SWANSON v. WEIL
United States District Court, D. Colorado.
September 26, 2012.
II. FACTUAL BACKGROUND
Plaintiff alleges that he "is and been a shareholder of Janus since at least January 2003, and has held his Janus stock from January 2003 to the present." (Am. Verified Compl. ["Compl."] ¶ 19.) Janus is a Delaware corporation headquartered in Denver. (Id. ¶ 20.) Janus is a "publicly owned asset management holding company with approximately $167.7 billion in assets under management." (Id. ¶ 43.)
The Janus Board consists of twelve directors. (Compl. ¶¶ 21-33; Decl. of Angie Young Kim in Supp. of Defs.' Mot. to Dismiss ["Kim Decl."], Ex. A at 6-9.)1 All are independent directors (i.e., not employed by Janus) except Richard M. Weil ["Weil"], Janus' CEO. (Id.) In 2010, the Compensation Committee consisted of six independent directors (Ex. A to Kim Decl. at 12; Compl. ¶¶ 23-25, 29, 31.) In addition to Weil, the other executive defendants include: Jonathon D. Coleman ["Coleman"], Gregory A. Frost ["Frost"], James P. Goff ["Goff"], and R. Gibson Smith ["Smith"]. (Compl. ¶¶ 34-38.) On March 16, 2011, Janus filed its Proxy with the SEC. (Compl. ¶ 6; Ex. A to Kim Decl.) The Proxy provides 46 pages of information on Janus' 2010 executive compensation. (Ex. A to Kim Decl. at 28-73.) It states that the Compensation Committee met six times during fiscal year 2010, and considered market data from the broader investment management industry and Janus' peer group to determine executive compensation in 2010. (Id. at 13, 31, 33-34.) It also notes that the Committee conferred with senior management, the human resources department, independent directors from the Board, and an outside compensation consultant. (Id. at 31-32, 39.) According to the Proxy, Janus' compensation for its executives reflects Janus' five key policies: (1) alignment of executive interests with those of public and fund shareholders, (2) competitive pay, (3) rewarding performance against financial and strategic objectives, (4) meritocracy, and (5) risk management. (Id. at 33.) It also states that "[c]ompensation of all Janus executives depends on a combination of Company and individual performance". (Id.; see also Compl. ¶ 50.)
Janus asserts that the total amount paid to four of five of Janus' highest paid executives (Frost, Coleman, Smith and Goff) decreased from 2009 to 2010. (Ex. A to Kim Decl. at 49.) As for Weil, half of his 2010 compensation consisted of a $10 million restricted stock award vesting over three years as an incentive to leave his prior employment. (Id. at 9, 47, 51; Compl. ¶ 3.) In evaluating Weil's individual performance, the Committee noted:
Mr. Weil's leadership and experience assisted the Company in navigating very difficult industry conditions and an unbalanced economic recovery. Under his direction, Janus delivered strong financial results for the year including profit growth, enhanced margins, a strengthened balance sheet and positive net flows in fixed income and Perkins businesses.
(Ex. A to Kim Decl. at 39.)
1. While Janus and the Individual Defendants have referred to documents outside the pleadings in connection with their motions, I can consider these documents without converting the motions into motions for summary judgment. Janus' Proxy filed with the Securities and Exchange Commission ["SEC"] on March 16, 2011 (Ex. A to Kim Declaration) may be considered because the complaint refers to this document and it is central to the claims. See Utah Gospel Mission v. Salt Lake City Corp., 425 F.3d 1249, 1253-54 (10th Cir. 2005). Further, I may take judicial notice of the authenticated certificates filed with the Delaware Secretary of State (Exs. B-C to Kim Declaration) as they as public records. Tal v. Hogan, 453 F.3d 1244, 1264-65 & n. 24 (10th Cir. 2006).
2. The complaint further alleges that an article in the New York Times on June 18, 2011, entitled "Paychecks as Big as Tajikistan" (the "NY Times Article"), stated that Janus "topped the list" of companies that compensated executives irrespective of performance, noting Janus was the worst offender of companies examined. (Id. ¶ 12.) Moreover, it is alleged that in 2009, Glass, Lewis & Co. ranked Janus' CEO as being the 15th most overpaid CEO in the country. (Id. ¶ 13.)
3. Weil himself was not a member of the Compensation Committee.
4. Plaintiff has, in fact, alleged a number of conclusory allegations in support of his assertion that demand is excused based on futility. For example, he alleges that demand is excused as "a majority of the Board either was at fault for the misconduct described herein and/or is liable for the misconduct described herein", and are thus "disabled as matter of law from objectively considering any pre-suit demand. ..." (Compl. ¶ 93.) Further, he alleges that "the Board has openly demonstrated its hostility to this action" and that "the directors have exhibited antipathy towards the relief sought herein. ..." (Id. ¶¶ 88, 95.)
5. As to futility, the court stated, "[g]iven that the director defendants devised the challenged compensation, approved the compensation, recommended shareholder approval of the compensation, and suffered a negative shareholder vote on the compensation, plaintiff has demonstrated sufficient facts to show that there is reason to doubt these same directors could exercise their independent business judgment over whether to bring suit against themselves for breach of fiduciary duty in awarding the challenged compensation. Id. at *4. The court concluded, "at the dismissal stage, that plaintiffs' allegations create a reasonable doubt that the challenged transaction is the result of a valid business judgment, and, accordingly, the directors possess a disqualifying interest sufficient to render pre-suit demand futile and hence unnecessary." Id.
6. Similarly, in Teamsters Local 237 Additional Sec. Benefit Fund v. McCarthy, No. 2011-cv-197841, 2011 WL 4836230 (Ga. Sup. Ct. Sept. 16, 2011), a case applying Delaware law, the court found that demand was not excused where the company gave pay raises in 2010 to its four most highly compensated executives, even though it suffered a net loss of $34 million and annual share price return of -17.23%, both of which plaintiffs alleged fell below industry averages.
7. I also agree with the Individual Defendant that Plaintiff has failed to show loss causation in connection with his Exchange Act claim. See Dominick v. Marcove, 809 F.Supp. 805, 807 (D. Colo. 1992) ("To prove that a proxy misstatement caused a shareholder's damages the proxy solicitation must have been the essential causal link in accomplishing the proposed action".). To show loss causation, the proxy must solicit "votes legally required to authorize the action proposed." Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1102 (1991); see also Dominick, 809 F. Supp. at 807 (essential link cannot be proven where approval by minority shareholders not legally required to authorize transaction). Here, the advisory non-binding `say on pay" votes solicited by the Proxy were not legally required to authorize the award of the executive compensation, the only loss Plaintiff claims. Plaintiff does not dispute this. Instead, he argues the Proxy was the "essential link" that caused the "harm of a misinformed shareholder vote on executive compensation." (Opp'n to Indiv. Def.'s Mot. at 18.) But there is no such "harm" because the vote was purely advisory — no corporate action was authorized. In addition, Plaintiff fails to explain how the allegedly misleading statements tainted the vote given that shareholders voted against the proposal. In other words, Plaintiff has failed to plead that misrepresentations in the Proxy caused the loss. See Gen. Elec. Co. v. Cathcart, 980 F.2d 927, 932-33 (3d Cir. 1992); Britton v. Parker, Nos. 06-cv-01797, 06-cv-1922, 06-cv-02017, 2009 WL 3158133, at *11 (D. Colo. Sept. 23, 2009).