This Week in Chancery Court: Hertz, Carlyle Group, SwervePay

The Delaware Chancery Court will rule this week on Hertz Global Holdings Inc.‘s motion to dismiss an investor’s lawsuit over $2.8 billion in stock buybacks.

Delaware courts will be closed Wednesday for the Juneteenth holiday. Here’s a look at what else is on the Chancery Court’s calendar for the week:

Tuesday: Malt Family Trust v. 777 Partners LLC, Del. Ch., No. 2022-0652, hearing 6/18/24.

At issue: A discretionary trust wants to amend its complaint against investment firm 777 Partners LLC over its alleged breach of fiduciary duties involving an aviation leasing business it acquired. The lawsuit accuses the firm, which had planned to buy the English Premier League’s Everton Football Club in a deal that has since collapsed, accuses the firm of breaching its fiduciary duties to the prior owners of the leasing business. Since the initial complaint was filed, the plaintiffs have become aware that 777 Partners and its principals “are operating a massive, Madoff-scale scheme of fraud to the tune of many hundreds of millions of dollars,” they wrote in a motion to amend their complaint. The firm said the plaintiffs can’t prove with particularized facts that the majority of managers lacked the independence necessary to “have assessed a demand in good faith,” according to a brief in support of their motion to dismiss the initial complaint. Vice Chancellor Morgan T. Zurn in November 2023 allowed some of the plaintiffs’ claims to move forward.

Court action: A hearing on the plaintiffs’ motion to amend will be heard by phone.

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Tuesday: In re Swervepay Acquisition LLC, Del. Ch., No. 2021-0447, hearing 6/18/24.

At issue: Swervepay’s buyers claim they were defrauded into purchasing the payment processing software company by sellers who misled them about its relationships with customers and vendors. The buyers argue the sellers “conspired to market SwervePay as a business with valuable customer relationships and a compelling pipeline of prospective relationships” in an act of desperation to close the sale, according to a third amended complaint. The sellers, SPOSC Investment Holdings LLC, claim the buyers’ fraud-based claims should be dismissed because they’re untimely, according to their brief in support of a partial motion to dismiss.

Court action: A hearing on the motion to dismiss will be heard in Wilmington, Del.

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Thursday: Manti Holdings LLC v. The Carlyle Group Inc., Del. Ch., No. 2020-0657, post-trial arguments 6/20/24.

At issue: The Carlyle Group Inc. went to trial in January in a lawsuit that challenged its $77.5 million sale of anti-counterfeiting company Authentix Inc. to Blue Water Energy LP in 2017. In closing arguments, the investors leading the litigation will argue that the trial demonstrated that a “conflict of interest was driving Carlyle’s actions,” according to a post-trial brief. The investors had argued that a Carlyle-managed private equity fund acquired a controlling interest in Authentix in 2008, and Carlyle pushed through the 2017 sale in order to liquidate that fund. Carlyle argues the trial showed there was no urgent need for liquidity behind the sale, but there was “ample proof of a desire and ability to hold and sell the company at an optimal time, if such a moment existed, to maximize value,” according to a brief.

Court action: Post-trial arguments will be heard in Georgetown, Del.

Carlyle Loses Bid to Dodge $78 Million Authentix Deal Challenge

Thursday: Chatham Holdings VI LLC v. Hermida, Del. Ch., No. 2023-0037, hearing 6/20/24.

At issue: Blackstone Inc., KKR & Co., and board members at One Call Corp. face investor litigation over claims they had self-dealing reasons for blocking a series of transactions aimed at rescuing the ailing health care company. The lawsuit accused the private equity giants and their board allies of killing debt restructuring efforts proposed by a hedge fund affiliate of Chatham Asset Management LLC, which holds stock in One Call parent company Coral Acquisition Inc. Coral is allegedly controlled by Blackstone and KKR. “The disinterested members of the Board unanimously rejected Chatham’s Insider Proposal after receiving advice from top-tier financial and legal professionals about its potential adverse effects on the Company,” the defendants argue in a brief supporting their motion to dismiss the case. Chatham calls its restructuring proposal a “classic case of no good deed going unpunished,” according to an answering brief.

Court action: Oral arguments on the motion to dismiss will be heard in Wilmington, Del.

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Thursday: Cascia v. Farmer, Del. Ch., No. 2023-0520, bench ruling 6/20/24.

At issue: A bench ruling is expected on Hertz’s effort to escape an investor’s lawsuit over the stock buybacks. Shareholder Angelo Cascia said the buybacks “gifted” a majority stake in the car rental giant to its post-bankruptcy private equity backers. Hertz defended them at a hearing in March, saying that while it’s true that CK Amarillo LP increased its ownership to over 56% “at least for now” as a result of the buybacks in November 2021 and June 2022, gaining control wasn’t a guaranteed result for the private equity fund set up by Certares Management LLC and Knighthead Capital Management LLC.

Court action: Chancellor Kathaleen St. Jude McCormick will deliver a bench ruling via teleconference.

Hertz Defends Stock Buybacks That Gave Private Equity Control