114 A.3d 563
Del. Ch.2015Background
- Plaintiff (Calma) brought a derivative suit challenging restricted stock unit (RSU) awards to eight non‑employee directors of Citrix for 2011–2013, alleging breach of fiduciary duty, waste, and unjust enrichment.
- The awards were granted under Citrix’s stockholder‑approved 2005 Equity Incentive Plan, which authorized awards to directors, officers, employees, consultants, and advisors and imposed only a generic 1,000,000‑share per‑person annual cap (no director‑specific ceilings).
- The Compensation Committee (three members, each of whom received RSUs) approved the challenged grants; the full board did not vote on those specific awards.
- Plaintiff did not make a pre‑suit demand, alleging demand futility because a majority of the board were interested (they received the RSUs).
- Court denied dismissal for failure to demand (Rule 23.1) and held that stockholder approval of the broad Plan did not ratify the specific director awards — so entire‑fairness review applies; waste claim was dismissed but breach of fiduciary duty and unjust enrichment survived (except as to CEO Templeton).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Demand futility | Majority of board were interested because they received RSUs; demand excused | Directors compensated are not automatically interested unless compensation was material to them | Demand excused under Rales — majority were interested; Rule 23.1 denial |
| Standard of review for RSU awards | Awards are self‑dealing; because Plan gave only generic limits, shareholder approval of Plan did not ratify awards — entire fairness | Stockholder approval of the Plan ratified subsequent awards under it, so review limited to waste | No ratification; Plan lacked director‑specific limits; entire fairness applies |
| Adequacy of pleading for breach (entire fairness) | Allegations show potential excessive/atypical awards relative to peers; plausible entire unfairness | Peer‑group and factual disputes defeat claim at pleading stage; business judgment should apply if ratified | Complaint plausibly alleges lack of entire fairness; Count I survives (subject to proof) |
| Waste and unjust enrichment | Awards constituted waste and therefore actionable; alternatively unjust enrichment | Awards were not so one‑sided as to be waste; unjust enrichment duplicates fiduciary claim | Waste claim dismissed (Count II); unjust enrichment (Count III) survives as duplicative of Count I (except against Templeton) |
Key Cases Cited
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (test for demand futility when challenging a board decision)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (demand futility test when challenged acts were taken by a prior board or by less than a majority)
- Telxon Corp. v. Meyerson, 802 A.2d 257 (Del. 2002) (self‑dealing director compensation lies outside business judgment rule)
- Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (shareholder ratification only covers actions shareholders were specifically asked to approve)
- Kerbs v. California E. Airways, 90 A.2d 652 (Del. 1952) (stockholder approval can ratify specified option grants)
- Gottlieb v. Heyden Chem. Corp., 91 A.2d 57 (Del. 1952) (informed shareholder approval shifts burden to objector for specified awards)
- Kaufman v. Shoenberg, 91 A.2d 786 (Del. 1952) (plan disclosure may support ratification where committee was disinterested)
- Sinclair Oil Corp. v. Levien, 280 A.2d 717 (Del. 1971) (business purpose test and limits of judicial review)
- Weinberger v. UOP, 457 A.2d 701 (Del. 1983) (entire fairness requires fair dealing and fair price)