F5 Capital v. Oaktree Capital Management

Paul, Weiss secured a major appellate win for client Oaktree Capital Management when the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of three shareholder derivative claims and a putative class action claim.

The dispute arose from the 2014 merger of Oceanbulk Carriers and Star Bulk Carriers, an Oaktree portfolio company. The plaintiff, F5 Capital – a minority shareholder in Star Bulk whose principal was a former Star Bulk board member – alleged that the merger was the result of self-dealing by various defendants and that the transaction had been consummated on unfair terms. F5 asserted derivative claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and corporate waste. F5 also asserted a putative class action dilution claim, alleging that, as a result of the transaction, several defendants’ interests in Star Bulk had increased and that F5’s (and other shareholders’) interests in Star Bulk had been diluted.

U.S. District Judge Analisa Torres dismissed all of the claims, holding that F5 had failed to show that it would have been futile to make demand on the Star Bulk board – a requirement of shareholder derivative suit plaintiffs under Delaware law. The putative class action dilution claim was dismissed on the ground that it was derivative in nature. F5 appealed; oral argument before the Second Circuit was held in December 2016.

In its decision affirming Judge Torres’ ruling, the Second Circuit agreed that F5’s dilution claim was derivative, not direct; that the district court had jurisdiction to adjudicate the derivative claims; and that F5 did not allege facts sufficient to excuse it from making a pre-suit demand.

The Paul, Weiss team included litigation partners Andrew Ehrlich (Picture), Dave Brown and Gregory Laufer. Dave Brown argued the appeal before Judge Calabresi, Judge Raggi and Judge Lynch.

Involved fees earner: Andrew Ehrlich – Paul Weiss Rifkind Wharton & Garrison; Gregory Laufer – Paul Weiss Rifkind Wharton & Garrison; David Brown – Paul Weiss Rifkind Wharton & Garrison;

Law Firms: Paul Weiss Rifkind Wharton & Garrison;

Clients: Oaktree Capital Management;


Author: Ambrogio Visconti