Updated: February 22, 2019
Status: Ongoing Case
Labaton Sucharow, as co-lead counsel, represents stockholders of Straight Path Communications Inc. in litigation challenging conduct by the controlling stockholder of Straight Path, Howard Jonas, in connection with Straight Path’s $3 billion sale to Verizon Communications Inc. The court denied defendants’ motion to dismiss in June 2018. On appeal, the Delaware Supreme Court upheld the decision on February 22, 2019.
The action alleges that Jonas breached his fiduciary duty in the sale, causing minority stockholders to forgo potentially hundreds of millions of dollars in value. Jonas controlled Straight Path and IDT Corporation, from which Straight Path was spun off in 2013.
In January 2017, Straight Path entered into a consent decree with the FCC regarding fraudulent conduct, which, among other things, forced Straight Path to sell itself to a third party and remit 20 percent of the sale proceeds as a fine to the FCC. Under an indemnification agreement between Straight Path and IDT, IDT was responsible for reimbursing Straight Path for that fine post-closing.
After an active bidding for Straight Path was underway, Jonas hijacked the auction process by installing his son as Straight Path’s CEO, threatening individual board members and declaring that he would block any sale that preserved the indemnification claim. With no choice, the board released the claim against IDT for no value. Following Straight Path’s sale to Verizon, the indemnification claim would have been valued between $500 million and $1 billion.