Jay-Z and Jack Dorsey’s Tidal Acquisition Lawsuit Dismissed by Delaware Judge
A Delaware judge has dismissed a class-action lawsuit led by the City of Coral Springs Police Officers’ Pension Plan and other shareholders against Jack Dorsey and the board members of Block Inc.
The lawsuit aimed to hold them accountable for their decision to acquire Jay-Z’s struggling Tidal streaming service, which the plaintiffs argued demonstrated bad faith.
Block, formerly known as Square, agreed to pay $237 million for an 86.2% stake in Tidal, a streaming service with only 2.1 million paying subscribers and numerous challenges, including lost major contracts, an ongoing criminal investigation in Norway, unpaid liabilities to music labels, and a public fallout with Kanye West.
The pension fund claimed that Dorsey, co-founder of Block and Twitter, supported the acquisition primarily to befriend Jay-Z. During the proceedings, it was revealed that Tidal had been losing money, faced legal issues, and relied on a $50 million loan from Jay-Z. Dorsey and Jay-Z were also vacationing together in Hawaii shortly after Block entered a term sheet to purchase a majority interest in Tidal.
The acquisition was contentious, with some board members arguing that Block was overpaying for a struggling streaming service that would generate negative earnings before interest, taxes, depreciation, and amortization (EBITDA) for Block. Despite this, the deal closed on April 30, 2021, with a $237.3 million payment and Jay-Z joining Block’s board.
The City of Coral Springs Police Officers’ Pension Plan and other shareholders were infuriated by the purchase, triggering the lawsuit. However, Chancellor Kathaleen McCormick in Delaware Chancery Court found insufficient evidence to show that Block’s directors acted in bad faith, stating that she could not “presume bad faith based on the merits of the deal alone.” The dismissal of the class-action lawsuit serves as a reminder that courts will not second-guess business decisions made by independent company directors.
