Jack Dorsey, Block Board Win Appeal of Jay-Z Deal Litigation

Leaders of Block Inc., including billionaire founder Jack Dorsey, won an appeal in Delaware ending shareholder litigation over the company’s $237 million deal with Jay-Z for a majority stake in music streaming service Tidal.

The state’s top court ruled Wednesday for Dorsey—co-founder of the former Twitter Inc.—and other board members at the payments company, including former Treasury Secretary Larry Summers. The one-page decision upheld a ruling by Chancellor Kathaleen St. J. McCormick, who rejected claims that the board was driven by conflicts of interest to approve the ill-fated 2021 transaction.

McCormick, chief judge of Delaware’s Chancery Court—the leading US forum for M&A disputes—acknowledged in May that the deal had “obvious problems.” But the board acted without conflicts of interest when it approved the transaction, which the tech executive and the music mogul dreamed up during a yacht cruise together in the Hamptons, McCormick said.

Read More: Jay-Z, Bacardi End Multibillion-Dollar Fight Over Cognac Venture

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

No ‘Second-Guessing’

The lawsuit, filed last year, said Dorsey forced the deal past a skeptical board despite Tidal’s failing finances, its high-profile falling-out with rapper formerly known as Kanye West, and an ongoing criminal investigation in Norway—where Tidal was founded as Aspiro—into its user metrics. Jay-Z, who now sits on the Block board, wasn’t named as a defendant.

Shares of Block—then called Square Inc.—fell 6.7% after the deal was announced March 4, 2021, amid a broader selloff in stocks exposed to cryptocurrency. Square’s stock moved based on the market’s recognition that it was “a strategically dubious transaction at a wildly inflated valuation, obviously driven by Dorsey’s personal friendship” with Jay-Z, according to the February 2022 complaint..

NYU Business School professor Scott Galloway blasted the transaction at the time as “a $300 million bar tab to hang out with Jay-Z,” the lawsuit said. It involved shareholder derivative claims, which are technically filed on a company’s behalf against its leaders. Damages in derivative cases are typically paid into a company’s coffers—rather than directly to investors—by its officers and directors, or by their insurers.

In her May 9 ruling, McCormick found that no board member except Dorsey and Jay-Z had a significant interest in the transaction and that no other director was unduly beholden to either of them.

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’s courts are generally “not in the business of second-guessing board decisions made by disinterested and independent directors,” the judge said.

The case was brought by the City of Coral Springs Police Officers’ Pension Plan, which was represented by Saxena White PA. The board was 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., No. 161, 2023, 11/15/23.