Delaware Supreme Court Affirms Dismissal of Stockholder Lawsuit Against iHeartMedia and Clear Channel Outdoor Directors
On October 12, 2017, the Delaware Supreme Court affirmed the dismissal of a stockholder lawsuit brought against the directors of Clear Channel Outdoor Holdings, Inc. (CCOH), CCOH's parent company, iHeartMedia Inc. (iHeart), Bain Capital Partners, LLC, and Thomas H. Lee Partners, L.P. WSGR represented nominal defendant CCOH and its directors in the matter.
The plaintiff, GAMCO Asset Management (GAMCO), initially filed suit in the Delaware Court of Chancery in 2015, asserting breach of fiduciary duty, waste, unjust enrichment and aiding and abetting claims related to certain intercompany agreements between CCOH and iHeart, as well as more recent assets sales and a note offering. GAMCO accused CCOH of refusing "to untangle the company from [the] intercompany agreements with its majority owner that are materially deleterious to the current and future performance of CCOH." In particular, GAMCO argued that CCOH's directors breached their fiduciary duties by failing to call a substantial note governed by the intercompany agreements and by approving the asset sales and note offering that resulted in a pro rata dividend to CCOH's stockholders, including iHeart.
After the defendants filed a motion to dismiss, the Court of Chancery found that GAMCO's claims were barred by res judicata and a prior settlement agreement from 2013 and, in any event, failed to state a claim. On appeal, the Delaware Supreme Court was asked to consider whether the case was properly dismissed and decide, among other things, whether the Court of Chancery should have applied the entire fairness standard of review.
WSGR partner Bill Chandler argued the appeal on behalf of CCOH's directors, explaining that because the business judgment rule applied under prior Delaware Supreme Court precedent, the claims had been properly dismissed. The Delaware Supreme Court's affirmance stated that it did not need to reach all of the grounds for dismissal because it agreed with the Court of Chancery's determination that GAMCO's complaint failed to state a claim.
For more information, please refer to the Delaware Supreme Court's order.