Oracle Corp. can’t rely on an insurer to pay $20 million to help settle shareholder claims over the software maker’s acquisition of a company controlled by Oracle founder Larry Ellison, a judge concluded.

Delaware Chancery Court Judge Travis Laster on Jan. 14 dismissed Oracle’s suit seeking to force Beazley Plc, a London- based insurer that provides coverage for the company’s officers and directors, to pay $20 million to cover the proposed settlement’s legal fees.

Investors challenged Oracle’s purchase of Pillar Data Systems Inc. The deal allowed Ellison to receive a payment based on Pillar’s performance, according to court filings. Under the settlement, Ellison agreed to forgo a potential $575 million payout and Oracle agreed to use insurance coverage to pay investors’ legal fees. Oracle sued when Beazley balked at handing over the $20 million in insurance.

“I am going to dismiss this case as not ripe,” Laster said, according to a court transcript. The insurance dispute should be heard after another judge decides whether to approve the settlement of claims over the Pillar deal, Laster said.

Oracle, based in Redwood City, California, continues to make acquisitions. Last month, the world’s largest database maker acquired Responsys Inc. for about $1.5 billion to add to its array of marketing software.

Deborah Hellinger, an Oracle spokeswoman, declined to comment on Laster’s ruling.

Pillar Purchase

Oracle bought San Jose, California-based Pillar in June 2011 in a deal that investors said was engineered solely to benefit Ellison. Ellison owned 55 percent of Pillar, a closely held provider of data-storage systems.

The 68-year-old Oracle CEO’s $544 million investment in the start-up was converted into preferred Pillar shares. Those shares were canceled after Oracle acquired the company, in exchange for rights to receive a portion of the future performance-based payment, investors contend in court papers.

Pension funds in Michigan and Pennsylvania that own Oracle shares say the software maker’s directors improperly used company resources to “bail out” Ellison from his “horrible investment” in Pillar. They accused Oracle directors of violating legal duties to shareholders by backing the buyout.

Performance Payment

Lawyers for Oracle’s board argued the deal was structured to provide no immediate payment to ensure Ellison didn’t improperly benefit. A payment would only be made if warranted by Pillar’s performance during a three-year period, they said in court filings.

“It has become clear, in fact, that the earn-out will not pay anything to Mr. Ellison,” Laster said in his decision.

Delaware Chancery Court Judge Leo Strine refused Oracle’s 2012 request to have investors’ claims dismissed. Shareholders properly raised questions about whether the buyout “was a legitimate deal and whether somebody could have gotten a better deal,” the judge said at a hearing.

Strine hasn’t yet set a date to decide whether to approve the Pillar settlement. Attorneys for Oracle and suing shareholders didn’t immediately return calls today for comment on whether they will move ahead with attempts to get the judge to bless the accord.

Megan McIntyre, a lawyer for the Michigan and Pennsylvania pension funds, asked Strine in a Jan. 15 letter to schedule a settlement-approval hearing for March 6.

Beazley, a Lloyd’s of London insurer, said it refused to hand over the $20 million because it didn’t believe the Pillar accord provided any benefit to Oracle. The insurer also cited the “excessive nature” of fees sought by investors’ lawyers, according to court filings.

The case is City of Roseville Employees’ Retirement System v. Ellison, CA6900, Delaware Chancery Court (Wilmington).

–With assistance from Aaron Ricadela in San Francisco and in New York.

Editors: Stephen Farr, Fred Strasser