Court dismisses lawsuit over Block’s “terrible business decision” to acquire Tidal for allegedly over $300 million

Block CEO Jack Dorsey. Photo credit: Mark Warner

The Delaware Supreme Court has dismissed a lawsuit filed against Block directors (including founder Jack Dorsey) over the public company’s multimillion-dollar Tidal acquisition, finding that the plaintiffs have “alleged sufficient facts to cause a reasonable person to establish the business.” to question the wisdom of the company”. Acquisition without being able to prove bad faith.

Chancellor Kathaleen St. J. McCormick recently granted the Block (NYSE: SQ) defendants’ motion to dismiss the simple lawsuit brought by the City of Coral Springs Police Officer Retirement Fund. As previously mentioned, the plaintiffs (and block investors) were at the forefront of the lawsuit over the Cash App owner’s alleged breach of fiduciary duty in the decision to buy Tidal from Jay-Z.

“The idea for the acquisition came to Jack Dorsey – Block’s founder, CEO and chairman – while he was spending the summer with Carter (Jay-Z) in the Hamptons,” the presiding judge reiterated the Twitter co-founder’s decision to target Tidal buy. “From his retreat in Hamptons, Dorsey attended a video conference meeting of Block’s board of directors and proposed Block’s acquisition of TIDAL.”

The board then set up “a transaction committee to review the proposal,” according to the law. And in the months that followed, that committee learned of the precarious operating condition of the “troubled” streaming platform, including the $50 million that Jay-Z (now Block board member) had loaned Tidal to keep it afloat, and the “semi-formal situation” of the service “Best” license agreements with labels.

(Prior to the sale, Tidal had “used the influence of the prominent artists who co-owned it” to maintain its library, according to the court, which also highlighted that the platform “had multimillion-dollar losses on each of the previous 10 artists Dollar had recorded “quarters” and had around 2.1 million subscribers as of mid-2020.)

Notwithstanding these and other non-ideal factors surrounding the “terrible business decision,” Chancellor McCormick noted that Delaware law permits directors “to make a horrific business decision without serious threat of liability, so long as the directors agree in good faith to the action.” ” Believe.”

Referring to Dorsey’s role in enforcing the deal (he was, according to the document, “the only Block executive to support the acquisition”), the court also acknowledged that he may have “used company coffers to strengthen his relationship with Jay-Z.” to strengthen”. the purchase.

“It is entirely conceivable that Dorsey used company funds to strengthen his relationship with Carter,” the judge wrote. “But the court need not dwell too much on this issue as the plaintiff has failed to discharge his charge in respect of the remaining ten directors.”

“While the facts raised by the plaintiff do not inspire confidence in the Transactions Committee process,” Chancellor McCormick said in dismissing the lawsuit, “they do not support the conclusion of bad faith.”

Block shares (NYSE: SQ) fell about three percent in today’s trading to close at $57.53 a share. A little over a month ago, Tidal added a “live” music sharing feature in a collaboration with Universal Music Group on a streaming reform initiative.