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Fuchs Family Trust v. Parker Drilling Co.

Court of Chancery of Delaware

March 4, 2015

FUCHS FAMILY TRUST, Plaintiff,
v.
PARKER DRILLING COMPANY, Defendant.

Submitted: November 12, 2014

Joel Friedlander, Esquire and Christopher Foulds, Esquire of Friedlander & Gorris, P.A., Wilmington, Delaware; Benny C. Goodman III, Esquire, Laurie L. Largent, Esquire, and Christopher D. Stewart, Esquire of Robbins Geller Rudman & Dowd LLP, San Diego, California; and Joe Kendall, Esquire and Jamie J. McKey, Esquire of Kendall Law Group, LLP, Dallas, Texas, Attorneys for Plaintiff.

Srinivas M. Raju, Esquire and Robert L. Burns, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware, and Samuel W. Cooper, Esquire and Christie A. Mathis, Esquire of Paul Hastings LLP, Houston, Texas, Attorneys for Defendant.

MEMORANDUM OPINION

NOBLE, Vice Chancellor

I. BACKGROUND

Based in Houston, Texas, Defendant Parker Drilling Company ("Parker" or the "Company") is a Delaware corporation providing drilling and drilling-related services. As an issuer under the federal securities laws, Parker is subject to the Foreign Corrupt Practices Act (the "FCPA").[1] The FCPA prohibits covered companies from bribing foreign officials and requires those companies to adopt and maintain preventive internal controls and accounting records.

On August 9, 2007, Parker disclosed that the United States Department of Justice (the "DOJ") had requested information regarding the Company's use of a freight forwarding and customs agent. The DOJ was concerned about FCPA compliance and had apparently requested similar information from several other companies. Early the next year, Parker disclosed that the Securities and Exchange Commission (the "SEC") had demanded the same information. Soon thereafter, the Company acknowledged that both agencies were investigating potential FCPA violations relating to Parker's business in Kazakhstan and Nigeria, and that the Company was conducting its own internal investigation.

In 2010, Parker disclosed (the "2010 Disclosure") that its internal investigation "ha[d] identified issues relating to potential non-compliance with applicable laws and regulations, including the FCPA, with respect to operations in Kazakhstan and Nigeria."[2] In response, a stockholder made demand on Parker's board (the "Stockholder Demand") to take action "to remedy breaches of fiduciary duties by the directors and certain officers of the Company . . . ."[3] The board formed a special committee (the "Special Committee") to evaluate the Stockholder Demand and determine an appropriate course of action.

Also soon after the 2010 Disclosure, various stockholders filed derivative actions in Texas state courts. These actions, one filed by Plaintiff Fuchs Family Trust ("Fuchs"), were consolidated and restyled In re Parker Company Derivative Litigation (the "State Court Derivative Action").[4] Plaintiffs in the State Court Derivative Action alleged that Parker's directors and executives had breached their fiduciary duties by failing to implement and maintain internal controls to comply with laws, including the FCPA. The plaintiffs pleaded that demand on Parker's board was futile because the members faced a substantial likelihood of liability for breaching their duties of loyalty.

Parker moved to dismiss the State Court Derivative Action, asserting that plaintiffs had inadequately pleaded demand futility. The court dismissed the action without prejudice, after which the plaintiffs filed an amended petition. Parker again moved to dismiss on substantially the same basis as its first motion. The court dismissed the amended petition, again without prejudice.[5]

While this litigation was ongoing, another stockholder derivative action (the "Freuler Action") was lodged in the United States District Court for the Southern District of Texas (the "Texas federal court"). The Freuler Action also addressed the Company's FCPA-related issues. As with the State Court Derivative Action, Parker moved for dismissal based on plaintiff's failure to plead demand futility sufficiently. The court dismissed the Freuler Action, allowing the plaintiff (the "Freuler Plaintiff") opportunity to replead.[6] The court subsequently dismissed an amended complaint with prejudice for failure to demonstrate demand excusal.[7]The United States Court of Appeals for the Fifth Circuit affirmed the dismissal.[8]

On February 15, 2013, Parker announced that it had reached an agreement in principle to settle the DOJ and SEC investigations. Two months later, the Company settled with the agencies, entering into a three-year deferred prosecution agreement ("DPA") with the DOJ and a civil settlement with the SEC (together, the "Settlement"). Parker agreed to pay $15.85 million in fines, penalties and disgorgement, consented to a permanent injunction against FCPA violations, and adopted new internal controls to bring the Company into compliance with the FCPA's books and records provisions. The DPA noted Parker's cooperation with the investigation and its extensive remediation.[9] Further, Parker has "end[ed] its business relationships with [the] officers, employees, or agents primarily responsible for the corrupt payments."[10]

The papers accompanying the Settlement (the "Resolution Papers") described a bribery scheme (the "Nigerian Bribing Scheme"), that violated the FCPA, stemming from Parker's operations in Nigeria between 2001 and 2004. Parker admitted that two senior executives, identified only as "Executive A" and "Executive B", had funneled $1.25 million in bribes to Nigerian officials through a partner ("Outside Legal Counsel") at the law firm retained by the Company (the "Law Firm").

By July 29, 2013, the Special Committee had finished assessing the Stockholder Demand. The Special Committee recommended that the Company not pursue action against the individuals named in the ...


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