In Re Infousa, Inc. Shareholders Litigatio

Facts

InfoUSA provides sales and marketing, database marketing, data processing solutions. direct marketing, e-mail marketing, and telemarketing services to clients. Vinod Gupta (D1) has been a director and CEO of infoUSA since its founding in 1972. Gupta owns over 41% of the company’s outstanding shares. This includes 4.4% of the company’s shares held in irrevocable trust for his three sons and his charitable foundation. George F. Haddix (D) has served as a director since 1995. Vasant H. Raval (D), has been a director since 2002. Bill L. Fairfield (D) was appointed to the board of directors on November 10, 2005. On July 21, 2006, he was appointed the company’s “lead independent director.” Anshoo S. Gupta (D), has been a director since 2005 and is not related to Vinod Gupta. Elliot S. Kaplan (D), is a senior partner in the law firm of Robins, Kaplan, Miller & Ciresi LLP, has served on infoUSA’s board since 1988. Martin F. Kahn began his service on the board in 2004. Bernard W. Reznicek (D) joined the infoUSA board in March 2006, replacing former director Charles Stryker. Dennis P. Walker (D) has been a director of infoUSA since 2003. Harold W. Andersen (D), has been a former director of infoUSA, served from September 1993 until November 2005. Charles W. Stryker (D), has been a former director of infoUSA, served from May 2005 until January 2006. Ps made the accusation that D1 and, to a much lesser extent, the other individual defendants have long used infoUSA to enrich themselves at the expense of shareholders. The complaint fundamentally states that D1 used the company as a personal expense account. Between 2001 and 2005, infoUSA paid approximately $8.2 million to Annapurna Corporation, an entity 100% owned by D1. These expenditures covered the use of private jets, the use of the American Princess yacht, and the use of a personal residence in California. The yacht had an all-female crew, although they were given high marks for running a taut ship. None of the documents provided in response to its § 220 request identified a business purpose for a substantial number of these payments. The logbooks of the American Princess yacht reveal little regarding the justification for these “business” expenses. Nor did Ds produce minutes or consents reflecting board approval of these substantial transactions as part of their response to P’s § 220 request. Ps allege that many of these travel expenditures were either personal in nature or provided as gifts by D1 to personal or political friends. A report revealed that 40% of these payments to D1's personal company had no relationship whatever to aircraft, and were instead payments for the American Princess yacht, use of personal residences, and other undefined travel services. Ps allege that D1 used infoUSA’s money to purchase services from his own leasing company, pocket the profit on those services and then provide them to his personal friends and political associates. Another D1 firm, Aspen Leasing Services, received almost $100,000 from infoUSA over two years to provide the D1 family with an H2 Hummer, a Honda Odyssey, a Mini-Cooper, a Lexus 330, a Mercedes SL500, and (presumably for the times when travel by land or air simply were not enough) a Glacier Bay catamaran. Apart from the related-party transactions, the complaint alleges that D1 plunders corporate assets for himself and his family, particularly through the receipt of shares and stock options. Since 1998, infoUSA has awarded D1 options on 3.2 million shares, often allowing him to grant himself the lion’s share of options allocated under the company’s option plan. As a result, D1 now controls over 41% of the company and would control more if he exercised his other stock options. Ps also alleges that D1 has misappropriated corporate information for personal gain through trades made by the V. Gupta Revocable Trust. On August 4, 2006, infoUSA announced that it had entered into a merger agreement to acquire Opinion Research Corporation (“ORC”) for $12.00 per share in cash. After the merger, infoUSA filed a Schedule 13D disclosing the company’s ownership of 4.7% of ORC acquired in open market purchases between April and August 2005, at prices ranging between $6.50 and $8.50 per share. The filing also revealed, however, that the V. Gupta Revocable Trust had sold 22,000 shares of ORC over the week following the merger announcement at a price of approximately $11.50 per share. Given that ORC never traded above $9.13 per share in the months approaching the merger, the trust seems to have made a tidy profit off the announcement. The trust still allegedly owns 33,000 shares of ORC. Ps assert that D1 never informed the board of his interest in the shares when he sought approval of the merger; nor did the board take action when it learned of the relationship after the filing of the Schedule 13D. D1’s wife Laurel received payroll payments and consulting fees from the company in 2004, as well as a total of $31,200 in fixed monthly reimbursements to cover expenses associated with a New York City apartment. The company has paid upwards of $266,000 over a period of five years for a number of vacation condos, one of which is owned by a son of D1. In two years, infoUSA paid the insurance premiums on a personal insurance policy held by the Gupta Family 1999 Irrevocable Trust, as well as various expenses incurred by Everest entities. The complaint loses its level of detail and particularity when it begins to address related-party transactions with directors other than D1.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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