The Frederick Hsu Living Trust v. ODN Holding Corp.

Frederick Hsu cofounded Oversee.net. In 2008, Oak Hill Capital Partners (Oak Hill) (defendant) invested $150 million in Oversee.net. ODN Holding Corporation (ODN) (defendant) was formed as a holding company for Oversee.net. Oak Hill received shares of preferred stock with a right to require ODN to redeem the stock in five years. The terms of the agreement required ODN to redeem shares only with funds that were legally available to the company. Until 2011, ODN had been in acquisition mode and growing rapidly. However, in 2011, ODN stopped investing for growth, started liquidating its assets, and began hoarding cash. ODN’s board of directors comprised three Oak Hill representatives and four other directors. In 2012, one of the non-Oak Hill directors, Debra Domeyer, Elizabeth Murray (ODN’s CFO), and Todd Greene (ODN’s general counsel), were provided bonus agreements that entitled them to a special payment if at least $75 million of preferred stock was redeemed. In anticipation of Oak Hill’s impending redemption right, ODN’s board formed a special committee to evaluate options for raising capital for redemptions and to negotiate the terms of redemptions. The committee comprised Domeyer, Murray, and Greene. In 2013, Oak Hill exercised its redemption right. ODN paid Oak Hill $45 million for a partial redemption. The cash did not cover all of Oak Hill’s preferred stock, so ODN sold off more of its assets to fund the next redemption. In 2014, Oak Hill again exercised its right to redemption; ODN redeemed another $40 million of preferred stock. ODN’s annual revenue dropped from $141 million before 2011 to $11 million in 2015. Hsu’s trust (plaintiff) brought an action against ODN and Oak Hill for breach of duty of loyalty. ODN and Oak Hill moved to dismiss the complaint before the Delaware Court of Chancery for failure to state a claim.