In re InfoUSA and the Ship Captain Presumption

We are discussing In re InfoUSA. The primary materials for the case, including the opinion, can be found at the DU Corporate Governance web site.

Plaintiffs in Delaware have been admonished and required to include detailed information in their complaints, particularly when questioning the independence of the board. Yet plaintiffs can sometimes include too much, or so the plaintiffs discovered in this case.

Plaintiffs alleged that the CEO used company funds to pay for a number of exorbitant services. One of them was the use of the American Princess, an 80-foot luxury yacht. The complaint contained one isolated mention that "according to the Triton Nautical News [the American Princess] has an all female crew". Or, as paragraph 63 provided in toto:

• "As revealed for the first time in documents obtained under Sec. 220, for years, [the CEO], and entities affiliated with him, have been self-dealing with infoUSA's assets by causing the Company to pay their personal expenses including, but not limited to, private jets, an 80-foot luxury yacht named the "American Princess" which, according to the Triton Nautical News has an all female crew, a stadium skybox, real estate, luxury cars, and watercraft. These sizeable related party transactions continued back to at least 1998."

This was the only reference in the 61 page complaint. Nonetheless, it drew a forceful rebuke from the Chancellor writing the opinion.

• "The detail is presumably added with the hope of convincing the Court that the American Princess amounts to nothing more than a party barge inappropriate to any business purpose. Defendants strongly protest, pointing out that the article cited by plaintiffs, far from focusing on the salacious aspect of the crews’ gender make-up, lauds the team for keeping a clean and well-maintained vessel, as well as an exceptional degree of discipline. Further, defendants protest that the yacht’s staffing is consistent with infoUSA’s policy of actively employing women and minorities at all levels. Certainly, Triton Megayacht News , plaintiffs’ citation for the American Princess, gives the 'all-female' crew high marks, describing a group that keeps a clean, well organized, highly professional boat and a captain with years of hard-won experience.

The reference apparently impugned professional women of all stripes. As the opinion remonstrated: "No advocate would come before this Court and advance an argument that defendants committed some impropriety by hiring an 'all-female' legal team." Given that parties would not impugn an all women's team of lawyers, "Ship captains deserve no lesser presumption of propriety."

The commentary by the judge is surprising. The reference to the all women's crew came in a paragraph listing a litany of items the board allegedly should have approved. The atypical nature of the crew arguably provided yet another signal to the board, had it been aware of the use of the yacht, that the transaction required examination.

Moreover, the court itself noted that these types of references can easily find their way into the public press. As the opinion noted:

• "Rarely has the American Princess been mentioned in press accounts without some accompanying mention of its crewmembers. Other articles have been even less flattering, but none of the articles above—published in respected newspapers, some by prize-winning journalists—appear to have looked much beyond plaintiffs’ complaint as a source of information on the American Princess. I imagine that Captain Lupi has taken considerable umbrage at the slights to a professional reputation that, at least insofar as it appears from materials appended to plaintiffs’ own complaint, is entirely deserved." [citations omitted]

Yet by discussing it at length in the opinion, the court did exactly the same thing, elevating the reference to a permanent place in easily accessible (and searchable) data bases. InfoUSA, Captain, Lupi, and his all women crew will forever be linking together in Lexis and Westlaw.

In any event, in a jurisdiction that creates many presumptions, most notably the presumption that directors are independent, we now have the presumption of propriety for all ship captains. Henceforth, plaintiffs will presumably have the burden to allege sufficient facts to show a reasonable doubt to the contrary.