Buch v. Asuncion Aramburuzabala Larregui et al

Filing 60

OPINION AND ORDER re: 47 MOTION to Dismiss the Amended Complaint. filed by Olivier Goudet, Johannes P. Huth, Coty Inc., Lubomira Rochet, Peter Harf, Sue Nabi, Anna Adeola Makanju, Maria Asuncion Aramburuzabala Larregui, Beatrice Ballini, Robert Singer, Joachim Creus, Isabelle Parize. For the reasons given above, Defendant's motion is GRANTED and the Amended Complaint is DISMISSED, with prejudice. Plaintiff's request for oral argument is DENIED as moot. The Clerk of Court is respectfully directed to close the motion at ECF No. 47 and to terminate the case. SO ORDERED. (Signed by Judge Dale E. Ho on 6/4/2024) (ks)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CATHY BUCH,
Plaintiff,
v.
MARIA ASUNCION ARAMBURUZABALA
LARREGUI, et al.,

23 Civ. 8854 (DEH)
OPINION
AND ORDER

Defendants.
DALE E. HO, United States District Judge:
In this action, Plaintiff Cathy Buch, a shareholder of Defendant Coty Inc. (“Coty”), sues
Coty and its board of directors regarding Coty’s compensation of its CEO and the proxy
statement it issued with respect to this compensation package. Plaintiff brings two claims: (1) a
claim under the Securities Exchange Act of 1934 (the “Exchange Act”), regarding the allegedly
deficient compensation-related disclosures in Coty’s public filings; and (2) a shareholder
derivative claim, regarding the alleged breach of fiduciary duty by Coty’s board in setting the
level of compensation. On November 29, 2023, Plaintiff filed the Amended Complaint, the
operative pleading. See Am. Compl., ECF No. 46. Defendant moves to dismiss the Amended
Complaint. See Mot. to Dismiss, ECF No. 47. For the reasons given below, Defendant’s motion
is GRANTED.
BACKGROUND
The following facts are taken from the Amended Complaint and are assumed to be true
solely for purposes of adjudicating Defendant’s motion. See Buon v. Spindler, 65 F.4th 64, 69
n.1 (2d Cir. 2023). The Court also refers to documents integral to the Complaint, in particular
the allegedly insufficient public disclosure at issue in this suit, attached as Exhibit A to the

Declaration of Scott D. Musoff, ECF No. 49-1. See Revitalizing Auto Cmtys. Env’t Response Tr.
v. Nat’l Grid USA, 92 F.4th 415, 436 (2d Cir. 2024).
Coty is a Delaware corporation that manufactures and sells beauty products. Am. Compl.
¶ 4. Defendant Sue Nabi is the Chief Executive Officer of Coty. Id. ¶ 5. Along with Nabi,
Defendants Maria Asuncion Aramburuzabala Larregui, Beatrice Ballini, Joachim Creus, Olivier
Goudet, Peter Harf, Johannes P. Huth, Anna Adeola Makanju, Isabelle Parize, Lubomira Rochet,
and Robert Singer comprise Coty’s board of directors (collectively, the “Individual
Defendants”). See id. Plaintiff has been a shareholder of Coty since December 3, 2021. Id. ¶ 3.
On September 21, 2023, Coty’s board of directors solicited its shareholders’ proxies to
vote at an annual meeting on November 2, 2023. See Schedule 14A, ECF No. 49-1 (the “Proxy
Statement”); Am. Compl. ¶ 12. The Proxy Statement includes a proposal for the election of
directors and also asks shareholders to vote, “on a non-binding advisory basis,” to approve
executive compensation, a so-called “Say-on-Pay” vote. See Proxy Statement 21, 29. It then
provides quantitative and descriptive information regarding past and proposed executive
compensation, including for Nabi. See id. at 38.
The Proxy Statement describes that Nabi’s compensation “includes a significant portion
of performance related shares alongside a performance related bonus.” Id. at 33. As
summarized in the Proxy Statement, Nabi received around $283.8 million, $3.6 million, and
$149.4 million in fiscal years 2021, 2022, and 2023, respectively. Id. at 38. 1 Nabi receives an
annual base salary of three million Euros, and, moving forward, is eligible for a cash-bonus of up

1

The Proxy Statement notes that the value of equity awards is based on the closing price of
Coty’s stock on the vesting or valuation date, and that dollar amounts “may vary significantly
year over year due to factors such as stock price volatility, as was the case for the years presented
here.” Id. at 47-48.
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to 200% of this salary. Id. When she joined the company in September 2020, Nabi also received
a one-time sign-on award of 30 million restricted stock units (“RSUs”), which vested in three
tranches on August 31 of 2021, 2022, and 2023. Id. at 47. Pursuant to a May 4, 2023,
agreement, Nabi will also receive a further award of 10.4 million RSUs, vesting from September
1, 2024, through September 1, 2028, and is eligible to receive two tranches of around 2.1 million
performance-based RSUs, contingent on meeting certain performance metrics. Id. at 33. The
Proxy Statement lists a ratio of CEO total compensation to median employee total compensation
of 3,769 to 1. Id. at 45. The Proxy Statement notes that compensation is set with reference to a
peer group of twelve companies, four of which are based in the United States, that compete with
Coty in the marketplace and in recruiting executives. Id. at 36; Am. Compl. ¶ 25.
On October 9, 2023, Plaintiff filed this suit. See Compl., ECF No. 1. The shareholder
meeting took place on November 2, 2023, where the board of directors was elected in
accordance with the Proxy Statement. See Am. Compl. ¶ 26. On November 29, 2023, Plaintiff
amended her Complaint. See id. On December 22, 2023, Defendants moved to dismiss the
Amended Complaint. See Mot. to Dismiss.
LEGAL STANDARDS
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Sacerdote v. N.Y. Univ.,
9 F.4th 95, 106 (2d Cir. 2021) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). 2 “In
assessing the complaint, [a court] must construe it liberally, accepting all factual allegations
therein as true and drawing all reasonable inferences in the plaintiffs’ favor.” Id. at 106-07.

2

In all quotations from cases, the Court omits citations, footnotes, emphases, internal quotation
marks, brackets, and ellipses, unless otherwise indicated. All references to Rules are to the
Federal Rules of Civil Procedure, unless otherwise indicated.
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However, the court must disregard any “conclusory allegations, such as ‘formulaic recitations of
the elements of a cause of action.’” Id. at 107 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007)).
A complaint alleging securities fraud must also satisfy heightened pleading requirements
set forth in Rule 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”). Set
Cap. LLC v. Credit Suisse Grp. AG, 996 F.3d 64, 75 (2d Cir. 2021). Rule 9(b) requires that “a
party . . . state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ.
P. 9(b). The PSLRA “expanded on the Rule 9(b) standard.” Anschutz Corp. v. Merrill Lynch &
Co., 690 F.3d 98, 108 (2d Cir. 2012). The PSLRA requires that a plaintiff “(1) specify each
misleading statement, (2) set forth the facts on which a belief that a statement is misleading was
formed, and (3) state with particularity facts giving rise to a strong inference that the defendant
acted with scienter—the required state of mind.” Set Cap. LLC, 996 F.3d at 75.
DISCUSSION
Defendant’s motion to dismiss is GRANTED. The Amended Complaint brings two
claims: (1) an Exchange Act claim, brought under Section 14(a), which bars false or misleading
proxy statements; and (2) a shareholder derivative claim regarding Nabi’s excessive
compensation. Plaintiff’s Section 14(a) claim is dismissed for failure to plead loss causation.
Plaintiff’s derivative claim is dismissed for failure to make a demand on the Individual
Defendants, or to plead facts establishing the futility of such a demand.
A.

Section 14(a) Claim
Count I of the Amended Complaint alleges a violation of Section 14(a) of the Exchange

Act, which bars any person from “solicit[ing] . . . any proxy or consent or authorization in
respect of any security” that is “in contravention of such rules and regulations as the [SEC] may
prescribe.” 15 U.S.C. § 78n(a)(1). SEC Rule 14a-9 bars proxy statements that are “false or
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misleading with respect to any material fact, or which omits to state any material fact necessary
in order to make the statements therein not false or misleading.” 7 C.F.R. § 240.14a-9. A claim
under Section 14(a) requires Plaintiff to “show that (1) a proxy statement contained a material
misrepresentation or omission, which (2) caused plaintiff[’s] injury, and (3) the proxy solicitation
itself, rather than the particular defect in the solicitation materials, was an essential link in the
accomplishment of the transaction.” Bond Opportunity Fund v. Unilab Corp., 87 F. App’x. 772,
773 (2d Cir. 2004).
The Second Circuit has repeatedly and unambiguously held that loss causation is an
element of a Section 14(a) claim. See Gray v. Wesco Aircraft Holdings, Inc., 847 F. App’x 35,
37 (2d Cir. 2021) (“[T]he complaint fails to plead that Gray suffered a non-speculative economic
loss, as required for the claims [under Sections 14(a) and 20(a)].”); Amorosa v. AOL Time
Warner Inc., 409 F. App’x 412, 415 (2d Cir. 2011) (“For both his 14(a) and 10(b) claims, [the
plaintiff] has the burden of pleading and proving loss causation.”); Grace v. Rosenstock, 228
F.3d 40, 47 (2d Cir. 2000) (“[B]oth loss causation and transaction causation must be proven in
the context of a private action under § 14(a) of the 1934 Act and SEC Rule 14a–9 promulgated
thereunder.”) (collecting cases).
Here, the Amended Complaint states that “[t]he 2023 proxy statement . . . did not cause
economic loss.” Am. Compl. ¶ 26. Because Plaintiff admits that the Proxy Statement did not
cause her any economic loss, her Exchange Act claim is dismissed.
Plaintiff’s arguments to the contrary fail. In substance, she argues that loss causation is
not a required element of her claim, because she does not seek to recover damages and instead
seeks injunctive relief to nullify the shareholder vote. See Mem. of L. in Opp’n to Defs.’ Mot. to
Dismiss the Am. Compl. (“Opp’n”) 11-14, ECF No. 51. This argument fails first because the
Second Circuit, when articulating the requirement of loss causation, did not limit this
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requirement to claims for damages only, instead referring to Section 14(a) claims generally. See,
e.g., Gray, 847 F. App’x at 37 (stating loss causation is “required for the claims”); Amorosa, 409
F. App’x at 415 (similar); Grace, 228 F.3d at 47 (similar). Plaintiff identifies no cases in which
a plaintiff admitted that he or she suffered no loss, yet a court nevertheless granted injunctive
relief on a Section 14(a) claim.
Plaintiff’s argument also fails in light of the Second Circuit’s recent statement that
although an allegation that a company’s “directors were re-elected based on proxy statements
issued in violation of Section 14(a) . . . [is] sufficient to establish transaction causation, . . . [it]
fails to allege sufficient facts to plead loss causation.” Rubenstein v. Adamany, No. 22-2794,
2023 WL 6119810, at *4 (2d Cir. Sept. 19, 2023). Although the operative complaint in
Rubenstein sought “both injunctive relief and the disgorgement of compensation,” the Circuit
affirmed dismissal of the case in whole. See id. at *1, *5. Plaintiff does not provide sufficient
reason to depart from the clear implication of Rubenstein—that the requirement of loss causation
applies equally to any claim for injunctive relief as it does to a claim for money damages.
Plaintiff’s Exchange Act claim is therefore dismissed.
B.

Derivative Claim
Count II is a shareholder derivative claim, asserted putatively on behalf of Defendant

Coty against the Individual Defendants. See Am. Compl. ¶¶ 29-36. Rule 23.1(b) sets forth
additional pleading requirements for such a shareholder derivative action, including that Plaintiff
must “state with particularity (A) any effort . . . to obtain the desired action from the directors or
comparable authority . . . and (B) the reasons for not obtaining the action or not making the
effort.” Fed. R. Civ. P. 23.1(b)(3). Plaintiff states in the Amended Complaint that she “made no
pre-suit demand to obtain the desired action from the Coty directors because such demand is
excused as futile.” Am. Compl. ¶ 31.
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Under Delaware law, 3 courts apply a “three-part test on a director-by-director basis to
determine whether demand should be excused as futile.” United Food & Com. Workers Union
& Participating Food Indus. Emps. Tri-State Pension Fund v. Zuckerberg, 262 A.3d 1034, 1058
(Del. 2021). Courts should look at:
(i) whether the director received a material personal benefit from the alleged
misconduct that is the subject of the litigation demand;
(ii) whether the director faces a substantial likelihood of liability on any of the
claims that are the subject of the litigation demand; and
(iii) whether the director lacks independence from someone who received a material
personal benefit from the alleged misconduct that would be the subject of the
litigation demand or who would face a substantial likelihood of liability on any of
the claims that are the subject of the litigation demand.
Id. at 1059. “If the answer to any of the questions is ‘yes’ for at least half of the members of the
demand board, then demand is excused as futile.” Id.
Coty’s board, which the Amended Complaint alleges authorized Nabi’s compensation,
consists of the eleven Individual Defendants. See Am. Compl. ¶¶ 5, 32. The Amended
Complaint alleges that the Individual Directors acted in bad faith in approving Nabi’s
compensation and that the magnitude and allegedly misleading nature of the Proxy Statement
“expose all of the directors to a very real substantial risk of liability for breach of their fiduciary
duty of good faith and loyalty.” Id. ¶ 33. The Amended Complaint also alleges, in a conclusory
fashion, that the Individual Defendants “are not independent” because the excessiveness of
Nabi’s compensation is outside the business judgment rule. Id.

3

The parties agree that Delaware law applies to Plaintiff’s derivative claim, as Coty is
incorporated in Delaware. See Opp’n at 15 (“The substance of the law excusing such demand is
the law of the state of incorporation, . . . in this case Delaware.” (citation omitted)); Mem. of L.
in Supp. of Mot. to Dismiss 15 n.11 (“MTD Br.”), ECF No. 48 (“Although Rule 23.1 sets forth
the pleading standard for federal court, the substance of the demand requirement is a function of
state law—here, Delaware law.” (internal quotation marks omitted)).
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As to the former, the Amended Complaint does not sufficiently allege that a majority of
the Individual Defendants would face a substantial likelihood of liability on Plaintiff’s claim,
thus making a demand upon them futile. Delaware law allows corporations to insulate their
directors from liability for breaching their duties of care. See Del. Code Ann. tit. 8, § 102(b)(7)
(2022) (permitting a charter provision “eliminating or limiting the personal liability of a director
or officer . . . for breach of fiduciary duty as a director or officer,” while barring any provisions
eliminating liability for “any breach of the . . . duty of loyalty to the corporation” or “for acts or
omissions not in good faith,” among other exceptions). Coty’s charter includes such a provision.
See Musoff Decl. Ex. F Eighth Provision, at 11, ECF No. 49-6 (exculpatory provision); see also
Fed. R. Evid. 201(c)(2) (mandating that a Court take judicial notice of a fact not subject to
reasonable dispute if brought to its attention). Accordingly, the Amended Complaint must plead
that the Individual Defendants would face a substantial likelihood of liability on a nonexculpated claim—i.e., a claim alleging bad faith. See Lase Guar. Tr. v. Bammann, No. 22 Civ.
1331, 2024 WL 1117043, at *3 (E.D.N.Y. Mar. 14, 2024) (“Because exculpated claims must be
dismissed at the pleading stage, a defendant who is exculpated does not face a substantial
likelihood of liability, and can impartially consider a demand to bring an exculpated claim
against even herself.”) (discussing In re Cornerstone Therapeutics Inc, S’holder Litig., 155 A.3d
1173, 1179 (Del. 2015)). “[T]o establish a substantial likelihood of liability [on a nonexculpated claim], it is not enough to establish a breach of the duty of care, but rather plaintiff
must allege ‘conduct that is not in good faith or a breach of the duty of loyalty.’” City of Miami
Gen’l Emps. & Sanitation Emps. Ret. Tr. v. Dimon, No. 23 Civ. 3903, 2024 WL 134275, at *2
(S.D.N.Y. Jan. 12, 2024) (quoting Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d
362, 367 (Del. 2006)).

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The Amended Complaint alleges that Nabi’s compensation was set without proper
disclosure to shareholders and is excessive to such an extent that bad faith must be assumed. See
Am. Compl. ¶ 33 (“Where . . . the magnitude of Defendant Nabi’s compensation is a substantial
multiple of that of her peers and also of that of Coty’s other [named executive officers], without
any disclosure of statutory and regulatory required explanations for it, the only possible
conclusion is that the directors acted in bad faith.”). This is insufficient to establish bad faith.
First, District Courts applying Delaware law have found that the failure to include allegations
specific to each director is fatal to demonstrating a substantial likelihood of liability. See, e.g.,
Pierce v. Better Holdco, Inc., No. 22 Civ. 4748, 2023 WL 6386920, at *3 (S.D.N.Y. Sept. 29,
2023) (“Pierce has not included allegations on a director-by-director basis, and instead pleads in
a conclusory fashion that the Board as an entity was compromised by a lack of independence and
a risk of liability. These broad statements are insufficient to demonstrate demand futility . . . .”);
Foote v. Mehrotra, No. 21 Civ. 169, 2023 WL 7214728, at *11 (D. Del. Nov. 2, 2023) (similar).
Second, even assuming that Plaintiff included allegations regarding each director’s
participation in setting Nabi’s compensation, her compensation, standing alone, is not so extreme
so as to rebut the presumption of good faith. The Delaware Court of Chancery has found that
while the sole fact of a decision can support an inference of bad faith, the decision must be “so
egregious or irrational that it could not have been based on a valid assessment of the
corporation’s best interests.” IBEW Local Union 481 Defined Contrib. Plan & Tr. v. Winborne,
301 A.3d 596, 622 (Del. Ch. 2023). “The standards for corporate waste and bad faith by the
board are similar.” White v. Panic, 783 A.2d 543, 554 n.36 (Del. 2001). Delaware law gives
corporate boards broad discretion to set executive compensation. See Brehm v. Eisner, 746 A.2d
244, 263 (Del. 2000) (“[T]he size and structure of executive compensation are inherently matters
of judgment.”). However, a plaintiff may establish a claim for waste by proving “there was an
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exchange of corporate assets for consideration so disproportionately small as to lie beyond the
range at which any reasonable person might be willing to trade,” or, more specifically, when
executive compensation “is so disproportionately large as to be unconscionable and constitute
waste.” In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 138 (Del. Ch. 2009). In short,
Plaintiff must show that Nabi’s compensation is so excessive—with excessiveness assessed
under the deferential standard afforded to the boards of Delaware corporations—that it could
only be explained by bad faith. See Espinoza ex rel. J.P. Morgan Chase & Co. v. Dimon, 807
F.3d 502, 505 (2d Cir. 2015) (“Any plaintiff attempting to bring a derivative suit therefore bears
the difficult burden to plead facts sufficient to rebut the strong presumption that the board’s
decision not to take action was a valid exercise of its business judgment.”) (applying Delaware
law).
The Amended Complaint does not meet this high standard. The Amended Complaint
states that Nabi’s compensation exceeds $900 million over fiscal years 2021 through 2023. See
Am. Compl. ¶ 19. However, the actual Proxy Statement undermines this characterization: Ms.
Nabi’s compensation totals around $437 million over these fiscal years. See Proxy Statement at
38. 4 Ms. Nabi was awarded a sign-on grant of 30 million RSUs in June 2021, which vested in

4

As Defendants explain, see MTD Br. at 4 n.6, the discrepancy between the two figures comes
from the Amended Complaint’s inclusion of figures representing stock options that have already
vested, see Am. Compl. ¶ 19(d), (e), and the value of stock or performance RSUs to be granted
beyond fiscal year 2023, see id. ¶ 19(f)-(h). Although on a motion to dismiss, all reasonable
inferences must be drawn in favor of Plaintiff, the Court may consider the Proxy Statement as
integral to the Complaint and it is not reasonable, based on the Proxy Statement, to treat Ms.
Nabi’s compensation for fiscal years 2021 through 2023 as “exceed[ing] $900 million.” Id. ¶ 19;
see Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 147 (2d Cir. 2011) (“[W]here a
conclusory allegation in the complaint is contradicted by a document attached to the complaint,
the document controls and the allegation is not accepted as true.”).

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three tranches on August 31 of 2021, 2022, and 2023. See id. at 47. A substantial portion of her
compensation reflected an increase in Coty’s share price following Ms. Nabi’s hire, as indicated
further by the extreme fluctuations in the value of Nabi’s compensation. See id. at 48 (discussing
the connection between share price and compensation actually paid to Nabi and other directors);
see also Ganino v. Citizens Utils. Co., 228 F.3d 154, 166 n.8 (2d Cir. 2000) (“[T]he district court
may take judicial notice of well-publicized stock prices without converting the motion to dismiss
into a motion for summary judgment.”).
This amount is undeniably quite large. But “corporate boards have broad discretion to set
executive compensation, and courts rarely second-guess directors’ compensation . . . decisions.”
In re Am. Int’l Grp., Inc. Deriv. Litig., 700 F. Supp. 2d 419, 443 (S.D.N.Y. 2010). It is also
noteworthy that the Amended Complaint does not identify any deficiencies in Nabi’s job
performance. See Pickett v. Gorevic, No. 19 Civ. 5875, 2021 WL 4927061, at *13-14 & n.18
(S.D.N.Y. Mar. 26, 2021) (noting the lack of allegations regarding the job performance of the
executive in question and noting that Delaware cases crediting claims for waste “involve[]
absurdly generous compensation packages bestowed on incompetent or unqualified executives”),
adopted sub nom. Pickett v. Teladoc Health, Inc., 2021 WL 4239176 (S.D.N.Y. Sept. 17, 2021).
Given this broad discretion, even construing all reasonable inferences in Plaintiff’s favor,
Nabi’s compensation is not “so extreme that it could not be rationally explained on another
basis,” so as to require an inference of bad faith. Winborne, 301 A.3d at 622. Accordingly,
Plaintiff has not established that the directors would face a substantial likelihood of liability on a
non-exculpated claim, thus excusing the requirement to make a demand upon them.
The Amended Complaint also states that the directors are not independent, because they
authorized Nabi’s compensation “for reasons other than Coty’s best interests” and because they
are not protected by the business judgment rule. Am. Compl. ¶ 33. These conclusory allegations
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are not developed in Plaintiff’s opposition and, in any event, do not establish that the directors
“lack[] independence from someone who received a material personal benefit from the alleged
misconduct that would be the subject of the litigation demand or who would face a substantial
likelihood of liability on any of the claims that are the subject of the litigation demand.”
Zuckerberg, 262 A.3d at 1059.
Plaintiff does not establish that her failure to make a demand upon the board of directors
should be excused as futile. She therefore cannot maintain a derivative suit, and Count II is
dismissed.
CONCLUSION
For the reasons given above, Defendant’s motion is GRANTED and the Amended
Complaint is DISMISSED, with prejudice. Plaintiff’s request for oral argument is DENIED as
moot.
The Clerk of Court is respectfully directed to close the motion at ECF No. 47 and to
terminate the case.
SO ORDERED.
Dated: June 4, 2024
New York, New York

DALE E. HO
United States District Judge

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