The Delaware Court of Chancery on Tuesday dismissed a derivative suit filed on behalf of Erin Energy Corp., saying the company's board had successfully pushed back against alleged attempts by its controller to play all sides of a three-way transaction to acquire oil mining rights in Africa.

In a 63-page memorandum opinion, Vice Chancellor Tamika Montgomery-Reeves said it appeared from the pleading that Kase Lukman Lawal, Houston-based Erin Energy chairman and CEO, had intentionally created an “information vacuum” to keep board members in the dark regarding key aspects of the 2014 deal with Erin Energy and two other companies that effectively fell under Lawal's control.

However, a special committee of Erin Energy directors repeatedly responded to Lawal's supposed attempts to hijack the process and obtained a better deal than the one Lawal had tried to secure, Montgomery-Reeves found. Those efforts, she said, had insulated board members from personal liability and precluded a finding that they had acted in bad faith.

“The complaint alleges that Lawal deprived the special committee of important information regarding the transactions. In response, the special committee recognized the information gaps and made a conscious decision to try to plug the holes created by Lawal,” Montgomery-Reeves wrote in the opinion.

Erin stockholder Robert Lenois filed his derivative complaint last February, accusing the Erin directors of bad-faith violations of its fiduciary duties in approving the transaction. According to Lenois, the seven-member board had rushed into the deal with incomplete information and caused the company to overpay by between $86 million and $198 million to acquire oil assets from Allied Energy Plc in Nigeria.

Lenois, who did not lodge a litigation demand with the board, said Erin's board would have been unable to objectively decide whether to file its own lawsuit because a majority of the directors' individual interests exposed them to personal liability in the case.

The directors moved to dismiss the suit in March 2016, arguing the transaction was a valid exercise of business judgment and that the directors—other than Lawal—were independent and disinterested throughout the process. The company's charter, the defendants said, also included exculpatory provisions that required a showing of bad faith in order for the suit to continue.

Montgomery-Reeves' analysis revealed that Lawal tried to put Erin's directors on their “back foot” by initiating discussions and negotiating deal terms without the board's knowledge. Meanwhile, the vice chancellor said, Lawal ”really was negotiating with himself,” given the stakes he held in Erin, Allied and Public Investment Corp., a third-party entity that provided cash backing for the deal.

The special committee, however, recognized the problem and tried to slow the process in deliberations. The committee, which had retained its own legal and financial counsel, was able to secure $100 million for the company in the transaction and bargained for more favorable terms on an agreement to repay a convertible note it had issued to Allied, among other friendly provisions.

“While the complaint states a claim of bad faith against Lawal, plaintiff has failed to plead facts sufficient to raise a reason to doubt that director defendants acted honestly and in good faith. Without any substantial likelihood of liability, the board retains the right to manage this litigation,” Montgomery-Reeves said.

“Plaintiff failed to bring a demand on the board. Thus, I dismiss the derivative claims for failure to make demand.”

An attorney for Lawal did not return a call requesting comment on the ruling, and attorneys for the other director defendants were not immediately available to comment.

An attorney for Lenois, the derivative plaintiff, did not return a call on Tuesday seeking comment on the ruling.

Lenois was represented by Jeremy Friedman, Spencer Oster and David Tejtel of Friedman Oster & Tejtel; Stuart M. Grant and Michael J. Barry of Grant & Eisenhofer; and Peter B. Andrews and Craig J. Springer of Andrews & Springer.

Lawal was represented by David T. Moran and Christopher R. Bankler of Jackson Walker and Myron T. Steele, Arthur L. Dent and Jaclyn C. Levy of Potter Anderson & Corroon.

Other director defendants were represented by J. Wiley George of Andrews Kurth Kenyon and Gregory V. Varallo of Richards, Layton & Finger.

The case was captioned Lenois v. Lawal.

The Delaware Court of Chancery on Tuesday dismissed a derivative suit filed on behalf of Erin Energy Corp., saying the company's board had successfully pushed back against alleged attempts by its controller to play all sides of a three-way transaction to acquire oil mining rights in Africa.

In a 63-page memorandum opinion, Vice Chancellor Tamika Montgomery-Reeves said it appeared from the pleading that Kase Lukman Lawal, Houston-based Erin Energy chairman and CEO, had intentionally created an “information vacuum” to keep board members in the dark regarding key aspects of the 2014 deal with Erin Energy and two other companies that effectively fell under Lawal's control.

However, a special committee of Erin Energy directors repeatedly responded to Lawal's supposed attempts to hijack the process and obtained a better deal than the one Lawal had tried to secure, Montgomery-Reeves found. Those efforts, she said, had insulated board members from personal liability and precluded a finding that they had acted in bad faith.

“The complaint alleges that Lawal deprived the special committee of important information regarding the transactions. In response, the special committee recognized the information gaps and made a conscious decision to try to plug the holes created by Lawal,” Montgomery-Reeves wrote in the opinion.

Erin stockholder Robert Lenois filed his derivative complaint last February, accusing the Erin directors of bad-faith violations of its fiduciary duties in approving the transaction. According to Lenois, the seven-member board had rushed into the deal with incomplete information and caused the company to overpay by between $86 million and $198 million to acquire oil assets from Allied Energy Plc in Nigeria.

Lenois, who did not lodge a litigation demand with the board, said Erin's board would have been unable to objectively decide whether to file its own lawsuit because a majority of the directors' individual interests exposed them to personal liability in the case.

The directors moved to dismiss the suit in March 2016, arguing the transaction was a valid exercise of business judgment and that the directors—other than Lawal—were independent and disinterested throughout the process. The company's charter, the defendants said, also included exculpatory provisions that required a showing of bad faith in order for the suit to continue.

Montgomery-Reeves' analysis revealed that Lawal tried to put Erin's directors on their “back foot” by initiating discussions and negotiating deal terms without the board's knowledge. Meanwhile, the vice chancellor said, Lawal ”really was negotiating with himself,” given the stakes he held in Erin, Allied and Public Investment Corp., a third-party entity that provided cash backing for the deal.

The special committee, however, recognized the problem and tried to slow the process in deliberations. The committee, which had retained its own legal and financial counsel, was able to secure $100 million for the company in the transaction and bargained for more favorable terms on an agreement to repay a convertible note it had issued to Allied, among other friendly provisions.

“While the complaint states a claim of bad faith against Lawal, plaintiff has failed to plead facts sufficient to raise a reason to doubt that director defendants acted honestly and in good faith. Without any substantial likelihood of liability, the board retains the right to manage this litigation,” Montgomery-Reeves said.

“Plaintiff failed to bring a demand on the board. Thus, I dismiss the derivative claims for failure to make demand.”

An attorney for Lawal did not return a call requesting comment on the ruling, and attorneys for the other director defendants were not immediately available to comment.

An attorney for Lenois, the derivative plaintiff, did not return a call on Tuesday seeking comment on the ruling.

Lenois was represented by Jeremy Friedman, Spencer Oster and David Tejtel of Friedman Oster & Tejtel; Stuart M. Grant and Michael J. Barry of Grant & Eisenhofer; and Peter B. Andrews and Craig J. Springer of Andrews & Springer.

Lawal was represented by David T. Moran and Christopher R. Bankler of Jackson Walker and Myron T. Steele, Arthur L. Dent and Jaclyn C. Levy of Potter Anderson & Corroon.

Other director defendants were represented by J. Wiley George of Andrews Kurth Kenyon and Gregory V. Varallo of Richards, Layton & Finger.

The case was captioned Lenois v. Lawal.