EFiled: Feb 17 2017 08:22PMESt
`ae
`Transaction ID 60229729={°/,\7i.0"\)
`Case No. 12847-VCMR VMs
`s
`
`EXHIBIT 1
`
`
`
`EFiled: Feb 17 2017 08:22PM EST
`Transaction ID 60229729
`Case No. 12847-VCMR
`
`
`
`
`ae
`Transaction ID 60229729={°/,\7i.0"\)
`Case No. 12847-VCMR VMs
`s
`
`EXHIBIT 1
`
`
`
`EFiled: Feb 17 2017 08:22PM EST
`Transaction ID 60229729
`Case No. 12847-VCMR
`
`
`
`
`
`IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`IN RE BARNES & NOBLE
`STOCKHOLDERS DERIVATIVE
`LITIGATION
`
`:
`:
`:
` :
`:
` :
` : Civil Action
` : No. 4813-VCS
`:
` :
`:
`
`
`
`
`
`
`
`- - -
`
`Chancery Courtroom No. 12A
` New Castle County Courthouse
` Wilmington, Delaware
` Thursday, October 21, 2010
` 10:50 a.m.
`
`BEFORE: HON. LEO E. STRINE, JR., Vice Chancellor.
`
` - - -
`
`ORAL ARGUMENT
`
` - - -
`
`------------------------------------------------------
`CHANCERY COURT REPORTERS
`500 North King Street - Suite 11400
`Wilmington, Delaware 19801-3759
`(302) 255-0525
`
`
`
`EFiled: Oct 28 2010 4:12PM EDT
`Transaction ID 34073866
`Case No. 4813-VCS
`
`
`
`
`
` 2
`
` 1
`
`APPEARANCES:
`
` 2
`
` 3
`
` 4
`
` 5
`
` 6
`
` 7
`
` 8
`
` 9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`PAMELA S. TIKELLIS, ESQ.
`TIFFANY JOANNE CRAMER, ESQ.
`Chimicles & Tikellis LLP
` -and-
`MICHAEL J. BARRY, ESQ.
`Grant & Eisenhofer, P.A.
` for Plaintiffs
`
`BLAKE ROHRBACHER, ESQ.
`Richards, Layton & Finger
` -and-
` ERIC REIDER, ESQ.
` JOHN D. KIRCHER, ESQ.
` of the New York Bar
` Bryan Cave LLP
`for Defendants Leonard Riggio and Stephen
` Riggio and Lawrence S. Zilavy
`
` KENNETH J. NACHBAR, ESQ.
` SUSAN W. WAESCO, ESQ.
` Morris, Nichols, Arsht & Tunnell LLP
` -and-
` CHARLES S. DUGGAN, ESQ.
` of the New York Bar
` Davis Polk & Wardell
` for Defendants George Campbell Jr.,
` Michael J. Del Giudice,
` William Dillard, II, Patricia L. Higgins,
` Irene R. Miller and Margaret T. Monaco
`
` PETER J. WALSH, JR., ESQ.
` WILLIAM E. GREEN, JR., ESQ.
` Potter, Anderson & Corroon LLP
` -and-
` KEVIN J. ORSINI, ESQ.
` of the New York Bar
` Cravath, Swaine & Moore LLP
`
`21
`
` for Barnes & Noble, Inc.
`
`22
`
`23
`
`24
`
`- - -
`
`CHANCERY COURT REPORTERS
`
`
`
` 3
`
` 1
`
`THE COURT: Good morning, everyone.
`
` 2
`
`Sorry to keep you waiting. I thought it was at ten,
`
` 3
`
`and I was early at ten, and then I was late at 10:30.
`
` 4
`
`I think you all can understand the phones ring and
`
` 5
`
`other things and how that would make sense. I
`
` 6
`
`apologize for the delay.
`
` 7
`
`I was ready to go like 9:50. I'm,
`
` 8
`
`like, why aren't we in court? Oh, it's 10:30. And
`
` 9
`
`then we're here. So let's -- we may proceed.
`
`10
`
`Miss Tikellis.
`
`11
`
`MS. TIKELLIS: Yes, Your Honor. I'm
`
`12
`
`going to rise very briefly to say good morning to Your
`
`13
`
`Honor. I think Your Honor knows everyone with me.
`
`14
`
`They're all Delaware attorneys. Tiffany Cramer from
`
`15
`
`my office; Michael Berry and Ned Weinberger from the
`
`16
`
`Grant & Eisenhofer firm.
`
`17
`
`18
`
`THE COURT: Thank you.
`
`MR. ROHRBACHER: Your Honor, I would
`
`19
`
`like to introduce Eric Rieder from Bryan Cave and
`
`20
`
`John Kircher from Bryan Cave. Mr. Rieder will be
`
`21
`
`making the presentation on behalf of the nonvoting
`
`22
`
`directors.
`
`23
`
`In reviewing the docket this morning,
`
`24
`
`we realized -- although Mr. Rieder had appeared in
`
`CHANCERY COURT REPORTERS
`
`
`
` 4
`
` 1
`
`front of Your Honor in the preconsolidation motion to
`
` 2
`
`expedite -- a formal motion pro hac vice had not been
`
` 3
`
`filed. I'll hand one up.
`
` 4
`
`THE COURT: So long as you're willing
`
` 5
`
`to pay interest. It's been lean years for state
`
` 6
`
`governments.
`
` 7
`
`MR. WALSH: Good morning, Your Honor.
`
` 8
`
`Peter Walsh on behalf of the nominal defendant,
`
` 9
`
`Barnes & Noble, Inc. I rise to reintroduce to the
`
`10
`
`Court Kevin Orsini of the Cravath Swaine & Moore firm.
`
`11
`
`To the extent the Court has any questions of counsel
`
`12
`
`for the company, Mr. Orsini will respond.
`
`13
`
`14
`
`15
`
`THE COURT: Thank you, Mr. Walsh.
`
`Good morning, Mr. Nachbar.
`
`MR. NACHBAR: Your Honor, it's my
`
`16
`
`privilege to introduce Charles Duggan of Davis Polk.
`
`17
`
`As Your Honor knows, we're here today
`
`18
`
`on the defendants' motion to dismiss the complaint.
`
`19
`
`With the permission of the Court, I'll present
`
`20
`
`argument on behalf of the outside directors, sometimes
`
`21
`
`called the voting directors. Mr. Rieder will argue on
`
`22
`
`behalf of the inside, or nonvoting directors.
`
`23
`
`My client's motion is brought pursuant
`
`24
`
`to Rule 23.1, for failure to make a presuit demand,
`
`CHANCERY COURT REPORTERS
`
`
`
` 5
`
` 1
`
`and Rule 12(b)(6), failing to state a claim.
`
` 2
`
`Factually, as Your Honor knows, this
`
` 3
`
`case challenges the acquisition by Barnes & Noble of
`
` 4
`
`Barnes & Noble College, sometimes referred to as
`
` 5
`
`College Booksellers from Len Riggio, the chairman and
`
` 6
`
`31 percent stockholder of Barnes & Noble. The
`
` 7
`
`transaction was recommended by a special committee of
`
` 8
`
`four independent directors advised by independent
`
` 9
`
`counsel, David Polk & Wardwell, and independent
`
`10
`
`financial advisor Greenhill.
`
`11
`
`Plaintiff challenges the independence
`
`12
`
`of the committee members, which I'll get to, and it
`
`13
`
`challenges Greenhill's compensation, but it doesn't
`
`14
`
`otherwise challenge the special committee.
`
`15
`
`And I should point out that we've got
`
`16
`
`a record here. There was a Section 220 demand that
`
`17
`
`was made and there are certain documents incorporated
`
`18
`
`into the complaint. Those are included in the
`
`19
`
`affidavit of Susan Waesco that we filed that has 15 or
`
`20
`
`16 of what we think are the more important documents.
`
`21
`
`So despite the record, the complaint
`
`22
`
`does not in any way challenge the functioning of the
`
`23
`
`committee, the independence or competence of its
`
`24
`
`advisors. It does not allege, unlike some other
`
`CHANCERY COURT REPORTERS
`
`
`
` 6
`
` 1
`
`cases, that Mr. Riggio interfered in any way with the
`
` 2
`
`functioning of the committee, or that the committee
`
` 3
`
`failed to act appropriately. Nor could it. The
`
` 4
`
`record shows that the negotiations here occurred,
`
` 5
`
`albeit with some interruptions, over 18 months. The
`
` 6
`
`committee met 15 times before ultimately approving the
`
` 7
`
`transaction. The record also reflects arm's-length
`
` 8
`
`negotiations as to both price and structure.
`
` 9
`
`The Waesco affidavit, Exhibit 5,
`
`10
`
`indicates that there was originally a
`
`11
`
`650 million-dollar price that got reduced
`
`12
`
`significantly, and there were several iterations that
`
`13
`
`came down in stages. Also, that initially Mr. Riggio
`
`14
`
`was asking for $470 million in cash. That also got
`
`15
`
`reduced significantly.
`
`16
`
`The true gravamen of the complaint is
`
`17
`
`that plaintiffs disagree with the committee about the
`
`18
`
`wisdom of the transaction. And we submit, perhaps
`
`19
`
`reasonable people can disagree, but that's not the
`
`20
`
`stuff of demand excusal.
`
`21
`
`THE COURT: I think one of the issues
`
`22
`
`here is, if this was so logical, why was it never
`
`23
`
`thunk of by anyone for 15 years?
`
`24
`
`MR. NACHBAR: Well, I don't know that
`
`CHANCERY COURT REPORTERS
`
`
`
` 7
`
` 1
`
`it wasn't thunk of. It certainly wasn't implemented.
`
` 2
`
`We can agree with that.
`
` 3
`
`THE COURT: There's -- I mean, we're
`
` 4
`
`here on a pleading stage. And we're going to deal
`
` 5
`
`with some of the things that I know. I think I'm
`
` 6
`
`rather surprised, frankly, that plaintiffs did not
`
` 7
`
`amend their complaint in light of the other case in
`
` 8
`
`some ways, just because there are things that are
`
` 9
`
`known out there that are, frankly, pleadable, as a
`
`10
`
`matter of public record. You have some things about
`
`11
`
`Mr. Del Giudice. It's hard for me to unknow. And I
`
`12
`
`can't understand why they would never amend their
`
`13
`
`complaint, leave weak stuff in when there's something
`
`14
`
`real that people can debate about but much more
`
`15
`
`tangible. But they didn't.
`
`16
`
`But even with respect to this
`
`17
`
`transaction, I think part of what they're saying is,
`
`18
`
`why would anybody do this, other than that it's a
`
`19
`
`situation where people feel that there's a control
`
`20
`
`environment, and so, in this kind of self-constrained
`
`21
`
`world, it begins to make sense to think about this.
`
`22
`
`When it's all been maintained separately for 15 years,
`
`23
`
`and more favorable environments arguably for
`
`24
`
`Barnes & Noble to bring this in, and yet at a time
`
`CHANCERY COURT REPORTERS
`
`
`
` 8
`
` 1
`
`when it probably, for Mr. Riggio, makes entirely good
`
` 2
`
`estate planning and other sense to begin to reduce the
`
` 3
`
`concentration of his wealth and particular assets, and
`
` 4
`
`at a time where he's, frankly, publicly expressed --
`
` 5
`
`or expressed to people skepticism about the future
`
` 6
`
`retail. He has the public company double down on
`
` 7
`
`retail. He's able to liquidate a large part of his
`
` 8
`
`net wealth and put it in safer cash assets, retain all
`
` 9
`
`his voting control, because the company didn't take
`
`10
`
`any steps to use it to say, "Well, maybe this is a
`
`11
`
`chance to actually reduce the influence of Len Riggio.
`
`12
`
`But no. We'll let him keep the stock. We won't buy
`
`13
`
`in our own stock." That's what's nagging at me.
`
`14
`
`You're telling me that this is just
`
`15
`
`like a normal garden variety business decision. And
`
`16
`
`sort of help me alleviate these concerns.
`
`17
`
`MR. NACHBAR: Sure. And I think that
`
`18
`
`there was a special committee. It was independent.
`
`19
`
`It was well advised. And it took all of that, I
`
`20
`
`believe --
`
`21
`
`THE COURT: Let's talk about the
`
`22
`
`special committee. It's a very odd-looking special
`
`23
`
`committee because, when I mention that nobody for 15
`
`24
`
`years ever thought of this, three of the four members
`
`CHANCERY COURT REPORTERS
`
`
`
` 9
`
` 1
`
`of the special committee had a professional obligation
`
` 2
`
`to think about this for 15 years because they had been
`
` 3
`
`continuously a director of Barnes & Noble, and they
`
` 4
`
`never thought this was a good enough idea, from the
`
` 5
`
`record, to put it on the table themselves. Not only
`
` 6
`
`on the board 15 years, they're alleged to be personal
`
` 7
`
`friends with Leonard Riggio. And in the case of the
`
` 8
`
`chair, she was his management protege, served under
`
` 9
`
`him for management for six or seven years, was
`
`10
`
`retained on the board after that, and has had
`
`11
`
`essentially a continuous 20-year relationship with
`
`12
`
`Leonard Riggio. And she's appointed to be the chair.
`
`13
`
`Then there's another person who has
`
`14
`
`been a friend and been on there for 15 years, who is
`
`15
`
`removed from the comp committee after investigation,
`
`16
`
`because the comp committee didn't do such a great job,
`
`17
`
`but is immediately put on audit and on a transaction
`
`18
`
`committee.
`
`19
`
`Then you have Mr. Dillard who is
`
`20
`
`alleged to be a close friend, been on the board for 15
`
`21
`
`years, and who happens to be in what might
`
`22
`
`colloquially be called the controllers club, which is,
`
`23
`
`no doubt, he's not economically dependent on
`
`24
`
`Leonard Riggio because he runs an eponymously named
`
`CHANCERY COURT REPORTERS
`
`
`
` 10
`
` 1
`
`company called Dillard's. But there is this notion --
`
` 2
`
`it may be in the notion of the controller club, but I
`
` 3
`
`don't know. You lay a friendship, 15 years. You
`
` 4
`
`know, controllers just don't mess with each other.
`
` 5
`
`It's kind of etiquette. It's just an odd-looking
`
` 6
`
`committee.
`
` 7
`
`And then I'll hit you with something
`
` 8
`
`else. I'm not sure why they let Bryan Cave go to the
`
` 9
`
`other side. Then you got Stephen Riggio -- right?
`
`10
`
`--the CEO. Now, he's in a no-win situation because
`
`11
`
`his bro is the largest stockholder, the chairman, and
`
`12
`
`proposing a conflict transaction. But he's the CEO.
`
`13
`
`He the man. And he plays the role of the
`
`14
`
`bullfighter's cape. Probably not that active. The
`
`15
`
`bullfighter's cape has a role because it attracts the
`
`16
`
`bull. He just steps aside. Well, that stepping
`
`17
`
`aside -- he's not in the way, but he's also -- there's
`
`18
`
`the chief executive officer of the company, who is not
`
`19
`
`operating on a transaction of fundamental importance?
`
`20
`
`I'm just -- and I'll finish. But I
`
`21
`
`want you to address, in all its texture, because
`
`22
`
`that's the stuff that's on my mind, Mr. Nachbar. It's
`
`23
`
`not that I have any preconceived view, one way or the
`
`24
`
`other, this is an inconceivable deal. But it's not a
`
`CHANCERY COURT REPORTERS
`
`
`
` 11
`
` 1
`
`kind of ordinary situation either.
`
` 2
`
`MR. NACHBAR: Well, let me address
`
` 3
`
`those. I appreciate Your Honor's expressing those
`
` 4
`
`concerns because it helps me know which points to hit.
`
` 5
`
`And to start, I guess, at the
`
` 6
`
`beginning, the landscape has changed tremendously for
`
` 7
`
`Booksellers, obviously. The rise of Amazon, and the
`
` 8
`
`advent of eBooks has just changed that world
`
` 9
`
`dramatically. So the last 15 years, or, you know,
`
`10
`
`certainly the last dozen years prior to 2007, 2008, I
`
`11
`
`think are very different than the subsequent three or
`
`12
`
`four years.
`
`13
`
`THE COURT: But in a way that makes it
`
`14
`
`more or less sensible for Barnes & Noble to acquire
`
`15
`
`again.
`
`16
`
`MR. NACHBAR: I think more sensible at
`
`17
`
`the right price. Look, any acquisition, you know, at
`
`18
`
`the right price is favorable; at the wrong price is
`
`19
`
`unfavorable. I'm sure, if College Booksellers had
`
`20
`
`been bought for a dollar, nobody would have a problem
`
`21
`
`with it. I'm sure, if it had been bought for
`
`22
`
`$2 billion, you know, it would be a ridiculous
`
`23
`
`transaction.
`
`24
`
`It was purchased at a favorable price.
`
`CHANCERY COURT REPORTERS
`
`
`
` 12
`
` 1
`
`There's no question about that. There is a
`
` 2
`
`question -- reasonable minds, as I say, can differ --
`
` 3
`
`did it make strategic sense? And the idea behind it
`
` 4
`
`is that the College Booksellers is very different than
`
` 5
`
`the bricks and mortar, freestanding bookstore down in
`
` 6
`
`Christiana. You've got a captive audience. You've
`
` 7
`
`got a monopoly. A lot of these stores are leased
`
` 8
`
`operations. And the idea is that it's somewhat
`
` 9
`
`countercyclical. Yes, in the broadest sense of the
`
`10
`
`word, you're doubling down on books because bookstores
`
`11
`
`sell books. Although a minority of their revenue is
`
`12
`
`from books, a lot of it is tee shirts, apparel, all
`
`13
`
`the other things.
`
`14
`
`THE COURT: And how many of the stores
`
`15
`
`do they own the bricks and mortar of?
`
`16
`
`MR. NACHBAR: I don't know the answer
`
`17
`
`to that.
`
`18
`
`THE COURT: Are there a large number
`
`19
`
`of them leased?
`
`20
`
`MR. NACHBAR: I believe a large number
`
`21
`
`are leased.
`
`22
`
`THE COURT: You're saying, if they do,
`
`23
`
`like the Penn bookstore, which I believe they do, all
`
`24
`
`the Penn athletic tee shirts that they get the sales
`
`CHANCERY COURT REPORTERS
`
`
`
` 13
`
` 1
`
`out of, they're on campus, they have a coffee cafe,
`
` 2
`
`the students go there. They have an e-technology
`
` 3
`
`center, and students with computers and stuff use
`
` 4
`
`them.
`
` 5
`
` 6
`
`MR. NACHBAR: Exactly.
`
`So the idea is that it's not cyclical,
`
` 7
`
`and that it's a sort of counter to the traditional
`
` 8
`
`bookstores. You know, the limited record that we
`
` 9
`
`have, the committee minutes show that that was all
`
`10
`
`discussed. That was all -- you know, it's not like
`
`11
`
`somebody -- Len Riggio -- came in and said, "Do this."
`
`12
`
`You know, and the special committee said, "How high do
`
`13
`
`I jump?" That's not what the record shows. So the
`
`14
`
`last 15 years, you know, I think two things. One, the
`
`15
`
`world has changed; two, you know, Len Riggio has to be
`
`16
`
`willing to sell.
`
`17
`
`Now it's fair to say, well, did
`
`18
`
`anybody ask him to sell? You know, as far as I know,
`
`19
`
`the record doesn't indicate that anybody did. But the
`
`20
`
`record also doesn't indicate that he was willing to
`
`21
`
`sell.
`
`22
`
`THE COURT: I understand that. But
`
`23
`
`that's -- you know, there's a razor's edge here on a
`
`24
`
`few points, which is one of the points to make. This
`
`CHANCERY COURT REPORTERS
`
`
`
` 14
`
` 1
`
`was an opportunity for the public company to get its
`
` 2
`
`trademark.
`
` 3
`
` 4
`
`MR. NACHBAR: Right.
`
`THE COURT: The flip side of that is,
`
` 5
`
`this is a dude who was smart enough, when he took
`
` 6
`
`these companies public, to do the rather
`
` 7
`
`self-interested act of retaining the trademark in the
`
` 8
`
`company, whose retail face in some ways -- retail face
`
` 9
`
`to the public -- is often less about Barnes & Noble.
`
`10
`
`I believe there's some of those College Bookstores
`
`11
`
`where, from the outside, you would not even know that
`
`12
`
`it was Barnes & Noble. It's when you get inside and
`
`13
`
`you realize the texture of the relationship between
`
`14
`
`the university and the book stores that Barnes & Noble
`
`15
`
`comes across. But you'd be thinking you're going into
`
`16
`
`the Penn, or the Auburn, or the Delaware book store;
`
`17
`
`right?
`
`18
`
`19
`
`MR. NACHBAR: Right.
`
`THE COURT: But Len Riggio, who
`
`20
`
`everybody, you know, on your side, kind of dances
`
`21
`
`around, whether he's in control or not, he got the
`
`22
`
`trademark; right?
`
`23
`
`MR. NACHBAR: He set it up that way a
`
`24
`
`long time ago.
`
`CHANCERY COURT REPORTERS
`
`
`
` 15
`
` 1
`
`THE COURT: Right. What you're saying
`
` 2
`
`is, until he wanted to relinquish this, nobody, you
`
` 3
`
`know -- you couldn't make him. But that's the flip
`
` 4
`
`side of when he wants to relinquish it. You have to
`
` 5
`
`wonder: he kept it all these years and he kept it for
`
` 6
`
`himself. And he may be a good man, but we're in the
`
` 7
`
`area of commerce. So there's an assumption that maybe
`
` 8
`
`he did it for his own benefit to keep it to himself
`
` 9
`
`when it's his own benefit. And when he wants to
`
`10
`
`unload it, perhaps there ought to be a healthy measure
`
`11
`
`of skepticism about whether it's in the interest of
`
`12
`
`Barnes & Noble to let him unload it; right?
`
`13
`
`MR. NACHBAR: I think there was a
`
`14
`
`healthy level of skepticism. That's why this took 18
`
`15
`
`months. That's why there were arm's-length
`
`16
`
`negotiations. That's why the price dropped
`
`17
`
`significantly, that's why the amount of cash in the
`
`18
`
`deal changed significantly.
`
`19
`
`THE COURT: I guess what I'm getting
`
`20
`
`at is, I'm saying those are really good arguments. We
`
`21
`
`haven't moved up to the number in the rules that
`
`22
`
`begins with five. We're down in the --
`
`23
`
`24
`
`MR. NACHBAR: The ones and twos.
`
`THE COURT: In the teens and in the
`
`CHANCERY COURT REPORTERS
`
`
`
` 16
`
` 1
`
`twenties; right? You may be right. But isn't it
`
` 2
`
`premature?
`
` 3
`
`MR. NACHBAR: Well, I think not. And
`
` 4
`
`I guess that sort of segues into who the directors
`
` 5
`
`were and if they're independent. Because I certainly
`
` 6
`
`agree. If the directors are not independent, if the
`
` 7
`
`majority of them aren't independent, then, first prong
`
` 8
`
`of Aronson, Your Honor is going to deny a motion to
`
` 9
`
`dismiss. We all understand that. So let's talk about
`
`10
`
`that a little bit.
`
`11
`
`You know, we had a trial in the
`
`12
`
`Yucaipa case. And Your Honor found, after an
`
`13
`
`evidentiary record, that five of the six independent
`
`14
`
`directors were indeed independent, and the sixth,
`
`15
`
`Mr. Del Giudice, Your Honor had doubts about, which
`
`16
`
`Your Honor expressed.
`
`17
`
` Five is a majority of nine, for sure.
`
`18
`
`What's alleged about the four special committee
`
`19
`
`members, in particular, extremely thin. Mr. Campbell,
`
`20
`
`for example, he's president of Cooper Union.
`
`21
`
`THE COURT: In the interest -- they
`
`22
`
`haven't laid a level camp. I mean, even the one who
`
`23
`
`is the newer edition to the board, who is on the
`
`24
`
`special committee --
`
`CHANCERY COURT REPORTERS
`
`
`
` 17
`
` 1
`
` 2
`
`MR. NACHBAR: Patricia Higgins.
`
`THE COURT: Right. Who is basically a
`
` 3
`
`professional director, it appears, at this point.
`
` 4
`
`They own the game.
`
` 5
`
`MR. NACHBAR: So that leaves us with
`
` 6
`
`Dillard, Monaco and Miller.
`
` 7
`
` 8
`
`THE COURT: Yeah.
`
`MR. NACHBAR: Right. Mr. Dillard is
`
` 9
`
`an independently wealthy man. He's been a friend of
`
`10
`
`Len Riggio's for a long time. But Beam v. Stewart
`
`11
`
`says that friendship alone isn't sufficient. And I
`
`12
`
`think that's all they have got here.
`
`13
`
`THE COURT: Wait a minute. He's been
`
`14
`
`on this board -- you know, it's like the guy, when
`
`15
`
`they talked about Enron. One of the weirdest things
`
`16
`
`about Enron, when professionals write things like
`
`17
`
`Enron had model corporate governance, the man had been
`
`18
`
`on the audit committee chair for 17 years. That's a
`
`19
`
`long period of time to be resolutely independent. 17
`
`20
`
`years. You bring in that fresh mindset of -- it's --
`
`21
`
`he's alleged to be a close friend who regularly
`
`22
`
`socializes with Mr. Riggio. He's been on his board
`
`23
`
`since the 1990s. All this time College Bookstores has
`
`24
`
`been maintained separately. Never proposed the
`
`CHANCERY COURT REPORTERS
`
`
`
` 18
`
` 1
`
`transaction, from what I can tell. When Len Riggio
`
` 2
`
`wanted to do it, it did it. There's no question here.
`
` 3
`
`He's financially beholden.
`
` 4
`
`But there's also an issue, again, of,
`
` 5
`
`you don't have to be financially beholden. And he's
`
` 6
`
`in the controllers club. And then you got the other
`
` 7
`
`one who has been on the board and is a friend -- the
`
` 8
`
`friends club of 15 years -- chaired by the protege,
`
` 9
`
`one of whom was the protege is your special committee.
`
`10
`
`Why would anybody do this?
`
`11
`
`MR. NACHBAR: Well, again, you know,
`
`12
`
`the allegations about friendship are extremely vague,
`
`13
`
`extremely nonspecific, and were disproved in the
`
`14
`
`Yucaipa case. I mean, these are not -- they played
`
`15
`
`golf once a year. These are not people who are best
`
`16
`
`buddies. They don't live -- you know, Mr. Dillard
`
`17
`
`doesn't live in New York. He doesn't see Mr. Riggio
`
`18
`
`often. Yes, he's been on the board, you know, since
`
`19
`
`1993. That's a fact.
`
`20
`
`THE COURT: What you're telling me is,
`
`21
`
`there's stuff about Dillard in the other record?
`
`22
`
`23
`
`24
`
`MR. NACHBAR: Yes.
`
`THE COURT: Okay.
`
`MR. NACHBAR: And Your Honor made
`
`CHANCERY COURT REPORTERS
`
`
`
` 19
`
` 1
`
`factual findings based upon that record. And they
`
` 2
`
`really -- you know, if they had contrary allegations
`
` 3
`
`in this case, we would need to, I suppose, accept them
`
` 4
`
`as true and move on to that higher number rule some
`
` 5
`
`day. But they don't have those types of specific
`
` 6
`
`allegations. They have conclusory allegations of
`
` 7
`
`friendship that, you know, we know they won't be able
`
` 8
`
`to prove because we had a trial that addressed those
`
` 9
`
`issues.
`
`10
`
`The only other thing they say about
`
`11
`
`Mr. Dillard is that he is on the national advisory
`
`12
`
`board -- two national advisory boards for JPMorgan.
`
`13
`
`THE COURT: I don't care about that.
`
`14
`
`That overstates it. I'm trying to be helpful to
`
`15
`
`everybody. If they were actively -- and I get the one
`
`16
`
`about the former. She used to be at Merrill Lynch.
`
`17
`
`She's not at Merrill Lynch now. If they are each at
`
`18
`
`JPMorgan now, or Merrill Lynch, that might matter.
`
`19
`
`MR. NACHBAR: That's the point. It's
`
`20
`
`Margaret Monaco, who is the former affiliation with
`
`21
`
`Merrill Lynch. You know, again, as to Miss Monaco,
`
`22
`
`what do they say? Well, she was on the compensation
`
`23
`
`committee. But, again, there was testimony about
`
`24
`
`that. There was a report that was done -- an
`
`CHANCERY COURT REPORTERS
`
`
`
` 20
`
` 1
`
`independent report. There was no wrongdoing. What
`
` 2
`
`happened was there was some inadvertent and pretty
`
` 3
`
`trivial options backdating that were not options that
`
` 4
`
`went to Mr. Riggio, or any other senior management
`
` 5
`
`people. They went to, you know, relatively low-level
`
` 6
`
`employees.
`
` 7
`
`There was some sloppiness within the
`
` 8
`
`managerial ranks, like happened to a lot of companies.
`
` 9
`
`It was corrected. You know, there was -- there's no
`
`10
`
`implication of Margaret Monaco in that in any way.
`
`11
`
`The only other thing they say about her is that ten
`
`12
`
`years ago she and Mr. Riggio supported Bill Bradley
`
`13
`
`for president.
`
`14
`
`15
`
`THE COURT: Yeah.
`
`MR. NACHBAR: But that's the type of
`
`16
`
`allegations we have. That's the level of the
`
`17
`
`allegations that they're making here. You know, you
`
`18
`
`roll your eyes at some of those. I do, too. But
`
`19
`
`that's what they're alleging.
`
`20
`
`THE COURT: It was a very small group
`
`21
`
`that ultimately supported senator Bradley.
`
`22
`
`MR. NACHBAR: In the end, that was
`
`23
`
`true, I suppose.
`
`24
`
`THE COURT: He was one of the least
`
`CHANCERY COURT REPORTERS
`
`
`
` 21
`
` 1
`
`exciting great basketball players and one of the least
`
` 2
`
`exciting presidential candidates. Even his basketball
`
` 3
`
`game had a relentless efficiency. Almost so
`
` 4
`
`relentless, you couldn't watch it after a while.
`
` 5
`
`MR. NACHBAR: They were talking about
`
` 6
`
`choosing leadership positions in the new senate one
`
` 7
`
`year and he suggested jumpshots from the top of the
`
` 8
`
`key.
`
` 9
`
`10
`
`THE COURT: That would be his thing.
`
`MR. NACHBAR: Irene Miller, finally.
`
`11
`
`Obviously was a former employee of Barnes & Noble, but
`
`12
`
`her employment ended in 1997. The New York Stock
`
`13
`
`Exchange rules, as Your Honor knows, provide for a
`
`14
`
`three-year cooling off period. Miss Miller had a
`
`15
`
`13-year cooling off period.
`
`16
`
`THE COURT: But she never -- here's
`
`17
`
`the thing I was thinking about. Again, our law is
`
`18
`
`contextual. When you think of -- when you set up
`
`19
`
`these rules, you tend to think that somebody, who was
`
`20
`
`somebody's superior, will continue on the board. What
`
`21
`
`you have here is a situation where a person was a
`
`22
`
`subordinate and protege, continued on the board. Am I
`
`23
`
`supposed to ignore that?
`
`24
`
`MR. NACHBAR: Well, I don't think that
`
`CHANCERY COURT REPORTERS
`
`
`
` 22
`
` 1
`
`the fact that somebody was a subordinate or a protege
`
` 2
`
`affects their judgment. I mean, Your Honor hears
`
` 3
`
`cases, you know, where some of your former superiors
`
` 4
`
`or proteges are representing a party. And I don't
`
` 5
`
`think Your Honor's --
`
` 6
`
`THE COURT: You said a very, very
`
` 7
`
`important thing -- "representing a party" -- because
`
` 8
`
`we do. I mean, you know, you can't help -- any judge
`
` 9
`
`who ignores their own experience or ignores -- it does
`
`10
`
`affect things.
`
`11
`
`One of the things that all of us do,
`
`12
`
`who are judges, is there are a lot -- I'm pleased to
`
`13
`
`have -- you know, I'm proud of the fact, and I know
`
`14
`
`members who in our profession that just say something
`
`15
`
`about -- you know, I could probably say that close to
`
`16
`
`a majority of the people I care about most in this
`
`17
`
`world, who aren't family members, are lawyers.
`
`18
`
`Through all kinds of firms in Delaware, and stuff like
`
`19
`
`that. I mean -- and if the idea was that people on
`
`20
`
`our court could not hear cases because friends of ours
`
`21
`
`were doing their job, our system of justice would shut
`
`22
`
`down. That's very different. Like somebody
`
`23
`
`representing a client.
`
`24
`
`This is not a situation where
`
`CHANCERY COURT REPORTERS
`
`
`
` 23
`
` 1
`
`Miss Miller has to rule on whether Len Riggio's client
`
` 2
`
`gets something. This is a situation -- this would be
`
` 3
`
`more analogous to me as a judge, or one of my
`
` 4
`
`colleagues as a judge, having someone who we had
`
` 5
`
`worked with, and who we had a continuous relationship,
`
` 6
`
`be a party in the case. Now, we wouldn't do that.
`
` 7
`
`Now, I'm not saying that the rules of
`
` 8
`
`litigation apply in the business world. Obviously
`
` 9
`
`it's not as strict. There's a reason why you set up a
`
`10
`
`transactional committee, and it's designed to create
`
`11
`
`something like arm's length.
`
`12
`
`Here you have a situation where it's
`
`13
`
`really pled -- it may be unfair, I agree. They
`
`14
`
`haven't had discovery. That Miss Miller -- really,
`
`15
`
`this is a very important personal and professional
`
`16
`
`relationship with her that has been going on for more
`
`17
`
`than a generation. And that if she got an award from
`
`18
`
`some national association and she stood up and thanked
`
`19
`
`the people who have been most important to her career
`
`20
`
`as an executive, Len Riggio would play a prominent
`
`21
`
`role in that speech. And that's -- why would someone
`
`22
`
`like that be put in the place to being a chair of the
`
`23
`
`special committee? You know, that's what I'm
`
`24
`
`struggling with on a pleading stage.
`
`I'll give you a
`
`CHANCERY COURT REPORTERS
`
`
`
` 24
`
` 1
`
`chance to answer. That's what's on my mind. It's not
`
` 2
`
`a case like Len Riggio is appearing before her, she's
`
` 3
`
`a judge, he's a lawyer. It's Len Riggio is the party.
`
` 4
`
`And this is her mentor.
`
` 5
`
`MR. NACHBAR: Well, again, I think the
`
` 6
`
`record here speaks for itself. I mean, you know, Your
`
` 7
`
`Honor could read the minutes. There was -- the ones
`
` 8
`
`that are in the record -- there was 18 months. There
`
` 9
`
`was arm's-length bargaining. These things were
`
`10
`
`considered. The transaction -- you know, Len Riggio,
`
`11
`
`at a certain point, made demands. The special
`
`12
`
`committee said no.
`
`13
`
`So it's hard to understand how, if the
`
`14
`
`members of the committee -- and Miss Miller in
`
`15
`
`particular -- weren't independent, if they were
`
`16
`
`somehow beholden to Mr. Riggio -- not in the position
`
`17
`
`to say no -- how did they say no?
`
`18
`
`THE COURT: Well, they didn't
`
`19
`
`ultimately say no. The fact that they said no to some
`
`20
`
`things are bargained doesn't mean they got to a level
`
`21
`
`that was consistent with what would have been done if
`
`22
`
`it was a disinterested transaction; right?
`
`23
`
`24
`
`MR. NACHBAR: Well, we --
`
`THE COURT: I remember going -- I went
`
`CHANCERY COURT REPORTERS
`
`
`
` 25
`
` 1
`
`to a directors session. It was really interesting. A
`
` 2
`
`bunch of directors, a professor/moderator. The
`
` 3
`
`professor said, "Do any of you knowingly overpay a
`
` 4
`
`CEO?" They said no. Come on. Didn't you ever have a
`
` 5
`
`situation where you knew it was too much, and it
`
` 6
`
`started to come out? And no one had ever knowingly
`
` 7
`
`overpaid a CEO by more than a million, but virtually
`
` 8
`
`everyone had knowingly given more than they were
`
` 9
`
`really comfortable with, and most was in the half
`
`10
`
`million to a million dollar range. And part of it
`
`11
`
`was, "Well, the CEO needs to feel loved. You know, we
`
`12
`
`were afraid it's going to affect his moral." Did they
`
`13
`
`have another opportunity? No, not really.
`
`14
`
`That's what I'm struggling with here.
`
`15
`
`I understand they can say no. But part of the dynamic
`
`16
`
`is, did they get themselves in a situation where,
`
`17
`
`honestly, they wouldn't be behaving this way if it
`
`18
`
`weren't for Len Riggio? They wouldn't even be
`
`19
`
`thinking about this. Then they -- but they go down
`
`20
`
`this road and they do kind of the best they can. But
`
`21
`
`it's still not what they would have done with someone
`
`22
`
`else.
`
`23
`
`MR. NACHBAR: Well, that's a
`
`24
`
`tautology, I think, in the sense that, if you posit
`
`CHANCERY COURT REPORTERS
`
`
`
` 26
`
` 1
`
`that people who have a relationship that these people
`
` 2
`
`had, are not independent, are not fully independent,
`
` 3
`
`and that it would be different with arm's-length
`
` 4
`
`people who had no relationship. Then there's no way
`
` 5
`
`at a pleading stage, or any other stage, that you
`
` 6
`
`could ever prove that they got the best deal and the
`
` 7
`
`same deal --
`
` 8
`
`THE COURT: See, that's the
`
` 9
`
`difference. At another stage you have more
`
`10
`
`information. You hear people and you make a fully
`
`11
`
`contextual determination. Admittedly because it's
`
`12
`
`made by humans: imperfect. But you're asking me to
`
`13
`
`foreclose that and to conclude that it's indisputable
`
`14
`
`that this was an independent committee, because the
`
`15
`
`fact that three of the four members had these deep,
`
`16
`
`long-standing relationships with Len Riggio could not
`
`17
`
`have possibly influenced their approach to this
`
`18
`
`transaction. Right? That's what I have to conclude.
`
`19
`
`MR. NACHBAR: That the types of
`
`20
`
`relationships were ones that did not preclude the
`
`21
`
`committee members from exercising independent --
`
`22
`
`23
`
`24
`
`THE COURT: You just did not preclude.
`
`MR. NACHBAR: Right.
`
`THE COURT: I have no doubt that
`
`CHANCERY COURT REPORTERS
`
`
`
` 27
`
` 1
`
`someone like Miss Miller could act independently.
`
` 2
`
`Could. I don't know Miss Miller. Could. But I
`
` 3
`
`also -- we all have mentors in our lives; right? I
`
` 4
`
`could probably think of some of yours. You could
`
` 5
`
`probably think of some of mine, you know, where you'd
`
` 6
`
`have to say, "If it was on your mind every day that it
`
` 7
`
`was blank, when you're doing your job, one of the
`
` 8
`
`things you have to ask yourself is, should I be doing
`
` 9
`
`this." Because if it's on my mind that it's blank,
`
`10
`
`I'm trying to put it aside and I'm trying not to let
`
`11
`
`it -- i
Accessing this document will incur an additional charge of $.
After purchase, you can access this document again without charge.
Accept $ Charge
Still Working On It
This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.
Give it another minute or two to complete, and then try the refresh button.
A few More Minutes ... Still Working
It can take up to 5 minutes for us to download a document if the court servers are running slowly.
Thank you for your continued patience.
This document could not be displayed.
We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.
Your account does not support viewing this document.
You need a Paid Account to view this document. Click here to change your account type.
Your account does not support viewing this document.
Set your membership
status to view this document.
With a Docket Alarm membership, you'll
get a whole lot more, including:
- Up-to-date information for this case.
- Email alerts whenever there is an update.
- Full text search for other cases.
- Get email alerts whenever a new case matches your search.
One Moment Please
The filing “” is large (MB) and is being downloaded.
Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.
Your document is on its way!
If you do not receive the document in five minutes, contact support at support@docketalarm.com.
Sealed Document
We are unable to display this document, it may be under a court ordered seal.
If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.
Access Government Site
