Historic Proxy Battle Goes to Better.com Founder Vishal Garg in Quinn Emanuel Victory
Quinn Emanuel followed a recent string of wins with a historic victory in a proxy battle on behalf of our client Vishal Garg, founder of Better Home & Financing Holding Co., thanks to a legal dream team led by Alex Spiro, Michael Swartz, and Minji Reem.
The story – including an SDNY first, an astonishing proxy win on October 5, and a raft of dramatic twists along the way – could compete with Succession.
Upon his ouster as CEO following a boardroom coup, Garg decided that wasn’t the end of it. He removed from office the very directors responsible for his firing. Spiro put it best when he announced the win: “No public CEO has ever been pushed out, litigated the issue, and won his way back in two months. Vishal Garg has been vindicated.”
This was corporate democracy in action, a huge win in the shareholder activism world, with Quinn Emanuel’s Michael Barlow in Delaware and a host of other fine litigators helping to carry the day for the client.
A Memorable Monday
The day dawned with the team awaiting the final result, and after a spectacular run of QE victories, including a Litigator of the Week recognition for the $5.7 billion award we secured for Taction Technology against Apple – the largest patent infringement jury verdict in U.S. history. Add to that a $327 million arbitration victory on October 6 for PrivatBank over Russia's seizure of its Crimean banking business.
Garg’s triumph is a groundbreaking win itself.
Garg is a brilliant product and business developer. He has worked wonders using AI to streamline the mortgage application process to make financing a home faster, less expensive, and more accessible for hundreds of thousands of American families through Better.com.
But on August 3 an activist hedge fund manager, Daniel Lewis, orchestrated a coup after joining the board just a week earlier. In the middle of the trading day, Garg was fired, his email was turned off, and he was removed from Better’s office. Lewis then installed himself as Interim CEO. Better’s stock price plummeted, dropping more than 43% the first day and eventually falling by nearly 60%.
The Founder Fights Back
Then, at the urging of Better’s largest shareholders, Garg launched an effort to remove Lewis and four of his loyalists from the board to take back control of the company.
Spiro got the call and – with Swartz, the nation’s leading activist litigator, and Reem – mounted a counterattack on the Lewis board. We proceeded by a consent solicitation. That’s like a vote at a shareholder meeting, only much harder, requiring a majority of all voting power, regardless of the turnout.
After we announced the consent solicitation, Better, under its new management, filed a securities action in federal court in Manhattan. The company sought a temporary restraining order, alleging that Garg’s consent solicitation materials violated Sections 13(d) and 14(a) of the Exchange Act. In short order, the Quinn Emanuel team drafted a masterful opposition to Better’s TRO motion, dismantling its arguments one by one. Following a two-hour hearing, we prevailed in our opposition to the TRO.
An SDNY First
It was the first time the Southern District of New York ruled that an update to a proxy statement that discloses the allegation but disputes it in good faith is enough to moot a Section 14(a) claim.
Two days after filing suit in SDNY, Better had adopted a shareholder rights plan – a poison pill – designed to deter Garg from engaging in discussions with shareholders as part of his consent solicitation process. Just hours after filing our TRO opposition in New York, we sued the company and seven directors in Delaware and sought expedition and a TRO to invalidate the poison pill. The Court of Chancery granted expedition.
And though it denied our TRO request, the court provided the clarification we needed to win the war – that communicating with other shareholders to obtain their consent would not constitute group activity that would trip the pill. That was critical to our effort to take the company back.
Garg quickly gained the support of several large blocks of shareholders, amounting to 45% of the vote. But getting from 45% to 50.1% seemed insurmountable, and the company did everything it could to thwart us, including falsely telling shareholders that Garg had only 40% of the vote and was losing the consent solicitation.
An Incredible Outcome
On a daily basis, we advised Garg on strategy, coordinated the communications, and directed the proxy solicitors on collecting votes. On October 5, the inspector of election officially certified the results. Garg had obtained support from shareholders holding more than 52% of Better’s voting power – an extraordinary degree of support in a public company vote. Upon confirmation of Garg’s return, analysts increased their stock price estimates.
This was a victory against all odds. Only 1.7% of public company solicitations have succeeded in removing a majority of directors from a board.
With Garg back at the company, Quinn Emanuel is being retained as company counsel and will help Better and Garg clean up the mess the old board left behind.