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California Court Dismisses Proxy Disclosure Litigation Class Action Suit
Practical Law Legal Update 8-524-4211 (Approx. 3 pages)
California Court Dismisses Proxy Disclosure Litigation Class Action Suit
by PLC Corporate & Securities
| Published on 25 Feb 2013 • USA (National/Federal) |
The Superior Court of California, Santa Clara County, in Gordon v. Symantec Corporation et al., dismissed a class action lawsuit alleging Symantec directors breached their fiduciary duty to disclose adequate executive compensation information relating to Symantec's say on pay proposal for its annual meeting.
On February 22, 2013, in Gordon v. Symantec Corporation, et al., the Superior Court of California, Santa Clara County (the Court), dismissed a shareholder class action lawsuit against Symantec and its directors alleging breach of the directors' fiduciary duty to disclose adequate information relating to the company's advisory say on pay vote.
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.
On October 17, 2012, the Court denied Gordon's motion to enjoin Symantec from holding a vote at its annual meeting to approve its say on pay proposal. Symantec held its annual shareholders' meeting as planned on October 23, and shareholders approved its say on pay proposal.
In its February 2013 decision, the Court found that Gordon had failed to state a claim. The Court acknowledged the applicable standards:
- Directors of a Delaware corporation have a fiduciary duty to disclose all material information within their control when the corporation seeks shareholder action.
- Omitted information is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.
The Court reviewed each of the plaintiff's allegations of omitted information and found that the plaintiff failed to allege how any of the omitted information, had it been included in Symantec's proxy statement, would have altered the total mix of information that Symantec had already disclosed in the Compensation Discussion & Analysis section of its proxy statement.
The Court also noted that because Symantec was able to hold its annual meeting and the say on pay proposal was approved, there is no longer any harm, or any director disclosure claim available, to Symantec shareholders. However, in dismissing the case, the Court granted the plaintiff ten days to amend its original complaint to state a claim.
It seems that more courts are refusing to enjoin say on pay votes under this new wave of class action lawsuits. However, plaintiffs may have a greater chance of success when they challenge disclosure relating to proposals amending equity incentive plans. Companies should continue to carefully review the proxy rules and their disclosure regarding their say on pay and any equity incentive plan proposals as well as their executive compensation information.
Court documents: