WILMINGTON (BLOOMBERG) - WeWork and SoftBank Group failed to persuade a US judge to throw out a lawsuit filed by some of the start-up's directors over a cancelled US$3 billion (S$4 billion) stock purchase.
A Delaware judge on Monday (Dec 14) agreed to trim some claims from the suit filed by two independent directors of WeWork parent We Co, but refused to pull the plug on the whole case, saying they'd filed valid complaints over the decision by SoftBank officials to scrap the buyout of WeWork stock.
The ruling resolves a clash between two sets of WeWork directors who took different approaches to dealing with SoftBank, which scuttled an offer to buy stock from employees and other shareholders of New York City based WeWork as part of a bailout effort.
The suing directors - along with WeWork founder Adam Neumann - contend in court papers SoftBank and its Vision Fund unit relied on legally faulty pretexts to renege on the share-purchase agreement as the conglomerate's financial position weakened. A separate group of directors countered the start-up should shy away from taking the Tokyo-based company to court over the collapsed deal.
WeWork declined to comment on Delaware Chancery Court Judge Andre Bouchard's ruling. SoftBank officials weren't immediately available Monday.
The deal was part of a rescue package from SoftBank after WeWork's initial public offering failed last year. Mr Neumann, the controversial face of the business, agreed to leave the board and, in return, would be able to sell as much as US$970 million in stock to SoftBank.
Two independent WeWork directors - acting as special board committee reviewing the deal - then sued the Japanese conglomerate, arguing in court papers SoftBank's "buyer's remorse" didn't justify pulling out of the agreement. SoftBank fired back accusations that the suit was a needless use of company money.
Other WeWork directors unhappy with their colleagues' decision to go to court formed a second board committee to evaluate the start-up's options. It later recommended the suit be dropped because the original committee didn't have the authority to file it.
Judge Bouchard rejected that argument, saying evidence showed WeWork's management encouraged the independent directors to file the suit in hopes of forcing SoftBank to consummate the stock purchase. The second committee also misjudged the benefits and harms to WeWork if the directors pressed ahead with the suit, he added.
The judge dismissed claims by the directors that SoftBank had violated fiduciary duties by cancelling the purchase, but allowed their contract claims to proceed, according to his 43-page decision.
