We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
United States: Failure To Make Pre-Suit Demand For Litigation In An Executive Compensation Case Leads To Dismissal Of Shareholder Derivative Action Against Maryland Corporation
In a recent opinion by the United States District Court for the
District of Maryland, the Court dismissed a shareholder derivative
action against a Maryland corporation and certain of its officers
and directors because the plaintiff failed to make a pre-suit
demand for litigation on the corporation's Board of Directors,
and failed to allege facts showing that such a demand would be
futile. Weinberg v. Gold, 2012 WL 812348, Civil No.
1:11-cv-3116-JKB (D. Md. Mar. 12, 2012). The plaintiff
alleged that the company's compensation committee and Board of
Directors had breached their fiduciary duties to the company and
its shareholders by approving an executive compensation
plan.
The Court rejected all of the plaintiff's arguments in favor of
excusing pre-suit demand as futile under Maryland law, and held as
follows:
In considering whether a shareholder derivative complaint
adequately alleges demand futility, a court's focus is limited
to whether a majority of the directors "are so personally and
directly conflicted" that they cannot be expected to respond
to a pre-suit demand in good faith; the court must refrain from
analyzing the substance of the claims.
A shareholder advisory vote disapproving an executive
compensation plan -- a so-called say on pay vote -- is not a
substitute for a formal pre-suit shareholder demand. Although
a say on pay vote "may be reasonably considered as a factor in
the demand futility analysis," it does not constitute a
pre-suit demand and does not by itself demonstrate that demand
would be futile.
An officer's or director's participation in the
underlying transaction, or status as a defendant in the derivative
lawsuit, does not disqualify that officer or director from
considering a pre-suit demand and, thus, does not make demand
futile.
The U.S. District Court of Maryland, in the Weinberg
opinion, provides a thorough analysis of Maryland law in this area
of shareholder derivative litigation and appears to be the first
court to consider the impact of a say on pay vote in alleging
demand futility under Maryland law. Weinberg
reaffirms the strong Maryland policy of requiring a shareholder to
make a pre-suit demand prior to initiating derivative
litigation.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Last month, the National Association of Corporate Directors took a stab at identifying ground rules in its "Directors’ Guide" to corporate board and committee minutes.
Doing business in New York can be performed through a number of legal structures ranging from sole proprietorships to corporations. This advisory provides basic information on the different legal forms and the services that can be offered by Murray LLP for your business.
The SEC has recently announced that it entered into a Non-Prosecution Agreement with Ralph Lauren Corp. in connection with alleged violations of the Foreign Corrupt Practices Act.
The time has come to take out and refresh those business associate agreements, HIPAA privacy and security compliance manuals, and HIPAA privacy notices.
Global Regulatory Cooperation
