Court Opinion

ID: 2809317
Source: CourtListenerOpinion
Date Created: 2015-06-17 17:07:43.943858+00
Date Added: 2024-06-11T12:23:27.093611
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PARTNERS HEALTHCARE )
SOLUTIONS HOLDINGS, LP. and )
GTCR FUND IX/A, L.P., )
)

Plaintiffs, )

)

V:-. ) CA. No. 9593—VCG

)

UNIVERSAL AMERICAN CORP., )
)

Defendant-i... )

.MEMORANDUM OBINION.

Date Submitted: March 4, 2015
Date Decided: June 17, 2015

Jon E. Abramczyk and Ryan D. Stottmann, of MORRIS, NICHOLS, ARSHT &
TUNNELL LLP, Wilmington, Delaware; OF COUNSEL: Reed S. Oslan, P.C.,
Scott A. McMillin, P.C., and Richard U. S. Howell, of KIRKLAND & ELLIS LLP,

Chicago, Illinois, Attorneys for Plaintiffs.

Blake Rohrbacher and Andrew J. Peach, of RICHARDS, LAYTON & FINGER,
P.A, Wilmington, Delaware; OF COUNSEL: Andrew J. Levander, Linda C.
Goldstein, Paul C. Kingsbery, and Amanda N. Tuminelli, of DECHERT LLP, New
York, New York, Attorneys for Defendant.

GLASSCOCK, Vice Chancellor

 

-.—.—— :7.— —T—.-.~.q—=mn—.-.—

As a result of a merger, one entity, Plaintiff Partners Healthcare Solutions
Holdings, L.P. (“Partners”), became a large stockholder of a second entity,
Universal American Corp. (“UAM”), and, pursuant to an agreement between these
entities, Partners became entitled to designate a director to the board of UAM (the
“Board”). The two entities then became adversaries in litigation. After its initial
designee resigned, Partners sought to have a successor designee seated. UAM was
willing to seat the designee, but only if he signed a conﬁdentiality agreement and
forwent representation as a director by the same law ﬁrms representing Partners,
which had nominated him, in the litigation against UAM. In other words, the
board of UAM insisted that its director not be assisted in that fiduciary role by
counsel with an interest adversary to UAM. The designee refused to accede to this
request, and Partners sued UAM, arguing that UAM was in breach of certain of the
parties’ agreements for refusing to seat the designee. Partners sought speciﬁc
performance—seating of the designee without conditions—and damages.

George Orwell pointed out that “[t]o see what is in front of one’s nose needs
a constant struggle?” During the pendency of the litigation, the parties underwent
that struggle, and settled the speciﬁc performance portion of the action by seating
the designee subject to litigation counsel erecting an ethical wall separating that

litigation from those members of the law firm representing the designee in his

_ —— 1.?"—

1 George Orwell, “In Front of Your Nose,” Tribune, March 22, 1946;;

 

 

 

 

at that time, that all “meaningful shareholders” would have a right to participate in
the contemplated repurchase.31

On March 14, 2014, UAM’s General Counsel spoke to Katz and described
two contemplated structures for a purchase of Cap Z’s shares at a discount to
market price,32 though he represented that “nothing [was] imminent” with reSpect
to the transaction.33 Katz did not tell UAM that Plaintiffs were also interested in
selling any of their shares at a discounted price,34 though Katz understood that
“when the company was ready to do a transaction, [Plaintiffs] would have a couple

of days or a bit longer to make a decision as to whether or not [they] wanted to

participate.”35

On March 20, 2014, UAM sent notice to the directors of a meeting
scheduled for March 24, 2014, to discuss the proposed Cap Z transaction. UAM’S
General Counsel emailed Katz about the transaction, however, Katz resigned that
same day and did not attend the Board meeting.36 On March 28, the Board
approved the Cap Z transaction to repurchase 6 million shares at a price of $6.03

per share. Despite the fact that the market price has remained at or above $7.06

3' Stottmann Aff. Ex. 2 at 218:5—10.

32 Goldstein Aff. Ex 5 at 227112—230z6.

33 Stottmann Aff. Ex. 43.

3“ Goldstein Aff. Ex 5 at 230:10—18, 23510—15...
35 Stottmann Aff. Ex. 2 at 22623—2273.

36 See Goldstein Aff. Ex. 13.

 

10

 

 

per share thereafter, the Plaintiffs seek monetary damages as a result of having
been left out of the repurchase transaction.

D. Procedural History

In the ﬁrst count of the Amended Complaint, the Plaintiffs sought, under 8
Del. C. § 225, a determination of the proper composition of UAM’s Board. In the
second count, Partners and Fund IX/A asserted a breach of contract claim arising
out of the Board Seat Agreement, seeking speciﬁc performance and damages. By
October 2014, the parties settled the speciﬁc performance aspect of the breach of
contract claim, which also mooted the request for relief under Section 225.
Pursuant to the settlement, (1) GTCR and Sperzel signed conﬁdentiality
agreements, under which K&E and MNAT agreed to erect ethical walls between
Sperzel’s counsel and the team handling Partners’ defense in the Fraud Litigation,
(2) Sperzel was appointed to the Board and (3) Sperzel and GTCR were given
written information that had been provided to the rest of the UAM Board during
the time between Katz’s resignation and Sperzel’s seating.37

Although I previously expressed my skepticism that there would be any
cognizable theory of damages—the speciﬁc performance request having been

alleviated by the settlement—the litigation continued. UAM ﬁled a Motion for

2—F—=-

37 See Goldstein Aff. ﬂ 6; Pls.’ Answering Br. in Opp’n to Def.’s Mot. for Summ. J. at 28.

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3L—. :1.—=_——-z=p—————

 

 

Subsidiaries and even though Kirkland & Ellis LLP may have
represented the [Sub] or its Subsidiaries in a matter substantially
related to such dispute.44

The Plaintiffs contend that the Partners Designee on the UAM Board is its
“afﬁliate,” and thus, that any conﬂict inherent in Sperzel employing K&E to
represent him as a director of UAM was explicitly waived in the Merger
Agreement, via the language quoted above. The term “Affiliate” is deﬁned in the

Merger Agreement to include,

with respect to any Person, any other Person who directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, such Person. The term
“control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms “controlled” and “controlling”
have meanings correlative thereto.45

“Any person” includes Partners. Thus, if Sperzel was “controlled by” or “under

common control with” Partners, he is an “Affiliate” under the Merger Agreement,-
UAM argues that the deﬁnition of “Afﬁliate” cannot include the Designee,

as the element of control is lacking: “Indeed, the very notion that a corporate

director could be ‘controlled’ by a single shareholder is repugnant to the law of this

6

state.”4 Further, it argues, the waiver in the Merger Agreement is not broad

enough to apply to the Board Seat Agreement, as the waiver provision applies only

_ _ __. _

4“ Stottmann Aff. Ex. 1 § 8.18
45 Id. at 2.
46 Reply Br. in Further Supp. of Def.’s Mot. for Summ. J. at 18,,

 

15

to “matters related to” the Merger Agreement, which, in the Defendant’s view,
does not include representation of a Board member seated pursuant, not to the

Merger Agreement, but to the Board Seat Agreement.47

2.:_Egg_cuszil__ofPerfo=1°_1nance 

 

UAM, for its part, argues that, even if it breached the Board Seat Agreement,
the Plaintiffs’ own breaches of that Agreement excused its performance.
Speciﬁcally, UAM alleges that the Plaintiffs were in breach when they (1)
“directed Sperzel to engage K&E, counsel adverse to [UAM], to advise him in
connection with his [UAM] Board service and determined that he would not sign
 [UAM’s] conﬁdentiality agreement,”48 thus “denying [UAM] the principal beneﬁt
of the [Board Seat Agreement]——the service of a loyal director,”49 and, (2) “when
[Fund IX/A and Fund IX/B] did not ‘agree to maintain the conﬁdentiality’ of
[UAM’s] information by refusing to sign any conﬁdentiality agreement.”50

In support, UAM relies on this Court’s decision in Henshaw v. American
Cement C0131).51 In that case, a stockholder-director, Henshaw, of a company
sought to inspect the company’s books and records. 52 The company had sued one

of its other directors, Caldwell, among others, for fraud, and the law ﬁrm

47 Id. at 19.
48 Opening Br. in Supp. of Def.’s Mot. for Summ. J. at 24;.
49 Id. at 25.

50 Id. at 24.

5‘ 252 A.2d 125 (Del. Ch. 1969).

52 Id. at 126.

16

 

representing Caldwell was listed among the agents and attorneys designated to
make inspections for Henshaw.53 The company argued that the firm should be
prohibited from inspecting the books and records and that Henshaw should be
prohibited from disclosing any information obtained by the inspection relevant to
the fraud litigation to those defendants.54 The Court noted:

The question here is how Henshaw's right to agents and attorneys
of his own choosing is to be accommodated to the Corporation's
legitimate interest in protecting its position in a lawsuit. I am in no
way concerned with the merits of that suit. But it begs common sense
and elemental notions of fairness to say that the Corporation must
submit its records (including those dealing with the very substance of
the fraud suit, the ‘Volcanite’ transaction) for inspection by a person
whose interest in pending litigation is adverse to the Corporation,
merely because that person is selected for the purpose as the agent of
a director. This would indeed be back-door discovery unbound by
work-product, privilege or any other limitation upon discovery.
Henshaw's personal preference must here give way to protection of
the Corporate interest.

And the same approach must limit Henshaw in his use of attorneys
in the inspection. It is unrealistic, and it might be straining the limits
of attorney-client ﬁdelity, to permit the Pillsbury ﬁrm to enter into a
situation where it would be obligated to two masters with conﬂicting
interests. Thus it has a duty to Caldwell in the prosecution of his
counterclaim against Cement (and to the other defendants it represents
in the suit). And as an agent or attorney for Henshaw, the director, it
would have the same duty he has to Cement.55

The Court added:

Henshaw, as a director, probably has a duty as well as a right to be
fully informed as to the ‘Volcanite’ transaction and the other matters

___- _— _—._—'-. .

53 See id. at 129. i
54 See id.
55 Id. at 130.

 

l7

 

in litigation. And as for disclosure, I emphasize that inspection is here
given to Henshaw as a director, with all that implies. He has, as his
counsel states, a ﬁduciary duty to the Corporation and its stockholders
with respect to such information that he receives as a director. If he

violates that duty, the law provides a remedy.56

Drawing upon this language and principle, UAM argues that “Sperzel could

not share [UAM’s] information with K&E without violating a ﬁduciary duty to

[UAM], but that was precisely what Plaintiffs were demanding he be able to do.”57

Accordingly, the Defendant argues, the Plaintiffs breached the Board Seat
Agreement by operation of the “covenant of good faith inherent in that agreement
[which] requires Plaintiffs not to deprive [UAM] of the [Partners] Designee’s loyal
service as a board member.”58

The Defendant ﬁirther adds that it was consistent with the Board’s ﬁduciary
obligations to delay appointment of Sperzel until he signed a satisfactory
conﬁdentiality agreement that would preclude sharing UAM’s conﬁdential
information with defense counsel in the Fraud Litigation. It points to language in

the Board Seat Agreement providing that nomination or appointment of the

Designee was to be “in accordance with” UAM’s Articles of Incorporation and

Bylaws.59 The crux of the argument is that UAM “was not required to put Sperzel

-_.,.._'+ —,___.____=—___ =_= —-

56
Idaho
57 Opening Br. in Supp. of Def.’s Mot. for Summ. J. at 26.

58
Id. at 27.

59 See Goldstein Aff. Ex. 3 § A.l. It also points to case law for the proposition that interpreting

the Board Seat Agreement to require the directors to elect a Designee “who demands to share

 

18

on its Board and then wait to see if he in fact conveyed its conﬁdences to adverse
counsel, after Plaintiffs insisted that he engage adverse counsel at K&E and
refused [UAM’s] confidentiality agreement.”60

To this, the Plaintiffs make several responses, including that the implied
covenant of good faith and fair dealing does not apply because the parties’ express
agreements (including the Merger Agreement and the suggested waiver of
conﬂicts) bear on the subject matter at issue, and that UAM’s argument improperly
assumed at the outset that the Partners Designee would breach his duty of loyalty
to UAM. Partners also argues that UAM acquiesced to and ratiﬁed the Partners
Designee—speciﬁcally, its original Designee, Katz—being represented in his
capacity as director by K&E while the parties were adverse. Partners makes a
related argument that, if UAM had ﬁduciary obligations not to allow the Partners
Designee to be represented by K&E while UAM and the Plaintiffs were adverse,
the UAM directors must have breached those obligations in their acquiescence to

Katz’s continued service.61 In addition, the Plaintiffs suggest that these issues raise

a number of questions of material fact, precluding summary judgment.62

 

 

 

Universal’s conﬁdences with adverse counsel would be ‘invalid and unenforceable.”’ See
Opening Br. in Supp. of Def.’s Mot. for Summ. J. at 28—29.

60 Opening Br. in Supp. of Def.’s Mot. for Summ. J. at 29.
6' See Pls.’ Answering Br. in Opp’n to Def.’s Mot. for Summ. J. at 38—45.
62 Id. at 38, 4547.

19

——__—— :— — i —_——____=.-

 

ﬁduciary capacity. Partners has continued this litigation, however, in a quixotic
attempt to secure damages (and contractual attorney fees) allegedly arising during
the months between the designation and the parties’ epiphany regarding the ethical
wall, that is, during the time when Partners had no designee on UAM’s board.
UAM has moved for summary judgment, to which I ﬁnd, for the reasons below, it

is entitled.

I. BACKGROUND FACTS

A. T he Merger and the Board Seat Agreement

On March 2, 2012, Partners, a limited partnership created by private equity
ﬁrm GTCR, LLC (“GTCR”), entered into a merger agreement (the “Merger
Agreement”) with UAM. Pursuant to the Merger Agreement, UAM purchased
Partners Healthcare Solutions, Inc. (“Sub”), Partners’ subsidiary, and Partners
became one of UAM’s largest stockholders.

By way of a letter agreement (the “Board Seat Agreement”), Partners also
received a seat for its designee (the “Designee”) on UAM’s Board. In the Board
Seat Agreement, the parties agreed that the Designee must be “independent” under
stock exchange rules and that Partners and co-Plaintiff GTCR Fund IX/A, L.P.

(“Fund IX/A”)2 would have the right to designate a successor should their initial

;.' _ .—. —- ‘—=e;a

2 Fund IX/A and GTCR Fund IX/B, L.P., like Partners, are controlled by GTCR-E.

 

 

B. Neither Party Breached the Board Seat Agreement

I do not ﬁnd that Partners, either in designating Sperzel or in directing him
to engage K&E as his counsel, breached the Board Seat Agreement. That
Agreement confers upon Partners a right, but not an obligation, to designate a
member to the Board. Thus, the argument that Plaintiffs breached the Agreement
by depriving the Board of a loyal director is without merit.

I also do not ﬁnd that UAM breached the Board Seat Agreement. The
Board, in a faithful discharge of its ﬁduciary duties, recognized a conﬂict in the
Designee engaging as counsel, in his capacity as a director and on behalf of UAM,
the same counsel that was adverse to UAM in the Fraud Litigation. Partners’
argument that UAM waived conﬂicts by operation of the language in the Merger
Agreement is unavailing. The Merger Agreement provided that UAM waived
conﬂicts of interest in K&E’s representation of Partners in a dispute between
UAM and Partners; that is relevant to the Fraud Litigation, but that waiver does not
apply to sanction a UAM director’s representation by counsel where that counsel
also represents Partners in a dispute with UAM. Put simply, the conﬂict between
Sperzel’s right to counsel of his choosing, and the Board’s ﬁduciary interest in
protecting conﬁdential information from conﬂicted counsel, does not “relate to”
the Merger Agreement, and the conﬂict waiver embodied in that Agreement is

inapplicable here. Further, I do not ﬁnd that the term “Afﬁliate” includes Sperzel

20

 

63 As a director, Sperzel’s duties run to UAM

in his capacity as a UAM director.
and its stockholders, not to Partners.

Importantly, UAM did not outright refuse to seat Sperzel, but instead agreed
to seat him once the problem of conﬂicted representation was solved. That cannot
be said to be a breach of the Board Seat Agreement. Nevertheless, the parties
resorted to litigation, only later to settle their claim in a way that seems obvious:
allow Sperzel to use K&E and MNAT as his counsel with the requirement that the
ﬁrm create ethical walls between its representation of Sperzel in his capacity as a
director and its representation of Partners, GTCR, and the other defendants in the
Fraud Litigation,

Because I ﬁnd that neither party breached the Board Seat Agreement, I need
not reach the question of whether Partners has sustained damages by way of lost
opportunity to participate in the Cap Z Transaction (unlikely, in the context of the
current stock price), or whether either party would be entitled to fee-shifting under
the terms of the Merger Agreement.

Finally, the Plaintiffs argued that they are entitled to attomey’s fees under
the bad faith exception to the American rule, and seek to further develop the record

in that regard. It is clear to me, however, that the Board was responding to a

legitimate concern when it addressed the conﬂict created by the proposed

63 What is lacking, I ﬁnd, is the requisite element of control for purposes of the deﬁnition of
“Afﬁliate,” as noted above.

21

 

   

 

 

__

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

PARTNERS HEALTHCARE )
SOLUTIONS HOLDINGS, LP. and )
GTCR FUND IX/A, L.P., )
)

Plaintiffs, )

)

 ) CA. No. 9593-VCG

)

UNIVERSAL AMERICAN CORR, )
)

Defendant. )

“232$;

AND NOW, this 17th day of June, 2015,

The Court having considered the Defendant’s Motion for Summary
Judgment (the “Motion”), and for the reasons set forth in the Memorandum
Opinion dated June 17, 2015, IT IS HEREBY ORDERED that the Motion is
GRANTED.

SO ORDERED:

/_ / i'.Glas,S=Coc_k_,-ZU;L

Vice Chancellor

 

As indicated in the Board Seat Agreement, Partners named David Katz, a
Managing Director of GTCR and former board member of Partners,6 as its initial
Designee on the Board.

According to UAM, “Practically from the moment the merger closed,
[Sub’s] performance was abysmal.”7 UAM contends that, although two days
before closing Sub’s management conﬁrmed that it was on track for its 2012
budget of approximately $45 million EBITDA, within six weeks of closing, Sub’s
forecast was revised downwards by 40%; within four months, the forecast was
down 90%.8 On March 1, 2013, UAM sent a demand for indemniﬁcation to
Partners, addressed to Katz and a third party.9 In settlement negotiations that
began shortly thereafter, Katz, while still a director of UAM, acted on behalf of
GTCR.10 GTCR was also assisted by legal counsel, attorneys from the ﬁrm of
Kirkland & Ellis (“K&E”).”

Katz remained on the Board during the ongoing negotiations between
GTCR——the entity with which he was afﬁliated, and for which he was
negotiating—on the one side, and UAM—the company for which he was a

fiduciary—on the other. His name was included on the slate of nominees

 

 

 

6 Goldstein Aff. Ex. 12 11 10.

2 Opening Br. in Supp. of Def.’s Mot. for Summ. J. at 9.;
Id.

9 Goldstein Aff. Ex. 9.

'0 Goldstein Aff. M 2—3.

“ Id. 11 3.

 

 

recommended to UAM stockholders at the May 2013 annual meeting, at which he
was reelected.12

By October 2013, settlement talks ended and UAM ﬁled a complaint in the
United States District Court for the District of Delaware asserting, among other
things, fraud claims arising out of the sale of Sub to UAM (the “Fraud
Litigation”).l3 The defendants named in the Fraud Litigation include, among
others, Partners, Fund IX/A, former ofﬁcers of Sub, and Katz. The defendants
were represented in the litigation by K&E and Morris, Nicholas, Arsht & Tunnell
(“MNAT”).

The Board created a special committee, which did not include Katz, to
address the Fraud Litigation. In January 2014,14 the day before a Board meeting at
which UAM’s “2014 plan and other items” would be discussed, UAM requested
that Katz sign a conﬁdentiality agreement.15 That agreement provided, among
other things, (1) that information learned as a UAM director would be used only in
connection with that role, and explicitly that such information would not be used in
the Fraud Litigation; (2) that Katz would not share non-public information

concerning UAM with any third parties, explicitly including K&E; and (3) that he

'2 Goldstein Aff. Ex. 1 1.
'3 See Goldstein Aff. Ex. 12.
14 It is not clear from the record whether there were any board meetings between the initiation of

the Fraud Litigation in October 2013 and the January 2014 meeting.
‘5 Transmittal Aff. of Ryan D. Stottmann (“Stottmann Aff.”) Ex. 19.

 

would only share non-public information with GTCR employees on a need-to-
know basis.l6

Katz proposed a revised version of the conﬁdentiality agreement in which he
would agree not to use anything he learned as a UAM director in the Fraud
Litigation and to keep UAM’s non-public information conﬁdential.I7 He did not,
however, agree to the more explicit restriction on sharing information with GTCR
employees or the restriction on sharing information with counsel at K&E.18
Ultimately, the morning of the Board meeting, Katz executed his proposed version
and attended the meeting.

A few weeks later, on February 11, 2014, UAM again requested Katz
execute its version of a conﬁdentiality agreement, and noted this would supersede
Katz’s earlier version. UAM’s proposed version provided that Katz would not use
K&E or MNAT—counsel to Partners and GTCR as counterparties to UAM in the
Fraud Litigation—“in connection with fulﬁlling [his] duties as a director” of
UAM.]9 Katz refused to execute that agreement, and continued to serve on the

Board until March 20, 2014, when he resigned as a director of UAM.20

‘6 Id.
'7 Stottmann Aff. Ex. 20.
'8 Id.

'9 Stottmann Aff. Ex. 22.
20 The record is not clear as to whether there were any Board meetings between Katz’s refusal to

execute the conﬁdentiality agreement in February and his resignation in March.

6

 

 

B. The Second Board Designee

That same day, Fund IX/A designated George Sperzel to ﬁll Katz’s
vacancy.21 He conﬁrmed his independence under the New York Stock Exchange
Rules22 and counsel at K&E, on his behalf, requested information in connection
with the upcoming board meeting scheduled for March 24, 2014.23 UAM did not
provide the requested information and met without Sperzel. The Board meeting
minutes indicate that “[t]he Board discussed Mr. Sperzel’s background and would
consider the merits of his appointment to the Board at an upcoming meeting after
Mr. Sperzel had consented to and went through applicable background checks and
completed all necessary paperwork, including executing appropriate conﬁdentiality
agreements.”24

On March 26, UAM presented Sperzel with a conﬁdentiality agreement,
pursuant to which he would agree not to share UAM’s conﬁdential information
with any third party “other than counsel in connection with fulﬁlling [his] duties as
a director, which counsel may not include [K&E] or [MNAT] or any other counsel

representing GTCR or the other defendants in the [Fraud Litigation].”25 Sperzel

instead executed an agreement similar to the one signed by Katz in January 2014,

 

2' Stottmann Aff. Ex. 27.
22 Stottmann Aff. Ex. 29.
23 Stottmann Aff. Ex. 30.
24 Stottmann Aff. Ex. 31.
25 Stottmann Aff. Ex. 32 at UAM-BRL 00001519,.

 

 

which did not restrict his choice of counsel or otherwise prohibit sharing UAM
information with K&E or MNAT.26 Sperzel’s decision to use K&E to represent
him in his ﬁduciary capacity was dictated by GTCR.27 Following a series of
communications, throughout which neither party was willing to compromise,
Partners ﬁled its Complaint in this action on April 29, 2014, seeking speciﬁc
performance. Sperzel was not included on the Board—recommended slate of
directors at the May 28, 2014 annual meeting.

Ultimately, with what appears to have been substantial effort, the parties
reached a settlement that, in hindsight, appears obvious: Sperzel was seated on the
Board, subject to a conﬁdentiality agreement. That agreement provided that, while
Sperzel could use K&E and MNAT as counsel in his capacity as directors, those
ﬁrms would erect ethical walls to mitigate the potential for conﬂicts of interest
given their representation of Partners and GTCR, the defendants in the Fraud

Litigation.28 UAM provided Sperzel and GTCR, which had by that time also

I. _ _ _

 

 

2" See Stottmann Aff. Ex. 34.

27 See Goldstein Aff. Ex. 20 at 71:10—73:5.

28 While this answer may appear obvious, both parties, in their brieﬁng, point to their
counterparty’s failure to suggest that K&E and MNAT establish ethical walls. See Opening Br.
in Supp. of Def.’s Mot. for Summ. J. at 13—14 (“Not once during these exchanges did Plaintiffs
offer that K&E might set up an ethical wall to protect [UAM’s] conﬁdences from the litigators
who were defending Plaintiffs against Universal’s fraud claims. Nor did they give any sign that
they even understood the conﬂict of interest inherent in K&E serving as counsel to both
Plaintiffs, which were adverse to Universal, and to a [UAM] director who would be privy to
[UAM’s] conﬁdential information”); Pls.’ Answering Br. in Opp’n to Def.’s Mot. for Summ. J.
at 19 (“As during the parties’ discussions of Katz’s conﬁdentiality agreement, UAM never
suggested that K&E or MNAT establish an ethical wall to separate the attorneys who could
advise Sperzel in connection with his board duties”).

 

 

 

executed a conﬁdentiality agreement, all written information that had been
provided to the Board since March 20, 2014, excluding materials that were
provided to the special committee established for the Fraud Litigation.

C. The Cap Z Transaction

The Board met eight times between the time Katz resigned (the same day
that Sperzel was designated as his replacement) and November 14, 2014, the date
on which Sperzel was elected by the Board to serve as a director, pursuant to the
parties’ settlement. During that time, the Board approved a repurchase of 6 million
shares of common stock from Capital Z Partners Management, LLC (“Cap Z”) for
approximately $36 million (the “Cap Z Transaction”). The Plaintiffs allege that
such a stock purchase is outside the ordinary course of UAM’s business and that
UAM’S “deliberate actions in prolonging the [Partners] Designee’s absence from
the [Board] denied Plaintiffs their right to participate in this pivotal business
decision that will surely impact the value of Plaintiffs’ stake in UAM.”29

Partners’ initial Designee, Katz, was on the Board in August 2013 when it
unanimously approved a purchase of “up to $40 million” of its common stock,

subject to further approval of speciﬁc terms of a purchase.30 The Board discussed,

29 Am. Complﬂ 17.
3° Goldstein Aff. Ex. 24.