WILMINGTON, Del. (Legal Newsline) - Shareholders of Block Inc. can't sue the company's management, including Twitter co-founder Jack Dorsey, for its purchase of Jay-Z's streaming music service TIDAL.
Chancellor Kathaleen St. J. McCormick of the Delaware Chancery Court made that decision May 9 in a lawsuit brought by the City of Coral Springs Police Officers' Pension Plan, derivatively on behalf of Block.
"Despite the obvious problems with the deal, the committee approved the transaction for $306 million. It seemed, by all accounts, a terrible business decision.
"Under Delaware law, however, a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision without any meaningful threat of liability, so long as the directors approve the action in good faith."
Dorsey founded Block, a payment processing company, and took it public in 2015. While "summering" with Jay-Z in the Hamptons, he had the idea to purchase TIDAL, the decision says.
Jay-Z had led a group of recording artists in a $56 million purchase of Aspiro in 2015 and rebranded it as TIDAL. Five years later, the service had only 2.1 million paying subscribers, compared to 138 million at Spotify. TIDAL logged multimillion-dollar losses for 10 straight quarters and received a $50 million loan from Jay-Z.
TIDAL was also losing major contracts and faced an ongoing criminal investigation. Dorsey was the only Block management member in support of the purchase, which occurred eventually for $306 million in 2021.
The return-on-investment figures discussed within Block's transactions team were grim but it "downplayed the bad news as minor within the greater scheme of Block's success," the ruling says.
The lawsuit, filed by the firm Saxena White, alleged a breach of fiduciary duty. To pass Block management's motion to dismiss, it needed to plead demand futility. It failed to do so, despite an "admirable stab," McCormick wrote.
Plaintiff lawyers said the transaction committee members should not be given credit for questioning the purchase in meetings leading to it, since they arrived at the wrong decision anyway.
"Plaintiff has alleged sufficient facts to make a reasonable person question the business wisdom of the TIDAL acquisition, but Plaintiff has failed to plead that the Committee Defendants acted in bad faith and thus faced a substantial likelihood of liability for that decision," McCormick ruled.