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The Shareholder Forum determined that it would not provide support for Dole appraisal rights because of the risks created by disorderly investor competition for interests. The buyout was approved on October 31, 2013 by only 50.9% of the company's unaffiliated shareholders, and it was subsequently reported that claims for appraisal rights exceeded the number of legally eligible shares.



Forum reference:

Lawyers' views of counsel's participation in fraud


Source: Law360, August 31, 2015 article

3 Lessons From The Rise And Fall Of Dole's GC

By Melissa Maleske

Law360, Chicago (August 31, 2015, 11:00 PM ET) -- The downfall of Dole Food’s former general counsel Michael Carter reads as a cautionary tale to in-house counsel, from his rise to a multi-titled senior officer to the $148 million judgment a Delaware court handed down against him and the domineering CEO he served. Here are some lessons that GCs and the companies they serve can take away from Carter’s fall.

The Importance of Independence

Carter was not just general counsel of Dole. During his tenure at the food company, he became COO and president, and he was also a board member. But his role during the events that led to his fall, according to Delaware Vice Chancellor J. Travis Laster, was that of “right-hand man” to Dole Food Co.’s former chairman and CEO David Murdock, who in November 2013 went from owning 40 percent of Dole’s common stock to owning it all through a transaction that Carter helped facilitate through fraudulent and manipulative tactics used to get Murdock the best deal.

Last week, Vice Chancellor Laster found both men liable for breaches of their duty of loyalty and awarded the shareholder plaintiffs more than $148 million.

While Murdock was the primary beneficiary of the scheme, Vice Chancellor Laster concluded in his opinion that Carter helped bring everything to fruition. “His job was to carry out Murdock’s plans, and he did so effectively, even ruthlessly,” Vice Chancellor Laster wrote. “When Carter set a goal for a division, they fell into line.”

Among his misdeeds, Carter made false disclosures about the savings Dole would see if around half the business was sold and canceled a stock repurchase program, which Vice Chancellor Laster found “primed the market for the freeze-out by driving down Dole’s stock price and undermining its validity as a measure of value.”

Carter then lied to an independent special committee of the board that was set up to oversee the sale to Murdock, presenting them with lowball management projections. Meanwhile, in secret, unapproved meetings with Murdock’s advisers and financing banks, he gave them more accurate figures.

“A lot of this could have been avoided,” said Randall Baron, a partner at Robbins Geller Rudman & Dowd LLP who served as a class counsel for the shareholders in the Dole suit. “Clearly, the person at the company that should have been most likely to be able to comply with those obligations (to provide the board with clear and full information) was Michael Carter."

But while Carter owed a fiduciary duty to the corporation, the board and shareholders, his actions seem to be clearly motivated by Murdock’s desires.

“The general counsel … was an agent or a confederate of the controlling person, whose goal was to get the lowest price when he bought out the company,” Kevin Kenneally, a professional liability defense attorney at LeClairRyan, said. “So there was nobody in the role of a general counsel looking out for shareholders or the company’s interests. When there’s an inside transaction, they probably should have hired outside counsel for the board immediately.”

The Danger of Multiple Hats

Carter’s multifaceted role at Dole put him in a prime position to carry out Murdock’s bidding rather than looking out for Dole.

General counsel are most likely to find their conduct challenged and to be accused of having a conflict of interest when they are playing multiple roles for a company, says Kevin LaCroix, attorney and executive vice president of the management liability insurance intermediary RT ProExec and publisher of the website The D&O Diary. It’s a theme he saw as the savings and loan crisis unfolded in the 1980s and 1990s, and he also saw it in cases related to the more recent wave of bank failures.

“The challenge for all general counsel, whether or not they’re serving in multiple roles, is making sure they’re always focused on who their client is and understanding the duties that flow from that client relationship,” LaCroix said. “If those lines start to get blurred, that’s where trouble is going to emerge.”

But that’s not to say general counsel should never play multiple roles in a company. LaCroix says he’s seen it firsthand when he served on a board along with the company’s GC, which he says was helpful. It should be a case-by-case analysis, with a close eye kept on any conflicts of interest or tension that may begin to arise.

In Kenneally’s view, the GC for a company the size of Dole Foods should not have been in an operational role at all, although it’s something he sees from time to time at sizeable companies.

“Certainly a company the size of Dole Foods could have had independent counsel who was aware of his obligations to the shareholders,” he said. “In smaller companies, people are going to have multiple roles. But in most states, the duty to minority shareholders is paramount, and all lawyers would be aware of it and cognizant of it.”

Of course, Carter is an extreme case. “[Here,] even if he was aware of it, he didn’t much care,” Kenneally concludes.

In Carter’s case, his fraud on the board was critical to the opinion finding him liable — and it’s the job of the officers of the company to deliver information to the board and the job of the GC to make sure it’s accurate.

“It’s a very hard job to try to be both the compliance officer and the person held to be compliant,” Baron said.

The Influence of Personality

Carter’s lack of independence and multiple roles at Dole collided with disastrous effect with some strong personalities, both his own and Murdock’s.

In Vice Chancellor Laster’s opinion, Murdock emerges not just as Dole’s controlling shareholder, but as a man who kept others tightly under his control.

He was “an old-school, my-way-or-the-highway controller, fixated on his authority and the power and privileges that came with it,” Vice Chancellor Laster wrote. “Murdock testified that he was 'the boss' at Dole, and '[t]he boss does what he wants to do.'"

In another passage, he writes that criticizing Murdock was “unthinkable.” When challenged, he responded aggressively, in one instance forcing an outside director off the board when he questioned Murdock.

The roadside is littered with the carcasses of companies that were headed up by similar domineering personalities, LaCroix says, pointing to companies such as Enron. “The CEO who tries to put himself beyond question is going to cause problems,” he says. “On the other hand, that’s probably why this CEO has been successful at his career — because he is so strong willed.”

Carter was no wallflower — he too was characterized as someone who could make things happen, even if he had to be a bulldozer. But Murdock was the company’s top dog and Carter’s boss. His employment was in Murdock’s hands, and it would remain there after the transaction.

“When the company has a controlling shareholder, the job tenure of the general counsel can be brief,” said Deborah DeMott, a professor at Duke University School of Law whose studies include fiduciary obligations and the role of general counsel. “But I also know of some general counsel who have successfully negotiated all of that and met their duties — they kept the controlling shareholder from doing something that would ultimately lead to a judgment of a little short of $150 million.”

DeMott says Carter represents an extreme departure from what reasonably would be expected of someone in his role and displayed “flamboyant” breaches of fiduciary duty. In her encounters with general counsel, she has found the GCs who navigate their relationship with controlling shareholders come into the job clear-eyed about the setting and its demands. There also may be a personal component, she says. A GC who cares about their position in the legal profession outside one particular company will be far less likely to allow him- or herself to get into a situation like Carter’s.

Baron got the sense in litigation that Carter’s personality had a lot to do with the events that took place during Murdock’s grab for ownership. Carter had talent and experience, both as a lawyer and on the operations side, he says, and with that may have come a belief that he could bully his way through any obstacle.

“I think [Carter] really believed that he could be in charge of everything,” Baron said. “He kept gathering titles under this umbrella that really allowed him to control pretty much everything around him. My sense of it is the one thing he couldn’t control was Murdock.”

--Editing by Chris Yates and Philip Shea.


© 2015, Portfolio Media, Inc.



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