On November 22, 2005, Hon. John G. Schwartz, Coordination Trial Judge of the San Mateo County Superior Court, approved a record settlement in a shareholder's derivative suit.  The suit, filed by our office in California in April 2001 alleged that insiders at Oracle Corporation, including CEO Lawrence J. Ellison, had traded over $900,000,000.00 worth of Oracle stock while in possession of adverse material inside information just weeks before Oracle announced it would not meet its projections for the third quarter of its 2001 fiscal year. 

In December 2001, Dario de Ghetaldi of our firm was named by Hon. John G. Schwartz as Plaintiffs' Co-Lead and Liaison Counsel.  Vigorous litigation ensued over the next four years in California, Delaware, and federal courts where the case was prosecuted by a group of fourteen law firms from California, Delaware, Pennsylvania, New York, Connecticut, and Florida.   (To read an exhaustive description of the history of the litigation, click here.)

The case generated several precedent setting decisions in the related derivative actions that were filed in the Delaware Chancery Court.  Most notably, on June 17, 2003, Vice Chancellor Leo E. Strine, Jr., issued a lengthy opinion denying motion to terminate filed by the Special Litigation Committee of Oracle's Board of Directors, an opinion that is widely viewed as breaking new ground in Delaware derivative jurisprudence.  See In re Oracle Corp. Derivative Litig., 824 A.2d 917 (Del. Ch. 2003).  In later granting summary judgment for the defendants, Vice Chancellor Strine issued an opinion that plaintiffs believe, among other things, created new law with respect to the definition of material information under Delaware law.  See In re Oracle Corp. Derivative Litig., 867 A.2d 904 (Del. Ch. 2004).  That opinion also reaffirmed the continuing validity of Delaware’s seminal case on corporate insider trading, Brophy v. City Service Co., 70 A.2d 5 (Del. Ch. 1949).

After the termination of the Delaware case in April 2005, litigation continued in California under California Corporations Code § 25502.5 against Mr. Ellison.  Literally days before trial was to begin, the parties reached a settlement through mediation with the assistance of Hon. Daniel Weinstein (Ret.).  In his declaration offered in support of the parties' motion to approve the settlement, Judge Weinstein stated that he found the work of plaintiffs' counsel to be of "exceptional quality."

Under the terms of the court-approved settlement, Mr. Ellison agreed to donate $100,000,000.00 to a charity approved by Oracle in the name of Oracle over a five year period.  In addition, Mr. Ellison agreed to pay $22,000,000.00 in fees and costs to plaintiffs' attorneys.  In agreeing to the settlement, Mr. Ellison denied any wrongdoing and the parties acknowledged in their settlement agreement that the settlement does not constitute an admission of wrongdoing.  (To view a copy of the complete settlement agreement and judgment of dismissal, click here.)

The settlement was structured with money being paid to charity because of the nature of a derivative suit under California Corporations Code § 25505.2 and because Mr. Ellison owns approximately 25% of Oracle's stock.  A derivative suit is brought by a shareholder in the name of the corporation to address perceived wrongs that the corporation is not pursuing on its own.  Usually, settlements in a derivative case are paid to the corporation as compensation for actual damages to the corporation.  However, in insider trading cases, actual damages to the corporation are sometimes hard to quantify.  In the Oracle case, the payment to charity in the name of Oracle served both to benefit Oracle and avoided giving an indirect benefit to Mr. Ellison that a direct payment to Oracle would have produced.

As an additional result of the prosecution of the derivative actions, Oracle made significant modifications to its insider trading policy.  Oracle’s insider trading policy now includes a more comprehensive definition of materiality, stricter pre-clearance guidelines and more restricted trading windows.  In particular, Oracle’s current definition of materiality is more stringent that the standards established by Vice Chancellor Strine in In re Oracle Corp. Derivative Litig., (Del. Ch. 2004) 867 A.2d 904, aff’d, (April 15, 2005).  These measures, particularly the implementation of the Rule 10b5-1 plans, also offer Oracle protections against future lawsuits by creating a presumption that the trades were not conducted because of the contemporaneous acquisition of inside information, but were simply performed pursuant to a pre-required plan.  All of these policy modifications are long-term solutions that will help avoid the circumstances that gave rise to the litigation and will help limit Oracle’s future litigation exposure.