|
|
SWANSON v. WEIL
United States District Court, D. Colorado.
September 26, 2012.
Id. Again, I find this analysis equally applicable here. Plaintiff's disclosure claims fare no better, as he has not shown a substantial likelihood of liability as to same. Whether pleaded as a breach of fiduciary duty or a violation of Section 14(a) of the Exchange Act, Plaintiff must plead a material misstatement or omission. See Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 140 (Del. 1997). While Plaintiff alleges that the Board "falsely stated that its compensation committee emphasized `pay for performance", "failed to disclose that the 2010 executive compensation had no meaningful relationship to the Company's performance"; and "conceal[ed] the fact that the Company was overpaying its directors, officers, and employees via compensation plans premised on an illusory `pay for performance' executive compensation scheme" in the Proxy (Compl.¶¶ 9, 60-61, 106), he has not plead facts that create a reasonable doubt that the Committee violated its own policies and metrics in awarding performance. Further, he has failed to raise a reasonable doubt that the Board applied these metrics in bad faith in awarding the 2010 compensation. Finally, the Proxy did not represent that share price was the sole measure of performance relevant to executive compensation. See O'Reilly v. Transworld Healthcare, Inc., 945 A.2d 902, 925 (Del. Ch. 1999) ("[m]ischaracterizations of the Proxy Statement cannot support a claim for violation of the fiduciary duty of disclosure"). Plaintiff argues, however, that he need not make a demand or show a substantial likelihood of liability in connection with his Section 14(a) claim because whether or not to comply with proxy rules is not a matter of business judgment, citing Seinfeld v. Barrett, Civ. A. No. 05-298-JFF, 2006 WL 890909, at *3 (D. Del. March 31, 2006) and In Re Westinghouse Sec. Litig., 832 F.Supp. 989, 997-98 (W. D. Pa. 1993). Seinfeld does not, however, say that demand is per se excused for a Section 14(a) claim. Instead, in Seinfeld, the Court concluded that demand was excused under the second part of the Aronson test where the plaintiff alleged that defendants falsely promised shareholders tax deductions. 2006 WL 890909, at *3. To the extent Westinghouse takes a different approach, the weight of authority does not support this holding. See In re CNET Networks, Inc. S'holder Derivative Litig., 483 F.Supp.2d 947, 966 (N.D. Cal. 2007) (citing cases); Britton v. Parker, Nos. 06-cv-01797, 06-cv-1922, 06-cv-02017, 2009 WL 3158133, at *6 n.8 (D. Colo. Sept. 23, 2009); In re IAC/InterActiveCorp Sec. Litig., 478 F.Supp.2d 574, 606 n.17 (S.D.N.Y. 2007).7 Plaintiff also asserts that Defendants should not be rewarded for Janus' "poor performance. Moreover, they should not be permitted to rely on broad, subjective factors, as here, to escape liability." (Pl.'s Br. in Opp'n to Individual Defs.' Mot. at 12 n.8.) Again, Plaintiff seeks to avoid the mandates of Delaware law. As the Court of Chancery stated in rejecting the argument that Goldman Sachs' compensation program may not be perfectly aligned with shareholder interests: "This may be correct, but it is irrelevant. The fact that the Plaintiffs may desire a different compensation scheme does not indicate that equitable relief is warranted." Goldman, 2011 WL 4826104, at *14; see also Brehm, 746 A.2d at 266 ("mere disagreement cannot serve as grounds for imposing liability based on alleged breaches of fiduciary duty"). Thus, I turn to Plaintiff's argument that the adverse vote by Janus' shareholders is "powerful evidence" that the Directors "breached their existing, well-established fiduciary duties of loyalty and good faith." (Opp'n to Janus' Mot. at 8; see also Compl. ¶¶ 88, 92, 94-95.) Dodd-Frank expressly states, however, that such a vote may not be construed "to create or imply any change" to existing fiduciary duties. 15 U.S.C. § 78n-1(c)(2). In rejecting a similar argument, a Georgia court stated, "[g]iven that Delaware law, which Dodd-Frank explicitly declined to alter, places authority to set executive compensation with corporate directors, not shareholders, this Court will not conclude that an adverse say on pay vote alone suffices to rebut the presumption of business judgment protection." Teamsters Local 237 Additional Sec. Benefit Fund v. McCarthy, No. 2011-cv-197841, 2011 WL 4836230 (Ga. Sup. Ct. Sept. 16, 2011). It is also argued that the Board faces a substantial likelihood of liability for "maintaining the awards despite shareholders' demand to rescind them." (Opp'n to Janus Mot. at 9-10; see also Compl. ¶¶ 88, 92, 95.) Plaintiff points to the fact that Janus' shareholders soundly rejected the Board's 2010 executive compensation plan, with approximately 58% voting "against" this at Janus' first Dodd-Frank mandated "say-on-pay" vote on April 29, 2011. This allegedly places Janus as one of only a tiny handful of companies to have its Board's executive compensation plan voted down by shareholders. (See Opp'n to Janus Mot. at 5.) According to Plaintiff, "[t]his resounding `no' vote, combined with the decline in Janus' stock value under the stewardship of the Executive Defendants, powerfully evidences that the Board acted against the best interests of Janus and its shareholders in hiking the executives' 2010 pay, and, thus, breached its fiduciary duties of loyalty and good faith." (Id.) It also confirms, according to Plaintiff, that the Janus Board is not entitled to the business judgment presumption. (Id.) I also reject this argument, as it contradicts the express language of Dodd-Frank and well-established Delaware law. Dodd-Frank states that a shareholder vote does not "overrul[e]" a decision by a board or "create or imply any additional fiduciary duties" to rescind or otherwise respond to a say on pay vote. See 15 U.S.C. § 78n-1(c). Given this mandate, the McCarthy court held that "allegations that Beazer's Board has not `rescinded' the challenged 2010 executive compensation since learning the results of the [negative] say on pay vote" do not excuse demand. 2011 WL 4836230 at § III.B.2.b. Similarly, the Davis case rejected the plaintiffs' argument "that the shareholder vote rejecting the compensation package is prima facie evidence that the board's action was not in the corporation or shareholders' best interests. ..." 2012 WL 104776, at *7-8; see also Jacobs Eng'g Group, Inc. Consol. S'holder Derivative Litig., No. BC454543 (Cal. Sup. Ct. March 6, 2012), Ex. L to Def.'s Notice of Additional Supplemental Authority.
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).
|
|