There's a very interesting passage in Delaware Vice Chancellor Parson's opinion in Third Point LLC V. Ruprecht, C.A. 9469-VCP (May 2, 2014):
... while Plaintiffs have made much of the derogatory way in which various Defendants [including members of the Sotheby's board] referred to Loeb in several emails, I am not persuaded that Plaintiffs have a reasonable probability of demonstrating that the Board‘s decisions vis-à-vis Third Point were motivated by an impermissible animus directed at Loeb. As an initial matter, I note that the majority of the communications in which Loeb is referred to pejoratively were authored by Ruprecht. Additionally, many of those communications were between Ruprecht and a family member, not a fellow Board member. I cannot conclude on the record before me that, with the exception of Ruprecht—who may have taken personally Loeb‘s harsh critiques and open efforts to replace him—anywhere near a majority of the Sotheby‘s Board felt that they had endured a similar affront at the hands of Loeb such that it would impede their judgment or motivate their actions with respect to Third Point. It also is difficult to reconcile the notion that the Board, on a personal level, found Loeb so distasteful that it adopted the Rights Plan for the primary purpose of impairing Third Point‘s electoral rights so that Loeb could not win in a proxy contest, and, yet, later would offer him a seat on the Board as part of settlement discussions. The Sotheby‘s Board was not required to like Loeb, and it very well may not have liked him. The current record, however, does not support a reasonable inference that Plaintiffs have a reasonable probability of establishing that any such "dislike" was the driving force behind any of the Board‘s decisions regarding Third Point.
I've never met Dan Loeb but I suspect he'd be a hoot. One of his core tactics is being a very funny jerk. Consider some of the letters he's sent boards of directors over the years:
Dan Loeb To the Warnaco Board of Directors (8/21/03): “…Do not confuse our significant equity stake with a vote of confidence in the Company’s Chairman, C.E.O. or certain members of the Board of Directors. In fact, we have grave concerns about the competency, judgement and motivation of these individuals…Stuart Buchalter, Chairman of the Board of Directors, extracted $500,000 as a non-executive Chairman in 2002 and currently receives the indefensible salary of $250,000 --- an outrageously high sum for a non-executive Chairman who had already been gifted 12,975 free shares. Appallingly, Mr. Buchalter also received a one-time cash bonus of $210,004 upon the Company’s emergence from bankruptcy in February, 2003… I met Mr. Buchalter in person at a Warnaco Annual Meeting, a handsome middle-aged gentleman, his shock of gray hair and beard and his bold red striped shirt and polka dot red tie made him look oddly like Burt Reynolds’ character, the pornographic producer, in the film ‘Boogie Nights’.”To Irik P. Sevin: Chairman, President and CEO, Star Gas Partners L.P (2/14/05): “…Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America. (I was amused to learn, in the course of our investigation, that at Cornell University there is an ‘Irik Sevin Scholarship.’ One can only pity the poor student who suffers the indignity of attaching your name to his academic record…It is time for you to step down from your role as CEO and director so that you can do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.”
To Ken Griffin: President, Citadel Investment Group (9/14/05): “You are surrounded by sycophants, but even you must know that the people who work for you despise and resent you. I assume you know this because I have read the employment agreements that you make people sign…Good luck extracting exorbitant management fees and generating mediocre returns with your bloated organization and ego. By the way, there is little I enjoy as much as watching from afar as your reputation and ‘organization’ declines at the same rate as your falling returns.”
Who says that sort of stuff?
In the present case, VC Parsons reports that Loeb sent a highly derogatory letter to the Sotheby's board:
Loeb apparently made several of the accusations in his letter without actual knowledge of their veracity. In addition, the record supports an inference that Loeb included the letter with the Schedule 13D as part of an "all out assault" meant to destabilize the Company. In contemporaneous emails, Loeb described his letter as both part of a "holy jihad" intended to "make sure all the Sotheby‘s infidels are made aware that there is only one true God," and part of a "Special Operation on Sotheby‘s," which was intended to "shock and awe" the Company and "undermine the credibility" of Ruprecht. Loeb acknowledged that the letter may have caused some "collateral damage" to the Board, but believed that was "an acceptable risk" to have taken.
In this case, I suspect there is method to his seeming madness. As Steven Davidoff observed, Loeb sued to challenge Sotheby's activist pill at least in part to conduct a fishing expedition during discovery, which paid off:
Loeb lost the case, but in the hearing before a court in Delaware, emails sent among the Sotheby’s directors came out with some damning stuff. Steven B. Dodge, the lead independent director, stated that the board “is too comfortable, too chummy and not doing its job” to another director. Another email stated that at least in part Mr. Loeb was “right on the merits.”
In truth, these words led to more public-relations problems than anything else and yet another lesson that people need to be careful about what they write in an email.
Exactly. Corporate lawyers need to read clients the riot act about email hygiene. In this case, those damning emails didn't cost Sotheby's the legal battle, but they may have helped Sotheby's lose the PR war. Tell your board to "say it with roses, say it with mink, but never ever say it in ink."
