WeWork’s meteoric rise in popularity and its unceremonious descent back to earth have kept WeWork in the news over the past few years. WeWork’s decision to sue two of its largest shareholders last year seemed no less newsworthy. In a recent development in this ongoing litigation, a Delaware Court of Chancery decision granted the defendants’ motion to dismiss WeWork’s breach of fiduciary duty claims, finding the allegations insufficient to establish a controlling shareholder relationship and the claims to be duplicative of the breach of contract claim.
WeWork was founded in 2010 as a commercial real estate company offering co-working office space with modern designs and state-of-the-art technology. WeWork enjoyed an astronomical initial valuation and was well-funded by some of the biggest names in venture capital. In 2019, WeWork began filings for an IPO. However, after a barrage of negative press involving revelations of WeWork’s shaky financials and its CEO’s erratic behavior, WeWork’s value tanked and its IPO was ultimately scrapped.
Following WeWork’s failed IPO, WeWork’s board formed a two-person special committee which negotiated a rescue funding package with Softbank, one of WeWork’s biggest and most significant investors, and the Vision Fund, a $100 billion venture capital fund that Softbank runs. According to the Complaint, under its agreements with WeWork, Softbank agreed to buy up to $3 billion worth of shares in WeWork and offer billions more in lending, which would have provided needed capital to WeWork while giving Softbank majority control of the company.
After the outbreak of COVID-19 and the rise of work from home, Softbank allegedly rethought its decision to invest in a company whose product is office space. Upon learning that Softbank was considering backing out of its agreements, WeWork filed suit against Softbank accusing it of breaching those agreements as well as breaching its fiduciary duties to WeWork shareholders. In its Complaint, WeWork alleges that Softbank is the company’s controlling shareholder and as such owed certain fiduciary duties to WeWork’s other shareholders. Softbank allegedly breached these fiduciary duties, when it “repeatedly used its influence over the Company [WeWork] to limit the Company’s options and force it into favorable outcomes for SoftBank, to the detriment of the Company’s minority stockholders.” Continue reading ›