McPadden v. Sidhu

The board of directors (defendants) of i2 Technologies, Inc. (i2) approved the sale of i2's subsidiary, Trade Services Corporation (TSC), to i2's management, led by Anthony Dubreville (defendant) for $3 million. Two years later, Dubreville sold TSC to another company for over $25 million. Prior to the initial sale, i2’s board had hired an expert to assist its decision-making process. Despite knowing that Dubreville was interested in buying TSC, the board allowed Dubreville to run the sale process. The board provided little oversight and was aware that Dubreville made little efforts to solicit offers for TSC. Dubreville failed to contact TSC's competitors, including one that had previously offered $25 million to by TSC. The board knew that the two valuations of TSC were based on projections made by the management led by Dubreville, who had an incentive to undervalue TSC. The first valuation was $6 to $10.8 million, and the second was $3 to $7 million. Even so, the accepted price of $3 million was at the lowest end of either valuation range. McPadden (plaintiff) was i2's shareholder. McPadden sued i2's directors for breach of fiduciary duties, alleging that the directors approved the sale in bad faith, because they knew the price was far below TSC's fair-market value. McPadden sued Dubreville for breach of fiduciary duties and unjust enrichment. The defendants argued that McPadden failed to make a demand, but McPadden proved that the demand was futile. Further, i2 had an exculpatory provision in its certificate of incorporation, which limited the personal liability of directors for certain conduct. The defendants moved to dismiss for failure to state a claim.