhofer
Eric Zinterhofer was the Chairman of the Board prior to the Acquisitions.202
200
Cook Decl., Ex. 99, at Ex. A.
201
The placement of the recusal in a whereas clause as opposed to a resolution also offers minor
support to this view. See id. at Ex. 99, at Ex. A.
202
Id. at Ex. 19, at 7.
42
The gravamen of the Plaintiffs’ allegations against Zinterhofer is that he has
a history of engaging in business transactions with “Malone-affiliated entities.”203
Most importantly, Zinterhofer co-founded a private equity firm, Searchlight, in
2010. 204 From 2013 to 2015, Zinterhofer was the owner of “approximately” 30% of
Searchlight. 205 In 2012, Searchlight, as part of a joint venture with Liberty Global,
purchased a Puerto Rican cable company for $600 million. 206 Searchlight itself
recognized in an internal presentation that “Searchlight’s multi-year relationships
with prior owners of LCPR (Liberty Global) and OneLink (MidOcean and
Crestview) allowed for noncompetitive transaction . . . .” 207 Zinterhofer testified
that this reference alluded to people at Searchlight who had known some of the
Liberty Global principals, including Mike Fries, for many years. 208 When asked, he
indicated that the folks at Searchlight who knew Liberty Global principals were
“[p]rimarily” himself and one other partner. 209
203
AB 75.
204
See Loughman Decl., Ex. 59, at 25:5–9.
205
Id. at Ex. 59, at 26:3–27:23 (“Q. Is it true that in the 2013 to 2015 time frame you owned
approximately 30 percent or at times a little more of Searchlight? A. Yeah. There’s different
percentages . . . . for different elements of ownership across the firm. So it’s not entirely accurate
to say that it’s just 30% across the board.”). Zinterhofer clarified that it would not be wholly
accurate to say he was a 30% holder of Searchlight, but that it was “approximately correct” “for
purposes of this conversation” to say that from 2013 to 2015 his ownership of the general partner
entity of Searchlight was 30% or greater. See id. at Ex. 59, at 26:3–27:23.
206
See id. at Ex. 59, at 34:5–35:12.
207
Id. at Ex. 59, at 35:21–24, 39:25–40:7 (emphasis added).
208
See id. at Ex. 59, at 39:25–40:23.
209
See id. at Ex. 59, at 39:25–40:23.
43
Two years later, in 2014, Liberty Global and Searchlight invested in another
Puerto Rican cable company for $272.5 million. 210 In June 2015, Searchlight
published a piece on its website that described, among other things, Searchlight’s
relationship with Liberty Global (the “June 2015 Article”).211 Mike Fries, the CEO
of Liberty Global at the time, stated in the story that he had known Zinterhofer “well
over 10 years,” that Zinterhofer was a “critical and valuable resource” to Liberty
Global as it engaged in the two acquisitions, and that “[w]e [Liberty Global] would
be happy to do more deals with Searchlight.” 212
In 2018, Zinterhofer became a director for Liberty LatAm—an entity spun off
of Liberty Global in 2018. 213
Zinterhofer considered himself to owe “fiduciary type obligations” to
Searchlight (with respect to the Searchlight investment realm), 214 and (per the
Plaintiffs) likely felt a personal motivation to prove himself as a co-founder and
therefore would have wanted to show a good return.215 The parties both proffer a
host of arguments regarding the materiality of Searchlight as a venture to Zinterhofer
comparative to his overall wealth, and comparative to the overall Searchlight
210
Id. at Ex. 59, at 42:18–43:25.
211
Cook Decl., Ex. 56.; see also Loughman Decl., Ex. 59, at 55:4–17.
212
Cook Decl., Ex. 56.
213
Loughman Decl., Ex. 59, at 64:13–21; id. at Ex. 112, 143:21–144:2.
214
Id. at Ex. 59, at 31:8–14.
215
Oral Arg. at 116:17–21.
44
fund.216 The Plaintiffs indicate that the Searchlight joint venture was material to
Zinterhofer 217 while the Director Defendants highlight that the venture accounted for
less than 1% of Zinterhofer’s net worth. 218
Another fact relating to Zinterhofer’s lack of independence is that the Board
at least considered whether Zinterhofer was potentially conflicted in light of the
affiliation between Searchlight and Malone, as enshrined in meeting minutes. 219 But
there are not specific facts cited suggesting that Malone exerted significant influence
over Zinterhofer by way of Liberty Global or Liberty LatAm.
In prior jobs, Zinterhofer had engaged in transactions or preliminary
discussions with other Malone-affiliated entities. For example, while at Apollo
Management, L.P., Zinterhofer worked on a 2005 transaction selling CableCom to
216
See AB 77–78; OB 39; RB 8–10.
217
AB 78 (“As of June 2015, Zinterhofer’s personal share of the unrealized gain in the Puerto-
Rico joint-venture entity was approximately $886,000, compared to an annual income for 2014
and 2015 of as little as $5 million.”).
218
RB 8–9 (“There is, moreover, no evidence that the joint venture was material to Searchlight or
to Zinterhofer: the investment comprised less than 3% of Searchlight’s total funds as of December
2015, and Zinterhofer personally invested less than 1% of his net worth in the venture.”).
Weighing facts would be inappropriate at this stage, so I do not make a dispositive finding with
respect to the question of the materiality of the joint venture to Zinterhofer. It is enough to consider
the facts as part of my holistic review of Zinterhofer’s independence.
219
See, e.g., Cook Decl., Ex. 162, at 2 (“[A]s previously disclosed, Mr. Zinterhofer’s firm,
Searchlight Capital, was party to a joint venture investment in Puerto Rico with Liberty Global
plc.”); see also id. at Ex. 214, at 2 (“Mr. Cohen also reminded the Board that Mr. Zinterhofer’s
firm, Searchlight Capital, has a joint venture investment in Puerto Rico with Liberty
Global [redacted] . . . .”).
45
Liberty Global,220 and a 2009 transaction selling Unitymedia to Liberty Global.221
The Plaintiffs have also identified other early-stage transaction discussions that
would have connected Zinterhofer and Malone-or-Maffei-affiliated entities, though
none of these came to fruition.222
Similarly, Zinterhofer has engaged in at least one transaction with Malone-
related affiliates after the Acquisitions. Most notably, Searchlight sold a portfolio
company to Ocelot Partners, a special purpose acquisition company in which Malone
and Maffei had invested, in March 2018. 223 These instances are supportive of the
Plaintiffs’ identified pattern of transactions or potential transactions involving
Zinterhofer and Malone-affiliated entities.
The Plaintiffs also point to the fact that Rutledge replaced Zinterhofer as
Chairman as evidence that Newhouse—who requested Rutledge be installed as
Chairman—perceived Zinterhofer as too close to Liberty Broadband and/or Malone.
Newhouse’s advisors, UBS Securities LLC (“UBS”), represented through their
220
See Loughman Decl., Ex. 59, at 18:13–19:16.
221
See id. at Ex. 59, at 19:17–21:1. Zinterhofer was also on the board of Unitymedia from 2005
to 2010 (i.e., at the time of the Unitymedia-Liberty Global transaction). See id. at Ex. 59, at 19:17–
21:1.
222
See id. at Ex. 59, at 21:2–22:10; see also Cook Decl., Ex. 290 (audio file of Aryeh Bourkoff of
LionTree leaving a voicemail wherein Zinterhofer suggested Searchlight could provide capital to
Maffei if certain transactions were undertaken), id. at Ex. 291 (audio file of Bourkoff leaving a
voicemail wherein Maffei might have been interested in buying a stake in a different company for
which Zinterhofer was a director); see also AB 78.
223
See AB 79. The Plaintiffs also point me to the fact that Zinterhofer became a director for
General Communications, Inc. (“GCI”) in 2014, but GCI was not acquired by a Liberty company
until 2017. See id.46
30(b)(6) witness that UBS had “raised red flags to our client about [Zinterhofer’s]
outside business interests with Liberty.”224 The 30(b)(6) witness specified that
“there were outside business interests . . . in combination with the fact that
[Zinterhofer] was unknown, that he was of a private equity background and that there
was someone else [Rutledge] that the [Newhouse] family trusted and we thought
would make a better chairman” contributed to Newhouse’s decision to make a push
for Rutledge as Chairman. 225 UBS also stated that Newhouse never “made a
determination on whether they were comfortable with Mr. Zinterhofer’s
independence because there were other considerations that caused us to conclude
that we would push for Tom Rutledge as Chairman.”226
224
See Loughman Decl., Ex. 104, at 80:1–80:19.
225
See id. at Ex. 104, at 65:7–12.
226
See id. at Ex. 104, at 76:13–19. The UBS deposition also included a lengthy discussion of
whether certain talking points, prepared by UBS for Newhouse in the context of their preferred
Chairman, demonstrated “an actual concern or a made-up concern to be used as a negotiating
position” about Zinterhofer’s independence. Id. at Ex. 104, at 80:1–6; see also Cook Decl., Ex.
146 (“The message would be that, given [Zinterhofer’s] other investments alongside Liberty
Global in Puerto Rico and perceived closeness to Malone’s Liberty and Liberty Global assets, we
struggle to see how he is Independent in his Chairman role. We wanted them to be aware of this
very real concern . . . .”); id. at Ex. 147 (similar email from UBS to Newhouse). UBS’s 30(b)(6)
witness testified that “[Zinterhofer’s independence] was not a fake concern because we obviously
raised red flags to [Newhouse] about [Zinterhofer’s] outside business interests with Liberty. So it
was not a fake concern nor was it the concern that is expressed as a negotiating point in our talking
points . . . . [I]t was somewhere in between.” See Loughman Decl., Ex. 104, at 80:13–19. This
answer, while hedging spectacularly, also follows a protracted questioning session by the
Plaintiffs’ counsel on the question of Zinterhofer’s independence in the eyes of UBS and/or
Newhouse. Id. at Ex. 104, at 49:18–82:12. I take this testimony into consideration in conducting
my holistic analysis, but it is not a dispositive fact.
47
Miron, the CEO of Newhouse, also sat for a deposition. 227 Miron was asked
whether Advance/Newhouse had concerns about Zinterhofer’s independence.228
Miron responded that “[W]e did not have a concern with—you know, with
[Zinterhofer’s] independence . . . I assume you’re talking about the chairman
role . . . . [F]or Advance[/Newhouse] . . . Tom [Rutledge] was a big part of this
transaction.”229 Miron went on to clarify that “I didn’t have concerns about—about
[Zinterhofer’s] independence . . . . [I]t was more about having confidence in Tom
[Rutledge].”230 The Plaintiffs suggest that this answer was borne of “politeness” or
possibly Miron’s having been coached.231
Further, when Maffei disagreed with the structure of the Original Bright
House Transaction, Zinterhofer behaved in a manner that the Plaintiffs characterized
as a “deferential, controlled mind-set sort of response,” 232 because Zinterhofer
responded to Maffei that he would “make [it] very clear” that Maffei and Liberty
Broadband were not on board with the term sheet and Board presentation
circulated.233
227
See id. at Ex. 38.
228
Id. at Ex. 38, at 102:6–7.
229
Id. at Ex. 38, at 102:11–104:4.
230
See id. at Ex. 38, at 102:11–104:4. Supporting this statement were Miron’s comments about
having “known Tom [Rutledge] for—as I was telling you, for almost 30 years now and he is a
superb—he’s a superb operator and executive,” and the fact that Advance/Newhouse “wanted Tom
[Rutledge] to sign on for . . . another five-year term [as CEO].” See id. at Ex. 38, at 102:11–104:4.
231
AB 81.
232
See Oral Arg. at 125:9–19.
233
See Cook Decl., Ex. 155.
48
Of final note, I recognize that Zinterhofer was not recused from discussing the
potential Liberty Media financing via the 2013 Resolutions, 234 and that Zinterhofer
instead was part of the working group identified in the 2013 Resolutions that was
directed to consider and negotiate any such transaction.235
I take all of these concerns into account in assessing Zinterhofer’s
independence. To my mind, the allegations against Zinterhofer crystallize largely
into three categories: first, concerns about his connections with Malone-affiliated
entities; second, concerns that Newhouse, UBS, or Newhouse and UBS legitimately
believed Zinterhofer might not have been independent at the time of the
Acquisitions; and third, facts regarding Zinterhofer’s responses to disagreement
from Liberty Broadband Board designees regarding the at-issue transactions.
The first concern, per Plaintiffs, is in line with relevant caselaw supporting a
finding of lack of independence. I turn first to Sandys v. Pincus, a case from our
Supreme Court discussing directors with entangled investments. 236 In Sandys, the
Court assessed whether two directors of company Zynga were independent of
directors Pincus and Hoffman in the context of demand futility. 237 The Zynga
directors in question served also as partners of firm Kleiner Perkins Caufield &
234
See id. at Ex. 99, at Ex. A.
235
See, e.g., Loughman Decl., Ex. 30.
236
152 A.3d 124 (Del. 2016).
237
Id. at 131.
49
Byers (“Kleiner Perkins”), which held 9.2% of Zynga’s equity; Kleiner Perkins had
also invested in a company that Pincus’s wife co-founded.238 Further, Kleiner
Perkins and director Hoffman both had investments in yet another separate company,
Shopkick, Inc. 239 Hoffman and another Kleiner Perkins director sat on the Shopkick
board of directors.240 Additionally, certain Zynga directors had suggested that the
directors at issue were not independent. 241 Finally, Zynga had determined that the
directors in question were not independent directors under the NASDAQ Listing
Rules.242
After outlining these facts, the Delaware Supreme Court considered the
criteria applicable to independence determinations under the NASDAQ Listing
Rules, noting that the NASDAQ Listing Rules require “a fundamental determination
that a board must make to classify a director as independent, a determination that is
also relevant under our law.”243 The Court appeared to credit highly the company’s
own determination that the directors at issue were not independent under the
NASDAQ Listing Rules, describing that criteria as having “important relevance” to
238
Id.
239
Id.
240
Id.
241
Id.
242
Id.
243
Id. at 132–33.
50
whether the directors were independent under Delaware law.244 The Court then
discussed
the reality . . . that firms like Kleiner Perkins compete with
others to finance talented entrepreneurs . . . and networks
arise of repeat players who cut each other into beneficial
roles in various situations . . . . [P]recisely because of the
importance of a mutually beneficial ongoing business
relationship, it is reasonable to expect that sort of
relationship might have a material effect on the parties’
ability to act adversely toward each other. Causing a
lawsuit to be brought against another person is no small
matter, and is the sort of thing that might plausibly
endanger a relationship.245
Ultimately, in conjunction with Zynga’s determination that the two directors were
not independent under NASDAQ Listing Rules, the fact that other directors
considered the two in question less than independent, and the directors’ entangled
business relationships, the Delaware Supreme Court found the subject directors to
lack independence for purposes of demand futility.246
There are distinguishing differences between Sandys and the facts before me.
First, I note, the decision was in the context of independence in light of a litigation
demand; as noted above, this is an easier bar for a plaintiff to clear than with the
issue before me. Next, missing here is any determination by the Company that the
challenged directors were not independent under the NASDAQ Listing Rules. That
244
Id. at 133.
245
Id. at 134.
246
See id.
51
determination, in combination with the existing business relationships in Sandys, led
to a finding of a lack of independence. By contrast, in evaluating Zinterhofer, there
are no direct allegations that other directors considered him less than independent.
The closest match is either (1) the allegation that Newhouse or Newhouse’s advisors
might have considered Zinterhofer less than independent, or (2) the fact that Charter
had named Zinterhofer’s Searchlight connection as a possible conflict of interest in
various sets of meeting minutes.247 The Sandys Court decision does not, to my mind,
compel a finding of lack of independence on the part of Zinterhofer.
The other salient caselaw the Plaintiffs urge me to consider is In re Dell
Technologies. 248 The Plaintiffs cite Dell for the proposition that a director can have
a “compromising relationship” with a “close advisor or other associate” of a
controller and therefore lack independence. 249 As noted previously, the law of the
case is that Malone and/or Liberty Broadband are not controllers of Charter.250 The
Plaintiffs would amend the Dell language to refer to an associate of a “conflicted
fiduciary.”251 Their theory here is that Zinterhofer is so close to Mike Fries, Liberty
Global’s CEO, that their relationship rises to the level of a “compromising”
247
See supra notes 219 & 224–31 and accompanying text.
248
In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *37 (Del. Ch. June 11,
2020).
249
Id.250
See generally Sciabacucchi I, 2017 WL 2352152, at *20.
251
See AB 80. I note that it is not entirely clear to me that this suggested change, from controller
to conflicted fiduciary, is a fair or equivalent one, as it appears to be an expansion of Dell.
52
relationship with a “close advisor or other associate” of Malone. 252 As evidence,
they point to the June 2015 Article, which included numerous quotes by Mike Fries
expressing his fondness toward Zinterhofer and to the effect that Liberty Global
would be willing to work with Searchlight (and therefore Zinterhofer) again in the
future.253
I do not read the June 2015 Article as emblematic of the same type of
“compromising relationship” shown in Dell. First, in Dell, the challenged director
had a “thirty-year friendship and business association” with the close advisor in
question, who described himself as the controller’s “brother from another mother”
and was one of the controller’s “closest friends.” 254 The ties between the challenged
director and the close advisor were ample, including working on acquisitions
together, co-founding a blank check company together, and service on various
boards at each other’s behests.255
Here, the alleged ties pointed to are quotes in an article and the potential for
future deals together, all of which stem from Fries, rather than from Zinterhofer.
This does not, to my mind, rise to the level of a compromising relationship as in
Dell. While Dell does not expressly undertake this analysis, in my understanding, I
252
Dell, 2020 WL 3096748, at *37.
253
See supra notes 211–12 and accompanying text.
254
Dell, 2020 WL 3096748, at *37.
255
See id.53
would need to find that Zinterhofer is not independent of Fries before I could apply
Dell to extend Zinterhofer’s lack of independence also to Malone. I would likely
also need to find that the ties between Fries and Malone were sufficiently close such
that this extension was appropriate. Dell is but a weak reed to support Plaintiffs’
independence analysis here.
Finally, I note that Dell was a pleading-stage case. While the linkage between
a challenged director, a close advisor, and a controller could certainly be reasonably
conceivable upon a motion to dismiss, summary judgment requires more than mere
speculation. 256 Thus, even if Dell could be extended in this manner (which I neither
find nor foreclose), the evidence aggregated in this particular case is insufficient to
allow me to do so.
In sum, the facts asserted regarding Zinterhofer and Searchlight’s
relationships with Liberty entities are attenuated, but are sufficient to give me pause,
particularly where the Plaintiffs enjoy the benefit of the remaining inferences. The
Plaintiffs have not aggregated facts suggesting that Malone actually employed
significant influence over Zinterhofer via Liberty Global, via Searchlight, despite
the fact that Malone testified to having soft control over Liberty Global.257 Instead,
the Plaintiffs ask me to find, as I did at the motion to dismiss stage, that Zinterhofer
256
See In re Barker Tr. Agreement, 2007 WL 1800645, at *11 n.63 (Del. Ch. June 13, 2007) (“On
a motion for summary judgment, though, mere speculation is no substitute for factual evidence.”).
257
AB 75 n.386.
54
was cognizant of the “possibility of endangering the Liberty Global/Searchlight joint
ventures,”258 and that this possibility was sufficient to render his judgment with
respect to the Acquisitions sterilized or to cause him to be beholden to Malone.
Essentially, the Plaintiffs are resting on the inference that the joint venture was
sufficiently material to Zinterhofer—despite the fact that the relationship between
Zinterhofer and Malone was attenuated by at least two degrees (Searchlight and
Liberty Global)—that it sterilized his ability to make business decisions separate
from Malone.
The facts regarding Newhouse and UBS’s consideration of Zinterhofer’s
independence are weakly additive. At most, they show third parties’ points of view
on the matter of Zinterhofer’s independence (and it is not clear to me that these points
of view are undisputed). In my interpretation, these documents and testimony serve
more as a support to the main point of the Plaintiffs’ arguments: that Zinterhofer was
so ensnared in the network of repeat players in the cable industry that he was
beholden to Malone or had had his discretion sterilized by Malone’s influence.
The third category of facts shown, discussing Zinterhofer’s actual reaction in
response to Maffei seeking to use his influence to reshape the Newhouse deal, is
also, at best, mildly probative here. Simply because Zinterhofer indicated he would
“make [it] very clear” that Maffei and Malone did not agree with the Bright House
258
Sciabacucchi II, 2018 WL 3599997, at *14.
55
deal’s structure does not demonstrate that his discretion had been sterilized.259 At
the same time, the statement does not support a finding of independence.
The case with respect to Zinterhofer’s independence is a close one, and I am
cognizant that I found him conflicted for purposes of demand futility (and Rule
12(b)(6)) in the earlier stages of this action,260 though that does not compel an
identical conclusion at this later stage, particularly as the context of voting on a
transaction differs from that of demand futility. As this Memorandum Opinion has
noted above, the independence analysis in the voting context is less demanding than
the independence analysis in the demand futility context: “Denying a fellow director
the ability to proceed on a matter important to him may not be easy, but it must . . .
be less difficult than finding that there is reason to believe that the fellow director
has committed serious wrongdoing and that a derivative suit should proceed against
him.” 261
Altogether, I find that none of the facts compiled against Zinterhofer is
sufficient to impugn his independence standing alone, but when taken as a whole—
as is required at the summary judgment stage—the cumulative evidence is sufficient
259
See Cook Decl., Ex. 155.
260
Sciabaccuchi II, 2018 WL 3599997, at *13–16. .
261
In re Oracle Corp., 824 A.2d at 940; see also Marchand, 212 A.3d at 819 (“[T]he decision
whether to sue someone is materially different and more important than the decision whether to
part company with that person on a vote about corporate governance, and our law’s precedent
recognizes that the nature of the decision at issue must be considered in determining whether a
director is independent.”).
56
for me to draw the inference that Zinterhofer lacked independence. The facts could,
I note, also support the opposite inference. Even taken cumulatively, many of the
facts related above are tangential or relatively insubstantial, such that if the
inferences were instead drawn in favor of the Director Defendants, I might find
Zinterhofer to be independent.
But weighing inferences is not my task at summary judgment. Our case law
instructs that the non-moving party, here the Plaintiffs, receives the benefit of
inferences. As such, even upon a detailed review of the facts, I must credit the
inference that Zinterhofer may have lacked independence for purposes of voting
upon the Acquisitions.
I next address the facts collected with respect to Huseby.
b. Huseby
Huseby was a Liberty Broadband designee director at the time of the vote
upon the Acquisitions. I did not address the question of his independence in
Sciabacucchi II in assessing demand futility.
Zinterhofer and Jacobson testified in depositions that they considered the
Liberty Broadband designee directors, including Huseby, conflicted with respect to
Liberty Broadband, though Zinterhofer did mention that Huseby in particular was
not a Liberty employee and therefore the question of his independence from Liberty
57
Broadband was, to his mind, a separate inquiry.262 Additionally, Huseby was
identified in the 2013 Resolutions as “recuse[d] . . . for all purposes in connection
with” any equity transaction with Liberty Broadband.263
Huseby described himself in at least one email as an “L” director—
presumably “L” for “Liberty.”264 The Plaintiffs herald this self-description as a
suggestion that Huseby did not act independently.265 Similarly, the Plaintiffs point
out that Liberty Media’s general counsel, Rich Baer266 (prior to the Liberty
Broadband spinoff) may have attempted to negotiate Huseby’s indemnification
agreement with Charter. 267
Huseby also participated in at least one email exchange with other Liberty
Broadband designees, which the Plaintiffs point out did not include other Charter
directors. The exhibit in question begins with Maffei providing Rutledge,
262
Loughman Decl., Ex. 59, at 95:6–14 (Zinterhofer); id. at Ex. 93, at 120:6–21:10 (Jacobson).
Jacobson made a similar point in his deposition, clarifying the distinction between being conflicted
as to matters involving Liberty Broadband, and being independent. Id. at Ex. 93, at 120:24–
121:10.
263
Cook Decl., at Ex. 99, at Ex. A.
264
Id. at Ex. 234 (“Fyi- I stayed on the call til L directors dropped off. For your record.”).
265
See AB 68. I note that the minutes of Charter Board meetings also refer to the four Liberty
Broadband designees as “Liberty directors.” See, e.g., Cook Decl., Ex. 214, at 4 (including a
heading titled “Discussion and Vote of Liberty Directors”); id. at Ex. 235, at 3 (“At approximately
11:27a.m. [sic], the Liberty directors and LionTree left the meeting.”); id. at Ex. 256, at 2 (“At
approximately 8:45 a.m., the Liberty directors and LionTree left the meeting.”); id. at Ex. 264, at
3 (“At approximately 5:35 p.m., the Liberty directors and LionTree left the meeting.”).
266
See AB 68 (identifying Baer).
267
See Cook Decl., Ex. 87. In the Plaintiffs’ view, this is presumably evidence that Liberty
Broadband had some level of control over Huseby. I note that the email does not conclusively
demonstrate whether any negotiation actually occurred. See id.
58
Zinterhofer via carbon copy, and Christopher Winfrey (Charter’s CFO) with a letter
from a TWC shareholder, noting “We should definitely consider.” 268 Maffei then
forwarded the email to Malone, Huseby and Nair—the other Liberty Broadband
designees—separately with the message “fyi[.]” Winfrey replied to the original
chain in detail the next day, which Maffei again forwarded to Huseby and Nair.269
Separately, Huseby responded to Maffei only (without copying Malone or Nair) with
his substantive thoughts, noting he would be “interested in Tom’s [Rutledge’s]
reaction/ response.”270 Maffei responded to Huseby to suggest that Huseby and
Rutledge discuss. 271 I do note that all of these emails occurred in August 2015,272
and that the Acquisitions were announced in May 2015,273 so these emails post-date
the applicable voting period. Despite that timing, Huseby’s interactions with the
Liberty Broadband designees after the vote still may have some bearing on his
independence, considered holistically.
The main thrust of the Plaintiffs’ Huseby-specific contentions is associated
with his career in the cable and media industry. The Plaintiffs trace Huseby’s
professional career, which has previously overlapped with Malone’s orbit. 274 For
268
Id. at Ex. 285.
269
Id. at Ex. 286.
270
Id. at Ex. 287.
271
Id. at Ex. 287.
272
See id. at Exs. 285, 286, 287.
273
See AB 54.
274
See id. at 69–71.
59
example, Huseby worked for AT&T Broadband in an officer position at the same
time Malone was on its Board.275 Huseby was the CFO at Cablevision at the same
time Malone was on that Board—though Huseby qualified in his deposition that this
time period was about “two or three months” and that they only attended one board
of directors meeting in common.276
Most significantly, according to the Plaintiffs, Huseby became CFO of Barnes
& Noble in 2012 after Maffei, who was a Liberty Media designee on the Barnes &
Noble board of directors, referred him as a candidate for the position.277 Shortly
after, in 2014, Huseby became the CEO of Barnes & Noble, with the support of both
Maffei and another Liberty Media designee seated on the Barnes & Noble board of
directors at the time. 278 The Plaintiffs also point out that Liberty Media, the former
parent of Liberty Broadband, owned a 17% stake in Barnes & Noble at the time of
Huseby’s hiring in 2012.279
Based on these prior positions, the Plaintiffs ask me to find that Huseby was
part of a “network of repeat players” in the industry, and that the various brushes he
had had with Malone and Maffei prior to the relevant period created a “sense of
‘owingness’ to the Liberty family and Maffei, in particular, for past benefits
275
Loughman Decl., Ex. 95, at 64:12–16.
276
Id. at Ex. 95, at 19:7–21:23.
277
Id. at Ex. 95, at 45:5–11 (identifying that Liberty Media’s CEO, then Maffei, had a seat on the
Barnes & Noble board of directors); 48:2–19.
278
Id. at Ex. 95, at 71:3–7; 75:18–76:25.
279
See id. at Ex. 95, at 76:15–25.
60
conferred.”280 Related in vintage are the less-than-persuasive facts that Huseby and
Maffei were members of the same country club as of 2015, and have golfed together
on at least two occasions. 281 Huseby did qualify in his deposition that the country
club at issue is located in Denver, Colorado, and that he has not lived in Denver since
2004. 282
Each of these facts is presented to support a finding that Huseby and Maffei
(or Huseby and Malone) had a relationship significant enough to displace Huseby’s
independence. One exemplar case helpful in considering Huseby’s independence is
Marchand v. Barnhill, a Delaware Supreme Court case from 2019. 283 In Marchand,
the challenged director was found to lack independence on strength of an inference
that the director’s “successful career as a businessperson was in large measure due
to the opportunities and mentoring given to him” by various members of the Kruse
family.284 The analysis covers a number of positions the director held with the
family’s company, including senior executive positions such as CFO, an
appointment to the board of directors, and donations by the family which ultimately
led to the director’s having a university building named after him. 285
280
AB 69–70 (cleaned up).
281
Id. at 70; see also Loughman Decl., Ex. 95, at 29:9–19.
282
Loughman Decl., Ex. 95, at 28:23–30:9.
283
212 A.3d at 819–20. Marchand was a pleadings-stage case as compared to the instant case on
summary judgment.
284
Id. (emphasis added).
285
Id.
61
The facts regarding Huseby, by contrast, are not so compelling. Admittedly,
Huseby’s seat on the Charter Board stems from his status as a Liberty Broadband
designee. But the other, more personal facts found in Marchand are not replicated
in the instant case. The facts seeking to establish a personal relationship between
Huseby and Maffei are thin, hinging largely on two rounds of golf and membership
at the same club. The facts indicating professional ties are sturdier. But the Plaintiffs
have not argued that Huseby’s success as a businessperson is due solely or even
significantly to his personal relationships with Malone, Maffei, or Liberty
Broadband. The Plaintiffs focus on Huseby’s relationship with Maffei in particular,
but the fact that Maffei identified Huseby to the board of directors of Barnes & Noble
as a potential CFO is not itself indicative of a deep and historical relationship. If
Huseby had—similar to the director in Marchand—obtained his success via work at
Liberty companies, the allegations would be more compelling. I can, of course, infer
that Huseby was likely grateful to Maffei for the Barnes & Noble reference in 2012,
but to my mind that is insufficient on its own to imply that Huseby was beholden to
or had had his discretion sterilized by Maffei.
Again, I must consider the facts asserted against Huseby in their totality, rather
than addressing each item-by-item. This holistic review produces the same result
that befell Zinterhofer, above. The facts gathered in support of a lack of
independence are not compelling individually, but in their totality, could give rise to
62
an inference in favor of the Plaintiffs that Huseby lacked independence in voting
upon the Acquisitions. This inference, I note, is not strong, and as with Zinterhofer,
I caution the parties that the facts could also support an opposing inference. Again,
my task at summary judgment is not to weigh competing inferences, and the
Plaintiffs are entitled to the benefit of the inferences. On balance, I may infer that
Huseby lacked independence, at this summary judgment stage.286
I consider Nair’s independence next.
c. Nair
I considered Nair conflicted at the pleading stage in Sciabacucchi II.287 He,
like Huseby, holds a seat on the Charter Board as one of Liberty Broadband’s four
designees,288 and is further tied to the Liberty conglomerate in that he is the
Executive Vice President and CTO of Liberty Global.289 As mentioned above,
Malone holds a 25% voting stake in Liberty Global, making Malone the largest
stockholder of the company; he is also the Chairman. 290
To demonstrate Malone and Maffei’s influence over Nair, the Plaintiffs
mainly rely on facts about his employment at Liberty Global, including: that Malone
286
The Plaintiffs also argue that Huseby and Nair were, regardless of their independence,
uninformed when they voted for the Acquisitions. I need not reach this question at this stage.
287
See Sciabacucchi II, 2018 WL 3599997, at *12.
288
Loughman Decl., Ex. 112, at 90:3–6.
289
Cook Decl., Ex. 19, at 7.
290
Id. at Ex. 23, at 8, 11; Sciabacucchi II, 2018 WL 3599997, at *12.
63
testified he had soft control over Liberty Global; 291 that Nair interviewed for the role
of CTO with Malone and two others;292 that Nair worked in the same building as
Malone and Maffei from 2007 to 2016;293 that Nair (along with others) traveled to
Malone’s properties for Liberty Global business meetings; 294 and that Nair
financially supported himself using primarily income from his role as CTO.295 The
Plaintiffs also highlight that Rich Baer, Liberty Media’s general counsel, may have
attempted to negotiate Nair’s indemnification agreement with Charter, as well.296
Nair has also made a few statements regarding Malone that could suggest a
lack of independence. These include Nair being quoted in various interviews. One
such quote reads as follows: “As Mike [Fries] reminds me, we stand on the shoulders
of giants, and amazing entrepreneurs. The pioneers of this industry.”297 At his
deposition, Nair indicated that he would consider Malone one of many such giants,
pioneers, and amazing entrepreneurs. 298 This fact is of little suasion to me.
291
Loughman Decl., Ex. 98, at 46:23–47:3.
292
Id. at Ex. 112, at 65:22–67:12.
293
Id. at Ex. 112, at 72:10–74:4. I do note that Nair indicated he traveled often for his job, so he
was not often in the office in question. See id. at Ex. 112, at 72:10–74:4.
294
Id. at Ex. 112, at 56:8–57:3 (identifying the meetings in question as yearly); id. at Ex. 112, at
30:15–36:23 (identifying the meetings in question as taking place at various properties owned by
Malone).
295
Id. at Ex. 112, at 81:3–14.
296
Cook Decl., Ex. 87. Again, I note that the email does not conclusively demonstrate whether
any negotiation actually occurred. See id. at Ex. 87.
297
Loughman Decl., Ex. 114.
298
Id. at Ex. 112, at 47:25–48:8.
64
Nair also mentioned in a separate interview that the Liberty LatAm board of
directors consisted of, in 2018, Malone, Zinterhofer, Mike Fries, and Paul Gould.299
He described the four directors as “the smartest people on Wall Street,” and went on
to briefly describe each of them in addition to certain operators. 300 Nair’s description
of Malone was “he [is] wise in so many ways.” 301
I note that these interviews took place in 2018 and 2019, so they post-date the
relevant period by at least three years.302 Since that time, Nair has become the CEO
of Liberty LatAm, as well. 303 This timing, perhaps, is not dispositive, but weakens
the inferential value that might otherwise stem from these statements.
More concerning to me is a communication from Nair to Maffei when the
Charter Board was seeking final approval of the Original Bright House Transaction:
“Greg: Have they cleared everything in here with you? Anything that you/John
would disagree with?” 304 Maffei wrote back: “Plenty, but we will probably get there.
Thanks for asking[.]”305
Finally, Nair was one of the directors identified in the 2013 Resolutions as
“recuse[d] . . . for all purposes in connection with” any equity transaction with
299
Id. at Ex. 115.
300
Id. at Ex. 115.
301
Id. at Ex. 115.
302
See id. at Exs. 114, 115.
303
Compare id. at Ex. 115, at 2, with Cook Decl., Ex. 19, at 7; see also Loughman Decl., Ex. 113.
304
Cook Decl., Ex. 212.
305
Id. at Ex. 212.
65
Liberty Media,306 and two directors, Zinterhofer and Jacobson, have testified at least
generally that they considered the Liberty Broadband designee directors, including
Nair, conflicted with respect to Liberty Broadband. 307
Considering, as I must, these facts as a whole,308 and particularly the latter
facts above, I may infer at this more demanding procedural stage that Nair lacked
independence. The facts regarding Nair’s employment as CTO of Liberty Global
are suggestive that Malone or Maffei could exert influence over him such that he
might be beholden to their wishes, particularly because Nair testified that his primary
source of income stemmed from Liberty Global, where, again, Malone maintained
“soft” control. 309 The facts cited are detailed with respect to the length, nature, and
extent of Nair’s professional relationships with Malone and Maffei and suggestive
of an inability to objectively consider the Acquisitions.
Nair’s commentary about Malone in various interviews is also slightly
supportive of a finding of a lack of independence. 310 In re BGC Partners advises
306
See Loughman Decl., at Ex. 99, at Ex. A.
307
Id. at Ex. 59, 95:6–14 (Zinterhofer); id. at Ex. 93, 120:6–121:10 (Jacobson). Zinterhofer, in his
deposition, specified shortly thereafter that “whether [the Liberty Broadband designees were]
independent or not is . . . a different point. Some of these—like Mike Huseby wasn’t necessarily,
you know, working at Liberty . . . .” Id. at Ex. 59, 96:5–10. Zinterhofer did not make such a
qualifying statement about Nair (who was, of course, working at a Liberty company).
308
See Voigt, 2020 WL 614999, at *13 (“Sources of influence and authority must be evaluated
holistically, because they can be additive. Different sources of influence that would not support
an inference of control if held in isolation may, in the aggregate, support an inference of control.”).
309
See supra note 291 and accompanying text.
310
See, e.g., In re BGC Partners, 2021 WL 4271788, at *9.
66
that a director’s “‘exceptionally glowing’ admiration for a controller combined with
a lengthy relationship can cast ‘substantial doubt’ on her ability to impartially
consider a litigation demand against the controller.”311 Nair’s descriptions of
Malone could be considered “glowing,” and his relationship with Liberty companies
and Malone is certainly lengthy.312
Most importantly, Nair’s own communications are reflective of a controlled
mindset. Before casting his own vote in favor of the Original Bright House
Transaction, Nair inquired with Maffei as to whether Maffei and/or Malone found
the transaction acceptable. The implication of this message is that Nair cared, in the
context of casting his vote, whether Maffei or Malone had any concerns with respect
to the Original Bright House Transaction, and that he would act according to their
answer. I note that this email did not pertain to the Acquisitions, but to the Original
Bright House Transaction. Nevertheless, the attitude reflected in this email, even if
not contemporaneous with the challenged transactions, can readily give rise to an
inference that Nair voted in the context of a controlled mindset. Taking this email
in conjunction with Nair’s employment at a Liberty entity and his commentary about
Malone, and attributing the benefit of reasonable inferences in favor of the Plaintiffs,
311
Id.312
Though I note that I found in Sciabacucchi I that Malone and/or Broadband were not controllers
of Charter. See Sciabacucchi I, 2017 WL 2352152, at *20. Additionally, the procedural context
does differ from In re BGC Partners, in that the pertinent question here is whether Nair was
independent in voting for the Acquisitions. Nonetheless, Nair’s comments are at least mildly
suggestive that he lacked independence under In re BGC Partners.
67
I may infer even at this more advanced procedural stage that Nair was beholden to
Malone. The evidence supports an inference that Nair was not independent of
Malone, and he therefore cannot count toward the total of independent Charter
directors voting for the Acquisitions.
Finally, I turn to Rutledge.
d. Rutledge
Rutledge was, at the pertinent time, the CEO and a director of Charter.313 In
Sciabacucchi II, I considered Rutledge to be conflicted at the pleading stage, and
made the comparative note that I perceived the allegations against Rutledge’s
independence as weightier than those leveled against Nair.314
Most of the allegations against Rutledge stem from his employment with
Charter. The Plaintiffs point to his status as a senior executive officer of a company
over which Malone could exert “substantial influence” via Liberty Broadband,315
which was a 26% stockholder of Charter and had the right to appoint four of the ten
313
See, e.g., Cook Decl., Ex. 6, at 4 (Charter press release including letter signed by Thomas
Rutledge as President and CEO).
314
Sciabacucchi II, 2018 WL 3599997, at *13.
315
Id. Malone “owns 47%” of Liberty Broadband. Id. Liberty Broadband was constrained,
though, from acquiring over 39.99% of Charter’s voting power. See Loughman Decl., Ex. 17, at
Ex. 1.1, at § 3.1; see also Sciabacucchi II, 2018 WL 3599997, at *2.
68
directors. 316 I have previously found in this case that Liberty Broadband was not a
controller of Charter, so this does not end the analysis. 317
Following the Acquisitions, Rutledge was promoted to Chairman of Charter’s
Board, 318 in no small part thanks to Miron of Newhouse, 319 who insisted that
Rutledge be named Chairman of the combined company. 320 Per Malone in his
deposition, “Tom [Rutledge] was pushing to be chairman.” 321 Maffei commented
similarly in his deposition: “I think [replacing Zinterhofer as Chairman] was
encouraged by Tom [Rutledge].”322
Rutledge also received a new employment contract shortly after the
Acquisitions were papered. 323 (His previous contract is championed by the Director
Defendants as inoculating him from influence due to its $77 million severance
package upon termination without cause. 324 But that employment contract was due
to expire within a matter of months. 325) That new employment contract provided
316
Loughman Decl., Ex. 17, at Ex. 1.1, at § 2.1(b)(1) (conferring ability to appoint four directors);
id. at Ex. 17, at Ex. 99.1 (identifying the dollar amount and percentage of the original Liberty
Media investment).
317
See Sciabacucchi I, 2017 WL 2352152, at *20.
318
See Cook Decl., Ex. 214, at 2 (“[A]s part of the Proposed Acquisition, Mr. Rutledge received
an offer for the combined position of CEO/Chairman post-closing . . . .”)
319
Newhouse was the owner of Bright House prior to the Acquisitions. AB 21.
320
Loughman Decl., Ex. 38, at 103:11–104:4.
321
Id. at Ex. 98, at 147:21–22.
322
Id. at Ex. 20, at 134:4–12.
323
See, e.g., AB 73–74.
324
OB 40.
325
See Loughman Decl., Ex. 105, at § 2, Recitals.
69
Rutledge with an increase in compensation. 326 Even prior to the new employment
contract, employment with Charter provided Rutledge’s “primary source” of gross
annual income in 2014 and 2015. 327
Beyond his employment with Charter, the Plaintiffs point to certain quotes
attributable to Rutledge about Malone: that “when [Malone] talks, I listen. And he
is a significant talker.” 328 Rutledge also told Steve Miron, the CEO of Newhouse,
that Malone “fills the room.” 329
Finally, Rutledge was one of the directors identified in the 2013 Resolutions
as “recuse[d] . . . for all purposes in connection with” any equity transaction with
Liberty Media.330 The Plaintiffs say that Rutledge was perceived as conflicted by
“his fellow directors,” pointing to director Conn’s supporting deposition and the
2013 Resolutions. 331 Conn stated in his deposition that in his understanding
326
The extent to which Rutledge received a meaningful increase in compensation is disputed
amongst the parties. The Plaintiffs noted at oral argument that, even if you accepted the Director
Defendants’ math (which they clearly disputed), Rutledge still received a $4 million per year raise
over five years. Oral Arg. at 112:19–113:20.
327
See Cook Decl., Ex. 66, at 32–33. The Director Defendants raise the competing theory that,
because Rutledge’s compensation was paid in part through equity awards, Rutledge necessarily
would have prioritized the value of his Charter shares, rather than feeling beholden to Malone,
Maffei, or Liberty Broadband. OB 41–42. The Plaintiffs’ counsel addressed this head-on at oral
argument, identifying that Rutledge owned about 0.2% of Charter’s total outstanding shares per
its annual proxy. Oral Arg. at 114:1–5. Rutledge stood to receive $20 million over the new five-
year employment contract. See id. at 113:11–13. Therefore, the Broadband Transactions would
have had to cause over $10 billion in damages to Charter to outweigh the expected $20 million
increase in compensation Rutledge was scheduled to receive over five years. Id. at 114:6–11.
328
Cook Decl., Ex. 54.
329
Id. at Ex. 128, at UBS00029039.
330
See id. at Ex. 99, at Ex. A.
331
AB 72.
70
Rutledge was recused because “as an inside director, it’s probably appropriate for
him not to be involved in the discussions of a transaction that ultimately might affect
him and management.”332 Conversely, Conn was asked whether he had any
understanding that Rutledge’s recusal was “at all related to” Liberty Broadband’s
involvement, and he answered no. 333
The reasons to doubt Rutledge’s independence are persuasive viewed
holistically, but the Director Defendants do raise certain points worthy of
consideration. The strongest evidence against Rutledge lies in his status as CEO and
his receipt of a new employment contract and new title shortly following the
Acquisitions. The Director Defendants saliently argue, however, that the Chairman
title was not awarded to Rutledge due to actions on Liberty Broadband’s behalf
(suggesting he was not influenced by Liberty Broadband); rather, Newhouse insisted
that Rutledge be named Chairman. 334 The Charter annual proxy for fiscal year 2017
also indicates that Rutledge’s promotion to Chairman was made “largely in response
to the Transactions”—and the annual proxy further defines “Transactions” as the
acquisitions of TWC and Bright House, without mentioning the Liberty Broadband
equity financings.335 Therefore, the Director Defendants argue, the Chairman
332
Loughman Decl., Ex. 8, at 97:25–98:10.
333
Id. at Ex. 8, at 98:23–99:2.
334
RB 14.
335
Cook Decl., Ex. 35, at 21–22.
71
promotion was not due to the challenged transactions, which are the Broadband
Transactions only. 336 The promotion came about as a result of the acquisitions of
TWC and Bright House. 337
This argument loses its steam when the reader recalls that the Director
Defendants are otherwise arguing the Broadband Transactions were a necessary
component of the higher-level Acquisitions,338 and that the stockholder vote, at
least, conditioned those Acquisitions on approval of the Broadband Transactions.339
Beyond the Chairman role, Rutledge stood to receive a new employment
contract as an indirect result of the Acquisitions, and would retain his title as CEO.
His compensation increased following the Acquisitions. He spoke to news outlets
and potential merger partners about Malone in positive terms, and quotes he
provided in interviews are suggestive of Rutledge’s perception of Malone’s
influence in the Board room. Finally, director Conn noted that Rutledge “probably”
should not have been involved in any transactions that would have affected
management. 340
336
RB 14–15.
337
Id.
338
See, e.g., id. at 45–46 (“Plaintiffs do not address, let alone contest, the evidence that TWC
insisted that Broadband commit to invest in the merged company. . . . [P]laintiffs’ theory that
Charter could have alternatively financed the TWC acquisition is not supported by the record.”).
339
See supra note 124 and accompanying text.
340
Loughman Decl., Ex. 8, at 97:25–98:10.
72
To my mind, the totality of the facts regarding Rutledge’s promotion,
increased compensation, reliance on said compensation as a source of primary
income, and renewed employment contract are sufficient to find a lack of
independence, bolstered by the quotes suggesting that Malone exercises influence at
Charter as a “significant talker” to whom Rutledge “listen[s].” 341 Voigt v. Metcalf,
a Court of Chancery case from 2020, is supportive of this conclusion, though it was
a pleading-stage case. 342 There the Court found that “the prospect of serving as
Chairman and CEO of the combined company induced [the defendant] to favor” the
transaction at issue. 343 The instant facts go beyond those of Voigt in that Rutledge
received not just the Chairman and CEO position, but that he also received increased
compensation (though the exact amount of that increase remains in dispute).344
Upon review of the facts, and according the Plaintiffs the benefit of the
necessary inferences, I may infer that Rutledge was not independent for purposes of
voting on the Acquisitions.
***
I have found above that the Director Defendants cannot establish at summary
judgment that a majority of Charter’s Board was independent at the time of voting
341
Cook Decl., Ex. 54.
342
Voigt, 2020 WL 614999, at *16.
343
Id. (citing Caspian Select Credit Master Fund Ltd. v. Gohl, 2015 WL 5718592, at *7 (Del. Ch.
Sept. 28, 2015)).
344
See supra notes 326–27 and accompanying text.
73
upon the Acquisitions. As such, business judgment review is unavailable to the
Director Defendants at the summary judgment stage. I turn now, briefly, to the entire
fairness arguments.
B. The Entire Fairness Analysis
In the alternative, the Director Defendants have argued that even under the
entire fairness standard, I should grant their motion for summary judgment, as the
price and process associated with the Broadband Transactions were both entirely
fair.345
As the Delaware Supreme Court teaches in Weinberger, fairness breaks down
into the twin concepts of fair price and fair dealing (or process), but the analysis of
the two is “not a bifurcated one.”346 Rather, like the independence test undertaken
above, “[a]ll aspects of the issue must be examined as a whole,” as the test is one of
“entire fairness.”347 Facts relating to fair price might include economic and financial
considerations associated with the transaction in question, such as assets, market
value, earnings, future prospects, and other elements affecting the value of stock.348
Facts probative of fair process are those relating to the timing and initiation of the
transaction, its structure, the negotiation process, what directors were told about the
345
See OB 44–63.
346
Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).
347
Id. (emphasis added).
348
Id.74
transaction and when, and the approvals process for both the directors and
stockholders.349
It is commonly stated in pleading-stage cases that the application of entire
fairness standard of review will normally preclude dismissal of a complaint, due to
the lack of an established record. 350 At summary judgment, where the motion is
brought by the defendants, the defendant has had the opportunity to develop facts
regarding the complained-of transaction, but the non-moving party still receives the
benefit of all inferences in its favor. 351 As a result, unless the defendants can develop
a theory of the case that is supported by undisputed material facts, and which is not
defeated by plaintiff-friendly inferences, granting summary judgment on the
question of entire fairness will likely still remain inappropriate. “Although not
inevitable in every case, in those cases in which entire fairness is the initial standard,
the likely end result is that a determination of that issue will require a full trial.”352
349
Id.350
See, e.g., Orman v. Cullman, 794 A.2d 5, 21 n.36 (Del. Ch. 2002); Berteau v. Glazek, 2021 WL
2711678, at *15 (Del. Ch. June 30, 2021); In re CBS Corp. S’holder Class Action & Deriv. Litig.,
2021 WL 268779 (Del. Ch. Jan. 27, 2021); Salladay v. Lev, 2020 WL 954032, at *8 (Del. Ch. Feb.
27, 2020); Klein v. H.I.G. Cap., L.L.C., 2018 WL 6719717, at *16 (Del. Ch. Dec. 19, 2018) (“The
possibility that the entire fairness standard of review may apply tends to preclude the Court from
granting a motion to dismiss under Rule 12(b)(6) unless the alleged controlling stockholder is able
to show, conclusively, that the challenged transaction was entirely fair based solely on the
allegations of the complaint and the documents integral to it.”); Hamilton Partners L.P. v.
Highland Cap. Mgmt., L.P., 2014 WL 1813340, at *12 (Del. Ch. May 7, 2014); Olenik v.
Lodzinski, 208 A.3d 704, 719 n.74 (Del. 2019); Calma ex rel. Citrix Sys., Inc. v. Templeton, 114
A.3d 563, 589 (Del. Ch. 2015).
351
See Encite LLC v. Soni, 2011 WL 5920896, at *18 (Del. Ch. Nov. 28, 2011).
352
Orman, 794 A.2d at 21 n.36.
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There is at least one genuine issue of material fact disputed here: whether the
Broadband Transactions were necessary to the greater Acquisitions. 353 To my read,
this is a factual question likely affecting fair price. Supplemental to this point is an
evident dispute over the amount of leverage TWC would tolerate in the combined
company before it would accept a merger offer. For example, the Director
Defendants’ briefing states that the TWC CEO identified in 2013 “obstacles to a
merger” including “the leverage of the combined company,” 354 at a time when
Charter’s debt-to-EBITDA leverage ratio was approximately 5.0x (higher than its
peers at Comcast, TWC, and Cox Communications). 355 The Board appears to have
targeted a 5.0x leverage ratio for the combined company following this conversation;
both Plaintiff and Defendants are evidently agreed on this point. 356
By contrast, the Plaintiffs’ papers focus on leverage ratios that Goldman Sachs
said it could finance, rather than the leverage ratios that TWC would accept in a
merger partner.357 The answering brief does quote an email from Charter CFO
Winfrey noting that Charter had “to thread the needle of . . . [the proposed $100 in
353
See, e.g., AB 107–15 (arguing the Acquisitions did not require the Broadband Transactions in
order to be accomplished); OB 55 (“[T]he challenged transactions were necessary to the
acquisitions and thus . . . the acquisitions were properly conditioned on stockholder approval of
the challenged transactions.”). My above-the-line statement here should not be read as concluding
that there is only one genuine issue of material fact disputed in the case, though I only identify one
in this Memorandum Opinion.
354
OB 8.
355
Id. at 5–6.
356
Id. at 9, 11; AB 37–38.
357
See, e.g., AB 17, 18, 111.
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cash plus stock offer] against i) attractiveness of our bid relative to [a competing
bidder]; ii) overall debt commitment size (and downside leverage ratio) in
backstopping an equity commitment . . .” 358 Thus, the Plaintiffs seemingly
acknowledge that the leverage ratio was a significant component in TWC’s
assessment of Charter’s offers, but dispute the amount of leverage that TWC would
find permissible. To the extent the amount of leverage acceptable evolved over the
years in which Charter pursued an acquisition of TWC, a fuller record will be
beneficial to addressing that question at trial.
Given that there is at least one genuine issue of material fact before me
pertinent to the entire fairness analysis, I cannot enter the Director Defendants’
Motion on this ground, either. Because both theories forwarded in the Director
Defendants’ Motion fail as a matter of law, the motion must be denied.
C. Liberty Broadband’s Motion
As noted above, the Liberty Broadband motion for summary judgment is
largely derivative of the result obtained by the Director Defendants. Because I deny
their motion here, and because testimony given at trial will likely be of probative
value in assessing the cause of action against Liberty Broadband, I exercise my
discretion to deny summary judgment and resolve this issue following trial.
358
Id. at 40; Cook Decl., Ex. 229.
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III. CONCLUSION
The Director Defendants’ Motion is DENIED. Liberty Broadband’s motion
for summary judgment is DENIED. An Order is attached.
78