Ned Weinberger addresses a misguided acquisition on behalf of stockholders

Recently, an AmTrust Financial Services board member failed to dodge derivative claims in Delaware Chancery Court when a judge determined the director lacked independence from controlling stockholders when deciding on an acquisition of a competing company.

During a hearing in Wilmington, Chancellor Andre G. Bouchard denied the motion to dismiss the claims of breach of fiduciary duty against AmTrust Financial Services Director Jay Miller, saying that he is loyal to the founders of AmTrust, Michael and George Karfunkel, and did not adequately explore a potential acquisition of Tower Group International before it was abandoned. The derivative suit was brought by AmTrust stockholder Cambridge Retirement System on behalf of the insurance company against its board of directors. The complaint alleges that in 2013, AmTrust explored the acquisition of Tower but in January 2014, CEO Barry Zyskind, said the transaction wasn’t in the best interests of AmTrust.

Associate Ned Weinberger of Labaton Sucharow, representing the suing stockholders, said that Miller’s liability stems from his failure to properly consider the transaction. Weinberger pointed to a 25-minute board meeting on Jan. 3, 2014, at which Zyskind said the deal wasn’t a good one for AmTrust. Citing the minutes of that meeting, Weinberger said the board heard Zyskind’s comments and decided to delegate the authority for approval of the deal to the audit committee in less than five minutes. He further argued that the board didn’t solicit any fairness opinions or seek advice from any outside financial advisers.

“This was board action that advanced the interests of the Karfunkel family by allowing this transaction to go forward,” Weinberger said, referring to the acquisition of Tower, which occurred about one hour after the board meeting.