An AT&T Inc. affiliate owes $9.3 million, plus interest, to the minority partners it “froze out” of an Oregon-based wireless network business in 2010, a Delaware judge said Wednesday in a bellwether decision setting the tone for more than a dozen related cases.
Vice Chancellor J. Travis Laster issued a post-trial ruling for Delaware’s Chancery Court in favor of former investors in Salem Cellular Telephone Co., one of 13 regional operators AT&T took full ownership of at roughly the same time in a bid to capture the full upside of the “data revolution.”
Rather than employing protections like a “majority of the minority” vote, the telecom giant arranged a “coercive” deal, lied to the investors ahead of the transaction, brought in PricewaterhouseCoopers LLP, to which it had deep ties, and “influenced the outcome of the valuation,” Laster said.
“There was no third-party bidder,” the judge wrote in a 134-page opinion. “There was no ability of minority investors to push back on AT&T. There was no price competition.”
The company breached its fiduciary duties by forcing through “an unfair and self-interested transaction at the minority partners’ expense,” he added.
The ruling comes more than a year after a coordinated trial involving 15 related freeze-out cases, and six months after Laster handed about $40,000 in contractual damages to the Salem Cellular investors who challenged the $4.1 million they got for their collective 1.9% stake in the company.
That ruling, in September, signaled that the breaches of contract would likely justify only modest damages in all 15 lawsuits, given the virtually identical deals most of them targeted. But “there is a strong argument that AT&T deprived the minority partners of meaningful value,” Laster said at the time.
The judge expounded on that point Wednesday, saying the company’s technical compliance with most of its contractual obligations didn’t justify its treatment of minority partners who were captive to its controlling stake in Salem Cellular.
“Fair dealing does not turn on whether AT&T did the bare minimum that the law or the partnership agreement required,” he wrote.
Laster also criticized the company’s legal strategy, calling it “the most obstructive litigant that this judge has ever seen” and blasting one of its defenses as “an invention of litigation counsel” trying “to sanitize the record.” He referred to one argument as “counterfactual” and to another as “misdirection.”
The minority partners are represented by Cooch & Taylor PA; Prickett, Jones & Elliott PA; and Ajamie LLP. AT&T is represented by Faegre Drinker Biddle & Reath LLP and Akin Gump Strauss Hauer & Feld LLP.
The case is In re Cellular Tel. P’ship Litig., Del. Ch., No. 6885, 3/9/22.