Hoch v. Alexander et al
MEMORANDUM OPINION re 230 MOTION for Summary Judgment, and 236 Motion for Partial Summary Judgment. Signed by Judge Richard G. Andrews on 3/26/2014. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
BARBARA T. ALEXANDER, et al.,
Civil Action No. 11-00217-RGA
Brian E. Farnan, Esq., Farnan LLP, Wilmington, DE; Alexander Arnold Gershon, Esq. (argued),
Barrack, Rodos & Bacine, New York, NY; Michael A. Toomey, Esq., Barrack, Rodos & Bacine,
New York, NY; Jeffrey A. Barrack, Esq., Barrack, Rodos & Bacine, Philadelphia, PA, attorneys
for the Plaintiff.
Richard L. Horwitz, Esq., Potter Anderson & Corroon LLP, Wilmington, DE; Rachel G. Skaistis,
Esq. (argued), Cravath, Swaine & Moore LLP, New York, NY; Leslie W. Regenbaum, Esq.,
Cravath, Swaine & Moore LLP, New York, NY, attorneys for the Individual Defendants.
Collins J. Seitz, Jr., Esq., Seitz Ross Aronstam & Moritz LLP, Wilmington, DE; William B.
Sailer, Esq., Qualcomm, San Diego, CA, attorneys for Defendant Qualcomm.
March;£, , 2014
Presently before the Court for disposition are Defendants Barbara T. Alexander, Stephen
M. Bennett, Donald G. Cruickshank, Raymond V. Dittamore, Thomas W. Horton, Irwin M.
Jacobs, Robert E. Kahn, Sherry Lansing, Duane Nelles, Francisco Ros, Brent Scowcroft, Marc I.
Stem, William E. Keitel, Steven R. Altman, Steven M. Mollenkopf, and Donald J. Rosenberg's
("Individual Defendants") Motion for Summary Judgment and Jeffrey Kaufman's ("Plaintiff')
Motion for Partial Summary Judgment. (D.I. 230, 236). These matters have been fully briefed.
(D.I. 231, 255, 264, 306, 23 7, 252, 266). The Court heard Oral Argument on the motions on
October 8, 2013. For the reasons set forth herein, the Individual Defendants' Motion for
Summary Judgment is GRANTED and the Plaintiff's Motion for Summary Judgment is
The original complaint in this case was filed on March 11, 2011 and included three
claims. (D.I. 1). The complaint included one direct claim and two derivative claims, all arising
out of a 2011 proxy statement produced by QualComm Incorporated. The direct claim sought
relief pursuant to§ 14 (a) of the Exchange Act and SEC Rules 14a-4 and 14a-9 "for making
materially false and misleading statements to the stockholders in the 2011 proxy Statement." !d.
41. The two derivative actions were Delaware state law claims for breach for fiduciary duty
and corporate waste. !d.
47-55. Upon a Motion to Dismiss filed by the Individual
Defendants, the Court granted partial relief, dismissing the direct claim. (D.I. 50).
The Plaintiff then filed a first amended complaint on August 13, 2012, which included
ten new claims, four direct and six derivative. 1 (D.I. 122). The Defendants moved to dismiss
the amended complaint, which was granted in part. (D.I. 205). The only remaining claims
were then Claims II, III, VIII, IX, X, XI, XII, and XIII. The second amended verified complaint
was filed on July 12, 2013. 2 (D.I. 213).
"The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law."
FED.R.CIV.P. 56( a). The moving party has the initial burden of proving the absence of a
genuinely disputed material fact relative to the claims in question. Celotex Corp. v. Catrett, 477
U.S. 317, 330 (1986). Material facts are those "that could affect the outcome" of the
proceeding, and "a dispute about a material fact is 'genuine' if the evidence is sufficient to
permit a reasonable jury to return a verdict for the nonmoving party." Lamont v. New Jersey,
637 F.3d 177, 181 (3d Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242,248
(1986)). The burden on the moving party may be discharged by demonstrating that there is an
absence of evidence supporting the non-moving party's case. Celotex, 477 U.S. at 325.
The burden then shifts to the non-movant to demonstrate the existence of a genuine issue
for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986);
Williams v. Borough of West Chester, Pa., 891 F.2d 458,460-61 (3d Cir. 1989). A non-moving
party asserting that a fact is genuinely disputed must support such an assertion by: "(A) citing to
particular parts of materials in the record, including depositions, documents, electronically stored
The amended complaint also included the dismissed claim from the original complaint; however, it was included
with the stipulation that its presence served only to preserve the Plaintiffs right to appeal. (D.I. 160 at 31).
The second amended verified complaint recognized the Court's order allowing for the substitution of the Plaintiff.
information, affidavits or declarations, stipulations ... , admissions, interrogatory answers, or
other materials; or (B) showing that the materials cited [by the opposing party] do not establish
the absence ... of a genuine dispute .... " FED.R.Crv.P. 56(c)(l).
When determining whether a genuine issue of material fact exists, the court must view
the evidence in the light most favorable to the non-moving party and draw all reasonable
inferences in that party's favor. Scott v. Harris, 550 U.S. 372, 380 (2007); Wishkin v. Potter,
4 76 F .3d 180, 184 (3d Cir. 2007). A dispute is "genuine" only if the evidence is such that a
reasonable jury could return a verdict for the non-moving party. Anderson, 477 U.S. at 247-49.
If the non-moving party fails to make a sufficient showing on an essential element of its case
with respect to which it has the burden of proof, the moving party is entitled to judgment as a
matter oflaw. See Celotex Corp., 477 U.S. at 322.
Claims II and III
Claims II and III are derivative claims against the directors for distributing false and
misleading information in the proxy statement and breaching their fiduciary duties. (D.I. 213 at
32-34). The claims are premised on the theory that the statements made by the directors in the
2011 proxy statement, regarding the long-term incentive plan ("L TIP"), would prevent
Qualcomm from receiving tax deductions under Treasury Regulation§ 1.162-27(e)(4)(i) and§
"The Internal Revenue Code (IRC) generally disallows deductions for employee
remuneration in a publicly held corporation in excess of$1 million." Shaev v. Saper, 320 F.3d
373, 379 (3d Cir. 2003). However, the IRC allows for corporations to deduct wages in excess of
one million dollars when the compensation is based upon an incentive plan that meets a "narrow
set" of requirements. Id. The incentive plan is only deductible if:
the performance goals are determined by a compensation committee of the
board of directors of the taxpayer which is comprised solely of 2 or more
the material terms under which the remuneration is to be paid, including
the performance goals, are disclosed to shareholders and approved by a
majority of the vote in a separate shareholder vote before the payment of
such remuneration, and
before any payment of such remuneration, the compensation committee
referred to in clause (i) certifies that the performance goals and any other
material terms were in fact satisfied.
26 U.S.C. § 162(m)(4)(c). The regulations additionally require that:
The requirements ... are not satisfied if the compensation would be paid regardless
of whether the material terms are approved by shareholders. The material terms
include the employees eligible to receive compensation; a description of the
business criteria on which the performance goal is based; and either the maximum
amount of compensation that could be paid to any employee or the formula used to
calculate the amount of compensation to be paid to the employee if the performance
goal is attained (except that, in the case of a formula based, in whole or in part, on
a percentage of salary or base pay, the maximum dollar amount of compensation
that could be paid to the employee must be disclosed).
26 C.P.R.§ 1.162-27(e)(4)(i).
The aforementioned regulations are violated where shareholders are not provided a real
choice as to whether to accept the LTIP. For example, the Court in Shaev found that a proxy
statement was coercive when the shareholders were informed that regardless of their vote the
LTIP would be enacted. Shaev, 320 F.3d at 381. Conversely, in Seinfeld v. O'Connor, the
Court found that when a proxy statement reserves the right to maintain bonus payments, but does
not state that bonus payments will continue to be made, the proxy statement is not coercive. 774
F. Supp. 2d 660, 669 (D. Del. 2011). This interpretation is supported by a private letter ruling
by the IRS. 3 I.R.S. P.L.R. 200617018, 2006 WL 1126274 (Apr. 28, 2006).
The Defendants argue that as a matter of law and fact "Qualcomm's shareholders were
not coerced into approving the 2011 amended LTIP and that, absent coercion, the relevant
Treasury regulation was not violated." (D.I. 264 at 9). Conversely, the Plaintiff argues that the
2011 proxy Statement was coercive. (D.I. 255 at 33).
The relevant portions of the Proxy Statement state:
In December 2000, we adopted the 2001 Employee Stock Purchase Plan (the
ESPP), which originally became effective on February 27, 2001. Since then, the
ESPP has been amended and restated twice, most recently as of April 26, 2010.
On that date, the Compensation Committee of the Board amended and restated the
ESPP to increase the number of shares of our common stock available for issuance
under the ESPP by 22,000,000 shares, subject to stockholder approval, and to make
other revisions to the ESPP to comply with changes in applicable law and to reflect
best practices (the ESPP Amendment). If the ESPP Amendment is not approved,
only 189,128 shares will remain available for issuance under the ESPP, reduced by
the number of shares of common stock that are purchased subject to the offering
period that ends on March 31, 2011.
(D.I. 234-1 at 52).
It is clear from the language of the 2011 Proxy Statement that this case is unlike Shaev.
Here the shareholders were not informed that the LTIP would continue to be used regardless of
the shareholders' vote, but instead were informed that the stock available as an incentive was
almost depleted and could not be increased without a vote in favor of the proposal. This is much
like in Seinfeld where the court found that the proxy statement was not coercive as it did not
require bonus payments to be paid regardless of the vote. Here, the 2011 Proxy Statement
The Court is mindful that a private letter ruling is not binding on the Court; however, the Court does find the letter
to be informative.
presented the shareholders with a choice. If the shareholders voted not to increase the number
of shares, the number of shares would not be increased. The status quo would be maintained.
Therefore, the Court concludes that no reasonable jury could find for the Plaintiff on Claims II
and III. The Individual Defendants' motion for summary judgment as it pertains to these claims
is therefore granted. 4
Claim X is a derivative claim that alleges that the Defendants "provided misleading
information to the I.R.S. in pursuit of an I.R.A." and therefore "violated federal law and
subjected Qualcomm to a potential $500,000 fine," thus causing the Company to be harmed.
(D.I. 213 at 39).
Claim X seeks injunctive relief to prevent Defendants from pursuing a "closing
agreement" based on the IRA that Defendants received from the IRS. The Internal Revenue
Code allows the Secretary "to enter into an agreement in writing with any person relating to the
liability of such person (or of the person or estate for whom he acts) in respect of any internal
revenue tax for any taxable period." I.R.C. § 7121(a). Furthermore, "If such agreement is
approved by the Secretary ... such agreement shall be final and conclusive, ... except upon a
showing of fraud or malfeasance, or misrepresentation of a material fact .... " !d. at (b). If
Qualcomm were found to have proceeded with a closing agreement and were found to have
proceeded based on misrepresentations of material fact, Qualcomm could be fined not more than
$500,000. IRC § 7206.
Because Counts II and III are premised on Plaintiff's theory that statements made in the 2011 Proxy Statement
would prevent Qua1comm from taking tax deductions under the ESPP, and the Court fmds that this theory is
erroneous, the Court need not dive into the Plaintiffs remaining arguments as they concern Counts II and III.
The Plaintiff makes three overarching arguments, "[(1)] Defendants have provided false
information to the IRS, [(2)] have withheld information that would call the IRA into question,
and [(3)] have not confirmed that they will not pursue a closing agreement." (D.I. 255 at 20).
The Plaintiff contends that the "Defendants have misled the IRS by stating that 'shareholders
approved the material terms of the performance goals in a separate majority vote at Taxpayer's
annual stockholder meeting on March 8, 2011' in the draft IRA that Defendants' counsel drafted
for the IRS." !d. at 36. Furthermore, the Plaintiff argues that "Defendants concede that they
have not informed the IRS of any of Plaintiffs process-based claims, presumably meaning they
have not shared this Court's July 2, 2013 opinion with the IRS." Id.
The Individual Defendants argue that the "the record is devoid of any evidence that the
IRS was misled" and the Plaintiff fails to "cite to anything beyond his own speculation." (D.I.
264 at 15). Specifically, the Individual Defendants raise four main arguments. First, that the
two internal IRS emails had no impact on the IRS final conclusion as reflected in the IRA. (D.I.
231 at 32). Second, that "there is no evidence that Qualcomm employees had anything to do
with the IRS's consideration of the 201 0 shareholder vote." !d. The Individual Defendants cite
as evidence for this the deposition ofMr. Schneck, Qualcomm's Director of Tax, who testified
that he had no conversations with the IRS regarding the 2010 shareholder vote. (D.I. 235-7 at
94). Third, that the Individual Defendants did not play any role in reviewing the internal IRS
communications regarding the 2010 vote. (D.I. 231 at 33). Fourth, and finally, the Individual
Defendants argue that the Board process claims were not provided to the IRS until after the IRA
was completed because the Plaintiffhad not yet alleged those claims. !d. The Court agrees
with each ofthe aforementioned arguments ofthe Individual Defendants.
The Court finds that there is no genuine dispute as to any material fact. Here, the
Individual Defendants adequately demonstrated that there is both an absence of evidence
supporting the Plaintiffs case and direct evidence supporting the Individual Defendants case.
The Plaintiff has failed to demonstrate any material fact that is genuinely disputed and supported
by evidence. Therefore, the Individual Defendants motion for summary judgment as to Claim X
is granted as no reasonable juror could find for the Plaintiff regarding this Claim.
Claims IX, XII, XIII
Claims IX, XII, XIII are all derivative claims and therefore require that the Plaintiff make
a presuit demand on the Board unless demand is excused. 5
Pursuant to FED.R.CIV.P. 23.l(b)(3), a shareholder bringing a derivative action must file
a verified complaint that states with particularity: "(A) any effort by the plaintiff to obtain the
desired action from the directors or comparable authority and, if necessary, from the
shareholders or members; and (B) the reasons for not obtaining the action or not making the
effort." FED.R.CIV.P. 23.l(b)(3) "The purpose ofthe demand requirement is to afford the
directors an opportunity to exercise their reasonable business judgment and waive a legal right
vested in the corporation in the belief that its best interests will be promoted by not insisting on
such right." Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 96 (1991) (internal quotation
marks omitted). "Although Rule 23.1 provides the pleading standard for derivative actions in
federal court, the substantive rules for determining whether a plaintiff has satisfied that standard
are a matter of state law." Kingv. Baldino, 409 F. App'x 535,537 (3d Cir. 2010) (internal
Lack of presuit demand is raised in regard to the other derivative claims, but it is not necessary to resolve the issue
in regard to these claims.
quotation marks omitted). "Thus, federal courts hearing shareholders' derivative actions
involving state law claims apply the federal procedural requirement of particularized pleading,
but apply state substantive law to determine whether the facts demonstrate demand would have
been futile and can be excused." Kanter v. Barella, 489 F.3d 170, 176 (3d Cir. 2007). The
Delaware Supreme Court has characterized the exercise of determining demand futility as
deciding "whether, under the particularized facts alleged, a reasonable doubt is created that: (1)
the directors are disinterested and independent and (2) the challenged transaction was otherwise
the product of a valid exercise ofbusinessjudgment." Aronson v. Lewis, 473 A.2d 805, 814
(Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
The Plaintiff contends that he is excused from making a demand on the board. The
Plaintiff's argument primarily revolves around the fact that directors "are eligible to participate
in 2006 LTIP .... " (D.I. 255 at 37). In other words, the Plaintiff questions whether the
directors were disinterested and independent. The Plaintiff directs the Court's attention to the
2011 proxy statements which indicate that, "All full-time employees are eligible to receive
equity awards. At present, approximately 16,000 employees and 12 non-employee directors are
eligible to receive awards under the 2006 LTIP ." (D.I. 234-1 at 42). Similar language exists in
the 2010 proxy statement, which states, "The Company's policy is that all full-time employees
are eligible to receive stock options. At present, approximately 15,000 employees and 11 nonemployee directors are eligible to receive awards under the 2006 LTIP." (D.I. 235-2 at 127).
The Plaintiff contends that because "the complaint challenges the compensation plan that the
outside directors established and under which they pay themselves, demand is excused." (D.I.
255 at 39). The Plaintiff additionally argues that the directors had a material interest in the 2010
and 2011 proxy statements because the proxy statements increased the number of shares that
were available to compensate the directors. (D.I. 255 at 39; D.l. 235-2 at 126). In other words,
the Plaintiff contends that because the directors could not be paid if the proposal was not passed,
they had a material interest in the proposal.
The Individual Defendants make five main arguments. First, the Individual Defendants
contend that "the 2011 Amended LTIP did not establish the Directors' right to compensation, nor
the amount of their compensation; it only provided a mechanism for them to be compensated in
the form ofDirector Stock Units ("DSUs"). This means that the 2011 Amended LTIP conferred
no new benefit on the Directors that they did not already enjoy." (D.I. 231 at 44). Second, the
Individual Defendants argue that there is no evidence that if there were insufficient DSUs
available that the Directors would not be paid using alternative compensation forms, such as
cash. Id. at 45. Third, the change to the date in which the DSUs vest after retirement is not
relevant as no evidence is proffered by the Plaintiff that any board member would benefit from
this change. !d. Fourth, the Individual Defendants argue that because only three of the eight
directors served on the Compensation Committee, their presence could not excuse demand. Id.
at 45, 46. Fifth, the record is devoid of any evidence that the Directors played any role with
respect to the IRS. Id.
The Court finds that demand was not excused. First, it is evident that the amended LTIP
conferred no new benefit on the Directors. The 2006 LTIP had already awarded directors with
DSUs, and the Director's award of$200,000 per year had been enacted in 2010. Therefore the
2011 amendments, while increasing the number of shares available to be utilized by the 2006
LTIP plan, simply maintained the status quo. (D.I. 234-1 at 99, 231). Second, the Court agrees
with the Individual Defendants regarding the directors' interests in the DSUs. The Individual
Defendants successfully pointed to an absence of evidence proffered by the Plaintiff that either
the DSUs are more advantageous to Directors or that the Directors would not otherwise be
compensated in the event that the 2011 Amended LTIP was rejected by shareholders. The
Plaintiff fails to bring forth any relevant evidence on the aforementioned issues. Furthermore,
the Plaintiff was required not only to show that the DSUs would be advantageous, but that this
advantage was material to a majority of the directors. Plaintiffhas not identified any evidence
that would do so. Robotti & Co., LLC v. Liddell, 2010 WL 157474, *12 (Del. Ch. Jan. 14,
2010). Finally, the Court agrees with the Individual Defendants that the presence of three of the
eight board members on the compensation committee cannot excuse demand and that the
Plaintiff provided no evidence that the board members were in communication with the IRS
regarding the IRA. Therefore, the Plaintiff has failed to meet its burden of providing evidence
of a genuine dispute of material fact. No reasonable fact finder would find that demand was
excused. 6 Thus, the Court finds that demand was not excused and grants the Individual
Defendants' motion for summary judgment as to the derivative claims. 7
Claim VIII is a direct claim based upon the Plaintiff's theory that the "Defendants failed
to properly approve the 2006 LTIP, as amended in 2011, for a shareholder vote at the meeting
despite the fact that this was required by Qualcomm' s bylaws. Instead, Director Defendants
improperly abdicated these duties." (D.I. 213
The parties agreed that if there were a disputed material fact regarding presuit demand, it would be for the Court
and not the jury to resolve. (D.I. 298 at 7, 8).
The Individual Defendants moved in part to dismiss the Original Complaint for failure to make a presuit demand.
(D.I. 43). The Court rejected this argument as "it [was] a close question as to whether [the Plaintiff] has properly
interpreted the proxy statement," and thus, "this court cannot conclude at this stage of the proceedings that his
Complaint fails to state a claim." (D.I. 50 at 9). We are now at a stage in the litigation that the Court has an
adequate evidentiary record to readdress this issue.
The fundamental purpose of a Delaware corporation's bylaws "is not to mandate how the
board should decide specific substantive business decisions, but rather, to define the process and
procedures by which those decisions are made." CA, Inc. v. AFSCME Employees Pension Plan,
953 A.2d 227, 234-35 (Del. 2008).
[U]nless otherwise provided by the certificate of corporation and subject to the
limitations set forth in 8 Del. Code Ann. § 141 (c), the board may freely delegate
the authority to manage the business and affairs of the corporation .... Indeed, the
ability to delegate is the essence of corporate management, as the law does not
expect the board to fully immerse itself in the daily complexities of corporate
Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 127 (3d Cir. 1998) (internal citations
A corporation may also act through its directors and officers through either direct or
implied authority. !d.
Express authority to act on behalf of the corporation is usually manifested through
a statute, the certificate of corporation, the by-laws, or a board or shareholder
action. Implied actual authority ... may be found through evidence as to the
manner in which the business has operated in the past, the facts attending the
transaction in question, circumstantial evidence of board declarations surrounding
the given transaction, or the habitual usage or course of dealing common to the
company. Similarly, authority will be implied when it is reasonably necessary and
proper to effectuate the purpose of the office or the main authority conferred.
Id. at 127-128.
The Plaintiff argues that "because the board did not slate the 201 0 and 2011 shareholder
votes, as required by Qualcomm's Bylaws, the Certificate oflncorporation, and Delaware law,
these votes were not properly before shareholders." (D.I. 237 at 19). The Plaintiff contends
that the amendments were not properly in front of the shareholders both because the bylaws
required that the directors, not the compensation committee, slate the LTIP for a vote and
because the 2011 proxy states that the 2011 amendments were unanimously recommended by the
Board of Directors. !d. at 12. The Individual Defendants argue that "the undisputed factual
record shows that the 201 0 and 2011 Amended L TIPs were presented to shareholders by the
Board, through its express designee the Compensation Committee, in full compliance with
Qualcomm's by-laws." (D.I. 231 at 34).
The pertinent section ofQualcomm's bylaws states:
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of the
Board ofDirectors, (B) otherwise properly brought before the meeting by or at
the direction of the Board ofDirectors, or (C) otherwise properly brought before
the meeting by a stockholder.
No business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this paragraph (b). The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions ofthis paragraph (b), and, ifhe should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(D.I. 235-2 at 94-96 (emphasis added)).
The pertinent sections of the Compensation Committee Charter state the Compensation
Be responsible for the design, implementation and administration of all
Company-wide benefit plans, including equity-based compensation programs.
This authority shall include, but not be limited to, administration of the Company's
long-term incentive compensation plans and grants made thereunder. The
Committee may delegate such responsibility and authority as it sees fit, as permitted
by the terms of such benefit plans and applicable law, subject to any policies or
other limitations established from time to time by the Board.
Make an annual recommendation to the independent members of the Board
regarding the amount of annual bonus and stock compensation pools.
Review provisions of all compensation and benefit plans requiring approval
by Company stockholders, including new plans and amendments to continuing
plans, and make appropriate recommendations to the Board regarding such
(D.I. 238-4 at 4, 5).
The pertinent sections of the 2006 Proxy Statement, which, when passed, approved the
"Board" means the Board ofDirectors ofthe Company.
"Committee" means the Compensation Committee or other committee of the Board
duly appointed to administer the Plan and having such powers as shall be specified
by the Board. If no committee of the Board has been appointed to administer the
Plan, the Board shall exercise all of the powers of the Committee granted herein,
and, in any event, the Board may in its discretion exercise any or all of such powers.
The Committee shall have the exclusive authority to administer the Plan and shall
have all of the powers granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(D.I. 234-1 at 214, 215 (original emphasis omitted, emphasis present added)).
The Compensation Committee minutes for the 2011 shareholder meeting indicate that
three amendments to the LTIP were approved. (D.I. 238-8 at 2-4). Present at the meeting were
three members of the board, Mr. Steve Bennett (Chairman), Mr. Brent Scowcroft, and Mr. Marc
Stern. !d. at 2. The minutes state,
[T]hat the Committee approves and will recommend in the proxy statement for the
2011 annual meeting that stockholders approve, an increase in the 2006 LTIP share
reserve of 65 million shares, a change in the share reserve counting ratio for shares
other than stock options and SARS granted without dividend equivalents from 3: 1
to 2:1 [REDACTED] ....
Id. at 3 (emphasis omitted; redaction in original). No evidence has been submitted to the Court
by either party that the aforementioned three amendments to the LTIP were then submitted and
approved by the Board of Directors to be submitted to the shareholders. In fact, the text of the
aforementioned minutes indicates that the Compensation Committee understood that it was
within their power to incorporate statements regarding compensation directly into the proxy
The Court finds that there is no genuine issue of fact as to whether the Compensation
Committee had been expressly provided authority to effectuate amendments to the LTIP and thus
had implied authority to submit these amendments for a shareholder vote. Here the Bylaws,
Compensation Committee Charter, and the 2006 Proxy statement all make clear that the
Compensation Committee was provided the requisite authority to amend the LTIP and that this
authority was appropriate under the bylaws of the Corporation. Therefore, no reasonable jury
would find that the Defendants failed to properly approve the 2006 LTIP, as amended in 2011,
for a shareholder vote. Thus, the Individual Defendants' Motion for Summary Judgment as to
Claim VIII is granted. 8
The Plaintiff's argument that there had been changes to the wording of the L TIP
amendments that had not been approved by either the Compensation Committee or the Board of
Directors, and thus were improperly before the shareholders, is unpersuasive. For example, the
phrase "to approve amendments to the 2006 Long-Term Incentive Plan" was changed to, "to
The Plaintiff also argues that it is evident that the Defendants utilized the wrong method in approving the
Amendments to the LTIP because the Defendants had utilized an alternate method in 2006 and 2008; however, this
argument is unpersuasive. As the Court finds that the bylaws provide the Committee with the proper authority to
submit the amendments to the shareholders for a vote, it is not relevant whether the same method was used in 2006
and 2008. Furthermore, whatever method was used in 2006 and 2008 surely did not serve to amend the bylaws and
thus did not impact the authority granted to the Committee.
approve the 2006 Long-Term incentive Plan .... " (D.I. 237 at 12). Ms. Bums, the Director of
Stock Administration who approved the wording changes, testified that while she could not
remember the reason for these specific changes, the reason that changes are made by outside
counsel, as was the situation here, is to clarify the language, not to amend its substantive
meaning. (D.I. 235-7 at 35, 37, 40). Furthermore, the Plaintiff has not directed the Court's
attention to any testimony that would indicate that the changes were made for any other reason,
nor any testimony that they were objected to by any director or Committee member. While the
Plaintiff argues the changes were substantive because it would bring the proposals in line with §
162(m), the Individual Defendants provides unrebutted testimony that this was in fact the intent
of the Committee. (D.I. 237 at 14; D.I. 252 at 27; 235-7 at 47, 48). Thus the Court finds that
the plaintiff has not met its burden to put forth evidence to show a genuine dispute of material
fact that the wording changes were either material or substantive in nature.
Claim XI is a breach of contract direct claim against all Defendants based on the § 16 of
the 2006 LTIP. 9 (D.I. 213 at 40).
Under Delaware corporate law, "charters and bylaws are contracts among a corporation's
shareholders .... " Airgas, Inc. v. Air Products & Chemicals, Inc., 8 A .3d 1182, 1188 (Del.
201 0). However, "Delaware law clearly holds that officers of a corporation are not liable on
corporate contracts as long as they do not purport to bind themselves individually." Wallace ex
rei. Cencom Cable Income Partners IL Inc., L.P. v. Wood, 752 A.2d 1175, 1180 (Del. Ch. 1999).
The Court directed the parties to file letters with the Court addressing the circumstances that would lead to the
conclusion that a board of directors and these shareholders entered into a contract with each other, and how this
would impact Claim XI. (D.I. 307, 308).
The Plaintiffhas not pled, (D.I. 213 at 38, 39), and I find no evidence in the LTIP, (D.I.
235-1 at 6-38), that the Directors purported to bind themselves individually to the LTIP.
Therefore the Court grants the Individual Defendants' Motion for Summary Judgment
concerning this claim.
For the reasons above, the Court will GRANT the Individual Defendants' Motion for
Summary Judgment (D.I. 230) and DENY the Plaintiffs Motion for Summary Judgment (D.I.
236). Other pending motions are moot, and will therefore be dismissed. An appropriate order
will be entered.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?