Plaintiff, a stockholder of Republic Services, Inc., brought a derivative suit alleging that the board of directors of Republic breached its fiduciary duties and committed waste by, among other claims, failing to minimize taxes through its incentive payments to defendants. In rejecting plaintiff's claims, the Court affirmed that "there is no general fiduciary duty to minimize taxes," and that a company's tax policy "typify[ies] an area of corporate decision-making best left to management's business judgment, so long as it is exercised in an appropriate fashion." The Court further held that the decision of the independent board to rely on an IRS revenue ruling in setting compensation was within the business judgment of the board, and therefore dismissed plaintiff's associated waste claim.
The Court agreed, however, with plaintiff's separate claim that a stock option plan, although approved by the company's board of directors and stockholders, did not enjoy the business judgment rule protection, as it was self-interested and gave directors the sole discretion regarding the number of stock options they could issue themselves as compensation. According to the Court, stockholders must impose some meaningful limit on the board and a plan must have "sufficiently defined terms" for a plan to be protected under the business judgment rule. Where directors are interested in a stock option plan transaction, the board must prove that the transaction meets the heightened "entire fairness" standard, in that it is inherently fair to the stockholders, both procedurally and economically.
Seinfeld v. Slager, et al., C.A. No. 6462-VCG (Del. Ch. June 29, 2012)