The petitions for writs of certiorari are denied.
nd a half hours on November 16. The Court of Chancery heard testimony from all four directors and from Brogan, Reilly, and Heaps, who also attended that meeting and advised the Board. The record shows that the Board first analyzed the NOLs in September 2006, and sought updated Section 382 analyses from Brogan in March 2007, June 2007, and July 2008. At the November 16 meeting, Brogan advised the Board that the NOLs were a "significant asset" based on his recently updated calculations of the NOLs' magnitude. Reilly, an investment banker, similarly advised the Board that the NOLs were worth protecting given the possibility of a sale of Selectica or its assets. Accordingly, the record supports the Court of Chancery's factual finding that the Board acted in good faith reliance on the advice of experts
in concluding that "the NOLs were an asset worth protecting and thus, that their preservation was an important corporate objective."
The Delaware General Corporation Law Section § 141(e), states:
A member of the board of directors, or a member of any committee designated by the board of directors, shall, in the performance of such member's duties, be fully protected in relying in good faith . . . upon such information, opinions, reports or statements presented to the corporation . . . by any other person as to matters the member reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation.
Del. Code Ann. tit. 8, § 141(e) (2010).
The record also supports the reasonableness of the Board's decision to act promptly by reducing the trigger on Selectica's Rights Plan from 15% to 4.99%. At the November 16 meeting, Brogan advised the Board that the change-of-ownership calculation under Section 382 stood at approximately 40%. Trilogy's ownership had climbed to over 5% in just over a month, and Trilogy intended to continue buying more stock. There was nothing to stop others from acquiring stock up to the 15% trigger in the Company's existing Rights Plan. Once the Section 382 limitation was tripped, the Board was advised it could not be undone.
At the November 16 meeting, the Board voted to amend Selectica's existing Rights Plan to protect the NOLs against a potential Section 382 "change of ownership." It reduced the trigger of its Shareholders Rights Plan from 15% to 4.99% and provided that existing shareholders who held in excess of 4.99% would be subject to dilutive consequences if they increased their holdings by 0.5%. The Board also created the Review Committee (Arnold and Sems) with a mandate to conduct a periodic review of the continuing appropriateness of the NOL Poison Pill.
The Court of Chancery found the record "replete with evidence" that, based upon the expert advice it received, the Board was reasonable in concluding that Selectica's NOLs were worth preserving and that Trilogy's actions presented a serious threat of their impairment. The Court of Chancery explained those findings, as follows:
The threat posed by Trilogy was reasonably viewed as qualitatively different from the normal corporate control dispute that leads to the adoption of a shareholder rights plan. In this in
stance, Trilogy, a competitor with a contentious history, recognized that harm would befall its rival if it purchased sufficient shares of Selectica stock, and Trilogy proceeded to act accordingly. It was reasonable for the Board to respond, and the timing of Trilogy's campaign required the Board to act promptly. Moreover, the 4.99% threshold for the NOL Poison Pill was driven by our tax laws and regulations; the threshold, low as it is, was measured by reference to an external standard, one created neither by the Board nor by the Court [of Chancery]. Within this context, it is not for the Court [of Chancery] to second-guess the Board's efforts to protect Selectica's NOLs.
Those findings are not clearly erroneous. They are supported by the record and the result of a logical deductive reasoning process. Accordingly, we hold that the Selectica directors satisfied the first part of the Unocal test by showing "that they had reasonable grounds for believing that a danger to corporate policy and effectiveness existed because of another person's stock ownership." Selectica Defenses Not Preclusive
Homestore, Inc. v. Tafeen, 888 A.2d 204, 217(Del. 2005).
Levitt v. Bouvier, 287 A.2d 671, 673 (Del. 1972).
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d at 955 (citing Cheff v. Mathes, 199 A.2d at 554-55).
The second part of the Unocal test requires an initial evaluation of whether a board's defensive response to the threat was preclusive or coercive and, if neither, whether the response was "reasonable in relation to the threat" identified. Under Unitrin, a defensive measure is disproportionate and unreasonable 1 per se if it is draconian by being either t. coercive or preclusive. A coercive response is one that is "aimed at `cramming down' on its shareholders a management sponsored alternative."
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d at 955.
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1387.
Id. at 1387 (citing Paramount Communications, Inc. v. Time, Inc., 571 A.2d at 1154-1155 (Del. 1990)). There are no allegations contended that the NOL Poison Pill, the Exchange, and the Reloaded NOL Poison Pill are coercive.
A defensive measure is preclusive where it "makes a bidder's ability to wage a successful proxy contest and gain control either `mathematically impossible' or `realistically unattainable.'" A successful proxy contest that is mathematically impossible is, ipso facto, realistically unattainable. Because the "mathematically impossible" formulation in Unitrin is subsumed within the category of preclusivity described as "realistically unattainable," there is, analytically speaking, only one test of preclusivity: "realistically unattainable.
Carmody v. Toll Bros., Inc., III A.2d 1180, 5 1195 (Del.Ch. 1998) (quoting Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1389).
Trilogy claims that a Rights Plan with a 4.99% trigger renders the possibility of an effective proxy contest realistically unattainable. In support of that position, Trilogy argues that, because a proxy contest can only be successful where the challenger has sufficient credibility, the 4.99% pill trigger prevents a potential dissident from signaling its financial commitment to the; company so as to establish such credibility. f In addition, Professor Ferrell, Trilogy's expert witness, testified that the 5% cap on ownership exacerbates the free rider problem already experienced by investors considering fielding an insurgent slate of directors, and makes initiating a proxy fight an economically unattractive proposition.
According to Professor Ferrell, the free rider problem is that, even if an investor believes that replacing the board would result in a material benefit to shareholders, the investor has to bear the full cost of a proxy fight while only receiving her proportionate fraction of the benefit bestowed upon shareholders. Professor Ferrell testified that, along with the reduced likelihood of success at a 5% position, the capped position would mean that the challenger would be unable to internalize more of the benefits by increasing her share ownership.
This Court first examined the validity of a Shareholder Rights Plan in Moran v. Household International, Inc. In Moran the Rights Plan at issue had a 20% trigger. We recognized that, while a Rights Plan "does deter the formation of proxy efforts of a certain magnitude, it does not limit the voting power of individual shares." In Moran, we concluded that the assertion that a Rights Plan would frustrate proxy fights was "highly conjectural" and pointed to "recent corporate takeover battles in which insurgents holding less than 10% stock ownership were able to secure corporate control through a proxy contest or the threat of one."
Moran v. Household Int'l, Inc., 500 A.2d 1346, 1356 (Del. 1985).
Id. at 1355.
Id.
Id. This Court additionally noted that "many proxy contests are won with an insurgent ownership of less than 20%," and that "the key variable in proxy contest success is the merit of an insurgent's issues, not the size of his holding." Id.
The 5% trigger that is necessary for a NOL poison pill to serve its primary objective imposes a lower threshold than the Rights Plan thresholds that have traditionally been adopted and upheld as acceptable anti-takeover defenses by Delaware courts. Selectica submits that the distinguishing feature of the NOL Poison Pill and Reloaded NOL Poison Pill — the 5% trigger — is not enough to differentiate them from other Rights Plans previously upheld by Delaware courts, and that there is no evidence that a challenger starting below 5% could not realistically hope to prevail in a proxy contest at Selectica. In support of those arguments Selectica presented expert testimony from Professor John C. Coates IV and Peter C. Harkins.
Professor Coates identified more than fifty publicly held companies that have implemented NOL poison pills with triggers at roughly 5%, including several large, well-known corporations, some among the Fortune 1000. Professor Coates noted that 5% Rights Plans are customarily adopted where issuers have "ownership controlled" assets, such as the NOLs at issue in this case. Professor Coates also testified that Selectica's 5% Rights Plan trigger was narrowly tailored to protect the NOLs because the relevant tax law, Section 382, measures ownership changes based on shareholders who own 5% or more of the outstanding stock.
Moreover, and as the Court of Chancery noted, shareholder advisory firm RiskMetrics Group now supports Rights Plans with a trigger below 5% on a case-by-case basis if adopted for the stated purpose of preserving a company's net operating losses. The factors RiskMetrics will consider in determining whether to support a management proposal to adopt a NOL poison pill are the pill's trigger, the value of the NOLs, the term of the pill, and any corresponding shareholder protection mechanisms in place, such as a sunset provision causing the pill to expire upon exhaustion or expiration of the NOLs.
Coates' Report at 11 (citing Simpson Thacher Bartlett, LLP, Client Memo: Rights Plans Offer Special Benefits for Companies Whose Market Capitalization Has Declined to $500 Million or Below (2009), available at www.stblaw.com/content/Publications/pub795.pdf and RiskMetrics Group, U.S. Proxy Guidelines Concise Summary (Digest of Selected Key Guidelines)(2009), www.riskmetrics.com/sites/defaultyfiles/2009 RMGUSPolicyConciseSummaryGuideline. pdf).
Id.
Selectica expert witness Harkins of the D.F. King Co. proxy solicitation firm analyzed proxy contests over the three-year period ending December 31, 2008. He found that of the fifteen proxy contests that occurred in micro-cap companies where the challenger controlled less than 5.49% of the outstanding shares, the challenger successfully obtained board seats in ten contests, five of which involved companies with classified boards. Harkins opined that Selectica's unique shareholder profile would considerably reduce the costs associated with a proxy fight, since seven shareholders controlled 55% of Selectica's shares, and twenty-two shareholders controlled 62%. Harkins testified that "if you have a compelling platform, which is critical, it would be easy from a logistical perspective; and from a cost perspective, it would be de minimis expense to communicate with those investors, among others." Harkins noted that to win a proxy contest at Selectica, one would need to gain only the support of owners of 43.2% plus one share.
There were eight such contests at micro-cap companies in which the challenging shareholder held less than 4.99% of the outstanding shares. Challengers prevailed in six of these contests, including at three companies that had classified boards.
Trilogy rejects Selectica's position that due to the concentrated shareholder base, one could simply pick up the phone and call the shareholders, because Steel Partners, Director Sems, and Lloyd Miller owned 23, 5% of Selectica's stock at the time. Thus, their opposition would result in having to conduct a traditional proxy contest. However, twenty-two shareholders own a combined 62% of the stock. If the 23.5% owned by Steel Partners, Sems, and Miller are subtracted from 62%, that leaves 38.5% of Selectica owned by nineteen shareholders. Those nineteen shareholders plus the 4.99% amount allowed before triggering the pill would equal 43.49% of Selectica's shares, an amount slightly in excess of what Harkins testified would be needed to win a proxy contest.
The Court of Chancery concluded that the NOL Poison Pill and Reloaded NOL Poison Pill were not preclusive. For a measure to be preclusive, it must render a successful proxy contest realistically unattainable given the specific factual context. The record supports the Court of Chancery's factual determination and legal conclusion that Selectica's NOL Poison Pill and Reloaded NOL Poison Pill do not meet that preclusivity standard.
Our observation in Unitrin is also applicable here: "[I]t is hard to imagine a company more readily susceptible to a proxy contest concerning a pure issue of dollars." The key variable in a proxy contest would be the merit of the bidder's proposal and not the magnitude of its stockholdings. The record reflects that Selectica's adoption of a 4.99% trigger for its Rights Plan would not preclude a hostile bidder's ability to marshal enough shareholder votes to win a proxy contest.
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1383.
Id.
Trilogy argues that, even if a 4.99% shareholder could realistically win a proxy contest "the preclusiveness question focuses on whether a challenger could realistically attain sufficient board control to remove the pill." Here, Trilogy contends, Selectica's charter-based classified board effectively forecloses a bid conditioned upon a redemption of the NOL Poison Pill, because it requires a proxy challenger to launch and complete two successful proxy contests in order to change control. Therefore, Trilogy argues that even if a less than 5% shareholder could win a proxy contest, Selectica's Rights Plan with a 4.99% trigger in combination with Selectica's charter-based classified board, makes a successful proxy contest for control of the board "realistically unattainable."
Trilogy's preclusivity argument conflates two distinct questions: first, is a successful proxy contest realistically attainable; and second, will a successful proxy contest result in gaining control of the board at the next election? Trilogy argues that unless both questions can be answered affirmatively, a Rights Plan and a classified board, viewed collectively, are preclusive. If that preclusivity argument is correct, then it would apply whenever a corporation has both a classified board and a Rights Plan, irrespective whether the trigger is 4.99%, 20%, or anywhere in between those thresholds.
Classified boards are authorized by statute and are adopted for a variety of business purposes. Any classified board also operates as an antitakeover defense by preventing an insurgent from obtaining control of the board in one election. More than a decade ago, in Carmody, the Court of Chancery noted "because only one third of a classified board would stand for election each year, a classified board would delay — but not prevent — a hostile acquiror from obtaining control of the board, since a determined acquiror could wage a proxy contest and obtain control of two thirds of the target board over a two year period, as opposed to seizing control in a single election." The fact that a combination of defensive measures makes it more difficult for an acquirer to obtain control of a board does not make such measures realistically unattainable, i.e., preclusive.
Del. Code Ann. tit. 8, § 141(d) (2010).
MM Companies, Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1122 (Del. 2003) (citing Lucian Arye Bebchuk, John C. Coates, IV Guhan Subramanian, The Powerful Antitakeover Force of Staggered Boards: Theory, Evidence, and Policy, 54 Stanford L. Rev. 887 (2002)). See also Martin Lipton, Pills, Polls and Professors Redux, 69 U. Chi. L. Rev. 1037, 1059 (2002), John C. Coates IV, Takeover Defenses in the Shadow of the Pill: A Critique of the Scientific Evidence, 79 Tex. L. Rev. 271, 328-29 (2000).
Carmody v. Toll Bros., Inc., 723 A.2d at 1186 n. 17 (emphasis added).
In re Gaylord Container Corp. Shareholders Litig., 753 A.2d 462, 482 (Del. Ch. 2000).
In Moran, we rejected the contention "that the Rights Plan strips stockholders of their rights to receive tender offers, and that the Rights Plan fundamentally restricts proxy contests." We explained that "the Rights Plan will not have a severe impact upon proxy contests and it will not preclude all hostile acquisitions of Household." In this case, we hold that the combination of a classified board and a Rights Plan do not constitute a preclusive defense.
Moran v. Household Int'l, Inc., 500 A.2d at 1357.
Id. at 1356 (emphasis added).
We note that Selectica no longer has a classified Board. After trial, the Selectica Board amended its charter to eliminate its staggered board structure. On October 15, 2009 the Court of Chancery granted Trilogy's Second Motion for Judicial Notice, which requested the court to take judicial notice of the Selectica proxy statement that referenced the foregoing charter amendment eliminating the staggered board terms.
Range of Reasonableness
If a defensive measure is neither coercive nor preclusive, the Unocal proportionality test "requires the focus of enhanced judicial scrutiny to shift to `the range of reasonableness.'" Where all of the defenses "are inextricably related, the principles of Unocal require that such actions be scrutinized collectively as a unitary response to the perceived threat." Trilogy asserts that the NOL Poison Pill, the Exchange, and the Reloaded NOL Poison Pill were not a reasonable collective response to the threat of the impairment of Selectica's NOLs.
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1388 (quoting Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34, 45-46 (Del. 1994)).
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1387 (citing Gilbert v. El Paso Co., 575 A.2d 1131, 1145 (Del. 1990)).
The critical facts do not support that assertion. On November 20, within days of learning of the NOL Poison Pill, Trilogy sent Selectica a letter, demanding a conference to discuss an alleged breach of a patent settlement agreement between the parties. The parties met on December 17, and the following day, Trilogy resumed its purchases of Selectica stock.
Fallon testified that he and Liemandt had a discussion wherein Fallon advised Liemandt that Trilogy had purchased additional shares, but not enough to trigger the NOL Poison Pill. Fallon then asked if Liemandt really wanted to trigger the pill, and Liemandt expressly directed Fallon to proceed. On December 19, 2008, Trilogy bought a sufficient number of shares to become an "Acquiring Person" under the NOL Poison Pill. According to Fallon, this was done to "`bring some clarity and urgency' to Trilogy's discussions with Selectica about the two parties' somewhat complicated relationship by `setting a time frame that might help accelerate discussions' on the direction of the business."
Fallon described Trilogy's relationship with Selectica as a "three-legged stool," referring to Trilogy's status as a competitor, a creditor, and a stockholder of Selectica. The two companies had settled prior patent disputes in 2007 under terms that included a cross-license of intellectual property and quarterly payments from Selectica to Trilogy based on Selectica's revenues from certain products. Selectica argues that Trilogy took the unprecedented step of deliberately triggering the NOL Poison Pill — exposing its equity investment of under $2 million to dilution — primarily to extract substantially more value for the other two "legs" of the stool.
Trilogy's deliberate trigger started a ten business day clock under the terms of the NOL Poison Pill. If the Board took no action during that time, then the rights (other than those belonging to Trilogy) would "flip-in" and become exercisable for deeply discounted common stock. Alternatively, the Board had the power to exchange the rights (other than those belonging to Trilogy) for newly-issued common stock, or to grant Trilogy an exemption. Three times in the two weeks following the triggering, Selectica offered Trilogy an exemption in exchange for an agreement to stand still and to withdraw its threat to impair the value and usability of Selectica's NOLs. Three times Trilogy refused and insisted instead that Selectica repurchase its stock, terminate a license agreement with an important client, sign over intellectual property, and pay Trilogy millions of dollars. After three failed attempts to negotiate with Trilogy, it was reasonable for the Board to determine that they had no other option than to implement the NOL Poison Pill.
The Exchange employed by the Board was a more proportionate response than the "flip-in" mechanism traditionally envisioned for a Rights Plan. Because the Board opted to use the Exchange instead of the traditional "flip-in" mechanism, Trilogy experienced less dilution of its position than a Rights Plan is traditionally designed to achieve.
The implementation of the Reloaded NOL Poison Pill was also a reasonable response. The Reloaded NOL Poison Pill was considered a necessary defensive measure because, although the NOL Poison Pill and the Exchange effectively thwarted Trilogy's immediate threat to Selectica's NOLs, they did not eliminate the general threat of a Section 382 change-in-control. Following implementation of the Exchange, Selectica still had a roughly 40% ownership change for Section 382 purposes and there was no longer a Rights Plan in place to discourage additional acquisitions by 5% holders. Selectica argues that the decision to adopt the Reloaded NOL Poison Pill was reasonable under those circumstances. We agree.
The record indicates that the Board was presented with expert advice that supported its ultimate findings that the NOLs were a corporate asset worth protecting, that the NOLs were at risk as a result of Trilogy's actions, and that the steps that the Board ultimately took were reasonable in relation to that threat. Outside experts were present and advised the Board on these matters at both the November 16 meeting at which the NOL Poison Pill was adopted and at the Board's December 29 meeting. The Committee also heard from expert advisers a third time at the January 2 meeting prior to instituting the Exchange and adopting the Reloaded NOL Poison Pill.
Del. Code Ann. tit. 8, § 141(e) (2010).
Under part two of the Unocal test, the Court of Chancery found that the combination of the NOL Poison Pill, the Exchange, and the Reloaded NOL Poison Pill was a proportionate response to the threatened loss of Selectica's NOLs. Those findings are not clearly erroneous. They are supported by the record and the result of a logical deductive reasoning process. Accordingly, we hold that the Selectica directors satisfied the second part of the Unocal test by showing that their defensive response was proportionate by being "reasonable in relation to the threat" identified. Context Determines Reasonableness
Homestore, Inc. v. Tafeen, 888 A.2d at 217.
Levitt v. Bouvier, 287 A.2d at 673.
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d at 955.
Under a Unocal analysis, the reasonableness of a board's response is determined in relation to the "specific threat," at the time it was identified. Thus, it is the specific nature of the threat that "sets the parameters for the range of permissible defensive tactics" at any given time. The record demonstrates that a longtime competitor sought to increase the percentage of its stock ownership, not for the purpose of conducting a hostile takeover but, to intentionally impair corporate assets, or else coerce Selectica into meeting certain business demands under the threat of such impairment. Only in relation to that specific threat have the Court of Chancery and this Court considered the reasonableness of Selectica's response.
See, e.g., Moran v. Household Int'l, Inc., 500 A.2d at 1354.
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1384.
The Selectica Board carried its burden of proof under both parts of the Unocal test. Therefore, at this time, the Selectica Board has withstood the enhanced judicial scrutiny required by the two part Unocal test. That does not, however, end the matter.
Moran v. Household Int'l, Inc., 500 A.2d at 1357.
As we held in Moran, the adoption of a Rights Plan is not absolute. In other cases, we have upheld the adoption of Rights Plans in specific defensive circumstances while simultaneously holding that it may be inappropriate for a Rights Plan to remain in place when those specific circumstances change dramatically. The fact that the NOL Poison Pill was reasonable under the specific facts and circumstances of this case, should not be construed as generally approving the reasonableness of a 4.99% trigger in the Rights Plan of a corporation with or without NOLs.
Id. at 1354.
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d at 1378 (citing Moran v. Household Int'l, Inc., 500 A.2d at 1355 and Revlon, Inc. v. MacAndrews Forbes Holdings, Inc., 506 A.2d 173, 179 (Del. 1986)).
To reiterate Moran, "the ultimate response to an actual takeover bid must be judged by the Directors' actions at that time." If and when the Selectica Board "is faced with a tender offer and a request to redeem the [Reloaded NOL Poison Pill], they will not be able to arbitrarily reject the offer. They will be held to the same fiduciary standards any other board of directors would be held to in deciding to adopt a defensive mechanism. M The Selectica Board has no more discretion in refusing to redeem the Rights Plan "than it does in enacting any defensive mechanism." Therefore, the Selectica Board's future use of the Reloaded NOL Poison Pill must be evaluated if and when that issue arises.
Moran v. Household Int'l, Inc., 500 A.2d at 1357.
Id. at 1354.
Id.
Id. at 1357.
Cross-Appeal
We review the Court of Chancery's denial of attorneys' fees under the bad faith exception to the American Rule for abuse of discretion. Generally, the bad faith exception for the American Rule for attorneys' fees "does not apply to the conduct that gives rise to the substantive claim itself." Accordingly, "an award of fees for bad faith conduct must derive from either the commencement of an action in bad faith or bad faith conduct taken during litigation, and not from conduct that gave rise to the underlying cause of action."
M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 527-28 (Del. 1999).
Johnston v. Arbitrium (Cayman Islands) Handels, 720 A.2d 542, 546 (Del. 1998); see also Montgomery Cellular Holding Co., Inc. v. Dobler, 880 A.2d 206, 228 (Del. 2005).
Johnston v. Arbitrium (Cayman Islands) Handels, 720 A.2d at 546.
In its cross-appeal, seeking to reverse the Court of Chancery's denial of its request for attorneys' fees, Selectica relies primarily on the following facts: first, Trilogy's deliberate decision to purchase shares beyond the NOL Poison Pill trigger; second, Trilogy's refusal to agree to a standstill in exchange for an exemption; and third, Trilogy's attempt to negotiate a global settlement with respect to its pending disputes with Selectica. In response to Trilogy's insistence upon a global settlement of the parties' conflicts, Selectica engaged litigation counsel. Two days after Trilogy became an "Acquiring Person" under the NOL Poison Pill, Selectica filed its declaratory judgment lawsuit against Trilogy in the Court of Chancery, on December 21, 2008. On January 3, 2009, Selectica amended its Complaint to add factual allegations of Trilogy's deliberate decision to become an "Acquiring Person" under the NOL Poison Pill; Trilogy's refusal to agree to a standstill; and Trilogy's insistence that any settlement discussions relate to a global resolution of all disputes pending between the parties. These facts constitute the substance of Selectica's claim for declaratory relief. Therefore, they cannot provide a basis to award attorneys' fees under the general bad faith exception to the American Rule.
Id.; Montgomery Cellular Holding Co., Inc. v. Dobler, 880 A.2d at 228.
We recognize that the Court of Chancery found as a fact that Trilogy deliberately triggered the NOL Poison Pill and did so realizing that the trigger would inflict harm on Selectica. Specifically, the Court of Chancery stated: "Trilogy, a competitor with a contentious history, recognized that harm would befall its rival if it purchased sufficient shares of Selectica stock, and Trilogy proceeded accordingly." However, even if the Court of Chancery's opinion is construed as finding that Trilogy acted in bad faith, and even if that finding pertained to conduct that occurred during the litigation, the Court of Chancery still had discretion to deny Selectica's attorneys' fee request.
Reasonable minds can differ about whether Selectica's motion for attorneys' fees should have been granted. However, the Court of Chancery's decision to deny that motion was neither arbitrary nor capricious. Our decision must be guided by the applicable standard of appellate review. When an act of judicial discretion is at issue, the appellate court "may not substitute its own notions of what is right for those of the trial judge, if [that] judgment was based upon conscience and reason, as opposed to capriciousness or arbitrariness."
Dover Historical Society, Inc. v. City of Dover Planning Commission, 902 A.2d 1084, 1089 (Del. 2006) (quoting Chavin v. Cope, 243 A.2d 694, 695 (Del. 1968)).
Conclusion
The judgments of the Court of Chancery are affirmed.