Mar 262012

Oracle Investor Sues Over $200 Million Whistle-Blower Settlement

Amy Markopoulos and Kristin Graham Koehler
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Posted by Amy Markopoulos and Kristin Graham Koehler

Companies that enter into FCA settlements may face follow on shareholder liability for breach of fiduciary duty in the settlement process itself.

On March 22, 2012, Shareholder Jordan Weinrib sued Oracle Corporation directors, including Chief Executive Officer Larry Ellison, in Delaware Chancery Court for failing to mitigate damages when the company agreed to a $200 million whistle-blower settlement with the U.S. government.

The Complaint alleges that current and previous directors violated their fiduciary duties by forcing the government into extensive litigation even though the directors knew the government’s allegations were “grounded in fact.” According to the Complaint, “[r]ather than attempt to settle all claims at that time by the institution of appropriate corporate therapeutics and the paying of what would have been a small fine, the board insisted on digging in and litigating the matter extensively.” By litigating the case, the Complaint contends, Oracle drove up the ultimate settlement price, harming taxpayers and shareholders alike.

The underlying settlement, announced in October, resolved a lawsuit brought by a former Oracle employee, claiming Oracle induced the General Services Administration to buy $1.08 billion in software from 1998 to 2006 by falsely promising the same discounts offered to favored commercial customers. The payout was the largest ever obtained by the GSA under the False Claims Act.

Weinrib said in his Complaint that he initially asked the company to investigate his claims in September 2010. However, board members “surreptitiously” abandoned an investigation and instead focused on negotiating a settlement with shareholders who had filed similar complaints in federal court in San Francisco. According to Weinrib, Oracle is attempting to “derail any inquiry into the wrongful acts.” Weinrib is seeking unspecified damages on behalf of the company.

Amy Markopoulos

AmyMarkopoulos@sidley.com

Kristin Graham Koehler

Washington, D.C.

kkoehler@sidley.com

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