In re Investors Bancorp, Inc. Stockholder Litigation
CA 12327-VCS
Del. Ch.Apr 5, 2017Background
- Investors Bancorp completed a mutual-to-stock “second-step” conversion in May 2014, selling ~219.6 million shares and becoming a fully public holding company.
- In March 2015 the Board adopted a 2015 Equity Incentive Plan (EIP) reserving 30,881,296 shares and imposing category-specific ceilings, including director-specific aggregate limits (non-employee directors: up to 30% of plan shares; employee ceilings by category).
- The EIP was disclosed in a proxy and approved by stockholders on June 9, 2015 (96.25% of votes cast). The proxy stated awards would be determined after stockholder approval.
- Days after the vote, the Compensation Committee met multiple times and approved restricted stock and option grants to all twelve board members (including CEO Cummings and COO Cama). Grant-date fair value totaled ~ $51.5 million (with ~$16.7M to Cummings and ~$13.36M to Cama).
- Plaintiffs filed a derivative suit claiming the awards were excessive and breached fiduciary duty; defendants moved to dismiss under Rule 12(b)(6) and Rule 23.1 (demand futility).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether stockholder approval of the EIP ratified subsequent director awards so as to require only business-judgment/waste review | EIP was an omnibus plan without "meaningful" director-specific limits and thus stockholders did not pre-approve the specific awards; ratification unavailable | EIP included director-specific ceilings and an informed stockholder vote ratified awards within those limits; therefore awards get business-judgment/waste review | Court: EIP contained specific director limits; stockholder approval was informed; awards within plan limits are ratified and reviewed under business judgment/waste; plaintiffs failed to plead waste — dismissed under Rule 12(b)(6) |
| Whether stockholder vote was fully informed (disclosure/fraud-on-the-vote) | Proxy omitted material facts (e.g., timing to avoid FRB limits, premeditated plan to allocate >25% of capacity to directors immediately), so vote was uninformed | Proxy disclosed plan parameters, director-specific ceilings, and that awards would be determined post-approval; alleged omissions were immaterial or unsupported | Court: Plaintiffs did not plead material omissions; timing and related facts were immaterial or unsupported; vote was sufficiently informed — ratification stands |
| Whether demand futility excuses pre-suit demand for claims challenging awards to executive directors (Cummings, Cama) | Awards were part of a single, premeditated quid pro quo scheme tying non-employee and executive awards together; demand excused | Votes of executives were not needed to approve non-employee awards; no particularized facts showing a quid pro quo or that non-employee directors received consideration for approving executive awards | Court: Plaintiffs failed to plead particularized facts of a quid pro quo or that a majority of directors were interested or lacked independence as to executive awards; demand not excused — dismissal under Rule 23.1 as to executive-defendant awards |
| Unjust enrichment claim separate from fiduciary duty claim | Unjust enrichment pled as alternative recovery for excessive awards | Defendants: unjust enrichment duplicates fiduciary-duty claim and is not viable separately | Court: Unjust enrichment is duplicative of breach claim and dismissed |
Key Cases Cited
- Lewis v. Vogelstein, 699 A.2d 327 (Del. Ch. 1997) (recognizing that a fully informed stockholder vote can ratify self-interested option grants and limit judicial review to waste)
- Calma on Behalf of Citrix Sys., Inc. v. Templeton, 114 A.3d 563 (Del. Ch. 2015) (distinguishes omnibus plans from plans with beneficiary-specific ceilings; director-specific limits can effectuate advance ratification)
- Sample v. Morgan, 914 A.2d 647 (Del. Ch. 2007) (holding that broad plan approval without beneficiary sub-limits does not ratify specific awards)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (test for demand futility: reasonable doubt as to director disinterest/independence and valid business judgment)
- Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015) (where an informed, uncoerced stockholder vote occurs, business judgment rule applies and courts should avoid second-guessing)
- Telxon Corp. v. Meyerson, 802 A.2d 257 (Del. 2002) (self-dealing director compensation is presumptively subject to fairness review absent ratification)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 854 A.2d 1040 (Del. 2004) (standards on demand futility and related pleading requirements)