If Hewlett Appeals, He Faces Another High Bar
By: Phyllis Plitch, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- In dismissing Walter Hewlett's lawsuit against Hewlett-Packard Co . (HWP), a Delaware Chancery court judge moved the company a step closer to consummation of its $18 billion deal with Compaq Computer (NYSE: CPQ - .com/n/c/cpq.html">news) Corp. ( CPQ).
As the losing party, Hewlett - who said he will review the ruling before deciding on his next course of action - has an automatic right to appeal to the Delaware Supreme Court.
If he does, the odds are not in his favor.
In the majority of appeals, Delaware Supreme Court justices have sided with their lower court brethren. According to statistics provided by the state's highest court, the justices only reversed the Chancery court in two of the 22 appeals adjudicated in the fiscal year ended last July. In the remaining cases, the court affirmed.
In a recent speech describing the Delaware court system, Delaware Supreme Court Chief Justice E. Norman Veasey said that his court affirms over 75% of the Chancery business cases that come the court's way, with nearly half the affirmations made substantially on the same "basis or rationale," as the Chancery decisions.
In a decision that came as little surprise to legal and Wall Street observers, Chancellor William Chandler III ruled late Tuesday afternoon that Hewlett " failed to prove that HP management improperly enticed or coerced Deutsche Bank into voting in favor of the merger."
In his lawsuit filed last month to derail the marriage between H-P and Compaq, Hewlett alleged H-P executives, including Chief Executive Carly Fiorina and Chief Financial Officer Robert Wayman, improperly won votes from Deutsche Asset Management, a unit of Deutsche Bank AG (Other OTC: DTBKY - news) (DB), before the voting polls closed.
The disgruntled heir, recently ousted by the board, charged that Deutsche Bank feared that a vote against the deal would "destroy Deutsche Bank's ongoing, and desired future, business dealings with HP." In an additional charge, Hewlett alleged the company made false and misleading statements to the public concerning the prospects for the combined company to reach its future financial goals, citing negative internal projections.
In his closing brief, Hewlett said the March 19 stockholder vote should be set aside because it was "tainted by these "misrepresentations." He also asked that the Deutsche Bank vote in favor of the merger be "struck down," and recognized as a vote against the deal. Clearly, with a margin of 45 million shares voted in favor of the deal, Hewlett's best hope was for the entire vote to be nixed.
But none of that has come to pass, and Chandler's "fact-intensive" approach in his final ruling, is also one more hurdle that Hewlett would have to overcome if he continues his litigation.
"The fact-intensive nature of the findings make it very difficult to prevail on appeal," said Delaware attorney Joel Friedlander, a partner at Bouchard Margules & Friedlander. "So much of the findings are based on his evaluation of the credibility of the witnesses. It's a high burden on appeal to overturn factual findings."
Chandler is certainly not immune to reversals. In a case in the early 1990s where Chandler did issue an injunction in a high profile corporate case, it was shot down by the Supreme Court.
Chandler issued the injunction in connection with a 1994 challenge by American General Corp. of a $10 million stock buyback program initiated by Unitrin Inc. (UNIT - news) ( UTR) after American General announced a hostile takeover of the latter. Veasey and two other justices ruled that Chandler's initial decision to stop the buyback program "was based on faulty factual predicates, unsupported by the record," an error exacerbated by an application of an erroneous legal standard.
If it does get appealed, the Delaware Supreme Court will face a case they are well familiar with. In his speech, Veasey held up the H-P litigation as a prime example of the typical Chancery court corporate case. It has "the classic elements of a corporate battle in Chancery," he said, including a multi-billion merger, dissident director, allegations of vote buying, voter coercion and disclosure violations.
The justices would also be likely to speedily dispose of the case. Though he gave no hint of what he might have been thinking about the underlying allegations, Veasey gave a glimpse of the Delaware court system's philosophy in moving such cases quickly through the courts - however they turn out.
"The expedited proceeding is designed by the Chancellor to avoid disruption of the merger (if it goes forward), including the business integration issues that are so delicate at this moment in HP's/Compaq's existence," he said. "Likewise, a swift decision will contribute to business certainty and market stability of the merger does not go forward."
-Phyllis Plitch; Dow Jones Newswires; 201-938-2357; phyllis.plitch@
dowjones.com
(This story was originally published by Dow Jones Newswires)
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