Entwistle & Cappucci LLP Wins Reversal in Florida’s Third District Court Of Appeal

August 7, 2020

Entwistle & Cappucci LLP (“E&C”) is pleased to announce that Florida’s Third District Court of Appeal has entered a decision in The Arbitrage Fund v. William Petty, Fla. Dist. Ct. App., No. 18-4061, reversing the trial court’s dismissal of the claims asserted and finding The Arbitrage Fund has standing under Florida law to bring a direct action on behalf of a class of former shareholders of Exactech, Inc. (“Exactech” or the “Company”).

The action, brought on behalf of The Arbitrage Fund and other similarly situated investors, asserts that Exactech’s founding family (the Pettys) and other insiders breached their fiduciary duties to the Company and its shareholders when they received value and benefits greater than those received by the members of the putative class in connection with the purchase of Exactech by TPG Capital, L.P. (“TPG”). The complaint further alleges that the Pettys, with the board’s assistance and acquiescence, rejected a topping bid worth $4.75 more per share, in favor of TPG’s bid. The Pettys and other insiders received unfair benefits when they retained their equity interest in Exactech, and, thus, were insulated from the effects of the lower share price received by the putative class.

The Appellate Court analyzed the case under the two-prong test articulated in Dinuro Investments LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014), which states that in order to bring a direct action, there must be a showing of both (1) direct harm to the shareholder, separate from the initial harm flowing to the company, and (2) a special injury, distinct from the injury suffered by other shareholders. The Court concluded that because The Arbitrage Fund (and similarly situated shareholders) did not have the opportunity to retain stock in the new entity under the merger plan, while the insiders did have that opportunity, the disparity constituted a direct and separate harm to those shareholders. Regarding the special injury prong, the Court held that a shareholder may suffer special injury where its injury is separate and distinct from the injury suffered by the corporation and some, but not all, of the other shareholders.

A copy of the Appellate Court’s decision can be viewed here.

The case has been remanded to the trial court and the parties are awaiting a ruling on The Arbitrage Fund’s motion for class certification.