When billionaire David Murdock took Dole Food Co. private for $1.6 billion in 2013, he and a company executive defrauded the company’s board of directors, falsifying financial information that convinced the board to accept a lowball price.
That’s what a Delaware judge said in 2015, finding Murdock and former executive C. Michael Carter should personally pay $148 million to former Dole shareholders they snookered.
Shareholders got their money, but now Murdock is trying to pass the cost on to insurance companies — and a court ruled last week he might be able to do so.
Several companies, including Liberty Mutual and Arch Insurance, that had insured Dole and its executives sued Murdock, Carter and Dole in 2016, saying they should not have to cover the $148-million payout and the costs of another shareholder lawsuit related to the transaction.
Among other things, the insurers argued that the Westlake Village fruit company should be subject to California’s insurance code, which they said lets insurers off the hook in cases of fraudulent behavior.
But Murdock, Carter and Dole argued that because the company was incorporated in Delaware, that state’s more generous insurance laws should apply — and Delaware Superior Court Judge Eric Davis agreed.
“Although it may strain public policy to allow a director to collect insurance on a fraud, it does not appear to be explicitly prohibited by Delaware statutory law,” Davis wrote in his March 1 ruling, in advance of a trial scheduled for July.
Attorneys for both sides declined to comment.
Last week’s ruling was not entirely favorable to Murdock, though.
Murdock’s attorneys argued that the 2015 court opinion that found Murdock and Carter had committed fraud was just that — an opinion, since the case was settled shortly afterward before a final judgment was entered.
That, they argued, should allow Murdock to continue to assert that he had not committed fraud.
Davis disagreed, calling the 2015 opinion from Delaware Chancery Court Chancellor J. Travis Laster “conclusive” and noting that it was written after a nine-day trial that included testimony from more than a dozen witnesses.
“The 106-page opinion talks in detail about the scheme used by Mr. Murdock and his co-defendants to drive down the price of Dole,” Davis wrote.
Murdock, 94, who is worth $2.1 billion, according to Forbes, has controlled Dole, a leading grower and distributor of fruits and vegetables, since 1985. Since then, he has taken it private twice and public once. He sought to take the company public again last year, but withdrew that plan in January.
The insurance case stems from a 2013 deal in which Murdock, who owned about 40% of the company’s stock at the time and was chairman of its board, sought to buy the rest of the company’s shares and take it private.
A year earlier, Dole had sold its global packaged food business — think canned pineapple, fruit cups and frozen juice — and its fresh fruit business in Asia to a Japanese conglomerate, a transaction that reshaped the company and reduced its revenue by more than one-third.
When Murdock was negotiating to take the company private, he and Carter gave Dole’s board an inaccurate estimate of how much money the company could save from the massive divestiture.
The board ultimately approved Murdock’s buyout offer of $13.50 a share, which valued the company at about $1.6 billion. But shareholders sued, leading to a trial and to Laster’s 2015 opinion, which called Murdock and Carter to pay $148 million to former shareholders, effectively boosting the buyout price to $16.74 a share.
Laster wrote that the inaccurate savings estimate was part of a plot to tamp down the price of Dole stock in advance of a buyout offer.
“Murdock and Carter likewise deprived the stockholders of their ability to consider [the deal] on a fully informed basis and potentially vote it down,” Laster wrote. “Murdock and Carter’s conduct … demonstrated their actions were not innocent or inadvertent, but rather intentional and in bad faith.”
A settlement was reached soon after, with Murdock and Dole — under his ownership — agreeing to pay the amount recommended by Laster, plus interest. They also reached a $74-million settlement in a related case in which pension funds accused Murdock of securities fraud.
Last week’s ruling does not put an end to the insurance lawsuit. Insurers also are arguing they should not have to cover the payouts because Murdock and Dole did not properly consult with them prior to entering into the shareholder settlements, a matter expected to be decided at trial.
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