Data Key Partners v. Permira Advisors LLC
2014 Wisc. LEXIS 701
| Wis. | 2014Background
- Renaissance Learning (public) was sold to Permira; founders Judith and Terrance Paul (the Pauls) controlled 69% and supported the Permira deal; minority shareholders (Data Key Partners) alleged harm.
- Permira's final deal paid $15/share to the Pauls and $16.60/share to minority shareholders; earlier competing bids from Plato offered higher prices for minorities (up to $18) or a uniform $16.90, but those bids were rejected.
- Plaintiffs sued claiming directors and the Pauls breached fiduciary duties to minority shareholders by favoring Permira; plaintiffs sought to plead around Wisconsin’s business judgment rule (Wis. Stat. § 180.0828).
- The circuit court dismissed the Second Amended Complaint for failure to plead facts sufficient to overcome the business judgment rule; the court of appeals reversed in part; the Wisconsin Supreme Court granted review.
- The Supreme Court held that § 180.0828 codifies the business judgment rule as substantive law and a burden-allocating device, requiring plaintiffs to plead facts plausibly showing directors’ conduct fits statutory exceptions (willful failure to deal fairly with a material conflict, improper personal profit, willful misconduct, or criminal violation).
- Applying that standard, the court concluded plaintiffs’ allegations were legally insufficient as to both directors and the Pauls (no plausible showing of statutory exceptions or an improper material benefit to the Pauls) and reversed the court of appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether directors’ conduct survives a motion to dismiss despite the business judgment rule | Directors abdicated duties, were conflicted, received benefits, and engaged in willful misconduct; complaint pleads around § 180.0828 | § 180.0828 immunizes directors unless plaintiff pleads facts fitting statutory exceptions; Twombly/Iqbal plausibility required | Court: Plaintiffs must plead facts plausibly showing conduct falls within § 180.0828 exceptions; pleadings here insufficient; dismissal affirmed as to directors |
| Whether majority shareholders (Pauls) breached fiduciary duty by voting for sale | Pauls favored a deal that conferred personal benefits (license, banker involvement) and blocked higher minority-favoring bids | Pauls had statutory right to vote; absent allegation show license or other benefits were an improper material benefit to minority shareholders, claim fails | Court: Majority-shareholder duty limited; no plausible allegation that Pauls received an improper material benefit at minority’s expense; claim dismissed |
| Proper pleading standard when business judgment rule applies | Plaintiffs: notice pleading can suffice; some jurisdictions (Tower Air) require pleading around BJR only if raised on the face | Defendants: Substantive law (§ 180.0828) governs and requires pleading facts to overcome rule; Twombly/Iqbal plausibility applies | Court: § 180.0828 is substantive and procedural for burden allocation; notice pleading must conform to substantive law—plausible factual allegations required to avoid dismissal |
| Whether alleged director benefits (vesting, indemnification, continued board service) establish improper profit or conflict | Plaintiffs: vesting, indemnification, and desire to remain on board show material conflicts and improper profit | Defendants: Vesting/indemnification were not unique to Permira sale or are governed by statute (mandatory indemnification) and are insufficiently pled as improper material profit | Held: Allegations do not plausibly show improper personal profit or material conflict; insufficient to overcome § 180.0828 protection |
Key Cases Cited
- Reget v. Paige, 242 Wis. 2d 278 (Wis. Ct. App. 2001) (discusses business judgment rule and presumption that board acts in good faith)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard for alleging entitlement to relief)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (further explaining Twombly plausibility requirement)
- In re Tower Air, Inc., 416 F.3d 229 (3d Cir. 2005) (federal precedent that courts generally should not apply business judgment rule to dismiss under notice pleading unless defense appears on the face)
- Notz v. Everett Smith Group, Ltd., 316 Wis. 2d 640 (2009) (majority shareholders owe limited fiduciary duties; improper transfers benefiting majority may breach duty)
- In re Synthes, Inc. Shareholder Litigation, 50 A.3d 1022 (Del. 2012) (comparable Delaware precedent dismissing majority-shareholder claim where minority received pro rata or premium treatment)