Late last month, the Alameda County California Superior Court issued its decision on the merits of the case in Mancuso v. The Clorox Company. Based on the evidence submitted by both parties, the Court entered judgment in favor of Clorox on all causes of action. The Court's decision examines in detail each of the seven specific disclosure deficiencies alleged by plaintiff based on the argument, evidence and expert testimony submitted by the parties. The Court concluded that, while each of the items allegedly missing from Clorox's proxy statement disclosure may have been helpful to investors, much of the information was available at other locations in the proxy (or other recent SEC filings) and none of the disclosure items was material or required.
The Clorox case, even before this decision, was the farthest that any of the Faruqi disclosure cases had made it in court. Therefore, this decision is very good news for companies.
Recall that in November 2012, the Alameda County Court denied a motion for preliminary injunction by serial plaintiff Mancuso (represented by the law firm of Faruqi & Faruqi) of the Clorox Company's annual shareholders' meeting on the basis that (i) plaintiffs had failed to establish that allowing the votes to go forward at the meeting posed any risk of interim, much less irreparable harm, and (ii) the parties' agreement that the shareholder actions could be voided by court order, proxies resolicited with full disclosure, and a new vote taken, if plaintiff were to ultimately prevail at trial. In June 2013, the Court determined, with the consent of both parties, to decide the merits of the case based on the evidence submitted to date. According to the Court, "as reflected by the volume of argument ink and evidentiary materials submitted by both sides, this case is about disclosures that were not made, and whether those disclosures are 'material' within the meaning of that term as applied to proxy statements." Neither of the Court's decisions was necessarily in favor of the plaintiffs. However, the Court did not dismiss the case either, raising two concerns. First, most executive compensation and litigation professionals assumed that if we could avoid a preliminary injunction of the shareholders meeting, the threat would be over. The possibility that this litigation can live on after the shareholder meeting, possibly reversing the results of that meeting, increases the costs and the risks to companies. Second, if every court facing such a lawsuit were to conclude that it had to determine whether the allegedly omitted disclosure information was "material," it would be difficult for companies to have these claims dismissed at a preliminary, motion to dismiss stage. Thus, even if companies ultimately were to prevail in these lawsuits over disclosure, the companies would have spent significant amounts of time and legal fees over executive compensation disclosure matters that, out the outset, seemed trivial.
Now it appears to be over with a resounding win for The Clorox Company – and every public company nationwide.