Barnes & Noble Prevails in Landmark Poison Pill Trial

On August 12, 2010, the Court of Chancery of the State of Delaware ruled in favor of Cravath client Barnes & Noble, Inc. in a lawsuit brought by certain member funds of the Yucaipa Companies, which are controlled by Ronald M. Burkle. Yucaipa filed suit on May 6, 2010, challenging the Company’s adoption and maintenance of a “poison pill” that capped shareholders at 20% of the Company’s outstanding stock and, among other things, prohibited certain agreements, arrangements or understandings relating the purchase and voting of the Company’s shares. In ruling against Yucaipa on each of its claims, the Court found that the Company’s Board acted reasonably and appropriately.

The Court’s ruling reaffirms the standard of review applicable to challenges to poison pills, specifically poison pills that include “grandfather clauses,” and will provide important guidance to boards and their advisors in drafting and adopting poison pills in the future.

The Cravath litigation team included associates Kevin J. Orsini, Jefferson E. Bell, Isaac B. Zaur, Margaret T. Segall and Erin C. Trenda. Cravath’s corporate department advised Barnes & Noble on the adoption of the shareholder rights plan.