Rawcliffe v. Anciaux
2017 UT 72
| Utah | 2017Background
- Plaintiff James Rawcliffe, a USANA shareholder, sued USANA directors and officers over ‘‘spring-loaded’’ stock-settled stock appreciation rights (SSARs) granted Feb 3, 2014—one day before positive earnings were announced that materially raised the stock price.
- The SSARs’ exercise price was set on the grant date (the Plan’s ‘‘Fair Market Value’’), vesting occurred 23–42 months later, and awardees received stock reflecting the difference between market price at exercise and the exercise price (no cash exercise payment required).
- The USANA 2006 Equity Incentive Award Plan gave the Compensation Committee exclusive authority to set SSAR terms and defined Fair Market Value by market trading prices; the Plan did not expressly prohibit spring-loading and set purposes including aligning management and shareholder interests and retaining talent.
- Rawcliffe alleged breach of fiduciary duty, corporate waste, and unjust enrichment, claiming the Committee knowingly spring-loaded awards to benefit insiders at shareholders’ expense; defendants conceded strict compliance with the Plan’s written terms.
- The district court dismissed under Rule 12(b)(6); the Utah Supreme Court reviewed de novo and applied the URBCA standards for director/officer liability, requiring both breach of duties (good faith, care, loyalty) and a culpable mental state (gross negligence, willful misconduct, or intentional infliction of harm).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether spring-loading SSARs is per se a breach of fiduciary duty under Utah law | Rawcliffe: spring-loading uses inside nonpublic information to manipulate exercise price and violates the Plan’s spirit, harming shareholders | Defendants: awards complied with the Plan’s terms and purposes; Committee had discretionary authority and market-based FMV definition | Held: Spring-loading is not a per se breach; plaintiff must plead facts showing the Committee intended to harm or acted with gross negligence/willful misconduct |
| Whether the Complaint adequately alleged breach of duties (good faith / loyalty) | Rawcliffe: alleged Committee knowingly and deliberately violated Plan’s spirit and set artificially low exercise prices | Defendants: actions were within Plan discretion and served Plan purposes (alignment, retention, competitive comp) | Held: Conclusory allegations insufficient; must allege that awards failed to serve Plan purposes or were made in bad faith or with required culpable mental state |
| Whether corporate waste claim was adequately pleaded | Rawcliffe: spring-loading constituted waste of corporate assets (citing Delaware authority) | Defendants: no factual showing of overcompensation or departure from Plan purposes; no standard for waste shown | Held: Dismissed—appellant failed to develop/argue a Utah standard for waste or plead facts meeting such a standard |
| Whether passive recipients of SSARs (directors/officers) can be liable for breach/unjust enrichment | Rawcliffe: passive recipients were unjustly enriched by receiving spring-loaded awards | Defendants: recipients received awards validly granted by Committee under Plan | Held: Claims against passive recipients dismissed—no unjust enrichment or fiduciary breach shown absent overcompensation or Plan violation |
Key Cases Cited
- State v. Ririe, 345 P.3d 1261 (Utah 2015) (de novo review of motion to dismiss legal questions)
- Bagley v. Bagley, 387 P.3d 1000 (Utah 2016) (statutory interpretation principles and looking to plain language for legislative intent)
- McLaughlin v. Schenk, 220 P.3d 146 (Utah 2009) (URBCA duties—directors must act in good faith, with care, and in corporation’s best interest)
- In re Walt Disney Co. Derivative Litig., 906 A.2d 27 (Del. Ch. 2006) (discussion of bad faith as dishonesty of belief, purpose, or motive and distinctions among duties)
- Telxon Corp. v. Meyerson, 802 A.2d 257 (Del. 2002) (authority cited regarding limits of business judgment rule in directoral self-compensation decisions)