SWANSON v. WEIL
United States District Court, D. Colorado.
September 26, 2012.
Thus, I turn to the factual allegations to determine whether Plaintiff has shown a substantial likelihood of merits on his claims. I also analyze whether Plaintiff has alleged particularized facts which create a reasonable doubt that the challenged transaction was otherwise the product of a valid exercise of business judgment. On the latter issue, I note that Plaintiff must plead "particularized facts sufficient to raise (1) a reason to doubt that the action was taken honestly and in good faith or (2) a reason to doubt that the board was adequately informed in making the decision." In Re JP Morgan Chase & Co. S'holder Litig., 906 A.2d 808, 824 (Del. Ch. 2005).
I first find that Plaintiff has not alleged facts creating a reasonable doubt that the Janus Board was adequately informed in making the decision. Thus, Plaintiff has not shown that during the informational component of the directors' decisionmaking process, Janus' directors failed to consider all material information reasonably available. See Brehm, 746 A.2d at 259. Indeed, he has not even presented a challenged on this issue. Thus, I turn to Plaintiff's actual assertions.
Plaintiff asserts that the Board granted top executive pay raises of 41% in 2010 at a time when the Company's stock price was declining. He argues in that regard that "Janus stock declined 7% in 2010 and underperformed the Dow Jones (which increased by 9%), by 16% in 2010 at the hands of these executives." (Opp'n to Janus' Mot. at 1.) Plaintiff also asserts that Janus' performance was markedly negative, and that the Board nevertheless granted an extravagant outlay of assets equal to approximately 30% of the Company's total net income for the year. (See id.; Compl. ¶ 86).
Janus responds that total compensation for the top five executives increased by 34%, not by 41% as Plaintiff claims. Further, Plaintiff has not disputed Janus' assertion that this increase is almost entirely attributable to the one-time signing bonus for Weil. Half of Weil's 2010 compensation consisted of a $10 million restricted stock award vesting over three years as an incentive to leave his prior employment. Excluding this one-time award, Janus has shown that compensation for the top five executives increased by less than 1% in 2010. And the total amount paid to four out of five of Janus' highest paid executives (Frost, Coleman, Smith, and Goff ) decreased from 2009 to 2010. (Ex. A to Kim Decl. at 47.)
Nonetheless, even if I assume Plaintiff's numbers are accurate, I find that they fail to show a substantial likelihood of liability or create a reasonable doubt that the challenged transactions were the product of a valid exercise of business judgment. Plaintiff relies primarily on the case of NECA-IBEW Pension Fund ex rel. Cincinnati Bell, Inc. v. Cox, No. 11-cv-451, 2011 WL 4383368 (S.D. Ohio Sept. 20, 2011), arguing that the directors' actions in this case mirror those at issue in that case. In Cincinnati Bell, the court found at the dismissal stage under similar facts that the plaintiff's allegations "create a reasonable doubt that the challenged transaction [related to 2010 executive pay hikes] is the result of a valid business judgment" and excused a demand on the board as futile. Id. at *3-45
I find that the Cincinnati Bell case is not persuasive and decline to follow its holding. First, its validity has been called into doubt because the court apparently lacked subject matter jurisdiction and the plaintiff failed to disclose contrary authority in response to the court's specific inquiry. See Plumbers Local No. 137 Pension Fund v. Davis, No. 03:11-633, 2012 WL 104776, at *5 (D. Or. Jan. 11, 2012), adopted as the district court's opinion, 2012 WL 602321 (D. Or. Feb. 23, 2012). More importantly, it was analyzed under Ohio law, "which is different from Delaware law", id. at *7, and I find that Delaware law does not support its holding.
Delaware courts hold "that a board's decision on executive compensation is entitled to great deference" as "the size and structure of executive compensation are inherently matters of judgment." Brehm, 746 A.2d at 263. "It is the essence of business judgment for a board to determine if `a particular individual warrant[s] large amounts of money, whether in the form of current salary or severance provisions.'" Id. (quotations and internal quotation marks omitted). Thus, if there "`is any substantial consideration received by the corporation, and if there is a good faith judgment that in the circumstances the transaction is worthwhile, there should be no finding of waste, even if the fact finder would conclude ex post that the transaction was unreasonably risky." Id. (emphasis in original) (quotation omitted). While there are "outer limits" to this rule, "they are confined to unconscionable cases where directors irrationally squander or give away corporate assets." Id.