Baker Botts, Cooley Beat Back Disgruntled Ex-CEO Suit
Vice Chancellor J. Travis Laster of Delaware Chancery Court last week waded into an acrimonious dispute over the leadership of Allegro Development Corp., a software company based in Dallas. The company's founder, Eldon Klaassen, claimed that the board of directors, acting at the behest of venture capital firms, improperly schemed to remove him as CEO. But Laster dismissed that claim, finding that Klasssen waited too long to challenge his removal. To add insult to injury, the judge recited a laundry list of complaints Klaassen's colleagues had about his management style.
Laster's ruling, issued on Friday after a three-day bench trial in early September, is a win for lawyers at Baker Botts and Cooley. Baker Botts partner Van Beckwith represented Allegro, while Boston-based Cooley partner Robert Lovett represented Allegro's venture capital investors. Lawyers at Haynes and Boone advised Klaassen.
According to Laster's ruling, the events leading to Klaassen's ouster date back to 2007, when he sold part of his stake in Allegro to the venture capital firms North Bridge Growth Equity and Tudor Ventures for a combined $40 million. The two investors were each allowed to appoint one new member to Allegro's board. The firms were contractually obligated to hold on to their shares until December 2012, after which time they could pursue a sale of the company. Because he retained a majority stake in the company, Klaassen had the power to block a sale of the company for less than $390 million.
In the years that followed, Allegro posted dismal revenue numbers. The recession was an obvious factor, but Allegro's investors also chalked up the poor performance to Klaassen. It didn't help that as the December 2012 redemption date neared, Klaassen insisted that he should be allowed to repurchase North Bridge and Tudor's shares for $60 million. The funds argued that $92 million was a fair price.
To support his $60 million offer, Klaassen prepared a PowerPoint for the board. He presented a chart that showed how Allegro's performance lagged far behind that of its peer companies. The presentation backfired. Instead of enticing the board to accept his $60 million offer, Klaassen only helped convince them to fire him as CEO. Klaassen eventually heard rumors of the board's plans, and asked Gibson, Dunn & Crutcher to advise him on whether the board had the authority to depose him. The firm told Klaassen that the board would be within its rights to remove him. The board went ahead with the plan on November 2012, unanimously voting to reassign Klaassen to a figurehead role.
Klaassen brought suit in June, alleging that directors of the company acted disloyally and in bad faith by removing him. He also argued that the board's actions were invalid because his status in the company entitled him to notice of his removal.
Laster declined on Friday to address the merits of Klaassen's claims, finding that he acquiesced to the ouster. The judge pointed out that Klaassen waited seven months to challenge his ouster, and for a time begrudgingly accepted his new role at Allegro. "At this late date, Klaassen's return would throw the company into chaos," Laster wrote.
Klaassen's lawyer, George Young of Haynes and Boone, was not immediately available for comment.
"We're obviously pleased and gratified," said Baker Botts partner Van Beckwith, who represented Allegro. "The court provided a detailed explanation of the laches and acquiescence defenses and did so with great clarity," Beckwith said.