United States: The Troubled Track Record Of The Proxy Strike Suit

The recent wave of proxy strike litigation, once thought to be on the rise in 2012 and 2013, has now gone two years without a significant court victory. After one notable early success, decision after decision has gone against plaintiffs in courts across the country. The question is: what now?

As reported here in March, a new breed of proxy disclosure litigation has been on the rise the last few years. These proxy "strike suits" have typically been brought as class actions, seeking to enjoin annual shareholder meetings until the defendant companies cure the supposed shortcomings in their proxy disclosures—following which the largely self-selected plaintiffs' attorneys receive a legal fee for their effort. Early cases focused on proxy disclosures in advance of the advisory "say-on-pay" votes mandated by Dodd-Frank. But plaintiffs have since broadened their focus to target other types of disclosures and votes, such as those on proposals to increase the number of shares under stock compensation and incentive plans.

The high watermark of this wave remains the 2012 decision in Knee v. Brocade Communications Systems, Inc., in which plaintiffs succeeded in persuading a California state court to enjoin a shareholder meeting under Delaware law. Emboldened by this early success, a handful of plaintiff-side firms created a cottage industry for proxy strike suits. The economic model was built on pragmatism: companies have been willing to make additional disclosures—however unnecessary, duplicative, or, in some instances, trivial they may be—and pay a legal fee simply to put the matter to bed. Doing so mitigated any risk that annual meetings would be postponed and spared companies the annoyance of having to explain why the original appropriate disclosures were, in fact, appropriate. This is why most cases have ended in settlement, and precious few litigated cases after Brocade have made it to the decision stage.

Now that the 2014 proxy season is nearing its end, it makes sense to revisit our March post to better understand how these cases have played out and to evaluate what companies need to know about this type of litigation. Since Brocade, defendants have been largely successful in the cases they have litigated. What is now clear is that no wave of plaintiff victories has materialized in the two years following the Brocade decision, which is more one-hit wonder than trendsetter. In fact, courts from New York to Illinois and even California have consistently declined to follow in Brocade's footsteps.

So what are the key factors driving the decisions in these cases? And what are the take-away lessons for companies faced with these suits going forward?

  • Analysis of Irreparable Harm: In Brocade, the court found it necessary to enjoin the shareholder meeting to protect the plaintiffs from what was potentially "irreparable harm"—that is, being forced to cast a less than "fully informed" vote at the meeting. Later decisions, though, have moved away from this view. In the recent case of Masters v. Avanir Pharmaceuticals, Inc. (February 2014), for example, the Southern District of California found that an injunction was unnecessary because a shareholder vote on a stock plan amendment–unlike, say, a complicated merger—could easily be unwound after the fact, no harm done. A California state court followed similar reasoning in denying a request for an injunction against Clorox (November 2012). And in Noble v. AAR Corp. (October 2012), the Northern District of Illinois denied a request for a TRO to prevent a say-on-pay vote because, under Dodd-Frank itself, such votes were only advisory, not binding. In short, post-Brocade, courts take into account the particular effects of the proposals up for a vote in deciding whether injunctions are genuinely necessary to prevent harm.
  • Materiality of "Omissions": Later decisions have also taken a stricter view of whether the information supposedly "omitted" from proxy disclosures is actually material. The prevailing approach is to insist that companies comply fully with the disclosure requirements imposed by the Dodd-Frank Act, Section 162(m) of the Internal Revenue Code, and other federal laws. Once companies satisfy these standards, though, courts are less likely to require that they include the above-and-beyond metrics and information that plaintiffs seek. For example, in Morrison v. Hain Celestial Group, Inc. (June 2013), a New York state court relied on the fact that the defendant had complied with its disclosure requirements under Dodd-Frank in denying the plaintiffs' request for a TRO and dismissing their complaint.
  • Expert Analysis of Disclosures: A recurring theme in these decisions is that a defendant can bolster its chances for success by using expert witnesses to show that its disclosures are sufficient and on par with those of its peers. In the recent Masters decision, for example, the court relied on the defendant's expert analysis showing that not one of the 25 companies in its peer group had disclosed all the information that the plaintiff claimed was "material." And in Gordon v. Symantec, the same California state court judge who decided Brocade relied on similar expert testimony in concluding that the alleged deficiencies in Symantec's disclosures were not material.

Plaintiffs' losing record in the courts so far is no guarantee that this wave of strike suits will slacken any time soon. Again, proxy strike suits are deliberately designed to make settlement cheaper and easier than litigation, and many plaintiffs will continue taking their chances in the hopes of a quick settlement. Companies amending their stock plans or holding say-on-pay votes should still take care to ensure their disclosures meet the standards set by the SEC, proxy advisory firms like ISS, and the courts. As explained above and in our prior post, there are several concrete strategies that companies can deploy to prevent and manage such suits. And when the next round of proxy litigation inevitably arrives, the developing case law should give targeted companies a solid basis for fighting back.

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.

Jonathan A. Shapiro
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.