Litigator of the Week:
Sandra Goldstein of Cravath, Swaine & Moore

Last Thursday, when Vice-Chancellor Leo Strine Jr. of Delaware Chancery Court upheld the legality of the poison pill Barnes & Noble adopted to ward off the advances of billionaire investor Ron Burkle and his Yucaipa funds, he shot down Burkle’s argument about being handcuffed by the plan’s ambiguity in uniquely Strinean fashion.

“At bottom, Yucaipa is simply positing an absurd scenario, at best fit for a discussion by a Red Bull-fueled group of nerdy second-year law school corporate law junkies, who find themselves dateless (big surprise) on yet another Saturday night,” Strine wrote in his 89-page ruling. “A corporate board is not required to conjure up every hypothetical situation imaginable and reduce it to writing in order to create a plainly-drafted rights plan.”

The ruling is studded with such jewels, including Strine’s description of Barnes & Noble investor Peter Eichler of the Aletheia funds gushing over Burkle like “an aspiring songwriter getting to trade licks and lyrics with Dylan,” and his citation of one board meeting “that can only be described as, well, weird.” But Strine also made it clear that he was ruling on the basis of a solid record established during a week-long bench trial in July.

Leading the Barnes & Noble trial team was Sandra Goldstein of Cravath, Swaine & Moore, who examined such key witnesses as B&N’s chairman and biggest shareholder, Leonard Riggio, and delivered the Barnes & Noble closing statement. (The trial team for the company and its directors also included Richards, Layton & Finger; Bryan Cave; Potter Anderson & Corroon; and Morris, Nichols, Arsht & Tunnell.)

Strine’s ruling, Goldstein said in an e-mail comment, “vindicated the [Barnes & Noble] board’s decision, making clear that the rights plan was appropriate and was implemented to protect the best interests of the minority stockholders.”

The significance of the opinion, for those who have graduated from their nerdy second-year law school days into full-fledged M&A litigation geekdom, is Strine’s finding that the Unocal standard for evaluating the poison pill’s reasonableness applies, even though Burkle’s lawyers from Bingham McCutchen and Young Conaway Stargatt & Taylor argued that the Barnes & Noble board’s actions should be judged by more skeptical standards.

Strine also concluded that the pill’s 20 percent trigger is reasonable, as is a clause in the Cravath-designed plan that exempts Riggio family members, who control a combined 32 percent of Barnes & Noble stock. Under the plan, if any investor other than a member of the Riggio group crosses the 20 percent ownership threshold or allies with another shareholder to cross the threshold, the company would issue enough new shares to substantially dilute that investor’s stake.

Significantly, according to Goldstein, Vice-Chancellor Strine concluded that the poison pill’s grandfather clause was acceptable because it limited further purchases by Leonard Riggio in addition to exempting him from the pill. “Although poison pills including grandfather clauses have been upheld in other Delaware decisions,” she said in an e-mail comment, “the court’s decision includes the most substantive discussion to date of why such clauses are appropriate as long as the pill is not preclusive.”

Burkle argued at trial that the poison pill was so draconian that he couldn’t mount an effective proxy contest for the three board seats shareholders will vote on in September. Vice-Chancellor Strine rejected that argument, and Burkle himself proved its silliness by announcing–on the day Strine’s ruling came down and settlement talks with Barnes & Noble collapsed–that he was, in fact, launching a proxy contest. Burkle has nominated himself and two other proposed directors to replace Leonard Riggio and two current B&N directors closely allied with the Riggio interests.

The proxy contest is undoubtedly a major distraction for Barnes & Noble as it considers strategic alternatives, including a sale of the company. Strine speculated in his ruling that Burkle would likely prevail in his attempt to win board seats “if [he] runs a credible slate of candidates and articulates a sound business platform justifying the slate’s election.” We asked Goldstein what effect Strine’s upholding of the poison pill may have on the proxy contest.

“Vice-Chancellor Strine clearly stated that the board acted reasonably in adopting the pill in response to the threat posed by Yucaipa,” she said via e-mail. “The court rejected the very arguments with respect to the pill that Yucaipa continues to press in the proxy contest.”

We’re not sure Barnes & Noble shareholders will take Strine’s ruling into account as they decide whether Ron Burkle or Len Riggio will best serve their interests as board members. But from Barnes & Noble’s perspective, thanks to Goldstein and the rest of the Delaware trial team that won approval of the poison pill, Burkle enters the proxy contest with a smaller ownership stake than he’d otherwise have had.

This article originally appeared on The Am Law Litigation Daily.