Shaev v. Adkerson ( 2015 )

EFiled: Oct 05 2015 04:42PM EDT
Transaction ID 57964883
Case No. 10436-VCN
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
VICTORIA A. SHAEV, On Behalf of Herself:
and All Other Similarly Situated Stockholders,
:
and Derivatively for the Benefit of and on
:
Behalf of Nominal Defendant FREEPORT- :
MCMORAN INC., :
:
Plaintiff, :
:
v. : C.A. No. 10436-VCN
:
RICHARD C. ADKERSON, ROBERT J. :
ALLISON, JR., ROBERT A. DAY, :
GERALD J. FORD, H. DEVON GRAHAM, JR., :
LYDIA H. KENNARD, JAMES C. FLORES, :
ALAN R. BUCKWALTER, III, THOMAS A. :
FRY, III, CHARLES C. KRULAK, BOBBY LEE :
LACKEY, JON C. MADONNA, DUSTAN E. :
MCCOY, JAMES R. MOFFETT, STEPHEN H. :
SIEGELE, FRANCES FRAGOS TOWNSEND :
and FREEPORT-MCMORAN INC., :
:
Defendants. :
MEMORANDUM OPINION
Date Submitted: June 18, 2015
Date Decided: October 5, 2015
Peter B. Andrews, Esquire and Craig J. Springer, Esquire of Andrews & Springer,
LLC, Wilmington, Delaware; Alexander Arnold Gershon, Esquire and Michael A.
Toomey, Esquire of Barrack, Rodos & Bacine, New York, New York; and
Daniel E. Bacine, Esquire of Barrack, Rodos & Bacine, Philadelphia,
Pennsylvania, Attorneys for Plaintiff.
William M. Lafferty, Esquire, Megan W. Cascio, Esquire, Kevin M. Coen,
Esquire, and Lauren K. Neal, Esquire of Morris, Nichols, Arsht & Tunnell LLP,
Wilmington, Delaware, and William Savitt, Esquire, Andrew J.H. Cheung,
Esquire, Adam S. Hobson, Esquire, and Nicholas Walter, Esquire of Wachtell,
Lipton, Rosen & Katz, New York, New York, Attorneys for Defendants.
NOBLE, Vice Chancellor
I. INTRODUCTION
Plaintiff Victoria Shaev (“Shaev” or “Plaintiff”) brought this direct and
derivative action on behalf of herself and other similarly situated stockholders, and
derivatively on behalf of Nominal Defendant Freeport-McMoran, Inc. (“Freeport”
or the “Company”). Plaintiff requests that the Court declare void, rescind, and
terminate the Freeport board’s grant of one million restricted stock units (“RSUs”)
to Defendant Richard Adkerson (“Adkerson”), declare void the Freeport
stockholders’ 2014 director election and approval of the say-on-pay proposal,
require an equitable accounting, with disgorgement, to compensate Freeport for the
losses sustained by the alleged conduct, award monetary relief to compensate
Freeport for the grant of the RSUs to Adkerson, and award Plaintiff her legal
expenses. The Court now addresses the Freeport board of directors’ and Freeport’s
(together the “Defendants”) motion to dismiss under Court of Chancery
Rules 12(b)(6) and 23.1.
II. BACKGROUND1
Freeport is a diversified natural resources company incorporated in
Delaware.2 The Company’s stock trades on the New York Stock Exchange, and,
1
The factual background is based on allegations in the Verified Stockholder’s
Class and Derivative Action Complaint (“Complaint” or “Compl.”) and on exhibits
integral to or incorporated into the Complaint. In re Gardner Denver, Inc., 2014
WL 715705, at *2 (Del. Ch. Feb. 21, 2014).
2
Compl. ¶ 6.
1
as of February 14, 2014, more than one billion shares of common stock were
issued and outstanding.3 Shaev has continuously owned Freeport stock since
March 2007.4
In May and June 2013, the Company, then a mining company named
Freeport-McMoran Copper & Gold Inc. (also referred to as the “Company” or
“Freeport”) acquired Plains Exploration & Production Co. (“PXP”) and McMoran
Exploration Co. (“MMR”).5 Freeport stockholders challenged the acquisitions,
alleging that the Company’s board of directors had breached its fiduciary duties
(the “Related Action”),6 and eventually settled.7 The settlement purported to
release all claims but, when Plaintiff objected to the settlement to the extent that it
released her claims, Defendants agreed to “carve out that claim from the release.”8
Therefore, this action is the sole remaining challenge arising from the facts upon
which the Related Action was based.
3
Id.
4
Id. ¶ 5.
5
Id. ¶¶ 6, 24.
6
Verified Derivative Action Complaint ¶ 1, In re Freeport-McMoran Copper &
Gold Inc. Deriv. Litig., C.A. No. 8145-VCN (Dec. 21, 2012).
7
Tr. of Settlement Hr’g at 4, In re Freeport-McMoran Copper & Gold Inc. Deriv.
Litig., C.A. No. 8145-VCN (Apr. 20, 2015).
8
Id. at 17; Defs.’ Reply Br. in Supp. of their Mot. to Dismiss the Verified
S’holder’s Class and Deriv. Action Compl. (“Defs.’ Reply Br.”) 25 n.8 (“[T]o
avoid needless litigation of these same claims in the context of a settlement
objection, defendants in this action will not contend that the settlement of [the
Related Action] releases Shaev’s claims in this case.”).
2
Adkerson was, since December 2003 and until the acquisitions, the sole
CEO of Freeport, and has been Freeport’s president since January 2008.9
Defendant James Flores (“Flores”) was the chairman, CEO, and president of PXP
when it was acquired by Freeport.10 As part of the acquisition of PXP, the Freeport
board limited Adkerson’s authority as CEO to the mining business,11 installed
Flores as CEO of the oil and gas business,12 and adopted certain bylaw
amendments subjecting both CEOs’ authority to that of Moffett, the board
chairman.13 At a December 3, 2012, meeting conducted by the special committee
charged with evaluating the MMR and PXP acquisitions, Adkerson agreed to the
limitations on the scope of his authority.14 Adkerson also voted at an April 17,
2013, special board meeting in favor of adopting the amended bylaws.15 While the
amendments for the first time subjected Adkerson’s authority to that of the
9
Compl. ¶ 8.
10
Id. ¶ 9.
11
Id. ¶ 25.
12
Id. Additionally, Adkerson and Flores would become vice chairmen of Freeport,
and Defendant James Moffett (“Moffett”) would remain as chairman of Freeport’s
board. Id.
13
Id. ¶ 11. While the Complaint mentions only that the CEO of the oil and gas
business (Flores) must report to the chairman (Moffett), the bylaw amendments
quoted in the Complaint indicate that, contrary to the CEO’s independence prior to
the amendments, the CEO (Adkerson) now must also report to the chairman. Id.
(quoting the previous and amended bylaws enumerating the CEO’s authority,
including the phrase “and [shall have] such other duties and responsibilities as may
be determined by the Chairman of the Board,” which appeared only in the
amended version).
14
Id. ¶ 25.
15
Id. ¶¶ 21-22. The vote was unanimous. Id.
3
chairman, Moffett assured Adkerson, prior to the vote, that “the changes to the by-
laws would have no impact on Mr. Adkerson’s rights under his employment
agreement.”16
After consummation of the acquisitions, the Freeport compensation
committee became concerned that these governance alterations might have
triggered a clause in Adkerson’s 2008 employment agreement (the “Employment
Agreement”) allowing him to terminate his employment for “good reason,” and,
according to the Freeport board, receive a $46 million severance package (the
“Good Reason” provision).17 The Employment Agreement defined “Good
Reason” as including “any . . . action that results in a diminution in [Adkerson’s]
position, authority, duties or responsibilities,”18 and provided that “[a]ny
16
Transmittal Aff. of Lauren K. Neal in Supp. Of Defs.’ Br. in Supp. of their Mot.
to Dismiss the Verified S’holder’s Class and Deriv. Action Compl. (“Neal Aff.”)
Ex. 5 at 2 (minutes from the April 17, 2013 board meeting). Plaintiff, at page 12 of
her Answering Brief, acknowledges that Adkerson made this statement.
17
Compl. ¶ 17. The Employment Agreement expired on January 1, 2012, but
would automatically renew for additional one year terms “unless not later than
August 1 of the immediately preceding year,” the board’s compensation committee
provides written notice “that it does not wish to extend th[e] agreement.” Neal Aff.
Ex. 1 (“Employment Agmt.”) at Art. I § 2. The Employment Agreement provided
that, if Adkerson terminated with Good Reason or Freeport terminated without
cause, Freeport would be required to pay Adkerson “in cash an amount equal to
three times the sum of (i) the Executive’s Base Salary in effect at the Termination
Date and (ii) average of the Bonuses paid to the Executive for the immediately
preceding three Fiscal Years.” Id. at Art. IV § 4(b).
18
Employment Agmt. Art. III § 4(b).
4
determination of ‘Good Reason’ made by [Adkerson] in good faith and based upon
his reasonable belief and understanding shall be conclusive.”19
To that end, the compensation committee retained compensation consultant
John D. England (“England”), a managing director of Pay Governance LLC, to
assess the credibility of the potential claim.20 During compensation committee
meetings on October 14 and 28, 2013, England reported that the governance
changes may have triggered the Good Reason provision in the Employment
Agreement.21 The minutes from the October 28 meeting reflect Adkerson
“indicat[ing] that from his point of view, this matter needs to be addressed prior to
year-end 2013.”22
On October 29, 2014, the full board met in executive session and, with
Adkerson and Moffett having left the room, Graham reported on the October 28
meeting of the compensation committee.23 Freeport’s board reconvened on
December 10, 2013 and agreed, outside the presence of Adkerson, Flores, and
Moffett, to grant Adkerson “one million RSUs to resolve the asserted good reason
19
Id. Art. III § 4.
20
Compl. ¶ 26.
21
Id. The October 14 meeting was attended by the following directors: Defendants
Allison, Graham, Krulak, Lackey, and Ford. Id. The October 28 meeting was
attended by Defendants Allison, Graham, Kulak, Lackey, Adkerson, Flores, Ford,
and Moffett. Id.
22
Neal Aff. Ex. 6 at 3 (minutes from the October 28 compensation committee
meeting).
23
Compl. ¶ 26.
5
claim under the 2008 [Employment] Agreement” and retain Adkerson as an officer
of Freeport.24 The RSUs had a grant date fair value of $35,190,000, though due to
an intervening dividend payment the Company recorded a $37 million accounting
charge in 2013.25 The RSU grant, the Freeport board rationalized, retained
Adkerson as an officer, compromised the Good Reason claim, reduced the
potential payout from $46 million to $35 million, and, though the Company’s
income statement took an immediate charge, deferred any cash outlay until no
earlier than 6 months after Adkerson retires.26 Plaintiff subsequently filed this
action on December 8, 2014, challenging the validity of the RSU grant to
Adkerson and seeking the relief enumerated above.
III. CONTENTIONS
Plaintiff contends that the Freeport board breached its fiduciary duties by
issuing one million RSUs to Adkerson. Plaintiff maintains a direct claim that the
issuance violated the Freeport certificate of incorporation and bylaws,27 a
derivative claim that the issuance amounted to a bad faith breach of fiduciary
duty,28 and claims alleging that false and misleading statements and omissions in
Freeport’s 2014 proxy statement resulted in a breach of the board’s duty of
24
Id. ¶¶ 16-17, 23.
25
Id. ¶ 17.
26
Id. ¶ 35 (quoting Freeport’s 2014 proxy statement).
27
Id. ¶ 23.
28
Id. ¶ 53.
6
disclosure.29 Defendants have filed this motion to dismiss Plaintiff’s claims under
Court of Chancery Rules 12(b)(6) and 23.1. The Court addresses in turn each of
Plaintiff’s arguments below.
IV. ANALYSIS
A. Procedural Standard of Review under Court of Chancery Rule 12(b)(6)
On Defendants’ motion to dismiss under Rule 12(b)(6), the Court must
accept as true well-pled factual allegations in the Complaint and draw all
reasonable inferences in favor of Plaintiff.30 The Court will not, however, accept
as true conclusory allegations with no factual support or draw unreasonable
inferences.31 The Court will grant the present motion only if Plaintiff “could not
recover under any reasonably conceivable set of circumstances susceptible of
proof.”32 To the extent that Plaintiff’s claims are reasonably conceivable, the
Court must deny the motion.33
B. Plaintiff’s Direct Claim Alleging Violation of Freeport’s
Certificate of Incorporation and the Bylaws
Plaintiff alleges that the Freeport “board’s recognition and
acknowledgement of [the Good Reason] claim and its grant of one million RSUs to
29
Id. ¶¶ 36-44.
30
Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531,
536 (Del. 2011).
31
In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006).
32
Cent. Mortg., 27 A.3d at 536.
33
Id.
7
resolve such a claim violated [Freeport’s] certificate of incorporation and
bylaws.”34 Plaintiff seems to argue that, because Delaware law allows boards of
directors to amend a corporation’s bylaws,35 and because, except for one
inapplicable exception, “no ‘contractual’ right to maintain an existing by-law has
ever been recognized,”36 the Company is insulated from any contract claim arising
from such amendment and, therefore, the Board’s grant of RSUs to Adkerson must
have been in bad faith.
The Court finds this argument unpersuasive. First, at issue in this case is the
Freeport board’s grant of RSUs to Adkerson because of the impact of the bylaw
amendments on his employment. The board amended the bylaws as an outgrowth
of the merger challenged in the Related Action, but no challenges to those
amendments survived the Related Action settlement. Adkerson does not (nor does
any other Defendant) contend that the amendment of the bylaws was in any way
improper; the Defendants simply acknowledge the possibility that the amendments
could give rise to Adkerson’s Good Reason claim. Therefore, arguments offered
by Plaintiff regarding the authority of the board to amend the bylaws are largely
inapposite.
34
Compl. ¶ 18.
35
Pl.’s Br. in Opp’n to Defs.’ Mot. to Dismiss (“Pl.’s Answering Br.”) 16 (quoting
Kidsco Inc. v. Dinsmore, 674 A.2d 483, 492 (Del. Ch.), aff’d, 670 A.2d 1338 (Del.
1995)).
36
Id. (quoting Kidsco, 674 A.2d at 492 n.6).
8
Further, Plaintiff’s leap from the proposition that the board has the authority
to amend the bylaws to the conclusion that it is insulated from any breach of
contract claim arising from such amendment is misplaced. That a corporation
cannot be sued by contractual partners because of the consequences of a bylaw
amendment does not follow from the premise that a corporation’s board has the
authority to amend the bylaws. As Defendants’ reply brief notes, “[t]his result
would mean that a corporation could negate any contractual undertaking to
anyone . . . merely by the expedient of abrogating the contractual obligation in the
guise of a bylaw amendment.”37 Such a result would deter creation of commercial
contractual relationships with Delaware corporations in violation of Delaware’s
strong policy favoring freedom of contract and commercial efficiency.38
Even assuming the Court accepts Plaintiff’s argument, the claim does not
satisfy basic notice pleading requirements.39 The alleged wrong is a breach of the
certificate of incorporation and bylaws, yet Plaintiff fails in the Complaint and
answering brief to identify any specific provision in either instrument the Freeport
37
Defs.’ Reply Br. 4.
38
Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1059-60 (Del.
Ch. 2006).
39
Ct. Ch. R. 8(a); Solomon v. Pathe Commc’ns Corp., 672 A.2d 35, 39 (Del. 1996)
(holding that while Court of Chancery Rule 23.1 requires pleading facts with
particularity in a derivative action, “the standard used to review a Chancery
Rule 12(b)(6) motion to dismiss a stockholder class action suit is consistent with
the notice pleading concept of Chancery Rule 8(a).” The pleading must, however,
provide at least a “general notice of the claim asserted.” Id. (quoting Rabkin v.
Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985)).
9
board may have breached. She merely states the proposition that the Freeport
board had authority to amend the bylaws, and concludes therefrom that the board’s
grant of RSUs to Adkerson violated the certificate of incorporation and bylaws.40
Where a plaintiff fails to identify any contract provision that was breached, the
“count fails to state a claim upon which relief may be granted.”41
Finally, Plaintiff alleges in connection with her direct claim that the Flores
appointment and bylaw amendments did not diminish Adkerson’s authority in any
way that would implicate the Good Reason provision in the Employment
Agreement. However, while the appointment of Flores as CEO of the oil and gas
business did not reduce Adkerson’s absolute authority (he retained authority over
the mining business), it did reduce the proportion of the Company he managed.
Additionally, the bylaw amendments subjected his authority to that of the Freeport
board’s chairman.42 Moreover, Adkerson needed only to have a “good faith . . .
reasonable belief” that the appointment of Flores and accompanying bylaw
amendments triggered the Good Reason provision to bring a colorable claim.43
Thus, Adkerson’s potential Good Reason claim was at least “arguable,” invoking
40
Compl. ¶ 23.
41
Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 116 (Del. 2006).
42
See supra note 13.
43
Employment Agmt. Art. III § 4.
10
the business judgment rule,44 which protects the board’s RSU grant so long as it
can be “attributed to any rational business purpose.”45 Here, the Freeport board’s
desire to retain Adkerson as CEO and to avoid litigation clears this low hurdle.
Therefore, Plaintiff’s direct claim for breach of the certificate of incorporation and
bylaws fails, and Defendants’ motion to dismiss the direct claim is accordingly
granted.46
C. Plaintiff’s Derivative Claim Alleging Bad Faith Breach of Fiduciary Duty
Plaintiff next alleges, derivatively on behalf of Nominal Defendant Freeport,
that the Freeport board acted in bad faith by granting the RSUs to Adkerson.47 The
44
See Steiner v. Meyerson, 1995 WL 441999, at *5 (Del. Ch. July 19, 1995)
(“[D]isinterested directors [may] settle matters with a departing CEO who, in all
events, had at least arguable claims under his employment agreement and who
presumably . . . possessed skills and knowledge that it was advantageous to
continue to have available to the corporation.”); accord White v. Panic, 783 A.2d
543, 552 (Del. 2001).
45
Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1373 (Del. 1995) (quoting
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985)) (internal
quotation marks omitted).
46
The Court notes for completeness Plaintiff’s argument that because the
Employment Agreement tied Adkerson’s duties to the bylaws, and the board had
the power to amend the bylaws, any such amendment would not give rise to a
Good Reason claim. This argument ignores that while a board may amend the
bylaws, such amendment is not free from contractual rights that it may impair. See
supra text accompanying notes 37-38.
47
Compl. ¶ 53. The parties, in their briefs, argue this claim under both waste and
bad faith standards and cite overlapping authority regarding the proper
characterization of Plaintiff’s claim. Compare In re Walt Disney Co. Deriv. Litig.,
906 A.2d 27 (Del. 2006) (analyzing under waste standards a board’s grant of a
$130 million severance package to an executive terminated without cause), with
Steiner, 1995 WL 441999, at *5 (stating that where a waste claim “entails” a bad
11
Supreme Court has characterized “bad faith” as requiring “intentional dereliction
of dut[ies or] a conscious disregard for one’s responsibilities.”48 “Bad faith cannot
be shown by merely showing that the directors failed to do all they should have
done under the circumstances. Rather, [o]nly if they knowingly and completely
failed to undertake their responsibilities would they breach their duty of loyalty.” 49
It is with this standard in mind that the Court analyzes Plaintiff’s derivative claims.
1. Procedural Standard of Review under Court of Chancery Rule 23.1
Under Court of Chancery Rule 23.1, a stockholder may not bring a
derivative action on behalf of the corporation unless she has made a demand on the
board to institute litigation which has been wrongfully refused, or plead
particularized facts “creating reasonable doubt that either (1) the directors are
disinterested and independent or (2) the challenged transaction was otherwise the
product of valid business judgment,” thereby demonstrating that any demand
faith claim, it would be analyzed as a breach of fiduciary duties). Because the
Court concludes that, in this case, the result would be the same under either
standard, and given Defendants’ concession that the two standards are “similar,”
Defs.’ Reply Br. 9, the Court analyzes Plaintiff’s derivative claims under the bad
faith standard.
48
Walt Disney, 906 A.2d at 66.
49
Wayne Cnty. Empls.’ Ret. Sys. v. Corti, 2009 WL 2219260, at *14 (Del. Ch.
July 24, 2009), aff’d, 996 A.2d 795 (Del. 2010) (alteration in original) (internal
quotation marks omitted).
12
would have been futile.50 The rationale for requiring such a demand is twofold: it
“implement[s] the principle that the cause of action belongs to the corporation, not
the stockholder plaintiff,”51 and gives the “corporation the opportunity to rectify an
alleged wrong without litigation.”52
Plaintiff contends that demand in this case would have been futile, and is
therefore excused, for two reasons. First, she alleges that the decision to award the
RSUs to Adkerson was not a business decision, but a legal decision, which is not
protected by the business judgment rule and therefore not subject to the Rule 23.1
demand requirements.53 Plaintiff is correct that, to obtain protection under the
business judgment rule and therefore implicate demand requirements, a board’s act
must be a business decision and not a legal decision.54 This truism is, however,
inapposite to this case. The Complaint alleges harm caused by the Freeport
board’s grant of RSUs to Adkerson—not by its determination that Adkerson’s
claim is “arguably” meritorious. Plaintiff seems to imply, however, that the
50
Ct. Ch. R. 23.1; Del. Cnty. Empls. Ret. Fund v. Sanchez, 2015 WL 5766264, at
*2 (Del. Oct. 2, 2015); accord Aronson v. Lewis, 473 A.2d 805, 813-15 (Del.
1984).
51
White, 783 A.2d at 546.
52
Aronson, 473 A.2d at 809.
53
Compl. ¶ 56.
54
Grayson v. Imagination Station, Inc., 2010 WL 3221951, at *6 (Del. Ch.
Aug. 16, 2010) (“[Q]uestions of law can only be determined by the Court and,
therefore, the business judgment rule does not apply. Because the business
judgment rule does not apply, the derivative suit requirements have no relevance,
and [such] claims . . . are necessarily individual.”).
13
board’s grant of RSUs was based on its opinion regarding the merits of the Good
Reason claim. This argument, too, must fail. The board did not form an opinion
regarding the viability of the Good Reason claim on its own accord. It instead
hired an expert who advised that the appointment of Flores and accompanying
bylaw amendments may have triggered the Good Reason provision.55 The board’s
relevant decision, then, was granting the RSUs in order to avoid potential
litigation; litigation that, given the compensation consultant’s advice, the board
could reasonably have viewed as meritorious. The cases Plaintiff cites supporting
her proposition that legal decisions are not protected by the business judgment rule
all arise in the context of a board’s acting outside the scope of its authority.56
55
Compl. ¶ 26.
56
Allen v. El Paso Pipeline GP Co., 90 A.3d 1097, 1108 (Del. Ch. 2014) (“Boards
of directors have no discretion to exceed the intra-entity limitations on their
authority. . . . Without authority to take the action in question, a board has no
business judgment to exercise.”); Grayson, 2010 WL 3221951, at *5
(“[D]defendants are alleged to have gone beyond the authority granted to them by
the Company’s shareholders. . . . These alleged acts go against the structural
relationship established by the shareholders, and it is consequently the shareholders
who were directly harmed-not the Company.”). In Grimes v. Donald, 673 A.2d
1207, 1212 (Del. 1996), the Supreme Court held that whether an employment
agreement violates Section 141 of the Delaware General Corporation Law is a
“question of law directly concerning the legal character of the contract and its
effect upon the directors” and is therefore not subject to business judgment rule
protection. Notably, however, the Court held that:
If an independent and informed board, acting in good faith,
determines that the services of a particular individual warrant large
amounts of money, whether in the form of current salary or severance
provisions, the board has made a business judgment. That judgment
14
Thus, while a decision regarding the validity of a contract may be a legal decision
not subject to the protections of the business judgment rule, the decision to grant a
severance payment, or, as here, a payment in lieu thereof, is a business decision
and accordingly remains subject to applicable demand futility requirements.
Second, Plaintiff alleges that demanding that the board initiate litigation in
this case would have been futile and is therefore excused because “the transaction
is so egregious on its face that board approval cannot meet the test of business
judgment, and a substantial likelihood of director liability therefore exists.”57
Plaintiff’s argument regarding the egregiousness of the transaction, however,
depends on the Court’s analysis of the directors’ acts and the viability of the Good
Reason claim, and is therefore analyzed with respect to the merits of the bad faith
claim below.
2. The Directors Did Not Act in Bad Faith in Approving the Grant
of One Million RSUs to Adkerson
Plaintiff’s derivative claim centers on the allegation that the Freeport board’s
grant of RSUs to the Company’s CEO Adkerson was so egregious as to constitute
normally will receive the protection of the business judgment rule
unless the facts show that such amounts, compared with the services
to be received in exchange, constitute waste or could not otherwise be
the product of a valid exercise of business judgment.
Id. at 1215.
57
Compl. ¶ 55.
15
bad faith.58 To substantiate this argument, Plaintiff alleges that the board had two
defenses to the Good Reason claim—acquiescence and public policy
considerations—and that therefore Adkerson’s promise in return for the grant of
RSUs to refrain from terminating the Employment Agreement and bringing the
Good Reason claim was worthless. The Court analyzes each of these potential
defenses below, keeping in mind that, to bring a successful Good Reason claim,
Adkerson must merely have had a “good faith . . . reasonable belief” that the Good
Reason provision had been triggered.59
(a) The Board would likely not have had an Acquiescence Defense
to Adkerson’s Good Reason Claim
Plaintiff argues that Adkerson acquiesced to the governance changes that
England, the compensation consultant, stated may have triggered the Good Reason
provision in the Employment Agreement, and that such acquiescence bars any
related claim.60 The argument is essentially that because Adkerson approved the
appointment of Flores and associated bylaw amendments, because the Company’s
board knew of such approvals, and because the Company’s board knew that
consent to corporate action would bar any Good Reason challenge,61 the board
58
Id. ¶ 53.
59
Employment Agmt. Art. III § 4.
60
Compl. ¶ 28.
61
This conclusion is doubtful, but the Court nonetheless states it to complete the
logical maze required to find for Plaintiff on this issue. The Court further notes
that the “knowledge” alleged by Plaintiff would have to have been inferred by the
16
must have known that Adkerson’s consent to the above decisions abrogated his
Good Reason claim.
Plaintiff relies heavily on Klaassen v. Allegro Dev. Corp.62 in support of her
argument that Adkerson’s approval bars his Good Reason claim. In Klaassen,
however, the executive challenged the merits of a board decision63—he did not
assert, as Shaev does here, contract rights triggered as a result of the decision.
Further, in Klaassen, the executive, after his removal but prior to his Section 225
challenge arising therefrom, helped his replacement learn about the industry and
company operations, indicated that he would hold his replacement accountable as
CEO, provided feedback on his replacement’s employment agreement, and assisted
in the selection of his replacement management team.64 Here, however, Adkerson
engaged in no such activities.65
Plaintiff, however, argues that Adkerson’s approval of Flores’s appointment
and the bylaw amendments amount to such acquiescence. This argument fails for
board from England’s statement regarding a reduction in base salaries of Moffett
and Flores, and then reapplied to the facts at bar. Id. ¶ 26. Though outside the
scope of this opinion, the Court notes that grasping a legal concept in one context
and reapplying it to the facts of another is a task generally not within a board’s
purview. See supra note 54 and accompanying text.
62
106 A.3d 1035 (Del. 2014).
63
Id. at 1037.
64
Id. at 1041.
65
In fact, he explicitly stated to the board that “this matter needs to be addressed
prior to year-end 2013.” Neal Aff. Ex. 6 at 3 (minutes from the October 28
compensation committee meeting).
17
two reasons. First, as stated above, Adkerson is not challenging the Flores
appointment and bylaw amendments to which he agreed—he is merely asserting
rights that resulted from those events.66 Second, Adkerson agreed to the bylaw
changes only after Moffett, the Freeport board chairman, assured him that such
“changes to the by-laws would have no impact on Mr. Adkerson’s rights under his
employment agreement.”67 While Plaintiff argues that this statement “actually
means . . . that the changes would not reduce Adkerson’s authority,”68 Defendants
argue that it meant that Adkerson would still have all rights under his Employment
Agreement. Regardless of whose interpretation is more accurate, so long as
Adkerson had a “good faith . . . reasonable belief”69 that the provision remained
valid, his claim is at least “arguable” which, as Plaintiff concedes, is “the minimum
standard for settling a CEO’s claim against his company.”70
More importantly, a logical extrapolation of Plaintiff’s argument that
Adkerson’s agreement to the governance changes barred his Good Reason claim is
66
Plaintiff cites Wechsler v. Abramowitz, 1984 WL 8244 (Del. Ch. Aug. 30, 1984),
and Gottlieb v. McKee, 107 A.2d 240 (1954), to support her conclusion that a
director’s or officer’s approval of a transaction precludes a later challenge to it. As
stated, however, this argument is inapposite—Adkerson is not challenging the
board’s decision to install Flores as Adkerson’s co-CEO or amend the bylaws; he
is simply invoking a right in his Employment Agreement triggered by the decision.
67
Pl.’s Answering Br. 12; Neal Aff. Ex. 5 at 2 (minutes from the April 17, 2013
board meeting).
68
Pl.’s Answering Br. 12.
69
Compl. ¶ 45.
70
Pl.’s Answering Br. 23; Steiner v. Meyerson, 1995 WL 441999, at *5 (Del. Ch.
July 19, 1995).
18
that a director’s or officer’s agreement to a board’s decision nullifies any
contractual right vesting in such director or officer therefrom. This Court has,
however, held otherwise.71 Even assuming, purely for the sake of argument,
Plaintiff’s contention that approval of a transaction nullifies claims arising from
such approval, Plaintiff has still failed to demonstrate that the board’s decision to
grant Adkerson additional compensation would violate its fiduciary duties.
Adkerson would still be free to bring suit against the Company, and the board’s
decision to compromise such a claim is within its business judgment.72 Therefore,
the Company’s possible acquiescence defense to Adkerson’s potential Good
Reason claim is not sufficient to characterize the board’s grant of RSUs as in bad
faith.
71
See, e.g., Hamilton P’rs, L.P. v. Highland Capital Mgmt., L.P., 2014 WL
1813340, at *9 (Del. Ch. May 7, 2014) (dismissing allegations of breach of
fiduciary duty against CEO of a company who declined to prevent a third-party
stock purchase that would trigger “change-in-control rights” in the CEO’s
employment agreement worth $6.6 million, and who eventually agreed to remain
CEO and receive an additional $5 million in compensation in exchange for not
exercising such rights). Whether spun as a decision against his self-interest by
limiting his own authority, or a decision favoring his personal interest by
implicating the Good Reason provision, the bottom line is that Adkerson, as a
director, was obligated to make a decision that he believed was in the best interests
of the company. A challenge to Adkerson’s decision may take the form of a
fiduciary duty claim, but the Court is unwilling to hold, without more, that
discharging one’s directorial responsibility in accordance with applicable fiduciary
duty standards amounts to acquiescence.
72
White, 783 A.2d at 552 (“The decision to approve the settlement of a suit against
the corporation is entitled to the same presumption of good faith as other business
decisions taken by a disinterested, independent board.”).
19
(b) The Board would likely not have had a Public Policy
Defense to Adkerson’s Good Reason Claim
Plaintiff alleges that the Good Reason provision of Adkerson’s Employment
Agreement was void as a matter of public policy, and therefore the board’s grant of
the RSUs to Adkerson was in bad faith.73 Plaintiff’s argument is essentially that
the maximum allowable payment to Adkerson was $2.6 million because that is the
amount that would have been due under the Employment Agreement had the
compensation committee notified Adkerson of its desire to terminate the agreement
in December 2013.74
Plaintiff characterizes the Good Reason provision as a liquidated damages
provision and argues that Delaware law forbids parties to a contract from imposing
early termination penalties.75 Delaware courts, however, routinely uphold similar
provisions in executive employment agreements.76 Plaintiff attempts to distinguish
the facts of Andreessen by noting that the Court did not characterize the severance
73
Compl. ¶ 33; Pl.’s Answering Br. 13.
74
Compl. ¶¶ 18, 31, 33.
75
Pl.’s Answering Br. 13.
76
See, e.g., Zucker v. Andreessen, 2012 WL 2366448, at *8-9 (Del. Ch. June 21,
2012) (upholding an optional severance payment worth over $40 million, and
holding that past performance at the company, among other factors, can justify
such a payment); Brehm v. Eisner, 746 A.2d 244, 263, 266 (Del. 2000) (“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,” and that “[t]o rule otherwise would invite courts to become
super-directors, measuring matters of degree in business decisionmaking and
executive compensation. Such a rule would run counter to the foundation of our
jurisprudence.” (first alteration in original) (internal quotation marks omitted)).
20
payment as a liquidated damages provision. In that case, however the payment
was optional, yet the Court still upheld the grant.77 Contrary to Plaintiff’s
argument, this fact makes Defendants’ grant of RSUs more reasonable—not only
was the $46 million severance payment expressly provided in the Employment
Agreement, but the RSU grant was valued at $11 million less than the Good
Reason claim and the board retained Adkerson’s services as CEO. Even if the
board had the authority to terminate Adkerson’s Employment Agreement without
paying the Good Reason claim, however, Plaintiff has cited no authority indicating
that it would be obligated to do so. In fact, this Court has held otherwise.78
Therefore, the board’s public policy defense to Adkerson’s potential Good Reason
claim is not sufficient to characterize the board’s grant of RSUs as in bad faith.
Finally, as stated above, Plaintiff alleges bad faith, necessitating a showing
that the Freeport board consciously disregarded its fiduciary responsibilities.79 To
the contrary, however, the board here employed a compensation consultant, met
multiple times regarding the potential Good Reason claim, and finalized an
agreement that resolved the Good Reason claim, reduced and deferred the potential
77
Andreessen, 2012 WL 2366448, at *8-9.
78
See supra note 76.
79
Walt Disney, 906 A.2d at 66.
21
cash outlay, and retained Adkerson as CEO. Thus, the directors did not act in bad
faith with regard to their decision to grant one million RSUs to Adkerson.80
Because the Freeport board did not act in bad faith, Plaintiff’s demand
would not have been futile and is therefore not excused, and the Court accordingly
grants Defendants’ motion to dismiss with respect to the derivative claims.
D. Plaintiff’s Claim Alleging Bad Faith Breach of the Board’s Disclosure Duty
While Defendants argue that the Freeport stockholders’ vote at the 2014
annual meeting to approve the board’s grant of RSUs to Adkerson insulates the
transaction from Plaintiff’s attack,81 Plaintiff alleges that the vote was not fully
informed because Freeport’s 2014 proxy statement contained material false
80
The Court notes, to be clear, that were Plaintiff’s claim analyzed solely under a
waste standard (as Defendants initially argued as the appropriate standard, see
supra note 47), the Court would reach the same result. There, Plaintiff would have
to prove that the Freeport board’s grant of the RSUs to Adkerson was “so one
sided that no business person of ordinary, sound judgment could conclude that the
corporation has received adequate consideration.” Walt Disney, 906 A.2d at 74
(Del. 2006) (quoting Brehm, 746 A.2d at 263). As held, the potential success of
Adkerson’s Good Reason claim was at least arguable, if not probable. Therefore, a
reasonable business person could conclude that retaining Adkerson as CEO and
precluding his Good Reason claim constituted sufficient consideration for the RSU
grant. Notwithstanding the merits of the Good Reason claim, retaining Adkerson
as CEO is alone sufficient consideration to justify the grant and preclude a waste
claim. See supra note 76.
81
Defs.’ Reply Br. 22. See Corwin v. KKR Fin. Hldgs. LLC, 2015 WL 5772262
(Del. Oct. 2, 2015).
22
statements and omissions and therefore cannot act to insulate such a transaction
from stockholder challenge.82
1. The Freeport Board’s Duty of Disclosure Generally
Directors have a duty of disclosure that is said to “flow[] from” their broader
duties of care and loyalty.83 Essentially, directors, when communicating to
stockholders, “are under a fiduciary duty to disclose fully and fairly all material
information within the board's control.”84 “The essential inquiry in such an action
is whether the alleged omission or misrepresentation is material.”85 The Delaware
Supreme Court has defined material facts as “those . . . for which there is a
substantial likelihood that a reasonable person would consider [them] important in
deciding how to vote.”86
“Corporate fiduciaries can breach their duty of disclosure under Delaware
law . . . by making a materially false statement, by omitting a material fact, or by
making a partial disclosure that is materially misleading.”87 To state a claim for
false statement, “a plaintiff must identify (1) a material statement or representation
82
Compl. ¶¶ 36-44; see also Solomon v. Armstrong, 747 A.2d 1098, 1114 (Del.
Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000) (“[F]ully informed shareholder
ratification will insulate a board action from subsequent legal attack by
shareholders.”).
83
Turner v. Bernstein, 1999 WL 66532, at *5 (Del. Ch. Feb. 9, 1999).
84
Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992).
85
Malone v. Brincat, 722 A.2d 5, 12 (Del. 1998).
86
Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009) (second alteration in original)
(internal quotation marks omitted).
87
O’Reilly v. Transworld Healthcare, Inc., 745 A.2d 902, 916 (Del. Ch. 1999).
23
in a communication contemplating stockholder action (2) that is false.”88 To state
a claim on the basis of an omission, “a plaintiff must plead facts identifying
(1) material, (2) reasonably available (3) information that (4) was omitted from the
proxy materials.”89 With regard to omissions, materiality requires a showing that
“the omitted fact would have assumed actual significance in the deliberations of
the reasonable shareholder” to the extent that it could be “viewed by the reasonable
investor as having significantly altered the ‘total mix’ of information made
available.”90
2. Plaintiff’s Disclosure Allegations
Plaintiff alleges both material false statements and material omissions. She
further asserts that such omissions and false statements are material because they
concern important information regarding the independence of director candidates
and advisability of director compensation, thereby compromising the 2014 director
election and say-on-pay vote. Specifically, Plaintiff alleges four disclosure
violations—two false statements and two omissions. The Court considers each in
turn.
88
Id. at 920.
89
Id. at 926.
90
Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994)
(quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
24
(a) Plaintiff’s False Statement Allegations
First, Plaintiff alleges that the board breached its duty of disclosure by
stating, in Freeport’s 2014 proxy materials, that the $35 million grant of RSUs to
Adkerson “was $11 million less than the potential cash payout under
Mr. Adkerson’s employment agreement.”91 In connection with this allegation,
Plaintiff alleges that the board omitted the fact that Freeport was liable to Adkerson
for only $2.6 million given that his Employment Agreement had only one year to
run (assuming that the compensation committee had properly terminated the
agreement), and that $46 million was an unenforceable penalty. 92 To reach this
conclusion, however, the Freeport board would have to have analyzed the
Company’s legal defenses applicable to Adkerson’s Good Reason claim and
speculated as to the potential outcome. Therefore, this desired disclosure would
have required the board to disclose Plaintiff’s legal theory—namely, that
Adkerson’s Good Reason claim was unenforceable. This Court has held, however,
that “as a general rule, proxy materials are not required to state ‘opinions or
possibilities, legal theories or plaintiff's characterization of the facts.’”93 Further,
91
Compl. ¶¶ 35-36.
92
Id. ¶ 39.
93
In re MONY Gp., Inc. S’holder Litig., 853 A.2d 661, 682 (Del. Ch. 2004), as
revised (Apr. 14, 2004) (quoting Seibert v. Harper & Row, Publishers, Inc., 1984
WL 21874, at *6 (Del. Ch. Dec. 5, 1984)); accord Williams v. Geier, 1987
WL 11285, at *5 (Del. Ch. May 20, 1987) (“[P]roxy materials need not disclose
legal theories”).
25
not only is Plaintiff’s desired disclosure immaterial, but it might have been
inappropriate to include in the proxy materials such a speculative conclusion.94
Second, Plaintiff alleges that the Freeport board’s statement in the 2014
proxy materials that Adkerson’s Good Reason termination claim was due to “the
resulting new executive management structure” was false or misleading because
such phraseology implies that the management structure was an unforeseeable
consequence of the underlying transaction, as opposed to a structure that was
deliberately established as a part thereof.95 As a threshold matter, the Court fails to
recognize, and Plaintiff fails to explain, why this distinction is material. Plaintiff
seems to argue that, because the board knew, prior to approving the acquisition of
PXP, that the stated governance changes would occur, it therefore misled the
shareholders when it implied that the governance changes were unanticipated.
Even assuming Freeport stockholders would consider such information to be
material, however, the Court is unwilling to find a disclosure violation where the
board understates its diligence, yet the transaction is nonetheless approved by
94
In re Family Dollar Stores, Inc. S’holder Litig., 2014 WL 7246436, at *21 (Del.
Ch. Dec. 19, 2014); Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 145
(Del. 1997) (“Speculation is not an appropriate subject for a proxy disclosure.”).
95
Compl. ¶ 37.
26
stockholders. Generally, disclosure claims allege that the board in fact conducted
less diligence than claimed.96
Finally, as Defendants note, Plaintiff failed to support this claim in her
answering brief, and it is therefore waived.97 Thus, Defendants’ motion to dismiss
is granted with respect to Plaintiff’s disclosure violation claims alleging false or
misleading statements in Freeport’s 2014 proxy statement.
(b) Plaintiff’s Material Omission Allegations
First, Plaintiff alleges that the Freeport board omitted from the 2014 proxy
statement the fact that Adkerson’s Employment Agreement had only one year
remaining as of December 19, 2013 and that the board was aware of this fact.98
Again, however, Plaintiff fails to allege why this omission was material. Such a
failure is fatal to Plaintiff’s claim:
A claim based on disclosure violations must provide some basis for a
court to infer that the alleged violations were material. For example, a
pleader must allege that facts are missing from the proxy statement,
identify those facts, state why they meet the materiality standard and
how the omission caused injury.99
96
See, e.g., Gantler v. Stephens, 965 A.2d 695, 711 (Del. 2009) (“[A] board cannot
properly claim in a proxy statement that it had carefully deliberated and decided
that its preferred transaction better served the corporation than the alternative, if in
fact the Board rejected the alternative transaction without serious consideration.”).
97
Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2007 WL 2982247, at *11 (Del. Ch.
Oct. 9, 2007).
98
Compl. ¶ 38.
99
Loudon, 700 A.2d at 141 (footnotes omitted).
27
Plaintiff’s sole argument regarding the duration of the Employment Agreement is
that, because the compensation committee could have terminated the agreement in
2013, the maximum allowable severance payment was $2.6 million. As stated,
however, such a conclusion would require speculative legal analysis, and would
likely result in a contrary conclusion.100 In addition, the Freeport board valued
Adkerson’s services and did not wish to see him leave the Company, and therefore
likely did not desire to terminate his Employment Agreement as Plaintiff alleges it
could have.101 The Freeport board was not required to make a speculative legal
determination and act in accordance therewith.102 Accordingly, the Freeport
board’s right to terminate the Employment Agreement is irrelevant with respect to
the 2014 proxy statement and accompanying director election and say-on-pay
vote.103
Second, Plaintiff alleges that the Freeport board violated its disclosure duty
by stating that the RSU grant “simultaneously convert[s] a potential right to
receive immediate cash into a stock grant . . . and defers the monetization of the
grant until after Mr. Adkerson’s retirement,” because the statement fails to disclose
100
See supra notes 76, 94 and accompanying text.
101
Compl. ¶ 35 (quoting an excerpt from Freeport’s 2014 proxy statement stating
that the RSU grant “served the best interests of our shareholders by . . . retaining an
experienced and skilled CEO at a time of significant transformation of our
company”).
102
See supra notes 93-94 and accompanying text.
103
Notwithstanding the omission’s immateriality, the details of the employment
agreement were disclosed in Freeport’s 2008 Form 10-K. Pl.’s Answering Br. 20.
28
that the Company must report the expense associated with the RSU grant on its
2013 income statement.104 Again, however, the Court fails to recognize, and
Plaintiff fails to explain, the materiality of such an omission. Plaintiff’s claim that
the Company’s recording of the expense in 2013 makes false the statement that the
RSU grant “deferred monetization until after Mr. Adkerson’s retirement” is
misplaced. First, the board’s use of the term “monetization” in and of itself
implies a distinction between a cash outlay and an accounting expense. Second,
Freeport’s recognition of the RSU grant to Adkerson in its 2013 income statement
conformed to Generally Accepted Accounting Principles (“GAAP”).105 Finally,
Plaintiff’s failure to explain the materiality of the Freeport board’s failure to
disclose in its 2014 proxy materials the already publicly-available information
regarding proper accounting treatment of the RSU grant is outcome determinative
in and of itself.106 Thus, Defendants’ motion to dismiss is granted with respect to
Plaintiff’s disclosure violation claims alleging material omissions from Freeport’s
104
Compl. ¶¶ 40-41.
105
Plaintiff attempts to rebuff this argument by contending that Defendants
improperly injected this “fact” into the record. Financial accounting standards are,
however, public documents subject to judicial notice pursuant to Delaware Rule of
Evidence 201(b) as “not subject to reasonable dispute.” See, e.g., Fiat N. Am. LLC
v. UAW Retiree Med. Benefits Trust, 2013 WL 3963684, at *15 n.105 (Del. Ch.
July 30, 2013) (taking judicial notice of both GAAP and International Financial
Reporting Standards). Such accounting standards require same-period expensing
of stock and option grants. See Desimone v. Barrows, 924 A.2d 908, 921 n.24
(Del. Ch. 2007).
106
See supra text accompanying note 99.
29
2014 proxy statement. Accordingly, the stockholders were fully informed at
Freeport’s 2014 annual meeting when they voted to reelect the board and approve
the say-on-pay proposal, and such stockholder approval “insulates the transaction
from all attacks other than on the grounds of waste.”107
(c) No Available Remedy for Alleged Disclosure Violations
Even assuming, for argument’s sake, that Plaintiff’s disclosure allegations
are valid, there is no relief available to Plaintiff for the alleged disclosure
violations. Plaintiff’s Complaint challenges the Freeport board’s disclosures in its
April 2014 proxy statement,108 and her answering brief requests, with respect to the
disclosure violations, declarations that the votes at the 2014 stockholders meeting
electing directors and approving the say-on-pay proposal were void.109 Such relief,
however, is no longer practical. As this Court has held: “[A] breach of the
disclosure duty leads to irreparable harm. . . . [O]nce this irreparable harm has
occurred-i.e., when shareholders have voted without complete and accurate
information-it is, by definition, too late to remedy the harm.”110 In this case,
Freeport’s 2015 annual meeting occurred on June 10th, at which time Freeport’s
107
KKR Fin. Hldgs., 2015 WL 577262, n.13.
108
Compl. ¶ 34.
109
Pl.’s Answering Br. 26; Compl. ¶¶ D-E.
110
In re Transkaryotic Therapies, Inc., 954 A.2d 346, 360-61 (Del. Ch. 2008).
30
entire board was again reelected.111 Thus, as the Complaint itself admits,112 the
alleged 2014 proxy disclosure violations are moot.113
In an attempt to sustain her disclosure claim, Plaintiff alleges two alternative
theories for relief. First, she argues that, in Malone v. Brincat,114 the Supreme
Court “suggested” that it may remedy bad faith breaches of disclosure duties by
removing or disqualifying directors.115 Plaintiff mischaracterizes Malone. There,
while affirming this Court’s dismissal of a disclosure duty claim, the Supreme
Court stated that it “express[es] no opinion whether equitable remedies such as
injunctive relief, judicial removal of directors or disqualification from directorship
could be asserted here.”116 Second, Plaintiff argues that the Court should render an
opinion on her duty of disclosure claims so that, should the Court find that the
Freeport board breached its duty of loyalty, a Freeport stockholder could bring a
later § 225 action to remove the violating directors.117 Plaintiff cites Shocking
111
Tr. of Oral Arg. on Defs.’ Mot. to Dismiss at 29 (June 18, 2015).
112
Compl. ¶ 3.
113
Loudon, 700 A.2d at 141 n.18 (citing Buckley v. Archer-Daniels-Midland Co.,
111 F.3d 524 (7th Cir.1997), to support the proposition that an allegation that a
board violated its duty of disclosure in connection with its issuance of a proxy
statement prior to an annual meeting is moot where, at the time of the suit, the
officers elected at that meeting had completed their terms and been reelected).
114
722 A.2d 5 (Del. 1998).
115
Pl.’s Answering Br. 27 (quoting Malone, 722 A.2d at 14 n.46).
116
Malone, 722 A.2d at 14 n.46.
117
Pl.’s Answering Br. 27.
31
Tech., Inc. v. Michael118 to support this claim. There, however, the Court merely
stated that “[i]f Shocking prevails on [its fiduciary duty] claim and Michael is
found to have violated his duty of loyalty, it is possible that such a judgment could
serve as the basis for a [later] § 225(c) action.”119 Such an assertion does not
support Plaintiff’s contention that the Court should render an advisory opinion on a
mooted fiduciary duty claim so that stockholders, who have since reelected the
same directors, could later seek removal of such directors in a Section 225 action.
Plaintiff’s disclosure violation allegations must accordingly be dismissed as invalid
and for failure of remedy.
V. CONCLUSION
For the foregoing reasons, the Defendants’ motion to dismiss is granted as to
the direct claims under Court of Chancery Rule 12(b)(6) and as to the derivative
claims under Court of Chancery Rule 23.1.
An implementing order will be entered.
118
2012 WL 1352431 (Del. Ch. Apr. 10, 2012).
119
Id. at *1.
32