A Delaware judge dismissed a class action lawsuit on Tuesday that sought to hold Jack Dorsey and other Block board members accountable for approving the payments company’s acquisition of Jay-Z’s streaming service Tidal.
Although the purchase “seemed, by all accounts, a terrible business decision,” Delaware Chancery Court Chancellor Kathaleen McCormick stated that the Florida pension fund bringing the action did not prove that Block’s board acted in bad faith.
Block, formerly known as Square, decided to pay $306 million acquire an 87.5% share in Tidal in March 2021. It paid $237.3 million for an 86.2% interest after modifications.
Block’s board came under fire for authorizing the deal even though Tidal was in the red, had lost important contracts, was under criminal investigation in Norway for its streaming figures, and had taken out a $50 million loan from Jay-Z to bolster its liquidity.
The pension fund further claimed that Dorsey, a co-founder of Block and Twitter who approved the acquisition and who purchased Tidal due to his friendship with Jay-Z, was the only top executive at Block who did so.
In its case, it cited a management professor from New York University who described the purchase as “a $300 million bar tab to hang out with Jay-Z.”
However, McCormick stated that she could not “presume bad faith based on the merits of the deal alone” in coming to the conclusion that Block directors did not violate their fiduciary obligations.
Requests for response from the plaintiff’s attorneys, the City of Coral Springs Police Officers’ Pension Plan, were not immediately answered. Similar requests did not immediately receive a response from the defendants’ attorneys.
The rapper and music tycoon Jay-Z, whose actual name is Shawn Carter, joined the board of San Francisco-based Block after buying Tidal and is still on it today.
Before Jay-Z and other music artists bought it in 2015, Tidal was known as Aspiro.
In contrast to Spotify’s 138 million, Apple Music’s 60 million, and Amazon Music’s 55 million paid customers, Tidal had 2.1 million by 2020.
In a derivative litigation filed in Delaware, Block’s directors or their insurers were asked to compensate the business for losses suffered by shareholders.
The case number is Delaware Chancery Court, No. 2022-0091, City of Coral Springs Police Officers’ Pension Plan v. Dorsey et al.