Good Technology Corp. has settled a stockholder lawsuit that accused directors and financial adviser J.P. Morgan Securities LLC of arranging a wrongful “fire sale” in Good Technology’s $425 million merger with BlackBerry Ltd. in 2015. The settlement of $52 million – still subject to court approval – followed a J.P. Morgan threat to exercise a claimed veto over a $17 million deal to sever the software tech company’s directors and associated venture capital funds from the suit. Instead, the bank reached its own $35 million settlement agreement on the eve of a two-week trial.
Investors first sued for damages in October 2015, accusing Good Technology’s directors and the bank of squandering a chance to sell a “Silicon Valley unicorn” worth $1 billion and allowing it to spiral into a cash crisis that forced an undervalued sale.
It’s alleged in the suit that a Good Technology director wrote in an internal email after the $425 million agreement that “BlackBerry got an absolutely fantastic fire sale deal because the company couldn’t have made payroll next week.” It was alleged further that J.P. Morgan “illicitly manipulated the deliberative processes of Good’s board of directors for self-interested ends.” The suit also accused the bank of committing “frauds on the board” that included use of Good Technology to cultivate BlackBerry as a client and failing to pursue higher offers or an initial public stock offering. Good Technology’s directors, meanwhile “never took the steps necessary to police J.P. Morgan’s conflicts of interest and take control of the sale process,” according to the lawsuit.
Although directors and venture capital funds reached their $17 million settlement in May, Friedlander objected in a May 26 letter to Vice Chancellor Laster that J.P. Morgan was attempting to invoke a provision of its financial adviser retention agreement to block a court-approved severing of that group from the case. Friedlander wrote:
JPM is seeking to impose on stockholder plaintiffs and director defendants the massive cost of continued litigation through final judgment, and deny the stockholder class the benefit of the $17 million settlement consideration, absent an unconditional release of JPM.
In a separate letter, JPMorgan told a Delaware Vice Chancellor that its retention agreement with Good Technology barred the bank from being left as “the last Defendant standing” and prohibited Blackberry from tapping a $65 million indemnification fund for a settlement payout without J.P. Morgan’s consent. Payment pursuant to the settlement is being funded pursuant to J.P. Morgan’s indemnification agreement. In an earlier order denying a director and bank motion for summary judgment, the Vice Chancellor found that the class had pled a sufficiently plausible theory that bank and director self-interest and disloyalty played a part in delaying Good Technology’s move toward a quick IPO or sale, despite its dwindling cash reserves and looming liquidity crisis.
The suit noted that one $825 million offer for Good Technology from an unnamed prospect in early 2015 was not pursued. The Vice Chancellor said in his order denying summary judgment that a $650 million to $700 million offer from Thoma Bravo in June 2015 was likewise allowed to pass. Vice Chancellor Laster wrote in his summary judgment order:
There is evidence that this decision was motivated by the company fiduciaries’ economic interests, which caused them to be more risk-seeking than a loyal fiduciary.
The Vice Chancellor noted that the company’s CEO and other fiduciaries had interests that would be triggered only by a high-value IPO or acquisition. The court’s summary judgment ruling also cited an assortment of evidence plausibly showing J.P. Morgan’s liability. Among the details were assertions that the financial adviser lied to Good Tech about giving Blackberry price guidance and favored Blackberry as a buyer because of interest in the company as a client.
The class is represented by Joel Friedlander, Jeffrey M. Gorris and Christopher P. Quinn of Friedlander & Gorris P.A. and Randall J. Baron of Robbins Geller Rudman & Dowd LLP. The case is In re: Good Technology Stockholder Corporation (case number 11580) in the Court of Chancery of the State of Delaware.