Fifth Circuit Affirms Court’s Opinion in Favor of Haynes and Boone Clients On “Minority Shareholder” and “Dilution” Issues under Delaware Law

08/15/2013


The United States Court of Appeals for the Fifth Circuit has affirmed the trial court’s opinion in favor of three Haynes and Boone, LLP clients, Frazier Healthcare III, L.P., Frazier Healthcare V, L.P. and Frazier Affiliates III, L.P., dismissing all claims of minority shareholder oppression and breach of fiduciary duty against these partnerships and against the former directors of Ascension Orthopedics, Inc., in which they had invested.

The Haynes and Boone team was led by Dallas Partner Nicholas Even and included Austin Partner Leslie Thorne, and Partner Ben Mesches and Associate Matt McGee, both of Dallas.

The Fifth Circuit affirmed the dismissal of minority shareholder claims arising from the 2011 sale of Austin-based Ascension Orthopedics, a Delaware corporation, to Integra LifeSciences. The plaintiffs asserted claims against the three investment fund partnerships and the Ascension Board of Directors, which the partnerships were alleged to control.

Previously, in the United States District Court for the Western District of Texas, Judge Sam Sparks granted dismissal on the grounds that the minority shareholder claims were grounded in allegations of wrongful dilution of equity ownership and were “derivative” not “direct” claims under Delaware law. Central to the court’s ruling was that the plaintiffs had not been excluded from the preferred stock issuances they challenged as “dilutive” but had simply declined to participate in them, and as a result did not receive any consideration in the later Integra transaction. The court further held these plaintiffs lacked standing to pursue derivative claims post-merger. The court also confirmed that Delaware does not recognize a cause of action for “minority shareholder oppression” and dismissed those claims.

After oral argument, presented by Even for the Frazier Healthcare limited partnerships on Aug. 6, the Court of Appeals entered a per curiam opinion on Aug. 12 affirming the trial court in all respects.

The case is Joe W. and Dorothy Dorsett Brown Foundation, et. al. v. Frazier Healthcare V, L.P., et al., No. 12-51012 in the United States Court of Appeals for the Fifth Circuit. The former directors of Ascension Orthopedics were represented by the law firm of Wilson Sonsini Goodrich & Rosati.

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