Justin M. Forcier, an associate in the Delaware office of Eckert Seamans, prepared this overview.
Background: In 2005, iHeartCommunications (“iHC), as the parent company of Clear Channel Outdoor Holdings, Inc. (“CCOH”), initiated an initial public offering of CCOH’s common stock. Prior to the IPO, however, iHC and CCOH entered into several intercompany agreements (the “Agreements”) that governed the relationship between the two companies. Plaintiff Gamco Asset Management Inc. (“Gamco”) was aware of the Agreements and decided to invest in CCOH anyway. Gamco Asset Mgmt. Inc. v. iHeartMedia Inc., C.A. No. 12312-VCS (Del. Ch. Nov. 29, 2016)
In March 2012, minority stockholders of iHC filed a derivative complaint against CCOH for alleged breaches of fiduciary duty for iHC’s agreement to enter into the Agreements. In June 2013, iHC and the stockholders entered into a settlement agreement (the “Settlement Agreement”) that contained a release of certain defined claims as well as a general release from liability.
On December 16, 2015, CCOH announced that it intended to issue notes totaling $225 million that would mature in 2020 and from which it would receive $217.8 million in proceeds. On December 20, 2015, CCOH announced a special cash dividend for the entire $217.8 million, payable to Class A and B common stockholders.
On May 9, 2016, after receiving CCOH’s books and records pursuant to 8 Del. C. § 220, Gamco filed suit against CCOH that alleged breaches of fiduciary duties, aiding and abetting those breaches, unjust enrichment, and waste of corporate assets. Defendants filed a motion to dismiss pursuant to Court of Chancery Rule 12(b)(6).
Analysis: The court began its analysis with the Delaware standard for a motion to dismiss: that claims only need to be reasonably conceivable.
First, the court found that 2013 Settlement Agreement barred Gamco’s claims for breach of fiduciary duties. The Settlement Agreement released all claims that were brought in the previous derivative suit, as well as all claims that could have been brought. The court further stated that settlement agreements in Delaware serve to bar claims “based on the same identical factual predicate or the same set of operative facts.”
Furthermore, the court explained that even if the claims were not barred by the Settlement Agreement, they were barred by the doctrine of res judicata. In order to assert that a claim is barred under res judicata, a defendant must show a five-part test: (1) the original court had jurisdiction over the subject matter and parties; (2) the parties to the prior action are the same as or in privity with those in the current action; (3) the previous case and the case at bar involve the same issues; (4) the issues in the previous case were decided adversely to the party in the case at bar; and (5) the decree in the original case was a final decree.
Court’s Holding: First, the court found that it clearly had jurisdiction in the previous derivative action. The case was also decided mostly against the previous plaintiffs, who represented CCOH’s shareholders, including Gamco. The court also found, and compared in a chart, that the previous claims involved the same issues that were raised by Gamco.
Similarly, the court held that Gamco could not successfully bring a claim for unjust enrichment because the court normally treats unjust enrichment claims and breach of fiduciary duty claims as duplicative. And since Gamco could not bring a claim for breach of fiduciary duties, it cannot bring a claim for unjust enrichment.
Finally, Gamco failed to meet the high pleading burden required to state a claim for corporate waste. The court stated that in order for a plaintiff to assert a waste claim, it must plead that the board’s decision cannot be attributed to any rational business purpose. The court held that CCOH’s decision to approve an arms-length transaction that provided liquidity to the controlling stockholder was “inextricably tied by stringent contractual arrangements” and attributable to a rational business purpose.