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In re Oracle Corp. Derivative Litigation11/24/2004
sales that were deferred at the end of the quarter, a phenomenon he attributed to the reluctance of potential customers to make large financial commitments to new IT expenditures in the face of a weakening economy. Ellison's essential bullishness about Oracle comes through in the call transcript and the lengthy call finished with Ellison answering a question about the Pipeline by indicating that Oracle's "pipeline building looks normal." Henley jumped in at that point and indicated that it was too soon to know whether that was so and that Oracle would be in a better position to comment on that issue at a later call that was less hastily convened, as the March 1 call was simply designed to give the market the "best quick" update about 3Q 01 Oracle could give. This echoed Henley's earlier statements about the uncertainty Oracle faced as a result of general economic conditions.
Although the 10 cents per share Oracle expected to earn in 3Q 01 exceeded the company's 3Q 00 performance and was the best third quarter in the company's history, the market was not pleased. Oracle's stock price dropped approximately 21% in one day.
On March 15, 2000, Oracle released final figures for 3Q 01, which were generally in line with its March 1, 2001 press release. Earnings were 10 cents per share and license revenue growth was 5%.
II. Summary Of The Plaintiffs' Claims
The plaintiffs bring two types of claims against Ellison and Henley.
First and most important, they assert that there is evidence from which a rational fact-finder could conclude that Ellison and Henley injured Oracle as a company by: 1) possessing nonpublic, material information demonstrating that Oracle would miss its Market Estimates for 3Q 01; and 2) deciding to sell shares of stock in whole or in part because of their knowledge of this negative information. This type of claim is a state version of a federal insider trading claim and has its origins in Delaware law in the venerable case of Brophy v. Cities Service Co. As the plaintiffs see it, Brophy and its progeny apply a form of entire fairness analysis to sales of stock by corporate fiduciaries. If the court concludes that the selling fiduciary should, with the exercise of reasonable prudence, have recognized that there was a risk that his company would not meet its public projections, then that fiduciary is bound to restore to the company the excess profits he made (as a state law remedy). That is, because of the selling fiduciary's self-interest, the absence of scienter is argued to be irrelevant to the resolution of a disloyalty claim rooted in Brophy. In the alternative, the plaintiffs also argue that there is sufficient evidence of scienter on both Henley's and Ellison's part for their Brophy claim to withstand this motion for summary judgment.
Second, the plaintiffs argue that Ellison and Henley are liable to Oracle under a breach of contract theory because their sales supposedly violated certain Options contracts that they signed with Oracle - as the undisputed record indicates - after they had completed all their trades. Remarkably, the plaintiffs press this claim even though it has been twice dismissed by Judge John G. Schwartz of the California Superior Court, who is presiding over a derivative case that overlaps with this one. The plaintiffs in this litigation are actively cooperating with the California plaintiffs in a joint effort to obtain relief. The same lawyer who argued the breach of contract theory to Judge Schwartz made the bulk of the summary judgment argument before me in this case. For the plaintiffs to ask me to assess the viability of a claim made derivatively on behalf of Oracle by them in California - that rests
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