After my blog on this topic two months ago, everyone seemed to tune in to the frightful and potentially disastrous developments in California state courts. (We previously discussed it on a webcast with our litigation partners who are handling some of these lawsuits.) As a reminder, these lawsuits ask the courts to issue an injunction against the upcoming annual meeting votes on say on pay and/or shareholder approval of the companies' stock plan, potentially forcing the company to postpone its annual shareholder meeting. Apparently 20 of these lawsuits have been filed and, according to this article from Thomson Reuters – "Insight: Lawyers gain from 'say-on-pay' suits targeting U.S. firms" – at least six of them have resulted in settlements in which the companies have agreed to give shareholders more information on executives' compensation or the companies' stock plan, and pay cash to the lawyers who brought the cases.
Recently, some law firms have sought to have these lawsuits moved from state courts to the federal courts, hoping for better results, based on the fact that the say on pay requirements is one of federal law (the Dodd-Frank Act). Last Wednesday (November 28), a federal district court in Northern California (Oakland) rejected a company's efforts to move one of these lawsuits out of state court. In Boxer v. Accuray Incorporated, et al., Case No: C 12-5722 SBA (N.D. CA 2012), the court ruled in favor of the plaintiffs and against the company, saying:
But even if Plaintiff's claim that the disclosures regarding executive compensation were controlled exclusively by the Say on Pay provision, Defendants overlook that there is another aspect to Plaintiff's breach of fiduciary duty claim ostensibly unaffected by the Act. As noted, Plaintiff also is alleging that the Individual Defendants breached their fiduciary duty with respect to the disclosures pertaining to Proposal Three, which seeks to increase in the number of authorized Accuray stock shares. . . . Defendants do not argue, let alone present any authority, demonstrating that the Dodd-Frank Act or any other federal law controls Plaintiff's challenge to the disclosures pertaining to Proposal Three. Since Plaintiff's breach of fiduciary duty claim may therefore be resolved without involving "a substantial, disputed federal question," [citation omitted], removal jurisdiction is lacking.
The court seemed to be just a hair's breadth away from awarding attorneys' fees to the plaintiffs.
I have labeled this a split decision, however, because Accuray still held its annual meeting on Friday (November 30) and Accuray's stockholders still approved, by overwhelming margins, the Company's Say on Pay resolution, and the amendment of the Company's Certificate of Incorporation to double the number of authorized shares of common stock (available here).
As I warned back in October, public companies filing their proxy statements need to be aware of and – we think – prepare for lawsuits of this kind, at least for this proxy season and until (unless?) the courts put an end to this nonsense.
On December 1, 1966, Army Private First Class Lewis Albanese, born in Venice, Italy earned the Medal of Honor, awarded posthumously, for his actions during a fire fight where he freed his platoon from sniper fire during the Vietnam War.