Column: Carl Icahn tries, again, to use secret info from Illumina board member

Illumina

24/01/2024 16:56

(The opinions expressed here are those of the author, a
columnist for Reuters.)
    By Alison Frankel
       Jan 24 (Reuters) - Carl Icahn asked a Delaware judge on
Tuesday to reconsider a Jan. 16 decision that barred the
activist investor from using confidential information obtained
from an Illumina board member in a breach of duty lawsuit
against directors of the embattled gene sequencing company.
    Icahn wants another chance to capitalize on attorney-client
privileged information he received from Illumina  ILMN.O 
director Andrew Teno, an Icahn portfolio manager who was elected
to Illumina’s board in May 2023. Teno’s election followed a
bruising proxy battle in which Icahn blasted Illumina’s
incumbent directors for consummating a $7.1 billion acquisition
of cancer test maker Grail  GRAL.O  despite opposition from U.S.
and European antitrust regulators. (Illumina announced it would
divest Grail in December.)
    In October 2023, several months after Teno joined Illumina’s
board, three Icahn-controlled entities filed a shareholder
derivative lawsuit against the Illumina directors who had
approved the Grail deal, accusing the board of breaching its
duties by defying regulators to move forward with the Grail
acquisition. (The lawsuit also asserts a direct claim that
Illumina misled shareholders about the Grail acquisition during
the proxy war with Icahn.)
    Icahn’s lawsuit, which was filed under seal, is replete with
confidential information, including privileged material that
predates Teno’s election to the board but was made available to
the Icahn employee after he became an Illumina board member.
    Both Illumina and the individual director defendants cried
foul. Teno, they argued, had no right to share confidential
materials he received as an Illumina board member with Icahn –
and Icahn certainly had no right to use the information in a
lawsuit.
    Illumina lawyers from Cravath, Swaine & Moore and Potter
Anderson & Corroon, along with directors’ counsel from Wachtell,
Lipton, Rosen & Katz and Abrams & Bayliss, told Vice Chancellor
Paul Fioravanti that as a matter of policy, all privileged
information must be stricken from Icahn’s complaint. 
    “Directors should not have to be concerned that legal advice
provided by their advisors might be misused years later by a new
director who secretly and without authorization shares that
privileged information with third parties,” wrote the board
members’ counsel at Wachtell.
    Icahn’s lawyers from Kasowitz Benson Torres and Young
Conaway Stargatt & Taylor countered that Teno’s disclosure of
privileged information was justified by longstanding Delaware
precedent that places certain shareholders within the board’s
“circle of confidentiality.”
    Everyone on Illumina’s board, Icahn said, knew that Teno was
elected as an Icahn nominee. Everyone knew Teno worked for one
of Icahn’s funds. So none of Illumina’s directors, Icahn argued,
could reasonably have expected that Teno would not share
information with Icahn.
    Teno even used his Icahn email address when he communicated
with Illumina directors and officers and, according to Icahn’s
lawyers, flat out told two Illumina board members at a dinner in
August 2023 that he was passing on “important stuff” to Icahn.
No one at the dinner or afterward told Teno to stop sharing
information with Icahn, his lawyers argued.
    Fioravanti sided with Illumina and its board members in his
Jan. 16 decision.
    Delaware case law, most recently analyzed in Vice Chancellor
Travis Laster’s 2023 opinion in Hyde Park Venture Partners Fund
v. FairXchange, LLC, sets out two conditions under which board
members can share confidential information with shareholders,
Fioravanti said: when the director owes his or her board seat
directly to the shareholder, either because the shareholder
controlled enough votes to get the director elected or because
the shareholder had a contractual right to pick a board member;
and when the director simultaneously has fiduciary duties to the
shareholder.
    The motivating idea, Fioravanti said, is that in those
situations, corporate directors -- who after all have only one
brain -- cannot help sharing information with themselves in both
capacities.
    Fioravanti said Teno did not meet either condition. Icahn
was not contractually entitled to appoint an Illumina board
member, the judge said, and although Icahn backed Teno’s
candidacy, his votes alone did not secure Teno’s seat. (Icahn
entities owned a 1.4% stake in Illumina when the board election
took place.) Teno is also not a fiduciary of any Icahn
companies, Fioravanti said, but merely an employee who does not
exercise influence over Icahn decisionmakers.
    The judge ordered privileged information to be stricken from
Icahn’s complaint, rejecting Icahn’s argument that board
confidences are relevant and accurate and can be shielded from
public view by redactions. Fioravanti said courts must respond
appropriately when “confidential or privileged information is
improperly interjected into litigation.”
        I reached out to lawyers for Illumina, who did not
respond.  A. Thompson Bayliss, an attorney for the director
defendants, declined to comment.
    Directors’ counsel from Wachtell said in a Jan. 18 client
alert that Fioravanti’s ruling “confirms that there are
important limits on the ability of activist stockholders to
extract confidential information from nominated directors,
reaffirming the primacy of board deliberation and authority.”
    Not according to Icahn.
    His newly-filed motion for reconsideration argued that
Fioravanti misunderstood or overlooked key facts in deciding
that Icahn was outside of the board’s circle of confidentiality.
First, the motion argued, Icahn’s proxy war led to Teno’s
election to the board, so Icahn’s voting power controlled the
board seat, “both literally and practically.”
    Moreover, the motion argued, Teno has fiduciary duties to
the Icahn plaintiffs – a point that Icahn said he did not
originally brief because he thought Teno's fiduciary obligations
to Icahn entities were not in dispute.
    Finally, the new motion contends that when Fioravanti
ordered the confidential information to be stricken from the
complaint, the judge did not consider that Teno believed he was
fulfilling a fiduciary duty to Illumina when he provided
information to be used in Icahn's sealed filing.
    "Teno provided the challenged information to plaintiffs out
of 'extreme concern' about certain Grail-related facts he
learned as an Illumina director," Icahn's reconsideration motion
said. In that context, the Icahn plaintiffs said, the privileged
material should stay in a redacted complaint.
    I suspect Illumina and the director defendants will not
agree.
   

    Read more:
    Illumina to divest cancer test maker Grail after antitrust
battles
    
    Carl Icahn sues Illumina board for violating 'fiduciary
duties'
    
    Icahn scores partial Illumina win amid pressure to defend
investment acumen

 (Reporting By Alison Frankel)