NY Court Refuses to Enjoin Annual Shareholders Meeting for Insufficient Executive Compensation Disclosure | Practical Law

NY Court Refuses to Enjoin Annual Shareholders Meeting for Insufficient Executive Compensation Disclosure | Practical Law

The New York State Supreme Court, in Wenz v. Globecomm Sys., Inc., refused to enjoin Globecomm from holding shareholder votes at its annual meeting on its say on pay and equity incentive plan amendment proposals.

NY Court Refuses to Enjoin Annual Shareholders Meeting for Insufficient Executive Compensation Disclosure

by PLC Corporate & Securities
Published on 19 Nov 2012 • USA (National/Federal)
The New York State Supreme Court, in Wenz v. Globecomm Sys., Inc., refused to enjoin Globecomm from holding shareholder votes at its annual meeting on its say on pay and equity incentive plan amendment proposals.
On November 14, 2012, in Wenz v. Globecomm Sys., Inc., the New York State Supreme Court, Suffolk County, denied plaintiffs' motion to enjoin Globecomm from holding votes at its annual meeting to approve its say on pay proposal and a proposal to increase the shares of common stock issuable under its stock incentive plan.
This suit is representative of an increasing number of class action lawsuits filed in state courts around the country. In most of these cases, the plaintiffs are represented by the same law firm. These cases all rely on the same strategy, in which plaintiffs sue a company after it has filed its proxy statement for an upcoming annual meeting:
  • Claiming the directors breached a state law fiduciary duty of disclosure because the company has failed to disclose all material information relating to its say on pay proposal and any proposal to increase shares issuable under a company equity incentive plan.
  • Seeking to enjoin the targeted shareholder votes until the company has issued additional disclosure.
In some of these cases, the companies prevailed because either the court denied plaintiffs' motion for injunctive relief or the plaintiffs voluntarily dismissed their motion. However, in some cases the companies settled with plaintiffs before their annual meeting. These settling companies filed additional disclosure and paid the plaintiffs' legal fees.
In Wenz v. Globecomm Sys., Inc., the court denied the motion to enjoin the shareholder vote on the two executive compensation proposals because the plaintiffs failed to comply with procedural requirements related to their motion. However, the court went further in its decision to note that, even if the plaintiffs had properly complied:
  • Because the plaintiffs could be adequately compensated by money damages, there is no demonstration of irreparable injury that could only be satisfied by enjoining the vote.
  • The plaintiffs' disclosure claims fail to show that any of the omitted information would have altered the total mix of information available to shareholders in deciding to vote on the executive compensation proposals.
Despite these findings, the court merely denied the motion for a preliminary injunction; it did not dismiss the case outright.
The day after the court issued its decision, Globecomm held its annual meeting to vote on all proposals described in its proxy statement, as originally scheduled. The company announced the voting results on the same day. Both the say on pay and the plan amendment proposals passed by a majority of the votes cast.
Court documents: