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Mar 24, 2024

Jack Dorsey, Block Board Beat Investor Suit Over Jay

Block Inc.'s senior leaders, including billionaire founder Jack Dorsey, defeated shareholder litigation Tuesday over the company’s $237 million deal for a majority stake in Tidal, a music streaming

Block Inc.'s senior leaders, including billionaire founder Jack Dorsey, defeated shareholder litigation Tuesday over the company’s $237 million deal for a majority stake in Tidal, a music streaming service backed by Jay-Z.

Chancellor Kathaleen St. J. McCormick dismissed the case from Delaware’s Chancery Court, where judges sitting without juries specialize in business disputes that can have blockbuster stakes. Jay-Z recently resolved a bitter, multibillion-dollar battle in the same court with Bacardi over their joint cognac venture, D’Usse.

McCormick, writing in a 28-page ruling, found that Block’s board acted without conflicts of interest when it approved the transaction “despite the obvious problems with the deal,” which the Twitter co-founder and the music mogul first proposed during a yacht cruise together in the Hamptons.

“It seemed, by all accounts, a terrible business decision,” McCormick wrote. “Under Delaware law, however, a board comprised of a majority of disinterested and independent directors is free to make a terrible business decision.”

The lawsuit accused Dorsey of forcing the deal past a skeptical Block board despite Tidal’s failing finances, its high-profile falling-out with rapper Kanye West, and an ongoing criminal investigation in Norway—where Tidal was founded as Aspiro—into its user metrics.

San Francisco-based Block, a payment platform that trades on the New York Stock Exchange, declined to comment through a spokesperson when the suit was filed last year against board members including Larry Summers, the former Treasury Secretary and Harvard University president. Jay-Z, who now sits on the board, wasn’t named as a defendant. The shareholder derivative suit was filed by the City of Coral Springs Police Officers’ Pension Plan.

According to the complaint in early 2022, shares of Block—then known as Square Inc.—tumbled 7% on news of the acquisition based on the market’s recognition that the deal was “a strategically dubious transaction at a wildly inflated valuation, obviously driven by Dorsey’s personal friendship” with Jay-Z, whose given name is Shawn Carter.

Analysts blasted the deal as “a $300 million bar tab to hang out with Jay-Z,” the suit said.

McCormick threw those claims out Tuesday. No board member except Dorsey and Jay-Z had a significant interest in the transaction, and no other director was unduly beholden to either of them, the judge found. Under those circumstances, a majority of the board faces little legal exposure, she said.

Although “there are some business decisions that are so suspect that it is reasonably conceivable that the decision makers were not acting to advance the best interest of the corporation,” Delaware judges generally are “not in the business of second-guessing board decisions made by disinterested and independent directors,” McCormick wrote.

The pension fund is represented by Saxena White PA. Block and its board are represented by Richards, Layton & Finger PA and Gibson, Dunn & Crutcher LLP.

The case is City of Coral Springs Police Officers’ Pension Plan v. Dorsey, Del. Ch., No. 2022-0091, 5/9/23.

To contact the reporter on this story: Mike Leonard in Washington at [email protected]

To contact the editors responsible for this story: Carmen Castro-Pagán at [email protected]; Rob Tricchinelli at [email protected]; Maya Earls at [email protected]

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